San Luis Obispo City Council
January 21, 2025

City Council
AGENDA

Tuesday, January 21, 2025, 5:30 p.m.

Council Chambers, 990 Palm Street, San Luis Obispo
*The Agenda has been amended to reflect that Item 6c, Appeal (APPL-0608-2024) of a CUP (USE0266-2024) for Embark SLO cannabis retail storefront, has been pulled from consideration at the Applicants' request, with agreement from the Appellant, and continued to a date uncertain.

Council meetings may be viewed remotely on Channel 20, the City’s YouTube Channel, and on the City’s website under the Public Meeting Agendas web page. Attendees of City Council or Advisory Body meetings are eligible to receive one hour of complimentary parking.

INSTRUCTIONS FOR PUBLIC COMMENT:

Public Comment prior to the meeting (must be received 3 hours in advance of the meeting):

Mail - Delivered by the U.S. Postal Service. Address letters to the City Clerk's Office at 990 Palm Street, San Luis Obispo, California, 93401.

Email - Submit Public Comments via email to [email protected]. In the body of your email, please include the date of the meeting and the item number (if applicable). Emails will not be read aloud during the meeting.

Voicemail - Call (805) 781-7164 and leave a voicemail. Please state and spell your name, the agenda item number you are calling about, and leave your comment. Verbal comments must be limited to 3 minutes. Voicemails will not be played during the meeting. *All correspondence will be archived and distributed to councilmembers, however, submissions received after the deadline may not be processed until the following day.

Public Comment during the meeting:

Meetings are held in-person. To provide public comment during the meeting, you must be present at the meeting location.

Electronic Visual Aid Presentation. To conform with the City's Network Access and Use Policy, Chapter 1.3.8 of the Council Policies & Procedures Manual, members of the public who desire to utilize electronic visual aids to supplement their oral presentation must provide display-ready material to the City Clerk by 12:00 p.m. on the day of the meeting. Contact the City Clerk's Office at [email protected] or (805) 781-7114.

Pages

1. CALL TO ORDER
Mayor Erica A. Stewart will call the Regular Meeting of the San Luis Obispo City Council to order.

2. PLEDGE OF ALLEGIANCE
Council Member Emily Francis will lead the Council in the Pledge of Allegiance.

3. PRESENTATIONS

3.a CITY MANAGER REPORT
Receive a brief report from City Manager Whitney McDonald.

4. PUBLIC COMMENT PERIOD FOR ITEMS NOT ON THE AGENDA
Not to exceed 15 minutes. The Council welcomes your input. State law does not allow the Council to discuss or take action on issues not on the agenda, except that members of the Council or staff may briefly respond to statements made or questions posed by persons exercising their public testimony rights (Gov. Code sec. 54954.2). Staff may be asked to follow up on such items.

5. CONSENT AGENDA
Not to exceed 15 minutes. Matters appearing on the Consent Calendar are expected to be non-controversial and will be acted upon at one time. A member of the public may request the Council to pull an item for discussion. Pulled items shall be heard at the close of the Consent Agenda unless a majority of the Council chooses another time. The public may comment on any and all items on the Consent Agenda within the three-minute time limit.

Recommendation:

To approve Consent Calendar Items 5a and 5b.

5.a WAIVE READING IN FULL OF ALL RESOLUTIONS AND

ORDINANCES
Recommendation:

Waive reading of all resolutions and ordinances as appropriate.

5.b CITY OF SAN LUIS OBISPO SUPPORT FOR SLOCOG’S PURSUIT OF SPECIAL STATE LEGISLATION TO WAIVE THE 2% BRADLEYBURNS SALES TAX CAP FOR A REGIONAL SALES TAX MEASURE

FOR TRANSPORTATION
7 Recommendation:

Approve advocacy on behalf of the City of San Luis Obispo (City) to support legislation that would provide an exemption from the current Bradley-Burns two percent local sales tax cap for the San Luis Obispo Council of Governments (SLOCOG) to pursue a regional sales tax measure for transportation, subject to voter approval.

6. PUBLIC HEARING AND BUSINESS ITEMS

6.a ACCEPTANCE OF THE ANNUAL COMPREHENSIVE FINANCIAL

REPORT AND TRANSPORTATION DEVELOPMENT ACT REPORT
FOR FISCAL YEAR 2023-24 (Estimated Time: 30 minutes)
13 Recommendation:

Review and accept the Annual Comprehensive Financial Report and Transportation Development Act Report for Fiscal Year 2023-24.

6.b RESOLUTION OF INTENT TO RESTATE THE SOLID WASTE,

RECYCLING, AND ORGANICS FRANCHISE AGREEMENTS AND
REVIEW THE PROPOSED 2025 SOLID WASTE RATES (Estimated
Time: 60 minutes)
297
Recommendation:

Adopt a Resolution of Intent entitled, “A Resolution of the City Council of the City of San Luis Obispo, California, declaring the City’s intent to adopt an Ordinance restating its existing franchise agreements with San Luis Garbage Company and set a Public Hearing for March 18, 2025” pursuant to the provisions of Article X of the City Charter; and

1. Direct the publication and mailing of a notice consistent with Article XIIID of the California Constitution and the Proposition 218 Omnibus Implementation Act (Proposition 218) as it relates to solid waste rates; and

2. Set a Public Hearing date of March 18, 2025, to consider the adoption of the solid waste rates if there is no majority protest in accordance with Proposition 218.

3. 6.c REVIEW OF AN APPEAL OF THE PLANNING COMMISSION'S

DECISION TO APPROVE A CONDITIONAL USE PERMIT TO

ESTABLISH A CANNABIS RETAIL STOREFRONT, EMBARC SLO, AT
2400 BROAD STREET (USE-0266-2024, APPL-0608-2024) (Estimated Time: N/A, PULLED)
449
Recommendation:

At the request of the Applicant, and with agreement from the Appellant, continue this item to a date uncertain. The item will be re-noticed when a new hearing date is determined.

7. LIAISON REPORTS AND COMMUNICATIONS
Not to exceed 15 minutes. Council Members report on subcommittee assignments, listed below, and other City activities. At this time, any Council Member or the City Manager may ask a question for clarification, make an announcement, or report briefly on their activities. In addition, subject to Council Policies and Procedures, they may provide a reference to staff or other resources for factual information, request staff to report back to the Council at a subsequent meeting concerning any matter or take action to direct staff to place a matter of business on a future agenda. (Gov. Code Sec. 54954.2) Mayor
Stewart
Vice Mayor
Shoresman
Council Member
Boswell
Council Member
Francis
Council
Member Marx
SLO Council of
Governments
Zone 9 Advisory
Committee
Airport Land Use Nacimiento Water
Project
Air Pollution
Control District
Regional
Economic Action
Coalition
Downtown
Association
Board
SLO Climate
Coalition
Community
Action
Partnership
Integrated
Waste
Management
Authority
CA Men’s
Colony Advisory
Committee
Homeless
Services
Oversight
Committee
Local Agency
Formation
Commission
County Water
Resources
Advisory
Committee
Performing Arts
Center
Commission
CP Campus
Planning
Committee
SLO Regional
Transit Authority
Visit SLO
County Advisory
Committee
Central Coast
Clean Energy

8. ADJOURNMENT
The City Council will hold a Special Meeting, the semi-annual Community Forum, on Thursday, January 23, 2025 at 5:30 p.m. at the Ludwick Community Center, 864 Santa Rosa Street, San Luis Obispo. The next Regular Meeting of the City Council will be held on February 4, 2025 at 5:30 p.m. in the Council Chambers at City Hall, 990 Palm Street, San Luis Obispo.

LISTENING ASSISTIVE DEVICES for the hearing impaired - see the Clerk.

The City of San Luis Obispo wishes to make all of its public meetings accessible to the public. Upon request, this agenda will be made available in appropriate alternative formats to persons with disabilities. Any person with a disability who requires a modification or accommodation in order to participate in a meeting should direct such request to the City Clerk’s Office at (805) 781-7114 at least 48 hours before the meeting, if possible. Telecommunications Device for the Deaf (805) 781-7410.

City Council meetings are televised live on Charter Channel 20 and the City's YouTube Channel: www.youtube.com/CityofSanLuisObispo. Agenda related writings or documents provided to the City Council are available for public inspection in the City Clerk’s Office located at 990 Palm Street, San Luis Obispo, California during normal business hours, and on the City’s website https://www.slocity.org/government/mayor-and-city-council/agendas-andminutes. Persons with questions concerning any agenda item may call the City Clerk’s Office at (805) 781-7114.

Item 5b
Department: Administration
Cost Center: 1001
For Agenda of: 1/21/2025
Placement: Consent
Estimated Time: N/A
FROM: Greg Hermann, Deputy City Manager
Prepared By: Natalie Harnett, Policy and Project Manager SUBJECT: CITY OF SAN LUIS OBISPO SUPPORT FOR SLOCOG’S PURSUIT OF SPECIAL STATE LEGISLATION TO WAIVE THE 2% BRADLEY-BURNS

SALES TAX CAP FOR A REGIONAL SALES TAX MEASURE FOR

TRANSPORTATION

RECOMMENDATION
Approve advocacy on behalf of the City of San Luis Obispo (City) to support legislation that would provide an exemption from the current Bradley-Burns two percent local sales tax cap for the San Luis Obispo Council of Governments (SLOCOG) to pursue a regional sales tax measure for transportation, subject to voter approval.

POLICY CONTEXT
The City Council adopts an annual Legislative Platform outlining the legislative matters on which the Council authorizes the Mayor, City Manager, and City Attorney to engage in advocacy on behalf of the City without requiring additional Council approval. However, the Council may also approve advocacy for emerging issues or situations not explicitly addressed in the Legislative Platform as needed. While support for the legislation sought by SLOCOG aligns with the City’s adopted priorities and advocacy themes, there is no specific provision in the Legislative Platform advocating for an increase in the local sales tax cap. Therefore, staff recommends that the Council explicitly approve this advocacy effort to ensure clarity on the City’s position.

DISCUSSION
Background
As state and federal transportation funding continues to decline, SLOCOG is seeking support from local jurisdictions to pursue special state legislation. This legislation, if proposed and approved, would grant an exemption to the 2% Bradley-Burns sales tax cap, enabling a future transportation measure to be placed on the ballot for voter consideration that would not impact other local jurisdictions’ abilities to seek sales tax increases up to the 2% cap, should any local jurisdiction desire to seek voter approval for such an increase.

Item 5b
SLOCOG is exploring a ½-cent countywide transportation investment measure for the November 2026 ballot. However, potential competing non-transportation tax measures proposed by jurisdictions in San Luis Obispo County may theoretically exhaust the available capacity under the 2% local sales tax cap. Enacting this legislation would ensure that SLOCOG could pursue a sales tax to address transportation infrastructure, safety, and mobility needs in the county without jeopardizing any other local jurisdictions’ future need to seek a sales tax increase.

Sales tax levels in California range from 7.25% to 10.75%. With 7.25% as the statewide base rate, local jurisdictions can increase this by up to 2% with voter approval. Special legislation is required to exceed this 2% cap. Currently, five jurisdictions in San Luis Obispo County, including the City of San Luis Obispo, have voter-approved sales taxes of 8.75%, leaving only 0.5% available under the cap. A proposed SLOCOG transportation measure could face obstacles from competing measures initiated by cities, the county, other regional entities, or citizens. If one jurisdiction’s sales tax reaches 9.25%, no further regionwide sales tax measures could be pursued without special legislation.

Under current law, SLOCOG could propose a transportation-related sales tax measure within the existing 2% cap. A citizens’ initiative could also be proposed for a range of purposes, requiring a simple majority (50%+1) to pass. The proposed legislation that SLOCOG is seeking would provide an exemption from the 2% cap, allowing a transportation measure—whether proposed by SLOCOG or a citizens’ initiative—to be placed on the ballot for voter consideration. This exemption would empower voters to decide whether to raise revenues to address transportation safety, maintenance, mobility, and infrastructure needs.

Importantly, this effort does not impose or approve a tax nor alter the process for tax approval. Instead, it creates an opportunity for a transportation measure to be developed and presented to voters, either by ordinance or by qualified voter initiative.

Over the past decade, several counties—including Alameda, Contra Costa, Humboldt, Los Angeles, Monterey, Riverside, San Mateo, Santa Cruz, and Ventura—have successfully pursued legislation to waive the 2% cap. Numerous cities have also obtained similar exemptions. (See CA Revenue & Taxation Code §§7280-7300.4) As of 2024, nearly 100 of California’s 500+ jurisdictions have sales tax rates exceeding 9.25%. This proposed legislation would align San Luis Obispo County with other regions that have addressed similar challenges, ensuring the county’s ability to fund essential transportation improvements for its communities.

Legislative Advocacy
Supporting SLOCOG’s pursuit of special state legislation aligns with the City’s overarching goals and community-identified priorities, including ensuring fiscal responsibility and sustainability, and enhancing convenient and equitable alternative and sustainable transportation. This initiative also complements the City’s local revenue measure priorities, which include funding for street maintenance and transportation improvements.

Item 5b
If voters approve an increased transportation tax in the future, the City would gain additional funding to help maintain and upgrade local streets and roadways. Through the development of an expenditure plan, as outlined by SLOCOG, the City can ensure that funds are directed toward projects aligned with local priorities and needs.

The City’s 2024 Legislative Platform contains multiple planks that provide support for this action:

County/Regional Priorities Plank 6 - Support the San Luis Obispo Council of Governments' legislative advocacy activities, where consistent with the City's adopted policies, platform, and public policy and project objectives.

Transportation Plank 2 – Support the continuation of, and increased funding sources for street maintenance projects, transportation improvements, transit operations and multimodal facility projects.

Transportation Plank 1 – Support changes in gas tax laws that allow local tax for transportation purposes based on a majority vote of the public, as well as revenue replacement for electric vehicles to support transportation infrastructure Staff recommends submitting a letter of support for this legislation to Senator Laird (Attachment A) and including a new legislative plank in the 2025 Legislative Platform to specifically advocate for similar matters in the future.

Public Engagement
Notice of this agenda item was provided through the meeting's posted agenda. The public may submit comments in writing before the meeting or share their input during the public comment portion of the meeting.

ENVIRONMENTAL REVIEW
The California Environmental Quality Act (CEQA) does not apply to the recommended action in this report because the action does not constitute a “Project” under CEQA guidelines Section 15378.

FISCAL IMPACT
Budgeted: No Budget Year: 2024-25
Funding Identified: No

Item 5b
Fiscal Analysis:

Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund N/A N/A N/A N/A
State
Federal
Fees
Other:

Total N/A N/A N/A N/A
This recommendation does not have any fiscal impact at this time. If the legislation is approved and a measure is added to a future ballot and passed, the City would receive a portion of the revenue generated by the tax. This revenue would be used to support essential transportation projects within the City.

ALTERNATIVES

1. Modify the City’s advocacy for this legislation. The Council should provide specific direction on any modifications to the City’s position on this effort.

2. Do not approve of the City’s advocacy for this legislation. Should the proposed legislation facilitate a SLOCOG measure being placed on a future ballot, the additional tax revenue would benefit City residents and visitors and align would with the community’s priorities as adopted by the Council. It is also important to note that advocating for this legislation does not imply that the City is taking a position on a future measure, which would require voter approval.

ATTACHMENTS
A – City of San Luis Obispo Draft Letter of Support – SLOCOG Legislation

City of San Luis Obispo, Office of t he City Council, 9 90 Pal m Street, San Luis Obispo, CA, 9 3401 -32 49, 805 .781. 7114, slocity.org
The Honorable John Laird
Senator, 17th District
1021 O Street, Suite 8720
Sacramento, California 95814
RE: Bradley-Burns Local Sales Tax Exemption- San Luis Obispo Countywide Local Transportation Sales Tax
Dear Senator Laird:

On behalf the City of San Luis Obispo (City), I write in support of San Luis Obispo Council of Governments’ (SLOCOG) pursuit of special state legislation to waive the 2% Bradley-Burns sales tax cap for a regional sales tax measure for transportation, subject to voter approval.

SLOCOG is considering a ½ cent countywide transportation investment measure for the November 2026 ballot. However, with other non-transportation tax measures that may be proposed by San Luis Obispo County jurisdictions, there may not be sufficient capacity under the countywide 2% local option sales tax cap. The enactment of this legislation would ensure that SLOCOG, the County of San Luis Obispo (County), and all seven cities would be able to engage in a public process to develop an expenditure plan for voters' consideration. This is an opportunity for San Luis Obispo residents to consider resources to improve its transportation infrastructure, including safety and mobility needs.

Additionally, the City supportslanguage in the legislation that would enable a qualified voter initiative that would generate at least a ½ cent for countywide transportation purposesto also be exempt from the 2% Bradley-Burns local sales tax cap. The qualification of such an initiative would occur under an independent process currently provided by the Constitution. Neither SLOCOG nor any public entity would be involved in signature-gathering efforts nor messaging for such a campaign, and the County would serve as the custodian of placing the measure on the ballot.

The proposed legislation will enable SLOCOG, the County, and the cities to maximize public participation in considering a potential sales tax increase for regional transportation purposes and in developing an expenditure plan that best meets the specific needs of our jurisdictions.

For these reasons, the City supports a local sales tax exemption that will enable SLOCOG to pursue a countywide transportation measure and to utilize a process that will foster greater public input.

Thank you for your consideration.

Sincerely,
Erica A. Stewart
Mayor, City of San Luis Obispo

City of San Luis Obispo, Council Memorandum
City of San Luis Obispo
Council Agenda Correspondence
DATE: January 21, 2025
TO: Mayor and Council
FROM: Emily Jackson, Finance Director
Debbie Malicoat, Deputy Director of Finance/City Controller VIA: Whitney McDonald, City Manager
SUBJECT: ITEM #6a. ANNUAL COMPREHENSIVE FINANCIAL REPORT AND

TRANSPORTAION DEVELOPMENT ACT REPORT FOR FISCAL YEAR
2023-24
Staff received the following questions, regarding the FY 2023-24 Annual Comprehensive Financial Report and Transportation Development Act Report for Fiscal Year 2023-24.

The questions are below with staff’s response shown in italics:
1) On page 36 of the packet, it says: “Multi-year budgets are adopted for capital projects as necessary but revert to fund balance after three years of nonactivity.” Can you provide more detail about this concept, and explain how it relates to the new CIP budgeting process that staff is proposing to initiate this year?
Staff Response: The language on page 36 references an existing process which is intended to ensure fiscal accountability. When capital project budget balances revert to fund balance, it is most commonly due to there being a relatively small remaining balance on a project that was completed, but not “closed out” at the end of the project. It is far less common for a project to be budgeted and then have no activity for three years, however this does occasionally happen. The new CIP budgeting process that staff is implementing focuses on more accurate scoping of projects and aligning funding with realistic delivery timelines to reduce occurrences of project budgets reverting to fund balance. However, the existing process described above provides a safeguard to reallocate idle funds when priorities shift or unforeseen delays occur, ensuring resources are effectively utilized.

ITEM #6a. ACFR and TDA Report for Fiscal Year 2023-24 Page 2 2) In the Transportation Development Act Report on page 271 of the packet, can you provide more detail about why the management’s discussion was omitted as described?
Staff Response: The Transportation Development Act (TDA) Report is supplemental to the City’s Annual Comprehensive Financial Report (ACFR), which is where the City has presented Management’s Discussion and Analysis. It is not duplicated again in the TDA Report. Because the City’s auditors provide an opinion on both the ACFR and the TDA report, they are familiar with the contents of Management’s Discussion and Analysis in the ACFR, therefore their opinion of the TDA Report’s basic financial statements is not affected by the missing information. 3) The organizational chart on page 55 in the Annual Comprehensive Financial Report (ACFR) appears to be incorrect. Can we note that the chart will be corrected in future years?
Staff Response: The organizational chart presented in the ACFR correctly depicts the overall structure of the City organization, but staff agrees that some of the functions under each department need to be updated (ex. Diversity Equity and Inclusion should be added to Administration and IT). Staff will work to update the organizational chart for inclusion in future ACFRs.

Item 6a
Department: Finance
Cost Center: Accounting
For Agenda of: 1/21/2025
Placement: Business
Estimated Time: 30 minutes
FROM: Emily Jackson, Finance Director
Prepared By: Debbie Malicoat, Deputy Finance Director
SUBJECT: ACCEPTANCE OF THE ANNUAL COMPREHENSIVE FINANCIAL

REPORT AND TRANSPORTATION DEVELOPMENT ACT REPORT FOR
FISCAL YEAR 2023-24

RECOMMENDATION
Review and accept the Annual Comprehensive Financial Report and Transportation Development Act Report for Fiscal Year 2023-24.

POLICY CONTEXT
The City’s Charter under Section 810 requires the employment of an independent certified public account to examine the City’s financials.

REPORT-IN-BRIEF
The City produces general purpose financial statements as well as specifically focused financial statements annually, which are audited by independent auditors. This report presents two audited financial statements to the City Council for review and acceptance:
the Annual Comprehensive Financial Report (ACFR), which are general purpose financial statements and the Transportation Development Act (TDA) Report, which are specifically focused on revenues and expenditures related to this funding source.

As more fully discussed herein, the auditors have issued an unqualified opinion on the City’s financial statements, which means that in their opinion, the financial statements are presented fairly and in conformity with generally accepted accounting principles.

DISCUSSION
The accompanying Annual Comprehensive Financial Report (ACFR) has been prepared as required by the City’s Charter and applicable State laws regarding financial reporting for municipalities. The ACFR provides a final and audited representation of the City’s financial condition across all funds for the fiscal year that ended June 30, 2024. The ACFR was published on the City’s website on December 24, 2024, and hard copies were provided to the City Council, if requested. The document is included as Attachment A to this report.

Item 6a
In accordance with the City Charter1, the City’s financial statements have been audited by independent certified public accountants from Badawi & Associates. The objective of the financial audit is to provide users of the financial reports with reasonable assurance from an independent source that the financial reports are reliable and represent a fair assessment of the City’s financial condition. The auditor issued the financial statements with an unmodified opinion, which means that they are presented fairly and in conformity with generally accepted accounting principles (see pages 29-32 of the ACFR- Independent Auditors’ report).

The independent auditors also reviewed the City’s Transportation Development Act (TDA) annual audit for the 2023-24 Fiscal Year. Results and findings are discussed further below. The City’s Single Audit, which focuses on the expenditure of Federal funds will be presented to the Council at a future meeting.

New Government Accounting Standard Board (GASB) Statements As described more fully in Note 17 of the ACFR, the City implemented one new GASB statement for this fiscal year related to compensated absences.

Financial Results Highlighted in the ACFR
Within the ACFR, the Transmittal Memorandum and Management’s Discussion and Analysis (MD&A) summarize the City’s fiscal performance and provide an analysis by management of the influencing factors. They also provide information on the City’s fiscal policies, practices, and financial results. Key variances from projected ending balances for Fiscal Year 2023-24 are highlighted in the Transmittal Memorandum. Both documents allow the reader to gain insight into the City’s fiscal year experiences that lead to the audited financials and provide context to the statements that follow.

Financial results for Fiscal Year 2023-24 were generally positive; however, the City was impacted by winter storms in January and March 2023 that continue to have financial effects. Revenues and expenditures in the General Fund came in favorably compared to budget estimates. Revenues were $5.9 million above the final budget, and expenditures were $11.2 million under budget. Net other sources and uses ended below budget by $3.1 million. The result was an ending fund balance of $45.3 million, which was $20.3 million above budget estimates. As the chart below outlines, most of the ending balance is committed or assigned for future spending or reserve requirements, and not available for spending in conformance with GASB Statement 54.

1 Section 810. Independent Audits.

The Council shall employ, at the beginning of each fiscal year, an independent certified public accountant who, at such time or times as may be specified by the Council, at least annually, shall examine the books, records, inventories, and reports of all officials, employees, departments, and agencies who receive, handle, or disburse public funds. As soon as practicable after the end of the fiscal year, a final audit and report shall be submitted by such accountant to the Council, one copy thereof to be distributed to each member, one each to the City Clerk, the City Treasurer, the City Manager, and City Attorney respectively, and three (3) additional copies to be placed on file in the office of the City Clerk where they shall be available for inspection by the general public for the period required by the laws of the State of California. Restricted and special assessment district funds shall be segregated in the audit report.

Item 6a
The unassigned balance of $9.2 million represents the amount available for additional spending or replenishment of the operating reserve to the 20% policy level. Council will consider these actions with the mid-year budget review in February.

Capital Outlay Fund
The Capital Outlay Fund meets the definition of a major fund and is displayed separately on the financial statements. This is due, in large part, to the current unexpended balance in the fund. Major capital projects are planned, but have been delayed, resulting in the fund balance. Staff expects to be able to significantly spend down this balance with upcoming capital investments.

Enterprise Funds
The City maintains four Enterprise Funds for its Water and Sewer utilities, and Parking and Transit operations. Enterprise Funds are business-type activities within governmental accounting and are reported separately from the General Fund.

The primary sources of revenue for the Water, Sewer, and Parking Funds are fees for sales and services. In the Transit Fund, Federal and State grants represent most of the annual revenue. All four funds experienced an increase in net position for the year, as reflected in the table below (ACFR page 49).

Item 6a
ACFR Organization
In accordance with generally accepted accounting principles for state and local governments, the City’s ACFR is organized into three major sections: Introduction, Financial Reports and Statistical Tables. The following is a brief summary of the contents of each of these sections.

Introduction. The Transmittal Memorandum and other information of general interest are presented in this section, including directory of officials, advisory bodies, and organization chart.

Financial Reports. This section includes the City’s primary financial statements in five major parts:

1. Auditors’ opinion regarding the financial statements.

2. Management’s discussion and analysis providing a narrative overview of City-wide finances, influencing factors, and operations experiences throughout the year.

3. The basic financial statements presenting the government-wide year-end results combining the activities of the major funds (General, Capital Outlay and all four Enterprise Funds) into governmental and business-type categories; the fund financial statements; and the notes to the financial statements.

4. Required supplementary information presenting the General Fund actual results with both the original and final adjusted budgets.

5. Other supplemental schedules and financial statements providing financial information for each of the City’s non-major governmental and agency funds. This includes a financial schedule presenting Local Revenue Measure revenues and uses in 2023-24.

Item 6a
Statistical Tables. This section provides demographic and financial tables showing current and historical trend information for the City and is organized into six major parts:

1. Statistical overview. General information about the San Luis Obispo community.

2. General financial trends. Ten-year summary information on net assets, governmental revenues and expenditures and fund balances.

3. Revenue capacity. Ten-year summary information on property and sales tax trends.

4. Debt capacity. Ten-year summary information on debt service requirements.

5. Economic and demographic trends. Ten-year summaries of taxable sales, building permits and valuations, housing, population and other demographic trends.

6. Operating information. Ten-year trend information on operating indicators by function.

The City structures its statistical section to consider debt disclosure requirements including all relevant information so the ACFR can be used for submission to the Electronic Municipal Market Access (EMMA) system.

Recognition for Excellence in Financial Reporting
Beginning in Fiscal Year 1983-84, all of the City’s ACFRs have been awarded the certificate of achievement for excellence in financial reporting from the Government Finance Officers Association of the United States and Canada (GFOA). This is a prestigious national award recognizing the City’s use of the highest standards in preparing its annual financial report.

The certificate for Fiscal Year 2022-23 is included in the ACFR document and staff will submit the Fiscal Year 2023-24 ACFR for the award program.

TDA Report and Financial Statements
This document (Attachment B) provides information on the revenues received by the City pursuant to the TDA. The City receives funding from the TDA for two specific purposes:

1. The development and construction of local streets and roads, including pedestrian and bicycle facilities. Since these funds are legally restricted, the City has a special revenue fund created to account for this portion of TDA revenues. The City received $69,451 in TDA funding during Fiscal Year 2023-24. Of these revenues, $45,000 was spent on pedestrian facility improvements. There remains $33,132 unspent at year end, from unspent prior year allocations.

2. The Transit Fund is an enterprise fund to account for the revenues received pursuant to the TDA, the Federal Transit Authority (FTA) and revenues from transit operations. These revenues are allocated under specific statutes and are legally restricted to pay for transit operations, the development of public transportation systems and transportation planning. The Transit Fund received $3,064,949 in TDA operating grants during the fiscal year. Of these funds, $1,457,052 were also unspent at fiscal year-end due to Federal funding received for Transit and will be available for future use.

Item 6a
In addition, this report demonstrates the City’s compliance with applicable TDA regulations pertaining to acceptable fare revenue ratios. For the fiscal year ended in 2024, the City was required to maintain a fare revenue ratio of 20%; the actual ratio was 121% due to a change in calculation allowing the inclusion of federal grant funds as local funds for the purpose of computing fare revenue ratios. This mandate requires that passenger fares (or local funds) comprise 20% of the transit system’s revenue to maintain eligibility for TDA funding. The inclusion of federal grant funding has been allowed since the COVID pandemic, when ridership and farebox revenues severely declined and most transit agencies’ farebox ratios were impacted. The requirement is discussed further in Note 7 of the report.

Public Engagement
The City’s annual audit and issuance of the annual comprehensive financial report fulfills a legal requirement and does not have a public engagement component outside the presentation before Council during a public session.

ENVIRONMENTAL REVIEW
The California Environmental Quality Act does not apply to the recommended action in this report, because the action does not constitute a “Project” under CEQA Guidelines Sec. 15378.

FISCAL IMPACT
Budgeted: Yes Budget Year: 2024-25
Funding Identified: Yes
Fiscal Analysis:

Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund $75,000 $65,525 $9,475 $
State
Federal
Fees
Other:

Total $75,000 $65,525 $9,475 $
The City budgets the cost for the auditing firm annually. The cost is appropriated with the annual budget approval. The current fiscal year contains a budget of $75,000 for the previous fiscal year audit. Actual costs are anticipated to be $65,525 in accordance with the City’s contract with the auditing firm.

Item 6a

ALTERNATIVES
The City Council could decide to revise or not accept the Annual Comprehensive Financial Report for Fiscal Year 2023-24. This is not recommended as the report has been prepared in conformance with a variety of accounting and other reporting requirements and represents the professional evaluation and analysis by the City’s independent auditors. The auditors have rendered an unqualified opinion which means that the reports are presented fairly and in conformity with generally accepted accounting principles.

ATTACHMENTS
A - Annual Comprehensive Financial Report, Fiscal Year Ended June 30, 2024 B - Transportation Development Act Report, Fiscal Year Ended June 30, 2024

City of San Luis O bispo, CA
Annual Com prehensive Financial Report
Fiscal Year Ended June 30, 2024

4 Sitting at just under 1300 feet, Cerro San Luis Obispo (often referred to as Madonna) lies in the heart of the city of San Luis Obispo. This picture, taken from the North West face looks out towards Foothill Blvd and three of the Nine Sisters: Bishop Peak, Chumash Peak, and Cerro Romualdo (from closest to furthest). A common misconception is that the "M" on the East face refers to "Madonna" or "Mustang." The "M" actually stands for Mission College Preparatory Catholic High School which can be viewed from where the "M" lies on the peak.

Picture Credit: @dfloyd805 (via Instagram)
About the Cover

ANNUAL COMPREHENSIVE FINANCIAL REPORT
Fiscal Year Ended June 30, 2024
ERICA A. STEWART, MAYOR

MICHELLE SHORESMAN, VICE MAYOR

MIKE BOSWELL, COUNCIL MEMBER

EMILY FRANCIS, COUNCIL MEMBER

JAN MARX, COUNCIL MEMBER
Whitney McDonald, CITY MANAGER
Prepared by the Department of Finance
Emily Jackson, Finance Director
Debbie Malicoat, Deputy Finance Director/Controller
Tavy Garcia, Senior Accountant
Courtney Miles, Accountant

City of San Luis Obispo, California
www.slocity.org

City of San Luis Obispo, California
Annual Comprehensive Financial Report
Fiscal Year Ended June 30, 2024
Table of Contents
Page
Introductory Section
Transmittal Memorandum ........................................................................................................................................................... 1-20 Report Purpose and Organization ................................................................................................................................................. 2 Profile of the City of San Luis Obispo ......................................................................................................................................... 4 Factors Affecting Financial Condition and Major Initiatives ....................................................................................................... 6 Financial Condition Overview .................................................................................................................................................... 11 Relevant Financial Policies ......................................................................................................................................................... 14 Award for Excellence in Financial Reporting ............................................................................................................................ 19 Acknowledgments ...................................................................................................................................................................... 20 Directory of Officials and Advisory Bodies ................................................................................................................................... 21 City Council ................................................................................................................................................................................ 21 Advisory Bodies ......................................................................................................................................................................... 21 Appointed Officials and Department Heads ............................................................................................................................... 21 Mission Statement .......................................................................................................................................................................... 22 Organizational Values .................................................................................................................................................................... 23 Organization of the City of San Luis Obispo ................................................................................................................................. 25 GFOA Certificate .......................................................................................................................................................................... 26 Financial Section
Independent Auditors’ Report ................................................................................................................................................... 29-32 Management’s Discussion and Analysis ................................................................................................................................... 33-57 Overview of the Financial Statements ........................................................................................................................................ 33 Financial Highlights ................................................................................................................................................................... 36 Government-Wide Financial Analysis ........................................................................................................................................ 40 Financial Analysis of Governmental Funds ................................................................................................................................ 43 Financial Analysis of Enterprise Funds ...................................................................................................................................... 46 Combined Program Expense and Revenue for Business-Type Activities .................................................................................. 49 General Fund Budgetary Highlights ........................................................................................................................................... 50 Capital Asset and Debt Administration ...................................................................................................................................... 53 Economic Factors and Next Year’s Budget and Rates ............................................................................................................... 54 Requests for Additional Information .......................................................................................................................................... 57

City of San Luis Obispo, California
Annual Comprehensive Financial Report
Fiscal Year Ended June 30, 2024
Table of Contents Page 2
Page
Basic Financial Statements
Government-wide Financial Statements:

Statement of Net Position ........................................................................................................................................................ 63 Statement of Activities ............................................................................................................................................................ 64 Fund Financial Statements:

Balance Sheet – Governmental Funds ..................................................................................................................................... 67 Reconciliation of the Governmental Funds Balance Sheet to the Government-wide Statement of Net Position ...................................................................................................................... 68 Statement of Revenues, Expenditures and Changes in Fund Balance – Governmental Funds ........................................................................................................................................................... 69 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balance to the Government-wide Statement of Activities ................................................................................................... 71 Statement of Fund Net Position Business-Type Activities – Enterprise Funds .................................................................. 75-76 Statement of Revenues, Expenses and Changes in Fund Net Position Business-Type Activities – Enterprise Funds .................................................................................................................................................................. 77 Statement of Cash Flows Business-Type Activities – Enterprise Funds ............................................................................ 78-79 Statement of Fiduciary Net Position - Fiduciary Funds .......................................................................................................... 83 Statement of Changes in Fiduciary Net Position - Fiduciary Funds ....................................................................................... 84 Notes to the Basic Financial Statements .............................................................................................................................. 85-132 Required Supplementary Information Section
Budgetary Comparison Schedule – General Fund ............................................................................................................. 135-138 Schedule of the Changes in the Net Pension Liability and Related Ratios – Miscellaneous Agent Multiple – Employer Plan .......................................................................................................................................... 139 Schedule of the Pension Plan Contributions – Miscellaneous Agent Multiple – Employer Plan ............................................. 140 Schedule of the City’s Proportionate Share of the Net Pension Liability – Safety Cost-Sharing Plan ..................................... 141 Schedule of the City’s Pension Contributions – Safety Cost-Sharing Plan .............................................................................. 142 Schedule of the Changes in the Net OPEB Liability and Related Ratios ................................................................................. 143 Schedule of Employer OPEB Contributions ............................................................................................................................. 144 Notes to Required Supplementary Information ........................................................................................................................ 145

City of San Luis Obispo, California
Annual Comprehensive Financial Report
Fiscal Year Ended June 30, 2024
Table of Contents Page 3
Page
Other Supplementary Information and Combining and Individual Fund Statements and Schedules Local Transaction Tax Measure Funding Schedule ........................................................................................................... 150-153 Nonmajor Governmental Funds ........................................................................................................................................ 155-158 Combing Balance Sheet – Nonmajor Governmental Funds .............................................................................................. 160-167 Combining Statement of Revenues, Expenditures and Changes in Fund Balance - Nonmajor Governmental Funds ................................................................................................................................... 168-175 Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual:

Downtown Business Improvement District Fund ................................................................................................................. 176 Transportation Development Act (TDA) Fund ..................................................................................................................... 177 Tourism Business Improvement District Fund ...................................................................................................................... 178 Gas Tax Fund ........................................................................................................................................................................ 179 Community Development Block Grant (CDBG) Fund ......................................................................................................... 180 Law Enforcement Grants Fund ............................................................................................................................................. 181 Public Art Contributions Fund .............................................................................................................................................. 182 Avila Ranch CFD .................................................................................................................................................................. 183 SB1 Road Repair Fund ......................................................................................................................................................... 184 SB1186 ASP Certify ............................................................................................................................................................. 185 Affordable Housing BEGIN Loan Fund ............................................................................................................................... 186 Avila Ranch DPA Fund ........................................................................................................................................................ 187 Debt Service Fund ................................................................................................................................................................. 188 Custodial Funds ........................................................................................................................................................................ 189 Combining Statement of Fiduciary Net Position – Custodial Funds .............................................................................. 190-191 Combining Statement of Changes in Fiduciary Net Position – Fiduciary Funds............................................................ 192-193 Statistical Section
Statistical Section – Overview (Unaudited) .............................................................................................................................. 197 Financial Trends:

Net Position by Component – Last Ten Fiscal Years ............................................................................................................ 198 Changes in Net Position – Last Ten Fiscal Years ........................................................................................................... 199-200 Governmental Activities Tax and Franchise Revenues by Source – Last Ten Fiscal Years ................................................. 201 Fund Balances, Governmental Funds – Last Ten Fiscal Years ...................................................................................... 202-203 Revenues, Expenditures and Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years ................................................................................................................................................. 204-206 General Fund Operating Expenditure Trends by Type – Last Ten Fiscal Years ................................................................... 207

City of San Luis Obispo, California
Annual Comprehensive Financial Report
Fiscal Year Ended June 30, 2024
Table of Contents Page 4
Page
Statistical Section (Continued)
Revenue Capacity:

Assessed and Estimated Actual Value of Taxable Property – Last Ten Fiscal Years ........................................................... 208 Property Tax Rates – Last Ten Fiscal Years .......................................................................................................................... 209 Principal Property Taxpayers – Current Year and Nine Years Ago ...................................................................................... 210 Secured Property Tax Roll Levies and Collections – Last Ten Fiscal Years ......................................................................... 211 Schedule of Taxable Sales and Permits by Category – Last Ten Calendar Years ................................................................. 212 Historical Sales and Use Tax Rates ....................................................................................................................................... 213 Schedule of Business Tax Certificates Issued ....................................................................................................................... 214 Debt Capacity:

Per Capital Outstanding Debt by Type – Last Ten Fiscal Years ........................................................................................... 215 Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt per Capita Last Ten Fiscal Years ........................................................................................................................................................ 216 Direct and Overlapping Long-Term Debt – Fiscal Year Ended June 30, 2023 ..................................................................... 217 Computation of Legal Debt Margins – Last Ten Fiscal Years .............................................................................................. 218 Revenue Bond Coverage:

Water Fund – Last Ten Fiscal Years ..................................................................................................................................... 219 Parking Fund – Last Ten Fiscal Years .................................................................................................................................. 220 Demographic and Economic Information:

Demographic and Economic Statistics – Last Ten Fiscal Years ........................................................................................... 221 Principal Employers – Current Year and Nine Years Ago .................................................................................................... 222 Regular Authorized Positions – Last Ten Fiscal Years ......................................................................................................... 223 Operating Information:

Operating Indicators and Capital Asset Statistics by Function – Last Ten Fiscal Years ................................................ 224-227 Water System Statistical Data ............................................................................................................................................... 228 Water and Sewer Rates – Last Ten Fiscal Years ............................................................................................................ 229-230 Water System Ten Largest Users – Fiscal Year Ended June 30, 2023 .................................................................................. 231

INTRODUCTORY SECTION

City of San Luis Obispo, Finance and Information Technology, 990 Palm Street, San Luis Obispo, CA, 93401-3249, 805.781.7130, slocity.org
Date December 24, 2024
TO: The Honorable Mayor and Members of the City Council and Citizens of the City of San Luis Obispo
FROM: Whitney McDonald, City Manager
Emily Jackson, Finance Director
SUBJECT: TRANSMITTAL MEMORANDUM FOR ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR FISCAL YEAR 2023-24
We are pleased to submit the City of San Luis Obispo’s 2023-24 Annual Comprehensive Financial Report (ACFR). Section 810 of the City’s Charter requires that an audit of the City financial records be conducted each year by an independent certified public accountant. Such an audit has been performed and this report is being published as part of the requirement for the fiscal year ended June 30, 2024, within applicable timelines.

Though the audit is conducted by an independent certified public account firm, City management assumes full responsibility for the completeness and reliability of the information contained in this report. We attest that, to the best of our knowledge, the data presented is accurate in all material respects, and all statements and disclosures needed for the reader to obtain a thorough understanding of the City’s financial activities have been included.

To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control and review framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient and reliable information for the preparation of the City’s financial statements in conformity with U.S. Generally Accepted Accounting Principles (GAAP). Because the cost of internal controls should not outweigh their benefits, the City’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. However, internal controls are critically reviewed by the auditors annually and Finance staff throughout the year to assure compliance with applicable Governmental Accounting Standards Board (GASB) rules and best practices in government accounting. Additionally, the City’s governing body receives reports on a 1

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quarterly basis and additional reports in accordance with State requirements are posted online on the City’s website at www.slocity.org.

REPORT PURPOSE AND ORGANIZATION
Audited Financial Statements
The City’s financial statements were audited by Badawi and Associates, a firm of licensed certified public accountants currently under contract with the City. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2024, are free of material misstatement. The independent audit involved examining on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the overall accounting principles used and significant estimates1
made by management; and evaluating the overall financial statement presentation.

The independent auditor concluded that the City’s financial statements present fairly2, in all material respects, the respective financial position of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2024. They also fairly represent the respective changes in financial position, and, where applicable, cash flows in accordance with accounting principles generally accepted in the United States of America. The independent auditors’ report is presented as the first component of the financial section of this report beginning on page 29. “Single Audit” for Federal Grant Programs. The independent audit of the financial statements of the City was part of a broader, federally mandated “Single Audit” designed to meet the special needs of Federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls3 and compliance with legal requirements, with special emphasis on the administration of Federal awards (such as Transit funding). This audit has been completed and will be filed and distributed to appropriate agencies to meet Federal requirements and deadlines. 1 Significant estimates included in the financial statements are made in conformity with GAAP. 2 The Term “present fairly” means that the financial statements give a reasonable view of the financial results, financial position, and cash-flow of the reporting entity.
3 Internal controls are systematic measures instituted by an organization to conduct its business in an orderly and efficient manner; safeguard its assets and resources; deter and detect errors, fraud, and theft; ensure accuracy and completeness of its accounting data; produce reliable and timely financial and management information; and ensure adherence to its policies and plans. 2

TRANSMITTAL MEMORANDUM
GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City’s MD&A can be found immediately following the report of the independent auditors beginning on page 33.

Organization of the Annual Comprehensive Financial Report The report is presented in three sections: introductory, financial, and statistical.

SECTION ONE - The Introductory section includes this transmittal memorandum and other information to familiarize the reader with the City, including a directory of officials and advisory bodies, the City's mission statement and organizational values, and charts.

SECTION TWO - The Financial section consists of six parts: 1) the independent auditors’ report; 2) Management’s Discussion and Analysis; 3) the basic financial statements including the government-wide financial statements; 4) fund financial statements; 5) notes to the financial statements; and 6) required supplementary information; and additional statements and schedules including the local transaction tax information, non-major governmental funds, and agency funds.

SECTION THREE - The Statistical section includes selected unaudited financial and demographic information generally presented on a multi-year basis. This information includes financial trends, revenue trends, debt capacity, demographics, and economic and operating information. This section also contains important information for the benefit of the required bond disclosures and rating agencies.

As required by GAAP, these financial statements present the City (the primary government) and its component units (entities for which the government is financially accountable).

Blended component units (although legally separate entities) are in substance part of the government's operations, and so data from these units are combined with data of the primary government. The City has three component units, the San Luis Obispo Capital Improvement Board and the San Luis Obispo Public Financing Authority, both of which provide financing for the construction and acquisition of City facilities, and the San Luis Obispo Parking Authority. The Board/Authority is comprised solely of members of the City Council.

Activities of the Board/Authority are accounted for in the applicable City governmental or enterprise funds.
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PROFILE OF THE CITY OF SAN LUIS OBISPO
With a population of about 48,700, 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, 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. The City’s ideal weather and natural beauty provide numerous opportunities for outdoor recreation at nearby City and State parks, lakes, beaches, and open space areas.

One of California’s oldest communities, the historical roots of San Luis Obispo run deep, anchored by the enduring presence of Indigenous Peoples dating back at least 15,000 years ago in the Diablo Canyon region. These first peoples hunted and shore-picked shellfish. The Yak titʸu titʸu Yak tiłhini Northern Chumash Tribe, who have called the region home for over 10,000 years, have been integral in the historical development of the City. By 1504, coastal land exploration took place by Spanish vessels, which carried members of the Filipino community. Spanish invasion and colonization in 1769 led to the establishment of Missions throughout California. The San Luis Obispo de Tolosa Mission was founded in 1772, the fifth mission in the California chain of 21 missions, around which the City of San Luis Obispo developed. 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 two-year 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. 4

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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
Health and Social Services County of San Luis Obispo
Courts State of California
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
The City is also a member of a Joint Powers Authority called Central Coast Community Energy (3CE) which sources clean and renewable electricity at competitive prices for the community and is delivered through the grid by PG&E. 3CE follows a Community Choice Aggregator or “CCA” model, which is a community-focused, “not-for-profit” model that allows for greater commitment to clean and renewable energy while supporting community reinvestment for affordable and fair rates and equitable access to clean-energy resources. It is locally controlled and governed by board members who represent the communities served by 3CE. Becoming a member of 3CE was an integral part of the City’s fiscal year 2019-20 Major City Goal for Climate Action. For more information visit: www.3cenergy.org Budgetary Policy and Control
Though the City adopts a two-year Financial Plan, annual budgets are legally appropriated 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 and posted online on a quarterly basis. At mid-year, staff prepares a more indepth 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 audited 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 5

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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 but revert to fund balance after three years of non-activity.

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. Legal budgetary control, meaning the level at which management cannot overspend the budget without the City Council’s approval, is at the Fund level. 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 and any authorized adjustments 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 was temporarily reduced when the City Council authorized up to $9 million of the operating reserve be spent on the significant winter storms discussed further below. 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 which have also been met for the year. With the 2021-22 fiscal year, the City also adopted a capital reserve in its Capital Outlay Fund of 20% of budgeted capital investments from the Local Revenue Measure for the fiscal year.

This reserve is adjusted with each budget adoption, funded from the local transactions tax, and is reflected in the Capital Outlay Fund.

FACTORS AFFECTING FINANCIAL CONDITION AND MAJOR INITIATIVES 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 operated in 2023-24.

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Building on Current Efforts to Move into the Future
The City Council adopted its two-year Financial Plan for 2023-25 when wrestling with new uncertainty related to unprecedented inflationary pressures, while also working to factor unanticipated costs related to the January and March 2023 storms. The Financial Plan delivers investments in the Council-adopted strategic initiatives and 74 established service programs while, as of adoption, maintaining a balanced budget over the five‐year forecast period.

The four Major City Goals guide continuation of workplans initiated over the last several years. Years ago, Major City Goals were focused on specific programs and projects, but the consistency of higher-level Major City Goals in recent years has supported a long-term focus on initiatives that bring about sustained systemic change. As such, the Major City Goals drive the City’s strategic direction while maintaining the established core services the community expects and is accustomed to. For additional information on the City’s strategic initiatives go to 2023-25 Financial Plan.

Economic Resiliency, Cultural Vitality and Fiscal Sustainability In collaboration with local partners, implement initiatives that reinforce a thriving and sustainable local economy, support a diverse, inclusive, and vibrant community, preserve arts and culture, and ensure fiscally responsible and sustainable city operations.

Housing and Homelessness
Support the expansion of housing options for all, and continue to facilitate the production of housing, including the necessary supporting infrastructure, with an emphasis on affordable and workforce housing as well as accessibly connected development. Collaborate with local non-profit partners, nongovernmental agencies, the county, the state, and federal governments to advocate for increased funding and implementation of comprehensive and effective strategies to prevent and reduce homelessness.

Diversity, Equity, Inclusion (DEI)
Further our commitment to making San Luis Obispo a welcoming and inclusive city for all by continuing to incorporate diversity, equity, and inclusion into all programs and policies and advancing the recommendations of the DEI Task Force.
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Climate Action, Open Space, and Sustainable Transportation Proactively address the climate crisis and increase resiliency through the implementation of the Climate Action Plan. Use resources to reduce greenhouse gas emissions and reach carbon neutrality by 2035, with a focus on the preservation and enhancement of convenient and equitable alternative and sustainable transportation, the preservation of open space, and equitable access to parks and open space.

Significant Storms in January and March 2023
In January and March 2023, the City and region experienced severe winter storms that resulted in two separate emergency declarations at the Federal and State level, as well as emergency proclamations at the local level. The City qualified for and is seeking reimbursement from Federal and State resources for eligible costs related to the storms. The City has expended approximately $12.9 million on storm response as of the end of the fiscal year, including debris removal, emergency protective measures, and projects to make permanent repairs to facilities. It will take years to fully recover and repair all damages, which is now currently estimated to exceed $48.4 million. The Federal Emergency Management Agency (FEMA) reimbursement process continues to move slowly. In addition, FEMA is currently in a holding pattern for new obligations as the federal Disaster Relief Fund, which funds public assistance to impacted agencies, is nearly expended due to a record number of costly disasters. This lack of funding is not expected to put the City’s projects in danger, but it may cause delay in projects becoming obligated for funding, which may impact the timing of reimbursement.

This timing is being closely tracked by City staff as it impacts the City’s ability to restore the operating reserve and fund future storm-related projects.

The City’s strong fiscal policies and General Fund reserve provided the first line of defense in addressing the immediate impact of the storms to the community. The City drew down reserves as the City Council authorized the use of up to $9 million from the operating reserve to pay for these unanticipated emergency costs and activated the City’s Fiscal Health Contingency Plan during the second half of fiscal year 2022-23.

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Overall Financial Condition
In addition to the impact of the winter storms, several factors played into the City’s financial condition at 2023-24 year-end:

1. Strong tax revenue, including Sales and Use Tax, Property Tax, Transient Occupancy Tax (TOT), as well as Utility User Tax. The 2020 voter approved local transaction tax continues to be the City’s largest single tax revenue. Property taxes remained strong due to ownership transfers as well as new housing units on the market, particularly in the San Luis Ranch and Avila Ranch developments. The prior year saw record high TOT, which was less in the current fiscal year due to another wet winter and lower occupancy rates, but still surpassed budget estimates by 3%. Utility User Tax was on target with budget assumptions and remained a strong performer.

2. Expenditure Savings. Unspent budgets were primarily driven by staffing vacancies.

Non-staffing savings were seen across most departments and in many instances reflect projects that were not completed by fiscal year end and will be funded in the following year. These results are in line with historical trends and are driven in part by disciplined financial management.

3. Favorable Interest Earnings Fair Value Adjustment. The Fair Value (FV) adjustment is essentially an accounting practice that reassesses the value of the City’s investments when there is a difference between the fair market value and the value recorded on the City’s books. Interest earnings and FV adjustments have been volatile the past few years and higher investment income driven largely by market interest rates is not expected to persist.

Economic Indicators for San Luis Obispo in General
Local Economic Environment
Historically, 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 Army base. It is also the County seat with significant county administrative offices and the regional courts. The continued operation of the Diablo Canyon Nuclear Powerplant also contributes to a stable economy as it generates approximately 10% of the State’s electricity.
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Employment. Due to the local economic environment and a large government presence and diversity, employment in the San Luis Obispo County region has historically been relatively stable. 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 to prolong the use of the Diablo Canyon Nuclear Power Plan presents an opportunity to continue jobs for trained professionals in the region.

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 Sales & Use Tax, Property Tax, and Transient Occupancy Tax (TOT). The 2020 voter approved local transaction tax of one-and-a-half cent (Local Revenue Measure) went into effect in April 2021 to provide for a variety of City services including infrastructure. This Local Revenue Measure has become the largest single tax revenue source to the City, growing to over $30 million per year.

Long-Term Financial Planning.

The City engages in several activities focused on long-term financial planning to gauge and adjust to current economic conditions and trends. Various scenarios are developed considering a multitude of information and resources. This effort was very rigorous in fiscal year 2023-24 due to the uncertainties surrounding the economic environment, increasing demand for City services and ongoing storm related project costs.

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. As reported to the City Council, the General Fund forecast indicates a modest budget deficit in 2026-27 that, if not addressed, is expected to grow to $2 million by 2028-29.

The forecasted deficit is largely driven by the City’s obligation to bring a fifth fire station online by July 2026 to satisfy conditions of the Avila Ranch Development Agreement, as well as continued increases to required CalPERS payments.

CalPERS and the City’s Unfunded Liability
In 2018-19, the City developed a three-year Fiscal Health Response plan and prepared a path to pay-down the City’s pension liability over a 20-year term, shortening the duration of prescribed payments and saving approximately $19 million in payments due. It did so by 10

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aligning its expenditures with the revenue forecast to 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 the COVID-19 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 year-end results, the previously earmarked amounts for Fiscal Years 2019-20 through 2021-22 was in April 2022, making good on $10.2 million in additional funding toward the City’s pension liability. An additional $2.2 million was paid through the City’s four enterprise funds as well as the Whale Rock Reservoir custodial fund and Tourism Business Improvement District Fund.

In July 2021, CalPERS announced having ended the 2020-21 Fiscal Year with a 21.3% investment gain. This result triggered its 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 became effective for the City with the 2023-24 fiscal year. Given this new reality, further influenced by a 6.1% investment loss at June 30, 2022, and a lackluster 5.8% investment return for fiscal year 2022-23, the City continues to gauge the appropriate level of additional payments moving forward.

FINANCIAL CONDITION OVERVIEW
Despite the background of economic uncertainty and historically high mortgage interest rates, the City ended the 2023-24 fiscal year in a better fiscal position than originally anticipated.

General Fund revenues exceeded budgetary estimates by approximately 5% and expenditures were 11% under budget. On June 30, 2024, the total General Fund balance was $45.3 million; an increase of $2.8 million over 2023-24 despite the ongoing storm related costs. Enterprise Funds similarly experienced increases in net position. Overall, the City’s total net position increased by $45.9 million from the prior year.

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The table below shows the General Fund levels of fund balance in accordance with GASB 54 and the City’s policy pertaining to fund balance assignments. Fund Balance & Reserve Policy General Fund – Fund Balance per June 30, 2024
Non-spendable $23,481
Committed
Contingency Fund 10,826,500
General government programs 1,776,826
Risk Management 585,456
Assigned to:

Encumbrances & Commitments 6,009,831
SLO Rep Theater grant 3,940,000
115 Trust Fund 2,000,000
CalPERS Payment 2,000,000
Revenue Stabilization 2,000,000
Storm Related Expenses 5,125,068
Tenant Improvement 1,400,000
Development Services 214,136
Solid Waste AB939 237,147
Unassigned 9,167,831
Total Fund Balance $45,329,766
Continue to Focus on Sustainability and Long-term Fiscal Health With its Major City Goal for Economic Recovery, Resiliency & Fiscal Sustainability, the City continues its commitment to long-term fiscal health. The goal program aims to, in collaboration with local partners, continue to assist with economic recovery for all from the pandemic and sustain a thriving local economy by supporting local businesses, arts and culture, and downtown vitality. It commits to practicing fiscal responsibility, paying down unfunded pension liabilities, and investing in critical infrastructure.

Revenue Base Growth. Since the Great Recession, the US had experienced an unprecedented long-term expansion that continued into the latter part of 2019-20. In FY 2019-20, sales tax (including the local Transaction tax), Property Tax and Transient Occupancy Tax (TOT) had accounted for 69% of all funding sources in the General Fund. All of these revenues showed slow but steady growth 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 placed the national and local economy on temporary halt.

Action by Congress and substantial aid packages ranging from additional unemployment benefits, one-time payments to households, and protection from rent and utility payments, 12

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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. Development related fee revenue continued to see significant growth as development activity remained at unprecedented levels in the City, with two Community Facilities Districts (CFDs) beginning construction and housing continuing as a Major City Goal.

In the post-pandemic economy, the City continues to see growth, despite historically high inflation and mortgage rates. As housing developed within the CFDs and other development projects around the City continue to move forward, property taxes and sales taxes continue to remain strong revenue performers.

Containment of Operating Costs. The City’s efforts to control costs are ongoing while also addressing the need to remain an attractive employer and provide the services the community expects. The City has an extensive policy framework that allows immediate and nimble action to address adverse changes in economic and fiscal condition and will continue to activate as needed. The City’s implementation of a 2nd and 3rd tier retirement benefit program continues to change the City’s annual retirement contributions as 67% 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; furthermore, two of the City’s bargaining units as well as the Management & Confidential group pay additional contributions toward the City’s pension obligation.

Infrastructure and Facilities Maintenance. As a growing city, San Luis Obispo has seen capital expenditures grow steadily over the past decade. The need to maintain, repair or replace its current infrastructure is met with the need to build amenities for the community at large and the City’s Local Revenue Measure plays a vital part. The City has used approximately 75% of the revenue in any given year for infrastructure improvements and enhancements and the Public Works department is continuing work to determine how best to deliver projects that have increased in number, scope and complexity. For a list of projects delivered in fiscal year 2023-24 see page 53 in the Management Discussion and Analysis.

The City’s Capital Improvement Plan Review Committee evaluates projects for funding based on established criteria and funding is allocated to projects in coordination with a number of adopted plans including the General Plan, Active Transportation Plan, Downtown Concept Plan, and Parks and Recreation Blueprint. Each plan represents hours of community input and a vision to maintain and improve San Luis Obispo now and into the future. 13

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Ongoing Commitment to Local Transaction Tax Measure Priorities (Local Revenue 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, youth and senior services, code enforcement, economic development, 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 2023-24.

Total uses of the funding during 2023-24 amounted to $34.1 million, with an additional $3.9 million encumbered through purchase orders or contracts; 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 Other Supplementary Information section of this report beginning on page 149.

Local Sales Tax Measure Revenue & Uses Summary
2023-24
Revenues:

Sales and use tax - Measure G add-on tax $ 30,596,293
Total Revenues $ 30,596,293
Uses:

Operating Programs ($6,990,046)
Capital Projects (27,137,408)
Total Uses ($34,127,454)

Change in Fund Balance ($3,531,160)
Prior Sales Tax Measure Balance $5,307,988
Net available for future year appropriations $ 1,776,828

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 matters 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 2023-24. 14

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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. The City always evaluates various options when considering the issuance of debt in order to benefit from the best long-term terms and conditions.

Information on the City’s outstanding debt issues and other long-term liabilities is provided in Note 7 in the notes to the financial statements.

In February 2024 Fitch Ratings, a nationally recognized statistical rating organization, reviewed the City’s financials, its fiscal outlook, and the current rating. On February 20, 2024, Fitch Ratings subsequently concluded that there should be no change to the existing 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. In addition, in April 2023, Standard & Poor’s Global Ratings upgraded the City’s Water Revenue bonds from ‘AA- ’ to ‘AA.’ At this time, the City of San Luis Obispo has no general obligation debt.

Fitch Ratings’ analysts had previously 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 long-term 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,” nonrecurring expenditures. 15

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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 and Information Technology (IT) 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, considering the policy direction the Council provided to use up to $9 million of General Fund reserves for storm damage repair while awaiting any FEMA reimbursements.

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.

Long-Term Liabilities and Maintenance of Infrastructure With the 2017-19 Financial Plan, the City began to incorporate into the City’s fiscal policies the use of one-time funds above policy reserve to unfunded pension liabilities and infrastructure. 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, culminating 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 and add to 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.

This Local Revenue Measure has now become the City’s largest tax revenue source, and the City remains committed to the majority of the funds being used to maintain, replace, and renew its growing infrastructure needs.

Pension and Other Post-Employment Benefits
The City contributes to the California Public Employees’ Retirement System (CalPERS), an agent multiple-employer 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 16

TRANSMITTAL MEMORANDUM
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 cost sharing 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 and plans to counteract any adverse investment results with additional payments to CalPERS.

The City has also established a Section 115 Trust fund with the California Employer’s Pension Prefunding Trust (CEPPT) and had planned to make its first contribution of $2.4 million using unassigned fund balance at the end of FY 2022-23. Instead, the unassigned fund balance was allocated to infrastructure projects which had increased in cost due to inflationary factors.

All employees currently pay the full employee contribution. Total contribution rates as a percent of salary, including any additional percentages agreed upon are listed in the table below:

Police (Sworn) Employee Contribution Levels to PERS Retirement (Percent of Salary)
Safety PERS Tier Jul-23
Tier 1 (3% @ 50) 15%
Tier 2 (2% @ 50) 15%
Tier 3 (2.7% @ 57) 17.5%
Police (Non-Sworn) Employee Contribution Levels to PERS Retirement Miscellaneous PERS Tier Jul-23
Tier 1 (2.7% @ 55) 14%
Tier 2 (2% @ 60) 13%
Tier 3 (2% @ 62) 10%
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Fire (Sworn) Employee Contribution Levels to PERS Retirement Safety PERS Tier Jul-23
Tier 1 (3% @ 50) 12%
Tier 2 (2% @ 50) 12%
Tier 3 (2.7% @ 57) 17.5%
Appointed officials, department heads, unrepresented management, unrepresented confidential and non-sworn fire employees Miscellaneous PERS Tier Jul-23
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 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 8 in the notes to the financial statements.
18

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GASB Pronouncements for FY 2023-24
GASB Statement No. 100, Accounting Changes and Error Corrections-an Amendment of GASB Statement No. 62 – The primary objective of this Statement is to enhance accounting and financial reporting requirements for accounting changes and error corrections to provide more understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability. The City has implemented this statement in current fiscal year.

GASB Statement No. 101, Compensated Absences – The primary objective of this Statement is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences. That objective is achieved by aligning the recognition and measurement guidance under a unified model and by amending certain previously required disclosures. The City has implemented this statement in the current fiscal year.

GASB Implementation Guide No. 2023-1, Implementation Guidance Update – 2023. The City has applied this guidance in the current fiscal year.

AWARD FOR EXCELLENCE IN FINANCIAL REPORTING
Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of San Luis Obispo for its annual comprehensive financial report for the fiscal year ended June 30, 2023.

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 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. 19

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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 Department 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 each City department 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.

Whitney McDonald, City Manager
Emily Jackson, Finance Director
20

DIRECTORY OF OFFICIALS AND ADVISORY BODIES

CITY COUNCIL
Erica A. Stewart Mayor
Michelle Shoresman Vice Mayor
Mike Boswell Council Member
Emily Francis 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
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
Whitney McDonald City Manager
J. Christine Dietrick City Attorney
Department Heads
Scott Collins Assistant City Manager
Greg Hermann Deputy City Manager
Timmi Tway Director of Community Development
Emily Jackson Director of Finance
Todd Tuggle Fire Chief
Nickole Domini 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
21

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.
22

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.
23

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. 24

Patrol Fire, Medical & Haz Mat Natural Resources Recruitment Assistant City Manager Traffic Safety Emergency Response Economic Development Labor RelationsInvestigations Hazard Prevention Cultural Activities Fair EmploymentNeighborhood 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 Administration Finance Administration Public Art Whale Rock Reservoir Streets, Parks, Bldgs Housing

RESIDENTS

ADVISORY
BODIES
CITY

MANAGER

MAYOR &

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

ATTORNEY
Police Fire
Finance Community Development
Administration
Dept Reporting to the Assistant City Manager
Utilities
Human
Resources
Parks &
Recreation
Public
Works
Community Services
25

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, 2023
Executive Director/CEO
26

FINANCIAL SECTION
27

28

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 Audit of the Financial Statements
Opinions
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, 2024, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.

In our opinion, the accompanying financial statements 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, 2024, 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.

Basis for Opinions
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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.

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

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter.

Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:
 Exercise professional judgment and maintain professional skepticism throughout the audit.  Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
 Obtain an understanding of internal control relevant to the audit 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 City’s internal control. Accordingly, no such opinion is expressed.
 Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
 Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control– related matters that we identified during the audit.

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 33-57 and 135-145 be presented to supplement the basic financial statements. 30

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

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.

Supplementary 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 local sales tax measure funding schedule, combining and individual nonmajor fund financial statements and budgetary comparison schedules, 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 149-193 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.

Other Information
Management is responsible for the other information included in the annual comprehensive financial report. The other information comprises the introductory and statistical sections but does not include the basic financial statements and our auditor's report thereon. Our opinions on the basic financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report. 31

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

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 24, 2024, 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 & Associates, CPAs
Berkeley, California
December 24, 2024
32

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) governmentwide 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 2023-24 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 (businesstype 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. 33

Management’s Discussion and Analysis
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, the San Luis Obispo Public Financing Authority and the San Luis Obispo Parking Authority are reported as blended component units in these statements. All provide financing for the construction and acquisition of City facilities and consist of members of the City Council. Activities of these units are accounted for in the applicable City governmental funds. Separate financial statements are not prepared for the San Luis Obispo Capital Improvement Board, San Luis Obispo Public Financing Authority, or San Luis Obispo Parking Authority. The City has no 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 government-wide financial statements. The reports also include disclosure requirements and supplementary schedules as required by GASB 68. The measurement date for fiscal year 2023-24 pension liabilities is as of the fiscal year ended June 30, 2023. This date reflects a one-year lag, reflecting the time it takes for the pension system to prepare reports, which is common for all member agencies, 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 2023-24 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 near34

Management’s Discussion and Analysis
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 and Capital Outlay Fund are both considered major funds1
. 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 funds, the City adopts an annual appropriated budget for the General 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.

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. 1 See Note 1 Summary of Significant Accounting Polices for a detailed explanation of fund types including major funds.
35

Management’s Discussion and Analysis
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 (i.e. open space, environmental mitigation funds, etc.) 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.

Financial Highlights
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, 2024. It should be read in conjunction with the transmittal memorandum, the basic financial statements, and the accompanying notes.

In the fiscal year 2023-24, the City continued to experience steady growth from post-pandemic economic trends despite historically high inflation. Examples include the progress of ongoing housing developments including Avila Ranch, San Luis Ranch, and Righetti Ranch projects which 36

Management’s Discussion and Analysis
all contributed to growth in the property tax base. Home prices also continued their upward trend despite mortgage rates reaching 20+ year highs. In addition, general permit and inspection activity remained strong through the fiscal year. Other signs of growth include increases in sales tax revenue which came in slightly higher than the prior year. Overall, actual revenues received were nearly $6 million higher than budgeted and the City’s expenditures came in approximately $11.2 million below appropriated budget amounts.

Winter Storm update In the middle of fiscal year 2022-23 the City experienced heavy winter storms that resulted in two separate emergency declarations at the Federal and State levels, as well as a local emergency proclamation. While the City is eligible for reimbursement for a majority of the storm related costs through the Federal Emergency Management Agency (FEMA) and the California Disaster Assistance Act (CDAA), the reimbursement process continues to move slowly.

As of the end of fiscal year 2023-24 the City had spent approximately $12.9 million for operating costs in response to the storms, and the estimated total cost to repair all storm related damage reached $48.4 million, which is an increase from the prior year estimate of over $35 million. The maximum reimbursement for eligible costs is 93.75% (75% from FEMA and 18.75% from CalOES), meaning that the City will pay a minimum of 6.25% for certain storm related costs.

However, the reimbursement process is slow due to staffing changes at the Federal and State agencies and the nearly depleted federal Disaster Relief Fund. This lack of timely funding is not expected to put the City’s projects in danger, but the City’s ability to pay back the operating reserve and fund future storm-related projects is dependent on receiving reimbursement for incurred storm costs. All storm-related expenditures have been submitted for FEMA reimbursement, with highpriority projects advancing for consideration in the upcoming 2025-27 Financial Plan. These priority projects are chosen to mitigate previous damage, protect existing infrastructure, and meet essential obligations.

Compensated Absences The City implemented the GASB 101 pronouncement during fiscal year 2023-24, a year earlier than required. The aim of the new guidance was to more accurately portray the liability associated with employee leave balances by taking into account the likelihood that these leave balances will be used or converted to cash for employees. For fiscal year 2023-24, this results in an increase to overall leave liability of $1.3 million.

Housing Loans and Fee Deferrals The City administers an extensive housing program for workforce and low-income housing. Through the program, it has extended loans and impact fee deferrals to low-income housing developers such as the Housing Authority of San Luis Obispo, Transitions Mental Health, and People’s Self-Help Housing (to name a few). The loans are longterm in nature, include a modest interest rate, and will become due in future years. The loans are disclosed in the City’s financial statement under the respective governmental funds as loans receivables and restricted within fund balance. The loans are reflected in the financial statements 37

Management’s Discussion and Analysis
net of an allowance for any that are forgivable at the end of the term if certain affordability provisions are maintained. Detailed information can be found in Note 4 – Loans Receivables.

Fair Value Adjustments The City follows the practice of pooling cash and investments for all funds under its direct daily control. Interest earned on pooled cash and investments is allocated quarterly to the various funds based on the respective fund’s average quarterly cash balance.

Investments are stated at fair value, based on quoted market prices in accordance with GASB standards and are adjusted to reflect any unrealized gains and losses resulting from the fair value adjustment annually. The City’s investments and effects of the fair value adjustment are reflected in the Financial Statements under “Use of money and property” in all funds based on the City’s mentioned practices. More information on the City’s investments can be found in Note 2 – Cash & Investments.

The following outlines financial highlights for the year which are detailed in the table on page 40 of the Management Discussion and Analysis.
 Per the City’s Statement of Net Position, total City-wide assets increased by approximately $104 million to $944 million representing an increase of 12.5%. The assets and deferred outflows of resources of the City exceeded liabilities and deferred inflows at June 30, 2024 by $525 million (net position). Cash and investment and receivable balances remained consistent with the prior year ending at $226 million and $45.8 million city wide. Capital assets increased from $531.9 million to $591.3 million as a result of major investments in City infrastructure included a new parking structure, upgrades to the Water Resource Recovery Facility, and the expansion of the City’s police department facilities. Meanwhile, overall liabilities increased from $378 million to $436.9 million, mainly as a result of new long-term debt associated with capital projects.
 The City’s net unfunded pension liability of $181.1 million, increased by $6.8 million to end the year at $94.8 million for the City’s Miscellaneous Plan with CalPERS. Meanwhile, the City’s cost-sharing multiple-employer Safety Plan liability rose to $86.3 million during fiscal year 2023-24. This was the result of increasing service costs, benefit payments, administrative expenses and total interest on pension liability.
 In governmental activities, cash and investments decreased by $5.9 million to $104.3 million while prepaid items, representing cash outflows occurring in the current year for next year’s expenditures, decreased by $176,000 to $182,000. Receivables from various sources increased by just over $5.9 million to $23.6 million and loans receivable increased by $516,000 to $12.8 million.
38

Management’s Discussion and Analysis
 In business-type activities, total assets increase from $474 million to $556 million. This was attributable to several factors including completed capital assets and construction in progress, proceeds from bonds to finance the construction of the new Cultural Art District Parking Structure, and timing of accounts receivables at June 30, 2024.  City-wide liabilities increased by $58.5 million during the fiscal year due to increases in the liabilities for business-type activities of $66.8 million to $252.9 million, offset by a decrease in total liabilities for governmental activities of $8.3 million, to end the fiscal year at $184 million. Increased liabilities for business activities include the issuance of bonds for the construction of the new Cultural Arts District Parking Structure and increases in over $19 million in the principal balance of the Clean Water State Revolving Fund Loan, which is financing the capital improvements at the Water Resource Recovery Facility. This increase is due to drawing down the loan funding as construction progresses, which is now nearing completion.
 The City’s governmental funds reported combined ending fund balances of $122.8 million as of June 30, 2024. Approximately $41.7 million of this total is either nonspendable or restricted for, transportation projects or specific programs such as affordable housing, parkland development, public art, tourism, public safety, or infrastructure improvement programs.

Another $13.6 million is committed for purposes such as general government programs, risk management, general contingency reserves, and public safety programs. Committed fund balances represent the amount of money that is subject to constraints imposed by the City Council. It takes formal action by the City Council to utilize these funds for their specific purposes.

A further $63.5 million is assigned and intended to be use for specific purposes including CalPERS pension payments, solid waste AB939 funding, the pension 115 trust fund, revenue stabilization, development services, the SLO Repertory Theatre grant, storm related costs, tenant improvements, and unspent appropriations that have been rolled over into the 2024-25 fiscal year in accordance with the City’s budget policies. Assigned fund balances represent the amount of money that the City Council or management has identified for specific future purposes, but do not meet the criteria to be restricted or committed. Any appropriation of these amounts would require City Council approval. The remaining $8.9 million remains unassigned.
 The total General Fund balance increased by 7% from $42.5 million to $45.3 million. After the adjustments to reflect non-spendable amounts of $4,868,481, committed funds of $13.2 million including the current operating reserve, assigned fund balance of $22.9 million, just under $4.3 million remains as unassigned balance on June 30, 2024, for the General Fund.

39

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, 2024 and 2023.

For the fiscal year ending on June 30, 2024, the City’s combined total assets and deferred outflows of resources were greater than its liabilities and deferred inflows of resources by $525 million. The largest portion of the City’s net position reflects its investment in capital assets in the amount of $412 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.

Just over $47.6 million of the City’s net position is subject to restrictions imposed by external parties and its use is determined by those restrictions and contractual obligations. The 40

Management’s Discussion and Analysis
governmental and business-type activities each contributed $30.7 million and $15.2 million respectively to the combined net position increase of $45.9 million resulting in a total net position of $525 million on June 30, 2024.

Information about changes in net position for fiscal years 2023-24 and 2022-23 is summarized below. Reasons for the changes are discussed in the following sections for governmental activities and business-type activities.

Governmental Activities. The City’s net position in Governmental activities increased by $30.7 million to $249.8 million on June 30, 2024 mainly as a result of large year over year increases in grant revenues and investment income. Additionally, most tax revenue sources also saw modest gains versus the prior year. Overall program expenses also saw increases over the previous year with the majority of the increases in public safety and transportation. The year over year difference in public safety expenses was driven primarily by results in the prior year which saw a reduction of $11.7 million because of changes in assumptions for the pension plan as well as additional voluntary payments made by the City. Otherwise, public safety expenditures were 41

Management’s Discussion and Analysis
consistent with historical trends. Meanwhile the increase in transportation program expenses were due to the timing of ongoing roadway sealing projects as well as storm related expenditures.

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 2023-24 by $16.7 million or 13% based on sustained growth in cyclical revenue streams such as sales tax and transient occupancy tax which continue to benefit from postpandemic economic trends as well as very favorable investment income that was driven largely by market interest rates.

General revenues are used to pay costs of providing program services such as public safety, parks and open space, streetlights and traffic signals, recreation opportunities, Diversity, Equity, and Inclusion (DEI) programs as well as economic development, and environmental sustainability.

Most revenue sources remained consistent with the prior year including charges for services and were within 10% of their totals from the prior year. However operating and capital grant revenue were significantly larger in fiscal year 2023-24; $9.8 million and $1.1 million respectively. This was due to the recognition of ARPA funding and used for the purchase of property located at 1106 Walnut Street to provide additional space to house certain police services, ARPA funding for affordable housing projects such as the Maxine Lewis Apartments, and several Community Development Block Grants from the US Department of Housing and Urban Development. In addition, as mentioned previously investment earnings were very favorable and came in at $6.5 million versus $2.4 million in the prior year.
42

Management’s Discussion and Analysis
Top Governmental Activity Revenue Sources. As shown in the chart below, the City’s top five tax revenues accounted for 64% or $93.4 million of total revenues, with service charges accounting for another 14% or $19.8 million and remaining revenue including grant revenue, investment income, and other miscellaneous revenues accounted for 22% or $31.5 million. Despite economic volatility, most of the City’s main revenue sources performed well and above initial expectations.

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

Financial Analysis of 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 and meeting finance related legal 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. 43

Management’s Discussion and Analysis
Major Governmental Funds. In fiscal year 2023-24 the City maintained two major governmental funds: the General Fund and the Capital Outlay Fund. The City’s General Fund is the principal operating fund and reported the Capital Outlay Fund is used to account for the acquisition or construction of major capital facilities. Changes in both are highlighted in the Financial Highlights section below.

Non-Major Governmental Funds. The City has numerous non-major governmental funds including the Debt Service Fund and various Special Revenue Funds or Capital Projects Funds.

These funds are presented in the basic financial statements in the aggregate. A significant number of these funds represent activity for capital projects. On June 30, 2024, these funds had an aggregate fund balance of just under $53.8 million. Of this total, $36.8 million is restricted for payment of debt service or specific governmental programs such as transportation, affordable housing, and impact fee or parkland development programs.

Governmental Fund Highlights
 As of June 30, 2024, the City’s governmental funds reported combined ending fund balances of $122.8 million or an increase of $11.6 million compared to the prior fiscal year.

This was largely driven by year over year revenue growth which increased from $127.7 million to $143.5 million, outpacing the increase in overall expenditures from $119.7 million to $135.4 million and further supported by exceptionally strong investment income as most revenue streams were within 10% of their amounts in the prior year with the exception of property tax transfers and fines, forfeitures, and penalties which were up 15% and 36% respectively; the latter being driving by increases in motor vehicle fines and police issued parking fines. The total fund balance of the governmental funds consists of the following:
2023-24 2022-23 2023-24 2022-23 2023-24 2022-23 2023-24 2022-23 Assets 53,854,773 $ 50,476,488$ 23,640,163$ 28,978,567 $ 64,260,031 $ 62,093,501 $ 141,754,967 $ 141,548,556 $ Liabilities 7,285,148 6,571,303 1,898,521 4,480,849 2,229,193 11,771,767 11,412,862 22,823,919 Total deferred inflows
of resources 1,239,859 1,367,117 - - 6,261,805 6,124,933 7,501,664 7,492,050 Nonspendable 4,868,481 101,462 - - - - 4,868,481 101,462 Restricted - - - - 36,837,067 37,379,153 36,837,067 37,379,153 Committed 13,188,782 19,620,444 - - 428,971 13,617,753 641,538 20,261,982 Assigned 22,926,182 14,540,709 21,741,642 24,497,718 18,795,114 6,178,534 63,462,938 45,216,961 Unassigned 4,346,321 8,275,453 - - (292,119) (2,424) 4,054,202 8,273,029 Total fund balance 45,329,766 42,538,068 21,741,642 24,497,718 55,769,033 44,196,801 122,840,441 111,232,587 Total liabilities, deferred
inflows,
and fund balances $ 50,476,488$ 23,640,163$ 28,978,567 53,854,773 $ 64,260,031 $ 62,093,501 $ 141,754,967 $ 141,548,556 $ Governmental Funds - Balance Sheet
General Fund Capital Outlay Fund Total Non-Major
Governmental Funds
44

Management’s Discussion and Analysis
o Non-spendable fund balance represents prepaid items or items that by their nature are not in a spendable form. $4,868,481 was held in non-spendable at fiscal yearend in the General Fund. o Restricted fund balance of $36.8 million, including $11.1 million in reserves for parkland development programs, and $10.2 million for affordable housing programs, $11.2 million in transportation projects. These restricted fund balances were held entirely within non-major governmental funds. o Committed fund balance amounted to $13.6 million accounting for the City’s reserve funds as prescribed by its Fund Balance and Reserve policies with $13.2 million held by the General fund and $429,000 held by non-major governmental funds.
o Assigned fund balance of $63.5 million 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 funds to be used for Development Services, purchase orders and encumbrances that have been rolled over into fiscal year 2024-25 in accordance with the City’s budget policies, an additional discretionary payment to CalPERS, the section 115 Trust Fund, and solid waste funds collected through AB939. The City also established a Revenue Stabilization Reserve of $2 million to help insulate or smooth out budget impacts from large fluctuations in tax revenue. The largest portion of the assigned fund balance, approximately $45.6 million represents outstanding encumbrances and capital projects at year end to be carried forward into the next fiscal year. o Unassigned fund balance at year end was $4.3 million for the General fund and ($292,000) for the for non-major governmental funds. The City’s capital outlay fund did not have any unassigned amounts at June 30, 2024. The use of the unassigned fund balance will be prioritized based on City Council direction and City policy.

More information about the aggregated non-major funds can be found in the combining and individual fund statements and schedules immediately following the required supplementary information.
45

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

Water Fund - The net position of the water fund rose by over $7.4 million during fiscal year 2023- 24 ending the year at $109.6 million and representing an increase of 7%. Supporting the upward trend were operating revenues and non-operating revenues that came in higher than in the previous year despite significant increases in overall expenditures. Total operating revenue increased by $3.7 million or 13% in 2023-24 due to increased increases in revenue streams such as water sales, service charges, and base
fees. In addition, increases in
utility setup fees during the
year contributed to stronger
operating revenues.

Operating expenses realized
a similar increase of $3.6
million as a result of ongoing
maintenance and minor
capital outlays for aging
infrastructure throughout the
City amidst an environment
of historically high inflation.

In addition, the ever-growing regulatory environment in which the utilities department operates also contributes to higher overall expenditures to provide staff training and regulatory compliance.

These increases in expenditures were offset because of the Nacimiento pipeline being offline due to repairs related to the 2023 winter storms that lasted the entire duration of 2023-24 and resulted in the water being delivered from closer sources which lead to some savings in water supply and electrical pumping charges. In addition, staffing vacancies in the department also minimized the increase in overall expenditures.
46

Management’s Discussion and Analysis
Nonoperating revenues comprised mainly of investment income and grant revenues were significantly higher in 2023-24 versus the prior year and came in at $2.1 million versus $741,000.

Strong investment earnings including the Water Fund’s portion of the annual fair value adjustment of the City’s investment portfolio amounted to nearly $1.8 million. In addition, grant revenue for 2023-24 exceeded $752,000. These nonoperating revenues contributed $2.6 million of the $7.4 million increase in net position and are not expected to be ongoing.

Sewer Fund – Similar to the Water Fund, the Sewer Fund’s net position rose, though more modestly, by $2.8 million
ending 2023-24 at just over
$122.3 million and
representing an increase of
just 2%. Contributing
factors include operating
revenues that increased by
just $962,000 and which
were surpassed by the
increase in operating
expenses of nearly $4.7
million and were further
reduced by nonoperating
revenues of over $1.5
million and transfers out of $1.2 million. Major drivers for the increase in overall expenditures include increases in material and contract services related to ongoing construction efforts such as the Water Resource Recovery Facility (WRRF) upgrade which are affected by inflationary pressures, as well as additional costs associated with new safety regulations imposed by the State.

Furthermore, the Sewer Fund saw an increase of $4.7 million in interest expense which included $3.7 million in capitalized interest on the 2018 Clean Water State Revolving Fund Loan for the WRRF upgrade project. These increases in expenditures were offset by the benefits of favorable investment earnings which amounted to $2.6 million for 2023-24.

Parking Fund – The Parking Fund’s net position rose by an even larger proportion than both utility enterprise funds, increasing by 13% from $30.2 million to $34.1 million by June 30, 2024.

This upward trend was a result of increases to operating revenues from $6.0 million to $8.7 million that that outpaced increases to operating expenditures from $4.8 million to $6.6 million during 2023-24. Non-operating revenues and transfers out meanwhile were mostly comparable to prior year amounts and also contributed to the Parking Fund’s performance. Operating revenue increases were the result of new parking rates that went into effect for the fiscal year as well as the elimination of the first hour free parking in garages. However, these fees were rolled back going 47

Management’s Discussion and Analysis
into 2024-25 following feedback from the community. Meanwhile, operating expenditures experienced increases in staffing costs, contract services, and other costs such as increases to credit card merchant fees driven by the switch to digital payments from the pay stations implemented in the prior year. The Parking Fund
also broke ground in November
2023 on the new Cultural Arts
District Parking Structure, which is
scheduled to be completed in early
2026, and purchased a new 44
space parking lot located at 1166
Higuera Street. Like the other
enterprise funds, the Parking Fund
also saw favorable returns to
investment earnings based on its
share of the City’s portfolio
amounting to $1.2 million for
2023-24.

Transit Fund – The Transit Fund experienced very similar financial results in 2023-24 compared to the previous year including an overall change in net position of $1.1 million compared to $1.2 million in the previous year and resulting in an ending net position at June 30, 2024 of $9.1 million.

Both operating revenues and expenses saw increases over the prior year resulting in an operating loss of $4.3 million which is normal for the Transit Fund that is subsidized by Federal funding each year to maintain operations. Operating revenues came in at just over $1.0 million compared to $810,000 in the prior year
due to the continued
expansion of the City’s transit
fleet including two new
battery electric buses and a
rollout of services previously
suspended during the
pandemic to better serve the
community. Operating
expenditures however saw
slightly larger increases that
were offset by favorable
investment income. Overall
salaries and benefits for the
Transit Fund increased by
48

Management’s Discussion and Analysis
$193,900 versus the prior year due to new staffing resources including the previously vacant Transit Manager position, a portion of the new Mobility Services Manager overhead as well as additional administrative resources.

Combined Program Expenses and Revenue for Business-Type Activities – The combined total revenues for business-type activities increase from $67.3 million to $80.7 million led by increases in service charges for FY2023-24 were up by over $8.4 million from the prior year and amounted to a total of $65.4 million. This was primarily due to increases in the Water and Parking Funds, both experiencing increases of over $3.6 million. Similar to the prior year, all enterprise funds experienced strong investment income and a positive fair value adjustment in 2023-24, which resulted in $8.3 million of investment earnings during the fiscal year including $1.7 million for the annual fair value adjustment. Grant revenues for business type activities was modestly lower in 2023-24 versus the prior year, down from $7.4 million to $6.8 million. This is primarily due to the timing with which these revenues can be recognized which can be hard to predict because they are often associated with the construction timelines. These factors contributed to all enterprise fund program revenues exceeding program expenditures.

As outlined in the prior section, the program expenses for the business-type activities increased from the prior year by nearly $17.7 million, representing a 39% increase. Significant increases in 49

Management’s Discussion and Analysis
program expenses include the following: $2.5 million in increased salaries and benefits, $6 million in increased contract services, and $6.8 million in increased interest expense driven primarily from new debt service for the Sewer and Parking Funds.

Several one-time factors played into the Water Fund revenues exceeding expenses in this fiscal year, as described above.

General Fund Budgetary Highlights
A detailed budgetary comparison schedule for the year ended June 30, 2024, 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, 2024.

The following summarizes the original General Fund budget compared with the adjusted final budget for fiscal year 2023-24. 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.
50

Management’s Discussion and Analysis
As discussed below, differences between the original budget and the final amended budget reflect the following key changes:
 Revenue budgets were increased by $3.4 million to $114.2 million to account for increases in expected utility user tax, property tax in lieu fees, and property taxes as well as grant revenues. Increases to the original budget were also made for public safety services, reflecting reimbursements for grant sponsored programs.  Overall expenditure budgets were also increased by approximately $3.9 million for the General Fund due to carryover of funding for contracts and commitments from the prior fiscal year. Significant differences between the original and final expenditure budgets include increases in anticipated Fire and environmental safety and general government programs.
 Net Other sources (uses) are comprised of transfers in or out and were originally budgeted at $30.8 million and revised to $33.9 million in the final budget. Transfers may be used to provide resources from the General Fund to other funds such as the Capital Outlay Fund or other non-major governmental funds.

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 surpassed the final budget by nearly $5.9 million largely driven by a positive variance in overall tax revenues of $1.3 million, a positive variance of overall grant revenue of $916,000, and a positive variance of nearly $2.8 million in use of money and property which includes investment income, fair value adjustments and interest income. Total expenditures came in below the final budget by over $5.7 million. This was mainly the result of positive variances within overall community development expenditures, leisure, cultural and social service expenditures, and general government expenditures such as in Human Resources, Finance and Administration. The net other sources and uses ended below budget by $3.2 million resulting in an ending fund balance that was $14.8 million greater than anticipated.
51

Management’s Discussion and Analysis
Detail for the Local Revenue Measure
The City’s Local Revenue Measure (one and a half percent transaction tax) is a sub-fund of the General Fund. The activities reflected in the Financial Statements of this report are provided for information regarding the use of the Measure’s according to the community’s priorities and the recommendation of the Revenue Enhancement Oversight Commission, a City Council advisory body, overseeing the allocations. For 2023-24, the following revenues and expenditures were recorded:

General Fund 2023-24
Final Budget
2023-24
Actual
Positive (Negative)
Variance
Revenues 114,168,848 $ 120,067,596 $ 5,898,748 $
Expenditures 92,277,633 86,550,461 5,727,172
Other sources (uses) (33,877,119) (30,725,437) 3,151,682 Beginning fund balance 42,538,068 42,538,068 -
Ending fund balance 30,552,164 $ 45,329,766 $ 14,777,602 $ Ending fund balance
Nonspendable - 4,868,481 4,868,481
Restricted - - -
Committed - 13,188,782 13,188,782
Assigned - 22,926,182 22,926,182
Unassigned - 4,346,321 4,346,321
Total ending fund balance 30,552,164 $ 45,329,766 $ 14,777,602 $ Budget - Actual Comparison
52

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, 2024, the City’s investment in capital assets for its governmental and business type activities amounts increased to $591 million (net of accumulated depreciation). The investment in capital assets includes things such as: open space, park improvements, buildings and associated improvements, vehicles and equipment, streets, bikeways, water, wastewater, and storm drain systems.

Major capital asset2
expenditures during the fiscal year included the following:
 $5.6 million for the North Chorro Neighborhood Greenway project  $4.3 million for expansion of the police department facilities  $7.2 million for emergency storm recovery projects
 $1.9 million for fleet replacements across various departments  $14.8 million for the Water Resource Recovery Facility upgrade project  $13.7 million for the new Cultural Arts District Parking Structure  $4.7 million for the acquisition of the 1166 Higuera Street parking lot  $8.8 million for street reconstruction and resurfacing  $1.3 million for the North Broad Street Neighborhood Park Long-Term Debt. As of June 30, 2024, the City’s long-term debt increased by $63.2 million to $223.8 million outstanding. Most of the overall increase was due to increases for business-type activities and included $43.9 million in newly issued lease revenue bonds used to finance the construction of Cultural Arts Parking Structure as well as an increase of $19.1 million for the 2018 Clean Water State Revolving Fund loan to finance WRRF capital improvements. In addition, the City recognized a total of $347,000 in subscription-based IT arrangements (SBITAs) in accordance with the implementation of GASB 96 and $429,000 in leases in accordance with GASB 87. 2 Additional information on the City’s capital assets can be found in Note 5 on page 100 to the basic financial statements.
53

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, 2024, 2% of the assessed valuation was $244 million3.

As of June 30, 2024, 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 7 to the basic financial statements.

Economic Factors and Next Year’s Budget and Rates
The City has weathered the economic impacts and reverberations of COVID-19 and unanticipated costs related to storms that occurred in January and March of 2023 which impacted the development of the two-year Financial Plan. However, caution is needed in the years ahead. As reported in the 2024-25 Budget Supplement, the General Fund forecast indicates a modest budget deficit in 2026-27 that, if not addressed, is expected to grow to $2.6 million by 2028-29. The forecasted deficit is largely driven by the City’s obligation to bring a fifth fire station online by July 2026 to satisfy conditions of the Avila Ranch Development Agreement, as well as continued increases to required CalPERS payments.

On June 5, 2024, the City Council adopted the 2024-25 Budget Supplement with an appropriation of $215 million for the fiscal year. The overall budget presents an ambitious work program lead by the four major City goals of Economic Recovery, Resiliency & Fiscal Sustainability, Diversity, Equity, and Inclusion, Housing and Homelessness, and Climate Action, Open Space, and Sustainable Transportation.

The 2024-25 budget assumes continued growth of most revenue types followed by anticipated slowed growth in the outer years of the forecast. Certain cyclical revenue streams including sales tax and transient occupancy tax are not growing as quickly as they did in prior years. Property tax 3 Based on the San Luis Obispo County Assessor’s 2022-23 Annual Valuation report. 54

Management’s Discussion and Analysis
revenue continues to grow more quickly than forecasted and remains the City’s most stable revenue source.

During 2023-24, the City recorded an all-time high in property taxes, nearly 5% higher than the prior year due to continued growth in real estate valuations. However, data shows that the number of home sales remain at historically low levels as prices and interest rates remain high for buyers and potential sellers are locked into lower than market interest rates.

Tourism in the City remained strong, resulting in $11 million in transient occupancy tax (TOT) for the General Fund and outperforming the budget by 3%. Tourism promotion continues to be led by the City’s Tourism Business Improvement District (TBID) which receives an allocation of 20% of TOT revenue collected.

Water Rates. The City adopted rate increases of 8.5% effective July 1, 2023, and 7.5% effective July 1, 2024. Those rate increases are higher than historic averages and are largely necessitated by macroeconomic conditions. An additional driver was the Council’s decision to defer and reduce rates in 2020-21, which was done to address the uncertainties the community was experiencing during COVID-19. The Utilities Department estimated that the deferral and reduction resulted in a $1.4 million in reduced revenue between July 2020 and June 2022.

Sewer Rates. The City adopted rate increases of 4% effective July 1, 2023, and 4% effective July 1, 2024. Rate increases are largely necessitated by macroeconomic conditions which have resulted in increased operational and capital delivery costs, as well as the Council action to defer and reduce sewer rates that also occurred in 2020-21 to address impacts of COVID-19 on the community.

The City adopts its water and sewer rates with the two-year Financial Plan and in accordance with Proposition 218 requirements.
55

Management’s Discussion and Analysis
Parking Rates. The City’s Parking Services program typically conducts a parking rate study every two to five years to evaluate parking operations and to address changing needs in the community.

Following rate increases that went into effect in July of 2023, the City began working closely with a consultant in November of 2023 on a Parking Rate Study following feedback from the community. The rate study recommended parking rates and policy changes based on updated revenue forecast modeling and the extensive community feedback. This effort culminated in May with the City Council approving changes to make parking more affordable for locals and visitors alike, while still enabling the Parking Fund to remain financially sustainable. This included a 33% decrease in parking structure rates, 25%-31% decreases in on street parking rates, and a 47% decrease in monthly parking structure permit rates. On street downtown core parking time limits were also increased from 2 hours to 3 hours and there was a 50% reduction in parking validation costs for businesses. The rate changes went into effect in the summer of 2024.

56

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.
57

58

BASIC FINANCIAL STATEMENTS
59

60

City of San Luis Obispo, California
Government-Wide Financial Statements
For the Fiscal Year Ended June 30, 2024
The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business.

The statement of net position presents information on all the City’s assets and deferred outflows, as well as liabilities and deferred inflows, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating.

The statement of activities presents information showing how the City’s net position changed during the current fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, all the current fiscal year’s revenues and expenses are considered regardless of when cash is received or paid (e.g., earned but unused vacation leave or uncollected taxes).

Government-wide financial statements distinguish City governmental activities that are principally supported by taxes and intergovernmental revenues from other business-type activities that are intended to recover all or a significant portion of their costs through user fees and charges. Governmental activities include public safety, transportation, community development, leisure, cultural and social services, and general government. Businesstype activities include water, wastewater, parking, and transit. 61

62

Governmental
Activities
Business-Type
Activities Total
Assets
Current assets:

Cash and investments $ 104,266,788 $ 122,089,627 $ 226,356,415 Taxes receivable 12,046,009 - 12,046,009
Accounts receivable 10,181,421 2,322,566 12,503,987
Accrued interest receivable 1,679,561 4,295,927 5,975,488 Internal balances 4,845,000 (4,845,000) -
Prepaid items and other assets 181,842 - 181,842
Lease receivables 114,642 104,624 219,266
Loans receivable 2,275,087 12,823,028 15,098,115
Total current assets 140,885,784 131,495,338 272,381,122 Noncurrent assets:

Cash and investments held by fiscal agent 8,888 38,723,107 38,731,995 Investment in joint venture - 3,421,594 3,421,594
Lease receivables 37,302,114 852,055 38,154,169
Nondepreciable capital assets 64,660,540 195,802,663 260,463,203 Depreciable capital assets (net of accumulated
depreciation) 180,922,597 149,931,656 330,854,253
Total noncurrent assets 246,444,080 425,181,134 671,625,214 Total assets 387,329,864 556,676,472 944,006,336
Deferred Outflows of Resources
Other post-employment benefits related 683,440 1,215,321 1,898,761 Pension related 8,232,474 54,571,517 62,803,991
Unamortized loss on refunding of debt 133,114 175,166 308,280 Total deferred outflows of resources 55,962,004 9,049,028 65,011,032 Liabilities
Current liabilities:

Accounts payable 5,197,528 8,172,780 13,370,308
Accrued salaries 3,034,858 375,752 3,410,610
Unearned revenue 8,466,347 2,916,365 11,382,712
Interest payable 1,396,905 72,705 1,469,610
Other liabilities 97,510 - 97,510
Compensated absence - due within one year 641,184 3,114,901 3,756,085 Long-term debt - due within one year 6,487,143 1,237,056 7,724,199 Total current liabilities 15,670,923 25,540,111 41,211,034 Noncurrent liabilities:

Compensated absence - due in more than on year 1,335,047 274,793 1,609,840 Long-term debt - due in more than one year 194,609,660 16,073,959 210,683,619 Net OPEB liability 933,910 1,350,404 2,284,314
Net pension liability 149,565,853 31,547,398 181,113,251 Total noncurrent liabilities 168,325,263 227,365,761 395,691,024 Total liabilities 183,996,186 252,905,872 436,902,058
Deferred Inflows of Resources
Other post-employment benefits related 899,638 2,154,820 3,054,458 Pension related 120,008 6,444,984 6,564,992
Lease related 36,269,796 899,371 37,169,167
Total deferred inflows of resources 37,289,442 9,499,175 46,788,617 Net Position
Net investment in capital assets 228,447,288 183,458,877 411,906,165 Restricted
Debt service - 9,467,974 9,467,974
Transportation projects 11,232,312 1,508,145 12,740,457 Affordable housing programs 10,215,217 - 10,215,217
Parkland development programs 11,073,516 - 11,073,516
Public art programs 1,526,588 - 1,526,588
Tourism programs 1,523,656 - 1,523,656
Subsequent year expenditures 897,746 - 897,746
Claims 181,842 - 181,842
Unrestricted (15,301,658) 81,095,190 65,793,532
Total net position $ 249,796,507 $ 275,530,186 $ 525,326,693 City of San Luis Obispo, California
Statement of Net Position
June 30, 2024
The accompanying notes are an integral part of these financial statements. 63

City of San Luis Obispo, California
Statement of Activities
For the Fiscal Year Ended June 30, 2024
Functions/Programs Expenses
Charges for
Services
Operating
Grants and
Contributions
Capital Grants
and
Contributions
Governmental
Activities
Business-type
Activities Total
Governmental activities:

Public safety $ 3,378,182 43,148,712 $ 1,016,165 $ 44,899 $ (38,709,466) $ - $ (38,709,466) $ Transportation 1,157,342 17,740,407 2,826,671 1,002,770 (12,753,624) - (12,753,624)Leisure, culture and social services 12,871,004 4,761,048 - - (8,109,956) - (8,109,956)Community development 9,717,278 19,527,448 2,011,368 - (7,798,802) - (7,798,802) General government 801,522 22,777,642 9,301,836 251,562 (12,422,722) - (12,422,722) Interest on long-term debt - 615,966 - - (615,966) - (615,966) Total governmental activities 116,681,179 19,815,372 15,156,040 1,299,231 (80,410,536) - (80,410,536) Business-type activities:

Water 31,394,962 25,666,319 752,267 - - 6,480,910 6,480,910 Sewer 23,302,912 22,831,476 915,997 - - 1,387,433 1,387,433Parking 8,962,908 9,663,683 - - - 700,775 700,775 Transit 5,352,380 1,003,116 5,094,670 - 745,406 - 745,406 Total business-type activities 62,813,083 65,364,673 6,762,934 - 9,314,524 - 9,314,524 Total primary government $ 179,494,262 $ 85,180,045 $ 21,918,974 $ 1,299,231 (80,410,536) 9,314,524 (71,096,012) General revenues and transfers:

General sales and use taxes 22,285,972 22,285,972 -
Transaction and use tax - Local Revenue Measure 30,597,288 30,597,288 - Property tax (including real property transfer tax) 16,381,159 16,381,159 - Transient occupancy tax (TOT) 11,063,012 11,063,012 -
Utility users tax 6,301,505 6,301,505 -Property tax-in-lieu of vehicle license fees 6,815,975 6,815,975 -Franchise taxes 2,366,286 2,366,286 -Business tax 2,942,425 2,942,425 -Cannabis Tax 1,116,495 1,116,495 - Other taxes 784,587 784,587 -
Total taxes 100,654,704 100,654,704 -
Unrestricted investment earnings 6,473,385 8,367,903 14,841,288 Other revenue 1,369,106 1,369,106 -Income from investment in joint venture 198,170 - 198,170 Transfers 2,636,032 (2,636,032) -
Total general revenues and transfers 111,133,227 5,930,041 117,063,268 Change in net position 30,722,691 15,244,565 45,967,256 Net position, beginning of year 219,073,816 260,285,621 479,359,437 Net position, end of year $ 249,796,507 $ 275,530,186 $ 525,326,693 Program Revenues
Net Revenues (Expenses) and
Changes in Net Position
The accompanying notes are an integral part of these financial statements. 64

City of San Luis Obispo, California
Governmental Funds Financial Statements
For the Fiscal Year Ended June 30, 2024
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.

Major governmental funds are defined generally as having significant activities or balances in the current year. The funds described below were determined to be Major Governmental Funds by the City for the current fiscal year.

Individual nonmajor funds may be found in the Supplementary section.

General Fund
The General Fund is used for all the general revenues of the City not specifically levied or collected for other City funds, and the related expenditures. The major revenue sources for this Fund are property taxes, sales taxes, franchise fees, business licenses, unrestricted revenues from the state, fines and forfeitures and interest income.

Expenditures are made for community development, public safety, public works, and other services.

Capital Outlay Fund
This fund was established to account for all of the City’s construction projects and capital purchases in excess of $25,000 with the exception of those funded through non-major capital project funds and Enterprise Funds. Financing is provided primarily through transfers in from the General Fund, and from State and Federal Grants. 65

66

General
Capital Outlay
Fund
Other
Governmental
Funds
Total
Governmental
Funds
Assets
Cash and investment $ 33,567,529 $ 23,475,331 $ 47,223,928 $ 104,266,788 Taxes receivable - 11,831,086 214,923 12,046,009
Accounts receivable 164,832 1,691,089 395,527 2,251,448 Other receivables - 71,118 - 71,118
Due from other funds 166,601 - - 166,601
Accrued interest receivable - 440,475 3,855,452 4,295,927 Prepaid items 23,481 - - 23,481
Cash and investments held by fiscal agent - - 8,888 8,888 Advances to other funds 4,845,000 - - 4,845,000
Loans receivable - 261,715 12,561,313 12,823,028
Lease receivable - 956,679 - 956,679
Total assets 53,854,773 $ 23,640,163 $ 64,260,031 $ 141,754,967 $ Liabilities, Deferred Inflows of Resources
and Fund Balance
Liabilities:

Accounts payable 2,106,359 $ 1,898,521 $ 1,192,648 $ 5,197,528 $ Accrued liabilities 3,028,797 - 6,061 3,034,858
Due to other funds - - 166,601 166,601
Unearned revenue - 2,052,482 863,883 2,916,365
Other liabilities 97,510 - - 97,510
Total liabilities 7,285,148 1,898,521 2,229,193 11,412,862 Deferred Inflows of Resources:

Lease related - 899,371 - 899,371
Unavailable revenue - 340,488 6,261,805 6,602,293
Total deferred inflows of resources 1,239,859 - 6,261,805 7,501,664 Fund balance:

Nonspendable 4,868,481 - - 4,868,481
Restricted for:

Transportation projects - - 11,232,312 11,232,312
Affordable housing programs - - 10,215,217 10,215,217
Parkland development programs - - 11,073,516 11,073,516 Public art programs - - 1,526,588 1,526,588
Tourism programs - - 1,523,656 1,523,656
Public safety program - - 897,746 897,746
Infrastructure improvement - - 368,032 368,032
Committed to:

General government programs - 1,776,826 - 1,776,826
Risk management 585,456 - - 585,456
Contingency fund 10,826,500 - - 10,826,500
Public safety program - - 428,971 428,971
Assigned to:

CalPERS pension payment 2,000,000 - - 2,000,000
Solid Waste AB939 237,147 - - 237,147
Establishment of Section 115 Trust 2,000,000 - - 2,000,000 Revenue stabilization 2,000,000 - - 2,000,000
Development services - 214,136 - 214,136
SLO Repertory Theater Grant - 3,940,000 - 3,940,000
- 1,400,000 - 1,400,000
Storm Related costs 5,125,068 - - 5,125,068
Contingency fund - - 900,000 900,000
Subsequent year expenditures 6,009,831 21,741,642 17,895,114 45,646,587 Unassigned 4,346,321 - (292,119) 4,054,202
Total fund balance 45,329,766 21,741,642 55,769,033 122,840,441 Total liabilities, deferred inflows of resources
and fund balance 53,854,773 $ 23,640,163 $ 64,260,031 $ 141,754,967 $ City of San Luis Obispo, California
Balance Sheet
Governmental Funds
June 30, 2024
Tenant Improvement program/Economic
The accompanying notes are an integral part of these financial statements. 67

Total fund balance - governmental funds $ 122,840,441
Capital assets at estimated historical cost $ 253,436,160 Accumulated depreciation (7,853,023)
245,583,137
6,602,293
1,215,321
158,361
Lease revenue bonds 16,556,941 $
Lease liabilities 429,141
SBITA liabilities 324,933
Compensated absences 4,449,948
Accrued interest payable 72,705
(21,833,668)
Net pension liability is not a current financial obligation and, therefore, is not reported in the governmental funds. (149,565,853)
Net OPEB liability is not a current financial obligation and, therefore, is not reported in the governmental funds. (1,350,404)
(2,154,820)
(6,444,984)
Total net position - governmental activities $ 249,796,507 City of San Luis Obispo, California
Reconciliation of the Governmental Funds Balance Sheet
to the Government-wide Statement of Net Position
June 30, 2024
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.
54,571,517
175,166
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. 68

General
Capital Outlay
Fund
Other
Governmental
Funds
Total
Governmental
Funds
Revenues:
$ - 22,285,972 $ $ 22,285,972 - $
30,597,288 - 30,597,288 -
16,379,368 258,289 - 16,637,657
11,063,012 - 11,063,012 -
6,301,505 - 6,301,505 -
6,815,975 - 6,815,975 -
2,366,286 - 2,366,286 -
2,941,928 - 2,941,928 -
1,116,495 - 1,116,495 -
528,088 - 528,088 -
266,103 - 266,103 -
3,907,185 1,422,562 - 5,329,747
2,513,422 1,210,058 13,664,185 17,387,665
12,360,708 91,000 6,656,991 19,108,699
624,261 11,289 100,497 736,047
Total revenues 120,067,596 1,312,347 22,102,524 143,482,467 Expenditures:

Current:

General government 17,560,912 - 10,018 17,570,930
Public safety 39,198,630 691,215 - 39,889,845
Transportation 5,535,071 - 22,886 5,557,957
Leisure, cultural and social services 11,088,967 - 11,088,967 - Community development 12,500,539 2,844,807 - 15,345,346 Debt service:

Principal 363,033 867,691 - 1,230,724
Interest and fiscal charges 52,508 669,345 - 721,853
Capital outlay:

Public safety - 445,716 - 445,716
Transportation - 2,267,633 - 2,267,633
Leisure, cultural and social services - 2,760,876 - 2,760,876 Community development 33,267,342 - 3,499,890 36,767,232 General government 250,801 838,712 636,546 1,726,059
Total expenditures 86,550,461 34,106,054 14,716,623 135,373,138 Revenues over (under) expenditures 33,517,135 (32,793,707) 7,385,901 8,109,329 (Continued)
Miscellaneous
Real property transfer tax
Fines, forfeitures and penalties
Use of money and property
Subventions and grants
Charges for services
Utility users tax
Property tax in lieu of VLF
Franchise taxes
Business tax
Cannabis Tax
City of San Luis Obispo, California
Statements of Revenues, Expenditures, and
Changes in Fund Balances
Governmental Funds
For the Fiscal Year Ended June 30, 2024
Sales and use tax - general
Transaction and use tax - Local
Revenue Measure
Property tax (including real property
transfer tax)
Transient occupancy tax
The accompanying notes are an integral part of these financial statements. 69

General
Capital Outlay
Fund
Other
Governmental
Funds
Total
Governmental
Funds
Other Financing Sources (Uses):

Transfers in 10,263,016 $ 30,037,631 $ 13,305,310 $ 53,605,957 $ Transfers out (40,738,002) - (10,231,923) (50,969,925)
Other Financing Sources – SBITA 137,233 - 137,233 -
Other Financing Sources – bond issuances 2,060,053 - 2,060,053 - Other Financing Uses - Payment to Escrow (2,447,737) - (2,447,737) - Total other financing sources (uses) (30,725,437) 30,037,631 3,073,387 2,385,581 Net change in fund balance 2,791,698 (2,756,076) 10,459,288 10,494,910 Fund balance, beginning of year 42,538,068 24,497,718 44,196,801 111,232,587 Prior year restatements - 1,112,944 - 1,112,944
Fund balance, beginning of year, as restated 42,538,068 24,497,718 45,309,745 112,345,531 Fund balance, end of year $ 45,329,766 $ 21,741,642 $ 55,769,033 $ 122,840,441 City of San Luis Obispo, California
Statements of Revenues, Expenditures, and
Changes in Fund Balances
Governmental Funds
For the Fiscal Year Ended June 30, 2024
The accompanying notes are an integral part of these financial statements. 70

Total net change in fund balance - governmental funds $ 10,494,910 Expenditures for capital outlay - governmental funds $ 29,452,569 Depreciation expense (7,853,023)
21,599,546
Gain on disposal of capital asset 2,010
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: 3,645,723 The issuance of long-term debt provides current financial resources to governmental funds.

This transaction, however, has no effect on net position. Proceeds from the issuance of bonds was: (2,057,233)
(11,678)
Bond premiums are reported in the governmental funds when the bonds are issued, and are capitalized and amortized in the statement of net position. The amount of bond premiums capitalized during the current period was: (140,053)
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: 18,678
131,624
Changes in actuarially determined claim liabilities for uninsured claims do not provide current financial resources and are not reported in the governmental funds. (98,357) 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: (1,099,362)
1,280,254
17,500,002
539,704
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 (20,696,465) 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 (386,612) Total change in net position - governmental activities $ 30,722,691 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, 2024
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 Government-Wide Statement of Activities. This amount represents the change in unavailable revenues.

The accompanying notes are an integral part of these financial statements. 71

72

City of San Luis Obispo, California
Proprietary Funds Financial Statements
For the Fiscal Year Ended June 30, 2024
Proprietary funds account for City operations financed and operated in a manner like a private business enterprise.

The intent of the City is that the cost of providing goods and services be financed primarily through user charges.

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. 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.

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.

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.
73

74

Water Sewer Parking Transit Totals
Assets
Current assets:

Cash and investment 41,295,510 $ 59,195,597 $ 12,747,981 $ 8,850,539 $ 122,089,627 $ Accounts receivable 4,505,946 3,185,723 92,610 2,397,142 10,181,421 Lease Receivables - - 114,642 - 114,642
Accrued interest receivable 446,238 410,777 781,966 40,580 1,679,561 Total current assets 46,247,694 62,792,097 13,737,199 11,288,261 134,065,251 Noncurrent assets:
34,582 38,688,247 278 38,723,107 -
Investment in joint venture 3,421,594 - - 3,421,594 -
Loan Receivables 1,476,342 798,745 - 2,275,087 -
Lease Receivables - 37,302,114 - 37,302,114 -
Capital assets:

Land 945,926 2,176,114 10,692,838 13,814,878 -
SBITA assets 38,513 38,513 - - 77,026
Infrastructure 122,642,658 93,826,165 29,386,149 110,972 245,965,944 Buildings and improvements 19,139,492 5,074,388 1,101,218 5,212,278 30,527,376 Equipment 6,775,553 6,698,589 2,246,355 10,558,191 26,278,688 Construction in progress 11,635,744 150,118,328 17,711,588 2,522,125 181,987,785 Total capital assets 161,177,886 257,932,097 61,138,148 18,403,566 498,651,697 Less accumulated depreciation (69,543,630) (56,315,442) (16,248,087) (10,810,219) (152,917,378) Capital assets, net of
accumulated depreciation 91,634,256 201,616,655 44,890,061 7,593,347 345,734,319 Total noncurrent assets 96,566,774 202,415,678 120,880,422 7,593,347 427,456,221 Total assets 142,814,468 265,207,775 134,617,621 18,881,608 561,521,472 Deferred Outflows of Resources
Pension related 3,715,655 3,441,792 852,259 222,768 8,232,474 281,667 311,466 70,871 19,436 683,440
28,495 6,739 97,880 133,114 -
4,025,817 3,759,997 1,021,010 242,204 9,049,028
(Continued)
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, 2024
The accompanying notes are an integral part of these financial statements. 75

Water Sewer Parking Transit Totals
Liabilities
Current liabilities:

Accounts payable 1,525,384 $ 3,742,379 $ 2,265,483 $ 639,534 $ 8,172,780 $ Accrued liabilities 158,471 130,458 57,066 29,757 375,752 Compensated absences 305,795 245,685 57,394 32,310 641,184 Unearned revenue - - - 8,466,347 8,466,347
Interest payable 56,783 1,047,457 292,665 - 1,396,905
Current portion of long-term debt 1,168,708 3,828,198 1,490,237 - 6,487,143 Total current liabilities 3,215,141 8,994,177 4,162,845 9,167,948 25,540,111 Noncurrent liabilities:

Compensated absences 131,055 105,294 24,597 13,847 274,793 Advances from other funds - - 4,845,000 - 4,845,000
Lease revenue bonds 8,173,157 795,769 49,986,786 - 58,955,712 Installment sale agreement - 2,327,947 - - 2,327,947
State loan/note payable 10,484,913 120,298,658 2,542,430 - 133,326,001 Net pension liability 13,945,041 13,324,944 3,485,457 791,956 31,547,398 398,683 435,753 73,527 25,947 933,910
Total noncurrent liabilities 33,169,919 137,251,295 60,957,797 831,750 232,210,761 Total liabilities 36,385,060 146,245,472 65,120,642 9,999,698 257,750,872 Deferred Inflows of Resources
Pension related 107,646 11,040 507 815 120,008
385,598 377,812 114,421 21,807 899,638
Lease related - 36,269,796 - 36,269,796 -
493,244 388,852 36,384,724 22,622 37,289,442
Net Position
Net investment in capital assets 71,835,973 74,372,822 29,656,735 7,593,347 183,458,877 Restricted:

Debt service 34,582 4,956,862 4,476,530 - 9,467,974
Transportation projects - - - 1,508,145 1,508,145
Unrestricted 38,091,426 43,003,764 - - 81,095,190
Total net position $ 122,333,448 109,961,981 $ 34,133,265 $ 9,101,492 $ 275,530,186 $ 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, 2024
Enterprise Funds
Net other post-employment benefits
liability
The accompanying notes are an integral part of these financial statements. 76

Water Sewer Parking Transit Total
Operating revenues:

Charges for sales and service 26,454,326 $ 20,350,935 $ 8,458,952 $ 1,000,790 $ 56,265,003 $ Impact fees 4,686,719 2,911,429 - - 7,598,148
Fines and forfeitures - 3,191 1,190,030 - 1,193,221
Other revenues 253,917 37,357 14,701 2,326 308,301
Total operating revenues 31,394,962 23,302,912 9,663,683 1,003,116 65,364,673 Operating expenses:

Salaries and benefits 5,842,089 5,846,159 2,121,001 410,772 14,220,021 Supplies and maintenance 1,973,040 2,536,903 967,415 444,294 5,921,652 Contract services 12,044,988 4,685,544 1,829,764 3,597,363 22,157,659 General government 1,843,251 1,911,466 1,019,048 463,491 5,237,256 Depreciation 3,340,219 2,773,962 678,653 436,460 7,229,294 Total operating expenses 25,043,587 17,754,034 6,615,881 5,352,380 54,765,882 Operating income (loss) 6,351,375 5,548,878 3,047,802 (4,349,264) 10,598,791 Nonoperating revenues (expenses)
Use of money and property 1,794,596 2,611,885 3,584,097 377,325 8,367,903 Grants 752,267 915,997 - 5,094,670 6,762,934
Interest expense and fiscal charges (622,732) (5,077,442) (2,347,027) - (8,047,201) Income (loss) from investment
in joint venture 198,170 - - 198,170 -
Total nonoperating revenues
(expenses) 2,122,301 (1,549,560) 1,237,070 5,471,995 7,281,806 Income (loss) before transfers
and capital contributions 8,473,676 3,999,318 4,284,872 1,122,731 17,880,597 Capital Contributions
Transfers out (1,075,110) (1,192,689) (368,233) (2,636,032) - Total transfers (1,075,110) (1,192,689) (368,233) (2,636,032) - Change in net position 7,398,566 2,806,629 3,916,639 1,122,731 15,244,565 Net position, beginning of year 102,563,415 119,526,819 30,216,626 7,978,761 260,285,621 Net position, end of year $ 109,961,981 $ 122,333,448 $ 34,133,265 $ 9,101,492 $ 275,530,186 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, 2024
The accompanying notes are an integral part of these financial statements. 77

Water Sewer Parking Transit Total
Cash flows from operating activities:

Cash received from customers 30,485,707 $ 22,902,963 $ 9,706,343 $ 2,211,862 $ 65,306,875 $ (12,911,023) (9,247,749) (1,448,232) (4,317,891) (27,924,895) (1,843,251) (1,911,466) (1,019,048) (463,491) (5,237,256) (5,340,393) (5,372,295) (1,959,174) (353,413) (13,025,275) Net cash provided by (used in)
operating activities 10,391,040 6,371,453 5,279,889 (2,922,933) 19,119,449 Operating grants received 752,267 915,997 5,094,670 - 6,762,934 Transfers to other funds (1,075,110) (1,192,689) (368,233) (2,636,032) - (322,843) (276,692) (368,233) 5,094,670 4,126,902
Cash flows from capital and related
financing activities:
(6,870,855) (16,763,967) (19,730,866) (1,665,372) (45,031,060) Capital grants received - - - - -
Disposition of capital assets - - - - -
SBITA payment paid - - - - -
Principal paid on debt financing (1,127,617) (1,070,901) 2,960,604 762,086 - Interest paid on debt financing (750,934) (4,062,332) (2,232,398) (7,045,664) - Proceeds from interfund loan - 4,845,000 - 4,845,000 -
Proceeds from issuance of debt 19,097,239 - 43,860,000 62,957,239 - Net cash used in capital and
related financing activities (8,749,406) (2,799,961) 29,702,340 (1,665,372) 16,487,601 Cash flows from investing activities:

Use of money and property 1,689,645 2,488,564 2,732,858 363,741 7,274,808 Net cash provided by
investing activities 1,689,645 2,488,564 2,732,858 363,741 7,274,808 5,783,364 3,008,436 37,346,854 870,106 47,008,760
53,412,511 38,321,656 14,089,374 7,980,433 113,803,974
$ 59,195,875 41,330,092 $ 51,436,228 $ 8,850,539 $ 160,812,734 $ (Continued)
Enterprise Funds
City of San Luis Obispo, California
Statement of Cash Flows
Business-Type Activities - Enterprise Funds
For the Fiscal Year Ended June 30, 2024
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
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. 78

City of San Luis Obispo, California
Statement of Cash Flows
Business-Type Activities - Enterprise Funds
For the Fiscal Year Ended June 30, 2024

Water Sewer Parking Transit Total
Operating income (loss) 6,351,375 $ 5,548,878 $ 3,047,802 $ (4,349,264) $ 10,598,791 $ Depreciation 3,340,219 2,773,962 678,653 436,460 7,229,294 Accounts receivable (909,255) (399,949) 42,660 (248,306) (1,514,850) Accounts payable 1,107,005 (2,025,302) 1,348,947 (276,234) 154,416 Unearned revenue - - - 1,457,052 1,457,052
137,728 134,823 46,378 38,807 357,736
359,015 391,846 123,307 19,815 893,983
(22,879) (24,973) (7,858) (1,263) (56,973)
Net cash provided by (used in)
operating activities 10,391,040 $ 6,371,453 $ 5,279,889 $ (2,922,933) $ 19,119,449 $ Reconciliation of cash and investments to the balance sheet:

Cash and cash equivalents 41,295,510 $ 59,195,597 $ 12,747,981 $ 8,850,539 $ 122,089,627 $ 278 34,582 38,688,247 - 38,723,107
Total cash and investments 41,330,092 $ 59,195,875 $ 51,436,228 $ 8,850,539 $ 160,812,734 $ 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. 79

80

City of San Luis Obispo, California
Fiduciary Funds Financial Statements
For the Fiscal Year Ended June 30, 2024
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 governmentwide 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.
81

82

Custodial Funds
Assets
Current assets:

Cash and investment $ 36,059,266
Accounts receivable 17,777
Accrued interest receivable 35,089
Capital assets, net of accumulated depreciation 663,072 Total assets 36,775,204
Liabilities
Accounts payable 217,282
Compensated absence 51,453
Accrued Salaries 17,087
Other liabilities 2,000
Total liabilities 287,822

NET POSITION
Restricted for
Individuals, organizations, and other governments 36,487,382 Total Net Position $ 36,487,382
City of San Luis Obispo, California
Statement of Fiduciary Net Position
Fiduciary Funds
June 30, 2024
The accompanying notes are an integral part of these financial statements. 83

Custodial Funds
ADDITIONS:

Assessment revenue $ 1,274,999
Charges for services 1,309,781
Charges for public programming 55,636
Contribution from developers 14,121,073
Other revenue 2,353,241
Use of money and property 896,819
Total additions 20,011,549
DEDUCTIONS:

Administration expenses 1,195,167
Contractual services 1,818,909
Materials and supplies 618,357
Public programming 1
Use of developer deposits 1,270,866
Depreciation 63,283
Total deductions 4,966,583
Change in net position 15,044,966
NET POSITION:

Beginning of year 21,442,416
End of year $ 36,487,382
Statement of Changes in Fiduciary Net Position
Fiduciary Funds
For the Fiscal Year Ended June 30, 2024
City of San Luis Obispo, California
The accompanying notes are an integral part of these financial statements. 84

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024
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 1 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 8
Investments 9
Note 3: Property Taxes 13
Note 4: Loan Receivable 14
Note 5: Capital Assets 14
Note 6: Leases 16
Note 7: Long Term Debt 18
Summary of Long-Term Debt 18
Governmental Activities Summary: 19
Revenue Bonds 19
Lease-Purchase Financing 21
2014 Energy Sources Conservation State Loan 21
Subscription Based Information Technology Arrangements 21 Business-Type Activities Summary: 22
Revenue Bonds 22
Loans 23
Installment Sale Agreements 24
Special Assessment Debt Without City Commitment 24
Note 8: Pension Plans 25
Agent-Multiple Employer Plan 25
General Information about the Pension Plan 25
Net Pension Liability 26
Changes in the Net Pension Liability 28
Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions 29 Cost-Sharing Employer Plan 29
General Information about the Pension Plan 29
Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions 31 85

City of San Luis Obispo, California
Notes to the Financial Statements
Table of Contents
June 30, 2024

Page
Payable to the Pension Plan 33
Note 9: Other Post-Employment Benefits (OPEB) 34
General Information about OPEB 34
Net OPEB Liability 35
Changes in the Net OPEB Liability 36
OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB 37 Payable to the OPEB Plan 38
Note 10: Deferred Compensation Plan 38
Note 11: Interfund Transactions 39
Note 12: Joint Ventures, Jointly Governed Organizations and Operating Agreements 40 Whale Rock Commission 40
San Luis Obispo Regional Transit Authority 41
San Luis Obispo Council of Governments 41
Nacimiento Water Supply Project 41
Note 13: Risk Management 42
California Joint Powers Insurance Authority 42
Self-Insurance Programs of the Authority 43
Adequacy of Protection 43
Self-Insurance 43
Note 14: Commitments and Contingencies 44
Litigation 44
Grant Awards 44
Regional Transit Authority Pension Expense 44
Note 15: Construction and Other Significant Commitments 45 Note 16: Fund Balance Deficiency 45
Note 17: New Accounting Standards 45
Accounting Standards Adopted 45
Note 18: Prior Period Adjustments 46
86

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024
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 48,700, 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) and the San Luis Obispo Public Financing Authority (the Authority) as blended component units in accordance with GASB standards. Both provide financing for the construction and acquisition of City facilities and consist of members of the City Council. Activities of both units are accounted for in the applicable City governmental funds 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 or San Luis Obispo Public Financing Authority.

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.

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.
87

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 1: Summary of Significant Accounting Policies (Continued) 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.

Capital Outlay Fund. This fund was established to account for all of the City’s construction projects and capital purchases in excess of $25,000 with the exception of those funded through non-major capital project funds and Enterprise Funds. Financing is provided primarily through transfers in from the General Fund, and from State and Federal Grants.

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.

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.
88

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 1: Summary of Significant Accounting Policies (Continued) 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 eight Custodial Funds, which are used to account for funds held by the City as an agent for Whale Rock Commission, Jack House Committee, County Task Force, individual donations, Boysen Ranch, San Luis Ranch Community Facilities District and San Luis Coastal Unified School District and San Luis Obispo County Public Access, Inc. Public Access Television. 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.

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. 89

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 1: Summary of Significant Accounting Policies (Continued) 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 assets 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 assets 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.

Assets Years
Infrastructure 20-100
Buildings and structures 20-50
Improvements other than buildings 10-100
Equipment 3-21
90

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

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, 2023
Measurement Date June 30, 2023
Measurement Period July 1, 2022 to June 30, 2023
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.

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. 91

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 1: Summary of Significant Accounting Policies (Continued) 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.

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. 92

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 1: Summary of Significant Accounting Policies (Continued)  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:
 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.
 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, 2024 was the first year of the 2023-25 two-year cycle.  Mid-Year Reviews. The Council formally reviews the City's financial condition and amends appropriations, if necessary, each February.
 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 Capital Improvement Plan (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.

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 2024 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. 93

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 1: Summary of Significant Accounting Policies (Continued) 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, 2024, 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.

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. 94

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 2: Cash and Investments (Continued)
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:
 Treasury bills and notes
 Government Sponsored Enterprises
 Commercial paper
 Repurchase agreements
 Bankers' acceptances
 Corporate medium-term notes
 Negotiable certificates of deposit
 Collateralized bank deposits
 Money market mutual funds
 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 fair 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 fair 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.

At June 30, 2024, cash and investments consisted of the following:

Fair
Value
Percent of
Portfolio
Cash and cash equivalents $ 46,981,162 15.60%
Investments:

State Local Agency Investment Fund 46,813,858 15.55%
U.S. Treasury Bond / Note 65,488,738 21.75%
Federal Agency Bond / Note 12,305,941 4.09%
Corporate Note 17,740,208 5.89%
Municipal Bond/Note 647,735 0.22%
Bank Note 640,369 0.21%
Asset-Backed Securities 5,886,212 1.95%
Negotiable Certificates of Deposit 1,974,852 0.66%
Non-Negotiable Certificates of Deposit 2,066,197 0.69%
Money Market Funds 100,602,404 33.41%
Total investments 254,166,514 84.40%
Total cash and investments $ 301,147,676 100.00%
95

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 2: Cash and Investments (Continued)
At June 30, 2024, 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.

The following is a summary of the fair value measurements as of June 30, 2024:

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 $48,992,214 at June 30, 2024 and were insured or collateralized with securities held by the pledging financial institution's trust department or agent in the City's name.

Governmental
Funds
Business-Type
Funds
Fiduciary
Funds Total
Cash and investments 104,266,788 $ 122,089,627 $ 36,059,266 $ 262,415,681 $ Cash and investments held by fiscal agents 8,888 38,723,107 38,731,995 Total cash and investments $ 104,275,676 $ 160,812,734 $ 36,059,266 $ 301,147,676 Government-Wide Statement of
Net Position
Fair Value
Investments by fair value hierarchy
U.S. Treasury Bond / Note $ 65,488,738 $ 65,488,738 - $ $ - Federal Agency Bond / Note 12,305,941 12,305,941 - -
Corporate Note 17,740,208 17,740,208 - -
Municipal Bond/Note 647,735 - 647,735 -
Bank Note 640,369 - 640,369 -
Asset-Backed Securities 5,886,212 5,886,212 - -
Negotiable Certificates of Deposit 1,974,852 1,974,852 - - Total investments by fair value hierarchy 104,684,055 $ 104,684,055 - $ $ - Investments not subject to fair value hierarchy
State Local Agency Investment Fund 46,813,858
Non-Negotiable Certificates of Deposit 2,066,197
Money Market Funds 100,602,404
Total investments not subject to fair value hierarchy 149,482,459 Total investments measured at fair value $ 254,166,514
Fair Value Measurements Using
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservab
le Inputs
(Level 3)
96

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 2: Cash and Investments (Continued)
The California Government Code requires California financial institutions to secure the City's deposits by pledging government securities as collateral. The fair 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.

Interest Rate Risk. This is the risk that the fair 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:
 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.  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:
 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.
 Pre-qualifying the financial institutions, broker/dealers, intermediaries and advisors with which the City will do business.

Fair Value
Less Than One
Month
One Month to One
Year One to Five Years
Over Five
Years
State Local Agency Investment Fund $ 46,813,858 $ 46,813,858 - $ $ - $ - U.S. Treasury Bond / Note 65,488,738 - 8,194,202 57,294,536 - Federal Agency Bond / Note 12,305,941 - 4,336,067 7,969,874 - Corporate Note 17,740,208 - 3,075,652 14,664,556 -
Municipal Bond/Note 647,735 - 445,452 202,283 -
Bank Note 640,369 - - 640,369 -
Asset-Backed Securities 5,886,212 - - 5,886,212 -
Negotiable Certificates of Deposit 1,974,852 - 978,568 996,284 - Non-Negotiable Certificates of Deposit 2,066,197 - 2,066,197 - - Money Market Funds 100,602,404 100,602,404 - - -
Total maturities $ 254,166,514 $ 100,602,404 $ 65,909,996 $ 87,654,114 $ - Cash in banks and on hand 46,981,162
$ 301,147,676
97

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

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, 2024:

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.

The City’s Investment Management Plan outlines the following criteria related to portfolio diversification:
 No more than 5% of the City’s portfolio (exclusive of government agency issues or LAIF) shall be placed with any financial institution.
 No more than 25% of the City’s portfolio shall be invested in collateralized certificates of deposit issued by financial institutions.
 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.

Type of Investment Rating Total
Federal Agency Bonds / Notes AA+ $ 12,305,941
Corporate Notes AAA 1,583,592
AA 1,349,264
AA- 2,732,476
A+ 5,743,020
A 3,672,231
A- 2,659,625
Total Corporate Notes 17,740,208
Municipal Bond/Note AAA 209,147
AA 236,305
AA- 202,283
Bank Note A 640,369
Asset-Backed Securities AAA 4,738,222
NR 1,147,990
Negotiable Certificates of Deposit A 978,568
A+ 996,284
Not Applicable:

U.S. Treasury Bonds / Notes 65,488,738
Not Rated:

State Local Agency Investment Fund 46,813,858
Non-Negotiable Certificates of Deposit 2,066,197
Money Market Mutual Funds 100,602,404
Total Investments $ 254,166,514
98

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

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:
 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.  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.
 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.
 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.  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.  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.  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, 2024 have been accrued since they will be collected within 60 days subsequent to year-end. 99

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

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, 2024, the Fund has 17 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 $9.2 million; 4 loans for $669,063 are forgivable if certain criteria are met netting $8.6 million in loans. The Fund has secured more than 450 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, 2024, the Fund had two 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, 2024, the Affordable Housing Fund had seven outstanding down payment assistance loans with a principal balance of $360,335. These loans are provided for a term of 30 years with an annual interest rate of 3%.

D. Impact Fee Deferral Loan – The City has provided certain affordable housing developments with loans equal to the amount of certain impact fees. These loans are reflected in the respective impact fee funds. As of June 30, 2024, the total principal outstanding was $5,004,148. These loans are provided for a term of 55 years with an annual interest rate of 3%.

E. Community Development Block Grant (CDBG) Fund Loans – The City has provided loans from the City’s allocation of CDBG funding for certain affordable housing developments. As of June 30, 2024, the CDBG Fund had $1,556,161 principal outstanding on the loans with $443,217 forgivable if certain conditions are met. The loans have terms of 30 years and annual interest rates of 3% to 4%.

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.

Total Balance
Description Loan Receivable Interest Receivable June 30, 2024 Governmental Funds:

Affordable Housing Loan $ 8,560,688 $ 2,589,658 $ 11,150,346 BEGIN Homeownership Loan 60,000 56,575 116,575
Down Payment Assistance 360,335 86,845 447,180
CDBG 1,112,944 755,113 1,868,057
Impact Fee Loan 2,729,061 369,580 3,098,641
Total governmental funds 12,823,028 3,857,771 16,680,799 Enterprise Funds:

Impact Fee Loan 2,275,087 387,988 2,663,075
Total enterprise funds 2,275,087 387,988 2,663,075
Total Primary Government 15,098,115 $ $ 4,245,759 $ 19,343,874 100

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 5: Capital Assets (Continued)
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.

Capital assets activity for the fiscal year ended June 30, 2024 was as follows:

Balance Balance
June 30, 2023 Additions Deletions Transfers June 30, 2024 Governmental activities:

Capital assets not being depreciated:

Land $ 32,263,736 $ - $ - $ 2,000,000 $ 34,263,736
Construction in progress 17,168,915 34,530,226 (5,328,458) (16,620,509) 29,750,174 Public art 646,630 - - 646,630 -
Total capital assets not
being depreciated 50,079,281 34,530,226 (5,328,458) (14,620,509) 64,660,540 Capital assets being depreciated:

Infrastructure 212,068,622 - - 2,820,666 214,889,288
Accumulated Depreciation (78,725,467) (4,475,744) - 908,043 (82,293,168) Buildings and improvements 49,594,783 - - 9,564,635 59,159,418 Accumulated Depreciation (23,571,208) (831,989) - (934,884) (25,338,081) Equipment 34,510,422 (739,587) - 2,235,208 36,006,043
Accumulated Depreciation (20,961,412) (2,092,401) 741,597 26,841 (22,285,375) Capital assets being amortized:

Right of use - Lease asset 736,731 - - 736,731 -
Accumulated Amortization (189,951) (152,402) - (342,353) - Subscription based I.T. agreeements 646,823 250,801 - 897,624 - Accumulated Amortization (207,043) (300,487) - (507,530) - Total capital assets being
depreciated/amortized, net 173,902,300 (7,602,222) 2,010 14,620,509 180,922,597 Governmental activities,
capital assets, net $ 223,981,581 $ 26,928,004 $ (5,326,448) $ 245,583,137 - $ Business-type activities:

Capital assets not being depreciated:

Land $ 9,069,495 $ - $ - $ 4,745,383 $ 13,814,878
Construction in progress 145,804,083 45,675,572 (644,675) (8,847,195) 181,987,785 Total capital assets not
being depreciated 154,873,578 45,675,572 (644,675) (4,101,812) 195,802,663 Capital assets being depreciated:

Infrastructure 244,420,943 - - 1,545,002 245,965,945
Accumulated Depreciation (113,156,049) (5,159,875) - 391,637 (117,924,287) Buildings and improvements 30,527,376 - - 30,527,376 -
Accumulated Depreciation (16,560,724) (592,430) - (5,152) (17,158,306) Equipment 23,923,177 (201,300) - 2,556,810 26,278,687
Accumulated Depreciation (16,146,945) (1,456,253) 206,241 (386,485) (17,783,442) Capital assets being amortized:

Subscription based I.T. agreeemnts 76,996 30 - - 77,026 Accumulated Amortization (25,666) (25,677) - (51,343) - Total capital assets being
depreciated, net 153,059,108 (7,234,205) 4,941 4,101,812 149,931,656 Business-type activities,
capital assets, net 307,932,686 38,441,367 (639,734) 345,734,319 - Total Government-wide $ 531,914,267 $ 65,369,371 $ (5,966,182) $ 591,317,456 - $ 101

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

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

Note 6: Leases
Pursuant to GASB 87, the City has the following lease receivables:

James Town
On 11/5/2013, the City entered into a lease with James Town Premier SL Retail, L.P. or commercial retail space located at the Marsh Street parking structure. Under the lease, the lessee pays the City $11,310 per month from 2/1/2014 – 1/31/2015 and with 3% increase each year from 2/1/2015 – 1/31/2024. City renewed the lease for 5 years. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 3.99%, which was the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2024, the City recognized $133,858 of lease revenue and $23,204 of interest revenue under the lease.

Crown Castle
On 9/19/2017, the City entered into a lease with Crown Castle NG West LLC to utilize City utility poles for communications equipment. Under the lease, the initial annual pole fee shall consist of $1,000 for each city pole which Crown Castle’s facilities are to be installed pursuant to this agreement and is payable to city upon execution and delivery of this agreement and prior to Crown Castle installing any portion of the network or any facilities. The term ends on 9/1/2047 with 3% increase annually. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 3.5%, which was the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2024, the City recognized $6,491 of lease revenue and $5,712 of interest revenue under the lease.

Garden Street
On 8/1/2015, the City entered into a lease with Garden Street SLO Partners, L.P for the right to use land formerly a surface parking lot in order to build a hotel. Under the lease, the lessee pays the City $171,600 or the “Base Annual Rent Floor”, which is the amount of Landlord’s annual net revenue from the operation of Parking Lot 2 on the premises in the period of twelve months ended on the last day of the last full calendar month ended two months prior to the rent commencement date. The amount of base rent shall be increased as of the first day of each rent adjustment period commencing with the rent adjustment period that begins on the first day of the third lease year and on the first day of each subsequent rent adjustment period. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 1%, which is the 5- year US Treasury rate in effect when the lease was entered into. In fiscal year 2024, the City recognized $391,827 of lease revenue and $367,087 of interest revenue under the lease.

Governmental activities:

Public safety 599,411 $
Transportation 2,819,451
Culture and recreation 273,805
Community development 125,802
General government 4,034,554
Total depreciation - governmental activities 7,853,023
Business-type activities:

Water 3,340,219
Sewer 2,773,962
Parking 683,564
Transit 436,460
Total depreciation - business-type activities 7,234,205 Total Government-wide $ 15,087,228
102

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 6: Leases (Continued)
Laguna AT&T
On 9/16/2009, the City entered into a lease with New Cingular Wireless PCS, LLC to locate a cellular communication site at the Laguna Lake Golf Course. Under the lease, the lessee pays the City $26,000 annually and thereafter, be multiplied by the CPI Adjuster or 3%, whichever is greater that ends on 9/30/2029. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 2%, which is the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2024, the City recognized $43,195 of lease revenue and $5,721 of interest revenue under the lease.

Laguna SBA
On 2/1/2005, the City entered into a lease with SBA 2012 TC Assets, LLC to locate a cellular communication site at the Laguna Lake Golf Course. Under the lease, the lessee pays the City $25,000 annually and thereafter, be multiplied by the CPI Adjuster or 3%, whichever is greater, that ends in 2025. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 3%, which is the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2024, the City recognized $37,074 of lease revenue and $1,408 of interest revenue under the lease.

Santa Rosa St
On 5/13/2011, the City entered into a lease with New Cingular Wireless PCS, LLC to locate a cellular communication site at the Santa Rosa Park. Under the lease, the lessee pays the City $26,000 annually and thereafter, be multiplied by the CPI Adjuster or 3%, whichever is greater, that ends on 5/13/2031. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 2%, which is the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2024, the City recognized $73,350 of lease revenue and $12,127 of interest revenue under the lease.

The future revenue payments as of June 30, 2024 are as follows:

Year Ending
June 30, Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest 2025 1,718 $ $ 5,661 $ 368,219 - $ $ 36,843 $ 5,023 $ 10,876$ 66,063 $ 114,642 $ 19,008 $ 219,266 $ 408,787 2026 2,000 5,601 369,364 - 38,836 4,286 69,693 122,794 9,555 14,866 233,323 403,672 2027 2,298 5,531 370,367 - 40,906 3,509 73,464 131,357 8,161 10,432 248,025 398,000 2028 2,613 5,451 371,380 - 43,057 2,691 77,382 140,351 6,692 5,692 263,403 391,906 2029 2,946 5,360 372,403 - 45,291 1,830 81,452 5,144 85,662 1,002 215,351 385,739 2030-2034 20,425 24,992 1,874,759 - 46,196 175,746 924 5,316 - - 242,367 1,905,991 2035-2039 32,001 20,650 1,891,797 - - - - - - - 32,001 1,912,447 2040-2044 46,983 14,051 1,901,628 843 - - - - - - 47,826 1,915,679 2045-2049 50,766 4,568 71,232 1,903,040 - - - - - - 121,998 1,907,608 2050-2054 - - 289,803 1,894,939 - - - - - - 289,803 1,894,939 2055-2059 - - 515,885 1,875,616 - - - - - - 515,885 1,875,616 2060-2064 - - 773,372 1,843,370 - - - - - - 773,372 1,843,370 2065-2069 - - 1,100,458 1,796,651 - - - - - 1,100,458 - 1,796,651 2070-2074 - - 1,439,358 1,733,086 - - - - - 1,439,358 - 1,733,086 2075-2079 - - 1,822,140 1,650,303 - - - - - 1,822,140 - 1,650,303 2080-2084 - - 2,300,009 1,546,131 - - - - - 2,300,009 - 1,546,131 2085-2089 - - 2,795,737 1,417,290 - - - - - 2,795,737 - 1,417,290 2090-2094 - - 3,352,341 1,260,499 - - - - - 3,352,341 - 1,260,499 2095-2099 - - 4,038,457 1,072,737 - - - - - 4,038,457 - 1,072,737 2100-2104 - - 4,750,848 849,496 - - - - - 4,750,848 - 849,496 2105-2109 - - 5,547,206 586,258 - - - - - 5,547,206 - 586,258 2110-2114 - - 6,519,506 278,850 - - - - - 6,519,506 - 278,850 2115 - - 1,504,755 14,434 - - - - - 1,504,755 - 14,434
Total 161,750 $ $ 91,865 $ 36,821,950 $ 27,242,617 $ 251,129 $ 18,263 543,800$ 45,744$ 594,806$ $ 38,373,435 51,000 $ $ 27,449,489 Crown Castle Garden St Laguna ATT Santa Rosa St Marsh St Total 103

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 7: 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, 2024:

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) and the San Luis Obispo Public Financing Authority (Authority) have 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/Authority have been eliminated from these financial statements.

Balance Balance Due Within
June 30, 2023 Additions Deductions June 30, 2024 One Year Governmental activities:
2012 Lease revenue refunding bonds $ 2,415,000 $ (2,415,000) - $ $ - $ - 2014 Lease revenue bonds 6,275,000 (190,000) - 6,085,000 200,000 2018 Lease revenue refunding bonds 8,089,250 (596,050) - 7,493,200 618,975 2023 Lease revenue refunding bonds 1,920,000 - 1,920,000 - 38,548 Add: Unamortized bond premium 1,050,308 205,408 (193,421) 1,062,295 - Total revenue bonds 17,829,558 205,408 (3,394,471) 16,560,495 857,523 Lease liability 570,922 (141,751) 429,171 152,725
Subscription based I.T. agreeemnts 407,465 133,646 (219,762) 321,349 226,808 Lease-purchase financing 36,245 (36,245) - -
Conservation Loan 46,887 (46,887) - - -
Total long-term debt,
governmental activities $ 18,891,077 $ 339,054 $ (3,839,116) $ 17,311,015 $ 1,237,056 Compensated absences $ 3,350,586 $ 5,667,276 $ (4,567,914) $ 4,449,948 $ 3,114,901 Business-type activities:
2018 Lease revenue refunding bonds $ 4,260,750 $ (313,950) - $ $ 3,946,800 $ 326,025 2018 Water revenue refunding bonds 7,860,000 (495,000) - 7,365,000 520,000 2023 Lease revenue refunding bonds 43,860,000 - 43,860,000 - 881,452 Add: Unamortized bond premium 1,675,074 3,567,490 (276,852) 4,965,712 - Total revenue bonds 13,795,824 47,427,490 (1,085,802) 60,137,512 1,727,477 Subscription based I.T. agreeemnts 50,596 (24,959) - 25,637 25,668 Loans 120,213,508 19,097,239 (1,246,644) 138,064,103 4,192,423 Installment sale agreements 3,575,863 (706,312) - 2,869,551 541,575 Total long-term debt,
business-type activities 137,635,791 66,524,729 (3,063,717) 201,096,803 6,487,143 Compensated absences 661,951 1,243,564 (989,538) 915,977 641,184 Total Government-wide $ 160,539,405 $ 73,774,623 $ (12,460,285) $ 223,773,743 $ 11,480,284 104

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 7: 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, 2024, the principal amount outstanding on the bonds was $0. 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, 2024.

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, 2024, the unamortized premium was $0. 2014 Lease Revenue Bonds. In 2014, the Authority 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, 2024, the principal amount outstanding on the bonds was $6,085,000.

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, 2024, the unamortized premium was $165,717. 2018 Lease Revenue Refunding Bonds. In 2018, the Authority 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, 2024, the principal amount outstanding that pertains to governmental activities was $7,493,200 of the total $11,440,000 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, 2024, the unamortized premium for governmental activities was $757,680.

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).
2023 Lease Revenue Refunding Bonds. On September 13, 2023, the San Luis Obispo Public Financing Authority issued $45,780,000 in Lease Revenue Bonds with premium of $3,707,639 for the construction of the Cultural Arts District Parking Structure and to refund the 2012 Lease Revenue Bonds. Debt service payments of approximately $2.8 million per year are expected to be paid from revenues generated by the City’s Parking Fund through December 2053. Of the original bond issuance, $1,920,000 was used for financing governmental activities related to the original bonds and the remainder was used for business-type activities. The refunding of 2012 lease revenue bond reduced its total debt service payments over 7 years by $484,439 and to obtain an economic gain of $56,492.

The bonds bear 5% interest and are due in annual installments on December 1 through December 1, 2053. In the Statement of Net Position, the 2023 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2023 bonds. At June 30, 2024, the unamortized premium in the governmental activities was $138,898. 105

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 7: Long Term Debt (Continued)
Lease Liability (Cuesta Peak)
On October 23, 2003, the City entered into a 22-year Lease Agreement as lessee of a site for City radio equipment. The City pays the landlord $16,857.96 annually with a 4% increase. An initial lease liability was recorded in the amount of $157,527. As of June 30, 2024, the value of the lease liability is $57,844. The City is required to make monthly payments of $670 and increase annually by 4% in October of each year. The lease has an interest rate of 3.04%. The value of the right to use asset as of June 30, 2024 of $157,442 with accumulated amortization of $110,633 is included in the intangible assets on the capital assets activities table found in Note 5 above.

Lease Liability (994 Mill Street)
On June 9, 2022, the City entered into a 3-year Lease Agreement as lessee of a site for the use of 11 parking spaces. The term of this lease commenced on July 1, 2022. The City pays the landlord $10,038 annually with a 3% increase. An initial lease liability was recorded in the amount of $579,204. As of June 30, 2024, the value of the lease liability is $371,326. The lease has an interest rate of 4%. The value of the right to use asset as of June 30, 2024 of $579,204 with accumulated amortization of $231,700 is included in the intangible assets on the capital assets activities table found in Note 5 above.

At June 30, 2024, the aggregate maturities of the aforementioned governmental activities revenue bonds were as follows:

At June 30, 2024, the aggregate maturities of the aforementioned governmental lease liabilities were as follows:

Revenue Bonds
For the Year Ending June 30, Principal Interest Total
2025 857,523 $ $ 640,760 $ 1,498,283
2026 894,093 599,731 1,493,824
2027 719,723 556,819 1,276,541
2028 751,677 523,850 1,275,527
2029 785,182 490,634 1,275,815
2030-2034 4,408,949 1,906,920 6,315,869
2035-2039 3,595,826 1,078,334 4,674,160
2040-2044 2,142,602 544,474 2,687,076
2045-2049 817,478 192,010 1,009,488
2050-2054 525,149 68,035 593,184
Subtotal 15,498,200 6,601,566 22,099,766
Unamortized bond Premium 1,062,295 1,062,295 -
Total $ 16,560,495 $ 6,601,566 $ 23,162,061
For the Year Ending June 30, Principal Interest Total
2025 152,725 $ 14,505 $ 167,230 $
2026 143,768 8,365 152,133
2027 132,678 2,892 135,570
$ 429,171 $ 25,762 $ 454,933
106

City of San Luis Obispo, California
Notes to the Financial Statements
June 30, 2024

Note 7: Long Term Debt (Continued)
Lease-Purchase Financing
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 $90,732 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, 2024, the principal amount outstanding is $0. 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, 2024, the principal amount outstanding is $0.

Subscription Based Information Technology Arrangements
Application Software Technology (AST). AST arrangement is a five-year agreement, initiated on September 1, 2021 with an annual payment of $20,400. The city has used a 2.88% for this arrangement based on similar debt during the same fiscal year. There are no options to extend the arrangement or purchase the software. eScribe. eScribe arrangement is a three-year arrangement, initiated on February 17, 2021. The city pays the vendor $18,110 annually with 2.5% increase. The city has used a 2.85% for this arrangement based on similar debt during the same fiscal year. The arrangement will automatically renew for an additional Term unless notice of cancellation is received 60 days prior to the expiration of the Term.

ESRI ArcGIS Online. ESRI ArcGIS Online arrangement is a three-year arrangement, initiated on July 8, 2020. The payment amount on the city is based on the price of quote. The city has used a 2.85% for this arrangement based on similar debt during the same fiscal year. The city decided to sign another three-year renewal for the arrangement until July 6, 2026.

Office 365. Office 365 arrangement is a three-year agreement, initiated on July 1, 2022 with an annual payment of $189,126. The city has used a 2.85% for this arrangement based on similar debt during the same fiscal year. An extended term feature that allows Online Services to continue month-to-month is available. The city allocates this arrangement for both governmental and business entity funds.

At June 30, 2024, the aggregate maturities of the aforementioned subscription based I.T. agreements were as follows:

For the Year Ending June 30, Principal Interest Total
2025 $ 252,476 $ 9,673 $ 262,149
2026 71,314 2,483 73,797
2027 13,681 456 14,137
2028 9,515 96 9,611
$ 346,986 $ 12,708 $ 359,694
107