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CI
TY OF SANTA CLARA
REQUIRED COMMUNICATIONS
F
OR THE YEAR ENDED JUNE 30, 2023
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CITY OF SANTA CLARA
REQUIRED COMMUNICATIONS
For the Year Ended June 30, 2023
Table of Contents
Page
Required Communications ................................................................................................................... 1
Significant Audit Matters .................................................................................................................. 1
Qualitative Aspects of Accounting Practices .............................................................................. 1
Difficulties Encountered in Performing the Audit .................................................................... 3
Corrected and Uncorrected Misstatements .............................................................................. 4
Disagreements with Management.............................................................................................. 4
Management Representations ..................................................................................................... 4
Management Consultations with Other Independent Accountants .......................................... 4
Other Audit Findings or Issues ................................................................................................... 4
Other Matters .................................................................................................................................... 4
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REQUIRED COMMUNICATIONS
To the City Council of
the City of Santa Clara, California
We have audited the basic financial statements of the City of Santa Clara for the year ended June 30, 2023. We did not audit the component financial statements of the Santa Clara Stadium Authority as of and for the year ended March 31, 2023 which represent 42.7%, 6.8%, and 8.8% of the assets, net position and revenues, respectively, of the business- type activities. We also did not audit the components related to the Investment in Joint Ventures, which collectively include: Northern Californ ia Power Agency (NCPA), Transmission Agency of Northern California (TANC), M-S-R Energy Authority (MSR EA), M- S-R Public Power Agency (MSR PPA), and San Jose- Santa Clara Regional Wastewater Facility and Clean Water Financing Authority (SJSC) for the year e nded June 30, 2023, which collectively represent
9.2%, 18.7%, and 0.8%, respectively, of the assets , net position and revenues of the business-type activities. These component unit financial statements and component financial statements were audited by other auditors, whose reports thereon have been furnished to us, and our opinions , insofar as it relates to the amounts included for these entities, is based solely on the reports of the other auditors.
Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing Standards and the Uniform Guidance, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated April 17, 2023. Professional standards also require that we communicate to you the following information related to our audit.
Significant Audit Matters
Qualitative Aspects of Accounting Practices
Accounting Policies - Management is responsible for the selection and use of appropriate accounting policies. The significant accounti ng policies used by the City are described in Note 2 to the financial statements. No new accounting policies were adopted, and the application of existing policies was not changed during the year, except t he following Governmental Accounting Standards Boa rd (GASB) pronouncements became effective:
GASB 96 – Subscription Based Information Technology Arrangements
This Statement provides guidance on the accounting and financial reporting for subscription- based information technology arrangements (SBITAs) for government end users (governments).
This Statement (1) defines a SBITA; (2) establishes that a SBITA results in a right- to-use subscription asset—an intangible asset —and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. To the extent relevant, the standards for SBITAs are based on the standards established in Statement No. 87, Leases, as amended.
A SBITA is defined as a contract that conveys control of the right to use another party’s (a SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction.
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The subscription term includes the period during which a government has a noncancelable right to use the underlying IT assets. The subscription term also includes periods covered by an option to extend (if it is reasonably certain that the government or SBITA vendor will exercise that option) or to terminate (if it is reasonably certain that the government or SBITA vendor will not exercise that option).
Under this Statement, a government generally should recognize a right -to-use subscription asset—an intangible asset —and a corresponding subscription liability. A government should recognize the subscription liability at the commencement of the subscription term, —wh ich is when the subscription asset is placed into service. The subscription liability should be initially measured at the present value of subscription payments expected to be made during the subscription term. Future subscription payments should be discounted using the interest rate the SBITA vendor charges the government, which may be implicit, or the government’s incremental borrowing rate if the interest rate is not readily determinable. A government should recognize amortization of the discount on the subscription liability as an outflow of resources (for example, interest expense) in subsequent financial reporting periods.
The subscription asset should be initially measured as the sum of (1) the initial subscription liability amount, (2) payments made to the SBITA vendor before commencement of the subscription term, and (3) capitalizable implementation costs, less any incentives received from the SBITA vendor at or before the commencement of the subscription term. A government should recognize amortization of the subscription asset as an outflow of resources over the subscription term.
The pronouncement became effective and was disclosed in Note 10I to the financial statements.
The following pronouncements became effective, but did not have a material effect on the financial statements:
GASB 91 – Conduit Debt Obligations
GASB 94 – Public-Private and Public -Public Partnerships and Availability Payment Arrangements
Unusual Transactions, Controversial or Emerging Areas – We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period.
Accounting Estimates – Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimate s affecting the City’s financial statements were:
Estimated Net Pension Liabilities and Pension -Related Deferred Outflows and Inflows of Resources: Management’s estimate of the net pension liabilities and deferred outflows/inflows of resources are disclosed in Note 13 to the financial statements and are based on actuarial studies and accounting valuations determined by the California Public Employees Retirement System , which are based on the experience of the City. We evaluated the key factors and assumptions used to develop the estimate and determined that it is reasonable in relation to the basic financial statements taken as a whole.
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Estimated Net OPEB Liability and OPEB -Related Deferred Outflows and Inflows of Resources :
Management’s estimate of the net OPEB liability and deferred outflo ws/inflows of resources is disclosed in Note 16 to the financial statements and is based on actuarial study determined by a consultant, which is based on the experience of the City. We evaluated the key factors and assumptions used to develop the estimate and determined that it is reasonable in relation to the basic financial statements taken as a whole.
Estimated Fair Value of Investments: As of June 30, 2023, the City held approximately $ 1.16 billion of cash and investments as measured by fai r value as disclosed in Note 7 to the financial statements. Fair value is essentially market pricing in effect as of J une 30, 2023. These fair values are not required to be adjusted for changes in general market conditions occurring subsequent to June 30, 2023.
Estimated Investment in Joint Ventures: Management’s estimate of the investment in joint ventures is disclosed in Note 12 to the financial statements and is based on the audited financial statements of the entities for the prior fiscal year. We evaluated the key factors and assumptions used to develop the investment in joint ventures in determining that it is reasonable in relation to the financial statements taken as a whole.
Estimate of Depreciat ion: Management’s estimate of the depreciation is based on useful lives determined by management. These lives have been determined by management based on the expected useful life of assets as disclosed in Note 2I to the financial statements. We evaluated the key factors and assumptions used to develop the depreciation estimate in Note 9 to the financial statements and determined that it is reasonable in relation to the basic financial statements taken as a whole.
Estimate of Compensated Absences: Accru ed compensated absences which are comprised of accrued vacation, holiday, and certain other compensating time is estimated using accumulated unpaid leave hours and hourly pay rates in effect at the end of the fiscal year as disclosed in Note 2L to the financial statements. We evaluated the key factors and assumptions used to develop the accrued compensated absences and determined that it is reasonable in relation to the basic financial statements taken as a whole.
Estimated Landfill Closure Liability : Management’s estimate of the landfill closure liability is disclosed in Note 11 to the financial statements and is based on the City’s estimate of future post- closure maintenance and corrective action costs required by its agreement with CalRecycle . We evaluated the key factors and assumptions used to develop the landfill closure liability in determining that it is reasonable in relation to the financial statements taken as a whole.
Estimated Claims Liabilities: Management’s estimate of the claims liabilit ies payable is disclosed in Note 19 to the financial statements and is based on actuarial studies determined by a consultant, which are based on the claims experience of the City. We evaluated the key factors and assumptions used to develop the estimate and determined that it is reasonable in relation to the basic financial statements taken as a whole.
Disclosures – The financial statement disclosures are neutral, consistent and clear.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our audit.
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Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole.
Professional standards require us to accumulate all known and likely uncorrected misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. We have no such misstatements to report to the City Council.
Disagreements with Management
For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit.
Management Representations
We have requested certain representations from management that are included in a management representation letter dated November 15, 2023.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves the application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention.
Other Matters
We applied certain limited procedures to the required supplementary information that accompanies and supplements the basic financial statements. Our procedures consisted of inquiries of management regarding 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 did not audit the required supplementary information and do not express an opinion or provide any assurance on the required supplementary information.
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We were engaged to report on the supplementary information that accompanies the financial statements, but is not required supplementary information. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary infor mation to the underlying accounting records used to prepare the financial statements or to the financial statements themselves.
We were not engaged to report on the Introductory and Statistical Sections which accompany the financial statements, but are not required supplementary information. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance them.
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This information is intended solely for the use of City Council and management and is not intended to be, and should not be, used by anyone other than these specified parties.
Pleasant Hill, California
November 15, 2023
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