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Reso No. (CM) 1
Meeting Date: 022222
RESOLUTION NO. ______ (CM)

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF

WATSONVILLE CONSENTING TO THE ASSIGNMENT OF LEASE,
DATED FEBRUARY 22, 2022, BETWEEN SERGIO ANGELES AND
TIFFANY ELLA KING DBA ELLA’S AT THE AIRPORT AND CHIELO

APAC, AND AUTHORIZING AND DIRECTING THE CITY MANAGER

PRO TEMPORE TO EXECUTE SAME

BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF WATSONVILLE, CALIFORNIA, AS FOLLOWS:

1. That the City Council does hereby consent to the Assignment of Lease, dated February 22, 2022 (the “Assignment”), between Sergio Angeles and Tiffany Ella King dba Ella’s at the Airport and Chielo Apac relating to that certain Lease, dated February 22, 2022, by and between the City of Watsonville and Tiffany Ella King and Sergio Angeles, individually, and dba as Ella’s at the Airport, a copy of which Assignment is attached hereto and incorporated herein by this reference, and is hereby approved.

2. That the City Manager Pro Tempore be and is hereby authorized and directed to execute the consent to such Assignment, in the form attached hereto, with minor revisions that may be approved by the City Manager Pro Tempore and the City Attorney.
********************************************

Reso No. (CM) 1
Meeting Date: 022222
RESOLUTION NO. ______ (CM)

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF

WATSONVILLE APPROVING THE SETTLEMENT AGREEMENT AND
MUTUAL WAIVER OF CLAIMS, DATED FEBRUARY 22, 2022,

BETWEEN TIFFANY ELLA KING AND SERGIO ANGELES, AND THE

CITY OF WATSONVILLE, AND AUTHORIZING AND DIRECTING THE

CITY MANAGER PRO TEMPORE TO EXECUTE SAME

BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF WATSONVILLE, CALIFORNIA, AS FOLLOWS:

1. That the Settlement Agreement and Mutual Waiver of Claims, dated February 22, 2022, (the “Settlement”) between Tiffany Ella King and Sergio Angeles, and the City of Watsonville, relating to the mutual waiver of claims arising out of any facts or circumstances related to the Lease (as defined in the Settlement), the Assignment (as defined in the Settlement), or Tiffany King’s and Sergio Angeles’ tenancy at the Watsonville Municipal Airport, a copy of which Settlement is attached hereto and incorporated herein by this reference, is fair and equitable and is hereby approved.

2. That the City Manager Pro Tempore be and is hereby authorized and directed to execute such Settlement, in the form attached hereto, with minor revisions that may be approved by the City Manager Pro Tempore and the City Attorney. ********************************************

2/18/2022 11:26:20 AM
C:\Program Files\eSCRIBE\TEMP\11261546251\11261546251,,,Report - Mid Yr FY21-22 Financial Rpt and Related Actions .docx Agenda Report
MEETING DATE: Tuesday, February 22, 2022
TO: City Council
FROM: ADMINISTRATIVE SERVICES DIRECTOR CZERWIN
SUBJECT: ACCEPTANCE OF AUDITED FINANCIAL REPORTS FOR FY 2020- 2021 & MID-YEAR FY 2021-22 FINANCIAL REPORT & RELATED
ACTIONS; APPROVAL OF A RESOLUTION AMENDING THE 2021-22
BUDGET TO AUTHORIZE $2,508,632 BUDGET APPROPRIATIONS

INTO VARIOUS FUNDS & TO AUTHORIZE FOUR ADDITIONAL

POSITIONS
STATEMENT OF ISSUES:

Receive audited financial reports for Fiscal Year 2020-21 and a mid-year financial report for FY 2021-22.

RECOMMENDED ACTION:

It is recommended that the City Council:

I. Accept by motion, the Annual Comprehensive Financial Report for FY 2020-21, and
II. Accept by motion, the mid-year financial report for the 2021-22 Fiscal Year:

III. Accept by motion, the Annual Measure G Audit Report for FY 2020-21, and IV. Approve a resolution amending the FY 2021-2022 budget and authorizing $2,508,632 budget appropriations into various funds, offset by $1,717,000 in revenues and authorizing four additional positions.

DISCUSSION:

I. Review of Fiscal Year 2020-21
The City’s Charter and the State of California law require that all general-purpose local governments publish a complete set of financial statements presented in conformity with accounting principles generally accepted in the United States of America (US GAAP). Upon its completion, the City prepared the Annual Comprehensive Financial Report (ACFR) and submitted it to the Government of Finance Officers Association (GFOA) for consideration in receiving the “Certificate of Achievement for Excellence in Financial Reporting.

The report was audited by Maze and Associates, an independent firm of certified public accountants (CPA), who issued an unqualified opinion of the City’s audit. Some of the

2/18/2022 11:26:20 AM
C:\Program Files\eSCRIBE\TEMP\11261546251\11261546251,,,Report - Mid Yr FY21-22 Financial Rpt and Related Actions .docx highlights presented in the audited statements include (all figures are in thousands unless otherwise indicated):
 The assets of the City of Watsonville exceeded its liabilities at the close of the most recent fiscal year by $250,403. See Table 1 below.
 The City’s total net position increased by $8,211. Governmental activities net position increased by $3,605 and most of this increase was due to an increase in cash mainly due to the receipt of American Rescue Plan Act (ARPA) monies. Business type activities net position increased by $4,606. Most of this increase was from Water ending with positive operating income.
 As of the close of the fiscal year, the City’s governmental funds reported combined ending fund balances of $42,891, an increase of $4,071 in comparison with the prior fiscal year’s balances. The non-spendable portion of the fund balance was $308, the restricted portion was $24,735 and the unassigned amount was $17,848. A large portion of the unassigned fund balance was created by increases in taxes by the general fund during fiscal year 2020-21 and budgetary expenditure savings.

General Fund Balance
In Fiscal Year 2020-21 the General Fund ended with a Fund Balance of $18,271k, a $1,678k increase from FY 2019-20. The General Fund as reported in the CAFR includes eighteen subaccounts that operationally we treat as distinct. One of which is the chief operating fund of the City known as the 0150 General Fund. The balance in this fund grew, as had been presented to the Council in prior FY 2020-21 updates, due to revenues not declining nearly as much as had been expected at the beginning of the pandemic. Other subaccounts that increased their balances this year were the civic center plaza and computer replacement. The grants subaccount in particular decreased its balance by over $1million as City departments spent money on grant programs and are awaiting reimbursement. The General Fund’s fund balance now is approximately 39% of operating expenses exceeding the Councils approved policy goal of 20%. See Chart 1. A fund balance of this size was anticipated during the budget process and most of the fund balance above our reserve requirement is expected to be spent in future years. See Chart 2.

2/18/2022 11:26:20 AM
C:\Program Files\eSCRIBE\TEMP\11261546251\11261546251,,,Report - Mid Yr FY21-22 Financial Rpt and Related Actions .docx Table 1:

City of Watsonville’s Net Position
June 30, 2021(in thousands)
Governmental Business-type
Activities Activities Total
2021 2020 2021 2020 2021 2020
$ $ $ $ $
Revenues:

Program Revenues:

Charges for services 11,338 11,936 56,355 53,011 67,693 64,947 Operating grants and
contributions 5,100 5,988 732 787 5,832 6,775
Capital grants and
contributions - - 107 163 107 163
General Revenues
Property taxes 16,169 16,243 - 16,169 16,243
Other taxes 30,834 26,704 - 30,834 26,704
Others 2,531 4,555 1,344 811 3,875 5,366
Total Revenues and Transfers 65,972 65,427 58,538 54,772 124,510 120,199 Expenses:

General government 8,599 13,812 - 8,599 13,812
Public safety 35,608 35,811 - 35,608 35,811
Housing 429 2,059 - 429 2,059
Streets 8,652 6,931 - 8,652 6,931
Culture and recreation 9,201 9,850 - 9,201 9,850
Interest on debt 123 78 44 38 167 116
Water - - 15,960 19,369 15,960 19,369
Sewer - - 14,190 14,099 14,190 14,099
Solid waste - - 19,189 12,567 19,189 12,567
Airport - - 4,235 3,803 4,235 3,803
Fiber optic - - 69 59 69 59
Total Expenses 62,612 68,541 53,687 49,935 116,299 118,476 Increase in net position
before transfers 3,360 (3,114) 4,851 4,838 8,211 1,723
Internal balances 245 251 (245) (251) - -
Change in net position 3,605 (2,863) 4,606 4,586 8,211 1,723 Net position - beginning 125,175 128,039 116,940 112,354 242,116 240,392 Prior year adjustments 77 - - 77 -
Net position - beginning restated 125,252 128,039 116,940 112,354 242,192 240,392 Net position ending 128,857 125,175 121,546 116,940 250,403 242,116

2/18/2022 11:26:20 AM
C:\Program Files\eSCRIBE\TEMP\11261546251\11261546251,,,Report - Mid Yr FY21-22 Financial Rpt and Related Actions .docx Chart 1:

History of General Fund Balance
Chart 2:

Uses of Fund Balance

2/18/2022 11:26:20 AM
C:\Program Files\eSCRIBE\TEMP\11261546251\11261546251,,,Report - Mid Yr FY21-22 Financial Rpt and Related Actions .docx II. Review of Fiscal Year 2021-22
Revenues:

The budget for Fiscal Year 2021-22 assumed a return to normalcy with a normal level of revenue growth after the unpredictability of the pandemic.

Property Taxes: Property taxes were budgeted to assume about 5% growth. This assumed the lower increase in CPI for existing assessments which would be offset by increases in assessed value of properties changing hands. It also assumed increases in supplemental and transfer taxes for properties changing hands but before they hit the normal property tax roll.

Current projections are that we will slightly exceed budget by about $145k in property taxes mainly in property tax in-lieu revenues.

Sales tax continues to perform better than expected according to available data through the end of September 30. Sales tax FY 20-21 ended at 19% above the prior year. This year we are expecting it to increase by another 3% or $1.3 million above budget. Toward the end of last fiscal year, we continued to see increases in revenue for the county pools and auto sales.

That, as predicted is leveling off somewhat in the first quarter of this fiscal year. Our share of the county pools has decreased as in person shopping and tourism returned to our county neighbors. Also, vehicle sales are down somewhat and more in line with historical averages.

It is unclear if this is due to supply issues and will rebound once again or if the high sales during the last year were an anomaly. These decreases are being offset by rebounds and increases in restaurants and hotels, building and construction, and fuel and service stations. It is important to note that in nearly all categories sales tax is now exceeding pre-pandemic levels.

Hotel tax also is performing close to projections and about equal to pre-pandemic levels. This is despite two hotels having been taken offline for county related housing. Both the Rodeway and the Comfort Inns are no longer serving as hotels and are not remitting any taxes.

However, the opening of the Hampton Inn is making up for the combined loss of revenues from those two hotels.

Our other general revenues including Utility taxes, franchise fees, and business licenses are performing as expected and with little variation from budget. We are seeing some decreases in interest revenue. Interest rates are at historic lows and our investments are simply not earning as much interest as in prior years. And, during the budget process, before the rules of ARPA were fully understood, we had assumed we would be able to use ARPA money to offset decreases in some departmental revenue. We now know that is not how that program is working and we will not be able to recognize that revenue in the way we had budgeted it.

Departmental revenues are generally positive. The Community Development Department is seeing a surge in activity particularly in building permits. They are currently on track to bring in over $2 million in revenue, or $180k above budget. Our Police Department however will have slightly less revenue than budgeted due to it no longer allowing outside agencies to use the range and due to vacancies in parking enforcement officers and therefore less parking fine revenue. The Fire Department will be bringing in reimbursements from deploying its’ strike teams which will partially offset cost overruns in that department. The Parks and Community

2/18/2022 11:26:20 AM
C:\Program Files\eSCRIBE\TEMP\11261546251\11261546251,,,Report - Mid Yr FY21-22 Financial Rpt and Related Actions .docx Services Department will have slightly less revenues than budgeted due to some programs still being limited due to the pandemic, the use of their buildings for COVID-19 testing in lieu of programming, and slow hiring and turnover which limited the programmatic offerings during the summer and fall. Finally, the Public Works Department is showing lower than budgeted revenue in reimbursable activities which will be offset by expenditure savings.

Expenditures:

For the most part, departments are spending within their budget with minimal savings projected.

There are a few areas where departments are feeling strain and therefore we are requesting additional appropriations in a few areas.
1- Fire Department: The Fire Department had strike teams deployed around the state assisting with massive fires for most of August and September and incurred related overtime costs.

Despite hiring efforts, it is also working with several vacancies which are requiring backfill with overtime. Some of that excess overtime is being reimbursed as described above, some is also being offset by salary savings from vacancies. Nevertheless, the department is requesting $580k in overtime. The Fire Department, like many departments, are also facing increased fuel and vehicle maintenance costs. This is due to inflation, difficulty in obtaining parts, and increased shop costs. Therefore, we are also asking for $24k in fuel and $56k in shop appropriations for a total of $660k in requests for the Fire Department. A reminder that $484k of this is offset by unplanned strike team revenues as described above. 2- Police: The Police Department similar to the Fire Department is dealing with increased fuel and vehicle maintenance costs. The department is able to absorb some of those increases within their department from savings due to vacant positions and turnover and other savings.

However, there remains approximately $100k of increased fuel costs that they will not be able to absorb and they are requesting this amount to cover their costs for the remainder of the fiscal year.
3- Community Development Department: As mentioned above the Community Development Department has been extremely busy processing planning and building requests. We are requesting moving salaries for a planner back into the General Fund from a housing fund to better reflect where the majority of the work is being done, a total of $46,989. CDD is also requesting to use some balance of their cannabis funds to purchase equipment and furniture for the department, and requesting reappropriation of CDBG funds for the parklet program that was not carried forward to this fiscal year.
4- Finance: The Finance department has embarked on a number of projects requiring the help of outside consultants. We have engaged with professionals to assist us in revising our cost allocation plan, and analyzing strategies for managing our CalPERs unfunded actuarial liability. Both projects are likely to result in substantial savings to the General Fund in future years and therefore we are requesting a one-time increase to our budget of $66k to fund these projects.
5- Public Works: The General Fund divisions of public works cover building, streets, and sidewalk maintenance. We are requesting to increase this budget by $245,000. $97,000 is

2/18/2022 11:26:20 AM
C:\Program Files\eSCRIBE\TEMP\11261546251\11261546251,,,Report - Mid Yr FY21-22 Financial Rpt and Related Actions .docx for a cost sharing agreement with CalTrans to pay for past electricity at shared intersections. $74,000 is to increase custodial and building maintenance activities in and around city buildings. Custodial needs have increased due to Covid-19 and regular building maintenance of our aging buildings can help reduce major capital projects in the future. Finally, this division is also requesting $74,000 for contracts related to slough and trail maintenance. 6- Parks and Community Services: The Parks and Community Services Department is currently projected to have some savings due to turnover and slower than hoped for hiring.

These savings also represent one position being hired and paid for out of the ARPA partially offsetting the revenue loss described above. The department is continuing to hire and hopes to be at full staff before spring and summer programming begins.

All other departments are expected to end the year on budget. Some General Fund capital projects will not be completed as budgeted this fiscal year but we do anticipate to roll those projects into Fiscal Year 2022-23. Table 2 below shows a summary of all General Fund appropriations requests. Table 3 summaries the overall projection for the General Fund for FY 2021-22.

Table 2: Summary of General Fund Appropriation Requests Ongoing One-Time Total
Revenues
Fire 484,000 484,000
Expenses
Fire 80,000 580,000 660,000
Public Works 148,000 97,000 245,000
Police 100,000 100,000
Finance 66,000 66,000
CDD 46,989 46,989
City Council 10,500 10,500
Expenses Total 1,128,489

2/18/2022 11:26:20 AM
C:\Program Files\eSCRIBE\TEMP\11261546251\11261546251,,,Report - Mid Yr FY21-22 Financial Rpt and Related Actions .docx Table 3: General Fund Summary for Fiscal Year 2021-22
Revenues Actuals
Revised
Budget
Actuals
through
2/1/2022 Projection
variance
positive
/(negative)
Property Tax 12,585,390 13,287,104 6,556,539 13,433,085 145,981 Sales Tax 12,817,984 12,080,264 6,891,560 13,432,874 1,352,610 Utility 3,993,803 4,132,451 2,107,784 4,132,451 -
Hotel 766,626 1,173,440 911,910 1,173,440 -
Transfer In 4,711,893 4,126,938 1,891,643 4,126,938 -
Other Revenues 6,300,269 4,947,811 2,410,424 4,171,123 (776,688) 41,175,965 39,748,008 20,769,860 40,469,911 721,904
CDD 1,628,324 1,864,000 1,439,536 2,044,748 180,748
Police 915,331 1,302,000 856,107 1,278,695 (23,305)
Fire 1,017,949 469,200 823,622 953,906 484,706
PCS 355,906 941,250 382,994 847,836 (93,414)
PW 149,947 299,179 103,522 274,493 (24,686)
Other 2,710,018 2,903,034 1,429,797 2,859,595 (43,439)
Total GF Revenue 47,953,440 47,526,671 25,805,438 48,729,184 1,202,514 Expenditures Actual
Revised
Budget
Actuals
through
2/1/2022 Projection
variance
positive
/(negative)
Police 18,570,928 20,195,912 13,456,884 20,296,744 (100,832) Fire 8,060,767 7,956,138 5,766,619 8,618,409 (662,271)
PCS 3,426,769 5,366,337 2,600,700 5,207,370 158,967
General Gov't 3,293,660 3,723,235 2,029,913 3,723,235 - Non Dept 5,801,274 2,930,698 1,280,542 2,930,698 -
CDD 2,302,633 2,916,910 1,586,406 2,963,899 (46,989)
Finance 1,570,314 1,711,099 1,056,719 1,777,099 (66,000) PW 1,299,439 1,625,627 958,412 1,870,627 (245,000)
Library 542,428 585,686 502,475 585,686 -
IT (7,702) - - -
Total Depts 44,860,510 47,011,642 29,238,670 47,973,767 (962,125) Capital 569,803 4,299,662 612,271 2,281,964 2,017,698
Total Expenditures 45,430,313 51,311,304 29,850,941 50,255,731 1,055,573 YE change to Fund Balance 2,523,127 (3,784,633) (4,045,503) (1,526,546) 2,258,087 Capital Carryforward (565,530) (2,017,698)
FY 2020-21 FY 2021-22

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C:\Program Files\eSCRIBE\TEMP\11261546251\11261546251,,,Report - Mid Yr FY21-22 Financial Rpt and Related Actions .docx Other Funds
The Airport did a fantastic job of controlling costs and obtaining reimbursements during FY 2020-21 and ended the year with $766k in cash. In FY 2021-22 their biggest challenges are fuel and legal costs. However, the department was conservative on their revenue projections and will make more revenue in fuel sales and hangars, and is able to control operating costs to such an extent that we project they will be able to fund their projected increases in expenditures. They are asking to appropriate revenue to cover requested costs for fuel and legal services. They are on track to maintain their cash balance by the end of the fiscal year.

The Utility Enterprise funds of Water, Sewer, and Solid Waste are seeing relatively normal revenues. They anticipate receiving grants from the state to help pay aging account balances for customers who were not able to pay their bills during the pandemic. On the expenditure side, all three utilities expect to fully expend their operating budgets but will not fully expend their capital budgets. Much of that will likely be requested to be carried forward but will result in increases to the cash balances at the end of the fiscal year.

The utility funds are requesting some budget updates, specifically they are requesting two new positions. One, a Senior Environmental Project Analyst to continue efforts to ensure the City’s compliance with our climate action plan and other environmental sustainability projects. They are also requesting a new Utility Worker position to enhance our graffiti abatement efforts.

They are also requesting moving some salary dollars from the water division to the utilities administrative division to better reflect the actual usage of an electrical technician position that supports all utilities.

Revenues from sales tax are the primary revenue source for the Library, Measure D, and Measure Y funds. Therefore, as discussed above, each of these funds are projected to have better FY 2021-22 revenues than originally projected. Each of these funds also plans to fully expend their operating budgets but have some savings in capital. Therefore, each will increase their cash balances by year end and have one-time monies available for future projects.

Gas Tax and SB1 are revenues driven more by the number of miles driven than by the cost of gasoline. They are not projected to have major fluctuations in their revenue projections though likely will have savings from capital projects that will not be completed this year. They will likely roll those projects forward and complete them in future years.

The Information and Technology internal service fund accumulated a balance of approximately $1.3 million in the prior year. The budget anticipated spending much of that down on citywide infrastructure projects such as upgrading the council chamber and replacing servers, switches, and other major hardware. The IT Department is going through some growth and transition in order to provide the needed level of service to other departments. The department is requesting two additional IT analyst positions, one which will be funded by the Public Works department, the other funded by the Library. This is in part to reflect centralizing IT positions previously budgeted in other departments to the IT Department. The fund will have some expenditure savings as some positions have been vacant for much of the year and projects that will be continued into future years.

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C:\Program Files\eSCRIBE\TEMP\11261546251\11261546251,,,Report - Mid Yr FY21-22 Financial Rpt and Related Actions .docx Finally, this year a new internal service fund was created to manage costs related to the Municipal Service Center Vehicle Shop. This division manages the maintenance of all the City’s vehicles. A new fleet manager is making many changes to this operation in hopes of yielding a more efficient shop that manages the city’s fleet in a data driven way. As described above this division is dealing with increased fuel and vehicle part costs in a very significant way. They are requesting additional appropriations of $280k for vehicle parts and $290k in fuel. These costs will be recovered by departments, most of which are able to absorb the increases within their operating budget aside from the Police and Fire Departments as noted above.

See Table 4 for a summary of all non-general fund appropriation requests and Table 5 for a summary of the other major funds discussed above.

Table 4: Summary of Non-General Fund Appropriation Requests Next Steps
The mid-year report officially kicks off the budget season for Fiscal Year 2022-23. The actions and projections used in this report will inform an updated five-year projection and budget outlook.

Budget instructions will be given to departments at the end of February for them to use in making budget proposals to the City Manager by March 31. We will continue to monitor both revenues and expenditures for the remainder of the fiscal year and make any necessary updated projections around the end of the third quarter in late April or early May. A proposed FY 2022- 23 budget will be submitted to the Council on June 1.

Revenue Expense
Airport 565,000 565,000
IT 98,000 98,000
MSC-Shop 570,000 570,000
Housing (46,989)
Cannabis 42,752
CDBG 65,000
Wastewater 67,065
Solid Waste 19,315
Total 1,233,000 1,380,143

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C:\Program Files\eSCRIBE\TEMP\11261546251\11261546251,,,Report - Mid Yr FY21-22 Financial Rpt and Related Actions .docx Table 5: Summary of Other Funds for FY 2021-22
Starting Balance Revenue Expense Ending Balance
Airport Revised Budget 766,582 4,033,476 3,874,126 925,932 Projection 766,582 4,669,627 4,439,491 996,718
Variance 636,151 (565,365) 70,786
Water Revised Budget 23,823,748 21,569,685 29,110,106 16,283,327 Projection 23,823,748 21,569,685 21,311,410 24,082,023
Variance - 7,798,696 7,798,696
Sewer Revised Budget 11,975,864 16,530,385 24,134,580 4,371,669 Projection 11,975,864 16,530,385 19,549,953 8,956,296
Variance - 4,584,627 4,584,627
Solid Waste Revised Budget 8,566,494 16,181,765 17,925,661 6,822,598 Projection 8,566,494 16,181,765 17,320,674 7,427,585
Variance - 604,987 604,987
Library Revised Budget 835,095 3,705,459 3,968,429 572,125 Projection 835,095 4,182,051 3,718,429 1,298,717
Variance 476,592 250,000 726,592
Measure D Revised Budget 2,469,383 942,424 2,960,976 450,831 Projection 2,469,383 1,209,204 1,343,370 2,335,217
Variance 266,780 1,617,606 1,884,386
Measure Y Revised Budget 3,725,098 4,440,557 5,845,354 2,320,301 Projection 3,725,098 5,126,623 5,818,972 3,032,749
Variance 686,066 26,382 712,448
Gas Tax Revised Budget 807,964 1,276,440 1,865,094 219,310 Projection 807,964 1,276,440 1,865,094 219,310
Variance - - -
SB1 Revised Budget 1,697,637 1,046,279 2,381,440 362,476 Projection 1,697,637 1,046,279 1,600,127 1,143,789
Variance - 781,313 781,313
IT Fund Revised Budget 1,394,605 3,497,761 4,439,047 453,319 Projection 1,394,605 3,497,761 3,755,580 1,136,786
Variance - 683,467 683,467
MSC -Shop Revised Budget - 2,246,989 2,795,543 (548,554) Projection - 2,223,339 2,795,543 (572,204)
Variance (23,650) - (23,650)

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C:\Program Files\eSCRIBE\TEMP\11261546251\11261546251,,,Report - Mid Yr FY21-22 Financial Rpt and Related Actions .docx STRATEGIC PLAN:
02-Fiscal Health: the report above meets strategic plan goal number 2 by keep the Council and the public informed as to the status of the City’s finances FINANCIAL IMPACT:

The recommended appropriations detailed in Attachment 1 total $2,508,632. Those appropriations are funded by $1,717,00 in revenue. The remaining requests are being funded with anticipated tax revenues for the General Fund or available balances in the respective fund.

ALTERNATIVE ACTION:

Council may choose to accept some, all, or none of the recommendations before them.

ATTACHMENTS AND/OR REFERENCES (If any):

Attachment A: Recommended Appropriation Detail
Attachment B: Annual Comprehensive Financial Report for FY 2020-21 Attachment C: Annual Measure Y Audit Report for FY 2020-21

Attachment A: Recommended Appropriations Detail
Line Dept. Type Fund Org Object Project Acct. Description FY 21-22
Amount Annualized Amt
One time /
ongoing Explanation
1 Fire Revenue 0150 450 5895 Other Revenues 484,000 - one time Strike Team Reimbursements 2 Fire Expense 0150 450 7012 Overtime 580,000 - one time Strike Team Overtime 3 Fire Expense 0150 450 7561 Fuels & Lubricants 24,000 24,000 ongoing Increase Fuel Costs 4 Fire Expense 0150 450 7731 MSC Charges 56,000 56,000 ongoing Increased Shop Costs 5 Police Expense 0150 410 7561 Fuels & Lubricants 100,000 100,000 ongoing Increase Fuel Costs 6 CDD Expense 0150 315 7011 Regular Salaries and 46,989 93,978 ongoing moving Planner from housing fund 7 CDD Expense 0204 368 7011 Regular Salaries and (46,989) (93,978) ongoing Moving Planner to General Fund 8 CDD Expense 0291 603 7322 Other Materials and 42,752 - one time furniture and remodeling 9 CDD Expense 0205 908 7855 14843
Non Structural
Improvements 65,000 - one time Parklets program carryforward 10 Finance Expense 0150 230 7307 Expert and 66,000 - one time Consultant Contracts 11 City Council Expense 0150 110 7232 00001 District 1 Council 1,500 1,500 ongoing restore council travel budget 12 City Council Expense 0150 110 7232 00002 District 2 Council 1,500 1,500 ongoing restore council travel budget 13 City Council Expense 0150 110 7232 00003 District 3 Council 1,500 1,500 ongoing restore council travel budget 14 City Council Expense 0150 110 7232 00004 District 4 Council 1,500 1,500 ongoing restore council travel budget 15 City Council Expense 0150 110 7232 00005 District 5 Council 1,500 1,500 ongoing restore council travel budget 16 City Council Expense 0150 110 7232 00006 District 6 Council 1,500 1,500 ongoing restore council travel budget 17 City Council Expense 0150 110 7232 00007 District 7 Council 1,500 1,500 ongoing restore council travel budget 18 PW Expense 0150 512 7361
Other Contract
Services 74,000 74,000 ongoing
Cart Recovery, trail maintenance, and
landscaping
19 PW Expense 0150 220 7021 Temporary & Casual 30,000 30,000 ongoing Custodial Staff 20 PW Expense 0150 220 7324 Rep & Maintenance 20,000 20,000 ongoing Building Maintenance and Repair 21 PW Expense 0150 220 7361 Other Contract 24,000 24,000 ongoing Janitorial Contract 22 PW Expense 0150 510 7361 Other Contract 97,000 - one time cost sharing with CalTrans for PG&E 23 Airport Revenue 0730 560 5821 Fuel Sales 290,000 290,000 ongoing Increased fuel revenues 24 Airport Revenue 0730 564 5459 Hanger 275,000 275,000 ongoing Increased hanger revenues 25 Airport Expense 0730 560 7562 Fuels & Lubricants - 145,000 145,000 ongoing Increased fuels expenses 26 Airport Expense 0730 560 7303 Legal Services 420,000 - one time Increased legal expenses 27 PW Expense 0710 543 7011 Regular Salaries and 32,065 128,260 ongoing Sr. Environmental Project Analyst 28 PW Expense 0740 571 7011 Regular Salaries and 19,315 57,945 ongoing Utility Worker I clean up and grafitti 29 PW Expense 0720 596 7011 Regular Salaries and (35,000) (70,000) ongoing moving Electrical Tech to Utility admin 30 PW Expense 0710 540 7011 Regular Salaries and 35,000 70,000 ongoing moving Electrical Tech from Water 31 IT Revenue 0790 285 5289 Cost Allocation 98,000 115,958 ongoing Increased recoveries from PW and LIB 32 IT Expense 0790 285 7011 Regular Salaries and 98,000 115,958 ongoing salary for new IT analyst position 33 PW Expense 0720 596 7721 Cost Allocation Plan 35,000 115,958 ongoing Supporting IT position 34 LIB Expense 0150 620 7721 Cost Allocation Plan 63,000 126,000 ongoing Supporting IT position 35 LIB Expense 0150 620 7011 Regular Salaries and (63,000) (126,000) ongoing moving position to IT 36 PW- MSC Revenue 0760 545 5247 Muni Service Center 570,000 570,000 ongoing Increased shop recoveries 37 PW- MSC Expense 0760 545 7505 Vehicle parts & 280,000 280,000 ongoing Increased Vehicle part costs 38 PW- MSC Expense 0760 545 7562 Fuels & Lubricants - 290,000 290,000 ongoing Increased Fuel costs

ANNUAL COMPREHENSIVE

FINANCIAL REPORT
FISCAL YEAR END JUNE 30, 2021
cityofwatsonville.org Attachment B

Attachment B

City of Watsonville, California
ANNUAL

COMPREHENSIVE

FINANCIAL
REPORT
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
Prepared by the Finance Department
Cindy Czerwin, Administrative Services Director
Attachment B

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Attachment B

CITY OF WATSONVILLE, CALIFORNIA
Annual Comprehensive Financial Report
Fiscal Year Ending June 30, 2021

TABLE OF CONTENTS
I. INTRODUCTORY SECTION:

Transmittal Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 GFOA Certificate of Achievement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Officers and Officials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Organizational Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 II. FINANCIAL SECTION:

Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Basic Financial Statements:

Government-wide Financial Statements:

Statement of Net Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Statement of Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Fund Financial Statements:

Balance Sheet - Governmental Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Statement of Revenues, Expenditures, and Changes in
Fund Balances - Governmental Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds
to the Statement of Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Statement of Revenues, Expenditures, and Changes in
Fund Balance - Budget to Actual - General Fund . . . . . . . . . . . . . . . . . . . 38 Statement of Revenues, Expenditures, and Changes in
Fund Balance - Budget to Actual - Impact Fees Fund . . . . . . . . . . . . . . . . 39 Statement of Revenues, Expenditures, and Changes in
Fund Balance - Budget to Actual – Housing Fund. . . . . . . . . . . . . . . . . . . . 40 Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget to Actual – Redevelopment and Housing Grants Fund . . . . . . . . . 41 Statement of Net Position - Proprietary Funds . . . . . . . . . . . . . . . . . . . . . . . . 42 Statement of Revenues, Expenses, and Changes in
Net Position - Proprietary Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Statement of Cash Flows -
Proprietary Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Statement of Fiduciary Net Position – Successor Agency
Private Purpose Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Statement of Changes in Fiduciary Net Position – Successor Agency Private Purpose Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Attachment B

CITY OF WATSONVILLE, CALIFORNIA
Annual Comprehensive Financial Report
Fiscal Year Ending June 30, 2021
TABLE OF CONTENTS (Continued)
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Required Supplementary Information (Unaudited)
Schedule of Changes in the Net Pension Liability and Related Ratios - Miscellaneous Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Schedule of Contributions – Miscellaneous Pension Plan . . . . . . . . . . . . . . . 94 Schedule of Proportionate Share of Net Pension Liability - Safety Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Schedule of Contributions – Safety Pension Plan . . . . . . . . . . . . . . . . . . . . . 96 Other Supplementary Information:

Combining and Individual Fund Statements and Schedules:

Combining Balance Sheet - Nonmajor Governmental Funds . . . . . . . . . . . . . . . 99 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds . . . . . . . . . . . . . . . . . . . . . 101 Schedule of Revenues, Expenditures, and Changes
in Fund Balances - Budget to Actual:

Gas Tax and Narcotics Assets Seizure Funds . . . . . . . . . . . . . . . . . . . . . . 103 Business Development and Economic Development Funds . . . . . . . . . . . 104 Library and Parks Development Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Retirement Tax and Parking Garage Funds . . . . . . . . . . . . . . . . . . . . . . . . 106 Measure G/Y and Abandoned Vehicle Funds. . .. . . . . . . . . . . . . . . . . . . .. 107 Inclusionary Housing and SB 1 – Gas Tax Fund . . . . . . . . . . . . . . . . . . . . 108 Measure D Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Schedule of Revenues, Expenditures, and Changes
in Fund Balances - Budget to Actual:

Debt Service Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 III. STATISTICAL SECTION (Unaudited):

Net Position By Component - Last Ten Fiscal Years . . . . . . . . . . . . . . . . . 113 Changes In Net Position - Last Ten Fiscal Years . . . . . . . . . . . . . . . . . . . . 114 Fund Balances of Governmental Funds - Last Ten Fiscal Years . . . . . . . . . 116 Net Change In Fund Balances of Governmental Funds - Last Ten Fiscal Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 General Governmental Tax Revenues By Source - Last Ten Fiscal Years . 118 Assessed Value and Estimated Actual Value of Taxable Property . . . . . . . . 119 Property Tax Rates - Direct and Overlapping - Last Ten Years . . . . . . . . . . 120 Principal Property Taxpayers - Current Year and Nine Years Ago . . . . . . . 121 Property Tax Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Ratio of Outstanding Debt By Type - Last Ten Fiscal Years . . . . . . . . . . . . 123 Ratio of Net General Obligation Debt Outstanding - Last Ten Fiscal Years. 124 Attachment B

CITY OF WATSONVILLE, CALIFORNIA
Annual Comprehensive Financial Report
Fiscal Year Ending June 30, 2021
TABLE OF CONTENTS (Continued)
Legal Debt Margin Information - Last Ten Fiscal Years . . . . . . . . . . . . . . . 125 Computation of Direct and Overlapping Bonded Debt . . . . . . . . . . . . . . . . . 126 Demographic and Economic Statistics - Last Ten Fiscal Years . . . . . . . . . . 127 Principal Employers – Current Fiscal Year and Nine Years Ago . . . . . . . . . 128 Full-time Equivalent City Government Employees by Function - Last Ten Fiscal Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 Operating Indicators by Function - Last Ten Fiscal Years . . . . . . . . . . . . . .130 Capital Assets Statistics by Function - Last Ten Fiscal Years . . . . . . . . . . . 131 Attachment B

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Attachment B

INTRODUCTORY

SECTION
1 Attachment B

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2 Attachment B

December 17, 2021
Honorable Mayor, City Council and Citizens of the City of Watsonville:

REPORT PURPOSE AND ORGANIZATION
We are pleased to present the City of Watsonville’s Annual Comprehensive Financial Report (ACFR) for the fiscal year ended June 30, 2020. The ACFR is intended to present information above, what is required by generally accepted accounting principles and State law.

The Charter of the City of Watsonville and the State of California law require that all general-purpose local governments publish within six months of the close of the fiscal year a complete set of financial statements presented in conformity with accounting principles generally accepted in the United States of America (U.S.GAAP). The report should also be audited by an independent firm of certified public accountants (CPA) in accordance with generally accepted government auditing standards (GAGAS).

Pursuant to the requirements, we hereby issue the comprehensive annual financial report of the City of Watsonville for the fiscal year ended June 30, 2021.

The ACFR consists of management’s representation concerning the finances of the City of Watsonville (City). Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City of Watsonville’s financial statements in conformity to U.S.GAAP. Because the cost of internal controls should not outweigh their benefits, the City of Watsonville’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. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects.

Audited Financial Statements
Certified Public Accountants, have issued an unmodified (“clean”) opinion on the City of Watsonville’s financial statements for the fiscal year ending June 30, 2021. A copy of this report is included in page 13 in the Financial Section of this report.

City of Watsonville
“A Community of Opportunities”
3 Attachment B

The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion that the City’s financial statements for the fiscal year ended June 30, 2021, are fairly presented in conformity with U.S. GAAP. The independent auditors report is presented as the first component of the financial section of this report.

The independent audit of the financial statements of the City of Watsonville also incorporates a broader, federally mandated Single Audit Uniform Guidance designed to meet the special needs of federal grantor agencies. The standards governing the 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 controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the City of Watsonville’s separately issued Single Audit Report.

GAPP 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 MD&A and should be read in conjunction with it. The City of Watsonville’s MD&A can be found immediately following the report of the independent auditors.

CITY OF WATSONVILLE PROFILE
The City of Watsonville was incorporated in 1868 and is located six miles inland from the Monterey Bay in the State of California. The government has a land area of 6.19 square miles and a population of 53,856 people based on US Census estimates as of July 1, 2019.

Watsonville became a charter City government in 1908. Policymaking and legislative authority are vested in the governing City Council, which consists of seven Council Members, one of whom serves as mayor. The mayor is appointed on sequential basis from each of the numbered City Council districts and serves for a term of one year.

The council is elected on a non-partisan basis from seven electoral districts. Council members are elected to four-year terms. Elections are staggered with four Council Members elected during one election and three Council Members elected in the following election two years later. The governing City Council is responsible, among other things, for passing ordinances, adopting the budget, appointing committees, and hiring the government's City Manager, City Clerk, and Attorney. The City Manager is responsible for carrying out the policies and ordinances of the governing council, for overseeing the day-to-day operations of the government, and for appointing the department heads.
4 Attachment B

City Services
The City of Watsonville provides a full range of services including police and fire protection; water treatment and distribution; solid waste collection and disposal; sanitary sewer collection and treatment; airport facilities; building inspection, planning, economic development, housing rehabilitation, and general government services; library; recreation; parks; street construction and maintenance; and general administration.

The financial reporting entity of the City includes all the funds of the City of Watsonville, as well as all of its component units. Component units are legally separate entities for which the primary government is financially accountable. The Successor Agency of the City of Watsonville Redevelopment Agency’s information in this year’s financial report is presented separately as part of the fiduciary statements.

Additional information can be found on this entity starting on page 87 within the notes to the financial statements.

Budgetary Process and Controls
The annual budget serves as the foundation for the City of Watsonville’s financial planning and control. All departments of the City of Watsonville are required to submit requests for appropriations to the government’s management on or before March 31 of each fiscal year. The Finance Department uses these requests as a starting point for developing a proposed budget. The Finance Department then presents this proposed budget to the Council for review prior to May 31. The Council is required to hold public hearings on the proposed budget and to adopt a final budget by no later than June 30, the close of the City of Watsonville’s fiscal year. The appropriated budget is prepared by fund (i.e. General Fund, Water), department (i.e., police), and division (i.e., investigation).

Department directors may make transfers of appropriations within a department.

Transfers of appropriations between departments, however, require the special approval of the City Manager. Budget to actual comparisons are provided in this report for each individual governmental fund for which an appropriated annual budget has been adopted. The general fund, impact fee fund, housing fund, and redevelopment and housing grants fund comparisons are presented on pages 38 to 41 as part of the basic financial statements for the governmental funds. For governmental funds, other than major funds, with appropriated annual budgets, these comparisons can be found in the governmental fund subsection of this report, which starts on page 103.

FACTORS AFFECTING FINANCIAL CONDITON
Fiscal Year 2020-21 was an interesting year indeed. The budget was adopted and the fiscal year began in the early months of the COVID-19 pandemic, with little information about how the economy would react to shut down and how long that shut down would last. The budget assumed a 10% loss of General Fund Revenues and assumed we would use a combination of emergency reserves and expenditure reductions to fill the gap. We ended the year adding to our reserves and receiving the first of two $9.1 million payments from the American Rescue Plan Act. 5 Attachment B

Local Economy
The Watsonville economy faired fairly well despite the pandemic. Watsonville was not affected as greatly as some of our neighboring tourism dependent communities.

Certainly we say some areas of the economy and revenues affected because certain activities were not allowed to continue, but those areas where overwhelmed by others where revenues held steady or increased. Due to recognition partially through the year that the revenues were not going to be as bad as originally thought, we did increase expense budgets and reverse some of the original budget cuts. Despite the confusion brought by the pandemic, Watsonville was able to end the fiscal year on a positive note, driven by year over year tax increases and responsible spending and savings on the part of our departments.

Property taxes saw a very slight decrease from FY 2019-2010. Property tax collections in FY 2020-21 were of course driven by assessments that were set the prior year. We received lower supplemental and transfer taxes than in the prior year to reflect the slow turnover of property we saw during the height of the pandemic. We expect this trend to reverse in future years as Watsonville has seen rapid growth in home prices in recent months. Furthermore, growth and building in Watsonville continues. FY 2020-21 saw the opening of a new hotel and several residential and commercial projects in various phases of planning or construction are underway. We expect to see that growth reflected in our property tax base in future years.

Sales tax revenues increased by a surprising 19% on a cash basis driven by auto and transportation sales and increases to online sales and our allocation from the state and county pools. Our share of the county pool increased from 21 to 23 percent as local sales dropped more in our neighboring tourist driven communities than here in Watsonville. Tax receipts from auto sales are now double what they were just five years ago. We do expect sales tax to level off somewhat going forward. Particularly as individuals return to instore shopping and tourism returns to out neighboring communities. However, inflation driven prices may keep this tax item higher than in the past for the near future.

Community development fees reached an all-time high in FY 2020-21 after dropping to their lowest levels ever in the 4th quarter of the prior year. Home improvement projects and citywide major developments kept the Community development department quite busy and their initial budget cuts were restored in mid-year actions.

Utility user taxes were at their lowest point since Fiscal Year 2016-17 due to the fact that many people were unable to pay utility bills during the pandemic. Our own city utilities were operating under a no shut off policy. Many assistance programs to help families pay back logged utility bills were approved with ARPA and we expect that future year utility tax collections will return to normal. 6 Attachment B

Transient Occupancy Tax saw a 55% decline from its previous FY 2018-19 peak. Two of our hotels were put to use by the county sheltering homeless or at-risk individuals during the pandemic. That combined with general lower travel meant that FY 2020- 21 was a very low year for TOT. However, at the very end of the fiscal year a new Hotel opened in Watsonville and we expect to see a full recovery in this revenue in the next fiscal year.

Fiscal Year 2020-21 began with confusion and uncertainty. With careful monitoring and regular monitoring of revenues and demand for services we were able to make adjustments throughout the year and end the year with an improved financial position.

Long-term financial planning
Fiscal Year 2020-21 was spent entirely in the midst of a once in a century global pandemic. As we began Fiscal Year 2021-22 vaccine programs were rolling out across the country and state, the American Rescue Plan Act was passed by Congress, and inflation was at some of it’s highest points in recent memory. As of the writing of this letter, the Omicron variant is surging across the country. The outlook is far from stable. There are some positives but there also concerns on the horizon.

We ended the Fiscal Year 2020-21 with an improved financial position and no use of reserves. Because of the reductions in expenses made during FY 2020-21 the FY 2021-22 budget was adopted with a five-year plan showing a decreasing projected deficit in each of the following five years. The American Rescue Plan Act is providing the City of Watsonville $18.2 million dollars in relief money that can be spent to rebuild and invest in our community in the ways outlined by the bill. The passage of the Infrastructure Investment and Jobs Act leaves us hopeful that Watsonville will be able to apply for and receive even more infrastructure money for our community. This is more one-time resources that we can remember seeing and will make an important mark on our community.

However at the same time that we have new resources coming to us, we also have new and added pressures, specifically inflation. In November of 2021 the annual inflation rate was 6.8%, in the highest since 1982. Inflation will put enormous pressure on our ability to fund the projects we want and all that new money will not go as far as we hope towards meeting our goals. Our tight operating projects a nominal and normal amount of inflation each year, anything beyond that will push us back in the red. Construction related inflation means not only are projects costing more than originally estimated, but supply chain issues have meant that timelines are being delayed, materials cannot be found, and contractors are not available. While we hope that the inflation and supply chain issues we are facing right now are temporary and part of an unsettled economy settling down, we simply don’t know yet. Even more unsettling is now the rise of Omicron and the potential future variants. It seems likely that COVID will be with us for a while and what adaptations will be made and how the economy continues to revolve around it are unknow.
7 Attachment B

Watsonville has thus far weathered the crisis by being flexible and cautious. If we continue that that approach I am confident that Watsonville will be successful. We need to continue to show restraint in the growth of operations. We need to continue to use the one-time resources available to their maximum potential. We also need to continue to explore ways to bring more resources to Watsonville, either through new tax initiatives, restructuring our retirement Unfunded Actuarial Liability, and continuing to apply for grants. Watsonville is a strong and resilient community with a history of doing more with less. We are on a good path and with slow and steady steps we will stay there.

Awards and Acknowledgements
The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Watsonville, California for its annual comprehensive financial report (ACFR) for the fiscal year ending June 30, 2020. This was the twentieth consecutive year that the government has received this prestigious award. In order to be awarded a Certificate of Achievement, the government must publish an easy, readable, and efficiently organized ACFR. The report satisfies both U.S. GAAP and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. We believe that our current ACFR meets the Certificate of Achievement Program’s requirements and we are submitting it to GFOA to determine its eligibility for another certificate. In addition, the City has received the GFOA’s Award for Distinguished Budget Presentation for its biennial budget dated June 30, 2021. In order to qualify for the Distinguished Budget Presentation Award, the government’s budget document was judged to be proficient in several categories, including policy documentation, a financial plan and a communication device.

The preparation of this report could not have been accomplished without the efficient and dedicated service of the Finance Department staff. We would like to express our appreciation to all members of the department who assisted and contributed to the preparation of this report. In particular Assistant Finance Director, Marissa Duran, who coordinated the audit. Patricia Rodriguez, Assistant Finance Manager, also deserves special recognition for her contribution to the report. The following remaining Finance Staff made this report possible through their dedicated service throughout the fiscal year: Marisa Bermudez, Ilda Estrada, Christine McGrath, Jorge Ortiz, Diana Rivas, Laura Calata, and Mary Stepovich. The Mayor and the governing council should also be given due credit for their interest and support in managing the City of Watsonville in a responsible and progressive manner.

Respectfully submitted,
Administrative Services Director
8 Attachment B

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

City of Watsonville, California
Officers and Officials
For the Fiscal Year End June 30, 2021
City Council:

Mayor – Jimmy Dutra
Mayor Pro Tempore – Ari Parker
Council Member – Rebecca J. Garcia
Council Member – Aurelio Gonzalez
Council Member – Lowell Hurst
Council Member – Francisco Estrada
Council Member – Eduardo Montesino
City Officials:

City Manager – Matt Huffaker
City Clerk – Beatriz Vazquez Flores
Fire Chief – Rudy Lopez
Administrative Services Director – Cindy Czerwin
Interim Police Chief – Thomas Sims
Interim Public Works Director – Christian Di Renzo
Library Director – Alicia Martinez
Community Development Director – Suzi Merriam
Parks and Community Services Director – Nick Calubaquib Airport Director – Rayvon Williams
10 Attachment B

LIBRARY

ALICIA MARTINEZ

PUBLIC WORKS/UTILITIES

CHRISTIAN DI RENZO

PARKS & COMMUNITY

NICK CALUBAQUIB

SERVICES
FIRE
RUDY LOPEZ SR.

COMMUNITY DEVELOPMENT

SUZI MERRIAM

REDEVELOPMENT & HOUSING

SUZI MERRIAM

AIRPORT

RAYVON WILLIAMS

CINDY CZERWIN
COUNCIL MEMBER ‐ AURELIO GONZALEZ
COUNCIL MEMBER ‐ EDUARDO MONTESINO

CITY ATTORNEY CITY MANAGER CITY CLERK

MATT HUFFAKER BEATRIZ VAZQUEZ FLORES
POLICE

THOMAS SIMS

INFORMATION SERVICES
VACANT

ALAN SMITH

WATSONVILLE

GOVERNING BODY

ORGANIZATIONAL STRUCTURE
FISCAL YEAR 2020 ‐ 2021

CITIZENS

CITY COUNCIL
MAYOR ‐JIMMY DUTRA
MAYOR PRO TEMPORE ‐ ARI PARKER
COUNCIL MEMBER ‐ LOWEL HURST
COUNCIL MEMBER ‐ FRANCISCO ESTRADA
COUNCIL MEMBER ‐ RECECCA J. GARCIA

FINANCE
11 Attachment B

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Attachment B

INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and Members of the City Council
City of Watsonville, California
Report on Financial Statements
We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Watsonville, California (City), as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the Table of Contents.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
13 Attachment B

Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2021, and the respective changes in financial position and, where applicable, cash flows thereof and respective budgetary comparisons listed in the Table of Contents as part of the basic financial statements for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matters
As discussed in Note IIE, the City restated the beginning fund balance of the Narcotics Asset Seizure Special Revenue Fund related to the reclassifications of deposits payable.

Management early adopted the provisions of Governmental Accounting Standards Board Statement No. 98 – The Annual Comprehensive Financial Report which changes the name of the Comprehensive Annual Financial Report to Annual Comprehensive Financial Report.

The emphasis of these matters does not constitute a modification to our opinions.

Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that Management’s Discussion and Analysis and other required supplementary information as listed in the Table of Contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements.

We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The Introductory Section, Supplemental Information and Statistical Section listed in the Table of Contents are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The Supplemental Information is the responsibility of management and was derived from and relates 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 Supplemental Information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Attachment B

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

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 17, 2021, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely 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 the effectiveness of the City’s 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.

Pleasant Hill, California
December 17, 2021
15 Attachment B

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Attachment B

CITY OF WATSONVILLE, CALIFORNIA
MANAGEMENT’S DISCUSSION AND ANALYSIS
As management of the City of Watsonville, we offer readers of the City of Watsonville’s financial statements this narrative overview and analysis of the financial activities of the City of Watsonville for the fiscal year ended June 30, 2021. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages 3 - 8 of this report. All amounts, unless otherwise indicated, are expressed in thousands of dollars.

Financial Highlights
• The assets of the City of Watsonville exceeded its liabilities at the close of the most recent fiscal year by $250,403.
• The City’s deferred outflow of resources-Pension totaled $17,789 and its deferred inflow of resources-Pensions totaled $2,038.
• The City’s liabilities totaled $134,675.
• The City’s total net position increased by $8,211. Governmental activities net position increased by $3,605 this increase was due to an increase in cash mostly due to the receipt of the ARPA monies. Business type activities net position increased by $4,606. Most of this increase was from Water and Sewer funds ending with positive operating income. • As of the close of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $42,891 an increase of $4,071 in comparison with the prior fiscal year’s balances. The non-spendable portion of the fund balance was $308, the restricted portion was $24,735 and the unassigned amount was $17,848 a large portion of the unassigned fund balance was created by increases in taxes by the general fund during fiscal year 2020-21 and budgetary expenditure savings.

Overview of the Financial Statements
This discussion and analysis is intended to serve as an introduction to the City of Watsonville’s basic financial statements. The City of Watsonville’s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.

Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City of Watsonville’s finances, in a manner similar to a private-sector business.
17 Attachment B

The Statement of Net Position presents information on all of the City of Watsonville’s assets and liabilities, with the difference between the two reported as net position. Increases or decreases in net position may serve as a useful indicator of whether the financial position of the City of Watsonville is improving or deteriorating overtime.

The Statement of Activities presents information showing how the City of Watsonville’s net position changed during the most recent 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 or related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future periods (e.g. uncollected taxes).

Both of the government-wide financial statements distinguish functions of the City of Watsonville that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Watsonville include general government, public safety, housing, streets, and culture and recreation. The business-type activities of the City of Watsonville include water, sewer, solid waste, airport, and fiber optic activities.

The government-wide financial statements can be found on pages 30 to 33 of this report.

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 of Watsonville, 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 of Watsonville can be divided into three categories: governmental funds, proprietary funds and 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 nearterm inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluation of a government’s near-term financing requirements.

Because the focus of governmental funds is narrower than that of 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 financing decisions. Both the governmental funds balance sheet and the governmental fund statements of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

18 Attachment B

The City of Watsonville maintains eighteen individual governmental funds. Information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures, and changes in fund balances for the general fund, impact fees fund, housing fund, redevelopment and housing grants fund, American rescue plan act fund and general debt service fund which are all major funds. Data for the other thirteen governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report.

The City of Watsonville adopts a biennial budget (one year adopted and one year proposed) for all its governmental funds.

The basic governmental fund financial statements can be found on pages 34 to 37 of this report.

Proprietary funds. The City of Watsonville maintains two types of proprietary funds; Enterprise and Internal Service funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City of Watsonville uses enterprise funds to account for Water, Sewer, Solid Waste, Airport and Fiber Optic operations.

Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary funds financial statements provide separate information for the water, sewer, solid waste, airport and fiber optic operations, all of which are considered to be major funds of the City of Watsonville.

Internal service funds are an accounting device used to accumulate and allocate costs internally among the City of Watsonville’s various functions. The City of Watsonville uses an internal service fund to account for insurance activities of the City. The fund predominantly benefits governmental funds rather than business-type functions, and it has been included within governmental activities in the government-wide financial statements. Conversely, the internal service fund is presented in the proprietary funds’ financial statements.

The basic proprietary funds financial statements can be found on pages 42 to 44 of this report.

Fiduciary fund. Fiduciary funds are used to account for resources held for the benefit of parties’ outside the 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 of Watsonville’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds.

The basic fiduciary fund financial statements can be found on pages 45 to 46.

Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 47 to 90 of this report. 19 Attachment B

Other information. In addition to the basic financial statements and accompanying notes, required supplementary information, combining statements and schedules referred to earlier in connection with non-major governmental funds are presented immediately following the notes to the financial statements. Combining and individual fund statements and schedules can be found on pages 99 to 110 of this report.

Government-wide Financial Analysis
Statement of Net Position. As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of the City of Watsonville, assets exceeded liabilities by $250,403 at the close of the most recent fiscal year.

By far the largest portion of the City of Watsonville’s net position $202,511 reflects its investment in capital assets (e.g., land, buildings and improvements, machinery, work in progress, and infrastructure) less any related outstanding debt used to acquire those assets. The City of Watsonville uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City of Watsonville’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.

An additional portion of the City of Watsonville’s net position $24,412 represent resources that are subject to external restrictions on how they may be used by creditors (such as through debt covenants), grantors, contributions or laws or regulations of other governments. The remaining balance of unrestricted net position $23,480 is unrestricted and available for next year’s operations at the direction of the City Council.

City of Watsonville’s Net Position
June 30, 2021
(in thousands)
At the end of the current fiscal year, the City of Watsonville is able to report positive balances in net investment in capital assets and restricted net position for the government as a whole.

Total
2021 2020 2021 2020 2021 2020
$$ $ $ $
Current and other assets 80,610 98,218 57,509 155,727 48,407 129,017 Capital assets 111,545 113,339 102,055 213,600 99,375 212,714 Total Assets 193,949 209,763 159,564 369,327 147,782 341,731 Deferred outlows of resources 14,164 13,507 3,625 17,789 3,875 17,382 Total Defered Outflows of Resources 14,164 13,507 3,625 17,789 3,875 17,382 Long-term liabilities outstanding 67,835 72,530 37,103 109,633 29,758 97,593 Other Liabilities 11,762 20,630 4,412 25,042 4,350 16,113 Total Liabilities 79,597 93,160 41,515 134,675 34,109 113,706 Deferred inflows of resources 2,683 1,910 128 2,038 608 3,291 Total Defered Inflows of Resources 1,910 2,683 128 2,038 608 3,291 Net Position:

Net investment in capital assets 109,660 108,607 93,904 202,511 97,119 206,779 Restricted 22,228 24,412 - - 24,412 22,228
Unrestricted (6,712) (4,162) 27,642 23,480 19,821 13,109 Total Net Position 128,857 125,175 121,546 250,403 116,940 242,116 Business-type
Activities
Governmental
Activities
20 Attachment B

City of Watsonville
Summary of Changes in Net Position
For the Fiscal Year Ending June 30, 2021
(in thousands)
Governmental Activities. Governmental activities increased the City of Watsonville’s Net Position by a $3,605. Key elements of this increase are as follows:
• Governmental revenues saw increases in Sales Tax at about $2,000. There were very minimal increases in other tax categories and charges for services were relatively flat offset by increases in grants and contributions.
• Governmental spending decreased by $5,929 primarily in the area of general government and streets. The decrease in spending is primarily due to less grant revenues to complete street projects and the moving of the Municipal Service Center services to the Solid Waste Fund as they mostly serve that division.

Governmental Business-type
Activities Activities Total
2021 2020 2021 2020 2021 2020
$ $ $ $$
Revenues:

Program Revenues:

Charges for services 11,338 56,355 11,936 67,693 53,011 64,947 Operating grants and
contributions 5,100 5,988 732 787 5,832 6,775
Capital grants and
contributions - - 107 163 107 163
General Revenues
Property taxes 16,169 16,243 - 16,169 16,243
Other taxes 30,834 26,704 - 30,834 26,704
Others 2,531 1,344 4,555 811 3,875 5,366
Total Revenues and Transfers 65,972 58,538 65,427 124,510 54,772 120,199 Expenses:

General government 8,599 13,812 - 8,599 13,812
Public safety 35,608 35,811 - 35,608 35,811
Housing 429 2,059 - 429 2,059
Streets 8,652 6,931 - 8,652 6,931
Culture and recreation 9,201 9,850 - 9,201 9,850
Interest on debt 123 78 44 38 167 116
Water - - 15,960 15,960 19,369 19,369
Sewer - - 14,190 14,190 14,099 14,099
Solid waste - - 19,189 19,189 12,567 12,567
Airport - - 4,235 4,235 3,803 3,803
Fiber optic - - 69 59 59 69
Total Expenses 62,612 53,687 68,541 116,299 49,935 118,476 Increase in net position
before transfers 3,360 4,851 (3,114) 8,211 1,723 4,838
Internal balances 245 251 (245) (251) - -
Change in net position 3,605 4,606 (2,863) 8,211 1,723 4,586 Net position - beginning 125,175 116,940 128,039 242,116 112,354 240,392 Prior year adjustments 77 - - 77 -
Net position - beginning restated 125,252 116,940 128,039 242,192 112,354 240,392 Net position ending 128,857 121,546 125,175 250,403 116,940 242,116 21 Attachment B

For the fiscal year ending June 30, 2021
Expenses and Program Revenues
Governmental Activities
Revenues by Source
Governmental Activities

$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
General
Gov
Public
Safety
Housing Streets Culture
and Rec
Interest on
Debt
Expenses
Revenues
Charges for
services
17%
Operating grants
and contibutions
8%
Capital grants and
contributions
0%
Property taxes
24%
Other taxes
47%
Others
4%
22 Attachment B

Business-type activities. Business-type activities increased the City of Watsonville’s net position by $4,605. Key elements of this increase are as follows:

For the fiscal year ending June 30, 2021
Expenses and Program Revenues
Business-type Activities
• Charges for services increased by $3,344 and all other revenues decreased by $422. The increase in charges for services was mostly from moving in the division of Municipal Services to the Solid Waste Fund.
• Water had a decrease in spending mostly due less capital spending a decrease in pension obligation. The Solid Waste had increases in operating costs as of the fiscal year end mostly due to the division of Municipal Services and an increase in their pension obligation.

$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
Water Sewer Solid waste Airport Fiber optic Interest on Debt
Expenses
Revenues
23 Attachment B

For the fiscal year ending June 30, 2021
Revenues by Source
Business-type Activities
Financial Analysis of the City of Watsonville’s Funds
As noted earlier, the City of Watsonville uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.

Governmental funds. The focus of the City of Watsonville’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Watsonville’s financing requirements. In particular, restricted fund balances for specific proposes may serve as a useful measure of a government’s net resources available for spending on various activities at the end of the fiscal year.

As of the end of the current fiscal year, the City of Watsonville’s governmental funds reported combined ending fund balances of $42,891, an increase of $4,071 in comparison with the prior year. The largest portion of fund balances is restricted for specific purposes and the largest restricted portion is for impact fees in the amount of $7,304. This balance is for projects that have been budgeted, planned or will be completed within the next five years. The remainders of fund balances are either non-spendable or unassigned at year end. The non-spendable portion of fund balances represents the amounts of funds that cannot be spent because they are either not in spendable form or legally required to remain intact. Unassigned fund balances represent amounts which are unconstrained in that they may be spent for any purpose.

The General Fund is the chief operating fund of the City of Watsonville. At the end of the current fiscal year, the charter reserve of the General Fund was $2,450. As a measure of the General Fund’s liquidity, it may be useful to compare both the charter reserve and total fund balance to total fund expenditures. The City’s General Fund Reserve met the Charter Reserve this fiscal year end. The required Charter Reserve fund balance would be 5.1 percent of total general fund expenditures; the total fund balance represented 38 percent of the same amount.

Charges for
services
96%
Operating
grants and
contibutions
1%
Capital grants
and
contributions
0%
Others
3%
24 Attachment B

The fund balance of the City of Watsonville’s General Fund increased by $1,679 during the current year largely due steady increases in revenues and controlled expenditures. Departments were asked to reduce expenditures and in the fiscal year in anticipation of significant drops in sales tax revenues that did not materialize.

The changes in Governmental Fund balance can be attributed to:

The General Fund increase in fund balance was from increases in various revenue types, such as, sales tax and property tax in lieu of vehicle license fees, decrease in operating costs from a controlled spending initiative.

The Impact Fees Fund had a fund balance of $7,512 an increase of $1,467 over the prior year’s fund balance. This increase was due to new revenues and saving for future projects in fund balance.

The Housing Fund had a fund balance of $3,391, a decrease of $1,023 over the prior year’s fund balance. This decrease is due to a new loan issued during the fiscal year.

The Redevelopment and Housing Grants Fund has a fund balance of $360, an increase of $406 from the negative beginning fund balance. This increase is the result of increasing revenues.

The government’s Debt Service Fund had a fund balance of $247, an increase of $8 during the fiscal year. This increase is the result of solar project revenues.

Proprietary funds. The City of Watsonville’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail.

Net position and changes of net position for the five major enterprise funds are as follows:

Other factors concerning the finances of these funds have already been addressed in the discussion of the City of Watsonville’s business-type activities.

Proprietary Funds Change of Net Position
Fund FY 2021 FY 2020 Change % Change
Water 61,793 57,863 3,930 6.79%
Sewer 44,420 43,315 1,105 2.55%
Solid Waste 5,326 6,219 -14.36% (893)
Airport 9,449 9,526 (77) -0.81%
Fiber Optic 558 17 3124.50% 541
Totals 121,546 116,940 4,606 3.94%
25 Attachment B

General Fund Budgetary Highlights
There were several budget amendments this fiscal year. The fiscal year 20-21 budget was developed and adopted during the early stages of the pandemic. Budget assumptions and predictions proved to be wrong and during the December 2020 Council meeting $1,172,253 budget amendments were approved. Most of the increases were for cuts previously made to the Community Development Department and Parks and Community Services. Also, additional $492 approved for Fire Department who was responding to mutual aid request assisting the State in massive fires most of which were from the July through October 2020 period.

Tax revenues were $5,561 over budget. The majority was due to Sales Tax revenues coming in $4,591 over budget. This increase was mainly due to conservative budgeting during the pandemic.

Miscellaneous revenues were over budget by $1,178. Most of this increase was due to a Cares Act grant in the amount of $498 of which was a one-time allocation to help offset operating costs. We also received about $200 more than budgeted in mutual aid receipts from Cal State Fire to offset Fire Department overtime.

Capital Asset and Debt Administration
Capital assets. The City of Watsonville’s capital assets, for its governmental and business type activities as of June 30, 2021 was $213,599 (net of depreciation). This represents a $866 increase from the prior year or 0.42%.

Governmental Type Activities decreased by 1.58% due to depreciation outpacing additions.

Total City of Watsonville Capital Assets FY 2020-21
Capital Asset FY 2021 FY 2020 Change % Change
Land 31,239 31,239 0.00% (0)
Building and Improvements 124,979 130,354 (5,375) -4.12% Machinery & Equipment 14,290 12,914 10.65% 1,376
Infrastructure 33,594 27,804 20.82% 5,790
Construction in progress 9,497 10,402 -8.70% (905)
Totals 213,599 212,713 0.42% 886
Governmental Activities Capital Assets FY 2020-21
Capital Asset FY 2021 FY 2020 Change % Change
Land 16,468 16,468 0.00% 0
Building and Improvements 73,202 76,670 (3,468) -4.52%
Machinery & Equipment 5,539 6,259 -11.51% (720)
Infrastructure 11,578 10,130 14.30% 1,448
Construction in progress 4,758 3,812 24.81% 946
Totals 111,545 113,339 (1,794) -1.58%
26 Attachment B

While Business Type Activities increased by 2.70% with additions including the completion of some major sewer infrastructure projects and purchases of large heavy equipment by both the sewer and solid waste funds.

Additional information on the City of Watsonville’s capital assets can be found in Note IIIB on pages 60 to 61 of this report.

Long-Term Debt. At the end of the current fiscal year, the City of Watsonville had total net debt outstanding of $111,391. The debt for governmental activities is made up of notes payable of $2,938, net OPEB liability of $2,018, compensated absences of $2,213, and net pension liability of $66,279. Business type activities have $2,357 in notes payable, $5,793 in a loan, net OPEB liability of $1,516, compensated absences of $1,010, net pension liability of $23,587 and landfill closure/post closure liability of $3,680.

State statutes limit the amount of general obligation debt a governmental entity may issue to 10 percent of its total assessed valuation. The current debt limit for the City of Watsonville is $184,141 which is significantly in excess of the City of Watsonville’s outstanding debt subject to this limit.

Additional information on the City of Watsonville’s long-term debt can be found in Note III E on pages 63 to 73 of this report.

Business Type Activities Capital Assets FY 2020-21
Capital Asset FY 2021 FY 2020 Change % Change
Land 14,771 14,771 (0) 0.00%
Building and Improvements 51,777 53,684 (1,907) -3.55%
Machinery & Equipment 8,751 2,096 6,655 31.49%
Infrastructure 22,016 17,675 24.56% 4,341
Construction in progress 4,739 (1,851) 6,590 -28.09%
Totals 102,054 99,375 2,679 2.70%
27 Attachment B

Economic Factors and Next Year’s Budget
• Coming out of the reduced FY 2020-21 budget and as we emerge from the pandemic, Watsonville has an opportunity to reset, restructure, and rebuild the budget in ways that we meet community goals, without recreating structural deficits. • Budget will include using of the American Rescue Plan Act allocation. • Less growth in charges for services than prior years in the proprietary funds due to the delay of an anticipated rate increase.
• In non-General Fund departments, you will see the same cautious growth assumptions, consistent with the revenue activity we have experienced and assumed for the General Fund. • Taking advantage of healthy fund balances to move much needed capital and infrastructure projects.
• Continued and accelerated increases in PERS contributions.

After several years of improving position Watsonville appears poised to weather the immediate impacts. As we emerge from the pandemic and turn our attention to helping the community recover. Watsonville was fortunate to receive $18.2 million in direct funding as part of the American Rescue Plan Act (ARPA). The 2021-23 Biennial Budget utilized limited amount of ARPA funding for restoring those departments hardest hit by the pandemic. The ARPA funding plan will include opportunities for community input and will prioritize areas of greatest community need. We still face ever increasing PERS contributions and have a large pent up demand for capital investments. Watsonville will have to act cautiously to balance increasing expenditure pressure with what is likely to be several years of flatter revenue growth than we have recently experienced.

All of these factors were taken into consideration during the preparation of the City of Watsonville’s annual budget for the fiscal year 2021-23.

Request for Information
This financial report is designed to provide a general overview of the City of Watsonville’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Administrative Services Director, City of Watsonville, and 250 Main Street, Watsonville, CA 95076.
28 Attachment B

BASIC FINANCIAL STATEMENTS
Attachment B

CITY OF WATSONVILLE, CALIFORNIA

STATEMENT OF NET POSITION
JUNE 30, 2021
Governmental Business-type
Activities Activities Total
$$$
ASSETS
Cash and investments 60,564,348 45,153,111 105,717,459
Restricted cash - 3,435,119 3,435,119
Receivables:

Interest 2,152,017 - 2,152,017
Taxes 4,792,074 - 4,792,074
Accounts 2,066,061 5,040,623 7,106,684
Intergovernmental 3,984,804 193,584 4,178,388
Internal balances (2,901,444) 2,901,444 -
Loans receivable 27,331,634 480,271 27,811,905
Inventories 18,282 305,055 323,337
Deposits 60,000 - 60,000
Land held for resale 150,000 - 150,000
Capital assets (net of depreciation,
where applicable):

Land 16,467,923 14,771,215 31,239,138
Buildings and Improvements 73,201,562 51,776,975 124,978,537 Machinery and equipment 5,539,421 8,751,461 14,290,882
Infrastructure 11,577,824 22,015,753 33,593,577
Construction in progress 4,758,154 4,739,315 9,497,469
Total Assets 209,762,660 159,563,926 369,326,586

DEFERRED OUTFLOWS OF RESOURCES
Deferred outflow of resources - Pensions 14,164,480 3,624,875 17,789,355 Total Deferred Outflow of Resources 14,164,480 3,624,875 17,789,355 Continued
Primary Government
See accompanying notes to financial statements
30 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

STATEMENT OF NET POSITION
JUNE 30, 2021
Governmental Business-type
Activities Activities Total
$$$

LIABILITIES
Accounts payable 1,231,568 2,404,313 3,635,881
Accrued personnel costs 2,230,814 1,042,739 3,273,553
Insurance claims payable 3,650,569 - 3,650,569
Interest payable 19,462 - 19,462
Retentions payable 91,866 77,228 169,094
Unearned revenue 10,721,278 38,466 10,759,744
Deposits payable 1,766,071 9,931 1,776,002
Noncurrent liabilities
Due within one year 917,422 839,992 1,757,414
Due in more than one year 72,530,459 37,102,713 109,633,172 Total Liabilities 93,159,509 41,515,382 134,674,891

DEFERRED INFLOWS OF RESOURCES
Deferred inflows of resources - pensions 1,910,417 127,555 2,037,972 Total Deferred Inflows of Resources 1,910,417 127,555 2,037,972

NET POSITION
Net investment in capital assets 108,607,022 93,904,203 202,511,225 Restricted for:

Debt service 246,758 - 246,758
Impact fee 7,304,369 - 7,304,369
Housing 3,390,756 - 3,390,756
Grants, contributions & fees for
specific purpose 13,470,402 - 13,470,402
Unrestricted (4,162,093) 27,641,661 23,479,568
Total Net Position 128,857,214 121,545,864 250,403,078
Concluded
Primary Government
See accompanying notes to financial statements
31 Attachment B

This Page Left Intentionally Blank
Attachment B

CITY OF WATSONVILLE, CALIFORNIA

STATEMENT OF ACTIVITIES
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
Operating Capital
Charges for Grants and Grants and Governmental Business-type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Primary Government: $ $ $$ $ $ $
Governmental activities:

General government 8,599,026 9,181,413 1,016,912 - 1,599,299 - 1,599,299 Public safety 35,608,066 820,723 831,852 - (33,955,491) - (33,955,491) Housing 428,762 666,647 1,740,913 - 1,978,798 - 1,978,798 Streets 8,652,278 63,741 - (8,588,537) - - (8,588,537)
Culture and recreation 9,201,007 605,988 1,510,214 - (7,084,805) - (7,084,805) Interest on long term debt 123,192 - - - (123,192) 43,555 (166,747) Total governmental activities 62,612,331 11,338,512 5,099,891 - (46,173,928) 43,555 (46,217,483) Business-type activities:

Water 15,960,144 19,885,009 7,878 26,310 - 3,959,053 3,959,053 Sewer 14,190,155 15,118,993 245,466 80,575 - 1,254,879 1,254,879 Solid Waste 19,189,328 18,310,251 22,614 - - (856,463) (856,463) Airport 4,234,989 2,431,925 456,433 - - (1,346,631) (1,346,631) Fiber Optic 68,590 608,749 - - - 540,159 540,159
Total business-type activities 53,643,206 56,354,927 732,391 106,885 - 3,550,997 3,550,997 Total primary government 116,255,537 67,693,439 5,832,282 106,885 (46,173,928) 3,507,442 (42,666,486) General revenues:

Property taxes 16,168,954 - 16,168,954
Sales taxes 22,231,899 - 22,231,899
Utility users taxes 3,993,803 - 3,993,803
Franchise taxes 563,341 - 563,341
Other taxes 2,610,509 - 2,610,509
Intergovernmental revenues not restricted to specific program 1,434,584 - 1,434,584 Unrestricted investment earnings 2,530,618 69,601 2,600,219 Other revenue - 1,274,041 1,274,041
Transfers 245,536 (245,536) -
Total general revenues and transfers 49,779,244 1,098,106 50,877,350 Change in net position 3,605,316 4,605,548 8,210,864
Net position - beginning as restated (Note IIE) 125,251,898 116,940,316 242,192,214 Net position - ending 128,857,214 121,545,864 250,403,078 Program Revenues Primary Government
See accompanying notes to financial statements
33 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

GOVERNMENTAL FUNDS

BALANCE SHEET
JUNE 30, 2021

REDEVELOPMENT AMERICAN OTHER TOTAL

AND HOUSING RESCUE PLAN DEBT GOVERNMENTAL GOVERNMENTAL

GENERAL IMPACT FEES HOUSING GRANTS ACT SERVICE FUNDS FUNDS $$ $ $ $ $ $ $
ASSETS:

Cash and investments 21,481,142 7,307,464 3,256,074 2,030,316 9,132,714 246,758 12,187,930 55,642,398 Receivables:

Interest 92,942 - 764,247 1,146,280 - - 148,548 2,152,017 Taxes 3,450,512 - - - - - 1,341,562 4,792,074
Accounts 1,288,593 - - - - - 381,868 1,670,461
Intergovernmental 3,137,504 - - 534,084 - - 313,216 3,984,804 Due from other funds 955,413 - - - - - - 955,413
Advances receivable - 208,075 - - - - 81,547 289,622
Loans receivable 1,815,302 - 10,964,551 13,013,474 - - 1,538,307 27,331,634 Inventories 18,282 - - - - - - 18,282
Land held for resale - - 150,000 - - - - 150,000
Total Assets 32,239,690 7,515,539 15,134,872 16,724,154 9,132,714 246,758 15,992,978 96,986,705 LIABILITIES:

Accounts payable 759,039 3,095 - 405 - - 291,439 1,053,978 Accrued personnel costs 1,849,930 - 15,153 10,739 59,357 - 179,121 2,114,300 Retentions payable 87,127 - - - - - 1,299 88,426
Due to other funds - - - 545,604 - - 409,809 955,413
Advances payable 3,191,066 - - - - - - 3,191,066
Unearned revenue - - - 1,647,921 9,073,357 - - 10,721,278 Deposits payable 1,765,600 - 471 - - - - 1,766,071
Total Liabilities 7,652,762 3,095 15,624 2,204,669 9,132,714 - 881,668 19,890,532

DEFERRED INFLOWS OF RESOURCES
Unavailable revenue 6,315,971 - 11,728,492 14,159,754 - - 2,000,639 34,204,856 Total Deferred Inflows of Resources 6,315,971 - 11,728,492 14,159,754 - - 2,000,639 34,204,856 FUND BALANCES:

Nonspendable:

Inventories 18,282 - - - - - - 18,282
Advances receivable - 208,075 - - - - 81,547 289,622
Restricted for:

Debt service - - - - - 246,758 - 246,758
Streets - Impact fees - 7,304,369 - - - - - 7,304,369
Housing - - 3,390,756 359,731 - - - 3,750,487
Public safety - Narcotics assets seizure - - - - - - 223,692 223,692 Housing - Business development - - - - - - 149,489 149,489 Housing - Economic development - - - - - - 26,017 26,017 Cultural and recreation - Library - - - - - - 1,189,913 1,189,913 Cultural and recreation - Parks development - - - - - - 2,120,347 2,120,347 General government - Retirement tax - - - - - - 370,717 370,717 Public safety - Measure G/Y - - - - - - 3,725,098 3,725,098 Public safety - Abandoned vehicle - - - - - - 19,204 19,204 Housing - Inclusionary housing - - - - - - 510,752 510,752 Streets - SB1 Gas tax - - - - - - 2,512,531 2,512,531
Streets - Measure D - - - - - - 2,586,078 2,586,078
Unassigned 18,252,675 - - - - - (404,714) 17,847,961
Total Fund Balances 18,270,957 7,512,444 3,390,756 359,731 - 246,758 13,110,671 42,891,317 Total Liabilities, Deferred Inflows of
Resources, and Fund Balances 32,239,690 7,515,539 15,134,872 16,724,154 9,132,714 246,758 15,992,978 96,986,705

SPECIAL REVENUE FUNDS
See accompanying notes to financial statements
34 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

GOVERNMENTAL FUNDS

RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS

TO THE STATEMENT OF NET POSITION
JUNE 30, 2021
Amounts reported for governmental activities in the Statement of Net Position are different from those reported in the governmental funds because: $ Fund balances of governmental funds 42,891,317
Capital assets (gross) used in Governmental Activities are not financial resources and, therefore, are not reported in the governmental funds. 213,746,839 Accumulated depreciation has not been included in the governmental funds financial statements. (102,201,955)
The internal service fund is used by management to charge the costs of insurance to individual governmental funds. The net current assets and liabilities of the internal service fund are included in Governmental Activities on the Statement of Net Position. 1,429,437
Loans and intergovernmental receivables recorded as unavailable revenue in the governmental funds are recorded as revenue on the Statement of Activities. 34,204,856 Interest payable is not due and payable in the current period and therefore, not reported in governmental funds. (19,462)
Long-term liabilities are not due and payable in the current period and therefore, not reported in governmental funds. (73,447,881)
Deferred outflows and inflows of resources relating to pensions: in governmental funds, deferred outflows and inflows of resources relating to pensions are not reported because they are applicable to future periods. In the Statement of Net Position, deferred outflows and inflows of resources relating to pensions are reported.

Deferred outflows of resources relating to pensions 14,164,480 Deferred inflows of resources relating to pensions (1,910,417) Total Net Position - Governmental Activities 128,857,214 See accompanying notes to financial statements
35 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

GOVERNMENTAL FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2021

REDEVELOPMENT AMERICAN OTHER TOTAL

AND HOUSING RESCUE PLAN DEBT GOVERNMENTAL GOVERNMENTAL

GENERAL IMPACT FEES HOUSING GRANTS ACT SERVICE FUNDS FUNDS $$ $ $ $ $ $ $
REVENUES:

Taxes 31,696,950 - - - - - 13,886,645 45,583,595
Licenses, permits, and fees 2,212,590 630,555 - - - - 534,971 3,378,116 Intergovernmental 3,162,931 - - 1,221,221 59,356 - 1,290,531 5,734,039 Charges for services 3,353,708 - - - - - 42,083 3,395,791 Fines 462,190 - - - - - - 462,190
Interest 2,481,291 5,722 32,302 1,492 - - 7,936 2,528,743 Miscellaneous 2,515,265 - 673,197 567,602 - 55,670 127,921 3,939,655 Total revenues 45,884,925 636,277 705,499 1,790,315 59,356 55,670 15,890,087 65,022,129 EXPENDITURES:

Current:

General government 9,837,863 - - - 59,356 - 191,906 10,089,125 Public safety 26,404,851 - - - - - 3,607,002 30,011,853 Housing - - 1,823,181 1,111,920 - - 1,223,614 4,158,715 Streets 5,317,110 577,751 - - - - 1,932,684 7,827,545
Culture and recreation 4,708,097 - - - - - 3,589,045 8,297,142 Debt service:

Principal 1,649,451 - - - - 741,194 - 2,390,645
Interest and fiscal charges - - - - - 147,166 - 147,166 Total expenditures 47,917,372 577,751 1,823,181 1,111,920 59,356 888,360 10,544,251 62,922,191 Excess (deficiency) of revenues over
(under) expenditures (2,032,447) 58,526 (1,117,682) 678,395 - (832,690) 5,345,836 2,099,938

OTHER FINANCING SOURCES (USES)
Issuance of debt 1,649,451 - - - - - - 1,649,451
Transfers in 3,729,635 1,413,261 94,176 - - 840,955 93,195 6,171,222 Transfers out (1,667,803) (5,000) - (273,066) - - (3,979,817) (5,925,686) Total other financing sources (uses) 3,711,283 1,408,261 94,176 (273,066) - 840,955 (3,886,622) 1,894,987 Net change in fund balances 1,678,836 1,466,787 (1,023,506) 405,329 - 8,265 1,459,214 3,994,925 Fund balances, July 1, as restated (Note IIE) 16,592,121 6,045,657 4,414,262 (45,598) - 238,493 11,651,457 38,896,392 Fund balances, June 30 18,270,957 7,512,444 3,390,756 359,731 - 246,758 13,110,671 42,891,317

SPECIAL REVENUE FUNDS
See accompanying notes to financial statements
36 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

GOVERNMENTAL FUNDS

RECONCILIATION OF STATEMENT OF REVENUES, EXPENDITURES,

AND CHANGES IN FUND BALANCES OF GOVERNMENTAL

FUNDS TO THE STATEMENT OF ACTIVITIES
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
$
Amounts reported for governmental activities in the statement of activities are different because of the following:

Net Change In Fund Balance - Total Governmental Funds 3,994,925 Capital Assets Transactions
Governmental Funds report capital outlay as expenditures However, the cost of those assets is capitalized in the Statement of Activities and allocated over their estimated useful lives and reported as depreciation expense.

The capital outlay expenditures are therefore added back to fund balance 4,037,258 Depreciation expense is deducted from the fund balance (5,831,016) Long-Term Debt Proceeds and Payments
Debt and lease proceeds provide current financial resources to Governmental Funds but increases long-term liabilities in the Statement of Net Position.

The repayment of the principal is an expenditure in the governmental funds, but in the Statement of Net Position the repayment reduces long-term liabilities.

Proceeds from issuance of long term debt and leases is added back to fund balance (1,649,451) Repayment of debt principal is added back to fund balance 2,390,645 Interest accrued to principal is deducted from fund balance 23,974 Accrual of Non-Current Items
The amounts below included in the Statement of Activities do not provide or (require) the use of current financial resources and therefore are not reported as revenue or expenditures in governmental funds (net change):

Compensated Absences (157,797)
Net pension liabilities and pension-related deferred outflows/inflows of resources (3,883,157) Net opeb liability
Unavailable revenue 3,729,953
Internal Service Funds Are Used By Management To Charge The Costs Of Insurance To Individual Funds. 949,982
Change In Net Position Of Governmental Funds 3,605,316
See accompanying notes to financial statements
37 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

GENERAL FUND

STATEMENT OF REVENUES, EXPENDITURES,

AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
Variance With
Final Budget -
Positive
Original Final Actual (Negative)
$ $$$
REVENUES:

Taxes 26,135,531 26,135,531 31,696,950 5,561,419
Licenses, permits, and fees 1,553,409 1,941,295 2,212,590 271,295 Intergovernmental 5,542,734 7,748,501 3,162,931 (4,585,570) Charges for services 3,370,366 3,370,366 3,353,708 (16,658) Fines 627,875 627,875 462,190 (165,685)
Interest 2,684,063 2,684,063 2,481,291 (202,772)
Miscellaneous 760,736 1,336,594 2,515,265 1,178,671
Total revenues 40,674,714 43,844,225 45,884,925 2,040,700 EXPENDITURES:

Current:

General government 9,658,428 10,285,843 9,837,863 447,980 Public safety 25,940,315 27,509,399 26,404,851 1,104,548 Streets 7,682,989 8,743,699 5,317,110 3,426,589
Culture and recreation 4,701,838 5,951,144 4,708,097 1,243,047 Debt Service:

Principal - - 1,649,451 (1,649,451)
Total expenditures 47,983,570 52,490,085 47,917,372 4,572,713 Excess (deficiency) of revenues over
(under) expenditures (7,308,856) (8,645,860) (2,032,447) 6,613,413

OTHER FINANCING SOURCES (USES)
Issuance of debt - - 1,649,451 1,649,451
Transfers in 4,064,404 4,064,404 3,729,635 (334,769)
Transfers out (221,314) (221,314) (1,667,803) (1,446,489) Total other financing sources (uses) 3,843,090 3,843,090 3,711,283 (131,807) Net change in fund balance (3,465,766) (4,802,770) 1,678,836 6,481,606 Fund balance, July 1 16,592,121 16,592,121 16,592,121 - Fund balance, June 30 13,126,355 11,789,351 18,270,957 6,481,606 Budgeted Amounts
See accompanying notes to financial statements
38 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

IMPACT FEES FUND

STATEMENT OF REVENUES, EXPENDITURES,

AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
Variance With
Final Budget -
Positive
Original Final Actual (Negative)
$$$ $
REVENUES:

Licenses, permits, and fees 133,000 133,000 630,555 497,555 Interest 51,000 51,000 5,722 (45,278)
Miscellaneous 185,000 185,000 - (185,000)
Total revenues 369,000 369,000 636,277 267,277
EXPENDITURES:

Current:

Streets 752,383 752,383 577,751 174,632
Total expenditures 752,383 752,383 577,751 174,632
Excess (deficiency) of revenues over
(under) expenditures (383,383) (383,383) 58,526 441,909

OTHER FINANCING SOURCES (USES)
Transfers in - - 1,413,261 1,413,261
Transfers (out) (5,000) (5,000) (5,000) -
Total other financing sources (uses) (5,000) (5,000) 1,408,261 1,413,261 Net change in fund balance (388,383) (388,383) 1,466,787 1,855,170 Fund balance, July 1 6,045,657 6,045,657 6,045,657 -
Fund balance, June 30 5,657,274 5,657,274 7,512,444 1,855,170 Budgeted Amounts
See accompanying notes to financial statements
39 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

STATEMENT OF REVENUES, EXPENDITURES,

AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
Variance With
Final Budget -
Positive
Original Final Actual (Negative)
$$ $ $
REVENUES:

Interest 15,000 15,000 32,302 17,302
Miscellaneous 250,000 250,000 673,197 423,197
Total revenues 265,000 265,000 705,499 440,499
EXPENDITURES:

Current:

Housing 3,165,828 3,165,828 1,823,181 1,342,647
Total expenditures 3,165,828 3,165,828 1,823,181 1,342,647 Excess (deficiency) of revenues over
(under) expenditures (2,900,828) (2,900,828) (1,117,682) 1,783,146

OTHER FINANCING SOURCES (USES)
Transfers In 49,350 49,350 94,176 44,826
Total other financing sources (uses) 49,350 49,350 94,176 44,826 Net change in fund balance (2,851,478) (2,851,478) (1,023,506) 1,827,972 Fund balance, July 1 4,414,262 4,414,262 4,414,262 -
Fund balance, June 30 1,562,784 1,562,784 3,390,756 1,827,972 Budgeted Amounts

HOUSING FUND
See accompanying notes to financial statements
40 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

STATEMENT OF REVENUES, EXPENDITURES,

AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
Variance With
Final Budget -
Positive
Original Final Actual (Negative)
$$$ $
REVENUES:

Intergovernmental 1,645,816 1,645,816 1,788,823 143,007 Interest 24,760 24,760 1,492 (23,268)
Total revenues 1,670,576 1,670,576 1,790,315 119,739
EXPENDITURES:

Housing 2,743,812 2,743,812 1,111,920 1,631,892
Total expenditures 2,743,812 2,743,812 1,111,920 1,631,892 Excess (deficiency) of revenues over
(under) expenditures (1,073,236) (1,073,236) 678,395 1,751,631 OTHER FINANCING SOURCES (USES):

Transfers (out) (273,066) (273,066) (273,066) -
Total other financing sources (uses) (273,066) (273,066) (273,066) - Net change in fund balance (1,346,302) (1,346,302) 405,329 1,751,631 Fund balance, July 1 (45,598) (45,598) (45,598) -
Fund balance, June 30 (1,391,900) (1,391,900) 359,731 1,751,631 Budgeted Amounts

REDEVELOPMENT AND HOUSING GRANTS
See accompanying notes to financial statements
41 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

PROPRIETARY FUNDS

STATEMENT OF NET POSITION
JUNE 30, 2021
Governmental
Activities -
Internal Service
WATER SEWER SOLID WASTE AIRPORT FIBER OPTIC TOTALS Fund $ $$$$ $ $
ASSETS
Current Assets:

Cash and investments 23,823,748 11,975,864 8,556,494 766,582 30,423 45,153,111 4,921,950 Restricted cash - 1,643,736 1,791,383 - - 3,435,119 -
Receivables:

Accounts 1,489,762 2,704,004 753,651 93,206 - 5,040,623 395,600 Intergovernmental - - - 193,584 - 193,584 -
Loans receivable - 480,271 - - - 480,271 -
Deposits - - - - - - 60,000
Inventories 253,010 - 862 51,183 - 305,055 -
Total Current Assets 25,566,520 16,803,875 11,102,390 1,104,555 30,423 54,607,763 5,377,550 Noncurrent Assets:

Advances receivable 2,557,460 206,682 137,302 - - 2,901,444 - Capital assets:

Land and improvements 259,333 8,375,598 1,769,401 4,366,883 - 14,771,215 - Buildings 48,498,822 30,899,307 1,846,282 9,160,742 - 90,405,153 - Machinery and equipment 7,326,804 6,757,365 12,704,698 419,964 - 27,208,831 - Infrastructure 13,620,179 48,151,092 - 7,966,694 706,929 70,444,894 - Construction in progress 3,782,275 803,243 153,797 - - 4,739,315 - Accumulated depreciation (32,591,982) (51,095,311) (9,985,753) (11,661,965) (179,678) (105,514,689) - Net Capital Assets 40,895,431 43,891,294 6,488,425 10,252,318 527,251 102,054,719 - Total Noncurrent Assets 43,452,891 44,097,976 6,625,727 10,252,318 527,251 104,956,163 - Total Assets 69,019,411 60,901,851 17,728,117 11,356,873 557,674 159,563,926 5,377,550

DEFERRED OUTFLOWS OF RESOURCES
Deferred outflows of resources - pension 903,968 1,493,535 975,093 252,279 - 3,624,875 - Total Deferred Outflows of Resources 903,968 1,493,535 975,093 252,279 - 3,624,875 -

LIABILITIES
Current Liabilities:

Accounts payable 1,226,262 427,874 624,823 125,354 - 2,404,313 177,590 Accrued personnel costs 239,978 461,367 270,984 70,347 63 1,042,739 116,514 Insurance claims payable - - - - - - 3,650,569
Retentions payable 71,669 - 5,559 - - 77,228 3,440
Customer deposits 9,931 - - - - 9,931 -
Unearned revenue - - - 38,466 - 38,466 -
Current maturities of long term debt:

Compensated absences 13,701 25,673 18,234 2,964 - 60,572 - Notes payable 13,888 119,438 324,030 23,037 - 480,393 - Loans payable - 299,027 - - - 299,027 -
Total Current Liabilities 1,575,429 1,333,379 1,243,630 260,168 63 4,412,669 3,948,113 Noncurrent Liabilities:

Compensated absences 214,648 402,216 285,666 46,442 - 948,972 - Net OPEB liability 395,427 553,540 461,290 105,439 - 1,515,696 - Liability for landfill closure - - 3,680,437 - - 3,680,437 - Net pension liability 5,881,983 9,718,204 6,344,783 1,641,542 - 23,586,512 - Notes payable 30,716 420,934 1,327,196 97,907 - 1,876,753 - Loans payable - 5,494,343 - - - 5,494,343 -
Total Noncurrent Liabilities 6,522,774 16,589,237 12,099,372 1,891,330 - 37,102,713 - Total Liabilities 8,098,203 17,922,616 13,343,002 2,151,498 63 41,515,382 3,948,113

DEFERRED INFLOWS OF RESOURCES
Deferred inflows of resources - pension 31,810 52,556 34,312 8,877 - 127,555 - Total Deferred Inflows of Resources 31,810 52,556 34,312 8,877 - 127,555 -

NET POSITION
Net investment in capital assets 40,850,827 37,557,552 4,837,199 10,131,374 527,251 93,904,203 - Unrestricted 20,942,539 6,862,662 488,697 (682,597) 30,360 27,641,661 1,429,437 Total Net Position 61,793,366 44,420,214 5,325,896 9,448,777 557,611 121,545,864 1,429,437 Business-type Activities -
Enterprise Funds
See accompanying notes to financial statements
42 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

PROPRIETARY FUNDS

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE FISCAL YEAR ENDED JUNE 30, 2021
Governmental
Activities -
Internal Service
WATER SEWER SOLID WASTE AIRPORT FIBER OPTIC TOTALS Fund $ $ $ $ $$ $
OPERATING REVENUES:

Charges for services 19,885,009 $15,118,993 18,310,251 2,431,925 608,749 56,354,927 15,568,654 Total operating revenues 19,885,009 15,118,993 18,310,251 2,431,925 608,749 56,354,927 15,568,654 OPERATING EXPENSES:

Costs of sales and services 14,327,111 12,620,555 18,438,927 3,836,907 33,244 49,256,744 14,620,543 Depreciation 1,633,033 1,569,600 750,401 398,082 35,346 4,386,462 - Total operating expenses 15,960,144 14,190,155 19,189,328 4,234,989 68,590 53,643,206 14,620,543 Operating income (loss) 3,924,865 928,838 (879,077) (1,803,064) 540,159 2,711,721 948,111

NONOPERATING REVENUES (EXPENSES)
Lease revenues - - - 1,274,041 - 1,274,041 -
Grant revenues 7,878 245,466 22,614 456,433 - 732,391 - Interest revenues 16,082 46,057 6,820 495 147 69,601 1,871 Interest expenses (16,747) (22,970) (3,838) - - (43,555) - Total nonoperating revenues (expenses) 7,213 268,553 25,596 1,730,969 147 2,032,478 1,871 Income (loss) before contributions and transfers 3,932,078 1,197,391 (853,481) (72,095) 540,306 4,744,199 949,982 Capital contributions - connection fees 26,310 80,575 - - - 106,885 - Transfers in - - - - - - -
Transfers (out) (27,725) (173,076) (39,679) (5,056) - (245,536) - Changes in net position 3,930,663 1,104,890 (893,160) (77,151) 540,306 4,605,548 949,982 Total Net Position - Beginning 57,862,703 43,315,324 6,219,056 9,525,928 17,305 116,940,316 479,455 Total Net Position - Ending 61,793,366 44,420,214 5,325,896 9,448,777 557,611 121,545,864 1,429,437 Business-type Activities -
Enterprise Funds
See accompanying notes to financial statements
43 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

PROPRIETARY FUNDS

STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
Governmental
Activities -
Internal Service
WATER SEWER SOLID WASTE AIRPORT FIBER OPTIC TOTALS Fund $ $ $ $ $$$
CASH FLOWS FROM OPERATING ACTIVITIES:

Receipts from customers and users 19,754,952 15,122,704 18,159,656 2,317,801 562,293 55,917,406 - Receipts from interfund services provided - - - - - - 15,612,327 Payments to suppliers (9,477,760) (6,682,283) (2,037,429) (3,779,199) (32,981) (22,009,652) (14,919,692) Payments to employees (4,687,712) (6,709,282) (14,459,701) (44,566) (200) (25,901,461) 116,514 Receipt for interfund services provided (used) 665,182 414,819 48,598 21,465 (706,928) 443,136 - Net cash provided (used) by operating activities 6,254,662 2,145,958 1,711,124 (1,484,499) (177,816) 8,449,429 809,149

CASH FLOW FROM NONCAPITAL FINANCING ACTIVITIES
Grant revenue 7,878 245,466 22,614 456,433 - 732,391 -
Transfers from (to) other funds (27,725) (173,076) (39,679) (5,056) - (245,536) - Net cash provided (used) by noncapital financing activities (19,847) 72,390 (17,065) 451,377 - 486,855 -

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets ($3,344,628) (1,883,612) (1,820,627) (16,988) - (7,065,855) - Connection fees 26,310 80,575 - - - 106,885 -
Proceeds from issuance of notes and loans payable - 4,993,714 1,809,432 - - 6,803,146 - Principal paid on long term debt (14,510) (141,859) (166,466) (23,036) - (345,871) - Interest paid on long term debt (16,747) (22,970) (3,838) - - (43,555) - Net cash provided (used) by capital and related financing activities (3,349,575) 3,025,848 (181,499) (40,024) - (545,250) - CASH FLOWS FROM INVESTING ACTIVITIES:

Lease revenue - - - 1,274,041 - 1,274,041 -
Interest received 16,082 46,057 6,820 495 147 69,601 1,871 Net cash provided (used) by investment activities 16,082 46,057 6,820 1,274,536 147 1,343,642 1,871 Net cash flows 2,901,322 5,290,253 1,519,380 201,390 (177,669) 9,734,676 811,020 Cash and cash equivalents at beginning of period 20,922,426 8,329,347 8,828,497 565,192 208,092 38,853,554 4,110,930 Cash and cash equivalents at ending of period 23,823,748 13,619,600 10,347,877 766,582 30,423 48,588,230 4,921,950 Reconciliation of Statement of Net Position:

Cash and investments 23,823,748 11,975,864 8,556,494 766,582 30,423 45,153,111 4,921,950 Cash and investments with fiscal agents - 1,643,736 1,791,383 - - 3,435,119 - 23,823,748 13,619,600 10,347,877 766,582 30,423 48,588,230 4,921,950 Reconciliation of operating income (loss) to cash flows from operating activities Operating Income (loss) 3,924,865 928,838 (879,077) (1,803,064) 540,159 2,711,721 948,111 Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities:

Depreciation 1,633,033 1,569,600 750,401 398,082 35,346 4,386,462 - (Increase) decrease in receivables (130,057) (92,128) (135,144) (38,599) - (395,928) 43,673 (Increase) decrease in inventories 557,954 - 347 2,754 - 561,055 - (Increase) decrease in loans receivable - 95,839 - - - 95,839 - (Increase) decrease in due from other governments - - 9,665 (81,432) - (71,767) - (Increase) decrease in advances receivable 665,182 414,819 48,598 21,465 - - - (Increase) decrease in deferred outflows 158,920 243,566 (146,904) (5,493) - 250,089 - Increase (decrease) in net pension liability (209,042) (236,489) 1,598,731 227,303 - 1,380,503 - Increase (decrease) in accounts payable (80,079) (455,566) 450,640 54,954 - (30,051) 118,453 Increase (decrease) in claims payable (250,000) - - (250,000) - (500,000) (421,042) Increase (decrease) in accrued personnel costs 58,935 110,840 147,062 13,475 63 330,375 116,514 Increase (decrease) in retentions payable 68,886 (213,317) 5,559 - - (138,872) 3,440 Increase (decrease) in liability for landfill closure - - (17,984) - - (17,984) - Increase (decrease) in unearned revenue - - (25,116) 5,907 (46,456) (65,665) - Increase (decrease) in customer deposits (8,948) - - - - (8,948) - Increase (decrease) in net opeb liabilities - - - - - - - Increase (decrease) in deferred inflows (134,987) (220,044) (95,654) (29,851) - (480,536) - Increase (decrease) in advances payable - - - - (706,928) - - Total adjustments 2,329,797 1,217,120 2,590,201 318,565 (717,975) 5,294,572 (138,962) Net cash provided (used) by operating activities 6,254,662 2,145,958 1,711,124 (1,484,499) (177,816) 8,449,429 809,149

NON CASH TRANSACTIONS
Retirement of capital assets ($77,703) ($285,022) ($370,735) - - ($733,460) - Landfill post closure liability amortization - - 59,860 - - 59,860 - Landfill usage amortization - - 41,876 - - 41,876 -
Business-type Activities -
Enterprise Funds
See accompanying notes to financial statements
44 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

SUCCESSOR AGENCY PRIVATE PURPOSE TRUST FUND

STATEMENT OF FIDUCIARY NET POSITION
JUNE 30, 2021
ASSETS $
Cash and investments 1,291,675
Cash and investments with fiscal agent 1,692,464
Notes receivable 218,810
Total Assets 3,202,949

DEFERRED OUTFLOW OF RESOURCES
Deferred Loss on Refunding 177,412
Total Deferred Outflow of Resources 177,412

LIABILITIES
Current Liabilities:

Accounts Payable 1,531
Salaries Payable 410
Interest Payable 150,255
Notes Payable 900,000
Refunding Bonds Payable 1,325,000
Total Current Liabilities 2,377,196
Noncurrent liabilities:

Net OPEB Liability 64,461
Notes Payable 955,275
Refunding Bonds Payable 8,008,079
Total Non Current liabilities 9,027,815
Total Liabilities 11,405,011
Net Position
Held in trust for other purposes (8,024,650)
Total Net Position (8,024,650)
See accompanying notes to financial statements
45 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

SUCCESSOR AGENCY PRIVATE PURPOSE TRUST FUND

STATEMENT OF CHANGES IN NET POSITION
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
ADDITIONS: $
Taxes 2,045,372
Interest 7,670
Amortization 72,686
Total additions 2,125,728
DEDUCTIONS:

General government 1,005,835
Administration 11,370
Interest 412,382
Total deductions 1,429,587
Change in Net Position 696,141
Net Position (Deficit), July 1 (8,720,791)
Net Position (Deficit), June 30 (8,024,650)
See accompanying notes to financial statements
46 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

A. Reporting entity
The City of Watsonville, California was incorporated in 1868 as a charter city and operates under the Council-Manager form of government. The City provides the following services: public safety (police, fire and building inspections), highway and streets, water, sewer and solid waste services, airport, public improvements, planning and zoning, housing and general administration.

B. 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 activities of the primary government except for the Fiduciary fund type – Private Purpose Trust Fund. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support.

The statement of activities demonstrates the degree to which the direct expenses of a given function or segments are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. 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 programs revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.

C. Measurement focus, basis of accounting, and financial statement 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 fund financial statements. 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.

Governmental funds 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 collected within the current period or soon enough thereafter to pay liabilities of the current period.
47 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to claims and judgments, are recorded only when payment is due.

Property taxes, franchise fees, 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. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the government.

The City reports the following major governmental funds:

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

The Impact Fees Special Revenue Fund is assessed at the time of development and is used to mitigate certain increased costs incurred by the government as development occurs. These funds are then used to increase the capacity of roads, build fire stations, public safety equipment, or other governmental facilities. The receipt and disbursement of these fees are recorded in this fund.

The Housing Special Revenue Fund is used for low and moderate-income housing projects. The fund is funded by old 20% Redevelopment Agency’s housing loans monthly payments and with loan payoffs.

The Redevelopment and Housing Grants Special Revenue Fund provides assistance to low and moderate-income individuals via grants. These grants offer a number of housing programs to help low to moderate income Watsonville residents improve their housing condition.

The American Rescue Plan Act Special Revenue Fund accounts for funds received and spent for the American Rescue Plan Act.

The General Debt Service Fund receives funds for the payment of governmental debt of the government.

The City reports the following major proprietary funds:

The Water Fund records the receipts of revenues for water services and records the associated expenses or capital investment. The water service provides water to Watsonville and the surrounding communities, which has a service population of approximately 50,000.
48 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
The Sewer Fund records the activity of the City’s wastewater treatment plant and collection system. The fund also provides waste treatment services to other local sanitary districts, namely Freedom, Salsipuedes, and Pajaro Utility Districts. Thus, the wastewater plant services some 55,000 residents.

The Solid Waste Fund records the activities of refuse collection, recycling, and landfill operations. The landfill is located near the County landfill and is used only by the citizens of the City of Watsonville.

The Airport Fund represents the activities at the airport and the receipts of Federal Aviation Agency (FAA) grants. The fund is to be supported by the fees the airport collects from fuel sales and facility use fees. The FAA provides substantial grant income for general airport improvements.

The Fiber Optic Fund records the activities of the City’s fiber optic system installed. The fund receives payments for use of the system.

Additionally, the government reports the following fund types:

The Internal Service Fund is used to account for financing of insurance services (workers’ compensation, general liability and health benefits) provided to other government funds and departments on a cost reimbursement basis.

The Private Purpose Trust Fund is used to account for the transactions of the Successor Agency of the City of Watsonville Redevelopment Agency.

As a general rule, the effect of interfund activity has been eliminated from government-wide financial statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the City’s water, sewer, and solid waste functions and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various foundations concerned.

Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes.

Proprietary funds distinguish operating revenues and expenses from nonoperating items.

Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with proprietary funds principal ongoing operations. The principal operating revenues of the government’s enterprise funds and of the City’s internal service fund are charges to customers for sales and services. The City also recognizes as operating revenue the portion of connection fees intended to recover the cost of connecting new customers to the system. Operating expenses for enterprise funds and the internal service fund 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 nonoperating revenues and expenses.

49 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, then unrestricted resources, as they are needed.

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America, as prescribed by the GASB and the American Institute of Certified Public Accountants, which require management to make assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts for revenues and expenses or expenditures.

D. Assets, liabilities, and net position or fund balance

1. Deposits and investments
The City’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short term investments with original maturities of three months or less from the date of acquisition.

State statutes authorize the City to invest in the following types of investments:
- Securities of the US Government, or its agencies
- Certificates of Deposit (or Time Deposits) placed with commercial banks and/or savings and loan institutions like institutions such as credit unions - Local Agency Investment Fund (State Pool)
- Repurchase agreements (repos) for a term of one year or less - Passbook Savings Account Demand Deposits
- Debt of the City of Watsonville
- Negotiable Certificates of Deposits
- Bankers' Acceptances
Investments for the City are reported at fair value. The State Treasurers Investment Pool operates in accordance with appropriate state laws and regulations. The reported value of the pool is the same as the fair value of the pool shares. The City has funds held by trustees or fiscal agents pledged to the payment or security of certain bonds and certificates of participation. The California Government Code provides that these funds, in absence of specific statutory provisions governing the issuance of bonds or certificates, may be invested in accordance with the ordinance, resolutions, or indentures specifying the types of investments the trustees or fiscal agent may make.

Cash and cash equivalents
The cash flow statements require presentation of “cash and cash equivalents”. For the purposes of the statement of cash flows, the City considers all proprietary funds pooled cash and investments and cash and investments with fiscal agent as “cash and cash equivalents”.

50 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021

2. Receivables and payables
Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “due to/from other funds” (i.e., the current portion of interfund loans) or “advances to/from other funds” (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as “due to/from other funds”. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as “internal balances.” Property taxes are levied and collected by the County of Santa Cruz and paid upon collection to the various taxing entities including the City. Property taxes are attached as an enforceable lien on property as of January 1. Taxes are levied on July 1 and are payable in two installments on December 10 and April 10. Unsecured taxes are due on July 1 and become delinquent on August

31. The City recognizes property tax revenues when they become measurable and available for the payment of claims in the current period.

3. Inventories
All inventories are valued at cost using the first-in/first-out (FIFO) method. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased.

4. Land held for resale
Land held for resale is carried at the lower of cost or estimated realizable value.

5. Capital assets
Capital assets, which include property, plant and equipment, and infrastructure, (e.g., bridges, curbs and gutters, streets and sidewalks, drainage systems, and lighting systems), and construction in progress are recorded in the applicable governmental or business-type activities columns in the government-wide financial statements. The City defines capital assets as assets with an initial, individual cost of more than $5,000 (amount not rounded) and an estimated useful life in excess of two years. 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 agreement are valued at their estimated acquisition value on the date donated.

The costs for normal maintenance and repairs that do not add to the value of the asset 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 business-type activities is included as part of the capitalized value of the assets constructed. 51 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Property, plant, and equipment of the primary government, are depreciated using the straight-line method over the following estimated useful lives:

Assets Years
Infrastructure 20 to 50 years
Buildings 20 to 50 years
Improvements 20 to 50 years
Machinery, Equipment,
and Vehicles 3 to 10 years

6. Compensated absences
It is the City’s policy to allow most employee groups to accumulate sick leave to a maximum of 1,000 hours. Sick leave accumulated above this maximum is paid to employees at 50% of such excess in December. The balance of such unused sick leave is lost and the sick leave accrual is reduced to 1,000 hours at January 1 of each year. Earned vacation time is accumulated up to two times the employee's annual accrual rate and unused vacation is paid at the employee's hourly rate upon termination.

The maximum accumulation, for fire-fighters on shift duty, of unused sick leave is 62.5 days (1,500 hours). Sick leave accumulation in any calendar year in excess of 1,500 hours shall be paid at the rate of 50% of such excess. The balance of such unused sick leave is lost and the sick leave accrual is reduced to 1,500 hours at January 1 of each year.

The City accrues for compensated absences in the government-wide and proprietary fund financial statements for which they are liable to make payment directly. The General fund, Inclusionary Housing fund, and all four of the five Enterprise funds incurred costs associated with compensated absences during the last fiscal year.

7. Interfund transactions
A description of the basic two types of the City's interfund transactions during the fiscal year and the related accounting policies are set forth as follows:

1. Transactions related directly to services rendered, or facilities provided, are recorded as revenues in the fund providing the service or facility and expenditures (or expenses) in the fund receiving them.

2. Transactions to allocate resources from one fund to another, not contingent on the occurrence of specific expenditures in the receiving fund, are recorded appropriately as transfers in and transfers out in the respective funds. 52 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021

8. Long-term obligations
In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bond using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount.

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

9. Deferred Outflows and Inflows of Resources
Pursuant to GASB Statement No. 63, “Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position,” and GASB Statement No. 65, “Items Previously Reported as Assets and Liabilities,” the City recognizes deferred outflows and inflows of resources.

In addition to assets, the Statement of Net Position will sometimes report a separate section for deferred outflows of resources. A deferred outflow of resources is defined as a consumption of net position by the government that is applicable to a future reporting period. The City has one item which qualifies for reporting; see Note IV.E. for a detailed listing of the deferred outflows.

In addition to liabilities, the Statement of Net Position will sometimes report a separate section for deferred inflows of resources. A deferred inflow of resources is defined as an acquisition of net position by the City that is applicable to a future reporting period. The City has two items which qualify for reporting in this category – unavailable revenue and pension related deferred inflows of resources. Refer to Note IV. E. for a detailed listing of the pension related deferred inflows of resources the City has recognized.

10. Fund balances
Fund balances of the governmental funds are classified as follows:

Nonspendable Fund Balance – represents amounts that cannot be spent because they are either not in spendable form (such as inventory) or legally required to remain intact (such as notes receivable or principal of a permanent fund).

Restricted Fund Balance – represents amounts that are constrained by external parties, constitutional provisions or enabling legislation.
53 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Committed Fund Balance – represents amounts that can only be used for a specific purpose because of a formal action by the City’s governing board (ordinance). Committed amounts cannot be used for any purpose unless the governing board removes those constraints by taking the same type of formal action. Committed fund balance amounts may be used for other purpose with appropriate due process by the governing board. Commitments are typically done through adoption and amendment of the budget. Committed fund balance amounts differ from restricted balances in that the constraints on their use do not come from outside parties, constitutional provisions, or enabling legislation.

Assigned Fund Balance – represents amounts which the City intends to use for a specific purpose, but that do not meet the criteria to be classified as restricted or committed. Intent maybe stipulated by the government board or by an official or body to which the governing board delegates the authority. Specific amounts that are not restricted or committed in a special revenue, capital projects, debt service or permanent fund are assigned for purpose in accordance with the nature of their type or the fund’s primary purpose. An assignment within the general fund conveys that the intended use of those amounts is for a specific purpose that is narrower than the general purpose of the City.

Unassigned Fund Balance – represents amounts which are unconstrained in that they may be spent for any purpose. Only the general fund reports a positive unassigned fund balance. Other governmental funds might report a negative balance in this classification because of commitments made, which include future funding sources for specific purposes for which amounts had been restricted, committed or assigned.

When an expenditure is incurred for a purpose for which both restricted and unrestricted fund balance is available, the City considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned or unassigned fund balance are available, the City considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds.

11. Net Position
GASB Statement No. 63 requires that the difference between assets added to the deferred outflows of resources and liabilities added to the deferred inflows of resources be reported as net position. Net position is classified as either net investment in capital assets, restricted, or unrestricted.

Net position that is net investment in capital assets consist of capital assets, net of accumulated depreciation, and reduced by the outstanding principal of related debt. Restricted net position is the portion of net position that has external constraints placed on it by creditors, grantors, contributors, laws, or regulations of other governments, or through constitutional provisions or enabling legislation. Unrestricted net position consists of net position that does not meet the definition of net investment in capital assets or restricted net position. 54 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
E. Implementation of Governmental Accounting Standards Board (GASB) Pronouncements The City early implemented GASB Statement No. 98 – The Annual Comprehensive Financial Report, which changed the name of the Comprehensive Annual Financial Report to Annual Comprehensive Financial Report.

II. Stewardship, compliance, and accountability
A. Budgetary information
Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America for all governmental funds. All annual appropriations lapse at fiscal year-end.

On or before March 31 of each fiscal year, all departments of the City of Watsonville are required to submit requests for appropriations to the City’s management so that a budget may be prepared. Before May 31 the proposed budget is presented to the City Council for review. City Council holds public hearings and a final budget must be prepared and adopted no later than June

30. The appropriated budget is prepared by fund, department, and division. The City department heads may make transfers of appropriations within a department. Transfers of appropriations between funds require the approval of the City Manager. The legal level of budgetary control (i.e., the level at which expenditures may not legally exceed appropriations) is the fund level.

City Council made several supplemental budget appropriations during the fiscal year. The General Fund budget was increased by $4,520,442 during the fiscal year for reimbursements to the Impact Fees Fund, new solar loan, increased community development department expenditures, and increased salary and overtime for public safety officers.

Encumbrance accounting is employed in governmental funds. The commitments will be reappropriated and honored during the subsequent fiscal year. Encumbrances were as follows at fiscal year-end: General Fund - $2,976,749, Housing Fund - $58,768, Redevelopment and Housing Grants - $471, 694, and Other Governmental Funds - $766,438.

B. Excess of expenditures over appropriations
For the fiscal year ended June 30, 2021, expenditures exceeded appropriations in the following funds: Debt Service Fund ($24,689), Economic Development Special Revenue Fund ($98), Library Special Revenue Fund ($241,908), Retirement Tax Special Revenue Fund ($3,023), and the Parking Garage Special Revenue Fund ($13,088). These funds had excess fund balance to cover these costs, with the exception of the Parking Garage Special Revenue Fund.

55 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
C. Deficit fund equity
As of June 30, 2021, the Parking Garage Special Revenue Fund had a fund balance deficit of ($404,714). The fund will make up the deficits with future licenses, permits and fees collected.

D. New Funds
During fiscal year ended June 30, 2021, the City created the American Rescue Plan Act Special Revenue Fund. The fund was established to account for revenues and expenditures from the American Rescue Plan Act funds.

E. Prior Period Adjustment
In fiscal year 2021, the City restated the beginning fund balance in the Narcotics Asset Seizure Special Revenue Fund related to deposits payable not recognized as revenue from previous periods. As a result, the beginning fund balance of the Narcotics Asset Seizure Special Revenue Fund and the beginning net position of governmental activities were restated and increased by $76,530.

III. Detailed notes on all funds
A. Cash and investments
Cash and investments (including monies held by trustees and fiscal agents) as of June 30, 2021 were as follows:

Cash: $$
Demand Deposits 9,242,849 -
Outstanding Checks (1,370,358) -
Deposits in Transit 179,921 -
Net Demand Deposits 8,052,412 -
Petty Cash 12,436 -
Cash Subtotal - 8,064,848
Investments:

Guaranteed Investment Contracts 1,692,462 -
California Asset Management Program 28,279,530 -
Local Agency Investment Fund 74,099,877 -
Investment Subtotal 104,071,869
Total Cash and Investments 112,136,717

56 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
The cash and investments of Governmental Activities, Business-Type Activities, and the Private Purpose Trust Fund was as follows as of June 30, 2021:

Governmental Activities: $
General Fund 21,481,142
Impact Fees Special Revenue Fund 7,326,043
Housing Special Revenue Fund 3,256,074
Redevelopment and Housing Grants Special Revenue Fund 2,030,316 American Rescue Plan Act Special Revenue Fund 9,132,714 Debt Service Fund 246,758
Other Nonmajor Funds 12,169,351
Total Governmental Activities: 55,642,398
Business-type Activities:

Water Fund 23,823,748
Sewer Fund 13,619,600
Solid Waste Fund 10,347,877
Airport Fund 766,582
Fiber Optic Fund 30,423
Total Business-Type Activities 48,588,230
Internal Service Fund 4,921,950
Private Purpose Trust Fiduciary Fund 2,984,139
Total City Cash and Investments 112,136,717
The City of Watsonville categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs.

The City of Watsonville has the following fair value hierarchy as of June 30, 2021:

Total Exempt
Investments measured at amortized cost: $ $
Guaranteed Investments Contracts 1,692,462 1,692,462
Local Agency Investment Fund 74,099,877 74,099,877
California Asset Management Program 28,279,530 28,279,530 Total Investments 104,071,869 104,071,869
POOLED DEPOSITS/CREDIT RISK:

The California Government Code requires California banks and savings and loan associations to secure a government's deposits by pledging government securities as collateral. The fair value of pledged securities must equal at least 110% of a government's deposits. California law also allows financial institutions to secure the City’s deposits by pledging first trust deed mortgage notes having a value of 150% of the City’s total deposit. 57 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
The City may waive collateral requirements for deposits, which are fully insured up to $250,000 by federal depository insurance.

At June 30, 2021, the City’s carrying amount of deposits and cash on hand was $5,775,867 and bank balances were $6,953,868. Bank balances in excess of the FDIC insurance limitations are fully collateralized by the Bank by pledging identified U.S. Government securities.

Investments Authorized by the California Government Code and the City’s Investment Policy
Maximum Maximum
Maximum Percentage Investment
Authorized Investment Type Maturity of Portfolio * In One Issuer U.S. Treasury Obligations 5 years None None
U.S. Agency Securities 5 years None None
Banker's Acceptances 180 days 40% 30%
Commercial Paper 270 days 25% 10%
Negotiable Certificates of Deposit 5 years 30% None
Repurchase Agreements 1 year 20% None
Passbook Savings Account Demand Deposit N/A None None
Medium-Term Corporate Notes 5 years 30% None
Debt of City of Watsonville N/A None None
Money Market Mutual Funds N/A 20% None
Local Agency Investment Fund (LAIF) N/A None $75,000,000 California Asset Management Program (CAMP) N/A None None * Excluding amounts held by bond trustee that are not subject to California Govenrment Code restrictions Investments Authorized by Debt Agreements
Maximum Maximum
Maximum Percentage Investment
Authorized Investment Type Maturity of Portfolio In One Issuer U.S. Treasury Obligations None None None
U.S. Agency Securities None None None
Banker's Acceptances 180 days None None
Commercial Paper 270 days None None
Money Market Mutual Funds N/A None None
Guaranteed Investment Contracts 30 years None None
58 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Disclosures Relating to Interest Rate Risk
Remaining Maturity (in Months)
Investment Type 12 Months or Less More Than 60 Months Total $ $$
Local Agency Investment Fund 74,099,877 - 74,099,877
California Asset Management Program 28,279,530 - 28,279,530 Guaranteed Investment Contracts - 1,692,462 1,692,462
Total 102,379,407 1,692,462 104,071,869
Disclosures Relating to Credit Risk
Ratings as of Fiscal Year End
Investment Type AA Not Rated Total
$ $$
Local Agency Investment Fund - 74,099,877 74,099,877
California Asset Management Program - 28,279,530 28,279,530 Guaranteed Investment Contracts 1,692,462 - 1,692,462
Total 1,692,462 102,379,407 104,071,869
(1) The management of the State of California Pooled Money Investment Account (generally referred to as LAIF) has indicated to the City that as of June 30, 2021 the amortized cost value of the pool was $193,304,977,285 and the estimated fair value of the pool was $193,321,015,759. The reported value of the City’s portion of LAIF is the same value as the fair value of LAIF shares. LAIF’s (and the City’s) exposure to risk (credit, market or legal) is not currently available. The State’s Local Agency Investment Fund (LAIF) operates in accordance with appropriate state laws and regulations. At June 30, 2021, these investments had an average maturity of 291 days.
(2) The City is a participant in the California Asset Management Program (CAMP). CAMP is an investment pool offered by the California Asset Management Trust (the Trust). The Trust is a joint powers authority and public agency created by the Declaration of Trust and established under the provisions of the California Joint Exercise of Powers Act (California Government Code Sections 6500 et seq., or the "Act") for the purpose of exercising the common power of CAMP participants to invest certain proceeds of debt issues and surplus funds. CAMP investments are limited to investments permitted by subdivisions (a) to (n), inclusive, of Section 53601 of the California Government Code.

The City reports its investments in CAMP at the fair value amounts provided by CAMP, which is the same as the value of the pool share in accordance with GASB 79 requirements. At June 30, 2021, fair value was approximate to the City's cost. At June 30, 2021, these investments had an average maturity of 52 days. 59 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
The City has funds held by trustees or fiscal agents pledged to the payment or security of certain bonds. The California Government Code provides that these funds, in absence of specific statutory provisions governing the issuance of bonds or certificates, may be invested in accordance with the ordinance, resolutions, or indentures specifying the types of investments the trustees or fiscal agent may make.

B. Capital assets
Capital asset activity for the fiscal year ended June 30, 2021 was as follows:

Governmental activities:

Balance at Balance at
June 30, 2020 Additions Deletions Transfers June 30, 2021 Capital Assets not being depreciated: $ $ $ $ $
Land and Improvements 16,467,923 - - - 16,467,923
Construction in Progress 3,812,138 3,510,476 - (2,564,460) 4,758,154 Total Capital Assets not being depreciated 20,280,061 3,510,476 - (2,564,460) 21,226,077 Capital Assets being depreciated:

Buildings and Improvements 136,331,309 120,221 - 209,732 136,661,262 Machinery and Equipment 17,574,510 392,311 (229,358) - 17,737,463 Infrastructure 35,753,059 14,250 - 2,354,728 38,122,037 Total Capital Assets being depreciated 189,658,878 526,782 (229,358) 2,564,460 192,520,762 Less accumulated depreciation for:

Buildings and Improvements (59,661,690) (3,798,010) - - (63,459,700) Machinery and Equipment (11,315,242) (1,112,158) 229,358 - (12,198,042) Infrastructure (25,623,365) (920,848) - - (26,544,213)
Total accumulated depreciation (96,600,297) (5,831,016) 229,358 - (102,201,955) Total Capital Assets being depreciated, net 93,058,581 (5,304,234) - 2,564,460 90,318,807 Governmental activity Capital Assets, net 113,338,642 (1,793,758) - - 111,544,884 Business-type activities:

Balance at Balance at
June 30, 2020 Additions Deletions Transfers June 30, 2021 Capital Assets, not being depreciated: $ $ $ $ $
Land and improvement 14,771,215 - - - 14,771,215
Construction in progress 6,590,360 3,643,161 - (5,494,206) 4,739,315 Total Capital Assets not being depreciated 21,361,575 3,643,161 - (5,494,206) 19,510,530 Capital Assets, being depreciated:

Buildings and Improvements 90,184,537 220,616 - - 90,405,153 Machinery, Equipment and Vehicles 24,717,851 2,608,944 (733,460) 615,496 27,208,831 Infrastructure 64,973,050 593,134 - 4,878,710 70,444,894 Total Capital Assets being depreciated 179,875,438 3,422,694 (733,460) 5,494,206 188,058,878 Less accumulated depreciation for:

Buildings and Improvements (36,500,484) (2,127,694) - - (38,628,178) Machinery Equipment (18,062,688) (1,128,142) 733,460 - (18,457,370) Infrastructure (47,298,515) (1,130,626) - - (48,429,141) Total accumulated depreciation (101,861,687) (4,386,462) 733,460 - (105,514,689) Total Capital Assets being depreciated 78,013,751 (963,768) - 5,494,206 82,544,189 Business-type activities Capital Assets, net 99,375,326 2,679,393 - - 102,054,719

60 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Depreciation expenses were charged to functions/programs of the primary government as follows:

Governmental activities: $
General government 25,590
Public safety 268,928
Streets 4,632,633
Culture and recreation 903,865
Total depreciation expense - governmental activities 5,831,016 Business-Type activities:

Water Fund 1,633,033
Sewer Fund 1,569,600
Solid Waste Fund 750,401
Airport Fund 398,082
Fiber Optic Fund 35,346
Total depreciation expense - business-type activities 4,386,462 C. Interfund receivables, payables, and transfers
The composition of interfund activities as of June 30, 2021, is as follows:

Due from/to other funds
Current interfund balances arise in the normal course of business and are expected to be repaid shortly after the end of the fiscal year. Due from/to other funds balances at June 30, 2021 were as follows:

Due from other funds Due to other funds
Governmental Funds: $$
General Fund 955,413 -
Redevelopment & Housing Grants Special Revenue Fu - 545,604 Nonmajor Funds - 409,809
Total Governmental Funds 955,413 955,413
The General fund covered the current cash shortfall for other special revenue funds. 61 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Advances receivable/payable
Long-term interfund balances arise in the normal course of business and are not expected to be repaid during the next fiscal year. Advances receivable/payable funds balances at June 30, 2021 were as follows:

Advances Receivable Advances Payable
Governmental Funds: $$
General Fund - 3,191,066
Impact Fees Special Revenue Fun - 208,075
Nonmajor Funds - 81,547
Total Governmental Funds 289,622 3,191,066
Enterprise Funds:

Water Fund 2,557,460 -
Sewer Fund 206,682 -
Solid Waste Fund 137,302 -
Total Enterprise Funds 2,901,444
Total Government 3,191,066 3,191,066
With Council approval, resources may be transferred from one City fund to another. The City made various interfund transfers as follows:

General Fund
Impact Fees
Special
Revenue Fund
Housing Special
Revenue Fund
Debt
Service Fund
Nonmajor
Funds
Total
Transfers Out
Transfers Out $$ $ $$$
General Fund - 1,413,261 94,176 146,883 13,483 1,667,803 Impact Fee Special Revenue Fund 5,000 - - - - 5,000
Redevelopment & Housing Special Revenue Fund 115,019 - - 158,047 - 273,066 Nonmajor Governmental Funds 3,609,616 - - 310,713 59,488 3,979,817 Water Fund -- - 22,669 5,056 27,725
Sewer Fund - - - 168,020 5,056 173,076
Solid Waste Fund - - - 34,623 5,056 39,679
Airport Fund - - - - 5,056 5,056
Total Transfers In 3,729,635 1,413,261 94,176 840,955 93,195 6,171,222 Transfers In
The City approved various interfund transfers within its budget for various recommencements such as the transfer from the Retirement Fund to the General Fund for recommencements of General Fund employee’s retirement costs, the transfer from the CDBG Fund to the General Fund for the recommencements of qualified recreations staff costs and recommencements of debt payments to the Debt Service Fund. The General Fund also transferred 20% of its reimbursement from the Successor Agency to the Successor Agency Housing Fund as required by State law.

62 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
D. Leases
Operating lease
The City has entered into a non-cancellable operating lease for 911 and public safety dispatching services with Santa Cruz Consolidated Emergency Communications Center. Total cost for the lease was $50,406 for the fiscal year ended June 30, 2021. The future minimum lease payments as of June 30, 2021 are as follows:

Fiscal Year Ending
June 30 Amount
$
2022 50,331
2023 50,155
2024 50,755
2025 50,363
2026 50,778
2027 50,193
2028 50,410
2029 50,546
2030 50,556
2031 50,435
2032 50,126
2033 50,611
2034 50,964
Total 656,223
E. Long-term debt
The City's long-term debt obligations are repaid by the following funds: General Fund, Debt Service Fund, Water Enterprise Fund, Sewer Enterprise Fund, Solid Waste Enterprise Fund and the Airport Enterprise Fund.

Debt payable (Direct Borrowing) – Governmental Activities On April 13, 2012, the City entered into a commercial term loan with Santa Cruz County Bank to finance the cost of installing solar panels through the City of Watsonville. The total amount for which the City was obligated under the loan was $3,014,285. Installation of the solar panels was completed in the 2012/13 fiscal year.

Interest rate for the loan was 5.29% with principal payments ranging from $206,431 to $282,376 through fiscal year 2027. On March 9, 2021, the City refinanced the lease when the City entered into a Master Equipment Lease Purchase Agreement with Bank of America. See Capital Leases (Direct Borrowings) – Governmental Activities for additional information. 63 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Notes payable:

Governmental Activities -
Section 108 Loan Payable (Direct Borrowing)
The City entered into a contract with the Secretary of U.S. Department of Housing and Urban Development. The contract is for loan guarantee assistance under Section 108 of the Housing and Community Development Act of 1974, as amended, 42 U.S.C. #5308. The promissory note, in the amount of $2,530,000, is for the Downtown Parking Garage Project. The loan is to be repaid with future Community Development Block Grant funds over a period of twenty years at an interest rate of 1.26%.

The annual requirements to amortize the Section 108 loan outstanding as of June 30, 2021 is as follows:

Fiscal Year Principal Interest Debt Service
$$$
2022 147,000 14,934 161,934
2023 155,000 11,308 166,308
2024 163,000 2,902 165,902
2025 170,000 2,423 172,423
Total 635,000 31,567 666,567
PG&E Notes (Direct Borrowings)
The City entered into several agreements with Pacific Gas & Electric Company (PG&E) to retrofit City lighting with qualified energy saving lights throughout the City. The notes are to be repaid with future energy savings over various periods at interest rates of 0%.

The annual requirements to repay the PG&E note outstanding as of June 30, 2021 are as follows:

City Buildings Lights – Governmental Activities:

Fiscal Year Principal
$
2022 8,805
Total 8,805

64 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Business-type Activities - Waste Water System Lights:

Fiscal Year Principal
$
2022 10,555
2023 7,036
Total $17,591
PG&E 2019 Notes (Direct Borrowing)
The City entered into several agreements with Pacific Gas & Electric Company (PG&E) to retrofit City lighting with qualified energy saving lights throughout the City. The notes are to be repaid with future energy savings over various periods at interest rates of 0%.

The terms and maximum payments required on the 2019 notes are as follows:

Old City Hall - $47,181 5 year loan, maximum annual payment of $11,323, Civic Center - $60,070, 4 year loan, maximum annual payment of $18,021, Marinovich - $33,071, 4 year loan, maximum annual payment of $9,229, Youth Center - $27,876, 6 year loan, maximum annual payment of $4,993, Ramsay Park - $29,807, 5 year loan, maximum annual payment of $7,015, Fire Station 1 - $36,215, 3 year loan, maximum annual payment of $16,096, Beach St Parking - $35,429, 6 year loan, maximum annual payment of $7,330, Police Station - $85,545, 5 year loan, maximum annual payment of $19,010, Senior Center - $20,657, 8 year loan, maximum annual payment of $2,882.

The annual requirements to repay the PG&E 2019 governmental activities notes outstanding as of June 30, 2021 are as follows:

Fiscal Year Principal
$
2022 93,214
2023 78,298
2024 49,374
2025 11,292
2026 3,709
2027 2,882
2028 243
Total 239,012
65 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
The original note amounts, terms and maximum annual payments required on the 2019 notes are as follows:

Corralitos - $23,326, 5 year loan, maximum annual payment of $5,281, MSC - $34,323, 7 year loan, maximum annual payment of $5,492, Vista Well - $8,722, 3 year loan, maximum annual payment of $3,738.

Business Type Activities
For the Water Fund as follows:

The annual requirements to repay the PG&E 2019 Water Fund notes outstanding as of June 30, 2021 are as follows:

Fiscal Year Principal
$
2022 13,888
2023 10,773
2024 10,333
2025 5,489
2026 4,121
Total 44,604
For the Waste Water Fund as follows:

Waste Water
Treatment Plant - $86,422, 5 year loan, maximum annual payment of $19,205, The annual requirements to repay the PG&E 2019 Waste Water Fund note outstanding as of June 30, 2021 are as follows:

Fiscal Year Principal
$
2022 19,205
2023 19,205
2024 19,205
2025 8,002
Total 65,617

66 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
For the Airport Fund as follows:

Airport - $153,579, 7 year loan, maximum annual payment of $23,037 The annual requirements to repay the PG&E 2019 Airport Fund note outstanding as of June 30, 2021 are as follows:

Fiscal Year Principal
$
2022 23,037
2023 23,037
2024 23,037
2025 23,037
2026 23,037
2027 5,759
Total 120,944
For the Solid Waste Fund as follows:

Landfill - $9,110, 7 year loan, maximum annual payment of $1,458.

The annual requirements to repay the PG&E 2019 Solid Waste Fund note outstanding as of June 30, 2021 are as follows:

Fiscal Year Principal
$
2022 1,458
2023 1,458
2024 1,458
2025 1,458
2026 970
Total 6,802
67 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
State of California Energy Commission (Direct Borrowing) The City entered into an agreement with State of California Energy Commission to retrofit the City’s owned street lights with qualified energy saving lights. The note is to be repaid with future energy savings over a period of eight years at an interest rate of 3%. The note has been paid off in this fiscal year ending June 30, 2021.

State Water Resources Control Board Loans (Direct Borrowing) On December 18, 2015, the City entered into an agreement with the California State Water Resources Control Board for a Clean Water State Revolving Fund Loan to finance the Manana Lane Sewer Replacement Project. The amount of the loan is $1,486,310. The interest rate for the 20 year loan is 1.6% with principal payments ranging from $66,227 to $86,741.

The City’s outstanding loan under the California State Water Resources Control Board is secured by a pledge of revenues from the Sewer Enterprise Fund. Events of default include non-payment of interest or principal when due. The City shall have 10 days to clear any default. A penalty of highest legal rate of interest from date of default will be added for each charge, fees, taxes, assessments tools or other charges or imposed by the Recipient of non-payment. There have been no events of default since the loan was issued.

The annual requirements to amortize the loan outstanding as of June 30, 2021 is as follows:

Fiscal Year Principal Interest Debt Service
$$$
2022 67,287 20,843 88,130
2023 68,364 19,767 88,131
2024 69,457 18,673 88,130
2025 70,569 17,561 88,130
2026 71,698 16,432 88,130
2027 72,845 15,285 88,130
2028 74,011 14,120 88,131
2029 75,195 12,935 88,130
2030 76,398 11,732 88,130
2031 77,620 10,510 88,130
2032 78,862 9,268 88,130
2033 80,124 8,006 88,130
2034 81,406 6,724 88,130
2035 82,708 5,422 88,130
2036 84,032 4,098 88,130
2037 85,376 2,754 88,130
2038 86,741 1,388 88,129
Total 1,302,693 195,518 1,498,211
68 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
On April 15, 2019, the City entered into an agreement with the California State Water Resources Control Board for a Clean Water State Revolving Fund Loan to finance the Freedom Sanitation Trunk Sewer Line Project. The total amount of the loan is $4,600,840, however, the City has only drawn down $4,490,677 as of June 30, 2021. The interest rate for the 20 year loan is 1.7% with principal payments ranging from $191,783 to $259,770 as of June 30, 2021.

The City’s outstanding loan under the California State Water Resources Control Board is secured by a pledge of revenues from the Sewer Enterprise Fund. Events of default include non-payment of interest or principal when due. The City shall have 10 days to clear any default. A penalty of highest legal rate of interest from date of default will be added for each charge, fees, taxes, assessments tools or other charges or imposed by the Recipient of non-payment. There have been no events of default since the loan was issued.

The annual requirements to amortize the loan outstanding as of June 30, 2021 is as follows:

Fiscal Year Principal Interest Debt Service
$$$
2022 231,740 32,445 264,185
2023 191,783 72,402 264,185
2024 195,043 69,142 264,185
2025 198,359 65,826 264,185
2026 201,731 62,454 264,185
2027 205,160 59,025 264,185
2028 208,648 55,537 264,185
2029 212,195 51,990 264,185
2030 215,802 48,382 264,184
2031 219,471 44,714 264,185
2032 223,202 40,983 264,185
2033 226,996 37,188 264,184
2034 230,855 33,329 264,184
2035 234,780 29,405 264,185
2036 238,771 25,414 264,185
2037 242,830 21,354 264,184
2038 246,958 17,226 264,184
2039 251,157 13,028 264,185
2040 255,426 8,758 264,184
2041 259,770 4,416 264,186
Total 4,490,677 793,018 5,283,695
69 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Business-type Activities - Municipal landfill closure and post-closure liability and requirements
The City operates a landfill solely for the disposal of Watsonville residents’ solid waste. The landfill is regulated by the California Integrated Waste Management Board, which requires that the City set aside certain funds for the landfill's eventual closure. As of June 30, 1998, the City’s Solid Waste Division had completed the closure of the old landfill cell and recognized $403,773 of expenditures to complete the closure. The City is now operating a new cell, which was expected to provide landfill capacity for 23 years with an estimated post-closure costs of $1,591,230.

The City recognizes a portion of the closure and post closure care costs in each operating period.

The amount recognized each year to date for the new landfill is based on the landfill capacity used as of the balance sheet date. As of June 30, 2021, the new landfill cell had used 96.7% of its projected space. The estimated closure and post-closure costs were $1,876,793 and $1,803,644, respectively, which will be recognized as the remaining capacity is used (estimated to be 0.6 years). To date, the fund has $239,650 for post closure costs for the closed phase I and II cells and has set aside closure costs of $1,876,793 and post-closure costs of $1,563,994 for the open phase III cell for a total of $3,680,437. The estimated costs of closure and post closure care are subject to changes such as the effects of inflation, revision of laws and other variables.

NET OPEB LIABILITY
Starting July 1, 2015, the City ceased to pay cash subsidies for retirees. The retirees pay the full amount of their CSAC IEA premiums. The medical/drug implicit subsidy was the only source of liability related for OPEB. Since there is no cash subsidy, as of June 30, 2021, the net OPEB liability was calculated to be immaterial for GASB#75 presentation purposes. However, the net OPEB liabilities of $3,598,100 is still reflected as part of the long-term liabilities in the City’s Statements of Net Position as follows: Governmental Activities - $2,017,944, Business-type Activities - $1,515,696 and Successor Agency Private Purpose Trust Fund - $64,461.

Governmental Activities - Capital Leases (Direct Borrowings) On March 12, 2018, the City entered into an Equipment Lease Purchase agreement with Community First National Bank for the purchase of a Rosenbauer EXT Aerial Tiller Fire Truck.

The amount of the lease pertaining to governmental activities was $1,291,081. The interest rate for the 5 year lease is 3.544% with principal lease payments ranging from $249,076 to $276,507.

If the City should default under any of the provisions hereof, the lessor may charge interest on all amounts due at 10% per annum or the maximum amount permitted by law, whichever is less.

There have been no events of default since the lease was entered into.

70 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
The annual requirement to amortize the lease outstanding as of June 30, 2021 is as follows:

Fiscal Year Principal Interest Debt Service Purchase Option $$$$
2022 267,043 19,263 286,306 282,038
2023 276,507 9,799 286,306 -
Total 543,550 29,062 572,612 282,038
On March 9, 2021, the City entered into a Master Equipment Lease Purchase Agreement with Bank of America for the refinancing of the Solar Project Equipment by prepayment of the 2012 Solar Lease with Santa Cruz County and acquiring four solid waste collection vehicles and one sewer cleaning vehicle. See Capital Lease (Direct Borrowing) – Business-Type Activities for further information. The amount of the lease pertaining to governmental activities was $1,649,451. Interest rate for the 7 year lease is 1.25% with principal lease payments ranging from $137,956 to $279,708.

If the City should default under any of the provisions hereof, the lessor may (1) declare defaulted and all other amounts payable to be immediately due, (2) retake possession or require the City to promptly return such equipment, (3) terminate the lease or (4) take legal action necessary and desirable to enforce its rights. There have been no events of default since the lease was entered into.

The annual requirement to amortize the lease outstanding for governmental activities as of June 30, 2021 is as follows:

Fiscal Year Principal Interest Debt Service
$$$
2022 268,578 14,701 283,279
2023 271,318 11,961 283,279
2024 274,086 9,192 283,278
2025 276,883 6,396 283,279
2026 279,708 3,571 283,279
2027 140,922 717 141,639
Total 1,511,495 46,538 1,558,033
Business-Type Activities - Capital Lease (Direct Borrowing) On March 9, 2021, the City entered into a Master Equipment Lease Purchase agreement with Bank of America for the purchase of a Sewer Cleaning Vehicle Truck. The amount of the lease pertaining to the Sewer Fund was $503,037. Interest rate for the 6 year lease is 1.25% with principal lease payments ranging from $45,873 to $93,206.

71 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
If the City should default under any of the provisions hereof, the lessor may (1) declare defaulted and all other amounts payable to be immediately due, (2) retake possession or require the City to promptly return such equipment, (3) terminate the lease or (4) take legal action necessary and desirable to enforce its rights. There have been no events of default since the lease was entered into.

The annual requirement to amortize the lease outstanding in the Sewer Fund as of June 30, 2021 is as follows:

Fiscal Year Principal Interest Debt Service
$$$
2022 89,678 4,204 93,882
2023 90,546 3,335 93,881
2024 91,424 2,457 93,881
2025 92,310 1,571 93,881
2026 93,206 676 93,882
Total 457,164 12,243 469,407
On March 9, 2021, the City entered into a Master Equipment Lease Purchase agreement with Bank of America for the purchase of four solid waste collection vehicle trucks. The amount of the lease pertaining to the Solid Waste Fund was $1,809,432. The interest rate for the 6 year lease is 1.25% with principal lease payments ranging from $165,008 to $335,528.

If the City should default under any of the provisions hereof, the lessor may (1) declare defaulted and all other amounts payable to be immediately due, (2) retake possession or require the City to promptly return such equipment, (3) terminate the lease or (4) take legal action necessary and desirable to enforce its rights. There have been no events of default since the lease was entered into.

The annual requirement to amortize the lease outstanding in the Solid Waste Fund as of June 30, 2021 is as follows:

Fiscal Year Principal Interest Debt Service
$$$
2022 322,572 15,120 337,692
2023 325,698 11,994 337,692
2024 328,855 8,838 337,693
2025 332,041 5,651 337,692
2026 335,258 2,433 337,691
Total 1,644,424 44,036 1,688,460
72 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Changes in long-term liabilities
Long-term liabilities activity for the fiscal year ended June 30, 2021, are as follows:

Balance Balance Due Within
June 30, 2020 Additions Reductions June 30, 2021 One Year Governmental activities:

Direct Borrowings: $ $ $ $ $
Debt payable 1,699,279 - (1,699,279) - -
Notes payable 1,979,777 1,649,451 (691,366) 2,937,862 784,640 Subtotal 3,679,056 1,649,451 (2,390,645) 2,937,862 784,640 Other Liabilities:

Compensated absences 2,055,235 1,227,436 (1,069,639) 2,213,032 132,782 Net OPEB liability 2,017,944 - - 2,017,944 -
Net pension liability 60,965,842 5,313,201 - 66,279,043 - 68,718,077 8,190,088 (3,460,284) 73,447,881 917,422
Balance Balance Due Within
Business-type activities: June 30, 2020 Additions Reductions June 30, 2021 One Year $$$$ $
1,368,920 4,490,677 (66,227) 5,793,370 299,027
Notes payable (2015 SWRCB, 2019 SWRCB) 324,321 2,312,469 (279,644) 2,357,146 480,393 Compensated absences 829,846 762,156 (582,458) 1,009,544 60,572 Net OPEB liability 1,515,696 - - 1,515,696 -
Net pension liabilities 22,206,009 1,826,034 (445,531) 23,586,512 - Landfill closure / post-closure liabilities 3,698,421 41,876 (59,860) 3,680,437 - 29,943,213 9,433,212 (1,433,720) 37,942,705 839,992
Total Governmental activities
Long-term liabilities
Total Business-type activities
Long-Term liabilities
Loans payable (2019 PG&E various, Sewer
Cleaning Truck, Solid Waste Collection Truck)
General Fund, Library Fund Sewer Fund, Water Fund, Airport Fund and Solid Waste Fund all were required to pay their portion of costs related to other Net OPEB Liabilities and Net Pension Liabilities.

73 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
IV. Other information
A. Risk management
The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City also provides health insurance coverage to employees. There have been no significant reductions in insurance coverage for any risk of loss in the past fiscal year, and settled claims have not exceeded the commercial coverage in any of the past three fiscal years. The City has established a risk management fund to account for and finance its uninsured risks of loss.

The City's risk management programs provide coverage for up to a maximum of $150,000 for each Workers' Compensation claim; $500,000 for each General Liability claim. The City purchases commercial insurance for claims in excess of coverage provided by the self-insurance programs. There have been no significant changes in insurance coverage as compared to last fiscal year.

All funds of the City participate in the self-insurance programs. The employee health insurance program is funded by contributions of a flat rate per employee to the self-insurance fund. Other self-insurance programs are funded by budgeted appropriations. Funding is estimated to provide amounts needed to pay prior and current fiscal year claims and to establish reserves for catastrophic losses.

Liabilities in the self-insurance Internal services fund at June 30, 2021 totaled $3,650,569 as follows: Health Benefits $85,432; General Liability $936,617; and Workers’ Compensation $2,628,520.

The basis for estimating incurred but not reported claims is based on the statute of limitation on accepting claims as follows:

Health Benefits are estimated at 2 times the current fiscal year’s average monthly cost, General Liability is estimated at 6 months of current fiscal year’s average monthly claim cost, and Workers’ Compensation is estimated by using the last two weeks of current fiscal year’s average monthly claim cost.
2019-2020 2020-2021
Claims incurred but not reported: $ $
Beginning 666,224 2,226,605
Incurred claims 2,550,210 51,216
Claims paid (989,829) (1,255,772)
Ending 2,226,605 1,022,049
Claims payable
Beginning 2,431,364 2,345,006
Incurred claims 2,745,084 4,016,832
Claims paid (2,831,442) (3,733,318)
Ending 2,345,006 2,628,520
Total claims payable 4,571,611 3,650,569
74 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
B. Public entity risk pool
In November 1994, the City became a member of the Public Agency Risk Sharing Authority of California (PARSAC), formerly known as California Municipal Insurance Authority (CMIA).

PARSAC, a consortium of 34 municipalities and one fire district, which was established in May 1986 to pool resources, share risks, purchase excess insurance, and to share costs for professional risk management and claims administration. The Authority’s governing board consists of one appointed official and an alternate from participating cities.

General liability
The City is self-insured for general liability claims up to $500,000 (effective November 11, 1994) for each occurrence. Coverage for individual losses in excess of $500,000, up to $10,000,000 is provided through the Public Risk Sharing Authority of California (PARSAC).

Under this program, members share in losses between the members’ individual self-insured retention and $1,000,000 under a risk sharing pool program; and from $1,000,000 to $40,000,000, coverage is provided by another risk pool, CSAC-EIA.

Estimates for all liabilities have been accrued in the Self-Insurance Internal Service Fund, which included an estimate for incurred but not reported claims. At June 30, 2021, total estimated claims payable for General Liability were $936,617.

C. Commitments and Contingencies
Litigation
Various claims and lawsuits are pending against the City. In the opinion of City management, the potential claims loss will not be significant to the City's financial statements.

Grant audits
The City receives grants for specific purposes that are subject to review and audit by grantor agencies. Such audits could result in a request for reimbursement by the grantor for expenditures disallowed under the terms and conditions of the appropriate agency. In the opinion of City management, such disallowance, if any, will not be significant.

75 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Contingency
Proposition 218, which was approved by the voters in November 1996, regulates the City’s ability to impose, increase and extend taxes, assessments and fees. Any new, increased or extended taxes, assessments, and fees subject to the provisions of Proposition 218 require voter approval before they can be implemented. Additionally, Proposition 218 provides that these taxes, assessments, and fees are subject to the voter initiative process and may be rescinded in the future by the voters. Therefore, the City’s ability to finance the services for which the taxes, assessments and fees were imposed may be significantly impaired. Certain language in the initiative is unclear as to the scope and impact of the proposition. Future court rulings or state legislation may clarify these issues. At this time it is uncertain as to the effect that Proposition 218 will have on the City’s ability to maintain or increase the revenue it receives from taxes, assessments and fees, or its effect on interfund payments in lieu of taxes and transfers of surplus funds from enterprise funds to the general fund. Also unclear is the extent to which a 1995 California Supreme Court ruling (the Guardino case) upholding the voter approval requirements of a previously enacted state initiative (Proposition 62) is applicable to prior periods. However, because the City of Watsonville is a Charter City, management believes that the Guardino ruling does not apply to its general law application in the cited case.

D. Post-employment health care benefits
Retiree benefits - COBRA benefits
Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the City provides health care benefits to eligible former employees and their eligible dependents. Certain requirements are outlined by the federal government for this coverage. The premium plus a 2% administration fee is paid in full by the insured on or before the tenth day of the month for the actual month covered. This program is offered for a duration between 18 and 36 months, after the termination date, depending on circumstances related to eligibility to Medicare, death or divorce. During the last fiscal year two former employees participated in the program. 76 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
E. Defined Benefit Pension Plans
The City has two defined benefit pension plans, a Miscellaneous Plan and a Safety Plan. The Miscellaneous Plan is an Agent-Multiple Employer Plan and the Safety Plan is a Cost-Sharing Employer Plan administered by the California Public Employees’ Retirement System (CalPERS).

Below is a summary of the deferred outflows, net pension liabilities and deferred inflows of resources by Plan:

Deferred Outflows Net Pension Deferred Inflows Pension
CalPERS Plan of Resources Liability of Resources Expense $ $$ $
Miscellaneous - Agent Multiple Employer 6,665,308 43,370,112 234,544 6,054,753 Safety - Cost-Sharing Multiple Employer 11,124,047 46,495,443 1,803,428 10,456,382 Totals 17,789,355 89,865,555 2,037,972 16,511,135
Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in the pension expense as follows:

Fiscal Safety Plan Miscellaneous Plan Total
Year Ended Annual Annual Annual
June 30 Amortization Amortization Amortization
$$$
2022 992,192 (193,343) 798,849
2023 1,566,920 661,427 2,228,347
2024 1,126,072 631,702 1,757,774
2026 506,338 480,732 987,070
Total 4,191,522 1,580,518 5,772,040
See Notes E.1 and 2 below for further information about the Plans.

1. CALPERS miscellaneous employees plan
A. General Information about the Miscellaneous Pension Plan Plan Description
All qualified permanent and probationary miscellaneous employees are eligible to participate in the City’s Miscellaneous Employee Pension Plan, agent multiple-employer defined benefit pension plan administered by the California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employees. Benefit provisions under the Plan is established by State statue and City resolution.

CalPERS issues publicly available reports that include a full description of the pension plan regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website.
77 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Benefits Provided
CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 55 with statutorily reduced benefits. All members are eligible for nonduty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law.

The Plans’ provisions and benefits in effect at June 30, 2021, are summarized as follows:

Miscellaneous
Hire date
Prior to
July 1, 2011
On or after
July 1, 2011
On or after
January 1, 2013
Benefit formula 2.0% @ 55 2.0% @ 60 2.0% @ 62
Benefit vesting schedule 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life Retirement age 55 60 62
Monthly benefits, as a % of eligible compensation 1.43% to 2.42% 1.09% to 2.42% 1% to 2.5% Required employee contribution rates 7.00% 7.00% 6.25%
Required employer contribution rates 8.23% 8.23% 12.56% Beginning in fiscal year 2016, CalPERS collects employer contributions for the Plan as a percentage of payroll for the normal cost portion as noted in the rates above as a dollar amount for contributions toward the unfunded actuarial liability (UAL). The dollar amounts are billed on a monthly basis or the City can elect a lump sum payment option. The City’s required contribution for the unfunded liability in the Miscellaneous plan for the year ended June 30, 2021 was $3,027,848, which were made under the lump sum payment option.

Employees Covered
The following employees were covered by the benefit terms for the Miscellaneous Plan as of the most recent actuarial valuation date of June 30, 2019 and measurement date as of June 30, 2020:

Miscellaneous
Inactive employees or beneficiaries currently receiving benefits 305 Inactive employees entitled to but not yet receiving benefits 321 Active employees 313
Total 939
78 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Contributions
Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Plan is determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability.

The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees.

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

Actuarial Assumptions - The total pension liabilities in the June 30, 2020 actuarial valuations were determined using the following actuarial assumptions:

Miscellaneous
Valuation Date June 30, 2019
Measurement Date June 30, 2020
Actuarial Cost Method Entry-Age Normal Cost Method
Actuarial Assumptions:

Discount Rate 7.15%
Inflation 2.50%
Payroll Growth 2.75%
Projected Salary Increase (1)
Investment Rate of Return 7.15% (2)
Mortality Derived using CalPERS Membership Data for all Funds (3) (1) Depending on age, service and type of employment
(2) Net of pension plan investment expenses, includes inflation (3) The mortality table used was developed based on CalPERS' specific data. The probabilities of mortality are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015. Pre-retirement and postretirement mortality rates include 15 years of projected mortality improvement using 90% of Scale MP-2016 published by the Society of Actuaries. For more details on this table, please refer to the CalPERS Experience Study and Review of Actuarial Assumptions report from December 2017 that can be found on the CalPERS website.

The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2019 valuation were based on the results of a December 2017 actuarial experience study for the period 1997 to 2015. Further details of the Experience Study can be found on the CalPERS website.
79 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Discount Rate - The discount rate used to measure the total pension liability was 7.15%. The projection of cash flows used to determine the discount rate for each Plan assumed that contributions from all plan members in the Public Employees Retirement Fund (PERF) will be made at the current member contributions rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, each Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members for all plans in the PERF. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments of current plan members for all plans in the PERF.

Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability for each Plan.

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

In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds’ asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach.

Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent.

The table below reflects the long-term expected real rates of return by asset class:

Asset Class (a)
New
Strategic
Allocation
Real Return
Years 1 - 10(b)
Real Return
Years 11+(c)
Global Equity 50.0% 4.80% 5.98%
Fixed Income 28.0% 1.00% 2.62%
Inflation Assets 0.0% 0.77% 1.81%
Private Equity 8.0% 6.30% 7.23%
Real Assets 13.0% 3.75% 4.93%
Liquidity 1.0% 0.00% -0.92%
Total 100.0%
(a) In the CalPERS Comprehensive Annual Financial Report, Fixed Income is included in Global Debt Securities; Liquidity is included in Short-term Investments; Inflation Assets are included in both Global Equity Securities and Global Debt Securities.
(b) An expected inflation of 2.0% used for this period. (c) An expected inflation of 2.92% used for this period. 80 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
C. Changes in the Net Pension Liability
The changes in the Net Pension Liability for the Miscellaneous Plan were as follows:

Increase (Decrease)
Total Pension
Liability
Plan Fiduciary
Net Position
Net Pension
Liability/(Asset)
$$ $
Balance at June 30, 2019 154,931,383 114,156,134 40,775,249 Changes in the year:

Service cost 3,126,358 - 3,126,358
Interest on the total pension liability 10,957,570 - 10,957,570 Differences between actual and expected experienc - 181,334 181,334 Contribution - employer - 4,648,909 (4,648,909)
Contribution - employee - 1,474,994 (1,474,994)
Net investment income - 5,707,428 (5,707,428)
Benefit payments, including refunds of employee
contributions (6,846,317) (6,846,317) -
Administrative expense - (160,932) 160,932
Net changes 7,418,945 4,824,082 2,594,863
Balance at June 30, 2020 162,350,328 118,980,216 43,370,112 Sensitivity of the Net Pension Liability to Changes in the Discount Rate – The following presents the net pension liability of the City for the Plan, calculated using the discount rate for the Plan, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1-percent point lower or 1-percent point higher than the current rate:
1% Decrease 6.15%
Net Pension Liability $65,408,726
1% Decrease 7.15%
Net Pension Liability $43,370,112
1% Increase 8.15%
Net Pension Liability $25,151,368
Pension Plan Fiduciary Net Pension – Detailed information about the pension plan’s fiduciary net position is available in the separate issued CalPERS financial report. 81 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
D. Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pension
For the fiscal year ended June 30, 2021, the City recognized pension expense of $6,054,753. At June 30, 2021, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows Deferred Inflows
of Resources of Resources
$$
Pension contributions subsequent to measurement date 4,850,246 - Differences between actual and expected experience 832,456 (117,741) Changes in assumptions - (116,803)
Net differences between projected and actual earnings on plan investments 982,606 -
Total 6,665,308 (234,544)
The amount of $4,850,246 was reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2022. Other amounts reported as deferred outflow of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows:

Year Ended Annual
June 30 Amortization
$
2022 (193,343)
2023 661,427
2024 631,702
2025 480,732
Total 1,580,518

2. CALPERS Safety (Police & Fire) Employees Plan
A. General Information about the Safety Pension Plan
Plan Descriptions
All qualified public safety permanent and probationary employees are eligible to participate in the City’s Safety Employee Pension Plan, cost-sharing multiple employer defined benefit plans administered by the California Public Employees’ Retirement System (CalPERS). Benefit provisions under the Plans are established by State statue and City resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. 82 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Benefits Provided
CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for nonduty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law.

The Plans’ provisions and benefits in effect at June 30, 2021, are summarized as follows:

Hire date
Prior to
July 1, 2011
After
July 1, 2011
After
July 1, 2013
Benefit formula 3% @ 50 3% @ 55 2.7% @ 57
Benefit vesting schedule 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life Retirement age 50 55 57
Monthly benefits, as a % of eligible compensation 3.0% 2.4%-3.0% 2.0%-2.7% Required employee contribution rates 9.0% 9.0% 13.0%
Required employer contribution rates 23.674% 20.585% 13.044% Safety
Beginning in fiscal year 2016, CalPERS collects employer contributions for the Plan as a percentage of payroll for the normal cost portion as noted in the rates above as a dollar amount for contributions toward the unfunded actuarial liability (UAL). The dollar amounts are billed on a monthly basis or the City can elect a lump sum payment option. The City’s required contribution for the unfunded liability in the Safety plan for the year ended June 30, 2021 was $2,928,401, which were made under the lump sum payment option.

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

The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the fiscal year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Contributions to the pension plan from the City were $5,129,097 for the fiscal year ended June 30, 2021. 83 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
B. Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions
For purposes of measuring the net pension liability and deferred outflow/inflows of resources related to pensions and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the Plan’s fiduciary net position have been determined on the same basis as they are reported by the CalPERS financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value.

As of June 30, 2021, the City reported a net pension liability for its proportionate share of the net pension liability of the Plan as follows:

Safety Plans
Proportion - June 30, 2019 0.67916%
Proportion - June 30, 2020 0.69788%
Change - Increase (Decrease) 0.01873%
For the year ended June 30, 2021, the City recognized pension expense of $10,456,382 for the Safety Plan. At June 30, 2021, the City reported deferred outflows of resources and deferred inflows of resources related to pension from the following sources:

Deferred Outflows Deferred Inflows
of Resources of Resources
$$
Pension contributions subsequent to measurement date 5,129,097 - Differences between actual and expected experience 3,605,486 - Changes in assumptions - (154,877)
Net differences between projected and actual earnings
on plan investments 1,010,542 -
Differences between actual contributions and
proportional contributions - (1,648,551)
Adjustment due to differences in proportion 1,378,922 - Total 11,124,047 (1,803,428)
The amount of $5,129,097 was reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as areduction of the net pension liability in the year ended June 30, 2022.
84 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pension will be recognized as pension expense as follows:

Year Ended Annual
June 30 Amortization
$
2022 992,192
2023 1,566,920
2024 1,126,072
2025 506,338
Total 4,191,522
Actuarial Assumptions
For the measurement period ended June 30, 2020, the total pension liability was determined by rolling forward the June 30, 2019 total pension liability. The June 30, 2019 total pension liabilities were based on the following actuarial methods and assumptions for all benefit tiers:

Valuation Date June 30, 2019
Measurement Date June 30, 2020
Actuarial Cost Method Entry-Age Normal Cost Method
Actuarial Assumptions:

Discount Rate 7.15%
Inflation 2.50%
Salary Increases (1)
Investment Rate of Return 7.15% (2)
Mortality Derived using CalPERS Membership Data
for all Funds (3)
(1) Depending on age, service and type of employment
(2) Net of pension plan investment expenses, includes inflation (3) The mortality table used was developed based on CalPERS' specific data. The table includes 15 years of mortality improvements using the Society of Actuarial Scale 90% of scale MP 2016. For more details on this table, please refer to the December 2017 experience study report (based on CalPERS demographic data from 1997 to 2015) that can be found on the CalPERS website.

The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2019 valuation were based on the results of a December 2017 actuarial experience study for the period 1997 to 2015. Further details of the Experience Study can be found on the CalPERS website.
85 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Discount Rate - The discount rate used to measure the total pension liability for the plan was

7.15%. The projection used to determine the discount rate for the Plan assumed that contributions from all plan members in the Public Employees Retirement Fund (PERF) will be made at the current member contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

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

In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds’ asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach.

Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent.

The table below reflects the expected real rates of return by asset class.

Asset Class (a)
New
Strategic
Allocation
Real Return
Years 1 - 10(b)
Real Return
Years 11+(c)
Global Equity 50.0% 4.80% 5.98%
Fixed Income 28.0% 1.00% 2.62%
Inflation Assets 0.0% 0.77% 1.81%
Private Equity 8.0% 6.30% 7.23%
Real Assets 13.0% 3.75% 4.93%
Liquidity 1.0% 0.00% -0.92%
Total 100.0%
(a) In the CalPERS Comprehensive Annual Financial Report, Fixed Income is included in Global Deb Securities; Liquidity is included in Short-term Investments; Inflation Assets are included in both Globa Equity Securities and Global Debt Securities.
(b) An expected inflation of 2.0% used for this period. (c) An expected inflation of 2.92% used for this period.

86 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in Discount Rate - The following presents the City’s proportionate share of the net pension liability calculated using the discount rate of 7.15 percent, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (6.15 percent) or 1- percentage point higher (8.15 percent) than the current rate:

Safety
1% Decrease 6.15%
Net Pension Liability $68,644,831
Current Discount Rate 7.15%
Net Pension Liability $46,495,443
1% Increase 8.15%
Net Pension Liability $28,319,775
Pension Plan Fiduciary Net Position - Detailed information about the pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports.

F. Successor Agency Private-Purpose Trust Fund for Assets of former Redevelopment Agency of the City of Watsonville.

On December 29, 2011, the California Supreme Court upheld Assembly Bill 1X 26 (“Bill”) that provides for the dissolution of all redevelopment agencies in the State of California. This action impacted the reporting entity of the City of Watsonville that previously had reported a redevelopment agency within the reporting entity of the City as a blended component unit.

The Bill provides that upon dissolution of a redevelopment agency, either the city or other unit of local government will agree to serve as the “successor agency” to hold the assets until they are distributed to other units of state and local governments. On January 10, 2012, the City Council elected to become the Successor Agency for the former redevelopment agency in accordance with the Bill as part of City.

Resolution Number 4-12.

After enactment of the law, which occurred on June 28, 2011, redevelopment agencies in the State of California cannot enter into new projects, obligations or commitments. Subject to the control of a newly established oversight board, remaining assets can only be used to pay enforceable obligations in existence as the date of the dissolution (including the completion of any unfinished projects that were subject to legally enforceable contractual commitments).

Successor agencies are allocated revenue in the amount that is necessary to pay the estimated annual installment payments on enforceable obligations of former redevelopment agency until all enforceable obligations of the prior redevelopment agency have been paid in full and all assets have been liquidated.

87 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
The Bill directs the State Controller of the State of California to review the propriety of any transfers of assets between redevelopment agencies and other public bodies that occurred after January 1, 2011. If the public body that received such transfers is not contractually committed to a third party for the expenditure or encumbrance of those assets, the state Controller is required to order the available assets to be transferred to the public body designated as the successor agency by the Bill.

Management believes, in consultation with legal counsel, that the obligations of the former redevelopment agency due to the City are valid enforceable obligations payable by the successor agency trust under the requirements of the Bill. The City’s position on this issue is not a position of settled law and there is considerable legal uncertainty regarding this issue. It is reasonably possible that a legal determination may be made at a later date by an appropriate judicial authority that would resolve this issue unfavorably to the City.

In accordance with the timeline set forth in the Bill (as modified by the California Supreme Court on December 29, 2011) all redevelopment agencies in the State of California were dissolved and ceased to operate as a legal entity as of February 1, 2012. After the date of dissolution, the assets and activities of the dissolved redevelopment agency are reported in a fiduciary fund (private-purpose trust fund) in the financial statements of the City.

The following is a schedule of long-term liabilities for the fiscal year ended June 30, 2021:

Balance Balance Due Within
June 30, 2020 Retirements June 30, 2021 One Year
$$$$
Refunding tax allocation bonds 9,475,000 (1,265,000) 8,210,000 1,325,000 Bond Premium 1,209,469 (86,390) 1,123,079 -
Total Bonds Payable 10,684,469 (1,351,390) 9,333,079 1,325,000 Notes Payable 2,282,431 (427,156) 1,855,275 900,000
Net OPEB Liability 64,461 - 64,461 -
Total 13,031,361 (1,778,546) 11,252,815 2,225,000
Tax allocation refunding bonds
In June of 2004 the former Redevelopment Agency of the City of Watsonville issued tax allocation bonds in three series as follows:

1. Series A - $19,000,000

2. Series B-1 - $2,310,000

3. Series B-2 - $4,635,000
In April of 2016, the Successor Agency issued $11,790,000 of 2016 Tax Allocation Refunding Bonds, Series A and $2,420,000 of 2016 Tax Allocation Refunding Bonds, Taxable Series B for a current refunding of the $14,190,000 2004 Tax Allocation Bonds Series A and B-1 and $2,720,000 Tax Allocation Taxable Series B-2 Bonds. The Series A refunding bonds had $2,965,772 of additional funding and Series B had $410,577 of additional funding. The refunding was done to reduce future debt service payments.

88 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
The transaction resulted in an economic gain of $3,269,616 and a reduction of $3,856,103 in future debt service payments and accounting loss of $177,412 which is shown as a deferred outflow of resources to be amortized over the life of the bonds.

The annual requirements to amortize the loan outstanding as of June 30, 2021 is as follows:

Fiscal Year Principal Interest Debt Service
$ $$
2022 1,325,000 363,200 1,688,200
2023 1,390,000 296,950 1,686,950
2024 1,465,000 227,450 1,692,450
2025 945,000 154,200 1,099,200
2026 295,000 106,950 401,950
2027 305,000 92,200 397,200
2028 325,000 76,950 401,950
2029 330,000 69,638 399,638
2030 340,000 61,800 401,800
2031 350,000 48,200 398,200
2032 370,000 34,200 404,200
2033 380,000 23,100 403,100
2034 390,000 11,700 401,700
Total 8,210,000 1,566,538 9,776,538
Net OPEB Liability
As of the transfer of the former Agency assets to the Successor Agency, the Net OPEB liability was $64,461. This amount will be reduced by an allocation of future costs incurred by the City from former staff members of the former Agency.

Notes Payable
The City and former Agency had several notes payable from the former Agency to the City for various costs and fees associated with the construction of the Civic Plaza as follows:

Parking Garage Loan for Construction Costs $1,855,275
The State of California deemed these notes as a non-enforceable obligation, and the City could not be paid back until a finding of completion was received from the State’s Department of Finance, which the City received on February 21, 2014 and the Successor Agency’s oversight board made a finding that the notes were for a legitimate redevelopment purpose. The Oversight Board also made the finding for all the above notes. The notes are allowed to add interest based on the State of California Local Agency Investment Fund’s (LAIF) monthly interest rate. Interest has been projected for the debt service at the most recent rate available. 89 Attachment B

CITY OF WATSONVILLE, CALIFORNIA

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
Debt Payable Recap:

Parking Garage Loan
Fiscal Year Principal Interest Total
$ $$
2022 900,000 1,366 901,366
2023 955,275 876 956,151
Total 1,855,275 2,242 1,857,517
90 Attachment B

Required
Supplementary
Information
Attachment B

This Page Left Intentionally Blank
Attachment B

The following table provides required supplementary information regarding the City's Miscellaneous Pension Plan:
2014 2015 2016 2017 2018 2019 2020
TOTAL PENSION LIABILITY $$$$$$$
Service Cost 2,251,567 2,348,593 2,250,229 2,616,009 2,696,646 2,918,120 3,126,358 Interest 8,369,558 8,741,399 9,093,428 9,502,933 9,872,907 10,452,164 10,957,570 Differences between expected and actual experience - (1,088,430) (1,307,204) (160,738) (622,350) 1,523,815 181,334 Changes in assumptions - (2,194,095) - 8,126,558 (617,380) - - Changes in benefits - - - - - - -
Benefit payments, including refunds of employee contributions (4,554,651) (4,874,482) (5,292,339) (5,612,765) (5,877,340) (6,327,905) (6,846,317) Net change in total pension liability 6,163,500 2,835,959 4,744,114 14,471,997 5,452,483 8,566,194 7,418,945 Total pension liability - beginning 112,697,136 118,860,636 121,696,595 126,440,709 140,912,706 146,365,189 154,931,383 Total pension liability - ending (a) 118,860,636 121,696,595 126,440,709 140,912,706 146,365,189 154,931,383 162,350,328

PLAN FIDUCIARY NET POSITION
Contributions - employer 1,750,491 1,881,144 2,288,840 2,856,260 3,443,447 3,756,237 4,648,909 Contributions - employee 1,087,253 1,064,147 1,145,223 1,265,745 1,301,275 1,520,671 1,474,994 Net investment income (1) 14,090,974 2,081,010 501,726 10,269,390 8,537,327 7,097,297 5,707,428 Administrative expense - (105,873) (57,299) (136,723) (457,364) (76,957) (160,932) Benefit payments, including refunds of employee contributions (4,554,651) (4,874,482) (5,292,339) (5,612,765) (5,877,340) (6,327,905) (6,846,317) Net Plan to Plan Resource Movement - - - (2,203) (250) (3,911) - Other Miscellaneous Income/(Expense) - - - - - - -
Net change in plan fiduciary net position 12,374,067 45,946 (1,413,849) 8,639,704 6,947,095 5,965,432 4,824,082 Plan fiduciary net position - beginning 81,597,739 93,971,806 94,017,752 92,603,903 101,243,607 108,190,702 114,156,134 Plan fiduciary net position - ending (b) 93,971,806 94,017,752 92,603,903 101,243,607 108,190,702 114,156,134 118,980,216 Net pension liability - ending (a)-(b) 24,888,830 27,678,843 33,836,806 39,669,099 38,174,487 40,775,249 43,370,112 Plan fiduciary net position as a percentage of the total pension liability 79.06% 77.26% 73.24% 71.85% 73.92% 73.68% 73.29% Covered payroll 17,390,545 17,452,658 17,680,742 18,366,981 18,917,990 19,029,329 20,531,347 Net pension liability as percentage of covered-employee payroll 143.12% 158.59% 191.38% 215.98% 201.79% 214.28% 211.24% Notes to Schedule:
* Fiscal year 2015 was the 1st year of implementation.

CITY OF WATSONVILLE, CALIFORNIA

SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS

LAST SEVEN FISCAL YEARS
JUNE 30, 2021
Benefit changes: The figures above do not include any liability impact that may have resulted from plan changes which occurred after June 30. This applies for voluntary benefit changes as well as any offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes).

Changes in assumptions: In 2017. the accounting discount rate reduced from 7.65% to 7.15%. In 2016, 2018, 2019, and 2020, there were no changes. In 2015. amounts reported reflect an adjustment of the discount rate from 7.5% (net of administrative expense) to 7.65% (without a reduction for pension plan administrative expense). In 2014, amounts were based on the 7.5% discount rate. 93 Attachment B

The following table provides required supplementary information regarding the City's Miscellaneous Pension Plan:
2015 2016 2017 2018 2019 2020 2021
$$$$$$$
Contractually required contribution 1,769,613 2,299,823 2,288,840 2,856,260 3,756,236 4,648,909 4,850,246 Contributions in relation to the actuarially
determined contributions (1,769,613) (2,299,823) (2,288,840) (2,856,260) (3,756,236) (4,648,909) (4,850,246) Contribution deficiency (excess) - - - - - - -
Covered payroll 17,452,658 17,680,742 18,366,981 18,917,990 19,029,329 20,531,347 21,749,448 Contributions as a percentage of covered
payroll 10.14% 13.01% 12.46% 15.10% 19.74% 22.64% 22.30% Notes to Schedule
Valuation date: 6/30/19
Methods and assumptions used to determine contribution rates:

Discount Rate 7.15% @ 6/30/2019

7.15% @ 6/30/2018

7.15% @ 6/30/2017

7.65% @ 6/30/2016

7.65% @ 6/30/2015

7.50% @ 6/30/2014
Inflation
Salary increases Varies by Entry Age and Service
Investment rate of return
Mortality Rate Table (1)
Post Retirement Benefit Increase
* Fiscal year 2015 was the 1st year of implementation.

Derived using CalPERS' Membership Data for
all Funds

7.50% for 2015 to 2018, 7.375% for 2019,

7.25% for 2020, and 7.00% for 2021, net of
pension plan investment expenses, including

2.75% for 2015 to 2019, 2.625% for 2020, and 2.50% for 2021 (1) The probabilities of mortality are based on the CalPERS Experience Study. Pre-retirement and Post-retirement mortality rates include 20 years of projected mortality improvement using Scale BB published by the Society of Actuaries for 2015 to 2018. For 2019 to 2021, preretirement and post-retirement mortality rates include 15 years of projected mortality improvement using 90% of Scale MP-2016 published by the Society of Actuaries.

CITY OF WATSONVILLE, CALIFORNIA

SCHEDULE OF CONTRIBUTIONS
LAST SEVEN FISCAL YEARS*
JUNE 30, 2021
Contract COLA up to 2.50% until Purchasing
Power Protection Allowance Floor on
Purchasing Power applies, 2.50% thereafter.
94 Attachment B

The following table provides required supplementary information regarding the City's Safety Pension Plan:
2014 2015 2016 2017 2018 2019 2020
$ $$$$$$
Proportion of the net pension liability 0.358953% 0.379737% 0.387650% 0.388914% 0.666691% 0.679156% 0.697883% Proportionate share of the net pension liability 22,335,737 26,064,837 33,543,690 38,569,604 39,118,450 42,396,602 46,495,443 Covered payroll 10,541,326 9,190,095 9,792,080 11,557,360 11,496,504 11,783,799 12,765,651 Proportionate share of the net pension liability as
percentage of covered payroll 211.89% 283.62% 342.56% 333.72% 340.26% 359.79% 364.22% Plan's total pension liability 30,829,966,631 31,771,217,402 18,961,274,094 21,144,800,930 22,053,702,155 23,442,265,225 24,782,493,361 Plan fiduciary net position 24,607,502,515 24,907,305,871 13,782,056,004 15,169,595,595 16,186,149,467 17,199,726,799 18,120,140,152 Plan fiduciary net position as a percentage of the
total pension liability 79.82% 78.40% 72.69% 71.74% 73.39% 73.37% 73.12% Notes to Schedule:
* Fiscal year 2015 was the 1st year of implementation. Years will be added until 10 years of data is reached.

CITY OF WATSONVILLE, CALIFORNIA

SCHEDULE OF PROPORTIONATE SHARE OF NET PENSION LIABILITY LAST SEVEN FISCAL YEARS*
JUNE 30, 2021
95 Attachment B