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 City of Hermosa Beach --- 01-11-001998- 99 COMPREHENSIVE ANNUAL FINANCIAL REPORT (Including Report from Independent Auditor) RECOMMENDATION It is recommended that the City Council: Receive and file the 1998-99 Comprehensive Annual Financial Report (CAFR), which includes the report from Caporicci and Larson, our independent auditors. BACKGROUND Annually the City has a financial audit performed by an independent certified public accounting firm. The auditor’s report is located behind the second divider that is labeled "Financial Section". The City again received an unqualified opinion, which indicates that the auditor believes the financial statements present a fair picture of the financial position of the City, as opposed to a qualified opinion, in which the auditor "qualifies" or limits his opinion for specific reasons, such as lack of fixed asset accounting or significant internal control deficiencies. The report is a comprehensive report (as opposed to just financial statements) prepared in accordance with guidelines provided by the Government Finance Officers Association (GFOA) and all applicable accounting standards. The City has received the Certificate of Achievement for Excellence in Financial Reporting from the GFOA for the last six years and the Certificate of Award for Outstanding Financial Reporting from the California Society of Municipal Finance Officers (CSMFO) for eight years. The award programs require a high level of compliance with governmental standards, inclusion of information well beyond the general-purpose financial statements and an unqualified audit opinion. The 1998-99 CAFR has been submitted to both of the associations for consideration in the award programs since the certificates are valid for one year only. ANALYSIS The following analysis deals with the General Fund, which is the main operating fund of the City. Additional analysis of all governmental funds is included in the Transmittal Letter, which begins on page i at the front of the CAFR.
General Fund Revenue
General Fund revenue increased 8% over 1997-98 and was 6% over budget estimates.
Tax revenue is discussed under a separate heading below. Growth in Licenses and Permits is primarily related to construction activity. Revenue from building, plumbing and electric permits increased 11% over the previous year. While the number of residential and commercial building permits issued declined by 3% and 25%, respectively, valuations associated with the permits were higher by 27% and 5% The new permit fee for taxicabs also contributed to the increase. Fines and Forfeitures increased 29% because the State changed the allocation to return funds that were taken during the recession to balance the State budget. Intergovernmental Revenue increased because of higher motor vehicle license fee collections. The increase in Charges for Services is primarily attributable to planning fees resulting from increased building activity and increased participation in recreation classes. Miscellaneous Revenue was higher due to increased donations and more funds contributed by Beach Cities Health District. Interest revenue increased because of higher interest rates and availability of more funds for investment. Taxes Revenue from taxes generates 73% of General Fund revenue. The graph below tracks the three largest revenue sources over the past ten years.
Property taxes overall increased 5%. Current year secured taxes increased 6% and unsecured taxes increased 2%. Sales tax receipts grew by 9%. The tables below display sales tax information for the top ten classes of business (representing 84% of sales tax) and sales tax by geographic area for major accounts. The decline in UUT receipts is due to discontinuing collection of the tax on interstate and international calls. 1998-99 SALES TAX BY CLASS TOP TEN CATEGORIES
Sales Tax by Geographic Area
General Fund Expenditures General Fund expenditures increased almost 6% from 1997-98 and were 5% under budget. Negotiated salary increases affect all categories.
The Legislative/Legal category increase reflects higher litigation costs and changes in benefits for elected officials. Public Safety, Public Works and Culture/Recreation are higher due to negotiated salary increases. Higher expenditures in Culture/Recreation are also a result of the addition of a recreation supervisor and higher instructor payments for added classes, which are offset by class revenue. Community Development expenditures reflect increased costs related to higher building activity, including an additional building inspector. General Fund Surplus The policy of transferring any unexpended funds in the General Fund to the Equipment Replacement Fund (ERF), Insurance Fund and the Accrued Compensation Fund was implemented in 1995-96 to build equity in the funds. The Accrued Comp Fund and the ERF were new funds; the Insurance Fund had a balance of $15,426. The policy was changed last year to discontinue transfers to the Accrued Comp Fund and include the Capital Improvement Fund. Much progress has also been made in the ERF and the Insurance Fund, but desired levels of funding have not yet been achieved. General Fund, Fund Balance Fund balance as a percent of expenditures is a measure of the City’s cushion against economic uncertainties or revenue shortfalls. Bond rating agencies have historically considered at least a 5% reserve "prudent", however, level of reserves should be decided based on individual circumstances and the economic climate. The General Fund contingency balance is 13% of expenditures. Midyear Budget Review, conducted next month, will provide the next opportunity to review our financial picture. Gary Caporicci, the partner in charge of our audit, will be present at the meeting.
The reports are available for review in the library and the Finance Department.
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General Fund - Largest Revenue Sources
