1995-96 COMPREHENSIVE ANNUAL FINANCIAL REPORT

(Including Report from Independent Auditor)

Recommendation:

It is recommended that the City Council receive and file the 1995-96 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 found behind the second divider 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 seven 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 1995-96 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 by $2.5 million (31.41%) over 1994-95. Utility User Tax (UUT) revenue (almost $1.8M), previously received into a separate fund, is now placed in the General Fund. One-time revenue received from transfer of the cable television franchise (Tax category) and surplus retirement funds (Miscellaneous category) account for another $434,356 of the increase. Adjusting total revenue for these non-recurring items and moving the UUT results in a more reasonable overall increase of 4%.

	Increase % Of	Revenue	Increase	% Of
REVENUE SOURCE		FY 95-96	(Decrease)	Inc.	Percent
		Amount	over FY 94-95	(Dec.)	of Total
Property Taxes		$ 3,105,062	$ 66,641	2.19%	29.53%
Sales Tax		1,551,924	65,731	4.42	14.75
Other Taxes		3,522,256	2,064,175	141.57	33.48
Licenses & Permits		183,533	43,775	31.32	1.75
Fines & Forfeitures		110,010	9,342	9.28	1.05
Use of Money and Property		316,004	(59,666)	-15.88	3.01
Intergovernmental Revenue		781,398	55,136	7.59	7.43
Charges for Services		536,045	80,110	17.57	5.10
Miscellaneous		246,995	137,543	125.67	2.35
Interest		162,573	50,754	45.39	1.55
Total		$ 10,515,800	$ 2,513,541	31.41%	100.00%
NOTE: There is a classification error in the CAFR wherever General Fund Property Tax is shown (i.e. p.6). Usually, only current property taxes show under that heading, however, for FY 95-96, prior year taxes were included, which skews the comparison to 94/95. This chart shows the Property Tax correctly, with a 2.19% increase instead of 7%, as is displayed in the CAFR. Prior year taxes are shown under Other Tax.

The three categories of Tax revenue are discussed under a separate heading on the next page.

Growth in Licenses and Permits is primarily related to building activity. The number of residential building permits issued grew by 34%; commercial permits, 6%. The assessed valuation of residential permits increased 108%; commercial permits, 42%.

Use of Money and Property shows a decrease in revenue, due to a one-time Prop A Fund exchange in the prior year 1994-95. In actuality, if exchange funds are excluded, the category would have shown a 16% increase due to special event fees.

The increase in Charges for Services is primarily attributable to plan check fees related to the increased building activity mentioned earlier, and increased ambulance transport fees.

Taxes

Revenue from taxes generates 78% of General Fund revenue. The graph below tracks the three largest revenue sources over the past ten years. The UUT has been the most stable of the three, with property taxes affected by State actions and sales tax affected by the economy. All three sources show positive trend lines.

Sales tax receipts grew by 4%, for a total of $1.55 million which is the highest since 1990-91.

The table below displays information for the top ten classes of business (representing 73% of sales tax) and the changes from the previous year.

1995-96 SALES TAX BY CLASS

TOP TEN CATEGORIES

RANK/BUSINESS CLASS	Sales Tax 1995-96	Inc./(DEC)	% Of Change Prev. Yr.	% Of Total	Rank Previous Year
1. Eating/Drinking Places	$ 322,640	$15,260	4.81	29.46	1
2. Auto Dealers	249,441	9,018	3.75	22.08	2
3. Grocery Stores	186,544	16,166	9.49	16.52	3
4. Building Materials	80,853	7,277	9.89	7.16	4
5. Sporting Goods /Bicycles	64,770	2,484	3.99	5.73	5
6. Service Stations	52,688	(2,320)	-4.22	4.66	7
7. Specialty Stores	52,673	(527)	-0.99	4.66	6
8. Auto Repair Shops/Garages	39,819	4,892	14.01	3.53	9
9. Wholesale Textiles/ Furnishings	35,779	319	0.90	3.17	8
10. Non-Store Retailers (Full-Time)	34,259	2,538	8.00	3.03	10

General Fund Expenditures

General Fund expenditures decreased approximately 1% from 1994-95. Staff levels were reduced by twelve positions, or 9% of the workforce. Staff levels were also reduced 6% in 1994-95 and 9.5% in 1993-1994.

	Expenditures FY 95-96	Increase (Decrease)	% Of Inc.	Percent of Total
GENERAL FUND	Amount	over FY 94-95	(Dec.)
Legislative & Legal	$ 541,555	$ (9,166)	-1.66	5.42
General Government	824,811	(87,804)	-9.62	8.25
Public Safety	6,285,117	193,574	3.18	62.90
Community Development	490,673	53,470	12.23	4.91
Culture & Recreation	475,734	(255,732)	-34.96	4.76
Public Works	1,368,393	74,438	5.75	13.69
Debt Service:
Principal	-0-	-0-	-0-	0.00
Interest	-0-	-0-	-0-	0.00
Capital Outlay	6,708	(60,294)	-89.99	0.07
Total	$9,992,991	$ (91,514)	-0.91%	100.00%

Community Development costs, i.e. plan check and inspection services, increased as a result of higher building activity.

The decrease in Culture/Recreation is the result of moving Parks to the Public Works category and combining it with Public Works Administration in 1995-96. Several divisions citywide were combined to simplify record keeping and reporting.

The decrease in Capital Outlay reflects purchase of the new telephone system last year.

General 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 balance is 17.4% of expenditures.

An additional $421,879 is shown as unreserved at year end. $225,000 of that amount are cable television franchise transfer funds. (A recommendation will be made at Midyear Budget Review for City use of funds; item E on this agenda deals with allocation to the School District.) The balance of the $421,879 is for reappropriations from the previous budget.

At the 1995-96 Midyear Review, the City Council approved new policies for the funding of liabilities for Compensated Absences (vacation, sick time earned by employees), insurance and equipment through transfers of surplus funds from the General Fund and excess retirement funds.

As a result, a Compensated Absences Fund and an Equipment Replacement Fund were established, and the fund equity in the Insurance Fund was increased by $461,706.

Midyear Budget Review (scheduled for the next Council meeting) provides the next opportunity to review our financial picture.

Gary Caporicci, one of the partners in charge of our audit, will be present at the meeting.

The report is available for review in the library and the Finance Department.