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Home My WebLink About12/18/2007, BUS. 2 - COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR 2006-07 council Main D° 12r18i07 j aGEnaa WPORt 1�N..6 s. z CITY OF SAN LUIS O B I S P O FROM: Bill Statler, Director of Finance & Information Technology Carolyn Dominguez,Finance Manager SUBJECT: COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR 2006-07 CAO RECOMMENDATION Review and discuss the Comprehensive Annual Financial Report and ending financial results for 2006-07. DISCUSSION The accompanying Comprehensive Annual Financial Report (CAFR) has been prepared in order to present the City's financial condition and results of operations for the fiscal year ended June 30, 2007, as well as to provide statistical information of general interest about the San Luis Obispo community. Financial Results Highlighted in the Report Included in the document is the Transmittal Memorandum, which provides a comprehensive analysis of the City's financial position as of June 30, 2007 as well as summaries of significant City fiscal policies and practices. Key variances from projected ending balances for 2006-07 are highlighted in the Transmittal Memorandum, summarized as follows. The Short Story: Financial results for the year compare favorably with budget estimates in virtually all areas of the City's operations. For the General Fund, financial results for the year were better than estimated on both the revenue and expenditure side, with each contributing about the same amount to the bottom line: revenues exceeded our projections by 4% and expenditures were under budget by 3%. This results in an ending General Fund balance that is $2.9 million better than projected. This is consistent with the interim results reported to the Council in August 2007. It also complies with the City's policy of maintaining a minimum unreserved, undesignated General Fund balance that is at least 20% of operating expenditures. Largely One-Time Improvement. As discussed in the Transmittal Memorandum,these better-than- projected results are largely due to one-time factors, On the revenue side, the most significant variances are in revenues from development review fees, reflecting activity from several large projects; and investment earnings. These two revenues alone account for about 70% of the overall revenue variance and cannot be counted on for the future. On the cost side, expenditure savings reflect the successful efforts of the operating departments to implement operating efficiencies. It also shows that we do not have a"use or lose it" budget mentality in the City: good stewardship is a strong organizational ethic, both in word and deed. On the other hand, most of these savings are '21-1 ® �7 Comprehensive Annual Financial Report for 2006-07 Page 2 one-time in nature and will not be ongoing. For example, staffing savings account for over 90% of the total favorable expenditure variance. This was largely due to vacant positions that are now filled. Additionally, where savings are likely to be ongoing due to cost reduction strategies, these are already reflected in 1007-09 Financial Plan. Cautious Use of Stronger Reserves. Our stronger reserve position is certainly good news. However, because our stronger ending position for 2006-07 is largely a one-time improvement, it should only be used for one-time purposes Moreover, any use of these added reserves —even on a one-time basis — should be placed in the context of emerging revenue and expenditure trends. For this reason, the 2007-08 mid-year budget review is our best opportunity for this "in context" consideration. Maintaining strong reserves is also important given the number of studies underway as part of the 2007-09 Financial Plan, such as the Senior Center and Skateboard Park, where added funding may be needed to implement study findings. This will also help address potential capital project shortfalls, which we have already experienced several times in the new fiscal year. Lastly, given the uncertain economic outlook presented at the recent UCSB Economic Forecast combined with the significant budget problems facing the State, maintaining stronger reserves will hold us in good stead in meeting the likely fiscal challenges ahead of us. Independent Audit As required by the City Charter, the financial statements have been audited by an independent certified public accountant (Glenn, Burdette, Phillips & Bryson) and their letter expressing an unqualified (favorable) opinion regarding the City's financial position is also included in the report document. Report Organization In accordance with generally accepted accounting principles for state and local governments, the City's CAFR is organized into three major sections: introduction, financial reports and statistical tables. The following is a brief summary of the contents of each of these sections. Introduction. The Transmittal Memorandum and other information of general interest are included in this section; including: directory of officials and advisory bodies, organization chart, and awards for excellence in financial reporting from the Government Finance Officers Association (GFOA) and the California Society of Municipal Finance Officers (CSMFO). Financial Reports. This section includes the primary financial statements of the City, and is organized into five major parts: 1. Auditors' opinion regarding the financial statements, (They have given the City a "clean opinion, stating the financial statements fairly present the City's financial position in conformity with generally accepted accounting principles.) 2. Management's discussion and analysis providing a narrative overview of the government-wide financial activities. ,2 2 Comprehensive Annual Financial Report for 2006-07 Page 3 3. The basic financial statements presenting the government-wide statements which combines the activities of the major funds (General, Capital Outlay, Los Osos Valley Road Sub-Area Fees and all Enterprise Funds) into governmental and business-type categories; the fund financial statements; and the notes to the financial statements. 4. Required supplementary information presenting the General Fund actual results with both the original and final adjusted budgets. 5. Supplemental financial statements providing financial information for each of the City's non- major governmental and agency funds. Statistical Tables. This section provides demographic and financial tables showing current and historical trend information for the City and is organized into six major parts: 1. Statistical overview. General information about the San Luis Obispo community. 2. General financial trends. Ten-year summary information on net assets, governmental revenues and expenditures and fund balances. 3. Revenue capacity.Ten-year summary information on property and sales tax trends. 4. Debt capacity. Ten-year summary information on debt service requirements. 5. Economic and demographic trends. Ten-year summaries of taxable sales, building permits and valuations,housing,population and other demographic trends. 6. Operating information.Ten-year trend information on operating indicators by function. Recognition for Excellence in Financial Reporting Beginning in fiscal year 1983-84, all of the City's CAFRs have been awarded the certificate of achievement for excellence in financial reporting from the Government Finance Officers Association of the United States and Canada (GFOA). This is a prestigious national award recognizing our use of the highest standards in preparing our annual financial report. We believe our current report continues to meet their program requirements, and we are submitting it to them to determine its eligibility for another award. ENCLOSURE Comprehensive Annual Financial Report for 2006-07 G:Audit Folders/Audit 2006-07/CAFR/Coun6il Agenda Report,2006.07 �- 3