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HomeMy WebLinkAbout02-05-2019 Item 17 - CAFR Department Name: Finance Cost Center: 2001 For Agenda of: February 5, 2019 Placement: Business Item Estimated Time: 10 Minutes FROM: Brigitte Elke, Finance Director Prepared By: Rico Pardo, Accounting Manager/Controller SUBJECT: ACCEPTANCE OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT, SINGLE AUDIT REPORT, AND ANNUAL AUDIT OF TRANSPORTATION DEVELOPMENT ACT FUNDS FOR 2017-18 RECOMMENDATION Review and accept the Comprehensive Annual Financial Report, Single Audit Report, and annual audit of the Transportation Development Act Funds for Fiscal Year 2017-18. DISCUSSION The accompanying Comprehensive Annual Financial Report (CAFR) has been prepared as required by the City’s Charter and applicable State laws requiring financial reporting for municipalities. The CAFR provides a final and audited representation of the City’s financial condition across all funds for the fiscal year that ended June 30, 2018. The CAFR was published on the City’s website on December 28, 2018 and hard copies were provided to the City Council on January 4, 2019. As required by City Charter1, financial statements have been audited by independent certified public accountants firm Glenn Burdette. The objective of the financial audit is to provide users of the financial reports with reasonable assurance from an independent source that the reports are reliable. The auditor issued the financial statements with an unmodified opinion which means that they are presented fairly and in conformity with generally accepted accounting princ iples (see pages 1-3 of the CAFR- Independent Auditors’ report). The accompanying Single Audit Report, which is also prepared by Glenn Burdette, provides information about the City’s expenditures of federal awards for the period ending on June 30, 2018. 1 Section 810. Independent Audits. The Council shall employ, at the beginning of each fiscal year, an independent certified public accountant who, at such time or times as may be specified by the Council, at least annually, shall examine the books, records, inventories, and reports of all officials, emp loyees, departments, and agencies who receive, handle, or disburse public funds. As soon as practicable after the end of the fiscal year, a final audit and report shall be submitted by such accountant to the Council, one copy thereof to be distributed to each member, one each to the City Clerk, t he City Treasurer, the City Manager, and City Attorney respectively, and three (3) additional copies to be placed on file in the office of the City Clerk where they shall be available for inspection by the general public for the period required by the laws of the State of California. Restr icted and special assessment district funds shall be segregated in the audit report. Packet Pg. 458 Item 17 The Transportation Development Act annual audit was prepared by the same independent certified public accounting firm and provides information on the City’s compliance with statutes, rules and regulations of the Transportation Development Act (TDA), the California Code of Relations, and instructions and resolutions of the San Luis Obispo Council of Government for the period ending on June 30, 2018. This report did not reflect any negative findings regarding the City’s administration of the TDA monies. New Government Accounting Standard Board (GASB) Statements There are two GASB statements that greatly influence government financial statements. Pursuant to GASB Statement No. 68 (GASB 68 implemented in June 2015), Accounting and Financial Reporting for Pensions and GASB Statement No. 75 (GASB 75 implemented in June 2018), Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (OPEB), the City reports on the unfunded pension and OPEB liabilities on the full accrual basis of accounting in the government-wide financial statements. Also included are note disclosures and supplementary schedules as required by GASB 68 and GASB 75. The measurement date for fiscal year 2017-18 pension and OPEB liabilities is as of the fiscal year ended June 30, 2017. This date reflects a one-year lag and was used so that the financial statements could be issued in an expedient manner. Activity (i.e. contributions made by the City) occurring during fiscal year 2017-18 are reported as deferred outflows o f resources in accordance with GASB Statement No. 71. Financial Results Highlighted in the CAFR Within the CAFR, the Transmittal Memorandum and Management’s Discussion and Analysis (MD&A) summarize the City’s fiscal performance and provide an analysis of the influencing factors. They also provide information on the City’s fiscal policies, practices and financial results. Key variances from projected ending balances for 2017-18 are highlighted in the Transmittal Memorandum. Both documents allow the reader to gain insight into the City’s audited financials and provide context to the following statements. Financial results for fiscal year 2017-18 compare favorably with budget estimates in virtually all areas of the City’s operations. For the General Fund, financial results for the year exceed final estimates for revenues by $2.2 million, or 3%. Expenditures and other uses were $9.8 million below final estimates. The net result of the overall difference leads to the ending fund balance of $29.6 million. This compares to an ending balance of $ 20.7 million in 2016-17. As the chart below outlines, the majority of the ending balance is restricted and not available for spending. Packet Pg. 459 Item 17 It should be noted that not all of the $6.3 million is available for decision making as approximately $4.2 million was carried over into the 2018-2019 fiscal year and allocated for programs and projects that advance City policies and goals. This action is authorized by the City’s Budget and Fiscal Policies under Financial Plan Purpo se and Organization E: Operating Carryover. Operating program appropriations not spent during the first fiscal year may be carried over for specific purposes into the second fiscal year with the approval of the City Manager 2. The City’s top three key reve nue sources, Sales Tax including the City’s Half-Cent Sales Tax Measure, Property Tax, and Transient Occupancy Tax (TOT), all fared well in 2017-18 coming in slightly above budgeted estimates. These revenue sources account for 50% of all funding sources in the General Fund and are closely monitored through the year. Enterprise Funds The City maintains four Enterprise Funds for its Water and Sewer utility, and the Parking and Transit enterprises. Enterprise Funds are business-type activities within government accounting and are reported on separately. The primary sources of revenue for the Water, Sewer, and Parking Funds are fees for sales and services. Most revenues in these funds exceeded budget assumptions with the exception of parking fees collected within the Parking Fund. This was due to over estimated fee revenue based on adopted fee increases. The Transit Fund receives revenue from fare collection but is mainly funded through federal and state grants to offset its operating cost for the City’s transit system. 2 Financial Management Manual (Section 550 -A Budget Carryover: Operating Programs). Under the City’s Financial Plan policies, operating program appropriations not spent during the first year may be carried over for specific purposes into the second year with the approval of the City Manager. Packet Pg. 460 Item 17 All four funds ended the fiscal year 2017-18 positively with all of them experiencing an increase in net position at year end. (CAFR page 31). CAFR 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 presented in this section, including: directory of officials, advisory bodies, and organization chart. Financial Reports. This section includes the City’s primary financial statements in five major parts: 1. Auditors’ opinion regarding the financial statements. 2. Management’s discussion and analysis providing a narrative overview of City-wide finances. 3. The basic financial statements presenting the government-wide results combining the activities of the major funds (General, Capital Outlay 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. Other supplemental schedules and financial statements providing financial information for each of the City’s non-major governmental and agency funds. This includes a financial schedule presenting Half Percent Sales Tax Measure revenues and uses in 2017-18. 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 the City’s use of the highest standards in preparing its annual financial report. The City received the award for its 2016-17 CAFR and has submitted the award application for the 2017-18 CAFR. Packet Pg. 461 Item 17 Additional Reporting The Federal Single Audit Act requires agencies expending $500,000 or more of Federal assistance funding to undergo organization-wide audits of their internal controls. Accordingly, the accompanying Single Audit Report provides a Report on Internal Control Over Financial Reporting and on Compliance and Other Matters. In the findings section of this report, the auditors noted several deficiencies. In response to these findings listed below, staff has already taken the steps necessary to address these issues in the future as has provided formal audit responses within the report. In the Recommendations of the Report, the auditors recommended the following: • Evaluate and update a documented year-end process, including the reconciliation of balance sheet accounts to identify and record year-end closing entries. • Evaluate and document the cash receipts process, communicate to staff the principles of proper revenue recognition, and implement procedures to link the cash receipts process to recording of revenue. • Continue to maintain the capital asset software and review on a timely basis to address any discrepancies between the software and the City’s general ledger in order to accurately capture depreciation expense and capital activity in the current period. • Evaluate and update a documented periodic and year -end closing process, including the reconciliation of investment balances and activity to identify and record month and year-end closing entries so that they are properly stated. Policy Context The City’s Charter under Section 810 requires the employment of an independent certified public account to examine the City’s financials. Additionally, the City’s Budget and Fiscal Policies stipulate under “Financial Reporting and Budget Administration Section A.3”: The City will issue audited financial statements within 180 days after year -end. Public Engagement The City’s annual audit and issuance of the comprehensive annua l financial report fulfills a legal requirement and does not have a public engagement component outside the required presentation before Council during a public session. ENVIRONMENTAL REVIEW The California Environmental Quality Act does not apply to the recommended action in this report, because the action does not constitute a “Project” under CEQA Guidelines Sec. 15 378. Packet Pg. 462 Item 17 FISCAL IMPACT Budgeted: Yes Budget Year: 2018-19 Funding Identified: Yes Fiscal Analysis: Funding Sources Total Budget Available Current Funding Request Remaining Balance Annual Ongoing Cost General Fund $74,000 $70,450 $3,550 State Federal Fees Other: Total The City budgets the cost for the auditing firm annually. The cost is appropriated with the annual budget approval. The current fiscal year contains the budget for the previous fiscal year audit. $85,000 were approved to cover the cost. ALTERNATIVES The City Council could decide to revise or not accept the Comprehensive Annual Financial Report, Single Audit Report, and annual audit of the Transportation Development Act Funds for fiscal year 2017-18. This is not recommended as the reports have been prepared in conformance with a variety of accounting and other reporting requirements and repre sent the professional evaluation and analysis by the City’s independent auditors. They have rendered an unqualified opinion which means that they are presented fairly and in conformity with generally accepted accounting principles. Attachments: a - City of SLO Final Federal Awards Reports FS 6-30-17 b - City of SLO TDA 2018 c - Council Reading File - City of SLO 2018 CAFR Packet Pg. 463 Item 17 City of San Luis Obispo, California Federal Awards Reports and Schedule Year Ended June 30, 2017 Packet Pg. 464 Item 17 2 City of San Luis Obispo, California Table of Contents June 30, 2017 Page Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 3-4 Independent Auditors’ Report on Compliance for Each Major Program and on Internal Control Over Compliance and on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 5-7 Schedule of Expenditures of Federal Awards 8 Notes to Schedule of Expenditures of Federal Awards 9 Findings and Recommendations Section Schedule of Audit Findings and Questioned Costs and Status of Prior Audit Findings and Questioned Costs 10-16 Packet Pg. 465 Item 17 G GLENN BURDETTE CERTIFIED PUBLIC ACCOUNTANTS Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards The Honorable City Council of the City of San Luis Obispo, California San Luis Obispo, California We have audited, in accordance with the 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, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund i nformation of the City of San Luis Obispo, California (the City) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the City's basic financial statements, and have issued our report thereon dated December 20, 2017. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified . However, as described in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis . A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will GLENN BURDETTE.COM 3 SAN LUIS OBISPO 1150 Palm Street San Luis Obispo, CA 93401 p 805 544 1441 f 805 5444351 PASO ROBLES 102 South Vine Street, Ste. A Paso Robles, CA 93446 p 805 237 3995 f 805 239 9332 SANTA MARIA 2222 South Broadway, Ste. A Santa Maria, CA 93454 p 805 922 4010 f 805 922 4286 Packet Pg. 466 Item 17 4 The Honorable City Council of the City of San Luis Obispo, California San Luis Obispo, California Page 2 not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies described in the accompanying schedule of findings and questioned costs to be material weaknesses: 2017.100, 2017.200, and 2017.300. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiencies described in the accompanying schedule of findings and questioned costs to be significant deficiencies: 2017.400. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. City of San Luis Obispo’s Responses to Findings The City’s responses to the findings identified in our audit are described in the accompanying schedule of audit findings and questioned costs. The City’s responses were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purposes. Glenn Burdette Attest Corporation San Luis Obispo, California December 20, 2017 Packet Pg. 467 Item 17 CERTIFIED PUBLIC ACCOUNTANTS G GLENN BURDETTE Independent Auditors' Report on Compliance for Each Major Program and on Internal Control Over Compliance and on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance The Honorable City Council of the City of San Luis Obispo, California San Luis Obispo, California Report on Compliance for Each Major Federal Program We have audited the City of San Luis Obispo, California 's (the City) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the City's major federal programs for the year ended June 30 , 2017 . The City's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of the City's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred . An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances . We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program . However, our audit does not provide a legal determination of the City's compliance. GLENN BURDETTE.COM 5 SAN LUIS OBISPO 1150 Palm Street San Luis Obispo, CA 93401 p 805 544 1441 f 805 544 4351 PASO ROBLES 102 South Vine Street, Ste. A Paso Robles, CA 93446 p 805 23? 3995 f 805 239 9332 SANTA MARIA 2222 South Broadwa~. Ste. A Santa Maria, CA 93454 p 805 922 4010 f 805 922 4286 Packet Pg. 468 Item 17 6 The Honorable City Council of the City of San Luis Obispo, California San Luis Obispo, California Page 2 Opinion on Each Major Federal Program In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2017. Report on Internal Control over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Packet Pg. 469 Item 17 7 The Honorable City Council of the City of San Luis Obispo, California San Luis Obispo, California Page 3 Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon dated December 20, 2017, which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. Such 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. The information has been subjected to the auditing procedures applied in the audit of the 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 schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. Glenn Burdette Attest Corporation San Luis Obispo, California December 20, 2017 Packet Pg. 470 Item 17 8 City of San Luis Obispo, California Schedule of Expenditures of Federal Awards Year Ended June 30, 2017 Federal Expenditures CFDA Federal to Number Expenditures Subrecipients US Department of Justice Public Safety Partnership and Community Policing Grant 16.710 58,258$ $ Edward Byrne Memorial Justice Assistance Grant Program 16.738 14,031 Total US Department of Justice 72,289 - US Department of Housing and Urban Development Community Development Block Grants/Entitlement Grants 14.218 101,548 Total US Department of Housing and Urban Development 101,548 - US Department of Transportation Highway Planning and Construction Marsh Street Bridge Rehab 20.205 43,195 Calle Joaquin Park & Ride 20.205 2,109 50 Higuera Widening 20.205 12,623 Total Highway Planning and Construction 57,927 - Federal Transit Formula Grants (Urbanized Area Program)20.507 1,730,418 Total US Department of Transportation 1,788,345 - Total Expenditures of Federal Awards 1,962,182$ -$ Program Title Federal Grantor/ Pass-Through Grantor/ See independent auditors’ report. See the accompanying notes to schedule. Packet Pg. 471 Item 17 9 City of San Luis Obispo, California Notes to Schedule of Expenditures of Federal Awards Year Ended June 30, 2017 Note 1: Basis of Presentation The purpose of the accompanying schedule of expenditures of federal awards (the schedule) is to present a summary of those activities of the City of San Luis Obispo (the City) for the year ended June 30, 2017, which have been financed by federal awards. For purposes of the schedule, federal awards include all federal grants received directly from the federal government and sub-awards from nonfederal organizations made under federally sponsored agreements. Because the schedule presents only a selected portion of the activities of the City, it is not intended to and does not present either the financial position or changes in net position of the City. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Therefore, some amounts presented in this schedule may differ from amounts presented in the basic financial statements. Note 2: Expenditures For new awards or modifications of existing awards after December 26, 2014, the expenditures reported in the Schedule follow the cost principles contained in the Uniform Guidance. For existing awards prior to December 26, 2014, the expenditures follow the cost principles contained in OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments and Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments (OMB Common Rule). The cost principles indicate that certain types of expenditures are not allowable and certain allowable costs are limited as to reimbursement. Note 3: Indirect Cost Rate The City has not elected to use the ten percent de minimis indirect cost rate as allowed under the Uniform Guidance, but rather the rates established directly with the respective federal agencies. Packet Pg. 472 Item 17 10 City of San Luis Obispo, California Schedule of Audit Findings and Questioned Costs and Status of Prior Year Findings and Questioned Costs Year Ended June 30, 2017 Section I: Summary of Auditors’ Results Financial Statements (a) Type of auditors’ report issued on financial statements: Unmodified. (b) Internal control over financial reporting: • Material weakness(es) identified: Yes. See Findings 2017.100, 2017.200, and 2017.300 • Significant deficiencies identified not considered to be material weaknesses: Yes. See Finding 2017.400. (c) Noncompliance material to financial statements noted: No. Federal Awards (d) Internal control over major programs: • Material weakness(es) identified: No. • Significant deficiencies identified not considered to be material weaknesses: None reported. (e) Type of auditors’ report issued on compliance for major programs: Unmodified. (f) Any audit findings disclosed that are required to be reported in accordance with 2 CFR Section 200.516(a): No. (g) Dollar threshold used to distinguish between Type A and Type B programs: $750,000. (h) Major Programs: • Federal Transit Formula Grants (Urbanized Area Program) (CFDA Number 20.507) (i) Auditee qualified as low-risk auditee: No. Packet Pg. 473 Item 17    11 City of San Luis Obispo, California  Schedule of Audit Findings and Questioned Costs  and Status of Prior Year Findings and Questioned Costs  Year Ended June 30, 2017  Page 2    Section II:   Findings Relating to the Financial Statements which are Required to be Reported in                        Accordance with Government Auditing Standards    Finding 2017.100:  Year‐End Close and Balance Sheet Account Reconciliations (Material Weakness)    Condition:  During audit testwork, we noted that year‐end reconciliation and analysis procedures were not performed  on numerous balance sheet accounts at June 30, 2017.  Therefore we identified numerous material year‐end closing  entries at the fund level that had not been recorded by the City or were recorded incorrectly, including: accruals for  receivables, prepaid expenses, deferred revenue, and liabilities from prior years that were not properly reversed and  recognized as expenses or revenues in the current year; investment accounts that were not properly marked to  market value, causing an overstatement of assets; and vendor liabilities that were not properly accrued for in the  current year, causing an understatement of liabilities and expenditures.  In addition, we identified numerous instances  of current year transactions that were recorded in incorrect funds, which attributed to some of the aforementioned  stale accrual balances.       Criteria:  The City should have policies and procedures in place to reconcile year‐end balance sheet accounts to ensure  they are properly stated in accordance with generally accepted accounting principles.  Those policies and procedures  should require the City staff to perform reconciliation and analysis procedures to identify and record year‐end closing  entries.         Cause:   Policies and procedures are not in place to ensure that balance sheet accounts are reconciled and year‐end  closing entries are identified and recorded.     Effect:  Numerous year‐end balance sheet items were stated incorrectly.  Material audit adjustments were posted to  the audited financial statements at the fund level to correct these issues.    Recommendation:  We recommend that the City evaluate and update a documented year‐end closing process,  including the reconciliation of balance sheet accounts to identify and record year‐end closing entries so they are  properly stated in accordance with generally accepted accounting principles.      Views of Responsible Officials and Planned Corrective Actions:  In fiscal year 2015‐16 the Government Finance Officers  Association (GFOA) performed an assessment of the City’s Finance and Information Technology department and  recommended reorganization separating the Finance and Information Technology functions into distinct departments  and reorganization of the Finance Department.  In fiscal year 2016‐17, the City’s Finance Operations Manager retired,  and the City hired an Accounting Manager/Controller in mid‐October 2016 and reorganized the department based on  GFOA’s recommendations. Several months were allotted for in‐person training and the transition.  The City at the time  did not maintain written procedures describing revenue and expenditure procedures.  In addition, policies and      Packet Pg. 474 Item 17 12 City of San Luis Obispo, California Schedule of Audit Findings and Questioned Costs and Status of Prior Year Findings and Questioned Costs Year Ended June 30, 2017 Page 3 procedures were partially documented for the year-end closing process. Through the process of year-end closing for fiscal year 2016-17, documentation was created along the way to address proper postings to balance sheet accounts, proper reconciliation of investment fair market value, posting of transactions correctly and consistently, and communicating how the year-end process works with other members of the Finance staff. Accounting processes and procedures will be fully documented to establish formal procedures for revenue and expenditure postings and ongoing reconciliations as well as documenting the process of how reconciliations should be completed. The City also had a vacancy in the Budget Manager position, which will formally provide secondary oversight and analysis of any material variances between budget and actuals during the year-end close. Furthermore, the City is in the final stages of vendor selection for an Enterprise Resource Planning System. The current financial system is limited in its capacity requiring many shadow systems to supplement. Formal documentation of new processes in accordance with best practices is being developed through the Enterprise Resource System implementation process. Finding 2017.200: Cash Receipts and Revenue Recognition (Material Weakness) Condition: During audit testwork, we identified multiples instances where revenue was double-counted due to the correct recording of an accrual in the prior year, but the incorrect recording of related cash receipts as new revenue in the current year. We identified another instance where current year-end revenue accruals had been recorded twice, resulting in double-counted property tax revenue. We identified a third instance where a cash receipt was recorded in an incorrect amount, causing sales tax revenue to be materially understated. We identified a fourth instance in which cash receipts for sales tax were recorded as new revenue or against accounts receivable in an incorrect fund, leaving the related prior year receivables outstanding in the correct fund or creating credit balances in receivable accounts. Criteria: Under generally accepted accounting principles, revenue should be recognized in the proper period and with the correct amounts. In addition, the City should have procedures in place to ensure that cash receipts are consistently processed and reconciled in a manner that facilitates this recognition. Cause: Procedures are not in place to ensure that cash receipts are consistently processed and reconciled in the proper period. Effect: Revenue was overstated in some instances and understated in others. Material audit adjustments were posted to the audited financial statements at the fund level to correct these issues. Recommendation: We recommend that the City evaluate and document the cash receipts process, communicate to staff the principles of proper revenue recognition under governmental accounting, and implement procedures to link the cash receipts process to the process for recording revenue. Packet Pg. 475 Item 17 13 City of San Luis Obispo, California Schedule of Audit Findings and Questioned Costs and Status of Prior Year Findings and Questioned Costs Year Ended June 30, 2017 Page 4 Views of Responsible Officials and Planned Corrective Actions: Based on the GFOA’s recommendation, the revenue division was created in fiscal year 2016-17. Due to a lack of written procedures for revenue recognition including cash reconciliation, new management staff worked through shadow systems to recreate the revenue management procedures. Further formal controls and written procedures will be established between the revenue division and the accounting division to ensure accuracy of records and reconciliation. Finding 2017.300: Cash Reconciliations (Material Weakness) Condition: Although the City performs regular monthly reconciliations of individual transactions between the general ledger and the monthly bank statements, outstanding checks and deposits in transit were not known at June 30, 2017, and bank account balances could not readily be reconciled to the general ledger cash balances at June 30, 2017. As a result, additional analysis of the reconciliation was required which resulted in material adjustments to cash as of June 30, 2017. Criteria: To properly state cash balances at month and year-end in accordance with generally accepted accounting principles, monthly and year-end bank reconciliations at specific cut-off dates should be performed and completed, and remaining unreconciled items should be processed in a timely manner. Cause: Although regular and frequent reconciliations of cash activity were being performed, the reconciliation procedures at the year-end cut-off date of June 30, 2017 were not timely in comparing the general ledger cash balances to the bank account balances. Effect: If bank reconciliations are not properly performed at month and year-end cutoff dates, internal balance sheets and other financial reports may not be reliable. Also, the chance of accounting errors at month and year-end cut-off dates being caught is less likely if the reconciliations are not completed consistently and on a timely basis. Repeat Finding: 2016.200. Recommendation: We recommend bank reconciliation procedures be reviewed and revised to ensure month and year-end reconciliations to the general ledger are properly performed and complete, outstanding reconciling items and ending balances are known, and unreconciled items are processed in a timely manner to ensure cash balances at month and year-end dates are properly stated on the balance sheet. Views of Responsible Officials and Planned Corrective Actions: The City has taken action in response to the previous fiscal year material weakness finding and staff have performed comprehensive reviews and created improved bank reconciliation processes in terms of presentation, identification of recording items, and support. Although unreconciled items were identified as of June 30, 2017, there was delay in corrective action during the audit. Upon Packet Pg. 476 Item 17  14 City of San Luis Obispo, California  Schedule of Audit Findings and Questioned Costs  and Status of Prior Year Findings and Questioned Costs  Year Ended June 30, 2017  Page 5    completion of the fiscal year 2016‐17 audit, staff will address the reconciling items on an ongoing timely basis and will  ensure that corrective action has been taken for all reconciling items prior to the beginning of next fiscal year end  audit.  Further improvements to bank reconciliation processes will take place once the Enterprise Resource Planning  System is implemented which will enable the City to take advantage modern technologies and automated bank  reconciliation services offered by the bank.    Finding 2017.400:  Capital Assets (Significant Deficiency)    Condition:  The City has established basic procedures to ensure that capital asset additions are properly capitalized,  capital asset disposals are properly recorded, and current year depreciation expense for capital assets are recorded at  the fund‐financial statement level for proprietary funds.  However, testwork in the current year discovered that the  capital asset module system maintained by the City does not agree to general ledger balances for various funds.  The  largest differences were found in accumulated depreciation for the Sewer Fund, and by working with City staff, it was  determined that the fixed asset module was not properly calculating depreciation expense (and accumulated  depreciation) for several large assets.  While the variances between the City’s fixed asset module and general ledger  were not material, the variances have not been reconciled by the City to determine if adjustments need to be made in  the general ledger.  Further, it was noted that the City’s fixed asset module is not properly rolling forward beginning  balances as of July 1, 2017, causing reports to be unreliable for reconciliation purposes.    Criteria:  Generally accepted accounting principles for state and local governments require governments to report  capital assets, related accumulated depreciation and depreciation expense at the fund‐financial level for proprietary  funds and at the government‐wide financial statement level for governmental funds.     Cause:  Procedures are not in place to reconcile the general ledger capital asset balances to the City’s fixed asset  module.     Effect:  While the differences in the current year were not material to the City, these variances may become material  in future years if reconciliations between the two systems are not performed and differences resolved in a timely  manner.     Repeat Finding:  2016.100.    Recommendation:  We recommend that the capital asset software continue to be maintained and reviewed by  management on a timely basis and any discrepancies between the software and the City’s general ledger are  reconciled in order to accurately capture depreciation expense and capital activity in the current period.  These  reconciliations may need to be performed using manual schedules in order to properly capture and track the  differences between the two systems.   Packet Pg. 477 Item 17 15 City of San Luis Obispo, California Schedule of Audit Findings and Questioned Costs and Status of Prior Year Findings and Questioned Costs Year Ended June 30, 2017 Page 6 Views of Responsible Officials and Planned Corrective Actions: Fiscal year 2015-16 was the year that fixed assets were rolled over from Fox Pro into Finance Plus, the City’s financial system. Fiscal year 2016-17 was the first year of post implementation of the Capital Asset module in Finance Plus where the automated journal entry process and related reporting went live and were tested. Upon processing the automated journal entry and reviewing the reports in fiscal year 2016-17, it was discovered that there were some issues with the reporting process in that prior year ending balances did not appropriately roll forward as current year beginning balances in the Historical Deprecation Report. The issue was raised with Finance Plus’ support team, Superion, during the audit. However, being that the City is running an older version of Finance Plus that is supported by a legacy team of two-part time staff at Superion, the reporting issue could not be fully addressed during the audit. With regard to the calculation of depreciation expense, it appears that the roll forward of assets from the Fox Pro module into Finance Plus in prior year did not occur correctly. The fixed asset migration should be reviewed to ensure that the following were transferred properly: 1) estimated useful life and 2) date acquired. Management will maintain an external spreadsheet of the assets listed in Finance Plus to include a manual calculation of depreciation and accumulated depreciation for the City’s fixed assets and compare this with what is in Finance Plus to verify that migration occurred correctly and resolve any discrepancies until the City implements the Enterprise Resource System to fully implement a capital assets module. Section III: Findings and Questioned Costs for Federal Awards None noted. Section IV: Status of Prior Year Findings and Questioned Costs – 2015/16 Finding 2016.100: Capital Assets (Material Weakness) Condition: During a fixed asset software conversion in 2016, the City’s new fixed asset software identified differences between the City’s general ledger and the historical fixed asset numbers imported from the old software. Due to this previously unknown issue, the fiscal year 2015 financial statements did not properly reflect the value of the City’s fixed assets. During the fiscal year 2016 audit, a prior year restatement was recorded to amend the differences. Recommendation: We recommended that the capital asset software continue to be maintained and reviewed by management on a timely basis, and any discrepancies between the software and the City's general ledger be reconciled in a timely manner in order to accurately capture depreciation expense and capital activity in the current period. Current Status: See current year finding 2017.400. Packet Pg. 478 Item 17 16 City of San Luis Obispo, California Schedule of Audit Findings and Questioned Costs and Status of Prior Year Findings and Questioned Costs Year Ended June 30, 2017 Page 7 Finding 2016.200: Cash Reconciliations (Material Weakness) Condition: Although the City performs regular monthly cash account reconciliations, during our testing of cash we noted each month had an unreconciled balance comprised of items that cleared the bank but that staff were unable to identify and so left unrecorded. In addition, several voided checks were included on the bank reconciliation at June 30, 2016 although the original check had not been issued. Recommendation: We recommended that bank reconciliation procedures be reviewed and revised to ensure monthly reconciliations are complete and unreconciled items are processed in a timely manner, and to prevent voided checks from being applied to bank reconciliations before the initial check issuance date. Current Status: Partially implemented. See current year finding 2017.300. Packet Pg. 479 Item 17 City of San Luis Obispo Transportation Development Act Funds Report and Financial Statements Year End June 30, 2018 and 2017 Packet Pg. 480 Item 17 Packet Pg. 481 Item 17 City of San Luis Obispo, California Transportation Development Act Funds Report and Financial Statements Years Ended June 30, 2018 and 2017 Packet Pg. 482 Item 17 2 City of San Luis Obispo, California Transportation Development Act Funds Report and Financial Statements Year Ended June 30, 2018 and 2017 Table of Contents Page Transit Fund Independent Auditors’ Report 5-6 Statements of Fund Net Position – June 30, 2018 and 2017 7 Statements of Revenues, Expenses and Changes in Fund Net Position – Years Ended June 30, 2018 and 2017 8 Statements of Cash Flows – Years Ended June 30, 2018 and 2017 9-10 Notes to Financial Statements 11-19 Transportation Development Act (TDA) Fund Independent Auditors’ Report on Transportation Development Act Compliance and State Bond Compliance 23-24 Independent Auditors’ Report 25-26 Balance Sheets – June 30, 2018 and 2017 27 Statements of Revenues, Other Uses and Changes in Fund Balance – Years Ended June 30, 2018 and 2017 28 Notes to Financial Statements 29-31 Independent Auditors’ Report on Transportation Development Act Compliance 33-34 TDA Fund Supplementary Information Schedule of Revenues and Other Uses – Budget and Actual – Years Ended June 30, 2018 and 2017 35 Packet Pg. 483 Item 17 3 City of San Luis Obispo, California Transit Fund Years Ended June 30, 2018 and 2017 Packet Pg. 484 Item 17 4 THIS PAGE INTENTIONALLY LEFT BLANK Packet Pg. 485 Item 17 G ENN BURDETTE CERTIFIED PUBLIC ACCOUNTANTS Independent Auditors' Report The Honorable City Council of the City of San Luis Obispo, California and San Luis Obispo Council of Governments San Luis Obispo, California Report on the Financial Statements We have audited the accompanying financial statements of the Transit Fund of the City of San Luis Obispo, California, as of June 30, 2018 and 2017, and the related notes to the 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 financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits 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 of 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 entity'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 entity's internal control. Accordingly, we do not express such an 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 opinion. GLENNBURDETTE.COM SAN LUIS OBISPO 1150 Palm Street San LuisObispo.CA 93401 ^,8055441441 ,8055444351 PASO ROBLES 102 South Vine Street, Ste. A PasoRobles.CA 93446 ^,8052373995 ,8052399332 SANTA MARIA 2222 South Broadway, Ste. A Santa Maria, CA 93454 ^,8059224010 ,8059224286Packet Pg. 486 Item 17    6 The Honorable City Council of the City of San Luis Obispo, California  and San Luis Obispo Council of Governments  Page 2     Opinion  In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position  of the Transit Fund of the City of San Luis Obispo, California, as of June 30, 2018 and 2017, and the changes in financial  position and cash flows thereof for the years then ended in accordance with accounting principles generally accepted  in the United States of America.    Change in Accounting Principle   As discussed in Note 11 to the financial statements, during 2018 the City adopted new accounting guidance, GASB  Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. Our opinion  is not modified with respect to this matter.     Emphasis of Matter  As discussed in Note 1, the financial statements present only the Transit Fund of the City of San Luis Obispo, California  and do not purport to, and do not, present fairly the financial position of the City of San Luis Obispo, California, as of  June 30, 2018 and 2017, the changes in its financial position, or, where applicable, its cash flows for the years then  ended in accordance with accounting principles generally accepted in the United States of America.  Our opinion is not  modified with respect to this matter.    Glenn Burdette Attest Corporation  San Luis Obispo, California    December 21, 2018      Packet Pg. 487 Item 17 City of San Luis Obispo, California  Transit Fund  Statements of Fund Net Position  June 30, 2018 and 2017     7 2018 2017 Assets Current assets: Cash and cash equivalents 115,854$      37,401$          Investments 1,329,245    1,655,098       Accounts receivable 76,158          89                    Interest receivable 6,567             5,513              Due from other governments 1,441,620    1,390,141       Total current assets 2,969,444    3,088,242       Capital assets: Infrastructure 221,744        110,972          Buildings and improvements 5,101,506    5,055,076       Transit operating equipment 9,309,743    9,262,399       Construction in progress 33,333          47,344            Total capital assets 14,666,326  14,475,791     Less accumulated depreciation (8,060,583)   (7,340,033)      Total capital assets, net of accumulated depreciation 6,605,743    7,135,758       Total assets 9,575,187    10,224,000     Deferred Outflows of Resources Pension related 141,997        151,060          Other post‐employment benefits related 7,434              Total deferred outflows of resources 149,431        151,060          Liabilities Current liabilities: Accounts payable 270,625        337,376          Accrued salaries and compensated absences 11,956          17,040            Total current liabilities 282,581        354,416          Noncurrent liabilities: Compensated absences, net of current portion 6,482             2,216              Net pension liability 685,651        616,636          Net other post‐employment benefits liability 65,033           Total noncurrent liabilities 757,166        618,852          Total liabilities 1,039,747    973,268          Deferred Inflows of Resources Pension related 3,290             56,728            Other post‐employment benefits related 1,274              Total deferred inflows of resources 4,564             56,728            Net Position Net investment in capital assets 6,605,743    7,135,758       Restricted ‐ subsequent year expenditures 8,308             41,519            Unrestricted 2,066,256    2,167,787       Total net position 8,680,307$   9,345,064$       The accompanying notes are an integral part of these financial statements.  Packet Pg. 488 Item 17 City of San Luis Obispo, California Transit Fund Statements of Revenues, Expenses and Changes in Fund Net Position Years Ended June 30, 2018 and 2017 8 2018 2017 Operating revenues: Passenger fares 236,471$ 218,658$ Special transit fares 453,697 439,810 Total operating revenues 690,168 658,468 Operating expenses: Purchased transportation 2,165,522 2,012,315 Other transportation services 449,489 538,782 Fuel and lubricants 287,307 264,883 Other materials and supplies 49,404 15,491 Salaries and wages 179,941 224,373 Fringe benefits 161,390 72,558 General and administrative 341,500 288,995 Depreciation 720,550 659,474 Total operating expenses 4,355,103 4,076,871 Operating loss (3,664,935) (3,418,403) Nonoperating revenues: Transportation Development Act operating grants 1,591,670 1,575,080 Federal Transit Administration operating grants 1,507,948 2,605,306 Interest 6,576 3,439 Other nonoperating revenues 13,283 7,828 Total nonoperating revenues 3,119,477 4,191,653 Income (loss) before transfers (545,458) 773,250 Transfers (61,398) Change in net position (606,856) 773,250 Net position - beginning of year 9,345,064 8,571,814 Prior year restatement (57,901) Net assets - beginning of year, as restated 9,287,163 8,571,814 Net position - end of year 8,680,307$ 9,345,064$ The accompanying notes are an integral part of these financial statements. Packet Pg. 489 Item 17 City of San Luis Obispo, California Transit Fund Statements of Cash Flows Years Ended June 30, 2018 and 2017 9 2018 2017 Cash flows from operating activities: Cash received from customers 614,099$ 658,417$ Cash payments to suppliers for goods and services (3,039,986) (2,699,111) Cash payments to General Fund for interfund services (319,987) (288,995) Cash payments to employees for services (316,537) (321,475) Other operating cash receipts 13,283 7,828 Net cash used in operating activities (3,049,128) (2,643,336) Cash flows from noncapital financing activities: Operating grants received 3,048,139 5,271,715 Transfers (61,398) Net cash provided by noncapital financing activities 2,986,741 5,271,715 Cash flows from capital and related financing activities: Acquisition and construction of capital assets (190,535) (1,665,211) Net cash used in capital and related financing activities (190,535) (1,665,211) Cash flows from investing activities: Interest on investments 5,522 (190) Net cash provided by (used in) investing activities 5,522 (190) Net increase (decrease) in cash and cash equivalents and investments (247,400) 962,978 Cash and cash equivalents and investments - beginning of year 1,692,499 729,521 Cash and cash equivalents and investments - end of year 1,445,099$ 1,692,499$ The accompanying notes are an integral part of these financial statements. Packet Pg. 490 Item 17 City of San Luis Obispo, California Transit Fund Statements of Cash Flows, Continued Years Ended June 30, 2018 and 2017 10 2018 2017 Reconciliation of operating loss to net cash used in operating activities: Operating loss (3,664,935)$ (3,418,403)$ Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation 720,550 659,474 Other revenues 13,283 7,828 Changes in operating assets, deferred outflows, liabilities, and deferred inflows: Accounts receivable (76,069) (51) Accounts payable (66,751) 132,360 Accrued salaries and compensated absences (818) (9,280) Pension related deferred outflows and inflows and net pension liability (33,261) (15,264) OPEB related deferred outflows and inflows and net OPEB liability 58,873 Net cash used in operating activities (3,049,128)$ (2,643,336)$ Reconciliation of cash and cash equivalents and investments to the statement of fund net position: Cash and cash equivalents 115,854$ 37,401$ Investments 1,329,245 1,655,098 Total cash and cash equivalents and investments 1,445,099$ 1,692,499$ The accompanying notes are an integral part of these financial statements. Packet Pg. 491 Item 17 City of San Luis Obispo, California Transit Fund Notes to Financial Statements June 30, 2018 and 2017 11 Note 1: The Reporting Entity The City of San Luis Obispo (the City) operates a fixed route public transportation system within the City limits and to the California Polytechnic State University (Cal Poly). Vehicle operations and vehicle maintenance are provided under contract by a private transportation company. Nonvehicle-related support and administrative services are provided by City staff. The Transit Fund (the Fund) is an enterprise fund of the City created by resolution of the City Council to account for the revenues received pursuant to the Transportation Development Act (TDA), Federal Transit Authority (FTA) and the revenues received from the transit operations described above. Such revenues are allocated under specific statutes and are legally restricted to finance expenditures made for transit operations, the development of public transportation systems and transportation planning. When both restricted and unrestricted resources are available for the same purpose, it is the City’s policy to use restricted funds first. Note 2: Summary of Significant Accounting Policies Measurement Focus, Basis of Accounting and Basis of Presentation The Fund’s financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred regardless of the timing of related cash flows. The Fund distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services in connection with the Fund’s principal ongoing operations. The principal operating revenues of the Fund are charges to customers for transit services. Operating expenses for the Fund include cost of services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses, including non-exchange transactions such as TDA and FTA grants. Nonexchange transactions, in which the Fund receives value without directly giving equal value in return, include grants. Revenue from grants is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the fiscal year when the resources are to be used or the fiscal year when use is first permitted; matching requirements, in which the Fund must provide local resources to be used for a specific purpose; and expenditures requirements, in which the resources are provided to the Fund on a reimbursement basis. Cash, Cash Equivalents and Investments Cash and cash equivalents consist of cash on hand, cash balances in checking and money market accounts and short- term investments, with an original maturity of three months or less. Investments which are in the City’s internal investment pool are also treated as cash equivalents for the purposes of the statement of cash flows. Packet Pg. 492 Item 17 City of San Luis Obispo, California Transit Fund Notes to Financial Statements June 30, 2018 and 2017 12 Note 2: Summary of Significant Accounting Policies (Continued) Amounts Due from Other Governments Generally, amounts due from other governments are recorded as revenues when earned. However, when the use of funds is the prime factor for determining eligibility for grants, revenue is accrued when the related expenses have been made on an approved grant. Capital Assets Capital assets are recorded at cost and depreciated using the straight-line method over their estimated useful lives, ranging from 5 to 20 years. Capital assets are defined by the City as assets with an initial, individual cost of more than $25,000. Detailed capital assets can be found in Note 5. Net Pension Liability, Deferred Outflows and Deferred Inflows The City recognizes a net pension liability, which represents the City’s proportionate share of the excess of the total pension liability over the fiduciary net position of the pension reflected in the actuarial reports provided by the California Public Employees’ Retirement System (CalPERS) plans (Plans). The City has allocated a proportionate share of the net pension liability, deferred outflows, deferred inflows and pension expense to the Transit Fund. The net pension liability is measured as of the City’s prior fiscal year-end. Changes in the net pension liability are recorded, in the period incurred, as pension expense or as deferred inflows of resources or deferred outflows of resources depending on the nature of the change. The changes in the net pension liability that are recorded as deferred inflows of resources or deferred outflows of resources (that arise from changes in actuarial assumptions or other inputs and differences between expected or actual experience) are amortized over the weighted average remaining service life of all participants in the respective pension plan and are recorded as a component of pension expense beginning with the period in which they are incurred. For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the City’s CalPERS Plans and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Projected earnings on pension investments are recognized as a component of pension expense. Other Post-Employment Benefits (OPEB) Liability, Deferred Outflows and Deferred Inflows For purposes of measuring net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the City’s plan (OPEB Plan), and additions to or deductions from the OPEB Plan’s fiduciary net position, have been determined on the same basis as Packet Pg. 493 Item 17 City of San Luis Obispo, California Transit Fund Notes to Financial Statements June 30, 2018 and 2017 13 Note 2: Summary of Significant Accounting Policies (Continued) they are reported by the California Employer’s Retiree Benefit Trust Program (CERBT). For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with benefit terms. Investments are reported at fair value. Generally accepted accounting principles require that the reported OPEB results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used: Valuation Date June 30, 2017 Measurement Date June 30, 2017 Measurement Period July 1, 2016 to June 30, 2017 Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Note 3: Cash and Cash Equivalents and Investments At June 30, 2018 and 2017, cash and cash equivalents consisted of the following: 2018 2017 Deposits: Cash in bank 115,854$ 37,401$ Investment Fair Value Measurements Investments held at June 30, 2018 and 2017 are not subject to the fair value hierarchy. Custodial Credit Risk – Deposits Custodial credit risk is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. Cash balances held in banks are insured up to $250,000 by the Federal Depository Insurance Corporation. For custodial credit risk associated with deposits, the City follows California Government Code, which requires California financial institutions to secure the City’s deposits by pledging government securities as collateral. The market value of the pledged securities must equal 110% of the City’s deposits. California law also allows financial institutions to secure the City’s deposits by pledging first trust deed mortgage notes equal to 150% of the City’s deposits. All deposits held by financial institutions are fully insured or collateralized with securities, held by the pledging financial institutions’ trust departments in the City’s name. Packet Pg. 494 Item 17 City of San Luis Obispo, California Transit Fund Notes to Financial Statements June 30, 2018 and 2017 14 Note 3: Cash and Cash Equivalents and Investments (Continued) At June 30, 2018 and 2017, investments consisted of the following: 2018 2017 Pooled Investment Funds: Local Agency Investment Fund (LAIF)1,329,245$ 1,655,098$ The City follows the practice of pooling cash and investments for all funds under its direct daily control. Funds held by outside fiscal agents under provisions of bond indentures are maintained separately. Interest earned on pooled cash and investments is allocated quarterly to the various funds based on the respective fund’s average quarterly cash balance. Interest earned from cash and investments with fiscal agents is credited directly to such funds. Interest Rate Risk This is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. In accordance with its policies in the Investment Management Plan, the City mitigates interest rate risk by:  Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market before maturity.  Investing operating funds primarily in shorter-term securities. The City’s investment policy also includes portfolio maturity targets. A minimum of 20% of the portfolio will be invested in securities maturing in one year or less. Up to 80% of the portfolio can be invested in securities with a maturity over one year, with no more than 10% of the portfolio invested in securities with a maturity over five years. Credit Risk This is the risk of loss due to the failure of the security issuer or backer. The City’s policies to mitigate credit risk include:  Limiting investments to the safest types of securities. The California Government Code limits the investment vehicles available to local agencies. The credit risk of these securities is measured by the assignment of a rating by a nationally recognized statistical rating organization.  Pre-qualifying the financial institutions, broker/dealers, intermediaries and advisors with which the City will do business. Packet Pg. 495 Item 17 City of San Luis Obispo, California Transit Fund Notes to Financial Statements June 30, 2018 and 2017 15 Note 3: Cash and Cash Equivalents and Investments (Continued) Concentration of Credit Risk The City’s policies contained in the Investment Management Plan provide guidelines (by type of investment that limits either the dollar amount, the percent of the portfolio or the maturity term) for diversifying the investment portfolio so that potential losses on individual securities will be minimized. The City’s Investment Management Plan outlines the following criteria related to portfolio diversification:  No more than 5% of the City’s portfolio (exclusive of government agency issues or LAIF) shall be placed with any financial institution.  No more than 25% of the City’s portfolio shall be invested in collateralized certificates of deposit issued by financial institutions.  Certificates of deposit (negotiable and collateralized) placed by the City shall not constitute more than 15% of the total assets of the institution; and negotiable certificates of deposit will only be placed with institutions with total assets in excess of $200 million and that maintain a ratio of equity to total assets of at least 5%. Additional Cash and Investment Disclosures See the City of San Luis Obispo June 30, 2018 and 2017 Comprehensive Annual Financial Reports for additional cash and investment disclosures. Note 4: Due from Other Governments At June 30, 2018 and 2017, the amounts due from other governments were as follows: 2018 2017 Federal Transit Administration - capital and operating grants 1,441,620$ 1,390,141$ Packet Pg. 496 Item 17 City of San Luis Obispo, California Transit Fund Notes to Financial Statements June 30, 2018 and 2017 16 Note 5: Capital Assets Capital assets activity for the fiscal year ended June 30, 2018, was as follows: Balance June 30, 2017 Additions Deletions/ Transfers Balance June 30, 2018 Capital assets not being depreciated: Construction in progress 47,344$ 190,535$ (204,545)$ 33,334$ Capital assets being depreciated: Infrastructure 110,972 110,772 221,744 Buildings and improvements 5,055,076 46,430 5,101,506 Transit operating equipment 9,262,399 47,343 9,309,742 Total capital assets being depreciated 14,428,447 - 204,545 14,632,992 Less accumulated depreciation (7,340,033) (720,550) (8,060,583) Total capital assets, net of accumulated depreciation 7,135,758$ (530,015)$ -$ 6,605,743$ Capital assets activity for the fiscal year ended June 30, 2017, was as follows: Balance June 30, 2016 Additions Deletions/ Transfers Balance June 30, 2017 Capital assets not being depreciated: Construction in progress 67,220$ 2,799$ (22,675)$ 47,344$ Capital assets being depreciated: Infrastructure 110,972 110,972 Buildings and improvements 4,905,259 127,142 22,675 5,055,076 Transit operating equipment 7,727,129 1,535,270 9,262,399 Total capital assets being depreciated 12,743,360 1,662,412 22,675 14,428,447 Less accumulated depreciation (6,680,559) (659,474) (7,340,033) Total capital assets, net of accumulated depreciation 6,130,021$ 1,005,737$ -$ 7,135,758$ Note 6: Intergovernmental Allocations The City has been allocated the following funds from the State Transit Assistance Fund (STAF) and Local Transportation Fund (LTF) for the years ended June 30, 2018 and 2017. The amounts have been used for both operating expenses and capital assets. Packet Pg. 497 Item 17 City of San Luis Obispo, California Transit Fund Notes to Financial Statements June 30, 2018 and 2017 17 Note 6: Intergovernmental Allocations (Continued) Article Section 2018 2017 LTF 4.0 99260 1,396,079$ 1,447,168$ STAF 6.5 99313 155,380 102,599 STAF 6.5 99314 40,211 25,313 Total Transportation Development Act revenue 1,591,670$ 1,575,080$ Applicable Allocating TDA Statute Amount The City also directly allocated for the years ended June 30, 2018 and 2017, with $694,798 and $583,204, respectively of LTF Article 4.0, Section 99260 funds to San Luis Obispo Regional Transit Authority (SLORTA), which are not shown in the accompanying financial statements. Note 7: Fare Revenue Ratios For the years ended June 30, 2018 and 2017 the City had fare revenue ratios of 20% and 21%, respectively, computed as follows: 2018 2017 Operating revenues - fares 690,168$ 658,601$ (a) Net Operating revenues - fares 690,168 658,601 Net operating costs, net of depreciation and vehicle lease costs 3,634,553 3,417,397 Exclude capital expenses under uniform system of accounts for purposes of calculating fare revenue ratios but treated as operating expenses for financial statements (247,063) (327,073) (b) Adjusted operating costs for purposes of calculating fare revenue ratios 3,387,490$ 3,090,324$ (c) Fare revenue ratio [(a) / (b)]20%21% The City is in compliance with applicable TDA regulations pertaining to acceptable fare revenue ratios which require a minimum ratio of 20%. Note 8: Pensions The City contributes to the California Public Employees’ Retirement System (CalPERS) for its employees and participates in an agent-multiple employer plan (Miscellaneous Plan) for its miscellaneous employees. The City has allocated a portion of the Miscellaneous Plan that relates to the Fund. The portion of the net pension liability allocated to the Fund for the years ended June 30, 2018 and 2017 was $685,651 and $616,636, respectively. The portion of the deferred outflows of resources allocated to the Fund for the years ended June 30, 2018 and 2017 are $191,598 and $151,060, respectively. The portion of the deferred inflows of resources allocated to the Fund for the years ended June 30, 2018 and 2017 are $52,891 and $56,728, respectively. The portion of the pension expense Packet Pg. 498 Item 17 City of San Luis Obispo, California Transit Fund Notes to Financial Statements June 30, 2018 and 2017 18 Note 8: Pensions (Continued) allocated to the Fund for the years ended June 30, 2018 and 2017 is $85,248 and $45,609, respectively, and is shown as a part of total salaries and wages in the related fiscal year. Additional Pension Disclosures See the City of San Luis Obispo June 30, 2018 and 2017 Comprehensive Annual Financial Reports for additional pension disclosures as well as required supplementary information. Note 9: Other Post-Employment Benefits (OPEB) The City’s primary other post-employment benefits (OPEB) cost obligation is for retiree health benefits under its election to participate in the CalPERS Health Benefit Program, an agent multiple-employer defined benefit OPEB plan, under the “unequal contribution option.” The City has allocated a portion of the plan that relates to the Fund as of June 30, 2018 (see Note 11). The portion of the net OPEB liability allocated to the Fund for the year ended June 30, 2018 was $65,033. The portion of the deferred outflows of resources allocated to the Fund for the year ended June 30, 2018 was $7,434. The portion of the deferred inflows of resources allocated to the Fund for the year ended June 30, 2018 was $1,274. The portion of the pension expense allocated to the Fund for the year ended June 30, 2018 is $8,406 and is shown as a part of total salaries and wages. Additional OPEB Disclosures See the City of San Luis Obispo June 30, 2018 and 2017 Comprehensive Annual Financial Reports for additional OPEB disclosures as well as required supplementary information. Note 10: Commitments and Contingencies Regional Transit Authority Pension Expense The City is presently a member agency of the San Luis Obispo Regional Transit Authority (see Note 10), a duly established Joint Powers Authority (JPA) comprised of all local cities and the County of San Luis Obispo. The City’s contractual contribution to that entity is approximately 18%. The City was recently advised that the Regional Transit Authority is working with CalPERS to determine whether it is required to enroll certain previously unenrolled transit employees in the CalPERS pension system and whether the entity may be liable for obligations related to the failure to enroll those employees and make contributions on their behalf. The current amount of potentially unfunded liability for the JPA associated with this matter may reach as high as $5 million. It is not known whether and to what extent member agencies may be obligated to increase contributions to address the retroactive liability and to fund contributions for previously unenrolled employees going forward. Resolution of the matter is expected in early 2019. Packet Pg. 499 Item 17 City of San Luis Obispo, California Transit Fund Notes to Financial Statements June 30, 2018 and 2017 19 Note 11: Prior Year Restatements As of July 1, 2017, the City implemented GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. The City has chosen to present prior year data for the Fund, but not restate the data for the prior year because all of the information available to restate prior year amounts was not readily available. An adjustment of $57,901 to reduce beginning net position has been made to reflect the cumulative impact of implementing these standards. Note 12: Subsequent Events Events subsequent to June 30, 2018 have been evaluated through December 21, 2018, which is the date the financial statements were available to be issued. Management did not identify subsequent events that required disclosure. Packet Pg. 500 Item 17 20 THIS PAGE INTENTIONALLY LEFT BLANK Packet Pg. 501 Item 17 21 City of San Luis Obispo, California Transportation Development Act (TDA) Fund June 30, 2018 and 2017 Packet Pg. 502 Item 17 22 THIS PAGE INTENTIONALLY LEFT BLANK Packet Pg. 503 Item 17 G ENN BURDETTE CERTIFIED PUBLIC ACCOUNTANTS Independent Auditors' Report On Transportation Development Act Compliance and State Bond Compliance The Honorable City Council of the City of San Luis Obispo, California and San Luis Obispo Council of Governments San Luis Obispo, California We have audited the financial statements of the Transit Fund of the City of San Luis Obispo as of and for the years ended June 30, 2018 and 2017, and have issued our report thereon, dated December 21, 2018. Management's Responsibility Management is responsible for the compliance with the applicable statutes, rules and regulations of the Transportation Development Act (TDA), the California Code of Regulations (CCR) and the allocation instructions and resolutions of San Luis Obispo Council of Governments as required by Section 6662 of the CCR. Auditors' Responsibility Our responsibility is to express an opinion on compliance with the applicable statutes, rules and regulations referred to above. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the applicable statutes, rules and regulations referred to above. Those standards and the applicable statutes, rules and regulations referred to above require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the applicable statutes, rules and regulations referred to above occurred. An audit also includes examining, on a test basis, evidence about the City's compliance with the applicable statutes, rules and regulations and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the City's compliance with the applicable statutes, rules and regulations referred to above. In connection with our audit, we performed tests of the City's compliance with applicable statutes, rules and regulations of the TDA, the CCR, and the allocation instructions and resolutions of San Luis Obispo Council of Governments as required by Section 6662 of the CCR. During our audit, we performed to the extent applicable the tasks contained in Section 6667 of the CCR. Such audit tests would not necessarily disclose all instances of noncompliance because they were based on selective tests of accounting records and related data. 23 GLENNBURDETTE.COM SAN LUIS OBISPO 1150 Palm Street San LuisObispo.CA 93401 p 805 544 1441 /8D5 5444351 PASD ROBLES 102 South Vine Street, Ste. A PasoRobles.CA 93446 805 23? 3995 /805Z399332 SANTA MARIA 2222 South Broadway, Ste. A Santa Maria, CA 93454 ^8059224010 ,8059224286Packet Pg. 504 Item 17  24 The Honorable City Council of the City of San Luis Obispo, California  and San Luis Obispo Council of Governments  Page 2     Opinion  In our opinion, the funds allocated to and received by the Transit Fund of the City of San Luis Obispo, California, pursuant  to the TDA were expended and accounted for in compliance with the applicable statutes, rules and regulations of the  TDA, the CCR and the allocation instructions and resolutions of the San Luis Obispo Council of Governments, in all  material respects, for the year ended June 30, 2018.    The purpose of this report over compliance is solely to describe the scope of our testing of compliance and the results  of that testing based on the applicable statutes, rules and reg ulations of the TDA, the CCR, and the allocation instructions  and resolutions of San Luis Obispo Council of Governments as required by Section 6662 of the CCR.  Accordingly, this  report is not suitable for any other purpose.      Glenn Burdette Attest Corporation  San Luis Obispo, California      December 21, 2018       Packet Pg. 505 Item 17 GLENN BURDETTE CERTIFIED PUBLIC ACCOUNTANTS Independent Auditors' Report The Honorable City Council of the City of San Luis Obispo, California and San Luis Obispo Council of Governments San Luis Obispo, California Report on the Financial Statements We have audited the accompanying financial statements of the Transportation Development Act (TDA) Fund of the City of San Luis Obispo, California, as of June 30, 2018 and 2017, and the related notes to the 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 financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits 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 of 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 entity'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 entity's internal control. Accordingly, we do not express such an 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. 25 GLENNBURDETTE.COM SAN LUIS OBISPO 1150 Palm Street San LuisObispo,CA 93401 ^8055441441 ,8055444351 PASO ROBLES 102 South Vine Street, Ste. A PasoRobles.CA 93446 ^,8052373995 /8D5 239 9332 SANTA MARIA 2222 South Broadway, Ste. A Santa Maria, CA 93454 ^8059224010 /8059224Z86Packet Pg. 506 Item 17  26 The Honorable City Council of the City of San Luis Obispo, California  and San Luis Obispo Council of Governments  Page 2    We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit  opinion.    Opinion  In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position  of the Transportation Development Act (TDA) Fund of the City of San Luis Obispo, California, as of June 30, 2018 and  2017, and the changes in financial position for the years then ended in accordance with accounting principles generally  accepted in the United States of America.    Emphasis of Matter  As discussed in Note 1, the financial statements present only the TDA Fund of the City of San Luis Obispo, California and  do not purport to, and do not, present fairly the financial position of the City of San Luis Obispo, California, as of June 30,  2018 and 2017, the changes in its financial position, or, where applicable, its cash flows for the years then ended in  accordance with accounting principles generally accepted in the United States of America.  Our opinion is not modified  with respect to this matter.    Other Information  Supplementary Information  Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the  Transportation Development Act (TDA) Fund of the City of San Luis Obispo, California’s basic financial statements.  The  schedule of revenues and other uses – budget and actual is presented for purposes of additional analysis and is not a  required part of the financial statements.  The schedule of revenues and other uses – budget and actual 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 schedule of revenues and other uses – budget  and actual is fairly stated, in all material respects, in relation to the basic financial statements as a whole.      Glenn Burdette Attest Corporation  San Luis Obispo, California    December 21, 2018        Packet Pg. 507 Item 17 City of San Luis Obispo, California Transportation Development Act (TDA) Fund Balance Sheets June 30, 2018 and 2017 27 2018 2017Assets Total assets -$ -$ Liabilities and Fund Balance Total liabilities and fund balance -$ -$ The accompanying notes are an integral part of these financial statements. Packet Pg. 508 Item 17 City of San Luis Obispo, California Transportation Development Act (TDA) Fund Statements of Revenues, Other Uses and Changes in Fund Balance June 30, 2018 and 2017 28 2018 2017 Revenues - intergovernmental allocations 39,781$ 40,501$ Other financing uses - operating transfers to City of San Luis Obispo (39,781) (40,501) Excess of revenues over other financing uses - - Fund balance - beginning of year - - Fund balance - end of year - $ - $ The accompanying notes are an integral part of these financial statements. Packet Pg. 509 Item 17 29 City of San Luis Obispo, California Transportation Development Act (TDA) Fund Notes to Financial Statements June 30, 2018 and 2017 Note 1: The Reporting Entity The Transportation Development Act (TDA) Fund (the Fund) of the City of San Luis Obispo, California (the City) is a special revenue fund created by resolution of the City Council to account for the revenues received pursuant to the TDA. Such revenues allocated under specific state statutes are legally restricted to financial expenditures made of the development and construction of local streets and roads, including pedestrian and bicycle facilities. Note 2: Summary of Significant Accounting Policies Measurement Focus and Basis of Accounting The Fund’s financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized when measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay the liabilities of the current period. For this purpose, the City considers interest and grant revenues earned but not received as susceptible to accrual under this method. Expenditures are generally recognized at the time liabilities are incurred. Fund Equity The Fund’s financial statements report fund balance in classifications that comprise a hierarchy based primarily on the extent to which the City is bound to honor constraints on the specific purpose for which amounts in the funds can be spent. The Fund does not have a fund balance in the current fiscal year, therefore classification is not necessary. However, GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, identifies five components of fund balance – nonspendable, restricted, committed, assigned and unassigned. Nonspendable. This component includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. Restricted. This component consists of amounts that have constraints placed on them either externally by third-parties (creditors, grantors, contributors, or laws or regulations of other governments) or by law through constitutional provisions or enabling legislation. Enabling legislation authorizes the City to assess, levy, charge or otherwise mandate payment of resources (from external resource providers) and includes legally enforceable requirements (compelled by external parties) that those resources be used only for the specific purposes stipulated in the legislation. Packet Pg. 510 Item 17 30 City of San Luis Obispo, California Transportation Development Act (TDA) Fund Notes to Financial Statements June 30, 2018 and 2017 Note 2: Summary of Significant Accounting Policies (Continued) Committed. This component consists of amounts that can only be used for specific purposes pursuant to constraints imposed by minute order authorized by the City Council. Also included in this component are encumbrances which represent legal and binding obligations for the acquisition of future goods and services. Those committed amounts established by minute order cannot be used for any other purpose unless the City Council adopts a new minute order so directing. With respect to encumbered amounts, the City may take steps to cancel the order for goods or services and thereby terminate the obligation. Assigned. This component consists of amounts that are constrained by the City’s intent to be used for specific purposes, but are neither restricted nor committed. The City Manager or Director of Finance are authorized to assign amounts to a specific purpose. Constraints imposed on the use of assigned amounts can be removed with no formal Council actions. Unassigned. This classification represents amounts that have not been restricted, committed or assigned to specific purposes. Fund Balance Spending Policy The City follows a practice in which restricted, committed, assigned, and unassigned fund balances are spent when more than one amount is available for a specific purpose. When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, then unrestricted resources (committed, assigned and unassigned) as they are needed. When unrestricted resources (committed, assigned and unassigned) are available for use, it is the City’s policy to use committed resources first, then assigned, and then unassigned as they are needed. Budgets and Budgetary Accounting The City has received national recognition for its use of a two-year Financial Plan and budgetary process that emphasizes long-range planning and effective program management. Significant features of the City’s two-year Financial Plan include the integration of Council goal-setting into the budgetary process and the extensive use of formal policies and measureable objectives. The Financial Plan includes operating budgets for two years and a capital improvement plan (CIP) for five years. Under this multi-year approach, appropriations continue to be made annually; however, the Financial Plan is the foundation for preparing the budget for the second year. Additionally, unexpended operating appropriations from the first year may be carried over for specific purposes into the second year with the approval of the City Manager. Packet Pg. 511 Item 17 31 City of San Luis Obispo, California Transportation Development Act (TDA) Fund Notes to Financial Statements June 30, 2018 and 2017 Note 2: Summary of Significant Accounting Policies (Continued) Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Note 3: Intergovernmental Allocations For the years ended June 30, 2018 and 2017, the City has been allocated the following funds from the Local Transportation Funds (LTF): Amount Article Section 2018 2017 LTF 3.0 99233.3 39,781$ 40,501$ Allocating TDA Statute Applicable Note 4: Operating Transfers The City expends all amounts for alternate transportation projects in its General Fund or Capital Outlay Fund. LTF monies received by the City are initially deposited in the Fund and subsequently transferred to the General Fund, where such funds are expended or transferred to the Capital Outlay Fund to be expended on designated transportation projects. Note 5: Subsequent Events Events subsequent to June 30, 2018 have been evaluated through December 21, 2018, which is the date the financial statements were available to be issued. Management did not identify subsequent events that required disclosure. Packet Pg. 512 Item 17 32 THIS PAGE INTENTIONALLY LEFT BLANK Packet Pg. 513 Item 17 GLENN BURDETTE CERTIFIED PUBLIC ACCOUNTANTS Independent Auditors' Report On Transportation Development Act Compliance The Honorable City Council of the City of San Luis Obispo, California and San Luis Obispo Council of Governments San Luis Obispo, California We have audited the financial statements of Transportation Development Act (TDA) Fund of the City of San Luis Obispo, California as of and for the years ended June 30, 2018 and 2017, and have issued our report thereon, dated December 21, 2018. Management's Responsibility Management is responsible for the compliance with the applicable statutes, rules and regulations of the Transportation Development Act (TDA), the California Code of Regulations (CCR) and the allocation instructions and resolutions of San Luis Obispo Council of Governments as required by Section 6662 of the CCR. Auditors' Responsibility Our responsibility is to express an opinion on compliance with the applicable statutes, rules and regulations referred to above. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the applicable statutes, rules and regulations referred to above. Those standards and the applicable statutes, rules and regulations referred to above require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the applicable statutes, rules and regulations referred to above occurred. An audit also includes examining, on a test basis, evidence about the City's compliance with the applicable statutes, rules and regulations and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the City's compliance with the applicable statutes, rules and regulations referred to above. In connection with our audit, we performed tests of the City's compliance with applicable statutes, rules and regulations of the TDA, the CCR, and the allocation instructions and resolutions of San Luis Obispo Council of Governments as required by Section 6662 of the CCR. 33 GLENNBURDETTE.COM SAN LUIS OBISPO 1150 Palm Street San LuisObispo.CA 93401 ^,8055441441 ,8055444351 PASO ROBLES 102 South Vine Street, Ste. A Paso Rubles, CA 93446 ? 805 237 3995 ,8052399332 SANTA MARIA 222Z South Broadway, Ste. A Santa Maria, CA 93454 p 8059224010 ,8059224286Packet Pg. 514 Item 17   34    The Honorable City Council of the City of San Luis Obispo, California  and San Luis Obispo Council of Governments  Page 2    During our audit, we performed to the extent applicable the tasks contained in Section 6667 of the CCR.  Such audit  tests would not necessarily disclose all instances of noncompliance because they were based on selective tests of  accounting records and related data.    Opinion  In our opinion, the funds allocated to and received by the TDA Fund of the City of San Luis Obispo, California,  pursuant to the TDA were expended and accounted for in compliance with the applicable statutes, rules and  regulations of the TDA, the CCR and the allocation instructions and resolutions of San Luis Obispo Council of  Governments, in all material respects, for the year ended June 30, 2018.    The purpose of this report over compliance is solely to describe the scope of our testing of compliance and the  results of that testing based on the applicable statutes, rules and regulations of the TDA, the CCR, and the allocation  instructions and resolutions of San Luis Obispo Council of Governments as required by Section 6662 of the CCR.   Accordingly, this report is not suitable for any other purpose.      Glenn Burdette Attest Corporation  San Luis Obispo, California    December 21, 2018          Packet Pg. 515 Item 17 City of San Luis Obispo, California Transportation Development Act (TDA) Fund Supplementary Information Schedules of Revenues and Other Uses – Budget and Actual June 30, 2018 and 2017 35 Variance with Final Budget 2018 Original Final Actual Positive (Negative) Revenues - intergovernmental allocations 45,000$ 45,000$ 39,781$ (5,219)$ Other financing uses - operating transfers to City of San Luis Obispo (45,000) (45,000) (39,781) 5,219 Excess of revenues over other financing uses - $ - $ - $ - $ Variance with Final Budget 2017 Original Final Actual Positive (Negative) Revenues - intergovernmental allocations 41,100$ 41,100$ 40,531$ (569)$ Other financing uses - operating transfers to City of San Luis Obispo (41,100) (41,100) (40,531) 569 Excess of revenues over other financing uses - $ - $ - $ - $ Budget Budget Packet Pg. 516 Item 17 2/5/2019 Item 17, Staff Presentation 1 2017-18 Single Audit Report and Comprehensive Annual Financial Report 1 Recommendation 2 Review and accept the Comprehensive Annual Financial Report, the Single Audit Report, and the annual audit of the Transportation Development Act Funds for Fiscal Year 2017-18. 2017-18 Audit 2/5/2019 Item 17, Staff Presentation 2 Audit Highlight 3 •GASB 75 – OPEB disclosure •Unqualified, Clean Audit •No substantial material findings •Increase in Fund Balance in General Fund and all four Enterprise Funds 2017-18 Audit 2018-19 Mid-Year Review Questions? 2017-18 Audit 2/5/2019 Item 17, Staff Presentation 3 2017-18 Audit 52017-18 Audit First Annual Popular Annual Financial Report (PAFR) 2017-18 Audit 62017-18 Audit 2/5/2019 Item 17, Staff Presentation 4 Recommendation 7 Review and accept the Comprehensive Annual Financial Report, the Single Audit Report, and the annual audit of the Transportation Development Act Funds for Fiscal Year 2017-18. 2017-18 Audit 2018-19 Mid-Year Budget Review 8 2/5/2019 Item 17, Staff Presentation 5 Presentation Outline 9 1. Budget process 2. Major City Goals Update 3. Mid-Year trends 4. Recommended budget adjustments 5. Five-Year Forecast 6. Year-End Fund Balance Mid-Year Review Recommendations 1. Receive and discuss an update to changes in the financial position based on revised projections for all funds for the 2018-19 fiscal year. 2. Receive an update on the status of the current Major City Goals and Other Important Objectives; and 3. Approve the payment of $4.2 million from undesignated fund balance to pay-down CalPERS unfunded liabilities; and 4. Authorize staff to release a Request for Proposal to the four vendors that offer 115 Pension Trust funds. 5. Approve the use of $1.4 million of undesignated fund balance to be set aside in the 115 Pension Trust fund once established. 6. Approve a significant operating program change to allow the Police Department to change the crime analyst position from a supplemental full-time to a regular full-time position Mid-Year Review 2/5/2019 Item 17, Staff Presentation 6 Budget Process 11 2017-18 2016-17 CAFR 2017-18 Mid-Year 2018-19 Supplement 2018-19 2017-18 CAFR 2018-19 Mid-Year 2017-19 Financial Plan Mid-Year Review Status of Major City Goals & Other Important Objective 12 2/5/2019 Item 17, Staff Presentation 7 13 Housing – Work Program 73%Complete Climate Action – Work Program 75%Complete Multimodal Transportation – Work Program 60% Complete Fiscal Sustainability – Work Program 65%Complete Downtown Vitality – Work Program 73% Complete Mid-Year Review 2018-19 Mid-Year Trends 2/5/2019 Item 17, Staff Presentation 8 Revenue Trends 15Mid-Year Trends Expenditure Trends 16Mid-Year Trends 2/5/2019 Item 17, Staff Presentation 9 Mid-Year Budget Adjustments Mid-Year Adjustments Supplemental Revised Actual Budget Budget Revenue FY18 FY19 FY19 Change GOVERNMENTAL FUNDS General Fund 76,665,901 62,563,296 63,730,984 1,167,688 Local Revenue Measure Fund 7,564,629 7,673,084 7,673,084 - Special Revenue Funds 3,037,074 2,775,467 2,817,275 41,809 Capital Project Funds 3,409,551 14,172,800 14,883,607 710,807 Total Governmental Funds 90,677,155 87,184,646 89,104,950 1,920,304 ENTERPRISE FUNDS & AGENCY FUNDS Water Fund 22,561,282 21,606,073 21,431,073 (175,000) Sewer Fund 17,050,536 16,564,516 16,489,516 (75,000) Whale Rock Reservoir Fund 1,581,630 1,535,691 1,535,691 - Parking Fund 5,408,498 6,017,400 5,649,000 (368,400) Transit Fund 3,812,081 4,208,249 4,208,249 - Boysen Ranch Convervation Fund 5,009 2,000 2,000 - Total Enterprise Funds 50,419,035 49,933,929 49,315,529 (618,400) TOTAL $141,096,190 137,118,575 138,420,479 1,301,904 2018-19 Mid-Year Review Questions? 2017-18 Audit 2/5/2019 Item 17, Staff Presentation 10 Economic Trends and Five-Year Forecast Economic Trends 20Economic Trends & 5-Year Forecast Overall, steady outlook into 2019, but signs point to slow-down. Employment. Slowed compared to 2017, but at 2.8% at lowest level in nearly two decades Tourism. Together with hospitality becoming a bigger part of the economy. The sector is expected to grow at about 2%, but the new inventory available in mid-2019 will likely influence the growth rate. Real Estate. The housing market began to show signs of slowing and housing inventory remains tight. Median house price is up – SFR sales have dropped. Construction Activity. Development activity remains strong in San Luis Obispo and permit numbers are up significantly for SRF and MFR. Sales Tax. Modest growth from 2017 to 2018 and forecast considers a conservative approach based on temperamental consumer confidence. Interest Rates. Flattening of Treasury yield curve and continued interest hikes by the Fed point to slowing of economy overall and especially in sectors driven by purchases on credit. 2/5/2019 Item 17, Staff Presentation 11 21 Five-Year & Long-Term Forecast Revenues: $17,396.2 $17,744.1 $18,099.0 $18,280.0 $18,462.8 $18,647.4 $16,500.0 $17,000.0 $17,500.0 $18,000.0 $18,500.0 $19,000.0 B FY'19 F FY'20 F FY'21 F FY'22 F FY'23 F FY'24 Sales Tax $16,958 $17,446 $17,952 $18,475 $18,844 $19,221 $15,000 $16,000 $17,000 $18,000 $19,000 $20,000 B FY'19F FY'20F FY'21F FY'22F FY'23F FY'24 Property Tax $7,574 $7,650 $7,726 $7,804 $7,882 $7,960 $7,200 $7,400 $7,600 $7,800 $8,000 B FY'19 F FY'20 F FY'21 F FY'22 F FY'23 F FY'24 Transient Occupancy Tax $64,184 $67,667 $68,256 $70,138 $72,152 $73,822 $58,000 $60,000 $62,000 $64,000 $66,000 $68,000 $70,000 $72,000 $74,000 $76,000 B FY'19 F FY'20 F FY'21 F FY'22 F FY'23 F FY'24 Operating Expenditures Economic Trends & 5-Year Forecast Five-Year Forecast 22Economic Trends & 5-Year Forecast B FY'19 F FY'20 F FY'21 F FY'22 F FY'23 F FY'24 Resources Over/(Under) Expenses 3,665$      3,921$      6,784$      5,400$      4,122$      3,448$      Fund Balance, Beginning of Year 19,721$    16,898$    15,819$    19,603$    22,003$    24,125$    Revenue Stabalization Reserve (1,000)$     CIP Reserve (Index to CCI)(1,000)$     Bollard CIP Project (one time monies)(1,288)$     Additional CalPERS Principal Payment (4,200)$     (4,000)$     (3,000)$     (3,000)$     (2,000)$     (2,000)$     Ending Fund Balance 16,898$ 15,819$ 19,603$ 22,003$ 24,125$ 25,573$ Policy Reserve Level @ 20%:(12,837)$  (13,533)$  (13,651)$  (14,028)$  (14,430)$  (14,764)$  Restricted Undesignated Reserve 4,061$ 2,286$ 5,951$ 7,975$ 9,695$ 10,809$ 2/5/2019 Item 17, Staff Presentation 12 Long-Term Trend - Undesignated Fund Balance 23Economic Trends & 5-Year Forecast Year-End Fund Balance - Undesignated 2/5/2019 Item 17, Staff Presentation 13 Undesignated Year-End Balance 25Year End Results After considering restricted and committed balances including first year carry-over. • $5.6 million available for appropriation to one-time, non-recurring efforts. Prioritization : • Down payment of pension liabilities • Investment in one-time capital projects Recommendations 1. Receive and discuss an update to changes in the financial position based on revised projections for all funds for the 2018-19 fiscal year. 2. Receive an update on the status of the current Major City Goals and Other Important Objectives; and 3. Approve the payment of $4.2 million from undesignated fund balance to pay-down CalPERS unfunded liabilities; and 4. Authorize staff to release a Request for Proposal to the four vendors that offer 115 Pension Trust funds. 5. Approve the use of $1.4 million of undesignated fund balance to be set aside in the 115 Pension Trust fund once established. 6. Approve a significant operating program change to allow the Police Department to change the crime analyst position from a supplemental full-time to a regular full-time position 2/5/2019 Item 17, Staff Presentation 14 2018-19 Mid-Year Review Questions? Recommendations 1. Receive and discuss an update to changes in the financial position based on revised projections for all funds for the 2018-19 fiscal year. 2. Receive an update on the status of the current Major City Goals and Other Important Objectives; and 3. Approve the payment of $4.2 million from undesignated fund balance to pay-down CalPERS unfunded liabilities; and 4. Authorize staff to release a Request for Proposal to the four vendors that offer 115 Pension Trust funds. 5. Approve the use of $1.4 million of undesignated fund balance to be set aside in the 115 Pension Trust fund once established. 6. Approve a significant operating program change to allow the Police Department to change the crime analyst position from a supplemental full-time to a regular full-time position 2/5/2019 Item 17, Staff Presentation 15 29 Extra slides 30 2/5/2019 Item 17, Staff Presentation 16 General Fund: Revenues derived primarily from taxes and service charges. Enterprise Funds (Water, Sewer, Parking, Transit) – Business Like activity funded by revenues derived from the activity. OPERATING CAPITAL OPERATING CAPITAL Budget Process City’s fund structure Local Revenue Measure •Ranger Services •Transportation Planning & Engineering •Traffic Signal Technician •Police Patrol Officers & Sergeant •Streets Maintenance Worker •Code Enforcement Staff •Creek & Flood Protection •Park Improvements •Open Space Acquisition •Bicycle Improvements •Traffic Signal Upgrades •Street Reconstructing & Resurfacing •Storm Drain Replacement Operating 34%Capital 66% 2016-17 Uses - $6.1 million Year End Results 2/5/2019 Item 17, Staff Presentation 17 Historical Trend: Total Revenue 33Mid-Year Trends Actual $60.9 $64.6 $68.1 $67.4 $71.8 $74.0 $40 $45 $50 $55 $60 $65 $70 $75 $80 13‐14 14‐15 15‐16 16‐17 17‐18 18‐19$ MillionsGeneral Fund (Including LRM) Historical Trend: Tax Revenue 34 Actual Note: Sales Tax 15-16 increase due to one time true up payment for Triple Flip. $12.7 $12.6 $13.5 $14.3 $15.1 $16.1 $5 $7 $9 $11 $13 $15 $17 12‐13 13‐14 14‐15 15‐16 16‐17 17‐18$ MillionsProperty Tax $21.1 $22.6 $22.8 $25.1 $24.5 $24.6 $19 $20 $21 $22 $23 $24 $25 $26 12‐13 13‐14 14‐15 15‐16 16‐17 17‐18$ MillionsSales Tax Mid-Year Trends 2/5/2019 Item 17, Staff Presentation 18 General Fund (Including LRM) 2017-18 Year-End Actuals vs. Final Budget 35 BudgetActual $73.6 $91.8 $73.6 $77.4 $40 $50 $60 $70 $80 $90 $100 12‐13 13‐14 14‐15 15‐16 16‐17 17‐18$ MillionsRevenues $76.0 $88.7 $80.0 $76.7 $40 $50 $60 $70 $80 $90 $100 12‐13 13‐14 14‐15 15‐16 16‐17 17‐18$ MillionsOperating Expenditures Mid-Year Trends •Prado Road Interchange & Prado Creek Bridge Widening • Funding Secured & Final Stages of ROW Acquisition • CalTrans Project Study Report Approved & Env. Underway • Construction Scheduled for 2021 •Railroad Safety Trail • Funding Secured & Final Stages of ROW Acquisition • Final Construction Plans & Permitting Under UP Review • Construction Scheduled for 2020 •Anholm Bikeway Plan • Bikeway Plan Adopted & Phase 1 Funding Secured • Phase 1 Design Underway Construction Scheduled for 2019 •Other Infrastructure In Progress Including New Development • Over 5 Miles of Protected Bikeways In Design • 5 Roundabouts & 3 Protected Bicycle Intersections In Design Multimodal Transportation –60% Complete 36 2/5/2019 Item 17, Staff Presentation 19 • Hired a Sustainability Manager, convened a Green Team, and support to the SLO Climate Coalition Task Force • Climate Action Plan to be updated by Fall 2019 to include a pathway to carbon neutral by 2035 target. • Agency improvements including energy efficiency retrofits, solar projects, and electric vehicle chargers. • Community Choice Energy service in 2020 • Positioned to transition to Climate Action Plan implementation and community resilience in 2019 Climate Action 75% Complete 37 • $1.5M of additional revenue, operating reductions, and new ways of doing business has been identified and budgeted as part of Year 1 of the FHRP. • 4 of 5 MOAs have been negotiated for total savings of $996K by year 2020-21 • In September, Governor Brown signed SB 1090 which approved $85 million in mitigation funding to address the Diablo Canyon closure including $1.82 million for economic development efforts for the City. Fiscal Sustainability & Responsibility 65% Complete 38 2/5/2019 Item 17, Staff Presentation 20 Other Important Objectives Highlights • Began implementation of portions of the Mission Plaza Concept Plan in summer of 2018 with the restroom replacement project. • When available, the Community Action Team and Bicycle Team continue to maintain public safety by focusing efforts in addressing chronic offenders downtown. • The Police Department coordinated with the County of San Luis Obispo to expand mental Health Services. • Police, Public Works, and Parks & Recreation are collaborating to address adverse impacts downtown. Downtown Vitality 80% Complete 39 Mid-Year Budget Adjustments Dept/Fund Action Amount Action Requested General Fund (Including LRM) Increase in Revenue $1,167,688 Update in Sales Tax forecast by HdL due to strong consumer spending, $179K. Increase in property tax revenue projections $447K, TOT increased projection of $207K Mutual Aid Reimbursements, $485K, public works revenue, $28K, police service charges, ($12k), Parks & Rec service charges, ($67k), development review fees, ($200k), and cannabis revenue of $100k. General CIP Fund Increase in Revenue $703,365 Zone 9 grant approved after supplemental budget. Fleet Replacement Fund Decrease in Revenue ($50,000) Due to double count in supplemental budget. Open Space Protection Fund Increase in Revenue $7,442 Change to budget due to interest on investment allocation. Tourism Business Improvement District Fund Increase in Revenue $41,808 Correlated increase to TOT increase. Mid-Year Adjustments