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.
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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.
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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.
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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.
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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.
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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
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Item 17
City of San Luis Obispo, California
Federal Awards
Reports and Schedule
Year Ended June 30, 2017
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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
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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
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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
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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.
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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
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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.
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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.
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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.
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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
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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.
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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
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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.
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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.
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Item 17
City of San Luis Obispo
Transportation
Development Act Funds
Report and Financial
Statements Year End
June 30, 2018 and 2017
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Item 17
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Item 17
City of San Luis Obispo, California
Transportation Development Act Funds
Report and Financial Statements
Years Ended June 30, 2018 and 2017
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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
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Item 17
3
City of San Luis Obispo, California
Transit Fund
Years Ended June 30, 2018 and 2017
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Item 17
4
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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
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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.
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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.
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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.
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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.
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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.
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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
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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 $250,000 by the Federal Depository Insurance Corporation. For custodial
credit risk associated with deposits, the City follows California Government Code, which requires California financial
institutions to secure the City’s deposits by pledging government securities as collateral. The market value of the
pledged securities must equal 110% of the City’s deposits. California law also allows financial institutions to secure
the City’s deposits by pledging first trust deed mortgage notes equal to 150% of the City’s deposits. All deposits held
by financial institutions are fully insured or collateralized with securities, held by the pledging financial institutions’
trust departments in the City’s name.
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Item 17
City of San Luis Obispo, California
Transit Fund
Notes to Financial Statements
June 30, 2018 and 2017
14
Note 3: Cash and Cash Equivalents and Investments (Continued)
At June 30, 2018 and 2017, investments consisted of the following:
2018 2017
Pooled Investment Funds:
Local Agency Investment Fund (LAIF)1,329,245$ 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
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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
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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
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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