December 2, 2003

SUBJECT: -Fiscal Year 2002/2003 Budgetary Year-End Financial Report, Comprehensive Annual Financial Report and Budget Modification No. 19

REPORT IN BRIEF

This report is intended to present the budgetary Year-end Financial Report and the audited Comprehensive Annual Financial Report (CAFR) of the City for the fiscal year ended June 30, 2003. 

The budgetary Year-end Financial Report is presented every year in which staff reports the year-end results and provides analysis of the changes between the projected year-end position contained in the May budget and the actual year-end status.  These results are calculated on a budgetary basis, rather than the accounting basis used for the Comprehensive Annual Financial Report. Overall the City ended the year in a better financial position from that estimated in the May budget.  In May we had anticipated drawing down on the reserves about $24 million while actual results were a draw down of $22 million.

The CAFR is the City’s external reporting medium.  This report is audited by our independent auditors, Caporicci and Larson, who have issued an unqualified opinion on the report. In conjunction with the opinion rendered on the CAFR, the independent auditors also issue a Management Letter in which any financial or internal control deficiencies are noted.  For the second consecutive year, we have had no deficiencies noted in this year’s management letter.

BACKGROUND

Each year as part of the year-end closing process, staff presents the audited Comprehensive Annual Financial Report and the year-end financial condition and results of operations on a budgetary basis for the preceding fiscal year using audited financial results.

EXISTING POLICY

Action Statement 7.1D.1g of the Fiscal Sub-Element of the General Plan states that staff shall “prepare and provide the City Council with periodic summary financial reports by fund, comparing actual revenues and expenditures to budgeted amounts.”  This Year-end Financial Report is in accordance with this action statement.

In addition, the City Charter Section 1318 requires that “At the end of each fiscal year, a final audit and report shall be submitted by [a Certified Public Accountant] to the City Council.”  The Comprehensive Annual Financial Report is in accordance with this section.

DISCUSSION

Bases of Accounting – CAFR vs Budgetary

The Government-wide Financial Statements of the CAFR and the Proprietary Fund Financial Statements are presented on an “economic resources” measurement focus and the accrual basis of accounting.  Revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred.

The Governmental Fund Financial Statements of the CAFR are accounted for on a spending or “current financial resources” measurement focus and the modified accrual basis of accounting. Revenues are recognized in the accounting period in which they become measurable and available to finance expenditures of the current period.  Expenditures are recorded in the accounting period in which the fund liability is incurred.

The Budgetary Year-end Financial Report is presented on a budgetary basis.  Certain revenues and expenditures that do not result in cash flows are eliminated.  In addition, certain transactions that resulted in cash flows but were recorded as balance sheet transactions on the CAFR, and thus did not affect fund balance, are included in this report as either increases or decreases to ending fund balance. 

Budgetary Year-End Financial Report

Staff has reviewed the City’s year-end financial results and hereby provides an analysis of the changes between last May’s projected revenues and expenditures and the actual year-end results.

Fiscal Year 2002/2003 Year-End Financial Update

Revenues

General Fund revenues for the fiscal year ending June 30, 2003 were as follows:

Fund 35 - General Fund
Description		May Estimate		Actual Revenues		Variance Favorable (Unfavorable)		Percent Variance
Property Taxes		$     23,255,628		$     23,868,187		$       612,559		2.63 %
Sales Taxes:
Sales and Use Tax - City		22,900,000		22,766,997		(133,003)		(0.58)%
Sales and Use Tax - Public Safety		1,300,000		1,262,240		(37,760)		(2.90)%
Total Sales Tax		24,200,000		24,029,237		(170,763)		(0.71)%
Transient Occupancy Tax		5,300,000		5,094,489		(205,511)		(3.88)%
Utility Users Tax		5,848,219		5,651,672		(196,547)		(3.36)%
Other Taxes
Business License Tax		240,000		269,263		29,263		12.19 %
Construction Tax		909,070		672,281		(236,789)		(26.05)%
Real Property Transfer Tax		618,000		579,875		(38,125)		(6.17)%
Total Other Taxes		1,767,070		1,521,419		(245,651)		(13.90)%
Franchises		5,343,736		5,226,408		(117,328)		(2.20)%
Rents & Concessions		1,197,069		1,193,475		(3,594)		(0.30)%
Federal Revenues		17,319		11,431		(5,888)		100%
State Revenues:
Motor Vehicle License Fees		7,500,000		7,925,774		425,774		5.68 %
Other State Revenues		746,073		640,787		(105,286)		(14.11)%
Total State Revenues		8,246,073		8,566,561		320,488		3.89 %
Other Intergovernmental Revenues		11,976		10,545		(1,431)		(11.95)%
Private Grants & Donations		-		49,600		49,600		100.00 %
Permits & Licenses		2,978,697		3,133,125		154,428		5.18 %
Fines & Forfeitures		624,719		609,858		(14,861)		(2.38)%
Service Fees:
Community Development Fees		704,428		914,123		209,695		29.77 %
Library Fees		22,591		24,232		1,641		7.26 %
Public Safety Fees		466,973		546,855		79,882		17.11 %
Public Works Fees		22,690		59,722		37,032		163.21 %
Total Service Fees		1,216,682		1,544,932		328,250		26.98 %
Interest Income		4,059,628		4,378,043		318,415		7.84 %
Other Revenues:
Loan Repayments		394,064		394,064		-		0.00%
Interfund Revenues		18,959		36,845		17,886		94.34%
Sale of Property		20,600		508,744		488,144		2,369.63 %
Miscellaneous Revenues		137,222		213,407		76,185		55.52 %
Total Other Revenues		570,845		1,153,060		582,215		101.99 %
Transfers In/In-Lieu Fees		8,406,316		8,564,896		158,580		1.89 %
						-
Total Revenues		$     93,043,977		$     94,606,938		$    1,562,961		1.68 %

Total revenues were higher than the May estimate by 1.68% or $1.5 million.

Our highest source of revenue, Sales Tax, showed very little variance from the May estimates. Sales Tax revenues decreased from the prior fiscal year by $3.2 million.  This decreasing trend started in fiscal year 2000/2001 with the highest effect being felt in fiscal year 2001/2002 when this revenue source decreased by $10 million.  As discussed during the budget deliberations, the high level of Sales Tax revenues experienced in the boom years is not sustainable and we anticipate flat or moderate increases in Sales Tax in future years.

Property Taxes were higher than last year by approximately $1 million due to higher assessed values resulting from the boom experienced in past years.  As the economy continues its slow down and properties either sell or are devalued through the appeals process, this revenue source will stabilize.

Transient Occupancy Taxes continue to decline.  We had anticipated a decrease of $1 million in revenues for fiscal year 2002/2003.  Actual revenues were even lower than our low estimates by $200,000 or 4%.  This sector is greatly affected by the economic slowdown and continues to be weak.

Interest revenues were higher than our May estimates, but were lower than last year by $750,000 due to the continued lower interest rates in the financial markets.

Other revenue sources which showed a significant variance from the May estimates were as follows:

·         Construction Tax was lower by 26% due to the continued slow down of this sector.

·         Permits and Licenses were higher than estimates by 5%.  We decreased the anticipated revenue from Permits and Licenses significantly in May due to trends observed at that time, but they rebounded slightly.

·         Service Fees from the various departments were higher than expected revenues by 27% for a total of $328,000. However, this amount was substantially the same as what was collected in the previous year.

·         Other revenues were higher than expected revenues by 101% for a total of $582,000, primarily due to unanticipated sale of property.

Although our actual results were slightly higher than our estimates in May, our total revenues in fiscal year 2002/2003 were lower than last year by $7 million.  

Expenditures

General Fund expenditures for the fiscal year ending June 30, 2003 were as follows:

Fund 35 - General Fund
Description		Amended Budget		Actual Expenditures		Variance Favorable (Unfavorable)		Percent Variance
Equipment		$            300,000		$                     -		$      300,000		100.00 %
Debt Service		410,548		414,652		(4,104)		(1.00)%
Operations		91,257,211		88,404,102		2,853,109		3.13 %
Projects