December 14, 2004

SUBJECT: FY 2003/2004 Budgetary Year-End Financial Report, Comprehensive Annual Financial Report and Budget Modification No. 15

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, 2004. 

The budgetary Year-end Financial Report is presented every year.  This report presents the year-end results and provides analysis of the changes between the projected year-end position contained in the City Manager's Recommended Budget in May and the actual year-end status.  These results are calculated on a budgetary basis, rather than the accounting basis used for the CAFR.  Overall the City’s General Fund ended the year in a better financial position from that estimated in the May budget by approximately $4.8 million. In May, we had anticipated drawing down on the reserves about $13.5 million for FY 2003/2004, while actual results were a draw down of $8.7 million.  It is recommended that these funds be placed in the Service Level Stabilization Reserve pending Council decision in January on the proposed Budget Reduction Package for FY 2004/2005.

The CAFR is the City’s external reporting medium.  This report is audited by our independent auditors, Caporicci & 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 third consecutive year, we have had no deficiencies noted in this year’s management letter.

Finally, it is recommended that Council approve Budget Modification No. 15 which takes two actions. First, it places $4.8 million into the General Fund Service Level Stabilization Reserve as mentioned above pending Council action in January.  Second, it appropriates $150,000 to cover higher than budgeted fuel costs for city vehicles for FY 2004/2005.  Fuel costs rose sharply at the end of last year and continue to remain high in the current year.  One-time funds are available from unanticipated expenditures savings from FY 2003/2004 in the General Services Fund. 

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 presented 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.

Interfund loan or loan repayment transactions that resulted in cash flows but were recorded as balance sheet transactions on the CAFR, are included in this report since the budgetary fund balances are affected by such transactions.  In addition, change in the fair value of investments was included in the CAFR but excluded from this report since the budgetary fund balances are not affected by such transactions.

Fiscal Year 2003/2004 Year-End Financial Update

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

General Fund

Revenues

General Fund revenues for FY 2003/2004 are shown in the table below. Total revenues were higher than the May estimate by 3.6% or $3.4 million.

Description		May Estimate		Actual Revenues		Variance                      Favorable (Unfavorable)		Percent Variance
Property Taxes		$ 24,091,920		$   23,580,170		$    (511,750)		(2.12)%
Sales Taxes:
Sales and Use Tax - City		22,400,000		23,451,665		1,051,665		4.69 %
Sales and Use Tax - Public Safety		1,200,000		1,147,392		(52,608)		(4.38)%
Total Sales Tax		23,600,000		24,599,057		999,057		4.23 %
Transient Occupancy Tax		4,578,119		4,751,669		173,550		3.79 %
Utility Users Tax		5,539,171		5,607,333		68,162		1.23 %
Utility Users Tax - Audit Findings		-		269,633		269,633		N/A
Other Taxes
Business License Tax		240,000		244,286		4,286		1.79 %
Construction Tax		845,982		859,971		13,989		1.65 %
Real Property Transfer Tax		636,540		764,570		128,030		20.11 %
Total Other Taxes		1,722,522		1,868,827		146,305		8.49 %
Franchises		5,393,252		5,520,536		127,284		2.36 %
Rents & Concessions		1,029,328		977,993		(51,335)		(4.99)%
Federal Revenues		-		36,755		36,755		N/A
State Revenues:
Motor Vehicle License Fees		5,700,000		5,970,492		270,492		4.75 %
Other State Revenues		471,741		527,003		55,262		11.71 %
State Library Grant		59,517		59,517		-		0%
Total State Revenues		6,231,258		6,557,012		325,754		5.23 %
Other Intergovernmental Revenues		102,757		85,319		(17,438)		(16.97)%
Private Grants & Donations		20,000		156,427		136,427		682.14 %
Permits & Licenses		3,654,247		4,251,724		597,477		16.35 %
Fines & Forfeitures		691,978		750,000		58,022		8.38 %
Service Fees:
Abandoned Vehicles (AVASA)		139,000		195,986		56,986		41.00 %
Community Development Fees		932,496		1,084,537		152,041		16.30 %
Finance Fees		137,690		160,130		22,440		16.30 %
Library Fees		25,650