Agenda Item Wording:
title
Receive the Annual Comprehensive Financial Report for the City of Visalia for the 2023-24 fiscal year.
body
Deadline for Action: 1/21/2025
Submitting Department: Finance and Technology Services
Contact Name and Phone Number: Kari Williams 559-713-4298
Department Recommendation:
It is recommended that the City Council acknowledge receipt of the ACFR for the year ended June 30, 2024 and provide comments as appropriate.
Background Discussion:
The attached Fiscal Year (FY) 2023-24 ACFR represents the City’s financial, operational, and current economic condition for the fiscal year ending June 30, 2024. The City’s financial statements for this period have been audited by Brown Armstrong, Accountancy Corporation, the City’s independent auditing firm. Their Independent Auditors Report has been incorporated into the ACFR document. This item is presented to the City Council each year for review and acknowledgement.
State law requires the City of Visalia to prepare a complete set of audited financial statements. The attached 2023-24 ACFR fulfills this requirement.
The City’s Independent Auditors, Brown Armstrong, have audited the City’s financial statements prepared by finance staff for the fiscal year ended June 30, 2024 and have provided an unqualified (clean) opinion. An unqualified opinion concludes, with the highest level of assurance, that the ACFR presents fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City; and the respective changes in financial position.
There were no audit findings for fiscal year 2023-24.
The ACFR is prepared annually in accordance with generally accepted accounting principles (GAAP) and reporting standards established by the national Governmental Accounting Standards Board (GASB), as verified during the independent auditor’s examination. The June 30, 2024 ACFR continues to comply with the GASB reporting standards.
The financial statement information and audit opinion, as well as additional narrative and statistical information, is presented within the ACFR. Below is a listing of the different sections in the report:
• Transmittal Letter by the City Manager and Finance Director
• Independent Auditor’s Report
• Management’s Discussion and Analysis
• Government-wide Financial Statements
• Fund Financial Statements
• Notes to Basic Financial Statements
• Required Supplementary Information
• Supplementary Information: Combining Statements and Budgetary Comparison Schedules
• Statistical Section
• Compliance Section
The City issues copies of its ACFR to financial institutions and credit rating agencies for use in evaluating the City’s financial position, as well as to the City Council, City Management, and interested citizens. The City’s ACFR will also be available on the City’s web site.
The Government Finance Officers Association of the United States and Canada (GFOA) awards a Certificate of Achievement for Excellence in Financial Reporting which is only valid for a period of one year. The City recently received this award for the prior fiscal year (2023-24) and has now received the award for excellence in financial reporting for 38 consecutive years. The current report has been submitted and is under consideration for award. City staff believes the current report continues to exceed financial reporting standards.
New Reporting Requirements
The following Governmental Accounting Standards Board (GASB) Statements have been implemented in the current financial statements:
GASB Statement No. 100, Accounting Changes and Error Corrections
The primary objective of this Statement is to enhance accounting and financial reporting requirements for accounting changes and error corrections to provide more understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability. The provisions of this statement are effective for fiscal year 2023-24. The City has implemented this statement for June 30, 2024.
Financial Statements
The financial statements are separated into Governmental and Enterprise (Business) type funds. Governmental Funds and Enterprise funds have different methods of accounting. Table 1 - Governmental and Enterprise Funds shows these differences.
Table 1- Governmental and Enterprise Funds
Governmental Funds
Governmental funds are prepared on the modified accrual basis of accounting, which means they measure only current financial resources and uses. This basis focuses on (1) how cash and other financial assets can be readily converted to available resources and (2) the balances left at year-end that are available for spending. Capital assets and other long-lived assets along with long-term liabilities are not presented in the Governmental Fund Financial Statements. The City uses governmental funds to account for the General Fund (which includes the Emergency Reserve Fund), Measure N, American Rescue Plan, Transportation, Civic Center, as well as many other special revenue and capital project funds such as Measure T and Measure R.
2023-24 General Fund Summary
Fiscal year 2023-24 had growth in all major revenue categories for Visalia, except for one; Sales Tax. Although the Sales Tax decrease was very small (0.5%), Visalia has not seen a decrease in Sales Tax since fiscal year 2009-10. On June 30, 2024, the California consumer price index stood at 3.3% and employment in the state continued to show signs of slowing as the unemployment rate was at 5.2%, an increase from the June 30, 2023 rate of 4.6%. Nationally, employment remained steady as the national unemployment rate was at 4.1%, still near the natural unemployment rate of 4% that the Federal Open Market Committee wants to see.
Fiscal year 2023-24 ended the year with an overall increase of $2.9 million in the total economic-sensitive revenue category for the General Fund as shown in Table 2 - GF Economic Sensitive Revenues. Most of this increase is from Property Tax which had a $2.6 million increase over the prior year.
Table 2 - GF Economic Sensitive Revenues
(as shown in the Financial Statements)
As mentioned above, Sales Tax ended fiscal year 2023-24 with a 0.5% decrease. After prolonged levels of inflation and high interest rates, consumer spending levels seem to be slowing on the higher priced items such as cars and houses as consumers may be beginning to prioritize savings or have reduced levels of disposable income. The main areas of the decline in Sales Tax for Visalia were in Construction (wholesale and retail) which decreased $0.3 million, Transportation (auto sales, service stations) which decreased $0.3 million, and Business to Business (heavy and light industry, chemical products, medical and veterinary supplies) which declined $0.7 million; all partially offset by growth in General Retail, Food Products, and Miscellaneous. Property Tax continued its growth trend increasing 8.2% as growth in property values continued; new development occurred; and the housing market remained at elevated price levels. Travel to the area rebounded from last year as we saw an increase of 5.6% in Transient Occupancy Tax (TOT) revenue. Franchise Fee revenue increased 8.4% in fiscal year 2023-24 due to increases in gas and electric revenue as the City continued to have new development as well as growth in utility company revenue due to increased fees to their customers. Business License revenue increased slightly 0.9% when compared to last year.
Visalia has 13,473 licensed businesses operating in the City, a net increase of 347 as compared to last year. These businesses include private manufacturing, technology research, retail and service businesses, educational services, healthcare and social assistance, consulting, arts and entertainment, hospitality services, along with non-profit institutions.
With careful management, the City was able to continue to provide service enhancements, infrastructure improvements, and increases in employee compensation. As shown in Table 3 - General Fund Statement of Revenues & Expenditures, the General Fund ended the year with a change in fund balance and surplus of $20.19 million. Contributing to the surplus was not only the growth in the main General Fund revenue categories, but also in uses of money and property (interest income) which was up $1.7 million as compared to last year as the average earnings interest rate was 3.37% for the year as compared to 2.00% for the prior year. Additionally, we had an overall decrease in total expenditures of $0.4 million when compared to the prior year. This was a combination of capital outlay expenditures being lower this year by $0.9 million in addition to a decrease of $0.5 million in principle payments for lease and subscription-based information technology liabilities, all offset by increases in other expenditures.
Table 3 - General Fund Statement of Revenues & Expenditures
(in millions)
The General Fund revenues came in over expenditures by $27.01 million. The Expenditures category included capital projects which totaled $3.1 million. The category Other Financing Sources and Uses of $6.82 million includes transfers out to Convention Center $2.6 million ($1.2 million operations + $0.3 million capital set-aside + $1.1 million debt), Animal Control $1.8 million ($1.2 million operations + $0.6 million debt), Risk Management $2.0, Baseball $0.5 million ($0.3 million operations + $0.2 million capital), Debt service funds $0.7 million (debt), transfer in from Compensated Absences of $0.2 million, and Subscription Assets & Leases Acquired of $0.6 million.
Once you take Revenues minus Expenditures less Other Financing Uses, the General Fund had a change in fund balance/surplus of $20.19 million. Of the surplus, $2.75 million was transferred to the Emergency Reserve Fund and $17.44 million was transferred to the Civic Center Reserve Fund as per the current Council Policy on surpluses. The current General Fund emergency reserves replenishment policy states that any revenues in excess of actual expenditures would continue to be deposited in the emergency reserve to maintain the reserve at 30% of operating expenditures and then all remaining surplus is to be deposited into the Civic Center Reserve Fund.
This is the eleventh consecutive year that the General Fund has ended the year with a surplus. However, the balance between revenues and expenditures in the General Fund can be volatile from year to year. The City will continue to monitor rising operating costs (i.e., pension costs, health insurance, technology), and the economy for a possible downturn (recession). Although not 100% predictable, many economists are speculating that the United States Gross Domestic Product (GDP) growth will slow in 2025 as the government curbs its spending and labor markets slow as unemployment continues to increase. As a result, we expect decreases in both industrial and consumer consumption which may affect Sales Tax revenue for the City. The City must continue to seek new opportunities to increase tax base revenues to help maintain fiscal sustainability.
The General Fund’s fund balance (including the emergency reserve) is $59.1 million at fiscal year-end. It is important to remember that fund balance is not cash. Fund balance is the amount left after liabilities are subtracted from assets. A positive fund balance means that there are more assets than liabilities; a negative fund balance means just the opposite. The General Fund’s fund balance is split into the following categories (2023-24 ACFR pg 87):
Ø Nonspendable Fund Balance - $2.1 million for items such as inventory, prepaids, deposits, supplies, long term receivables and advances to other funds.
Ø Restricted Fund Balance - There are currently no restricted fund balances.
Ø Committed Fund Balance - $23.6 million for Council authorized encumbrances (contracts awarded that are not paid out) and specific purposes such as the Emergency Reserve (currently at $22.7 million, 30% of the General Fund’s operating costs).
Ø Assigned Fund Balance - $33.2 million for advances to custodial funds, capital projects that have been budgeted but not started, CalPERS unfunded liability payment for FY 2024-25 and the Successor Agency Note.
Ø Unassigned Fund Balance - $0.2 million is primarily used for three reasons:
1. Grants - To temporarily advance one-time expenditures which are awaiting grant funds. The City receives many grants, and typically, funds that have grants will need a cash advance due to the timing of the grant reimbursements and the crossing of fiscal years. Grant advances are typically paid back within 1-2 years.
2. Impact Fees - To advance money in order to keep moving forward on large projects. When advances happen, the amount of the advance is transferred out of unassigned fund balance to assigned fund balance. When the advances are paid back to the general fund those amounts are transferred back to the unassigned fund balance. If the money is not available to advance from the unassigned funds, then the money would need to come from the committed funds that have been set aside for emergency reserves or capital projects. This is not ideal because this could postpone projects or cause there to not be enough in reserves for when it is needed. Advances for capital projects are typically paid back over larger periods of time (5-10 years). For example, the fire impact fees assisted with the construction of stations 55 and received an advance that was recently paid back. Also, the police impact fees are projected to need an advance of $1.5 million to make the VECC debt payments for the life of the debt which will be fully paid off in 2029.
3. Prior Year Adjustments - The City financial statements are a summary of the year and are comprised of many numbers, categories, funds, objects and task numbers. As staff continues to audit numbers and compare to prior years, accounting errors are found and need to be adjusted. For example, expenditures for FY 2023-24 may have been coded to FY 2024-25 and are found when reviewing FY 2024-25. In addition, the Financials include receivables that may be written off due to bad debt or fees waived once they have complied with City regulations. If the Unassigned Fund Balance category did not exist, these adjustments would need to come from the committed funds that have been set aside for emergency reserves or capital projects.
However, these funds may be considered a part of the Emergency Reserves and at the end of the fiscal year, at the Council’s discretion, can be added to the Emergency Reserves or any other designation. Staff does not recommend depleting this category because, in the end, using committed funds that have been set aside for emergency reserves or capital projects is not ideal for advancing for grant reimbursements, capital projects, and prior year adjustments. This would cause the Emergency Reserves or any other fund to increase and decrease as accounting adjustments are made and money is borrowed leaving uncertainty in the amount available at any given time. The unassigned fund balance is much lower than past years and will need to be increased for future advances/projects.
As shown in Table 4 - General Fund Emergency Reserves, the Emergency Reserves ending balance for FY 2023-24 was at $22.7 million which meets the Council policy level of 30% of operating expenditures.
Table 4 - General Fund Emergency Reserves
Other Governmental Funds
• The Measure N fund (FY 2023-24 ACFR: page 32 & 36) is used to account for the half-cent sales tax override approved by the citizens of Visalia in November 2016 which funds increased City essential services of Police, Fire, Streets and Parks. Total Revenues for the year were $20.1 million. Total expenditures were $21.5 million which included a $1.6 million adjustment required by GASB 96 for the recording of Subscription-Based Information Technology Arrangements (SBITA) or Body Worn Cameras (5 year term). The Measure N Fund’s balance increased $0.3 million to $36.9 million.
• The American Rescue Plan fund (FY 2023-24 ACFR: page 32 & 37) is used to account for the American Rescue Plan Act federal grant funding. Monies can only be used according to the plan guidelines. The funds’ assets include $21.9 million in unearned revenue. The American Rescue Plan Fund’s balance is $1.8 million.
• The Transportation fund (FY 2023-24 ACFR: page 33 & 37) is used to account for the financing and construction of new streets, roads, and various new transportation infrastructure and facilities. Funding is provided by Transportation Impact Fees. The Transportation fund’s fund balance increased $6.9 million to $31.4 million as a result of revenues exceeding capital projects for the year.
• The Civic Center fund (FY 2023-24 ACFR: page 33 & 37) is used to account for the construction of the Civic Center and related capital improvement projects. Revenue is collected from land sales, one time monies as incentive revenues, General Fund surplus, and other transfers authorized by City Council. The Civic Center Fund’s balance increased $17.6 million mainly due to a transfer of surplus from the General Fund of $17.4 million.
• All Other Governmental Funds (FY 2023-24 ACFR: page 33 & 37) (referred to as Non-Major Funds) are not presented separately in the Basic Financial Statements but are individually presented in Supplementary Information. Combined they received $68.3 million in revenue and have a combined Fund Balance at year-end of $148.7 million. The larger funds in this category include Special Service Districts at $16.0 million, Measure T Fire at $7.4 million, Measure T Police at $9.8 million, Measure R local at $16.1 million, Highway Users at $13.3 million, Recreational Facilities at $12.2 million, Housing & Community Grants at $23.1 million, Housing Succor Agency at $10.5 million and Government Facilities Impact Fee at $10.7 million.
Business Type Funds
Enterprise Funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for the Water Reclamation Facility, Storm Sewer Maintenance, Solid Waste, and Transit, which are considered to be Major Funds of the City and Convention Center, Airport, Building Safety, and Animal Control which are considered to be Non-Major Funds of the City.
Enterprise funds also recognize the net pension liability as required by GASB 68. As a result, annual adjustments are required to adjust to the net pension liability being reported by CalPERS for our employee retirement plans. Changes in the net pension liability occur as a result of annual actuarial valuations performed by CalPERS on our plans, investment earnings for the year, and changes to pension formula assumptions made by CalPERS. These annual GASB 68 adjustments to the net pension liability affect the Salaries, Wages and Employee Benefits line item reported under Operating Expenses (pages 44 and 45) as any adjustment is made to pension expense. Below is a brief summary of changes for each Enterprise Fund's revenues and expenditures. These summaries compare each Fund to last fiscal year.
Major Funds:
• Water Reclamation Facility (FY 2023-24 ACFR: page 42 & 44) Operating revenues increased $2.0 million due to the timing of an annual Utility Billing year end true up which also affected prior year’s revenues and a decrease in development impact fees collected. Revenues had increases in treatment connection fees of $0.4 million, residential fees of $0.8 million, commercial fees of $0.2 million, industrial fees of $0.4 million, restaurant fees of $0.1 million and services provided of $0.3 million, offset by a decrease in front footage fees of $0.2 million.
Operating expenses increased by $1.0 million mainly due to increases in salaries and benefits of $1.4 million due to wage and benefit increases and annual pension adjustments, utility expenses of $0.5 million, and allocated expenses and services provided of $0.3 million, offset by a decrease in capital related activity of $1.2 million when compared to the prior year.
• Storm Sewer Maintenance (FY 2023-24 ACFR: page 42 & 44) Operating revenues increased $0.1 million due to the timing of an annual Utility Billing year end true up which also affected prior year’s revenues. Operating expenses increased by $0.2 million including increases in salaries and benefits of $0.1 million due to wage and benefit increases and annual pension adjustments and increases in allocated expenses and services provided of $0.1 million.
• Solid Waste (FY 2023-24 ACFR: page 42 & 44) Operating revenues increased $2.4 million due to the timing of an annual Utility Billing year end true up which also affected prior year’s revenues. Revenues increased in commercial fee revenue of $0.9 million, single family fee revenue of $0.8 million, commercial recycling fee revenue of $0.1 million, franchise tax of $0.2 million, CNG fuel rebate of $0.1 million and grant revenue of $0.3 million for the CalRecyle program and State Highway cleanup program.
Operating expenses increased by $0.4 million mainly due to an increase in salaries and benefits of $0.4 million due to wage and benefit increases and annual pension adjustments, depreciation expenses of $0.1 million, and an overall decrease in maintenance and operations of $0.1 million mainly due to allocated expenses and services provided.
• Transit (FY 2023-24 ACFR: page 42 & 44) Operating revenues decreased $7.8 million from last year. The majority of the decrease was operating grant revenue of $7.4 million due to receiving less in transit assistance grant funding which fluctuates from year to year. Decreases were also seen in Sequoia Shuttle National Park reimbursement of $0.3 million, and farebox ticket sales of $0.1 million.
Operating expenses decreased by $2.0 million due to decreases in maintenance and operations consisting of $1.0 million for bus contracted services due to a strike by the Transit contracted bus operator workers for 6 weeks, CNG fuel of $0.9 million, and allocated expenses and services provided of $0.2 million offset by an increase in depreciation expense of $0.1 million.
Non Major Funds:
• Convention Center (FY 2023-24 ACFR: page 162 & 163) Operating revenues increased by $0.3 million. Increases were mainly seen in conference room and equipment rental of $0.4 million offset by discounted services of $0.1 million.
Operating expenses decreased by $0.6 million mainly due to the annual pension adjustments of $0.6 million being less than the previous year, offset by an increase in salaries and benefits of $0.1 million due to wage and benefit increases. A decrease was also seen in maintenance and operations of $0.1 million due to allocated expenses and services provided being lower than previous year.
The Convention Center received a transfer in (subsidy) of $2.6 million ($1.2 million operations + $0.3 million capital set-aside + $1.1 million debt) from the General Fund.
• Airport (FY 2023-24 ACFR: page 162 & 163) Operating revenues increased $0.1 million due to aviation fuel sales being lower than previous year. Operating expenses decreased by $0.4 million with decreases in salaries and benefits of $0.1 million due to wage and benefit increases offset by annual pension adjustments; in maintenance and operations due to decreases in capital related activity of $0.1 million; utilities fuel and supplies of $0.1 million; and depreciation expense of $0.1 million.
• Building Safety (FY 2023-24 ACFR: page 162 & 163) Operating revenues decreased by $1.6 million due to an overall decrease in construction permits compared to prior years activity. Operating expenses decreased by $0.1 million in salaries and benefits due to wage and benefit increases offset by annual pension adjustments.
• Animal Control (FY 2023-24 ACFR: page 162 & 163) Operating revenues increased by $0.1 million mainly due to an increase in animal service contract changes for Dinuba and Farmersville.
Operating expenses increased by $0.4 million mainly due to an increase in salaries and benefits of $0.6 million due to wage and benefit increases and annual pension adjustments with decreases in maintenance and operations expenses of $0.2 million consisting of allocated expenses and services provided of $15K, capital related activity of $47K, bad debt expense of $65K, utility expenses of $25K, equipment of $6K, and computer software support of $6K.
Animal Control received a transfer in (subsidy) of $1.8 million ($1.2 million operations + $0.6 million debt) from the general Fund.
• Internal Service Funds (FY 2023-24 ACFR: page 168 - 171) There are several funds designed to set aside resources to pay for replacement of vehicles and computers as well as insurance costs. Fiscal Year 2023-24 revenues exceeded expenditures by $3.3 million which leaves fund balances of $51.7 million. Asset contributions totaled $1.2 million for Fiscal Year 2023-24 which included vehicle replacements, computer replacements, equipment, and software.
There are three business funds that have Council authorized subsidies, the Convention Center ($1.2 million operations + $0.3 million capital set-aside + $1.1 million debt), Animal Control ($1.2 million operations + $0.6 million debt), and Baseball ($0.3 million operations + $0.2 million capital set-aside) which are shown on the financial statements and notes as transfers. Subsidies are not paid back. All other funds receive an advance when revenues don’t cover operations. Advances are made from the General Fund which requires reimbursement and charges the investment rate plus 1%. All advances are shown in the ACFR on page 75.
Summary
Governmental Funds had a change in fund balance of $48.6 million, Emergency Reserves continue to meet the policy level of 30% of operating expenditures with a balance of $22.7 million, and the Business Type Funds (excluding the Internal Service Funds) had an overall change in net position of $17.2 million. In addition, fiscal year 2023-24 met the City Council budget goals of gradually rebuilding the organization by restoring resources, increasing funding levels for Capital Improvement Projects, increasing resources directed at maintaining City facilities, increasing Emergency Reserves, and handling increasing pension costs.
Overall, the City is in a good financial condition that will help the organization withstand any future recession.
The Fiscal Year 2023-24 Annual Comprehensive Financial Report (ACFR) is available on the City Website at the following link: <https://www.visalia.city/civicax/filebank/blobdload.aspx?BlobID=57047>
Fiscal Impact:
N/A
Prior Council Action: N/A
Alternatives: N/A
Recommended Motion (and Alternative Motions if expected):
recommendation
I move to accept the Fiscal Year 2023-24 Annual Comprehensive Financial Report (ACFR).
end
Environmental Assessment Status: N/A
CEQA Review: N/A