Agenda Item Wording:
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Receive the City of Visalia Annual Comprehensive Financial Report (ACFR) -Receive a presentation on the report and accept it for the 2024-25 fiscal year.
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Deadline for Action: 1/20/2026
Submitting Department: Finance and Technology Services
Contact Name and Phone Number: Kari Williams, Financial Analyst, kari.williams@visalia.gov, 559-713-4298
Department Recommendation:
It is recommended that the City Council receive a presentation on the report, acknowledge receipt of the ACFR for the year ended June 30, 2025, and provide comments as appropriate.
Background Discussion:
The attached Fiscal Year (FY) 2024-25 ACFR represents the City’s financial, operational, and current economic condition for the fiscal year ending June 30, 2025. 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 FY 2024-25 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, 2025, 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 was one audit finding for fiscal year 2024-25.
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, 2025, 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 39 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. 101, Compensated Absences
The objective of this Statement is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences. That objective is achieved by aligning the recognition and measurement guidance under a unified model and by amending certain previously required disclosures. The provisions of this statement are effective for fiscal year 2024-25. The City has implemented this statement for FY ending June 30, 2025 which affected the financial statements.
GASB Statement No. 102, Certain Risk Disclosures
The objective of this statement is to provide users of government financial statement with essential information about risk related to a government’s vulnerabilities due to certain concentrations or constraints. The provisions of this statement are effective for fiscal year 2024-25. The City has implemented this statement for FY ending June 30, 2025. There was no effect on the financial statements as a result of implementing this statement, as there were no disclosures applicable to the City.
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.
2024-25 General Fund Summary
Fiscal year 2024-25 had growth in Visalia’s General Fund major revenue categories of Sales Tax, Property Tax, and Transient Occupancy Tax. At June 30, 2025, the California consumer price index stood at 3.0% and employment in the state continued to show signs of slowing as the unemployment rate had climbed to 5.4%, an increase from the June 30, 2024 rate of 5.2%. Nationally, employment remained steady as the national unemployment rate was at 4.1%, nearly at the natural unemployment rate of 4% that the Federal Open Market Committee wants to see.
Fiscal year 2024-25 ended the year with an overall increase of $3.0 million in the total economic-sensitive revenue category for the General Fund as shown in Table 2 - Economic Sensitive Revenues. Most of this increase is from property tax which had a $2.7 million increase over the prior year.
Table 2 - Economic Sensitive Revenues
(as shown in the Financial Statements)
Sales tax for the year rebounded from last year’s contraction, ending fiscal year 2024-25 with a 2.2% increase. The addition of new businesses throughout the City and within the growing industrial park help contribute to the growth. The main areas of the increase in sales tax for Visalia were general retail (department stores, apparel stores, furniture/appliance stores) which grew 2.30%, food products (restaurants, food markets, liquor stores) which grew 3.75%, and transportation (new and used auto sales, service stations) which had a slight increase of 0.5%. Property tax continued its trend increasing 7.9% as growth in property values remained strong; new development occurred; and the housing market continued to offer premium price levels. Travel stays to the area continued to grow for the year as there was an increase of 4.4% in transient occupancy Tax (TOT) revenue. Contributing to this growth was the implementation of new TOT online payment software as well as increased collection efforts in the short-term rental sector. Franchise Fee revenue saw a significant decrease of 19.5% when compared to the prior fiscal year mainly due to natural gas franchise fee payments. According to the Southern California Gas Company, the decrease was the result of a decrease in usage and price procurement when compared to the unprecedented levels seen in 2023. Decreases were seen across most jurisdictions. Business license revenue decreased 3.8% when compared to last year as the implementation of a new online business license billing and receipt system resulted in adjustments that occurred due to the transition of systems.
Visalia has 13,990 licensed businesses operating in the City, a net increase of 517 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 nearly no change in fund balance and therefore no surplus. This was mainly due to the implementation of Governmental Accounting Standards Board Statement No. 101 (GASB 101), which is a required accounting change that updates and standardizes the recognition and measurement guidelines for compensated absences (employee earned vacation and sick time). The implementation of GASB 101 resulted in a General Fund transfer out (other financing use) of $3.88 million to reinstate the prior year plus an additional operating expense of $0.5 million for FY 2024/25 to the compensated absences fund. Without this required accounting change, the General Fund would have had a surplus of $4.28 million.
Table 3 - General Fund Statement of Revenues & Expenditures (in millions)
Although there was no surplus this year due to the implementation of GASB 101, there was growth in a few of the main General Fund revenue categories as discussed earlier. In addition, the General Fund saw growth in charges for services which was up $2.6 million as engineering and subdivision fees were up $2 million and charges for fire strike team services were up $0.5 million. Furthermore, uses of money and property (interest income) was up $0.3 million as the average earnings interest rate was 3.82% for the year as compared to 3.37% for the prior year. However, expenditures in the General Fund grew $17.6 million over the previous fiscal year. Increases of $9.4 million occurred in salaries and benefits as contracted wage increases occurred, longevity pay was implemented, pension costs grew, health benefit costs increased, and vacancies were filled. Capital expenditures vary from year to year but grew $5.6 million this fiscal year as projects progressed. Finally, operating expenditures had increases of $2.6 million as costs continue to rise.
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). Economists are speculating that the national economic outlook for 2026 is one with slowing Gross Domestic Product (GDP) growth with inflation cooling as the Federal Open Market Committee (FOMC) continues to make cuts to the federal funds rate. However, outlook predictions can easily be affected by trade tensions, uncertainty with tariffs, and federal policies. These issues affect the economy locally as they have ramifications 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 $86.6 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 (2024-25 ACFR pg 89):
Ø Nonspendable fund balance - $2.0 million for items such as inventory, prepaids, deposits, supplies, long term receivables and advances to other funds.
Ø Restricted fund balance - $18.3 million for ARPA capital expenses.
Ø Committed fund balance - $25.4 million for Council authorized encumbrances (contracts awarded that are not paid out) and specific purposes such as the emergency reserve (currently at $24.0 million, 27.5% of the General Fund’s operating costs).
Ø Assigned fund balance - $38.2 million for advances to custodial funds, capital projects that have been budgeted but not started, CalPERS unfunded liability payment for FY 2025-26 and the Successor Agency Note.
Ø Unassigned fund balance - $2.7 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 F=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.
As shown in Table 4 - General Fund Emergency Reserves, the emergency reserves ending balance for FY 2024-25 was at $24.0 million (27.5%) which is slightly less the Council policy level of 30% of operating expenditures.
Table 4 - General Fund Emergency Reserves
Other Governmental Funds
• The Measure N fund (FY 2024-25 ACFR: page 34 & 38) 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 $20.9 million. Total expenditures were $15.4 million including transfer in of $24K and transfer out of $0.2 million. The Measure N Fund’s balance increased $5.3 million to $42.2 million.
• The American Rescue Plan fund (FY 2024-25 ACFR: page 34 & 38) is used to account for the American Rescue Plan Act federal grant funding. Monies can only be used according to the plan guidelines. The final reporting to close out the fund has been completed and the fund balance is zero.
• The Transportation fund (FY 2024-25 ACFR: page 35 & 39) 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 $4.6 million to $36.0 million as a result of revenues exceeding capital projects for the year.
• The Civic Center fund (FY 2024-25 ACFR: page 35 & 39) 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 decreased $0.5 million mainly due to capital expenses of $4.8 million off set by interest earnings of $4.3 million which includes fair market gains.
• All Other Governmental Funds (FY 2024-25 ACFR: page 35 & 39) (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 $69.0 million in revenue and have a combined Fund Balance at year-end of $172.5 million. The larger funds in this category include special service districts at $18.2 million, Measure T Fire at $8.1 million, Measure T Police at $10.9 million, Measure R local at $19.4 million, Highway Users at $18.5 million, recreational facilities at $12.1 million, housing & community grants at $27.3 million, Housing Successor Agency at $10.2 million and government facilities impact fee at $11.6 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 46 and 47) 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 44 & 46) Operating revenues increased $1.7 million. Revenues had increases in trunk line capacity fees of $1.0 million, front footage fees of $0.2 million, septage receiving fees of $0.1 million, residential fees of $0.1 million, commercial fees of $0.3 million, and services provided of $0.3 million, offset by a decrease in industrial fees of $0.3 million. Operating expenses increased by $3.6 million mainly due to increases in maintenance and operations of $3.5 million which had increases in utility expenses of $0.1 million, allocated expenses and services provided of $0.3 million, capital related activity of $2.6 million, chemicals of $0.2 million, equipment maintenance of $0.1 million, dump charges of $0.1 million and computer software support of $0.1 million. Increases were also seen in salaries and benefits of $0.1 million as the result of wage and benefit increases and annual pension adjustments.
• Storm Sewer Maintenance (FY 2024-25 ACFR: page 44 & 46) Operating revenues of $1.4 million were consistent with the prior year. Operating expenses increased by $0.2 million including increases in salaries and benefits of $0.1 million as the result of wage and benefit increases and annual pension adjustments and increases in maintenance and operations of $0.1 million for allocated expenses and services provided.
• Solid Waste (FY 2024-25 ACFR: page 44 & 46) Operating revenues of $24.1 million were consistent with the prior year. Operating expenses increased by $4.2 million due to increases in salaries and benefits of $2.1 million as the result of wage and benefit increases and annual pension adjustments, depreciation expenses of $0.1 million, and maintenance and operations of $2.0 million mainly due to allocated expenses and services provided of $1.2 million, capital related activity of $0.9 million, offset by a decrease in bad debts of $0.1 million.
• Transit (FY 2024-25 ACFR: page 44 & 46) Operating revenues increased $8.1 million from last year. The majority of the increase was operating grant revenue of $7.2 million due to the timing of when the City receives the grant funding and receiving more in transit assistance grant funding which can fluctuate from year to year. Increases were also seen in Sequoia Shuttle National Park reimbursement of $0.7 million, and farebox and ticket sales of $0.3 million, offset by a decrease in CNG sales and carbon credits of $0.1 million. Operating expenses increased by $8.2 million mainly due to increases of $7.9 million in maintenance and operations including new vendor providing bus services (RATP Dev USA Inc.) of $7.4 million, CNG fuel of $0.1 million, capital related activity of $0.2 million, and allocated expenses and services provided of $0.2 million. Increases were also seen in depreciation expense of $0.2 million and salaries and benefits of $0.1 million as the result of wage and benefit increases and annual pension adjustments.
Non-Major Funds
• Convention Center (FY 2024-25 ACFR: page 164 & 165) Operating revenues increased by $0.2 million. Increases were mainly seen in conference room rental, equipment rental, bar sales, and security services of $0.2 million. Operating expenses increased by $0.5 million mainly due to increases in maintenance and operations of $0.4 million including increases in allocated expenses and services provided of $0.2 million, security services of $0.1 million and utilities of $0.1 million due to higher event activity. An increase was also seen in salaries and benefits of $0.1 million as the result of wage and benefit increases and annual pension adjustments.
• Airport (FY 2024-25 ACFR: page 164 & 165) Operating revenues of $2.4 million were consistent with the prior year with an increase in grant funding of $0.1 million and a decrease in fuel sales of $0.1 million. Operating expenses increased by $0.2 million in salaries and benefits as the result of wage and benefit increases and annual pension adjustments.
• Building Safety (FY 2024-25 ACFR: page 164 & 165) Operating revenues increased by $0.6 million due to an overall increase in construction permits compared to prior years activity. Operating expenses decreased by $0.4 million mainly in maintenance and operations consisting of allocated expenses and services provided of $0.3 million and computer software support of $0.1 million. Salaries and benefits were consistent with the prior year including minor fluctuations as the result of wage and benefit increases and annual pension adjustments.
• Animal Control (FY 2024-25 ACFR: page 164 & 165) Operating revenues increased by $0.4 million mainly due to an increase in animal service contract charges of $0.3 million for Dinuba, Exeter and Farmersville and $0.1 million for grant funding for assistance to owners for reclaiming their pet. Operating expenses increased by $0.1 million mainly due to grant expenses of $0.1 million consisting of services for animals including daily boarding and impound fees, vaccinations and spay/neuter fees. Salaries and benefits were consistent with the prior year including minor fluctuations as the result of wage and benefit increases and annual pension adjustments.
• Internal Service Funds (FY 2024-25 ACFR: page 170 - 173) There are several funds designed to set aside resources to pay for replacement of vehicles and computers as well as insurance costs. Fiscal Year 2024-25 expenditures exceeded revenues by $1.3 and there was a restatement of $4.7 million due to implementation of GASB 101. Fund balances at year end were $45.7 million.
Summary
There are three business funds that have Council authorized subsidies, the Convention Center ($1.5 million operations + $0.4 million capital set-aside + $1.1 million debt), Animal Control ($1.1 million operations + $0.6 million debt), and baseball ($0.6 million operations + $7.7 million capital) 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 76.
Overall, the City is in a good financial condition that will help the organization withstand future economic downturns.
Fiscal Impact: N/A
Prior Council Action: N/A
Other: N/A
Alternatives: N/A
Recommended Motion (and Alternative Motions if expected):
recommendation
I move to accept the Fiscal Year 2024-25 Annual Comprehensive Financial Report (ACFR).
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Attachments: Annual Comprehensive Financial Report (ACFR) for Fiscal Year Ended June 30, 2025.