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Home My WebLink About2010-03-09 City Council Item No. 15CITY OF LADE c iLSI110 DREAM EXTREME. REPORT TO CITY COUNCIL TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: ROBERT A. BRADY CITY MANAGER DATE: MARCH 9, 2010 SUBJECT: ANNUAL FINANCIAL REPORTS FOR THE FISCAL YEAR ENDING JUNE 30, 2009 Background The City's auditors completed their audit field work on February 22, 2010 for the fiscal year ending June 30, 2009. This is the fifth year that the auditors, Diehl, Evans & Company, have performed the audit services for the City. The audit reports include the City and its component units. The Lake Elsinore Redevelopment Agency financial statements were presented to the Redevelopment Agency Board on December 30, 2009 in a special report and as a Redevelopment Agency agenda item at the January 12, 2010 board meeting. The following annual reports are being presented: • Comprehensive Annual Financial Report (CAFR) • Lake Elsinore Public Financing Authority Financial Statements • Lake Elsinore Recreation Authority Financial Statements • Audit Information Letter • Report on Internal Controls • Management Letter • Appropriations Limit Worksheet No. 6 with Independent Accountant's Report on Agreed-upon Procedures Applied to Appropriations Limit Worksheets The above reports are bound and have been included with this agenda separately. Separate staff reports were prepared for the Public Financing Authority and Recreation Authority financial statements. AGENDA ITEM NO. 15 Page 1 of 14 Annual Financial Reports March 9, 2010 Page 2 Discussion Comprehensive Annual Financial Report (CAFR) The "Management's Discussion and Analysis" section on pages 3 to 14 of the Comprehensive Annual Financial Report provides a narrative overview and analysis of the financial activities of the City of Lake Elsinore for the fiscal year ended June 30, 2009. A copy of this report is attached for your review. Audit Information Letter No exceptions were noted. Report on Internal Controls No exceptions were noted. Management Letter During the audit, the auditors noted certain housekeeping type matters involving the internal control structure and its operation that are typically communicated in a "management letter". There were three items noted and the response of staff is included in the letter. Appropriations Limit Worksheet No, 6 With Independent Accountant's Report on Agreed-upon Procedures Applied to Appropriations Limit Worksheet The auditors performed agreed-upon procedures to ensure that the City's appropriation limit calculations were correctly calculated and adopted in accordance with Article X11113 of the California Constitution and adopted by City Council. No exceptions were noted. Fiscal Impact There is no fiscal impact. Recommendations It is recommended that City Council receive and file these reports Prepared by: James R. Riley Director of Admi str ive Services Approved by: Robert A. Bra City Manager Page 2 of 14 CITY OF LAKE ELSINORE, CALIFORNIA MANAGEMENT'S DISCUSSION AND ANALYSIS June 30, 2009 As management of the City of Lake Elsinore, we offer readers of the City of Lake Elsinore's financial statements this narrative overview and analysis of the financial activities of the City of Lake Elsinore for the fiscal year ended June 30, 2009. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found at the beginning of the Comprehensive Annual Financial Report. FINANCIAL HIGHLIGHTS ■ The assets of the City of Lake Elsinore exceeded its liabilities at the close of the most recent fiscal year by $166.9 million (net assets). • The government's total net assets decreased by $14.2 million. The decrease is primarily attributable to significant decreases in property taxes, sales taxes and investment income. • At the end of the current fiscal year, unreserved fund balance for the General Fund was $8.8 million or 30.7 percent of total General Fund expenditures. City Council has designated $6.3 million of the $8.8 million for future contingencies. ■ The City of Lake Elsinore's total debt had a net decrease of $2.5 million during the current fiscal year. The net decrease includes $4.2 million of payments on long-term bonds, developer agreements, loans and capital leases. The increases included $1.7 million for insurance premium deposit payable; other post employment obligations compensated absences. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis are intended to serve as an introduction to the City of Lake Elsinore's basic financial statements. The City of Lake Elsinore's basic financial statements comprise of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the basic financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. See independent auditors' report. -3- Page 3 of 14 CITY OF LAKE ELSINORE, CALIFORNIA MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City of Lake Elsinore's finances, in a manner similar to a private-sector business. The statement of net assets presents information on all of the City of Lake Elsinore's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City of Lake Elsinore is improving or deteriorating. The statement of activities presents information showing how the government's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). The governmental activities of the City of Lake Elsinore include general government, public safety, community development, public services and community services. The government-wide financial statements can be found on pages 16 - 17 of this report. Fund Financial Statements Afoul is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Lake Elsinore, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Lake Elsinore can be divided into two categories: governmental funds and fiduciary funds. Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental funds financial statements focus on near-term inflows and outflows ofspendable resources, as well as on balances ofspendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. See independent auditors' report. -4- Page 4 of 14 CITY OF LAKE ELSINORE, CALIFORNIA MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 Governmental Funds (Continued) Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-tern impact of the government's near-tern financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Lake Elsinore maintains various individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund, the Redevelopment Agency Special Revenue Fund, the Redevelopment Agency Debt Service Fund, the Public Financing Authority Debt Service Fund, the Assessment Districts Capital Projects Fund and the Redevelopment Agency Capital Projects Fund, which are considered to be major funds. Data from other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these other governmental funds is provided in the form of combining statements elsewhere in this report. The City of Lake Elsinore adopts an annual appropriated budget for its General Fund, certain Special Revenue and certain Capital Projects Funds. A budgetary comparison statement has been provided for the General Fund and certain Special Revenue Funds to demonstrate compliance with this budget. The basic governmental fund financial statements can be found on pages 18 - 19 and 22 - 23 of this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefits of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the City of Lake Elsinore's own programs. The basic fiduciary fund financial statements can be found on page 25 of this report. Notes to the Basic Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the basic financial statements can be found on pages 26 - 80 of this report. See independent auditors' report. -5- Page 5 of 14 CITY OF LAKE ELSINORE, CALIFORNIA MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 Other Information hi addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information. Required supplementary information can be found starting on page 81 of this report. The combining statements referred to earlier in connecting with other governmental funds are presented immediately following the required supplementary information. Combining and individual fund statements and schedules can be found on pages 87 - 134 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. In the case of the City of Lake Elsinore, assets exceeded liabilities by $166.9 million at the close of the most recent fiscal year. Condensed Statements of Net Assets Governmental Activities 2008 2009 As Restated Assets: Current and other assets $ 157,442,644 $ 188,077,801 Capital assets 155,645,858 140,492,299 Total Assets 313,088,502 328,570,100 Liabilities: Long-term debt outstanding 129,225,454 131,708,736 Other liabilities 17,004,860 15,774,391 Total Liabilities 146,230,314 147,483,127 Net Assets: Invested in capital assets, net of related debt 141,550,858 125,539,928 Restricted 122,099,858 151,937,522 Unrestricted (96.792.528) (96,390,477) Total Net Assets $ 166.858.188 181.086.973 See independent auditors' report. -6- Page 6 of 14 CITY OF LAKE ELSINORE, CALIFORNIA MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 GOVERNMENT-WIDE FINANCIAL ANALYSIS (CONTINUED) For the City of Lake Elsinore, 84.8% of the net assets reflect its investment in capital assets (e.g., land, buildings, machinery, equipment, and infrastructure); less any related debt used to acquire those assets that is still outstanding. The City of Lake Elsinore uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City of Lake Elsinore's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City of Lake Elsinore's net assets (73.2%) represents resources that are subject to external restrictions on how they may be used. The deficit balance of approximately -$96.8 million in unrestricted net assets reflects the fact that governmental activities raise resources based on when liabilities are expected to be paid, rather than when they are incurred. Most governments do not have sufficient current resources on hand to cover current and long term liabilities. The deficit in and of itself should not be considered an economic or financial difficulty; however, it does measure how far the City has committed the government's future tax revenues for purposes other than capital acquisition. The government's total net assets decreased by $14.2 million. The decrease is primarily attributable to significant decreases in property taxes, sales taxes and investment income. See independent auditors' report. -7- Page 7 of 14 CITY OF LAKE ELSINORE, CALIFORNIA MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 GOVERNMENT-WIDE FINANCIAL ANALYSIS (CONTINUED) Condensed Statements of Revenues, Expenses and Changes in Net Assets Revenues: Program Revenues: Charges for services Operating grants and contributions Capital grants and contributions General Revenues: Taxes: Property taxes Sales taxes Franchise taxes Other taxes Fines, forfeitures and penalties Investment income Miscellaneous Total Revenues Expenses: General government Public safety Community development Public services Community services Interest on long-term debt Total Expenses Change in net assets Net assets at beginning of year, as restated Net assets at end of year See independent auditors' report. -8- Governmental Activities 2009 2008 7,374,620 $ 12,268,274 6,482,888 4,109,188 - 2,159,798 31,590,868 6,414,419 1,824,890 751,794 937,506 9,334,141 5,768,257 33,307,785 8,148,355 1,768,178 770,024 918,619 14,271,312 7,193,803 70,479,383 84,915,336 10,562,122 13,139,389 31,976,146 14,123,738 4,737,856 10,168,917 8,195,897 14,293,269 32,342,175 10,861,673 6,013,006 10,145,830 84,708,168 81,851,850 (14,228,785) 3,063,486 181,086,973 178,023,487 166.858.188 181 086.973 Page 8 of 14 CITY OF LAKE ELSINORE, CALIFORNIA MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 and Proeram Revenues - Governmental Activities m Expenses a Program Revenues Revenues by Sources - Governmental Activities Miscellaneous 5,768,257 Charges for services hivesttnentincome 80/0 7,374,620 9,334,141 11% 13% Fines, fotfcituros Operating grants and penalties and contributions 937,506 6,482,888 1 °/a 9% Other taxes, ti 751 794 , 1% Capital grants and contributions 4 Franchise taxes e ,890 1,82 0°fo 3% Salmi taxes rv See independent auditors' report. -9- 6,414,419 - 9% Fropertytaxes 31,590,868 45% Page 9 of 14 General Public safety Community Public Community Interest on government development sa~rices services long-teem debt CITY OF LAKE ELSINORE, CALIFORNIA MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 FINANCIAL ANALYSIS OF THE GOVERNMENT'S FUNDS As noted earlier, the City of Lake Elsinore uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Government Funds The focus of the City of Lake Elsinore's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Lake Elsinore's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City of Lake Elsinore's governmental funds reported combined ending fund balances of $185.3 million, a decrease of $35.8 million in comparison with the prior year. Of the $185.3 million ending fund balance, $13.1 million constitutes unreserved fund balance, which is available for spending at the government's discretion. The remainder of fund balance is reserved to indicate that it is not available for new spending because it has already been committed 1) to pay debt service ($64.4 million); 2) to liquidate contracts and purchase orders of the prior period ($4.3 million); or 3) fund balance reserved for noncurrent assets, such as loans receivable, prepaid expenditures, advances to other funds, land held for resale, specific projects and low and moderate income housing ($103.5 million). The General Fund is the chief operating fund of the City of Lake Elsinore. At the end of the current fiscal year, unreserved fund balance of the General Fund was $ 8.8 million, while total fund balance was $17.3 million. As a measure of the General Fund's liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total fund expenditures. Unreserved general fund balance represents 30.7% of total General Fund expenditures, while total fund balance represents 60.8% of that same amount. See independent auditors' report. -10- Page 10 of 14 CITY OF LAKE ELSINORE, CALIFORNIA MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 FINANCIAL ANALYSIS OF THE GOVERNMENT'S FUNDS (CONTINUED) The fund balance of the City of Lake Elsinore's General Fund decreased by $1.4 million during the current fiscal year. Key factors in this decrease are as follows: • City Council approved $1.2 million of one-time capital expenditures as transfers out of the General Fund to capital project funds. ■ Transfer in from other funds totaled $1.4 million. ■ Expenditures were greater than revenue of approximately $1.6 million. GENERAL FUND BUDGETARY HIGHLIGHTS The difference between the original budget and the final amended budget reflects a $3.1 million net decrease in appropriations, including transfers out and can be briefly summarized as follows: ■ $311,114 decrease in general government activities ■ $ 35,300 increase for public safety ■ $808,940 decrease in community development ■ $711,386 decrease in public services ■ $747,437 decrease to community services ■ $ 33,500 increase in capital outlay ■ $620,700 in decreases in transfers out for one-time capital items. The net decrease between the original and final amended budget reflected the effects of the economic downturn on the City. During the year, expenditures were less than the final amended budget by $1,042,314 due primarily to expenditure savings by our public safety entities and community services. See independent auditors' report. -11- Page 11 of 14 CITY OF LAKE ELSINORE, CALIFORNIA MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets The City of Lake Elsinore's investment in capital assets for its governmental activities as of June 30, 2009 amounts to $155.7 million (net of accumulated depreciation). This investment in capital assets included land, buildings, improvements, machinery and equipment, and infrastructure. The total increase in the City of Lake Elsinore's investment in capital assets for the current fiscal year was 10.8%. Major or notable capital asset events during the current fiscal year included the following: • Dexter Avenue roadway reconstruction ■ Grand Avenue paving/ landscape • Fraser Drive drainage and roadway construction ■ Planet Youth roof replacement • City Park play equipment replacement ■ New infrastructure in Alberhill Hill development area ■ New infrastructure in Canyon Hills development area • Other improvements and maintenance of City-owned streets Capital Assets at Year-End (Net of Depreciation) Governmental Activities 2009 2008 Land $ 5,402,814 $ 5,366,147 Construction in progress 10,341,987 2,523,267 Buildings and structures 15,084,524 15,506,293 Improvements other than buildings 3,993,086 4,203,330 Machinery and equipment 652,556 490,649 Furniture and fixtures 99,642 137,032 Automotive equipment 754,488 733,932 Infrastructure 119,316.761 111,531.649 Totals 155.645.858 140.492.299 Additional information on the City of Lake Elsinore's capital assets can be found in note 3 of this report. See independent auditors' report. -12- Page 12 of 14 CITY OF LAKE ELSINORE, CALIFORNIA MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 CAPITAL ASSETS AND DEBT ADMINISTRATION (CONTINUED) Long-Term Debt At year-end, the City has a number of debt issues outstanding. These issues include $56.5 million of local agency revenue bonds, $52.8 million of tax allocation bonds, $14.1 million of revenue refunding bonds, $2.8 million of disposition and development agreements debt, $.6 million of owner participation agreement debt, $.3 million of loans payable, $.01 million of capitalized lease obligations, and $0.5 million in insurance premium deposit payable and $1.0 in OPEB obligation. Outstanding Debt Governmental Activities 2009 2008 Local agency revenue bonds $ 56,475,000 Tax allocation bonds 52,785,000 Deferred amounts (86,128) Revenue refunding bonds 14,095,000 Disposition and development agreements 2,807,940 Owner participation agreements 633,101 Loans payable 307,542 Capital leases 20,316 Insurance premium deposit payable 537,869 Other post-employment benefit obligation 1,048,397 Compensated absences 601.417 Totals 129.225,454 $ 58,755,000 54,010,000 (93,958) 14,435,000 2,893,059 742,198 356,589 93,478 517,370 $ 131.708.736 Additional information on the City of Lake Elsinore's long-term debt can be found in notes 6 through 8 and note 17 of this report. See independent auditors' report. -13- Page 13 of 14 CITY OF LAKE ELSINORE, CALIFORNIA MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) June 30, 2009 ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES ■ Property taxes are estimated to continue to decrease due primarily to declines in property value related to reassessments, corrections and appeals. The increase in foreclosures has also significantly impacted property tax revenue. ■ The retail sales trends have significantly declined and the projections are expected to continue to decline during the next year. ■ Investment earnings are estimated to remain low due to declining interest rates. These factors were considered in preparing the City of Lake Elsinore's budget for fiscal year 2009-10. REQUEST FOR INFORMATION This financial report is designed to provide a general overview of the City of Lake Elsinore's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Lake Elsinore, Director of Administrative Services, 130 South Main Street, Lake Elsinore, California, 92530, jriley@lake-elsinore.org. See independent auditors' report. -14- Page 14 of 14