HomeMy WebLinkAbout11. Annual Financial Report Memo
AGENDA MEMO
DATE: February 23, 2010
TO:
Mayor and Members of the City Council
FROM:
Office of the City Manager
By: John Michicoff, Director of Finance
SUBJECT: Comprehensive Annual Financial Report
for the fiscal year ended June 30, 2009
RECOMMENDATION
That the City Council of the City of Downey receive and file the Comprehensive Annual
Financial Report (CAFR) for the fiscal year ended June 30, 2009. It is further
recommended that City Management be directed to meet with Council representatives
to develop, for future Council consideration, financial options to further mitigate the
$4,789,000 decrease in revenues not anticipated in the 2009-10 approved budget.
DISCUSSION
Attached is the June 30, 2009 CAFR which is officially transmitted herewith to the City
Council. The CAFR is an extensive report summarizing the financial activities of the
City that occurred from July 1, 2008 through June 30, 2009.
The CAFR is divided into three sections: Introductory, Financial and Statistical. The
Introductory section contains a Letter of Transmittal. For the average reader, this is
probably the easiest part of the report to understand. This letter includes a brief
overview of the City's accomplishments for the fiscal year, objectives for the upcoming
years and how the City controls its finances.
The Financial section contains the opinion issued by the City’s independent auditors.
As in past years, the CAFR received a “clean” opinion meaning that there are no
material irregularities in the operation of the City or in the presentation of the financial
activities. Specific financial information is in the Management's Discussion and Analysis
found on pages 3-15. This narrative discusses the basic financial operations of the City
in a more detailed manner than is found in the Letter of Transmittal. The third major
component in this section is the actual financial statements themselves.
With the financial statement now presented in a more “business-like” fashion, the
Statement of Activities (pages 18 and 19) shows revenues and expenses on a program
(or departmental) type basis. This basis indicates that primary duties of the City (i.e.,
general administration, public safety community services to name a few) are primarily
funded by taxes while business-type activities (water, golf course and transit) are still
more reliant on charges for services.
CITY OF DOWNEY, CALIFORNIA
Comprehensive Annual Financial Report
Page No. 2
The final Statistical section presents data useful in analyzing the City’s financial and
operational history for comparative purposes. Most of the charts cover a seven or ten
year period depending on the objective. Some of the statistics tracked include financial
trends, revenue capacity, and debt capacity which are useful for evaluating the City’s
financial stability. Additional statistics include operating indicators.
GENERAL FUND OVERVIEW
Since the financial statement is presented in a “business-like” fashion, details in the
individual funds are confusing. Most of the significant day-to-day City operations are
tracked in the General Fund and, therefore, the balance of the report will focus on this
fund.
The General Fund records the cost of services enjoyed by the citizens of Downey and
the revenue to support those services. City services such as public safety (police and
fire), community events (i.e., library, senior services, park programs, after school
programs, aquatics), public building and highway maintenance, building, planning and
overall city administration, just to name a few, are cost centers tracked in this fund.
In June of 2009, staff discussed how the troubled economic condition was depleting the
city’s revenue stream, especially sales tax. The financial report confirms staff’s
discussion. Due to the loss of major new car dealers coupled with the overall drop in
consumer spending, the city’s sales tax revenue was down from a budgeted $13.1
million to an actual $9.6 million ($3.5 million or 27% decrease). In addition, several
other revenue sources decreased including construction related revenues (building and
permits fees) and fines and forfeiture revenues.
As revenues began dropping, city management instituted a hiring freeze for non-critical
positions, suspended equipment purchases and implemented several other cost cutting
measures. Since the 2008-09 approved budget was balanced (source of funds
equaling usage of funds) these operational modifications limited the General Fund
deficit to $1.5 million.
2009-10 BUDGET OUTLOOK
With the first six months of the current fiscal year now complete, staff is in a better
position to review revenue and expenditure trends experienced. Unfortunately, the
economic recovery continues to be sluggish although improvement can be seen.
Several revenue sources are projected to be less than previously anticipated. Sales
tax, utility taxes, construction related licenses and permits and motor vehicle fees, just
to name a few, are experiencing material losses.
Comprehensive Annual Financial Report
Page No. 3
The Governor’s proposed budget issued last month estimates that statewide taxable
sales for 2009-10 will decrease by 7.5% from last year. Utilizing available data,
Downey’s projected sales tax revenue should decrease by approximately 7%. As part
of the state’s previous raid on city sales tax (known as the Triple Flip) to pay for state
deficit reduction bonds, the city receives a back-fill referred to as State Sales Tax
Compensation. The calculation of the back-fill depends largely on prior year’s city sales
tax. As these previous sales tax revenues declined significantly, so too will this year’s
Compensation revenue. Staff estimates this revenue source to decrease by 31% from
last year.
Here is a chart depicting some of those revenue losses (in thousands):
Sales Tax $ - 1,910
State Sales Tax Compensation - 1,160
Utility Taxes - 550
Other Taxes - 90
Licenses & Permits - 200
Motor Vehicle in Lieu - 217
Charges for Services - 450
Fines & Forfeitures - 120
Total projected reductions $ - 4,789
In the 2009-10 approved budget, the General Fund projected the use of $2,734,000 in
reserves. With the projected revenue reductions of $4,789,000, potentially the General
Fund would utilize $7,523,000 in reserves.
In response to this current situation, management continues to implement several cost
cutting measures that should save $3,200,000 ($2,000,000 in labor related costs and
$1,200,000 in equipment and liability charges).
If revenue and cost cutting measures materialize as projected, the General Fund would
then utilize $4,323,000 in reserves as follows (in thousands):
2009-10 Approved Budget Deficit $ - 2,734
Projected Revenue Reductions - 4,789
Potential Budget Deficit - 7,523
Projected Cost Cutting Measures 3,200
Potential Budget Deficit, as Adjusted $ - 4,323
Comprehensive Annual Financial Report
Page No. 4
At June 30, 2009, the General Fund had $38.5 million in combined unrestricted
reserves available. An adjusted deficit of $4.3 million will decrease available reserves
to approximately $34.2 million.
FISCAL IMPACT
None to receive and file the Comprehensive Annual Financial Audit (CAFR).
H:\FINANCE\JMichicoff\Council\2008-09 City Annual Financial Report.doc