HomeMy WebLinkAbout1984-01-24; City Council; n/a; Annual Financial Report 1982-83JANUARY 12, 1984
TO: CITY MANAGER
_—!-"
FROM: Finance Director^
ANNUAL FINANCIAL REPORT
INTRODUCTION
The results of the City's operations for 1982-83 are summarized in the City's
annual financial report. The annual report presents data in a form that is most
useful to those who may need to evaluate the City's operations in detail. The
statements follow a relatively strict format and present those figures which are
accepted by the finance community as best representing thhe City's fiscal
operations. This, however, may not be the best format to serve those who must
make management decisions.
This report summarizes much of what is found in the annual report and provides
some historical data which may aid in understanding the economic conditions
surrounding the City.
SUMMARY
The annual financial report presents the City's financial position using six
basic types of funds: General, Special Revenue, Debt Service, Capital,
Enterprise and Internal Service funds. The grouping of Enterprise and Internal
Service Funds is also known as Proprietary funds.
The City's general operations for 1982-83 brought in $13.0 million while the
City spent a total of $12.0 million. The difference between these two numbers
was disbursed in the form of transfers to self-insurance, debt service, or
redevelopment funds. Operations for 1982-83 were only slightly above 1981-82
due to the slow economic conditions in existence almost all year.
In total, City revenues were about $23 million while total expenditures were
about $19.1 million.
The City's cash and investments at Oune 30, 1983 totalled $18.5 million. The
total interest revenue for all funds was $1.8 million.
The following sections discuss the City's operations during 1982-83 in more
depth.
•z.
O GENERAL FUND
h-
<£ Revenues
Z General Fund Revenue for 1982-83 totalled $12,975,000. This was only $239,000
or about 1.9% above the total revenue received in 1981-82 of $12,737,000. This
basically flat revenue curve was the net effect of several factors.
- Property tax growth of $64-0,000 or about 18% from the 1981-82 total of $3.6
million to the 1982-83 total of $4-.3 million. This growth is the result of
reassessment, new construction and property sales that were recorded in
1982-83.
- Flat sales tax revenues between 1981-82 and 1982-83. The 1982-83 sales tax
revenue of $3,974,000 was only 0.9% above the 1981-82 revenue of
$3,941,000. This reflects the generally slow or depressed economy present
throughout California and the nation during this period. Many cities found
that sales revenue declined between these two years whereas Carlsbad
remained at least even.
- State subventions were reduced by about $300,000 or 72% between 1981-82 and
1982-83. The 1982-83 total subventions were only $117,000 compared to more
than $421,000 in 1981-82. This is due to the actions taken by the State to
retain subventions previously distributed to cities. The primary source
lost to the state was vehicle-in-lieu fees.
Construction permit activity increased by about $219,000 or 80% between
1981-82 and 1982-83. Total construction permit revenue reached $490,000 by
the end of 1982-83. The last four months of 1982-83 provided over half of
the total revenue for 82-83. The monthly activity in Oune was the highest
single month in well over two years.
- Interest income declined by over $519,000 between 1981-82 and 1982-83.
Total interest income in 1982-83 reached only $698,000 compared to $1.2
million in 1981-82. This decline was due to two factors, a) the
substantial decline in interest rates and b) the restriction of all
interest earned to special funds or to major trust accounts.
During 1982-83 the City's General Fund revenue was generated primarily by taxes.
Sales tax and property tax lead the way by generating $4.0 million and $4.3
million respectively. Charges for services yielded about $1.4 million and
licenses and permits totalled over $770,000. The chart below shows the relative
size and relation of these sources of income.
GENERAL FUND REVENUE
1882-83 ACTUAL
( All Value. In tl.OOO )
OTHER TAXES 11.OX CHMtocs FOR SERVICE* 10.0*
1413
FINES * rawer* 1 MI231
179
IHTEH OOVT RBV 0.0*
PROPERTY TAX 33.OX427*
( Souro* — 10S3-l Annual topttrt )
Expenditures
1982-83 expenditures for the general fund totalled $12.0 million or about
$292,000 (2.5%) more than the 1981-82 expenditures of $11.7 million. This
relatively small increase reflects the generally tight budget position the City
was faced with during 1982-83, as well as a change in accounting procedures.
The expenditures from the general fund fall into four major categories.
- .General government expenditures for 1982-83 dropped by about $440,000 from
1981-82. The 1982-83 total of $2.2 million reflects the removal of about
$470,000 in lease payments for the Building and Parking Authority. These
expenses are now recorded in specific funds as required by the National
Council on Governmental Accounting. Only minor changes are found in the
other operating departments.
Public safety includes Police, Fire and Building inspection activities.
This major category has seen an increase of about $397,000 or 8.1% over
1981-82. The total 82-83 expenditure of $5.3 million $2.0 million for fire
protection, $2.8 million for police protection and about $480,000 for
building inspections. Police experienced an increase of about $241,000
over 1981-82 due to increased salary costs, vehicle maintenance costs and
general price increases. Fire expenses increased by about $96,000 also
primarily due to salary cost increases, vehicle maintenance costs and other
minor increases.
- Public works spent a total of $1.9 million in 1982-83 compared to about
$1.8 million in 1981-82. This increase is shown primarily in the area of
engineering which charges much of its operating costs to capital projects.
The increase of about 5^47^00 will be reduced to almost zero when all
changes are made this year.
Culture and Recreation includes the Library and Parks and Recreation
operations. This category increased $243,000 or about 10.6% from $2.3
million to $2.5 million. The increase is divided between Parks and
Recreation - $193,000 (14%) and Library - $50,000 (5%). The increase in
Parks and Recreation is primarily due to vehicle maintenance cost
increases, salary increases and other minor cost increases. Library costs
went up primarily due to salary increases and other minor increases.
The following chart summarizes the General Fund expenditures for 1982-83.
Public safety costs account for 44.5£ out of every general fund dollar spent by
the City. Public Works spent another 18^ and Culture and Recreation spent about
21£ leaving about 16.5^ for general city operations such as Planning, Finance,
Personnel, Purchasing, Building Maintenance as well as many other departments.
3
GENERAL FUND EXPENDITURES
1B82-B3 ACTUAL
( In Million Dollar* )
CULTUMC AND I
— 1913 • « Annual
General Fund Historical Data
To put 1982-83 into perspective it is important to review some of the historical
trends we have seen in major revenue or expenditure catagories. Below is a
brief summary of some of these trends.
- Property Tax - During the past seven years, property tax revenue has
increased by $1.5 million or about 5^%. This, however, would have been
substantially greater if it had not been for Proposition 13. As the chart
below shows, Prop. 13 reduced taxes between 1977-78 and 1978-79 by $1.8
million and slowed the rate of tax increases after that date. Any increase
in property taxes after 1978-79 can be attributed to property turn over or
new construction.
PROPERTY TAX REVENUE
1976-77 TO 1982-93
MILLION DOLLARS
5.0
15
3.0
2.5
2.0
1.5
1.0
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0.0
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1976-77 1977-78 1978-79 1979-80 1960-81 1981-92 1982-83
YEAR
Sales Tax - One of the most important sources of general fund revenue is
sales tax. This source is based on the collection of 1% of total taxable
sales inside the City boundaries. During the past seven years, the City
has experienced growth in sales tax from 4-0% down to 0.8%. The past year
experienced the slowest growth of any in the recent past and, very likely
on record.
SALES TAX REVENUE
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0 -
0.5 -
0.0
MILLION DOLLARS 1976-77 TO 1982-83
1976-77 1977-78 1978-79 1979-80
YEAR
1980-81 1981-82 1982-83
Transient Tax - The transient occupancy tax (TOT) is also a major source of
revenue for the City. This source has shown a consistent pattern of growth
over the past seven v^^s, and, alt^nuoh 't is rfeo^nHpnf nnon to'i'-i^r t-ra-Hp
and the economy, has shown no signs of slacking. Although the rate of
increase is declining, the City has been able to offset declined or level
tourism by increasing the total number of rooms available in the City. The
City currently has more than 950 transient rooms available.
TRANSIENT OCCUPANCY TAX REVENUE
1976-77 TO 1982-83
800
750
700
650
600
550
500
450
400
350
300
250
200
150
100
50
0
THOUSAND DOLLARS
1976-77 1977-78 1978-79 1979-80
YEAR
1980-81 1981-82 1982-83
Building Permits - One of the most volatile sources of income is building
permit revenue. This source, as well as others such as Plan Checking fees,
Planning fees and Engineering fees, is particularly sensitive to the
economy and interest rates. The charts below show the history of this
source over the past seven years as well as the month by month activity.
The low monthly activity shown in 1981-82 and early 1982-83 is an
indication of the sluggish economy. However, the activity picks up
substantially in the last few months of 1982-83. This increase has been
carried on into 1983-84.
BUILDING PERMIT REVENUE
1976-77 TO 1982-83
nOJSMO DOLLARS
1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83
BUILDING PERMIT REVERE
1981-82 & 1982-83 (BY MONTH)
1981-82
1982-83
90
80
70
60
50
40
30
20
10
0
THOUSAND DOLLARS
JULY AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUNE
YEAR
Revenue Per Capita - During the past seven years per capita revenue has
increased from $304.9 to $332.4, an increase of 9% or an average of 1.4%
per year. If inflation is taken into consideration, however, per capita
revenue has actually dropped from $304.9 in 1976-77 to $187.2 in 1982-83.
General Fund revenue has seen a decline in buying power on a per capita
basis of about 39% or an average of 7.8% per year.
GENERAL FUND REVENUE PER CAPITA
1976-77 TO 1982-83
TOTAL
REVENUE
CONSTANT
DOLLARS
DOLLARS ( 1976-77 BASE )
290
200
1501 l_
1971-77 1977-78 1878-79 1979-80 1980-81 1981-82 1982-8]
YEAR
( SOURCE - ANNUAL FINANCIAL REPORT AND THE CPI FOR SAN DIEGO 7
w
Expenditures Per Capita - Per capita expenditures have shown an increase of
about $55 or 21.8% over the past seven years. Total General Fund
expenditures per capita .have grown from $251.8 to $306.8, an average
increase of 3.3% per year. Based on figures adjusted for inflation,
however, general per capita expenditures have dropped from $251.8 in 1976-
77 to $172.8 in 1982-83, a decline of 31.4% or an average of 6.1% per
year.
GENERAL FUND EXPENDITURES PER CAPITA
1976-77 TO 1982-83
TOTAL
EXPEND.
CONSTANT
DOLLARS
350
300
250
200
150
DOLLARS
1(76-77 1177-78 1(78-79 1979-80 1980-81
YEAR
Some* - Annual Ffeancla Rapart ond th« CPt for San Ohaa
1(81-82 1(82-83
Employees Per 1,000 Population - City services and products are produced by
employees. The ratio of City employees to population, although not a
perfect indicator, shows whether City staff is growing faster than
necessary or is not keeping up with demand for services. Not all services
can be measured this way but this is a useful approach to general staffing.
In the past seven years, City staff has grown from 226 to 312 employees, an
increase of 38%. However, the per 1,000 population indicator has dropped
from 9.6 to 7.9 or a decline of about 18%.
EMPLOYEES PER 1.000 POPULATION
1876-77 TO 1982-83
CUPLOYtEl
PCX I JIM
EMPLOYEES
Illlll.
1171-77 1177-71 lt/S-79 1I79-H 19W-I1 H11-«2 19«-U
YEAR
S«urc« - Annual Operating 8u4««t
OTHER FUNDS
Although the majority of City operations are funded through the City's General
Fund, there are other sources of revenue and expenditures that are equally as
important. The City maintains Special Revenue Funds to collect data on special
operations such as grants, gas tax, street lighting, and many more. Capital
Funds are maintained to track revenue and expenditures for major capital
projects. The general Capital Construction Fund and Public Facilities Fund are
examples of this type of fund. There are Debt Service Funds for paying general
obligation debts and Enterprise Funds for accounting for the business of
providing water and sewer services to our citizens. The Internal Service Funds
collect data relating to the operation of the self insurance funds and the
vehicle maintenance funds. The charts below show the relationship of the
general fund and other fund types for revenues and expenditures.
TOTAL REVENUE BY MAJOR FUND TYPE
1982-83 ACTUAL
( ValUM In Million Dollar* )
.ENTERPRISE FUNDS 15.7X'3.0
SPECIAL REV FUNDS
CAPITAL FUNDS S.7X1.3
06NERAL FUND M-BXi13
( Souro* - 1082-03 Annual Financial ROBOT! )
Total revenue for all fund types was $23 million. General Fund revenues were
about $13 million or 56.5% of that total. Revenue from other funds totals
about $10 million or about 4-3.5% of all income.
TOTAL EXPENDITURES BY MAJOR FUND TYPE
1882-83 ACTUAL
( Value* In Million Dollars )
ENTERPRISE FUNDS 14.7X2.8 SPECIAL REV FUNDS 13.1X
GENERAL FUND
( Seuro* — 1882—83 Annual Financial Report )
/o
PUBLIC FACILITIES FEE REVENUE
1979-80 TO 1982-83
700
600
500
400
300
200
100
THOUSAND DOLLARS
1979-80 1980-81 1981-82 1982-83
YEAR
- Sewer Construction funds are now included in the Enterprise Section due to
the creation of a Sewer Enterprise fund. In past years the sewer
construction fund was reported as a Capital Fund.
- Redevelopment is reported as a capital fund this year as required by the
NCGA. 1982-83 is important to redevelopment in that the first tax
increment revenue was received this year. A total of $70,000 was received,
80% recorded in the Capital Project fund, $56,000 and 20% reported in the
Low and Moderate Income fund under the Special Revnue fund type, $14,000.
ENTERPRISE FUNDS
The City has two enterprise operations, the Water and the Sewer Funds. The
Water Fund has been operated as an enterprise from the beginning. The Sewer
Fund, however, is a new enterprise fund created in 1982-83. The Sanitation and
Sewer Construction fund were merged into one entity in 1982-83 to allow more
proper accounting for the sewer systems revenues and expenses. Within the
enterprise, separate accounts are kept for the operating and capital portions of
the fund. The following are a few highlights with regard to Enterprise Funds.
- Water revenue from the sale of water fell to $1.6 million from $1.7
million, a decline of about $73,000 or 4.3%. This decline is due to
reduced consumption of water by the City's customers.
- The Water Enterprise experienced a loss of $76,000 in 1982-83 due to rapid
rate at which water costs escailated. The 1983-84 rate structure and
agreement with the Costa Real Municipal Water District will eliminate this
problem. *
- Sewer operations for 1982-83 reflect a net income of $859,000. This,
however, is primarily capital related revenue and should not be assumed to
be available for operations. The ending fund balance for operations is
,$359,000 as shown on the Enterprise Fund Combining Balance Sheet.
Sewer Construction funds available at year end total $752,000. These funds
will be assigned to capital projects as part of the Capital Improvement
Program process.
INTERNAL SERVICE FUNDS
The City has two self insurance funds covering Workers' Compensation and
Liability Insurance programs. Also the City operates a central garage which is
accounted for as an Internal Service Fund.
The Workers' Compensation fund had a total fund balance at Dune 30, 1983 of
$551,000. During the year, the Council authorized transfers into the
Workers' Compensation Fund totalling $50,000. This brings the total
contributed from the General Fund to $500,000.
- The General Liability Fund had a total fund balance at Oune 30, 1983 of
$550,000. During the year the Council authorized transfers into the
liabiltiy fund totally $250,000. This brings the total contributed from
the General Fund to $700,000.
- The Central Garage fund was established during 1982-83 to manage and
maintain the City's fleet of vehicles. The fund is split into two peices,
the maintenance and operations division and the vehicle replacement
division. The charges being made to departments for the maintenance of
vehicles includes a factor for depreciation and replacement which will go
into the replacement division accounts for that purpose.
CASH
The City had about $18.5 million in cash or investments at year end. A review
of the City's cash position at Oune 30, 1983, shows that all available cash plus
a portion of the City's float (that portion of cash which is obligated due to
checks written but not issued or cleared through the bank account) was invested
in one of the City's various investment options. The $18.5 million of cash was
invested as shown in the chart below.
Total expenditures from all sources was about $19 million. General Fund
expenditures of $12 million were about 63% of that total. The remaining $7
million was spent from other funds. —
A
SPECIAL REVENUE FUNDS
There are a few major factors in the Revenue and Expenditure profile for special
revenue funds that should be noted:
- Gas Tax revenue increased by about $96,000 between 81-82 and 82-83. This
is entirely due to increased revenue at the State level.
- State grant revenue increased dramatically from about $76,000 in 1981-82 to
$1.3 million in 1982-83. This was primarily due to grants for the Buena
Vista Lagoon Project and interest accrued on these funds. There were also
other grants such as the Senior's Van Program and Library's California
Library Services Act funds.
DEBT SERVICE FUNDS
Debt Service Funds include Sewer and Library General Obligation Bonds and, due
to a ruling by the National Council of Governmental Accounting (NCGA), the
Parking and Building Authority Bonds. According to the NCGA, any entity that is
substantially controlled by the City must be reported as part of the City's
financial transactions. Therefore, this year and in future years the City's
annual financial report will include the Parking and Building Authority Debt
Service Funds.
CAPITAL FUNDS
The Capital Construction funds show substantial changes in both revenue and
expenditures when compared to the prior year. Although 1882-83 was not a
landmark year for building by developers or the City, it did show some
improvements over 1981-82.
- Public Facilities fee revenue climbed to $767,000 in 1982-83 compared to
$427,000 in 1981-82. This is an increase of $240,000 or about 45%. This
is primarily due to the increase in building activity experienced in the
latter half of 1982-83. The chart below shows how the total 1982-83
revenue for Public Facilities Fees (excluding interest) to prior years.
(The Public Facilities fee was established in 1979-80.)
INVESTMENT PORTFOLIO - BY TYPE OF INVESTMENT
JUNE 3O.1983
( Values In Million Dollars )
LOCAL AGENCY tc MISC 32.3X0.2
BANKERS ACCEPTANCE 16.1%3.1
FEDERAL AGENCY NOTES S.2X1
REPURCHASE AGREMNTS 1.6%
0.3
\ CERTIFICATES 44.8X
8.6
( Source — 1982—83 Annual Financial Raport )
The Council will have an opportunity to review the City's Cash Management
Program in more detail at a Council Workshop session.
January 23, 1984
TO: CITY MANAGER \ /
_A£-/FROM: Finance Director~'\~/V
RESPONSE TO THE ACCOUNTANTS MANAGEMENT LETTER
Conrad and Associates conducted an audit of the City of Carlsbad's Annual
Financial Report for the period ending June 30, 1983. This audit included
reviews of internal controls and the City's data processing system. The
following is in response to these memos.
Computer System - The Accountant's review of the computer system resulted in
four recommendations:
1. The City should investigate possible litigation against the company
responsible for providing the software presently in use.
2. The City should consider replacing the existing software rather than
re-programming and modifying existing software.
3. The City should form a Systems.Development Team to review computer
related problems and questions.
4. The City should form an independent EDP Department separate from the
Finance Department.
In response to these recommendations, the City has accomplished or at least made
progress on every point. The City has taken the following actions:
1. The Finance Director is preparing data for the City Attorney for
possible litigation against the software vendor.
2. The Finance Director has recommended a course of action that would
repair or replace the existing software. The Council will have an
opportunity to review this recommendation on January 24, 1984.
3. A Computer Advisory Committee has been formed to assist the City in
establishing policies and reviewing requests for computer systems. The
committee is comprised of the Library Director, Police Chief, City
Engineer, Utilities Director, and Finance Director.
4. The data processing function has been set up as a separate cost center
in the 1983-84 Budget and the day-to-day management responsibility has
been moved to the Central Services Department.
In a further management letter, the accountant covered issues raised during the
audit process. The following is a summary of the accountant's findings and our
response.
1. Finding
Presemt computer software does not allow budget adjustments to be shown
as modifications to the original budget. The adjusted amount is
reported without a trail indicating the revisions made to the original
budget.
Response
The staff agrees with this finding and will include this capability in
specifications for modifications to the existing system or new
software.
2. Finding
A prior year's recommendation indicated that the internal control
procedures in the invoice processing system needed improvement. There
was no evidence that vendors' invoices were properly verified prior to
payment. The auditor suggested the use of a stamp which would indicate
that the invoice had be compared to the PO, extensions checked, etc.
Response
This stamp is in use in the processing system in two out of three
places. We will institute the control stamp in the third part of the
system at this time. The lack of a stamp on the face of the document
is not an indication that proper checks have not been made, it does,
however, remove the capability of the auditor to verify that the
employee is carrying out the proper procedures.
3. Finding
In the Payroll/Personnel system, the auditors found that 20 out of 87
payroll files checked did not have a supervisor's signature on pay
increase authorization forms. And in 15 out of 87 payments tested,
individuals were being paid at rates that did not agree with rate
schedules.
Response
These two findings are under investigation by our internal auditor. A
full report will be made when the internal audit is completed. It does
appear, however, that the accountant's finding does not take into
consideration various types of out of range pay such as longevity or
temporary out of class assignments.
v:'
Finding
Access to computer hardware programs and data were not adequately
controlled. The computer and data files are located in an area where
Finance Department files are kept.
Response
The Data Processing budget includes funds to provide a security lock
and window in the computer room door. These will be installed as soon
as possible. The Finance Department files will be moved to the modular
office being purchased to house the Finance Department.
5. Finding
The accountant recommends that an internal service fund be established
to account for the activity of the City's Central Stores function.
Response
We agree that an internal service fund is the proper way to account for
a true Central Stores activity. The staff recommends, however, that
the internal service fund system of accounting not be established until
the City institutes a full Central Stores system. The new Purchasing
warehouse will be the key to establishing a true Central Stores system.
Until then, the activity in Central Stores will be limited to office
supplies only and does not constitute a major accounting problem.
Finding
The auditor indicated that many work orders shown as construction in
progress have been opened for an extremely long time.
Response
The Finance Department staff reviewed this list with both the Utilities
and Engineering staff and could close these work orders until the
appropriate action was taken by these departments. Based on the
auditors comments, Finance will take whatever action is required to
close all old outstanding work orders.
7. Finding
The auditor indicated that the City Water Department was not properly
accounting for deposits for installation of meters, services and
hydrants. The proper practice is to record appropriate amounts of
revenue and expense for each installation rather than only recording
the net effect.
Response
Early in 1982-83, the Finance staff adopted the auditor's
recommendations for changing the system of accounting for connections.
This new system was in effect for almost, if not ali, of 1982-83.
We appreciate the comments and assistance of the Conrad and Associates staff.
Their review of internal controls and their audit of the City's financial report
is of great importance to the Finance Department and the City. We wish to thank
Conrad and Associates for their professional assistance and conduct of this
year's audit.