Loading...
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 as 0.0 1 ' N1 1 , ! ' , ' t: : , 1 i t i ', r ; '( , 'i ' 1 :i :{ :, ' i ' , , '] y , > > | ' ' V [' : (: . ! V / ,' , > '1 1 : ' : '.' i 1 1 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.