HomeMy WebLinkAbout; ; 2013-2014 CAFR; 2014-06-30Comprehensive Annual
Financial Report
Fiscal Year Ended June 30, 2014
COMPREHENSIVE ANNUAL
FINANCIAL REPORT
FISCAL YEAR ENDED
JUNE 30, 2014
1635 Faraday Avenue, Carlsbad, CA 92008
Website: www.carlsbadca.gov
Prepared by the Finance Department
Introductory Section Introductory Section
Introductory Section
Introductory Section
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The city covers approximately 39 square miles and has a population of 110,169, with an expected built out population
of 120,000 residents. Industries in the city include a major regional shopping center; a specialty outlet center; a commercial center with upscale retail shops; 35 hotels
offering over 4,000 rooms for tourist lodging; over 20 auto dealers; high technology, multimedia and biomedical businesses; electronics, golf apparel and equipment
manufacturers; several business and light industry parks; and numerous land developers building single and multi-family housing in a variety of community settings.
This report includes financial statements for the city, the
Housing Authority of the City of Carlsbad, the Carlsbad Public Financing Authority, and the Carlsbad Municipal
Water District. Through these entities, Carlsbad provides a full range of services to its citizens and customers including:
Police protection services
Development services
Fire and paramedic services
Street construction and maintenance
Water delivery system
Library and arts programs
Wastewater system
Recreation programming for all ages
Solid waste services
Park lands
Housing programs
In addition to the full range of services normally associated with a municipality, Carlsbad offers programs to help local
residents and businesses. The city’s Housing Authority administers federal housing assistance to 600 low-income
households in Carlsbad and older
residents can take advantage of Carlsbad’s senior citizen programs.
Budget Process
The Carlsbad Municipal Code requires
that the City Manager annually prepare a budget for the City Council with a
message describing important features, and assume responsibility for the budget’s administration after adoption. The budget
process begins in January each year when
the City Council meets to develop goals that help city staff prioritize programs,
projects and services, as well as the resources required to fund them. Once the goals and priority projects are developed, city staff develops operational goals and
work plans based on the City Council’s direction. These goals and work plans
provide the basis for the development of the annual budget. The City Council adopts the formal budget for all funds at the beginning of each fiscal year and may
amend those budgets throughout the year, as necessary.
City of Carlsbad Community Vision
Small town feel, beach community character and connectedness Enhance Carlsbad’s defining attributes - its small town feel and beach community character. Build on the city’s culture of civic engagement, volunteerism and philanthropy.
Open space and the natural environment - Prioritize protection and enhancement of open space and the natural environment. Support and protect Carlsbad’s unique open space and agricultural heritage.
Access to recreation and active, healthy lifestyles - Promote active lifestyles and community health by furthering access to trails, parks, beaches and other recreation
opportunities. The local economy, business diversity and tourism - Strengthen the city’s strong
and diverse economy and its position as an employment hub in north San Diego County. Promote business diversity, increased specialty retail and dining opportunities, and Carlsbad’s tourism. Walking, biking, public transportation and connectivity - Increase travel options through enhanced walking, bicycling and public transportation systems. Enhance mobility through increased connectivity and intelligent transportation management.
Sustainability - Build on the city’s sustainability initiatives to emerge as a leader in green development and sustainability. Pursue public/private partnerships, particularly on sustainable water, energy, recycling and foods.
History, the arts and cultural resources - Emphasize the arts by promoting a multitude of events and productions year round. Cutting edge venues to host world class performances, and celebrate Carlsbad’s cultural heritage in dedicated facilities and programs.
High quality education and community services - Support quality, comprehensive education and lifelong learning opportunities, provide housing and community services for a changing population, and maintain a high standard for citywide public safety. Neighborhood revitalization, community design and livability - Revitalize neighborhoods and enhance citywide community design and livability. Promote a greater mix of uses citywide, more activities along the coastline and link density to public transportation. Revitalize the downtown Village as a community focal point and a unique and memorable center for visitors, and rejuvenate the historic Barrio neighborhood.
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Budgetary control for the city is maintained through its accounting systems. Expenditures may not exceed budgeted figures at the fund level. Monthly reports summarizing the results of operations for the city’s more
significant funds are provided to the City Council.
FACTORS AFFECTING FINANCIAL CONDITION Economic Profile
The University of San Diego (USD) monitors the health of the San Diego economy through its Index of Leading Economic Indicators. The chart below reflects historical movement in the USD’s Leading Economic
Indicators. The index, which measures local stock prices, help wanted advertising, and other pertinent metrics, turned mildly negative (-0.2 percent) in the last month of 2013.
Carlsbad’s economy is tied closely to that of the San Diego
region. For Fiscal Year 2013-14, property taxes decreased by 1.4
percent compared to the prior year, primarily due to one-time
revenues received from the dissolution of the Redevelopment
Agency in Fiscal Year 2012-13. Transient Occupancy Tax
(TOT), a gauge of the health of local tourism, ended Fiscal Year
2013-14 with an 18.8 percent increase over last year. This
increase was due to the additional room inventory, especially the
addition of the 250 room LEGOLAND Hotel, and improving occupancy and daily rates. Sales tax revenues ended Fiscal Year 2013-14 with an increase of 7.4 percent over last year due to the continuing strength in
retail, restaurant and auto sales. Overall, General Fund revenues increased 5.2 percent compared to the prior fiscal year and are projected to increase slightly (2.5 percent) in Fiscal Year 2014-15.
From 1992 to 2008, commercial and industrial development in Carlsbad averaged approximately 1.1 million
square feet per year. As opportunities for new development diminish, commercial and industrial development is tapering off, falling to an average of approximately 162,000 square feet per year over the
next five fiscal years. Large industrial and commercial developments in the next five years include Carlsbad Raceway and Palomar Forum, Dos Colinas Retirement Community, and the Floral Trade Center.
Commercial office space vacancy has witnessed a decline over the past several years, falling from over 30 percent in the last quarter of 2009 to just under 20 percent in the first quarter of 2014. Industrial vacancy fell
to 10.1 percent from 12.4 percent last year. Housing prices in Carlsbad are
following national, state and regional trends. Data on single family
residence (SFR) sales from DataQuick indicate that the median sales price
increased to approximately $720,000 in the first quarter of 2014, an increase
of over 10 percent compared to the same quarter in 2013. According to
Movoto, inventory of units for sale have increased in Carlsbad, from 255
units in April 2013 to 337 units for sale, this April. The total assessed
values in the city are close to $24 billion, an increase of 1.9 percent
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J09 J10 J11 J12 J13
Index of Leading Economic Indicators
San Diego County, 2009 -2013
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compared to the prior fiscal year (Fiscal Year 2012-13). According to recent growth projections prepared for the city, Carlsbad will add 920 residential units over the next five fiscal years.
Commercial development has brought much needed entertainment and shopping venues to citizens and
visitors alike, as well as generating additional sales taxes to help pay for city services. Carlsbad is home to Car Country Carlsbad – an auto mall; the Carlsbad Premium Outlets – a specialty outlet center; Plaza Camino
Real – a regional shopping mall; a Costco center; and the Forum at Carlsbad – a commercial center with upscale retail shops, restaurants and other commercial uses. A new Lowe’s opened in fall 2013, and La Costa
Town Square is scheduled to open in late fall 2014. Development has also enhanced Carlsbad’s reputation as a destination resort for tourism. The city is host to a major family theme park, LEGOLAND, and has two luxury resorts available for its visitors, the Park Hyatt at Aviara and the La Costa Resort & Spa. There are also a number of other quality hotels and motels in the
city, with the most recent additions being the Hilton Oceanfront Resort & Spa and the LEGOLAND California Resort.
The City of Carlsbad opened a municipal golf course in the summer of 2007 which has further enhanced the
tourism attractions the city offers. The municipal golf course, The Crossings at Carlsbad, is an 18-hole, destination golf course set in the rolling hills and canyons of Carlsbad. With ocean views, high quality golf
experience, a first class restaurant and clubhouse, and linkages to hiking trails, The Crossings at Carlsbad is a destination spot for golfers and non-golfers alike. Overall, for Fiscal Year 2014-15, General Fund revenue is projected to increase by 4.8 percent from the
previous year’s estimates. Most major sources of tax revenue are expected to increase slightly in Fiscal Year 2014-15, including property tax (6.6 percent increase), following several years of stagnant growth. Sales tax is expected to increase by 1.8 percent and TOT revenues are projected to increase by 3 percent as occupancy
and average daily rates increase and new hotels, such as the LEGOLAND Hotel, continue to draw visitors. Home values are showing substantial appreciation, which is expected to improve assessed values in the coming years. Development related revenue items are forecast to increase modestly in Fiscal Year 2014-15,
due primarily to an increase in commercial and industrial activity, as compared to the previous fiscal year. State of California – In January, Governor Jerry Brown submitted a balanced budget to the California legislature. The passage of Proposition 30, which temporarily increases income
tax rates and sales tax rates, increased revenue projections and, coupled with budget cuts made in past years, allowed the governor to claim a fiscal balance for the first time in over a decade.
The budget for Fiscal Year 2014-15 relies on projected revenues of $108.7 billion to cover $106.8 billion in
expenditures. The budget also addresses the “wall of debt” that was built up by the state in earlier budget cycles, as it attempted to cover shortfalls. Under the governor’s plan, this debt of $24.9 billion will be
eliminated by the end of Fiscal Year 2017-18. The budget also sets aside $1.6 billion in a budget stabilization account to allow the state to face future uncertainties. Of course, the state still has looming fiscal issues to
tackle, including unfunded pension liabilities of over $217 billion dollars for state workers, teachers, university workers, and judges. The state also relies heavily on capital gains taxes (these will account for $4
billion in additional revenue in Fiscal Year 2014-15) and this revenue source has proven extremely volatile in past years. The budget also assumes that the federal court will grant a two-year extension to California’s
requirement to meet the capacity threshold of its prisons, which is uncertain. Finally, Proposition 30 is temporary, and the sales tax increase expires in 2016, followed by expiration of the income tax increase in
2018.
California, as mentioned previously, continues to face sizable pension liabilities. The reform enacted under Assembly Bill 340 should decrease pension costs in the long-run, but more reforms are being proposed,
including a measure proposed by San Jose Mayor Chuck Reed, which would effectively allow cities to change pension benefits going forward for public employees.
General Fund expenditures in the proposed budget increased by 8.5 percent, with significant increases in K-
12 education and transportation, while revenues are expected to increase by 5.9 percent in Fiscal Year 2014-15.
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Long-Term Financial Planning
It is the Council’s goal to ensure that the city remains in good financial health, and there are a number of steps the city has taken to attain that goal. One of the steps is the Growth Management Plan. This plan was
adopted by the citizens to ensure that all necessary public facilities were constructed along with development. It also ensures that a financing plan is in place to pay for the facilities prior to the development of the property.
In addition to the Growth Management Plan, the city also prepares a long-term financial model for both the
capital and operating needs of the city. With a growing city such as Carlsbad, it is imperative that we plan for the impacts of the economy, serving new development and operating new public facilities, as well as
planning for capital needed to build them. Thus, the city prepares a ten-year operating forecast for the General Fund, and a 15-year Capital Improvement Program. As part of the Capital Improvement Program, the city
annually calculates the amounts needed to pay for the various projects, and calculates the anticipated operating budget impacts. In this way, the city can anticipate the effects of development from both a capital
and an operating perspective.
One important initiative the city has undertaken to ensure its financial health is the development of an Infrastructure Replacement Fund. With this fund, the city sets aside a portion of General Fund revenues on
an annual basis for major maintenance and replacement of its infrastructure. Much of the city’s infrastructure is relatively new; thus, the city is just now experiencing the impact of maintenance requirements. By setting
aside funds now, the citizens of Carlsbad can be assured that the proper maintenance and replacement, as needed, will be performed on streets, parks and many facilities for which the city is responsible.
While the City of Carlsbad has a long-term history of maintaining sufficient reserves, the City Council took
formal action during Fiscal Year 2007-08 to adopt a reserve policy, which was revised in Fiscal Year 2010-11. The General Fund Reserve Policy sets a minimum reserve of 30 percent of the General Fund expenditures
and also establishes a target reserve of between 40 percent to 50 percent. This reserve can be used by the City Council for emergencies or one-time purposes.
In order to strategically address the future needs of the city and to ensure that the city maintains a structurally
balanced budget in the long term, city staff prepares a ten-year financial forecast. Revenue projections are developed based on current and forecasted economic variables at the national, state, and local levels, and
provide city leaders with some measurement of future capacity to support city programs and services. In recent years, revenue growth has become more difficult to project in the long-term, as the city finds itself in
an economic climate that changes rapidly and unpredictably, and the forecast allows decision makers to adjust for these changes. The ten-year forecast is updated frequently to avoid potential pitfalls and to ensure that
city staff and leaders can identify and resolve fiscal challenges and continue to develop a balanced and responsible budget.
Over the past several years, the city has addressed the budgetary challenges brought on by the recent recession
and taken deliberate measures to continue to allocate resources in a responsible manner, minimizing the impact to users of city services. These measures included a reduction in full-time and hourly full-time
equivalent (FTE) positions, delaying the construction of non-essential capital projects, reducing the funding for capital outlay and goal projects, reducing and/or eliminating cost of living salary increases, requiring city
employees to pay a larger portion of their retirement costs, using technology and other tools to create efficiencies and reducing certain non-essential service levels with a minimal impact to the community.
The ability to anticipate changes in revenue sources and to balance those resources against the costs related
to ongoing and future programs, services, and infrastructure requirements is critical to the financial health of the city. The city relies on the ten-year forecast to effectively manage fiscal resources and map a sustainable
and responsible path for attaining the goals of the community. The tumultuous economic environment experienced in the past few years makes this long-term perspective even more important.
The forecast assumes limited growth in residential and commercial development over the next decade and
captures the expected revenue impacts from major projects that are expected to be completed during the forecast period. Ongoing transfers to the Carlsbad Crossings Golf Course are expected to continue over the
forecast period; however, the transfer is expected to decrease steadily over the ten-year forecast horizon. The operating costs of new city facilities projected in the Capital Improvement Program and supported by the
General Fund, such as Alga Norte Community Park, are also captured in the forecast. Economic conditions
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at the national, state, and local level are expected to continue improving at a modest rate and to provide a boost to most of our major sources of revenue. Home prices, which have been slumping for several years,
are continuing to increase substantially and will begin to provide a boost to the city’s property tax revenues in the following years. Overall, the outlook for General Fund revenues has improved, since the last fiscal
year, and revenues are expected to exceed ongoing operating costs.
The forecast assumes that General Fund revenues will increase by less than 5 percent in Fiscal Year 2014-15, as improving economic conditions buoy revenues from the property taxes, sales taxes and TOT. To
project the expenditures, all known changes in personnel and maintenance and operations costs have been accounted for. However, the effects of future negotiations with employee bargaining units are not
contemplated in the current ten-year forecast. The city is currently undertaking an evaluation of services in order to pursue a managed competition process, known as Best Value Services. The financial impact of a
change in service delivery is also not considered in the ten-year forecast.
The forecast assumes that the city’s cost for employee health care will increase by 5 percent, annually, over the life of the forecast. Pension plan costs continue to be a major driver of overall personnel costs for the
city. CalPERS, the pension plan which funds city employee pension benefits, has recently decided to substantially increase required annual pension contributions from participating agencies in order to fully fund
outstanding pension obligations within 30 years. This decision, coupled with new mortality assumptions (pensioners are living longer), will substantially increase personnel costs for the city and are contemplated in
the current ten-year forecast. The cumulative effect of the five year ramp-up in pension costs will increase the General Fund’s annual contribution by 45 percent from Fiscal Year 2015-16 to Fiscal Year 2019-20. The
forecast further assumes that no new positions are authorized after Fiscal Year 2014-15, except those that may be related to the operating costs of new city facilities supported by the General Fund. Negotiated salary
step increases and cost of living increases are included in personnel costs, in order to provide a conservative estimate of future costs. The contribution from the General Fund to the Infrastructure Replacement Fund is
forecasted to remain at 6.5 percent of General Fund revenues. Finally, the forecast includes estimated operating costs for all capital projects in the timeframes shown in the Capital Improvement Program (CIP).
As indicated in the graph on the previous page, the General Fund is balanced for Fiscal Year 2014-15 and
revenues exceed expenses over the life of the forecast. Although the revenue forecast is optimistic, Carlsbad is still exposed to a fragile and slowly recovering economy, which could rapidly deteriorate and adversely
affect local revenues. Despite these threats, responsible fiduciary stewardship and planning have placed the city in a position to benefit from even modest improvements in the economic environment.
Cash Management The City Treasurer, an elected official, is charged with the design of an effective cash management and
investment program consistent with legal requirements and the city’s Investment Policy. The city annually adopts a comprehensive investment policy specifying investment objectives, such as type and term of
investments, reporting requirements, and investment oversight. The city’s investments generally include federal agencies, corporate notes, and investments in the State Treasurer’s investment pool. The modified
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duration of the investments in the city’s investment pool as of June 30, 2014 was 2.08. The average return realized on the pooled investments declined from 1.144 percent in Fiscal Year 2012-13 to 1.045 percent for
Fiscal Year 2013-14, and it is expected to further decline this fiscal year.
Investment income shown in the financial statements includes changes in the fair value of investments as required under GAAP. Increases or declines in fair value during the current year, however, do not necessarily
represent trends that will continue, nor is it always possible to realize such amounts. This is especially true as the city holds most of its investments
to maturity rather than selling them at fair value.
The graph at the right shows the amount
of unrealized income reflected in the portfolio over the last few years. The
total portfolio had an unrealized gain of 0.197 percent for Fiscal Year 2013-14.
According to the City Treasurer, “If interest rates continue at current levels,
unrealized losses will narrow as existing positions mature or are called. When
interest rates begin to rise, a portion of the portfolio will benefit as a result of its
short duration. Reinvestment of maturing positions and new investments
will begin to capture and reflect new money rates over time.”
Major Initiatives and Projects In the city’s Fiscal Year 2014-15 Capital Budget, several significant projects are in design or under
construction over the next few years. Some of the notable capital projects include the following:
Park Development Projects Leo Carrillo Ranch Phase III – In the southeast quadrant of the city, design and construction of Phase III of
Leo Carrillo Ranch Historic Park is planned. This phase will re-evaluate the Master Plan to make sure that the proposed project amenities are serving the greatest need of the community. The total cost of the project
is estimated at $1.9 million.
Civic Facilities
Civic facilities include a variety of facilities from which the city can offer its services to the public.
Fire Station No. 3 Relocation – Fire Station No. 3 is currently located at
the corner of Chestnut and Catalina. As the city grows eastward, relocation of this station is needed to help ensure a six minute response
time. The land for the new fire station was previously acquired at the Robertson Ranch site, and the remaining construction cost is estimated at $9.4 million.
Library Renovation Projects – Significant renovation projects are planned at the Dove and the Cole libraries. Improvements are designed to accommodate current staffing needs, meet patron demands for modern library
services and allow for better wireless and communication services for the public. Funds were approved in the Fiscal Year 2014-15 Capital Budget and subsequent City Council resolutions. The estimated combined renovation and improvement costs for both libraries are $11.3 million.
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Facilities Maintenance – As the city facilities begin to age, maintenance and repair projects are needed to keep them in good condition. Projects for the next five years have been identified at a total cost of about $4
million. Included are refurbishments to Fire Station No. 2, the Fleet Maintenance Facility, and the Safety Center.
Trails – Additional funding is included to complete the Arroyo Vista Trail Extension and the Lake Calavera
Trails system.
Street and Circulation Projects
Livable Streets continues to be a top Council priority. To help improve the flow of traffic throughout Carlsbad and to keep the city’s street and pedestrian ways in top condition. Another area of focus is a concept called “complete streets” which uses street
design to create a sense of place and community through green spaces, medians and signage, while encouraging a healthier, less vehicle dependent lifestyle. The City Council identified
complete streets as a top priority. An example of a recent
project which incorporates these concepts is construction of a traffic circle “roundabout” along the northern end of
Carlsbad Boulevard next to Buena Vista Lagoon, making it easier for vehicles, pedestrians and bicyclists to move through the intersection. ADA Improvements – ADA projects throughout the city are scheduled for $1
million in funding over the next five years. The projects include various accessibility improvements, including sidewalk curb ramps and pedestrian signals.
Avenida Encinas Widening – Widening to full secondary arterial standards along Avenida Encinas from Palomar Airport Road to just south of Embarcadero Lane is scheduled for design in Fiscal Year 2016-17. The CIP includes $5.4 million to fund this project in the next five years.
Carlsbad Boulevard Alignment from Cannon Road to Manzano Drive – This project will widen the road from two lanes to four lanes, including a center raised median, curb and gutter, stamped concrete, and landscaping.
The total cost is budgeted at $6 million.
Carlsbad Boulevard Bridges Concrete Barriers – Installation of concrete barriers on the existing bridges
located on Carlsbad Boulevard are planned at a total cost of about $2.2 million, primarily funded through a federal grant. The bridges are located north of Cannon Road over the power plant outlet channel, and over the railroad tracks south of State Street.
El Camino Real Widening – There are a number of projects that are scheduled over the next five years that will focus on the widening of El Camino Real to prime arterial roadway standards, in addition to other
improvements, such as median construction. The projects include widening from Cassia Road to Camino Vida Roble, Arenal Road to La Costa Avenue, Lisa Street to Crestview Drive and Tamarack to Chestnut. In the next five years, $5.4 million in additional funding is included for these projects.
Pavement Management – Carlsbad’s local streets are maintained on a regular cycle to ensure a good riding surface and to extend the life of the streets. Part of the maintenance program is the sealing and overlay of the
existing street surface. In addition, any problem areas are addressed along with the overlay as they are identified. The Fiscal Year 2014-15 CIP has $18.5 million budgeted in the next five years for this program. Parking Lot Maintenance Program – The maintenance of city-owned parking lots is a relatively new program
and is scheduled to receive funding of $1.2 million in the next five years.
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Water and Wastewater Projects The city’s water and wastewater projects are vital to the continued health and welfare of its citizens. Most new lines are built and paid for by developers. As the city ages, it becomes necessary to repair and replace
the lines that already exist, and an increase in these projects is anticipated in future years. In the next five years, an additional $47.9 million in funding is scheduled for both new and replacement water and sewer
projects.
Vista/Carlsbad Interceptor & Agua Hedionda Lift Station Replacement – This project consists of a set of individual projects that will ultimately construct a parallel sewer interceptor system to accommodate existing
and future sewer flows from the cities of Vista and Carlsbad. The individual projects include a main in Jefferson Street, replacement of the Agua Hedionda Lift Station, and a main from the lift station to the Encina
Wastewater Facility. The overall total cost estimate for this set of projects totals $64.2 million, of which an estimated $19.9 million is to be funded by the City of Carlsbad, with the remaining $44.3 million to be funded
by the City of Vista.
Wastewater
Other major wastewater facilities scheduled for construction or replacement within the next five years include:
Buena Interceptor Sewer Improvements
Faraday/El Camino Real Sewer Replacement
Las Palmas Trunk Sewer
Poinsettia Lane Lift Station Emergency Overflow Basin
Quarry Creek Sewer Extension
Terramar Sewer Replacement
Water Lines
Major water facilities scheduled for construction or replacement within the next five years are estimated at
$32.1 million, and include the following locations:
Aviara Parkway and Plum Tree
Carlsbad Boulevard – South of Avenida Encinas
College Boulevard – Cannon Road to Badger Lane
Desalinated Seawater Transmission Main
Fire Flow System Improvements
Hydroelectric Generator at Palomar Airport Road/White Sands
La Costa High Reservoir Inlet Pipeline
Maerkle Reservoir Floating Cover Replacement
Maerkle Pump Station Improvements and Transmission Main
Santa Fe II Inlet Pipeline
Tri-agencies Water Transmission Pipeline Replacements
Recycled Water Expansion
Expansion to the Carlsbad Water Recycling Facility, including construction of additional pipelines and a reservoir, are anticipated to cost $29.6 million in total, with $21.6 million in scheduled future appropriations.
These facilities are expected to meet the 76 percent increase in future recycled water demand.
Drainage Projects
The city’s drainage infrastructure plays an important role in handling storm water runoff flows, as well as maintaining the water quality of the city’s creeks, lagoons and ocean. Carlsbad supports programs that will
ensure that all water bodies within the city are safe and clean and, where possible, open to the public at all times. The system consists of drainage pipes 30-inches or larger in diameter, large concrete and rock lined
channels, permanent sedimentation basins and miscellaneous large facilities. As the city continues to age, it
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will become necessary to repair and replace the lines that already exist. An increase in these projects is anticipated in future years. An additional $2.3 million will be added to the program in the next five years.
AWARDS AND ACKNOWLEDGEMENTS
The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Carlsbad for its
Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2013. This was the sixteenth consecutive year that the city has achieved this prestigious award. In order to be awarded a
Certificate of Achievement, a government unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Report. This report must satisfy both GAAP and applicable legal
requirements.
A Certificate of Achievement is valid for a period of one year only. The city strives to develop a Comprehensive Annual Financial Report which will continue to meet the Certificate of Achievement
Program’s requirements, and this report will be submitted to GFOA to determine its eligibility for another certificate.
This report has been a joint effort by many people from many different areas of responsibility. It could not
have been accomplished without their help and the dedicated efforts of all of the finance staff, especially Kevin Branca, Finance Director. I also appreciate the staff of Mayer Hoffman McCann P.C. for the
professional way in which the audit of this financial report was conducted. It has been a pleasure to work with them throughout this period. Additionally, I would like to thank the City Council, City Manager and
the city’s Executive Management Team for their leadership and unfailing support in maintaining the highest standards of professionalism in the management of the City of Carlsbad’s finances.
Respectfully submitted,
Chuck McBride Administrative Services Director
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CITY OF CARLSBAD
ELECTED CITY OFFICIALS
Matt Hall, Mayor
Mark Packard, Mayor Pro Tem Keith Blackburn, Council Member
Lorraine Wood, Council Member Michael Schumacher, Council Member
Barbara Engleson, City Clerk Craig Lindholm, City Treasurer
LEADERSHIP TEAM
Steve Sarkozy, City Manager Celia Brewer, City Attorney
Gary Barberio, Assistant City Manager Kathy Dodson, Assistant City Manager
Michael Davis, Fire Chief Chris Hazeltine, Parks & Recreation Director
Pat Thomas, Public Works Director Chuck McBride, Administrative Services Director
Gary Morrison, Police Chief Heather Pizzuto, Library & Cultural Arts Director
Glen Van Peski, Community & Economic Development Director
CHAIRPERSONS, COMMISSIONS AND BOARDS
Tina Schmidt Arts Commission
Linda Petrucci Beach Preservation Committee Gary Glaser Carlsbad Golf Lodging Business Improvement District
Timothy Stripe Carlsbad Tourism Business Improvement District Board Vacant Historic Preservation Commission
Bobbie Smith Housing Commission Bob Benson Library Board of Trustees
Dianne Proulx Parks and Recreation Commission Kerry Siekmann Planning Commission
David Tweedy Senior Commission Vacant Traffic Safety Commission
Vacant Underground Utility Advisory Committee
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ELECTORATE
City Manager
City Treasurer
3/12/14
KEY
Elected
Council Appointed
Council Appointed
Organization Chart
City Attorney
Mayor & CouncilCity Clerk
Police Department Assistant City Manager(Operations)
Arts
Commission
Beach
Preservation
Committee
SeniorCommission
Parks & Rec
Commission
Library Board
of
Trustees
HistoricPreservation
Commission
HousingCommission
Traffic SafetyCommission
PlanningCommission
Carlsbad Tourism
B.I.D. Advisory
Board
Carlsbad Golf
Lodging B.I.D.
Advisory Board
Fire Department
Public Works
Transportation
Utilities
Property & Environmental Management
Library & Cultural ArtsCommunity & Economic DevelopmentParks & Recreation
Housing & Neighborhood ServicesFinance
Human Resources
Information Technology
Records Management
Administrative Services
Assistant City Manager(Projects)15
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Financial Section Financial Section
Financial SectionFinancial Section
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Management’s Discussion and Analysis
Management of the City of Carlsbad (“city”) provides readers this overview and analysis of the financial activities of the city for the fiscal year ended June 30, 2014. The intent is to assist the reader of these financial statements in better
understanding the impact of financial decisions made by the city. This analysis will focus on the significant changes in an effort to explain the city’s overall financial condition. The information presented here should be considered in
conjunction with the additional information furnished in the letter of transmittal.
Overview of the Financial Statements
This section of the annual report consists of four parts – management’s discussion and analysis (this section), the basic financial statements, required supplementary information, and an optional section that presents combining statements for non-major
governmental funds and internal service funds. The basic financial statements include
two kinds of statements that present different views of the city.
The first two statements are Government-wide Financial Statements
that provide both long-term and short-term information about the city’s overall
financial status.
The remaining statements are Fund Financial Statements that focus on individual parts of the city government, reporting the city’s operations in more detail than the Government-wide Statements.
The Governmental Funds Statements detail how general government services such as public
safety were financed in the short-term as well as what remains for future spending.
Proprietary Fund Statements offer short- and long-term financial information about the activities the city
operates like businesses, such as providing water and wastewater services.
Fiduciary Fund Statements provide information about the financial relationships – such as contractor and
miscellaneous deposits – in which the city acts solely as a trustee or agent for the benefit of others to whom the resources belong.
The financial statements also include notes that explain some of the information in the financial statements and provide
greater detail. The statements are accompanied by required supplementary information that further explains and supports the information in the financial statements. In addition to these required elements, included is a section with
combining fund statements that provides financial information about the non-major governmental funds, internal service funds, and fiduciary funds, which are added together and presented in single columns in the basic financial
statements.
The remainder of this overview section of management’s discussion and analysis explains the structure and content of each of the statements.
Management’s Discussion and
Analysis
Basic Financial Statements
Required Supplementary Information
Required Components of the City of Carlsbad’s Annual Financial Report
Notes to the Financial
Statements
Government-wide Financial Statements
Fund Financial Statements
Summary Detail
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Government-wide Financial Statements
The Government-wide Financial Statements report information about the city as a whole using accounting methods similar to those used by private-sector companies. The Statement of Net Position includes all of the city’s assets and liabilities. All of the current year’s revenues and expenses are accounted for in the Statement of Activities, regardless
of when cash is received or paid. The two Government-wide Financial Statements report the city’s net position and how it has changed. Net position –
the difference between the city’s assets and liabilities – is one way to measure the city’s financial health, or position. Over time, increases or decreases in the city’s net position are an indicator of whether the city’s financial health is improving or deteriorating, respectively. One needs to consider additional non-financial factors, such as changes in
the city’s property tax base and the condition of the city’s infrastructure, to assess the overall health of the city. The Government-wide Financial Statements of the city are divided into two categories:
Governmental activities – Most of the city’s basic services, such as police, fire, public works, community services, community development, and internal services are included here. Taxes, revenues from other
governments and agencies, income from property and investments, grants and contributions, and charges for services finance most of these activities.
Business-type activities – The city charges fees to customers to cover the cost of certain services it provides. The city’s water, wastewater, solid waste and municipal golf course operations are the primary business-type
activities.
Fund Financial Statements The Fund Financial Statements provide more detailed information about the city’s most significant funds – not the city as a whole. Funds are accounting devices used by the city to keep track of specific sources of funding and
spending for particular purposes.
Some funds are required by state law and bond covenants, while the city establishes other funds to control and manage
money for particular purposes (such as the developer impact fee funds) or to show that it is properly using certain taxes and grants (such as the Section 8 Rental Assistance Fund).
The city has three kinds of funds:
Governmental funds – Most of the city’s basic services are included in governmental funds. These funds are used to account for (1) cash and other financial assets that can readily be converted to cash flow in and out, and
(2) balances left at year-end that are available for future spending. Consequently, the Governmental Funds Statements provide a detailed short-term view that helps the reader determine the amount of financial resources that can be spent in the near future to finance the city’s programs. These statements are presented on a modified
accrual basis of accounting. A reconciliation between the long-term and short-term focus of the Government-
wide Financial Statements is provided immediately following each statement. There are currently three governmental fund types being used by the city: the General Fund, special revenue funds, and capital project funds.
Proprietary funds – Services for which the city charges customers a fee are generally reported in proprietary
funds. Proprietary funds, like the Government-wide Financial Statements, provide both long- and short-term financial information, and are presented on an accrual basis of accounting.
There are two types of proprietary funds: enterprise funds and internal service funds.
Enterprise funds are used to report activities that provide business-type services, generally to external
customers – such as water, wastewater, solid waste and golf services. In both the Government-wide Financial Statements and the Fund Financial Statements, these funds are shown under business-type activities.
Internal service funds are used to report activities that provide services and supplies for the city’s other programs and activities – such as fleet, workers’ compensation, and information technology.
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Fiduciary funds – These funds are used to account for situations where the city’s role is purely custodial, such
as the receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments. All of the city’s fiduciary activities are reported in a separate Statement of Fiduciary Net
Position. These activities are excluded from the city’s Government-wide Financial Statements because the city cannot use these assets to finance its operations.
Financial Analysis of the City as a Whole
Net Position The city’s combined net position as of June 30, 2014, as shown below, was $1.756 billion. The city’s net position
increased by $16.2 million during the current fiscal year. This increase was derived in large part to a significant increase in current and other assets, a direct result of revenues exceeding expenditures by $16.2 million for the year. The decrease in capital assets was the result of current year depreciation expenses exceeding the addition of new
capital assets. The decrease in long-term debt outstanding was generated from the annual debt service requirements being met on the city’s outstanding debt. Other liabilities decreased due to a drop in water purchases in June from the San Diego County Water Authority (due to the stage 2 drought response that was in effect at the time), lower general liability claims payable at year end, and a drop in assessment district prepayments (Cannon Road).
As noted earlier, over time net position may serve as a useful indicator of the city’s financial position. For the City of Carlsbad, assets currently exceed liabilities by $1.756 billion at the close of the most recent fiscal year.
A large portion of the city’s net position (62 percent) reflects its net investment in capital assets (i.e., land, buildings,
machinery, equipment, and infrastructure), less any related debt used to acquire those assets that is still outstanding. The city uses these capital assets to provide services to citizens; consequently, these assets are not available for future
spending. Although the city’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 would not
be used to pay for these liabilities.
An additional portion of the city’s net position (15.5 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position ($394.7 million) may be
used to meet the government’s ongoing obligations to citizens and creditors. Just under 52 percent of the $328.6 million in unrestricted governmental activities net position is attributable to the General Fund. The net investment in capital assets for the city increased slightly during Fiscal Year 2013-14 due
primarily to an increase in capital assets in governmental activities. The completion of Alga Norte Community Park and the donation of several large developer infrastructure assets contributed to this increase. During the year, the city
Total
Percentage
Change
2013 2014 2013 2014 2013 2014 2013-14
Current and other assets $571.8 $575.5 $114.3 $126.6 $686.1 $702.1 2.3%
Capital assets 782.7 784.2 345.0 341.0 1,127.7 1,125.2 -0.2%
Total assets 1,354.5 1,359.7 459.3 467.6 1,813.8 1,827.3 0.7%
Long-term debt outstanding 0.2 0.0 37.6 37.6 37.8 37.6 -0.5%
Other liabilities 23.1 21.9 12.9 11.6 36.0 33.5 -6.9%
Total liabilities 23.3 21.9 50.5 49.2 73.8 71.1 -3.7%
Net position
Net investment in
capital assets 782.5 784.2 307.0 305.7 1,089.5 1,089.9 0.0%
Restricted 229.4 225.0 46.0 46.6 275.4 271.6 -1.4%
Unrestricted 319.3 328.6 55.8 66.1 375.1 394.7 5.2%
Total net position $1,331.2 $1,337.8 $408.8 $418.4 $1,740.0 $1,756.2 0.9%
Total
CITY OF CARLSBAD'S NET POSITION
(in millions of dollars)
Governmental
Activities
Business-Type
Activities
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again saw higher depreciation expenses in the water and golf funds from the recent acquisition over the past couple
of years of several major capital assets. This increase in depreciation expense exceeded the addition of new capital
assets for the fiscal year, thereby reducing the net investment in capital assets for business-type activities. A portion of business-type net position represents the city’s municipal golf course. At the end of Fiscal Year 2013-14, there is a large deficit in unrestricted net position for the Golf Course Fund. This is the result of the General Fund advancing
money to the Golf Course Fund for the construction of the course and partially subsidizing the operations of the course in prior fiscal years. Changes in Net Position The condensed summary of activities shows that net position increased by $16.2 million during the year. This increase
occurs when spending is less than the revenues received. There were several reasons for the increase in net position: the continuance of a citywide restructuring initiative that either eliminated or unfunded 6.75 positions, partially
offsetting other personnel increases; $20.7 million in “savings” in the General Fund being carried forward into the new fiscal year by various major service areas within the city to enhance and provide for future services and programs
(indicating spending levels less than budgeted expenditures); revenues outpacing budgeted projections due to the recovering economy; the build-up of cash reserves in the city’s capital project and enterprise funds for future capital
project construction and acquisition; revenues received in the city’s special revenue funds for future services and programs; and the donation of infrastructure assets from developers.
Total
Percentage
Change
2013 2014 2013 2014 2013 2014 2013-14
Revenues
Program revenues
Charges for services $17.6 $16.7 $66.0 $69.6 $83.6 $86.3 3.2%
Operating grants and contributions 13.2 11.9 - 0.1 13.2 12.0 -9.1%
Capital grants and contributions 17.7 16.2 2.9 3.2 20.6 19.4 -5.8%
General revenues
Property taxes 52.9 52.6 2.9 2.9 55.8 55.5 -0.5%
Sales and use taxes 28.4 30.5 - - 28.4 30.5 7.4%
Other taxes 24.7 27.6 - - 24.7 27.6 11.7%
Income from property and investments 1.8 6.9 0.5 2.5 2.3 9.4 308.7%
Other 0.9 0.5 0.1 - 1.0 0.5 -50.0%
Total revenues 157.2 162.9 72.4 78.3 229.6 241.2 5.1%
Expenses
General government 23.5 20.2 - - 23.5 20.2 -14.0%
Public safety 48.5 48.9 - - 48.5 48.9 0.8%
Community development 23.1 16.3 - - 23.1 16.3 -29.4%
Community services 24.8 29.1 - - 24.8 29.1 17.3%
Public works 36.8 30.3 - - 36.8 30.3 -17.7%
Carlsbad Municipal Water District - - 41.6 43.5 41.6 43.5 4.6%
Golf course - - 10.7 11.0 10.7 11.0 2.8%
Wastewater - - 13.5 12.5 13.5 12.5 -7.4%
Solid waste - - 2.9 2.9 2.9 2.9 0.0%
Total expenses 156.7 144.8 68.7 69.9 225.4 214.7 -4.7%
Excess (deficiency) before transfers 0.5 18.1 3.7 8.4 4.2 26.5 531.0%
Extraordinary loss - (10.3) - - - (10.3) 100.0%
Transfers (0.7) (1.2) 0.7 1.2 - - 0.0%
Increase (decrease) in net position (0.2) 6.6 4.4 9.6 4.2 16.2 285.7%
Beginning position 1,331.4 1,331.2 404.4 408.8 1,735.8 1,740.0 0.2%
Ending net position $1,331.2 $1,337.8 $408.8 $418.4 $1,740.0 $1,756.2 0.9%
Activities Activities Total
CITY OF CARLSBAD'S CHANGES IN NET POSITION
(in millions of dollars)
Governmental Business-Type
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Approximately 68 percent of the revenues of
the city’s governmental funds are generated
through taxes collected (property, sales, transient occupancy, etc.), and just under 89 percent of the city’s business-type revenue is
generated through charges for services. The chart to the right graphically depicts the city’s revenue sources.
The continuing recovery from the great recession has resulted in increases in the
city’s leading revenues: sales taxes and transient occupancy taxes. The addition of the new LEGOLAND Hotel also added
substantially to the city’s TOT revenues for the year. Property taxes tend to be a lagging revenue source, meaning they don’t rebound as quickly as the leading revenues. Property
taxes showed a slight decline from the previous year as this segment of the city’s
revenue base has not begun to recover yet. The Federal Reserve, in an effort to continue to stimulate the economy, has kept interest rates at historic lows, affecting the city’s income from property and investments. However, since the General Capital
Construction (GCC) Fund is funded entirely with General Fund money, the city decided to record the interest earnings associated with the GCC cash in the General Fund in the current fiscal year, offsetting the low interest rates. Another factor in the higher income from property and investments was the year-end adjustment that was done to reflect the
fair market value of the city’s cash and investments (GASB 31 application). Development throughout the city continues to remain strong. Although developer impact fees (capital contributions) and developer contributed assets (capital contributions) dropped off slightly from the previous fiscal year, permitted activity (charges for services) was
up from last year. Some additional one-time revenues were received during the previous fiscal year including reimbursement of prior year administrative fees collected by the county from the implementation by the state of the “Triple Flip” sales tax and the VLF-in-lieu programs (charges for services), and reimbursement received for the street
lighting retrofit program (charges for services). Another factor affecting charges for services was water and
wastewater rate increases that went into effect in January 2014. During the 2013-14 Fiscal Year, the California Department of Finance directed the city to reduce the amount of accrued interest reported on the city’s Recognized
Obligation Payment Schedule. This reduction is reflected as an extraordinary loss in the financial statements of the city.
The total cost of all programs and services was just over $214.7 million in Fiscal Year 2013-14. This was a $10.7
million, or 4.7 percent, decrease over Fiscal Year 2012-13 costs. The decrease in governmental activity expenses was driven by higher internal service charges (primarily workers’ compensation and general liability) last fiscal year.
These charges increased dramatically last year as the city changed its worker’s compensation claims administrator which led to a reevaluation of the claims liability calculation. Public Works expenses were higher last year, a reflection of expensing a couple of projects that were previously accounted for in construction in progress. Lower
community development expenses reflect a reduction in community assistance as compared to the previous fiscal year.
Higher purchased water costs and implementation costs associated with the automated meter reading program in the Water Fund created the increase for the year in business-type activities.
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General Government (9 percent)
This segment of the city is divided
into three major groups: the Policy and Leadership group, the
Administrative Services group and non-departmental charges. The
Policy and Leadership group encompasses all elected officials, the
chief executive offices for the city, and the Communications team. The Administrative Services group includes Finance, Human Resources
(including Workers’ Compensation and Self-Insured Benefits),
Information Technology, Risk Management, and Records
Management. Also included in General Government are any
Council directed special projects.
Public Safety (23 percent)
Public Safety has always been a top
City Council priority. This major service area includes the Police Department, whose goal is to provide quality service to the community to ensure the preservation of life and property and the maintenance of law and order.
The Fire Department is also part of this major service area with a mission to enhance the quality of life by delivering exceptional services in safeguarding lives, property, and our environment.
Community & Economic Development (8 percent)
The mission of Community and Economic Development is helping people build a strong community by guiding and facilitating high quality projects, preserving the environment, providing for, and maintaining a strong
economic base and strengthening neighborhoods through partnerships and collaboration to improve or enhance the quality of life and sense of community within Carlsbad. Community Development encompasses Land Use
Planning, Economic Development, the Hiring Center, Housing & Neighborhood Services, Land Development Engineering, and Building Inspection.
Community Services (14 percent)
Community Services consists of the Libraries, Cultural Arts, Parks & Recreation, and Senior Citizen programs. The Library & Cultural Arts Department provides education, information, and cultural arts services for all
community residents, which contributes to quality of life by supporting lifelong learning, the pursuit of knowledge, and creating community gathering places. The Parks & Recreation Department offers
comprehensive opportunities for meeting the recreational and social needs and interest of the community by providing programs for all segments of the population.
Public Works (14 percent)
Public Works is responsible for building and maintaining all of the infrastructure assets of the city. This service area includes Transportation, Storm Drains, Medians, Street Trees, the Buena Vista Channel, Street Lighting,
Traffic Sign and Signal Maintenance programs, and Property & Environmental Management.
Golf Course (5 percent)
The City of Carlsbad opened a municipal golf course in the summer of 2007, which further enhances the tourist attractions the city offers. The municipal golf course, The Crossings at Carlsbad, is an 18-hole, destination golf
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course set in the rolling hills and canyons of Carlsbad. With ocean views, a high quality golf experience, a first
class restaurant and clubhouse, and linkages to hiking trails, The Crossings at Carlsbad is a destination spot for
golfers and non-golfers alike.
Solid Waste (1 percent)
The Solid Waste Division of the Utilities Department administers and monitors the solid waste contract and the
Palomar Transfer Station agreement, and is responsible for the waste reduction and recycling components of the Source Reduction and Recycling Element and Household Hazardous Waste Element to comply with state
mandated AB939, AB341 and SB1016 diversion and disposal requirements.
Water Operations (20 percent)
The Carlsbad Municipal Water District, a subsidiary of the City of Carlsbad, provides potable and recycled water
service to approximately 85 percent of the city (approximately 29,000 customers). The District purchases 100 percent of its potable water as treated water from the Metropolitan Water District and the San Diego County
Water Authority. The District also provides recycled water for irrigation purposes.
Wastewater Operations (6 percent) The City of Carlsbad operates and maintains a sanitary wastewater collection system, which covers
approximately 65 percent of the geographic area of the city. Wastewater is treated by the Encina Wastewater Treatment Plant, a facility jointly owned by the cities of Carlsbad, Vista and Encinitas; the Leucadia Wastewater
District; the Vallecitos Water District; and the Buena Sanitation District.
The following sections will provide information about the operations of the governmental and business-type activities separately.
Governmental Activities The increase in net position for governmental activities was $6.6 million. This increase was generated by total
revenues of governmental activities of $162.9 million ($44.8 million in program revenues and $118.1 million in general revenues) offset by $144.8 million in total costs of governmental activities, $1.2 million in transfers to the
Golf Course and Solid Waste funds, and an extraordinary loss of $10.3 million from the write down of the deferred interest income on the loan from the city’s General Fund to the Successor Housing Agency.
The table on the following page presents the total cost of each of the city’s major programs, as well as each function’s
program revenue (fees generated by the activities, contributions, and intergovernmental aid). The net cost (the difference between adjoining bars in the graph) shows the financial burden that was placed on the city’s taxpayers by
each of these functions (costs covered by general revenues).
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$0
$20
$40
$60
$80
GeneralGovernment Public Safety CommunityDevelopment CommunityServices Public Works
Governmental Activities
Program Revenues and ExpensesFiscal Year 2013-14(in millions)
Program Revenues
Expenses
Revenues are generated through several sources to cover the cost of the city’s programs. These revenues include fees and charges paid by those who directly benefit from the programs ($16.7 million), grants and contributions from other
governments and organizations which subsidize certain programs ($28.1 million), and taxes and other revenues (such as income from property and investments) received by the city to pay for the “public benefit” portion, totaling $118.1
million.
Community development revenues are largely comprised of housing assistance programs (Section 8 Rental Assistance, affordable housing loan repayments, and developers paying into the Affordable Housing Trust Fund) as
well as charges for development related services. Development activity spiked during Fiscal Year 2013-14, thereby almost offsetting all of the program expenses.
The majority of Public Works revenues are used to acquire and build capital assets (versus covering operating
expenses). In addition, the donation of capital assets from developers is reflected in the program revenues for Public Works. Capital assets are generally constructed or purchased once sufficient revenue has been accumulated to pay
for the cost. The city has entered into a new stage of its lifecycle, from a developing or growing stage to a mature stage. As the city continues to mature and approach build-out, there will be fewer master planned projects being
developed. In past years, these projects constructed new facilities, roads, parks, and other city-owned infrastructure. The city is shifting its focus towards maintenance of existing facilities, and will use funding sources such as the
Infrastructure Replacement Fund to maintain and replace these assets. However, there are still some master planned communities that were recently completed or are near completion (La Costa Oaks and Robertson Ranch); the
developers of these communities recently dedicated infrastructure to the city, a requirement for development.
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Business-Type Activities
Program revenues for the city’s business-type activities totaled $72.9 million for the year, while program expenses equaled $69.9 million.
Water program revenues are higher than program expenses, primarily due to capital contributions in the form of capital
connection fees and developer constructed assets donated to the city; the combined amount of these contributions was just under $2.6 million. Additionally, water sales were higher than the previous fiscal year due to an average 8 and 5
percent increase in water rates charged to our customers (water and delivery charges) that went into effect in January 2013 and January 2014 respectively, coupled with larger than average sales due to a warmer, drier year. Capital
construction expenses are spread over the life of an asset as annual depreciation charges (program expenses), and therefore are not reflected as an expense in the year acquired.
The city’s golf course enterprise was in its seventh full year of operation. Golf course revenues were sufficient to
fund normal golf course operating expenses. However, golf course operating expenses also included interest on the advance from the General Fund, principal and interest related to the golf course bonds issued for the construction of
the course, and depreciation related to the new golf course assets, resulting in a net loss of $4.3 million.
A more detailed discussion of each of the enterprises can be found in the Proprietary Funds Section.
Financial Analysis of the City’s Funds
As noted earlier, the city uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. In the current Comprehensive Annual Financial Report (CAFR), the implementation of Government
Accounting Standards Board (GASB) No. 54 resulted in the Community Activity Grants Fund being combined with the General Fund for financial statement presentation.
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Governmental Funds
The focus of the city’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’s financing requirements. In particular, unassigned fund balances may serve
as a useful measure of a government’s net resources available for spending at the end of
the fiscal year. The city implemented GASB 54 in Fiscal Year 2010-11, which created
five fund balance classifications instead of the three shown
previously. These fund balance classifications: nonspendable, restricted, committed, assigned and unassigned, comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints
imposed upon the use of the resources reported in governmental funds. Detail of the fund balances by classification is shown in Note 11 of the financial statements.
As of the end of the current fiscal year, the city’s
governmental funds reported combined ending fund balances of $517.8 million, up
$12.1 million from the year
before. Approximately 11 percent of this ($57.1 million)
constitutes nonspendable fund balances, mostly comprised of advances and loans to other
funds. Restricted fund
balances can only be spent for a specific purpose stipulated
by law and make up about 43 percent ($224.6 million). Assigned fund balances are
intended to be used by the city
for specific purposes but do not meet the criteria to be
classified as restricted or committed. These make up 31 percent ($159.5 million) of the city’s fund balance.
Approximately 15 percent ($75.6 million) of the fund
balance is unassigned, which is available for spending at the city council’s discretion.
Total
Increase Percentage
(Decrease) Change
2013 2014
Revenues
Taxes $105.2 $109.6 $4.4 4.2%
Intergovernmental 1.5 1.1 (0.4) -26.7%
Licenses and permits 2.0 2.2 0.2 10.0%
Charges for services 6.7 7.6 0.9 13.4%
Fines and forfeitures 0.8 0.7 (0.1) -12.5%
Income from property and investments 1.4 3.6 2.2 157.1%
Miscellaneous 1.9 1.0 (0.9) -47.4%
Total revenues 119.5 125.8 6.3 5.3%
Expenditures
General government 16.8 13.5 (3.3) -19.6%
Interdepartmental charges (3.9) (3.5)0.4 -10.3%
Public safety 45.7 46.9 1.2 2.6%
Community development 7.5 8.1 0.6 8.0%
Community services 21.9 23.9 2.0 9.1%
Public works 8.4 14.1 5.7 67.9%
Total expenses 96.4 103.0 6.6 6.8%
Excess (deficiency) before transfers 23.1 22.8
Transfers in 0.0 0.0
Transfers out (11.0) (16.1)
Increase (decrease) in fund balance 12.1 6.7
Beginning fund balance (as restated)142.4 154.5
Ending fund balance $154.5 $161.2
2013-14
Total
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE
GENERAL FUND
(in millions of dollars)
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The General Fund is the main operating fund of the city, and at the end of the fiscal year had a total fund balance of
$161.2 million, an increase of $6.7 million. The unassigned fund balance portion of the General Fund was $75.6 million. The increase in revenues was primarily due to the increases in the leading tax revenues, sales tax and transient occupancy taxes. As the economy continues to show signs of improvement, these revenues rose which
resulted in the majority of the increases in the General Fund. Income from property and investments also showed a significant increase for the year. Since the General Capital Construction (GCC) Fund is funded entirely with General Fund money, the city decided to record the earned interest associated with the GCC fund in the General Fund. Small
decreases were seen in property taxes due to one-time revenues received in the prior year from the dissolution of the former Redevelopment Agency; a one-time large refund received in the prior fiscal year for administrative fees associated with the collection of the triple flip sales tax and VLF-in-lieu revenues (miscellaneous revenues); and
revenues received last year for a habitat restoration grant and funds received from SANDAG for freeway emergencies (intergovernmental revenues).
In the city’s 2013-14 Fiscal Year budget, maintenance and operations budgets were kept relatively flat for all departments, unless increases were required for new facilities, such as the new Alga Norte Community Park. A total of 6.75 full-time positions were eliminated. These reductions were partially offset by anticipated increases in health, retirement and previously negotiated salary and benefit increases. Additional costs associated with a $1.4 million
transfer from the General Fund to the city’s General Capital Construction Fund to pay for seven new Village and Barrio revitalization projects, an additional transfer to the General Liability Fund for increases to settlements and
estimated claims payable, and a higher annual transfer to the Infrastructure Replacement Fund which is based on projected General Fund revenues led to higher transfers out of the General Fund. Overall, the General Fund budget increased by $4.5 million for the 2013-14 Fiscal Year. The majority of this increase ($2.9 million) was due to an increase in budgeted transfers out from the General Fund to other city funds, additional personnel costs and the opening
of the new Alga Norte Community Park. The Community Facilities District No. 1 fund continues to collect assessments for the future construction of city
infrastructure and facilities. The General Capital Construction (GCC) Fund received a transfer from the General Fund for the funding of several
Village and Barrio revitalization projects that are currently being completed. The fund balance in the Infrastructure Replacement Fund increased as the city continues to transfer funds from the
General Fund on an annual basis for the future replacement of current infrastructure and facilities.
Due to the construction of the new Alga Norte Community Park, the Public Facilities Construction Fund (PFF) saw
its fund balance decrease by just under $8.9 million. The reduction in the fund balance of the PFF fund was anticipated, as the city has been setting aside money for several
years for the construction of various projects within this fund. Historically, the city has not issued debt to fund the
construction of capital projects, and sets aside funds on an annual basis until sufficient funds have been collected for the construction of the project. In addition, projects will not be constructed until anticipated annual operating costs
can be absorbed into the city’s budget without creating a deficit.
Proprietary Funds
The purpose of the city’s proprietary funds is to provide short- and long-term financial information about the city’s business-type activities. The analysis focuses on the determination of operating income, changes in net position (cost
recovery), financial position, and cash flows.
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The Carlsbad Municipal Water District (CMWD) funds had an operating gain of approximately $3.6 million for the year. Operating revenues were just under $46.8 million and operating expenses were slightly over $43.1 million. The
largest factor resulting in the operating gain is the increase in water sales revenue due to increased rates. Impacted by the continued annual increases in water rates (about 8 percent in January 2013 and 5 percent in January 2014), residents
continued to conserve water during the year. A level II drought alert was declared during the year, with water restrictions put in place. Consumers are being advised to use water wisely and reduce where practical because water
in general, is a dwindling resource. The cost of purchased water from the Metropolitan Water District and the San Diego County Water Authority (suppliers of the District’s potable water) continues to increase and, therefore, CMWD
rates must increase to cover the added cost. The bi-annual update of the city’s cost allocation plan resulted in decreased fees associated with miscellaneous charges for services. A large factor in the drop in miscellaneous revenues was a
$1.6 million reimbursement from the 2005 Marbella lawsuit in the prior fiscal year. Higher purchased water costs resulting from additional water purchases and rate increases and the continuation of the Automated Meter Reading
(AMR) program led to the $2.2 increase in operating expenses. Non-operating revenues from investment earnings on the capital replacement funds and property tax receipts added to the operating gain, resulting in income before transfers
and capital contributions of $7.6 million.
In the seventh year of operation, the Golf Course Fund had an operating loss of $3.1 million, primarily due to depreciating the enterprise's assets ($3.5 million). When golf course operating revenues are not sufficient to cover
golf course operating expenses, the General Fund will make contributions in the form of lease payments to pay for the shortfall. Food and beverage sales at the golf course restaurant (The Canyons) remain strong, and golf revenues are
on the rise due to an increase in fees charged at the course (although golf rounds were down slightly for the year).
The Wastewater Funds had an annual operating gain of $382,000 for the fiscal year. Total revenues from operations increased $494,000 from the previous year due to service charge rate increases. In addition, operating expenses
decreased by $987,000 from the previous fiscal year. Decreases in depreciation expense (due to adjustments made to the investment in the Encina plant), and an increase in capitalized assets, account for the decrease in operating
expenses. Non-operating revenues of $749,000 added to the operating income, resulting in a net gain of $1.1 million before transfers and capital contributions.
Solid Waste Operations and Storm Water Programs are combined on the city’s financial reports, and showed a net
operating income of $549,000 for the year. Revenues were up moderately due to two factors. First, the City of Carlsbad was the lead agency for a regional water quality improvement plan, and received reimbursements from the
other co-permit participants. In addition, the city received additional beverage container grant revenues for the year. Expenses for the year remained relatively flat. This was the net result of additional expenses associated with the costs
resulting from fronting the expenses associated with being the lead agency on the regional water quality improvement plan mentioned above, offset by a reallocation of staffing to better reflect the work being done in the enterprise.
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The unrestricted net position for the Water, Golf Course, Wastewater, and Solid Waste Operations at the end of the
year amounted to $66.1 million, or approximately 15.8 percent of the total enterprise fund net position. The
unrestricted net position may be used for rate stabilization, fluctuations in operating expenses, and unforeseen repairs and maintenance. Approximately $47 million, or 11.1 percent, of the net position of all the proprietary funds are restricted for the future capital construction of new and replacement water and wastewater infrastructure assets. Since
the funding for the replacement of infrastructure assets is not restricted, it is reflected in the Statement of Net Position as unrestricted. The city does, however, account for and monitor these amounts in separate funds to ensure that water and wastewater assets can be replaced when needed. The large unrestricted net position deficit balance in the Golf
Course Fund represents funds advanced from the city’s General Fund that were used to fund construction, former operating losses and debt expenses of the municipal golf course.
General Fund Budgetary Highlights for Fiscal Year 2014 Management monitors revenues during the year and updates estimated revenue figures when new information is
received by the city. General Fund revenue estimates were only modified slightly during the year as compared to the originally budgeted estimates. Some of the factors that led to the $2.3 million increase in revenue estimates included:
Several new federal and state grants were applied for and received during the year.
Increased transient occupancy tax (TOT) revenue received as a result a new hotel and an increase in tourism and occupancy.
Higher sales tax revenues derived from a recovering economy.
Increased interest resulting from allowing the interest earned on cash balances in the city’s General Capital Construction (GCC) Fund to be recorded in the city’s General Fund since the GCC is funded entirely by the
General Fund.
The increase from the total original expenditure budget to the final budget amounted to $2.6 million, due primarily to:
The appropriation of the grant money received.
Sales tax audit expenses.
Developer funded studies.
Appropriation for the 2014 Poinsettia Fire damages.
Police and fire labor negotiations.
The difference between the final budgeted expenditures and the actual expenditures for the year (on a budgetary basis)
of $20.6 million can be generally summarized as follows:
Interdepartmental charges were $150,000 below estimates, which are offset against expenditures for reporting purposes in the financial statements.
$20.7 million in “savings” by the various major service areas within the city. Current year savings were generated
from:
Unfilled vacancies.
Overall awareness of fiscal responsibility throughout the city.
Deferral of projects.
Accumulated savings set aside for future technology and innovation enhancements.
The $20.7 million in “savings” are planned to be used for:
Police radios.
The Community Paramedicine pilot program.
Fire and Police equipment replacement.
An enhanced customer service initiative in Community and Economic Development.
A library radio frequency identification system.
A library automated materials handling upgrade.
Replacement of library furniture and equipment.
The Parks Master Plan update.
Monroe Street Pool renovations.
Minor building renovations.
LED lighting retrofitting.
Traffic signal upgrades/modifications.
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Hardware and software upgrades related to a new Integrated Community Development System
(permitting and business license system).
Software upgrades related to a new Enterprise Content Management (ECM) system.
Innovation projects throughout the city (including hardware and software).
Other one-time capital outlay items, as needed, throughout the city.
For purposes of budgetary presentation, actual revenues have been adjusted to exclude unrealized gains and losses in
investments pursuant to GASB 31; actual expenditures have been adjusted to include remaining encumbrances. Capital Asset and Debt Administration
Capital Assets
At the end of Fiscal Year 2013-14, the city had recorded investments of just over $1.1 billion in a broad range of capital assets, including park facilities, land, buildings, roads, bridges, drainage facilities, water and sewer lines, police
and fire vehicles, and other maintenance equipment. This number includes infrastructure assets of the general government which are required per GASB 34.
Some of this year’s major capital asset additions included:
The opening of Alga Norte Community Park.
The Buena Vista lift station and force main.
College Blvd. /Cannon Road BNB and BJB drainage facilities.
The purchase of two ambulances and one fire truck.
Developer-dedicated streets, drainage facilities, traffic signals, water and sewer lines, and streetlights in La Costa Oaks North.
The police CAD system.
Several waterline projects.
Several storm drain projects.
In addition to carrying forward appropriations of $186.9 million for previously budgeted projects, the city’s Fiscal Year 2014-15 capital budget appropriates an additional $69.7 million for capital projects. These additional
appropriations are principally for the remodeling and refurbishments at both the Cole and Dove Libraries, the pavement management program, the acquisition of open space (Prop C projects), the Buena interceptor sewer/manhole
rehabilitation, the Vista/Carlsbad sewer interceptor, the Terramar sewer replacement, the tri-agencies water transmission pipeline replacement, the Carlsbad Blvd. realignment project (Coastal Corridor Project), facilities
maintenance projects, miscellaneous street projects, enhancing the wastewater collection system, additional water and recycled water lines, the water reservoir repair/replacement program, several drainage projects, improvements at the
Total
Percentage
Change Change
2013 2014 2013 2014 2013 2014 2013-14 2013-14
Land $150.6 $150.5 $9.3 $9.3 $159.9 $159.8 ($0.1) -0.1%
Construction in progress 47.3 18.3 7.6 9.8 54.9 28.1 (26.8) -48.8%
Buildings and other structures 101.3 114.4 40.6 40.6 141.9 155.0 13.1 9.2%
Improvements other than buildings 45.5 70.9 50.8 50.9 96.3 121.8 25.5 26.5%
Machinery and equipment 28.3 33.3 2.8 3.3 31.1 36.6 5.5 17.7%
Infrastructure 655.8 663.9 314.5 318.1 970.3 982.0 11.7 1.2%
Wastewater treatment facility - - 52.6 54.5 52.6 54.5 1.9 3.6%
Intangibles 3.2 3.2 - - 3.2 3.2 - 0.0%
1,032.0 1,054.5 478.2 486.5 1,510.2 1,541.0 30.8 2.0%
Accumulated depreciation (249.3) (270.3) (121.1) (145.5) (382.5) (415.8) (33.3) 8.7%
Total $782.7 $784.2 $357.1 $341.0 $1,127.7 $1,125.2 ($2.5) -0.2%
Activities Activities Total
CITY OF CARLSBAD'S CAPITAL ASSETS
(in millions of dollars)
Governmental Business-Type
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Encina water pollution control facility, and miscellaneous civic projects, loans and repayments. These projects will
be financed by development fees, infrastructure and replacement transfers from the General Fund, special district fees
and taxes, Water and Wastewater replacement reserves, and other sources including grants and contributions from other agencies. More detailed information about the city’s capital assets is presented in Note 6 to the financial statements and in the city’s Capital Improvement Program document, which can be obtained from the Finance
Department.
Long-Term Debt
At year-end, the city had $37.6 million in bonds, loans, and agreements, a decrease of $2.9 million from last year, as shown in the table below. Payments made on all of the city’s outstanding debt created the reduction in the city’s total
debt at the end of the fiscal year. More detail about the city’s long-term liabilities is presented in Note 8 to the financial statements.
Economic Factors and Next Year’s Budgets and Rates for Fiscal Year 2015
The State of California adopted its Fiscal Year 2014-15 Annual Budget with the following provisions affecting the city:
Governor Brown’s submitted budget is the first balanced budget in over a decade.
Budget sets aside $1.6 billion in a budget stabilization account to allow the state to face future uncertainties.
The state implemented the “Triple Flip” in Fiscal Year 2004-05, whereby the city’s sales tax receipts were reduced by one-quarter, and this reduction was made up with property taxes equating to the same amount.
This will continue in the 2014-15 Fiscal Year.
The “Triple Flip” swap will have no effect on the ultimate amount of revenue the city receives, but it will result in a delay in the timing of the receipt of money by the city. The “Triple Flip” is set to expire in Fiscal
Year 2014-15, with the final clean-up payment to be made in Fiscal Year 2015-16.
Through the passage of Proposition 30, additional sales tax and income tax revenues are expected to be generated at the state level. The sales tax increase expires in 2016, followed by expiration of the income tax
increase in 2018.
Assembly Bill 340 was previously passed in an effort to address growing pension costs at both the state and local levels. This should decrease pension costs in the long-run, but more reforms are being proposed, including a measure proposed by San Jose Mayor Chuck Reed, which would effectively allow cities to
change pension benefits going forward for public employees.
Net assessed values in the city stand at almost $25.9 billion, an 8.4 percent increase from the prior fiscal year
due to new construction and escalating home and commercial property values.
Sales tax revenues are projected to continue to grow modestly with a 2 percent forecasted increase in the Fiscal Year 2014-15 Budget due in part to new additions in Carlsbad, such as La Costa Town Square, and will continue to benefit from recent additions, such as the opening of the new LEGOLAND Hotel and the Palomar Commons (Lowes) shopping center.
Due to the overall improvement in the national and state economies, tourism has been bolstered in the region, and the San Diego Tourism Authority expects demand for hotel rooms to continue rebounding in 2014. Transient
occupancy taxes (TOT) are therefore expected to grow by 3 percent.
PERS rates for the miscellaneous plan have increased for Fiscal Year 2014-15 from 24 percent to 25.1 percent, and rates have also increased from 33.9 percent to 35.3 percent for the safety plan.
Total
Percentage
Change
2013 2014 2013 2014 2013 2014 2013-14
Bonds $0.0 $0.0 $17.0 $16.7 $17.0 $16.7 -1.8%
Loans 0.2 - 21.3 19.8 21.5 19.8 -7.9%
Installment purchase agreement - - 1.8 0.9 1.8 0.9 -50.0%
Adjusted by: premiums/discounts - - 0.2 0.2 0.2 0.2 0.0%
Total $0.2 $0.0 $40.3 $37.6 $40.5 $37.6 -7.2%
Activities Activities Total
CITY OF CARLSBAD'S OUTSTANDING DEBT
(in millions of dollars)
Governmental Business-Type
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Median home prices in Carlsbad have increased by 10 percent from the first quarter of 2013 ($655,000) to the
first quarter of 2014 ($720,000).
City departments were given maximum increases of 2 percent for maintenance and operational funding to cover changes in the Consumer Price Index (CPI), minimal new capital outlay, and additional personnel funding for
only existing contractual obligations.
The city added 10 full-time positions and eliminated 8 positions to better align staff with the services the city
provides.
Through Memorandum of Understandings (MOU’s):
o The Carlsbad City Employees’ Association (CCEA) will receive an allocated share of a 4 percent
raise/stipend pool on December 31, 2014.
o Police, Fire and General Management employees will receive an allocated share of a 4 percent raise/stipend
pool on December 31, 2014.
o The Carlsbad Firefighters Association (CFA) will receive education incentives based on meeting eligibility
requirements and a $1,000 stipend per person in January 2015.
o The Carlsbad Police Management Association (CPMA) are currently in negotiations.
These factors were considered when preparing the City of Carlsbad’s General Fund budget for Fiscal Year 2014-15.
Budgeted expenditures are expected to increase 4.1 percent to $124.6 million. The total personnel budget for Fiscal Year 2014-15 is $78.3 million, which is 5.4 percent more than the previous year’s personnel budget of $74.3 million.
The total maintenance and operations (M&O) budget for Fiscal Year 2014-15 is $36.1 million, which is 4.5 percent higher than the previous year’s budget of $31.6 million. The increase in personnel budgets is based on previously
negotiated salary and benefit increases and the net addition of two new staff members. Higher M&O budgets reflect the opening of the new Alga Norte Community Park, higher utility costs, additional plan check services, higher internal
service fund charges (information technology, workers’ compensation and fleet), and CPI adjustments given to the various operating departments. Operating transfers out of the General Fund are budgeted at $10.1 million, a $3.7
million decrease from the prior fiscal year. This decrease is due to the city previously budgeting for a $2,000,000 transfer to the city’s Self-Insured Benefits Fund as a set aside to address anticipated future pension rate increases from
CalPERS and a $1.5 million transfer to the city’s General Capital Construction Fund to pay for seven new village and barrio revitalization projects in the previous fiscal year. Adding to the adopted budget of $124.6 million for the
General Fund, approximately $20.7 million in unspent Fiscal Year 2013-14 budgeted expenditures will be carried over to Fiscal Year 2014-15, as well as $7.1 million in open encumbrances as of June 30, 2014.
As the city is approaching the buildout of its remaining vacant land, the city is ushering in a new era, focusing on
maintaining infrastructure rather than building it. In an effort to address this issue, the city has developed an Infrastructure Replacement Fund (IRF). In this fund, the city sets aside money on an annual basis for major
maintenance and replacement of its infrastructure. In the Fiscal Year 2014-15 Operating Budget, the city has budgeted an $8.3 million transfer from the General Fund to the IRF to meet future needs.
During the current fiscal year, the unassigned fund balance in the General Fund increased by $6 million to $75.6
million due to fiscal discipline, a strong tourism season combined with a new hotel (increased TOT revenues), a rebounding economy (higher sales taxes), higher income from investments due to the recording of interest earnings
on GCC cash in the General Fund, and higher than anticipated development within the city (increased development related services revenue). Based on Fiscal Year 2014-15 projections, the unassigned General Fund balance is expected
to grow approximately $4.3 million.
There appears to be sufficient revenue projected to build the projects listed in the Fiscal Year 2014-15 Capital Improvement Program (CIP).
The city’s business-type activities reflect the following:
The combined fixed and variable costs of water purchased from the San Diego County Water Authority are
projected to rise about 5 percent and 3.6 percent respectively in Fiscal Year 2014-15. In November 2013, a public meeting was held to determine the maximum water rate increases effective for both January 1, 2014 and
January 1, 2015. It was proposed then that water rates would increase by a maximum of 5 percent on January 1, 2015. This rate increase was used in preparing the Fiscal Year 2014-15 water budget. The proposed rate increase
is needed to fund the additional cost of purchased water, and to maintain an adequate reserve balance.
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Proposed wastewater rate increases were also discussed during the public meeting held in November 2013. The
proposed maximum rate increases of 2 percent per year were approved, to be effective January 1, 2014 and January 1, 2015. This proposed rate increase is needed to assist with higher depreciation expenses from the
addition of completed facilities to the inventory, and to maintain an adequate reserve balance.
The Fiscal Year 2014-15 budget reflects a projected operating loss of over $1 million for the Golf Course Fund. The City Council has authorized the General Fund to transfer adequate funds to cover the anticipated loss to the
Golf Course Fund during the fiscal year.
There are no projected significant changes in other revenue sources.
Contacting the City’s Financial Management
This financial report is designed to provide the citizens, taxpayers, customers, investors, and creditors with a general
overview of the city’s finances and to demonstrate the city’s accountability for the money it receives. If you have any questions about this report or need additional information, contact the Administrative Services Department,
1635 Faraday Avenue, Carlsbad, CA 92008, (760) 602-2430, or visit us online at www.carlsbadca.gov.
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