HomeMy WebLinkAbout2019-11-07; California State Auditors Fiscal Health Analysis of California Cities; Rocha, LauraTo the members of the:
CITY COUNCIL
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Nov. 7, 2019
Council Memorandum
To: Honorable Mayor Hall and Members of the City Council
From: Laura Rocha, Deputy City Manager, Administrative Services
Via: i::orElaine Lu key, Chief Operations Office~
Re: California State Auditor's Fiscal Health Analysis of California Cities
{city of
Carlsbad
Memo ID# 2019128
This memorandum provides information related to the Fiscal Health Analysis of California cities
as determined by the Auditor of the State of California.
Background
The Auditor of the State of California {Auditor) recently put together a Local Government Agency
Audit Program to identify cities that could be facing fiscal challenges by assessing their levels of
risk using various financial indicators. The risk assessment ranking for each city can be accessed
on the Auditor's website here -https://www.auditor.ca.gov/bsa/cities risk index.
Discussion
The Auditor's Local Government Agency Audit Program (Program) is designed to identify cities
that could potentially be facing fiscal distress. The Program involves performing a financial
analysis using audited financial information from cities' comprehensive annual financial reports
{CAFR) beginning with fiscal year 2016-17. California cities were ranked by the following financial
indicators:
• Cash Position/Liquidity
. • Debt Burden
• Financial Reserves
• Revenue Trends
• Retirement Obligations
In addition, the Auditor also gave each city an overall risk assessment ranking which considered
all indicators taken as a whole. Cities that could be facing fiscal challenges or fiscal distress were
given high-risk assessment rankings by the Auditor.
Finance Department staff reached out to the Auditor to better understand the City of Carlsbad's
rank as compared to some of the neighboring cities and to verify the accuracy of the data used.
The Auditor provided the details of the data and calculations used to determine the financial
indicator score and subsequent ranking.
Administrative Service Branch
Finance Department
1635 Faraday Avenue I Carlsbad, CA 92008 I 760-602-2430 t
Honorable Mayor Hall and Members of the City Council
Nov. 7, 2019
Page 2
The risk assessment ranking for the City of Carlsbad was extremely low based on the data
analyzed in the city's fiscal year 2016-17 CAFR. The ranking would have been even lower had the
General Fund operating expenditures for fiscal year 2016-17 not included the payoff of the golf
course bonds and an additional unfunded liability payment to CalPERS. Because these one-time,
non-operating expenditures were used as part of the financial analysis, it inflated the General
Fund operating expenditures which was a factor in determining some of the financial reserve
ratings.
The Auditor informed staff that they would not consider any of the details included in the line
items identified in the CAFR. They would only be using the line item data as identified as revenue
or expenditures as shown in the CAFR, no exceptions.
For this fiscal year 2016-17, while it appears that Carlsbad may not have as low of a risk
assessment ranking as some of our neighboring cities, it is important to understand any unusual,
one-time expenditures or revenues, in any given year, that may either inflate or deflate the
factors used in determining the risk assessment rank. City staff is confident that after
understanding the fiscal health analysis as performed by the Auditor, the city is positioned well in
terms of fiscal health and not considered to be in fiscal distress.
Next Steps
It is the intent of the Auditor to continue using this fiscal health analysis Audit Program to
determine the risk assessment rank for California cities each year. City staff will continue to
monitor this website to ensure that the accuracy of the data is as reported in the city's CAFR.
cc: Scott Chadwick, City Manager
Celia Brewer, City Attorney
Gary Barberio, Deputy City Manager, Community Services
Paz Gomez, Deputy City Manager, Public Works