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HomeMy WebLinkAbout; ; 2014-2015 CAFR; 2015-06-30Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2015 COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED JUNE 30, 2015 1635 Faraday Avenue, Carlsbad, CA 92008 Website: www.carlsbadca.gov Prepared by the Finance Department Introductory Section Introductory Section Introductory Section Introductory Section November 30, 2015 Honorable Mayor, City Council, and Citizens of the City of Carlsbad CITY OF CARLSBAD Carlsbad, CA 92008 LETTER OF TRANSMITTAL 2014-15 COMPREHENSIVE ANNUAL FINANCIAL REPORT Honorable Mayor, City Council, and Citizens: I am pleased to present the Fiscal Year 2014-15 Comprehensive Annual Financial Report for the City of Carlsbad. The information found in this report is provided by management to the City Council and the public to assist those interested in understanding the fiscal condition of the city as of June 30, 2015. Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal controls that it has established for this purpose. Because the cost of internal controls should not outweigh its benefits, the city’s comprehensive framework of internal controls has been designed to provide reasonable, rather than absolute, assurance that the financial statements will be free from material misstatement. State law and the city’s Municipal Code require that an annual financial report is prepared. This report fulfills that obligation. It has been prepared in conformity with generally accepted accounting principles (GAAP) and with the financial reporting requirements prescribed by the Governmental Accounting Standards Board (GASB). The independent auditing firm of Davis Farr LLP has issued an unqualified (“clean”) opinion on the City of Carlsbad’s financial statements for the year ended June 30, 2015. The independent auditor’s report is located at the front of the financial section of this report. Management’s Discussion & Analysis (MD&A) immediately follows the independent auditor’s report and provides a narrative introduction, overview and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it. Also, as a recipient of federal and state financial assistance, the city is required to have a “Single Audit” performed by our independent audit firm. The Single Audit was designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require that the independent auditor report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the city’s separately issued Compliance Reports and Other Financial Information. The results of the city’s Single Audit for the fiscal year ended June 30, 2015 noted no material weaknesses in the framework of internal controls, or significant violations of applicable laws and regulations. PROFILE OF THE CITY OF CARLSBAD Carlsbad incorporated in 1952 as a General Law City, although its “village” area dates back more than 100 years. In June 2008, the voters of Carlsbad overwhelmingly approved the city to change to a Charter City. Carlsbad is located on the southern California coast, about 35 miles north of the City of San Diego. The city is governed by a five member City Council under the Council Manager form of government. The City Council is elected at large, on a staggered basis, for a term of four years. The City Clerk and City Treasurer are also elected to four-year terms. The City Council appoints the City Manager and City Attorney. 1 The city covers approximately 39 square miles and has a population of 110,653, with an expected built out population of 120,000 residents. Commercial activities in the city include a major regional shopping center; a specialty outlet center; a commercial center with upscale retail shops; 38 hotels offering 4,400 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 545 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. 2 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, began to level off at the end of June 2015, but continued to be positive. Carlsbad’s economy is tied closely to that of the San Diego region. For Fiscal Year 2014-15, property taxes increased by 8 percent compared to the prior year, as assessed values rose and temporary reductions in property tax bills expired. Transient Occupancy Tax (TOT), a gauge of local tourism activity, increased by approximately 13 percent, as occupancy and average daily rates (ADR) continue to improve, and the city added three new hotels. Sales tax revenues finished Fiscal Year 2014-15 with an increase of over 5 percent, as the city sees continued strength in auto sales and benefits from the addition of retail business. Overall, General Fund revenues ended the current fiscal year at $138.7 million, an increase of over 10 percent compared to the prior year. In Fiscal Year 2015-16, we forecast continued strength, as General Fund revenues are expected to increase by almost 3 percent. 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 169,000 square feet per year over the next five fiscal years. Large industrial and commercial developments in the next five years include Dos Colinas Retirement Community, the Floral Trade Center, and the expansion of the Viasat campus. 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 17 percent in the first quarter of 2014. Industrial vacancy remains at 10 percent and retail vacancy for the first quarter of 2015 was 3 percent, according to data from CoStar. 3 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 $734,000 in the first quarter of 2015, an increase of less than 2 percent compared to the same quarter in 2014. According to Movoto, inventory of units for sale have increased by 14 percent in Carlsbad, from 324 units in April 2014 to 370 units for sale, this past April. Total assessed property values in the city are $24.9 billion, an increase of 8.5 percent compared to the prior fiscal year (Fiscal Year 2013-14). According to recent growth projections prepared for the city, Carlsbad will add over 1,700 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 tax 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 the fall of 2013, and La Costa Town Square – a commercial center, opened in Fiscal Year 2014-15. 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 a Holiday Inn, a Fairfield Inn & Suites, and a StayBridge Suites. 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 2015-16, General Fund revenue is projected to increase by 2.8 percent from the previous year’s estimates. Most major sources of tax revenue are expected to increase slightly in Fiscal Year 2015-156, including property tax (4 percent increase). Sales tax is expected to increase by 5.3 percent (due in part to one-time revenues to be received from the wind down of the state’s Triple Flip) and TOT revenues are projected to increase by 6 percent as occupancy and average daily rates increase and new hotels, such as the LEGOLAND Hotel, continue to draw visitors. Home values are showing stable appreciation, which is expected to improve assessed values in the coming years. Development related revenue items are forecast to decrease significantly in Fiscal Year 2015-16, due primarily to a slowdown 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, is providing a respite from ongoing fiscal pressure in California, but the greatest hope for future state budgets is an improving economy. The budget for Fiscal Year 2015-16 is a tenuous balancing act, using projected revenues of $113.4 billion to cover $113.3 billion in expenditures. In November, voters approved Proposition 2, which sets aside additional revenues, primarily from capital gains, to address future economic downturns, instead of increasing ongoing expenditures. At the end of the year, this “rainy day” fund is projected to have a balance of $2.8 billion. Still, the Governor’s budget message acknowledges the ongoing fiscal stress in the state, driven by rising costs from health care, wildfires, and mandates imposed on our prison system. Changes in 4 federal immigration policy could increase future expenditures by hundreds of millions of dollars. The Fiscal Year 2015-16 California budget projects that, indeed, the state will begin to spend more than it receives in revenues in 2018-19. Another sobering fiscal matter is the amount of liabilities attributable to employee pension and health care benefits. Total state debt and liabilities are $227 billion, of which $222.2 billion is for health and pension liabilities. Finally, the temporary quarter-cent sales tax expires in 2016, followed by the sunset of the temporary income tax increase in 2018. California, as mentioned previously, continues to face sizable pension liabilities. Reforms enacted in 2012 increase cost sharing for employees, increase retirement ages for new employees, and reduced pension benefit formulas. Additionally, the governor signed a funding plan in 2014 that will address the $74 billion shortfall in teacher pension liabilities over thirty years, similar to the plan enacted by CalPERS. General Fund expenditures in the proposed budget increased by 1.4 percent, down significantly from the 8.5 percent increase a year ago. The budget also addresses issues such as climate change and water management. 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, and plan 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 we maintain a structurally balanced budget in the long term, the city 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 we find ourselves 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 we 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 priority projects, reducing and/or eliminating cost of living salary increases, requiring 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. 5 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 General Fund 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 Park, are also captured in the forecast. Economic conditions at the national, state, and local level are expected to continue to improve 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 continues to be positive and revenues are expected to exceed ongoing operating costs over the period of the forecast. The forecast assumes that General Fund revenues will increase by approximately three percent in Fiscal Year 2015-16, as economic conditions continue to improve, bolstering revenues from the property taxes, sales taxes and TOT. To project the expenditures, all known changes in personnel and maintenance and operations costs are accounted for. However, the effects of future negotiations with employee bargaining units are not contemplated in the current ten-year forecast. The forecast also captures increases in operating costs associated with planned capital improvements, such as parks as civic facilities. The forecast assumes that the city’s cost for employee health care will increase by five 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 35 percent from Fiscal Year 2015-16 to Fiscal Year 2019-20, after which costs stabilize and may even decrease. The forecast further assumes that no new positions are authorized after Fiscal Year 2015-16, 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 6 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 2015-16 and revenues exceed expenses over the life of the forecast. Although the revenue forecast is optimistic, Carlsbad faces the same challenges that plague the national and state economies, including the unknown impact and duration of the current drought and rising health costs. 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 duration of the investments in the city’s investment pool as of June 30, 2015 was 1.937. The average return realized on the pooled investments increased from 1.045 percent in Fiscal Year 2013-14 to 1.086 percent for Fiscal Year 2014-15, and it is expected to further increase 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 0.145 percent for Fiscal Year 2014-15. 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 2015-16 Capital Budget, several significant projects are in design or under construction over the next five years. Some of the notable capital projects include the following: PARK PROJECTS The city is in the process of updating existing city park master plans based on the outcomes of a recent needs assessment that re-evaluated current and future park needs. -2.50% -2.00% -1.50% -1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00%Unreal G/L % Historical Unrealized Gains/Losses as Percent of Amortized Cost July 2007 –June 2015 7 Multi-Use/Multi-Generational Community Center – As a result of the needs assessment, funds are included to study the feasibility of a multi-use, multi-generation indoor community center, located at Poinsettia Park, which will serve a larger cross section of the community. Leo Carrillo Phase III – Located in the southeast quadrant of the city, a recent update re-evaluated the remainder of the Carrillo Ranch Master Plan and prioritized projects based on community input to make sure that the proposed project amenities are serving the greatest need of the community. Expenditures include restoration of the horse stables. The total estimated cost is $980,000. Pine Avenue Park Community Facility and Garden Areas – The remaining elements of the park include a multi-purpose community center and gymnasium, a community garden with rentable plots, and a botanical/ornamental garden. This final phase of the park is estimated at $10.4 million. Aviara Community Park Amphitheater and Picnic Areas – The additional park amenities include a large passive outdoor community social space with a small amphitheater, group picnic areas, a perimeter walking path and a warming kitchen complete with appliances to support outside catering and food and beverage services and small events. The total cost is $3.1 million. Poinsettia Community Park – Park improvements include a fenced dog park for both large and small dogs, updated tot lots and a multi-sports arena with a picnic area and artificial turf field, at a total cost of $3.9 million. Outdoor Adventure Park Feasibility Study – The proposed Capital Plan includes funding to study the feasibility and possible location of an outdoor adventure park for recreational activities not typically done in community centers or gymnasiums, such as a bike skills course, rope skills, zip lines, and rock climbing. CIVIC FACILITIES Civic facilities include a variety of facilities from which the city can offer its services to the public. Library Renovation Projects – Funding was previously budgeted for significant renovation projects 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 communications services for the public. Renovation at Cole Library is expected to begin in the fall of 2015 and be complete around the end of the year. Dove Library improvements will begin after the Cole Library is re-opened and is planned for completion by June 2016. Safety Center Improvements – Improvements include new and renovated office space, a new lobby wall, an expanded women’s locker room and dispatch area, as well as lighting and HVAC improvements. The total estimated cost is $3.2 million. Maintenance & Operations Center – This city facility will bring together offices, the maintenance yard, a warehouse, and parking to accommodate the various work groups at one location, currently planned near the existing Safety Center and Fleet yard. The total estimated construction cost is $25.9 million. 8 Facilities Maintenance – As the city facilities begin to age, maintenance and repair projects are needed to keep them in good condition. New projects have currently been identified at a total cost of about $8.9 million. Projects are planned at the following locations:  Aviara Community Park – Synthetic turf replacement  City Hall Complex refurbishment  EOC Relocation  Faraday Facility rehabilitation  Fire Station No. 1  Fleet Maintenance  Harding Center Trails – Additional funding is included for the Lake Calavera Trails system for restrooms and a drinking fountain. STREET AND CIRCULATION PROJECTS People of all ages and abilities want to go places safely and conveniently in Carlsbad. Whether they drive, walk, bike, or ride a bus or train. The livable streets concept, also called "complete streets," acknowledges that streets are an important part of the livability of today's communities and ought to be for everyone. Carlsbad has made livable streets a priority when planning and constructing improvements to city roadways. In addition to constructing improvements, the city continues to invest in the maintenance and operation of the transportation infrastructure by providing timely repairs and rehabilitation of the public assets associated with the roadways and public rights of way throughout the city. ADA Improvements – ADA projects throughout the city are scheduled for $1.2 million in funding over the next five years. The project includes various accessibility improvements, including sidewalk curb ramps and pedestrian signals. Public Beach Access Improvements – This project will make improvements to beach access locations along Ocean Street, including removal and replacement of stairs, installation of shade structures, improved signage, trash receptacles and landscaping. The total cost is $2.6 million. 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 FY 2016-17. The CIP includes $5.4 million to fund this project in the next five years. Street Road Diet and Traffic Calming Projects along Chestnut Avenue, Valley Street, Kelly Drive, and La Costa Avenue – Three new projects are planned in the next five years to provide complete street solutions so that the varied user of these roads, including pedestrians and bicyclists, are provided for in a balanced and equitable manner. The total cost is estimated at $8.2 million. Intersection Improvements – Two intersection projects along El Camino Real - at Cannon Road and at College Boulevard are scheduled to receive an additional $775,000 in the next five years. 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, $4.9 million in additional funding is included for these projects, which are expected to cost over $20 million by completion. 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 as they are identified. The FY 2015- 16 CIP has $18.5 million budgeted in the next five years for this program. 9 Parking Lot Maintenance Program – Parking lot maintenance is a relatively new program and is scheduled to receive funding of $845,000 in the next five years. Concrete Repair and Maintenance – The proposed spending plan included $1 million in the next five years for repairs to sidewalks, curb and gutter, pedestrian ramps, driveway approaches and cross gutters. Traffic Signals – In the next five years, four traffic signal installations are planned at the following locations, at a total cost of $780,000:  El Fuerte Street and Rancho Pancho  Faraday Avenue and Camino Hills Drive  Faraday Avenue and Palmer Way  La Costa Avenue and Levante Street WATER/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 will become 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 $32.4 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 $64.3 million, of which the remaining $20 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 wastewater facilities scheduled for construction or replacement within the next five years include:  Buena Interceptor Sewer Improvements  Chinquapin  Crest Drive  Faraday/El Camino Real Sewer Replacement  Las Palmas Trunk Sewer  Marron Road  North Batiquitos  Poinsettia Lane Lift Station Emergency Overflow Basin  Quarry Creek Sewer Extension  Terramar Sewer Replacement In addition to the new construction and replacement projects and ongoing condition assessments, repairs and upgrades to the city’s wastewater facilities are expected to cost $2.1 million in the next five years. Water Lines Major water facilities scheduled for construction or replacement within the next five years are estimated at $35.9 million, and include the following locations:  Aviara Parkway and Plum Tree  Carlsbad Boulevard – South of Avenida Encinas  Crestview Drive  El Fuerte and Corintia 10  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  Poinsettia Lane – Casia Road to Skimmer Court  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 $30 million. These facilities are expected to meet the 76 percent increase in future recycled water demand. The expansion is expected to increase the recycled water supply from 4 to up to 8 mgd (million gallons per day). With diminishing potable water resources available, alternative supplies such as recycled and desalinated water become increasingly important in supplementing the total water supply. 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 will become necessary to repair and replace the lines that already exist. An additional $1.3 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, 2014. This was the seventeenth 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 Davis Farr LLP 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, Interim 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 11 City of Carlsbad provides exceptional, top quality services on a daily basis by proactively listening, engaging and responding to its residents.  Balanced community development: Be a city that connects community, place and spirit, through balanced and economically sustainable land uses.  Resident connection and partnership: Be a city that embraces community connectivity through the effective use of technological and interpersonal mediums.  Communication: Ensure that community members, council and staff are well informed, continuing to be a more responsive government while providing a high level of citizen confidence in its government.  Economic Development: Strengthen the city’s strong and diverse economy, supporting local businesses, attracting new businesses in targeted industries and solidifying the city’s position as a key employment hub.  Environmental management: An environmentally sensitive community by focusing on conservation, storm water, sewage collection and treatment, solid waste, and cost effective and efficient use of energy including alternative energy sources.  Financial health: Pursue and implement proactive strategies that support sustainable economic health and manage city resources effectively.  Learning, culture and arts: Promote and support continuous learning, cultural opportunities and the arts within the community and the city organization.  Parks, open spaces and trails: Acquire, develop and maintain a broad range of open space and recreational facilities that actively address citizen needs which are fiscally responsible, and are consistent with the general plan and growth management standards.  Safe community: Maintain a safe and secure community through collaborative partnerships. Public safety providers support high standards, deliver protection of life and property and encourage community involvement in prevention and preparedness efforts.  Transportation and circulation: Provide and support a safe and efficient transportation system that moves people, services and goods throughout the city.  Water: Ensure, in the most cost-effective manner, water quality and reliability to the maximum extent practical, to deliver high quality potable and reclaimed water incorporating drought-resistant community principles. Carlsbad City Council Fiscal Year 2015-16 Strategic Goals City Council continues to clarify and pursue the vision of Carlsbad that reflects the pride and quality of life. 12 13 14 15 ELECTORATECity ManagerCity Treasurer12/7/15KEYElectedCouncil AppointedCouncil AppointedOrganization ChartCity AttorneyCity CouncilCity ClerkPolice DepartmentAssistant City Manager(Operations)ArtsCommissionBeachPreservationCommitteeSeniorCommissionParks & RecCommissionLibrary BoardofTrusteesHistoricPreservationCommissionHousingCommissionTraffic SafetyCommissionPlanningCommissionCarlsbad TourismB.I.D. AdvisoryBoardCarlsbad Golf Lodging B.I.D. Advisory BoardFire DepartmentLibrary & Cultural ArtsCommunity & Economic DevelopmentParks & Recreation Housing & Neighborhood ServicesFinanceHuman ResourcesInformation TechnologyAdministrative Services Assistant City Manager(Projects)Public WorksCommunications Manager16 Financial Section Financial Section Financial SectionFinancial Section 17 18 19 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, 2015. 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 20 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. 21  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, 2015, as shown below, was $1.659 billion. The city’s net position decreased by $97.2 million as compared to the prior fiscal year. This was the combination of three prior period adjustments, totaling $138.1 million, partially offset by revenues exceeding expenses for the year totaling $40.9 million. The largest prior period adjustment was due to the implementation of Government Accounting Standards Board (GASB) 68. This GASB required the city to put their net pension liability on the books, which reduced the city’s net position. The decrease in the city’s net position would have been worse had it not been for a couple of key factors. First, although the city had to include its net pension liability in this year’s financial statements, the liability actually decreased during the year (from the initial date of recording the liability on July 1, 2014) due to strong earnings on the assets in the plan during Fiscal Year 2014-15, resulting in a net pension liability of $123.6 million for the city. Secondly, continued strength in the economy and increased development in the city led to revenues exceeding expenditures by $40.9 million for the year. The decrease in capital assets was the result of current year depreciation expenses exceeding the addition of new capital assets. In addition to the decrease in net position, the implementation of GASB 68 increased long-term debt, deferred outflows and deferred inflows. Other liabilities increased due to large year-end accruals from vendor invoices, salaries and benefits, and an error made by the State Board of Equalization creating an over payment of sales tax (this has been set aside in a liability to be repaid to the agency). 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 $1.659 billion at the close of the most recent fiscal year. A large portion of the city’s net position (65.7 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. Total Percentage Change 2014 2015 2014 2015 2014 2015 2014-15 Current and other assets $575.5 $604.5 $126.6 $139.5 $702.1 $744.0 6.0% Capital assets 784.2 783.3 341.0 340.7 1,125.2 1,124.0 -0.1% Total assets 1,359.7 1,387.8 467.6 480.2 1,827.3 1,868.0 2.2% Deferred outflows 0.0 13.8 0.0 1.1 0.0 14.9 100.0% Other liabilities 21.9 25.8 11.6 10.6 33.5 36.4 8.7% Net pension liability 0.0 114.3 37.6 9.3 37.6 123.6 228.7% Long-term debt outstanding 0.0 0.0 0.0 34.9 0.0 34.9 100.0% Total liabilities 21.9 140.1 49.2 54.8 71.1 194.9 174.1% Deferred inflows 0.0 26.9 0.0 2.1 0.0 29.0 100.0% Net position Net investment in capital assets 784.2 783.3 305.7 307.1 1,089.9 1,090.4 0.0% Restricted 225.0 227.8 46.6 47.3 271.6 275.1 1.3% Unrestricted 328.6 223.5 66.1 70.0 394.7 293.5 -25.6% Total net position $1,337.8 $1,234.6 $418.4 $424.4 $1,756.2 $1,659.0 -5.5% Total CITY OF CARLSBAD'S NET POSITION (in millions of dollars) Governmental Activities Business-Type Activities 22 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 (16.6 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position ($293.5 million) may be used to meet the government’s ongoing obligations to citizens and creditors. Just over 30 percent of the $223.5 million in unrestricted governmental activities net position is attributable to the General Fund. This is a large decrease from the previous fiscal year, due entirely to the implementation of GASB 68 and the inclusion of the city’s net pension liability in the financial statements. The net investment in capital assets for the city increased slightly during Fiscal Year 2014-15 due primarily to an increase in capital assets in the city’s business-type activities. These assets primarily include water and sewer lines. A portion of business-type net position represents the city’s municipal golf course. At the end of Fiscal Year 2014-15, 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 Total Percentage Change 2014 2015 2014 2015 2014 2015 2014-15 Revenues Program revenues Charges for services $16.7 $20.2 $69.6 $70.3 $86.3 $90.5 4.9% Operating grants and contributions 11.9 12.2 0.1 - 12.0 12.2 1.7% Capital grants and contributions 16.2 19.1 3.2 5.9 19.4 25.0 28.9% General revenues Property taxes 52.6 56.0 2.9 3.1 55.5 59.1 6.5% Sales and use taxes 30.5 32.1 - - 30.5 32.1 5.2% Other taxes 27.6 31.1 - - 27.6 31.1 12.7% Income from property and investments 6.9 4.6 2.5 1.9 9.4 6.5 -30.9% Other 0.5 0.6 - 0.6 0.5 1.2 140.0% Total revenues 162.9 175.9 78.3 81.8 241.2 257.7 6.8% Expenses General government 20.2 16.1 - - 20.2 16.1 -20.3% Public safety 48.9 48.8 - - 48.9 48.8 -0.2% Community development 16.3 17.2 - - 16.3 17.2 5.5% Community services 29.1 31.4 - - 29.1 31.4 7.9% Public works 30.3 36.3 - - 30.3 36.3 19.8% Carlsbad Municipal Water District - - 43.5 40.9 43.5 40.9 -6.0% Golf course - - 11.0 10.5 11.0 10.5 -4.5% Wastewater - - 12.5 12.6 12.5 12.6 0.8% Solid waste - - 2.9 3.0 2.9 3.0 3.4% Total expenses 144.8 149.8 69.9 67.0 214.7 216.8 1.0% Excess (deficiency) before transfers 18.1 26.1 8.4 14.8 26.5 40.9 54.3% Extraordinary loss (10.3) - - - (10.3) - 100.0% Transfers (1.2) (1.3) 1.2 1.3 - - 0.0% Increase (decrease) in net position 6.6 24.8 9.6 16.1 16.2 40.9 152.5% Beginning position, as restated 1,331.2 1,209.8 408.8 408.3 1,740.0 1,618.1 -7.0% Ending net position $1,337.8 $1,234.6 $418.4 $424.4 $1,756.2 $1,659.0 -5.5% Activities Activities Total CITY OF CARLSBAD'S CHANGES IN NET POSITION (in millions of dollars) Governmental Business-Type 23 The condensed summary of activities shows that net position increased by $43.4 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: $22.6 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 economy showing that it has fully recovered from the recession; 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. 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 86 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 city has now fully recovered from the great recession. In recent years, the city had seen its sales and transient occupancy taxes (TOT) rebound from the recession, and in the most recent fiscal year, the last of the “big three” taxes, property taxes, showed significant growth. An increase in assessed values for residential and commercial properties led to an increase in property tax revenues for the first time since the recession (a lagging indicator of the financial health of the city). The addition of three new hotels: a 133-room Holiday Inn; a 100-room Fairfield Inn & Suites; and a 106- room StayBridge Suites all opened during the year, contributing to higher TOT for the year. The opening of the new Alga Norte Community Park and Aquatics Center, as well as continued strength in citywide development, impacted the increase in charges for services. This rise in citywide development during the year also led to higher developer impact fees being collected by the city (contributions from property owners), another sign that the city is in the midst of a full, economic recovery. 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. Another factor in the lower 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). Some additional one-time revenues were received during the year, including the receipt of insurance, Federal Emergency Management Agency (FEMA) and Office of Emergency Servises (OES) reimbursements from the 2014 Poinsettia fire; the reversal of a large, prior period refund that was no longer required; and developer contributions received to cover the costs associated with environmental impact report (EIR) studies on the new Westin Hotel and timeshares, the Uptown Bressi Ranch project, and the Agua Hedionda South Shore Specific Plan. The total cost of all programs and services was just under $214.4 million in Fiscal Year 2014-15. This was slightly less than Fiscal Year 2013-14 figure of $214.7 million. The large decrease in general government expenses and the large increase in public works expenses was primarily due to the reclassification of property and environmental management division expenses. In previous years, these expenses were recorded as general government expenses, but beginning in Fiscal Year 2014-15, a change was made to more closely assign these expenses with the appropriate program (public works versus general government), thereby creating these two variances. However, the large decrease in general government expense was partially offset by an increase in technology related expenses, as the city has been investing in several new system implementations and information technology infrastructure upgrades. Development picked up during the fiscal year, creating higher community development charges for the period. These expenses 24 were related to plan checks, building inspections and developer funded studies. The opening of the new Alga Norte Community Park and Aquatics Center was a major driver in the increase in community service charges. Lower purchased water costs due to drought conservation efforts in the Water Fund created the decrease for the year in business-type activities.  General Government (7 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 Community Outreach and Engagement 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 non-departmental 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 mission is to protect and serve the community with integrity, professionalism, and valor. 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 and employment 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.  Community Services (14 percent) Community Services consists of the Libraries, Cultural Arts, Parks & Recreation, and Senior Citizen programs. The Library & Cultural Arts Department provides educational, informational, and cultural arts services for all community residents, which contribute to quality of life by supporting lifelong learning, the pursuit of knowledge, and creating the availability of community gathering places. The Parks & Recreation Department offers comprehensive opportunities for meeting the recreational and social needs and interests of the community by providing programs for all segments of the population. 25  Public Works (17 percent) Public Works is responsible for building and maintaining all of the infrastructure assets of the city. This service area includes Transportation, Storm Drains, Asset Management, the Buena Vista Channel, Street Lighting, Traffic Sign and Signal Maintenance programs, Property & Fleet Management, and 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 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. Also included in this section is the Storm Water Protection Program, whose goal is to provide leadership and stewardship of the city’s resources protecting the city’s beaches, creeks and lagoons.  Water Operations (19 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 $24.8 million. This increase was generated by total revenues of governmental activities of $175.9 million ($51.5 million in program revenues and $124.4 million in general revenues) offset by $149.8 million in total costs of governmental activities, and $1.3 million in transfers to the Golf Course and Solid Waste funds. 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). 26 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 ($20.2 million), grants and contributions from other governments and organizations which subsidize certain programs ($31.3 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 $124.4 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 was extremely strong during Fiscal Year 2014-15, thereby offsetting a large portion 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 funds have 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. 27 Business-Type Activities Program revenues for the city’s business-type activities totaled $76.2 million for the year, while program expenses equaled $67 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 $4.2 million. Water sales were lower than the previous fiscal year due to the net effect of an average 5 percent increase in water rates charged to our customers (water and delivery charges) that went into effect in January 2014 and January 2015, completely offset by drought conservation efforts. 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 eighth full year of operation. Golf course revenues were sufficient to fund normal golf course operating expenses excluding financing and depreciation expenses, resulting in a net loss of $3.1 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. 28 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 are: non- spendable, 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 $542.6 million, up $24.8 million from the year before. Approximately 10 percent of this ($56.4 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 42 percent ($227.8 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 33 percent ($177.1 million) of the city’s fund balance. Approximately 15 percent ($80.3 million) of the fund balance is unassigned, which is available for spending at the city council’s discretion. Total Increase Percentage (Decrease)Change 2014 2015 Revenues Taxes $109.6 $118.6 $9.0 8.2% Intergovernmental 1.1 1.7 0.6 54.5% Licenses and permits 2.2 2.4 0.2 9.1% Charges for services 7.6 9.4 1.8 23.7% Fines and forfeitures 0.7 0.7 0.0 0.0% Income from property and investments 3.6 3.6 0.0 0.0% Miscellaneous 1.0 2.2 1.2 120.0% Total revenues 125.8 138.6 12.8 10.2% Expenditures General government 13.5 16.3 2.8 20.7% Interdepartmental charges (3.5)(3.8)(0.3)8.6% Public safety 46.9 48.6 1.7 3.6% Community development 8.1 9.0 0.9 11.1% Community services 23.9 25.4 1.5 6.3% Public works 14.1 14.9 0.8 5.7% Total expenses 103.0 110.4 7.4 7.2% Excess (deficiency) before transfers 22.8 28.2 Transfers in 0.0 0.0 Transfers out (16.1)(10.9) Increase (decrease) in fund balance 6.7 17.3 Beginning fund balance (as restated)154.5 161.2 Ending fund balance $161.2 $178.5 2014-15 Total STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE GENERAL FUND (in millions of dollars) 29 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 $178.5 million, an increase of $17.3 million. The unassigned fund balance portion of the General Fund was $80.3 million. The increase in revenues was primarily due to the increases in tax revenues; property tax, sales tax and transient occupancy taxes. As the economy continues to grow since the Great Recession, these revenues rose, which resulted in the majority of the increases in the General Fund. A retroactive payment received for pre-2004 state mandated costs drove the higher intergovernmental revenues. Development related revenues reflected significant growth for the year (licenses and permits, and charges for services) due to an increase in residential and commercial development. The increase in miscellaneous revenues was the result of additional developer funded studies, reimbursements for the 2014 Poinsettia fire (insurance, FEMA and OES) and a reduction in prior year refunds. In the city’s Fiscal Year 2014-15 budget, expenditures were expected to increase 4.1 percent over the Fiscal Year 2013-14 budget to $124.6 million. The total personnel budget for Fiscal Year 2014-15 was $78.3 million, which was 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 was $36.1 million, which was 14.2 percent higher than the previous year’s budget of $31.6 million. The increase in personnel budgets was based on previously negotiated salary and benefit increases and the net addition of two new staff members. Higher M&O budgets reflected 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 were budgeted at $10.1 million, a $3.7 million decrease from the prior fiscal year. This decrease was 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 was carried over to Fiscal Year 2014-15, as well as $7.1 million in open encumbrances as of June 30, 2014. 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 Infrastructure Replacement Fund for the funding of the Cole and Dove Library remodel projects that are currently being completed. The fund balance in the Infrastructure Replacement Fund (IRF) 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. During the year, several projects were funded within the IRF, including the Las Palmas HVAC/roof replacement, the replacement of synthetic turf at Poinsettia Community Park, park athletic field lighting retrofitting, and the city’s traffic signal program. Due to the installation of solar at the new Alga Norte Community Park and the relocation of Fire Station #3, the Public Facilities Construction Fund (PFF) saw its fund balance decrease by just under $1.1 million. The reduction in the fund balance of the PFF 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. The Carlsbad Municipal Water District (CMWD) funds had an operating gain of approximately $7 million for the year. Operating revenues were just under $47.5 million and operating expenses were slightly under $40.5 million. One of the larger factors in the operating gain was the result of the final reimbursement on the Marbella lawsuit. Water sales were actually down for the year due to a reduction in water sales; a direct correlation with drought conservation 30 measures. The State of California is in the fourth year of an unprecedented drought. Governor Brown has ordered mandatory water reduction measures in order to mitigate this epic crisis. CMWD did approve increases in water rates (about 5 percent in January 2014 and 5 percent in January 2015), however, residents continued to conserve water during the year, creating the reduction in water sales. 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. Lower purchased water costs due to the drought (a complete offset of the increase in purchased water rates) and the completion of the Automated Meter Reading (AMR) program in the prior fiscal year, led to the $2.7 million decrease 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 $10.9 million. In the eighth year of operation, the Golf Course Fund had an operating loss of $3.1 million (identical to last fiscal year), 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). A miscellaneous reimbursement was received by the city from the operator of the golf course of $595,000 from a previous discrepancy discovered by the golf course operator. The Wastewater Funds had an annual operating gain of $241,000 for the fiscal year. Total revenues from operations were essentially equal to the previous year. This was the net effect of a small rate increase offset by a reduction in wastewater revenues associated with commercial and industrial accounts. Commercial and industrial wastewater billing is based on water usage, and with the drought conversation efforts currently in place, this reduced these revenues for the year. In addition, operating expenses increased by $119,000 from the previous fiscal year. Higher electric costs combined with normal increases in personnel, Encina operating, and maintenance and operations costs were the primary drivers for this increase. The decrease in depreciation expense was due to adjustments made to the investment in the Encina plant. Non-operating revenues of $479,000 added to the operating income, resulting in a net gain of $720,000 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 $328,000 for the year. Revenues were down modestly due to two factors. First, the City of Carlsbad was the lead agency for a regional water quality improvement plan in the prior fiscal year, and received reimbursements from the other co-permit participants during the prior year. In addition, the city received fewer beverage container grant revenues for the year. Expenses for the year reflected a slight increase. Normal increases in personnel, and maintenance and operations expenses, combined with increased internal service chargebacks, accounted for this variance. The unrestricted net position for the Water, Golf Course, Wastewater, and Solid Waste Operations at the end of the year amounted to $69.8 million, or approximately 16.5 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 $47.3 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 2015 Management monitors revenues during the year and updates estimated revenue figures when new information is received by the city. General Fund revenue estimates were modified moderately during the year as compared to the originally budgeted estimates. Some of the factors that led to the $5.2 million increase in revenue estimates included:  Several new federal and state grants were applied for and received during the year.  Increased property tax revenues due to revised revenue estimates received by the County of San Diego after the budget had been adopted by the City Council. 31  Increased transient occupancy tax (TOT) revenue received as a result of the opening of three new hotels and an increase in tourism and occupancy.  Higher sales tax revenues derived from a strong economy, with new car sales leading the way.  Higher business license revenues from the addition of 364 new businesses, as well an increase in renewal license revenues from an increase in some companies’ business volumes.  Increased interest resulting from higher cash balances maintained in the General Fund and General Capital Construction Fund. The increase from the total original expenditure budget to the final budget amounted to $2.9 million, due primarily to:  The appropriation of the grant money received.  Sales tax audit expenses.  Developer funded studies.  Appropriations for the 2014 Poinsettia Fire damages.  Additional transfers out of the General Fund for:  Fleet replacement costs.  Fiber optic installation costs in several road projects.  Carlsbad Village double tracking project study  Additional unfunded litigation costs associated with the General Plan update and power plant project The difference between the final budgeted expenditures and the actual expenditures for the year (on a budgetary basis) of $22.8 million can be generally summarized as follows:  Interdepartmental charges were $240,000 below estimates, which are offset against expenditures for reporting purposes in the financial statements.  $22.6 million in “savings” by the various major service areas within the city. Current year savings were generated from:  Unfilled staff vacancies.  Overall awareness of fiscal responsibility throughout the city.  Deferral of projects.  Accumulated savings set aside for future technology and innovation enhancements.  The $22.6 million in “savings” are planned to be used for:  Preparation for anticipated El Nino storm related impacts in the city.  Feasibility study of existing housing stock.  Fire user fee study.  Fire brush engine outfitting costs.  Additional police vehicle replacement costs.  Matching funds for the sea level rise analysis grant.  Update for the Local Coastal Program Land Use Plan.  Development of a communal knowledge café in Community & Economic Development.  Training opportunities for city staff at all levels.  Security and safety assessment of select city facilities.  Municipal monitoring of NPDES.  Replacement of library furniture and equipment.  Lobby improvements at Stagecoach and Calavera Community Centers.  Fence and backstop replacement expenses at Chase Field.  HVAC and roof replacements throughout city facilities.  Real estate marketing expenses related to potential property sales.  Minor building renovations.  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) including a new Enterprise Resource Planning (ERP) system and business intelligence architecture.  Other one-time capital outlay items, as needed, throughout the city. 32 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 2014-15, 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 Agua Hedionda channel improvements.  The traffic management center and traffic signal upgrades.  The coastal rail trail roundabout.  The northwest quadrant storm drain program.  The Carlsbad Blvd. at Encinas Creek Bridge.  A solar structure at Alga Norte Community Park.  Replacement of artificial turf at Poinsettia Community Park.  The Maerkle Hydroelectric Facility.  The Home Plant lift station and sewer line.  $1.4 million in new vehicles.  Several waterline projects.  Several storm drain projects. In addition to carrying forward appropriations of $204 million for previously budgeted projects, the city’s Fiscal Year 2015-16 capital budget appropriates an additional $73.5 million for capital projects. These additional appropriations are principally for the new maintenance and operations center; Safety Center improvements; City Hall refurbishments; Emergency Operations Center (EOC) relocation expenses; other city facility refurbishments; the pavement management program; the acquisition of open space (Prop C projects); community facility and garden areas at Pine Avenue Park; Aviara Community Park amphitheater, picnic areas and warming kitchen; phase 3 improvements at Poinsettia Community Park; phase 3 improvements at Leo Carrillo Ranch Park; Maerkle Reservoir floating cover replacement; 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 Encina water pollution control facility; and miscellaneous civic projects, loans and repayments. These projects will be Total Percentage Change Change 2014 2015 2014 2015 2014 2015 2014-15 2014-15 Land $151.8 $152.2 $9.3 $9.4 $161.1 $161.6 $0.5 0.3% Construction in progress 18.3 14.5 9.8 10.5 28.1 25.0 (3.1) -11.0% Buildings and other structures 115.6 115.6 40.6 40.7 156.2 156.3 0.1 0.1% Improvements other than buildings 70.9 72.3 50.9 51.1 121.8 123.4 1.6 1.3% Machinery and equipment 33.3 34.1 3.3 3.3 36.6 37.4 0.8 2.2% Infrastructure 663.9 682.5 318.1 327.8 982.0 1,010.3 28.3 2.9% Wastewater treatment facility - - 54.5 55.4 54.5 55.4 0.9 1.7% Intangibles 3.2 3.2 - - 3.2 3.2 - 0.0% 1,057.0 1,074.4 486.5 498.2 1,543.5 1,572.6 29.1 1.9% Accumulated depreciation (270.4) (291.1) (145.5) (157.5) (415.9) (448.6) (32.7) 7.9% Total $786.6 $783.3 $341.0 $340.7 $1,127.6 $1,124.0 ($3.6)-0.3% Activities Activities Total CITY OF CARLSBAD'S CAPITAL ASSETS (in millions of dollars) Governmental Business-Type 33 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 Administrative Services Department. Long-Term Debt At year-end, the city had $34.9 million in bonds and loans, a decrease of $2.7 million from last year, as shown in the table above. 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. During the year, the city paid off the Encina Financing Joint Powers Authority (EFJPA) Installment Purchase Agreement bonds. 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 2016  The State of California adopted its Fiscal Year 2015-16 Annual Budget with the following provisions affecting the city:  Governor Brown submitted a balanced state budget in January 2015 for Fiscal Year 2015-16 using projected revenues of $113.4 billion to cover $113.3 billion in expenditures.  In November 2014, California voters approved Proposition 2, which sets aside additional revenues, primarily from capital gains, to address future economic downturns, instead of increasing ongoing expenditures.  At the end of Fiscal Year 2014-15, it is projected that the “rainy day” fund will have a balance of $2.8 billion.  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 be unwinding in Fiscal Year 2015-16. As part of the unwinding of the “Triple Flip”, the city will receive a small increase in net sales tax revenues during Fiscal Year 2015-16 since the “Triple Flip” payments have been effectively behind (one quarter) since the beginning of the “Triple Flip”.  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 over $27.3 billion, a 5.36 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 with a 5.3 percent forecasted increase in the Fiscal Year 2015-16 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) Total Percentage Change 2014 2015 2014 2015 2014 2015 2014-15 Bonds $0.0 $0.0 $16.7 $16.3 $16.7 $16.3 -2.4% Loans - - 19.8 18.4 19.8 18.4 -7.1% Installment purchase agreement - - 0.9 - 0.9 - -100.0% Adjusted by: premiums/discounts - - 0.2 0.2 0.2 0.2 0.0% Total $0.0 $0.0 $37.6 $34.9 $37.6 $34.9 -7.2% Activities Activities Total CITY OF CARLSBAD'S OUTSTANDING DEBT (in millions of dollars) Governmental Business-Type 34 shopping center. In addition, due to the unwinding of the Triple Flip (see previous page), this will boost sales tax revenues for the year.  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 2015 as well with projected average daily rates (ADR) increases of approximately 6 percent. Several new hotels have recently opened including a new 133-room property (Holiday Inn), a 100-room property (Fairfield Inn & Suites) and a 106-room property (StayBridge Suites). Transient occupancy taxes (TOT) are therefore expected to grow by 6 percent.  PERS rates for the miscellaneous plan have increased for Fiscal Year 2015-16 from 25.1 percent to 27.2 percent, and rates have also increased from 35.3 percent to 36.9 percent for the safety plan.  Median home prices in Carlsbad have increased by 2 percent from the first quarter of 2014 ($720,000) to the first quarter of 2015 ($734,000).  City departments were given maximum increases of 2.3 percent for maintenance and operational funding to cover changes in the Consumer Price Index (CPI), funding for new capital outlay, and additional personnel funding for existing contractual obligations.  The city added 16.25 full-time positions, 3.75 limited-term positions and eliminated 11.75 positions to better align staff with the services the city provides.  Through Memorandums of Understanding (MOU’s): o The Carlsbad City Employees’ Association (CCEA) will receive an allocated share of a 4 percent raise/stipend pool on December 31, 2015. o Fire and General Management employees will receive an allocated share of a 4 percent raise/stipend pool on December 31, 2015. o Police Management employees will receive an allocated share of a 3.5 percent raise/stipend pool on December 31, 2015. o The Carlsbad Firefighters Association (CFA) will receive a 3 percent salary increase on January 1, 2016. o The Carlsbad Police Officers Association (CPOA) are currently in negotiations. These factors were considered when preparing the City of Carlsbad’s General Fund budget for Fiscal Year 2015-16. Budgeted expenditures are expected to increase 8.5 percent to $135.3 million. The total personnel budget for Fiscal Year 2015-16 is $82.2 million, which is 5 percent more than the previous year’s personnel budget of $78.3 million. The total maintenance and operations (M&O) budget for Fiscal Year 2015-16 is $39.2 million, which is 8.7 percent higher than the previous year’s budget of $36.1 million. The increase in personnel budgets is based on previously negotiated salary and benefit increases and the net addition of 9.99 full-time, limited-term and part-time staff. Smaller increases in retirement costs (CalPERS rates), health insurance rates, and worker’s compensation rates also contributed to the increase in budgeted personnel costs. Higher M&O budgets reflect the replacement of the Regional Communications System (RCS) radios, library materials and way finding signage for the newly renovated city libraries, succession planning costs, improvements to the Faraday Administrative Center reception and front counter areas, 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 $12.1 million, a $1.9 million increase from the prior fiscal year. This increase is due primarily to a $650,000 increase in the annual transfer to the Infrastructure Replacement Fund for major maintenance and replacement of city infrastructure and a $1 million transfer to the city’s Workers’ Compensation Fund to cover increased claim settlements and claims liability. Adding to the adopted budget of $135.3 million for the General Fund, approximately $22.6 million in unspent Fiscal Year 2014-15 budgeted expenditures will be carried over to Fiscal Year 2015-16, as well as $8.3 million in open encumbrances as of June 30, 2015. During the current fiscal year, the unassigned fund balance in the General Fund increased by $4.7 million to $80.3 million due to fiscal discipline; a significant increase in assessed values (higher property taxes); a strong tourism season combined with three new hotels (increased TOT revenues); a rebounding economy (higher sales taxes); higher income from investments due to higher cash balances maintained in the General and General Capital Construction Funds; higher than anticipated development within the city (increased development related services revenue); reimbursements received from the city’s insurance companies, FEMA and OES for the 2014 Poinsettia Fire; and strong recreation revenues due to a full year of operating the Alga Norte Community Park and Aquatics Center. Based on Fiscal Year 2015-16 projections, the unassigned General Fund balance is expected to grow approximately $2.5 million. 35 The city took an additional step in Fiscal Year 2014-15 to provide a tool that will allow the city to weather economic downturns. A General Fund assignment of $10 million was made by the City Council as an Economic Uncertainty Reserve, which can be used to shore up revenue shortfalls during normal recessions. There appears to be sufficient revenues projected to build the projects listed in the Fiscal Year 2015-16 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 5.4 percent and 4 percent, respectively, in Fiscal Year 2015-16. In December 2015, a public meeting will be held to determine how much water rates will increase effective January 1, 2016. The proposed rate increase is needed to fund the additional cost of purchased water, and to maintain an adequate reserve balance.  Proposed wastewater rate increases will be discussed during the public meeting to be held in December 2015. If approved, these rates would be effective January 1, 2016. The 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 2015-16 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. 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 Statistical Section Statistical Section Statistical SectionStatistical Section 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172