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CC - Item 4B - Transmittal of Fiscal Year 2017-18 City of Rosemead and Rosemead Housing Corporation Annual Finance ReportsTO: THE HONORABLE MAYOR AND CITY COUNCIL FROM: GLORIA MOLLEDA, CITY MANAGER A. 0 DATE: JANUARY 22, 2019 SUBJECT: TRANSMITTAL OF FISCAL YEAR 2017118 CITY OF ROSEMEAD AND ROSEMEAD HOUSING CORPORATION ANNUAL FINANCIAL REPORTS SUMMARY This report provides the Fiscal Year (FY) 2017/18 annual financial reports for the City of Rosemead and the Rosemead Housing Development Corporation to the City Council. The City of Rosemead Comprehensive Annual Financial Report (CAFR) (Attachment A) and Rosemead Housing Development Corporation Financial and Compliance Report (Attachment B) provide a complete presentation of the finances of each of the above-mentioned organizations. DISCUSSION After the close of each fiscal year, the Finance Department is responsible for the preparation and publication of the City's CAFR following an independent, certified audit. The goal of the financial audit and report is to provide users with a reasonable assurance that the information presented in the statements is accurate and timely. The CAFR presents information on the status of the City's financial affairs, first on a citywide basis (Government -Wide Financial Statements) in which all City activities are reported as governmental activities. A second set of statements (Fund Financial Statements) report separately, the activities of all City funds. The CAFR is organized into three primary sections: I. Introductory Section — which includes the Finance Director's Letter of Transmittal, List of Principal Officials, and the Organizational Chart. 2. Financial Section — which includes the Independent Auditor's Report, Management's Discussion and Analysis, and the general purpose financial statements consisting of the combined financial statements, notes to the financial statements, and supplemental statements. ITEM NO. 4.13 City Council Meeting January 22, 2019 Page 2 of 9 3. Statistical Section — which includes comparative information on pertinent City data such as expenditures, revenues, assessed valuations, tax levies, demographic data, and performance measurements. The CAFR is utilized by the investment community, including bond buyers, underwriters, bond issuers, and credit rating agencies. The CAFR serves as a public information tool in the form of a comprehensive presentation of all the City's financial activities. ANALYSIS For FY 2017/18, the accounting firm of Lance, Soll & Lunghard, LLP performed an independent audit to determine the financial statements are fairly presented and free from material misstatement. The independent auditor concluded there was a reasonable basis for rendering an unmodified opinion, and that the City's financial statements are fairly presented in conformity with Generally Accepted Accounting Principles (GAAP). An unmodified opinion provides a high level of assurance that a professional, independent examination of financial statements has not revealed any actual or possible material misstatements in those financial statements. Listed below are the financial highlights for FY 2017/18: ® General Fund fiend balance at the end of Fiscal Year 2017/18 increased $1.45 million. This increase is due to an increase in property tax, sales tax, transient occupancy tax (TOT), and building permit revenues. o At the end of the current fiscal year, unassigned fund balance for the General Fund was $10.7 million or 47 percent of total General Fund expenditures. $7.6 million or 31 % is set aside to meet the City's reserve policy. • The assets related to Governmental Activities have increased by approximately $3.7 million, which is largely due to an increase in both cash and investments and capital assets. There are two primary citywide financial statements: the Statement of Net Position and the Statement of Activities. Like a balance sheet in private sector accounting, the Statement of Net Position presents the City's overall financial position at a specific point in time — in the City's Comprehensive Annual Financial Report for Fiscal Year Ending June 30, 2018 case, this is as of the last day of the fiscal year (i.e., June 30). The Statement of Activities is similar to the income statement, presenting the City's results of operations over a period of time. City Council Meeting January 22, 20I9 Page 3 of 9 City of Rosemead's Net Position As of June 30, 2018 and 2017 (thousands) Current and other assets 30,515 27,620 Capital assets 53,587 52,806 Total assets 84,102 80,426 Deferred outflows of resources 1 4,232 � 5,018 Long-term liabilities outstanding 10,268 8,876 Other liabilities 2,930 2,652 Total liabilities 13,198 11,528 Deferred inflows of resources 1 783 1 1,033 Net assets: Invested in capital assets, :net of related debt 53,587 52,806 Restricted 5,467 4,387 Unrestricted 15,299 15,690 Total net position 1 $74,353 � $72,883 As noted earlier, net position may serve over time as a useful indicator of a government's financial position. In the case of the City of Rosemead, assets exceeded liabilities (net position) by $74.4 million at the close of the most recent fiscal year. A significant portion of the City of Rosemead's net position (72%) reflects its investment in capital assets (e.g. land, buildings, machinery, and equipment); less any related outstanding debt used to acquire those assets. The City of Rosemead uses these capital assets to provide services to the citizens; consequently, these assets are not available for future spending. Although the City of Rosemead'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 cannot be used to liquidate these liabilities. An additional portion of the City of Rosemead's net position (4.7%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position ($17.2 million) may be used to meet the government's ongoing obligations to citizens and creditors. City Council Meeting January 22, 2019 Page 4 of 9 At the end of the current fiscal year, the City of Rosemead is able to report positive net position balances. The situation also held true for the prior fiscal year. City of Rosemead's Changes in Net Position Years Ended June 30, 2018 and 2017 (thousands) . _.; Program revenues: Charges for services $ 7,864 $ 4,646 Operating grants and contributions 4,822 5,636 Capital grants and contributions 1,172 1,019 General revenues: Property taxes 9,129 8,643 Othertaxes 9,570 8,804 Investment income 210 21 Other 648 738 Total revenues 33,415 29,507 Expenses: General government 4,554 3,706 Public safety 9,500 8,935 Public works 9,554 7,324 Community development 3,410 3,161 Parks and recreation 2,746 2,154 Total expenses 29,764 25,280 Change in net position 3,651 4,227 Net position - June 30, 2017 72,884 68,657 Restatement (2,182) - Net position - June 30, 2018 $ 74,353 $ 72,884 City Council Meeting January 22, 2019 Page 5 of 9 Governmental activities increased the City of Rosemead's net position by $3.7 million. General revenue and program revenue exceeded expenses by this amount. The expenses increased in General Government, Public Safety, and Public Works; however, the total Program and General Revenues offset these increases. These expense increases are largely due to salary and benefit costs, litigation costs, law enforcement increases, capital expenditures increases for construction projects, and equipment and machinery purchases including the purchase of two pool heaters, tables and chairs for events, bingo machine, wood chipper machine, and a newly redesigned City's website. General Fund The General Fund is the chief operating fund of the City of Rosemead. At the end of the current fiscal year, the unassigned fund balance of the general fund was $10.7 million, while total fund balance reached $20.5 million. As a measure of the General Fund's liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures. Unassigned fund balance represents 47% of total General Fund expenditures, while total fund balance represents 89% of that same amount. The fund balance of the City of Rosemead's General Fund increased by $1.5 million during the current year. Highlights of the change in fund balance are presented below: • The General Fund revenues exceeded expenditures and; therefore, fund balance had an increase of $1.5 million. Several revenues had large increases including Property Tax, Sales Tax, TOT, County Grants, Miscellaneous Revenues, and Building Permits. Additional highlights of the change in fund balance are presented below. • General Fund revenues increased $2.1 million in FY 2017118 over the prior year. The largest revenue categories were; property tax increased $486 thousand, sales tax increased $563 thousand, TOT increased $114 thousand, County Grants increased $100 thousand, Miscellaneous Revenues increased $296 thousand, and Building Permits increased $412 thousand. Property taxes increased due to the net tax value increasing by 4% for the 2017/18 tax roll. Sales tax increase is attributed to the growth in the overall economy and in consumer spending. The opening of Ross, Sunshine Seafood restaurant, and taking into account a full -year operation of Lucille's BBQ restaurant and two used car automotive also contributed to the increase in sales tax revenues. TOT increase is due to the addition of the Hartford Hotel, bringing in a total of $120 thousand TOT in FY 2017118. The City received a reimbursement of $100 thousand from the LA County for the city-wide tree planting grant. The City also received a reimbursement of $276 thousand from Southern CA Edison for participating in the LED light conversion. Lastly, the substantial increase in building permits is due to the collection of fees for several City Council Meeting January 22, 2019 Page 6 of 9 mixed -used projects, a 21 -unit residential planned development, and several new single- family dwelling development. • General Fund expenditures increased $1.9 million over the prior year for the following reasons; o Public safety expenditures is one of the City's largest area of expenditures. The Los Angeles County's Sheriff's Department contract increased by 2.57% over the previous year and the Liability Trust Fund increased 0.5% as well. This attributed to an increase in public safety expenditures of $137 thousand. o Public works expenditures increased $353 thousand primarily due to the addition of one new maintenance worker and one temporary part-time maintenance worker to backfill a position that was on leave. The City also had an increase in janitorial service costs when the contract went out for bid; the new contract was almost doubled in costs. The water and utility costs increased as a result of the opening of the new Zapopan Park. In addition, the City complied with the ruling of the Ninth Circuit Court of Appeals for the Flores v. City of San Gabriel case and made retroactive payments of overtime for changes in FLSA regulations. o Parks and Recreation expenditures increased $200 thousand primarily due to the purchase of two pool heaters replacement which amounted to $90 thousand. The brochure costs were previously allocated to multiple departments. In the current year, the City recorded the total brochure costs in the Parks and Recreation department in order to improve the tracking of costs; therefore, the brochure costs increased in this department by $20 thousand. The department also purchased a new bingo machine and tables and chairs to replace the old machine and fiuniture that were deteriorated. Fireworks costs for the 4'h of July special event also increased by $24 thousand. o Legal fees increased $530 thousand as a result of attorney fee increases and litigations. o The City, like all other cities, are faced with an increase in retirement costs as a result of the discount rate and assumption changes approved by the CalPERS board; this has impacted the actuarial valuation performed and caused an increase to participants' retirement contributions. City Council Meeting aAyy 22, 2019 Page 7 of 9 . . . . Expenses and Program Revenues: c©» 2 Governmental Activities Expenses Revenues City Council Meeting January 22, 2019 Page 8 of 9 In conclusion, the City continues to remain in satisfactory financial condition thanks to a relatively diverse and stable revenue base including sales tax, property tax, TOT, and various licenses and permits. Property tax is the City's largest tax source at $9.1 million, sales tax as the second largest revenue source at $5.9 million, and TOT at $2.3 million. The aggregate debt service payments are reduced by $2.3 million during the current fiscal year due to principal and interest payments. The City is ending its fiscal year 2017/18 with a healthy General Fund Balance of $20.5 million. Rosemead Housimz Development Ca oration RHDC The RHDC Fund receives its funding from tenant rents and subsidies from the Successor Agency. As operational costs have continued to increase and tenant rents have remained relatively constant, the reliance on the subsidy from the Successor Agency has become more important. Through the elimination of redevelopment, this obligation was submitted and subsequently approved by the Department of Finance as an enforceable obligation, which will ensure ongoing funding for the RHDC into the future. As such, revenues and expenditures in this fund will typically balance out at the end of each fiscal year with just a minimal balance remaining due to timing issues. The preparation and publication of this report is made possible through the dedication of the entire Finance Department staff. The department coordinated the closing of the books for the fiscal year, ensuring timely and accurate reporting. This report would also not have been possible without the leadership of the City Manager and continued commitment from the Mayor and City Council in conducting the financial operations and corresponding financial disclosures of the City in an open, public and transparent manner. STAFF RECOMMENDATION It is recommended that the City Council receive and file the City of Rosemead Comprehensive Annual Financial Report (CAFR) and the Rosemead Housing Development Corporation (RHDC) Annual Financial and Compliance Report for the Fiscal Year ending June 30, 2018. FISCAL IMPACT There is no fiscal impact as this is a receive and file item. STRATEGIC PLAN IMPACT — NIA PUBLIC NOTICE PROCESS This item has been noticed through the regular agenda notification process. City Council Meeting January 22, 2019 Page 9 of 9 Prepared by- Z Pearl Lieu, Finance Director Attachment A: City of Rosemead Comprehensive Annual Report Attachment B: Rosemead Housing Development Corporation Financial and Compliance Report