TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Javier Carcamo, Finance Director
PREPARED BY: Jennifer Terry, Finance Manager
SUBJECT:
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Presentation and Review of the City of Murrieta’s Fiscal Year 2023/24 Annual Comprehensive Financial Report and Single Audit Report
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RECOMMENDATION
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Receive and file the Fiscal Year 2023/24 Annual Comprehensive Financial and Single Audit Reports.
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PRIOR ACTION/VOTE
On April 18, 2023, the City Council awarded an agreement to Rogers, Anderson, Malody, and Scott, LLP for independent audit services (Vote: 4-0-1).
On April 2, 2024, the Fiscal Year 2022/23 Comprehensive Annual Financial Report and Single Audit Report were received and filed with the City Council (Vote: 5-0).
On August 20, 2024, the City Council approved the first amendment to the agreement with Rogers, Anderson, Malody, and Scott, LLP (Vote: 5-0).
On December 3, 2024, the City Council received year-end pre-audit results as the City Council and Board of Directors approved appropriation adjustments for carryover of unspent amounts from Fiscal Year 2023/24 to Fiscal Year 2024/25 (Vote: 5-0).
CITY COUNCIL GOAL
Maintain a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency.
BACKGROUND
The City of Murrieta has prepared its Annual Comprehensive Financial Report (Financial Statements) for the Fiscal Year ending June 30, 2024. The independent auditing firm of Rogers, Anderson, Malody, and Scott, LLP (RAMS) has issued an unmodified (clean) opinion on the City’s financial statements, indicating they are free from material misstatement and present fairly the financial position and results of operations of the various funds and account groups of the City. The Financial Statements were completed on December 12, 2024.
In addition to the annual independent audit of the City’s financial statements, the City is required to complete a Single Audit Report on Federal Awards as a condition of spending federal assistance in excess of $750,000.
As a result of their annual independent audit of the City’s financial records and statements, the audit firm has rendered an unmodified (or “clean”) opinion on the City’s financial statements. That is, RAMS believes the financial statements are fairly presented in accordance with generally accepted accounting principles. With this item, staff brings forward the City’s audited financial position for Fiscal Year 2023/24 in the form of the financial statements.
Financial Statements
The government-wide financial statements (Statement of Net Position and Statement of Activities) report information on all activities of the City and its component units. The statement of net position presents information on all of the City of Murrieta’s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City of Murrieta is improving or deteriorating.
The City’s combined net position as of June 30, 2024, was $575,101,386. The City’s net position increased by $16,016,719, compared to the prior fiscal year. The increase in the City’s net position is primarily due to a rise of $25,505,894, in total assets, net of deferred outflows of resources, and an increase of $9,489,175, in total liabilities, net of deferred inflows of resources. The most substantial growth was seen in the restricted net position, which rose by $10,229,924, with $9,107,071, allocated for Public Works. The unrestricted net position increased by $9,568,487.
Current assets increased by $27,943,514, or 9.34%, compared to prior year balances. The increase is mostly attributable to the following items: an increase in cash and investments of $26,183,721, and an increase in the sum of all receivables totaling $4,400,647.
The capital assets net of accumulated depreciation has decreased by $4,975,316. The decrease represents the difference between additions, deletions, and depreciation in the current year. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending.
Changes in the various components associated with Governmental Accounting Standards Board (GASB) statement 68 Accounting and Financial Reporting for Pension, statement 75 Accounting and Financial Reporting for Postemployment Benefits Other than Pension (OPEB), and statement 87 Leases impacted deferred outflows and inflows, and changes in pension, OPEB and leases liabilities for the year. GASB 68 and GASB 75 pronouncements required the City to record the net pension and OPEB liabilities on the books. The deferred outflows of resources increased by $2,537,696, while the deferred inflows of resources decreased by $2,086,050.
Current liabilities increased by $6,968,024, or 16.55%. The increase is primarily attributable to the increase in compensated absences of $4,224,298. Another contributing factor was an increase of $426,906, in the GASB 96 accounting for software licenses. The remaining increase of $599,368, came from increasing debt service, notes payable, lease liability, and claims and judgments. Accounts payable increased by $1,658,909, accrued liabilities increased by $1,585,676, unearned revenue decreased by $2,136,457, due to recognized grant revenue from the American Rescue Plan Act grant, and the remaining increase of $606,326, came from other liabilities.
Long-term liabilities, such as outstanding debt, leases, employee benefit accruals, claims and judgments, and OPEB liability, increased by $4,607,201, an increase of approximately 2.5% from the prior year. The most significant addition is attributable to the increase in actuarial valuation for OPEB liability of $6,559,867, and an increase in pension liability of $7,717,344. Other notable increases were from software licenses and a commercial lease for additional staff space totaling $1,626,792. Bonded debt decreased by $7,584,848, due to annual principal payments. Compensated absences reduced by $3,627,885, as a result of a greater shift in the amounts due within one year. All other outstanding debt categories decreased by $84,069.
Approximately 75% of the City's net position is a net investment in capital assets (i.e., land, construction in progress, buildings, land & building improvements, parkland improvements, vehicles, equipment, and infrastructure), less any related outstanding debt used to acquire those assets. The City uses these capital assets to provide services to citizens; therefore, these assets are not available for future spending.
The restricted net position represents resources subject to external restrictions and earmarked for a specific purpose. The unrestricted net position represents the resources that may be used to meet the government's ongoing obligations to creditors and services to residents.
Governmental Funds
For Financial Statement presentation purposes, the City of Murrieta maintains twenty-three (23) individual governmental funds. As of the end of the current fiscal year, the City of Murrieta’s governmental funds reported combined ending fund balances of $276,099,682, an increase of $26,710,713, or approximately 10.71% compared to last year's governmental funds balance. The change in fund balance for the General Fund column totaled $16,140,781, broken down by fund as follows:
The other net changes in fund balances in the governmental funds include an increase of $4,154,681, for the Capital Project Development Impact Fee fund, $918,004, for the Fire District fund, and $5,470,536, for the Non-Major Governmental Funds. The Non-Major Government Fund - fund balance includes the Debt Service fund balance of $1,883,583, which is now reported as a Non-Major Governmental Fund, and a beginning balance restatement of $24,635. The Federal Grant fund's negative unassigned fund balance was reduced by $26,711, and is due to pending grant reimbursements. The General Fund increased by $15,762,124, net of a beginning balance restatement of $378,657. Additionally, Debt Service Fund 2016A LARB was removed from a major fund classification and is now reported as a nonmajor fund.
In accordance with GASB Statement No. 54 (thoroughly discussed in the notes to the financial statements Note 9 - Fund Balance), the combined ending fund balance of $276,099,682 is broken down as follows:
General Fund
For the Financial Statement presentation, the General Fund column includes the following funds: General Fund, Measure T Fund, General Capital Fund, Traffic Safety Fund, Crime Prevention Fund, and Vehicle Replacement Fund. At the end of the fiscal year, the General Fund’s revenues exceeded expenditures, including other financing sources (uses), by $16,140,781, thereby increasing the General Fund balance at the end of June 30, 2024, to $142,929,305.
General Fund revenues increased by $6,456,663 to $106,589,682, including transfers and proceeds from the sale of assets, compared to the prior year. The increase is primarily attributable to an increase of $7,619,682, in the Use of Money and Property, an increase in Taxes of $510,151, and an increase of $497,887, in Transfers In. Conversely, other revenue sources decreased over the prior year: License and Permits decreased by $285,875, Intergovernmental Revenues decreased by $779,096, and Charges for Services decreased by $1,010,667. Lastly, the remaining revenue categories declined by approximately $95,419.
The increase in the Use of Money & Property is due to two factors. The first is an increase in investment income associated with the City’s investment portfolio and short-term investment through the City’s sweep account. The investment income increase is approximately $2,220,165. The other component is associated with the accounting required by GASB 31 to recognize unrealized gain or loss of securities that weren’t sold or matured at year-end. The change in recognition of unrealized gain or loss of securities accounts over the prior year is $5,394,189. During the fiscal year, the value of fixed-income securities, like the ones in the City’s portfolio, have an inverse relationship to the movement of interest rates. The value of a bond will increase as interest rates decrease. Conversely, the value of bonds decreases when interest rates rise.
General Fund expenditures increased by $12,224,133 to $90,448,901, which included transfers out and other financing uses. The increase in expenditures is mainly attributable to Public Safety operations and services by $6,686,184. Personnel-related expenditures accounted for $6,315,390 or 94.4% of the increase and the balance of $370,794, was for operating costs.
The General Government Category increased by $1,730,906. This increase is associated with personnel-related expenditures of $1,112,073, and operating costs increases of $618,834, for special legal and contract services, and building and vehicle maintenance. Transfers out increased by $1,544,505. The category provides funding to special revenue funds that have operating shortfalls. Public Works and Community Development increased by $424,187 and $236,719, respectively. All other expenditure categories increased by $1,601,631.
Capital Assets
At the end of FY 2023/24, the City had capital assets (net of accumulated depreciation) of $442,471,511, including land, construction in progress (CIP), buildings and improvements, improvements to land, parkland improvements, equipment (including vehicles), infrastructure, leased assets, and right-to-use subscriptions. Current year additions to all asset categories totaled $13,963,593, while deletions totaled $4,238,424. The accumulated depreciation increased by $14,700,485, net of deletions. Capital assets with the most significant increase were in Construction in Progress with $1,900,926. The asset class with the next most significant increase was Right to Use Subscriptions with $1,423,381. The capital asset category with the most significant decreases net of depreciation was infrastructure, with $5,169,246, followed by parkland improvements, with $1,375,484, and then equipment, with $1,145,883. The remaining categories had an overall decrease of $609,010. The decreases were primarily due to current-year depreciation.
Long-Term Debt
At the end of the current fiscal year, the City of Murrieta had bonded debt and leases outstanding, along with liability for claims and judgments, an obligation for OPEB, compensated absences payable, and Net Pension liabilities totaling $203,113,902. The total outstanding debt increased by approximately 5.10% or $9,857,773 during FY 2023/24. The most significant increase relates to the increase in Net Pension Liability.
The pension (CalPERS) liability increased by $7,717,344, due to changes in assumptions, differences between expected and actual experiences, differences between projected and actual investment earnings, differences between employer’s contributions and proportionate share of contributions, and changes in employer’s proportion of costs.
The increase in OPEB liability of approximately $6,559,867, is attributed to a reduction in the discount rate from 5.70% to 5.06%, changes in assumptions, and differences between expected and actual experiences. Claims and Judgments related to the City’s general liability and Workers’ Compensation decreased by $111,058, due to the actuarial valuation of future liability. Compensated absences had an increase of $570,713, due to an increase in the number of employees and increases in the salary and compensation schedules. The remaining outstanding debt items had an overall decrease of $4,879,093, primarily due to payment of annual debt service payments.
Audit Findings
The Fiscal Year 2023/24 Financial Statement Audit and Single Audit Report have no findings.
Award
For Fiscal Year 2022/23, the City’s Financial Statements were awarded the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association of the United States and Canada (GFOA). This prestigious national award recognizes the City’s use of the highest standards in preparing the annual financial report. This certificate of achievement is valid for a period of one year only. Staff believes the City’s Financial Statements for Fiscal Year 2023/24 continue to meet the program’s requirements, and they have been submitted to GFOA for award consideration.
FISCAL IMPACT
There is no fiscal impact associated with accepting and filing this item.
ATTACHMENTS
1. Annual Comprehensive Financial Report for Fiscal Year ending June 30, 2024
2. Single Audit Report for Fiscal Year ending June 30, 2024