Staff Report
PREPARED BY: Stephen Conway
Finance Director
Reviewed by: Town Manager, Assistant Town Manager, and Town Attorney
110 E. Main Street Los Gatos, CA 95030 ● 406-354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 12/17/2019
ITEM NO: 17
DATE: December 11, 2019
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: A. Receive the Comprehensive Annual Financial Report (CAFR) for the
Fiscal Year Ended June 30, 2019, and
B. Adopt a Resolution Confirming June 30, 2019 Fund Balances in
Accordance Fiscal Year 2018/19 Final Audit and Town Council General
Fund Reserve Policy
RECOMMENDATION:
A. Receive the Comprehensive Annual Financial Report (CAFR) for the Fiscal Year Ended
June 30, 2019 (Attachment 1), and
B. Adopt a Resolution Confirming June 30, 2019 fund balances in accordance Fiscal Year
2018/19 Final Audit and Town Council General Fund Reserve Policy (Attachment 2)
BACKGROUND:
The Town contracts with an independent certified public accountant to examine the books,
records, inventories, and reports of all officers and employees who receive, handle, or disburse
public funds each fiscal year. The FY 2018/19 audit was performed by Badawi & Associates, an
experienced firm specializing in audit services for California public agencies. The firm also
compiled the Draft CAFR for the Town of Los Gatos (see Attachment 1).
The information contained in the CAFR provides detailed financial information which the Los
Gatos community and others can use to better understand the fiscal standing of the Town. In
addition, the financial information contained in the document is one element that the credit
rating agencies review annually to affix a credit rating for the Town ’s outstanding debt
obligations. In 2019, Moody’s rating service affirmed the Town’s general credit rating of Aaa,
the highest rating possible.
PAGE 2 OF 4
SUBJECT: Comprehensive Annual Financial Report for the Fiscal Year Ended June
30, 2019
DATE: December 11, 2019
DISCUSSION:
The Council Finance Committee met on Monday, December 9, 2019 to review and provide
comments on the draft Fiscal Year (FY) 2018/19 CAFR. Mr. Badawi presented the highlights of
the CAFR through a series of slides (see Attachment 3) and Committee members discussed the
information in an interactive format with staff and Mr. Badawi.
The Council Finance Committee received written public comments and provided an opportunit y
for public testimony although members of the audience chose not to speak. The Committee
reviewed, discussed, and provided comments on the Draft CAFR. The redline version of the
attached CAFR represents the culmination of recommended enhancements and changes based
on continued staff analysis, public comments, auditor review, and Committee members’
comments.
Highlights of the draft audited financial results include:
Independent Auditor’s Report (pages 14 through 15)
The auditor has given the Town’s financial statements a “clean” audit opinion for the year
ended June 30, 2019 (see the fourth paragraph on Page 14) giving reasonable assurance that
the financial statements are “free of material misstatement.”
Management’s Discussion and Analysis (MD&A) (pages 18 through 33)
Page 18 of the CAFR begins the MD&A section of the report wherein summaries are presented
for the Town on an entity-wide basis and fund type basis. Information is provided in this
section with a year-to-year view, explaining how fund balances have changed between fiscal
years ending June 30, 2018 and June 30, 2019. Information is also presented on the adopted
General Fund budget to actuals and any significant budget adjustments made during FY
2018/19 (page 28 through 31).
Statement of Net Position (page 38)
The Statement of Net Position serves as a useful indicator of a government’s financial position.
The Town had net assets of $114.8 million at fiscal year end as compared to $110.5 million the
prior year, an overall increase of $4.4 million over the prior fiscal year.
The increase is largely attributable to the excess of governmental revenues over expenditures
of approximately $3.0 million and the excess of revenue above expenses in proprietary funds in
the amount of approximately $1.6 million for the year. Net position was restated for the prior
fiscal, increasing by $1,206,851 for amounts placed into trust formerly reported as part of the
Fiduciary Funds statements which are now reported as General Fund restricted assets for th e
Town’s pension liabilities. An additional $3.6 million was placed into the pension trust
PAGE 3 OF 4
SUBJECT: Comprehensive Annual Financial Report for the Fiscal Year Ended June
30, 2019
DATE: December 11, 2019
DISCUSSION (continued):
during the fiscal year with investment earnings bringing the total restricted assets to the
balance of approximately $5.0 million for year ended June 30, 2019.
The largest portion of the net assets, $107.5 million, represents the Town’s investment in its
capital assets and infrastructure. Restricted assets of $11.9 million are resources that are
subject to external restrictions on how they may be used. As of June 30, 2019, unrestricted net
position reports a deficit of approximately $4.6 million. The unrestricted net position reported
the prior year was approximately $171K. The decrease in unrestricted net position resulted
largely from the use of approximately $8.0 million in unrestricted cash balances in the Town’s
General Fund Appropriated Reserve (GFAR) fund during the year to invest in the Town’s
infrastructure and equipment.
Basic Financial Statements (pages 36 through 91, including footnotes)
This section contains basic financial statements, including the “entity-wide” Statement of Net
Position and Statement of Activities, financial statements for the fund types including
Governmental Funds (such as the General Fund), Proprietary Funds, and the Private Purpose
Trust Funds (Redevelopment Successor Agency).
The footnotes section provides details on significant items such as the Town’s cash and
investments (Note 2 beginning on page 66), its long term obligations (Certificates of
Participation) related to bonded debt (Note 6 page 72), the net pension liability for both the
Town’s miscellaneous and safety pension plans (Note 9 page 76), and a discussion of the
Town’s other post-employment benefit plan (Note 10 page 84).
Required Supplementary Information (pages 94 through 98)
The Schedules of Pension Plan Contributions are provided in this section.
Supplementary Information (pages 100 through 115)
This section provides budget to actual information for “non-major” funds which represent less
than 10% of the Town’s total assets/liabilities/revenues or expenditures.
Statistical Section (pages 119 through 151)
This section presents demographic statistics and ten-year historical financial data for the Town,
including information on assessed valuations, fund balances, debt, property tax rates,
personnel (full-time equivalent) history, principle employers, and other financial and
demographic disclosures.
PAGE 4 OF 4
SUBJECT: Comprehensive Annual Financial Report for the Fiscal Year Ended June
30, 2019
DATE: December 11, 2019
CONCLUSION:
As noted in the auditor’s opinion, the CAFR fairly presents the fiscal year ending June 30, 201 9
financial activity for the Town of Los Gatos.
FISCAL IMPACT:
There is no fiscal impact to provide recommendation to the Town Council for this report.
Attachments:
1. Draft Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2019.
2. Fund Balance Resolution Establishing June 30, 2019 Fund Balances
3. Independent Auditor Presentation to the Council Finance Committee