Staff Report.Receive 2022 ACFR
PREPARED BY: Gitta Ungvari
Finance Director
Reviewed by: Town Manager, Assistant Town Manager, and Town Attorney
110 E. Main Street Los Gatos, CA 95030 ● (408) 354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 12/20/2022 ITEM NO: 7
DATE: December 13, 2022
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Annual Comprehensive Financial Report (ACFR):
a. Receive the Annual Comprehensive Financial Report (ACFR) for the Fiscal
Year Ended June 30, 2022, and
b. Adopt a Resolution Confirming June 30, 2022 Fund Balances in
Accordance Fiscal Year 2021/22 Final Audit and Town Council General
Fund Reserve Policy
RECOMMENDATION:
Annual Comprehensive Financial Report (ACFR):
a. Receive the Annual Comprehensive Financial Report (ACFR) for the Fiscal Year Ended June
30, 2022 (Attachment 1) as recommended by the Finance Commission, and
b. Adopt a Resolution Confirming June 30, 2022 Fund Balances in Accordance with Fiscal Year
2021/22 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 (FY). The FY 2021/22 audit was performed by Chavan and
Associates, LLP an experienced firm specializing in audit services for California public agencies.
The firm also compiled the Draft ACFR for the Town of Los Gatos.
The information contained in the ACFR 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.
PAGE 2 OF 4 SUBJECT: Receive 2022 Annual Comprehensive Financial Report DATE: December 13, 2022
BACKGROUND (continued):
With the passage of Measure A, the Finance Commission has been tasked with several
mandated duties as described in the provisions of the adopted Ordinance. Section 2.50.225. –
Duties states that:
(a) The Finance Commission shall:
(3) Review the Town Manager's draft Annual Comprehensive Financial Report (ACFR)
for the preceding fiscal year and provide written comments and recommendations
to the Town Manager.
(A) The Town Manager shall respond in writing to the Finance Commission
providing his or her rationale for accepting or rejecting each of the Finance
Commission's comments and recommendations prior to presenting the ACFR to
the Town Council for formal consideration.
(B) The Town Manager may not present the ACFR to the Town Council for
formal consideration unless or until he or she considers and responds in writing
to all of the Finance Commission's comments and recommendations.
DISCUSSION:
On December 12, 2022, the Commission received the Fiscal Year 2021/22 Draft Annual
Comprehensive Financial Report (ACFR) for the Commission’s consideration per Measure A
including a presentation from the Town’s auditor Chavan and Associates, LLP (Attachment 3).
During the meeting, the Commission provided feedback on the Fiscal Year 2021/22 Draft
Annual Comprehensive Financial Report (Attachment 1). Of note the Commission requested
that given recent inflationary trends, staff should provide language that illustrates the effect
long-term inflation could have on the Town’s pension liabilities (pg. 4). In addition, the
Commission requested that staff expand Note 15 to include the FY 2020/21 ARPA expenditures
of $200,000 (pg. 97). Commissioners also requested that Note 16 make it clear that the
potential waste hauler revenue loss is an annual number (pg. 98).
On December 15, 2022, the Finance Commission will conclude its review of the Fiscal Year
2021/22 Draft Annual Comprehensive Financial Report (ACFR). Any additional
recommendations received from the Commission at the December 15th meeting will be
communicated to the Town Council through the addendum process.
In addition to the review and input provided by the Finance Commission, staff also provided
continuous review and updates to the Fiscal Year 2021/22 Draft Annual Comprehensive
Financial Report (ACFR) accordingly (pages 4, 19, 31, 83, and 85).
PAGE 3 OF 4 SUBJECT: Receive 2022 Annual Comprehensive Financial Report DATE: December 13, 2022
DISCUSSION (continued):
The redline version of the attached ACFR represents the culmination of recommended
enhancements and changes based on Finance Commission comments, continued staff analysis,
and continued auditor review while maintaining appropriate ACFR presentation based on
governmental accounting and municipal standards.
Highlights of the draft audited financial results include:
Independent Auditor’s Report
The auditor has given the Town’s financial statements a “clean” audit opinion for the year
ended June 30, 2022 giving reasonable assurance that the financial statements are “free of
material misstatement.” (Attachment 3)
Management’s Discussion and Analysis (MD&A)
The MD&A section of the report summaries 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, 2020, June 30, 2021, and June 30,
2022. Information is also presented on the adopted General Fund budget to actuals and any
significant budget adjustments made during FY 2021/22.
Statement of Net Position
The Statement of Net Position serves as a useful indicator of a government’s financial position.
The Town had net assets of $138.4 million at fiscal year-end as compared to $113.5 million the
prior year, an overall increase of $24.9 million over the prior fiscal year. The increase was
largely attributed to the combined net result of an approximate $37 million decrease in total
long-term liabilities outstanding, a $16 million dollar increase in capitalized assets including a
$12.2 million historic Los Gatos Theatre contribution and a $3.7 million addition to non-
capitalized capital outlay expenses from the prior year
The largest portion of the net assets, $127.8 million, represents the Town’s investment in its
capital assets and infrastructure. Restricted assets of $10.2 million are resources that are
subject to external restrictions on how they may be used. As of June 30, 2022, unrestricted net
position is $1.8 million compared to a negative ($4.7 million) the prior year.
Basic Financial Statements
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), Note 4 which illustrates the
new implementation of GASB 87 for leases, its long term obligations (Certificates of
Participation) related to bonded debt (Note 7), the net pension liability for both the Town’s
PAGE 4 OF 4 SUBJECT: Receive 2022 Annual Comprehensive Financial Report DATE: December 13, 2022
DISCUSSION (continued):
miscellaneous and safety pension plans (Note 10), and a discussion of the Town’s other post-
employment benefit plan (Note 11).
Required Supplementary Information
The Schedules of Pension Plan Contributions are provided in this section.
Supplementary Information
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
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.
CONCLUSION:
As noted in the auditor’s opinion, the ACFR fairly presents the fiscal year ending June 30, 2022
financial activity for the Town of Los Gatos.
FISCAL IMPACT:
There is no fiscal impact associated with this item.
Attachments:
1. Draft Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2022.
2. Fund Balance Resolution Establishing June 30, 2022 Fund Balances
3. Independent Auditor Presentation to the Council Finance Commission