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 ● 408-354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 12/19/2017
ITEM NO: 13
DATE: DECEMBER 12, 2017
TO: MAYOR AND TOWN COUNCIL
FROM: LAUREL PREVETTI, TOWN MANAGER
SUBJECT: COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR
ENDED JUNE 30, 2017
A. ACCEPT THE COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR
THE FISCAL YEAR ENDED JUNE 30, 2017; AND
B. APPROVE A RESOLUTION CONFIRMING JUNE 30,2017 FUND
BALANCES IN ACCORDANCE WITH FISCAL YEAR 2016/17 FINAL
AUDIT AND THE TOWN COUNCIL GENERAL FUND RESERVE POLICY
RECOMMENDATION:
Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2017
1. Accept the Comprehensive Annual Financial Report for the fiscal year endingd June 30,
2017; and
2. Approve a resolution confirming June 30,2017 fund balances in accordance with fiscal
year 2016/17 final audit and the Town Council General Fund Reserve Policy.
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 2016/17 audit was performed by Badawi Associates, an
experienced firm specializing in audit services for California public agencies. The firm also
prepared the CAFR for the Town of Los Gatos (see Attachment 1). The Town’s auditor
conducted an audit in accordance with Generally Accepted Auditing Standards (1994 Revision),
issued by the Comptroller General of the United States. These standards require that they plan
and perform the audits to obtain reasonable assurances as to whether the financial statements
are free of material misstatement.
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SUBJECT: ACCEPT THE COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL
YEAR ENDED JUNE 30, 2017
DATE: DECEMBER 12, 2017
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BACKGROUND (cont’d):
Staff from both the Town and Badawi Associates met with the Council Finance Committee on
Monday, December 4, 2017 for a review of the draft Fiscal Year (FY) 2016/17 CAFR. The
Committee was advised by staff and Mr. Badawi that the audited statements for the year
ended June 30, 2017 received an unqualified or “clean” opinion for the year, meaning the
financial statements are fairly presented and contain no material misstatements. At this
meeting, the Council Finance Committee heard public testimony, reviewed, discussed, and
recommended to the Town Council to accept the CAFR for the fiscal year ended June 30, 2017
subject to typographical and footing error corrections, and additional clarification language
recommended by the Committee members and the public.
DISCUSSION:
The information contained in the CAFR provides detailed financial information which our
community and others can use to better understand the fiscal standing of the Town. In
addition, the financial information contained in the document is reviewed by the credit rating
agencies annually and used to affix a credit rating for the Town’s outstanding debt obligations.
In 2017, Moody’s rating service affirmed the Town’s general credit rating of Aaa. The Aaa
rating is above the median rating of Aa3 for similar sized cities nationwide.
At the meeting, Finance staff presented to the Town Council Finance Committee the draft
audited Comprehensive Annual Financial Report (CAFR) dated June 30, 2017. Town’s CAFR has
been awarded the Achievement in Excellence in Financial Reporting for seventeen consecutive
years and staff will be submitting the Town’s CAFR for award consideration by the December
31, 2017 deadline. Town staff and the auditor discussed the audited financial results with the
Committee focusing on the following:
Financial Section. The auditor gave the Town’s financial statements a “clean” audit opinion for
the year ended June 30, 2017 (see the fourth paragraph of the auditor’s opinion on Page 12 of
the Financial Section of the report) giving reasonable assurance that the financial statements
are fairly presented.
Statement of Net Position. The Statement of Net Position (page 30) may serve as a useful
indicator of a government’s financial position. The Town had net assets of $117.0 million at
fiscal year end as compared to $112.5 million the prior year, an overall increase of 4.0% for the
fiscal year.
The Town’s Net Position increased by $4,513,273 due primarily to General Fund revenues
above expenditures and a $2.2 million increase from prior year adjustments.
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SUBJECT: ACCEPT THE COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL
YEAR ENDED JUNE 30, 2017
DATE: DECEMBER 12, 2017
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DISCUSSION (Cont’d):
The largest portion of the net assets, $96.3 million, represents the Town’s investment in its
capital assets and infrastructure. Restricted assets of $5.6 million are resources that are subject
to external restrictions on how they may be used. The remaining $15.1 million in net assets are
unrestricted legally, but have been designated as to use in various reserve accounts or held in
Internal Service Funds. Again, this is an overall financial position indicator and is not the
amount of current resources available for budgetary purposes.
In prior years, the Town Council appropriated funds in a deferred revenue deposit account to
be used as a funding source for future CalPERS required employer contributions. Due to robust
investment earnings during the "dot com" years preceding 2001, the Town's pension trust was
determined by CalPERS to be "superfunded." As such, the Town was not required in those
years to make pension contributions to the CalPERS pension trust. The Town conservatively
elected to charge itself its required contributions and placed them into a General Fund deposit
account dedicated for future CalPERS employer pension costs. The total remaining amount as
of July 1, 2016 not used by the Town for employer contributions to CalPERS was $1.8 million.
Upon review of its prior accounting for the amounts as deferred revenue, the Town reclassified
the $1.8 million deposit account as a prior period adjustment, increasing the General Fund
Reserve for CalPERS/OPEB and decreasing the same amount from the deferred revenue
CalPERS deposit liability account.
Management’s Discussion and Analysis (MD&A) (pages 15 through 26). Page 15 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,
2016 and June 30, 2017. Information is also presented on the adopted General Fund budget
and any significant budget adjustments made during the FY 2016/17 fiscal year (page 23).
Basic Financial Statements (pages 27 through 85, including footnotes). Located within this
section are 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). An important item for consideration is the General Fund
Budget and Actual presented on page 38. Presented in this statement is a $4.2 million excess of
revenues over expenditures for the fiscal year. This result for the fiscal year provided resources
to fund the Budget Strategy and Catastrophic Reserve at 12.5% of operating expenditures and
provide additional $300,000 funding to the CalPERS/OPEB Reserve per the Town Council
General Fund Reserve Policy. Approximately $3.2 million in funds are available from FY
2016/17 to fund Town needs that the Council will discuss in early 2018.
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SUBJECT: ACCEPT THE COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL
YEAR ENDED JUNE 30, 2017
DATE: DECEMBER 12, 2017
S:\COUNCIL REPORTS\2017\12-19-17\CAFR.General Fund\Staff Report - FY 2016-17 CAFR Final.docx 12/14/2017 2:25 PM
DISCUSSION (Cont’d):
The footnotes section provides details on significant items such as the Town’s cash and
investments (Note 2 beginning on page 61), its long term obligations (Certificates of
Participation) related to bonded debt (Note 6 page 67), the net pension liability for both the
Town’s miscellaneous and safety pension plans (Note 9 page 71), and a discussion of the
Town’s other post-employment benefit plan (Note 10 page 79).
Required Supplementary Information (pages 87 through 92). The Schedules of Pension Plan
Contributions are provided in this section.
Supplementary Information (pages 93 through 109). 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 111 through 127). 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 CAFR fairly presents the fiscal year ending June 30, 2017
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. Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 201 7.
2. Fund Balance Resolution Establishing June 30, 2017 Fund Balances