09 Staff Report.ReceivetheCAFR
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: 12/15/2020 ITEM NO: 9
DATE: December 9, 2020
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Comprehensive Annual Financial Report (CAFR):
a. Receive the Comprehensive Annual Financial Report (CAFR) for the Fiscal
Year Ended June 30, 2020, and
b. Adopt a Resolution Confirming June 30, 2020 Fund Balances in
Accordance Fiscal Year 2019/20 Final Audit and Town Council General
Fund Reserve Policy
RECOMMENDATION:
Comprehensive Annual Financial Report (CAFR):
a. Receive the Comprehensive Annual Financial Report (CAFR) for the Fiscal Year Ended June
30, 2020 (Attachment 1), and
b. Adopt a Resolution Confirming June 30, 2020 Fund Balances in Accordance with Fiscal Year
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 2019/20 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 2020, 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, 2020 DATE: December 9, 2020
DISCUSSION:
The Council Finance Committee met on Monday, December 7, 2020 to review and provide
comments on the draft Fiscal Year (FY) 2019/20 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. In addition, prior to the
Committee meeting, Committee Members provided staff with questions regarding their CAFR
review for which staff provided responses that can be found in the Desk Item portion of
Attachment 4.
The Council Finance Committee also received written public comments and provided an
opportunity for public testimony. The Committee reviewed, discussed, and provided
comments on the Draft CAFR and its accompanying Desk Item. Based upon the suggestions
from the Committee to expand or highlight specific areas of concern, staff has made changes to
the draft CAFR and its narratives. These changes include an expanded discussion of COVID-19
impacts to the final quarter of FY 19/20 and ongoing known and significant impacts to FY 20/21
in the Management’s Discussion and Analysis Financial Highlights section beginning on page 18
of the CAFR. Staff also highlighted the increasing costs of net governmental expenses
(governmental cost by function less revenues generated by that function) as reported in the
Town’s Statement of Activities. In addition, staff also added more discussion regarding the
growth of the Town’s unfunded pension obligation to the CAFR’s Transmittal Letter which
begins on page 1 of the CAFR.
In light of the recognition of operating surpluses of revenue above expenditures of
approximately $5.6M (2019) and $3.2M in 2020, staff is recommending assignment of Measure
G 2018 District Sales Tax collected to date. Per the Town’s General Fund Reserve Policy, surplus
revenues above expenditures are placed into the Town’s Reserve for Capital/Special Projects.
Staff recommends an additional assignment of General Fund Reserves recognizing a total of
$1,224,521.96 in District Taxes collected less $43,060 in State of California administration fees
from first date of receipt in FY 2018/19 through June 30, 2020. The recommendations reassign
the District tax net proceed amounts in the draft CAFR previously assigned for General Fund
Capital/Special Projects Reserve by $1,181,162 and increases the amount assigned for District
Sales Tax in the same amount. This assignment facilitates the Town’s ability to track both
receipt and use of this source of funding as required by Town ordinance and described in the FY
2020/21 – 2024/25 Five-Year Capital Improvement Program (CIP) transmittal letter.
The redline version of the attached CAFR represents the culmination of recommended
enhancements and changes based on Finance Committee comments, continued staff analysis,
public comments, and continued auditor review while maintaining appropriate CAFR
presentation based on governmental accounting and municipal standards.
PAGE 3 OF 4 SUBJECT: Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2020 DATE: December 9, 2020
DISCUSSION (continued):
In addition to the above-mentioned disclosures in the CAFR, staff has prepared a separate
agenda item for the December 15, 2020 Council meeting to provide an update on the status of
major operating revenues including property tax, sales tax, and transient occupancy taxes.
Given the unprecedented economic impacts related to COVID-19, staff wanted the Council and
the public to have an update prior to the Mid-Year Budget review currently scheduled for late
February 2021. The update includes the current status of how these revenues are performing
as compared to the FY 2020/21 Adopted Budget and prior FY actuals.
Highlights of the draft audited financial results include:
Independent Auditor’s Report (pages 13 through 15)
The auditor has given the Town’s financial statements a “clean” audit opinion for the year
ended June 30, 2020 (see the first 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 37)
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, 2019 and June 30, 2020. Information is also presented on the adopted
General Fund budget to actuals and any significant budget adjustments made during FY
2019/20 (page 31 through 33).
Statement of Net Position (page 41)
The Statement of Net Position serves as a useful indicator of a government’s financial position.
The Town had net assets of $114.85 million at fiscal year-end as compared to $114.82 million
the prior year, an overall small increase of $30K over the prior fiscal year.
The largest portion of the net assets, $111.7 million, represents the Town’s investment in its
capital assets and infrastructure. Restricted assets of $7.1 million are resources that are subject
to external restrictions on how they may be used. As of June 30, 2020, unrestricted net
position reports a deficit of approximately $3.97 million, a small improvement from the prior
year. The unrestricted net position reported the prior year was a deficit of approximately $4.64
million. The deficit in unrestricted net position is primarily due to the Town’s outstanding long
term pension and Other Post Employment Benefit (OPEB) liabilities.
DISCUSSION (continued):
PAGE 4 OF 4 SUBJECT: Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2020 DATE: December 9, 2020
Basic Financial Statements (pages 41 through 98, 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 70), its
long term obligations (Certificates of Participation) related to bonded debt (Note 6 page 76),
the net pension liability for both the Town’s miscellaneous and safety pension plans (Note 9
pages 81-89), and a discussion of the Town’s other post-employment benefit plan (Note 10
pages 89-94).
Required Supplementary Information (pages 100 through 104)
The Schedules of Pension Plan Contributions are provided in this section.
Supplementary Information (pages 106 through 121)
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 125 through 155)
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, 2020
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, 2020.
2. Fund Balance Resolution Establishing June 30, 2020 Fund Balances
3. Independent Auditor Presentation to the Council Finance Committee
4. Finance Committee December 7, 2020 Staff Report with Desk Item