CITY OF STANTON, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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1 CITY OF STANTON, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS For the Year Ended June 30, 2012 Prepared by the Administrative Services Department

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3 Comprehensive Annual Financial Report For the year ended June 30, 2012 Table of Contents INTRODUCTORY SECTION Letter of Transmittal Principal Officials as of June 30, 2012 GFOA Certificate of Achievement for Excellence in Financial Reporting Organization Chart Page Number i vi vii viii FINANCIAL SECTION: Independent Auditors Report 1 Management s Discussion and Analysis (Required Supplementary Information) 3 Basic Financial Statements: 13 Government-wide Financial Statements: 15 Statement of Net Assets 17 Statement of Activities 18 Fund Financial Statements: 21 Governmental Funds: Balance Sheet 22 Reconciliation of the Governmental Funds Balance Sheet to the Government-wide Statement of Net Assets 25 Statement of Revenues, Expenditures and Changes in Fund Balances 26 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Government-wide Statement of Activities 28 Proprietary Funds: 29 Statement of Net Assets 31 Statement of Revenues, Expenses and Changes in Net Assets 32 Statement of Cash Flows 33 Fiduciary Funds: 35 Statement of Fiduciary Net Assets 37 Statement of Changes in Fiduciary Net Assets 38 Notes to Basic Financial Statements 39

4 Comprehensive Annual Financial Report For the year ended June 30, 2012 Table of Contents, Continued FINANCIAL SECTION (CONTINUED): Page Number Required Supplementary Information: 83 Schedule of Funding Progress 85 Budgetary Comparison Schedules: General Fund 86 Low and Moderate Income Housing Special Revenue Fund 87 Supplementary Law Enforcement Program Special Revenue Fund 88 Prop 1B Special Revenue Fund 89 Note to Required Supplementary Information 90 Supplementary Information: 91 Budgetary Comparison Schedules: Stanton Consolidated Redevelopment Project Debt Service Fund 93 Capital Improvements Capital Projects Fund 94 Stanton Consolidated Redevelopment Capital Projects Fund 95 Other Governmental Funds: Description of Other Governmental Funds 97 Combining Balance Sheet 98 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 102 Schedules of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual: Gas Tax Special Revenue Fund 106 Measure M Special Revenue Fund 107 Community Development Special Revenue Fund 108 Protective Services Special Revenue Fund 109 Lighting and Median Maintenance Special Revenue Fund 110 Air Quality Improvement Program Special Revenue Fund 111 FaCT Park and Recreation Grant Special Revenue Fund 112 JAG Grant Special Revenue Fund 113 Senior Transportation Special Revenue Fund 114 CalGRIP Grant Special Revenue Fund 115 Park and Recreation Facilities Capital Projects Fund 116

5 Comprehensive Annual Financial Report For the year ended June 30, 2012 Table of Contents, Continued FINANCIAL SECTION (CONTINUED): Page Number Supplementary Information (Continued): Internal Service Funds: Description of Internal Service Funds 117 Combining Statement of Net Assets 118 Combining Statement of Revenues, Expenses and Changes in Net Assets 120 Combining Statement of Cash Flows 122 Agency Fund: Statement of Changes in Assets and Liabilities 124 STATISTICAL SECTION: Description of Statistical Section 125 Financial Trends: Net Assets by Component 127 Changes in Net Assets 128 Fund Balances of Governmental Funds 130 Changes in Fund Balances of Governmental Funds 131 Revenue Capacity: Assessed Value and Estimated Actual Value of Taxable Property 132 Direct and Overlapping Property Tax Rates 133 Principal Property Taxpayers 134 Property Tax Levies and Collections 135 Debt Capacity: Ratios of Outstanding Debt by Type 136 Direct and Overlapping Debt 137 Legal Debt Margin Information 138 Pledged-Revenue Coverage 140 Demographic and Economic Information: Demographic and Economic Statistics 142 Principal Employers 143 Operating Information: Full and Part-Time City Employees by Functions 144 Operating Indicators by Functions 145 Capital Asset Statistics by Function 149

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8 PROFILE OF THE CITY OF STANTON The was incorporated in June, 1956 under the general laws of the State of California, and operates under a Council-Manager form of government. The City Council is comprised of five members elected at large on a staggered basis for a term of four years. The City Manager is appointed by the City Council and has the responsibility of administering municipal services in accordance with the policies and annual budget adopted by the City Council. The City comprises 3.1 square miles in area and has 38,498 residents. Stanton is located in central Orange County, just 23 miles southeast of downtown Los Angeles. It has easy freeway access and is within 12 miles of Disneyland, Anaheim Stadium, Knott s Berry Farm, Huntington Beach and the John Wayne and Long Beach Airports. State Highway 39, Beach Boulevard, runs through the center of the City. Stanton provides a broad range of municipal services to its citizens, including planning, zoning and building safety, code enforcement, parking control, recreation and community services, engineering, public works, streets and park maintenance, street sweeping, graffiti abatement and general administration. Police and fire services are provided by contracts with the Orange County Sheriff s Department and Orange County Fire Authority, respectively. The public library located in Stanton is a part of the Orange County Library System. This report combines the financial activities of the, the primary government, and its component units the Stanton Redevelopment Agency and the Stanton Housing Authority. The City s Redevelopment Agency, along with all other redevelopment agencies throughout California, was dissolved on February 1, Upon dissolution, the Redevelopment Agency s assets and liabilities were transferred to the Successor Agency to the Redevelopment Agency. The City is obligated to report the resources and activities of the Successor Agency in a separate Private-Purpose Trust Fund, which is also included in these financial statements. Additional information on all three of these legally separate entities can be found in Note 1 to the basic financial statements and additional information on the dissolution of the Redevelopment Agency can be found in Note 17. The City adopts a bi-annual budget prepared on the modified accrual basis for all of its governmental funds. The City Manager is required, under City Code Section , to prepare and submit to the City Council the bi-annual budget and administer it after adoption. Legally, expenditures cannot exceed total appropriations at the fund level. Any revisions between funds must be approved by the City Council. The City also maintains an encumbrance system. As purchase orders are issued, corresponding amounts of appropriations are reserved so budgets may not be overspent. Unexpended and unencumbered appropriations lapse at fiscal year end. Encumbrances outstanding at the fiscal year end are carried into the following budgetary year for continued funding. Current Economic Condition ECONOMIC OUTLOOK AND CONDITION The U.S. economy (GDP) grew at 2.7% real (after inflation) annual rate during 2012 s third quarter, which largely matched economists forecasts. Such growth represented the thirteenth consecutive quarter of U.S. economic growth since the Great Recession officially ended in June Although growth in the US economy was relatively lackluster, the underlying economic drivers continue to show signs of improvement. Retail sales have bounced back after dipping negative during the summer months, and seasonally adjusted auto sales have surged. Residential construction and business investment also added to real GDP growth, and the primary driver of the slowdown was the public sector. Growth is expected to increase modestly in as the economy heals further. The threat of inflation remains a distant concern, but no immediate threats of price increases are on the horizon. ii

9 Employers in the US added 171,000 workers in October, more than forecast, the Labor Department said on November 2. In many ways, California escaped the summer slowdown that was observed across the remainder of the United States in Consumer spending increased during the second and third quarter, and in those same quarters, California accounted for nearly 50% of all the jobs created nationwide. In October 2012 the national unemployment was 7.9%. For California, the seasonally adjusted unemployment rate for October 2012 was 10.1%. For Stanton, the September unemployment rate was 11.6%. In Orange County, unemployment is likely to return to its full potential (around 3%) only by the end of 2018 and perhaps later if the current recovery is derailed. The Orange County median housing price in October 2012, based on the California Association of Realtors data, was $558,680, which is 13.2% above the year ago level and 25% below the peak price of $749,697 in April On a year-over-year basis, the median price has been increasing since October These trends are prevalent throughout the region. Recovery will continue in 2013, with both sales and median prices up. Confidence among U.S. consumers climbed to a five-year high in November 2012 improving the prospects of bigger spending gains that will help spur the expansion. The confidence numbers reflect a better job growth in the quarter and the news on housing that has been good. Even with the gain in confidence, the so-called fiscal cliff of tax increases and government cutbacks scheduled to take effect next year serves as a reminder to households that the expansion faces hurdles. Progress in the labor market and cheaper gasoline prices may be helping to shore up consumer sentiment. The gains in confidence have coincided with a pickup in household spending. Purchases rose 0.8 percent in September, the biggest gain in seven months, after advancing 0.5 percent in August, the Commerce Department said on Oct. 29. Retail sales in September and August had the best back-to-back showing since late At the same time, income has been slow to pick up. Average hourly earnings climbed 1.6 percent in October from the same time last year, the smallest gain since comparable year-over-year records began in 2007, the Labor Department said on Nov. 2. Earnings for production workers rose 1.1 percent in the 12 months to October, the weakest since records began in For Stanton, the economy will grow very slowly over the next two fiscal years. It is expected that sales tax revenue will increase 4-6% over the next two or three years. The City s sales tax revenue was approximately 26% of General Fund revenues in fiscal year The housing market in Stanton continues to be flat even with prices bottoming out, a large amount of housing stock is available, and interest rates are at an all-time low. Even though it appears to be the best time to buy a home in Southern California, potential buyers are very cautious about entering into such a long term purchase given the suffering local labor market. The City s main industries focus on service stations, construction, and auto sales, which were hit the hardest by the recession. The next fiscal years will be financially stable and managing the City s scarce resources will become more important in the future. The City is cautious about future economic conditions and will adapt as they unfold. The City s staff continued to utilize the City s financial and human resources in the most efficient manner possible, and allocated these resources toward projects and programs designed to accomplish the goals and objectives identified in the Strategic Plan and in the budget document. Both of these documents were prepared with the input and guidance of the City Council and subsequently adopted by your honorable body. iii

10 The City s continued control over expenditure growth has been a key factor in maintaining the City s positive financial position. The City Council restructured and reduced staff twice during the fiscal year. Contract prices for both the Orange County Sheriff Department contract and the Orange County Fire Authority contract were reduced for the budget year, giving the City a balanced budget without using General Fund reserves. In the past, funds were set aside to fund reserves for vehicle replacement, emergency preparedness and upgrades for automation needs. In the future, when the economic outlook is much better, the City will once again set funds aside for those needs. Outlook for the Future Much of Stanton s future, in terms of its ability to deliver acceptable levels of public services, particularly Safety Services, is dependent upon the generation of revenues adequate to support them. Since law enforcement and fire services represent over 77% of the City s General Fund budget, any increase in these costs has a dramatic impact on the remaining services and the City s overall financial condition. Average annual increases in these services have typically been in the range of 4% to 10%. Keeping the cost of providing safety services under control is critical to maintaining the overall fiscal health of the City. Beyond the need for funding for law enforcement and fire services, the City Council and the citizens continue to place an emphasis on neighborhood preservation issues, which will require maintaining increased code enforcement efforts and securing sufficient funding for such efforts. Although the City has been built out for many years, it continues to make great strides in economic development and business retention. SPENDING LIMITATION The voters of California, during a special election in 1979, approved Proposition 4 (the Gann Initiative ) which was incorporated into Article XIII-B of the California State Constitution. It restricted, in any given fiscal year, the total amount of appropriations allowed from the proceeds of taxes. Each year, the governing body of local jurisdictions must establish, by resolution, an Appropriations Limit for the following year. If a city ends the fiscal year having more appropriations from the proceeds of taxes than the Limit allows, it must return the excess to the taxpayers within two years (either by reducing taxes levied or fees charged). The City s Appropriations Limit was $33,690,354 and the City s actual appropriations subject to the limit were well within the legal requirement. AWARDS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the for its comprehensive annual financial report for the fiscal year ended June 30, In order to be awarded a Certificate of Achievement, a city must publish an easily readable and efficiently organized comprehensive annual report, which also satisfies both generally accepted accounting principles and all applicable legal requirements. A Certificate of Achievement is valid for only one year. We believe this comprehensive annual financial report (CAFR) continues to meet the high award program standards. We are submitting it to the GFOA to determine its eligibility for iv

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12 Principal Officials Members of the City Council for Mayor Mayor Pro Tem Councilmember Councilmember Councilmember Carol Warren David J. Shawver Alexander A. Ethans Rigoberto Ramirez Brian Donahue Administrative Staff as of June 30, 2012 City Manager/City Clerk Assistant City Manager/Director of Parks and Recreation City Attorney Administrative Services Director/City Treasurer Community Development Director Public Works Director/City Engineer O.C. Fire Authority Chief O.C. Sheriff Department Lieutenant Carol Jacobs James A. Box Kim Hall Barlow Terri Marsh Omar Dadabhoy Nick Guilliams Robert Patterson Jeff Passalaqua vi

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14 City Wide Organization Chart viii

15 The Honorable Mayor and Members of the City Council of the Stanton, California INDEPENDENT AUDITORS REPORT We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Stanton (the City), as of and for the year ended June 30, 2012, which collectively comprise the City s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the, as of June 30, 2012, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 17 to the financial statements, the Stanton Redevelopment Agency, a blended component unit of the City, was dissolved effective February 1, 2012 as a result of legislation enacted by the State of California Michelle Drive, Suite 300, Irvine, CA Tel: Fax: Offices located in Orange and San Diego Counties

16 In accordance with Government Auditing Standards, we have also issued our report dated January 23, 2013 on our consideration of the s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The management s discussion and analysis, the schedule of funding progress and budgetary comparison schedules, listed in the table of contents as required supplementary information, are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. This information is an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the management s discussion and analysis and the schedule of funding progress in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the basic financial statements. We do not express an opinion or provide any assurance on the management s discussion and analysis and the schedule of funding progress because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The budgetary comparison schedules and related note have been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements of the or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the s basic financial statements as a whole. The introductory section, supplementary information and statistical section, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The supplementary information is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion or provide any assurance on them. Irvine, California January 23,

17 Management s Discussion and Analysis June 30, 2012 This discussion and analysis of the s (City) financial performance provides an overview of the City s financial activities for the fiscal year ended June 30, Please read it in conjunction with the accompanying transmittal letter, the basic financial statements and the accompanying notes to those financial statements. USING THIS ANNUAL REPORT This Comprehensive Annual Financial Report consists of three parts: 1. The Introductory Section, which includes the Transmittal Letter and general information, 2. The Financial Section, which includes Management s Discussion and Analysis as well as: The Basic Financial Statements, which include the Government-wide and the fund financial statements Notes to these financial statements Required supplementary information Combining statements and budgetary comparison schedules 3. Statistical Section. FINANCIAL HIGHLIGHTS The total assets of the City exceeded its total liabilities at the end of fiscal year by $145.5 million. Of this amount, $27.5 million represents unrestricted net assets and may be used to meet the City s ongoing obligations to citizens and creditors. The City s net assets increased by $48.2 million during the past year. This was the result of the $50.5 million extraordinary gain to the City from the transfer of assets and liabilities of the Stanton Redevelopment Agency to the Successor Agency to the Redevelopment Agency. For the year, expenses exceeded revenues on a government-wide basis by $2.3 million. As of the close of the fiscal year, the City s governmental funds reported combined ending fund balances of $41.6 million, a decrease of $34.1 million in comparison to the prior year. The decline is primarily due to the net $24.3 million transfer of assets and liabilities in the former Stanton Redevelopment Agency funds to the Successor Agency. In addition, expenditures exceeded revenues in the governmental funds by $9.8 million. Approximately 35% of the combined governmental fund balances at year-end, $14.4 million is unassigned and is available for spending at the City s discretion. In addition, $1.7 million is assigned, $4.4 million is committed, and $9.9 million is restricted for particular purposes. The remaining $11.3 million of the fund balances is non-spendable. At the end of the fiscal year, the unassigned fund balance of the General Fund was $14.4 million, or 92% of total General Fund expenditures. See independent auditors report. 3

18 OVERVIEW OF THE FINANCIAL STATEMENTS The financial statements presented herein include all of the activities of the, the Stanton Redevelopment Agency and the Stanton Housing Authority, using the integrated approach as prescribed by GASB Statement No. 34. The Successor Agency to the Redevelopment Agency is reported as a Private Purpose Trust Fund within these financial statements, upon the Redevelopment Agency s dissolution on February 1, Government-wide Financial Statements The government-wide financial statements present the financial picture of the City from the economic resources measurement focus using the accrual basis of accounting. They present governmental activities and business-type activities separately. These statements include all assets of the City (including infrastructure) as well as all liabilities (including long-term debt). Additionally, certain eliminations have occurred as prescribed by GASB Statement No. 34 in regards to inter-fund activity, payables and receivables. The Statement of Net Assets and the Statement of Activities and Changes in Net Assets report information about the City as a whole and about its activities. These statements include all assets and liabilities of the City using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the City s net assets and changes in them. Net assets are the difference between assets and liabilities, which is one way to measure the City s financial health, or financial position. Over time, increases or decreases in the City s net assets are one indicator of whether its financial health is improving or deteriorating. Other factors to consider are changes in the City s property tax base and the condition of the City s roads. In the Statement of Net Assets and the Statement of Activities and Changes in Net Assets, we distinguish the City s functions that are principally supported by taxes and intergovernmental revenues (governmental activities), from other functions that are intended to recover all or a portion of their costs through user fees and charges for business-type activities. The activities of these two distinctions are as follows: Governmental activities Most of the City s basic services are reported in this category, including the General Government, Police and Fire services, Community Development, Public Works, Parks and Recreation and Redevelopment. Property and sales taxes, utility and other user fees, vehicle license fees, franchise fees, interest income, and state and federal grants finance these activities. Business-type activities The City charges a fee to customers to cover all, or most of the cost, of certain services it provides. The City s Sewer system is reported in this category. Fund Financial Statements Fund financial statements include statements for each of the three categories of activities; governmental, business-type and fiduciary. The governmental activities are prepared using the current financial resources measurement focus and modified accrual basis of accounting. The business-type activities are prepared using the economic resources measurement focus and the accrual basis of accounting. The fiduciary activities are agency funds, which only report a balance sheet and do not have a measurement focus. Reconciliations of the fund financial statements to the government-wide financial statements are provided to explain the differences created by the integrated approach. See independent auditors report. 4

19 The fund financial statements provide detailed information about the most significant funds not the City as a whole. Some funds are required to be established by State law and bond covenants. However, management establishes many other funds, to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other funding sources. Governmental Funds Most of the City s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can be readily converted to cash. The governmental fund statements provide a detailed short-term view of the City s general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the City s programs. The differences of results in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation schedule following each governmental fund financial statement. Proprietary Funds When the City charges customers for the service it provides, whether to outside customers or to other units of the City, these services are generally reported in Proprietary Funds. Proprietary Funds are reported in the same way that all activities are reported in the Statement of Net Assets and the Statement of Revenues, Expenses and Changes in Net Assets. In fact, the City s Enterprise Fund is the same as the business-type activities reported in the government-wide statements but provides more detail and additional information, such as cash flows. The City uses internal service funds (the other component of Proprietary Funds) to report activities that provide supplies and services for the City s other programs and activities such as the City s self insurance, fleet maintenance and equipment replacement funds. The Internal Service Funds are reported with governmental activities in the government-wide financial statements. Fiduciary Funds the City is the trustee, or fiduciary, for certain funds held on behalf of other agencies. The City s fiduciary activities are reported in a separate Statement of Fiduciary Net Assets. We exclude these activities from the City s other financial statements because the City cannot use these assets to finance its operations. The City is responsible for ensuring that the assets reported in this fund are used for their intended purposes. Notes to the Financial Statements The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the Government-wide and fund financial statements. Other Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City s progress in funding its obligation to provide pension benefits to its employees, and a budgetary comparison schedule for the General Fund. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, the net assets for the City totaled $145.5 million at June 30, Approximately $99.1 million (68%) reflects the investment in capital assets such as land, buildings, machinery and equipment, less any related debt to acquire those assets that is still outstanding. These assets are used to provide services to the citizens of the ; therefore, they are not available for future spending. Although the City s investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since capital assets themselves cannot be used to liquidate these liabilities. The major increase in the Invested in Capital Assets Net of Related Debt category from the prior year amount of $35.9 million is due to the transfer of long-term liabilities of the Stanton Redevelopment Agency to the Successor Agency. See independent auditors report. 5

20 An additional portion of the City s net assets totaling approximately $18.9 million (13%) represents resources subject to external restrictions on how they may be used. Restricted net assets declined by $30.5 million during fiscal year , primarily due to the transfer of Redevelopment Agency restricted assets to the Successor Agency. The remaining balance of unrestricted net assets ($27.5 million, 19%) may be used to meet the City s ongoing obligations to citizens and creditors. The City is able to report positive balances in all three categories of net assets, for both the government as a whole, as well as for its separate governmental and business-type activities. Net Assets Governmental Activities Business-type Activities Total # # # Current and other assets $ 46,467,599 $ 85,708,783 $ 1,756,778 $ 1,530,565 $ 48,224,377 $ 87,239,348 Capital assets 93,573,202 85,881,120 5,506,126 5,640,395 99,079,328 91,521,515 Total Assets 140,040, ,589,903 7,262,904 7,170, ,303, ,760,863 Long-term liabilities outstanding 546,628 77,002,980 4,883 2, ,511 77,005,613 Other liabilities 1,042,516 4,432, ,163 6,975 1,233,679 4,439,243 Total Liabilities 1,589,144 81,435, ,046 9,608 1,785,190 81,444,856 Net assets: Invested in Capital Assets Net of Related Debt 93,573,202 30,303,477 5,506,126 5,640,395 99,079,328 35,943,872 Restricted 18,909,154 49,511, ,909,154 49,511,685 Unrestricted 25,969,301 10,339,493 1,560,732 1,520,957 27,530,033 11,860,450 Total Net Assets $ 138,451,657 $ 90,154,655 $ 7,066,858 $ 7,161,352 $ 145,518,515 $ 97,316,007 The table above illustrates the changes in the City s net asset position at June 30, 2012 compared to June 30, All of the significant changes occurred in the City s governmental activities. Current and other assets decreased by $39.0 million. Cash and investments decreased by $11.6 million or 28%. This is mainly due to the closing of the Redevelopment Agency funds to the Successor Agency fiduciary fund. In addition, restricted cash and investments decreased by $24.5 million, the largest single portion of which was a transfer to the Successor Agency fiduciary fund. Capital assets increased by $7.6 million, due mostly to the purchase by the Redevelopment Agency and Successor Agency of land totaling $7.8 million for the Tina-Pacific project. Liabilities decreased by $79.7 million, the result of $76.0 million bonds payable being transferred to the Successor Agency fiduciary fund. In addition, tax increment pass-through payables in the prior year were $1.5 million. These were no such payables at June 30, See independent auditors report. 6

21 GOVERNMENTAL ACTIVITIES The City s net assets from governmental activities totaled $138.4 million, as can be seen in the chart on the following page. For the year, there was a $48.3 million increase in net assets for governmental activities. The extraordinary gain on transfer of Redevelopment Agency assets and liabilities to the Successor Agency was $50.5 million, and expenses exceeded revenues in governmental activities by $2.2 million. By comparison, in fiscal year expenses exceeded revenues in governmental activities by $0.7 million. Revenues for governmental activities were $6.3 million lower in FY than in FY Property tax revenue had a $4.5 million decrease, mainly due to the dissolution of the redevelopment agency in February The other major cause of the overall revenue decline was in the area of capital grants and contributions. There were no capital grants and contributions in fiscal year In addition, investment earnings decreased by $0.6 million (56%) due to the drop in the rate of return on all investments. The City will no longer be receiving interest payments from the Stanton Redevelopment Agency. More money was invested in the City s money market account with Bank of the West in the fiscal year, which had a lower rate of return than the State s Local Agency Investment Fund (LAIF). In contrast, more money was invested in LAIF in the prior years than in money markets. Offsetting the overall revenue decline somewhat was sales tax revenue, which increased by $0.5 million, due to a onetime correction from the State Board of Equalization and the resurgence of the economy and consumer spending experienced throughout the country. Stanton sales tax revenue relies heavily on the construction and automobile industries, which had been hit hard during the past several fiscal Also, there was a $0.5 million increase to operating grants and contributions. All gas tax revenues were categorized as operating grants and contributions in FY , whereas they were categorized as capital grants and contributions in the previous year. Expenses for governmental activities were $4.8 million, or 15.4%, less in fiscal year than in fiscal year The major decreases occurred in Urban Development and Highways and Streets. The $4.3 million decrease in Urban Development was primarily due to the dissolution of the Redevelopment Agency that occurred during the year. The decrease of $1.4 million in Highway and Streets expenses was mainly because of the significant decrease in the infrastructure capital projects in fiscal year Also, there was a decrease of $0.5 million in Culture and Recreation expenses, which was due to a $0.6 million decrease in parks and recreation expenditures and a nearly $0.1 million increase in depreciation expense; and a $0.3 million decrease in Public Safety expenses, due to $0.2 million greater safety expenditures, $0.1 million more in depreciation expenses, but also a $0.6 million decrease in capital outlay related to public safety. General Government expenses increased by $1.2 million, mainly due to the change in cost allocation calculation which decreased the credits allocated by $1.6 million in There was also a significant decrease in General Government departmental budget expenditures in the current year. The $0.5 million increase in Interest and Fiscal Changes was mainly due to the net of $1 million increase in bond interest payments and $0.4 million decrease in City loan interest paid by the Redevelopment Agency. BUSINESS TYPE ACTIVITIES The City has one business type activity, the Sewer Maintenance Fund. The City s net assets from business type activities totaled $7.1 million. Net assets for business type activities declined by $94,494 in fiscal year , compared to an increase of $150,760 in fiscal year The change from the prior year was the result of a decline in total sewer maintenance revenues of $140,997 and a $104,257 increase in sewer maintenance expenses. The revenue decline can be attributed primarily to a drop in other general revenues, partially offset by an increase in charges for services. Other general revenue included a reimbursement from the City of Garden Grove in fiscal year , which did not repeat in The expense increase was caused by more contractual services rendered in the fiscal year See independent auditors report. 7

22 Changes in Net Assets Governmental Activities Business-type Activities Total Revenues: Program revenues: Charges for services $ 2,144,418 $ 2,283,313 $ 656,860 $ 528,779 $ 2,801,278 $ 2,812,092 Operating grants and contributions 2,510,694 1,956, ,510,694 1,956,567 Capital grants and contributions - 2,214, ,214,326 General revenues: Property taxes 8,070,432 12,547,610 41,784 45,345 8,112,216 12,592,955 Sales taxes 3,579,392 3,091, ,579,392 3,091,571 Transient occupancy taxes 357, , , ,316 Franchise taxes 932, , , ,977 Other taxes 5,395,184 5,517, ,395,184 5,517,430 Investment earnings 435, ,415 13,729 20, ,620 1,006,480 Other 553, ,603 27, , , ,779 Total Revenues 23,979,669 30,294, , ,365 24,720,037 31,175,493 Expenses: General government 2,277,269 1,081, ,277,269 1,081,252 Public safety 12,494,004 12,744, ,494,004 12,744,191 Urban development 3,766,930 8,063, ,766,930 8,063,096 Health and welfare 2,132 19, ,132 19,505 Highways and streets 2,557,660 3,975, ,557,660 3,975,867 Culture and recreation 1,731,743 2,241, ,731,743 2,241,411 Interest and fiscal changes 3,378,862 2,844, ,378,862 2,844,199 Sewer , , , ,605 Total Expenses 26,208,600 30,969, , ,605 27,043,462 31,700,126 Increase in net assets before transfers (2,228,931) (675,393) (94,494) - 150,760 (2,323,425) (524,633) Extraordinary gain from transfer 50,525, ,525,933 - Increase/Decrease in net assets 48,297,002 (675,393) (94,494) 150,760 48,202,508 (524,633) Net assets - beginning of year 90,154,655 90,830,048 7,161,352 7,010,592 97,316,007 97,840,640 Net assets - end of year $ 138,451,657 $ 90,154,655 $ 7,066,858 $ 7,161,352 $ 145,518,515 $ 97,316,007 FINANCIAL ANALYSIS OF THE GOVERNMENT S FUNDS As noted earlier, the uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government s net resources available for discretionary spending at the end of the fiscal year. Approximately $14.4 million of the total $41.6 million governmental funds fund balance constitutes fund balance that is available for spending at the government s discretion. The remainder of fund balances ($27.2 million) is either non-spendable, or restricted, committed, or assigned for a variety of purposes. From the previous fiscal year to the current year there was an increase of $6.3 million in total governmental unassigned fund balance. Most of this increase was due to the elimination of the negative $4.4 million unassigned Redevelopment Project Fund balance when the Redevelopment Agency was dissolved, as well as the $2.7 million decrease in assigned General Fund balance. See independent auditors report. 8

23 The General Fund is the chief operating fund of the. At the end of the current fiscal year, unassigned fund balance of the General Fund was $14.4 million and total fund balance stood at $20.6 million. As a measure of the General Fund s fiscal strength, it is useful to compare both unassigned fund balance and total fund balance to total fund expenditures. At June 30, 2012, unassigned fund balance of the General Fund represents 92% of the total General Fund expenditure, while total fund balance represents 132% of that same amount. The total General Fund balance decreased $1.4 million during the past year. The fund balance moved from $22 million at June 30, 2011 to $20.6 million as of June 30, (The 2011 CAFR reported the General Fund balance at $28.4 million, but this amount included $6.4 million related to the Housing Authority, which has been reclassified in this year s CAFR as a separate Special Revenue fund.) The General Fund balance decreased $1.4 million. There was a disparity in the General Fund of $2.1 million between revenues and expenditures, which is a structural deficit, as well as net transfers into the General fund of $0.7 million. Last year, the comparable structural deficit amount was $1.9 million. General Fund revenues were slightly lower this year than in the prior year, and expenditures were slightly higher. The major differences in the General Fund revenues from are as follows: Sales tax revenue increased by $488,000, or 16%, due to a $188,000 increase in property tax in lieu of sales tax received from the County, a one-time correction by the State and an increase due to economic conditions evening out. Licenses and permits increased by $103,000. This is mainly due to a $61,000 increase in solid waste impact fees and a $29,000 increase in building permits and building plan check fees. Interest income decreased by $391,000. Investment in money market and other instruments decreased by $8.5 million. Money market rates were also significantly low. Non-safety departments within the General Fund reorganized staffing and again cut costs in reaction to the economic conditions and the structural deficit; however, within public safety, there was an increase to the fire protection services contract with the Orange County Fire Authority that could not be avoided in order to keep the same amount of services to the citizens. The Capital Improvements Project Fund balance decreased by $0.1 million, because only small projects were completed. Also, because of economic conditions and a thrift mindset by the City, not many capital project funds were expended in The Low and Moderate Income Housing Fund balance was reduced to zero when the State of California passed AB 26, and the California Supreme Court upheld it in December of Assets and liabilities were transferred to the Housing Authority Special Revenue Fund or the Housing Successor Private-Purpose Trust Fund. The Redevelopment Agency Debt Service and the Redevelopment Agency Capital Project Fund balances were also reduced to zero when these funds were dissolved on January 31, Proprietary Funds. The s Proprietary Funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net assets of the Sewer Enterprise Fund at the end of the year amounted to $1.6 million. The unrestricted net assets increased by $39,775 compared to the prior year. There was a $23,824 decrease (improvement) in the amount of operating loss compared to the prior year, as a result of greater revenues from charges for services, which more than offset the increase in contractual service costs. See independent auditors report. 9

24 GENERAL FUND BUDGETARY HIGHLIGHTS Overall, the General Fund came in $1.1 million better than budget for the year. Actual revenues for the year were $0.4 million greater than the final budget estimates. The major variances in revenue are accounted for in the following accounts: Taxes and assessments revenue came in over budget by $365,000, attributable to four individual revenue sources. Sales tax revenue was over budget by $173,000, transient occupancy tax by $82,000, cable television franchise tax revenue by $43,000, and refuse franchise tax revenue by $59,000. Intergovernmental revenue was over budget by $64,000. This is mainly due to motor vehicle in lieu of $84,000. Some revenues were slightly under budget. Fines and forfeitures were $53,000 under budget. Motor vehicle fines were slightly more than the budget but parking citations were $66,000 under budget. Actual expenditures were $0.7 million less than the final budget. Four of the five expenditure categories came in under budget; only public safety exceeded its budget. Some of the individual expenditure accounts that were under budget were: city attorney professional services by $44,000; city clerk elections expenditures by $29,000; animal control by $101,000; public facilities building maintenance, utilities and contractual services by $34,000, $30,000 and $47,000, respectively; planning department s professional services by $73,000, and street maintenance contractual services by $84,000. The public safety budget was exceeded by just $4,000. CAPITAL ASSETS The capital assets of the City are those longer-life assets used in the performance of the City s functions and include: land, buildings and improvements, machinery and equipment, park facilities, and roads and highways. Governmental Accounting Standards Board (GASB) Statement No. 34 allows for governmental agencies to either depreciate their infrastructure assets or to use a modified approach to maintain an inventory of such assets. The City has elected the depreciation method, and utilizes straight-line depreciation. Estimated useful lives for capital assets range from 5 to 50 years, depending on type of asset. Depreciation on capital assets is recognized in the government-wide financial statements and proprietary funds. At June 30, 2012, net capital assets of the governmental activities totaled $93.6 million, and the net capital assets of the business-type activities totaled $5.5 million. Capital assets related to governmental activities increased by a net of $7.7 million during fiscal year and capital assets related to business-type activities decreased by $0.1 million. Major capital asset events during included the following: The City purchased Tina/Pacific Avenue properties for $7.8 million. Linear Park was completed for $0.3 million. The new fire station was completed at a total cost of $5.0 million, $3.7 million of which was construction in progress at the end of fiscal year Depreciation for the year totaled $2.1 million. Additional information on the City s capital assets can be found in note 4 on pages of this report. See independent auditors report. 10