CITY OF SAN JUAN CAPISTRANO, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT WITH INDEPENDENT AUDITOR S REPORT BY CERTIFIED PUBLIC ACCOUNTANTS

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1 ITEM F8 City of San Juan Capistrano, California Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2015 Prepared by The Finance Department ENCLOSURE 1 Preserving the Past to Enhance the Future

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3 CITY OF SAN JUAN CAPISTRANO, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT WITH INDEPENDENT AUDITOR S REPORT BY CERTIFIED PUBLIC ACCOUNTANTS YEAR ENDED JUNE 30, 2015

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5 Comprehensive Annual Financial Report Year ended June 30, 2015 Table of Contents INTRODUCTORY SECTION: Letter of Transmittal Organizational Chart Listing of City Officials GFOA Certificate of Achievement for Excellence in Financial Reporting Page Number i v vi vii viii FINANCIAL SECTION: Independent Auditor s Report 1 3 Management s Discussion and Analysis (Required Supplementary Information) 5 17 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position 19 Statement of Activities Fund Financial Statements: Governmental Funds: Balance Sheet 22 Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position 23 Statement of Revenues, Expenditures, and Changes in Fund Balances 24 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Government-Wide Statement of Activities 25 Proprietary Funds: Statement of Net Position Statement of Revenues, Expenses, and Changes in Net Position 29 Statement of Cash Flows Fiduciary Funds: Statement of Fiduciary Net Position 32 Statement of Changes in Fiduciary Net Position 33 Notes to Basic Financial Statements 35 91

6 Comprehensive Annual Financial Report Year ended June 30, 2015 Table of Contents (continued) FINANCIAL SECTION (CONTINUED): Page Number Required Supplementary Information: 93 Schedule of the City s Proportionate Share of the Plan s Net Pension Liability and Related Ratios as of the Measurement Date - Last 10 Years 95 Schedule of Plan Contributions Last 10 Years 96 Schedule of Funding Progress - Other Post-Employment Benefits Plan 97 Budgetary Comparison Schedules: General Fund Developer Impact Fees Fund 100 Note to Required Supplementary Information 101 Supplementary Information: 103 General Funds: 105 Combining Balance Sheet Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances Schedules of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: Successor Agency/Housing Authority Administration Fund 110 Farm Operations 111 Parking Maintenance 112 Eastern Open Space 113 Other Special Revenue Funds: 115 Combining Balance Sheet Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances Schedules of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: State Gasoline Tax Fund 124 CDBG/Home Grant Fund 125 AQMD Fund 126 Measure M Fund 127 Landscape Maintenance District Fund 128 Housing In-Lieu Fund 129 SONGS Fund 130 Law Enforcement Grants Fund 131 Parks, Recreation and Open Space Projects Grants Fund 132 Highways, Streets, and Roads Projects Grants Fund 133 Other Grants Fund 134

7 Comprehensive Annual Financial Report Year ended June 30, 2015 Table of Contents (continued) FINANCIAL SECTION (CONTINUED): Page Number Supplementary Information (continued): Other and Major Debt Service Funds: 135 Schedules of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: Debt Service 136 Major Capital Projects Funds: 137 Schedules of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: City of San Juan Capistrano General City Capital Projects Fund City of San Juan Capistrano Bond Proceeds Capital Projects Fund Internal Service Funds: 141 Combining Schedule of Net Position 142 Combining Schedule of Revenues, Expenses, and Changes in Net Position 143 Combining Schedule of Cash Flows Successor Agency of the San Juan Capistrano Redevelopment Agency (SACRA) : 147 Combining Schedule of Fiduciary Net Position Combining Schedule of Changes in Fiduciary Net Position Agency Funds: 153 Combining Schedule of Fiduciary Assets and Liabilities 154 Combining Schedule of Changes in Fiduciary Assets and Liabilities

8 Comprehensive Annual Financial Report Year ended June 30, 2015 Table of Contents (continued) Page Number STATISTICAL SECTION (UNAUDITED): 157 Description of Statistical Section Contents 159 Financial Trends: Net Position by Component - Last Ten Fiscal Years Changes in Net Position - Expenses and Program Revenues Last Ten Fiscal Years Changes in Net Position - General Revenues - Last Ten Fiscal Years Fund Balances of Governmental Funds - Last Ten Fiscal Years 167 Changes in Fund Balances of Governmental Funds - Last Ten Fiscal Years Governmental Activities Tax Revenues by Source - Last Ten Fiscal Years 171 Revenue Capacity: Assessed Value and Estimated Actual Value of Taxable Property - Last Ten Fiscal Years Direct and Overlapping Property Tax Rates - Last Ten Fiscal Years Principal Property Tax Payers - Current Fiscal Year and Nine Fiscal Years Ago 176 Secured Property Tax Levies and Collections - Last Ten Fiscal Years 177 Debt Capacity: Ratios of General Bonded Debt Outstanding - Last Ten Fiscal Years 178 Ratios of Outstanding Debt by Type - Last Ten Fiscal Years 179 Computation of Direct and Overlapping Bonded Debt 181 Schedule of Legal Debt Margin - Last Ten Fiscal Years Revenue Bond Coverage: General Obligation Bonds - Last Ten Fiscal Years 184 Tax Allocation Refunding Bonds - Last Ten Fiscal Years 184 Certificates of Participation and Water Refunding Bonds - Last Ten Fiscal Years 185 Demographic and Economic Information: Demographic and Economic Statistics - Last Ten Calendar Years 186 Principal Employers - Current Fiscal Year and Nine Fiscal Years Ago 187 Operating Information: Full-Time Equivalent City Employees by Function - Last Ten Fiscal Years Operating Indicators by Function - Last Ten Fiscal Years Capital Asset Statistics by Function - Last Ten Fiscal Years

9 INTRODUCTORY SECTION

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16 Organizational Chart Citizens of San Juan Capistrano City Council City Attorney City Manager City Clerk Chief Financial Officer/City Treasurer City Manager s Department Community Services Development Services Finance Public Safety Public Works/ Utilities vi

17 CITY OF SAN JUAN CAPISTRANO CITY OFFICIALS CITY COUNCIL Pam Patterson, Esq., Mayor Kerry K. Ferguson, Mayor Pro-Tem Sam Allevato, Council Member John M. Perry, Council Member Derek Reeve, Council Member COMMISSIONS & COMMITTEES Citizens Bond Oversight Committee Cultural Heritage Commission Design Review Committee Housing Advisory Committee Trails & Equestrian Commission Parks, Recreation Senior & Youth Services Commission Planning Commission Utilities Commission Youth Advisory Board CITY STAFF Ben Siegel, City Manager Jacob Green, Assistant City Manager Ken Al-Imam, Chief Financial Officer/City Treasurer Maria Morris, City Clerk Dori Budde, Community Services Director Steve May, Public Works/Utilities Director Joel Rojas, Development Services Director CITY ATTORNEY Jeffery Ballinger, Best, Best & Krieger, LLP vii

18 Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of San Juan Capistrano California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2014 Executive Director/CEO viii

19 FINANCIAL SECTION

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21 ROGERS. ANDERSON. MALODY & SCOTT, LLP CERTIFIED PUBLIC ACCOUNTANTS, SINCE E. C arnegie Dr. Suite I 00 San Bernardino. CA T F ramsc pa. net PARTNERS Brenda L. Odle. CPA. MST Terry P. Shea. CPA Kirk A Franks. CPA Scott W. Manno, CPA. CGMA Leena Shanbhag, CPA. MST. CGMA Bradferd A Welebir. CPA. MBA. CGMA Jay H. Zercher. CPA (Partner Emeritus) Phillip H. Waller, CPA (Partner Emeritus) MANAGERS I STAFF Jenny Liu, CPA. MST Seong-Hyea Lee. CPA. MBA Charles De Simoni, CPA Nathan Statham. CPA. MBA Gardenya Duran. CPA Juan Romero. CPA Ivan Gonzales. CPA. MSA Brianna Schultz. CPA Daniel Hernandez. CPA. MBA Ryan Smith, CPA The Honorable City Council of the City of San Juan Capistrano San Juan Capistrano, California Report on the Financial Statements INDEPENDENT AUDITOR'S 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 City of San Juan Capistrano, California (City), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility 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 from material misstatement. MEMBERS American Institute of Certified Public Accountants PCPS The A/CPA Alliance for CPA Firms Governmental Audit Quality Center California Society of Certified Public Accountants An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. -1- STABILITY. ACCURACY. TRUST

22 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 City of San Juan Capistrano, as of June 30, 2015, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Change in Accounting Principle As discussed in Note 1 of the financial statements, the City adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions An Amendment of GASB Statement No. 27 and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date - An Amendment of GASB Statement No. 68. Our opinions are not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, budgetary comparison information, and other required supplementary information as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be 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 required supplementary information 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 our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of San Juan Capistrano s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. -2-

23 The combining and individual nonmajor fund financial statements and nonmajor fund budgetary comparison schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such 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 combining and individual nonmajor fund financial statements and the nonmajor fund budgetary comparison schedules are fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 23, 2016, on our consideration of the City of San Juan Capistrano, California s internal control over financial reporting and on 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City of San Juan Capistrano s internal control over financial reporting and compliance. San Bernardino, California June 23,

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25 Management s Discussion and Analysis As management of the City of San Juan Capistrano (City), we offer readers of the City s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, Please read it in conjunction with the accompanying transmittal letter at the front of this report, and the basic financial statements, which follow this section. FINANCIAL HIGHLIGHTS The assets of the City exceeded its liabilities at June 30, 2015, by $167.8 million. This amount is referred to as the net position of the City. Of this amount, $35.9 million is unrestricted net position and may be used to meet the City s ongoing obligations to citizens and creditors. The City s net position increased by $15.1 million during Fiscal Year primarily due to an $6.5 million transfer of vacant land to the City and $5.2 million in unspent housing bond proceeds that were received from the Successor Agency to the San Juan Capistrano Community Redevelopment Agency (Successor Agency). (A more detailed discussion of revenues begins on page 11.) Expenses (including non-cash expenses like depreciation) decreased by $1.1 million. (A more detailed discussion of expenses begins on page 12.) As required by the Governmental Accounting Standards Board (GASB), the City implemented GASB Statement No. 68 in the Fiscal Year financial statements. This new accounting standard requires the recording of net pension liability and pension related deferred outflows and inflows. A restatement to record the effects of the new reporting guidance decreased beginning net position of governmental activities by $21.0 million and decreased beginning net position of business-type activities by $7.2 million. (Further information can be found in Note 20 of the Notes to Basic Financial Statements.) The City s total long-term liabilities, which includes bonds payable, unamortized bond premiums and discounts, notes payable, compensated absences, and other post-employment benefits, increased by $23.3 million, or 33.7% during the fiscal year ended June 30, 2015, to a total outstanding amount of $92.2 million. The change reflects an increase of $19.4 million, and $3.8 million, in governmental activities and business-type activities, respectively, primarily due to the implementation of GASB 68 previously discussed. Also, the City issued $19.9 million in 2014A Water Refunding Bonds to refund the 2002 and 2004 Certificates of Participation. As of June 30, 2015, the City s governmental funds (the General Fund plus Special Revenue, Debt Service and Capital Projects funds) reported combined ending fund balances of $37.3 million. Governmental fund revenues and other financing sources exceeded expenditures and other financing uses by $6.4 million during Fiscal Year Of the $37.3 million combined ending fund balances at June 30, 2015, $12.0 million is categorized as unassigned, $3.3 million is categorized as assigned, $12.1 million is categorized as committed, $8.0 million is categorized as restricted, and $1.9 million is categorized as non-spendable. More detailed information regarding these amounts can be found in Note 15 in the Notes to Basic Financial Statements. The combined $15.5 million assigned and unassigned fund balance of the General Fund was 64.8% of total General Fund revenues including transfers in. Of the assigned fund balance of $3.3 million at June 30, 2015, $2.1 million has been designated by the City Council for capital projects and the remaining balance designated for prior year expenditure carryovers and other purposes. -5-

26 Management s Discussion and Analysis, continued OVERVIEW OF THE FINANCIAL STATEMENTS The discussion and analysis are intended to serve as an introduction to the City s basic financial statements. The City s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the basic financial statements. This report also consists of supplementary information in addition to the basic financial statements. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City s finances, in a manner similar to a private-sector business. There are two government-wide financial statements: the Statement of Net Position and the Statement of Activities. They present information for the government as a whole and present a longerterm view of the City s finances. These two statements help to answer the question: Is the City as a whole better off or worse off as a result of this year s activities? The Statement of Net Position presents information on all of the City s assets and liabilities, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The Statement of Activities presents information showing how the government s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying events giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in the future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, development services, community services, public works and utilities. The business-type activities of the City include water, sewer, and housing activities. Government-wide financial statements. The government-wide financial statements include not only the City itself (known as the primary government), but also two other legally separate entities: the San Juan Capistrano Housing Authority ( Authority ) and the San Juan Capistrano Public Financing Authority ( SJCPFA ), a joint powers authority formed by the City to assist in the financing and refinancing of capital improvements on behalf of the City of San Juan Capistrano Water Enterprise Fund. The City is financially accountable for these two legally separate entities, which are referred to as blended component units. The Housing Authority and SJCPFA function for all practical purposes as departments of the City, and therefore, these component units have been included in these financial statements as an integral part of the primary government. The government-wide financial statements can be found on pages of this report. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. -6-

27 Management s Discussion and Analysis, continued Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances on spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near-term financing requirements. Because the focus of governmental fund is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government s near-term financing decisions. Both the governmental fund balance sheet and governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains various individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund and the Capital Projects Fund, both of which are considered to be major funds. Data from other governmental funds are combined into a single, aggregate presentation. Individual fund data for each of these other governmental funds is provided in the form of combining statements elsewhere in this report. The City adopts an annual budget for all its governmental and proprietary funds. Annual appropriations are approved prior to the beginning of the year. A budgetary comparison schedule has been provided for each of the governmental funds to demonstrate compliance with this budget. The definition of the General Fund for purposes of these audited financial statements is different than for budgetary purposes. For budgeting purposes, following funds are separated from the General Fund: the Successor Agency/Housing Authority Administration Fund, the Farm Operations Fund, the Parking Maintenance Fund, and the Eastern Open Space Fund. However, these funds have been combined into the General Fund for these financial statements. The basic governmental fund financial statements can be found on pages of this report. Proprietary funds. The City maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its water, sewer and housing operations. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City s various functions. The City uses internal service funds to account for its self-insurance activities, vehicles, information systems, support services and facilities. Proprietary funds provide the same type of informational date as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the water, sewer and housing operations, which are considered to be major funds of the City. Conversely, all internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Individual fund data for the internal service funds is provided in the form of combining statements elsewhere in this report. The basic proprietary fund financial statements can be found on pages of this report. -7-

28 Management s Discussion and Analysis, continued Fiduciary funds. Fiduciary Funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the City s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The City utilizes one private-purpose trust fund to account for the assets, liabilities, and activities of the Successor Agency to the dissolved Community Redevelopment Agency. The City s second fiduciary fund is an agency fund, which is used to account for various deposits being held on behalf of others. The basic fiduciary fund financial statements can be found on pages of this report. Notes to Basic Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the basic financial statements can be found on pages of this report. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City s schedule of funding progress, budgetary information and compliance. Required supplementary information can be found on pages of this report. The combining statements referred to earlier in connection with other governmental funds and internal service funds are presented immediately following the required supplementary information captioned supplementary information. The City also presents the combining statements for the General Fund in the supplementary information section. Combining and individual fund statements and schedules can be found on pages FINANCIAL ANALYSIS OF THE GOVERNMENT-WIDE STATEMENTS As noted earlier, net position may serve over time as a useful indicator of a government s financial position. In the case of the City, assets exceeded liabilities by $167.8 million as of June 30, In comparison, net position was $181.0 million as of June 30, The largest portion of the City s net position at June 30, 2015, ($123.0 million or 73.3% of total net position), reflects its investment in capital assets (e.g., land, infrastructure, buildings, improvements, machinery and equipment). The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City s investment in its 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 the capital assets themselves cannot be used to liquidate these liabilities. An additional $8.9 million of the City s net position is restricted net position, representing resources that are subject to external restrictions on how they may be used. The breakdown of restricted net positions by functions is as follows: 1) public works for restricted grants and bond proceeds ($6.2 million); 2) development services for long-term receivables and restricted grants ($409,773); 3) the water enterprise rate stabilization (debt service) reserve ($2.2 million); and 4) public safety for restricted grants ($20,512). The remaining $35.8 million is unrestricted net positions, which may be used to meet the government s ongoing obligations to citizens and creditors. Unrestricted net position decreased $20.8 million, or 36.6% from June 30, 2014, primarily due to the recording of the City s net pension liability. -8-

29 Management s Discussion and Analysis, continued A summary of the government-wide Statement of Net Position follows: CITY OF SAN JUAN CAPISTRANO NET POSITION AT YEAR END Governmental Activities Business-type Activities Totals % Change Current and other assets $ 44,331,590 $ 42,087,664 $ 42,705,952 $ 111,786,284 $ 87,037,542 $ 153,873, % Capital assets, net 102,884,496 97,562,716 76,936,609 4,274, ,821, ,837, % Deferred outflow s of resources 4,735, ,907-5,399, % Total assets and deferred outflows of resources 151,951, ,650, ,306, ,061, ,258, ,711, % Long-term liabilities 55,363,671 35,934,126 36,843,868 33,019,180 92,207,539 68,953, % Other liabilities 4,018,247 4,551,496 4,704,502 1,215,681 8,722,749 5,767, % Deferred inflow s of resources 2,643, ,600-3,551, % Total liabilities and deferred inflows of resources 62,025,126 40,485,622 42,456,970 34,234, ,482,096 74,720, % Net position: Invested in capital assets 72,142,359 65,769,125 50,806,724 52,730, ,949, ,500, % Restricted 6,673,196 4,478,300 2,221,500 1,296,425 8,894,696 5,774, % Unrestricted 11,111,166 28,917,333 24,821,274 27,799,029 35,932,440 56,716, % Total net position $ 89,926,721 $ 99,164,758 $ 77,849,498 $ 81,826,391 $ 167,776,219 $ 180,991, % Comparative data is not available for Fiscal Year related to deferred outflow s, deferred inflow s, and net pension liability due to pension accounting changes required by GASB No. 68. At the end of the current fiscal year, the City s overall net position decreased $13.2 million from the prior fiscal year. The reasons for the overall decrease are discussed in the following sections for governmental activities and business-type activities. -9-

30 Management s Discussion and Analysis, continued A summary of the government-wide Statement of Activities follows: CITY OF SAN JUAN CAPISTRANO CHANGE IN NET POSITION Governmental Activities Business-type Activities Totals % Change Revenues: Program Revenues: Charges for services $ 4,156,661 $ 3,920,535 $ 23,494,585 $ 23,951,631 $ 27,651,246 $ 27,872, % Operating grants and contributions 2,977,696 5,563,112 5,842,900 1,017,650 8,820,596 6,580, % Capital grants and contributions 7,189,031 9,081,257 3,706,225 5,461,264 10,895,256 14,542, % General revenues: Taxes: Sales tax 7,710,553 7,632, ,710,553 7,632, % Property taxes 8,706,310 8,417,326 1,000, ,265 9,707,043 9,387, % Franchise tax 1,347,898 1,270, ,347,898 1,270, % Other taxes 1,313,448 1,185, ,313,448 1,185, % Investment income, unrestricted 76,974 61, , , , , % Miscellaneous 8,000 45, ,000 45, % Total revenues 33,486,571 37,177,911 34,391,455 31,824,186 67,878,026 69,002, % Expenses: General government 3,777,597 3,391, ,777,597 3,391, % Public safety 8,881,510 8,609, ,881,510 8,609, % Development services 2,614,019 2,509, ,614,019 2,509, % Community services 2,579,511 2,822, ,579,511 2,822, % Public w orks/utilities 9,009,015 10,556, ,009,015 10,556, % Interest and fiscal charges 1,379,403 1,429, ,379,403 1,429, % Water ,784,206 22,051,428 25,784,206 22,051, % Sew er - - 4,831,714 3,545,852 4,831,714 3,545, % Housing Authority , , , ,213 Total expenses 28,241,055 29,317,162 31,049,395 26,086,493 59,290,450 55,403, % Increase (decrease) in net position before transfers and extraordinary item 5,245,516 7,860,749 3,342,060 5,737,693 8,587,576 13,598, % Transfers (1) 76,199 38,436 (76,199) (38,436) - - Extraordinary gain (loss) 6,510, (2,388,036) 6,510,119 (2,388,036) Change in Net Position 11,831,834 7,899,185 3,265,861 3,311,221 15,097,695 11,210, % Net position, beginning of year, as restated 78,094,887 91,265,573 74,583,637 78,515, ,678, ,780, % Net position, end of year $ 89,926,721 $ 99,164,758 $ 77,849,498 $ 81,826,391 $ 167,776,219 $ 180,991, % (1) Transfers from business-type activities to governmental activities represent funding for water and sewer capital improvement projects that are not capitalized in the City s financial statements. Governmental activities During the current fiscal year, net position for governmental activities decreased by $9.2 million from the prior fiscal year, which includes the $11.8 million increase from Fiscal Year activity as well as a prior period adjustment that reduced net position by $21.0 million. A prior period adjustment is reflected in the financial statements to reduce beginning net position by $21.0 for the implementation of GASB Statement No. 68, which requires the recording of net pension liability and pension related deferred outflows and inflows. Additional information on the City s prior period adjustment can be found in Note 20 in the Notes to the Basic Financial Statements. -10-

31 Management s Discussion and Analysis, continued The following table summarizes and presents governmental activities revenue by source and percentages for the Fiscal Year ended June 30, 2015, along with the percentage changes from the prior year: Increase (Decrease) Percent Fiscal Year Percent From Increase REVENUE SOURCE of Total (Decrease) Charges for services $ 4,156, % $ 236, % Contributions and grants 10,166, % (4,477,642) -30.6% Sales taxes 7,710, % 77, % Property taxes, net 8,706, % 288, % Franchise taxes 1,347, % 77, % Other taxes 1,313, % 128, % Extraordinary gain 6,510, % 6,510, % Other 161, % 15, % TOTAL REVENUES $ 40,072, % $ 2,856, % GOVERNMENTAL ACTIVITIES Revenue by Source Fiscal Year Extraordinary Gain 16.2% Other General Revenues 0.4% Charges for Services 10.4% Other Taxes 3.3% Franchise Taxes 3.4% Contributions and Grants 25.4% Property Taxes 21.7% Sales Taxes 19.2% Revenues increased $2.9 million, or 7.7%, from the prior year, primarily due to the extraordinary gain recognized from the transfer of land to the City from the Successor Agency. During Fiscal Year , the Successor Agency transferred $6.5 million of vacant land to the City for future development. Additional information regarding this transaction can be found in Note 18 in the Notes to the Basic Financial Statements. Contributions and grants decreased by $4.5 million, or 30.6%, in Fiscal Year due higher than normal contribution and grant activity in Fiscal Year During Fiscal Year , the City sold Lot 217 for $2 million. Also, during Fiscal Year , the San Juan Capistrano Open Space Foundation contributed $4.2 million for the construction of Reata Park and Event Center. -11-

32 Management s Discussion and Analysis, continued The cost of all governmental activities during Fiscal Year was $28.2 million. The following table summarizes and presents governmental activities expenses by function and percentages for the Fiscal Year ended June 30, 2015, along with the percentage changes from the prior year: Increase (Decrease) Percent Fiscal Year Percent From Increase FUNCTION of Total (Decrease) General government $ 3,777, % $ 386, % Public safety 8,881, % 272, % Development services 2,614, % 104, % Community services 2,579, % (242,542) -8.6% Public w orks/ utilities 9,009, % (1,547,145) -14.7% Interest and fiscal charges 1,379, % (49,813) -3.5% TOTAL EXPENSES $ 28,241, % $ (1,076,107) -3.7% Interest and Fiscal Charges 4.9% GOVERNMENTAL ACTIVITIES Expenses by Function Fiscal Year General Government 13.4% Public Works/Utilities 31.9% Public Safety 31.4% Community Services 9.1% Development Services 9.3% Expenses (including depreciation and amortization) associated with governmental activities decreased overall by $1.1 million, or 3.7%, from the previous fiscal year primarily due to approximately $2 million of non-capitalized project costs in Fiscal Year that did not re-occur in Fiscal Year , such as: the 2C Trabuco Creek/Habitat Mitigation projects and various street maintenance projects in public works/utilities expenses. Also, general government expenses increased by $386,567, or 11.4% in Fiscal Year primarily due to increased legal costs associated with increased litigation activity and the recording of net pension expense to the implementation of GASB No

33 Management s Discussion and Analysis, continued Business-type activities Business-type activities increased the City s net position by $3.3 million, primarily due to the Fiscal Year extraordinary loss of $2.4 million for the write down of interest on outstanding loans due from the Successor Agency. FINANCIAL ANALYSIS OF THE GOVERNMENT S FUNDS As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. Governmental funds: The focus of the City s governmental funds is to provide information on near-term inflows, outflows, and balances of spending resources. Such information is useful in assessing the City s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government s net resources available for discretionary spending as this category of fund balance represents the portion of fund balance which has not yet been limited to use for a particular purpose by either an external party, the City itself, or a group or individual that has been delegated authority to assign resources for use for particular purposes by the City Council. At June 30, 2015, the City s governmental funds (as presented on the balance sheet on page 22) reported combined fund balances of $37.3 million. Approximately, $12.0 million consists of unassigned fund balance, which is available for spending at the City s discretion. The remainder of the fund balance is either nonspendable, restricted, committed, or assigned to indicate that it is: 1) not in spendable form ($1.9 million), 2) legally required to be spent on specific uses or maintained intact through a federal or state law or contractual obligation ($8.0 million), 3) committed by a specific purpose through a City Ordinance ($12.1 million), or 4) assigned for a particular purpose ($3.3 million). Refer to Note 15 in the Notes to Basic Financial Statements for more detailed information regarding nonspendable, restricted, committed, assigned, and unassigned fund balances. General Fund. The General Fund in the Basic Financial Statement includes the City s chief operating fund and four other funds that are used to account for activities in the administration of the Successor Agency and Housing Authority, farm operations, parking maintenance and Eastern Open Space. As of June 30, 2015, the total fund balance of the General Fund was $17.4 million, an increase of $1.0 million from the previous year $ Change % Change Nonspendable $ 1,942,884 $ 2,079,879 $ (136,995) -6.6% Assigned 3,277,399 3,069, , % Unassigned - contingency reserve 12,224,138 11,286, , % Total $ 17,444,421 $ 16,435,993 $ 1,008, % The City s discretionary fund balance includes the following: 1) the entire unassigned fund balance designated for contingency reserve, and 2) the assigned fund balance for future capital projects and continuing appropriations since these assignments were made at the discretion of the City Council. The City s discretionary fund balance at June 30, 2015, was $15.5 million, or 88.9% of total General Fund balance. -13-

34 Management s Discussion and Analysis, continued The component of fund balance with the largest change from the prior year was the unassigned portion of fund balance. Unassigned fund balance at June 30, 2015, was $12.2 million, an increase of $937,187 from $11.3 million in the prior year. Unassigned fund balance is designated for a contingency reserve. Additional information on the City General Fund s fund balance can be found in Note 15 in the Notes to the Basic Financial Statements. Developer Impact Fees Special Revenue Fund. The Developer Impact Fees Special Revenue Fund is a new major fund for the City in Fiscal Year due to the significant cash the fund has accumulated ($8.8 million as of June 30, 2015). As of June 30, 2015, the Developer Impact Fees Special Revenue Fund reported a committed fund balance of $8.7 million, which represents an increase of $1.2 million, or 15.7%, from the prior fiscal year. General City Capital Projects Fund. The General City Capital Projects Fund is another major governmental fund and has a fund balance of $0 because the fund is reimbursed as expenditures are incurred through transfers from other funds. Bond Proceeds Capital Projects Fund. The Bond Proceeds Capital Projects Fund is another major governmental fund and has a fund balance of $3.7 million as of June 30, 2015, which consists of $3.6 million that is restricted by bond requirements for open space and downtown projects and $60,721 that is committed for open space projects. This is a new fund for the City in Fiscal Year In previous fiscal years, this activity was consolidated for reporting purposes with the General City Capital Projects Fund. Debt Service Fund. The Debt Service Fund is another major fund reported in the City s governmental fund financial statements. The Debt Service Fund reported a restricted fund balance of $2.2 million at June 30, 2015, which represents an increase of $109,439, or 5.3%, from the prior fiscal year. Proprietary Funds: The proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. The City operates three business-type activities: water, sewer, and housing operations. The beginning net position of the Water Enterprise Fund and Sewer Enterprise Fund has been restated to reflect the net pension liability as required by GASB No. 68. This adjustment resulted in a reduction of beginning net position of $6.9 million in the Water Enterprise Fund and $345,457 in the Sewer Enterprise Fund. Additional information regarding all of these restatements can be found in Note 20 in the Notes to the Basic Financial Statements. -14-

35 Management s Discussion and Analysis, continued Water Enterprise Fund. The Water Enterprise Fund s unrestricted net position at the end of Fiscal Year reported a deficit of $7.6 million, which is a reduction of $7.5 million, or % from last year. Key elements of this decrease are as follows: Capital grants and contributions decreased by $4.1 million, or 86.2% from Fiscal Year due to the completion of various projects that were funded by State Proposition 50 grant funds in the prior year. In Spring 2015, the City entered into a settlement agreement in the case Capistrano Taxpayers Association, Inc. vs. City of San Juan Capistrano (Court of Appeal Case Number G048969) in As a result of the settlement agreement, the City reimbursed the plaintiff s legal costs of $884,000. Also, separate from the settlement agreement, the City Council approved a voluntary water rate refund program to provide utility customers the opportunity to request a refund for overcharges billed between August 28, 2013, and July 1, The result of this voluntary water rate refund program cost $2.7 million in refunds to customers. Legal costs increased $501,099, or 189.6% due to increased litigation involving the City s water utility system. Sewer Enterprise Fund. For the Sewer Enterprise Fund, unrestricted net position at June 30, 2015, was $21.1 million, a decrease of $785,913, or 3.6%, from the previous year, as expected. The City s 2014 Water and Sewer Rate Study identified that the Sewer Enterprise Operations Fund s available net position will be used to mitigate future sewer rate increases until Fiscal Year Housing Authority Enterprise Fund. The Housing Authority s unrestricted net position was $11.3 million at the end of the year, an increase of $5.2 million, or 87.7% from last fiscal year, due to the transfer of $5.2 million in housing bond proceeds from the Successor Agency. The housing bonds proceeds will be used to fund future affordable housing projects. Internal Service Funds: As of June 30, 2015, the Internal Service Funds reported total unrestricted net position of $2.4 million, a decrease of $191,038, or 7.4% from the previous year. GENERAL FUND BUDGETARY HIGHLIGHTS In preparing the budget, the City attempts to estimate its revenues using realistic, but conservative, methods so as to budget its expenditure appropriations and activities in a prudent manner. As a result, the City Council adopts budget adjustments during the course of the fiscal year to reflect both changed priorities and availability of revenues to allow for the expansion of existing programs, if required. The General Fund reported an actual net change in fund balance of $1,008,428. This is a $1.0 million swing from the ($5,364) change in fund balance that was budgeted. Revenues received exceeded the final budgeted amount by $324,560, or 1.4%, due to the following factors: 1) increased state mandated reimbursements; 2) higher transient occupancy tax due to increased local hotel occupancy: and 3) increased building and engineering fees due to increased development activity. Also, total actual expenditures from all departments were less than the final budgeted amounts by $480,442, or 2.1%, primarily due to $330,905 of costs that were not incurred until after year end. These costs were reappropriated in the Fiscal Year Fiscal Year budget. -15-

36 Management s Discussion and Analysis, continued CAPITAL ASSET AND DEBT ADMINISTRATION Capital assets The City s capital assets for its governmental activities and business-type activities as of June 30, 2015, amounted to $179.8 million, net of accumulated depreciation. This includes: land, buildings, equipment, improvements other than buildings, and infrastructure. The total net increase in capital assets was $2.4 million, or 1.3%, due to the completion of a number of projects during Fiscal Year A summary of capital assets follows: CAPITAL ASSETS (Net of Depreciation) Governmental Activities Business-type Activities Totals % Change Land $ 64,770,245 $ 58,260,126 $ 935,740 $ 935,740 $ 65,705,985 $ 59,195, % Trees 25, , % Construction in progress 2,551,859 8,837,983 4,306,188 3,339,229 6,858,047 12,177, % Buildings 3,774,554 4,253,809 4,015,641 4,113,244 7,790,195 8,367, % Improvements ,679,040 71,505,742 67,679,040 71,505, % Improvements other than buildings 10,360,125 11,081, ,360,125 11,081, % Equipment 785, , , , % Infrastructure 20,617,093 14,282, ,617,093 14,282, % Totals $ 102,884,496 $ 97,562,716 $ 76,936,609 $ 79,893,955 $ 179,821,105 $ 177,456, % Major capital asset transactions during the current fiscal year included the following: Land in governmental activities increased by $6.5 million due to the transfer of vacant land from the Successor Agency pursuant to the Successor Agency s Long Range Property Management Plan. Additional information regarding this transaction can be found in Note 18 in the Notes to Basic Financial Statements. Construction in progress in governmental activities decreased by $6.3 million and infrastructure increased by $6.3 million due to the completion of projects during Fiscal Year The largest two largest projects contributing to the decrease in construction in progress and increase in infrastructure during Fiscal Year was the Annual Local Streets Pavement Rehabilitation Project ($1.0 million) and the Del Obispo Bridge Widening and Intersection Improvements Project ($5.9 million). Improvements in business-type activities decreased by $3.8 million due to current fiscal year depreciation. Additional information on the City s capital assets can be found in Note 4 in the Notes to the Basic Financial Statements. -16-