City of San Juan Capistrano, California

Transcription

1 City of San Juan Capistrano, California Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2016

2 , CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT WITH REPORT ON AUDIT BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDED JUNE 30, 2016 Prepared by Finance Department

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4 COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS For the Fiscal Year Ended June 30, 2016 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 Auditors Report 1-2 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 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 25 Statement of Revenues, Expenditures and Changes in Fund Balances Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities 29 Proprietary Funds: Statement of Net Position Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Fiduciary Funds: Statement of Fiduciary Net Position 40 Statement of Changes in Fiduciary Net Position 41 Notes to Basic Financial Statements

5 COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) For the Fiscal Year Ended June 30, 2016 FINANCIAL SECTION (CONTINUED): Page Number Required Supplementary Information: 113 Schedule of the City s Proportionate Share of the Plan s Net Pension Liability and Related Ratios as of the Measurement Date 115 Schedule of Plan Contributions 116 Schedule of Funding Progress - Other Post-Employment Benefits Plan 117 Budgetary Comparison Schedule: General Fund 118 Note to Required Supplementary Information 120 Supplementary Information: 121 General Fund: 123 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 and Housing Authority Administration 128 Farm Operations 129 Parking Maintenance 130 Eastern Open Space 131 Other Special Revenue Funds: 133 Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances Schedules of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual: State Gasoline Tax Fund 142 CDBG/Home Grant Fund 143 AQMD Fund 144 Measure M Fund 145 Landscape Maintenance District Fund 146

6 COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) For the Fiscal Year Ended June 30, 2016 FINANCIAL SECTION (CONTINUED): Page Number Supplementary Information (Continued): Other Special Revenue Funds (Continued): Schedules of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual: Housing In-Lieu Fund 147 SONGS Fund 148 Law Enforcement Grants Fund 149 Parks, Recreation and Open Space Projects Grants Fund 150 Highways, Streets and Roads Projects Grants Fund 151 Other Grants Fund 152 Major Capital Projects Funds: 153 Schedules of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual: 154 Developer Impact Fees Fund - Major Fund 155 General City Fund - Major Fund 156 Bond Proceeds Fund - Major Fund Major Debt Service Fund: 157 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual: Debt Service Fund - Major Fund 158 Internal Service Funds: 159 Combining Statement of Net Position 160 Combining Statement of Revenues, Expenses and Changes in Net Position 161 Combining Statement of Cash Flows 162 Successor Agency of the San Juan Capistrano Redevelopment Agency (SACRA) Trust Fund: 165 Combining Statement of Fiduciary Net Position Combining Statement of Changes in Fiduciary Net Position Agency Funds: 171 Combining Statement of Fiduciary Assets and Liabilities 172 Combining Statement of Changes in Fiduciary Assets and Liabilities 173

7 COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED) For the Fiscal Year Ended June 30, 2016 STATISTICAL SECTION (UNAUDITED): Page Number Description of Statistical Section Contents 175 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 Changes in Fund Balances of Governmental Funds - Last Ten Fiscal Years Governmental Activities Tax Revenues by Source - Last Ten Fiscal Years 187 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 Taxpayers - Current Fiscal Year and Nine Fiscal Years Ago 192 Secured Property Tax Levies and Collections - Last Ten Fiscal Years 193 Debt Capacity: Ratios of General Bonded Debt Outstanding - Last Ten Fiscal Years 194 Ratios of Outstanding Debt by Type - Last Ten Fiscal Years 195 Computation of Direct and Overlapping Bonded Debt 197 Schedule of Legal Debt Margin - Last Ten Fiscal Years Revenue Coverage: General Obligation Bonds - Last Ten Fiscal Years 200 Tax Allocation Refunding Bonds - Last Ten Fiscal Years 200 Certificates of Participation and Water Refunding Bonds - Last Ten Fiscal Years 201 Demographic and Economic Information: Demographic and Economic Statistics - Last Ten Calendar Years 202 Principal Employers - Current Fiscal Year and Nine Fiscal Years Ago 203 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

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11 The City is governed by a five-member City Council under the council-manager form of government. The City Council is elected with staggered four-year terms and the positions of Mayor and Mayor Pro-Tem are selected by a majority vote of the City Council members annually. The City Council appoints the City Manager, who in turn appoints the heads of the various departments. The City is transitioning to a process by which council members are elected in district (rather than at large) elections. The City has been divided into five districts. On November 8, 2016, two of the five districts elected the first City Council members using the district election model adopted by the City. The City provides a range of municipal services that includes: public works, planning and zoning, water and sewer services, parks and recreation, and development services. The City contracts with the Orange County Sheriff's Department for police services. Fire services are provided to the community by the Orange County Fire Authority through the taxing authority of the County Structural Fire Fund. The City provides wastewater collection services, whereas the South Orange County Wastewater Authority, of which the City is a contributing member, provides wastewater treatment and disposal services. The City is financially accountable for two other legally separate entities: the San Juan Capistrano Housing Authority and the San Juan Capistrano Public Financing Authority. The former San Juan Capistrano Community Redevelopment Agency (CRA) was dissolved on February 1, Upon the dissolution of the CRA, its assets and liabilities were transferred to the Successor Agency to the CRA. 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 for all of these legally separate entities can be found in Note 1 to the basic financial statements. The City utilizes a two-year budget, which the City Council adopts prior to the beginning of every other fiscal year. Each year of the two-year budget is appropriated separately and the second year is updated (mid-term budget update) prior to the beginning of the second fiscal year. The budget is prepared by program (e.g. law enforcement), department (e.g. public safety), and fund. The City s budget guidelines provide for the budget to be adopted before the beginning of each fiscal year. The legal level of budgetary control is at the individual fund level, except that City Council approval is required for budget transfers within a fund that are in excess of $50,000. Amounts paid out of the Successor Agency Private Purpose Trust Fund can only be used to pay those enforceable obligations that have been approved by the California Department of Finance ( DOF ). These enforceable obligations are approved annually by the DOF through the submission of a Recognized Obligation Payment Schedule. Local Economy Since its incorporation, San Juan Capistrano has had a strong and well-diversified tax base. Over the years, the property values and personal income levels within the City have generated tax revenues sufficient to support the level of municipal services and facilities for the community to enjoy. The tax base has performed well in good economic times, and it has also been able to weather the financial impacts during slower economic times. The assessed valuation of property in the City has grown 30% since Fiscal Year (ten years ago). During the recession, the City experienced a slight decline in assessed valuation in Fiscal Year However, the City s assessed valuation has been increasing since Fiscal Year In Fiscal Year , the City s assessed valuation increased 6.0%, and in Fiscal Year , it increased 5.3%. ii

12 San Juan Capistrano is home to over 1,700 businesses. Major industries include retail trades such as Costco, various auto dealerships, food manufacturers, agricultural, construction, and several financial and insurance institutions. San Juan Capistrano s unemployment rate has traditionally been below the State and national levels. The City s unemployment rate decreased from 6.1% as of December 2014 to 5.0% as of December In comparison, the State s unemployment rate decreased from 7.0% as of December 2014 to 5.9% as of December The three largest employers in the City are: St. Margaret s Episcopal School, Costco Wholesale, and Brookdale San Juan Capistrano. The City s largest employer, St. Margaret s Episcopal School, is a college preparatory school that was founded in It serves 1,200 students and employs approximately 429 employees. Costco Wholesale, the City s second largest employer with approximately 294 employees, is a membership warehouse club that provides a wide variety of merchandise and services. The services available at the San Juan Capistrano facility include: a fueling station, a car wash, a food court, an optical department, a tire service center, and a pharmacy. Brookdale San Juan Capistrano, formerly Emeritus at San Juan Capistrano, is a senior living community that provides a range of services, including: assisted living, memory care, rehabilitation, and skilled nursing. Its approximately 159 employees have been serving approximately 160 residents since its formation in August The City s diverse sales tax base is comprised of a number of companies. The City s Top 100 sales tax producers include various industries such as: new and used auto dealers, gasoline service stations, restaurants, general retail, and construction. These top sales tax producers generate approximately 87% of the City s total annual sales tax revenue. The City also receives transient occupancy tax from its two local hotels, the Best Western and the Marriott Residence Inn. Both hotels experienced increased occupancy during the year, which resulted in a 6% increase in the City s Fiscal Year transient occupancy tax revenue as compared to last year. The City s tax base is well diversified, with total tax revenue representing 81% of the City s total General Fund revenues. Property tax revenue (which includes property tax received in-lieu of motor vehicle fees) represents 46% of total tax revenues. Sales tax revenue represents 42% of total tax revenues. The remainder of the tax base (franchise taxes, real property transfer taxes, and transient occupancy taxes) contributes another 12% of tax revenues to the General Fund. Total tax revenue increased 7% from Fiscal Year Job growth continues in San Juan Capistrano as evidenced by the City s decline in unemployment rate. As a result of the City s diversified tax base and personal income levels, the San Juan Capistrano economy is expected to continue to perform in a manner consistent with the economies of Orange County and the State. Other Relevant Financial Information On June 21, 2016, the City Council set aside funds into the following reserves in the City s General Fund to ensure the continued financial stability of the City: Cash flow reserve - $5,000,000; Economic uncertainty reserve - $7,500,000; and Contingency reserve - $1,000,000. iii

13 In addition, the City holds $2.9 million in unreserved funds of the General Fund. In total, the fund balance of the City s General Fund as of June 30, 2016 represents 66% of the budgeted expenditures of the General Fund (excluding amounts associated with noncurrent assets and funds that were combined with the General Fund for CAFR reporting purposes). The accumulated deficit in unrestricted net position of the Water Enterprise Fund is primarily the result of the City Council s decision to issue refunds to water utility customers in Fiscal Year and as a result of higher than normal water-related legal expenses in Fiscal Year Due to the higher than normal legal expenses in Fiscal Year , the Water Enterprise Fund fell short of meeting its debt service coverage covenant for Fiscal Year by $630,992. The Sewer Enterprise Fund s contingency reserve and available fund balance was $1.9 million as of June 30, This represents 57.0% of the operating expenses expected for Fiscal Year Summary of Current Year Accomplishments Significant progress was made on several of the City Council priorities for Fiscal Year , including: Completed the Utilities Reorganization Study Updated the City s Business License Ordinance Implemented the City s Commercial Filming and Photography Permit Ordinance Assisted Capistrano Unified School District with issuance of community facilities district bonds for the Pacifica Jan Juan and Whispering Hills developments Implemented City-wide drought limit to meet State mandated water conservation measures Complete City Hall Complex Roofing and Painting project Completed lining of approximately three miles of sewer lines Completed 2015 Urban Water Management Plan Future Work Program Initiatives Staff is working on the following key initiatives during Fiscal Year : Improve the City s street maintenance and rehabilitation program Complete new traffic signal and crosswalk at Rancho Viejo Road and Paseo Espada Complete dual left-turn lanes on Eastbound Del Obispo at Camino Capistrano Sell City-Owned Downtown Parcels & Lower Rosan Ranch Process the Hotel Capistrano by Kimpton and Inn at the Mission, San Juan Capistrano projects, which are expected to add significant transient occupancy tax revenues to the City s General Fund Refinance the Successor Agency s Farmers & Merchant Bank loan s balloon payment through issuance of 2016 Subordinate Tax Allocation Notes (completed in November 2016) Design the Northwest Open Space Community Park Project Expand Recycled Water to the City s Riding Park iv

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15 City of San Juan Capistrano 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 Works & Utilities Department Public Safety

16 CITY OFFICIALS CITY COUNCIL Kerry K. Ferguson, Mayor Sergio Farias, Mayor Pro-Tem Brian L. Maryott, Council Member Pam Patterson, Esq., 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 Sam Perirod, Human Resources Manager Ken Al-lmam, 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 Lieutenant Scott Spalding, Chief of Police Services vii

17 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, 2015 Executive Director/CEO

18 FINANCIAL SECTION

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20 The Honorable City Council of the City of San Juan Capistrano San Juan Capistrano, California Report on the Financial Statements 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 San Juan Capistrano, California (the City), as of and for the year ended June 30, 2016, 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. Auditors Responsibility Our responsibility is to express opinions on these basic 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 basic financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors 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 auditors consider internal control relevant to the City 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 City 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 Michelle Drive, Suite 300, Irvine, CA Tel: Fax: Offices located in Orange and San Diego Counties

21 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, as of June 30, 2016, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 19 to the financial statements, the City has restated the governmental activities and business-type activities net position in the fiscal year financial statements. In addition, the City has restated fund balances of the General Fund, the Developer Impact Fees Capital Projects Fund, and the Other Governmental Funds and has restated the net position of the Water Enterprise Fund, the Municipal Sewer Enterprise Fund and the Internal Service Funds in the fiscal year financial statements. 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, the schedule of the City s proportionate share of the plan s net pension liability and related ratios as of the measurement date, the schedule of plan contributions, the schedule of funding progress - other post-employment benefits plan, and the budgetary comparison schedule general fund, identified as Required Supplementary Information (RSI) in the accompanying 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 RSI 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 RSI 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 s basic financial statements. The introductory section, major funds budgetary comparison schedules, the combining and individual non-major fund financial statements and schedules (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 major funds budgetary comparison schedules, the combining and individual non-major fund financial statements and schedules (supplementary information) 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

22 Other Matters (Continued) Other Information (Continued) 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 supplementary information is 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 January 11, 2017, on our consideration of the City 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 the City s internal control over financial reporting and compliance. Irvine, California January 11,

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24 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 and deferred outflows of resources of the City exceeded its liabilities and deferred inflows of resources at June 30, 2016, by $173.2 million. This amount is referred to as the net position of the City. Of this amount, $24.6 million is unrestricted net position and may be used to meet the City s ongoing obligations to citizens and creditors. During Fiscal Year , the City s overall net position decreased by $591,616 primarily due to reduced grant activity and higher than normal legal expenses associated with the Water Fund. The City s total long-term liabilities, which includes bonds payable net of unamortized bond premiums decreased by $2.6 million, or 4.2% during the fiscal year ended June 30, 2016, to a total outstanding amount of $59.8 million primarily as a result of scheduled reductions of principal. As of June 30, 2016, the City s governmental funds (the General Fund plus Special Revenue, Debt Service and Capital Projects funds) reported combined ending fund balances of $45.5 million. Governmental fund revenues and other financing sources exceeded expenditures and other financing uses by $4.1 million during Fiscal Year Of the $45.5 million combined ending fund balances at June 30, 2016, $15.5 million is categorized as unassigned, $1.8 million is categorized as assigned, $26.2 million is categorized as restricted, and $2.0 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 $17.7 million of assigned and unassigned fund balance of the General Fund represented 70.1% of total General Fund revenues including transfers in. For purposes of the Basic Financial Statements, the General Fund includes other funds that hold unrestricted resources available to support General Fund programs. 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 privatesector 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 longer-term 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? - 5 -

25 Management s Discussion and Analysis, continued Year Ended June 30, 2016 The Statement of Net Position presents information on all of the City s assets, deferred outflows of resources, liabilities, and deferred inflows of resources 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. 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 finance-related legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. 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 nearterm 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

26 Management s Discussion and Analysis, continued Year Ended June 30, 2016 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, Developer Impact Fees Capital Projects Fund, General City Capital Projects Fund, Bond Proceeds Capital Projects Fund, and the Debt Service Fund, all of which are considered 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. 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. 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. 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

27 Management s Discussion and Analysis, continued Year Ended June 30, 2016 Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City s budgetary policies and supplementary information on the City s defined benefit plans. The combining statements referred to earlier in connection with other governmental funds and internal service funds are presented immediately following the required supplementary information as supplementary information. The City s supplementary information section also presents combining statements for the following: the General Fund, the Internal Service Funds, and the Fiduciary Funds. 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 $173.2 million as of June 30, In comparison, net position was $167.8 million as of June 30, The largest portion of the City s net position at June 30, 2016, ($120.7 million or 69.7% 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 $27.9 million of the City s net position is restricted net position, representing resources that are subject to external restrictions or enabling legislation on how they may be used. The breakdown of restricted net positions by functions is as follows: 1) debt service ($2.4 million); 2) public works for restricted grants, fees and bond proceeds ($19.1 million); 3) development services for affordable housing projects and low and moderate income housing loans ($5.1 million); and 4) the water enterprise rate stabilization (debt service) reserve ($1.3 million). The remaining $24.6 million is unrestricted net position, which may be used to meet the government s ongoing obligations to citizens and creditors. Unrestricted net position increased $2.3 million, or 10.2%, from June 30,

28 Management s Discussion and Analysis, continued Year Ended June 30, 2016 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 $ 52,892,567 $ 44,331,590 $ 39,546,528 $ 42,705,952 $ 92,439,095 $ 87,037, % Capital assets, net 100,901, ,884,496 73,636,024 76,936, ,537, ,821, % Total assets 153,794, ,216, ,182, ,642, ,977, ,858, % Deferred outflow s of resources 7,534,285 4,735,761 1,622, ,907 9,156,322 5,399, % Long-term liabilities 54,718,120 55,363,671 35,956,476 36,843,868 90,674,596 92,207, % Other liabilities 5,127,075 4,018,247 1,909,703 4,704,502 7,036,778 8,722, % Total liabilities 59,845,195 59,381,918 37,866,179 41,548,370 97,711, ,930, % Deferred inflow s of resources 3,871,680 2,643,208 1,349, ,600 5,220,845 3,551, % Net position: Net investment in capital assets 71,251,198 72,142,359 49,453,479 50,806, ,704, ,949, % Restricted 26,565,038 20,252,196 1,296,425 2,221,500 27,861,463 22,473, % Unrestricted (204,376) (2,467,834) 24,839,341 24,821,274 24,634,965 22,353, % Total net position $ 97,611,860 $ 89,926,721 $ 75,589,245 $ 77,849,498 $ 173,201,105 $ 167,776, % At the end of the current fiscal year, the City s overall net position increased $5.4 million from the prior fiscal year due to prior period adjustments of $6.0 million. (Refer to Note 19 in the Notes to Basic Financial Statements for additional information.) The Fiscal Year activity resulted in a decrease in net position of $591,616, primarily due to higher than normal legal expenses in the Water Fund of the City. Additional details regarding the overall decrease is discussed further in the following sections for governmental activities and business-type activities. The negative net position reported for the governmental activities is a result of the City s recognition of its net pension liability in the amount of $21.76 million, as required by GASB Statement No. 68. This liability is long-term in nature and is funded by the City s annual contribution to its retirement system in amounts determined by the system s actuaries

29 Management s Discussion and Analysis, continued Year Ended June 30, 2016 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 $ 3,642,459 $ 4,156,661 $ 21,735,560 $ 23,494,585 $ 25,378,019 $ 27,651, % Operating grants and contributions 2,797,192 2,977,696 1,826,687 5,842,900 4,623,879 8,820, % Capital grants and contributions 5,216,628 7,189, ,646 3,706,225 5,655,274 10,895, % General revenues: Taxes: Sales tax 8,121,697 7,710, ,121,697 7,710, % Property taxes 9,341,831 8,706,310 1,092,575 1,000,733 10,434,406 9,707, % Franchise tax 1,376,940 1,347, ,376,940 1,347, % Other taxes 1,387,209 1,313, ,387,209 1,313, % Investment income, unrestricted 180,247 76, , , , , % Miscellaneous 22,729 8, ,729 8, % Total revenues 32,086,932 33,486,571 25,488,650 34,391,455 57,575,582 67,878, % Expenses: General government 4,084,509 3,777, ,084,509 3,777, % Public safety 9,431,481 8,881, ,431,481 8,881, % Development services 2,614,794 2,614, ,614,794 2,614, % Community services 3,030,560 2,579, ,030,560 2,579, % Public w orks/utilities 10,356,917 9,009, ,356,917 9,009, % Interest and fiscal charges 1,326,190 1,379, ,326,190 1,379, % Water ,085,904 25,784,206 23,085,904 25,784, % Municipal Sew er - - 3,854,823 4,831,714 3,854,823 4,831, % Housing Authority , , , , % Total expenses 30,844,451 28,241,055 27,322,747 31,049,395 58,167,198 59,290, % Increase (decrease) in net position before transfers and extraordinary item 1,242,481 5,245,516 (1,834,097) 3,342,060 (591,616) 8,587, % Transfers (1) 1,663,581 76,199 (1,663,581) (76,199) Extraordinary gain (loss) - 6,510, ,510,119 Change in Net Position 2,906,062 11,831,834 (3,497,678) 3,265,861 (591,616) 15,097, % Net position, beginning of year, as restated 94,705,798 78,094,887 79,086,923 74,583, ,792, ,678, % Net position, end of year $ 97,611,860 $ 89,926,721 $ 75,589,245 $ 77,849,498 $ 173,201,105 $ 167,776, % (1) Transfers from business-type activities to governmental activities represent funding projects that are not capitalized in the City s financial statements. Governmental activities During the current fiscal year, net position for governmental activities increased by $7.7 million from the prior fiscal year, which includes the $2.9 million increase from Fiscal Year activity as well as prior period adjustments that increased net position by $4.8 million. Additional information on the City s prior period adjustments can be found in Note 19 in the Notes to the Basic Financial Statements

30 Management s Discussion and Analysis, continued Year Ended June 30, 2016 The following table summarizes and presents governmental activities revenue by source and percentages for the Fiscal Year ended June , along with the percentage changes from the prior year: GOVERNMENTAL ACTIVITIES Revenue by Source Increase (Decrease) Percent Fiscal Year Percent From Increase REVENUE SOURCE of Total (Decrease) Charges for Services $ 3,642, % $ (514,202) -12.4% Contributions and Grants 8,013, % (2,152,907) -21.2% Sales Taxes 8,121, % 411, % Property Taxes, net 9,341, % 635, % Franchise Taxes 1,376, % 29, % Other Taxes 1,387, % 73, % Extraordinary Gain - 0.0% (6,510,119) % Other 1,866, % 1,705, % TOTAL REVENUES $ 33,750, % $ (6,322,376) -15.8% Revenues decreased $6.3 million, or 15.8%, from the prior year, primarily due to the extraordinary gain recognized in the prior fiscal year as a result of the Successor Agency transferring $6.5 million of vacant land to the City for future development. Contributions and grants decreased by $2.2 million, or 21.2%, in Fiscal Year due to lower capital grant and contribution activity for public works. Specifically, during Fiscal Year , the Successor Agency transferred $2.0 million in non-housing bond proceeds to the City. Property taxes increased $635,521, or 7.3%, due to a 6.0% increase in assessed valuation over that of the prior year. Sales taxes increased $411,144, or 5.3%, primarily due to adjustments of sales taxes redistributed from other cities and to the State s repayment of borrowed sales taxes that were due at the end of the Triple Flip Program. Other Sources increased $1,705,384, or %, primarily due to transfers from business-type activities to governmental activities to fund projects that do not meet the City s capitalization criteria

31 Management s Discussion and Analysis, continued Year Ended June 30, 2016 The cost of all governmental activities during Fiscal Year was $30.8 million. The following table summarizes and presents governmental activities expenses by function and percentages for the Fiscal Year ended June 30, 2016, along with the percentage changes from the prior year: GOVERNMENTAL ACTIVITIES Expenses by Function Increase (Decrease) Percent Fiscal Year Percent From Increase FUNCTION of Total (Decrease) General Government $ 4,084, % $ 306, % Public Safety 9,431, % 549, % Development Services 2,614, % % Community Services 3,030, % 451, % Public Works/ Utilities 10,356, % 1,347, % Interest and Fiscal Charges 1,326, % (53,213) -3.9% TOTAL EXPENSES $ 30,844, % $ 2,603, % Expenses (including depreciation and amortization) associated with governmental activities increased overall by $2.6 million, or 9.2%, from the previous fiscal year primarily due to: an increase of $1.3 million in public works primarily for maintenance project costs; an increase of $549,971, or 6.2%, in public safety expenses primarily due to increased contract costs for law enforcement services; an increase of $451,049, or 17.5%, in community services expenses primarily due to depreciation expense; and an increase of $306,912, or 8.1%, in general government expenses due to costs associated with transitioning to district elections, increased litigation activity and other City administration expenses

32 Management s Discussion and Analysis, continued Year Ended June 30, 2016 Business-type activities During the current fiscal year, net position for business-type activities decreased in total by $2.3 million from the prior fiscal year, which includes the $3.5 million decrease from Fiscal Year operations and prior period adjustments that increased net position by $1.2 million. Additional information on the City s prior period adjustments can be found in Note 19 in the Notes to the Basic Financial Statements. Additional information regarding the operational results of the proprietary funds reported as business-type activities can be found below in the section called Financial Analysis of the Government s Funds. 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, 2016, the City s governmental funds reported combined fund balances of $45.5 million. Approximately, $15.5 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, or assigned to indicate that it is: 1) not in spendable form ($2.0 million), 2) legally required to be spent on specific uses or maintained intact through a federal, state or local law or contractual obligation ($26.2 million), or 3) assigned for a particular purpose ($1.8 million). Refer to Note 15 in the Notes to Basic Financial Statements for more detailed information regarding nonspendable, restricted, 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, 2016, the total fund balance of the General Fund was $19.7 million, an increase of $2.3 million, or 13%, from the previous year $ Change % Change Nonspendable $ 2,001,528 $ 1,942,884 $ 58, % Assigned 1,855,651 3,277,399 (1,421,748) -43.4% Unassigned - contingency reserve 15,859,563 12,224,138 3,635, % Total $ 19,716,742 $ 17,444,421 $ 2,272, % The City s discretionary fund balance (assigned and unassigned amounts) includes reserves for: cash flow, economic uncertainty, and other contingencies. The City s discretionary fund balance at June 30, 2016, was $17.7 million, or 89.8% of total General Fund balance