HomeMy WebLinkAboutFiscal Year 2023-24 Audit Staff Report
CITY OF ATASCADERO
CITY COUNCIL STAFF REPORT Item C1
Department: Administra ve
Services
Date: 01/28/25
Placement: Management
TO: JAMES R. LEWIS, CITY MANAGER
FROM: JERI RANGEL, DIRECTOR OF ADMINISTRATIVE SERVICES
PREPARED BY: JERI RANGEL, DIRECTOR OF ADMINISTRATIVE SERVICES
SUBJECT: Fiscal Year 2023-2024 Audit
RECOMMENDATION:
Council review and accept the financial audit for the period ending June 30, 2024.
REPORT IN BRIEF:
The City had a successful fiscal year in that revenues exceeded expenditures. The fund balance in
the General Fund increased about $42,000 during the year, which was be er than the budgeted
loss. Most revenues were up over budget and the prior year amounts. General Fund recurring
expenditures for employee services and opera ng supplies and services came in under final
budgeted amounts. The General Fund balance at the end of the fiscal year was over $21 million.
The strength of the General Fund balance continues to demonstrate Council’s ongoing stewardship
of the community’s funds and commitment to the City’s financial health.
The audit firm of Moss, Levy, and Hartzheim performed a full audit of the financial statements for
the 2023-24 fiscal year and found that the City presented fairly and accurately the City’s financial
posi on and reported no findings.
DISCUSSION:
The City’s audited financial statements include all of the City’s 40 funds. While all City funds are
worthy of discussion, the General Fund is the City’s primary opera ng fund with the most amount
of spending discre on. The General Fund is therefore the focus of the discussion on the following
pages. Both of Atascadero’s Sales Tax Measures, F-14 and D-20, are General Fund revenue
sources. Because of the community’s desire to focus Measure F-14 funds on local and
neighborhood road maintenance, those funds will not be included in the General Fund discussion
below but are included in a separate sec on in this report.
Revenues
The General Fund has many different sources of revenue, but the largest sources of General Fund
revenue in fiscal year 2023-24 came from Property Tax Revenue, Sales Tax Revenue, Transient
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Occupancy Tax, and Development Revenue. Combined, these sources make up about 78% of the
2023-24 General Fund Revenue.
Property Tax Revenue
The City of Atascadero received 35% of its General Fund revenues from property tax revenues in
fiscal year 2023-24. Property tax revenues are taxes imposed on the assessed value of real
property (secured property tax) and tangible personal property (unsecured property tax).
Assessed values are established as of January 1 of each year, so there is a lag me between the
assessed valua on and the receipt of the associated revenues. The assessed values for fiscal year
2023-24 revenues were determined as of January 2023.
Secured property tax grew at a rate of 5.2% from 2022-23 fiscal year to the 2023-24 fiscal year.
The increase is due to a combina on of increased economic development ac vity and infla onary
increases. Assessed valua ons are expected to have strong growth in future years, reflec ng the
economic development currently in progress throughout the City.
Detailed, compara ve Property Tax Revenue informa on for the most recently completed two
fiscal years is found below:
2022/2023
Actuals
2023/2024
Actuals % Change $ Change
Secured Property Tax 7,495,637$ 7,889,113$ 5.2%393,476$
Property tax in lieu of VLF 3,504,056 3,731,574 6.5%227,518
Unsecured property tax 282,171 315,039 11.6%32,868
Supplemental property tax 270,840 237,264 -12.4%(33,576)
Redevelopment agency distribution 529,714 681,243 28.6%151,529
Prior year secured and unsecured (15,996) (21,003) 31.3%(5,007)
Property tax penalities and interest (294) 199 -167.7%493
Total revenues 12,066,128$ 12,833,429$ 6.4%767,301$
GENERAL FUND PROPERTY TAX REVENUE COMPARISON
Property
Tax
35%
Sales Tax
32%
TOT
6%
Development
Charges
5%
All Other
Revenues
22%
2023-2024 General Fund Revenue
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Sales Tax Revenue
Atascadero received 32% of General Fund revenues from the combina on of Bradley-Burns base
sales tax and Sales Tax Measure D-20 revenues. Under California Law, the sale of tangible personal
property is subject to sales or use tax unless exempt or otherwise excluded. Retailers collect
these taxes from consumers and forward the revenue to the State. Sales Tax is distributed to the
City by the State in monthly installments which lag significantly behind the period in which the
sales occur. The City’s sales tax rate is 8.75%, which includes the State’s base sales tax amount of
7.25%, plus the City’s Sales Tax Measure D-20 of 1% for essen al City services, and another 0.5%
from the City’s Sales Tax Measure F-14 for local and neighborhood road repairs.
While sales tax revenue is discussed as a
single revenue source, it is collected on
products in a variety of industries. The
industry segments that make up the largest
components of Atascadero’s sales tax
revenue are Fuel and Service Sta ons, State
and Countywide Pools, and Building and
Construc on. Sales tax from each of these
industry segments are impacted in
different ways by the economy.
Revenues from the Fuel and Service Sta on
industry group were down when compared
to the prior year, which reflects statewide trends of reduced consump on and lower prices per
gallon of gas. The Building and Construc on industry group was down slightly in Bradley-Burns
base sales tax revenue, but up in Measure D-20 revenue, for a total fiscal year increase of about
3.8% over the prior year. Growth in the Pools was about 4.5% for fiscal year 2023-24. Overall,
Bradley-Burns sales tax revenues were about $4.9 million and Measure D-20 revenues were about
$6.5 million for the 2023-24 fiscal year.
Transient Occupancy Tax Revenue
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The Transient Occupancy Tax (TOT) Revenue is collected from guests staying at hotels and vacation
rentals within the City. The City has recently seen significant increases in TOT revenues with the
Council’s emphasis on economic development. With help from the Atascadero Tourism Business
Improvement District, these increases are expected to continue. TOT revenues were $2,097,167 for
fiscal year 2023-24, down slightly from the prior year, but about $81,000 over the budget target for
the year.
Development Revenue
Development-related revenues came in about $1.85 million or $80,000 more than budgeted.
They were, however, down almost $173,000 from the prior year. Despite the slow-down in 2023-
24, development con nues to be strong in the City. Some current and upcoming projects include
Del Rio Marketplace, Barrel Creek, Dove Creek, downtown infill, mixed use projects both
downtown and along the Morro Road corridor, and 492 housing units with current en tlements,
among other projects. The comple on of the General Plan Update will create even more
opportuni es in the community for economic development.
Interest Adjustment to Fair Market Value
Governmental accoun ng standards require that the City report investments at Fair Market Value
as of the last day of the repor ng period. It’s the City’s policy to hold investments to maturity
except under certain circumstances, therefore the gain or loss that is reported as an adjustment
to Fair Market Value is typically not realized. The gain reported in the 2023-24 financial
statements was about $279,000, however, since the City will hold these investments to maturity,
this adjustment will not be recognized and is expected to fluctuate with the market.
Expenditures:
Employee Services
The City is a service organiza on, so the largest por on of General Fund Expenditures is
dedicated to employee services. The City competes with other organiza ons for the best and
brightest employees. One of the goals of Measure D-20 was to add some much-needed posi ons
in Public Safety and to have marketable salaries across all city departments to recruit and retain
quality employees. As all local agencies vie for the best employees, staying compe ve will
remain a moving target. However, the City has been able to achieve some real success at
a rac ng and keeping professional staff members, and we believe our staff is very talented and
amongst the best in the area. Due to these staff-related changes, Employee Services actual costs
for 2023-24 were higher than the prior year but lower than final adjusted budget by almost $1.2
million. This “savings” was due to staffing vacancies in various departments as staffing adjusts.
Opera ng Supplies and Services
When compared to the prior year, 2023-24 expenditures were higher by about $950,000. Actual
results for 2023-24 were lower than the final budget and below the June 2023 Seven-Year
Forecast es mates. Sales Tax Measure D-20 is providing addi onal resources to allow for more
adequate funding for necessary opera ng supplies and services to the public, with the focus on
Council’s priori es. Due in large part to funds from Measure D-20, the City is be er able to
modernize opera ons and focus on the current and future wellness of the community.
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Special Purchases and Capital Outlay
Special Purchases and Capital Outlay generally do not lend themselves to a predictable trend line.
These are usually one- me purchases and/or they have a corresponding revenue source. Both
categories vary from year to year, based on the City’s needs at the me. In most cases, when the
expenses come in under budget, this means the budgeted item hasn’t been purchased yet but
will s ll need to be purchased in the future. Less frequently, an alterna ve to purchasing the
items has been iden fied. One- me investments result in more reliable and excep onal service
delivery. The fact that the City has the financial capacity to invest in these one- me purchases
with planned or new revenue is a direct result of city’s solid financial planning and discipline.
The final budget for Special Purchases and Capital Outlay in fiscal year 2023-24 included a number
of ongoing projects including the General Plan Update, the Broadband Enhancement Project, the
Restaurant Development Loan Program, Computer Aided Dispatch/Records Management System
So ware Upgrade, Fire Sta on #1 Replacement, Radio Repeater upgrades, some transfers to
other City funds for future replacement of vehicles, equipment, and infrastructure, and more.
Sales Tax Measure F-14 Ac vity
Measure F-14 Sales Tax ac vity is included in the General Fund for legal and accoun ng reasons,
but because the Council focuses this funding on local and neighborhood road maintenance, these
funds are broken out in this discussion for more transparency.
Add-on sales tax measures like Measure F-14 and Measure D-20 apply to some items like vehicles
which are purchased by Atascadero residents outside of the city limits, and therefore, these Sales
Tax Measures typically recognize more revenue than the same percentage of the City’s base sales
tax would.
Measure F-14 sales tax revenue plus interest came in at about $3.4 million for the fiscal year,
which was about 66% of the City’s base sales revenue. Measure F-14 expenditures were about
$4.1 million during the fiscal year. Street rehabilita on projects tend to occur during the summer
months when the weather is right for paving, but this o en causes projects expenditures to cross
fiscal years. The project budget that is unused in one fiscal year can be carried over to the next
fiscal year for use in that same project. Using Cri cal Point Management, over 50 centerline miles
of road have been improved since the incep on of Measure F-14. Measure F-14 was set to expire
on April 1, 2027, but was extended by Sales Tax Measure L-24. Over 70% of Atascadero voters
supported Measure L-24 in the November 2024 elec on.
General Fund ac vity included Measure F-14 ac vity and fund balance for fiscal year 2023-24 is
summarized in the following chart:
Measure F-14
All Other
General Fund Total General Fund
Revenues 3,443,122$ 36,149,237$ 39,592,359$
Expenditures 4,111,937 35,438,401 39,550,338
Net changes in Fund balance (668,815) 710,836 42,021
Beginning Fund Balance 4,010,327 17,176,308 21,186,635
Ending Fund Balance 3,341,512$ 17,887,144$ 21,228,656$
General Fund Balance
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Part of Council’s long-term Financial Strategy includes projec ng our revenues, expenses, and
fund balance for seven years. This is to understand es mated trends in the future for the benefit
of the City’s fiscal health and ensure fiscal sustainability and that the reserve balances remain in
an acceptable range. This Strategy promotes the use of General Fund reserves during lean years,
and saving of reserves during healthy years, to con nue to fund essen al City services at a steady
level. This long-term perspec ve allows Council and staff to understand the short- and long-term
impacts of decisions and poten ally take advantage of opportuni es that arise.
The following Compara ve Income Statement compares revenues and expenditures for the 2022-
23 and 2023-24 fiscal years.
2022/2023
Actuals
2023/2024
Actuals % Change $ Change
REVENUES:
Property Tax 12,066,128$ 12,833,429$ 6.4%767,301$
Sales tax 11,319,432 11,394,658 0.7%75,226
Transient Occupancy Tax 2,156,988 2,097,167 -2.8%(59,821)
Cannabis Business Tax 47,433 53,288 12.3%5,855
Other Taxes 1,728,133 1,808,392 4.6%80,259
Intergovernmental 3,847,914 257,469 -93.3%(3,590,445)
Grants 485,149 335,605 -30.8%(149,544)
Service Charges
Mutual Aid 387,253 568,525 46.8%181,272
Public safety 253,658 241,540 -4.8%(12,118)
Development 2,023,924 1,851,430 -8.5%(172,494)
Recreation, zoo,
parks & pavilion 1,236,078 1,236,099 0.0%21
Interest 491,163 418,295 -14.8%(72,868)
Adjustment to Market Value-GASB 31 (16,941) 278,946 -1746.6%295,887
Interfund charges 1,331,344 1,489,043 11.8%157,699
Other 426,464 524,471 23.0%98,007
Transfers 743,353 760,880 2.4%17,527
Total revenues 38,527,473$ 36,149,237$ -6.2%(2,378,236)$
EXPENDITURES:
Employee services (20,148,481)$ (21,862,012)$ 8.5%(1,713,531)$
(7,999,719) (8,949,468) 11.9%(949,749)
Special purchases (8,911,604) (3,893,096) -56.3%5,018,508
Capital outlay (5,416,433) (733,825) -86.5%4,682,608
Total expenses (42,476,237) (35,438,401) -16.6%7,037,836$
Net income (3,948,764) 710,836
Fund Balance Beginning of year 21,125,072 17,176,308
FUND BALANCE END OF YEAR 17,176,308$ 17,887,144$
Operating supplies &
services
GENERAL FUND COMPARATIVE INCOME STATEMENT
Excluding Measure F-14 Activity
The General Fund balance (excluding Measure F-14 Ac vity) at June 30, 2024, was just over $17.8
million, or 50% of General Fund expenditures for the year. This con nues to be in line with
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Council’s long-range financial strategy, maintaining a healthy reserve. At no me are reserves
expected to drop below the Council Policy minimum of 20% of general fund expenditures.
The City’s success in fiscal year 2023-24 was due in part to the ci zens for vo ng in Measure D-
20, in part due to the Council for priori zing resources and being fiscally responsible, and in part
to the City staff for responsibly and efficiently carrying out the mission of the Council and the
community. The City has at its base strong financial planning and discipline. We accomplish a lot
with the available resources, and for this, we should be proud.
Audit Report
The audit report summarizes the City’s financial performance for the fiscal year and provides an
overview of financial ac vi es. It is a useful big-picture tool to manage long-term fiscal health of
the City. The Management Discussion and Analysis reviews the financial highlights, gives an
overview of the financial statements, and provides a financial analysis of the City’s funds.
Following that, summarized informa on on all of the City’s funds can be found. The Notes to the
Financial Statements include addi onal details and explana ons of the figures in the Statements,
giving the reader a be er understanding of the complete fiscal performance of the City. The last
sec on of the report includes detailed informa on on the balance of each of the funds and their
ac vity.
Moss, Levy, and Hartzheim’s Independent Auditors’ Report can be found on page 1 of the financial
statements document. Moss, Levy and Hartzheim also provided their Independent Auditors’
Report on Internal Control Over Financial Repor ng, see as A achment #2 to this staff report, and
reported they did not iden fy any deficiencies in internal control that they consider to be material
weaknesses.
FISCAL IMPACT:
None.
REVIEWED BY OTHERS:
This item has been reviewed by the Administra ve Services Deputy Director.
REVIEWED AND APPROVED FOR COUNCIL AGENDA
James R. Lewis, City Manager
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ATTACHMENTS:
1. Fiscal Year 2023-24 Audited City Financial Statements
2. Independent Auditors’ Draft Report on Internal Control