The City Council is being asked to approve the Comprehensive Annual Financial Report (Annual Report) for Fiscal Year 2019-20 as well as the Federal Grants Awards Report (Single Audit).  The FY 2019-20 Annual Report indicates the City’s financial condition as of June 30, 2020, and has been audited by the audit firm of Eide Bailly LLP, an independent firm of Certified Public Accountants.  The FY 2019-20 Single Audit indicates compliance applicable to major federal programs. 

Each year an audit of the City’s financial statements (Annual Report) is performed by a firm of Independent Certified Public Accountants in conformity with Generally Accepted Audit Standards (GAAS). 

The Annual Report covers all funds of the City and is prepared in accordance with Generally Accepted Accounting Principles (GAAP).  It is considered a general-purpose report, as its contents are intended to meet the needs of a broad range of user groups.

The auditors have issued an unmodified opinion and the City received positive feedback from the auditors for the work performance and reports prepared by the Accounting Division.  Such an opinion reflects the auditors’ belief that the basic financial statements contained in these reports present fairly the financial position of the City of Fairfield (see attached Auditors’ Report). 

A good summary of the financial condition of the City is contained in the transmittal letter and the Management’s Discussion and Analysis (MD&A) of the Annual Report, as well as in the City’s Popular Annual Financial Report (PAFR) for FY 2019-20, the latter being a summary of the Annual Report and included as an attachment to this report.  Additional supporting information related to the financial statements can be found in the notes to the financial statements of the Annual Report.  The following represents key financial positions and highlights of the City’s major funds:

General Fund:  The fund balance increased from the prior year to the current year by $1.4 million to a balance of $49.1 million. This increase was mainly due to continued strength in, and higher than budgeted, sales, Measure P, and property taxes (revenues exceeded the budget by $3.4 million).  Expenditure savings related to staffing vacancies also contributed to an increase in fund balance.  Of the $49.1 million fund balance, $13 million of this fund balance represents funding from the City Council approved Pension Stabilization Fund, which is a sub-fund of the General Fund ($5.3 million is restricted funding related to a Pension Trust Fund and $7.7 million is committed in the Pension Stabilization Fund for future payment of pension obligations).  

Internal Service Fund Liabilities:  As shown in the transmittal letter, the table below shows some of the key liabilities of the internal service funds and their associated levels of funding:

Intra-governmental Loan Fund:  The current assets of the Intra-governmental Loan Fund remained consistent at $17 million, primarily consisting of $12 million in Loans receivable from the Successor Agency.  Note that the minimum reserve level of this Intra-governmental loan fund as established by Council is $4 million. 

Water Funds: The net position of the Water Fund increased by $3.6 million during FY 2019-20 from $59.2 million to $62.8 million, mainly due to increased water sales and a recent water rate increase. As discussed below, this fund has recognized its share of the City’s Net Pension Liability of $16 million (as required by Governmental Accounting Standards Board (GASB) 68).

Golf Funds: The Golf Fund shows an accumulated net position of $13 million, mainly consisting of the net capital assets of the golf courses themselves of $13 million. Remaining bond liabilities total $1.8 million; these bonds continue to be paid down per the debt service schedule and will be paid off in 2023. 

Transit: The net position of the Transit Fund decreased by $1.3 million during FY 2019-20, mainly due to the pandemic and reduced ridership and revenue during the year.  As discussed below, as required by GASB 68, this fund has recognized its share of the City’s Net Pension Liability of $2.3 million (including deferred inflows and outflows) which resulted in the fund ending with a negative unrestricted net position of $2.3 million.

CalPERS and Net Pension Liability:  As of June 30, 2020, the City’s combined total Net Pension Liability (NPL) is approximately $185 million, an increase of $5 million (3%) over the prior fiscal year. The NPL is a result of comparing total pension plan assets of $481 million to the total pension liability of $666 million, which reflects that approximately 72.2% of the pension liability has been funded through June 30, 2019, the date of the most recent pension actuarial report provided by CalPERS. This compares to a 71.5% funding level in the prior year.

Of the total NPL, $16 million was allocated to the Water fund; $7 million to the North Bay Regional Water Treatment Plan (NBR) Fund; and $3 million to the Transit Fund based upon Full-Time Equivalent Employees (FTEs) allocated to these funds. The remaining NPL relates to the General Fund and other governmental funds ($159 million) and is accounted for in the Government-Wide Statement of Net Position.

Federal Grant Audit Report (also referred to as the Single Audit):  In prior years, this report was a subset of, and included in, the Annual Financial Report. For this FY 2019-20, the federal grants audit report was issued separately due to pandemic-related delays in certain federal audit guidelines.  The Single Audit is included as an attachment to this report.

Audit Findings: For the Annual Report, the auditor had no findings or recommendations in the current year. For the Federal Grants Report, the auditor had two findings related to the Section 8 program regarding documentation for waitlist selection and rent reasonableness verification. The City has responded with a required corrective action plan (which is included in the attached Federal Grants Report) that addresses these findings, and includes strengthened procedures, training, and review.

The cost of the audit of the City’s Annual Report is included as part of the General Fund budget (Fund 011, Division and Responsibility Code 24001).  There is no financial impact resulting from the acceptance of the report.

Do not approve the acceptance of the City’s Annual Report for the Fiscal Year ended June 30, 2020 and Single Audit Report.  However, it should be noted that any changes to the report at this point would result in additional costs incurred by the City.

Mike Less, Accounting Manager

(707) 428-7515

mless@fairfield.ca.gov