The URL can be used to link to this page

Home My WebLink AboutYear End Audit Results and Mid-Year Budget Update - 3/2/2020 \ a City of Huntington Beach , lY File #: 20-1463 MEETING DATE: 3/2/2020 Year End Audit Results and Mid-Year Budget Update City of Huntington Beach Page 1 of 1 Printed on 2/26/2020 powered 4 LegistarTM 1 Year End Audit Results t. and Mid-Year Budget Update Presented by February 18,2020 the Finance Department Overview o FY 2018/19 Audit and Year-End Results b- FY 2019/20 Mid Year Budget Update 0 FY 2020/21 Budget Outlook Pensions and Unfunded Liabilities FY 2020/21 Budget Development Calendar a � in 1 r t FY 2018/19 Financial Results Audit and Year-End Overview Audit and Year-End Overview U Its FY 2018/19 Audit Results Auditing firm of Davis Farr LLP audited the City's financial statements and internal controls Certificate of FY 2018/19 Comprehensive Annual Achievement for Excellence Financial Report (CAFR) received an in Financial Unmodified (Clean) Audit Opinion RWrting The City's CAFR is award winning — City of Hunfinglon Beach cawornia received the Government Finance Officers Association's (GFOA) Excellence in Financial Reporting Award for 33 years Audit Results Reports issued: Comprehensive Annual Financial Report Issued "unmodified" opinion on December 17, 2019 This is the highest opinion possible AU-C 260 Letter: Auditor Communications Appropriations Limit Agreed-Upon Procedures AQMD Report Single Audit Report Internal Controls Evaluated controls over key accounting cycles: Billing and Cash Receipting Purchasing and Cash Disbursements Payroll Banking and Investing Grant Management Information Systems No material weaknesses or significant deficiencies in internal controls were reported No instances of noncompliance of laws and regulations that auditors believe are direct and material to the financial statements 1 1 Areas of Audit Focus in FY 18/19 Testing of offsite Pension OPEB cash receipting Obligations Obligations at Police Department Tested Testing of Capital Single Audit: calculation of Asset activities Testing of CDBG claims payable Grant FY 2018/19 Performance (Audited) Government-Wide Highlights: All Funds ASSETS Current and • Capital Assets 854,1677-- Deferred • 70,705 OtherLIABILITIES I Current and Long-TermObligations* 00 Total Liabilities 552,239 Deferred inflows-Pensions 40 POSITIONTOTAL NET * Reflects GASB 68 recording of Net Pension Liability of$421.0 million and GASB 75 recording of Net OPEB Liability$6.6 million 2/18/202C FY i • General Fund Amount Total Revenues* $236,631 includes one-time revenues totaling$4.SM comprised of the following: Sales Tax Back Payments Total Expenditures 215,469 Excess of Revenue Over Expenditures $21,162 Transfers In 13 Transfers Out (10,796) Net Change in General Fund Balance $10,379 ffom 2018 • Settlements of$616k Fire Strike Team Revenues • Other State,County,and Developer revenues totaling General • Balance IFY 1 • Audited • • Fund Balance-Category FY 16/17 FY 17/18 FY 18/19 Audited Audited Audited Total Nonspendable,Restricted, 61,180 61,004 72,763'` Committed,and Assigned fund Balances Unassigned '.734 - Total Fund Balance 61,180 63,738 72,763 Section 115 Trust Bank Balance - 4,896 6,250 Inclu Total with Section 115 Trust $61,180 $68,634 $79,013 •- million Strategic Planning Initiative Assignment FY 2019/20 , General Fund Budget Overview FY 2019/20 Budget Update Fiscal Prudence Active monitoring and control to ensure balanced budget Includes 1% target reductions (does not include personnel costs) General Fund Year-End Projection Estimated Revenue $236.9 M 10, Estimated Expenses $232.2 M Estimated Surplus $ 4.7 M / I Potential Uses of One-Time Funds Strategic Planning Initiative Reserve — $16 million as of 6/30/2019 Estimated Excess Surplus FY 19/20— $4.7 million Potential uses of one-time funds: Save For A Rainy Day Fund Pension Liabilities(Section 115 Trust+ Pension Stabilization Reserve) One-Time Infrastructure (Facilities / Parks) Future Homeless Shelter Capital Costs One Time Equipment Needs 4.1 FY 2020/21 x Budget Development Economic Indicators The Dow Jones is up 22.3%, S&P up 28.9%, and NASDAQ is up 35.2%- annual increase as of December 2019 GDP increased 2.3% from December 2018 to December 2019 The CPI for the Los Angeles and Orange County in December 2019 increased 3.0%over the last 12 months Orange County Unemployment 2.4% December 2019 HB Median Single Family Residential Sales Price increased by 3.4% from $775,000 in 2018 to $801,000 in 2019 HB Single Family Residential home sales decreased by 5.9% from 1,982 home sales in 2018 to 1,866 home sales in 2019 Current Economic Expansion Longest on Record over 10.5 years as of January 2020. Prudent to plan for possible recession. ,s • 4 Pensions and Unfunded Liabilities Net Pension Liabilities Overview as of 6/30/19 Amount* Type of Liability (000) Funded CalPERS(Safety) 270,107 1. • • MedicalRetiree •1 1' Retiree Medical(Misc) - 11' SupplementalRetiree • •1 TOTAL1 \rl 15a..i....mr.I.0 I"IruWod l.iahililt..nn..unn nn•....r.ur+lunI aed are.nhje,I m unnn..J rhwr;;e Ji,r war Aa rululiliun..denrg4-,phi..an l artuatial nrelhmbdagr. .111.RN L6.hililr i,ha.r.l an nrnmriul ralnali.n..a.../bm";°.21118. P-je,ard to he !NI!"../uudr,l...uJ 1.ill`ll_a nA ad.lilioual—nmhulium heir;mule is rarrr°l FI 11/4'U. UAL Cost Increase Impact on HB HB's annual UAL payment costs (i.e., our mortgage payments) have increased dramatically during the past decade, and will continue to increase until 2031 FY 2004/05 No UAL Payment FY 2008/09 UAL Payment $4.58 million FY 2018/19 UAL Payment $24.93 million FY 2030/31 UAL Payment $46.02 million In the past 10 years (from 2009-2019), our annual UAL payment has increased a staggering 444%, from $4.58 million to $24.93 million By FY 2030/2031, our UAL payment is projected to increase by 85% over FY 2018/2019, from $24.93 million to $46.02 million This equates to a $21.09 million annual cost increaseM � I City of Huntington Beach UAL Payment Amounts FY 2004/05- FY 2018/19 (in thousands) $24.93M w", $4.58M Paa UAL ment Pension Obligation Bond Savings $46 W Estimated Savings $173 Million FY 30/31 represents peuk of annual payment-$21.09 million or 85 o increase from FY 18/19 2/18/202( �d�e�nrw d °p, Long Term FlNANCIAL` mot. �... Financial • nning Salaries 101,830 101,276 102,381 104,082 105,658 107,258 108,882 CalPERS Normal Cost 13,296 13,296 14,106 14,382 14,646 14,917 15,195 CalPERS UAL 26,191 26,191 29,506 32,501 34,948 36,465 38,149 Pension Stobilizotion Reserve - - 4,523 4,523 4,523 4,523 4,523 Other Benefits 29,205 27,639 24,023 24,807 25,536 26,287 27,060 Operating 40,523 41,981 42,821 43,249 43,682 44,118 44,560 Infrastructure 4,000 4,000 51000 5,200 5,400 5,600 5,800 Equipment 4,651 4,651 4,651 4,651 4,651 4,651 4,651 Other Capital 317 750 - - - - - POB Debt Service - - - - - - - Debt Service/Transfers 11,609 12,413 10,968 10,818 10,413 10,413 9,663 Total Expenditure 231,621 232,197 237,978 244,212 249,456 254,232 258,483 GF Recurring Revenue 230,840 236,878 240,311 244,516 249,018 253,659 258,28 (Challenge)/Surplus (781) 4,681 2,333 304 (438) (573) (195) YOY Revenue$ 5,342 3,433 4,205 4,502 4,641 4,63 TO Y Revenue% 2% 1% 2% 2% 2% 2% 1' 2/18/202( Salaries 101,830 101,276 102,381 104,082 105,658 107,258 108,882 CalPERS Normal Cost 13,296 13,296 14,106 14,382 14,646 14,917 15,195 CaIPERS UAL 26,191 26,191 - - - - Pension Stabilization Reserve - - 4,523 4,523 4,523 4,523 4,513 Other Benefits 29,205 27,639 24,023 24,807 25,536 26,287 27,060 Operating 40,523 41,981 42,821 43,249 43,682 44,118 44,560 Infrastructure 4,000 4,000 5,000 5,200 5,400 5,600 5,800 Equipment 4,651 4,651 4,651 4,651 4,651 4,651 4,651 Other Capital 317 750 - - - - POB Debt Service - - 24,983 24,983 24,984 24,984 24,985 Debt Service/Transfers 11,609 12,413 10,968 10,818 10,413 10,413 9,663 Total Expenditure 231,621 232,197 233,456 236,694 239,492 242,751 245,319 GF Recurring Revenue 230,840 236,878 240,311 244,516 249,018 253,659 258,288 (Challenge)/Surplus 4,681 6,856 7,822 9,526 10,908 12,970 YOY Revenue$ 5,342 3,433 4,205 4,502 4,641 4,630 YOY Revenue% 2% 1% 2% 2% 2% 2Summary Comparison - POB vs. No POB 5-Year General • Outlook POB vs. No PO • • .•. oNoPOB 1; 1 1 Community & Organizational Needs Homelessness Response Fund establishment of a temporary shelter ► Fund additional police officers to enforce quality of life regulations ► Quality of Life Improvements ► Need for additional code enforcement officers ► Capital Needs ► Significant infrastructure, park,facility,and capital replacement needs ► Labor Relations ► 6 of the City's bargaining units currently have expired labor agreements ► 4-years since the City provided our last general wage increase ► Current economy/job market is extremely competitive jp Financial Planning ► Currently in the longest period of sustained economic growth...ever. ► we need to be planning for a possible future recession City Council Policy Options ► As staff has assessed all of our options, we continue to believe that refinancing our UAL pension debt is the most responsible and fiscally conservative way to address our current fiscal challenges ► Based on our long-term financial modeling, we can survive without refinancing our pension debt, but that scenario will result in significant financial constraints for the next 15 years Refinancing our UAL pension debt provides us the opportunity to prudently address existing debt loads, while providing the City with the opportunity and resources to thoughtfully address Community priorities 2/18/202( Proposed Budget . • . �- Date 19/20 Mid-Year Study Session February 18,2020 FY 20/21 CIP&Proposed Budget Study Session May 18,2020 Public Hearing: Budget Adoption June 1,2020 Public Hearing: Budget Adoption(Alternate Date) June 15,2020 FY 20/21 Begins July 1,2020 Questions 1