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Home My WebLink AboutFinance Committee 2024-11-12 Agenda PacketSAN RAFAEL CITY COUNCIL FINANCE SUBCOMMITTEE MEETING Tuesday, November 12, 2024 | 10:00 AM – 11:00 AM THIRD FLOOR CONFERENCE ROOM SAN RAFAEL CITY HALL 1400 FIFTH AVENUE, SAN RAFAEL, CALIFORNIA Watch Online: Watch on Zoom Webinar: hps://ঞnyurl.com/FIN-2024-11-12 Listen by phone: (669) 444-9171 ID: 842-8207-1224# One Tap Mobile: +16694449171,84282071224# US AGENDA 1.Call to Order 2.Open Time for Public Expression The public is welcome to address the SubcommiƩee at this Ɵme on maƩers not on the agenda that are within its jurisdicƟon. Please be advised that pursuant to Government Code SecƟon 54954.2, the subcommiƩee is not permiƩed to discuss or take acƟon on any maƩer not on the agenda unless it determines that an emergency exists, or that there is a need to take immediate acƟon which arose following posƟng of the agenda. Comments may be no longer than two minutes and should be respecƞul to the community. 3.FY 2023-24 Year-End Audited Financial Statements and Related Audit Report (Finance) The SubcommiƩee will receive a preview of a City Council agenda item related to Annual Comprehensive Financial Report (ACFR) and related Audit reports for the fiscal year ended June 30, 2024, scheduled for the City Council meeƟng of 11/18/24. 4.FY 2024-25 First Quarter Budget Update (Finance) The SubcommiƩee will receive a preview of a City Council agenda item related to the FY 2024-25 First Quarter Budget Update, scheduled for the City Council meeƟng of 11/18/24. 5.Marin SanitaƟon Service – FiŌh Amendment to Franchise Fee Agreement Staff will provide the SubcommiƩee with a verbal update. 6.Fitch RaƟng Agency Annual Credit Review InformaƟonal update related to credit raƟng update issued by Fitch RaƟng Services. 7.Schedule of Regular Sub-CommiƩee MeeƟngs Schedule for meeƟngs of the Finance SubcommiƩee through the remainder of the fiscal year. 8.Adjournment Any records relaƟng to an agenda item, received by a majority or more of the Council less than 72 hours before the meeƟng, shall be available for inspecƟon in the City Clerk’s Office, Room 209, 1400 FiŌh Avenue, and placed with other agenda-related materials on the table in front of the Council Chamber prior to the meeƟng. Sign Language interpreters and assisƟve listening devices may be requested by calling (415) 485-3066 (voice), emailing Lindsay.lara@cityofsanrafael.org or using the California TelecommunicaƟons Relay Service by dialing “711”, at least 72 hours in advance of the meeƟng. Copies of documents are available in accessible formats upon request. Public transportaƟon is available through Golden Gate Transit, Line 22 or 23. Paratransit is available by calling Whistlestop. Wheels at (415) 454-0964. To allow individuals with environmental illness or mulƟple chemical sensiƟvity to aƩend the meeƟng/hearing, individuals are requested to refrain from wearing scented products. ____________________________________________________________________________________ FOR CITY CLERK ONLY Council Meeting: December 2, 2024 Disposition: Agenda Item No: Meeting Date: December 2, 2024 SAN RAFAEL CITY COUNCIL AGENDA REPORT Department: Finance Prepared by: Paul Navazio, Finance Director City Manager Approval: __________ TOPIC: YEAR-END AUDITED FINANCIAL STATEMENTS AND RELATED AUDIT REPORTS SUBJECT: FISCAL YEAR 2023-24 ANNUAL FINANCIAL REPORT; MEMORANDUM ON INTERNAL CONTROL; REPORT OF REQUIRED COMMUNICATIONS; CHILD DEVELOPMENT PROGRAM FINANCIAL REPORT: AND GANN APPROPRIATIONS LIMIT RECOMMENDATIONS: Accept the Fiscal Year 2023-24 Annual Financial Report, Memorandum on Internal Control, Report of Required Communications, Child Development Program Financial Report, and GANN Appropriations Limit Report. BACKGROUND: As required by local code, State law, bond covenants, and best practices, the City of San Rafael completes an annual independent audit of its financial activities. The auditing firm of Maze and Associates, Accountancy Corporation conducted the audit for fiscal year 2023-24. Their work was completed in accordance with generally accepted auditing standards, issued by the Comptroller General of the United States; and the provisions of Office of Management and Budget Circular A- 133, Audits of State and Local Government and Non-Profit Organizations. A Memorandum on Internal Control is also prepared by the auditors to address the City’s controls over its financial activities In addition, the requirements of Section 1.5 of Article XIIIB of the California Constitution are met with an agreed-upon procedure report applied to the Gann Appropriation Limit calculated for the year ending June 30, 2025. These reports are attached to this staff report. As part of the fiscal year-end activities, the Finance and Library & Recreation departments worked with the auditors to complete the annual audit of the City’s childcare program, as required by the State of California. For the year ending June 30, 2024, the City did not receive funds under the purview of the Transportation Development Act. Therefore, no separate audit report was completed to satisfy requirements of the State of California pertaining to these funds. Finance Subcommittee Agenda Item: 3 SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2 ANALYSIS: Fiscal Year 2023-24 Annual Financial Report – City-wide Financial Results The independent auditor has issued an unqualified opinion relative to City’s financial statements for the fiscal year ended June 30, 2024. This opinion states that the financial statements present fairly, in all material respects, the financial position of the City. The audited results of the City’s financial activities for the fiscal year ended June 30, 2024, are presented in the attached Annual Comprehensive Financial Report (ACFR). The report includes Government-wide financial statements with governmental activities and business-type activities presented separately. At the end of the fiscal year, net position of the City governmental activities inclusive of all governmental funds, all assets of the City (including infrastructure) and all liabilities (including long-term debt) was $310.8 million, an increase of $29.3 million from the prior year adjusted balance. Current and other governmental assets increased by $10 million mainly due to overall results of revenues outpacing expenses for the year increasing cash and investment balances. The $8.1 million increase in capital assets reflects project-to-date activity for major infrastructure improvements exceeding depreciation for the year. The decrease of $6.8 million in deferred outflows is primarily a result of the impact of the amortization of pension and OPEB related outflows recognized into pension expense in the current year. Noncurrent governmental liabilities decreased by $12 million mainly as a result of the decrease in Pension and OPEB liabilities of $8 million as well as the paydown of long-term debt. Deferred inflows decreased by $5.3 million mainly as a result of the amortization of Pension and OPEB inflows in the current year. Additional explanatory information is provided in the Management’s Discussion and Analysis (MD&A) section beginning on page five of the attached ACFR. The MD&A provides key highlights and a summary view of financial activities for the year. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 3 Financial Results: General Fund General fund revenues and transfers-in exceeded expenditures and transfers-out by $8.6 million. Actual revenues, at $104.9 million, exceeded original budgeted revenues by $4.1 million. The increase is largely attributed to investment gains as interest rates increased and the City recouped much of its $2 million unrealized loss incurred in fiscal 2021-2022. Property Tax receipts also outperformed the budget by $1.5 million following the hot housing market of the last three years. Expenditures of $93.9 million were $6.3 million less than original budgeted expenditures of $100.2 million as the City continued to experience significant personnel savings against vacant positions during the fiscal year. The fund balance of the General Fund as of June 30, 2024, was $36.4 million (an increase of $8.6 million from the prior year balance). Of this amount, $54 thousand is non-spendable, $9.8 million is committed, $20.8 million is assigned and $5.7 million is unassigned. The committed and unrestricted portions of the balance include $9.8 million and $4.9 million for emergency and cash flow needs, respectively. which meets the minimum target reserve levels at 15% of general fund operating expenditures established by City Council policy. Memorandum on Internal Control As a component of the annual financial audit, the auditors are required to communicate to the City Council matters related to internal controls that may impact the accuracy of the City’s financial statements. The auditor’s Memorandum on Internal Control identifies findings that are deemed to be either material weaknesses, significant deficiencies, or “other matters.” The Memorandum on Internal Control’s issued with the audit of the financial statements for the fiscal year ended June 30, 2024, does not identify any material weaknesses or significant deficiencies. However, the memorandum notes that two “Other Matters” that were identified in the course of prior years’ audits, one of which remained unresolved as of June 30, 2024, and is summarized as follows: • Finding 2022-2 – Purchasing Policy Compliance and Clarification of Requirements. This finding resulted in a recommendation from the independent auditor that the City review and update its Purchasing Policy to clarify requirements for use of purchase orders and contracts and review internal controls to ensure practices are in compliance with the City’s SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 4 policy. In their Memorandum of Internal Controls, the auditor notes that this matter has not yet been fully addressed by management. Management’s response (included in the Memorandum of Internal Control): As noted, management had concurred with the recommendation(s) from prior Other Matters (2023-2 and 2022-02) related to Clarification of Requirements for compliance with the City’s Purchasing Policy. Concurrent with the start of the current fiscal year (July, 1, 2024) City management issued updated guidelines related to the City’s purchasing policy and procedures. Included as part of the new guidelines were updates specific to past findings issued by the City’s Independent Auditor. Specifically: 1) Effective July 1, 2024, Purchase Orders are now required for all purchases and contracts of $10,000 or more. 2) The updated 2024-25 purchasing guidelines and procedures further clarify that, for purposes of application of delegated spending authority, approval levels are to be based on total contract amount(s) (original plus any amendments or change orders), rather than on an individual transaction. Management recognizes that the update to the City’s purchasing guidelines and procedures became formally effective with the fiscal year starting 7/1/24, and therefore was not in place for the 2023-24 fiscal year, subject of the current audit report. Staff has reviewed the actions taken with the Independent Auditor and is confident that this finding will be deemed resolved in our next annual audit report. Required Communications Professional standards require that certain information regarding significant audit findings related to the audit be communicated to those charged with governance. These communications include minor changes to accounting policies, new accounting pronouncements, and a discussion of significant accounting estimates among other items. No adverse communications were noted. Gann Appropriations Limit The Agreed-Upon Procedures report for the Gann Appropriations Limit required three procedures to be performed including testing the accuracy of the calculations and comparison of information presented. No exceptions were noted in these procedures for compliance with the Proposition 111 fiscal year 2024-25 Appropriations Limit calculation. Child Development Program (Childcare) Financial Report The Independent Auditor has also completed its audit of the City’s Child Development Program. For the fiscal year ended June 30, 2024, the Child Development Program recorded revenues of $4.36 million supporting expenditures of $3.73 million. The program ended the year with a fund balance of $1.24 million. The audit report provides an unqualified opining and includes no findings or recommendations. FISCAL IMPACT: No fiscal impact occurs by the City Council’s acceptance of these reports. The fiscal year 2023- 24 Comprehensive Annual Financial Report and related reports are presented as the actual results of the City and related entities’ financial activities for the year. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 5 RECOMMENDATION: Staff recommends that the City Council accept the reports as presented. ATTACHMENTS: 1. FY 2023-24 Excerpts - Comprehensive Annual Financial Report 2. FY 2023-24 Draft Memorandum of Internal Controls 3. FY 2023-24 Draft Required Communications 4. FY 2023-24 Draft Gann Appropriations Limit INDEPENDENT AUDITORS REPORT To the Honorable Members of the City Council City of San Rafael, California Report on the Audit of the Financial Statements Opinions We have audited the accompanying financial statements of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of San Rafael (City), California, as of and for the year ended June 30, 2024, and the related notes to the financial statements, which collectively comprise the Citys basic financial statements as listed in the Table of Contents. 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, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City as of June 30, 2024, 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. Basis for Opinions 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. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirement relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Responsibilities of Management 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, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Citys ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter. REVIEW DRAFT 10/7 15 Attachment 1 Auditors Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with generally accepted auditing standards and Government Auditing Standards, we: Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Obtain an understanding of internal control relevant to the audit 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 Citys internal control. Accordingly, no such opinion is expressed. Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Citys ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. REVIEW DRAFT 10/7 16 Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Managements Discussion and Analysis and other required supplementary information as listed in the Table of Contents be presented to supplement the basic financial statements. Such information is the responsibility of management and, 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 managements 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. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Citys basic financial statements. The accompanying Supplementary Information, as listed in the Table of Contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The 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. Other Information Management is responsible for the other information included in the annual report. The other information comprises the Introductory Section and Statistical Section listed in the Table of Contents, but does not include the basic financial statements and our auditors report thereon. Our opinions on the basic financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exits, we are required to describe it in our report. REVIEW DRAFT 10/7 17 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated DATE, on our consideration of the Citys 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 solely 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 the effectiveness of the Citys 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 Citys internal control over financial reporting and compliance. Pleasant Hill, California DATE REVIEW DRAFT 10/7 18 CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 This analysis of the City of San Rafael’s (City) financial performance provides an overview of the City’s financial activities for the fiscal year ended June 30, 2024. Please read it in conjunction with the basic financial statements and the accompanying notes to those basic financial statements. FINANCIAL HIGHLIGHTS Government-wide:  Net Position – The assets and deferred outflows of the City exceeded its liabilities and deferred inflows as of June 30, 2024, by $321.5 million.  Activities – During the fiscal year the City’s total revenues of $150.4 million were greater than expenses of $121.2 million for governmental and business-type activities.  Changes in Net Position – The City’s total net position increased by $29.2 million in fiscal year 2023-2024 as compared to the net position of the previous year. Net position of governmental activities increased by $29.3 million, while net position of the business-type activities decreased by $98 thousand. Fund Level:  Governmental Funds – As of the close of fiscal year 2023-2024, the City’s governmental funds reported combined ending fund balances of $93.2 million, an increase of $14.7 million primarily due to outperforming revenues as well as savings against expenditure budgets in the general fund for a total $13.0 million favorable variance as compared to the adjusted budget. Of this total amount, $58 thousand is nonspendable, $48.4 million is restricted, $18.0 million is committed, $21.0 million is assigned, and $5.7 million is unassigned.  Governmental fund revenues totaled $145.0 million, a decrease of $2.5 million from the those of the previous fiscal year. The decrease is mainly a result of the $12.0 decline in intergovernmental revenues as major projects were completed during the year (including the Third Street Rehabilitation project) offset by a $3.3 million increase in use of money and properties due to the impact of interest rate fluctuations on bond markets, and general year-over-year increases in other revenue items.  Governmental fund expenditures decreased by $2.4 million to $136.3 million, from $138.7 million in the prior year. The decrease is primarily the result of the large project expenditures incurred in the prior year related to capital projects, most notably the Third Street Rehabilitation project, which were completed during the fiscal year.  Enterprise fund net position increased $106 thousand to $10.9 million as the City’s parking program revenues remained largely static when compared with the prior year while expenses continued to increase. OVERVIEW OF FINANCIAL STATEMENTS The Annual Comprehensive Financial Report is composed of the following: 1. Introductory section, which includes the Transmittal Letter and general information 2. Management’s Discussion and Analysis (this part) 3. Basic Financial Statements, which include the Government-wide and the Fund financial statements, including Fiduciary Funds, along with the Notes to these financial statements 4. Combining statements for Non-Major Governmental Funds and Internal Service Funds 5. Statistical Information CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements, which have three components: 1) Government-wide Financial Statements, 2) Fund Financial Statements, and 3) Notes to the Basic Financial Statements. The basic financial statements include the City (primary government) and all legally separate entities (component units) for which the government is financially accountable. This report also contains other supplementary information in addition to the basic financial statements for further information and analysis. Government-wide Financial Statements The government-wide financial statements present the financial picture of the City and provide readers with a broad view of the City’s finances. These statements present governmental activities and business-type activities separately and include all assets of the City (including infrastructure) as well as all liabilities (including long-term debt). Additionally, certain interfund receivables, payables, and other interfund activity have been eliminated as prescribed by generally accepted accounting principles. The Statement of Net Position and the Statement of Activities and Changes in Net Position report information about the City as a whole. These statements include all assets and liabilities of the City using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year’s revenues and expenses are taken into account, regardless of when cash is received or paid. The Statement of Net Position presents information on all the City’s assets, deferred outflows/inflows of resources, and liabilities, with the difference reported as net position. Over time, increases 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 and Changes in Net Position presents information showing how the City’s net position changed during the year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of timing of related cash flows. In the Statement of Net Position and the Statement of Activities and Changes in Net Position, City activities are separated as follows: Governmental Activities – Most of the City’s basic services are reported in this category, including Public Safety, Public Works and Parks, Community Development, Cultural and Recreation, and Government Administration (finance, human resources, legal, City Clerk and City Manager operations). Property tax, sales and use taxes, user fees, interest income, franchise fees, hotel taxes, business licenses, and property transfer taxes, plus state and federal grants finance these activities. Business-type Activities – The City charges fees to customers to cover the full costs of certain services it provides. The City’s Parking Services program is the City’s sole business-type activity. Discretely Presented Component Units – The government–wide financial statements include not only the City itself (the primary government), but also the San Rafael Sanitation District, a legally separate entity for which the City is financially accountable. Financial information for the San Rafael Sanitation District is reported separately from the financial information presented for the primary government. The government-wide financial statements can be found on pages 25 through 27 of this report. CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 Fund Financial Statements and Major Component Unit 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 the funds of the City are divided into three categories: governmental funds, proprietary funds, and fiduciary funds. The fund financial statements provide detailed information about each of the City’s most significant funds, called major funds. Each major fund is presented individually with all non-major funds summarized and presented in a single column. Further detail on the non-major funds is presented on pages 114 through 144 of this report. 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 of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financial capacity. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for government 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 the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. These reconciliations are presented on the page immediately following each governmental fund financial statement. The City has thirty-two governmental funds, of which four are considered major funds for presentation purposes. Each major fund is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances. The City’s four major funds are: the General Fund, Traffic and Housing Mitigation, Gas Tax and Essential Facilities Capital Projects. Data from the other twenty- five governmental funds are combined into a single, aggregated presentation. The basic governmental fund financial statements can be found on pages 30 through 34 of this report. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements on pages 114 through 133 of this report. Proprietary Funds – The City maintains two different types of proprietary funds - enterprise funds and internal service funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses an enterprise fund to account for its Parking Services program and reports it as a major fund. Internal service funds are used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for its building maintenance; vehicle, equipment and computer replacement; workers’ compensation; general liability; self-insured dental program; other employee and retiree benefits programs. Because these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the government wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. Like the government-wide financial statements, proprietary fund financial statements use the accrual basis of accounting. There is no reconciliation needed between the government-wide financial statements for business-type activities and the proprietary fund financial statements. The proprietary fund financial statements can be found on pages 36 through 38 of this report. CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 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 statements because the resources of those funds are not available to support the City’s own programs. The City acts as an agent on behalf of others, holding amounts collected, and disbursing them as directed or required. The City’s fiduciary activities are reported in the separate Statements of Fiduciary Net Position and the Statement of Changes in Fiduciary Net Position. The City’s fiduciary funds include a private purpose trust fund to account for activities of the City of San Rafael Successor Agency and a custodial fund that accounts for resources held by the City in a custodial capacity for the Pt. San Pedro Road Assessment District. Information about the fiduciary funds can be found on pages 41 through 42 of this report. Notes to the 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 financial statements can be found on pages 43 through 94 of this report. Required Supplementary Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information. One section includes budgetary comparison statements for the General Fund and major funds (general, gas tax, and traffic and housing mitigation). The other section includes schedules of funding progress for the Marin County Employees’ Retirement System and the City’s OPEB plan. All budgeted positions that are filled by either full-time or permanent part-time employees (working seventy-five percent of full-time equivalent) are eligible to participate in the system and the OPEB plan. Required supplementary information can be found on pages 96 through 108 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS Statement of Net Position Net position measures the difference between (a) assets and deferred outflows of resources and (b) liabilities and deferred inflows of resources. During this fiscal year, the net position of the City was $310.8 million from Governmental Activities and $10.7 million from Business-type Activities, for a total of $321.5 million. This represents an increase of $29.2 million from the prior year’s net position. CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 The following is the condensed Statement of Net Position for the fiscal years ended June 30, 2024 and 2023: Current and other governmental assets increased by $10 million mainly due to overall results of revenues outpacing expenses for the year increasing cash and investment balances. The $8.1 million increase in capital assets reflects project-to-date activity for major infrastructure improvements exceeding depreciation for the year. The decrease of $6.8 million in deferred outflows is primarily a result of the impact of the amortization of pension and OPEB related outflows recognized into pension expense in the current year. Noncurrent governmental liabilities decreased by $12 million mainly as a result of the decrease in Pension and OPEB liabilities of $8 million as well as the paydown of long-term debt. Deferred inflows decreased by $5.3 million mainly as a result of the amortization of Pension and OPEB inflows in the current year. The net position in business-type activities reflects the fiscal activity of the Parking Services program and decreased by $98 thousand from the previous year as revenues stagnated after a strong post-pandemic recovery and expenses, which are mainly personnel related, continued to increase. Current and other assets decreased by $227 thousand due to a decline in cash and receivables as operations slowed. Noncurrent liabilities decreased by $703 thousand mainly due to a reduction in net pension and OPEB liabilities. At June 30, 2024, the largest portion of total net position in the amount of $279.9 million consisted of the City’s investment in capital assets net of related debt. This component represents the total amount of funds required to acquire capital assets less any related debt used for such acquisition that is still outstanding. The City uses these assets to provide services to residents. The capital assets of the City are not sources of income for repayment of debt as most assets are not revenue generating and generally are not liquidated to repay debt. Therefore, debt service payments are funded from other sources available to the City. Increase Increase 2024 2023 (Decrease) 2024 2023 (Decrease) Current and other assets $146,001 $135,941 $10,060 $1,518 $1,745 ($227) Capital assets 319,756 311,664 8,092 14,743 15,162 (419) Total assets 465,757 447,605 18,152 16,261 16,907 (646) Deferred outflows (Notes 9 and 11) 66,549 73,312 (6,763) 1,780 1,312 468 Current and other liabilities 18,004 18,677 (673) 528 503 25 Noncurrent liabilities 180,544 192,517 (11,973) 6,239 6,942 (703) Total liabilities 198,548 211,194 (12,646) 6,767 7,445 (678) Deferred inflows (Notes 4G, 9 and 11) 22,923 28,213 (5,290) 571 772 (201) Net Position: Net investment in capital assets 268,520 259,204 9,316 11,354 11,454 (100) Restricted 48,596 46,773 1,823 0 Unrestricted (6,281) (24,466) 18,185 (651) (653) 2 Total net position $310,835 $281,511 $29,324 $10,703 $10,801 ($98) Governmental Activities Business-Type Activities Summary of Net Position (in thousands) CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 A portion of the City's total net position, $48.6 million, is subject to external restrictions, and their use is determined by those restrictions whether legal or by covenant. In addition, the unrestricted negative $6.9 million represents the extent to which the net investment in capital assets and restricted net position exceed total net assets. 6/30/2024 6/30/2023 Invested in Capital Assets (net) $279,874 $270,658 $9,216 Restricted 48,596 46,773 1,823 Unrestricted (6,932) (25,119) 18,187 Total Net Position: $321,538 $292,312 $29,226 Increase/ (Decrease) Summary of Net Position (in thousands) CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 Statement of Activities - Governmental The following is the condensed Statement of Activities and Changes in Net Position for the fiscal years ended June 30, 2024 and 2023: Increase 2024 2023 (Decrease) REVENUES Program revenues: Charges for services $23,170 $20,735 $2,435 Operating grants and contributions 6,531 6,764 (233) Capital grants and contributions 8,181 18,438 (10,257) Total program revenues 37,882 45,937 (8,055) General revenues: Property taxes 35,636 33,023 2,613 Sales taxes 44,554 45,633 (1,079) Paramedic tax 5,316 5,224 92 Transient occupancy tax 3,593 3,396 197 Franchise tax 4,582 4,425 157 Business license tax 2,792 2,584 208 Other taxes 2,937 2,975 (38) Investment earnings 5,284 1,709 3,575 Gain from sale of capital assets 42 42 Miscellaneous 3,241 3,233 8 Total general revenues 107,977 102,202 5,775 TOTAL REVENUES 145,859 148,139 (2,280) EXPENSES General government 14,902 11,163 3,739 Public safety 57,400 49,904 7,496 Public works and parks 24,392 23,354 1,038 Community/economic development 6,043 4,437 1,606 Culture and recreation 12,724 10,723 2,001 Interest on long-term debt 1,656 1,793 (137) TOTAL EXPENSES 117,117 101,374 15,743 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENSES 28,742 46,765 (18,023) Transfers in 582 521 61.00 Total Other Financing Sources (Uses) 582 521 61 Net Change in Net Position 29,324 47,286 (17,962) Beginning Net Position 281,511 234,225 47,286 Ending Net Position, June 30 $310,835 $281,511 $29,324 Governmental Activities Summary of Changes in Net Position (in thousands) CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 The City’s governmental activities net position increased by $29.3 million during fiscal year 2023-2024. Total revenues decreased by roughly $2.3 million mainly caused by the $8.1 million decline in program revenues. Within program revenues, capital grants and contributions declined by $10.3 million, which was mainly related to the Third Street Rehabilitation project which was completed during the year. This was partially offset by an increase in charges for services that was mainly driven by overall fee increases. Within the general revenues category, property taxes increased $2.6 following the hot housing market of previous years whereas sales taxes declined by about $1 million. The decline in sales tax revenues is mainly related to the fourth quarter of fiscal 2024 where activity began to slow from the economic tightening to combat inflation. The large increase in investment earnings was a result of the increase in interest rates, leading to much greater interest income than the prior year and also recording large unrealized gains as the City recouped the remainder of the unrealized loss recorded in fiscal 2022. Overall operating expenses reflect an increase of $15.7 million for the year mainly resulting from Pension related adjustments. Pension related adjustments had the impact of reducing expenses as compared to the fund financial statements by $4.1 million for fiscal 2024 whereas the same entries reduced expenses as compared to the fund financial statements by $16.6 million in fiscal 2023. The remainder of the increase is the result of annual increases in personnel costs. The following graph shows governmental revenues by source: CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 Total expenses for governmental activities were $115.4 million (excluding interest on long-term debt of $1.7 million). Program revenues offset total expenses as follows:  Those who directly benefited from programs contributed $23.2 million in charges for services.  A total of $14.7 million in operating and capital projects were funded by outside agencies through operating grants, capital grants, and contributions. As a result, total expenses that were funded by tax revenues, investment income, other general revenues and fund balance were $79.2 million. Functional expenses for the year ended June 30, 2024, were as follows: Function Amount Percent of Total General government $14,902 12.7% Public safety 57,400 49.0% Public works and parks 24,392 20.8% Community development 6,043 5.2% Culture and recreation 12,725 10.9% Interest on debt 1,656 1.4% Total expenses $117,118 100% Expenses by Function (in thousands) CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 Statement of Activities – Business-Type The net position for business-type activities decreased from the prior year by $98 thousand as operations slowed slightly and whereas the increased program revenues from the prior year mostly held, expenses continued to increase. Parking services is the City’s only business-type activity with income derived from program revenues of $4.6 million. Program revenues include parking meter coin income of $1.5 million and parking garage hourly and monthly parking income of $0.9 million. Revenues also include parking and non-vehicle code fines totaling $2.2 million. Total expenses for parking services were $4.1 million and transfers out to general fund and non-major governmental fund for support totaled $582 thousand during the fiscal year 2023-2024. Increase 2024 2023 (Decrease) Revenues Program revenues: Charges for services $4,553 $4,682 ($129) Total program revenues 4,553 4,682 (129) General revenues: Investment Income 9 8 1 Total general revenues 9 8 1 TOTAL REVENUES 4,562 4,690 (128) Expenses General government 4,078 3,436 642 TOTAL EXPENSES 4,078 3,436 642 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENSES 484 1,254 (770) OTHER FINANCING SOURCES (USES) Transfers out (582) (521) (61) Total Other Financing sources (uses) (582) (521) (61) Net Change in Net Position (98) 733 (831) Net Position, Beginning 10,801 10,068 733 Net Position, Ending $10,703 10,801 ($98) Summary of Changes in Net Position For the periods ended June 30, 2024 and 2023 (in thousands) Business-Type Activities CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 FINANCIAL ANALYSIS OF INDIVIDUAL FUNDS Governmental Funds Fund Balance Classifications Fund balances are classified in five categories: nonspendable, restricted, committed, assigned, and unassigned based on a hierarchy of constraint. Further details on fund balance classifications can be found in Note 8B. The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financial capacity. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of June 30, 2024, the City reported a combined ending fund balance of $93.2 million for all governmental funds (an increase of $14.7 million from the prior year): $58 thousand is non-spendable, $48.4 million is restricted, $18.0 million is committed, $17.0 million is assigned, and $9.7 million is unassigned. General Fund – The General Fund is the primary operating fund of the City. General Fund – The fund balance of the General Fund as of June 30, 2024, was $36.4 million (an increase of $8.6 million from the prior year balance): $54 thousand is non-spendable, $9.8 million is committed, $20.8 million is assigned and $5.7 million is unassigned. The committed and unrestricted portions of the balance include $9.8 million and $4.9 million for emergency and cash flow needs, respectively. The original adopted General Fund budget projected total revenue of $100.8 million and transfers-in of $1.8 million for total resources of $102.6 million. This budget appropriated expenditures of $100.2 million and transfers-out of $2.2 million for total appropriations of $102.4 million. Transfers-in were later increased by $300 thousand to account for the partial reimbursement of SAFE Team costs by the Cannabis Fund. Transfers-out were increased by $4.9 million mainly for project support of the Pickleweed Park Field Renovation Project. Actual revenues, at $104.9 million, exceeded original budgeted revenues by $4.1 million. The increase is largely attributed to investment gains as interest rates increased and the City recouped much of its $2 million unrealized loss incurred in fiscal 2021-2022. Property Tax also outperformed the budget by $1.5 million following the hot housing market of the last three years. These favorable revenue variances were somewhat offset by lower than anticipated reimbursements related to planning support programs. Expenditures of $93.9 million were $6.3 million less than original budgeted expenditures of $100.2 million as the City continued to experience significant personnel savings against vacant positions during the fiscal year. The City expects this trend to subside in the coming fiscal year as new labor agreements were reached with all of the City’s bargaining groups contributing to increased focus on recruitment and retention. Variances in debt service and issuance of long-term debt line items are the result of lease and subscription agreements entered into during the year for body-worn cameras in the police department and a new permitting system. These agreements are now accounted for as borrowings under new accounting guidance. CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 Traffic and Housing Mitigation Fund – The City uses this fund to collect developer contributions to be used for major street improvement and housing infrastructure projects. During the year, the fund balance increased from $5.7 million to $5.9 million. Revenues for the fund can fluctuate significantly year to year as they are mainly a function of development projects undergone during the year and for fiscal 2023-2024 totaled $1.9 million, with additional transfers in of $419 thousand. Capital outlay for the year of $1.7 million was related to a single project, the Grand Avenue Cycle Track, to add bicycle facility on the east side of grand Avenue between Fourth Street and Second Street. The balance in the fund is being held in anticipation of major street projects identified in the General Plan 2040 and other qualifying expenditures. Gas Tax Fund – The City uses this fund to manage its allocation of State gasoline taxes and local funding for street maintenance projects. Gas tax revenues exceeded expenditures and net transfers by $1.5 million in fiscal year 2023- 2024 resulting in an increase in fund balance from $11.8 million to $13.3 million. The activities for the year were all planned and approved project work. Expenditures during fiscal year 2023-2024 totaled $10.9 million. In addition to routine street-related maintenance of $1.9 million, major expenditures included $4.9 million for the third street rehabilitation project, $1.2 million for third street safety improvements, and $1.2 million for road repair at Southern Heights and Courtright. Total revenues of $12.6 million were down about $9.2 million from the prior year mainly due to a reduction in intergovernmental transfers related to the third street rehabilitation project that was completed during the year. State gas tax revenues, on the other hand, saw 11% growth from to prior year to a total of $3.2 million. Essential Facilities Capital Projects Fund – The City uses this fund to account for major capital improvements to public safety facilities. Activity in the fund has reduced as the initial major projects contemplated in creation of the fund have been completed. During the year $580 thousand was expended for remaining costs related to Fire Stations 54 and 55, as well as the repurposing of City Hall. Non-major Governmental Funds – The City’s non-major funds are presented in the basic financial statements in the aggregate. At June 30, 2024, non-major funds had a total fund balance of $33.9 million, a $4.4 million increase over that of the previous year. The largest fund balance decrease, $2.7 million, was recorded in the Stormwater Fund as work continues on the San Quentin Pump Station Repair project funded in large part by a prior year transfer in to the fund. The largest fund balance increase, $4.2 million, was recorded in the Capital Projects Fund as $4.2 million in Adopted Budget Revised Budget Actual Revenues $100,802 $100,802 $104,946 Transfers in 1,827 2,127 2,061 Issuance of long-term debt - - 2,519 Total resources 102,629 102,929 109,526 Expenditures 100,152 $100,166 93,850 Operating transfers out 2,207 2,404 2,405 Capital transfers out - 4,690 4,624 Total uses 102,359 107,260 100,879 Net Results $270 ($4,331) $8,647 Summary of General Fund Budget and Actual For the fiscal year ended June 30, 2024 (in thousands) CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 one-time funds were transferred from the general fund to support the Pickleweed Park Field Renovation project during the year which is expected to begin construction in fiscal 2024-2025. Of the ending total non-major fund balances of $33.9 million: $25.6 million (76%) is legally restricted for specific purposes by external funding source providers, $8.2 million (24%) is committed for special purposes by the City Council, $122 thousand (less than 1%) is assigned, and $4 thousand (less than 1%) is nonspendable. Additional information about these aggregated non-major funds is presented in the combining statements which immediately follow the required supplementary information. Proprietary Funds The City’s proprietary funds are presented in the basic financial statements in a manner similar to that found in the government-wide financial statements, but in more detail. As noted in the Summary of Changes in Net Position – Business-type Activities on page 26, the City’s enterprise fund net position decreased by $98 thousand during the fiscal year. The Parking Services Fund is the City’s sole business-type (Enterprise) activity. The parking services fund’s operating revenue decreased by $129 thousand in fiscal year 2023-2024 to $4.7 million. The enterprise fund operating expenses were $4.1 million in fiscal year 2023-2024, an increase of $0.6 million over the prior fiscal year. The decrease in operating revenues comes after a healthy $845 thousand increase in the prior year as the fund began to rebound from slower post-pandemic operating activity. The increase in expenses mainly reflects the standard annual increase in personnel costs, as well as general increases in other operating costs. The City’s Internal Service Funds are also reported in this Proprietary Fund classification. In fiscal year 2023-2024, the Internal Service Funds comprised of: Building Maintenance, Vehicle Replacement, Equipment Replacement, Employee Benefits, Liability Insurance, Workers’ Compensation, Dental Insurance, Employee Retirement, OPEB/Retiree Medical, Radio Replacement, Telephone Replacement and Sewer Maintenance. The net position of the Internal Service Funds decreased by $782 thousand when compared to the prior year. Net investment in capital assets increased by $1.2 million, while unrestricted fund balance decreased by $1.9 million. The increase in capital assets resulted primarily from vehicle purchases, offset by depreciation of existing capital assets. The decrease in unrestricted fund balance is primarily the result of increased claims and insurance premiums related to the Liability Fund. These expense items have been rising state-wide and have been addressed with the fiscal 2024-2025 budget. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets The City’s investment in capital assets for its governmental activities as of June 30, 2024, amounts to $319.8 million, net of accumulated depreciation of $222.0 million. This investment in capital assets includes land, buildings, improvements, machinery and equipment, infrastructure, right-to-use lease assets, and construction in progress. Infrastructure assets are items that are normally immovable and of value only to the City such as roads, bridges, streets and sidewalks, drainage systems, lighting systems, and similar items. The addition to the City’s investment in capital assets for the current fiscal year was $18.7 million, offset by accumulated depreciation of $10.6 million. Additions to capital assets during fiscal year 2023-2024 included:  Machinery and Equipment: Vehicles totaling $2.2 million  Infrastructure: $14.6 million  Third Street Rehabilitation - $4.9 million  San Quentin Pump Station Reconstruction - $2.9 million CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024  Grand Avenue Cycle Track - $1.7 million  Third Street Safety Improvements - $1.2 million  Southern Heights-Courtright Road Repair - $1.2 million  Rotary Manor Culvert Replacement - $1.0 million  Other - $1.7 million  Right-to-use Leased Equipment: $976 thousand  Body-worn cameras - $549 thousand  Office equipment - $220 thousand  Automated license plate readers - $207 thousand  Right-to-use Subscription Assets: $2.1 million  Body-worn cameras - $1.4 million  Permitting software - $524 thousand  Other - $168 thousand A comparison of the City’s Capital Assets for the fiscal years ending June 30, 2024 and 2023 is presented below: Additional information on the City’s capital assets can be found in Note 5 on pages 63 through 64 of this report. Debt Administration The City’s debt obligations were stable year-over-year and reflect payments of principal made during the year. The debt of the former Redevelopment Agency is reported under the Successor Agency, which is presented as a Private- Purpose Trust Fund on the Statement of Fiduciary Net Position. (See Note 6 of the financial statements for additional information on the debt obligations of the City and Note 16 for additional information on the Successor Agency.) 2024 2023 Governmental Activities Land $84,108 $84,026 Construction in progress 28,785 42,582 Land improvements 10,852 10,852 Buildings and structures 119,722 119,165 Machinery and equipment 23,445 22,016 Infrastructure 264,925 237,123 Intangible right-to-use leased building 5,476 5,476 Intangible right-to-use leased equipment 1,226 258 Intangible right-to-use subscription 3,252 1,559 Less accumulated depreciation (222,034) (211,394) Subtotal Governmental Activities 319,757 311,663 Business-type Activities Land 8,621 8,621 Buildings and structures 10,736 10,714 Machinery and equipment 968 1,047 Less accumulated depreciation (5,582) (5,219) Subtotal Business-type Activities 14,743 15,163 Total Capital Assets $334,500 $326,826 Summary of Capital Assets (in thousands) CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 The City’s long-term obligations for the fiscal years ending June 30, 2024 and 2023 were as follows: 2024 2023 Governmental Activity Debt: 2018 Authority Lease Revenue Bond $41,909 $44,852 2010 Taxable Pension Obligation Bonds 1,240 1,805 PG & E City Hall HVAC Retrofit Note Payable 13 PG & E Efficiency Note Payable 381 531 PG & E City Hall Efficiency Note Payable 121 143 Subtotal Governmental Activity Debt 43,651 47,344 Business-Type Activity Debt: PG & E Parking Lot Lighting Retrofit Note Payable 1 2012 Authority Lease Revenue Refunding Bonds 3,389 3,708 Subtotal Business-Type Activity Debt 3,389 3,709 Total Long-Term Obligations $47,040 $51,053 Summary of Outstanding Long-Term Debt (in thousands) CITY OF SAN RAFAEL Management’s Discussion and Analysis Fiscal Year Ended June 30, 2024 ECONOMIC CLIMATE AND NEXT YEAR’S BUDGET After navigating through economic shock of both the pandemic and subsequent recovery, the global economy continues to face several issues, inflation being chief among them. As many central banks continue to hold interest rates at elevated levels, economic growth is expected to continue to temper as borrowing becomes more expensive and consumer demand cools. As a result, the International Monetary Fund currently projects somewhat stagnant global growth of 3.2% in 2024, inching forward to 3.3% in 2025. Nationally, the economic climate also continues to be focused on inflation and corresponding monetary policy surrounding interest rates. Although progress has been made, inflation remains above the Federal Reserve’s 2% target. Consumer demand has remained strong in spite of these economic pressures, however, are showing signs of a pullback, especially with regard to larger ticket items such as housing and automobiles. In California, national trends are reflected with some unique regional dynamics. The housing market remains particularly constrained as high mortgage rates and low affordability put pressure on the sector, currently buoyed by a reduction in supply. The unemployment rate remains elevated in comparison to the national rate partly owing to job losses in the entertainment and the tech sector, however, continued strength in sectors such as biotech and clean energy as well as innovation in artificial intelligence put the state in a strong position for future economic gains. Locally, Marin County remains somewhat insulated from more pronounced impacts of the macro environment with an unemployment rate lower than the national average and per capita income among the highest. This provides stability to the local economy, affording the County the ability to maintain stronger consumer demand in the face of mounting economic pressures. In San Rafael, sales and use tax forecasts show the city beginning to stagnate after its post-pandemic boom with sales taxes forecasted to grow at a modest 1.5% for fiscal 2024-25. The City’s economy remains stable with significant employment in healthcare, education, and public administration and its position as the county’s commercial center. However, housing affordability, transportation challenges, and the evolving retail landscape present ongoing issues for the city's long-term development. The City heads into the new fiscal year with a strong balance sheet and large capital projects in the pipeline bolstered by prior year increases to fund balances. However, costs are continuing to rise and certain projects may need to be prioritized to ensure the City does not become overextended. REQUEST FOR INFORMATION This financial report is designed to provide our residents, businesses, customers, and investors and creditors with a general overview of the City’s finances and to demonstrate the City’s accountability for providing high quality services within the limits of our fiscal resources. If you have questions about this report or need additional financial information, contact the City of San Rafael – Finance Department at 1400 Fifth Avenue, Room 204, San Rafael, California 94901. This page intentionally left blank CITY OF SAN RAFAEL GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2024 Traffic and Essential Other Total General Housing Facilities Capital Governmental Governmental Fund Mitigation Gas Tax Projects Fund Funds Funds ASSETS Cash and investments available for operations (Note 2) $31,135,515 $3,962,771 $12,398,690 $3,754,843 $30,859,329 $82,111,148 Restricted cash and investments (Note 2) 640,129 5,647 85,751 731,527 Receivables: Accounts 1,969,480 2,857 2,068,095 4,040,432 Intergovernmental 9,141,582 1,372,151 426,220 10,939,953 Grants 4,558 440,264 444,822 Interest 819,164 9,187 828,351 Loans (Note 4A) 786 1,974,817 1,841,716 3,817,319 Leases (Note 4H) 29,796 400,770 430,566 Due from other funds (Note 3B) 394,178 394,178 Prepaids 54,250 3,506 57,756 Total Assets $44,189,438 $5,940,445 $13,770,841 $3,760,490 $36,134,838 $103,796,052 LIABILITIES Accounts payable $6,178,273 $26,268 $398,012 $167,900 $1,250,120 $8,020,573 Deposits payable 4,000 48,105 52,105 Developer deposits payable 398,007 3,635 401,642 Unearned revenue 566,892 566,892 Total Liabilities 6,580,280 26,268 398,012 167,900 1,868,752 9,041,212 DEFERRED INFLOWS OF RESOURCES Unavailable revenue 1,166,896 1,166,896 Related to leases (Note 4H) 26,986 368,912 395,898 Total Deferred Inflows of Resources 1,193,882 368,912 1,562,794 Fund Balances (Note 8): Nonspendable 54,250 3,506 57,756 Restricted 5,914,177 13,372,829 3,592,590 25,562,849 48,442,445 Committed 9,837,000 8,209,257 18,046,257 Assigned 12,937,172 121,562 13,058,734 Unassigned 13,586,854 13,586,854 Total Fund Balances 36,415,276 5,914,177 13,372,829 3,592,590 33,897,174 93,192,046 Total Liabilities, Deferred Inflows of Resources and Fund Balances $44,189,438 $5,940,445 $13,770,841 $3,760,490 $36,134,838 $103,796,052 Special Revenue Funds See accompanying notes to basic financial statements REVIEW DRAFT 9/29 1 CITY OF SAN RAFAEL GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2024 Traffic and Essential Other Total Housing Facilities Capital Governmental Governmental General Mitigation Gas Tax Projects Fund Funds Funds REVENUES Taxes and special assessments $88,564,312 $9,917,552 $98,481,864 Licenses and permits 3,614,566 3,614,566 Fines and forfeitures 259,792 259,792 Use of money and properties 3,377,438 $150,901 $235,085 $68,831 728,915 4,561,170 Intergovernmental 4,830,166 465,000 7,936,247 3,397,468 16,628,881 Charges for services 3,245,323 1,280,962 2,736,113 10,195,691 17,458,089 Other revenue 1,054,355 10,000 1,716,032 1,639 1,266,953 4,048,979 Total Revenues 104,945,952 1,906,863 12,623,477 70,470 25,506,579 145,053,341 EXPENDITURES Current: General government 15,483,609 912,264 16,395,873 Public safety 47,275,482 12,582,544 59,858,026 Public works and parks 14,395,860 112,464 3,431,257 1,235,141 19,174,722 Community development 5,514,463 341,815 5,856,278 Culture and recreation 3,088,241 9,433,062 12,521,303 Capital outlay 2,600,949 1,650,469 7,436,103 580,083 4,690,494 16,958,098 Debt service: Principal 3,391,400 3,391,400 Interest and fiscal charges 2,100,354 2,100,354 Total Expenditures 93,850,358 2,104,748 10,867,360 580,083 28,853,505 136,256,054 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 11,095,594 (197,885) 1,756,117 (509,613) (3,346,926) 8,797,287 OTHER FINANCING SOURCES (USES) Issuance of long-term debt (Note 14) 2,518,949 2,518,949 Transfers in (Note 3A) 2,061,406 419,000 850,000 384,188 7,964,518 11,679,112 Transfers out (Note 3A) (7,028,671) (1,069,000) (233,945) (8,331,616) Total Other Financing Sources (Uses) (2,448,316) 419,000 (219,000) 384,188 7,730,573 5,866,445 Net Change in Fund Balances 8,647,278 221,115 1,537,117 (125,425) 4,383,647 14,663,732 FUND BALANCES, BEGINNING OF YEAR 27,767,998 5,693,062 11,835,712 3,718,015 29,513,527 78,528,314 FUND BALANCES, END OF YEAR $36,415,276 $5,914,177 $13,372,829 $3,592,590 $33,897,174 $93,192,046 See accompanying notes to financial statements Special Revenue Funds REVIEW DRAFT 9/29 2 Successor Agency to the Pt. San Pedro Redevelopment Road Assessment Agency District Private-Purpose Custodial Trust Fund Fund ASSETS Cash available for operations (Note 2) $38,987 $246,645 Receivables: Taxes 1,591 Total Assets 38,987 248,236 LIABILITIES Interest payable (17,267) Total Liabilities (17,267) NET POSITION Restricted for: Bondholders 38,987 265,503 Total Net Position $38,987 $265,503 See accompanying notes to financial statements CITY OF SAN RAFAEL FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2024 REVIEW DRAFT 9/29 3 Successor Agency to the Pt. San Pedro Redevelopment Road Assessment Agency District Private-Purpose Custodial Trust Fund Fund ADDITIONS Property taxes $159,051 Total Additions 159,051 DEDUCTIONS General government $161,706 10,244 Payments to bondholders 88,500 Interest expense 18,041 Total Deductions 161,706 116,785 Change in Net Position (161,706) 42,266 NET POSITION Beginning of year 200,693 223,237 End of year $38,987 $265,503 CITY OF SAN RAFAEL STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED JUNE 30, 2024 See accompanying notes to financial statements REVIEW DRAFT 9/29 4 CITY OF SAN RAFAEL PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2024 Business-type Activities - Governmental Enterprise Fund Activities Parking Internal Services Service Funds ASSETS Current Assets: Cash and investments available for operations (Note 2) $435,618 $38,475,156 Receivable: Accounts, net 1,082,382 799,037 Grants 1,000 Prepaid expense 861,053 Total Current Assets 1,518,000 40,136,246 Noncurrent Assets: Capital assets (Note 5): Nondepreciable 8,620,853 346,448 Depreciable, net 6,325,323 13,665,895 Total Noncurrent Assets 14,946,176 14,012,343 Total Assets 16,464,176 54,148,589 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pension (Note 9) 1,649,631 Deferred outflows related to OPEB (Note 11) 131,235 Total Deferred Outflows of Resources 1,780,866 LIABILITIES Current Liabilities: Accounts payable 130,131 932,238 Interest payable 28,822 Unearned revenue 21,474 Compensated absences, due in one year (Note 1L) 17,332 Claims payable, due in one year (Note 13) 3,389,162 Long-term debt, due in one year (Note 6) 330,000 21,755 Subscription liabilities, due in one year (Note 14) 271,026 Due to other funds (Note 3B) 394,178 Total Current Liabilities 527,759 5,008,359 Noncurrent Liabilities: Compensated absences (Note 1L) 121,327 Claims payable (Note 13) 11,112,700 Long-term debt (Note 6) 3,058,653 99,708 Net OPEB liability (Note 11) 336,936 Net pension liability (Note 9) 2,722,631 Subscription liabilities (Note 14) 684,247 Total Noncurrent Liabilities 6,239,547 11,896,655 Total Liabilities 6,767,306 16,905,014 DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pension (Note 9) 482,716 Deferred inflows related to OPEB (Note 11) 88,557 Total Deferred Inflows of Resources 571,273 NET POSITION (Note 8): Net investment in capital assets 11,557,523 12,935,607 Unrestricted (651,060) 24,307,968 Total Net Position $10,906,463 $37,243,575 See accompanying notes to financial statements REVIEW DRAFT 9/29 5 CITY OF SAN RAFAEL PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED JUNE 30, 2024 Business-type Activities - Governmental Enterprise Fund Activities Parking Internal Services Service Funds OPERATING REVENUES Charges for current services $2,339,239 $18,949,459 Other operating revenues 2,213,390 1,345,450 Total Operating Revenues 4,552,629 20,294,909 OPERATING EXPENSES Personnel 1,854,895 4,726,907 Insurance premiums and claims 7,986,661 Maintenance and repairs 114,046 90,099 Depreciation expense (Note 5) 238,681 1,560,746 General and administrative 1,535,278 4,629,993 Total Operating Expenses 3,742,900 18,994,406 Operating Income 809,729 1,300,503 NONOPERATING REVENUES (EXPENSES) Investment income 9,864 745,287 Miscellaneous revenue 10,000 Interest expense (131,788) (63,178) Gain from sale of capital assets 49,984 Total Nonoperating Revenues (Expenses) (121,924) 742,093 Income Before Transfers 687,805 2,042,596 TRANSFERS Transfers out (Note 3A) (582,148) (2,765,348) Net transfers (582,148) (2,765,348) Change in Net Position 105,657 (722,752) NET POSITION, BEGINNING OF YEAR 10,800,806 37,966,327 NET POSITION, END OF YEAR $10,906,463 $37,243,575 See accompanying notes to financial statements REVIEW DRAFT 9/29 6 CITY OF SAN RAFAEL GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2024 Variance with Final Budget Budgeted Amounts Actual Positive Original Final Amounts (Negative) REVENUES Taxes and special assessments $80,054,486 $87,054,486 $88,564,312 $1,509,826 Licenses and permits 2,855,788 2,855,788 3,614,566 758,778 Fines and forfeitures 212,740 212,740 259,792 47,052 Use of money and properties 462,120 462,120 3,377,438 2,915,318 Intergovernmental 11,369,421 4,369,421 4,830,166 460,745 Charges for services 3,240,314 3,240,314 3,245,323 5,009 Other revenue 2,606,699 2,606,699 1,054,355 (1,552,344) Total Revenues 100,801,568 100,801,568 104,945,952 4,144,384 EXPENDITURES Current: General government 17,053,530 17,053,530 15,483,609 1,569,921 Public safety 50,389,251 50,375,971 47,275,482 3,100,489 Public works and parks 14,970,225 14,970,225 14,395,860 574,365 Community development 6,686,641 9,031,462 5,514,463 3,516,999 Culture and recreation 3,365,971 3,392,970 3,088,241 304,729 Capital outlay 92,776 92,776 2,600,949 (2,508,173) Debt service: Principal 3,162,714 3,162,714 3,391,400 (228,686) Interest and fiscal charges 2,086,013 2,086,014 2,100,354 (14,340) Total Expenditures 97,807,121 100,165,662 93,850,358 6,315,304 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 2,994,447 635,906 11,095,594 10,459,688 OTHER FINANCING SOURCES (USES) Issuance of long-term debt 2,518,949 2,518,949 Transfers in 1,827,461 2,127,461 2,061,406 (66,055) Transfers out (2,207,000) (7,094,483) (7,028,671) 65,812 Total Other Financing Sources (Uses) (379,539) (4,967,022) (2,448,316) 2,518,706 Net Change in Fund Balance $2,614,908 ($4,331,116) 8,647,278 $12,978,394 FUND BALANCE, BEGINNING OF YEAR 27,767,998 FUND BALANCE, END OF YEAR $36,415,276 REVIEW DRAFT 9/29 7 CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL FOR THE YEAR ENDED JUNE 30, 2024 REVIEW DRAFT 10/7 1 Attachment 2 This Page Left Intentionally Blank REVIEW DRAFT 10/7 2 CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL For the Year Ended June 30, 2024 Table of Contents Page Memorandum on Internal Control ................................................................................................... 1 Schedule of Other Matters ....................................................................................................... 5 Status of Prior Year Significant Deficiencies ........................................................................ 11 Schedule of Prior Year Other Matters ................................................................................... 13 REVIEW DRAFT 10/7 3 This Page Left Intentionally Blank REVIEW DRAFT 10/7 4 MEMORANDUM ON INTERNAL CONTROL To the City Council of the City of San Rafael, California In planning and performing our audit of the basic financial statements of the City of San Rafael (City) as of and for the year ended June 30, 2024, in accordance with auditing standards generally accepted in the United States of America, we considered the City’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control was for the limited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses. In addition, because of inherent limitations in internal control, including the possibility of management override of controls, misstatements due to error or fraud may occur and not be detected by such controls. Given these limitations during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Included in the Schedule of Other Matters are recommendations not meeting the above definitions that we believe are opportunities for strengthening internal controls and operating efficiency. Government Auditing Standards require the auditor to perform limited procedures on the City’s response to the findings identified in our audit and described in the accompanying Schedule of Significant Deficiency and Schedule of Other Matters. The City’s response was not subjected to the other auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on the response. This communication is intended solely for the information and use of management, City Council, others within the organization, and agencies and pass-through entities requiring compliance with Government Auditing Standards, and is not intended to be and should not be used by anyone other than these specified parties. Pleasant Hill, California DATE REVIEW DRAFT 10/7 5 This Page Left Intentionally Blank REVIEW DRAFT 10/7 6 CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL SCHEDULE OF OTHER MATTERS 2024-01 Purchasing Policy Compliance and Clarification of Requirements - Prior Year Recommendation Not Implemented During the current year audit, we followed up on the status of the Other Matter identified on the Status of Prior Year Other Matters Items 2023-02 and 2022-02. We determined that the City adopted a new purchasing policy effective July 1, 2024. However, because the Policy was not in place until after June 30, 2024, the matter is considered to be unaddressed as of that date and therefore, it is deemed to be a current year Other Matter. Details of the matter are listed in the Status of Prior Year Other Matters. Management’s Response: OPEN for City to provide formalized response. REVIEW DRAFT 10/7 7 CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL SCHEDULE OF OTHER MATTERS NEW GASB PRONOUNCEMENTS OR PRONOUNCEMENTS NOT YET EFFECTIVE The following comment represents new pronouncements taking affect in the next few years. We have cited them here to keep you informed of developments. EFFECTIVE FISCAL YEAR 2024/25: GASB 101 – Compensated Absences The objective of this Statement is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences. That objective is achieved by aligning the recognition and measurement guidance under a unified model and by amending certain previously required disclosures. Recognition And Measurement This Statement requires that liabilities for compensated absences be recognized for (1) leave that has not been used and (2) leave that has been used but not yet paid in cash or settled through noncash means. A liability should be recognized for leave that has not been used if (a) the leave is attributable to services already rendered, (b) the leave accumulates, and (c) the leave is more likely than not to be used for time off or otherwise paid in cash or settled through noncash means. Leave is attributable to services already rendered when an employee has performed the services required to earn the leave. Leave that accumulates is carried forward from the reporting period in which it is earned to a future reporting period during which it may be used for time off or otherwise paid or settled. In estimating the leave that is more likely than not to be used or otherwise paid or settled, a government should consider relevant factors such as employment policies related to compensated absences and historical information about the use or payment of compensated absences. However, leave that is more likely than not to be settled through conversion to defined benefit postemployment benefits should not be included in a liability for compensated absences. This Statement requires that a liability for certain types of compensated absences—including parental leave, military leave, and jury duty leave—not be recognized until the leave commences. This Statement also requires that a liability for specific types of compensated absences not be recognized until the leave is used. This Statement also establishes guidance for measuring a liability for leave that has not been used, generally using an employee’s pay rate as of the date of the financial statements. A liability for leave that has been used but not yet paid or settled should be measured at the amount of the cash payment or noncash settlement to be made. Certain salary-related payments that are directly and incrementally associated with payments for leave also should be included in the measurement of the liabilities. With respect to financial statements prepared using the current financial resources measurement focus, this Statement requires that expenditures be recognized for the amount that normally would be liquidated with expendable available financial resources. REVIEW DRAFT 10/7 8 CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL SCHEDULE OF OTHER MATTERS GASB 101 – Compensated Absences (Continued) Notes To Financial Statements This Statement amends the existing requirement to disclose the gross increases and decreases in a liability for compensated absences to allow governments to disclose only the net change in the liability (as long as they identify it as a net change). In addition, governments are no longer required to disclose which governmental funds typically have been used to liquidate the liability for compensated absences. How the Changes in this Statement Will Improve Financial Reporting The unified recognition and measurement model in this Statement will result in a liability for compensated absences that more appropriately reflects when a government incurs an obligation. In addition, the model can be applied consistently to any type of compensated absence and will eliminate potential comparability issues between governments that offer different types of leave. The model also will result in a more robust estimate of the amount of compensated absences that a government will pay or settle, which will enhance the relevance and reliability of information about the liability for compensated absences. GASB 102 – Certain Risk Disclosures State and local governments face a variety of risks that could negatively affect the level of service they provide or their ability to meet obligations as they come due. Although governments are required to disclose information about their exposure to some of those risks, essential information about other risks that are prevalent among state and local governments is not routinely disclosed because it is not explicitly required. The objective of this Statement is to provide users of government financial statements with essential information about risks related to a government’s vulnerabilities due to certain concentrations or constraints. This Statement defines a concentration as a lack of diversity related to an aspect of a significant inflow of resources or outflow of resources. A constraint is a limitation imposed on a government by an external party or by formal action of the government’s highest level of decision-making authority. Concentrations and constraints may limit a government’s ability to acquire resources or control spending. This Statement requires a government to assess whether a concentration or constraint makes the primary government reporting unit or other reporting units that report a liability for revenue debt vulnerable to the risk of a substantial impact. Additionally, this Statement requires a government to assess whether an event or events associated with a concentration or constraint that could cause the substantial impact have occurred, have begun to occur, or are more likely than not to begin to occur within 12 months of the date the financial statements are issued. REVIEW DRAFT 10/7 9 CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL SCHEDULE OF OTHER MATTERS GASB 102 – Certain Risk Disclosures (Continued) If a government determines that those criteria for disclosure have been met for a concentration or constraint, it should disclose information in notes to financial statements in sufficient detail to enable users of financial statements to understand the nature of the circumstances disclosed and the government’s vulnerability to the risk of a substantial impact. The disclosure should include descriptions of the following:  The concentration or constraint.  Each event associated with the concentration or constraint that could cause a substantial impact if the event had occurred or had begun to occur prior to the issuance of the financial statements.  Actions taken by the government prior to the issuance of the financial statements to mitigate the risk. How the Changes in This Statement Will Improve Financial Reporting The requirements of this Statement will improve financial reporting by providing users of financial statements with essential information that currently is not often provided. The disclosures will provide users with timely information regarding certain concentrations or constraints and related events that have occurred or have begun to occur that make a government vulnerable to a substantial impact. As a result, users will have better information with which to understand and anticipate certain risks to a government’s financial condition. REVIEW DRAFT 10/7 10 CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL SCHEDULE OF OTHER MATTERS EFFECTIVE FISCAL YEAR 2025/26: GASB 103 – Financial Reporting Model Improvements The objective of this Statement is to improve key components of the financial reporting model to enhance its effectiveness in providing information that is essential for decision making and assessing a government’s accountability. This Statement also addresses certain application issues. Management’s Discussion and Analysis - This Statement continues the requirement that the basic financial statements be preceded by management’s discussion and analysis (MD&A), which is presented as required supplementary information (RSI). MD&A provides an objective and easily readable analysis of the government’s financial activities based on currently known facts, decisions, or conditions and presents comparisons between the current year and the prior year. This Statement requires that the information presented in MD&A be limited to the related topics discussed in five sections: (1) Overview of the Financial Statements, (2) Financial Summary, (3) Detailed Analyses, (4) Significant Capital Asset and Long-Term Financing Activity, and (5) Currently Known Facts, Decisions, or Conditions. Furthermore, this Statement stresses that the detailed analyses should explain why balances and results of operations changed rather than simply presenting the amounts or percentages by which they changed. This Statement emphasizes that the analysis provided in MD&A should avoid unnecessary duplication by not repeating explanations that may be relevant to multiple sections and that “boilerplate” discussions should be avoided by presenting only the most relevant information, focused on the primary government. In addition, this Statement continues the requirement that information included in MD&A distinguish between that of the primary government and its discretely presented component units. Unusual or Infrequent Items - This Statement describes unusual or infrequent items as transactions and other events that are either unusual in nature or infrequent in occurrence. Furthermore, governments are required to display the inflows and outflows related to each unusual or infrequent item separately as the last presented flow(s) of resources prior to the net change in resource flows in the government-wide, governmental fund, and proprietary fund statements of resource flows. Presentation of the Proprietary Fund Statement of Revenues, Expenses, and Changes in Fund Net Position - This Statement requires that the proprietary fund statement of revenues, expenses, and changes in fund net position continue to distinguish between operating and nonoperating revenues and expenses. Operating revenues and expenses are defined as revenues and expenses other than nonoperating revenues and expenses. Nonoperating revenues and expenses are defined as (1) subsidies received and provided, (2) contributions to permanent and term endowments, (3) revenues and expenses related to financing, (4) resources from the disposal of capital assets and inventory, and (5) investment income and expenses. In addition to the subtotals currently required in a proprietary fund statement of revenues, expenses, and changes in fund net position, this Statement requires that a subtotal for operating income (loss) and noncapital subsidies be presented before reporting other nonoperating revenues and expenses. Subsidies are defined as (1) resources received from another party or fund (a) for which the proprietary fund does not provide goods and services to the other party or fund and (b) that directly or indirectly keep the proprietary fund’s current or future fees and charges lower than they would be otherwise, (2) resources provided to another party or fund (a) for which the other party or fund does not provide goods and services to the proprietary fund and (b) that are recoverable through the proprietary fund’s current or future pricing policies, and (3) all other transfers. REVIEW DRAFT 10/7 11 CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL SCHEDULE OF OTHER MATTERS GASB 103 – Financial Reporting Model Improvements (Continued) Major Component Unit Information - This Statement requires governments to present each major component unit separately in the reporting entity’s statement of net position and statement of activities if it does not reduce the readability of the statements. If the readability of those statements would be reduced, combining statements of major component units should be presented after the fund financial statements. Budgetary Comparison Information - This Statement requires governments to present budgetary comparison information using a single method of communication—RSI. Governments also are required to present (1) variances between original and final budget amounts and (2) variances between final budget and actual amounts. An explanation of significant variances is required to be presented in notes to RSI. How the Changes in This Statement Will Improve Financial Reporting The requirements for MD&A will improve the quality of the analysis of changes from the prior year, which will enhance the relevance of that information. They also will provide clarity regarding what information should be presented in MD&A. The requirements for the separate presentation of unusual or infrequent items will provide clarity regarding which items should be reported separately from other inflows and outflows of resources. The definitions of operating revenues and expenses and of nonoperating revenues and expenses will replace accounting policies that vary from government to government, thereby improving comparability. The addition of a subtotal for operating income (loss) and noncapital subsidies will improve the relevance of information provided in the proprietary fund statement of revenues, expenses, and changes in fund net position. The requirement for presentation of major component unit information will improve comparability. The requirement that budgetary comparison information be presented as RSI will improve comparability, and the inclusion of the specified variances and the explanations of significant variances will provide more useful information for making decisions and assessing accountability. REVIEW DRAFT 10/7 12 CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL STATUS OF PRIOR YEAR SIGNIFICANT DEFICIENCIES 2023-01 Inaccurate Building Permit Fees – Prior Year Recommendation Not Implemented During the current year audit, we followed up on the status of the Significant Deficiency identified on the Status of Prior Year Significant Deficiency Item 2022-01. We found that the deficiency has not been addressed as of June 30, 2023. Therefore, it is deemed to be a current year Significant Deficiency. Details of the deficiency and management’s response is listed in the Status of Prior Year Significant Deficiency. Current Status: Implemented. 2022-01 Inaccurate Building Permit Fees The rates charged in the City’s permit billing system should be consistent with the City’s Master Fee Schedule approved by City Council and on the City’s website. As noted in the prior year Memorandum on Internal Control comment 2021-01, we again noted that the rates charged in the City’s permit billing system are not consistent with the City’s Master Fee Schedule approved by City Council. During the fiscal year 2022 audit, we tested twenty-five receipts and recalculated the fees using the City’s Master Fee Schedule and noted five receipts for building permits that we recalculated, but could not arrive at the same amount charged. Based on our recalculations using the City’s Master Fee Schedule, the building permit fees that should have been charged, and the related amount undercharged were as follows: Receipt Number Building Permit Fee Charged Building Permit Fee That Should Have Been Charged Based on Master Fee Schedule Undercharged 003-00001681 $3,997.00 $4,820.20 $(823.20) 017-00000203 2,317.00 3,140.20 (823.20) 017-00001783 1,210.00 1,714.00 (504.00) 003-00003680 918.10 1,251.64 (333.54) 003-00004064 947.50 1,285.60 (338.10) We understand that the Community Development Department (CDD) staff determined that the Master Fee Schedule approved by City Council and posted on the City’s website included incorrect building permit fees and CDD staff believed that the correct fees had been charged. We also noted one receipt for an investigation fee (receipt # 003-00003019) and one receipt for a building permit renewal fee (receipt # 017-00001262) that were not listed on the revised Master Fee Schedule, nor supported by an ordinance or resolution. The CDD staff indicated that the Master Fee Schedule is being updated to incorporate these fees that were charged. Although City staff believe that the correct fees were charged for the building permits, investigation fee and building permit renewal fees, we were unable to verify that the correct fees were charged based on the Master Fee Schedule approved by City Council. Therefore, the City’s building permit fees, investigation fees, fire prevention inspection fees and building permit renewal fees revenues may be understated. REVIEW DRAFT 10/7 13 CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL STATUS OF PRIOR YEAR SIGNIFICANT DEFICIENCIES 2022-01 Inaccurate Building Permit Fees (Continued) We understand that the City plans to present an updated Master Fee Schedule to Council to ensure that accurate charges are approved and presented on the City’s website. We recommend that the City develop a process to ensure that the fees approved by City Council are properly entered into the City’s permit billing system to ensure proper fees are charged. In addition, we recommend that the City ensure that the Master Fee Schedule on the City’s website agrees to the Master Fee Schedule approved by City Council. Current Status: Implemented. 2021-01 Inaccurate Building Permit Fees The rates charged in the City’s permit billing system should be consistent with the City’s Master Fee Schedule approved by City Council and on the City’s website. We tested twenty-five receipts and recalculated the fees using the City’s Master Fee Schedule and we noted one receipt for a building permit in the amount of $78,946 that we recalculated, but could not arrive at the same amount. Based on our recalculation using the City’s Master Fee Schedule, the building permit fee that should have been charged was $83,137. The Community Development Department (CDD) staff determined that the Master Fee Schedule approved by City Council and posted on the City’s website included incorrect building permit fees and CDD staff believed that the correct fees had been charged, resulting in the fee of $78,946. Although City staff believe that the correct fees were charged, we were unable to verify that the correct fees were charged based on the Master Fee Schedule approved by City Council. Therefore, the City’s building permit fees may be understated due to the use of a lower fee schedule. We understand that the City plans to present an updated Master Fee Schedule to Council to ensure that accurate charges are approved and presented on the City website. We recommend that the City develop a process to ensure that the fees approved by City Council are properly entered into the City’s permit billing system to ensure proper fees are charged. In addition, we recommend that the City ensure that the Master Fee Schedule on the City’s website agree to the Master Fee Schedule approved by City Council. Current Status: Implemented. REVIEW DRAFT 10/7 14 CITY OF SAN RAFAEL MEMORANDUM ON INTERNAL CONTROL STATUS OF PRIOR YEAR OTHER MATTERS 2023-02 Purchasing Policy Compliance and Clarification of Requirements - Prior Year Recommendation Not Implemented During the current year audit, we followed up on the status of the Other Matter identified on the Status of Prior Year Other Matters Item 2022-02. We found that the matter has not been addressed as of June 30, 2023. Therefore, it is deemed to be a current year Other Matter. Details of the matter and management’s response is listed in the Status of Prior Year Other Matters. Current Status & Management’s Response: See Current Status & Management’s Response as shown in the Schedule of Other Matters Comment 2024-01. 2022-02 Purchasing Policy Compliance and Clarification of Requirements The City’s Purchasing Policy should indicate when the use of a purchase order, contract, or both is required, including any exceptions, as necessary. The City’s Purchasing Policy defines a contract as including, but not being “limited to, a purchase order, a contract for services, a contract for maintenance, leasing of property or equipment, an addendum or change order, a letter agreement, a memorandum of understanding, or memorandum of agreement.” The Purchasing Policy defines a purchase order as “a standardized form to be utilized in contracts for materials, supplies, labor and equipment.” The Purchasing Policy does not specify whether a purchase order and a contract are required for all purchases, but we understand it is the City’s practice to obtain both documents for purchases. During the fiscal year 2022 audit, we selected twenty-five disbursements for testing of supporting documentation and compliance with the City’s Purchasing Policy and noted two disbursements for which the disbursements were supported by a contract, however, they were not supported by a purchase order. We also noted one disbursement that was supported by a purchase order, but not a contract. For similar types of transactions tested, we noted that these types of disbursements were supported by both a purchase order and a contract. For one of the disbursements noted above, City staff indicated that the staff overseeing the initial project and contract is no longer with the City and that a purchase order was not created for the vendor and contract for the project due to a staff oversight. And, for the second disbursement noted above, City staff indicated that they did not think it was necessary for a purchase order to be created as the vendor is used for on-call repair sidewalk repair services. Lastly, for the third disbursement noted above, City staff indicated that the purchase order was created without a contract, due to a staff oversight. Although that appears reasonable, there does not appear to be such an exemption in the City’s Purchasing Policy for the use of a contract, purchase order or both. Therefore, the City is not in compliance with the Purchasing Policy for these purchases. We recommend that the City ensure all purchases comply with purchase documentation requirements and revise the Purchasing Policy to clarify those requirements to reflect current practices. Current Status & Management’s Response: See Current Status & Management’s Response as shown in the Schedule of Other Matters Comment 2024-01. REVIEW DRAFT 10/7 15 CITY OF SAN RAFAEL REQUIRED COMMUNICATIONS FOR THE YEAR ENDED JUNE 30, 2024 REVIEW DRAFT 10/7 1 Attachment 3 This Page Left Intentionally Blank REVIEW DRAFT 10/7 2 CITY OF SAN RAFAEL REQUIRED COMMUNICATIONS For the Year Ended June 30, 2024 Table of Contents Page Required Communications ................................................................................................................... 1 Significant Audit Matters: Qualitative Aspects of Accounting Practices ...................................................................... 1 Difficulties Encountered in Performing the Audit ............................................................. 3 Corrected and Uncorrected Misstatements ......................................................................... 3 Disagreements with Management ....................................................................................... 3 Management Representations ............................................................................................... 4 Management Consultations with Other Independent Accountants .................................... 4 Other Audit Findings or Issues ............................................................................................. 4 Other Matters ............................................................................................................................... 4 REVIEW DRAFT 10/7 3 This Page Left Intentionally Blank REVIEW DRAFT 10/7 4 REQUIRED COMMUNICATIONS To the City Council of the City of San Rafael, California We have audited the basic financial statements of the City of San Rafael (City) for the year ended June 30, 2024. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing Standards and the Uniform Guidance, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated March 4, 2024. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Matters Qualitative Aspects of Accounting Practices Accounting Policies - Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. No new accounting policies were adopted, and the application of existing policies was not changed during the year, except as noted below. The following pronouncements became effective, but did not have a material effect on the financial statements: GASB 100 – Accounting for Changes and Error Corrections Unusual Transactions, Controversial or Emerging Areas - We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting Estimates - Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the City’s financial statements were: Estimated Net Pension Liability and Pension-Related Deferred Outflows and Inflows of Resources: Management’s estimates of the net pension liability and related deferred outflows/inflows of resources are disclosed in Note 9 to the financial statements and are based on an actuarial study and accounting valuation determined by the Marin County Employees’ Retirement Association which are based on the experience of the City. We evaluated the key factors and assumptions used to develop the estimates and determined they are reasonable in relation to the basic financial statements taken as a whole. REVIEW DRAFT 10/7 5 Estimated Net OPEB Liability and OPEB-Related Deferred Outflows and Inflows of Resources: Management’s estimates of the net OPEB liability and related deferred outflows/inflows of resources are disclosed in Note 11 to the financial statements and are based on an actuarial study determined by a consultant, which is based on the experience of the City. We evaluated the key factors and assumptions used to develop the estimates and determined they are reasonable in relation to the basic financial statements taken as a whole. Estimate of the depreciation: Management’s estimate of depreciation is based on useful lives determined by management. These lives have been determined by management based on the expected useful life of assets as disclosed in Note 1K to the financial statements. We evaluated the key factors and assumptions used to develop the depreciation estimate and determined that it is reasonable in relation to the basic financial statements taken as a whole. Estimated Fair Value of Investments: As of June 30, 2024, cash and investments were measured by fair value, as disclosed in Note 2 to the financial statements. Fair value is essentially market pricing in effect as of June 30, 2024. These fair values are not required to be adjusted for changes in general market conditions occurring subsequent to June 30, 2024. Estimated Long-Term Receivable from San Rafael Sanitation District: Management’s estimate of the long-term receivable from the District is disclosed in Note 4G to the financial statements and is based on the District’s estimated liability for pension and post-employment health care benefits incurred by the City for the District staff, but not yet funded. We evaluated the key factors and assumptions used to develop the long-term receivable from the District in determining that it is reasonable in relation to the financial statements taken as a whole. Estimated Claims Liabilities: Management’s estimate of the claims liabilities payable is disclosed in Note 13 to the financial statements and is based on actuarial studies determined by a consultant, which are based on the claims experience of the City. We evaluated the key factors and assumptions used to develop the estimate and determined that it is reasonable in relation to the basic financial statements taken as a whole. Estimate of Compensated Absences: Accrued compensated absences which are comprised of accrued vacation, holiday, and certain other compensating time is estimated using accumulated unpaid leave hours and hourly pay rates in effect at the end of the fiscal year as disclosed in Note 1L to the financial statements. We evaluated the key factors and assumptions used to develop the accrued compensated absences and determined that it is reasonable in relation to the basic financial statements taken as a whole. Disclosures - The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole. REVIEW DRAFT 10/7 6 Professional standards require us to accumulate all known and likely uncorrected misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. We have no such misstatements to report to the City Council. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in a management representation letter dated DATE. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to the required supplementary information that accompanies and supplements the basic financial statements. Our procedures consisted of inquiries of management regarding 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 did not audit the required supplementary information and do not express an opinion or provide any assurance on the required supplementary information. We were engaged to report on the supplementary information that accompanies the financial statements, but is not required supplementary information. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the Introductory and Statistical Sections which accompany the financial statements, but are not required supplementary information. Such information has 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 them. ****** REVIEW DRAFT 10/7 7 This information is intended solely for the use of City Council and management and is not intended to be, and should not be, used by anyone other than these specified parties. Pleasant Hill, California DATE REVIEW DRAFT 10/7 8 This Page Left Intentionally Blank REVIEW DRAFT 10/7 9 INDEPENDENT ACCOUNTANT’S REPORT ON APPLYING AGREED UPON PROCEDURES FOR COMPLIANCE WITH THE PROPOSITION 111 2024-2025 APPROPRIATIONS LIMIT INCREMENT Honorable Mayor and Members of the City Council City of San Rafael, California We have performed the procedures enumerated below on the Appropriations Limit Worksheet (Worksheet) of the City of San Rafael, California, for the year ended June 30, 2025. The City’s management is responsible for the Worksheet. The City has agreed to and acknowledged that the procedures performed are appropriate to meet the intended purpose of these procedures, which were suggested by the League of California Cities and presented in their Article XIIIB Appropriations Limitation Uniform Guidelines, performed solely to assist you in meeting the requirements of Section 1.5 of Article XIIIB of the California Constitution. This report may not be suitable for any other purpose. The procedures performed may not address all the items of interest to a user of this report and may not meet the needs of all users of this report and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes. The procedures and associated findings are as follows: A.We obtained the Worksheet (Exhibit B to the Resolution) and determined that the 2024-2025 Appropriations Limit of $185,036,651 and annual adjustment factors were adopted by Resolution of the City Council. We also determined that the population and inflation options were selected by a recorded vote of the City Council. B. We recomputed the 2024-2025 Appropriations Limit by multiplying the 2023-2024 Prior Year Appropriations Limit by the Total Growth Factor. We recomputed the Total Growth Factor by multiplying the population option by the inflation option. C.For the Worksheet, we agreed the Per Capita Income Factor, City Population Factor and County Population Factor to California State Department of Finance Worksheets, and the Change in Assessment Roll for Nonresidential Construction Factor to the Marin County Worksheet. We were engaged by the City to perform this agreed-upon procedures engagement and conducted our engagement in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to and did not conduct an examination or review engagement, the objective of which would be the expression of an opinion or conclusion, respectively, on the Worksheet. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. REVIEW DRAFT 10/7 1 Attachment 4 We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our agreed-upon procedures engagement. This report is intended solely for the information and use of management and the City Council and is not intended to be and should not be used by anyone other than those specified parties; however, this restriction is not intended to limit the distribution of this report, which is a matter of public record. Pleasant Hill, California DATE REVIEW DRAFT 10/7 2 ____________________________________________________________________________________ FOR CITY CLERK ONLY Council Meeting: _______________________ Disposition: ___________________________ Agenda Item No: _____________ Meeting Date: November 18, 2024 SAN RAFAEL CITY COUNCIL AGENDA REPORT Department: Finance Prepared by: Paul Navazio, Finance Director City Manager Approval: ______________ TOPIC: FY2024-25 FIRST QUARTER BUDGET UPDATE SUBJECT: FY2024-25 FIRST QUARTER BUDGET UPDATE: REVENUE AND EXPENDITURE RESULTS FOR THE QUARTER ENDING SEPTEMBER 30, 2024. RECOMMENDATI4ON: 1) Accept the FY 2024-25 First Quarter Budget Update presenting a revenue and expenditure results through the first quarter of the current fiscal year (through September 30, 2024) (Attachment A). A and B). 2) Authorize amendments to the FY2024-25 budget representing unencumbered carry-over appropriations for specified purposes, totaling $964,966, as presented in Attachment B. BACKGROUND: This agenda item presents the first quarter budget update report summarizing revenue and expenditure results through the first quarter of the fiscal 2024-25. This is largely an informational report providing periodic updates of financial results relative to the approved budget. Attachment A provides a summary of FY2024-25 first quarter revenue and expenditure results, organized as follows: Table 1 – All Fund Revenues, by Fund Type Table 4 – General Fund Revenues Table 2 – All Fund Expenditures by Fund Type Table 5 – General Fund Expenditures by Category Table 3 – All Fund Expenditures by Dept. Table 6 – General Fund Expenditures by Dept. Table 7 – All Fund revenues, by Fund Table 8 – All Fund Expenditures by Fund A Mid-Year (2nd Quarter) Budget Update is planned for February 2025 to include revenue and expenditure results through the first half of the fiscal year (December 31, 2024) as well as updated revenue and expenditure projections through the remainder of the fiscal year. The Mid-Year Budget Update serves to inform mid-year budget adjustments, as necessary, as well as inform development of the City’s FY2025- 26 budget. Finance Subcommittee Agenda Item: 4 SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2 A third quarter budget update is planned for May 2025, coinciding with the City Council’s consideration and review of the City’s Proposed FY2025-26 budget. The First Quarter Budget Update report was previewed with the Finance Sub-committee (Mayor Kate, Vice Mayor Hill) at their meeting of November 12th. DISCUSSION Highlights of the FY 2024-25 Q1 results (Summarized in Attachment A): • All Funds revenues through the first quarter of FY 2024-25 were $27.15 million or 13.9% of the amended revenue budget of $195.56 million (see Attachment B). • All Funds expenditures through the first quarter of FY 2024-25 totaled $48.45 million. This, combined with an additional $29.59 million in encumbrances related to executed contracts and purchase orders, represents a total of 34.2% of the amended expenditure budget of $228.26 million (see Attachment B). • General Fund revenues though the first quarter of FY 2024-25 totaled $8.65 million, or 8.3% of the approved budget of $103.79 million. o General Fund revenues through the first quarter reflect the fact that the first Property Tax payments (from the County) and Sales Tax payments (from the State) are not received until the second quarter of the fiscal year. o Most other General Fund revenues are initially tracking at, or above, the expected budget through the first quarter of the fiscal year. • General Fund expenditures through the first quarter of FY 2024-25 were at $30.91 million. Combined with encumbrances of $3.05 million, this represents a combined commitment of $30.2% of the adjusted budget of $112.58 million. o Through the first quarter, results across most expenditure categories are tracking within budget. Personnel costs are trending slightly below budget due to ongoing vacancies in selected departments. o Departmental expenditures appear to be within budget, accounting for selected professional services contracts that reflect as encumbered appropriations as of the end of the first quarter. • The following table summarizes activity for the FY2024-25 Capital Improvement Plan (CIP) budget through the first quarter of the fiscal year: SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 3 FY2024-25 Capital Improvement Plan Expenditures By Fund • Through the first quarter of the fiscal year, capital project expenditures were $1.72 million, or 0.4% of the amended FY 2024-25 capital budget which provides for amended appropriations totaling $42.88 million. • The amended budget of $42.88 million reflects the original adopted budget of $33.26 million, as well carry-over appropriations of $9.22 million (representing encumbrances related to contracts and purchase orders entered into in the prior fiscal year), as well as a budget augmentation of $400,000 approved by the City Council since approval of the original budget. FY2023-24 Unencumbered Carry-Over Requests (Attachment C): This 1st Quarter Budget Update includes a recommended City Council action authorizing re-appropriation of $964,966 in funding included in the prior year budget for specific projects and expenditures for which no purchase order or contract was issued prior to the end of the fiscal year. As such, City Council action is requested to amend the FY 2024-25 budget to reflect re-appropriation of these funds for the purpose intended. The requested FY 2023-24 Carry-Over appropriations are summarized below, and detailed in Attachment D to this report: Fund Amount Description 206 - Gas Tax $ 98,000 Sidewalk Shaving Multi-Year Contract 283 – Grants (Other) 200,000 Marin Housing – Program Admin. 420 – Essential Facilities 24,489 Fire Station 54 – Security / Fence 600 – Vehicle Replacement 642,477 FY 23-24 Vehicle Replacements Total FY 2023-24 Carry-Over $964,966 FISCAL IMPACT: This agenda item provides financial results through the first quarter of the fiscal year as measured against the approved FY 2024-25 adjusted budget which provides for authorized expenditure appropriations of $228.26 million supported by budgeted revenues of $195.56 million as well as use of available fund balances, across all funds. The approved FY 2024-25 General Fund budget provides for expenditure appropriations of $112.50 million supported by projected revenues of $103.79 million along with available fund balance. Fund Name of Fund Adopted Budget FY24-25 FY23-24 Encumbered Carry-Over Budget Augmentations Adjustment Budget FY25 Project Expenditure Thru Sept FY25 205 Stormwater Fund 1,126,653$ 4,313,361$ 5,440,014$ 231,770$ 206 Gas Tax Fund 15,011,838 3,156,245 400,000 18,568,083 1,111,080 214 Library Fund 4,357,059 369,531 4,726,590 117,717 241 Measure A Open Space 937,500 102,692 1,040,192 24,961 246 Traffic Mitigation 100,000 225,065 325,065 93,768 283 Grant Fund-Other 104,033 104,033 401 Capital Improvement Fund 9,215,000 160,297 9,375,297 86,935 420 Measure E Public Safety Facility 100,000 758,961 858,961 39,918 603 Building Maintenance Fund 2,412,713 27,060 2,439,773 12,741 33,260,763 9,217,244 400,000 42,878,007 1,718,890 SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 4 This staff report also includes a recommendation authorizing amendments to the FY2024-25 budget to reflect the carry-over of unencumbered appropriations from the FY2023-24 budget totaling $951,597 across all funds. These appropriations reflect funding provided for in the prior fiscal year for specific purposes that remained unexpended an unencumbered at year-end, and for which City Council-approved funding is required to complete planned work within the current fiscal year. RECOMMENDED ACTION: Staff recommends that the City Council: 1) Accept the FY 2024-25 First Quarter Budget Update presenting a revenue and expenditure results through the first quarter of the current fiscal year (through September 30, 2024) (Attachments A) and B). 2) Authorize amendments to the FY2024-25 budget representing unencumbered carry-over appropriations for specified purposes, totaling $964,966, as presented in Attachment B. ATTACHMENTS: Attachment A - FY 2024-25 Q1 Budget Update - summary results through 9/30/24 Attachment B – Recommended FY2024-25 Unencumbered Carry-Over Appropriations SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 5 ATTACHMENT A FY 2024-25 Q1 Budget Update Table 1 FY 2024-25 All Fund Revenues by Fund Type • All Funds revenues through the first quarter of FY 2023-24 were $25.56 million or 14.4% of the amended revenue budget of $176.97 million. Table 2 FY 2024-25 All Fund Expenditures by Fund Type • The Adjusted FY2024-25 budget reflects budget amendments totaling $17.12 million following adoption of the original Adopted Budget. These budget amendments include: o Carry-over of FY 2023-24 encumbered appropriations totaling $14.47 million across all funds related to contracts and purchase orders executed in the prior fiscal year. These carry-over appropriations are authorized via the budget Resolution No. 15309, approved by the City Council on June 17, 2024. o Additionally, since the adoption of the FY2024-25 budget, the City Council has authorized the following budget augmentations, totaling $2.46 million:  Homeless Program – $2,256,400 ERF3 and Earmark funding (Special Revenue Grants Fund-283), approved by the City Council on 8/19/24, and  Street Pavement Management Program - $400,000 from available fund Fund Type Adopted Budget FY25 Adjusted Budget FY25 Actual Thru Sep FY25 % Budget General Fund 103,790,510$ 103,790,510$ 8,647,862$ 8.3% Special Revenue Funds 51,029,044 56,032,081 5,539,016 9.9% Capital Funds 7,679,073 7,679,073 2,887,886 37.6% Enterprise Funds 4,807,330 4,807,330 1,126,807 23.4% Internal Service Funds 23,148,781 23,148,781 8,951,813 38.7% Fiduciary Funds 97,427 97,427 1,234 1.3% Grand Total 190,552,164$ 195,555,201$ 27,154,618$ 13.9% Fund Type Adopted Budget FY25 Adjusted Budget FY25 Actual Thru Sep FY25 Encumbrances Budget % General Fund 112,291,594$ 112,584,602$ 30,914,490$ 3,018,527$ 30.1% Special Revenue Funds 59,657,513 74,110,369 8,993,253 15,097,358 32.5% Capital Funds 9,500,770 10,420,028 129,711 8,654,649 84.3% Enterprise Funds 4,795,356 4,982,073 1,097,916 188,808 25.8% Internal Service Funds 24,721,214 25,941,246 7,157,216 2,602,551 37.6% Fiduciary Funds 167,872 217,872 153,300 - 70.4% Grand Total 211,134,318$ 228,256,190$ 48,445,887$ 29,561,894$ 34.2% SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 6 balance (Special Revenue Gas Tax Fund-205), approved by the City Council on 8/19/24. • All Funds expenditures through the first quarter of FY 2024-25 totaled $48.45 million. This, combined with an additional $29.56 million in encumbrances related to executed contracts and purchase orders, represents a total of 34.2% of the amended expenditure budget of $228.26 million. Table 3 FY 2024-25 All Fund Expenditures by Department • All Departments are tracking well within budget through the first three months of the fiscal year. epartment Adopted Budget FY25 Adjusted Budget FY25 Actual Thru Sep FY25 Encumbrances Budget % 10 - Finance 3,371,622$ 3,496,942$ 1,207,084$ 56,110$ 36.1% 12 - City Manager/City Council 4,938,466 8,128,069 1,442,699 1,547,704 36.8% 13 - City Clerk 783,036 783,036 157,063 - 20.1% 14 - Management Services 28,192,084 29,156,190 7,787,151 1,211,418 30.9% 15 - City Attorney 1,452,734 1,458,435 279,591 5,702 19.6% 16 - Comm. & Econ. Developme 10,596,784 11,364,096 1,363,565 1,468,885 24.9% 31 - Police 29,886,706 30,159,390 7,351,473 329,652 25.5% 33 - Fire 38,340,304 40,802,405 9,409,401 1,885,805 27.7% 44 - Public Works 54,423,545 53,302,427 6,747,986 13,316,457 37.6% 51 - Library 9,763,436 10,133,103 1,330,193 1,042,770 23.4% 66 - Community Services 7,155,728 18,602,223 2,274,430 8,100,838 55.8% 99 - Non-departmental 22,229,875 20,869,875 9,095,252 596,553 46.4% Grand Total 211,134,318$ 228,256,190$ 48,445,887$ 29,561,894$ 34.2% SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 7 Table 4 FY 2024-25 General Fund Revenues • General Fund revenues though the first quarter of FY 2024-25 totaled $8.64 million, or 8.3% of the approved budget of $103.79 million. o General Fund revenues through the first quarter reflect the fact that the first Property Tax payments (from the County) and Sales Tax payments (from the State) are not received until the second quarter of the fiscal year. o Most other General Fund revenues are initially tracking at, or above, the expected budget through the first quarter of the fiscal year. Revenue Category Adopted Budget FY25 Adjusted Budget FY25 Actual Thru Sep FY25 Budget % Taxes 1101 - Property Tax (Current Se 20,946,795$ 20,946,795$ -$ 0.0% 1102 - Property Tax [Current Un 392,519 392,519 - 0.0% 1104 - Supplemental Tax 250,000 250,000 4,267 1.7% 1107 - E.R.A.F.3,300,000 3,300,000 5,620 0.2% 1110 - Franchise Fee: Refuse 3,000,000 3,000,000 524,866 17.5% 1111 - Sales & Use Taxes 25,253,524 25,253,524 2,087,853 8.3% 1112 - Franchise Tax 1,700,000 1,700,000 - 0.0% 1113 - Transient Occupancy Tax 3,900,000 3,900,000 454,230 11.6% 1115 - Business License Tax 2,600,000 2,600,000 88,847 3.4% 1116 - Measure S - Use Tax (TU - - 8 0.0% 1117 - Measure E - Use Tax (TU 14,520,000 14,520,000 1,276,558 8.8% 1121 - Property Transfer Tax 1,500,000 1,500,000 334,656 22.3% 1124 - Unitary Tax 309,508 309,508 - 0.0% 1129 - Measure R - Use Tax (TU 4,840,000 4,840,000 425,335 8.8% 1150 - Business License Tax (Pr - - - 0.0% Taxes Total 82,512,346$ 82,512,346$ 5,202,240$ 6.3% 2X00 - Licenses & Permits 2,950,488 2,950,488 806,819 27.3% 3300 - Citation Collections 130,000 130,000 22,588 17.4% 3400 - Fines & Forfeitures 73,400 73,400 18,727 25.5% 4400 - Use Of Money 1,069,558 1,069,558 1,066,241 99.7% 5500 - Intergovernmental 11,708,404 11,708,404 480,212 4.1% 6000 - Charges For Services 10,000 10,000 - 0.0% 6300 - Development Fees 1,831,094 1,831,094 419,375 22.9% 6600 - Project Review Fees 501,814 501,814 70,569 14.1% 6700 - False Alarm Fees 137,000 137,000 23,869 17.4% 6800 - Duplication Costs 100 100 208 208.0% 6900 - Business Tax Processing - - 125 0.0% 7700 - Other 358,000 358,000 84,812 23.7% 7900 - Transfers 2,508,306 2,508,306 452,076 18.0% Grand Total 103,790,510$ 103,790,510$ 8,647,862$ 8.3% SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 8 Table 5 FY 2024-25 General Fund Expenditures By Category • General Fund expenditures through the first quarter of FY 2024-25 stand at $30.91 million. Combined with encumbrances of $3.02 million, this represents a combined commitment of $30.1% of the adjusted budget of $112.58 million. o Through the first quarter, results across most expenditure categories are tracking within budget. Personnel costs are trending slightly below budget due to ongoing vacancies in selected departments. o Departmental expenditures appear to be within budget, accounting for selected professional services contracts that reflect as encumbered appropriations as of the end of the first quarter. Table 6 FY 2024-25 General Fund Expenditures By Department Expenditure Category Adopted Budget FY25 Adjusted Budget FY25 Actual Thru Sep FY25 Encumbrances Budget % 8100 - Salaries & Wages 41,305,632$ 41,305,769$ 9,882,589$ -$ 23.9% 8300 - Fringe Benefits 29,790,461 29,790,460 6,938,223 - 23.3% 9200 - Services 11,849,929 12,090,120 2,440,977 2,566,741 41.4% 9300 - Supplies 1,451,992 1,445,117 314,119 129,078 30.7% 9400 - Utilities/Communication 1,888,650 1,888,650 466,609 - 24.7% 9500 - Other 1,505,815 1,565,371 762,596 322,708 69.3% 9600 - Debt Services 5,326,792 5,326,792 640,047 - 12.0% 9700 - Assets-Purchase/Cost - - - - 0.0% 9900 - Transfer Out & Internal Srv Charges 19,172,323 19,172,323 9,469,330 - 49.4% Grand Total 112,291,594$ 112,584,602$ 30,914,490$ 3,018,527$ 30.1% Department Adopted Budget FY25 Adjusted Budget FY25 Actual Thru Sep FY25 Encumbrances Budget % 10 - Finance 2,628,376$ 2,703,696$ 459,189$ 56,110$ 19.1% 12 - City Manager/City Council 3,945,024 4,497,833 1,245,001 691,668 43.1% 13 - City Clerk 783,036 783,036 157,063 - 20.1% 14 - Management Services 2,929,496 2,961,696 689,272 - 23.3% 15 - City Attorney 1,330,632 1,336,333 265,380 5,702 20.3% 16 - Comm. Development 7,099,118 6,666,430 1,102,253 268,885 20.6% 31 - Police 28,482,449 28,755,133 7,135,483 136,172 25.3% 33 - Fire 24,097,856 24,728,519 6,052,290 202,468 25.3% 44 - Public Works 15,399,565 15,755,748 3,813,788 857,568 29.6% 51 - Library 3,494,254 3,494,390 901,531 203,402 31.6% 99 - Non-departmental 22,101,787 20,901,787 9,093,239 596,553 46.4% Grand Total 112,291,594$ 112,584,602$ 30,914,490$ 3,018,527$ 30.1% SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 9 Table 7 FY 2024-25 Revenues By Fund SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 10 Table 8 FY 2024-25 Expenditures By Fund SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 11 ATTACHMENT B FY2023-24 Unencumbered Carry-Over Appropriations Dept Description Amount Account # DPW Sidewalk Shaving Program 98,000 206-44-48002-9270 Sub-total Fund 206 (Gas Tax)98,000$ CED Marin Housing - Program Administration 200,000 243-16-28001-9270 Sub-total Fund 283 (Grants- Other)200,000$ DPW Fire Station #54- Security / Fence 24,489 420-44-99005-9751 Sub-total Fund 420 (Essential Facilities)24,489$ DPW Replacement Vehicle #139 (FA#001555)27,206 600-44-46001-9720 DPW 2 Ambulances per CC auth. 8/21/23 541,634 600-44-46001-9720 DPW Outfitting Veh#246 (FA#002396)29,339 600-44-46001-9720 DPW Outfitting Veh#14 (FA#002400)30,928 600-44-46001-9720 DPW Veh 277-15 FA#002213 6,649 600-44-46001-9720 DPW Veh #275-15 FA002207, #275-23 FA#002409 6,720 600-44-46001-9720 Sub-total Fund 600 (Vehicle Relacement)642,477$ Total FY 2023-24 Carry-over Appropriations 964,966$ Finance Subcommittee Agenda Item: 6