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ACCEPT BY MOTION THE INDEPENDENT AUDIT OF THE ANNUAL COMPREHENSIVE FINANCIAL REPORT, MEASURE M - STRONG COMMUNITIES INITIATIVE FUND, AND MEASURE W - PUBLIC SAFETY TAX FUND, AND THE INDEPENDENT ACCOUNTANT’S REPORTS ON APPLYING AGREED-UPON PROCEDURES, INCLUDING APPROPRIATIONS LIMIT SCHEDULE (GANN LIMIT), CORE REVENUES, AND MEASURES A AND B TRANSACTION AND USE TAX, FOR THE FISCAL YEAR ENDED JUNE 30, 2025
recommended action
RECOMMENDATION
It is recommended that the City Council approve by motion the:
1. Independent auditor’s reports for the fiscal year ended June 30, 2025:
• Annual Comprehensive Financial Report (ACFR) (Attachment A)
• Measure M - Strong Communities Initiative Fund (Attachment D)
• Measure W - Public Safety Tax Fund (Attachment E)
2. Independent Accountant’s reports on Agreed-Upon Procedures for the fiscal year ended June 30, 2025:
• Appropriation Limit Schedule (GANN Limit) (Attachment B)
• Core Revenues (Attachment C)
• Measures A and B Transaction and Use Tax (Attachment F)
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Summary
Independent Auditor’s reports for the fiscal year ended June 30, 2025
ACFR
In accordance with Government Auditing Standards, the reports are an integral part of an audit performed for the City’s internal control over financial reporting and compliance. The City received an unmodified (or “clean”) audit opinion validating the fair presentation of its financial position as of June 30, 2025.
The ACFR reflects the City’s improved financial condition achieved through rigorous financial planning and use of its Long-Range Financial Plan. The City’s net position (assets compared to liabilities) increased to $2.2 billion, or 5.7%, from the prior fiscal year.
Measure M - Strong Communities Initiative Fund
The City received an unmodified (clean) opinion.
Measure W - Public Safety Tax Fund
The City received an unmodified (clean) opinion.
Independent Accountant’s reports on Agreed-Upon Procedures for the fiscal year ended June 30, 2025
GANN Limit
The City met the requirements of the Gann Limit Calculation, Article XIII-B of the California Constitution, and the auditors found no exceptions.
Core Revenues
The agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The auditors found no exceptions.
Measure A and B Transaction and Use Tax
The agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The auditors found no exceptions.
DISCUSSION
Background
Section 1910 of the City Charter requires the City to undergo an annual audit conducted by an independent firm of Certified Public Accountants (CPAs), in accordance with generally accepted auditing standards applicable to audits of public agencies. Additionally, federal and state grant agreements and bond indentures may require annual audits.
To fulfill these requirements, the City contracts an independent external audit firm. The City’s external auditor, The Pun Group, completed the independent audit and issued the audit report for the fiscal year ended June 30, 2025.
Present Situation
The ACFR provides a comprehensive overview of the financial position and activities of the City and its applicable component units. The City prepared the Fiscal Year (FY) 2024-25 ACFR in accordance with Generally Accepted Accounting Principles (GAAP) and applicable Governmental Accounting Standards Board (GASB) requirements. The report also incorporates the Government Finance Officers Association’s (GFOA) applicable financial reporting and presentation guidance.
The ACFR’s Transmittal Letter and Management’s Discussion and Analysis provide an overview of the City’s financial activities and an analysis of its financial position for the fiscal year ended June 30, 2025. Although the General Fund is a primary focus of the City’s financial oversight, the annual audit encompasses the City’s financial statements and applicable funds in accordance with the audit’s scope and applicable audit standards.
General Fund Results
The General Fund financial results for Fiscal Year (FY) 2024-25 reflect the City’s financial position and fund balance at year-end. As reported on page 23 of the ACFR, the consolidated Total Fund balances are $229.6 million and include Council-approved reserves. The amount encompasses available and restricted fund balances associated with the General Fund and the Library, Recreation, Boat Launch, Entertainment Venues, Emergency Communications, and Pooled Investment funds.
The fund balance is presented in five classifications in accordance with Governmental Accounting Standards Board (GASB) Statement No. 54: Nonspendable, Restricted, Committed, Assigned, and Unassigned. The City’s General Fund Reserve Policy establishes a target operating reserve of 16.66% of operating expenditures, equivalent to approximately two months of expenditures, and provides for additional reserves to address known contingencies, unforeseen revenue fluctuations, infrastructure failures, and catastrophic events.
Deficit Fund Balances
• The Parking Authority Fund continues to report an accumulated deficit fund balance of approximately $2.6 million as of June 30, 2025. This is due to an interfund loan borrowing from the Workers’ Compensation Fund for $8,915,000. It is in relation to the payoff of the 2006 Series A ESB bonds previously recorded in the City’s Debt Service Fund. The loan terms are set at 2%, require biannual payments, and have an anticipated payoff date of February 1, 2032.
• The Successor Agency to the Redevelopment Agency Private Purpose Trust Fund continues to report an accumulated deficit fund balance of approximately $51.5 million driven by bonds payable outstanding as of June 30, 2025. This is an Agency Private Purpose Trust fund and is not included in the City’s net position.
Audit Adjustments
Auditing standards require reporting any adjustments to the financial statements made by the independent auditor. The external auditor did not propose any additional audit adjustments that, in their judgment, could have a significant effect on the City’s financial statements.
Other Outstanding Audits
The City prepares a separate Single Audit in conformity with the Federal Single Audit Act and guidance from the U.S. Office of Management and Budget regarding Audits of State and Local Governments. This report is due to the federal clearinghouse on or before March 31st each year. The Single Audit for FY 2024-25 is still in progress and is past due.
Filings with the State Controller’s Office
The City prepares a City Financial Transactions Report to be submitted to the California State Controller’s Office by January 31 each year. An extension was requested and granted to submit the report past its filing deadline. The report was completed and submitted on August 31, 2026.
FINANCIAL SUMMARY
There is no financial impact associated with accepting this report.
Attachment A - The Annual Comprehensive Financial Report FYE June 30, 2025
Attachment B - Appropriations Limit Schedule (GANN Limit) Report FYE June 30, 2025
Attachment C - Core Revenues Report FYE June 30, 2025
Attachment D - Measure M Strong Communities Initiative Fund Report FYE June 30, 2025
Attachment E - Measure W Public Safety Tax Fund Report FYE June 30, 2025
Attachment F - Measures A and B Transaction and Use Tax Report FYE June 30, 2025
Attachment G - Auditor’s Required Communications AU-C 260 Letter