8.a Fiscal Year 2013-14 Financial Statement Audit 8-04-15

CITY OF CARMEL-BY-THE-SEA

Council Report

August 4, 2015

To: Honorable Mayor and Members of the City Council

Douglas J. Schmitz, City Administrator

From: Paul Wood, Finance Manager

Subject: Consideration of Approval of Fiscal year 2013-14 financial statement audit.

RECOMMENDATION(S):

Accept and approve the Independent Auditor’s Report for the Year Ended June 30, 2014.

EXECUTIVE SUMMARY:

Each year, the City is required by the State of California to have its financial statements audited by an independent Certified Public Accountant. At the end of the audit, the auditor issues a report that states whether, in the auditor’s opinion, the financial statements are fairly presented (sufficient disclosure, reasonable detail and absence of bias).

ANALYSIS/DISCUSSION:

The City’s FY 2013-14 financial statement audit has been completed and has received an unqualified (clean) opinion from the City’s external auditors, JJACPA, Inc. An unqualified opinion by JJACPA concludes that the financial statements present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2014 and the respective changes in financial position and, where applicable, cash flows thereof, and the budgetary comparison information for the general fund for the year.

Additionally, the auditor issues a standard letter, called a Communication Letter, that explains other issues related to the audit and contains a list of “findings” that the auditors believe important for discussion, to which City management has the opportunity to respond. This year we had a repeat finding related to the age and efficiency issues with our financial software, and a new one related to our audited financial statement not being issued by March 31, 2015.

Management’s response to the financial software finding mostly concurred with the auditors with the exception that we disagree with the conclusion that we have abandoned the search for a replacement. Management concurs completely with the delay in the issuance of the

Council Meeting Date: 08/04/2015Agenda Item: 8.A

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http://renocitynv.iqm2.com/Citizens/Detail_LegiFile.aspx?MeetingID=1017&ID=1812

audit being due to delays in completing the OPEB actuaria l valuation calculations fo r the period ended June 30, 2014 . Additionally, Management agrees with the finding pertaining to the timing of the financial statement. Staff were working under an assumed actuarial valuation report cycle of 2, rather than 3, years. However, the report was completed within 2 months of the stated deadline and the upcoming actuarial valuation has already been scheduled to ensure the annual financial report is completed by March 31 .

FISCAL IMPACT:

Budgeted (yes/no) Funding Source( general fund, grant, state)

As designated

PREVIOUS COUNCIL ACTION/DECISION HISTORY:

None.

ATTACHMENTS :

1. City of Carmel-by-the-Sea FY 2013-14 Audited Financial Statements 2. Communications Letter

APPROVED:

Date: 29 July '15

Council Meeting Date: 08/04/2015 Agenda Item: 8.A

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CITY OF CARMEL-BY-THE-SEA, CALIFORNIA

ANNUAL FINANCIAL REPORT

FOR THE FISCAL YEAR ENDED

JUNE 30, 2014

Prepared by:

Paul Wood Finance Manager

ATTACHMENT - 1

Council Meeting Date: 08/04/2015Agenda Item: 8.A

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City of Carmel-by-the-Sea, California Basic Financial Statements For the year ended June 30, 2014

Table of Contents

i

Page

Table of Contents .................................................................................................................................. i

Organization Chart ........................................................................................................................... iii

List of Officials .... ……………………………………………………………………………………iv

Independent Auditors’ Report ........................................................................................................... 1

Management’s Discussion and Analysis (Required Supplementary Information) ....................... 3

Basic Financial Statements:

Government-Wide Financial Statements: Statement of Net Position ........................................................................................................ 14 Statement of Activities ............................................................................................................ 15

Fund Financial Statements:

Governmental Funds: Balance Sheet ................................................................................................................................ 18 Reconciliation of Governmental Funds Balance Sheet to the

Statement of Net Position ........................................................................................................ 20 Reconciliation of Fund Basis Balance Sheet to Government-wide

Statement of Net Position – Governmental Activities ............................................................. 21 Statement of Revenues, Expenditures, and Changes

in Fund Balances – Governmental Funds ................................................................................ 22 Reconciliation of Fund Basis Statements to Government-wide

Statement of Activities ............................................................................................................ 24 Reconciliation of the Statement of Revenues, Expenditures, and Changes

in Fund Balances of Governmental Funds to the Statement of Activities ............................... 25 Statement of Revenues, Expenditures, and Changes in

Fund Balances - Budget to Actual – General Fund and Major Special Revenue Funds ................................................................................................. 26

FINANCIAL SECTION

INTRODUCTORY SECTION


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City of Carmel-by-the-Sea, California Basic Financial Statements For the year ended June 30, 2014 Table of Contents, Continued

ii

Page Basic Financial Statements, Continued:

Notes to Basic Financial Statements .......................................................................................... 31

Other Supplemental Information: Required Supplementary Information: Other Postemployment Benefits – Schedule of Funding Progress ................................................ 59 Combining and Individual Fund Financial Statements and Schedules: Nonmajor Governmental Funds:

Combining Balance Sheet ............................................................................................................. 64 Combining Statement of Revenues, Expenditures, and Changes

in Fund Balances ............................................................................................................... 66

Nonmajor Special Revenue Funds: Schedule of Revenues, Expenditures, and Changes in Fund Balances – Budget to Actual ............................................................................................................... 68


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City of Carmel-by-the-Sea, California Basic Financial Statements For the year ended June 30, 2014 Organization Chart

iii


Page 7

Admlnistrati\•e Services

City of Ca rmel- by -t he-Sea

I CITIZENS I

Commis...c;ions

:ltv Attomev

Asst Ci ty Admin City Clerk

City Council

Citv Administrator

Mastering Community Se.vices

Public Safety Public Services

CltvT"t!asurer

Library

Human Resources Ambulance Public Works

Finance Fire

!Dlormanoo TK.IlDOlOf>' Yonce

Forest Parks. and Beach

Y3cllloes M.auuenaoce

Planning

Con:ununiry Pl:annin: and Building:

Building Safety

l:ode t:omp11ance

City of Carmel-by-the-Sea, California Basic Financial Statements For the year ended June 30, 2014 List of Officials

iv

Jason Burnett, Mayor Ken Talmage, Vice Mayor Victoria Beach, Councilmember Carrie Theis, Councilmember Steve Dallas, Councilmember

Doug Schmitz, City Administrator

Don Freeman, City Attorney

James Emery, City Treasurer

Sherman Low, City Engineer

Paul Wood, Finance Manager

CITY OFFICIALS

CITY COUNCIL


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7080 Donlon Way, Suite 204, Dublin, CA 94568 ● phone (925) 556-6200 ● fax: (510) 217-5930 www.jjacpa.com

INDEPENDENT AUDITOR’S REPORT To the Honorable Mayor and City Council of the City of Carmel-by-the-Sea Carmel-by-the-Sea, California

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, each major fund, the aggregate remaining fund information, and the budgetary comparison information of the City of Carmel-by-the-Sea, California (City), as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.

Management’s Responsibility 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; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements 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 entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions

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, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2014, 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.


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To the Honorable Mayor and City Council of the City of Carmel-by-the-Sea Carmel-by-the-Sea, California Page 2

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis on pages 3-16 be presented to supplement the basic financial statements. Such information, 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 management’s 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 and Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The accompanying supplementary information, which includes the combining and individual nonmajor fund financial statements and the other information, which includes the introductory section is presented for purposes of additional analysis and are not a required part of the basic financial statements.

The combining and individual nonmajor fund financial statements 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. Such 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 combining and individual nonmajor fund financial statements and schedule of expenditures of federal awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole.

The introductory section 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 on it.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated June 12, 2015 on our consideration of the City's 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 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 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 City’s internal control over financial reporting and compliance.

]]TVcT? \ÇvA June 12, 2015 JJACPA, INC. Dublin, CA


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City of Carmel-by-the-Sea, California Basic Financial Statements For the year ended June 30, 2014 Management’s Discussion and Analysis

3

This section provides a narrative overview and analysis of the financial activities of the City of Carmel-by-the-Sea (City) for the fiscal year ended June 30, 2014. It should be read in conjunction with the accompanying transmittal letter and basic financial statements. FINANCIAL HIGHLIGHTS As of June 30, 2014, total assets of the City exceeded its liabilities by $34,405,804 (net position). The portion of net position that may be used to meet the government’s ongoing obligations to citizens and creditors (unrestricted net position) is $6,266,725. The portion of net position that is restricted and may only be used for specific purposes is $2,616,931. The remaining $25,522,348 is invested in capital assets. ♦ As of June 30, 2014, the City’s governmental funds reported combined ending fund balances of

$10,722,340. Approximately 1.2% of this total amount ($119,785) is non-spendable to indicate that it is not available because it represents amounts that are more long-term in nature or will never be converted to cash. Of the remaining balance, $2,616,731 is restricted because it represents resources that are required to be spent for specific purposes as provided by an external source. The committed balance of $2,888,306 represents a Council commitment for economic uncertainties and anticipated future short-term structural deficits. The assigned fund balances in Special Revenue Funds amounted to $1,477,680 and represented Library, Parking and Ambulance Fund items. The remaining fund balance is unassigned.

♦ Capital assets, net of depreciation, increased to $38,273,101 from $37,285,185, due to depreciation

and adjustments of ($1,308,276) and net capital asset additions and adjustments of $320,360.


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City of Carmel-by-the-Sea, California Basic Financial Statements For the year ended June 30, 2014 Management’s Discussion and Analysis, Continued

4

OVERVIEW OF THE ANNUAL FINANCIAL REPORT This Annual Financial Report is in two major parts: 1) Introductory section, which includes the Transmittal Letter and general information; 2) Financial section, which includes the Management’s Discussion and Analysis (this part), the Basic

Financial Statements, which include the Government-wide and the Fund Financial Statements along with the notes to these financial statements and Combining and Individual Fund Financial Statements and Schedules.

The Basic Financial Statements The Basic Financial Statements are comprised of the Government-wide Financial Statements and the Fund Financial Statements; these two sets of financial statements provide two different views of the City’s financial activities and financial position. The Government-wide Financial Statements The Government-wide Financial Statements provide a broad overview of the City’s activities as a whole and comprise the Statement of Net Position and the Statement of Activities. The Statement of Net Position provides information about the financial position of the City as a whole, including all its capital assets and long-term liabilities on the full accrual basis, similar to that used by corporations. The Statement of Activities provides information about all the City’s revenues and all its expenses, also on the full accrual basis, with the emphasis on measuring net revenues or expenses of each the City’s programs. The Statement of Activities explains in detail the change in Net Position for the year. All of the City’s activities are grouped into Governmental Activities, as explained below. ♦ Governmental activities – All of the City’s basic services are considered to be governmental

activities, including general government, community development, economic development, public safety, animal control, engineering, community events, public improvements, planning and zoning, building inspections, and general administration. These services are supported by general City revenues such as taxes and by specific program revenues such as developer fees.

Fund 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 of the funds of the City can be divided into two categories: governmental funds and proprietary funds.


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City of Carmel-by-the-Sea, California Basic Financial Statements For the year ended June 30, 2014

Management’s Discussion and Analysis, Continued

5

OVERVIEW OF THE ANNUAL FINANCIAL REPORT, Continued

Fund Financial Statements, continued

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 financing requirements.

Because the focus of the Governmental Fund Financial Statements is narrower than that of the Government-wide Financial Statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the Government-wide Financial Statement. By doing so, readers may better understand the long-term impact of the government’s near-term financial 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. The Governmental Fund Financial Statements provide detailed information about each of the City’s most significant funds, called major funds. The concept of major funds, and the determination of which are major funds, was established by GASB Statement 34 and replaces the concept of combining like funds and presenting them as one total. Instead, each major fund is presented individually, with all non-major funds summarized and presented only in a single column. Subordinate schedules present the detail of these non-major funds. Major funds present the major activities of the City for the year, and may change from year to year as a result of changes in the pattern of the City’s activities.

For the fiscal year ended June 30, 2014, the City’s major funds are as follows:

GOVERNMENTAL FUNDS: General Fund Harrison Memorial Library Special Revenue Fund Parking Special Revenue Fund Ambulance Special Revenue Fund

Notes to the Basic 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 basic financial statements can be found on pages 33-60 of this report. Required Supplementary Information follows the notes on page 61.

Combining and Individual Fund Financial Statements and Schedules The combining statements referred to earlier in connection with non-major governmental funds are presented immediately following the notes to the financial statements. Combining and individual fund statements can be found on pages 63-73 of this report.


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6

GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of the City, assets exceeded liabilities by $34,405,804 as of June 30, 2014. The Summary of Net Position as of June 30, 2014, and 2013, follows:

2014 2013Govern- Govern-mental mental

Activities Activities Changes

Current and other assets 12,925,703$ 12,042,025$ 883,678$ Noncurrent assets 38,273,101 37,285,185 987,916

Total assets 51,198,804 49,327,210 1,871,594

Current and other liabilities 3,014,549 2,440,181 574,368 Long-term liabilities 13,778,451 14,509,136 (730,685)

Total liabilities 16,793,000 16,949,317 (156,317)

Net position:Net invested in capital assets 25,522,348 29,605,438 (4,083,090)

Restricted 2,616,731 566,992 2,049,739 Unrestricted 6,266,725 2,205,463 4,061,262

Total net position 34,405,804$ 32,377,893$ 2,027,911$

Summary of Net Position


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7

GOVERNMENT-WIDE FINANCIAL ANALYSIS, Continued The change in net position for the fiscal years ended June 30, 2014, and 2013, follows:

2014 2013Govern- Govern-mental mental

Activities Activities Changes

Revenues:Program revenues:

Charges for services 924,584$ 702,381$ 222,203$ Grants and contributions:

Operating 1,282,214 1,474,331 (192,117) General revenues:

Property taxesand assessments 4,881,534 4,652,176 229,358

Transient occupancy taxes 5,185,880 4,615,598 570,282 Sales tax 5,115,880 2,760,414 2,355,466 Franchises 994,468 981,831 12,637 Business licenses 549,190 577,364 (28,174) Use of money and property 76,880 69,735 7,145

Other general revenues 184,660 98,331 86,329 Total revenues 19,195,290 15,932,161 3,263,129

Expenses:Governmental activities:

Administration 4,067,934 9,481,135 (5,413,201) Building maintenance 2,924,447 3,763,094 (838,647) Public safety 4,299,954 4,193,157 106,797 Public works 2,227,067 1,896,305 330,762 Forest, parks and beaches 484,119 472,123 11,996 Culture and recreation 2,453,842 2,405,481 48,361 Economic development 363,342 304,587 58,755 Interest and fiscal charges 346,674 376,787 (30,113)

Total expenses 17,167,379 22,892,669 (5,725,290)

Excess (Deficiency) of revenues overexpenditures before transfers 2,027,911 (6,960,508) 8,988,419

Change in net position 2,027,911 (6,960,508) 8,988,419

Net position:Beginning of year 32,377,893 39,338,401 (6,960,508) End of year 34,405,804$ 32,377,893$ 2,027,911$

Changes in Net Position


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GOVERNMENT-WIDE FINANCIAL ANALYSIS, Continued Revenues The City’s total revenues for governmental were $19,176,042 for the fiscal year ended June 30, 2014. Approximately 66% of the City’s key revenues are generated from three major sources. The following discusses variances in key revenues from the prior fiscal year:

1. Property Taxes. Property taxes increased 4,8% over last year reflecting a continuing strengthening real estate market over the past year.

2. Transient occupancy taxes. Hostelry taxes increased 13.1% reflecting a continuing growth in tourism and potential benefit from citywide and individual marketing efforts.

3. Sales Tax. Annual receipts increased 7.6%. This increase is attributed to increases in hotels

and restaurants (+14%) and general consumer goods (5%) offset only by a decreases in fuel and service stations (-5%). We anticipate that sales tax revenue will continue to grow next fiscal year at about a 2% rate.


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GOVERNMENT-WIDE FINANCIAL ANALYSIS, Continued Expenses Governmental activity expenses of the City for the year totaled $17,167,379. Public Safety costs represented 25.1% of total governmental activities expenses and represented the largest single expense for governmental activities. Governmental Activities The following table shows the cost of each of the City’s major programs and the net cost of the programs. Net cost is the total cost less fees and other direct revenue generated by the activities. The net cost reflects the financial burden that was placed on the City’s taxpayers by each of the programs. The total cost of services and the net cost of services for the fiscal years ended June 30, 2014, and 2013, are as follows:

Total Cost Net Cost Total Cost Net Costof Services of Services of Services of Services

Administration 4,067,934$ 4,052,290$ 9,481,135$ 9,461,314$ Building maintenance 2,924,447 2,924,447 3,763,094 3,763,094 Public safety 4,299,954 3,616,052 4,193,157 3,250,139 Public works 2,227,067 1,290,920 1,896,305 1,118,292 Forest, parks and beaches 484,119 318,713 472,123 472,123 Culture and recreation 2,453,842 2,048,143 2,405,481 1,969,621 Economic development 363,342 363,342 304,587 304,587 Interest and fiscal charges 346,674 346,674 376,787 376,787

Total 17,167,379$ 14,960,581$ 22,892,669$ 20,715,957$

2014 2013


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GOVERNMENT-WIDE FINANCIAL ANALYSIS, Continued Revenues by source for the fiscal years ended June 30, 2014, and 2013, are as follows:

Charges for services 4.82%

Operating grants 6.68%

Property taxes 25.43%

Transient occupancy tax

27.02%

Sales and use tax 26.65%

Franchises 5.18%

Business licenses 2.86%

Use of money & property 0.40% Other 0.96%

Revenues by Source - Governmental Activities2014

Charges for services4.41%

Operating grants9.25%

Property taxes29.20%

Transient occupancy taxes

28.97%

Sales tax17.33%

Franchises6.16%

Business licenses3.62%

Use of money and property

0.44%

Other general revenues0.62%

Revenues by Source - Governmental Activities 2013


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GOVERNMENT-WIDE FINANCIAL ANALYSIS, Continued

Financial Analysis of the Government’s Funds

The City of Carmel-by-the-Sea uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The fund financial statements focus on individual parts of the City government, reporting the City’s operations in more detail than the government-wide financial statements.

Governmental funds. The City’s governmental funds provide information on near-term inflows, outflows, and balances of spending resources. At the fiscal year ended June 30, 2014, the City’s governmental funds reported combined fund balances of $10,722,340. This is an increase of $163,439 or 1.5% over last year. The increase is due to both a surplus of revenue vs. budget, and a savings on expenditures vs. budget. The General Fund is the chief operating fund of the City. At the fiscal year ended June 30, 2014, General Fund committed and unassigned fund balance totaled $7,133,421 of which $4,172,077 was unassigned.

General Fund Budgetary Highlights

The difference between the final budget and actual revenues reflects a positive amount of $880,844. This was mainly due to an increase in all tax revenues, property, sales and transient occupancy taxes.

There was a positive $654,815 difference between the final expenditure budget and actual expenditures. Actual expenditures were $15,352,138 versus a budgeted spend of $16,006,953. This was largely due to actual capital outlay being under spent. Capital Assets The City’s investment in capital assets for its governmental activities as of June 30, 2014, amount to $38,273,101. This investment in capital assets includes roads, curbs and gutters, streets and sidewalks, and drainage systems.

2014 2013Land 3,633,723$ 3,633,723$ Art 1,467,918 1,467,918 Construction in progress 219,284 - Buildings and improvements 19,157,975 17,997,655 Vehicles 406,417 347,338 Infrastructure 12,842,666 13,301,333 Machinery and equipment 545,118 537,218

Total 38,273,101$ 37,285,185$

Governmental Activities

More detail of the capital assets and current activity can be found in the notes to the financial statements on pages 39 and 40 for significant accounting policies and Note 4 on page 48 for other capital asset information.


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GOVERNMENT-WIDE FINANCIAL ANALYSIS, Continued Debt Administration Debt, considered a liability of governmental activities, decreased by $865,390, reflecting the pay down of the Sunset bond and lease obligations, offset by an increase in the OPEB obligation. Compensated absences increased by $10,575 to $468,951 of which $278,360 is considered a current liability. Economic Outlook As with last year, fiscal year 2014-2015 will continue to be another “hard to forecast” year. While consumer spending continues to rise at a modest pace, it is hard to predict what consumers will do when the Fed starts raising interest rates. The State of California has seen more large revenue surpluses brought about by Proposition 30’s personal income tax rates for high-income taxpayers and healthy local property tax growth, but the state’s Legislative Analyst’s Office (LAO) expresses cautious optimism due to economic and political uncertainty along with funding requirements of Proposition 98. On issues that relate to us more locally, Wells Fargo’s “California Economic Outlook” states that California tourism continues to rebound with hotel occupancy and ADR (average daily room rate). Additionally, as was the case last year, home prices are rising in the coastal region, and are adding to local coffers in property taxes. These factors and the many unanswered questions concerning political, fiscal, including international monetary outcomes, will likely result in a relatively weak economic period beyond the next couple of years.

The City’s major General Fund revenue sources are property tax, hostelry tax and sales tax. All of these revenue sources are rising currently, but with the economy in such slow recovery, and for such unsustainable reasons, we must prepare ourselves for an economic slowdown. We are estimating an increase for sales tax revenue in fiscal year 2014–2015 of 2+%. Also, in fiscal year 2014–2015, we are estimating property taxes again to increase 4-5%.

The City maintains a multi-year forecasting model to project anticipated revenues and expenditures. The model projects continued increased revenues through fiscal year 2017-18, along with increased investments in infrastructure maintenance, capital outlay and IT backbone and infrastructure. If the national economy reverses, there will be a correlated reduction in this capital spending. Requests for Information This Annual Financial Report is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the City’s finances. If you have any questions about this report, need additional financial information, or would like to obtain component unit financial statements, contact the City of Carmel-by-the-Sea Finance Department, PO Box CC, Carmel-by-the-Sea, CA 93921, or visit the City’s web page at ci.carmel.ca.us/carmel/.


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BASIC FINANCIAL STATEMENTS

13Council Meeting Date: 08/04/2015

Agenda Item: 8.A Page 21

City of Carmel-by-the-Sea, CaliforniaStatement of Net PositionJune 30, 2014


ASSETSCurrent assets:

Cash and investments 10,011,888$ Cash and investments with fiscal agents 400,013Receivables:

Accounts receivable 1,615,684Intergovernmental receivable 369,680Other receivables 455,400Total current assets 12,925,703

Noncurrent assets:Capital assets:

Nondepreciable 5,320,925Depreciable 32,952,176Total noncurrent assets 38,273,101

Total assets 51,198,804

LIABILITIESCurrent liabilities:

Accounts payable and accrued liabilities 1,218,362Deposits payable 525,001Interest payable 36,627Compensated absences - current portion 278,360Due within one year 956,199

Total current liabilities 3,014,549Noncurrent liabilities:

Long-term liabilities:Claims liabilities 460,000Compensated absences 190,591Due after one year 11,794,554Net OPEB obligation 1,333,306Total noncurrent liabilities 13,778,451

Total liabilities 16,793,000

NET POSITIONNet investment in capital assets 25,522,348Restricted 2,616,731Unrestricted 6,266,725

Total net position 34,405,804Total liabilities and net position 51,198,804$

The accompanying notes are an integral part of these basic financial statements.



City of Carmel-by-the-Sea, CaliforniaStatement of ActivitiesFor the year ended June 30, 2014

Net (Expense) Revenue andChanges in Net Position

OperatingCharges for Grants and Governmental

Functions/Programs Expenses Services Contributions ActivitiesPrimary government:Governmental activities:

Administration 4,067,934$ 15,644$ -$ (4,052,290)$ Building maintenance 2,924,447 - - (2,924,447) Public safety 4,299,954 184,338 499,564 (3,616,052) Public works 2,227,067 467,392 468,755 (1,290,920) Forest, parks and beaches 484,119 165,406 - (318,713) Culture and recreation 2,453,842 91,804 313,895 (2,048,143) Economic development 363,342 - - (363,342) Interest and fiscal charges 346,674 - - (346,674)

Total governmental activities 17,167,379 924,584 1,282,214 (14,960,581)

Total primary government 17,167,379$ 924,584$ 1,282,214$ (14,960,581)

General revenues: Taxes:

Property taxes, levied for general purposes 4,881,534Transient occupancy tax, levied for general purposes 5,185,880Sales and use tax 5,115,880

Franchises 994,468Business licenses 549,190Use of money and property 76,880Other general revenues 184,660

Total general revenues 16,988,492

Change in net position 2,027,911 Net position:

Beginning of year 32,377,893 Net position - Ending 34,405,804$


Program Revenues






Fund

Governmental Funds:

General Fund

Harrison Memorial Library Special Revenue Fund

Parking Special Revenue Fund

Ambulance Special Revenue Fund Accounts for activities associated with ambulance service billings,which have been outsourced to a third party.

FUND FINANCIAL STATEMENTS

Description

MAJOR FUNDS

The Fund Financial Statements present only individual major fiunds, while non-major funds are combined in a single column. Major funds are defined as having significant activities or balances in the current year.

Accounts for activities associated with the Harrison Memorial Library

Accounts for activities associated with parking in-lieu fees.

Primary operating fund of the City; accounts for all activities except those legally or administratively required to be accounted for in other funds.



City of Carmel-by-the-Sea, CaliforniaBalance SheetGovernmental FundsJune 30, 2014

General Harrison MemorialFund Library Parking

ASSETS

Cash and investments 6,819,713$ 662,369$ 698,086$ Cash and investments with fiscal agents - - - Receivables:

Accounts 1,048,221 - - Intergovernmental 268,617 - - Other receivable - - -

Due from other funds 1,047,013 - - Prepaid items 73,038 - -

Total assets 9,256,602$ 662,369$ 698,086$

LIABILITIES AND FUND BALANCES

Liabilities:Accounts payable and accrued liabilities 1,138,180$ -$ -$ Deposits payable 525,001 - - Due to other funds - - - Claims liabilities 460,000 - -

Total liabilities 2,123,181 - -

Fund balances:Nonspendable:

Endowments 73,038 46,747 - Restricted reported in:

Special revenue funds - - Committed 2,888,306 - - Assigned reported in:

Special revenue funds - 615,622 698,086Unassigned (deficit), reported in:

General Fund 4,172,077 - -

Total fund balances 7,133,421 662,369 698,086

Total liabilities and fund balances 9,256,602$ 662,369$ 698,086$

Major Funds


Special Revenue Funds



NonmajorGovernmental

Ambulance Funds Totals

-$ 1,831,720$ 10,011,888$ - 400,013 400,013

565,598 1,865 1,615,684 - 101,063 369,680 - 455,400 455,400 - - 1,047,013 - - 73,038

565,598$ 2,790,061$ 13,972,716$

79,157$ 1,025$ 1,218,362$ - - 525,001

965,607 81,406 1,047,013 - - 460,000

1,044,764 82,431 3,250,376

- - 119,785

- 2,616,731 2,616,731 - - 2,888,306

163,972 1,477,680

(479,166) - 3,692,911

(479,166) 2,707,630 10,722,340

565,598$ 2,790,061$ 13,972,716$



City of Carmel-by-the-Sea, CaliforniaReconciliation of Fund Basis Balance Sheet to Government-wide Statement of Net PositionGovernmental ActivitiesJune 30, 2014

Governmental Funds Changes Statement of

Balance Sheet Reclassifications in GAAP Net PositionASSETS

Current assets:Cash and investments 10,011,888$ -$ -$ 10,011,888$ Cash and investments with fiscal agents 400,013 400,013 Receivables:

Accounts receivable 1,615,684 - - 1,615,684 Intergovernmental receivable 369,680 - - 369,680 Other receivable 455,400 - - 455,400

Due from other funds 1,047,013 (1,047,013) - - Total current assets 13,972,716 (1,047,013) - 12,925,703

Noncurrent assets:Capital assets, net - - 38,273,101 38,273,101

Total noncurrent assets - - 38,273,101 38,273,101 Total assets 13,972,716$ (1,047,013)$ 38,273,101$ 51,198,804$

LIABILITIESCurrent liabilities:

Accounts payable and accrued liabilities 1,218,362$ -$ -$ 1,218,362$ Deposits payable 525,001 - - 525,001 Due to other funds 1,047,013 (1,047,013) - - Interest payable - - 36,627 36,627 Compensated absences - current - - 278,360 278,360 Due within one year 956,199 956,199

Total current liabilities 2,790,376 (1,047,013) 1,271,186 3,014,549 Noncurrent liabilities:

Long-term liabilities:Claims liabilities 460,000 - - 460,000 Compensated absences - - 190,591 190,591 Due after one year - 11,794,554 11,794,554 Net OPEB obligation - - 1,333,306 1,333,306 Total noncurrent liabilities 460,000 - 13,318,451 13,778,451 Total liabilities 3,250,376 (1,047,013) 14,589,637 16,793,000

FUND BALANCES/NET POSITIONFund balances:Nonspendable:

Endowments 119,785 (119,785) - - Restricted reported in:

Special revenue funds 2,616,731 (2,616,731) - - Assigned reported in:

Special revenue funds 1,477,680 (1,477,680) - - Capital projects funds - - - -

Unassigned (deficit), reported in:General Fund 3,692,911 (3,692,911) Special revenue funds (73,073) 73,073 - -

Net position:Net investment in capital assets - - 25,522,348 25,522,348 Restricted - - 2,616,731 2,616,731 Unrestricted - 10,722,340 (4,455,615) 6,266,725

Total fund balances/ net position 10,722,340 - 23,683,464 34,405,804 Total liabilities and net position 13,972,716$ (1,047,013)$ 38,273,101$ 51,198,804$




City of Carmel-by-the-Sea, CaliforniaReconciliation of the Governmental Funds Balance Sheetto the Statement of Net PositionJune 30, 2014

Total fund balances - total governmental funds 10,722,340$

38,273,101

Compensated absences (468,951)$ Long-term liabilities (12,750,753) Net OPEB obligation (1,333,306) (14,553,010)

(36,627)

Net position of governmental activities 34,405,804$


Amounts reported for governmental activities in the Statement of Net Position aredifferent because:

Long-term liabilities are not due and payable in the current period and,therefore, are not reported in the governmental funds balance sheet.

Capital assets used in governmental activities are not current financialresources and, therefore, are not reported in the governmental funds balancesheet.

Interest payable on long-term debt does not require the use of current financial resources and, therefore, is not reported in the governmental funds.



City of Carmel-by-the-Sea, CaliforniaStatement of Revenues, Expenditures, and Changes in Fund Balances Governmental FundsFor the year ended June 30, 2014

General Harrison MemorialFund Library Parking

REVENUES:Taxes and assessments 12,727,944$ -$ -$ Licenses and permits 997,334 - - Fines and forfeitures 30,489 - - Intergovernmental 481,310 - - Use of money and property 313,076 1,080 - Charges for services 106,065 15,600 - Contributions - 313,895 - Other revenues 193,336 - -

Total revenues 14,849,554 330,575 -

EXPENDITURES:Current:

Administration 4,305,440 - - Building maintenance 2,798,314 - - Public safety 3,147,459 - - Public works 1,472,282 - - Forest, parks and beaches 468,247 - - Culture and recreation 743,745 1,214,848 - Economic development 363,342 - -

Capital outlay 1,993,305 - - Debt service:

Principal 47,349 - - Interest and fiscal charges 12,655 - -

Total expenditures 15,352,138 1,214,848 -

REVENUES OVER (UNDER)EXPENDITURES (502,584) (884,273) -

OTHER FINANCING SOURCES (USES):Proceeds from sales of assets 19,248 - - Transfers in 7,137,588 931,890 - Transfers out (7,672,744) - - Proceeds from bond issuance - - Retirement of PERS side fund - -

Total other financing sources (uses) (515,908) 931,890 -

Net change in fund balances (1,018,492) 47,617 -

FUND BALANCES:Beginning of year 8,151,913 614,752 698,086

End of year 7,133,421$ 662,369$ 698,086$

Major Funds





OtherGovernmental

Ambulance Funds Totals

-$ -$ 12,727,944$ - 117,593 1,114,927 - 108,224 138,713 - 3,383,106 3,864,416

88 4 314,248 365,034 21,864 508,563

- - 313,895 - - 193,336

365,122 3,630,791 19,176,042

- - 4,305,440 - - 2,798,314

1,097,725 - 4,245,184 - 137,120 1,609,402 - - 468,247 - 4,410 1,963,003 - - 363,342 - - 1,993,305

- 880,425 927,774 - 345,185 357,840

1,097,725 1,367,140 19,031,851

(732,603) 2,263,651 144,191

- - 19,248 429,110 1,225,610 9,724,198

(300,000) (1,751,454) (9,724,198) - - - - - -

129,110 (525,844) 19,248

(603,493) 1,737,807 163,439

124,327 969,823 10,558,901

(479,166)$ 2,707,630$ 10,722,340$



City of Carmel-by-the-Sea, CaliforniaReconciliation of Fund Basis Statements to Government-wide Statement of ActivitiesFor the year ended June 30, 2014

Capital

Asset Government-

Fund Based Debt Compensated (Additions)/ OPEB wide

Functions/Programs Totals Service Absences Depreciation Retirements Obligation Totals

Governmental activities:Administration 4,305,440$ (166,220)$ 10,575$ 2,997$ (302,887)$ 218,029$ 4,067,934$ Building maintenance 2,798,314 - - 126,133 - 2,924,447 Public safety 4,245,184 - - 54,770 - - 4,299,954 Public works 1,609,402 - - 617,665 - - 2,227,067 Forest, parks and beaches 468,247 - - 15,872 - - 484,119 Culture and recreation 1,963,003 - - 490,839 - - 2,453,842 Economic development 363,342 - - - - - 363,342

Capital outlay 1,993,305 - - - (1,993,305) - -

Debt service/Interest 1,285,614 (938,940) - - - - 346,674

Total governmental activities 19,031,851$ (1,105,160)$ 10,575$ 1,308,276$ (2,296,192)$ 218,029$ 17,167,379$




City of Carmel-by-the-Sea, CaliforniaReconciliation of the Statement of Revenues, Expenditures, and Changes inFund Balances of Governmental Funds to the Statement of ActivitiesFor the year ended June 30, 2014

Net change in fund balances - total governmental funds 163,439$

Capital asset purchases capitalized 1,993,170$ Capital asset retirements 303,022 Depreciation expense (1,308,276) 987,916

1,093,994

Change in interest payable 11,166 Change in compensated absences (10,575) 591

Net OPEB obligation (218,029)

Change in net position of governmental activities 2,027,911$

Amounts reported for governmental activities in the Statement of Activities aredifferent because:

Governmental funds report capital outlays as expenditures whilegovernmental activities report depreciation expense to allocate thoseexpenditures over the life of the assets:

Some expenses reported in the Statement of Activities do not require theuse of current financial resources and, therefore, are not reported asexpenditures in governmental funds:


Certain employee benefit obligations are recorded on a pay-as-you-gobasis in the governmental funds, but are accrued as liabilities in the

Repayment of debt principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Position



City of Carmel-by-the-Sea, CaliforniaStatement of Revenues, Expenditures, and Changes in Fund Balances Budget to Actual - General Fund and Major Special Revenue FundsFor the year ended June 30, 2014

PositiveOriginal Final Actual (Negative)

REVENUES:Taxes and assessments 12,216,020$ 12,236,020$ 12,727,944$ 491,924$ Licenses and permits 932,000 932,000 997,334 65,334 Fines and forfeitures 25,960 25,960 30,489 4,529 Intergovernmental 434,134 434,134 481,310 47,176 Use of money and property 231,050 231,050 313,076 82,026 Charges for services 63,806 63,806 106,065 42,259 Contributions - - - - Other revenues 125,700 125,700 193,336 67,636

Total revenues 14,028,670 14,048,670 14,849,554 800,884


Administration 3,399,603 3,724,578 4,305,440 (580,862) Building maintenance 2,572,685 2,706,285 2,798,314 (92,029) Public safety 3,268,389 3,268,389 3,147,459 120,930 Public works 1,458,146 1,458,146 1,472,282 (14,136) Forest, parks and beaches 505,536 531,413 468,247 63,166 Culture and recreation 777,086 777,086 743,745 33,341 Economic development 356,800 356,800 363,342 (6,542)

Capital outlay 2,502,232 2,774,432 1,993,305 781,127 Debt service:

Principal 45,726 45,726 47,349 (1,623) Interest and fiscal charges 364,098 364,098 12,655 351,443

Total expenditures 15,250,301 16,006,953 15,352,138 654,815

REVENUES OVER (UNDER)EXPENDITURES (1,221,631) (1,958,283) (502,584) 1,455,699

OTHER FINANCING SOURCES (USES):Proceeds from sales of assets - - 19,248 19,248 Transfers in - 6,236,870 7,137,588 900,718 Transfers out (8,435,310) (7,672,744) 762,566 Proceeds from bond issuance - - Retirement of PERS side fund - -

Total other financing sources (uses) - (2,198,440) (515,908) 1,682,532

Net change in fund balances (1,221,631) (4,156,723) (1,018,492) 3,138,231

FUND BALANCES:Beginning of year 8,151,913 8,151,913 8,151,913 - End of year 6,930,282$ 3,995,190$ 7,133,421$ 3,138,231$

General Fund


Budgeted AmountsVariance w/Final



Positive PositiveOriginal Final Actual (Negative) Original Final Actual (Negative)

-$ -$ -$ -$ -$ -$ -$ -$ - - - - - - - - - - - - - - - - - - - - - - - -

1,000 1,000 1,080 80 - - - - 18,100 18,100 15,600 (2,500) - - - -

300,200 300,200 313,895 13,695 - - - - - - - - - - - -

319,300 319,300 330,575 11,275 - - - -

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

1,285,476 1,305,476 1,214,848 90,628 - - - - - - - - - - - -

- - - - - - - - - - - - -

1,285,476 1,305,476 1,214,848 90,628 - - - -

(966,176) (986,176) (884,273) 101,903 - - - -

- - - - - - - - - - 931,890 931,890 - - - - - - - - - - - -

- - 931,890 931,890 - - - -

(966,176) (986,176) 47,617 1,033,793 - - - -

614,752 614,752 614,752 - 698,086 698,086 698,086 - (351,424)$ (371,424)$ 662,369$ 1,033,793$ 698,086$ 698,086$ 698,086$ -$

(continued)

Harrison Memorial Library Parking

Budgeted Amounts Budgeted AmountsVariance w/Final Variance w/Final



City of Carmel-by-the-Sea, CaliforniaStatement of Revenues, Expenditures, and Changes in Fund Balances Budget to Actual - General Fund and Major Special Revenue Funds, ContinuedFor the year ended June 30, 2014

PositiveOriginal Final Actual (Negative)

REVENUES:Taxes and assessments -$ -$ -$ -$ Licenses and permits - - - - Fines and forfeitures - - - - Intergovernmental - - - - Use of money and property - - 88 88 Charges for services 650,000 657,525 365,034 (292,491) Contributions - - - - Other revenues - - - -

Total revenues 650,000 657,525 365,122 (292,403)


Administration - - - - Building maintenance - - - - Public safety 1,086,635 1,086,635 1,097,725 (11,090) Public works - - - - Forest, parks and beaches - - - - Culture and recreation - - - - Economic development - - - -

Debt service:Principal - Interest and fiscal charges - - - -

Total expenditures 1,086,635 1,086,635 1,097,725 (11,090)

REVENUES OVER (UNDER)EXPENDITURES (436,635) (429,110) (732,603) (303,493)

OTHER FINANCING SOURCES (USES):Proceeds from sales of assets - - - - Transfers in - 429,110 429,110 - Transfers out - - (300,000) (300,000)

Total other financing sources (uses) - 429,110 129,110 (300,000)

Net change in fund balances (436,635) - (603,493) (603,493)

FUND BALANCES:Beginning of year 124,327 124,327 124,327 - End of year (312,308)$ 124,327$ (479,166)$ (603,493)$

(concluded)

Budgeted Amounts

AmbulanceVariance w/Final




29

NOTES TO BASIC FINANCIAL STATEMENTS


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City of Carmel-by-the-Sea, California Basic Financial Statements For the year ended June 30, 2014 Index to Notes to Basic Financial Statements

30

Page Note 1 - Summary of Significant Accounting Policies .................................................................... 31

Financial Reporting Entity ............................................................................................................. 31 Basis of Presentation ...................................................................................................................... 33 Measurement Focus ....................................................................................................................... 35 Basis of Accounting ....................................................................................................................... 35 Assets, Liabilities, and Equity ....................................................................................................... 36 Revenues, Expenditures, and Expenses ......................................................................................... 41 Budgetary Accounting ................................................................................................................... 42

Note 2 – Cash and Investments ......................................................................................................... 43 Note 3 – Accounts Receivable ........................................................................................................... 46 Note 4 – Capital Assets ...................................................................................................................... 46 Note 5 – Accounts Payable and Accrued Liabilities ....................................................................... 47 Note 6 – Long-term Liabilities .......................................................................................................... 47 Note 7 – Net Position/ Fund Balances .............................................................................................. 50 Note 8 – Interfund Transactions ...................................................................................................... 52 Note 9 – Risk Management ............................................................................................................... 53 Note 10 – Public Employee’s Retirement System ........................................................................... 54

Plan Description ............................................................................................................................. 54 Funding Policy ............................................................................................................................... 54

Note 11 – Other Post-Employment Benefits .................................................................................... 54 Note 12 – Commitments and Contingencies .................................................................................... 57 Note 13 – New Accounting Pronouncements ................................................................................... 57


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City of Carmel-by-the-Sea, California Notes to Basic Financial Statements For the year ended June 30, 2014

31

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The City of Carmel-by-the-Sea (City) was incorporated on October 31, 1916, under the laws and regulations of the State of California (State). The City operates under a City Council/Manager form of government and provides the following services: public works, planning and building, general administrative services, public safety, and fire suppression and prevention services. The financial statements of the City have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the standard-setting body for governmental accounting and financial reporting. On June 15, 1987, GASB issued a codification of the existing Governmental Accounting and Financial Reporting Standards which, along with subsequent GASB pronouncements (Statements and Interpretations), constitutes GAAP for governmental units. The City applies all GASB pronouncements to its activities. In addition, the City applies all Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board (APB) Opinions, and Accounting Research Bulletins (ARB) issued after November 30, 1989, unless they conflict with or contradict GASB pronouncements. The more significant of these accounting policies are described below and, where appropriate, subsequent pronouncements will be referenced. Financial Reporting Entity The City operates as a self-governing local government unit within the State. It has limited authority to levy taxes and has the authority to determine user fees for the services that it provides. The City’s main funding sources include sales taxes, transient occupancy taxes and property taxes. All property taxes are paid to Monterey County (County) as part of the revenue neutrality payment obligation. The financial statements do not reflect the amounts received on behalf of the City and retained by the County. The financial reporting entity consists of (a) the primary government, the City, (b) organizations for which the primary government is financially accountable, and (c) other organizations for which the primary government is not accountable, but for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete. Financial accountability is defined as the appointment of a voting majority of the component unit’s board, and either (a) the City has the ability to impose its will on the organization, or (b) there is a potential for the organization to provide a financial benefit to or impose a financial burden on the City.


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City of Carmel-by-the-Sea, California Notes to Basic Financial Statements, Continued For the year ended June 30, 2014

32

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Financial Reporting Entity, Continued As required by GAAP, these financial statements present the government and its component units, entities for which the government is considered to be financially accountable. These component units are reported on a blended basis. Blended component units, although legally separate entities, are, in substance, part of the government’s operations and so data from these units are combined with data of the primary government. The financial statements of the individual component units, if applicable as indicated below, may be obtained by writing to the City of Carmel-by-the-Sea, Finance Department, Post Office Box CC, Carmel-by-the-Sea, CA 93921. The City’s reporting entity includes the following blended component units:

Carmel Public Improvement Authority Harrison Memorial Library

The above component units are included in the City’s basic financial statements using the blended method. There are no component units of the City that meet the criteria for discrete presentation.


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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Basis of Presentation Government-Wide Financial Statements The statement of Net Position and statement of activities display information about the reporting government as a whole. They include all funds of the reporting entity except for fiduciary funds. The statements distinguish between governmental and business-type activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange revenues. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided by a given function or segment, 2) operating grants and contributions, and 3) capital grants and contributions restricted to the operating or capital requirements of a specific function or segment. All taxes and internally dedicated resources are reported as general revenues rather than program revenues. Fund Financial Statements Fund financial statements of the reporting entity are organized into funds, each of which is considered to be a separate accounting entity. Each fund is accounted for by providing a separate set of self-balancing accounts, which constitute its assets, liabilities, fund equity, revenues, and expenditures/expenses. Funds are organized into three major categories: governmental, proprietary, and fiduciary. An emphasis is placed on major funds within the governmental and proprietary categories. A fund is considered major if it is the primary operating fund of the City or meets the following criteria:

a. Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental fund are at least ten percent of the corresponding total for all funds of that category or type; and,

b. Total assets, liabilities, revenues, or expenditures/expenses of the individual

governmental fund are at least five percent of the corresponding total for all governmental funds combined.

The City reports the following major funds:

General Fund Harrison Memorial Library Special Revenue Fund Parking Special Revenue Fund Ambulance Special Revenue Fund


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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Basis of Presentation, Continued Descriptions of these funds are included on the divider page preceding the Governmental Funds Balance Sheet. The funds of the financial reporting entity are described below: Governmental Funds General Fund The General Fund is used to account for resources traditionally associated with the City which are not required legally or by sound financial management to be accounted for in another fund. From this fund are paid the City’s general operating expenditures, the fixed charges, and the capital costs that are not paid through other funds. Special Revenue Funds The Special Revenue Funds are used to account for specific revenues that are legally or otherwise restricted to expenditures for particular purposes. Debt Service Fund The Debt Service Fund is used to account for financial resources used for the repayment of debt.


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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Measurement Focus Measurement focus is a term used to describe which transactions are recorded within the various financial statements. On the government-wide Statement of Net Position and the Statement of Activities, governmental and business-type activities are presented using the economic resources measurement focus. The accounting objectives of this measurement focus are the determination of net income, financial position, and cash flows. All assets and liabilities (whether current or noncurrent) associated with their activities are reported. Fund equity is classified as net position, which serves as an indicator of financial position. In the fund financial statements, the “current financial resources” measurement focus is used for governmental funds. Only current financial assets and liabilities are generally included on their balance sheets. Their operating statements present sources and uses of available spendable financial resources during a given period. These funds use fund balance as their measure of available spendable financial resources at the end of the period. Basis of Accounting

In the government-wide Statement of Net Position and Statement of Activities, governmental and business-type activities are presented using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. In the fund financial statements, governmental funds are presented on the modified accrual basis of accounting. Under this modified accrual basis of accounting, revenues are recognized when “measurable and available.” Measurable means knowing or being able to reasonably estimate the amount. Available means the amount is collectible within the current period or soon enough thereafter to pay current liabilities. The City considers all revenues reported in the governmental funds to be available if the revenues are collected within 60 days after year end, with the exception of grant revenues and ambulance billing revenues. Grant revenues and ambulance billing revenues are considered to be available if collected within 180 days of the end of the current fiscal period.


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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Basis of Accounting, Continued Property taxes, transient occupancy taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal year. All other revenue items are considered to be measurable and available only when cash is received by the government. Expenditures (including capital outlay) are recorded when the related fund liability is incurred. Assets, Liabilities, and Equity Cash Deposits and Investments The City’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. The City pools cash and investments from all funds for the purpose of increasing income through investment activities. Highly liquid money market investments with maturities of one year or less at time of purchase are stated at amortized cost. All other investments are stated at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Market value is used as fair value for those securities for which market quotations are readily available. Interfund Receivables and Payables During the course of operations, numerous transactions occur between individual funds that may result in amounts owed between funds. Those related to goods and services type transactions are classified as “due to and from other funds.” Long-term interfund loans (noncurrent portion) are reported as “advances from and to other funds.” Interfund receivables and payables between funds within governmental activities are eliminated in the Statement of Net Position. See Note 9 for details of interfund transactions, including receivables and payables at year-end.


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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Assets, Liabilities, and Equity, Continued Receivables In the government-wide statements, receivables consist of all revenues earned at year-end and not yet received. Major receivable balances for the governmental activities include property taxes, sales and use taxes, utility user taxes, intergovernmental subventions, interest earnings, and expense reimbursements. In the fund financial statements, material receivables in governmental funds include revenue accruals such as property tax, sales tax, utility user tax, and intergovernmental subventions since they are usually both measurable and available. Non-exchange transactions collectible but not available, such as property tax, are deferred in the fund financial statements in accordance with the modified accrual basis, but not deferred in the government-wide financial statements in accordance with the accrual basis. Interest and investment earnings are recorded when earned only if paid within 60 days since they would be considered both measurable and available. The loans receivable are recorded in the fund statements, but are deferred to indicate they do not represent current financial resources. The loans are recognized when advanced in the government-wide statements. The City’s experience is that all accounts receivable are collectible; therefore an allowance for doubtful accounts is unnecessary. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. In the governmental fund financial statements, prepaid items are offset with a reservation of fund balance for long-term assets to indicate they do not constitute current resources available for appropriation. Capital Assets The City's assets are capitalized at historical cost or estimated historical cost, if actual is unavailable, except for donated Capital Assets which are recorded at their estimated fair value at the date of donation. Policy has set the capitalization threshold for reporting at $5,000 for non-infrastructure capital assets and $25,000 for infrastructure capital assets.


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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Assets, Liabilities, and Equity, Continued Capital Assets, Continued Government-Wide Statements Public domain (infrastructure) capital assets include roads, bridges, curbs and gutters, streets, sidewalks, drainage systems, and lighting systems. The accounting treatment of property, plant and equipment (capital assets) depends on whether the assets are used in governmental fund operations or proprietary fund operations and whether they are reported in the government-wide or fund financial statements. Prior to July 1, 2003, governmental funds’ infrastructure assets were not capitalized, since then these assets have been valued at estimated historical cost. Depreciation of all exhaustible capital assets is recorded as an allocated expense in the Statement of Activities, with accumulated depreciation reflected in the Statement of Net Position. Depreciation is provided over the assets’ estimated useful lives using the straight-line method of depreciation. No depreciation is recorded in the year of acquisition or in the year of disposition. The range of estimated useful lives by type of asset is as follows:

Buildings and improvements 20 – 50 years Sewer Lines 30 years Machinery and equipment 5 - 20 years Computer Software 10 years

Fund Financial Statements In the fund financial statements, capital assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition. Capital assets used in proprietary fund operations are accounted for the same way as in the government-wide statements.


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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Assets, Liabilities, and Equity, Continued Compensated Absences Employees accrue vacation, sick, holiday, and compensatory time off benefits. City employees have vested interests in the amount of accrued time off, with the exception of sick time, and are paid on termination. Also, annually an employee may elect to be compensated for up to 40 hours of unused annual leave. However, this is contingent upon the employee using at least 40 hours during the previous year and, the employee having a minimum balance of 80 annual leave hours after the payment. All vacation pay is accrued when incurred in the government-wide and proprietary financial statements. A liability for these amounts is reported in the governmental funds only if they have matured, for example, as a result of employee resignations or retirements and is currently payable. The City had no employee resignations or retirements for which compensated absences should be accrued in governmental funds at year-end. The general fund is typically used to liquidate compensated absences. Equity Classification Government-Wide Statements Equity is classified as net position and is displayed in three components:

a. Net invested in capital assets – consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets.

b. Restricted net position – consists of net position with constraints placed on the use by

external groups such as creditors, grantors, contributors, or by laws or regulations of other governments or law through constitutional provisions or enabling legislation.

c. Unrestricted net position – all other net position that do not meet the definition of

“restricted” or “net invested in capital assets”.


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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Equity Classification, Continued Fund Financial Statements Governmental fund equity is classified as fund balance. Fund balance is classified as nonspendable, restricted, committed, assigned, or unassigned. Proprietary fund equity is classified the same as in the government-wide statements. The classifications for governmental funds are defined as follows for the City: Nonspendable Fund Balance –

Assets that will never convert to cash (prepaid items, inventory). Assets that will not convert to cash soon enough to affect the current period (long-term notes or

loans receivable). Resources that must be maintained intact pursuant to legal or contractual requirements (the

principal of an endowment). Restricted Fund Balance –

Resources that are subject to externally enforceable legal restrictions imposed by parties altogether outside the government (creditors, grantors, contributors and other governments).

Resources that are subject to limitations imposed by law through constitutional provisions or enabling legislation (e.g., Gas Tax).

Committed Fund Balance –

Self imposed limitations set in place prior to the end of the period (encumbrances, economic contingencies and uncertainties).

Limitation at the highest level of decision-making (Council) that requires formal action at the same level to remove.

Assigned Fund Balance –

Amounts in excess of nonspendable, restricted, and committed fund balance in funds other than the general fund automatically are reported as assigned fund balance.

Unassigned Fund Balance –

Residual net resources. Total fund balance in the general fund in excess of nonspendable, restricted, committed and

assigned fund balance (surplus). Excess of nonspendable, restricted, and committed fund balance over total fund balance

(deficit).


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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Revenues, Expenditures, and Expenses Property Tax The County of Monterey (County) is responsible for the collection and allocation of property taxes. Under California law, property taxes are assessed and collected by the County up to 1% of the full cash value of taxable property, plus other increases approved by the voters and distributed in accordance with statutory formulas. The City recognizes property taxes when the individual installments are due, provided they are collected within 60 days after year-end. Secured property taxes are levied on or before the first day of September of each year. They become a lien on real property on March 1 preceding the fiscal year for which taxes are levied. These taxes are paid in two equal installments; the first is due November 1 and delinquent with penalties after December 10; the second is due February 1 and delinquent with penalties after April 10. Secured property taxes, which are delinquent and unpaid as of June 30, are declared to be tax defaulted and are subject to redemption penalties, cost, and interest when paid. If the delinquent taxes are not paid at the end of five years, the property is sold at public auction and the proceeds are used to pay the delinquent amounts due. Any excess is remitted, if claimed, to the taxpayer. Additional tax liens are created when there is a change in ownership of property or upon completion of new construction. Tax bills for these new tax liens are issued throughout the fiscal year and contain various payments and delinquent dates, but are generally due within one year. If the new tax liens are lower, the taxpayer receives a tax refund rather than a tax bill. Unsecured personal property taxes are not a lien against real property. These taxes are due on March 1, and become delinquent, if unpaid on August 31. The City participates in an alternative method of distribution of property tax levies and assessments known as the “Teeter Plan.” The State Revenue and Taxation Code allow counties to distribute secured real property, assessment, and supplemental property taxes on an accrual basis resulting in full payment to cities each fiscal year. Any subsequent delinquent payments and penalties and interest during a fiscal year will revert to Monterey County.


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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Interfund Transfers Resources are reallocated between funds by reporting them as interfund transfers. For the purposes of the Statement of Activities, all interfund transfers between individual governmental funds have been eliminated. Budgetary Accounting The City Council establishes budgets for the General Fund and all Special Revenue Funds, except for certain Special Revenue Funds for which expenditures are controlled by grant funding or by assessments received. Budgetary control is legally maintained at the fund level for these funds. Department heads submit budget requests to the City Manager. The City Manager prepares an estimate of revenues and prepares recommendations for the next year’s budget. The preliminary budget may or may not be amended by the City Council and is adopted by resolution by the City Council on or before June 30 in accordance with the municipal code. The City Council may amend the budget by motion during the fiscal year. Only the Council can authorize transfers between funds and approve inter-fund loans. The City Manager is authorized to transfer budgeted amounts within a fund without formal council action or approval. The City Manager is authorized to increase expenditures in relation to revenues in funds receiving assigned revenues without approval by the City Council. Expenditures may not legally exceed appropriations at the fund level, which is the legal level of control. Supplemental appropriations, which increase appropriations, may be made during the fiscal year. There were no material supplemental appropriations made for the fiscal year ended June 30, 2014. Budget information is presented for the General and budgeted Special Revenue Funds in the fund financial statements. The budget information is presented on a basis consistent with generally accepted accounting principles. Appropriations, except open project appropriations, and unexpended grant appropriations, lapse at the end of each fiscal year. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates.


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2. CASH AND INVESTMENTS At June 30, 2014, the City’s pooled cash and investments, classified by maturity, consisted of the following stated at fair value:

Fair<1 1 to 2 >2 Deposits Market Value

Pooled cash, at fair valueCash in bank -$ -$ -$ 1,822,116$ 1,822,116$ Petty cash - - - 875 875

Total pooled items - - - 1,822,991 1,822,991

Certificate of Deposits - 498,000 1,495,000 - 1,993,000 Money Market 475,700 - - - 475,700 State of California Local Agency Investment Fund 6,120,210 - - - 6,120,210

Total pooled investments - interest obligations 6,595,910 498,000 1,495,000 - 8,588,910 Total cash equivalents and investments pooled 6,595,910$ 498,000$ 1,495,000$ 1,822,991$ 10,411,901$

Amounts reported in:Governmental activities - Unrestricted 10,011,888$ Governmental activities - Restricted 400,013

Total 10,411,901$

Maturities (in years)

Pooled investments, at fair value

Cash equivalents and investments pooled

Weighted AverageInvestment Type Fair Value Maturity (Years)

Certificates of Deposit 1,993,000 2.16Money Market 475,700 N/ALAIF 6,120,210 N/A

Total fair value 8,588,910$


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2. CASH AND INVESTMENTS, Continued

California statutes authorize cities to invest idle or surplus funds in a variety of credit instruments as provided for in the California Government Code, Section 53600, Chapter 4 – Financial Affairs. The table below identifies the investment types that are authorized for the City by the California Government Code (or the City’s investment policy, where more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. During the year ended June 30, 2014, the City’s permissible investments included the following instruments:

Maximum MaximumMaximum Percentage Investment

Authorized Investment Type Maturity of Portfolio in One IssuerU.S. Treasury Obligations 5 years None NoneU.S. Agency Securities 5 years 50% 50%Bankers' Acceptances 180 days 40% 30%High-Grade Commercial Paper 270 days 15% 10%Negotiable Certificates of Deposit 5 years 30% 30%LAIF N/A None NoneLocal Government Investment Pools N/A None NoneMedium-term Corporate Notes 5 years 30% 30%Money Market Mutual Funds N/A 20% 10%Collateralized Negotiable Investments 5 years 50% 50%Repurchase Agreements 92 days 15% 5%

Interest rate risk – In accordance with its investment policy, the City manages its exposures to declines in fair values by limiting the weighted average maturity of its investment portfolio to less than 5 years. As of June 30, 2014, the weighted average maturity was 2.16 years.

Credit risk – As of June 30, 2014, the City’s investments in money market funds were rated AAA by Standard & Poor’s and Fitch Ratings, and Aaa by Moody’s Investors Service. The State of California Local Agency Investment Fund is not rated. The City’s policy related to credit risk is to invest in only AAA rated securities as measured by Standard & Poor’s and Fitch Ratings or unrated securities backed by the full faith and credit of the State of California. The current portfolio adheres to this credit risk policy.

Concentration of credit risk – The City’s investment policy does not allow for an investment in any one issuer that is in excess of five percent of the government’s total investments. The investments made by the City Treasurer are limited to those allowable under State statutes as incorporated into the City’s Investment Policy, which is accepted annually by the City Council. There were no concentrations in any one issuer for the year.

The City participates in an investment pool managed by the State of California titled Local Agency Investment Fund (LAIF) which has invested 1.86% of the pool funds in Structured Notes and Asset-Backed Securities. LAIF's investments are subject to credit risk with the full faith and credit of the State of California collateralizing these investments. In addition, these Structured Notes and Asset-Backed Securities are subject to market risk as to changes in interest rates.


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2. CASH AND INVESTMENTS, Continued Custodial credit risk – deposits. For deposits, this is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. The City’s Investment Policy addresses custodial credit risk, which follows the Government Code. As of June 30, 2014, the City had a balance of $2,127,867 in the pool exposed to custodial credit risk because they exceeded the $250,000 Federal Deposit Insurance Corporation’s insurance limits. The uninsured bank balance is collateralized by the pledging financial institutions at 110% of the deposits, in accordance with the State of California Government Code.

Custodial credit risk – investments. For investments, this is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside counterparty. For the investments maintained by the City, no security was uninsured or unregistered or held by a brokerage firm which is also the counterparty for the security.

At June 30, 2014, the carrying amount of the City’s deposits was $1,822,116 and the balances in financial institutions were $2,377,867. Of the balance in financial institutions, $250,000 was covered by federal depository insurance and $2,127,867 was collateralized as required by State law (Government Code Section 53630), by the pledging financial institution with assets held in a common pool for the City and other governmental agencies, but not in the name of the City. As of June 30, 2014, the City’s investments were held by the City’s custodial agent, but not in the City’s name, and were insured up to specified limits by the Securities Investor Protection Corporation (SPIC) and supplemental private insurance up to a limit of $150 million.

Investment in LAIF: LAIF is stated at amortized cost, which approximates fair value. The LAIF is a special fund of the California State Treasury through which local governments may pool investments. The total fair value amount invested by all public agencies in LAIF is $64,896,335,761 of which the City had a balance of $6,120,210, which approximated market value and was managed by the State Treasurer. Of the total invested, 98.14% was invested in non-derivative financial products and 1.86% in structured notes and asset-backed securities. The Local Investment Advisory Board (Board) has oversight responsibility for LAIF. The Board consists of five members as designated by State Statute. The fair value of the City’s investment in this pool is reported in the accompanying financial statements at amounts based upon the City’s pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis.


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3. ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at June 30, 2014:

GovernmentalActivities

Accounts 2,071,084$ Intergovernmental 369,680

Total accounts receivable 2,440,764$

These amounts resulted in the following concentrations in receivables:

Other Governments 15% Individuals/Businesses 85%

Amounts do not indicate a significant concentration (greater than 25%) with any single individual, business, or agency. 4. CAPITAL ASSETS

Capital asset activity for the year ended June 30, 2014, was as follows:

Balance Adjustments/ BalanceJuly 1, 2013 Additions Deletions Transfers June 30, 2014

Governmental activities:Nondepreciable assets:

Land 3,633,723$ -$ -$ 3,633,723$ Art 1,467,918 - - - 1,467,918 Construction in Progress - 219,284 - 219,284

Total nondepreciable assets 5,101,641 219,284 - - 5,320,925

Depreciable assets:Buildings and improvements 25,199,400 1,447,585 342,223 26,989,208 Infrastructure 13,760,000 - - - 13,760,000 Vehicles 2,343,433 154,820 - 2,498,253 Machinery & equipment 2,226,290 85,813 - 50,353 2,362,456

Total depreciable assets 43,529,123 1,688,218 - 392,576 45,609,917 Total 48,630,764 1,907,502 - 392,576 50,930,842

Accumulated depreciation:Buildings and improvements (7,201,745) (629,489) - 1 (7,831,233) Infrastructure (458,667) (458,667) - - (917,334) Vehicles (1,996,095) (95,741) - (2,091,836) Machinery & equipment (1,689,072) (124,379) - (3,887) (1,817,338)

Total accumulated depreciation (11,345,579) (1,308,276) - (3,886) (12,657,741)

Net depreciable assets 32,183,544 379,942 - 388,690 32,952,176

Total net capital assets 37,285,185$ 599,226$ -$ 388,690$ 38,273,101$


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4. CAPITAL ASSETS, Continued

Depreciation expense for capital assets was charged to functions as follows:

Administration 2,997$ Building maintenance 126,133 Public safety 54,770 Public works 617,665 Forest, parks and beaches 15,872 Culture and recreation 490,839

Total 1,308,276$

5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following at June 30, 2014:

GovernmentalActivities Total

Accounts payable 769,330$ 769,330$ Accrued payroll and related liabilities 449,032 449,032

Total 1,218,362$ 1,218,362$

These amounts resulted in the following concentrations in payables:

Vendors 63% Employees 37% Amounts do not indicate a significant concentration (greater than 25%) with any single vendor or employee. 6. LONG-TERM LIABILITIES

The following is a summary of changes in long-term liabilities for the year ended June 30, 2014: Balance Transfers/ Balance Due Within

July 1, 2013 Additions Retirements June 30, 2014 One YearGovernmental Activities:

Sunset Center COP 7,010,000$ -$ (285,000)$ 6,725,000$ 290,000$ Countywide Radio Project 320,375 - (17,009) 303,366 17,681 Capital Lease Obligations 349,372 - (211,985) 137,387 68,518 Pension Obligation Bonds 6,165,000 - (580,000) 5,585,000 580,000

Total governmental debt 13,844,747$ -$ (1,093,994)$ 12,750,753$ 956,199$

Compensated absences 458,376 284,556 (273,981) 468,951 278,360 Claims liabilities 460,000 - 460,000 - Net OPEB obligation 1,115,277 218,029 - 1,333,306 -

Total governmental activities 15,878,400$ 502,585$ (1,367,975)$ 15,013,010$ 1,234,559$


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6. LONG-TERM LIABILITIES, Continued Sunset Center COP In 2010, the Carmel Public Improvement Authority, a component unit of the City, refunded previously issued Certificates of Participation in the amount of $7,485,000, bearing an average interest rate of 4.73%, secured by general revenues of the City, and matures in October 2031. The original proceeds were used to remodel the Sunset Cultural Center property. Interest is payable semi-annually on October 1st and April 1st with principal payments due each October 1st. The outstanding balance due at June 30, 2014 was $6,725,000. Countywide Radio Project In 2009, the City entered into a participation agreement with Monterey County to provide funding related to the "Next Generation Radio Project," a Federal Communications Commission mandated alteration of public safety and local government radio systems. Estimated payments will change should individual local jurisdictions elect out of the project. The outstanding balance due at June 30, 2014 was $303,366. Capital Lease Obligations In 2009, the City entered into a lease purchase agreement to acquire firefighting equipment in the amount of $435,982, bearing interest at 4.5%, secured by equipment, with interest and principal payments due annually on July 1st, and matures in July 2015. Pension Obligation Bonds On November 29, 2012, the City issued $6,280,000 in 2012 Taxable Pension Obligation Bonds, the purpose of which was to fund certain PERS side fund obligations. The bonds bear an interest rate of .55% to 3.1% and mature on June 1, 2023. The outstanding balance due at June 30, 2014 was $5,585,000 Compensated Absences The City records employee absences, such as vacation, illness, and holidays, for which it is expected that employees will be paid as compensated absences. Compensated absences had a balance of $468,951 at June 30, 2014; of that amount $278,360 is expected to be paid within a year. Claims Liabilities The City has recorded a liability for potential claims in excess of amounts covered by the insurance pool. See Note 9 for further discussion on the City’s risk management activities.


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6. LONG-TERM LIABILITIES, Continued Net OPEB Obligation A net OPEB obligation is the cumulative differences between annual OPEB cost and an employer’s contributions to a plan. At June 30, 2014, the City had a Net OPEB Obligation of $1,333,258 See Note 11 for further discussion on OPEB. Future debt service for Governmental Activities at June 30, 2014, is as follows for all debt except compensated absences and claims liabilities:

Year Ending

June 30,

Principal Interest Principal Interest Principal Interest

2015 290,000 219,763 17,681 11,983 68,518$ 3,325$

2016 295,000 213,963 18,379 11,285 68,869 1,682

2017 300,000 208,063 19,105 10,559 - -

2018 310,000 202,063 19,860 9,804 - -

2019 315,000 194,313 20,645 9,019 - -

2020-2024 1,730,000 831,688 116,118 32,202 - -

2025-2029 2,060,000 530,838 91,578 7,725 - -

2030-2032 1,425,000 115,000 - - - -

Total 6,725,000$ 2,515,691$ 303,366$ 92,577$ 137,387$ 5,007$

Due within one year 290,000$ 219,763$ 17,681$ 11,983$ 68,518$ 3,325$

Due after one year 6,435,000 2,295,928 285,685 80,594 68,869 1,682

Total 6,725,000$ 2,515,691$ 303,366$ 92,577$ 137,387$ 5,007$

Principal Interest Principal Interest

2015 580,000 118,243 956,199 353,314

2016 585,000 112,443 967,248 339,373

2017 595,000 105,131 914,105 323,753

2018 605,000 96,205 934,860 308,072

2019 615,000 85,618 950,645 288,950

2020-2024 2,605,000 192,207 4,451,118 1,056,097 2025-2029 - - 2,151,578 538,563

2030-2032 - - 1,425,000 115,000

Total 5,585,000$ 709,847$ 12,750,753$ 3,323,122$

Due within one year 580,000$ 118,243$ 956,199$ 353,314$

Due after one year 5,005,000 591,604 11,794,554 2,969,808 Total 5,585,000$ 709,847$ 12,750,753$ 3,323,122$

Capital Lease Obligations

Pension Obligation Bonds Total


Sunset Center COP County-wide Radio Project


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7. NET POSITION/ FUND BALANCES Net Position

GovernmentalActivities

Net investment in capital assets 25,522,348$ Restricted 2,616,731 Unrestricted 6,620,154

Total 34,759,233$

Restricted balances are for the same purposes as fund balance restrictions because external restriction requirements are the same. See descriptions of the restrictions below.

Fund Balance Nonspendable, Restricted and Committed fund balance consisted of the following at June 30, 2014:

Nonspendable:Major Funds:

General Fund Reserve 73,038$ Harrison Memorial Library 46,747 Total Major Funds - Nonspendable 119,785

Restricted:Nonmajor Funds:

Gas Tax 279,219 Measure D 1,937,499 Debt service 400,013 Total Nonmajor Funds - Restricted 2,616,731

Total Restricted 2,616,731$

Committed:General Fund Reserve 2,888,306$

Total Committed 2,888,306$


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7. NET POSITION/ FUND BALANCES, Continued

The following describes the purpose of each nonspendable, restriction, and commitment account used by the City:

Nonspendable

General Fund – prepaid items are governmental resources that are not currently in a spendable form.

Harrison Memorial Library Endowment - used to segregate that portion of fund balance to indicate that bequest and endowment amounts do not represent available, spendable resources because the principal is nonspendable.

Restricted

Gas Tax – represents amounts restricted for street purposes by the California Streets and Highways Code.

Measure D – represents amounts restricted for purposes as defined by Measure D.

Debt service – represents amounts restricted for repayment of debt. Committed

General Fund Reserve – represents amounts committed through Council Resolution for economic uncertainties and anticipated future short-term structural deficits. This amount can be changed only by Council Resolution.

There were no deficit net position or fund balances at June 30, 2014. Excess of Expenditures and Transfers Over Appropriations: Expenditures and transfers exceeded appropriations for the year ended June 30, 2014, for the following funds:

Total ExcessExpenditures Expenditures

Final Budget and Transfers over AppropriationsGovernmental ActivitiesMajor Funds:

Ambulance 1,086,635 1,397,725 (311,090) Non-major Funds:

Special Revenue Funds:Forest Theater - 4,852 (4,852)

Sufficient fund balance existed in all of these funds to cover the excesses.


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8. INTERFUND TRANSACTIONS Due to and due from other funds consisted of the following as of June 30, 2014:

Due from Due toOther Funds Other Funds

Governmental ActivitiesMajor Funds:

General Fund 1,047,013$ -$ Ambulance - 965,607

Total Major Funds 1,047,013 965,607 Nonmajor Funds:

Special Revenue FundsGrants - 81,406

Total Non-major Funds - 81,406 Total 1,047,013$ 1,047,013$

Due to and from balances result from the time lag between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made.

Transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, and (2) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations.

Transfers consisted of the following at June 30, 2014: Transfers In Transfers Out

Governmental ActivitiesMajor Funds:

General Fund 7,137,588$ 7,672,744$ Harrison Memorial Library - Special Revenue 931,890 - Ambulance - Special Revenue 429,110 300,000 Total Major Funds 8,498,588 7,972,744

Non-major Funds:Special Revenue Funds:

Traffic Safety - 107,000 Road Impact Fees - 202,200 Grants - 443,948 Forest Theater - 442 Measure D - 997,864 Total Non-major Special Revenue Funds - 1,751,454

Debt Service Funds:General Debt Service 1,225,606

Total Non-major Debt Service Funds 1,225,606 - Total Non-major Funds 1,225,606 1,751,454 Total Governmental Activities 9,724,194 9,724,198 Total Transfers 9,724,194$ 9,724,198$

Council Meeting Date: 08/04/2015



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8. INTERFUND TRANSACTIONS, Continued The General Fund received transfers from various programs to fund activities in the General Fund for which these revenue sources are dedicated. The General Fund also transferred amounts to the General Debt Service Fund to fund the current debt service payments. 9. RISK MANAGEMENT The City of Carmel-by-the-Sea (City) is a member of CSAC-EIA (California State and County Excess Insurance Authority) which is a shared risk pool. CSAC-EIA covers claims for City for both Workers Compensation and General Liability. The City’s Liability SIR is pre-funded through CSAC-EIA for 8 quarters of payments made on behalf of City. Currently, the SIR fund for the City with CSAC-EIA is maintained at $8,414. If the pre-funded SIR balance drops below this amount, the City is billed by CSAC-EIA to replenish the fund to the $8,414 level. For Fiscal Year 2013/2014, this pre-funded level will increase to $10,784 because of claims paid on behalf of the City. The City does not make claim payments, they are all issued by the city's third party administrator from a CSA-EIA account. The City has two layers of Liability coverage through CSAC-EIA and under the first layer, the Primary General Liability layer, there is an SIR (Self Insured Retention) of $10,000 per claim. Thereafter, the next layer of coverage kicks in (General Liability 1 program) which carries an SIR of $100,000 which is satisfied by exhausting the coverage limit of $100,000 under the Primary Liability program. The maximum limit of coverage under the primary General Liability 1 program is $25 million. The City retains the risk of loss above $25 million. For Workers Compensation, the City is a member of both the CSAC-EIA Primary Workers Compensation program and then, the CSAC-EIA Excess Workers Compensation program. The Primary Workers compensation program provides dollar 1 coverage to the City for Workers Compensation claims. In other words, City has no deductible or SIR. This layer of Workers Compensation coverage carries a maximum limit of $125,000 per occurrence. Thereafter, CSAC-EIA's excess coverage steps in and the SIR (Self Insured Retention) is $125,000 which again, is satisfied by exhausting the limits of coverage under the Primary Workers Compensation program. The upper limit of coverage under the Excess Workers Compensation program is "statutory". What this means is that regardless of the total cost of the claim, it is covered under the CSAC-EIA Excess Workers Compensation program. There is absolutely no monetary exposure to the City under these two Workers Compensation programs except for the premium costs to purchase this coverage. The City has had no settlements which exceeded insurance coverage in the last three fiscal years and no significant changes or reductions in insurance coverage during the current year.


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10. PUBLIC EMPLOYEES’ RETIREMENT SYSTEM Plan Description The City of Carmel-by-the-Sea contributes to the California Public Employees Retirement System (PERS), a cost-sharing multiple-employer public employee defined benefit pension plan. PERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. All permanent and part-time employees working at least 1,000 hours per year are enrolled in PERS. Under PERS, benefits vest after five years of service. Upon retirement, participants are entitled to an annual retirement benefit, payable for life, in an amount equal to a benefit factor multiplied by their highest average monthly salary over 12 consecutive months of employment. Benefit provisions and all other requirements are established by State statute. The establishment and amendment of specific benefit provisions of the Plan is authorized by resolution of the City Council. PERS requires plans with less than 100 active participants to participate in risk pools. The City participated in the Miscellaneous 2% at 55 Risk Pool and in the Safety 3.0% at 50 Risk Pool for the year ended June 30, 2014. Copies of the PERS annual financial report may be obtained from their Executive Office at 400 P Street, Sacramento, CA 95814. Funding Policy The City is required to contribute at an actuarially determined rate. The current rate is 20.868% of the annual covered payroll for miscellaneous employees and 37.778% for safety employees. In November 2012, the City paid off a side-fund balance due to PERS by issuing Pension Obligation Bonds. This decreased the rate for miscellaneous employees in 2012-13 and all subsequent years. The City’s contributions for the years ended June 30, 2014, 2013, and 2012 were $781,060, $896,806 (exclusive of side fund payoff), and $1,204,375, respectively, which were equal to the required contributions for each year. Active PERS plan members are required to contribute a percentage of their annual covered salary. The percentage required is up to 7% for miscellaneous employees and 9% for safety employees. The contribution requirement of plan members and the City are established and may be amended by PERS. 11. OTHER POST EMPLOYMENT BENEFITS Plan Description. The City of Carmel-by-the-Sea Retiree Healthcare Plan (Plan) is a single-employer defined benefit healthcare plan administered by the City. The Plan provides access to lifetime healthcare benefits to eligible retirees and their dependents. The City provides retiree medical benefits through the California Public Employees’ Retirement System healthcare program (PEMHCA). For eligible retirees, the City contributes not less than 5% of the active contribution times years in PEMHCA (max $100/month increase). The City pays actives the PEMHCA minimum, and the City joined PEMHCA in 1998. The City’s retiree contribution is $115.00 for 2013, $119 for 2014 and $122 for 2015.


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11. OTHER POST EMPLOYMENT BENEFITS, Continued Plan Description, Continued Eligibility: Employees are eligible to participate in the City’s Retiree Healthcare Plan if they retire directly from the City under CalPERS with five years of PERS service (there is no minimum service requirement if retirement is due to a service-connected disability.) Since PEMHCA is a community rated plan for most employers, an implied subsidy is not reflected under GASB 45. The City does not provide dental, vision, life, or Medicare Part B reimbursement to retirees. The Retiree Healthcare Plan does not issue a financial report. Membership of the plan consisted of the following at June 30, 2014

Retirees and beneficiaries receiving benefits 34 Other participants fully eligible for benefits 31 Other participants not yet fully eligible for benefits 51

Total 119

Funding Policy. The contribution requirements of the Plan participants and the City are established by and may be amended by the City. The City currently does not prefund plan benefits. The Annual Required Contribution (ARC) is an amount actuarially determined in accordance with the parameters of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefit Other Than Pensions. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years.

For fiscal year 2014, the City contributed $48,512 for current benefit payments.

Annual OPEB Cost and Net OPEB Obligation. The City’s annual other postemployment benefit cost (expense) is calculated based on the annual required contribution (ARC) of the employer. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years.


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56

11. OTHER POST EMPLOYMENT BENEFITS, Continued

Annual OPEB Cost and Net OPEB Obligation, Continued

The following table shows the components of the City’s annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the City’s Net OPEB obligation:

Annual required contribution $ 275,031 Interest on net OPEB obligation 39,033Adjustment to annual required contribution (47,523)Annual OPEB cost (expense) $ 266,541 Benefit payments made (48,512)Increase (Decrease) in net OPEB obligation $ 218,029 Net OPEB obligation – beginning of year 1,115,277Net OPEB obligation – end of year $ 1,333,306

The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation for fiscal year 2013 and the two preceding fiscal years were as follows:

Fiscal Year

Ended Annual

OPEB Cost

Percentage of Annual OPEB

Cost Contributed

Net OPEB

Obligation

6/30/12 $284,309 17% $866,406 6/30/13 304,008 18% 1,115,277 6/30/14 266,541 18% 1,333,306

Funded Status and Funding Progress. The funded status of the Plan as of July 1, 2014, the Plan’s most recent actuarial valuation date, was as follows:

Actuarial accrued liability (AAL) $ 2,760,357 Actuarial value of Plan assets 0 Unfunded actuarial accrued liability (UAAL) $ 2,760,357 Funded ratio (actuarial value of Plan assets/AAL) 0% Covered payroll (active Plan participants) $5,118,420 UAAL as a percentage of covered payroll 53.93%

Actuarial valuations of an ongoing plan involve estimates of the value of expected benefit payments and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.


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57

11. OTHER POST EMPLOYMENT BENEFITS, Continued Actuarial Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan participants) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan participants to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. For the July 1, 2014, actuarial valuation, the entry age normal actuarial cost method was used. The actuarial assumptions included a 3.5% discount rate. Premiums were assumed to increase at a rate of 4.0% per year. The total UAAL calculated in the July 1, 2014, valuation was amortized as a level percentage of projected payroll over a fixed 25-year period beginning fiscal year 2014. 12. COMMITMENTS AND CONTINGENCIES The City is a party to claims and lawsuits arising in the ordinary course of business. The City’s management and legal council are of the opinion that the ultimate liability, if any, arising from these claims will not have material adverse impact on the financial position of the City. The City participates in a number of federal and state assisted grant programs. These programs are subject to program compliance audits by the grantors. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time although the City expects such amounts, if any, to be immaterial. 13. NEW ACCOUNTING PRONOUNCEMENTS The GASB has issued Statement No. 67, “Financial Reporting for Pension Plans”. The objective of this Statement is to improve financial reporting by state and local governmental pension plans. This Statement replaces the requirements of Statements No. 25, “Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans” and No. 50, “Pension Disclosures” as they relate to pension plans that are administered through trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. The requirements of Statements 25 and 50 remain applicable to pension plans that are not administered through trusts covered by the scope of this Statement and to defined contribution plans that provide postemployment benefits other than pensions. This Statement is effective for periods beginning after June 15, 2013. The implementation of this statement will not have an effect on these financial statements.


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58

13. NEW ACCOUNTING PRONOUNCEMENTS, Continued The GASB has issued Statement No. 68, “Accounting and Financial Reporting for Pensions - An Amendment of GASB Statement No. 27” The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. This Statement establishes accounting and financial reporting requirements related to pensions for governments whose employees are provided with pensions through pension plans that are covered by the scope of this Statement, as well as for nonemployer governments that have a legal obligation to contribute to those plans. This Statement will be effective for periods beginning after June 15, 2014. The City will implement this Statement in fiscal year 2014-15. The GASB has issued Statement No. 69, “Government Combinations and Disposals of Government Operations”. This Statement establishes accounting and financial reporting standards related to government combinations and disposals of government operations. This Statement will be effective for government combinations and disposals of government operations occurring in financial reporting periods beginning after December 15, 2013. The City will implement this Statement in fiscal year 2014-15, if applicable. The GASB has issued Statement No. 70 “Accounting and Financial Reporting for Nonexchange Financial Guarantees”. The objective of this Statement is to improve accounting and financial reporting by state and local governments that extend and receive nonexchange financial guarantees. This Statement will be effective for periods beginning after June 15, 2013. The City will implement this Statement in fiscal year 2014-15, if applicable. The GASB has issued Statement No. 71, “Pension Transition for Contributions Made Subsequent to the Measurement Date” The objective of this Statement is to address an issue regarding application of the transition provisions of Statement No. 68, “Accounting and Financial Reporting for Pensions”. The issue relates to amounts associated with contributions, if any, made by a state or local government employer or nonemployer contributing entity to a defined benefit pension plan after the measurement date of the government’s beginning net pension liability. This Statement is effective for fiscal years beginning after June 15, 2014, and should be applied simultaneously with the provisions of Statement 68. The City will implement this Statement in fiscal year 2014-15.


Page 66

City of Carmel-by-the-Sea, California Required Supplementary Information For the year ended June 30, 2014

59

Required Supplementary Information Other Postemployment Benefits Schedule of Funding Progress

Actuarial Valuation

Date

Actuarial Value of Assets

(a)

Actuarial Accrued Liability

(b)

Unfunded Actuarial Accrued Liability

(b-a)

Funded Ratio (a/b)

Covered Payroll

(c)

UAAL as a Percentage of

Covered Payroll ((b-a)/c)

n/a n/a n/a n/a n/a n/a n/a 6/30/091 $0 $2,752,948 $2,752,948 0% $5,432,667 50.67% 7/01/14 $0 $2,760,357 $2,760,357 0% $5,118,420 53.93%

1 The 6/30/09 Actuarial Accrued Liability was calculated using a discount rate of 3.5%.


Page 67




COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES






Fund Type

Special Revenue Funds:Traffic Safety

Road Impact Fees

Grants Accounts for grants utilized for specific purposes

Forest Theater Accounts for activities related to the Forest Theater

Gas Tax

Measure D

Debt Service Funds:General

Accounts for road impact fees used for transportation relatedexpenditures.

Accounts for transaction and use tax increase to be used to maintain essential services including fire, ambulance and police response times; fund capital needs including streets, beach, parks, forest and trails; increase code compliance; maintain libraries, Sunset Center and other public facilities; address CalPERS pension liabilities and other debt; and provide other general City services.

NON-MAJOR GOVERNMENTAL FUNDS

Description

Accounts for traffic safety and public safety augmentation funds for police and fire

Accounts for activities related to the repayment of the Certificate of Participation, Pension Obligation Bond and capital lease obligations

Accounts for revenues collected in accordance with the Streets and Highway Code



City of Carmel-by-the-Sea, CaliforniaCombining Balance SheetNonmajor Governmental FundsJune 30, 2014

Traffic RoadSafety Impact Fees Grants

ASSETSCash and investments 24,627$ 28,689$ -$ Cash and investments with fiscal agents - - - Receivables:

Accounts 1,865 - - Intergovernmental - - 8,333 Other receivable

Total assets 26,492$ 28,689$ 8,333$

LIABILITIES AND FUND BALANCESLiabilities:Accounts payable -$ -$ -$ Due to other funds - - 81,406

Total liabilities - - 81,406 Fund Balances:RestrictedAssigned, reported in:

Special revenue funds 26,492 28,689 - Unassigned (deficit), reported in:

Special revenue funds - - (73,073) Total fund balances 26,492 28,689 (73,073) Total liabilities and fund balances 26,492$ 28,689$ 8,333$




TotalNon-Major

Forest General GovernmentalTheater Gas Tax Measure D Debt Service Funds

108,810$ 268,239$ 1,401,355 -$ 1,831,720$ - - 400,013 400,013

- - - 1,865 - 11,986 80,744 - 101,063

455,400 455,400 108,810$ 280,225$ 1,937,499$ 400,013$ 2,790,061$

19$ 1,006$ -$ -$ 1,025$ - - - - 81,406

19 1,006 - - 82,431

279,219 1,937,499 400,013 2,616,731

108,791 - - - 163,972

- - - - (73,073) 108,791 279,219 1,937,499 400,013 2,707,630 108,810$ 280,225$ 1,937,499$ 400,013$ 2,790,061$




City of Carmel-by-the-Sea, CaliforniaCombining Statement of Revenues, Expenditures and Changes in Fund BalancesNonmajor Governmental FundsFor the year ended June 30, 2014

Traffic RoadSafety Impact Fees Grants

REVENUES:Fees and permits -$ 117,593$ -$ Fines and forfeitures 108,224 - - Intergovernmental 10,595 - 312,792 Use of money and property - - - Charges for services - - -

Total revenues 118,819 117,593 312,792


Public works - - 125,000Culture and recreation - - -

Debt Service:Principal - - - Interest and fiscal charges - - -

Total expenditures - - 125,000

REVENUES OVER (UNDER)EXPENDITURES 118,819 117,593 187,792

OTHER FINANCING SOURCES (USES):Transfers in - - - Transfers out (107,000) (202,200) (443,948)

Total other financingsources (uses) (107,000) (202,200) (443,948)

REVENUES AND OTHER FINANCINGSOURCES OVER (UNDER)EXPENDITURES AND OTHERFINANCING (USES) 11,819 (84,607) (256,156)

FUND BALANCES:Beginning of year 14,673 113,296 183,083 End of year 26,492$ 28,689$ (73,073)$




TotalNon-Major

Forest General GovernmentalTheater Gas Tax Measure D Debt Service Funds

-$ -$ -$ -$ 117,593$ - - - - 108,224 - 124,356 2,935,363 - 3,383,106 - - - 4 4

21,864 - - - 21,864

21,864 124,356 2,935,363 4 3,630,791

- 12,120 - - 137,120 4,410 - - - 4,410

- - - 880,425 880,425 - - - 345,185 345,185

4,410 12,120 - 1,225,610 1,367,140

17,454 112,236 2,935,363 (1,225,606) 2,263,651

- - - 1,225,610 1,225,610 (442) - (997,864) - (1,751,454)

(442) - (997,864) 1,225,610 (525,844)

17,012 112,236 1,937,499 4 1,737,807

91,779 166,983 - 400,009 969,823 108,791$ 279,219$ 1,937,499$ 400,013$ 2,707,630$




City of Carmel-by-the-Sea, CaliforniaCombining Statement of Revenues, Expenditures and Changes in Fund Equity Special Revenue Funds - Budget and ActualNonmajor Governmental FundsFor the year ended June 30, 2014

Variance w/Amended

Original Amended PositiveBudget Budget Actual (Negative)

REVENUES:Fees and permits -$ -$ -$ -$ Fines and forfeitures 140,000 140,000 108,224 (31,776) Intergovernmental - - 10,595 10,595 Use of money and property - - - - Charges for services - - - -

Total revenues 140,000 140,000 118,819 (21,181)

EXPENDITURES:Public works - - - - Culture and recreation - - - -

Total expenditures - - - -

REVENUES OVER (UNDER) EXPENDITURES 140,000 140,000 118,819 21,181

OTHER FINANCING SOURCES (USES):Transfers in - - - - Transfers out - (140,000) (107,000) (33,000)

Total other financing sources (uses) - (140,000) (107,000) (33,000)

REVENUES AND OTHER FINANCING SOURCESOVER (UNDER) EXPENSES AND OTHERFINANCING (USES) 140,000 - 11,819 (11,819)

FUND BALANCE:Beginning of year 14,673 14,673 14,673 -

End of year 154,673$ 14,673$ 26,492$ (11,819)$

Traffic Safety

68 Council Meeting Date: 08/04/2015 Agenda Item: 8.A

Page 76

Variance Variance w/Amended w/Amended

Original Amended Positive Original Amended PositiveBudget Budget Actual (Negative) Budget Budget Actual (Negative)

202,200$ 202,200$ 117,593$ (84,607)$ -$ -$ -$ -$ - - - - - - - - - - - - 512,900 787,500 312,792 (474,708) - - - - - - - - - - - - - - - -

202,200 202,200 117,593 (84,607) 512,900 787,500 312,792 (474,708)

- - - - - - 125,000 125,000 - - - -

- - - - - - 125,000 (125,000)

202,200 202,200 117,593 84,607 512,900 787,500 187,792 599,708

- - - - - - - - - (202,200) (202,200) - - (417,500) (443,948) (26,448) - (202,200) (202,200) - - (417,500) (443,948) 26,448

202,200 - (84,607) 84,607 512,900 370,000 (256,156) 626,156

113,296 113,296 113,296 - 183,083 183,083 183,083 -

315,496$ 113,296$ 28,689$ 84,607$ 695,983$ 553,083$ (73,073)$ 626,156$

(continued)

GrantsRoad Impact Fees


Page 77

City of Carmel-by-the-Sea, CaliforniaCombining Statement of Revenues, Expenditures and Changes in Fund Equity Special Revenue Funds - Budget and Actual, ContinuedNonmajor Governmental FundsFor the year ended June 30, 2014

Variance w/Amended

Original Amended PositiveBudget Budget Actual (Negative)

REVENUES:Fees and permits -$ -$ -$ -$ Fines and forfeitures - - - - Intergovernmental - - - - Use of money and property - - - - Charges for services - - 21,864 21,864

Total revenues - - 21,864 21,864

EXPENDITURES:Public works - - - - Culture and recreation 17,000 - 4,410 (4,410)

Total expenditures 17,000 - 4,410 (4,410)

REVENUES OVER (UNDER) EXPENDITURES (17,000) - 17,454 17,454

OTHER FINANCING SOURCES (USES):Transfers in - - - - Transfers out - - (442) 442

Total other financing sources (uses) - - (442) 442

REVENUES AND OTHER FINANCING SOURCESOVER (UNDER) EXPENSES AND OTHERFINANCING (USES) (17,000) - 17,012 17,896

FUND BALANCE:Beginning of year 91,779 91,779 91,779 -

End of year 74,779$ 91,779$ 108,791$ 17,896$

Forest Theater


Page 78

Variance Variance w/Amended w/Amended

Original Amended Positive Original Amended PositiveBudget Budget Actual (Negative) Budget Budget Actual (Negative)

-$ -$ -$ -$ -$ -$ -$ -$ - - - - - - - -

124,256 124,256 124,356 100 2,113,000 2,113,000 2,935,363 822,363 - - - - - - - - - - - - - - - -

124,256 124,256 124,356 100 2,113,000 2,113,000 2,935,363 822,363

- - 12,120 (12,120) - - - - - - - - - - -

- - 12,120 (12,120) - - - -

124,256 124,256 112,236 12,020 2,113,000 2,113,000 2,935,363 (822,363)

- - - - - - - (124,256) - (124,256) - (2,113,000) (997,864) (1,115,136)

- (124,256) - (124,256) - (2,113,000) (997,864) (1,115,136)

124,256 - 112,236 (112,236) 2,113,000 - 1,937,499 (1,937,499)

166,983 166,983 166,983 - - - - -

291,239$ 166,983$ 279,219$ (112,236)$ 2,113,000$ -$ 1,937,499$ (1,937,499)$

(concluded)

Gas Tax Measure D


Page 79




CITY OF CARMEL-BY-THE-SEA

COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE AND

COMMUNICATION OF INTERNAL CONTROL RELATED MATTERS

JUNE 30, 2014

ATTACHMENT - 2


Page 81

City of Carmel-by-the-Sea Communication with Those Charged with Governance and

Communication of Internal Control Related Matters

For the year ended June 30, 2014

Table of Contents

Page

Communications with Those Charged with Governance Letter ...................................................................... 1

Report on Internal Control Over Financial Reporting and on Compliance and

Other Matters Based on an Audit of Financial Statements Performed in

Accordance With Government Auditing Standard ........................................................................... 6

Schedule of Findings and Responses ............................................................................................................ 8


Page 82

July 12, 2015

City Council

Of the City of Carmel-by-the-Sea

Carmel-by-the-Sea, California

We have audited the financial statements of the City of Carmel-by-the-Sea (City) as of and for the year

ended June 30, 2014, and have issued our report thereon dated July 12, 2015. Professional standards

require that we advise you of the following matters relating to our audit.

Our Responsibility under Generally Accepted Auditing Standards (and when applicable,

Government Auditing Standards)

As communicated in our engagement letter dated April 15, 2014, our responsibility, as described by

professional standards, is to form and express an opinion about whether the financial statements that

have been prepared by management with your oversight are presented fairly, in all material respects, in

conformity with accounting principles generally accepted in the United States of America. Our audit of

the financial statements does not relieve you or management of your respective responsibilities.

Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain

reasonable, rather than absolute, assurance about whether the financial statements are free of material

misstatement. An audit of financial statements includes consideration of internal control over financial

reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for

the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial

reporting. Accordingly, as part of our audit, we considered the internal control of the City solely for the

purpose of determining our audit procedures and not to provide any assurance concerning such internal

control.

We are also responsible for communicating significant matters related to the audit that are, in our

professional judgment, relevant to your responsibilities in overseeing the financial reporting process.

However, we are not required to design procedures for the purpose of identifying other matters to

communicate to you.

We have provided our findings regarding material noncompliance, and other matters noted during our

audit in the following Schedule of Findings and Responses.

7080 Donlon Way, Suite 204, Dublin, CA 94568 ● phone (925) 556-6200 ● fax: (925) 556-6201

www.jjacpa.com Council Meeting Date: 08/04/2015 Agenda Item: 8.A

Page 83

http://www.jjacpa.com/

City of Carmel-by-the-Sea Communications with Those Charged with Governance


Planned Scope and Timing of the Audit

We conducted our audit consistent with the planned scope and timing we previously communicated to

you.

Compliance with All Ethics Requirements Regarding Independence

The engagement team, others in our firm, as appropriate, our firm, have complied with all relevant

ethical requirements regarding independence.

Qualitative Aspects of the Entity’s Significant Accounting Practices

Significant Accounting Policies

Management has the responsibility to select and use appropriate accounting policies. A summary of

the significant accounting policies adopted by the City is included in Note 1 to the financial statements.

There have been no initial selection of accounting policies and no changes in significant accounting

policies or their application during June 30, 2014. No matters have come to our attention that would

require us, under professional standards, to inform you about (1) the methods used to account for

significant unusual transactions and (2) the effect of significant accounting policies in controversial or

emerging areas for which there is a lack of authoritative guidance or consensus.

Significant Accounting Estimates

Accounting estimates are an integral part of the financial statements prepared by management and are

based on management’s current judgments. Those judgments are normally based on 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 markedly from management’s current

judgments.

The most sensitive accounting estimates affecting the financial statements are useful lives of capital

assets (“useful lives”).

Management’s estimate of the useful lives is based on experience with and observation of capital assets,

by category (e.g. infrastructure) as well as industry standards, when applicable (i.e. buildings). We

evaluated the key factors and assumptions used to develop the useful lives and determined that it is

reasonable in relation to the basic financial statements taken as a whole.

Financial Statement Disclosures

Certain financial statement disclosures involve significant judgment and are particularly sensitive because

of their significance to financial statement users. The most sensitive disclosures affecting the City’s

financial statements relate to commitments and contingencies.

2 Council Meeting Date: 08/04/2015


City of Carmel-by-the-Sea Communications with Those Charged with Governance, Continued


Significant Difficulties Encountered during the Audit

Although we ultimately received full cooperation of management and believe that we were given direct

and unrestricted access to the City's officials and senior management, we experienced significant

difficulties in the performance of the audit owing to the failure of the City’s accounting personnel to

prepare the requested audit schedules as initially agreed. These difficulties in receiving incomplete or

inaccurately prepared audit schedules, or not receiving the requested audit schedules at all, including the

delay of the Actuarial Valuation of Postemployment Medical Benefits, significantly added to the time

and related cost of the audit.

Uncorrected and Corrected Misstatements

For purposes of this communication, professional standards require us to accumulate all known and

likely misstatements identified during the audit, other than those that we believe are trivial, and

communicate them to the appropriate level of management. Further, professional standards require us to

also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes

of transactions, account balances or disclosures, and the financial statements as a whole and each

applicable opinion unit. Management has corrected all identified misstatements.

In addition, professional standards require us to communicate to you all material, corrected

misstatements that were brought to the attention of management as a result of our audit procedures. The

following material misstatements that we identified as a result of our audit procedures were brought to

the attention of, and corrected by, management: (1) reconciliation of the capital asset balances in the

general ledger to subsidiary schedules, (2) reconciliation of long-term liability balances in the general

ledger to subsidiary schedules, (3) reconciliation of cash and investment balances in the general ledger to

subsidiary schedules, (4) increase in the OPEB obligation, (5) accrual of accounts payables booked to the

subsequent year, and (6) correction of accounts receivable balances.

Disagreements with Management

For purposes of this letter, professional standards define a disagreement with management as a matter,

whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing

matter, which could be significant to the City’s financial statements or the auditor’s report. No such

disagreements arose during the course of the audit.

Representations Requested from Management

We have requested certain written representations from management, which are included in a separate

letter dated July 12, 2015.

Management’s Consultations with Other Accountants

In some cases, management may decide to consult with other accountants about auditing and accounting

matters. Management informed us that, and to our knowledge, there were no consultations with other

accountants regarding auditing and accounting matters.





Other Significant Findings or Issues

In the normal course of our professional association with the City, we generally discuss a variety of

matters, including the application of accounting principles and auditing standards, operating and

regulatory conditions affecting the City, and operational plans and strategies that may affect the risks of

material misstatement. None of the matters discussed resulted in a condition to our retention as the

entity’s auditors.

Noncompliance with Laws and Regulations, Violations of Contract Provisions or Grant

Agreements

We have identified the following matters involving noncompliance with laws and regulations, violations

of contract provisions or grant agreements that came to our attention during the course of the audit. The

City is noncompliant with provisions of its 2012 Taxable Pension Obligation Bonds as described in

finding 2014-01 in the schedule of findings and responses.

Informational Comment Only

New Accounting Pronouncements

The GASB has issued Statement No. 68, “Accounting and Financial Reporting for Pensions – An

Amendment of GASB Statement No. 27” The primary objective of this Statement is to improve

accounting and financial reporting by state and local governments for pensions. It also improves

information provided by state and local governmental employers about financial support for pensions

that is provided by other entities. This Statement establishes accounting and financial reporting

requirements related to pensions for governments whose employees are provided with pensions through

pension plans that are covered by the scope of this Statement, as well as for nonemployer governments

that have a legal obligation to contribute to those plans. This Statement will be effective for periods

beginning after June 15, 2014. The City must implement this Statement in fiscal year 2014-15.

GASB 68 requires the City, and other government entities that offer defined pension benefits to its

employees, to report on the Statement of Net Position a “net pension liability.” Additionally, the City, as

a member of CalPERS, a defined benefit cost-sharing multiple-employer pension plan, will be required to

recognize its proportionate share of the “collective” net pension liability. The City, despite having

made all of its required contributions to CalPERS in the past, will still have to report its proportionate

liability on the Statement of Net Position. The notes to the financial statements should include descriptive

information about the pension plans and identify the discount rate and assumptions made in the

measurement of the City’s proportionate shares of net pension liability. This statement will also

require the City to present in required supplementary information 10-year schedules containing (1) the

net pension liability and certain related ratios and (2) if applicable, information about statutorily or

contractually required contributions, contributions to the pension plan, and related ratios.





We encourage the City to begin planning for GASB 68 as soon as possible. For a fee, the City can obtain

a report from CalPERS actuaries that include all the required information to implement the standard. We

encourage management to communicate with CalPERS actuarial office as early as possible in order to

obtain the necessary GASB 68 reporting valuations for the fiscal year 2014-15 financial statements.

Very truly yours,

Joseph J Arch,CPA JOSEPH J. ARCH, CPA President/CEO

JJACPA, INC.



REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON

COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL

STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING

STANDARDS

To the Honorable Mayor and City Council

City of Carmel-by-the-Sea

Carmel-by-the-Sea, California

We have audited, in accordance with the auditing standard 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, the financial statements of the governmental

activities, each major fund, and the aggregate remaining fund information of the City of Carmel-by-the-

Sea (City), as of and for the year ended June 30, 2014, and the related notes to the financial statements,

which collectively comprise City of Carmel-by-the-Sea’s basic financial statements, and have issued our

report thereon dated June 12, 2015.

Internal Control over Financial Reporting

In planning and performing our audit of the financial statements, we considered the City’s internal

control over financial reporting (internal control) to determine the 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 internal control of the City’ 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 combination

of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement

of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A

significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less

severe than a material weakness, yet important enough to merit attention by those charged with

governance.

Our consideration of internal control over financial reporting was for the limited purpose described in

the first paragraph of this section and was not designed to identify all deficiencies in internal control

over financial reporting that might be material weaknesses or significant deficiencies and therefore,

material weaknesses or significant deficiencies may exist that were not identified. Given these limitations,

during our audit we did not identify any deficiencies in internal control over financial reporting that we

consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

We did identify certain deficiencies in internal control, described in the accompanying schedule of

findings and responses that we consider to be significant deficiencies (#2012- 01).

7080 Donlon Way, Suite 204, Dublin, CA 94568 ● phone (925) 556-6200 ● fax: (925) 556-6201

www.jjacpa.com Council Meeting Date: 08/04/2015 Agenda Item: 8.A

Page 88

http://www.jjacpa.com/

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the City’s financial statements are free from

material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,

contracts, and grant agreements, noncompliance with which could have a direct and material effect on

the determination of financial statement amounts. However, providing an opinion on compliance with

those provisions was not an objective of our audit and, accordingly, we do not express such an opinion.

The results of our tests disclosed instances of noncompliance or other matters that are required to be

reported under Government Auditing Standards, and which are described in the accompanying schedule

of findings and responses as item #2014-01.

City’s Response to Findings

The City’s responses to the findings identified in our audit are described in the accompanying schedule of

findings. The City’s response was not subjected to the auditing procedures applied in the audit of the

financial statements and, accordingly, we express no opinion on it.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance

and the result of that testing, and not to provide an opinion on the effectiveness of the entity’s

internal control or on compliance. This report is an integral part of an audit performed in accordance

with Government Auditing Standards in considering the entity’s internal control and compliance.

Accordingly, this communication is not suitable for any other purpose.

JJACPA, Inc. June 12, 2015 JJACPA, INC.

Dublin, CA


Page 89

City of Carmel-by-the-Sea Schedule of Findings and Responses


Finding 2012-1

Significant Deficiency - Inadequate Financial Management System

Condition:

The City’s computerized financial management system was not adequately setup to include proper accounts

and funds to easily trace amounts from the general ledger to the City’s financial statements.

Effect:

This necessitated the use of spreadsheets with redundant information, which is prone to error or incomplete

data transmission as a result of the manual entry to the spreadsheets. In addition, we noted that the City

does not have a disaster recovery plan for their technology systems, either in written form or in place in

the event City buildings become inaccessible.

Cause:

The City’s computerized financial management system is outdated and has not been replaced or updated.

Criteria:

Our audit was conducted under Government Auditing Standards issued by the Comptroller General of the

United States of America. Section 6.16 of those standards states, in part, “Information systems controls

are often an integral part of an entity’s internal control. The effectiveness of significant internal controls is

frequently dependent on the effectiveness of information systems controls. Thus, when obtaining an

understanding of internal control significant to the audit objectives, auditors should also determine whether

it is necessary to evaluate information systems controls.” Finding 2012-1 was a result of our evaluation

of the City’s information systems controls.

Recommendation:

We suggest, in conjunction with the design of a disaster recovery plan, City staff consider reviewing

financial backups of financial data offsite in an easily recoverable system. These systems should be

accessible to all City authorized personnel in a secure and organized manner with the production of

financial statements directly from general ledger information without the necessity for redundant manual

spreadsheets.

Status:

This finding was brought to the attention of the City Council during our Fiscal Year 2011-12 financial

statement audit. Management of the City began the process of implementing a new financial accounting

system. It appears that the plan has since been abandoned by the City.

Council Meeting Date: 08/04/2015


City of Carmel-by-the-Sea Schedule of Findings and Responses, Continued


Responsible Official’s Response:

Concur with condition and cause, but not status. The City’s financial system is outdated and does cause us

issues related to efficiency. An RFP was issued and suitable replacement system was identified in August,

2014, but we have been waiting for an IT Manager to be hired to spearhead and coordinate implementation.

Our new IT Manager started July 1, 2015, and the final selection and implementation is on his list of priorities.



City of Carmel-by-the-Sea Schedule of Findings and Responses, Continued


Finding 2014-01

Noncompliance with Continuing Disclosure Requirements of Pension Obligation Bonds

Condition:

The City did not complete its annual financial report by March 31, 2015.

Effect:

The City is noncompliant with provisions of its 2012 Taxable Pension Obligation Bonds.

Cause:

Delays in the preparation of the annual financial report held up issuance. The primary delay was due to

the actuarial valuation report for Other Postemployment Benefits (OPEB), which was not completed

until May 29, 2015. Government Accounting Standards Board Statement 45 requires a valuation and

corresponding report to be completed every three years by the City. The valuation and report are

necessary to estimate the Net OPEB Obligation reported on the Statement of Net Position.

Criteria:

The continuing disclosure requirements of the 2012 Taxable Pension Obligation Bonds states that the

City must provide financial information and operating data relating to the City no later than March 31

after the end of each Fiscal Year of the City (currently June 30th

).

Recommendation:

We recommend that the City complete its audited financial statements before March 31 after the end of

each Fiscal Year as required by the bond. For the years an OPEB actuarial valuation is required to be

performed, we suggest management schedule the valuation to be performed shortly after the end of the

fiscal year in order to receive the OPEB valuation with enough time to complete the annual financial

statements March 31.

Responsible Official’s Response:

Management concurs with finding and recommendation, and will schedule the next actuarial valuation

well in advance of requirement in order for the financial statements to be completed by March 31.

9


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