Comprehensive Annual Financial Report - City of Santa Monica

CITY OF SANTA MONICA, CALIFORNIA
Management’s Discussion and Analysis, Continued
Year ended June 30, 2008
Governmental Activities. Governmental activities increased the City’s governmental activities net
assets by $1.7 million for the current fiscal year, accounting for 28.2% of the $6.0 million growth in the
net assets of the City. It should be noted that although the current fiscal year resulted in a net asset
increase, ending net assets showed a $6.7 million decline in governmental activities due to prior year
adjustments of $8.4 million. The decrease was primarily due to the settlement of a legal dispute. The City
had been involved in a dispute with a law firm who represented the City in connection with a settlement
reached with various oil companies over the contamination of the City’s aquifers. The dispute was
resolved with the City paying the law firm $55 million.
Business-type Activities. Business-type activities increased the City’s net assets by $4.3 million for the
current fiscal year, thereby accounting for 71.8% of the growth in the net assets of the City. A key
element of this increase was transfers in of $2.8 million for current year’s operations.
FINANCIAL ANALYSIS OF THE CITY'S MAJOR FUNDS
As noted earlier, the City uses fund accounting to demonstrate compliance with finance-related legal
requirements.
Governmental funds. The focus of the City’s governmental funds is to provide information on nearterm
inflows, outflows, and balances of spendable resources. Such information is useful in assessing the
City’s financial requirements. In particular unreserved fund balance may serve as a useful measure of a
government’s net resources available for spending at the end of the fiscal year.
At the end of the current fiscal year, the City’s governmental funds reported total fund balances of $426.1
million, $51.6 million or 10.8% decrease in comparison with the prior year. Approximately $127.2
million or 29.8% total fund balances constitutes unreserved (designated and undesignated) fund balance,
which is available to meet the City’s current and future needs. The remainder of fund balance is reserved
to indicate that it is not available for new spending because it has been committed to a variety of restricted
purposes. Restrictions, commitments, or other limitations do not significantly affect the availability of
fund resources for future use.
General Fund
The General Fund is the chief operating fund of the City. At the end of the current fiscal year, the
unreserved (designated and undesignated) fund balance of the General Fund was $67.7 million, while
total fund balance was $148.8 million, which was $6.9 million or 4.4% less than the prior year’s General
Fund total fund balance. As a measure of the General Fund’s liquidity, it may be useful to compare both
unreserved fund balance and total fund balance to total fund expenditures. Unreserved fund balance
represents 28.2% of total General Fund expenditures, while total fund balance represents 62.0% of total
General Fund expenditures.
The City’s management also designates unreserved fund balance to a particular function, project or
activity. Fund balance may also be designated for purposes beyond the current year. However,
designated fund balance is available for appropriation at any time. Of the $67.7 million General Fund
unreserved fund balance, 92.4% is designated. The most significant designations are $25.3 million for
operating contingency, $8.2 million for UUT revenue loss, $1.6 million for environmental mitigation,
$3.3 million for City Hall renovation, $2.4 million for fire vehicle replacement, $2.6 million for PERS
contributions and $9.2 million for compensated absences. Unreserved and undesignated fund balance at
year-end was $5.2 million. This amount constitutes funds available for spending at the government’s
discretion.
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