Mayor Andy Klein Responds To Civil Grand Jury Report

Mayor Andy Klein wrote a letter to Judge Joseph Bergeron responding to a civil grand jury report regarding San Mateo County fund balances. The will vote Monday night whether to approve the sending of the letter.

Below is the city’s response to the grand jury report’s findings and recommendations:

Findings

1. The amount of financial information cities and the County make available on their respective public websites varies widely, ranging from a minimum of just the current year's budget to the last ten years of both Comprehensive Annual Financial Reports (CAFRs) and Approved Annual Budgets.

Response: We agree with the finding. San Carlos provides the Annual City Budget, the Comprehensive Annual Financial Report (CAFR) and Quarterly Financial Reports on the City Web Site in addition to providing this information to the City Council, City Department Heads and the public.

2. Government accounting systems and financial statements provided to the public are complex and not readily understandable to the average citizen trying to assess the financial health of their city or County.

Response: We partially disagree with the finding. As noted in Finding # 1, the City provides the Budget, CAFR and Quarterly Financial Reports to the public. The City has added information to these documents designed to increase public understanding of City finances. In particular, the Quarterly Financial Reports and the City Budget provide a wealth of information for the public in a comprehensive yet easy to understand way.

3. Four cities (Brisbane, Colma, Pacifica, and Portola Valley) did not have 2010 CAFRs posted to their websites as of March 11, 2011, almost nine months after the close of the fiscal year.

Response: We agree with the finding. The CAFR is posted annually on the City of San Carlos Web Site.

4. All cities and the County had Unreserved General Fund Balances (reserves) consistent with GASB 34 recommended standards going into the recession, and have managed through the last three years in a way that maintained reserves on June 30,2010 that were still above those minimum levels.

Response: We agree with the finding. As the Grand Jury report notes, San Carlos reserves are above the GASB 34 recommended levels. In addition, San Carlos is one of 8 cities in the County where these reserves have increased during the period since 2007 (+36%) while 7 cities and the county utilized some reserves (-6% to -38%) and 5 cities used a “significantly greater” amount of reserves (-44% to -51%) during this period.

5. All cities and the County maintained GASB 34 minimum recommended levels of reserves, whether or not they had city council approved policies requiring maintenance of defined levels of reserves.

Response: We agree with the finding. San Carlos reserves are above the GASB 34 recommended levels as noted in Finding # 4. They are also above the City Council’s policy of a minimum level of reserves of 10% of the General Fund.

6. Some city policies are written to apply to "reserves" and not explicitly to the unreserved component of them as recommended by GASB 34. This allows for inclusion of funds not available for discretionary spending.

Response: We agree with the finding. San Carlos has in excess of 10% of reserves in the unrestricted (or unreserved) portion of the General Fund.

7. All cities complied with their own policies (where policies existed) from 2007-10 with respect to reserves, even in those few cases where those policies required higher levels than those recommended by GASB 34.

Response: We agree with the finding. San Carlos is in compliance with GASB 34 and the City Council reserve policy.

8. Confusion as to how governments categorized and interpreted what portion of fund balance was available for discretionary spending led to development of a new GASB 54 standard, effective for all financial statements after June 30, 2011, which provides more structure and clarity around constraints placed on fund balances. San Mateo County implemented GASB 54 early, with the new terminology reflected in its FY 2010 CAFR. No cities in San Mateo County have implemented GASB 54 early.

Response: We agree with the finding. San Carlos will implement GASB 54 on or before the date set in the GASB standard.

9. One city (Millbrae) had a Running Liquidity below 90 days.

Response: We agree with the finding. The Grand Jury report shows that San Carlos had 154 days of Running Liquidity as of 2010 and the number has increased since that time.

10. All cities and the County are fully funding their Annual Required Contribution to CALPERS or SamCERA for retiree pension funding.

Response: We agree with the finding.

11. Ten participating cities are not making their full actuarially determined Other Post Employment Benefit (OPEB) payments for retiree health care benefits, with three cities (Atherton, Brisbane, Foster City) having paid at less than an average of 25 percent for the last two years.

Response: We agree with the finding. The Grand Jury report notes that San Carlos is one of the cities in the County that is making their full actuarially determined OPEB payments for retiree health care benefits. In addition, San Carlos has reduced the future cost of these benefits by ending the retiree health care benefit for newly hired employees in several employee groups including the Management Unit and the San Carlos Fire Department.

Recommendations:

 Either revise the existing or implement a new policy for specific levels of reserves using language consistent with the new GASB Statement 54 hierarchy.

Response: We agree with the finding. The City is developing a policy to respond to GASB Statement 54.

2. Direct City Managers & the County Manager to direct their Finance Directors to collaboratively develop a standard “scorecard” that shows how the City is doing with respect to key measures of financial health and make this available on the City website. Update it at least semi-annually or when major changes occur.

Response: We agree with the finding. The San Carlos Finance Division has prepared a Quarterly Financial Report on the City’s revenues, expenses and financial trends for many years. This report is provided to the City Council and is posted for public view on the City Web Site. The City plans to continue this program in to the future.

3. Direct the City Managers & the County Manager to formally evaluate the value of a clearly defined Running Liquidity metric as an additional measure of the fiscal health of a City or the County with specific target minimums, and make a specific recommendation back to the City Council or the County Board of Supervisors for action.

Response: We agree with the finding. The San Carlos Finance Division will review the potential of adding Running Liquidity to annual financial documents including the City Budget and the Comprehensive Annual Financial Report (CAFR) in the future.