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The City of San Diego is ideally located in Southern California on the Pacific Coast near the U.S.- Mexico border.International trade with Mexico and the Port of San Diego has been major contributing factors to the growth and stability of the economy within this City.In the past, defense contracts made up the majority of the revenues that the city depended on for the budget.However, in recent years the shift has been more toward international trade, high-tech manufacturing and research, professional services and the tourism industry.With this shift in the business focus, San Diego has been one of the few successful cities in California to maintain its revenues, reduce its expenditures and report a somewhat secure financial status. Giving way to part of this success is the fact that San Diego has concentrated on improving its business assistance programs, cutting costs and changing policies to become more business friendly.Due to the success of the business incentive programs, the increase in tourism and the industry shift, San Diego has managed to maintain its revenues and balance its budget.The City follows GASB guidelines and reports its budgetary information accordingly.The mission of San Diego's city council is to provide cost effective accounting, auditing, and fiscal management services to the Mayor, City Council, and City management; to work in partnership with the Mayor, City Council, and City management to help create positive change and assist them in the performance of their mission; to protect the interests of the general public; and to enhance the reputation of San Diego as a fiscally well-managed City.
OVERVIEW
With the diversification of business in this City, the citizens have conformed and created an equally diverse populace.The population of this great city plays a large role in the law-making process.Through the Initiative and Referendum process, citizens of San Diego have the right to have any amendment or proposition brought before the city council as long as they have gathered signatures of at least three percent (%) of the city's registered voters. This process allows the citizens to bypass both State and Local legislators and have an issue of concern put directly on a ballot for voters to either pass or reject. Many of the changes brought before the council do not make it past the city meetings, however some of the requests do make it on the ballot for public election.Many propositions have been passed due to the public feeling the need to pass what they perceived as a protective measure against ¡§big government¡¨; however, they have created a shortfall for the government by limiting the funds available.
Total population of San Diego is 1,76,700, which is a 10% increase from the 10 census.The population growth has made this city the seventh largest in the country and the second largest within the state of California.Due to this increase in population, the city is increase its tax base and maintain its current budget status.The median age of San Diego's population is , with two-thirds less than age 5 and only 10% over 65. Because of the focus on the telecommunications industry, nearly one-third of San Diegos workforce is over the age of 5 and has at least a bachelors degree. Due to the close proximity to Mexico, the Hispanic representation in the community is 5% Hispanic helping to spark the international business contacts.The remaining population ratios are 4% White, 8% African American, and 1% Asian or other.
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Based on available data, more than 6% of San Diegans are currently employed, with the median family income approaching $40,000.Industries in San Diego have shifted from primarily defense in nature to manufacturing, tourism, international trade and agriculture. The telecommunications boom, software and biotech are among San Diegos fastest growing industries.San Diego has become the nations center for wireless industries with the city being dubbed Telecom Valley and a thriving port due to the available waterways in the San Diego area.
The City of San Diego encompasses 4.40 square miles of land giving the city a unique advantage of having room to expand and grow without the image of overcrowding.The majority of the citizens believe the quality of life within the city to be excellent.A total of 7,60 gross acres of land is set aside in Parks and Recreation sites and maintained by the Parks and Recreation Department.A staggering % of the land in San Diego is classified as vacant, allowing for additional growth.The remainder of the land is zoned as 7% for residential; % for public/semi-public; % for commercial/industrial; and 10% for agriculture.
With 7% of the available land deeded as residential and an additional % vacant, the opportunity for growth in the residential market is open to most anyone who would be interested.Housing in San Diego is handled primarily through two departments, The Affordable Housing Task Force and The Redevelopment Agency.The Affordable Housing Task Force consists of 0 members who represent community organizations and planning boards, housing and environmental supporters, charitable organizations, academics, affordable housing developers, realtors, apartment owners, business and labor. The primary responsibility of the Task Force is identifying areas of change that will result in an increase to the Citys affordable housing stock.The Redevelopment Agency of the City of San Diego was created by the City Council in 158 to alleviate conditions of blight in older, urban areas. This Agency is able to use special legal and financial methods to improve economic and physical conditions in selected areas of the City. The Redevelopment Agency obtained this authority through the state of Californias Health and Safety Code (Section 000-et.seq.), also known as the California Community Redevelopment Law. (City of San Diego, 00)
City documents report that the unemployment rate for 000 was at .0 percent, 001 was at .1 percent and the projected rate for 00 was .5 percent.At the Financial Forecast meeting in March 00, the unemployment rate as of January 00 was calculated at 4.4 percent.This is up from the projected numbers of 00 but well below the national and local levels.
San Diego's governmental structure is similar to most every city in the country with the various departments reporting to supervisors of the numerous programs such as Accounting Services, Auditing and Financial Computer Systems.Those supervisors in turn report to the City Auditor and the Comptroller, who answer to the City Council and finally, the Mayor.The citizens also play an important role in the governmental process due to their ability to bypass the legislators and have referendums presented directly to the general public.
BUDGETING
The City of San Diego's budgetary policies conform to Generally Accepted Accounting Principles (GAAP) applicable to governmental units. The accounts of the City are organized on the basis of funds or account groups, each of which is considered a separate accounting entity. The City's Governmental Funds and Expendable Trust and Agency Funds use the modified accrual basis of accounting. Governmental Fund Types are those through which most governmental functions of the City are financed and include the General Fund, Special Revenue Funds, Debt Service Funds, and Capital Project Funds.
The City of San Diego's Annual Fiscal Year 00 Budget incorporates the vision and priorities expressed by the Mayor and the City Council. In addition, the development of the Annual Fiscal Year 00 Budget took into consideration the priorities of each Council Member. Continuous departmental customer surveys and Community Budget Forums, where the City Manager and Council Members discuss the budget with various community groups, are areas where citizen input is implemented.
The City of San Diego's Budget Process begins annually every September.The Financial Management Department develops both the guidelines and the schedule for the budget preparation process.Beginning in October and lasting through December, Financial Management distributes the City Manager's budget policy guidelines to the departments and the Departments submit their base budget requests for review by the Financial Management Department. From December through March, the City Manager presents the initial budget status report to the Mayor and City Council and requests budget priorities and policy direction for the upcoming fiscal year. Citizen input on services and develop priorities is obtained for the City Manager's budget development.In March, the City Manager recommends a program of projects to be funded by Community Development Block Grant funds.Recommendations for funding are presented to the City Council for consideration. The Proposed Budget is finalized and the Financial Management Department prepares the Proposed Budget document.Next, the City Manager submits the Proposed Budget to the Mayor and City Council at the first City Council meeting in May and files a copy with the City Clerk's Office. Public comment is received at this time.The Mayor and City Council adopt the Annual Budget no later than the last City Council meeting in June. City Agency budget proposals are also presented to the Mayor and City Council in June.During July, citizen input is provided through Ordinance, which requires two noticed public hearings, usually held on consecutive days. This gives City officials the legal authority by the Mayor and City Council to expend resources.The Mayor and City Council adopt the Annual Tax Rate Ordinance no later than the last City Council meeting in August.In September the Financial Management Department prepares the Annual Budget and in October, the Annual Budget is printed and distributed
The City Council adopted a balanced budget for Fiscal Year 00 totaling $.1 billion including $7. million for General Fund expenditures, $680. million for Enterprise Fund operations, $88.4 million for Special Revenue Fund operations, $11.0 million for Debt Service and Tax Funds, and $411.4 million for Capital Improvements Program expenditures, with an adjustment for interfund transactions of $16. million.
RESOURCES
Once the budgets are approved and implemented, it is important to monitor the spending focus within the municipality and follow the manner in which they allocate and spend their resources.Financial resources for governmental funds include cash and other assets that it expects to be turned into cash during the normal course of operations. The city's highest source of revenue in recent years has been through the revenue received from Agencies and Private sector sources at 7%.Property and Sales taxes each account for 17% of revenues. Other sources of revenues for the city include Special assessments, other local taxes, licenses and permits, fines and forfeitures, charges for current services, revenues from the use of money and property and other miscellaneous sources.
Under the section ¡§Proposed Annual Budget Fiscal Year 004¡¨ summaries can be found for items such as their capital improvements programs and maintenance assessment. In ¡§Schedule 1 Summary of City Funds¡¨ there is a breakdown of what much of city revenue is spent on including salaries, citywide program expenditures, community and economic development, and development services. Improving the communities of San Diego has been a huge focus of the proposed 004 spending. The City feels that it is vital to restore neighborhoods in order to bring in more residents and a greater sense of pride in the communities. It is an issue of importance that is clearly reflected in the city's budget.
As such the Citizen's Assistance department Citizens Assistance administers the Citywide Route Slip System and Assignment Information Management Tracking System for responses to public inquiries, complaints and service requests directed to the Citys legislative officials and City Manager. This Department also performs ombudsman services, and is responsible for tracking City Council Priorities and providing quarterly updates to the City Council.Since the Citizens Assistance Department now has its own budget, it will explore funding options in order to pursue the consolidation and automation of the Assignment Information Management Tracking System, and the Route Slip Tracking System, which are systems used to respond to inquiries and complaints.Also, in fiscal year 00, the Citizens Assistance Department will begin a new process to transfer the City Council Priorities into a CD-ROM format for a simplified and more widespread transmittal.To allow for the cost of this department some budgetary adjustments were made, such as, a reduction in the supplies and services accounts was made.
The city of San Diego also has a Special Projects department that is composed of several distinct programs with unique responsibilities. The functions of the programs include coordinating citywide special projects, events and volunteer efforts; providing information and services to increase the accessibility of City services to communities; and raising funds to enhance City projects and programs.San Diego has seen it is necessary to have unique departments and programs in order to help the city prosper and grow.
Comparing prior year budgets to the current budget, there were reductions made in the General Fund with a % reduction from the prior year as well as several vacant positions being eliminated in order to save budgeted funds.All other funds remained constant with the prior year's budget and no layoffs had to be scheduled.The city was also able to plan for the additional resources that could be available to San Diego due to SuperBowl XXXVII, scheduled for January 00.Expenditures matched budgeted revenues in the General Fund, Special revenue funds expenditures exceeded budgeted revenues by 47.6 million, Enterprise Funds expenditures exceeded budgeted revenues by .8 million with 168.0 million coming from prior year and 14.4 million coming from reserves.Original budget for Capital Project funds were 411.4 million with actual expenditures reported at 14.1 million.Budgeted Expenditures for Internal Service funds were 10.5 million with the restricted use for purchases of services and products from other internal funds.Interfund transaction adjustments were included for a total of($16.) million.The Interfund transaction account is used to move resources into those funds in need of additional resources to complete the fiscal year.(City of San Diego, 00)
CAPITAL PROJECTS
The capital projects that the municipality participates in can have a dramatic effect on their financial statements and can have a huge impact on the users of those financial statements. Questions that should be answered regarding the Capital Projects information should include
1.Will the projects become long-lived assets?
.What types of long-term debts will the municipality incur in completing the capital project?
.What are the repayment provisions?
In July 00, the City Manager was directed by the City Council to implement a program that would pre-qualify contractors for City public works projects to construct, replace and improve the Citys aging infrastructure. As a result of this directive, the Engineering and Capital Projects Department developed and implemented a Contractor Pre-Qualification Pilot Program.Effective February 1, 00, contractors bidding as a prime contractor for City of San Diego public works projects, which exceed $50,000, must be pre-qualified. In order to become pre-qualified, the Pre-Qualification Questionnaire and required Financial Statements must be submitted for review and scoring. Once pre-qualified, contractors will retain that status for one year following notice of qualification. The type of Financial Statements required depends on the range of projects the contractor is interested in bidding.
Project Range Required Financial Statements
$50K - $1 MillionCompiled Financial Statements
$1,000,001 - $10 MillionReviewed Financial Statements
$10,000,001 and aboveAudited Financial Statements
The process for pre-qualification involved a structured process that must be completed and followed by all contractors interested in completing any projects for the city.They were required to complete and submit the pre-qualification questionnaire, along with appropriate financial statements; city staff was to verify the information submitted in the questionnaire and financial statements, and interviews with the contractors previous clients; the city staff would use standardized rating criteria to evaluate and score the questionnaire and interviews, and will determine the contractors maximum bidding capacity; once pre-qualified, contractors would have one-year eligibility to bid on City projects with an annual renewal of pre-qualification status being required.After the decision has been made that there is a need for the capital projects, a notification is sent out to receive bids on the projects.As stated earlier, if the cost is more than $50,000 a pre-qualification is required of all contractors.The division in need of the project must interview prospective constructors and submit its selections to the City Manager.The construction award phase begins with the purchasing agent for construction bids. As soon as the low bidder has been identified, the project manager requests for City Manager action or City Council action. The contractor provides the City with the appropriate documents and a contract is issued. The Purchasing Agent then sends a Notice to Proceed to the Field Engineering Division of Engineering and Capital Projects and the project is now under their jurisdiction.
Once the contracts are signed, the project now has a cost associated with it and the City is required to record these resources in the Capital Projects fund.
The Capital Projects fund include public improvement projects that encompass building fire stations, libraries, parks and parks buildings, police stations, bikeways, drainage, streetlights, traffic signals, street improvements, and water and sewer facilities. The Water Department has three projects that they are working on; The City's Bayview Reservoir Replacement Project, the Mid-City Pipeline Project and the Waring Road Pump Station Project.All three projects are part of the City of San Diego Water Department's citywide Capital Improvements Program. Water infrastructure improvements (replacements, upgrades and expansions) are underway throughout the City's water system, including pipelines, water pump stations, reservoirs and treatment plants. These improvements will help ensure a safe and reliable water supply, protecting the region's job base, environment, and overall quality of life for generations to come. The Metropolitan Wastewater Department (MWWD) provides regional wastewater treatment and disposal service for two million people living and working in 16 local cities and districts. Upon completion of the publicly used sewer lines, sewer pump stations, water treatment plants, and other water and sewer related projects, these Capital Projects under construction would be included as fixed capital assets.
Fixed capital assets provide services in periods beyond those in which they are completed or acquired.As such, these assets will be classified as long-lived assets.Long-lived assets are a key component of many of the services provided by any government.They include its police cars, administrative buildings, and its utility lines and roads.All of the projects currently under construction meet the criteria.All completed projects would be classified as long-lived assets and would be subject to the new GASB Statement No. 4, which requires governments to show depreciation of their assets on their full accrual, government-wide statements.
The Capital Projects are funded in a variety of ways.The Capital Outlay Funds are used exclusively for the acquisition, construction and completion of permanent public improvements, replacement or reconstruction of public facilities, including buildings, real property, and other improvements of a permanent character. Repair or maintenance expenditures cannot be made from the Capital Outlay Funds. Revenue for the Capital Outlay Funds is derived primarily from an annual Sales Tax allocation, but it can come from other sources per Section 77 of the San Diego City Charter. In addition, certain projects have allocations of Housing and Urban Development Section 108 loan funding. These loans are received during the fiscal year, and they are paid back in anticipation of future Community Development Block Grant receipts.Split Funding is a method by which two different revenue sources are used to fund a capital project on a percentage basis. This approach is most commonly used in the Water, Metropolitan Wastewater, and Airports Capital Improvements Programs to differentiate revenue sources that are frequently used for projects within these programs.The city of San Diego also funds its capital projects from revenues, fees, and service revenues from the various entities within the city.The city itself has little long-term debt to fund any of its capital projects.
One of the most important factors involved when discussing the capital projects that the city of San Diego may be affiliated with is what are the repayment provisions? A huge of money is poured into these causes, it is important for all involved to be able to realize just when and how this money is to be repaid. A capital project that the city of San Diego has borrowed funds for is the construction of a new community center.Funds will be used for a new senior center as well as public works improvement projects, among other items. The terms of repayment on this particular loan is twenty years. ¡§By agreement with the SEDC, $100,000 of tax increment will be transferred to the city annually for their share of the repayment and the city will allocate the remainder of the repayment from District 4's annual CDBG allocation.¡¨ Security and collateral is also discussed for this loan. The collateral will have to be identified before any approval. ¡§The senior center will be built on parkland and the city is still reviewing legal issues regarding the use of such property as collateral.¡¨
Clearly, many areas of the city of San Diego's budget and other financial statements can be greatly affected by the capital projects that the city is involved in. Decisions for the future must take these projects into consideration and be able to calculate if they will play a positive or negative role in the city's financial affairs. Each factor involved, will the projects be considered long-lived assets, what types of long-term debts may occur and what are the repayment provisions, are all vital questions that have been asked and analyzed for their affect on San Diego. (City of San Diego, 00)
CAFR
As stated in the text, the Management Discussion and Analysis (MD&A) included all the necessary information such as a brief description of the financial statements, an analysis of the government's overall financial position, changes in the capital assets, and a discussion of the condition of infrastructure assets, just to name a few.The City of San Diego appears to be adhering to all requirements set forth by GASB statements.The MD&A also explained that the City of San Diego had implemented the new GASB Statement No. 4 which required the municipality to report its financial data in the government-wide format.
The Notes to the Financial Statements include the overview for the various policies of the city, fund activity and balances, and summary of the financial statements.The Notes include
¤Summary of Significant policies
¤Reconciliation of Government-wide and Fund Financial Statements
¤Cash and investments
¤Capital Assets
¤Governmental activities Long-term debt
¤Business-Type Activities Long-term Debt
¤Discretely presented component unit long-term debt
¤Governmental activities short-term debt
¤Discretely presented component unit short-term debt
¤Lease commitments
¤Deferred compensation plan
¤Pension Plans
¤Post Retirement Health Insurance
¤Interfund receivables, payables, and transfers
¤Risk Management
¤Fund Deficit
¤Commitments
¤Contingencies
¤Third party debt
¤Closure & Pot Closure Care Cost
¤Operating Agreements
¤Restatement of beginning balances
¤Subsequent events
The additional disclosure that was required and that was not included in the Management Discussion and Analysis was pertaining to the San Diego City Employees Retirement System (SDCERS).Effective June 0, 001, the fund was 8.% fund, which is indicative of sound financial health for a benefit plan.
The major fund types used by the City of San Diego include the General Fund, Enterprise Fund, Special Revenue Fund, Capital Improvements, and the Debt Service and Tax funds.The General Fund is the only fund that could be affected by the current recession due to the State of California currently reporting a deficit of $6 - $5 million.The Enterprise Fund, Special Revenue Fund, Capital Improvements Fund and the Debt Service and Tax Funds are all fully funded either by prior distributions or current user fee revenues staying at the level required to cover expenditures.
The current account groups listed within the MD&A included Capital Assets and Outstanding Debt.The financial data was listed in detail with specific assets listed in the two-column format and the debt detail included how the revenues were distributed by government activities and business type activities.
The City of San Diego originally passed a balanced budget totaling .1 billion dollars.Although the current budget that was presented was balanced at the time it was approved, there are now issues with being able to remain within the budgeted perimeters including a shortfall in revenues due to the slow economy.The projected shortfall in the General Fund revenues is expected to be $0 million due to the State of California being in deficit mode as well.Due to the increases in health care costs, the General Funds Worker's Compensation expenditures are expected to be $6 - $8 million over budget.
While the economic forecast for the near future is uncertain, the City Manager, the City Auditor and Comptroller and the departments have been working diligently to resolve the issues and end the year with a balanced budget, as required in the City Charter.Some of the steps taken to date to help reduce the deficit include an increase of Vehicle License fees, reduction in non-essential maintenance and repairs in the Parks and Recreation Department as well as for the Library system, street improvements will done on an as needed basis with a determination of the importance of the repairs, any open positions within the Fire and Police departments will remain unfilled and all unnecessary training will be deferred.However, looking at the national trends, the City of San Diego has been performing better than the national and State averages due to the housing market and San Diego's diversified economic base.While the unemployment numbers may be higher than the previous year, they are still lower than the national average.San Diego is maintaining a constant line of revenues during this time of recession due to the diligence of the city officials and the citizens.
References
City of San Diego.(00, October). Annual Fiscal Year 00 Budget ¡V San Diego at a Glance. [Online]. Available http//www.sannet.gov/budget/annual (00, June ).
Granof, Michael H. (001). Government and Not-for-Profit Accounting (second ed). New York John Wiley & Sons, Inc.
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