in december th meeting of the santa barbara city finance committee and we only have one item agenda there is nobody in the audience so we do not have anyone who is here for public comment on items that are not on the agenda actually now we do have someone  so this is an opportunity for folks to comment on items that are not on the agenda and seeing no one will continue with the item they will single item which is the comprehensive annual financial report for the fiscal year ended june th two thousand and sixteen mister smart  it gets because it's it's not forward looking this is looking back and it's looking at how we did last year and its five year five months you know after the year end so some people think it's a little you know later than that you know then it should be but it takes that much time to put th talking document together i will say that the process starts in july and it goes all the way to now with closing the books getting ready for the audit working with the auditors during that period of time that they're here and then producing this document and it's a lot of time and effort thomashefsky this is our second time doing this he's only been with the city about fifteen months and she said done a tremendous job and making sure this is done on time it's done efficiently and without a lot of drama and because this could be you know there's a lot of stress involved  recognize the amount of work required to put this together and i recognize their work and with that i'll turn it over to  good afternoon chair heart committee members i am jennifer thomashefsky i am the accounting manager for the finance department and as mister samar you stated i will be going over the comprehensive annual financial report or as we call it the kafir for fiscal year two thousand and sixteen so i will be going over some background information on the capper some of the layout and contents of the report some so first off what is the kaffir it's an annual financial report prepared in accordance with nationally recognized accounting and financial reporting standards or according to gaap accounting it presents the financial condition and the results of operations of the city as a whole and also for individual funds it's comprehensive because it includes information that's not required by financial reporting regulations which allows it to qualify for the gfo a award program and we did receive that last year and it was the thirteenth year in a row we've received that award so we're going for your number fourteen now hopefully so it also provides the reader with more information about the city's finances so why is the kafir prepared it's perfect its prepared because it's well the city charter requires the preparation of an annual financial report that is audited by an independent cpa it's required by state law bond rating agencies use them to determine credit risk and to set interest rates and it provides important information about the city's finances to the and therefore the risk we are to the investors and you know what shows reserve balances and all that but it's an important talk in that regard so they look to that document primarily as a way to measure or what kind of financial condition we're in and looking individual funds like waste so next we're going to look at the contents and the layout of the report there are three sections to the kafir the first being the introduct the introductory section which is unaudited and it's comprised of the letter of transmittal this is prepared by the finance director and the suny administrator and it provides information about the city as well as about the kafir and then there's also supplemental information such as the organizational charts board and boards  commissions the prior year gfo a and then the next section is the financial section and this is the portion of the report that's covered under the audit opinion and mister kikuchi will be going over the independent auditors report next the mdna this is a comparative analysis from fiscal year fifteen to the fiscal year sixteen and basically it's a narrative that helps give some perspective to the activity that happened throughout the year the next item is the basic financial statements this will be where we spend most of the conversation today and then the notes that's also support the financial statements and then the last section is the statistical section and that is also unaudited and this gives ten year financial trend information so it helps put some context to the information you see in the report  to show trends over time and it also provides various financial and demographic information so some financial highlights so we are also going to talk about some of the impacts of recent gatsby pronouncements we're going to look at some of the government with the government wide statements and the individual fund statements and then some key footnote disclosure so as far as impacts of gatsby sixty hour gatsby pronouncements the main change in the last couple years has been gatsby statement number sixty eight which relates to accounting and financial reporting for pensions this was adopted in two thousand and twelve but actually took effect last year and there were three key changes to that first the unfunded portion of pension obligations are now reported as the net pension liability on the financial statements rather than just a footnote disclosure and it also another change is the net pension liability is also reported as total liabilities minus the fair value as opposed to the actuarial value actuarial value tends to be a little bit slower to react to the market you know you look like you're ready to jump in okay and then additional required disclosures we went from about four pages of footnotes to about eleven and a half so there's a lot more information in the body of the report so this is a pretty big deal you know where everyone said well gatsby comes up with you know some pronouncement that has a meaning for substantial impact this is a big deal because this is about the unfunded liabilities that agencies saying you know it's not getting enough press and not getting enough recognition so we are now requiring that or they requiring that they we actually include that as a liability and the financial statement so it's like whether we have bonds outstanding now this is one of those liabilities and it's big for some cities it puts them sort of upside down but it's now on the face of the financial statements versus just a disclosure so it's a significant and we'll talk more about those numbers but just why don't you appreciate the significance  ok so now we're going to go into the government wide financial statements and in the kafir we we report on a government wide and a government wide basis and then in individual fund financials and just to explain what government wide financial statements are back in two thousand and one gatsby thirty four was implemented and that required agencies to report on an accrual basis showing all assets and liability liabilities and the purpose was to have agencies present financial information as a whole in a manner similar to the private sector whereas fun financial statements have a more short term focus so first we're going to look at the government wide and what we see here this is the government wide statement of net position you can see this on page twenty eight of your cafer report and again this is full accrual reporting and the purpose is to identify the financial condition of the city as a whole as i stated and to show the overall health of the city at a point in time in this case june th two thousand and sixteen it's broken into two categories we have our governmental activities and our business type activities governmental activities these are the programs associated with traditional local government and supported by general revenues taxes franchise fees so forth and  these would include the general fund affordable housing special revenue funds and internal service funds whereas the business type activities these are going to be the enterprise funds and they rely primarily on user fees and charges to fund their operations so that those are the two main differences in this first section we see that the total assets for the city at the end of the year were about one two million or billion sorry and below that you see deferred outflows of resources those are similar to assets next we have liabilities and what you see here is about four hundred and ninety two  million and more than half of that you'll see in the middle the middle line the net pension liability here's the effects of gatsby sixty eight right here so you see that two hundred and fifty million relates to now putting that total net pension liability on the books and then below that you see deferred inflows of resources those are similar to liabilities and then in the bottom the net position we actually have three categories here so this is basically the assets minus the liabilities for a net position about seven hundred and thirty three million and of those three categories the first and the largest being the net investment in capital assets so this is all the city assets minus any accumulated depreciation in any long term debt associated with either purchasing or constructing those assets and then the second section the restricted these are items that are restricted by external sources such as grand tours contributors or by law or regulation and of that ninety three it's ninety three million about fifty two million of that is related to affordable housing so and then the last section is unrestricted and again what you'll see here is this is actually in a negative this is a negative one hundred and forty nine million also as a result of having to now book the net pension liability so if you back out that net pension liability the unrestricted net assets or net position would be about one hundred and one point four million so that is the part that's it's basically the difference it's the unfunded portion and in terms of a weka working definition would this be what we're going to a down the line for current and past employees that's not being funded currently  correct so because i know where this is an accrual definition but does it map out to a cash flow definition or is that too hard to to map out yeah that's a great question between remember dominguez it's probably more on a cash basis but you know that of come out with a funding strategy or plan that says we will we will fund this person's obligation and pension obligation during the course of their employment and they basically said okay here's the path where every time is are we on track with what we're supposed to have along that funding curve so we're halfway through we should have happened amount of money accrued or built up and so they compared that number to what we actually have in the bank and with pers in terms of in what we've contributed up until then okay great thanks councilman right thank you chair and so what's the purse there's the percent and rides along and that and maybe that's in here what is that percent  okay so the next slide this represents the statement of activities and again for this discussion we're looking at the governmental activities on the next slide we'll look at the business type activities but the purpose of this is to identify how the financial position changed for the over the year and the other purpose is to identify what governmental activities are being subsidized by those general revenues  so for example we look at the public safety program and we see public safety cost about sixty three and a half million and it generated program revenues of about fourteen million for  deficit of about forty nine million that forty nine million is represents about seventy eight percent of the cost of all those public safety programs which are subsidized through the general revenues taxes franchise fees so forth whereas like community services it was supplemented about eleven and a half million so that's about forty four percent of their program costs so the net deficit being seventy two million was offset you know a little head of myself by general revenues of about a hundred and twenty one million which you see below and the net change for the year in position is about forty nine million now this is a little bit higher than we would typically see and the main the largest portion of that you'll see right above is the extraordinary items this twenty three million represents the  final transfer from the successor agency to the city and for paseo nuevo and railroad depot i believe and there was some small amount of that's mostly land but there were some small under not fully depreciated improvements as well but we would not typically see that so in a very unusual presentation you know that this is trying to sort of say how much does do teach of these functions require why we have subsidy from taxes essentially gazi felt that that was important it probably is i mean it's more intuitive you would expect that public safety is not out there trying to generate revenue through fees that they what they just sort of safety to our community and so their before they would be highly subsidized from taxes and you can see that's demonstrated here so that's kind of the idea administration you would expect to be subsidized substantially because it doesn't it you know doesn't generate fees but overall about half  costs are subsidized through revenues and have them are recovered through fees which is you know which is  any more questions before i continue ok so in the next slide is going to be the same format except these are the business type activities and in contrast what you see here is the expended the expenses for the we're about a hundred and eighteen million compared to revenues of about one hundred and thirty three million so you see these operations were supported by the program revenues and there was a little bit of an enough i can't say that word anomaly in water but we'll look at water on a subsequent slide as well but water was the main contributor to that increase to the net position so again  the net surplus at the end of the year for the programs were a little less than sixteen million and then when you look at the general revenues those are much obviously much smaller than in the governmental activities and mainly investment income for a total change in that position of a little less than seventeen million so you're a different story because the enterprise funds essentially aren't covered by any taxes or there's no subsidy going on everything they do has to be recovered from fees so that you can see they actually generated a surplus in almost all cases because that's what helps them fund their capital programs you know in the like so their expenses our operating expenses and then they generate surpluses for poor capital so next we are going to look at the individual fund financial statements and again these represent a more short term focus and they're reported on a modified accrual basis so they they don't include capital assets or long term debt the city has many individual funds for this presentation we're only going to be looking at a few of them first we're going to look at the general fund and so what we see here again no capital assets or long term debt and in total assets are about forty five million compared to liability liabilities of about nine three million for a total fund balance of about thirty thirty five point nine million and front fund balance is actually broken into four different categories so non spendable that two seven million that's going to be tied to loans receivable and advances where as restricted these are going to be external restrictions by creditors or grand tours those are mainly going to be enc ances and then the largest amount that we see here are the committed and these are amounts constrained by formal action by city council these are our policy reserves these are going to be our contingency and disaster reserves and then a small amount to assigned and assigned these are amounts constrained to be used for specific purpose as designated by the city administrator or the finance director and these typically include carryforwards at the end of the year policy reserves are still fully funded so on this next slide we look at the general fund final results so here this is basically the budget to actual comparison and we have gone through these i think we went through the preliminary results in the fourth quarter report but what we see here is revenues including transfers were budgeted to come in about one hundred and twenty seven million with expenditures estimated to be a little over twenty eight and a half million so when we created the budget we anticipated a deficit to be funded through reserves  for capital but what actually happened is revenues came in slightly higher than expenditures for a surplus of about two seven million so even though  revenues were down five two million expenditures were down even more than that nine three million so this created a budget to actual variance of about four million now this does not include the twenty percent surplus that we normally transfer at year in to fund future capital that went in the first quarter of this year so if we were to put that into this number it'd be about a little less than three and a half million results so any questions before i move on from the general fund councilmember dingus thank you the excess figure here the negative one four million now is that because we had adjust to the budget through the year that we have a negative that we have a deficit as opposed to a balanced or well this included our revised budget but we could potentially have an original budget that would be backwards that are you know have a deficit situation if it was estimated to use reserves think what happens and i may have a spoke so i'm assuming the expenditures here include capital the transfers so so that one  three million dollars is that represents that the fact that when the beginning of the year one of the first things we do is we carry over appropriations from the prior year that are unspent that is the authorized projects and capital and those kinds of things and that immediately sort of create there's no funding source other than reserves to pay for them and these numbers are back to a cash flow system yep so then the the other question just going back to the previous slides where is the reserve reflected so on page twenty eight under current assets would the reserves be in the pooled cash and investments true so you look at the assets above it generally speaking it's the cash and investments of twenty seven but we don't really look at it that way i mean it's essentially what it is but you're the fund balance the bottom third represents the difference assets minus all the liabilities into a net number that is allocated toward those reserves but largely it's really made up because the assets is the biggest number i mean cash investments the biggest number up there as coarsely of course that's the biggest driver sorry i have to go back through all my little circles here huh okay so next we're going to look at the water fund you know with the drought we figured it would be a you know a good fun to point out and go through  given the drought so so this slide shows the final results for the water funds so again we see it the numbers are going to be close to how they were reported in the governmental and the government wide there you know there are different journal entries that happen but i mean they're they're close for the for this discussion so we see that what the water fund brought in about forty forty five point three million in revenues compared to about thirty four million in expenditures and then we also include some non operating items such as an interest capital contribution contributions for an estimated change in that position about an eleven and a half million and to put some context to this if we were to look at this  slide from last year we would have seen that operating revenues were down they were about thirty five million compared to operating expenses of about forty one million so it was upside down last year so at that time rates were increased to compensate for those deficits in the next slide we're going to look at the reserves to put some context to this eleven million and then what happened this year is the rates were increased and then the operating expenses actually there were some savings throughout the year that weren't anticipated when our public works staff had anticipated there was a savings from i think we received about a two million dollar credit from the water purchases for a true up from the a year there there were a lot of things that happen but they're operate their water operating costs were much lower than they had originally expected so that created this eleven and a half million dollar surplus but to put some context to this when you look at the reserves the first section is the policy reserves and that's really just for your information to see the makeup of the policy reserves for water so in fiscal year fifteen those reserves were a little over eighteen million and then in sixteen they were a little less so you know a reduction of a little less than half a million but the important thing to look at here is the bottom half of this slide so in fifteen we see there were the effects of being upside down in the water the revenues coming in much lower than the expenses  and the change in that the nine three million that's the main part of that eleven and a half million that we looked at on the last slide it's not just the eleven and a half million goes straight into reserves  carry forwards and you know other categories that some of that went to but for the most part here's the effects of that so we see fifteen was upside down about five eight million and their available reserves  fiscal year fifteen and at the end of sixteen they were in a surplus situation for reserve available reserves of about three five million but this doesn't mean that water is quite out of the woods because if you look at their seventeen budget they had actually anticipated a little over seven and a half million of reserves to fund this year so public works staff is aware of this and they're actively looking at their options for funding their water activities but we just wanted to put some context to that so is there any questions on this before i move on i just want to point out this to me this is good news we were surprised to see the extent that there's a surplus seven million dollars going into reserves we didn't expect that revenues we thought would a lot less than they came in almost had budget but it's really on the expenditure side that things just helped us because we were having to look at rate at least a chunk of that is the surprise i would imagine it would come out of the rain in northern california and us being able to buy water substantially more cheaply than we had previously budgeted so it certainly doesn't account for all of  but at least it was one chunk of savings that occurred okay so the next fund we're looking at is the self insurance fund and for the kafir presentation it's actually combined in the in the kafir report it's actually combining t funds so the self insurance fund and the post employment benefits fund are actually combined in the report in the kafir so the self insurance trust fund over the last few years this has shown a deficit due to higher estimated claim liability liabilities so we see at the bottom the unrestricted it's in a deficit situation of about six and a half a million dollars at the end of sixteen and the op ed fund this one was new and i think fiscal years prior to fourteen all these liabilities for the post employment benefits were actually spread to all the other funds and in fourteen it was decided to pull them into this internal service fund so we could see what that true liability was for the city in total and this includes you know we've talked to you i think a few times about the workers comp situation just bigger claims not more for claims but just higher dollar value claims and the actuaries every two years you know we they give us a report says here's what we think you should sort of have in the bank almost like claims and what they expect the future to look like statistically and we are short whereas you know essentially we're about six and half million are short and we're working internally to figure out how we can make up for that because you know this is going to be a difficult time for us to be raising you know charges to all their into all the funds to try to recover some of that deficit but it is the number we're gonna eventually have to deal with we've just had some a few bad years things could turn around the next few years we have fewer claims or if you know large claims will have to continue to monitor this basically fund operations to help help us get over the the terrible time so there had been some good years of at first these claims that were talking about so that was that that was a part of the cushion that that we used up  in order to dig our way out of that out of the crash okay so next we go into some of the key footnote disclosures so one of the key areas for the footnote disclosures relates to pensions and you can find this it's a footnote nine pages sixty nine through eighty in the actual report but the next three slides they're a little bit new this year we thought it would be helpful to see a five year trend in the funding of these plans so this first this first slide is specific to the miscellaneous plan and what we see here is the blue bars represent the actuarial accrued liability and as you can see over the last few years it's gone up it was going up the first three years about twenty to twenty five million a year and then between fourteen and fifteen you see a little bit bigger bump upward and that was about eighty million and what that represented was c their assumptions for mortality rates and they realized that they weren't you know retirees were living longer and they needed to account for that in in the plans so that's what that bump is and then the orange bar represents the market value of those assets so what this shows is the funded status from fiscal year twelve through sixteen so it's on a steady incline so it went from about fifty fifty seven a little less than fifty seven percent funded back in two thousand and twelve to now almost seventy four percent funded so that's a good thing you will notice the last two years are a little bit higher than the first three years on this chart and this represents the first two years of the five year pain plan calpers has implemented to get the funds to get all these plans more fully funded for those unfunded those prior liabilities that happen back from two thousand and eight so is there any questions on this one before i move on okay so the next two slides are going to be the same setup as this this one relates to the fire plan and again what you see is the same trends this plan went from fifty nine percent funded to about seventy percent funded and the bump for the mortality increase in two thousand and fifteen and fire the same so oh i'm sorry police i just want to make comment i'm back up to the previous  said i actually learned this at the home did an audit and and they were talking a lot of focus was placed on the pension issue but and and i was curious to know how that influences these numbers the last two years purse has made as i recall it made two eight percent one year and like zero eight percent another and as a result or are then in and then it isn't as a result but next they said well we're going to raise our rate of our anticipated rate of return from seven point five to seven point six five percent that it was my understanding that the change had to do with how they calculate the administrative expenses so the seven point five was net of administrative expenses whereas the seven point six five is not okay so then the seven six five okay i just thought that might have at least had a eight which and maybe you can comment to that does that influence the liability so just kind of by way of background pers assumes that soon as a rate of return on its assets of seven and a half percent it's i think when mister thomas chesky was saying is it's truly seven point six five percent because are costs and fees associated that so the net is seventy nine percent but they know that they're not going to get seventy percent every single years and some of your they're gonna be up and some years are going to be down they look at twenty thirty year horizons to get to an average of seven a percent i interestingly and ironically they have been very successful in doing that over the last many look at the last thirty years even with the great recession david at eight percent or seven percent overall in terms of ready to return the problem is that there's been tremendous volatility during that period of time and that's the issue that you're trying to wrestle with right now so a two and a half percent return this past year or less than that in the previous year you know it's not great because they try to get a seven percent but in the context of a twenty year period you know as long as they make it up in other years okay so in line with the pensions we also wanted to bring to your attention footnote seventeen which relates to the open costs so are the open liability liabilities so we have three liabilities that the city offers and i'm just going to go through give a little explanation on each of those so the retiree medical based on our actuarial report the light the liability for that is about sixteen point five million and what this is is the city provides a retiree medical benefit to certain employees who retire and have at least ten or fifteen years of service depending on which bargaining unit they're in and then that's calculated based on those years of service by an amount that's specified in in each mou up until the age of sixty five so  so that that's the first line the second one the implied subsidy this one's a little bit somes a little bit trickier in addition to the retiree medical contribution retirees that are covered under the city plan are also subsidized through this and this is the cost of the coverage of the rates for the for medical insurance at a blended premium rate for both active employees and retirees so because the city has a blended rate it lowers the rate if if the retirees were to have their own rates so the difference between our blended rate and what their higher rate would be is is this implied subsidy and the liability for that's about four six million and then the last amount being the sick leave so the city also provides additional retirement benefits based on the accumulated sick leave and this is only to eligible employees and i think in the footnote it explains that but there's a little bit more there's some factors as to whether they  an employee terminating would qualify for this sick leave or not but those that are eligible they're basically their sick leave is converted into a service credit and then  an an annuity is calculated based on that service credit and their final average compensation and the employee can choose to either take a lump sum or to keep that annuity so the liability for that is estimated from our actuary at about five four million for a total about twenty six and a half million so this is one of those at least part of this is kind of a funny liability i'll try to explain so retiree medical payment is a no different than a pension you know we it's capped at age sixty five but we promise based on how many years of service and all that a certain amount of money every month i don't think it sees more than three hundred and fifty dollars a month for somebody who's been here for many years you know at the thirty years but it's something that we promise to make and open to pay when they retire up to age sixty five it's you know when to look at other agencies we have some you know these types of other post employment benefits they're there it's much smaller because some we're paying out and this is the obligation implied subsidy it's it's one of the strange liabilities because yeah we provide our retirees the opportunity to participate in our group insurance plan therefore they get a better rate versus being separately rated and it's and it's something that can choose to change changed any given tuesday you know it's it's you know you might get some resistance but it's something you can do there's no contractual obligation but that four six million dollars isn't really the true cost between any given year between what they would have paid and what their pay now it's sort of this weird advanced funding concept and just like pensions you want to put money inside every year so for somebody who's twenty five years old we look at you know what's likelihood they're gonna retire and then participate in a group insurance plan and we're still be putting money aside equal to whatever savings that we would provide them when they retire it's really an unusual thing very odd so that's why in my opinion said it's an inflated number and we're not trying to fund that you know we're putting money aside for the retiree medical and sickly but we're not doing anything when you apply subsidy because it's just a strange sort of animal but  and i do have one more slide for you this is the streets infrastructure pavement condition index and you can find this on says page one ten to eleven but i think that's actually went through one twelve this is a five year trend table showing changes in our pci rating from two thousand and twelve to two thousand and sixteen the second column the estimate column that's the amount it would cost if we were to keep our streets at a condition of seventy then the expenditures column this is the amounts we actually paid in each of these years and the pci of the last column is the actual pci rating the overall let's see i'm sorry so we've established a minimum pci of sixty being at risk and as you can see we are approaching that that number now  public works staff is currently working to address this issue we are required to report this because it's a potential unfunded liability to the city so it's required for our report  that's all i have so next i'm going to hand it over to rich but before i do think we have some questions just before we transfer to mister on the streets infrastructure slide the the pci rating so in the first row two thousand and eleven to two thousand and twelve is that sixty three at the end of that fiscal year yes and i notice it went up yeah so yeah the the the going up from sixty three to sixty four is not that our condition got better it's dead i think public works staff started using a different methodology for measuring pci and it sort of artificially created a bump but it's just a different technique in method that's presumably more accurate but it is it had caused this to go up you know sort of artificially and also just in addition back  fourteen we did also inherit state route two hundred and twenty five which was really increased to the city and it was in excellent condition good to excellent conditions so i think that was also a contributing factor as well and then the two point drop what accounts for that the lack of money and spending on streets so that was just an across the board that wasn't one or two streets correct  yeah i believe public works puts a report together i'm not sure if it's an annual report if it's every two or three years but they this is an average of all the streets that's my understanding and then i want to go back to the opa slide twenty eight  looking at the note there's some assumptions here the discount rate of four percent is that roughly what we've been seeing in the last couple fiscal years dominguez no it's it's not it's looks at sort of longer term rate of returns you know and we right now are in the one to two percent range in terms of a harm or return on investments but historically we've been higher than that so it looks more at a longer term it we're not actually putting money into it taking money out of calpers for these benefits correct mister so the annual required contribution of five hundred and twenty thousand dollars and this is on page ninety two this is what we're collecting from current or from retired participants in o ability so that's what an annual required contribution is it doesn't mean that's what we're putting aside but that's what is we should be putting aside that's the policy guideline that's the actually determined amount okay and so we're not putting that aside we're putting aside the what to call the arc for some of those so i would say for retiree medical and particularly we are our goal is to put money aside equals do those amounts that are needed but for the implied subsidy we're not as i mentioned because it's just to me it's a an odd sort of liability and we're not attempting to put money aside for that so we pull it out of the general fund or reserves yeah and we basically you know ii allocated costs we charge all funds general fund enterprise funds and we pull out their share of that and then we put it into a separate fund from from where we actually pay those amounts and the annual amount is roughly the five hundred thousand dollars right so the twenty seven thousand dollar amount is this this is because it's an accrued amount this is what we would have to pay if we wanted to se all those accounts today is this a payout number similar to what calpers provides us based on assumptions it's the same concept you know it's sort of this funding horizon you know along the line you should be putting money aside and according to the actua we should have twenty six point seven or six million dollars in the bank today more than we actually do and we're not we don't have monies accumulated for any of these things we're just trying to kind of cover the annual cost but the unfunded liability we're not at this point making progress towards that so that's money we should have in the bank that we don't as of june thirty two thousand and sixteen so when you say should have in the bank but we don't that would be if we needed to actually pay that all out immediately or why would we need that in the bank ever ideally we would have the money to make it's just not going to need to be paid out and at the any particular year because it's paid out over time so for example if we know that we have employees you know hundred employees that are receiving a retire medical over the life  that's going to cost x amount of money and we should have the money to cover that before we start paying it out that's the idea we wouldn't we could theoretically release that obligation by giving it all to them but we would be paying that amount of money over time okay thank you in just just one oh customer white has a question okay well i was just going to add this amount currently is not included in the net pension liability liability that we book on the financial statement however effective next year we will be including that as well my question is about the insurance the the health insurance and this and i presume that you know if you work backwards out of this implied subsidy that the city buys health insurance and that that peart the cost of that is higher because of this program and is it hired by this increment i mean is it that lockstep that it says okay if we were just funding healthy young people then it would have been you know twenty percent cheaper or and so that's that twenty percent that we're excuse me that where that is the implied subsidy yeah i remember can we remember what it is but on percentage basis it's small so it would spread across all employees in the city since we have up over a thousand employees they're paying me i'm gonna make a guess maybe five percent more than they normally would if we didn't have our retirees whereas retirees are probably getting to twenty percent savings or more at that point in the product results now well i was going to hand it over to mister kikuchi i just wanted to say a quick thank you i just wanted to recognize the accounting team for all their dedication and hard work blood sweat  tears this report takes months and a lot of long hours to pull together and we do have a really great team who take it very seriously so lynn sparks the accounting supervisors here  music alisal has been engaged by the city to perform a financial audit and basically what that means in a nutshell well you just heard jennifer and bob just share a lot of financial information with you and if you've got a chance to read this document there's just a lot of information in there and it's all a summary of what's on the city's books and as jennifer mentioned a couple times and bob that information needs to be summarized in a  prescribed format cora to follow gatsby standards to follow gaap in order to receive the gfo a award and so you know the city's been very very diligent and they're very capable of putting this document together and what my role is is to basically double check it is to basically go in and test account balances to make sure that those amounts are materially correct in these financial statements and then also to step back to look at the processes that are here at the city so that i would be comfortable and recognizing the the financial transactions are being summarize properly because there's just a lot of information going on you know and you're all different funds different types of funds you know your enterprise funds required depreciation calculation your governmental funds you know that are basically on the cash basis so there's just a lot of different types of methodologies going on so my role as your financial auditor is to make sure that the systems are that are in place are our good systems and that the amounts of in these financial statements are material materially correct and that's what our firm specializes in our firms been around since one thousand nine hundred and twenty nine we we specialize in auditing cities were known in a state of california as being the premier firms  auditing primarily midsize and large sized cities so we do this all year round and santa barbara has been not just an outstanding example of how the financial operations should be conduct so it's we're always kind of working back back in history but we came out here in the month of may and at that time it really was the first time that we came out to make sure that the system that is in place here at the city is accurately summarizing financial information and that also there are safeguards in place and so we spent a lot of time out here and you  know we we we planned the audit during that time we asked a lot of questions to a lot of different people not only in finance but throughout the city and at that time really looking at the internal controls and then we came back out in september and that was the time that we really kind of dove in and worked with jennifer and bob's team in in helping to get this put together and that required doing a lot of account analysis we talked about your net pension liability that really is something that we really tried our best to get our arms around the last couple years it's really a beast so you know we spend a lot of time on that gas b calculation also things like your cash and investments you know receivables payables capital assets all all those particularly the large account that are a large accounts that are represented in this capper we spent a lot of time on jennifer mentioned the the three primary sections in this capper and yeah the financial section really is the part that we spend the most time on and that we render an opinion on and so as i mentioned you know city of santa barbara has a lot going on you're a full service city you've you have you name it you you have it going on so as your auditors you know we come in a few weeks of the year because we specialize in cities we you know we have an approach and we and we know the things to look at but we really can't look at everything there's just no way or else i'd be here more than once a year talking to you guys you know but we look at the transactions to a degree that we are able to obtain what's called reasonable assurance that be amounts in here we feel are materially correct you're you guys are used in this document in order to make management decisions this document will be a part of the process to do well has been the part of the process to plan for future events and future budgets and such and so  yeah that reasonable assurance is something about auditors abide by and i need to conduct enough tests work that i feel that the amounts in here are materially correct maybe not every single dollar but you know it's really close and and but if there wasn't i would let you know and but the audit went well and the results my main product that's in here is the auditors opinion the city really put everything else together all three sections everything else in there and as your financial auditors we come in and bas y double check it and make sure that you know we feel that those numbers are correct but we do enough work so that i could render an opinion of how i feel about these statements and so  we've issued what's called an unmodified opinion that terminology changed a couple of years ago but unmodified is that's the highest level of assurance that you can put on financial statements it's saying that you know i haven't i haven't needed to modify my opinion in regards to this document based on my test work so that's what you want unmodified it is definitely what you want  in regards to the audit you know i mentioned we not only look at accounts but we look at controls throughout the city so every year there's basically three products that we issued to you and we actually addressed to you number one is that auditors opinion letter that's within this document and that's like i mentioned i've issued an unmodified opinion there's also two other letters that i always published for you that's the first one is the sas ones which one sas one hundred and fifteen or internal control letter and the second one is the audit communication letter in that and fifteen letter you know if there's anything that that came about that that i need to to report to you based on our tests work that's the letter i will put it in there's certain guidelines or things that i'm required to put in there and in the past in the past routine items like if we made a journal entry based on our test work we wouldn't put that in there but now we're required to do that if it's a quote unquote a material item this year there was one item there in there that we needed to report to you however it really is was a minimal consequence but we need to put it in there what we do every year is we we take a look at the checks that were written after july one after the fiscal year end and we look at how what those checks were written for either services rendered or goods received and and we'll see what was it recorded in the proper period should have been recorded in the prior period or should it be in the current period there was one item that we noted that really needed an adjustment you know but the city this large it's it's you know i'm thinking it should happen more often but but you know so there was one item that we saw that we needed an adjustment not a big deal but we put that in there for you in case you saw that and then in the audit communication letter that's a little more standard in there it's really a step to to the the sass one fourteen letter that we issued at the very beginning of the year which requires that we have dialogue which is great that i'm here that were able to talk about the audit the auditors communication letter if if there were any disagreements with management during the audit i would need to report that to you and there were no disagreements there we also talked about new pronouncements now that have been incorporated into the current audit and also  pronouncements that are going to be upcoming better around the corner and so we put those in there there's also a new auditing standard effective for fiscal years ending after december fifteen two thousand and sixteen it's called sas one hundred and thirty i think a lot of cities will be controls but we don't necessarily audit your internal controls we need to determine that controls are in place but don't really audit them sass one hundred and thirty just came out and so that gives auditors direction and it's an optional audit for the cities to incorporate a sass one hundred and thirty audit and it's it's entitled an audit of controls or financial porting reporting integrated with a financial audit and so basically that's saying you know we would do extra work in order to render an opinion on your not only your financial statements but also the internal controls of the city so that's something that's not effective until this next year but you know those are the kinds of information that we put in that letter so you know basically all in all everything that we did was in order that this would be a sound document a document that you can make management decisions on the gfo a technical committee so i actually review kafirs from across the country so you know i'm gonna make sure that you guys are following those those procedures so jennifer is right it was a lot of work to get this document done but uh but in summary you know lsl has been engaged to do a financial audit the ultimate result of that is issue in an opinion which i did in this letter and it's an unmodified opinion which is you know the highest level you can receive issued to of their letters and we're expecting to get the number fourteen the lord here pretty soon so like jennifer i just wanted to thank santa barbara finance department team just an outstanding group you know always wanting to do things the right way and they're just very top notch at our joy to work with and thank you for inviting me here and i'm here to answer any questions if you might have any thank you mister coochie it's nice to hear from somebody who isn't part of the city family that our staff is as excellent as we know they are and it's great to have your in depend a review of that and thank you for your work councilmember dominguez again yeah thank you for the work on this how long have you been doing this honor for the city this we're in our third year of a third year contract where this is the second three year contract yeah so the six year and what's the standard frequency that we refresh with audits or cities refresh with a new set out two years ago and it requires or it requires after fiscal year ending two thousand and nineteen after nineteen then it says that you should rotate firms or you should rotate the partner every five years so you know that's gonna be effective in three years okay and so there's three letters we have in front of us which we issued in the springtime that's actually the part one of that letter that was in may yes and then the the other two letters there's another loose the independent auditors report on compliance yeah that's the sas one hundred and fifteen that's the internal control letter so it talks about something with a housing successor and what was what was the gist of this opinion oh is that the housing oh okay so that's even another yeah that's that's compliance with that with the housing successors so it says there's a material weakness and internal control or what's the result of this i think is lin is that us i believe that that's this another copy of the one that's bound in the report bound in this document so through the very end the very last page this one you're looking at it relates to internal you're talking about page one hundred and eighty eight and one hundred and eighty seven yes that looks like it's talking about it one material invoice related to fiscal year and that's what mister kikuchi mentioned about the the winning voice that was not charged the right year this letter this loose letter relates to the successor agency and there's a separate report required for that just like we used to put the r separate report there was no material weakness that i can see it was just defining later mature weaknesses if they were to find one can you have it back so i can ask further so these questions these letters are issued as a matter of course when there's a successor agency so this is just a routine audit it is okay it is the actually cities have the option if the housing successor is what's called a major fund you could leave it in here and it has to be posted on to your website by december st most of my clients would like a separate report and then that's posted to just abide by the requirements of the state so this language about a deficiency in internal control material weaknesses just boil statement described in a separate letter dated november th that's the one in the book yes yes okay thank you okay if there aren't any other questions i think