The following transcript is provided for your convenience, but does not represent the official record of this meeting. The transcript is provided by the firm that provides closed captioning services to the City. Because this service is created in real-time as the meeting progresses, it may contain errors and gaps, but is nevertheless very helpful in determining the gist of what occurred during this meeting. City of San José City council meeting of December 12, 2017 >>> Sending out a search party for council members who may be wandering around looking for a council meeting to attend. Please join us. >>> Call to order for the morning of December 12, 2017. Our invocation ceremonies are going to take place at 1:30 p.m. this morning I was greeted with very sad news. My wife told me of the loss of a dear colleague and friend in San Francisco. So I was hoping we might take a moment of silence to remember. Thank you. We're on to orders of the day. Does anyone on the council have changes to the printed agenda? We will entertain a motion. >> So moved. >> Let's vote on orders of the day. On the closed session report. >> Council met in closed session. There is no report. >> Still waiting on vote. >> Still waiting on vote. We're on to the consent calendar. I believe on item 2.7. Are there other items to pull? >> 2.7 will be on the calendar next week. >> It will be deferred one week. Other items to pull? >> We will entertain a motion. Let's vote on the consent calendar. On to item 3.1. >> No report today. >> Items 3.3 and 3.4 will be heard first in the evening I'm told. So that takes us on to item 3.5 which is amendment to the agreement with signature technologies for the public address system for the airport. There is no presentation on this item. Is there a motion? 1 >> So moved. >> Let's vote on item 3.5. We will have a combined presentation on items 3.6, 9.1 and 3.7. This is the comprehensive annual financial report for the year that just ended June 30, 2017. Welcome as well as external auditors reports. I wanted while you are here I wanted to congratulate you and thank you for the great work. I understand the market seems to accept your bonds very well so thank you for your team's great work. >> I am going to kick this off, Sharon Erickson, city auditor. The city charter requires an annual audit of the city's financial transactions and financial statements by an independent certified public accountant. The external audit firm has audited and issued opinion on the city's financial statements single audit and a variety of related financial statements. This opinion is a testament to the daily work of accounting staff who safe guard and track the resources that taxpayers have entrusted to us. Kim McCormick is here along with Julia Cooper and grace Martinez from the city's finance department to present the financial results for 2016-2017 and results of the audit. With that I will turn it over to Julia. >> Thank you, Sharon. Director of finance. This is the culmination of a lot of hard work of many finance and accounting professionals in the finance department and across the organization. We recognize those individuals on the page right after the title page in the document so that it's up and center at how important this document is to the organization. Historically we make this presentation to the strategic support committee. Given the timing for completion for our annual reporting to investors by the end of December it was not possible to accommodate that with the December committee meeting so to meet our obligation we are coming directly to the council. We have three separate agenda items and we will be able to answer questions on all three at the end of the presentation. So the next slide provides listing of not just this big fat report but separate engagements that result in 24 individual reports from the work across the organization and with our external auditors. All 24 of those reports are finished and are posted on the city auditor's website under published work and external financial audits. Some individual bond audits go to oversight committees later on during this fiscal year. So the major sections of the cafr include introductory section. It talks about the awards the city has received. Talks about the mayor and council and provides organizational chart. The financial section has independent auditor's opinion. The management discussion and analysis of the city's organization and then our basic financial statements in which the 2 auditor gives their opinion so it includes government wide government funds, propritear funds and notes to basic financial statements. There are some supplemental information on nonmajor fund and agency funds and then the statistical section which is unaudited but provides interesting statistics about the city as an organization. So with that I will turn it over to Kim. >> Thank you, Julia and good morning. Kim McCormick audit partner. And my role here today is to fill you in on the results of the annual audits, not only of the big city cafr but all documents. Each of the documents that you will see posted on the website are accompanied by an auditor's report. That is the report. At the end of the day our role to you, the council members is to render a report about whether or not we think the financial statements are fairly stated in accordance with the rules. And as Julia has outlined in each case we have issued an unmodified opinion or clean opinion that we believe the financial statements are fairly stated. So congratulations to you across the board for that good result. Whoops. In the packet in agenda items 3.6 and 3.7 we refer to deliverables that are a by product of the audit in addition to our opinions, some comments on internal control structures and some required communications that go with an annual audit so those are included in your materials, as well. Happy to answer any questions that you have. >> The next couple of slides will show a summary of the city's financial statements. This slide shows a comparison of the city's position on year over year basis for total assets no significant change compared to last year. Total liabilities, however, increased by about 700 million primarily because of the increase in net pension liabilities. The net position for the city also decreased by about 189 million. The next slide shows total revenues and expenses on city wide basis. The graph shows that the increase in total revenues was not enough to offset the increase in total expenses resulting in a decrease in the city's acquisition by 189 million. The next slide is a comparison of general fund. The table shows that the total expenditures for the year compared to last year increased on a total basis and the increase was not enough to offset the increase in total revenues resulting in a decrease in the general funds fund balance by six million. On a gap basis the general funds fund balance ended at 313 million while on a budgetary basis it ended at 243 million which is 70 million less compared to the fund balance on a gap basis. This is primarily due to the 6 to 8 million and 2 million in unrealized gain and losses. The next couple of slides shows the new pronouncements that were implemented in fiscal year '16-'17. The city was required to implement six new pronouncements and four out 3 of those six pronouncements do not impact the city's financial statements. 74 was implemented and effected the retirement plan's financial statement it is disclosed under foot note 48.4. The other pronouncement is the tax abatement which is gasb 77 however it did not significantly impact the city's financial statements as the amount did not meet the threshold. For fiscal year '17-'18 the cities required to implement four additional new gasb pronouncements the biggest is gasb 75 which is equivalent to 68. On the pension side we implemented that in 2015. So we are working to in the implementation and you will see the impact on the cafr next year. >> Thank you, grace. With that, I'm going to do a brief presentation on the successor agency's audited financial statements. For the successor agency there was no significant change to the asset balances. The liabilities decreased mainly due to principle payments on debt service, a decrease of payables to the county on the pass through payments of $44.4 million and a reinstatement of a parking fund loan of 14.3 million. So the net position for the successor agency increased by $156 million. So in looking at the changes in the net position the additions increased by 75 million or almost 32% mainly due to the pass through payments, the per settlement payment from the successor agency to the city. There was also a gain on the sale of the Marriott revenue participation of about 12 million and a decrease in the rttpf distribution. The deductions increase by about $4 million. We had to take a loss on a couple of property sales and then also offset by reinstatement of that parking fund loan. There was also a special item from seraf loan reduction which was removed from partial seraf loan.