Oity of Daly Oity 333-90th Street

Either revise the existing or implement a new policy for specific levels of reserves using language consistent with the new GASB Statement 54 hierarchy. a. Establish in the policy the required level of General Fund Balance for classifications that are spendable within the complete control of the government's local decision making authority. b. Require in the policy development ofs pecific plans to restore the required level of reserves in the event they fall below that level. c. Include the policy in the annual CAFR and budget documents. Response a.) This recommendation has been implemented. On June 27, 2011, the City Council adopted a policy that incorporates the language and hierarchy of Governmental Accounting Standard Board (GAS B) Statement No. 54 for its reporting offund balances in the CAFR. Further, the City's reserve policy has been in effect for a number of years, has been included in the published budget document, and conforms to best practices for governmental accounting. "Adequate reserves will be maintained in each of the City's funds to provide for cash flow needs as well as for unexpected emergencies. Levels will be adjusted as required to reflect current and anticipated economic conditions. This includes taking cash flow into account, and will use the low point for cash (normally the end of November before the twice per year receipt of property tax revenues) to determine available cash. Nominally a cash reserve of 15 percent of annual expenditures for the General Fund is considered adequate. Other funds vary from this norm because of circumstances and future needs for things like infrequent large purchases." b.) Additional wording to be added to the reserve policy, such as "Should the level of reserves fall below a level that is less than that which is considered appropriate given the economic circumstances, the City will develop specific plans for returning reserve levels to an adequate amount." will be brought to the City Council for its consideration, approval and implementation in advance of July 1,2012. Honorable Joseph E. Bergeron RE: 2010-2011 Civil Grand Jury Report: Running on Empty? of5 c.) This recommendation will be implemented with the issuance of the City'S Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 20 II. The City will refer to its fund balance policy in the note disclosures and in the Management Discussion and Analysis per GASB 54 guidelines.

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: The City neither agrees nor disagrees with this finding, as there is enough flexibility in what supplemental information is presented that a City's or County's CAFR can be reasonably informative to the average citizen. Additionally, all financial statements by their nature require a certain level of knowledge in order to be properly interpreted. The implication that there is a simple way to make them more understandable is in itself an oversimplification. Honorable Joseph E. Bergeron RE: 2010-2011 Civil Grand Jury Report: Running on Empty? of5

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: The City neither agrees or disagrees as the finding does not pertain to Daly City.

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: Concur with the finding.

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: Concur with the finding.

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: Concur with the finding.

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: Concur with the finding.

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 implemented early. Response: Concur with finding as it pertains to Daly City.

One city (Millbrae) had a Running Liquidity below 90 days. Response: Neither agree or disagree with this finding as it pertains solely to the City of Millbrae.

All cities and the County are fully funding their Annual Required Contribution to CALPERS or Sam CERA for retiree pension funding. Response: Concur with finding as it pertains to Daly City. Honorable Joseph E. Bergeron RE: 2010-2011 Civil Grand Jury Report: Running on Empty? of5

Ten participating cities are not making their full actuarially determined 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: Concur with the finding as it pertains to Daly City.