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City of Redwood City 6.1.D. - Page 39 Management's Discussion and Analysis For the fiscal year ended June 30, 2016 FINANCIAL ANALYSIS OF THE CITY'S FUNDS As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance - related legal requirements. Governmental Funds The general government functions are contained in the general, special revenue, debt service, and capital project funds. The focus of the City's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources by using the modified accrual basis of accounting. Such information is useful in assessing the City's financing requirements. In particular, unassigned fund balance may serve as a useful measure of the City's net resources available for spending at the end of the fiscal year. At June 30, 2016, the City's governmental funds reported combined fund balances of $124.939 million, which reflects a decrease of $2.253 million from the beginning fiscal year balance. Governmental fund revenues increased $2.426 million this fiscal year to $136.882 million. Significant increases occurred in the general fund and transportation grants fund, offset by decreases in the special gas tax street improvement fund, the parks impact and in lieu fee fund, and the One Marina CFD Fund. Expenditures, including capital outlay, increased $13.81 million this fiscal year to $131.693 million. A portion of the increase was attributable to the $5.828 million expenditure increase in the general fund, described below, and increased expenditures related to community development, public safety, and transportation programs. The general fund is the primary operating fund of the City. At June 30, 2016, unassigned fund balance of the general fund was $25.2 million, while total fund balance decreased to $28.438 million from a beginning fund balance of $28.605 million, as a result of expenditures and transfers out of $119.130 million exceeding revenues and transfers in of $118.963 million. Unassigned fund balance decreased $999 thousand during the fiscal year, leaving less resources available for ongoing operations when compared to the prior fiscal year. As a measure of the general fund's liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures. Unassigned fund balance represents 24.8% of total fund expenditures, while total fund balance represents 28.0% of that same amount. The following are the major funds that qualified under the reporting criteria for major funds selection: General Fund — General fund revenues increased approximately $6.213 million this fiscal year due to increases in all revenues, except for contributions and other revenues. These increases were a result of the continued recovery from the recession. The increase in property taxes of $3.306 million resulted primarily from an increase in assessed value. There was a slight decrease in revenue received in the general fund from the county as its share of the Education Revenue Augmentation Fund (ERAF) refund in FY 2014-15. ERAF decreased by $340,297 to a total of $4.774 million. ERAF, which was created by state law in the early 1990's, allowed the state to shift on an ongoing basis a portion of each city, county, and special district's property taxes to school districts. This shift allowed the state to decrease the state's general fund support to schools throughout the state and concomitantly 12