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MA,v 6.1. B. - Page 35 ID ANALYSIS 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. 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, 2011, the City's governmental funds reported combined fund balances of $103.3 million, which reflects an increase of $1.2 million from the beginning year balance. Governmental fund revenues decreased $2.2 million this year to $109 million. Significant decreases occurred in the capital outlay fund, the redevelopment agency fund, the low and moderate income housing fund, the transportation grants fund, and the grants fund revenues. Expenditures, including capital outlay, decreased $15.7 million this year to $107 million. Most of the decrease was attributable to a decrease in principal expenditure as the City redeemed the 1998 City Hall Lease Revenue Certificates of Participation and the 1997 Tax Allocation Bonds in the prior fiscal year, and the decrease in the redevelopment agency fund expenditures as the Agency was forced to pay $3.6 million to the State in the prior year. This decrease was partially offset by increased general fund expenditures related to the Saltworl<s project. The general fund is the primary operating fund of the City. At June 30, 2011, unassigned fund balance of the general fund was $17.7 million, while total fund balance increased negligibly to $24.8 million from a beginning fund balance of $24.7 million. 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 22.5% of total fund expenditures, while total fund balance represents 31.7% 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 $2.2 million this fiscal year primarily due to increases in sales and other taxes, and planning revenue related to the Saltworl<s project, offset by declines in other categories of revenues. Sales taxes increased $.6 million and transient occupancy tax increased $.3 million due to the recovery from the recession. The decrease in property tax resulted from a decrease in the amount of reimbursement from San Mateo County for prior year payments to the Education Revenue Augmentation Fund (ERAF) along with a decline in property values. The general fund received $3.5 million from the county as its share of the ERAF rebate in FY 2010/11, a decrease of $449,106. 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 reduced state funding of schools. Within each county, ERAF revenues are allocated to schools based upon a formula that considers, among several factors, the average daily attendance and the amount of each school district's own property tax revenue. Within San Mateo County, the outcome of applying this formula was that the school districts did not require all of the funds shifted from the cities, county, and special districts. Consequently, these funds were returned to each entity in proportion to the amount that was initially collected. After deducting the expenditure increase related to the developer reimbursed planning projects in the amount of $2.2 million, general fund expenditures decreased $.5 million as a result of adopted budget reductions and a citywide salary freeze to offset the effects of the recession. 9