HomeMy WebLinkAbout2009-06-15 City Council Agenda Packet
1 06/15/09
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER
DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS.
Agenda posted according to PAMC Section 2.04.070. A binder containing supporting materials is available in the Council
Chambers on the Friday preceding the meeting.
Regular Meeting
Council Chambers
June 15, 2009
7:00 PM
ROLL CALL
SPECIAL ORDERS OF THE DAY
1. Appointment of Five Members for the Citizen Oversight Committee for
Expenditures of Library Bond Funds for Four Year Terms Ending on
May 30, 2013
ATTACHMENT
CITY MANAGER COMMENTS
ORAL COMMUNICATIONS
Members of the public may speak to any item not on the agenda; three minutes per speaker. Council reserves the
right to limit the duration or Oral Communications period to 30 minutes.
APPROVAL OF MINUTES
May 18, 2009
CONSENT CALENDAR
Items will be voted on in one motion unless removed from the calendar by two Council Members.
2. Approval of Agreement Between PAHC Housing Services, LLC and the
City of Palo Alto for Administration and Consulting Services for the
Below Market Rate (BMR) Housing Program in the Amount of $155,000
for Fiscal Year 2009–10 and $160,000 for Fiscal Year 2010-11
2 06/15/09
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER
DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS.
CMR 276:09 and ATTACHMENTS
3. Adoption of Resolution Determining the Proposed Calculation of the
Appropriations Limit for Fiscal Year 2010
CMR 278:09 and ATTACHMENTS
4. Approval of Amendment No. One to the Agreement Between the City
of Palo Alto and the Purissima Hills Water District for a Limited
Emergency Water Supply Intertie
CMR 273:09 and ATTACHMENTS
5. Annual Adoption of the City’s Investment Policy
CMR 272:09 and ATTACHMENTS
6. Finance Committee Recommendation to Approve Changes to
Guidelines for the Electric, Gas, Water and Wastewater Collection
Emergency Plant Replacement Reserves and the Electric Distribution,
Gas Distribution, Gas Supply, Water, and Wastewater Collection Rate
Stabilization Reserves
CMR 281:09 and ATTACHMENTS
7. Finance Committee Recommendation to Approve Proposed Changes to
the Electric Fund’s Calaveras Reserve Guidelines
CMR 275:09 and ATTACHMENTS
8. Finance Committee Recommendation to Approve the Funding of
Certain Projects from the Calaveras Reserve in an Amount Not to
Exceed $270,000 in Fiscal Year 2010 and $200,000 in Fiscal Year 2011
3 06/15/09
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER
DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS.
CMR 282:09 and ATTACHMENTS
9. Adoption of Ordinance Amending the Budget for Fiscal Year
2008-09 to Provide an Additional Appropriation of $215,000 for
the Extension of Contract No. C06116197 with Advanced Data
Processing West, Incorporated (ADPI) for Ambulance Billing
Services
CMR 284:09 and ATTACHMENTS
AGENDA CHANGES, ADDITIONS, AND DELETIONS
HEARINGS REQUIRED BY LAW: Applications and/or appellants may have up to ten minutes at the outset of the
public discussion to make their remarks and put up to three minutes for concluding remarks after other members
of the public have spoken.
OTHER AGENDA ITEMS: Public comments or testimony on agenda items other than Oral Communications shall be
limited to a maximum of three minutes per speaker.
PUBLIC HEARINGS
10. Consider Changes to the 2009-2010 Electric, Gas, and Fiber Optic
Rates, and Rates Pertaining to Utility Service Calls, Unmetered Electric
Service and Water Service from Fire Hydrants
11. Consider Changes to the 2009-2010 Water, Wastewater and Refuse
Rates and Changes Pertaining to the Water Rate Component of the
Residential Rate Assistance Program
12. Adoption of the 2010 Budget, and In-Concept Budget for Fiscal Year
2011 and Adoption of a Budget Amendment Ordinance, Including
1) Exhibit A – City Manager’s Fiscal Years 2010 and 2011
Proposed Budget; 2) Exhibit B – Amendments to the City
Manager’s Fiscal Years 2010 and 2011 Proposed Budget; 3)
Exhibit C – Fiscal Year Proposed Municipal Fee Schedule; 4)
Exhibit D – Revised Pages in the Fiscal Years 2010 and 2011
Table of Organization; 5) Exhibit E – Amendments to the Fiscal
Year 2010 Proposed Municipal Fee Schedule; 6) Equity Transfer
Methodology Change; and 7) Changes to Compensation Plans (Continued from 6/8/09)
(a) The Finance Committee Recommends that the City Council Adopt
Portions of Police and Fire Department Budgets as Modified Relating to
Stanford and the Portions of the CIP Relating to Stanford for the Fiscal
Year 2010 Budget and the Fiscal Year 2011 In-Concept Budget, and
the Ordinance Portions Related Thereto
4 06/15/09
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER
DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS.
(b) The Finance Committee Recommends that the City Council Adopt
the Remaining Portions of the Fiscal Year 2010 Budget and Adopt In-
Concept the Remaining Portions of the Fiscal Year 2011 Budget,
Pertaining to the Police and Fire Department Budgets as Modified and
the CIP and the Ordinance Portions Related Thereto
(c) The Finance Committee Recommends the City Council Adopt the
Human Services Resource Allocation Process (HSRAP) for the Fiscal
Year 2010 Budget and the Fiscal Year 2011 In-Concept Budget and the
Ordinance Portions Related Thereto
(d) The Finance Committee Recommends the City Council Adopt the
Remaining Items in the Fiscal Year 2010 Budget and Adopt In-Concept
the Fiscal Year 2011 Budget, as Modified and the Ordinance Portions
and Resolutions Related Thereto
(e) The Finance Committee Recommends the City Council Adopt the
Following Resolutions:
(i) Adoption of a Resolution Adopting an Electric Rate Increase
and Amending Utility Rate Schedules E-1, E-1-G, E-2, E-2-G, E-
4, E-4-G, E-4-TOU, E-7, E-7-G, E-7-TOU, E-14, E-18, and E-18-
G
(ii) Adoption of a Resolution Amending Utility Rate Schedules
EDF-1 and EDF-2 of the City of Palo Alto Utilities Rates and
Charges Pertaining to Fiber Optic Rates
(iii) Resolution Amending Utility Rate Schedule C-4 of the City of
Palo Alto Utilities Rates and Charges Pertaining to the Residential
Rate Assistance Program
(iv) Adoption of a Resolution Adopting a Wastewater Rate
Increase and Amending Utility Rate Schedules S-1 and S-2
(v) Adoption of a Resolution Amending Utility Rate Schedules C-
1, E-16, W-2 of the City of Palo Alto Utilities Rates and Charges
Pertaining to Utility Service Calls, Unmetered Electric Service and
Water Service from Fire Hydrants
(vi) Adoption of a Resolution Adopting a Refuse Rate Increase and
Amending Utility Rate Schedules R-1, R-2 and R-3
(vii) Adoption of a Resolution Adopting a Water Rate Increase
and Amending Utility Rate Schedules W-1, W-4, and W-7
5 06/15/09
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER
DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS.
(viii) Adoption of a Resolution Adopting a Natural Gas Rate
Decrease and Amending Utility Rate Schedules G-1, G-2, G-3, G-
4, G-6, G-10, G-11 and G-12
(ix) Adoption of a Resolution Amending the 2008-2009
Compensation Plan for Management and Professional Personnel
Adopted by Resolution No. 8844 to Change the Title of One
Classification
(x) Adoption of a Resolution Amending the 2006-2009
Compensation Plan for Classified Personnel (SEIU) Adopted by
Resolution No. 8658 To Add Five New Classifications and Change
the Compensation for Two Existing SEIU Classifications
CMR 280:00 BUDGET BOOK PRESENTATION
* * * * * * * * * * * * *
AT THIS POINT IN THE PROCEEDINGS, THE CITY COUNCIL WILL ADJOURN
TO A SPECIAL MEETING AS THE PALO ALTO REDEVELOPMENT AGENCY
* * * * * * * * * * * * *
COUNCIL COMMENTS, ANNOUNCEMENTS, AND REPORTS FROM CONFERENCES
Members of the public may not speak to the item(s).
ADJOURNMENT
Persons with disabilities who require auxiliary aids or services in using City facilities, services, or programs or who
would like information on the City’s compliance with the Americans with Disabilities Act (ADA) of 1990, may contact
650-329-2550 (Voice) 24 hours in advance.
June 15, 2009 HONORABLE CITY COUNCIL City of Palo Alto SUBJECT: Appointment of Five Members for the Citizen Oversight Committee for Expenditures of Library Bond Funds for Five Four Year Terms Ending on May 30, 2013. Dear Council Members: On Monday, June 15, 2009 the City Council should vote to appoint five four year terms ending on May 30, 2013. The Candidates are as follows:
Sandra Hirsh
John Melton
Vibhu Mittal
Dena Mossar
Jatin Parekh
James Schmidt
Alice Smith
Kristina Vetter Voting will be by paper ballot. Five votes are required to be appointed. The first five candidates that receive at least five votes will be appointed. Respectfully submitted, Ronna Jojola Gonsalves Deputy City Clerk cc: Kelly Morariu, Staff Liaison Diane Jennings, Library Director
TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER
DATE: JUNE 15, 2009
REPORT TYPE: CONSENT ITEM
DEPARTMENT: PLANNING AND
COMMUNITY ENVIRONMENT
CMR: 276:09
SUBJECT: Approval of Agreement Between P AHC Housing Services, LLC and the
City of Palo Alto for Administration and Consulting Services for the
Below Market Rate (BMR) Housing Program in the Amount of
$155,000 for Fiscal Year 2009-10 and $160,000 for Fiscal Year
2010-11
RECOMMENDATION
Staff recommends that the City Council approve and authorize the City Manager or designee to
execute the attached agreement with P ARC Housing Services, LLC (P ARC) for administration and
consulting services for the Below Market Rate (BMR) housing program for the two-year period of
2009-10 and 2010-11 in the amount of$155,000 for the 2010 Fiscal Year and $160,000 for the
2010 Fiscal Year.
BACKGROUND
Under contract to the City, P ARC has administered the BMR housing program since its inception
in the mid-1970s. Examples of some of the services provided by P ARC include: administering the
sales and resales of new and existing BMR owner units; maintaining the home purchase waiting
list; monitoring occupancy ofBMR rental units; providing advice and consultation to the City
regarding negotiations ofBMR agreements with developers; and addressing special issues related
to the program as a whole. Most ofP ARC's workload is involved with the home ownership
component of the BMR program. While P ARC performs most tasks required for the ongoing
administration of the home ownership and rental components of the BMR program, City Planning
staff also devotes considerable time to the BMR program, primarily on BMR negotiations and
agreements and program improvements. City Real Property staff handles maintenance evaluation
and the determination of credits for capital improvements when units come up for resale.
There are presently 238 BMR owner units in the BMR program with 22 new BMR owner units
scheduled for completion and sale over the two years of this contract (8 units in the Classics project
at 3270 West Bayshore, 7 units in SummerHill Redwood Gate at 4249 EI Camino Real, 7 units in
the Toll Brothers project at 200 San Antonio Road). P ARC maintains and annually updates a
waiting list of interested potential buyers ofBMR units. At this time, there are close
to 600 households on this waiting list with about ninety percent qualifying for the live and I or work
in Palo Alto preference. P ARC coordinates the sale of both newly built BMR units and the resale
CMR: 276:09 Page 1 of 4
of existing units. Sales activities include: establishing the resale price; marketing units to the
waiting list; scheduling open houses; qualifying and selecting the buyers; coordinating the
transaction between the buyer, seller, lender and escrow; and explaining the requirements of the
BMR deed restrictions. P AHC maintains a database on all units and keeps statistics on the number
and characteristics of the households served by the program.
The owner BMR units require periodic monitoring of occupancy and title, which P AHC handles in
cooperation with Planning staff and the City Attorney's Office. Monitoring and enforcement of the
recorded deed restrictions has become a critical task requiring nlore ofP AHC and City staff time.
Monitoring activities include reviewing online assessor's records to detect transfers in title or
ownership and an annual letter to owners to remind them of pro gram rules and to provide updates
on procedural changes. When a violation of the deed restrictions is discovered, P AHC undertakes
initial attempts to remedy the situation. More complex enforcement matters are referred to
Planning or to the City Attorney, if legal action is required. Since the inception of the program,
eight units have been involved in litigation or significant legal efforts to retain thenl in the program,
with six of those cases in the last seven years.
Information workshops for prospective buyers on the waiting list are conducted quarterly by P AHC
together with housing counseling staff from Project Sentinel. These workshops focus on
preparation for homeownership, understanding credit and mortgage financing and the nLles of the
BMR program. The workshops have been well received, with about 100 persons attending each
year. The waiting list workshops will be continued over the next two years.
There are currently 155 BMR rental units in six different projects. P AHC' s primary tasks with the
BMR rental progranl are: ongoing training of the on-site property management personnel and
reviewing tenant qualifications and BMR rents. P AHC collects and reviews applicants'
certification documentation and determines eligibility under the program rules. They also conduct
recertification of existing tenants. P AHC monitors each complex's waiting list and tenant selection
process. Due to the frequent turnover of apartment management staff, P AHC must devote
considerable time and effort to explaining the B:NLR program ndes and procedures to new personnel
each year.
DISCUSSION
The proposed fimding level assumes that P AHC's workload administering the BMR program will
increase over the next two years. Marketing and sales of the 22 new owner units and assisting in
the marketing of the 24 new units (12 independent and 12 assisted living units) in the Center for
Jewish Life Campus represent significant activities. City and PAHC staffbelieve that resale
activity will remain steady at about five to eight units per year due to continued turnover from aging
owners, but resale levels are very hard to predict. In addition, P AHC staff will be more involved in
updating the BMR Policy and Procedures Manual to reflect Council's recently approved changes to
the BMR Program.
As in preceding years, this agreement is a sole source contract. There is no other entity that
provides, or is capable of providing, the total package of services required by the City for the BMR
program. A few services, such as income certifications of buyers and tenants, are provided by the
Santa Clara County Housing Authority for other local inclusionary housing progranls.
Another entity, Bay Area Home Buyer Agency (BARBA), offers BMR unit marketing, sales and
CMR: 276:09 Page 2 of4
portfolio management services. BARBA has a linlited track record at this time and cannot offer a
local office or staff presence; its approach seems best suited to developers that must find buyers for
affordable units in localities with newly established BMR programs. In addition, there is great
value in the historical and institutional knowledge that P AHC staff and its Board members have
developed over its years of involvement with the program. If the City were to provide these same
services in-house, City staffing levels would have to be increased by at least two full time positions
based on the time spent by P AHC staff as reflected in P AHC' s quarterly statement sent to the City
for review and approval.
P AHC has submitted a proposal to continue providing the City with BMR administration services
on a tinle and materials basis for the next two years at hourly billing rates shown in the attached
Exhibit B, with a maximum budget of$155,000 for the first year and $160,000 for the second year.
Totalcosts for the next two years represent an increase of about ten percent over the previous two
years' contract costs. Staffbe1ieves that the increase is reasonable and acceptable given the
projected increase in activities associated with the administration of the BMR program.
P ARC was able to secure liability and other insurance coverage in the last year for its BMR
program activities at a lower cost, which helps limit the growth in the cost of its services. In
addition, P AHC staff is considering charging fees to developers, owners and applicants to defray
costs. For example, PAHC has instituted an annual $15 waiting list fee to help cover printing and
mailing costs ofBMR sales information; this fee has brought in about $9,000.
RESOURCE IMPACT
PARC's administration of the BMRprogram has historically been funded from the Residential
Housing Fund, which is a special revenue fund created to support all types of affordable housing
programs. Revenue for the Residential Fund is primarily from BMR in-lieu fees collected from
developers of residential projects that are allowed to pay iIl:"lieu fees (instead of providing BMR
units or in return for providing fewer units). Fee payments are permitted for very small projects
when less than one full BMR unit is owed or when the City determines that no other alternative is
feasible.
The Residential Housing Fund includes a budget for the $350,000 total cost for PAHC's contract
services over the next two fiscal years. The Residential Fund's available balance is currently about
$685,000.
POLICY IMPLICATIONS
The recommendation in this staff report does not represent any change to City policies.
Implementation of this Agreement is consistent with the City's Housing Element and various
housing policies that support the provision of affordable housing and a variety of housing
opportunities.
ENVIRONMENTAL REVIEW
The approval of an agreement for administrative and conSUlting services is not an action subject to
environmental review under the California Environmental Quality Act.
ATTACHMENTS
Attachment A: Agreement Between the City of Palo Alto and the Palo Alto Housing
CMR: 276:09 Page 3 of4
Corporation For Below Market Rate Housing Program Administrative
Services (for Fiscal Years 2009-10 and 2010-11)
Attachment B: Chart Titled: Below Market Rate (BMR) Program Contract Costs,
Services and Accomplishments
COURTESY COPIES
Palo Alto Housing Coporation
PREPARED BY:
ON ~ 1J.ABIERA
Senior Planner
DEPARTMENT HEAD REVIEW: -----'C~~p.wtA~:a----W~~....,.~-=---=.::!I~'c....;..~~"'-----
CURTIS WILLIAMS
Interim Director
Planning and Community Environment
CITY MANAGER APPROV AL:
City Manager
CMR: 276:09 Page 4 of4
ATTACHMENT A
CONTRACT NO. __ _
BETWEEN THE CITY OF PALO ALTO AND
PAHC HOUSING SERVICES, LLC FOR
BELOW MARKET RATE HOUSING PROGRAM
ADMINISTRATIVE SERVICES
This Contract No. is entered into , 2009, by and
between the CITY OF PALO ALTO, a chartered city and a municipal corporation of the State of
California ("CITY"), and P AHC HOUSING SERVICES, LLC ("CONTRACTOR"), a California
nonprofit corporation, located at 725 Alma Street, Palo Alto, CA 94301 (Taxpayer Identification
Number 91-2198771).
RECITALS:
WHEREAS, CITY desires certain administrative and consulting services ("Services"),
in connection with the City's below market rate housing program as more fully described in Exhibit
"A"; and
WHEREAS, CITY desires to engage CONTRACTOR, including its employees, if
. any, in providing the Services by reason of its qualifications and experience in performing such
Services, and CONTRACTOR has offered to provide the Services on the terms and in the manner set
forth herein;
NOW, THEREFORE, in consideration of the covenants, terms, conditions, and
provisions of this Contract, the parties agree:
SECTION 1. TERM
1.1 This Contract will commence on July 1, 2009 and shall continue for a period
not to exceed two (2) years terminating on June 30, 2010. The obligation of CONTRACTOR to
perform the Services will commence in accordance with the time schedule set forth in Exhibit "A".
Time is of the essence of this Contract. In the event that the Services are not completed within the
specified time schedule on account of Contractor's default, CITY's City Manager will have the option
of extending the time schedule for any period of time. This provision will not preclude the recovery
of damages for delay caused by CONTRACTOR.
SECTION 2. QUALIFICATIONS, STATUS, AND DUTIES OF CONTRACTOR
2.1 CONTRACTOR represents and warrants that it has the expertise and
professional qualifications to furnish or cause to be furnished the Services. CONTRACTOR further
represents and warrants that the project director and every individual charged with the performance
of the Services under this Contract are duly licensed or certified by the State of California, to the
extent such licensing or certification is required by law to perform the Services.
1
090526 syn 0120357
2.2 In reliance on the representation and warranty set forth in Section 2.1, CITY
hires CONTRACTOR to perform, and CONTRACTOR covenants and agrees that it will furnish or
cause'to be furnished, the Services set forth in the document entitled "Below Market Rate Housing
Program, Fiscal Years 2009-2010 and 2010-2011, Scope of Services" in Exhibit "A".
2.3 CONTRACTOR will assign CANDICE GONZALEZ, its Executive Director,
as the project director to have supervisory responsibility for the performance, progress, and execution
of the Services. If circumstances or conditions subsequent to the execution of this Contract cause the
substitution of the project director for any reason, the appointment of a substitute project director
will be subject to the prior written approval of the project manager.
2.3.1 Not more than forty-nine percent (49%) of the persons serving on the governing
board of CONTRACTOR may be interested persons. The term "interested persons" is defined in
Section 5227(a) of the California Corporations Code.
2.4 CONTRACTOR represents and warrants that it will:
2.4.1 Procure all permits and licenses, pay all charges and fees, and give all notices
which may be necessary and incident to the due and lawful prosecution of the Services;
2.4.2 Keep itself fully informed of all existing and future Federal, State of
California, and local laws, ordinances, regulations, orders, and decrees which may affect those
engaged or employed under this Contract, any materials used in CONTRACTOR's performance
under this Contract, or the performance of the Services;
2.4.3 At all times observe and comply with, and cause its employees and contractors
(and consultants), if any, who are assigned to the performance of this Contract to observe and comply
with, the laws, ordinances, regulations, orders and decrees mentioned above; and
2.4.4 Will report immediately to the project manager, in writing, any discrepancy or
inconsistency it discovers in the laws, ordinances, regulations, orders, and decrees mentioned above
in relation to any plans, drawings, specifications or provisions of this Contract.
2.5 Any reports, information, data or other material given to, or prepared or
assembled by, CONTRACTOR or its contractors, if any, under this Contract will become the
property of CITY and will not be made available to any individual or organization by
CONTRACTOR or its contractors, if any, without the prior written approval of the city manager.
2.6 CONTRACTOR will provide CITY with quarterly reports. With each
quarterly billing, CONTRACTOR shall submit a summary chart of statistics about sales and resales
ofBMR ownership units, in a form approved by CITY, together with information about occupancy
ofBMR rental units. CONTRACTOR shall also submit a report, describing in narrative form, other
activities undertaken during the report period.
2.7 If CITY requests additional copies of reports, drawings, specifications or any
other material which CONTRACTOR is required to furnish in limited quantities in the performance
2
090526 syn 0120357
of the Services, CONTRACTOR will provide such additional copies and CITY will compensate
CONTRACTOR for its duplication costs.
2.8 CONTRACTOR will be responsible for employing or engaging all persons
necessary to perform the Services. All contractors of CONTRACTOR will be deemed to be directly
controlled and supervised by CONTRACTOR, which will be responsible for their performance. If
any employee or contractor of CONTRACTOR fails or refuses to carry out the provisions of this
Contract or appears to be incompetent or to act in a disorderly or improper manner, the employee or
contractor will be discharged immediately from further performance under this Contract on denland
of the project manager.
2.9 CONTRACTOR shall provide the project manager and others specifically
requested by the project manager with free and easy access to all facilities and activities of the
programs hereinafter described. The projectmanager and others spe~ifically requested by the project
manager shall coordinate such access with CONTRACTOR.
SECTION 3. DUTIES OF CITY
3.1 CITY will furnish or cause to be furnished the specified services set forth in
Exhibit "A" and such other information regarding its requirements as may be reasonably requested by
CONTRACTOR.
3.2 The city manager will represent CITY for all purposes under this Contract.
The Advance Planning Manager is designated as the project manager for the City Manager. The
project manager will supervise the performance, progress, and execution of the Services.
3.3 If CITY observes or otherwise becomes aware of any default in the
performance of CONTRACTOR, CITY will use reasonable efforts to give written notice thereof to
CONTAACTOR in a timely manner.
SECTION 4 -COMPENSATION
4.1 In consideration of the full performance of the Services by CONTRACTOR,
CITY will pay CONTRACTOR a total sum not to exceed One Hundred Fifty-Five Thousand Dollars
($155,000.00) for the first contract year. Total compensation for the second year shall not exceed
One Hundred Sixty Thousand Dollars ($160,000) plus any unused portion from the prior contract
year, provided such carryover is approved by the City Council. All compensation shall be subject to
the provisions of section 15.11 of this Contract. All compensation shall be payable within thirty (30)
days of submission by CONTRACTOR of its itemized billings On the billing form provided by
CITY, CONTRACTOR shall submit a bill by the fifth (5th) working day of each quarter for services
provided under this Contract during the preceding quarter. The bill shall specify actual expenditures
directly related to this Contract in accordance with Exhibit "B".
SECTION 5. AUDITS
3
090526 syn 0120357
5.1 CONTRACTOR will permit CITY to audit, at any reasonable time during the
term of this Contract and for three (3) years thereafter, CONTRACTOR's records pertaining to
matters covered by this Contract. CONTRACTOR further agrees to maintain and retain such records
for at least three (3) years after the expiration or earlier termination of this Contract.
SECTION 6. INDEMNITY
6.1 CONTRACTOR agrees to indemnify, defend and hold harmless CITY, its
Council members, officers, employees and agents from any and all demands, claims, or liability of
any nature, including death or injury to any person, property damage or any other loss, caused by or
arising out of CONTRACTOR's, its officers', agents', subcontractors' or employees' negligent acts,
errors, or omissions, or willful misconduct, or conduct for which applicable law may impose strict
liability on CONTRACTOR in the performance of or failure to perform its obligations under this
Contract.
SECTION 7. WAIVERS
7.1 The waiver by either party of any breach or violation of any covenant, term,
condition or provision of this Contract, or of the provisions of any ordinance or law, will not be
deemed to be a waiver of any other term, covenant, condition, provisions, ordinance or law, or of any
subsequent breach or violation of the same or of any other term, covenant, condition, provision,
ordinance or law. The subsequent acceptance by either party of any fee or other money which may
become due hereunder will not be deemed to be a waiver of any preceding breach or violation by the
other party of any term, covenant, condition or provision of this Contract or of any applicable law or
ordinance.
7.2 No paynlent, partial payment, acceptance, or partial acceptance by CITY will
operate as a waiver on the part of CITY of any of its rights under this Contract.
SECTION 8. INSURANCE
8.1 CONTRACTOR, at its sole cost and expense, will obtain and maintain, in full
force and effect during the term of this Contract, the insurance coverage described in Exhibit "C",
insuring not only CONTRACTOR and its contractors, if any, but also, with the exception of workers'
compensation, employer's liability, and professional liability insurance, naming CITY as an
additional insured concerning CONTRACTOR's performance under this Contract.
8.2 All insurance coverage required hereunder will be provided through carriers
with Best's Key Rating Guide ratings of A:VII or higher which are admitted to transact insurance
business in the State of California. Any and all contractors of CONTRACTOR retained to perform
Services under this Contract will obtain and maintain, in full force and effect during the term of this
Contract, identical insurance coverage, naming CITY as an additional insured under such policies as
required above.
8.3 Certificates of such insurance, preferably on the forms provided by CITY, will
be filed with CITY concurrently with the execution of this Contract. The certificates will be subject
4
090526 syn 0120357
to the approval of CITY's risk manager and will contain an endorsement stating that the insurance is
primary coverage and will not be canceled or altered by the insurer except after filing with CITY's
city clerk thirty (30) days' prior written notice of such cancellation or alteration, and that the City of
Palo Alto is named as an additional insured except in policies of workers' compensation, employer's
liability, and professional liability insurance. Current certificates of such insurance will be kept on
file at all times during the term of this Contract with the city clerk.
8.4 The procuring of such required policy or policies of insurance will not be
construed to limit CONTRACTOR's liability hereunder nor to fulfill the indemnification provisions
of this Contract. Notwithstanding the policy or policies of insurance, CONTRACTOR will be
obligated for the full and total amount of any damage, injury, or loss caused by or directly arising as
a result of the Services performed under this Contract, including such damage, injury, or loss arising
after the Contract is terminated or the term has expired.
SECTION 9. WORKERS' COMPENSATION
9.1 CONTRACTOR, by executing this Contract, certifies that it is aware of the
provisions of the Labor Code of the State of California which require every employer to be insured
against liability for workers' compensation or to undertake self-insurance in accordance with the
provisions of that Code, and certifies that it will comply with such provisions, as applicable, before
commencing the performance of the Services.
SECTION 10. TERMINATION OR SUSPENSION OF CONTRACT OR
SERVICES
10.1 The city manager may suspend the performance of the Services, in whole or in
part, or terminate this Contract, with or without cause, by giving thirty (30) days' prior written notice
thereof to CONTRACTOR. Upon receipt of such notice, CONTRACTOR will immediately
discontinue its performance of the Services.
10.2 CONTRACTOR may terminate this Contract or suspend its performance of
the Services by giving thirty (30) days' prior written notice thereof to CITY, but only in the event of a
substantial failure of performance by CITY or in the event CITY indefinitely withholds or withdraws
its request for the initiation or continuation of the Services to be performed.
10.3 Upon such suspension or termination by CITY, CONTRACTOR will be paid
for the Services actually rendered to CITY on or before the effective date of suspension or
termination; provided, however, if this Contract is suspended or terminated on account of a default
by CONTRACTOR, CITY will be obligated to compensate CONTRACTOR only for that portion of
the Services which are of direct and immediate benefit to CITY, as such determination may be made
by the city manager acting in the reasonable exercise of her discretion.·
10.4 Upon such suspension or termination, CONTRACTOR will deliver to the city
manager immediately any and all copies of studies, sketches, drawings, computations, and other data,
whether or not completed, prepared by CONTRACTOR or its contractors, if any, or given to
5
090526 syn 0120357
CONTRACTOR or its contractors, if any, in connection with this Contract. Such materials will
become the property of CITY.
10.5 The failure of CITY to agree with CONTRACTOR's independent findings,
conclusions, or recommendations, if the same are called for under this Contract, on the basis of
differences in matters of judgment, will not be construed as a failure on the part of CONTRACTOR
to fulfill its obligations under this Contract.
SECTION 11. ASSIGNMENT
11.1 This Contract is for the personal services of CONTRACTOR, .therefore,
CONTRACTOR will not assign, transfer, convey, or otherwise dispose of this Contract or any right,
title or interest in or to the same or any part thereof without the prior written consent of CITY. A
consent to one assignment will not be deemed to be a consent to any subsequent assignment. Any
assignment made without the approval of the city manager will be void and, at the option of the city
manager, this Contract may be terminated. This Contract will not be assignable by operation of law.
SECTION 12. NOTICES
12.1 All notices hereunder will be given in writing and mailed, postage prepaid, by
certified mail, addressed as follows:
To CITY:
With a
copy to:
Office of the City Clerk
City of Palo Alto
Post Office Box 10250
Palo Alto, CA 94303
Director, Dept. of Planning
and Community Environment
City of Palo Alto
P.O. Box 10250
Palo Alto, CA 94303
To CONTRACTOR: Attention of the project director
at the address of CONTRACTOR recited above
SECTION 13. CONFLICT OF INTEREST
13.1 In accepting this Contract, CONTRACTOR covenants that it presently has no
interest, and will not acquire any interest, direct or indirect, fmancial or otherwise, which would
conflict in any manner or degree with the performance of the Services.
13.2 CONTRACTOR further covenants that, in the performance of this Contract, it
will not employ any contractor or person having such an interest. CONTRACTOR certifies that no
6
090526 syn 0120357
person who has or will have any financial interest under this Contract is an officer or employee of
CITY; this provision will be interpreted in accordance with the applicable provisions of the Palo Alto
Municipal Code and the Government Code of the State of California.
SECTION 14. NONDISCRIMINATION
14.1 As set forth in the Palo Alto Municipal Code, no discrimination will be made
in the employment of any person under this Contract because of the age, race, color, national origin,
ancestry, religion, disability, sexual preference or gender of that person. If the value of this Contract
is, or 'may be, five thousand dollars ($5,000) or more, CONTRACTOR agrees to meet all
requirements of the Palo Alto Municipal Code pertaining to nondiscrimination in employment,
including completing the requisite form furnished by CITY and set forth in Exhibit "D".
14.2 CONTRACTOR agrees that each contract for services with an independent
provider will contain a provision substantially as follows:
"[Name of Provider] will provide CONTRACTOR with a certificate
stating that [Name of Provider] is currently in compliance with all
Federal and State of California laws covering nondiscrimination in
employment; that [Name of Provider] will pursue an affirmative
course of action as required by the Affirmative Action Guidelines of
the City of Palo Alto; and that [Name of Provider] will not
discriminate in the employment of any person under this contract
because of the age, race, color, national origin, ancestry, religion,
disability, sexual preference or gender of such person."
14.3 If CONTRACTOR is found in violation of the nondiscrimination provisions
of the State of California Fair Employment Practices Act or similar provisions of Federal law or
executive order in the performance of this Contract, it will be in default of this Contract. Thereupon,
CITY will have the power to cancel or suspend this Contract, in whole or in part, or to deduct the
sum of twenty-five dollars ($25) for each person for each calendar day during which such person was
subjected to acts of discrimination, as damages for breach of contract, or both. Only a finding of the
State of California Fair Employment Practices Commission or the' equivalent federal agency or
officer will constitute evidence of a breach of this Contract.
SECTION 15. MISCELLANEOUS PROVISIONS
15.1 CONTRACTOR represents and warrants that it has knowledge of the
requirements of the Americans with Disabilities Act of 1990, and the Government Code and the
Health and Safety Code of the State of California, relating to access to public buildings and
accommodations for disabled persons, and relating to facilities for disabled persons.
CONTRACTOR will comply with or ensure by its advice that compliance with such provisions will
be effected in the performance of this Contract.
15.2 This Contract will be governed by the laws of the State of California,
excluding its conflicts of law.
7
090526 syn 0120357
15.3 In the event that an action is brought, the parties agree that trial of such action
will be vested exclusively in the state courts o'f California or in the United States District Court for
the Northern District of California in the County of Santa Clara, State of California.
15.4 The prevailing party in any action brought to enforce the provisions of this
Contract' may recover its reasonable costs and attorneys' fees expended in 'connection with that
action.
15.5 This docun1ent represents the entire and integrated agreement between the
parties and supersedes all prior negotiations, representations, and contracts, either written or oral.
This document may be amended only by a written instrument, which is signed by the parties.
15.6 All provisions of this Contract, whether covenants or conditions, will be
deemed to be both covenants and conditions.
15.7 The covenants, terms, conditions and provisions of this Contract will apply to,
and will bind, the heirs, successors, executors, administrators, assignees, and contractors, as the case
may be, of the parties.
15.8 If a court of competent jurisdiction finds or rules that any provision of this
Contract or any amendment thereto is void or unenforceable, the unaffected provisions of this
Contract and any amendments thereto will remain in full force and effect.
15.9 All exhibits referred to in this Contract and any addenda, appendices,
attachments, and schedules which, from time to time, may be referred to in any duly executed
amendment hereto are by such reference incorporated in this Contract and will be deemed to be a
part of this Contract.
15.10 This Contract may be executed in any number of counterparts, each of which
will be an original, but all of which together will constitute one and the same instrument.
15.11 This Contract is subject to the fiscal provisions of the Charter of the City of
Palo Alto and the Palo Alto Municipal Code. This Contract will terminate witho\1t any penalty (a) at
the end of any fiscal year in the event that funds are not appropriated for the following fiscal year, or
(b) at any time within a fiscal year in the event that funds are only appropriated for a portion of the
fiscal year and funds for this Contract are no longer available. This Section 15.11 shall take
precedence in the event of a conflict with any other covenant, term, condition, or provision of this
Contract.
II
II
/I
II
8
090526 syn 0120357
IN WITNESS WHEREOF, the parties hereto have by their duly authorized representatives
executed this Contract on the date first above written.
ATTEST:
City Clerk
APPROVED AS TO FORM:
Assistant City Attorney
APPROVED:
Director of Planning and
Community Environment
Director of Administrative
Services
Insurance Review
Attachments:
EXHIBIT "A": SCOPE OF SERVICES
CITY OF PALO ALTO
Mayor
P AHC HOUSING SERVICES, LLC
Name: ---------------------Title: --------------------
Name: ---------------------Title: --------------------
Taxpayer Identification No.
91-2198771
(Compliance with Corp. Code § 313 is required
if the entity on whose behalf this contract is
signed is a corporation. In the alternative, a
certified corporate resolution attesting to the
signatory authority of the individuals signing in
their respective capacities is acceptable)
EXHIBIT "B":
EXHIBIT "C":
BUDGET AND BILLING RATES
INSURANCE
EXHIBIT "D": NONDISCRIMINATION COMPLIANCE FORM
9
090526 syn 0120357
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
, I
, j
, j
, j
, j
, j
, j
, j
, j
, j
, j
j
, j
, j
, j
, j
, j
, j
, j
, j
, j
,j
,j
j
EXHIBIT A
BELOW MARKET RATE HOUSING PROGRAM
FISCAL YEARS: 2009-10 and 2010-11
SCOPE OF SERVICES FOR BMR PROGRAM ADMINISTRATION
PAHC Housing Services LLC (PAHC) shall administer the City's Below Market Rate (BMR) housing
program in compliance with City policy, guidelines, the applicable deed restrictions and the BMR
Program Procedures Manual and in a maimer that increases affordable housing opportunities for low
and moderate-income households.
Specific Activities:
1) Provide infomlation and advice to interested persons and housing seekers about the City's BMR
ownership and rental programs including maintaining and updating the BMR portion of the P AHC
website.
2) Maintain and, at least annually, update the BMR ownership waiting list. Conduct waiting list
outreach activities to attract households with appropriate income levels, as needed.
3) Send an information letter to BMR owners once each year to keep owners informed of their
responsibilities under the deed restrictions and distribute other informational materials to owners as
appropriate or as directed by the City.
4) Annually update the list of lenders willing to lend on BMR units; conduct outreach to lenders
with branches in Palo Alto to encourage participation in the BMR program so that buyers have
sufficient choice of lenders and loan products. Maintain liaison with available homebuyer
assistance programs (such as mortgage credit certificates, Housing Trust of Santa Clara County, Cal
HF A, etc.) and provide buyers with current information about such financial assistance programs.
5) Administer the sales of newly constructed units and resales of existing units in the BMR
ownership program, and the "discount" units at the Birch Court project with City deed restrictions,
in accordance with City policies, guidelines, the applicable deed restrictions and with the Procedures
Manual, prepared by P ARC, as accepted by the City. Conduct marketing of new BMR ownership
units to help ensure a sufficient pool of qualified buyers, anticipated during this contract term are the
8 remaining BMR units at the Classic Communities project, 7 BMR units at SummerHill Redwood
Gate, the 7 BMR units at Toll Brothers.,
6) Pursue, in cooperation with the City, the preservation of BMR units within the program and
compliance and enforcement by BMR owners with the provisions of the recorded deed restrictions.
7) Provide assistance and counseling to BMR owners, in coordination with City staff, to help
owners resolve financial, occupancy or title situations that can affect the preservation of BMR
ownership units.
Exhibit A
Page 2 of3
8) Annually, coordinate and jointly conduct at least two homeownership educational workshops
specifically designed for the Palo Alto BMR program for current BMR owners and/or households
on the waiting list by subcontracting with an experienced and qualified organization.
9) Assessment Loan Program for BMR Owners:
a) Provide information regarding the assessment loan program to BMR owners and
condominium associations
b) Conduct pre-qualification screening of potential loan applicants
10) BMR Rental Program Administration:
a) For the BMR rental units at Southwood Apartments, Mayfield Apartments, 1100 Welch Road
Apartments, Montage Apartments at 4020 El Camino Real, Sunrise Assisted Living, Parker Palo
Alto, and other BMR rental units that may be newly constructed during the term of this
contract:
1) Certify tenants' income eligibility for initial occupancy and review the annual
recertifications of tenants as required by the applicable agreements between the City and
the project owners
2) Monitor tenant selection, operation of waiting lists, and designation of BMR units as
necessary
3) Provide information and training on the BMR Rental Program to property managers
b) Stanford West Apartments BMR Units:
1) Continue to provide training and information to on-site management staff on BMR
unit eligibility requirements, rents and procedures
2) Conduct an annual sample file audit of tenant selections, eligibility and income
certifications· for an appropriate portion of the .BMR households to assure compliance
with the BMR program
3) If appropriate, make recommendations to City for more comprehensive monitoring.
11) Provide advice, consultation and assistance to City staff in negotiations of BMR agreements for
new housing developments
Exhibit A
Page 3 of3
12) Coordinate the process of evaluation, negotiation and financing related to the acquisition and
rehabilitation if necessary, of off-site units or properties contributed under the BMR program
13) Assist City staff with review, adoption and implementation of changes resulting from the
evaluations of the BMR Study
14) Provide assistance, review and advice regarding preparation and adoption of a revised BMR
ordinance, revised Policies and Procedures Manual, revised ownership deed restrictions and
enforcement documents and other new materials to implement the recommendations from the
BMR Study.
15) Maintain records and statistics as required by the City, specifically:
a) Annual statistics about the BMR ownership and rental units and the households served;
and
b) A permanent database and record of all ownership units placed in the program and
statistics about current BMR owners and all households served over the life of the program,
including maintenance of files on each BMR owner unit and retention of copies of the actual
recorded deed restrictions for the ownership units; and
c) Contact information for current BMR owners with mailing labels and, when available,
telephone numbers and e-mail addresses ..
16) For the 24 BMR units (12 congregate care/independent living units and 12 assisted living units)
at the Jewish Center for Jewish Life Campus)
1) Assist in the marketing and leasing of the newly-constructed 24 BMR units.
2) Certify tenants' income eligibility for initial occupancy as required by the applicable
agreements between the City and the project owners
3) Monitor tenant selection, operation of waiting lists, and designation ofBMR units as
necessary
4) Provide information and training on the BMR Program to property managers andlor
service providers.
5) If appropriate, make recommendations to City for more comprehensive monitoring.
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
j
I
r j
r j
r j
r j
r j
r j
r j
r j
r j
r j
r j
r j
r j
r j
r j
r j
r j
rj
rj
j
BELOW MARKET RATE HOUSING PROGRAM
FISCAL YEARS: 2009-10 and 2010-11
BUDGET
-EXHIBITB
I. P AHC shall provide the services described in Exhibit A -Scope of Services during the term of
this contract and City shall reimburse P AHC for the cost of said services based on actual staff time
worked at the attached hourly billing rates, plus direct costs described below, up to a maximum of
$155,000 for fiscal year 2009-10 and $160,000 for fiscal year 20010-11, plus any unused funds
carried over from fiscal year 2008-09. The source of reimbursement to PAHC shall be from the
City'S Residential Housing Fund.
II. P AHC may bill City for the following:
1. Staff tinle spent on BMR program activities and directly related program support work at
the hourly billing rates shown herein. These hourly billing rates include actual salaries,
payroll taxes, benefits, workers compensation insurance and overhead, as shown in this
Exhibit B.
2. Direct costs, as supported by receipts, invoices, etc., which are reasonable and necessary
to conduct the activities described in Exhibit A, such as:
• Premiums for liability and errors and omissions insurance and other insurance
specifically covering PAHC's services under this Agreement, if the cost is separately
stated or can be reasonably allocated to BMR services, and with the total amount payable
not to exceed $10,000 per year
• Postage
• Advertising
• Conferences and Training
• Office Supplies
• Outside Services, Consultants including Legal Fees (except that any such services or
consultant work exceeding $3,000.00 shall be authorized in advance by City)
• PrintinglDuplicating
• Other necessary direct expenses including expenses necessary to the acquisition and / or
rehabilitation of off-site units and properties provided by developers under the BMR
program in-lieu of on-site units
Attachment B: Below Market Rate (BMR) Program Contract Costs, Services, & Accomplishments
Contract Final Amount Actual Expenses Information New Owner Resale Total Owner Rental Units Rental Units
Fiscal Year Paid by City to Owner Units Certifications Preserved or Amount PAHC by PAHC Calls Handled Units Sold Sold Units Sold Added Completed Saved
08-09 $140,000 $129,757 $129,757 318 20 3 23 3 15 0
07-08 $145,000 $145,000 $172,953 723 31 4 35 0 54 0
06-07 $135,000 $135,000 $143,830 611 1 8 9 0 3 1
05-06 $130,000 $130,000 $138,248 584 9 5 14 0 14 0
04-05 $105,500 $105,500 $117,820 600 0 4 4 42 33 2
03-04 $105,500 $105,500 $115,373 1,400 0 7 7 0 4 0
02-03* $105,000 $105,000 $124,700 1,448 0 6 6 0 12 1
01-02 $75,000 $75,000 $79,463 449 0 2 2 0 53 0
00-01 $60,000 $59,930 $59,930 340 1 6 7 63 81 1
99-00 $50,000 $50,000 $50,072 1,323 7 3 10 0 5 0
98-99* $58,372 $53,109 $53,109 872 0 3 3 5 10 1
97-98 $40,000 $35,458 $35,458 394 0 4 4 12 3 0
96-97 $50,000 $30,998 $30,998 335 1 2 3 0 1 0
95-96 $50,000 $41,737 $41,737 462 0 6 6 4 6 0
94-95 $66,700 $38,422 $38,422 707 3 5 8 0 6 1
Totals for 15 Years $1,316,072 $1,240,411 $1,331,869 10,566 73 68 141 129 300 7
Notes:
1) "Rental Units Added" includes units provided as off-site BMR low income rental housing and new rental BMR units in market rate rental projects: Emerson House Apts (4 units); Ventura Apts (12
units); Montage Apts (5 units) and Stanford West Apts (63 units, plus 42 units added in 2004-05 as the first part of the BMR component for the Hyatt Senior Residence); Parker Palo Alto Apts. (3
units).
2) "Units Preserved or Saved" are BMR owner units t~at were in danger of being lost from the program through default, foreclosure, difficulty in reselling or other problems.
3) *In FY 02-03, PAHC spent about $25,000 for an unusual level of legal fees to defend itself & the City in from litigation on a unit which had severe mold contamination from water leaks. PAHC's
insurance covered about 60% of its legal costs. In FY 98-99 the contract was amended to cover PAHC's $8,556 in legal costs on a foreclosure case.
4) This chart shows only accomplishments that can be readily quantified & doesn't describe other services performed by PAHC.
5) FY 03-04 and 04-05 and future years were funded under 2-year contracts.
6) FY 08-09 data as of March 31, 2009
> ~ ~
I ~
OJ
TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER
DATE: JUNE 15, 2009
REPORT TYPE: Consent
DEPARTMENT: ADMINISTRATIVE
SERVICES
CMR: 278:09
SUBJECT: Adoption of Resolution Determining the Proposed Calculation of the
Appropriations Limit for Fiscal Year 2010
RECOMMENDATION
Staff recommends that Council adopt the attached resolution determining the Proposition 4
(Gann) Appropriations Limit calculation for Fiscal Year 20 I O. The City's Fiscal Year 2010
appropriations are estimated to be $43.97 million under the limit, assuming Council approval of
the Fiscal Year 20 I 0 Adopted Budget.
DISCUSSION
Article XIIIB of the State Constitution (Proposition 4) limits the annual appropriations for State
and local governments. The Appropriations Limit (Limit) is adjusted annually on the basis of
population and per capita income "change factors." These factors are received from the State in
May, after the City's proposed budget has been submitted to Council. Attached is the final
Appropriations Limit calculation, based on the "change factors" that have been received from the
State. The Appropriations Limit for Fiscal Year 2010 is $116.38 million. When compared to the
recommended 2010 Budget, the City's Fiscal Year 2010 budgeted appropriations are $43.97
million under the Limit.
Based on Article XIIIB, the City of Palo Alto can use the larger of two measurements of
population growth, (county or city population growth) in the Limit calculation. For Fiscal Year
2010, the City is using the city population factor, which is greater than the population factor for
the County of Santa Clara (County). In Fiscal Year 2009, the population factor for the County
was used in lieu of the City'S since the County's population factor was higher than the City'S.
The City typically uses the highest factor in order to provide maximum appropriation flexibility.
As required by State law, documentation used to compute the Limit has been made available to
the public at least fifteen days prior to the Council meeting at which the Limit is being adopted,
and notice was published of the availability of these materials.
CMR:278:09 Page 1 of3
RESOURCE IMPACT
The adoption of the Fiscal Year 2010 Limit has no impact on City resources.
POLICY IMPLICATIONS
This recommendation is consistent with existing City policies.
ENVIRONMENTAL REVIEW
This is not a project under section 21065 of the California Environmental Quality Act.
ATTACHMENTS
Attachment A: Resolution determining the calculation of the Appropriations Limit for fiscal year
2010
Exhibit A: Appropriations Limitation Compliance Calculation For FY 2010 Adopted
Budget
PREPARED BY:
DEPARTMENT HEAD APPROVAL:
istrative Services
CITY MANAGER APPROVAL: ~~K-E~N~E~--~~~
City Manager
CMR:278:09 Page 3 of3
Attachment A
NOT YET APPROVED
Resolution No ---Resolution of the Council of the City of Palo Alto Determining
the Proposed Calculation of the Appropriations Limit for Fiscal
Year 2010
WHEREAS, under Article XIIIB of the Constitution of the State of California, the
City of Palo Alto (City) may not appropriate any proceeds of taxes in excess of its
appropriations limit (Limit); and
WHEREAS, since fiscal year 1991, the City is pennitted to annually adjust its
Limit in accordance with inflation and population adjustment factors; and
WHEREAS, pursuant to Govermnent Code Section 37200, the calculation of the
Limit and the total appropriations subject to the limit were set forth in the annual budget
of the City for fiscal year 201 0, which will be adopted by ordinance of the Council on
June 15, 2009; and
WHEREAS, pursuant to Government Code sections 7901 and 7910, the final
calculation of the Limit has been detennined, and the adjustment factors on which the
calculation is based are a 0.62% percent change in California per capita income and a
2.20% percent change in thc population growth for the City of Palo Alto; and
WHEREAS, the documentation used in the determination of the Limit has been
made available to the general public for fifteen (15) days prior to the date of adoption of
this resolution; and
WHEREAS, according to the final calculation, the City's appropriations subject
to limitation are approximately $43.97 million less than the Limit.
NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE as
follows:
SECTION I. The Council of the City of Palo Alto hereby finds that, for fiscal
year 2010, the final calculation of the Appropriations Limit of the City of Palo Alto has
been detennined in accordance with the adjustment factors referred to above, the
documentation used in the determination of the calculation has been madc available to
the general public for the period of fifteen days as required by law, and the City's
appropriations subject to limitation are under the Limit by approximately $43.97 million.
090518 jb 0130482
SECTION 2. The Council hereby adopts the final calculation of the
Appropriations Limit of the City for fiscal year 20 10, a copy of which is attached hereto
as Exhibit A
SECTION 3. The Council finds that the adoption of this resolution does not
constitute a project under the California Environmental Quality Act, and, therefore, no
environmental assessment is necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Senior Asst City Attorney
090608 jb tH30482 2
APPROVED:
Mayor
City Manager
Director of Administrative
Services
Exhibit A
APPROPRIATIONS LIMITATION COMPLIANCE CALCULATION
FOR FY 2010 ADOPTED BUDGET
($ IN MILLIONS)
Combined
Funds
Total Budgeted Appropriations
FY 2010 Proposed Budget ($ millions) 188.47
Less: Debt Service Transactions 1.22
Capital Outlay 65.45
Non-Proceeds of Taxes 49.39
INet Proposed Appropriations Subject to Limit $72.41
FY2010,Appropriations limit $116.38
.UnderLimlt By $43.97
Computation of Appropriation limit:
FY 2010 Appropriations Limit: $113,173,703
FY 2010 City of Palo Alto
Population Change 2.2000%
2010 Per Capita Income Change 0.6200%
(1.0220) x (1.0062) x $113,173,703 = $116,380,638
General Capital Debt Special
Fund Projects Service Revenue
114.62 65.45 1.22 7.18
1.22
65.45
47.14 2.25
$67.48 $0.00 $0.00 $4.93 1
, '"
The City of Palo Alto remains well within its appropriations limit In FY 2010. Future year limit trends can be made based
on the average change in regional population and income growth. The appropriations subject to limitation includes
proceeds of taxes from the General Fund, Special Revenue 'Funds, Debt Service Funds, and Capital Improvement
Funds. The following is a summary of estimated limits and estimated appropriations subject to the limit.
Historical Appropriations
FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
Appropriations Subject to the Limit 65.87 70.45 73.30 78.64 72.41
Appropriations Limit 95.68 100.64 106.68 113.17 116.38
Under Limit By 29.81 30.19 33.38 34.53 43.97
Projected Appropriations
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
Estimated Appropriations Subject to Limit 78.20 84.46 91.22 98.51 106.39
Estimated Appropriations Limit 123.46 130.96 138.93 147.37 156.33
Under Limit By 45.25 46.50 47.71 48.86 49.94
TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER DEPARTMENT: UTILITIES
DATE: JUNE 15, 2009 CMR: 273:09
REPORT TYPE: CONSENT
SUBJECT: Approval of Amendment No. One to the Agreement Between the City
of Palo Alto and the Purissima Hills Water District for a Limited
Emergency Water Supply Intertie
RECOMMENDATION
Staff recommends that Council approve an amendment to the existing agreement with Purissima
Hills Water District for the Page Mill Road Limited Emergency Water Supply to include a
second interconnection on Page Mill Road adjacent to Foothill Park Entrance Gate 2.
BACKGROUND
In 2007, staff worked with the Purissima Hills Water District (PHWD) to install an
interconnection at Arastradero Rd. and Hillview Ave. to provide emergency water supply options
and maintenance flexibility for both the City and PHWD (CMR:417 :07). The Arastradero at
HiJJview interconnection is complete as of March 2009. Since 2008, staff also worked with the
Los Altos County Fire District (LAHCFD) on an agreement to provide enhanced mutual fire
protection benefits for both the City and LAHCFD (CMR: 109:08). LAHCFD is upgrading a
portion of the City's water distribution system along Page Mill Road, which includes the
construction of an interconnection on Page Mill Road, approximately 0.5 miles southwest of the
Foothills Park entrance. Palo Alto and PHWD want to amend their original agreement to
establish terms and conditions for maintenance and use of the Page Mill road interconnection.
DISCUSSION
Palo Alto's emergency water supply will be enhanced in the Foothills along Page Mill Road by
LAHCFD's construction of a second interconnection with PHWD at the 500,000 gallon storage
tank owned and operated by PHWD. The second interconnection with PHWD will help improve
fire protection and provide emergency water to customers in the Foothills along Page Mill Road
in the event that Palo Alto water facilities are isolated for emergency repairs or planned
maintenance preventing service to the area. The interconnection has been designed jointly. The
CMR: 273:09 Page 1 of 3
construction of the interconnection will be paid for and inspected by Pakpour Consulting Group
(PCG) through LAHCFD.
Future maintenance of the interconnection will be shared equally by Palo Alto and PHWD. The
interconnection will be metered in both directions. Any water used by either party will be paid
for at the rate the party pays San Francisco Public Utilities Commission for the water supplied.
Each party will evaluate the request of the other party for emergency water supply at the time of
the request to open the interconnection. If the party without an emergency is able to release water
from its system, it would be reimbursed for the supplied water within 30 days of billing the
receiving party. The amendment covers these terms and conditions.
Construction of the second PHWD emergency interconnection on Page Mi11 Road adjacent to
Foothill Park Entrance Gate 2 will include the following facilities: a bidirectional meter, meter
vault, flushing pipes, traffic rated covers, check valves and gate valves. The Page Mill
connection will be for emergency use only and will allow both the City and PHWD to provide
water to the other party on a limited and emergency basis if either party chooses to share their
water supply.
On April 20, 2009, PCG issued a Notice To Proceed with Ranger Pipelines to commence with
the construction work.
Staff has coordinated the project planning and construction schedule with the Community
Services Department Staff at Foothills Park to ensure that the Project will not interfere with park
access or services. Construction activity for the Project will be completed by October 2009.
Construction is planned for weekdays from 8:00 a.m. to 5 :00 p.m.
RESOURCE lMPACT
Maintenance costs are included in the Water Fund operating budget for these proposed
replacement facilities. Funding for the interconnection will be provided by LAHCFD. As
stipulated in the Amendment, PHWD and the City will share the cost of future maintenance
equally. City maintenance costs are included in the Water Fund Operations Budget.
POLICY IMPLICATIONS
The approval of this amendment is consistent with existing City policies. This recommendation
is consistent with the Council-approved Utilities Strategic Plan Key Strategy No.1, "Operate
distribution system in a cost effective manner," Strategy No.7, "Implement programs that
improve the quality of the environment" and Objective No.2, "Invest in utility infrastructure to
deliver reliable service."
ENVIRONMENTAL REVIEW
This project is categorically exempt from the California Environmental Quality Act (CEQA)
pursuant to CEQA Guidelines Sections 15301 (repair, maintenance or minor altercation of
existing facilities) and 15302 (replacement or reconstruction of existing facilities located on the
CMR: 273:09 Page 2 of3
same site as the structure replaced). Under the tenus of the First Amendment to the Agreement,
LAHCFD is responsible for any environmental review ofthe project.
ATTACHMENTS
A: Amendment No. One to the Agreement between the City of Palo Alto and the Purissima
Hills Water District for a Limited Emergency Water Supply Second Interconnection on
Page Mill Road.
B: Location Map and Layout
PREPARED BY:
DEPARTMENT APPROVAL:
CITY MANAGER APPROVAL:
CMR: 273:09
~EL ANTONIO, Sr. Project Engineer, WGW
GREG SCOBY, Engineering Manager WGW
M MARSHALL, Assistant Director Utilities
Z~A
City Manager
Page 3 of3
AMENDMENT NO. ONE TO AGREEMENT
BETWEEN THE CITY OF PALO ALTO AND
ATTACHMENT A
THE PURISSIMA HILLS WATER DISTRICT FOR LIMITED EMERGENCY
WATER SUPPLY INTERTIE
This Amendment No. One ("First Amendment") is entered into this day of
___ ,2009, ("Effective Date") by and between the CITY OF PALO ALTO, California, a
chartered California municipal corporation with its primary business address at 250 Hamilton
Avenue, Palo Alto California 94301 ("CITY"), and the PURlS SIMA HILLS WATER
DISTRICT, a county water district, with its primary business address at 26375 Fremont Road,
Los Altos Hills, California 94022 ("DISTRICT"). CITY and DISTRICT may each be referred to
individually as a "Party," or collectively as the "Parties," or the "Parties to this First
Amendment."
RECITALS
WHEREAS, on November 19, 2007, the DISTRICT and CITY entered into an
Agreement titled, "Agreement Between the City of Palo Alto and the Purissima Hills Water
District for Limited Emergency Water Supply Intertie" ("Original Agreement"), which provided
the terms and conditions for a two-way mutual relief connection between the Parties' respective
water systems so that each Party can provide the other with water in an emergency, if water is
otherwise available;
WHEREAS, the Los Altos Hills County Fire District ("Fire District") is upgrading the
water pipelines for the CITY along Page Mill Road, and as part of this project, the Fire District
will construct an interconnection at Page Mill Road, approximately 0.5 miles Southwest of the
entrance to Foothill Park ("Page Mill Road Connection");
WHEREAS, the Page Mill Road Connection will benefit both the DISTRICT and the
CITY; and
WHEREAS, the Parties to this First Amendment desire to amend the Original Agreement
to establish the terms and conditions for the maintenance and use of the Page Mill Road
Connection, after construction has been completed and the Page Mill Road Connection has been
accepted by the Parties.
AGREEMENT PROVISIONS
NOW, THEREFORE, the Parties to this First Amendment agree to amend the Original
Agreement as follows:
Section 1. Incorporation of Preamble and Recitals. The Parties agree to, and attest
to the truth and accuracy of, the provisions contained in the Preamble and Recitals of this First
Amendment as set forth above. The provisions of the Preamble and Recitals are hereby
incorporated into, and made a part of, the terms of this First Amendment by this reference. The
Parties agree that this First Amendment has been entered into, at least in part, in consideration of
1
090601 syn 6050739
the provlSlons contained in the Preamble and Recitals, III addition to all of the following
provisions of this First Amendment.
Section 2. Interconnection. All references to the term "Interconnection" in the
Original Agreement refer to both the Arastradero Road Connection and the Page Mill Road
Connection.
Section 3. Paragraph 1 of the Original Agreement titled, Interconnection Location,
is deleted and replaced with the following language:
1. Interconnection Location. The Arastradero Road Connection is generally
described as follows and is shown on the drawings attached as Exhibit A. The
Arastradero Road Connection is anticipated to be located at Arastradero Road and
Hillview Avenue, and is anticipated to be constructed in 2008. The Arastradero
Road Connection will include the following facilities: a bidirectional meter, meter
vaults, flushing pipes, traffic rated covers, check valves and gate valves.
The Page Mill Road Connection is generally described as follows and is shown on
the drawings attached to this Amendment as Attachment A. The Page Mill Road
Connection is anticipated to be located along Page Mill Road, approximately 0.5
miles southwest of the entrance to Foothill Park and is anticipated to be
constructed in May 2009. The Page Mill Road Connection will include the
following facilities: a bidirectional meter, meter vaults, flushing pipes, traffic
rated covers, check valves, and gate valves.
In the event either Party requires supplemental water for a limited period of time
due to an emergency or disaster, such Party shall have the right to obtain
supplemental water from the other Party via the Page Mill Road Connection or
the Arastradero Road Connection pursuant to Section 5 of this Agreement. When
the Interconnection is activated, it shall operate only when the supplying Party is
capable of providing supplemental water above and beyond that which is required
to service its needs.
Section 4. Paragraph 3 of the Original Agreement titled, Construction of
Arastradero Road Connection, is deleted and replaced with the following language:
3. Construction of Connections.
090601 syn 6050739
A. Arastradero Road
1. The estimated current cost to design, purchase and construct the
Arastradero Road Connection is $50,000. The DISTRICT will
assume primary responsibility for the design, purchase, and
construction of the Arastradero Road Connection. More
specifically, the DISTRICT will complete, to the reasonable
satisfaction of CITY, the following tasks:
a. Prepare contract specifications and drawings;
2
090601 syn 6050739
b. Conduct the environmental review and obtain all necessary
permits and approvals;
c. Solicit bids, evaluate bids, and award the contract to the
lowest responsible and responsive bidder;
d. Perform inspection and construction oversight; and
e. Test and accept the completed work.
2. DISTRICT will pay for all costs pertaining to the design, purchase,
and construction of the Arastradero Road Connection. DISTRICT
will connect the Arastradero Road Connection to the CITY
distribution system in accordance with CITY standard
specifications and to DISTRICT distribution system in accordance
with DISTRICT standard specifications. Upon completion of
construction, DISTRICT shall transfer ownership of the facilities
to the CITY up to the CITY side of the Interconnection meter.
DISTRICT will retain ownership of the facilities up to and
including the Interconnection meter.
B. Page Mill Road
1. In accordance with the January 20, 2009, Agreement for
Construction of Page Mill Road Interconnection between the
DISTRICT and Fire District, the Fire District will:
a. design and construct a second interconnection between the
DISTRICT and the CITY, the Page Mill Road Connection,
which includes the connection of the Page Mill Road
Connection to the CITY and DISTRICT water distribution
systems; and
b. obtain all required pennits and complete all environmental
reviews for the Page Mill Road Connection.
2. DISTRICT and the CITY will inspect the Page Mill Road
Connection prior to determining that the Page Mill Road
Connection may be put into use. After acceptance of the Page Mill
Road Connection by the DISTRICT and the CITY, the Fire
District will:
a. transfer ownership of the facilities from the CITY's
existing system up to the CITY side of the Page Mill Road
Connection meter to the CITY; and
3
b. transfer ownership of the facilities from the DISTRICT's
existing system up to and including the Page Mill Road
Connection meter to the DISTRICT.
Section 5 Effect on the Original Agreement. Except for the modifications to the
Original Agreement expressly set forth in this First Amendment, the terms and conditions of the
Original Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the Parties have entered into this First Amendment to the
Original Agreement by their duly authorized representatives as of the Effective Date first written
above.
PURISSIMA HILLS WATER DISTRICT, a
county water district
By: _____________ _
General Manager
ATIEST:
District Secretary
090601 syn 6050739
4
CITY OF PALO ALTO, a chartered California
municipal corporation
By: _____________ _
Assistant City Manager
APPROVED AS TO FORM:
Deputy City Attorney
APPROVED:
Director of Utilities
Director of Administrative Services
PROJECT LOCATION MAP
NOT TO SCAlE
ATTACHMENT B
TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE: JUNE 15, 2009 CMR: 272:09
REPORT TYPE: CONSENT
SUBJECT: Annua) Adoption ofthe City's Investment Policy
RECOMMENDATION
Staff recommends that Council adopt the City's Investment Policy without any changes.
DISCUSSION
The City of Palo Alto Statement ofInvestment Policy (Attachment A) requires review and approval
by Council as part of the annual budget process. Customarily, staff presents annual changes in the
Investment Policy to the Finance Committee. Since there are no recommended changes to the policy
this year and in order to expedite the review process, staff is presenting its recommendations directly
to the full Council.
The City has a conservative investment policy and strictly adheres to the following in priority order:
safety, liquidity, and yield. During the current financial upheaval, the City has not lost any principal.
A "buy and hold", laddered investment strategy is strictly maintained so that principal is not risked
and liquidity is assured.
RESOURCE IMPACT
There is no fiscal impact associated with this report.
POLICY IMPLICATIONS
This recommendation does not represent any change to City policies.
ENVIRONMENTAL REVIEW
The actions requested in this report do not constitute a project for the purposes of the California
Environmental Quality Act (CEQA).
ATTACHMENT
Attachment A: Proposed FY 2009-10 Investment Policy
CMR: 272:09 Page Ion
PREPAREDB .
APPROVED BY:
CITY MANAGER APPROVAL:
CMR:272:09
TARUN NARAYAN
Senior Financial Analyst
LALOPEREZ
Director, Administrative Services
Page 2 of2
ATTACHMENT A
PROPOSED 2009-10 CITY OF PALO ALTO
Investment Policy
With No Proposed Changes
INTRODUCTION
The City of Palo Alto invests its pooled idle cash according to State of California law and the charter
of the City of Palo Alto. In partieular, the City follows "The Prudent Investor Standard" cited in the
State Government Code (Section 53600.3). Under this standard, all governing bodies of local
agencies or persons authorized to make investment decisions on behalf of the City are trustees and
therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting,
purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care,
skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to
the general economic conditions and the anticipated needs of the agency, that a prudent person acting
in a like capacity and familiarity with those matters would use in the conduct of funds of a like
character and with like aims, to safeguard the principal and maintain the liquidity needs of the
agency.
INVESTMENT PHILOSOPHY
The basic principles underlying Palo Alto's investment philosophy is to ensure the safety of public
funds; provide that sufficient money is always available to meet current expenditures; and achieve a
reasonable rate of return on its investments.
The City's preferred and chief practice is to buy securities and to hold them to their date ofmaturity
rather than to trade or sell sectu'ities prior to maturity. The City may, however, elect to sell a security
prior to its maturity should there be a significant financial need. If securities are purchased and held
to their maturity date, then any changes in the market value of those securities during their life will
have no effect on their principal value. Under a buy and hold philosophy, the City is able to protect
its invested principal. The economy, the money markets, and various financial institutions (such as
the Federal Reserve System) are monitored carefully to make prudent investments and to assess the
condition of the City'S portfolio.
I
INVESTMENT OBJECTIVES
The primary objectives, in priority order, ofinvestment activities shall be saiety, liquidity, and yield:
1. Safety: Safety of principal is the foremost objective of the investment program.
Investments shall be undertaken in a manner that seeks to ensure the preservation of
capital in the overall portfolio. The objective will be to mitigate credit risk and interest
rate risk.
a) Credit risk is the risk that an obligation will not be paid and a loss will result.
The City will seek to minimize this risk by:
• Limiting investment to the safest types of securities as listed in the
"Authorized Investment" section.
• Diversifying its investments among the types of securities that are
authorized under this investment policy.
b) Interest rate risk is the risk that changes in interest rates will adversely affect the
value of an investor's portfolio. For example, an investor with large holdings in
long-term bonds has assumed significant interest rate risk because the value of
the bonds will fall if interest rates rise. The City can minimize this risk by:
• Buying and holding its securities until maturity.
• Structuring the investment portfolio so that securities mature to meet cash
flow requirements.
To further achieve the objective of safety, the amount that can be invested in all
investment categories, excluding obligations of the U.S. Government and its agencies, is
limited either as a percentage of the portfolio or by a specific dollar amount. These
limits are defined under the "Authorized Investments" section.
2. Liquidity: Liquidity is the second most important objective of the investment
program. The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated. This is accomplished by maintaining a
portion of the portfolio in liquid money market mutual funds or local govemment
investment pools. In addition, the City will maintain one month's cash needs in short
term investments and at least $50 million shall be maintained in securities maturing in
less than two years. Since all possible cash demands carmot be anticipated, however,
the portfolio will consist of securities with active secondary or resale markets should the
need to sell a security prior to maturity arises.
2
3. Yield: Yield on the City's portfolio is last in priority among investment objeetives.
The investment portfolio shall be designed to obtain a market rate of return that refleets
the authorized investments, risk constraints, and liquidity needs outlined in the City's
investment policy. Compared to similar sized cities, the City of Palo Alto should be
able to take advantage of its relatively large reserve balances to achieve higher yields
through long-term investments. In addition, the City will strive to maintain the level of
investment of idle funds as close to 100 percent as possible.
SCOPE
A. This investment policy shall apply to all financial assets of the City of Palo Alto as accounted
for iIi the Comprehensive Annual Financial Report (CAFR), ineluding but not limited to the
following funds:
I. General Fund
2. Special Revenue Funds
3. Debt Service Funds
4. Capital Project Fund
5. Enterprise Funds
6. Internal Service Funds
7. Trust and Agency Funds
B. The policy does not cover funds held by the Public Employees Retirement System or funds of
the DefelTed Compensation program.
C. Investments of bond proceeds shall be governed by the provisions of the related bond
indentures.
G.ENERAL INVESTMENT GUIDELINES
1. The maximum stated final maturity of individual securities in the portfolio should be ten
years.
2. A maximum oDO percent ofthe par value of the portfolio shall be invested in securities
with maturities beyond five years.
3. The City shall maintain a minimum of one month's cash needs in short term
investments.
4. At least $50 million shall be maintained in securities maturing in less than 2 years.
5. Should the ratio of the market value of the portfolio to the book value of the portfolio
fall below 95 percent, the Administrative Services Department will report this fuct to the
City Council within a reasonable time frame and evaluate whether there is any risk of
3
holding any of the securities to maturity,
6. Commitments to purchase securities newly introduced on the market shall be made no
more than three (3) working days before pricing.
7. Whenever possible, the City will obtain three or more quotations on the purchase or sale
of comparable securities and take the higher yield on purchase or higher price on sale.
This rule will not apply to new issues, which are purchased at market no more than three
(3) working days before pricing, as well as LAIF, City of Palo Alto bonds, money
market accounts and mutual funds, all of which shall be evaluated separately,
8. Where the Investment Policy specifies a percentage limitation for a particular category
ofinvestment, that percentage is applicable only at the date of purchase. A later increase
or decrease in a percentage resulting from a change in the portfolio's assets or values
shall not constitute a violation of that restriction. As soon as possible, percentage
limitations will be restored as investments mature in each eategory.
AUTHORIZED INVESTMENTS
The California Government Code( Sections 53600 et seq.) governs investment of City funds. The
following investments are authorized:
1. U.S. Government Securities (e.g. Treasury notes, bonds and bills) Securities that
are backed by the full faith and eredit of the United States
a) There is no limit on purehase of these securities.
b) Securities will not exceed 10 years maturity.
c) All purchased securities must have an explicit or a de facto backing of
the full faith and credit ofthc U.S. Government.
2. U.S. Government Agency Securities -Obligations issued by the Federal
Government agencies (e.g. Federal National Mortgage Association).
a) There is no limit on purchase of these securities except for:
• Callable and Multi-step-up securities provided that:
-The potential call dates are known at the time of purchase;
-the interest rates at which they "step-up" are known at the
time of purchase; and
" the entire face value of the security is redeemed at the call
date,
-No more than 20 percent of the par value of the portfolio.
4
b) Securities will not exceed 10 years maturity.
3. Certificates of Deposit (CD) -A debt instrument issued by a bank for a specified
period of time at a specified rate of interest.
a) May not exceed 20 percent of the par value of the portfolio.
b) No more than 10 percent of the par value of the portfolio in
collateralized CDs in any institution.
c) Purchase collateralized deposits only from federally insured large banks
that are rated by a nationally recognized rating service (e.g. Moody's
and/or Standard and Poor's).
d) For non-rated banks, deposit should be limited to amounts federally
insured (FDIC).
e) Rollovers are not permitted without specific instruction from authorized
City staff.
4. Banker's Acceptance Notes mA) -Bills of exchange or time drafts drawn on and
accepted by commercial banks. Purchase of banker's acceptances are I imited to:
a) No more than 30 percent of the par value of the portfolio.
b) Not to exceed 180 days maturity.
c) No more than $5 million with anyone institution.
5. Commercial Paper -Short-term unsecured obligations issued by banks,
corporations, and other borrowers. Purchases of commercial paper are limited to:
a) Having highest letter or numerical rating as provided for by a nationally
recognized rating service (e.g. Moody's aud/or Standard and Poor's).
b) No more than 15 percent of the par value of the portfolio.
c) Not to exceed 270 days maturity.
d) No more than $3 million or 10 percent of the outstanding commercial
paper of anyone institution, whichever is lesser.
6. Local Agency Investment Fnnd (LAIF) - A State of California managed
investment pool may be used up to the maximum permitted by California State Law.
5
7. Short-Term Repurchase Agreements (REPO) -A contractual agreement between
a seller and a buyer, usually of U.S. government securities, whereby the seller agrees
to repurchase the securities at an agreed upon price and, usually, at a stated time.
a) Not to exceed I year.
b) Market value of securities that underlay a repurchase agreement shall be
valued at 102 percent or greater of the funds borrowed against those
securities.
c) A Master Repurcnase agreement must be signed with the bank or dealer.
8. City of Palo Alto Bonds
9. Money Market Deposit Accounts -Liquid bank accounts which seek to maintain a net
asset value of$I.OO.
10. Mutual Funds which seek to maintain a net asset value of$I.OO and which are limited
essentially to the above investments and further defined in note 9 of Appendix A.
a) No more than 20 percent of the par value of the portfolio.
b) No more than 10 percent of the par value with anyone institution.
II. Negotiable Certificates of Deposit (NCD) issued by nationally or state chartered banks
and state or federal savings institutions and further defined in note 11 of Appendix A.
Purchases of negotiable certificates of deposit:
a) May not exceed 10 percent of the par value ofthe portfolio.
b) No more than $5 million in anyone institution.
12. Medium-Term Corporate Notes -Issued by corporation organized and operating
within the United States or by depository institutions licensed by the United States or
any state and operating with the United States.
a) Not to exceed 5 years maturity.
b) Securities eligible for investment shall have a minimum rating of AA
from a nati onall y recognized rating service (e. g. Moody's and! or Standard
& Poor's).
c) No more than 10 percent of the par value of the portfolio.
6
d) No more than $5 million of the par value may be invested in securities of
any single issuer, other than the U.S. Government, its agencies and
instrumentality.
e) If seeurities owned by the City are downgraded by either Moody's or
Standard & POOl'S to a level below AA it shall be the City'S policy to
review the credit situation and make a determination as to whether to sell
or retain such sccuritics in the portfolio.
Appendix A provides a more detailed description of each investment vehicle and its security and
liquidity features. Most of the City'S short-term investments will be in securities which pay principal
upon maturity, while long-term investments may be in securities that periodically repay principal, as
well as interest. Most of the City's investments will be at a fixed rate. However, some of the
investments may be at a variable rate, so long as that rate changes on specified dates in pre-
determined increments.
PROHIBITED INVESTMENTS:
Includes all investments not specified above, and in particular:
1. Reverse repurchase agreements
2. Derivatives, as defined in Appendix B
Appendix B provides a more detailed description of each investment, which is prohibited, for City
investment.
AUTHORIZED INVESTMENT PERSONNEL
Idle cash management and investment transactions are the responsibility of the Administrative
Services Department. The Administrative Services Department is under the control of the Director of
Administrative Services (Director), as treasurer, who is subject to the direction and supervision of
the City Manager.
The Assistant and Deputy Director of Administrative Services, who reports to the Director, are
authorized to make all investment transactions allowed by the Statement ofInvestment Policy. He or
she may authorize the Senior Financial AnalystlInvestments (Analyst) to enter into investments
within clearly specified parameters.
The Investment function is under the supervision of the Deputy Director of Administrative Services
(Deputy). The Dcputy is charged with the responsibility to manage the investment program
(portfolio), which includes developing and monitoring the City's cash flow model and developing
long-term revenue and financing strategies and forecasts.
The Analyst is subject to the direction and supervision of the Deputy. The Analyst assists the
Deputy, in the purchase and sale of securities. The Analyst also prepares the quarterly report, and
7
records daily all investment transactions as to the type of investment, amount, yield, and maturity.
Cash flow projections are prepared as needed.
In all circumstances, approval from the Director of Administrative Services is required before selling
securities from the City's portfolio. The Analyst may also transfer no more than a total of$5 million
a day from the City's general account to anyone financial institution, without the prior approval of
the Assistant or Deputy Director of Administrative Services.
No other person has authority to make investment transactions without the written authority of the
Assistant or Deputy Director of Administrative Services.
USE OF BROKERS AND DEALERS
The Administrative Services Department maintains a list of aeceptable dealers. A dealer acts as a
principal in security transactions, selling securities from and buying securities for their own position.
A dealer must have
a) At least three years experience operating with California munieipaiities;
b) Maintain an inventory of trading securities of at least $10 million; and
c) Be approved by the Assistant or Deputy Administrative Services Director before
being added to the City's list of approved dealers. In addition, individual traders
or agents representing a dealer:
• must have a minimum of one year of experience operating with California
municipalities.
A dealer will be removed from the list should there develop a history of problems to include: failure
to deliver securities as promised, failure to honor transactions as quoted, 01' failure to provide
reasonable or accurate information.
SAFEKEEPING AND CUSTODY
All securities shall be delivered to the City's safekeeping custodian and held in the name of the City
of Palo Alto, with the exception of the following investments:
a) Certificates of deposit, which will be held by the City itself.
b) City shares in pooled investment funds, under contract.
c) Mutual funds
d) Local Agency Investment Fund (LAIF)
8
POLICY REVIEW AND REPORTING ON INVESTMENTS
Monthly, the Administrative Services Department will review performance in relation to-Council-
adopted Policy. Quarterly, the Department will report to Council on: its performance in comparison
to policy, explain any variances from policy, provide any recommendations for poliey changes, and
discuss overall compliance with the City's Investment Policy. In addition, the Department will
provide Council with:
a) A detailed list of all securities, investments and monies held by the City, and
b) Report on the City's ability to meet expenditure requirements over the next six months.
Annually, the Administrative Services Department will present a Proposed Statement ofInvestment
Policy, to include the delegation of investment authority, to the City Council for review during the
annual budget process. All proposed changes in policy must be approved by the Council prior to
implementation.
i.
9
APPENDIX A
EXPLANATION OF PERMITTED INVESTMENTS
I. U.S. Government Securities -United States Treasury notes, bonds, bills, or certificates of
indebtedness or those for which the faith and credit of the United States are pledged for the
payment of principal and interest.
2. U.S. Govemment Agency Securities -U.S. Government Agency Obligations include the
securities of the Federal National Mortgage Assoeiation (FNMA), Federal Land Banks
(FLB), Federal Intermediate Credit Banks (FICB), banks for cooperatives, Federal Home
Loan Banks (FHLB), Government National Mortgage Association (GNMA), Federal Home
Loan Mortgage Corporation (FHLMC), Student Loan Marketing Association (SLMA), Small
Business Administration (SBA), Federal Fann Credit (FFC), Federal Agricultural MOltgage
Corporation (FAMC or FMAC), and Tennessee Valley Authority (TVA). Federal Agency
securities are debt obligations that essentially result from lending programs of the
Government. Federal agency securities differ from other types of securities, as well as
among themselves. Their characteristics depend on the issuing agency. It is possible to
distinguish three types of issues: (A) participation certificates (pooled securities), (B)
Certificates of interest (pooled loans), (C) notes, bonds, and debentures. The securities of a
few agencies are explicitly backed by the full faith and credit of the U.S. Government. All
other issues purehased by the City have the de facto backing from the federal government,
and it is highly unlikely that the goverr,ullent would let any agency default on its obligations.
3. Certificates of Deposit -A certificate of deposit (CDs) is a reecipt for funds deposited in a
bank, savings bank, or savings and loan association for a specified period of time at a
specified rate of interest. Denominations are $100,000 and up. The first $100,000 of a
. certificate of deposit is guaranteed by the Federal Deposit Insurance Corporation (FDIC), if
the deposit is with a bank or savings bank, or the Savings Association Insurance Fund
(SAIF), if the deposit is with a savings and loan. CDs with a face value in excess of
$100,000 can be collateralized by U.S. Government Agency and Treasury Department
securities or first mortgage loans. Government securities must be at least 110 percent of the
face value of the CD collateralized in excess of the first $100,000. The value of first
mortgages must be at least 150 percent of the face value of the CD balance insured in excess
ofthc first $100,000. Generally, CDs are issued for more than 30 days and the maturity can
be selected by the purchaser.
4. Bankers' Acceptance -A Banker's aeceptance (BA) is a ncgotiable time draft or bill of
exchange drawn on and accepted by a commercial bank. Acceptance of the draft irrevocably
obligates the bank to paythc bearer the face amount of the draft at maturity. BAs are usually
created to finance the import and export of goods, the shipment of goods within the United
States and storage of readily marketable staple commodities. In over 70 years of usage in the
United States, there has been no known instance of principal loss to any invcstor in BAs. In
addition to the guarantee by the accepting bank, the transaction is identified with a specific
commodity. Warehouse receipts verifY that the pledged commodities exist, and, by
10
definition, these commodities are readily marketable. The sale of the underlying goods
generates the necessary funds to liquidate the indebtedness.
BAs enjoy marketability sinee the Federal Reserve Bank is authorized to buy and sell prime
BAs with maturities of up to nine months. The Federal Reserve Bank enters into repurchase
agreements in the normal course of open market operations with BA dealers.
As are sold at a discount from par. An acceptance is tied to a specific loan transaction;
therefore, the amount and maturity of the acceptance is fixed.
5. Commercial Paper -Commercial paper notes are unsecured promissory notes of industrial
corporations, utilities, and bank holding companies. Interest is discounted from par and
calculated using actual number of days on a 360-day year. The notes are in bearer form, with
maturities up to 270 days selected by the purchaser, and denominations generally start at
$100,000. There is a small secondary market for commercial paper notes and an investor
may sell a note prior to maturity.
Commercial paper notes are backed by unused lines of credit from major banks. Some
issuer's notes are insured, while some are backed by irrevocable letters of credit from major
banks. State law limits a City to investments in United States corporations having assets in
excess offive hundred million dollars with an "A" or higher rating by a nationally recognized
rating service for the issuer's debentures. Cities may not invest more than 25 pereent of idle
cash in commercial paper.
6. Local Agency Investment Fund Demand Deposit -The Local Agency Investment Fund
LAIF) was established by the State to enable treasurers to place funds in a pool for
investments. The City is limited to an investment of the amount allowed by LAIF (currently
$40 million). LAIF has been partieularly beneficial to those jurisdictions with small
portfolios. Palo Alto uses this fund for short-term investment, liquidity, and yield.
7. Repurchase Agreements -A Repurchase Agreement (REPOS) is not a seeurity, but a
contractual arrangement between a financial institution or dealer and an investor. The
agreement normally can run for one or more days. The investor puts up funds for a certain
number of days at a stated yield. In return, the investor takes title to a given block of
secnrities as collateral. At maturity, the securities are repnrchased and the funds repaid, plus
interest. Usually, amounts are $500,000 or more, but some REPOS can be smaller.
8. Money Market Deposit Accounts -Money Market Deposit Accounts are market-sensitive
bank accounts, which are available to depositors at any time, without penalty. The interest
rate is generally comparable to rates on money market mutual funds, though any individual
bank's rate may be higher or lower. These accounts are insured by the Federal Deposit
Insnrance Corporation or the Savings Association Insurance Fund.
II
9. Mutual Funds -Mutual funds are shares of beneficial interest issued by diversified
management eompanies, as defined by section 23701 M of the Revenue and Taxation Code.
To be eligible for investment, these fhnds must:
a) Attain the highest ranking in the highest letter and numerical rating provided by
not less than two of the three largest nationally recognized rating services; or
b) Have an investment advisor registered with the Securities and Exchange
Commission with not less than five years experience investing in the securities
and obligations, as authorized by subdivisions (a) to (n), inclusive, of Section
5360 I of the California Government Code, and with assets under management in
exeess of five hundred million dollars; and
c) Invest solely in those securities and obligations authorized by Sections 53601
and 53635 of the California Government Code. Where the Investment Policy of
the City of Palo Alto may be more restrictive than the State Code, the Policy
authorizes investments in mutual funds that shall have minimal investment in
securities otherwise restricted by the City's Policy. Minimal investment is
defined as less than 5 percent of the mutua! fund portfolio; and
d) The purchase price of shares of beneficial interest purehased shall not include
any commission that these companies may charge.
e) Have a net asset value of$1.00.
10. Callable Securities and Multi-Step-ups: Callable securities are defined as fixed interest
rate government agency securities that give the issuing agency the option of returning the
invested funds at a specific point in time to the purchaser. Multi-step-ups are government
agcncy securities in which the interest ratc increases ("steps-up") at preset intervals, and
which also have a callable option that allows the issuing agency to return the invested funds
at a preset interval. Callable and multi-step-ups are permitted, provided that:
• the potential call dates are known at the time of purchase;
• the interest rates at which they "step-up" are known at the time of purchasc; and
• the entire face value of the security is redeemed at the call date.
12
11, Negotiable Certificates of Deposit (NCD). NCDs are large-dollar-amount, short-term
certificate of deposit. Such certificates are issued by large banks and bought mainly by
corporations and institutional investors, They are payable either to the bearer 01' to the order
ofthe depositor, and, being negotiable, they enjoy an active secondary market, where they
trade in round lots of $5 million. Although they can be issued in any denomination from
$100,000 up, the typical amount is $1 million, They have a minimum original maturity of14
days; most original maturities are under six months. Also called a Jumbo Certificate of
Deposit.
State law prohibits the investment oflocal agency funds in negotiable certificates of deposit
issued by a state or federal credit union if a member of the legislative body of the local
agency, or any person with investment decision making authority in the administrative,
manager's, budget, auditor-controller's, or treasurer's offices ofthe local agency also serves
on the board of directors, other credit committee or the supervisory committee ofthe state or
federal credit union issuing the negotiable certificate of deposit.
12. Medium-Term Corporate Notes: Notes ofa maximum of five years maturity issued by
corporations organized and operating with the United States or by depository institutions
licensed by the United States or any state and operating with the United States. According to
California Code Section 53601, "Notes eligible for investment under this subdivision shall be
rated in the rating category of "A" or its equivalent or better by a nationally recognized rating
service. Purchase of medium-term notes may not exceed 30 percent of the agency's surplus
money which may be invested pursuant to this section,"
13
APPENDIXB
EXPLANATION OF PROHIBITED INVESTMENTS
1. Reverse Repurchase Agreements: A Reverse Repurchase Agreement (Reverse REPO) is a
contractual agrecment by the investor (e.g. local agency) to post a security it owns as
collateral, and a bank or dealer temporarily exchanges cash for this collateral, for a specific
period of time, at an agreed-upon interest rate. During the period of the agreement, the local
agency may use this cash for any purpose. At maturity, the securities are repurchased from
the bank or dealer, plus interest.
California law contains a number of restrictions on the use of Reverse REPOS by local
agencIes.
2. Derivatives: A derivative is a financial instrument created from, or whose value depends on
(is derived from), the value of one or more underlying assets or indices. The term
"derivative" refers to instruments or features, such as eollateralized mortgage obligations,
forwards, futures, eurrency and interest rate swaps, options, caps and floors. Except for those
callable and multi-step-up securities as described under Permitted Investments, deIivatives
are prohibited.
Certain derivative products have characteristics which could include high price volatility,
liquid markets, products that are not market-tested, products that are highly leveraged,
products requiring a high degree of sophistication to manage, and products tbat are difficult
to value.
According to California law, a local agency shall not invest any funds in inverse floaters,
range notes, or interest-only strips that are derived from a pool of mortgages.
14
APPENDIXC
GLOSSARY OF INVESTMENT TERMS
AGENCIES: Federal agency and instrumentality securities.
ASKED: The price at which securities are offered.
BID: The price offered by a buyer of securities (when one sells securities, one asks for a bid).
See "Offer".
BROKER: A broker brings buyers and sellers together so that he can earn a commission.
COLLATERAL: Seeurities, evidence of deposit, or other property, which a borrower pledges
to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of
public monies.
COMPREHENSIVE ANNUAL FINANCIAL REPORT ("CAFR"): The official annual
report for the City of Palo Alto. It includes combined financial statements for each individual
fund and account group prepared in conformity with GAAP. It also includes supporting
schedules that are necessary to demonstrate compliance with finance-related legal and contractual
provisions, extensive introductory material, and a detailed statistical section.
COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder
on the bond's face value. (b) A certificate attachcd to a bond evidencing interest due on a
payment date.
DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and
selling for his own account.
DEBENTURE: A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: (l)
delivery versus payment (DVP); and (2) delivery versus receipt (DVR). DVP is delivery of
securities with an exchange of money for the securities. DVR is delivery of securities with an
exchange of a signed receipt for the securities.
DISCOUNT: The difference between the acquisition cost of a security and its value at maturity
when quoted at lower than face value. A security that sells below original offering price shortly after
sale, is also is considered to be at a discount.
DISCOUNT SECURITIES: Non-interest bearing money market instrarnents that are issued a
discount and that are redeemed at maturity for full face value (e.g., U.S. Treasury Bills).
DIVERSIFICATION: Dividing investment funds among a variety of securities that offer
15
independent returns,
FEDERAL AGRICULTURAL MORTGAGE CORPORATION ("FAMC" or "FMAC"): A
federal agency established in 1988 to provide a secondary market for farm mortgage loans.
Informally called Farmer Mac.
FEDERAL CREDIT AGENCIES: Agencies ofthe Federal Government that were established to
supply credit to various classes of institutions and individuals (e.g., S&Ls, small business firms,
students, farmers, fann cooperatives, and exporters),
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"): A federal agency that insW'es
bank deposits, currently up to $100,000 per deposit.
FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded, This rate is
currently pegged by the Federal Reserve through open-market operations.
FEDERAL HOME LOAN BANKS ("FHLB"): Government-sponsored wholesale banks
(currently 12 regional banks) which lend funds and provide correspondent banking services to
member commercial banks, thrift institutions, credit unions, and insurance companies. The mission
of the FHLBs is to liquefy the housing-related assets of its members, who must purchase stock in
their District Bank.
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA"): J?NMA, like GNMA, was
chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal
corporation working under the auspices of the Department of Housing and Urban Development
(HUD). It is the largest single provider of residential mortgage funds in the United States, Fannie
Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation's
purchsses include a variety of adjustable mortgages and second loans, in addition to fixed-rate
mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA assumes and
guarantees that all security holders will receive timely payment of principal and interest.
FEDERAL OPEN MARKET COMMITTEE ("FOMC"): The FOMC consists of seven
members of the Federal Reserve Board and five of the 12 Federal Reserve Bank Presidents. The
President ofthe New York Federal Reserve Bank is a pern1anent member, while the other Presidents
serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines
regarding purchases and sales of government securities in the open market, as a means of influencing
the volume of bank credit and money.
FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and
consisting of a seven-member Board of Governors in Washington, D.C., 12 regional banks, and
about 5,700 commercial banks that are members of the system.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA" or "Ginnie Mae"):
Securities that influence the volume of bank credit tllat is guaranteed by GNMA and issued by
mortgage bankers, commercial banks, savings and loan associations, and other institutions. A
16
security holder is protected by the full faith and credit of the U.S. Government Ginnie Mae
securities are backed by the FHA, VA, or FMHM mortgages. The term "pass-throughs" is often
used to describe Girmie Maes.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a
substantial loss of value. In the money market, a security is said to be liquid if the spread between
bid and asked prices is nan-ow, and reasonable amount can be done at those quotes.
LOCAL GOVERNMENT INVESTMENT FUND ("LAIF"): Monies from local governmental
units may be remitted to the Califol11ia State Treasurer for deposit in this special fund for the purpose
of investment
MARKET VALUE: The price at which a security is trading and could presumably be purchased or
sold.
MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions
between the parties to repurchase-reverse repurchase agreements, that establishes each party's rights
in the transactions. A master agreement \¥ill often specify, among other things, the right of the buyer
(lender) to liquidate the underlying securities in the event of default by the seller (borrower).
MATURITY: The date upon whieh the principal or stated value of an investment becomes due and
payable.
MONEY MARKET: The market in which short-term debt instruments (e.g., bills, commercial
paper, and bankers' acceptances) are issued and traded.
OFFER: The price asked by a seller of securities (when one buys securities, one asks for an offer).
See "Asked" and "Bid".
OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities
in the open market by the New York Federal Reserve Bank, as directed by the FOMC in order to
influence the volume of money and credit in the economy. Purchases inject reserves into the bank
system and stimulate growth of money and credit; sales have the opposite effect. Open market
operations are the Federal Reserve's most important and most flexible monetaty policy tool.
PORTFOLIO: A collection of securities that an investor holds.
PRIMARY DEALER: A group of government securities dealers that submit daily reports of
market activity and positions, and monthly financial statements to the Federal Reserve Bank of New
York, and are subject to its informal oversight. Primary dealers include Securities and Exchange
Commission (SEC) --registered securities broker-dealers, banks, and a few umegulated fi=s.
PRUDENT INVESTOR RULE: An investment standard cited in the Califomia Government Code
(CGC) Section 53600 et seq. Under this standard, all governing bodies oflocal agencies or persons
authorized to make investment decisions on behalf of the City are trustees and therefore fiduciaries
17
subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring,
exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and
diligence under the circumstances then prevailing, including, but not limited to the general economic
conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and
familiarity with those matters would use in the conduct of funds of a like character and with like
aims, to safeguard the principal and maintain the liquidity needs of the agency.
QUALIFIED PUBLIC DEPOSITORIES: A financial institution that: (I) docs not claim
exemption from the payment of any sales, compensating use, or ad valorem taxes under the laws of
this state; (2) has segregated for the benefit of the commission eligible collateral having a value of
not less than its maximum liability; and (3) has been approved by the Public Deposit Protection
Commission to hold public deposits.
RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current
market price.
SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and
valuables of all types and descriptions are held in the bank's vaults for protection.
SECONDARY MARKET: A market made for the purchase and sale of outstanding issues
following the initial distribution.
SECURITIES AND EXCHANGE COMMISSION: An agency created by Congress to administer
securities legislation for the purpose of protecting investors in securities transactions.
STRUCTURED NOTES: Notes issued by instrumcntalities (e.g., FHLB, FNMA, SLMA) and by
corporations, that have imbedded options (e.g., call features, step-up coupons, floating rate coupons,
derivative-based returns) in their debt structure. The market performance of structured notes is
affected by fluctuating interest rates; the volatility ofimbedded options; and shifts in the yield curve.
TIME CERTIFICATE OF DEPOSIT: A non-negotiable certificate of deposit, which cannot be
sold prior to maturity.
TREASURY BILLS: A non-interest bearing discount security that is issued by the U.S. Treasury to
finance the nati onal debt. Most T -bills are issued to mature in three months, six months, or one year.
TREASURY BONDS: Long-term, coupon-bearing U.S. Treasury securities that are issued as direct
obligations of the U.S. Government, and having initial maturities of more than 10 years.
TREASURY NOTES: Medium-term, coupon-bearing U.s. Treasury securities that are issued as
direct obligations of the U.S. Government, and having initial maturities of two to 10 years.
YIELD: The rate of annual income return on an investment, expressed as a percentage.
YIELD-TO-CALL (YTC): The rate of return an investor earns from a bond assuming the bond is
18
redeemed (called) prior to its nominal maturity date,
YIELD-TO-MA TURITY: The current income yield minus any premium above par or plus any
discount from par in purchase price, with the adjustment spread over the period from the date of
purchase to the date of maturity,
ZERO-COUPON SECURITIES: Security that is issued at a discount and makes no periodic
interest payments. The rate of return consists of a gradual accretion of the principal ofthc security
and is payable at par upon maturity.
19
TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER DEPARTMENT: UTILITIES
DATE: JUNE 15, 2009 CMR: 281:09
REPORT TYPE: CONSENT
SUBJECT: Finance Committee Recommendation to Approve Changes to
Guidelines for the Electric, Gas, Water and Wastewater Collection
Emergency Plant Replacement Reserves and the Electric Distribution,
Gas Distribution, Gas Supply, Water, and Wastewater Collection Rate
Stabilization Reserves
RECOMMENDATION
Staff, the Utilities Advisory Commission, and the Finance Committee recommend that Council
approve changes to certain Utilities Fund Reserves. Specifically, the recommendation includes
the following changes to the guidelines for the following Utilities Fund Reserves:
L For the Electric, Gas, Water and Wastewater Collection Emergency Plant Replacement
Reserves, establish a minimum guideline level equal to the City's liability insurance
coverage deductible amount;
2. For the Electric Distribution and Gas Distribution Rate Stabilization Reserves, change the
minimum and maximum guideline levels equal to 15% and 30% of the annual
distribution sales revenue, respectively; and
3. For the Water and Wastewater Collection Rate Stabilization Reserves, change the
minimum and maximum guideline levels equal to 15% and 30% of the annual sales
revenue, respectively.
4. For the Gas Supply Rate Stabilization Reserves, change the minimum and maximum
guideline levels equal to 25% and 50% of the annual supply purchase cost, respectively.
The table below summarizes the proposed changes to the Emergency Plant Replacement (EPR)
Reserve and Rate Stabilization Reserve (RSR) guidelines.
CMR: 281:09 Page 1 of4
Reserve Existing Guidelines Proposed New Guidelines
Electric, Gas, Water, Minimum = greater of: 1) the • Minimum = the ,City's liability
and Wastewater City's liability insurance coverage insurance coverage deductible
Collection EPRs deductible; or 2) an amount amount
covering the most expensive
critical item
Electric Distribution Maximum 50% of sales revenue Maximum = 30% of sales revenue
and Gas Distribution Minimum 20% of sales revenue Minimum = 15% of sales revenue
I RSRs
Water and Maximum 50% of sales revenue Maximum = 30% of sales revenue
Wastewater Minimum = 20% of sales revenue Minimum = 15% of sales revenue
Collection RSRs
Gas Supply RSR Maximum 70% of supply Maximum = 50% of supply
purchase cost purchase cost
Minimum 35% of supply Minimum = 25% of supply
purchase cost purchase cost
BACKGROUND
By Charter or by Council action, a number of Utilities reserves have been established for various
purposes. Over time, Council has changed the name, purpose, policies and guidelines for many
of the reserves to address certain requirements or to accommodate specific needs.
The Emergency Plant Replacement (EPR) Reserve was established by Article VII, Section 2(e)
of the City Charter for the Electric, Water, Gas, and Wastewater Collection Funds for unplanned
emergencies (or "contingencies") only_
Council established Rate Stabilization Reserves (RSRs) in May 1993 [CMR: 263:93] for the
Water, Electric, Gas and Wastewater Collection Funds. The purpose of the RSRs is to stabilize
rates by ensuring funds are available to cover short-term situations when expenditures exceed
revenues, to provide a depository of excess funds when expenditures are less than projected or
revenues are higher than budgeted, and to plan for certain known future occurrences that are of a
one-time nature, or to ramp up if the expense is of an ongoing nature. Over time, the RSR
guidelines have been changed to respond to changing needs.
DISCUSSION
Emergency Plant Replacement (EPR) Reserves
The City has rarely used the Electric, Gas, Water, or Wastewater Collection EPRs. The last time
any of these EPRs was tapped was in 1998 when the Electric EPR was used to cover the cost to
replace a blown transformer. The introduction of the minimum guideline level in February 2007
[CMR: 143:07] was made in recognition of the City'S property loss insurance policies.
To ensure that the EPRs can cover the deductible amount, staff recommends that the minimum
guideline level be changed to be equal to the liability insurance coverage deductible amount
(currently $1 million). This would ensure that the full amount needed would be available for any
unforeseen emergency where equipment needed to be repaired or replaced in order to ensure that
the distribution systems continued to operate.
CMR: 281:09 Page 20f4
Rate Stabilization Reserve (RSR)
One of the changes to the RSR guidelines approved by Council in February 2007 [CMR: 143:07]
was the requirement that the development of an assessment of the risks facing each fund be
undertaken as part of the annual budget and retail rate development and approval process. The
annual assessment for the upcoming fiscal year is compared to the guideline levels to assist in the
determination of the RSR level target for each fiscal year. This short-term risk assessment has
been performed annually starting with Fiscal Year (FY) 2008.
The proposed new minimum reserve guideline level for the Electric Distribution, Gas
Distribution, Water, and Wastewater Collection RSRs is 15% of the sales revenue. The
proposed maximum guideline level is 30% of the sales revenue. With this change, it is expected
that the short-term risk assessment values for these RSRs will lie within that range.
The proposed new minimum reserve guideline level for the Gas Supply RSR is 25% of the sales
revenue. The proposed maximum guideline level is 50% of the sales revenue. Although the
short-term risk assessment for FY 2011 is higher than the 25% proposed minimum guideline,
this amount is higher due to the higher fraction of the portfolio that is unhedged in the second
year. Staff expeCts that as more of the supply is purchased, the short-term risk assessment for
FY 2011 will be substantially lower next year during the annual budget and rates review process.
No changes are recommended at this time for the Electric Supply RSR as the short-term risk
assessment value is in line with the minimum guideline level.
COMMITTEE REVIEW AND RECOMMENDATIONS
The proposed changes to the EPR and RSR guidelines were presented to the UAC at its March 4,
2009 meeting. The UAC voted unanimously to recommend that the Council approve staffs
recommendation. The notes from the UAC meeting are provided as Attachment B.
The Council Finance Committee considered the proposed changes to the EPR and RSR
guidelines on March 31, 2009. The Finance Committee voted unanimously to approve the staff
recommendation to the City Council to change guidelines for the Electric, Gas, Water and
Wastewater Collection Emergency Plant Replacement Reserves and the Electric Distribution,
Gas Distribution, Gas Supply, Water, and Wastewater Collection Rate Stabilization Reserves.
The notes from the Finance Committee meeting are attached as Attachment C.
RESOURCE IMPACT
There is no impact from the recommended changes to the Electric, Gas, Water, and Wastewater
Collection Emergency Plant Replacement Reserves since they are already funded at $1 million.
There is no resource impact of the recommended changes to the Electric Distribution, Gas
Distribution, Gas Supply, Water, and Wastewater Collection Rate Stabilization Reserves as a
result of the recommended changes to the guideline levels since the risk assessment calculation is
used to determine reserve level targets for the budget years.
POLICY IMPLICATIONS
The recommended action changes the existing reserve guidelines. This recommendation is
consistent with the Council-approved Utilities Strategic Plan with regard to 1) managing supply
portfolio risk to preserve a supply cost advantage; and 2) to provide low and stable rates,
reserves, and transfers to the General Fund.
CMR: 281 :09 Page 3 of 4
ENVIRONMENTAL REVIEW
The recommended action does not meet the definition of a "project" pursuant to Section 21065
of the Public Resources Code, thus no environmental assessment under the California
Environmental Quality Act (CEQA) is required.
ATTACHMENTS
A. CMR: 180:09 -Utilities Advisory Commission Recommendation to Change Guidelines
for the Electric, Gas, Water and Wastewater Collection Emergency Plant Replacement
Reserves and the Electric Distribution, Gas Distribution, Gas Supply, Water, and
Wastewater Collection Rate Stabilization Reserves (without attachments)
B. Excerpted final minutes from the March 4,2009 UAC meeting
C. Excerpted notes from the March 31, 2009 Finance Committee meeting
PREPARED BY: JANE O. RA TCHYE
~tilities Assistant Director, Resource Management
DEPARTMENT APPROVAL:
CITY MANAGER APPROVAL:
CMR: 281:09 Page 4 of4
TO:
FROM:
ATTENTION:
DATE:
SUBJECT:
ATTACHMENT A
BUDGET
FY 2010-FY 2011
HONORABLE CITY COUNCIL
CITY MANAGER DEPARTMENT: UTILITIES
FINANCE COMMITTEE
MARCH 31, 2009 CMR: 180:09
Utilities Advisory Commission Recommendation to Change Guidelines
for the Electric, Gas, Water and Wastewater Collection Emergency
Plant Replacement Reserves and the Electric Distribution, Gas
Distribution, Gas Supply, Water, and Wastewater Collection Rate
Stabilization Reserves
EXECUTIVE SUMMARY
Staff regularly reviews Utilities reserve guidelines to detennine their adequacy as conditions
change. The recommended changes to the Emergency Plant Replacement Reserves will clarify
that they should retain sufficient funds to cover the deductible amount on the City's liability
insurance policies. The changes recommended to the Rate Stabilization Reserve guidelines will
bring them in line with the annual estimate of risks facing each fund. The Utilities Advisory
Commission (UAC) unanimously supported the recommended action at its March 4, 2009
meeting.
RECOMMENDA TION
Staff and the UAC recommend that the Finance Committee recommend that Council approve
changes to certain Utilities Fund Reserves. Specifically, the recommendation includes the
following changes to the guidelines of the following Utilities Fund Reserves:
1. For the Electric, Gas, Water and Wastewater Collection Emergency Plant Replacement
Reserves, establish a minimum guideline level equal to the City's liability insurance
coverage deductible amount;
2. For the Electric Distribution and Gas Distribution Rate Stabilization Reserves, change the
minimum and maximum guideline levels equal to 15% and 30% of the annual
distribution sales revenue, respectively; and
3. For the Water and Wastewater Collection Rate Stabilization Reserves, change the
minimum and maximum guideline levels equal to 15% and 30% of the annual sales
revenue, respectively.
CMR: 180:09 Page 1 of7
4. For the Gas Supply Rate Stabilization Reserves, change the minimum and maximum
guideline levels equal to 25% and 50% of the annual supply purchase cost, respectively.
The table below summarizes the proposed changes to the Emergency Plant Replacement (EPR)
Reserve and Rate Stabilization Reserve (RSR) guidelines.
Reserve " " ".,I:~istillg9uicl~lin~s . '",;./<J>~po~eclNe,wGuidelines " . ," "
Electric, Gas, Water, Minimum = greater of: 1) the Minimum the City's liability
and Wastewater City'S liability insurance coverage insurance coverage deductible
Collection EPRs deductible; or 2) an amount amount
covering the most expensive
critical item
Electric Distribution Maximum 50% of sales revenue Maximum = 30% of sales revenue
and Gas Distribution Minimum = 20% of sales revenue Minimum 15% of sales revenue
RSRs
Water and Maximum = 50% of sales revenue Maximum = 30% of sales revenue
Wastewater Minimum = 20% of sales revenue Minimum = 15% of sales revenue
Collection RSRs
Gas Supply RSR Maximum = 70% of supply Maximum 50% of supply
purchase cost purchase cost
Minimum 35% of supply Minimum = 25% of supply
purchase cost purchase cost
BACKGROUND
By Charter or by Council action, a number of Utilities reserves have been established for various
purposes. Over time, Council has changed the name, purpose, policies and guidelines for many
of the reserves to address certain requirements or to accommodate specific needs.
Emergency Plant Replacement (EPR) Reserve
This reserve is established by Article VII, Section 2(e) of the City Charter for the Electric,
Water, Gas, and Wastewater Collection Funds for unplanned emergencies (or "contingencies")
only. The Charter directs that EPR reserve balances are not to exceed 5 percent of the net book
value of the fixed assets of the fund. In 1988, Council approved [CMR: 293 :8] minimum
funding of the EPR reserves to be 5 percent of the annual increase in the net book value of the
fixed assets of the fund. At that time, Council also directed that the balance of the reserve should
be equal to an amount that covers the most expensive item of equipment which, if lost, would
cause interruption in the normal activity of that utility. As required by the City Charter, these
funds are available for use only for replacement or emergency repairs of damaged equipment;
and such uses require special appropriation by Council.
In February 2007, Council approved a change to the EPR guidelines for the Electric, Water, Gas,
and Wastewater Collection Funds [CMR:143:07]. At that time, a minimum guideline for the
EPR for the Electric, Water, Gas, and Wastewater Collection Funds Staff was established as the
greater of 1) the City's liability insurance coverage deductible amount or 2) an amount that
covers the most expensive item of equipment which, if lost, would cause interruption in the
normal activity of that utility.
CMR: 180:09 Page 2 of7
Rate Stabilization Reserve (RSR)
Council established RSRs in May 1993 [CMR: 263:93] for the Water, Electric, Gas and
Wastewater Collection Funds. The RSRs were created by combining the System Improvement
Reserve in these funds and the Transfer Stabilization Reserve for the Water, Gas, and Electric
Funds. This decision reflected the change in the use of the reserves to a mechanism to stabilize
rates. At the time of the creation of these reserves and their associated guidelines, staff advised
Council that "selecting a guideline involves a degree of judgment and uncertainty, the adequacy
and prudency of these guidelines will be reviewed internally each year and, if appropriate,
revised guidelines will be recommended."
The purpose of the RSRs is to stabilize rates by ensuring funds are available to cover short-term
situations when expenditures exceed revenues, to provide a depository of excess funds when
expenditures are less than projected or revenues are higher than budgeted, and to plan for certain
known future occurrences that are of a one-time nature, or to ramp up if the expense is of an
ongoing nature.
In May 1998 [CMR:194:98], Council split the Gas and Electric Fund RSRs into Supply and
Distribution RSRs when the retail rates in those funds were unbundled into supply and
distribution components of the rate. The Gas and Electric Funds were split into supply and
distribution business units to clarify the financial picture of the cost of distribution services
(including the Capital Improvement Program [CIP]), operations and maintenance, transfer to the
General Fund, rent, administration, allocated charges and other expenses) and supply services
(including the cost of purchased commodities, direct and indirect administrative overhead
allocated to the supply services) for the funds. The reserve guidelines established at that time
were consistent with the approach taken in the development of the original 1993 reserve
guidelines where cost contingencies were evaluated.
1. Water and Wastewater Collection Rate Stabilization Reserves Guidelines for these
reserves were set by Council at the time of the reserves' creation in May 1993 [CMR:
263:93]. At that time, the minimum reserve level was set to the sum of: 1) 15 percent of
sales revenue for that year; and 2) the estimated annual net sales revenue decline due to
abnormal weather. The maximum reserve balance guideline was set to twice the
minimum guideline, with the target level halfway between the maximum and the
minimum levels.
In February 2007 [CMR:143:07], Council revised the guidelines for the Water and
Wastewater Collection RSRs setting the minimum guideline level to 20% of sales
revenue and the maximum guideline level to 50% of sales revenue.
2. Electric and Gas Distribution Rate Stabilization Reserves -At the time Council created
these reserves in 1998 [CMR: 194:98], the minimum reserve level guideline was set at 15
percent and 20 percent of the distribution sales revenue for the Electric and Gas
Distribution RSRs, respectively. The maximum guideline level was twice the minimum
and the target was the midpoint between the minimum and maximum.
In December 2003 [CMR: 483:03], Council revised the guidelines of the Electric
Distribution RSR so that the minimum reserve level guideline was set at 19 percent of the
distribution sales revenue. The minimum reserve for the Gas Distribution RSR
CMR: 180:09 Page 3 of7
was examined, but unchanged. The guidelines for both the Electric and Gas Distribution
RSRs were determined to be adequate to cover the impact of electric and gas distribution
cost contingencies, including: 1) a 10% decline in sales revenue for two years, 2) rise in
ongoing operating expenses for two years, and 3) unusual one-time cost contingencies
(e.g. potential seismic upgrades at the Municipal Service Center, effectiveness of
efficiency programs, regulatory and legal cost uncertainties or expansion of the CIP). As
before, the maximum guideline level was twice the minimum and the target was the
midpoint between the minimum and maximum.
In February 2007 [CMR:143:07], Council again revised the guidelines for the Electric
and Gas Distribution RSRs setting the minimum guideline level to 20% of sales revenue
and the maximum guideline level to 50% of sales revenue.
3. Electric and Gas Supply Rate Stabilization Reserves -At the time Council created these
reserves in 1998 [CMR:194:98], the minimum reserve level guideline was set at 30
percent and 20 percent of the budgeted commodity sales revenue for the Electric and Gas
Supply RSRs, respectively. The maximum guideline level was twice the minimum and
the target was the midpoint between the minimum and maximum.
In May 2001 [CMR:248:01], Council revised the guidelines for the Electric and Gas
Supply RSRs so that the minimum reserve level guideline was set at 40 percent and 20
percent of the budgeted supply purchase cost for the Electric and Gas Supply RSRs,
respectively. The maximum guideline level was twice the minimum and the target was
the midpoint between the minimum and maximum.
In December 2003 [CMR:483:03], Council revised the guidelines so that the maximum
reserve level guideline was set at 103 percent and 75 percent of the supply purchases
costs for the Electric and Gas Supply RSRs, respectively. The guidelines for both the
Electric and Gas Supply RSRs were determined to be adequate to cover the impact of
electric and gas supply cost contingencies. As before, the minimum guideline level was
twice the maximum guideline level.
In February 2007 [CMR:143:07], Council again revised the guidelines so that the
minimum reserve level guideline was set at 50 percent and 35 percent of the supply
purchase cost for the Electric and Gas Supply RSRs, respectively. The maximum
guideline level was twice the minimum guideline level.
DISCUSSION
Emergency Plant Replacement (EPR) Reserves
The City has rarely used the Electric, Gas, Water, or Wastewater Collection EPRs. The last time
any of these EPRs was tapped was in 1998 when the Electric EPR was used to cover the cost to
replace a blown transformer. The introduction of the minimum guideline level in February 2007
[CMR: 143:07] was made in recognition of the City'S property loss insurance policies.
• One of these policies is liability insurance, for which the City is currently self-insured up to
$1 million for disasters. This means that the first $1 million in costs must be covered by the
City before the liability insurance coverage would apply.
CMR: 180:09 Page 4 of7
• In addition, the City has property loss insurance, which protects the City's property against
physical loss or damage by theft, fire or other means. The City's property loss insurance
covers certain property and equipment identified in an annual appraisal done for this purpose.
The appraisal provides a statement of each item covered and the limit of coverage for each
item. The limit is generally equal to the replacement cost of the item although some small
exclusions may apply. Not all of the City'S assets are listed in this appraisal. For example,
the water, gas, and wastewater collections pipes and the electric wires are not included. For
items that are listed in the appraisal, the coverage extends to the limit less the deductible.
Currently, the deductible for property loss is $10,000 per item. Assets or equipment that are
not specifically listed in the appraisal are "unscheduled" and the deductible for
"unscheduled" losses is $500,000.
• Claims for damage due to earthquakes or floods would be made to the Federal Emergency
Management Agency (FEMA).
The guideline also requires the calculation of an amount that covers the most expensive item of
equipment which, if lost, would cause interruption in the normal activity of that utility. The last
time these calculations were made for the Electric, Gas, Water, or Wastewater Collection Funds,
they totaled $1 million for the Electric Fund (for replacement of large transformers), $750,000
for the Gas Fund (for damage to a gas receiving station), $1.2 million for the Water Fund (for
damage to a reservoir and pump station), and $1 million for the Wastewater Collection Fund (for
damage to a main sewer trunkline). If losses were found to be due to negligence, any amount
over $1 million should be covered by liability insurance.
To ensure that the EPRs can cover the deductible amount, staff recommends that the minimum
guideline level be changed to be equal to the liability insurance coverage deductible amount
(currently $1 million) with no reference to the cost to repair or replace an expensive piece of
equipment in each fund. This would ensure that the full amount needed would be available for
any unforeseen emergency where equipment needed to be repaired or replaced in order to ensure
that the distribution systems continued to operate.
Rate Stabilization Reserve (RSR)
One of the changes to the RSR guidelines approved by Council in February 2007 [CMR: 143:07]
was the requirement that the development of an assessment of the risks facing each fund be
undertaken as part of the annual budget and retail rate development and approval process. The
annual assessment for the upcoming fiscal year is compared to the guideline levels to assist in the
determination of the RSR level target for each fiscal year. This short-term risk assessment has
been performed annually starting with Fiscal Year (FY) 2008.
The table below reflects the annual short-term risk assessment for the RSRs. For the Electric
Distribution, Gas Distribution, Water, and Wastewater Collection RSRs, the minimum guideline
level is 20% of budgeted sales revenue, but the short-term risk assessment is lower than 20%.
For the Electric Supply RSR, the minimum guideline level is 50% of purchase costs and the
short-term risk assessment is almost equal to that. For the Gas Supply RSR, the minimum
guideline level is 35% of purchase costs and the short-term risk assessment ranges from 22% to
42% of purchase costs.
CMR: 180:09 Page 5 of7
Estimate of Short-Term Risks for Rate Stabilization Reserves
Minimum
Short-Term FY FY FY FY Guideline Level
RSR Risks 2008 2009 2010 2011 Current Proposed
Electric in $thousands 4,000 4,588 5,584 5,897 _ ....
Distribution % of budgeted 12.1% 13.8% 16.2% 15.8% 20% 15%
sales revenue
Gas in $thousands 3,300 3,390 3.759 4,168
Distribution % of budgeted 15.7% 16.6% 18.8% 18.2% 20% 15%
sales revenue
Water in $thousands 3,300 3,594 3,765 4,040
% of budgeted 12.4% 13.5% 13.7% 13.4% 20% 15%
sales revenue
Wastewater in $thousands 1,700 1,698 1,716 1,928
Collection % of budgeted 12.4% 12.4% 12.5% 12.3% 20% 15%
sales revenue
Electric in $thousands 44,200 33,800 33,600 37,100
Supply % of budgeted 73% 48% 49% 50% 50% 50%
purchase cost
Gas Supply in $thousands 3,700 6,500 5,800 11,600
% of budgeted 14% 23% 22% 42% 35% 25%
purchase cost
The proposed new mmmlUm reserve guideline level for the Electric Distribution, Gas
Distribution, Water, and Wastewater Collection RSRs is 15% of the sales revenue. The
proposed maximum guideline level is 30% of the sales revenue. With this change, it is expected
that the short-term risk assessment values for these RSRs will lie within that range.
The proposed new minimum reserve guideline level for the Gas Supply RSR is 25% of the sales
revenue. The proposed maximum guideline level is 50% of the sales revenue. Although the
short-term risk assessment for FY 2011 is higher than the 25% proposed minimum guideline,
this amount is higher due to the higher fraction of the portfolio that is unhedged in the second
year. Other risks for FY 2011 are also expected to decline in FY 2011 and staff expects that the
short-term risk assessment for FY 2011 will be substantially lower next year during the annual
budget and rates review process. No changes are recommended at this time for the Electric
Supply RSR as the short-term risk assessment value is in line with the minimum guideline level.
COMMISSION REVIEW AND RECOMMENDATIONS
The proposed changes to the EPR and RSR guidelines were presented to the UAC at its March 4,
2009 meeting. The UAC asked how lowering the reserve guideline levels would appear to
ratings agencies. Staff indicated that the City will maintain adequate reserves to ensure that it is
fiscally responsible and that ratings agency guidelines will be met to ensure the City has access
to the best rates on bonds it may elect to sell.
CMR: 180:09 Page 6 of7
The UAC voted unanimously to recommend that the Council approve staff's recommendation.
The notes from the UAC meeting are provided as Attachment A.
RESOURCE IMPACT
There is no impact from the recommended changes to the Electric, Gas, Water, and Wastewater
Collection Emergency Plant Replacement Reserves since they are already funded at $1 million.
There is no resource impact of the recommended changes to the Electric Distribution, Gas
Distribution, Gas Supply, Water, and Wastewater Collection Rate Stabilization Reserves as a
result of the recommended changes to the guideline levels since the risk assessment calculation is
used to determine reserve level targets for the budget years.
POLICY IMPLICATIONS
The recommended action changes the existing reserve guidelines. This recommendation is
consistent with the Council-approved Utilities Strategic Plan with regard to 1) managing supply
portfolio risk to preserve a supply cost advantage; and 2) to provide low and stable rates,
adequate reserves, and budgeted transfers to the General Fund.
ENVIRONMENTAL REVIEW
The recommended action does not meet the definition of a "project" pursuant to Section 21065
of the Public Resources Code, thus no environmental assessment under the California
Environmental Quality Act (CEQA) is required.
ATTACHMENT
A. Draft Notes from the March 4,2009 UAC meeting
PREPARED BY:
DEPARTMENT APPROVAL:
CITY MANAGER APPROVAL:
CMR: 180:09
JANE O. RA TCHYE
Utilities Assistant Director, Resource Management
VALERIE O. FONG
Director of Utilities
JAMES KEENE
City Manager
Page 7 7
ATT ACHMENT B
Excerpt from Final Minutes of March 4, 2009 UAC Meeting
ITEMS 3: ACTION ITEM: Changes to Certain Utilities Reserve Guidelines
Utilities Assistant Director Jane Ratchye stated that this proposal was first mentioned at the
February meeting and that the proposal was to align the long-term Rate Stabilization Reserve
(RSR) guideline levels with the short-term risk assessment values that have been done for the last
three years.
Commissioner Waldfogel asked why the guidelines for the Electric Supply RSR were not
recommended to be changed. Ratchye explained that the minimum guideline for that reserve was
already roughly equal to the short-term risk assessment value, so that a change did not seem
warranted. She also noted that the Electric Supply RSR has the highest guidelines levels due to
the high level of risk associated with the hydroelectric generation.
Chair Dawes asked if there is enough experience with doing the risk assessment calculations to
know if the guideline levels are sufficient. Ratchye noted that for the Gas and Electric Distribution,
Water, and Wastewater Collection RSRs, the risk assessment is based on changes in demand
levels. Dawes indicated that he was more interested in the Gas and Electric Supply RSRs.
Ratchye indicated that the short-term risk assessment numbers haven't changed much in the three
years that they have been calculated, but acknowledged that this was the extent of the applicable
history. She explained that the short-term risk assessment is what is used to help determine
adequate reserves in the short-term, but that the long-term guidelines are used for longer-term
financial planning.
Council Member Yeh asked how ratings agencies view lowering reserve levels given that the
Water Fund is planning to issue debt in the short-term. Administrative Services Director Lalo Perez
replied that the rating agencies have taken a more proactive approach to review financial
conditions of municipal governments and that the City is interested in maintaining adequate
reserve levels. Historically, the City has been viewed as being fiscally prudent and has been seen
to be able to maintain reserves and make rate adjustments as appropriate.
ACTION: Commissioner Rosenbaum moved the staff recommendation to recommend that Council
approve the changes to the Emergency Plant Replacement Reserves and the Rate Stabilization
Reserves, as proposed. Commissioner Melton seconded the motion. The UAC voted to approve
the motion unanimously (5-0).
ATTACHMENT C
Special Meeting
March 31, 2009
The Finance Committee of the City of Palo Alto met on this date in the
Council Chambers at 7:04 p.m.
Present: Burt (Chair), Council Member Klein, Morton, Council Member Yeh
Absent: None
Excerpted Minutes:
4. Utilities Advisory Commission Recommendation to Change Guidelines for
the Electric, Gas, Water and Wastewater Collection Emergency Plant
Replacement Reserves and the Electric Distribution, Gas Distribution,
Gas Supply, Water, and Wastewater Collection Rate Stabilization
Reserves
Assistant Director of Utilities for Resource Management, Jane Ratchye stated
the above-noted item was reviewed by the Utilities Advisory Committee
(UAC). She agreed with the UAC's recommendations and the proposed
clarification in the electric, gas, water, and wastewater collection emergency
plant replacement reserves. She stated Staff also proposed small
modifications to some of the rate stabilization reserves which in all cases
lowered the minimum guideline to a level more consistent with the annual
risk assessment for these reserves.
Vice Mayor Morton was surprised that the electrical reserves used a liability
number as a minimum in the new guideline, on page 2 of the report.
Ms. Ratchye stated what he referred to was the emergency plant
replacement reserves for electric, gas, water and wastewater collection. She
stressed the existing guideline was not entirely clear. The liability insurance
coverage existed.
MOTION: Council Member Klein moved, seconded by Vice Mayor Morton,
that the Finance Committee approve Staff recommendation to the City
Council to Change Guidelines for the Electric, Gas, Water and Wastewater
Collection Emergency Plant Replacement Reserves and the Electric
Distribution, Gas Distribution, Gas Supply, Water, and Wastewater Collection
Rate Stabilization Reserves
MOTION PASSED: 4-0
TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER DEPARTMENT: UTILITIES
DATE: JUNE 15,2009 CMR: 275:09
REPORT TYPE: CONSENT
SUBJECT: Finance Committee Recommendation to Approve Proposed Changes to
the Electric Fund's Calaveras Reserve Guidelines
RECOMMENDATION
Staff, the Utilities Advisory Commission (UAC), and the Finance Committee recommend that
the City Council approve new guidelines to manage the Calaveras Reserve through changes to
the existing Calaveras Reserve Target and Guidelines as follows:
• Eliminate the existing Calaveras Reserve drawdown schedule;
• Require the calculation of the "stranded costs" for the electric supply portfolio during the
annual budget process for the upcoming budget year(s) and set the minimum transfer
from the Calaveras Reserve to the Electric Supply Operating Budget equal to this
amount;
• Require the calculation of the "stranded costs" for the long-term (until 2032 when
Calaveras debt is paid oft) of the electric supply portfolio during the annual budget
process and ensure that the Calaveras Reserve balance will be sufficient to cover this
amount;
• Calculate "stranded cost" based on the above market cost of the Calaveras Hydroelectric
Project and the California Oregon Transmission Project; and
• To the extent that there are funds available in excess of long-term "stranded cost" needs,
staff will work with the UAC to identify and recommend projects for Council
consideration and approval. Such projects shall be to the benefit of electric ratepayers.
BACKGROUND
In 1983, the City Council established the Calaveras Reserve in the Electric Fund to help defray a
portion of the annual debt service costs associated with the Calaveras Hydroelectric Project,
which was put in service at that time. As originally established, the Calaveras Reserve policy did
not provide for a target balance and depletion of the reserve was anticipated by 2002.
California Assembly Bill 1890 was adopted in 1996, which provided for the deregulation of
California's electric industry effective January 1, 1998. A key element of deregulation was the
CMR: 275:09 Page 1 of4
provision for Direct Access, which would allow electric customers to choose their electric
commodity supplier. The City of Palo Alto Utilities (City), along with other California utilities,
were faced with the prospect of losing customers and load to Direct Access and being saddled
with expensive generation assets purchased or built to serve these customers. In response,
Council changed the purpose of the Calaveras Reserve in 1996 (CMR: 214:96) and authorized
collections from electric ratepayers to cover the amount that certain electric assets' costs were
projected to be higher than their market value in the future (i.e., stranded cost). In 1999, Council
ceased collecting funds for these stranded costs and established the Calaveras Reserve Target
and Gilldelines with a schedule to draw down the funds through the end ofFY 2033.
In 2001, the California electric industry faced an energy crisis triggering wholesale power price
spikes and rolling blackouts throughout the state. The crisis was blamed on poor deregulation
market design and market manipUlation by energy suppliers. As a result, Direct Access was
suspended in California for the investor-owned utilities and, subsequently, the City suspended its
Direct Access program. Further, as a result of changing market conditions and the assignment of
certain electric assets, the estimate of the City's stranded cost is lower now than when stranded
cost collections stopped in 1999. Since then, electric market prices have increased significantly,
reducing the stranded cost associated with the Calaveras Hydroelectric Project. In June 2008, the
City permanently assigned away its share in the Seattle City Light Exchange. Further, a long-
term assignment of the City'S share in the California-Oregon Transmission Project (COTP) has
been executed. The assignments of the COTP and Seattle City Light Exchange effectively
eliminate stranded costs associated with these two electric assets.
At its December 2,2008 meeting, the Finance Committee agreed with staffs proposal to retain
some funds in the Calaveras Reserve for stranded costs and to begin a thorough review of
potential capital projects that could benefit electric ratepayers.
On January 12, 2009, Council approved the Finance Committee's recommendation
(CMR:11O:09) to direct staff to:
I. Continue using the Calaveras Reserve to cover stranded cost, which is currently
calculated to be $32.5 million;
2. Continue the annual transfer from the Calaveras Reserve to the Electric Supply Rate
Stabilization Reserve as budgeted for Fiscal Year (FY) 2009; and
3. Work with the Utilities Advisory Commission (UAC) to review possible projects that
would benefit electric ratepayers for consideration of funding from the calculated
"excess" Calaveras Reserve funds and to return to the Finance Committee with staffs
and the UAC's recommendations for use by the Finance Committee to formulate a
recommendation for Council action.
DISCUSSION
Changes to the Calaveras Reserve guidelines must be made in order to implement the Council
direction. The proposed changes to the guidelines establish a minimum transfer from the
Calaveras Reserve based on the stranded cost estimate updated in the annual budget process.
Thus, the amount transferred from the Calaveras Reserve would be determined annually and
could take into account the five-year financial plan factors such as reserve levels, projected rate
adjustments, and updated stranded cost estimates.
CMR: 275:09 Page 2 of4
If the proposed method were used for FY 2010, then the minimum transfer from the Calaveras
Reserve would be $2.6 million for FY 2010. The long-term stranded cost estimate would be $48
million. This would be the amount that should remain in the Calaveras Reserve to cover these
potential stranded costs. Therefore, using the Calaveras Reserve balance as of the end of FY
2008 of$64.5 million, $16.5 million would be available for an alternate use.
COMMITTEE REVIEW AND RECOMMENDATIONS
The proposed changes to the Calaveras Reserve guidelines were presented to the UAC at its
February 4, 2009 meeting. The UAC voted unanimously to recommend that the Council approve
staffs recommendation. The notes from the UAC meeting are provided as Attachment B.
The Council Finance Committee considered the proposed changes to Calaveras Reserve
guidelines on March 31, 2009. Committee members discussed how the stranded costs change
depending upon market prices and the generation of the Calaveras hydroelectric project. They
also asked about what would happen if the Calaveras Reserve was exhausted and stranded costs
remained. Staff explained that stranded costs are important considerations if customers can
choose alternate suppliers under a "direct access" regime, but that if direct access was not
available, that stranded costs are not an issue.
The Finance Committee voted unanimously to recommend to the City Council the proposed
changes to the Electric Fund's Calaveras Reserve guidelines. The notes from the Finance
Committee meeting are provided as Attachment C.
RESOURCE IMPACT
Implementation of the proposed changes to the Calaveras Reserve Target and Guidelines does
not impact FY 2009. The changes, if approved, will be incorporated in the FY 2010 and FY
2011 Operating Budgets for Council's review and approval. For FY 2010 -FY 2011, there will
not be a rate impact as the ending reserve levels at FY 2011 are the same under both guidelines.
POLICY IMPLICATIONS
This recommendation is consistent with the Council-approved Utilities Strategic Plan with
regard to 1) managing supply portfolio risk to preserve a supply cost advantage; and 2) to
provide low and stable rates, adequate reserves, and budgeted transfers to the General Fund.
ENVIRONMENTAL REVIEW
Changing the Calaveras Reserve guidelines does not constitute a "project" pursuant to Section
21065 of the Public Resources Code, thus no environmental review under the California
Environmental Quality Act is required.
CMR: 275:09 Page 3 of4
ATTACHMENTS
A. CMR: 161 :09 -Utilities Advisory Commission Recommendation to City Council on
Proposed Changes to the Electric Fund's Calaveras Reserve Guidelines (without
attachments)
B. Excerpt from final minutes from the February 4,2009 UAC meeting
C. Excerpted notes from the March 31, 2009 Finance Committee meeting
PREPARED BY:
REVIEWED BY:
MONICA PADILLA
Senior Resource Planner
JANE O. RATCHYE ~
Utilities Assistant Director, Resource Management
DEPARTMENT APPROVAL:
CITY MANAGER APPROVAL:
City Manager
CMR: 275:09 Page 4 of 4
TO:
FROM:
DATE:
SUBJECT:
ATTACHMENT A
BUDGET
FY 2010-FY 2011
FINANCE COMMITTEE
CITY MANAGER DEPARTMENT: UTILITIES
MARCH 31, 2009 CMR: 161:09
Recommendation to City Council on Proposed Changes to the Electric
Fund's Calaveras Reserve Guidelines
EXECUTIVE SUMMARY
The Calaveras Reserve is used to provide funds to the Electric Fund's operating budget to cover
costs that are above the value of certain assets (known as stranded cost). Since completing the
assignment of a transmission asset and an energy exchange contract whose costs were higher
than their benefits, staff reassessed the level of funding necessary in the Calaveras Reserve.
Staff's current assessment is that, under many scenarios, the Calaveras Reserve may have funds
in excess of what is needed to cover stranded cost. However, the stranded cost needs are highly
sensitive to changes in wholesale electric market prices and hydroelectric generation conditions.
Over the past few months, staff has met with the UAC, Finance Committee and Council to
discuss alternatives for managing the Calaveras Reserve going forward including the use of
excess funds for other purposes within certain parameters. After evaluating several alternatives,
on January 12, 2009, the Council provided direction to staff on how to manage the Calaveras
Reserve. Staffs recommended changes to the existing Calaveras Reserve Target and Guidelines
are necessary to implement Council's direction and to provide for a dynamic and transparent
methodology to assess the Electric Fund's stranded cost and potential excess funds.
RECOMMENDATION
The Utilities Advisory Commission (UAC) and staff recommend that the Finance Committee
recommend that the City Council adopt new guidelines to manage the Calaveras Reserve through
changes to the existing Calaveras Reserve Target and Guidelines as follows:
• Eliminate the existing Calaveras Reserve drawdown schedule;
• Require the calculation of the stranded costs for the electric supply portfolio during the
annual budget process for the upcoming budget year( s) and set the minimum transfer
from the Calaveras Reserve to the Electric Supply Operating Budget equal to this
amount;
• Require the calculation of the stranded costs for the long-term (until 2032 when
Calaveras debt is paid off) of the electric supply portfolio during the annual budget
CMR: 161:09 Page 1 of6
process and ensure that the Calaveras Reserve balance will be sufficient to cover this
amount;
• Calculate stranded cost based on the above market cost of the Calaveras Hydroelectric
Project and the California Oregon Transmission Project; and
• To the extent that there are funds available in excess of long-term stranded cost needs,
staff will work with the UAC to identify and recommend projects for Council
consideration and approval. Such projects shall be to the benefit of electric ratepayers.
BACKGROUND
In 1983, the City Council established the Calaveras Reserve in the Electric Fund to help defray a
portion of the annual debt service costs associated with the Calaveras Hydroelectric Project,
which was put in service at that time. As originally established, the Calaveras Reserve policy did
not provide for a target balance and depletion ofthe reserve was anticipated by 2002.
California Assembly Bill 1890 was adopted in 1996, which provided for the deregulation of
California's electric industry effective January 1, 1998. A key element of deregulation was the
provision for Direct Access, which would allow electric customers to choose their electric
commodity supplier. The City of Palo Alto Utilities (City), along with other California utilities,
were faced with the prospect of losing customers and load to Direct Access and being saddled
with expensive generation assets purchased or built to serve these customers. In response to such
risk, Pacific Gas and Electric Company and other investor-and municipally-owned utilities
established stranded cost surcharges to collect funds from ratepayers to cover the amount that
these uneconomic assets were projected to cost above their market value in the future (i.e.,
"stranded cost").
Council changed the purpose of the Calaveras Reserve in 1996 (CMR: 214 :96) and authorized
collections from electric ratepayers to cover the amount that certain electric assets' costs were
projected to be higher than their market value in the future (i.e., stranded cost). In addition,
Council approved a new Calaveras Reserve policy linking the reserve balance to an amount
sufficient to cover potential stranded costs. The assets identified as stranded included the Seattle
City Light Exchange contract, the Calaveras Hydroelectric Project, and the California-Oregon
Transmission Project (COTP). In 1999, Council ceased collecting funds for these stranded costs
and established the Calaveras Reserve Target and Guidelines with a schedule to draw down the
funds and manage electric rates through the end ofFY 2032-33 (Attachment A).
In May 1997, Council revised the reserve target level to cover above-market, or "stranded," costs
to $93 million by December 31, 2001 to be collected from a stranded cost surcharge imposed on
electric rates (CMR:219:97). When the Calaveras Reserve balance reached $71 million in 1999,
stranded costs were deemed fully collected. At that time, Council authorized the cessation of the
collection of the stranded cost surcharge and established the Calaveras Reserve Target and
Guidelines (CMR 222:99) with a schedule to drawdown the funds and manage electric rates
through transfers from the Calaveras Reserve to the Electric Supply Rate Stabilization Reserve
(E-SRSR) through the end of Fiscal Year (FY) 2032-33, when the Calaveras Reserve would be
exhausted.
In 2001, the California electric industry faced an energy crisis triggering wholesale power price
spikes and rolling blackouts throughout the state. The crisis was blamed on poor deregulation
CMR: 161:09 Page 2 of6
market design and market manipulation by energy suppliers. As a result, Direct Access was
suspended in California for the investor-owned utilities and subsequently, the City suspended its
Direct Access program. Further, as a result of changing market conditions and the assignment of
certain electric assets, the estimate of the City's stranded cost is lower now than when stranded
cost collections stopped in 1999. Since then, electric market prices have increased significantly,
reducing the stranded cost associated with the Calaveras Hydroelectric Project. In June 2008, the
City permanently assigned away its share in the Seattle City Light Exchange. Further, a long-
term assignment of the City's share in the COTP has been executed. The assignments of the
COTP and Seattle City Light Exchange effectively eliminate stranded costs associated with these
two electric assets.
At the December 2007 and February 2008 UAC meetings, staff discussed the background and
rationale for developing the Calaveras Reserve, provided an assessment of the current need for
the Calaveras Reserve and options for managing the Calaveras Reserve in the future. In
November 2008, staff presented a proposal to the UAC for the use of the Calaveras Reserve
funds including allocating $10 million to return to the Rate Stabilization Reserve and provided
an estimate of future stranded costs from Calaveras and COTP. At that time, the estimate for the
potential need for funds for stranded costs was $32.5 million. Since the balance of the Calaveras
Reserve will be $64.5 million as of the end ofFY 2009, the Calaveras Reserve would have about
$32 million (by the end of FY 2009) that may be no longer needed to cover future stranded costs.
At its November 2008 meeting, the UAC provided the following general feedback on staff's
proposal:
• Agreement with staff s assessment that the current estimate of stranded cost is likely lower
than the $64.5 million in the Calaveras Reserve and recognition that staffs stranded cost
estimate of$32.5 million is a prudent amount of funds to reserve for stranded cost.
• Recognition that the Calaveras Reserve has about $32 million more than is needed to cover
stranded cost.
• No support for transferring funds to the Electric Supply Rate Stabilization Reserve (E-SRSR)
because such a strategy sends the wrong price signal to customers and only defers the need to
raise electric rates to cover cost. The UAC noted that E-SRSR funds were drawn down in
FY 2007-08 and are planned to be drawn down in FY 2008-09 resulting in retail rates that do
not fully cover operating costs. An additional transfer would continue to defer the alignment
of retail rate revenues with costs.
• Support of the use of funds in the Calaveras Reserve that may not be needed for stranded
costs to pay for capital improvement projects to the benefit of electric rate payers and
identification of several types of projects which may be funded. However, the UAC did not
support the idea of creating a new fund to do so.
• Recognition of market price and hydroelectric generation uncertainty as reason for careful
deliberation of the use of the Calaveras Reserve.
• Support of use of funds in the Calaveras Reserve that may not be needed for stranded costs
for capital project development only after reviewing and concurring with a specific project
recommendation by staff.
As a result of the UAC's input, staff revised its preliminary proposal and decided not to
recommend an immediate transfer of some of the excess funds to the Electric Supply Rate
CMR: 161:09 Page 3 of6
Stabilization Reserve and not to create a new reserve for potential capital projects that benefit
electric ratepayers.
At its December 2, 2008 meeting, the Finance Committee reviewed the recommendations from
the UAC and staffs revised proposal (CMR: 449:08). The Finance Committee generally agreed
with staffs revised proposal to retain some funds in the Calaveras Reserve for stranded costs and
to begin a thorough review of potential capital projects that could benefit electric ratepayers.
These project ideas would be considered for at least partial funding from Calaveras Reserve
funds. The Committee agreed with the UAC that potential projects for the funding might
include:
• Development of local and/or distributed generation to reduce transmission charges and losses
and save costs of local capacity requirements;
• Upgrade of transmission voltage from PG&E to the City's distribution system to reduce
transmission system losses;
• DeVelopment of smart grid elements and purchase of smart meters to optimize the
distribution system;
• Purchase of land from the City which the electric utility currently rents to reduce the cost
exposure to changing property values; and
• Loans to other Utilities funds and/or the General Fund in order to save financing costs related
to issuing bonds for capital projects.
On January 12, 2009, Council approved the Finance Committee's recommendation
(CMR:IlO:09) to direct staff to:
1. Continue using the Calaveras Reserve to cover stranded cost, which is currently
calculated to be $32.5 million;
2. Continue the annual transfer from the Calaveras Reserve to the Electric Supply Rate
Stabilization Reserve as budgeted for Fiscal Year (FY) 2009; and
3. Work with the Utilities Advisory Commission (UAC) to review possible projects that
would benefit electric ratepayers for consideration of funding from the calculated
"excess" Calaveras Reserve funds and to return to the Finance Committee with staffs
and the UAC's recommendations for use by the Finance Committee to formulate a
recommendation for Council action.
DISCUSSION
The current Calaveras Reserve guideline consists of a schedule for the target reserve balance
until the reserve is completely exhausted by the end of FY 2033 (Attachment A). Changes to the
guidelines must be made in order to implement the Council direction.
Staff has identified two alternatives that could be considered for changing the Calaveras Reserve
guidelines. The first sets a new target reserve balance schedule so that $32 million is reserved
for capital projects that are identified and selected for funding. This alternative provides
certainty for long-term financial planning for the electric utility because the amount that can be
expected to be transferred from the Calaveras Reserve is known.
CMR: 161:09 Page 4 of6
The second alternative is a more dynamic guideline that establishes a minimum transfer from the
Calaveras Reserve based on the stranded cost estimate updated in the annual budget process. In
this alternative, the amount transferred from the Calaveras Reserve would be detennined
annually and could take into account the five-year financial plan measures such as reserve levels,
projected rate adjustments, and updated stranded cost estimates.
Staff recommends the second alternative, which requires an annual recalculation of the electric
utility stranded cost estimates during the budget approval and rate setting process. Staffs
proposal contains several aspects:
1. Annually, during the budget approval and rate setting process, the stranded costs for the
upcoming budget year and for the long-tenn would be estimated. The calculation would
be based on the updated cost and generation estimates for the Calaveras Hydroelectric
Project and the California-Oregon Transmission Project (COTP) and electric market price
projections.
2. The minimum transfer from the Calaveras Reserve to the Electric Supply Operating
Budget for the upcoming budget year would be equal to the stranded cost estimate for
that budget year. An additional amount could be transferred depending on the overall
financial circumstances of the Electric Fund.
3. The updated long-tenn stranded cost estimate would be used to establish the amount that
should remain in the Calaveras Reserve to cover these costs. The amount of money
available for an alternate use would be equal to the Calaveras Reserve balance minus
these updated long-tenn stranded cost estimates.
4. The use of any funds available in the Calaveras Reserve that are in addition to the funds
needed for the long-tenn stranded cost as calculated in the annual budget process would
require Council approval.
5. Staff will work with the UAC to identifY and recommend projects to Council that benefit
electric ratepayers to use funds from the Calaveras Reserve.
If the proposed method were used for FY 2010, then the minimum transfer from the Calaveras
Reserve would be $2.6 million for FY 2010. This is based on the assumptions and market prices
used to develop the FY 2010 budget. Using these assumptions and an estimate of long-tenn
contingencies, the long-tenn stranded cost estimate would be $48 million. This would be the
amount that should remain in the Calaveras Reserve to cover these potential stranded costs.
Therefore, if the Calaveras Reserve balance was $64.5 million, then $16.5 million could be used
for an alternate use.
Depending on how much of the funds in the Calaveras Reserve remain after being used for
projects, the Calaveras Reserve could be insufficient to cover stranded costs as detennined by the
annual recalculation. In this case, the remaining balance in the Calaveras Reserve may not have
funds available for new projects.
COMMISSION REVIEW AND RECOMMENDATIONS
The proposed changes to the Calaveras Reserve guidelines were presented to the UAC at its
February 4, 2009 meeting along with an update of short-and long-term stranded cost and
potential excess funds. The U AC discussed whether there were risks of the proposed changes
whereby cumulative transfers from the reserve would result in inadequate reserves to cover
CMR: 161:09 Page 5 of6
stranded costs. The Commission agreed with staff s explanation that, although this could
happen, the real risk exists only if Direct Access were reinstated.
The UAC voted unanimously to recommend that the Council approve staffs recommendation.
The notes from the UAC meeting are provided as Attachment B.
RESOURCE IMPACT
Implementation of the proposed changes to the Calaveras Reserve Target and Guidelines does
not impact FY 2009. The changes, if approved, will be incorporated in the FY 2010 and FY
2011 Operating Budgets and FY 2010 electric rates for Council's review and approval.
POLICY IMPLICATIONS
This recommendation is consistent with the Council-approved Utilities Strategic Plan with
regard to 1) managing supply portfolio risk to preserve a supply cost advantage; and 2) to
provide low and stable rates, adequate reserves, and budgeted transfers to the General Fund.
ENVIRONMENTAL REVIEW
Changing the Calaveras Reserve guidelines does not constitute a "project" pursuant to Section
21065 of the Public Resources Code, thus no environmental review under the California
Environmental Quality Act is required.
ATTACHMENTS
A. 1999 Council-Approved Calaveras Reserve Target and Guidelines
B. Excerpts -Final Minutes from the February 4,2009 UAC meeting
PREPARED BY:
REVIEWED BY:
MONICA PADILLA
Senior Resource Planner
JANE O. RATCHYE
Utilities Assistant Director, Resource Management
DEPARTMENT APPROVAL:
CITY MANAGER APPROVAL:
CMR: 161:09
VALERIE O. FONG
Director of Utilities
JAMES KEENE
City Manager
Page 60f6
ATTACHMENT B
Excerpt from Final Minutes of February 4, 2009 UAC Meeting
ITEM 2: ACTION ITEM: Proposed Changes to the Calaveras Reserve Guidelines
Utilities Director Valerie Fong presented staff's proposed changes to the Calaveras Reserve Target
and Guidelines and requested that the UAC recommend to Council the adoption of the proposed
changes.
The recommended changes as presented included:
• Eliminate the existing Calaveras Reserve drawdown schedule;
• Require the calculation of the stranded costs for the electric supply portfolio during the
annual budget process for the upcoming budget year(s) and set the minimum transfer from
the Calaveras Reserve to the Electric Supply Operating Budget equal to this amount;
• Require the calculation of the stranded costs for the long-term of the electric supply
portfolio during the annual budget process and ensure that the Calaveras Reserve balance
will be sufficient to cover this amount;
• Calculate stranded cost based on the above market cost of the Calaveras Hydroelectric
Project and the California Oregon Transmission Project; and
• To the extent that there are funds available in excess of long-term stranded cost needs,
staff will work with the UAC to identify and recommend projects for Council consideration
and approval. Such projects shall be to the benefit of electric ratepayers.
Fong also presented an update of stranded cost and possible excess Calaveras Reserve funds in
a manner consistent with the proposed changes to the guidelines, including:
• Stranded cost equal to minimum transfer requirement for FY 2010 and FY 2011 at
$2.63 and $1.99 million, respectively based on market value and cost assumed for FY
2010 budget development;
• a range of long-term stranded cost scenarios which are dependent on market price and
hydroelectric generation of $31.5 to $52.5 million; and
• a potential Calaveras Reserve excess in the range of $12 to $33 million, given the
range of long-term stranded cost and the projected ending FY 2009 Calaveras Reserve
balance of $64.5 million.
Assistant Utilities Director, Jane Ratchye added that in the event a project is identified for possible
funding with excess Calaveras Reserve funds, the long-term stranded cost calculation would be
updated prior to expending the funds to ensure adequacy of the Calaveras Reserve. Ratchye also
clarified that the stranded cost transfer calculated for FY 2010 is the minimum amount
recommended and that it is Council's discretion to approve greater transfers from the Calaveras
Reserve.
Commissioner Waldfogel expressed concern that the short-term calculation did not look at
contingencies for low hydroelectric output for which Ratchye clarified that such contingencies
would be included in the long-term calculation.
Chair Dawes expressed his desire to annually true-up the transfer from the Calaveras Reserve
based on actual performance of the stranded assets, however none of the other commissioners
expressed their support for this idea as it would not add to rate stability and could be
administratively burdensome.
Commissioner Melton asked what staff would do if the Calaveras Reserve is used to fund projects
and stranded cost increases above the amount available in the Calaveras Reserve. Fong
explained that staff's response would depend on whether or not Direct Access was available to
customers and that any recommendation would be provided in the context of overall rates.
Action on this item was deferred until after Item Number 6 -Long-Term Financial Projections and
Revenue Adjustment Targets for the Electric Fund.
ATTACHMENT C
Special Meeting
March 31, 2009
The Finance Committee of the City of Palo Alto met on this date in the
Council Chambers at 7:04 p.m.
Present: Burt (Chair), Council Member Klein, Morton, Council Member Yeh
Absent: None
Excerpted Minutes:
5. Recommendation to City Council on Proposed Changes to the Electric
Fund's Calaveras Reserve Guidelines.
Assistant Director of Utilities for Resource Management, Jane Ratchye gave a
presentation which revealed their objectives in adoption of the new
guidelines for the Calaveras Reserve which the Utilities Advisory Commission
had agreed upon. She went over the existing guidelines as a reminder in
covering Council's directives in management of the Calaveras Reserve. She
went over the proposed changes to the guidelines for the reserve and what
those changes meant with regard to transfers from the Calaveras Reserve
into the Electric Fund for fiscal year 2010. The next steps were also
discussed.
Council Member Klein asked what result would occur if the Calaveras
Reserve went above cost.
Ms. Ratchye stated the stranded costs, then, would be at zero. This was the
expected outcome. In a normal hydro year, the Calaveras Project was
expected to be in the money and would not have the stranded costs, but this
was also contingent on market prices.
Council Member Klein asked if there was a number available on the
Calaveras Project's profitability.
Ms. Ratchye stated she could not provide the number immediately but that it
was dependent on the generation at Calaveras. The long-term assumed
average generations were available, but in short-term calculations in a
budget year, the assumption were based on what was known about
Calaveras generations in prior years. In this event, an assumption was made
that this was a dry hydro year with the assumption of generation at a lower
average.
Council Member Klein asked for calculations over the next five years, in
consideration of more wet winters.
Ms. Ratchye stated it was expected, then, that the stranded costs for
Calaveras Reserve were zero with no transfer.
Council Member Klein asked what was done with the leftover revenue.
Ms. Ratchye stated it accumulates interest and was to be used for proposed
projects.
Council Member Klein asked if there were $16.5 million in proposed projects.
Ms. Ratchye stated, in the long-term, yes, this covered a number of projects
equaled to that amount.
Vice Mayor Morton stated he was worried over a reversal where the stranded
costs went the other direction.
Ms. Ratchye stated there was a possibility for a fluctuation in stranded costs
and reserves where the stranded costs landed above what was remaining in
the Calaveras Fund. In the event that there were not enough funds to cover
the projected stranded costs, this was not a giant issue unless and until
direct access for utilities customers was reintroduced.
Vice Mayor Morton stated this would be built into a future rate structure in
order for cost recovery. He stated there was not a rationale to have a
minimum for that reserve over the next five or ten years.
Ms. Ratchye agreed. She did not recommend such a rationale.
Vice Mayor Morton stated this pertained only to annual calculations.
Council Member Yeh asked about the excess funds. He asked if there were
parameters in place to address the level of risk in these excesses.
Ms. Fong suspected Staff would not suggest any huge projects upfront. In
many senses, what would be suggested were either smaller projects, pile-up
projects, or if there was a favorable economic project, they would do this
regardless of the Calaveras Fund.
MOTION: Vice Mayor Morton moved, seconded by Council Member Yeh, that
the Finance Committee recommend to the City Council the Proposed
Changes to the Electric Fund's Calaveras Reserve Guidelines.
MOTION PASSED 4-0.
TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER DEPARTMENT: UTILITIES
DATE: JUNE 15,2009 CMR: 282:09
REPORT TYPE: CONSENT
SUBJECT: Finance Committee Recommendation to Approve the Funding of
Certain Projects from the Calaveras Reserve in an Amount not to
Exceed $270,000 in Fiscal Year 2010 and $200,000 in Fiscal Year 2011
RECOMMENDATION
Staff, the Utilities Advisory Commission (UAC), and the Finance Committee recommend that
Council approve funding for the following projects from the Calaveras Reserve at a total
budgeted amount not to exceed $270,000 in Fiscal Year (FY) 2010 and $200,000 in FY 2011 as
follows:
• $200,000 per year for the PLUG-In Program for investments or incentives for electric
cogeneration projects within the City. Any additional funding requests for larger local
generation projects will be requested separately; and
• $70,000 in FY 2010 to evaluate the cost-effectiveness of advanced metering
infrastructure (AMI) and other smart grid elements and to develop a strategic plan to
implement appropriate advanced metering infrastructure (AMI) and other smart grid
elements.
BACKGROUND
On January 12, 2009, Council directed staff to work with the Utilities Advisory Commission
(UAC) to review possible projects that would benefit electric ratepayers for consideration of
funding from the calculated "excess" Calaveras Reserve Fund (CMR: 110:09). On March 31,
2009, the Council Finance Committee recommended that Council approve revisions to the
Calaveras Reserve Guidelines (CMR: 161:09).
CMR: 282:09 Page 1 of3
The revised Calaveras Reserve Guidelines will:
• Eliminate the existing Calaveras Reserve drawdown schedule;
• Require the calculation of the stranded costs for the electric supply portfolio during the
annual budget process for the upcoming budget year(s) and set the minimum transfer from
the Calaveras Reserve to the Electric Supply Operating Budget equal to this amount;
• Require the calculation of the stranded costs for the long-term (until 2032 when Calaveras
debt is paid oft) of the electric supply portfolio during the annual budget process and ensure
that the Calaveras Reserve balance will be sufficient to cover this amount;
• Calculate stranded cost based on the above market cost of the Calaveras Hydroelectric
Project and the California Oregon Transmission Project; and
• To the extent that there are funds available in excess of long-term stranded cost needs, staff
will work with the UAC to identify and recommend projects for Council consideration and
approval. Such projects shall be to the benefit of electric ratepayers.
Council will consider the recommendation on June 15,2009 (CMR: 275:09).
DISCUSSION
Staff evaluated a number of potential projects for funding from the $16.5 million "excess"
Calaveras Reserve funds. Normal capital projects such as system improvement projects,
undergrounding, distribution system upgrades, and control system upgrades were not considered
for funding from this reserve. Instead, projects that further the Council priorities and that are not
ongoing in nature were considered. Staff evaluated the ideas contributed by the UAC and others,
including funding of rebates for photovoltaic projects within the City, efficient street lighting,
and energy efficiency financing programs. Based on this assessment, staff determined that the
following three projects were the best projects for funding at this time.
1. Study to evaluate advanced metering infrastructure (AMI)
2. Investment or incentives for cogeneration projects within the City
3. Investment to upgrade transmission connection to 230 kV
Attachment B summarizes staff's recommendation for Calaveras Reserve funding of $270,000
for FY 2010 and $200,000 for FY 2011 for the projects identified.
COMMITTEE REVIEW AND RECOMMENDATIONS
The proposed funding from the Calaveras Reserve was presented to the UAC at its May 6, 2009
meeting. The UAC voted unanimously to recommend that the Council approve staff's
recommendation. The notes from the UAC meeting are provided as Attachment C.
The Council Finance Committee considered the projects proposed for funding from the
Calaveras Reserve on May 19, 2009 (Attachment A: CMR: 250:09). Committee members
confirmed that the AMI study should go forward now and not wait for technology advances to
occur. The committee also discussed that the projects proposed did not have large funding
requirements and that the goal was to use the Calaveras Reserve to fund large projects that have
a strategic nature. The City Manager noted that the proposals represent the initial investments
for what could be large strategic projects.
CMR: 282:09 Page 2 of3
The Finance Committee voted unanimously (4-0) to recommend to the City Council the
proposed level of funding for the proposed projects from the Calaveras Reserve. The notes from
the Finance Committee meeting are provided as Attachment D.
RESOURCE IMPACT
Implementation of the proposed changes to the Calaveras Reserve Target and Guidelines does
not impact FY 2009. The changes, if approved, will be incorporated in the FY 2010 and FY
2011 Operating Budgets and FY 2010 electric rates for Council's review and approval.
POLICY IMPLICATIONS
This recommendation is consistent with the Council-approved Utilities Strategic Plan with
regard to 1) managing supply portfolio risk to preserve a supply cost advantage; and 2) to
provide low and stable rates, adequate reserves, and budgeted transfers to the General Fund.
ENVIRONMENTAL REVIEW
Changing the Calaveras Reserve guidelines does not constitute a "project" pursuant to Section
21065 of the Public Resources Code, thus no environmental review under the California
Environmental Quality Act is required.
ATTACHMENTS
A. CMR: 250:09 Utilities Advisory Commission Recommendation to Approve the
Funding of Certain Projects from the Calaveras Reserve in an Amount not to Exceed
$270,000 in Fiscal Year 2010 and $200,000 in Fiscal Year 2011 (without attachments)
B. Summary Table of Projects and Recommended Funding Levels
C. Excerpt from final minutes from the May 6, 2009 UAC meeting
D. Excerpted notes from the May 19, 2009 Finance Committee meeting
PREPARED BY:
REVIEWED BY:
DEPARTMENT APPROVAL:
CITY MANAGER APPROVAL:
SHIV A SWAMINATHAN
Senior Resource Planner
TOMTING
Senior Electric Project Engineer
JANE RATCHYE ~
Assistant Director, Re!~~ Management
TOMM MARSHAL~
Assistant Director, Utilities Engineering
Director of Utilities
~~1£L~ "'JAMES EN
City Manager
Page 3 3
TO:
FROM:
ATTENTION:
DATE:
SUBJECT:
ATTACHMENT A
HONORABLE CITY COUNCIL
CITY MANAGER DEP ARTMENT: UTILITIES
FINANCE COMMITTEE
MAY 19,2009 CMR: 250:09
Utilities Advisory Commission Recommendation to Approve the
Funding of Certain Projects from the Calaveras Reserve in an
Amount not to Exceed $270,000 in Fiscal Year 2010 and $200,000 in
Fiscal Year 2011
RECOMMENDATION
Staff and the Utilities Advisory Commission recommend that the Finance Committee
recommend that Council approve funding for the following projects from the Calaveras Reserve
at a total budgeted amount not to exceed $270,000 in Fiscal Year (FY) 2010 and $200,000 in FY
2011 as follows:
1. $200,000 per year for the PLUG-In Program for investments or incentives for
cogeneration projects within the City. Any additional funding requests for larger
local generation projects will be requested separately; and
2. $70,000 in FY 2010 to evaluate the cost-effectiveness of advanced metering
infrastructure (AMI) and other smart grid elements and to develop a strategic plan to
implement appropriate advanced metering infrastructure (AMI) and other smart grid
elements.
BACKGROUND
On January 12, 2009, Council directed staff to work with the Utilities Advisory Commission
(UAC) to review possible projects that would benefit electric ratepayers for consideration of
funding from the calculated "excess" Calaveras Reserve Fund (CMR: 110:09). On March 31,
2009, the Council Finance Committee recommended that Council approve revisions to the
Calaveras Reserve Guidelines (CMR: 161:09). Council will consider the recommendation as a
part of the FY 2010 budget approval process. The recommended new Calaveras Reserve
guidelines consist of the following components:
• Require the calculation of the stranded costs for the electric supply portfolio during the
annual budget process for the upcoming budget year(s) and set the minimum transfer
from the Calaveras Reserve to the Electric Supply Operating Budget equal to this
amount;
CMR: 250:09 Page 1 of6
• Require the calculation of the stranded costs for the long-term (until 2032 when
Calaveras debt is paid off) of the electric supply portfolio during the annual budget
process and ensure that the Calaveras Reserve balance will be sufficient to cover this
amount;
• Calculate stranded cost based on the above market cost of the Calaveras Hydroelectric
Project and the California Oregon Transmission Project; and
• To the extent that there are funds available in excess of long-term stranded cost needs,
staff will work with the UAC to identify and recommend projects for Council
consideration and approval. Such projects shall be to the benefit of electric ratepayers.
Using the recommended guidelines for the upcoming two-year budget results in the following:
1. The stranded cost for FY 2010 (and the minimum transfer from the Calaveras Reserve) is
$2.6 million for FY 2010. This is based on the assumptions and market prices used to
develop the FY 2010 budget. The estimated stranded cost for FY 2011 is $2.0 million.
The stranded cost will be recalculated for FY 2011 in the FY 2011 budget process, but
this estimate is used in the financial projections.
2. Using the FY 2010 budget assumptions and an estimate of long-term contingencies, the
long-term stranded cost estimate is $48 million. This is the amount that should remain in
the Calaveras Reserve to cover these potential stranded costs.
3. Since the balance of the Calaveras Reserve was estimated at $64.5 million as of the end
ofFY 2009, then $16.5 million could be used for projects that benefit electric ratepayers.
DISCUSSION
Staff evaluated a number of potential projects for funding from the $16.5 million "excess"
Calaveras Reserve funds. Normal capital projects such as system improvement projects,
undergrounding, distribution system upgrades, and control system upgrades were not considered
for funding from this reserve. Instead, projects that further the Council priorities and that are not
ongoing in nature were considered. In addition, ideas contributed by the UAC for potential
funding from the Calaveras Reserve during its November 2008 meeting were considered. These
ideas included:
• Development of local and/or distributed generation;
• Upgrade of transmission voltage from PG&E to the City's distribution system;
• Development of smart grid elements and purchase of smart meters;
• Purchase of land from the City that the electric utility currently rents; and
• Loans to other Utilities funds and/or the General Fund in order to save financing costs
related to issuing bonds for capital projects.
Staff evaluated the ideas contributed by the UAC and others, including funding of rebates for
photovoltaic projects within the City, replacing street lights with more efficient technologies, and
energy efficiency financing programs. Based on this assessment, staff determined that the
following three projects were the best projects for funding at this time.
1.' Study to evaluate advanced metering infrastructure (AMI)
2. Investment or incentives for cogeneration projects within the City
3. Investment to upgrade transmission connection to 230 kV
CMR: 250:09 Page 2 of6
Purchasing land from the City and loaning funds will remain for future consideration, but are not
recommended at this time. The recommended projects are consistent with the Council priorities
of environmental protection and economic health. Each of the three recommended projects and
their funding requirements for FY 2010 and FY 2011 and beyond are described below.
1. Study to evaluate advanced metering infrastructure and other smart grid applications
The City's Automated Meter Reading (AMR) Pilot Project was completed in September 2007.
The pilot included enabling approximately 4,400 electric, gas, and water meters, which are
covered by six meter reading routes, to be read remotely. Currently, the usage recorded by these
meters is being read remotely by either the fixed radio network or by a drive-by reader. The
pilot project has demonstrated that an AMR system is able to meet many of staffs expectations
with regards to reading electric, gas, and water meters for billing purposes.
Advances in technology have resulted in the development of Advanced Metering Infrastructure
(AMI), or "smart meters," which provides more than meter reading capability and will allow for
remote, real time data collection and management to provide benefits to the customer and
Utilities operations. AMI is one of the building blocks for a "smart grid." It provides the
interface between the customer and the utility and could lead to smart grid related benefits of
improved demand-side load management, outage response, customer satisfaction, efficiency of
operations, and reduced system losses. Smart grid enabling technologies provide the capability
for real time monitoring and response of the electrical system.
Staff is proposing a $210,000 budget in FY 2010 to study the technology and the advantages and
disadvantages related to AMI/smart grid elements, including the return on investment that
incorporates economic, customer satisfaction and environmental sustainability attributes within
the City for electric, gas, and water. The study should include the broad array of benefits related
to the environment, sustainability, reliability, operational efficiencies, customer satisfaction, and
the potential for more efficient use of energy.
AMI implementation for the 29,000 electric meters is preliminarily estimated to cost
approximately $10 to $15 million. Staff recommends that Calaveras Reserve funds eventually be
utilized for funding of the Electric Fund's share of this project. AMI for natural gas and water
utilities would have to be funded from their respective utility funds. At this time, staff is
requesting up to $70,000 for FY 2010 for AMI, which is equal to the Electric Fund's one-third
share of the development of the study. Staff will return to request any additional funds for FY
2010 or future years from the Calaveras Reserve for this project. This project alone could
consume most ofthe $16.5 million "excess" in the Calaveras Reserve Fund.
2. Investment and incentives for local generation and cogeneration projects within the City
Since 2001, the City has explored various long-term, natural gas-fired electricity generation
investment opportunities within and outside the City, to meet approximately 20% of the City's
electrical energy needs and up to 40% of the City's local capacity needs, but this effort has not
yet been successful. In 2001, the City engaged consultants to survey the City and identify
potential City-owned and customer-owned sites for natural gas-fired local generation projects.
The study identified land between the wastewater treatment plant and the landfill as the most
feasible site for power generation, but this site is designated parkland. Roche and the V A
CMR: 250:09 Page 3 of6
Hospital sites were also identified as potential locations for cogeneration applications. The City,
along with other Northern California Power Agency (NCPA) members, also pursued
opportunities to buy an existing natural gas-fired generation station in the Bay Area. To date,
none of these efforts have been successful.
In 2007, with the increased emphasis on reducing the electric portfolio's greenhouse gas (GHG)
emissions, Utilities revised its strategy to limit the natural gas-based generation options to high
efficiency cogeneration applications within the City. Since this option required customer
participation, the City launched a distributed generation incentive program for customers, the
"Plug-In Program" (CMR:391 :07).
Locally sited, natural gas-fired cogeneration applications have the benefits of higher efficiency,
higher reliability and sustainability, and elimination of line losses associated with transmitting
electricity over long distances. Cogeneration applications (also known as combined heat and
power) simultaneously generate electricity and useful heat for utilization in buildings or
processes.
In 2008, the City jointly explored a 20-megawatt (MW), $50 million cogeneration project with
Roche, but this project came to an abrupt halt when Roche decided to close its campus in Palo
Alto. No other feasible project has been identified at this time. The City had budgeted $350,000
in FY 2009 for a feasibility study for the Roche project, but none was expended. No capital
funds are budgeted for local cogeneration for FY 2010.
The City budgeted $400,000 for potential incentive payments for the Plug-In Program in FY
2009, but none of these funds have been expended. The Plug-In incentive budget for FY 2010
and beyond is $200,000 per year. It is recommended that future expenditure related to the Plug-
In Program incentives and/or local generation investments be funded from the Calaveras
Reserve. At this time, staff is requesting up to $200,000 for FY 2010 and FY 2011 for incentive
payments for the Plug-In Program to be funded from the Calaveras Reserve. Iflarger projects
are proposed, staff will return for additional funding requests from the Calaveras Reserve.
3. Investment to upgrade the City's transmission line connection
The City is cOlmected to the electrical transmission grid at the Colorado substation at 115 kilo-
Volts (kV). Upgrading the connection voltage to 230 kV and receiving all the electricity needed
to serve the City at this higher voltage has the potential of saving up to $5 million per year and
improving the City's transmission service reliability. The City has conducted several studies
independently and in conjunction with the Pacific Gas and Electric Company (PG&E) to upgrade
the voltage at the Colorado substation, but the cost of the upgrade was estimated to be over $160
million, making the project economically infeasible.
The City is currently exploring a connection to the 230 kV transmission grid most likely through
the SLAC substation in the west side of the City. The cost of this project is preliminarily
estimated to be over $40 million with the potential of serving approximately half of the City's
electrical load. The feasibility of this project is highly dependent on interest by Stanford and
SLAC. Other transmissions upgrade opportunities, including partnering with other Bay Area
cities, may arise in the future.
CMR: 250:09 Page 4 of6
The City has a budget of approximately $300,000 to evaluate transmission upgrades in the FY
2009 budget. No new funding request was included in the FY 20 10 budget. If additional
funding is required to investigate a project further, staff will return with a recommendation that
the Calaveras Reserve be used for this project.
Recommended Calaveras Reserve Funding for FY 2010 and 2011
Attachment A summarizes staff's recommendation for Calaveras Reserve funding of $370,000
for FY 2010 and $200,000 for FY 2011 for the projects identified.
COMMISSION REVIEW AND RECOMMENDATIONS
On May 6, 2009, the UAC voted unanimously (4-0), to recommend that the City Council
approve the following projects to be funded from the Calaveras Reserve at a total budgeted
amount not to exceed $270,000 in Fiscal Year (FY) 2010 and $200,000 in FY 2011 as follows:
1. $200,000 per year for the PLUG-In Program for investments or incentives for
cogeneration projects within the City. Any additional funding requests for larger local
generation projects will be requested separately; and
2. $70,000 in FY 2010 to study the advantages and disadvantages of advanced metering
infrastructure (AMI) and other smart grid elements and include an assessment of their
cost-effectiveness that should incorporate both economic and environmental benefits.
Staff's original recommendation to the UAC was to develop a strategic road map to implement
advanced metering infrastructure (AMI) and other smart grid elements. In its discussions, the
UAC advised that the first step before creating such a plan should be to evaluate the cost-
effectiveness of smart grid elements. In addition, the cost-effectiveness should include benefits
related to system reliability, operational efficiencies, environmental sustainability features,
energy saving potential and customer satisfaction. Staff agrees with the UAC and has modified
its recommendation to reflect the UAC comments. The notes from the UAC meeting are
provided as Attachment B.
RESOURCE IMPACT
Each project proposed for funding from the Calaveras Reserve is currently part of the proposed
Electric Fund operating and Capital Improvement Program (CIP) budgets. If funding for these
projects, as identified in Attachment A, were to come from the Calaveras Reserve, the Calaveras
Reserve balance would be reduced by $270,000 for FY 2010 and by $200,000 for FY 2011. At
the same time, the Electric Distribution Rate Stabilization Reserve balance would be increased
by $270,000 for FY 2010 and by $200,000 for FY 2011.
POLICY IMPLICATIONS
The use of the Calaveras Reserve to fund the projects identified is consistent with the proposed
Calaveras Reserve Guidelines, recommended by the Finance Committee on March 31, 2009 and
scheduled to be considered by Council on June 15,2009 as part of the FY 201 OIFY 2011 budget
proposal.
CMR: 250:09 Page 5 of6
ENVIRONNJENTAL REVIEW
The recommended action does not meet the definition of a "project" pursuant to Section 21065
of the Public Resources Code, thus no environmental assessment under the California
Environmental Quality Act (CEQA) is required.
ATTACHMENTS
A. Summary Table of Projects and Recommended Funding Levels
B. Excerpted notes from the May 6, 2009 UAC meeting
PREPARED BY:
REVIEWED BY:
DEPARTMENT HEAD:
CITY MANAGER APPROVAL:
CMR: 250:09
SHIVA SWAMINATHAN
Senior Resource Planner
TOMTING
Senior Electric Project Engineer
JANERATCHYE
Assistant Director, Resource Management
TOMM MARSHALL
Assistant Director, Utilities Engineering
VALERIE O. FONG
Director of Utilities
JAMES KEENE
City Manager
Page 6 of6
Attachment B: Summary of Projects and Actual/Budgeted Funding Levels
Capital Description FY2008 FY2009 FY2010 FY2011
Pro·ect
Investment in Cogeneration project and $750,000 $200,000 $200,000
incentives
ission u~grade to 230 kV I $115,000 $300,000
$70,000
L ..... ~
Total. $115,000 I $l.lM I $270,000 $200,000
ATTACHMENT C
Excerpt from Final Minutes of May 6, 2009 UAC Meeting
ITEMS 3: ACTION ITEM: Proposed Projects for Calaveras Reserve Funding for Fiscal Years 2010 and
2011
Senior Resource Planner Shiva Swaminathan summarized the written report stating that staff had
evaluated several project options and, at this time, request that three projects be funded from the
Calaveras Reserve: 1) investment in local, clean generation; 2) investment in transmission upgrades; and
3) investment in advanced metering infrastructure (AMI). He said that staff's recommendation at this time
is to fund from the Calaveras Reserve: 1) $200,000 per year for FY 2010 and FY 2011 for investment in
local, clean generation; and 2) $70,000 for FY 2010 to prepare a road map for implementation of AMI.
Chair Dawes asked why no funding was shown for the 230 kV connection in FY 2010 or FY 2011.
Swaminathan stated that if discussions proceed productively with Stanford, additional money may be
requested. Commissioner Melton asked about the cross-Bay transmission project. Assistant Director
Tomm Marshall said that a connection via a SLAC connection remains a possibility.
Chair Dawes asked if there were "no takers" in line to construct local generation that would comply with the
PLUG-In program. Swaminathan confirmed that this is correct.
PUBLIC COMMENT:
Herb Borak said that the report was not clear on how much smart meters would cost and how the costs
would be shared between the Electric, Gas, and Water Funds. He wanted a better sense of whether the
other funds would be paying their share of the cost and whether the new meters would be "smart", or just
used for automatic meter reading.
Chair Dawes said that the AMI work plan was to create a "road map," but he said that the first step should
be a study that would determine the return on investment before proceeding with a plan. Commissioner
Melton agreed that any "surplus" Calaveras Reserve funds should be used for projects with a good return
on investment so that future costs would be reduced. Otherwise, it's better to return the money to
ratepayers.
Commissioner Keller asked whether it would be more cost-effective to foclJs on larger customers for AMI.
Utility Director Valerie Fong indicated that this would be evaluated through the study.
Commissioner Keller asked what the benefits are for a transmission upgrade. Marshall stated that the main
benefits would be transmission cost savings due to reduced transmission losses. Fong added that
reliability was also a benefit. Marshall indicated that staff would be returning with more information if a
feasible, cost-effective project materialized from the on-going talks with partners.
Commissioner Keller asked if the PLUG-In program has had any participants. Swaminathan said not at this
time. Commissioner Waldfogel asked if only gas-fired projects are eligible for the program. Swaminathan
said that the program would accept other energy sources such as wind, but that solar photovoltaic (PV)
projects are included in other Utilities incentive programs.
Commissioner Waldfogel advised that the AMI study include a broad discussion and calculation of
sustainability factors and customer satisfaction in addition to the costs and savings calculations.
ACTION: Commissioner Waldfogel made a motion that the UAC recommend that the Council fund from
the Calaveras Reserve: 1) $200,000 per year in FY 2010 and FY 2011 for the PLUG-In Program; and 2)
$70,000 in FY 2010 to study the costs and benefits of implementing AMI, ensuring that the study included
the evaluation of the economic, sustainability, and customer satisfaction benefits. Chair Dawes seconded
the motion. Motion passed unanimously (4-0).
FINANCE COMMITTEE
ATTACHMENT 0
Regular Meeting
May 19, 2009
Chairperson Burt called the meeting to order at 7:04 p.m. in the Council
Chambers, 250 Hamilton Avenue, Palo Alto, California.
Present: Burt (chair), Klein, Schmid
Absent: Morton
Excerpted Minutes:
8. Utilities Advisory Commission Recommendation to Approve the
Funding of Certain Projects from the Calaveras Reserve in an Amount not to
Exceed $270,000 in Fiscal Year 2010 and $200,000 in Fiscal Year 2011
(CMR:250:09).
Council Member Schmid asked if there were energy efficiency programs
which had reserve items attached to them to be lent out as part of the
reserve.
Director of Utilities, Valerie Fong stated that was not part of the reserve
fund's allocations.
Council Member Schmid asked if trlis was the first movement of the
Calaveras Reserve Funds in utilization.
Ms. Fong stated yes.
Council Member Schmid asked for clarification on the strategy or long-term
discussion regarding the proper use of the funds.
Ms. Fong stated they went to the Utilities Advisory Commission (UAC) and
listed the number of projects by priority and identified where they should
look first to potentially spend some of the Calaveras Reserve monies. She
stated Council had recently discussed the potential use of the fund for some
of the unbilled financing for electric customers.
FIN: 090519 1
FINANCE COMMITTEE
Council Member Schmid asked whether there had been previous discussion
on what share of the Calaveras Reserve Fund was available for utilization on
small projects as opposed to the larger scale projects.
Ms. Fong stated although there had not been discussions a large scale
project would deplete the entire reserve.
Council Member Schmid asked if there was a formulation of how many of the
items were on the priority list for use of the Calaveras Fund.
Ms. Fong stated the Calaveras Funds were limited. She noted there had
been a $32 million surplus not needed to cover the stranded costs, but this
was now down to $16 million due to the current market. She stated a
project such as the Advanced Metering Project could easily use up the entire
fund. Prior to a proposal that large they believed it was important to look at
whether or not it made sense given cost and timeframe.
Mr. Keene stated when the UAC and Council had heard and discussed this
issue previously there was the sense that a very strategic look was taken
with regard to any investments made through this Fund. Utility benefit, rate
payer benefits, and long-term cost savings were considered in the
discussions. He noted a number of investigations had been done with regard
to small projects and their return on investment. He suggested keeping a
running account and tally on decisions which showed the balance sheet and
decision-making process for transparency purposes.
Chair Burt asked if the initial study for the Smart Metering Program was
included in the discussions. He noted a consultant had recommended not
proceeding although Council elected to proceed. He asked if it were true
that the consultant had recommended the initiation of a 12-month
evaluation.
Ms. Fong stated that was correct.
Council Member Klein asked if the costs in the Calaveras Reserve Fund were
stranded and was last reviewed who made the decision and guidelines to
decide on whether it was stranded or not.
Ms. Ratchye stated a proposed guideline was approved by the Finance
Committee on recommendation for the Council to approve which wrapped
FIN: 090519 2
FINANCE COMMITTEE
into the Budget document. This outlined the policies and procedure
guidelines for the stranded costs.
Council Member Klein noted there was great importance in delineating the
procedures and guidelines for stranded costs and discussion of the direct
access components. He noted there were many legislative actions which
might negatively impact the utilities. He stressed the need to ensure
whether the funds were stranded costs or whether the money should be
restricted.
Mr. Keene agreed and noted more information would return to the Finance
Committee and Council.
Chair Burt agreed there should be more time spent on the topic in the
future.
Mr. Keene stated there needed to be strategic conversations with regard to
the potential savings and possible returns on investment.
Ms. Fong added no matter how the reserve amount was quantified, there
was no limiter in the amount when reviewing projects. She noted amounts
always exceed what was proposed as strategy.
Chair Burt noted the consultant they used for the Smart Metering was a
nationally recognized expert but they did not fund the consultant.
Ms. Fong clarified the consultant came on his own time to give his advice
free of charge.
MOTION: Council Member Schmid moved, seconded by Council Member
Klein, that the Finance Committee accept the Utilities Advisory Commission
recommendation to approve the funding of certain projects from the
Calaveras Reserve in an amount not to exceed $270,000 in fiscal year 2010
and $200,000 in fiscal year 2011 (CMR:250:09).
MOTION PASSED: 3-0, Morton absent
FIN: 090519 3
TO:
FROM:
DATE:
SUBJECT:
City of Palo Alto 9
City Manager's Report
HONORABLE CITY COUNCIL
CITY MANAGER DEPARTMENT: FIRE
JUNE 15, 2009 CMR: 284:09
Adoption of Ordinance Amending the Budget for Fiscal Year 2008-09
to Provide an Additional Appropriation of $215,000 for the Extension
of Contract No. C06116197 with Advanced Data Processing West,
Incorporated (ADPI) for Ambulance Billing Services
RECOMMENDATION
Staff recommends that Council adopt the attached Budget Amendment Ordinance (BAO) to
appropriate an additional amount of $215,000 for the contract with ADPIfor ambulance billing
services. This BAO will meet the expense obligation generated by the contract extension that
was approved on April 27, 2009 (CMR 211 :09).
DISCUSSION
At the Council meeting of April 27, 2009 the Council approved an amendment to the ,~PI
Contract extending the term and adding $215,000 to the contract in order to give staff additional
time to incorporate the audit recommendations into the upcoming request for proposals for
ambulance hilling services. The Budget Amendment Ordinance was inadvertently omitted from
Council action on that date. Approval of the BAO will allow the $215,000 in funds to be released
and added to the contract to pay for ambulance billing contract services until a new contract is in
place. The Finance Committee is scheduled to review the ambulance billing Scope of Services
on July 7,2009. Staff anticipates having a new contract by December, 2009.
RESOURCE IMPACT
Contract fees are based on a percentage of funds collected for EMS transport services; thus,
revenue generated during the contract extension period will more than offset the contract
Increase.
POLICY IMPLICATIONS
This recommendation is consistent with existing City policies.
ENVIRONMENTAL REVIEW
This BAO and the related contract are not a project under the provisions of the California
Environmental Quality Act.
CMR284:09 Page 1 of 2
ATTACHMENTS
Attachment # 1, Budget Amendment Ordinance
Attachment #2, CMR 211 :09
APPROVED BY: NI~1L~
Fire Chief
CITY MANAGER APPROVAL: ~frft~
City Manager
CMR284:09 Page 2 of 2
ORDINANCE NO.
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AMENDING THE BUDGET FOR FISCAL YEAR 2008-09 TO PROVIDE AN
ADDITIONAL APPROPRIATION OF $215,000 FOR THE EXTENSION OF
CONTRACT NO. C06116197 WITH ADVANCED DATA PROCESSING
WEST, INCORPORATED (ADPI) FOR AMBULANCE BILLING SERVICES
Attachment #1
WHEREAS, pursuant to the provisions of Section 12 of Article
III of the Charter of the City of Palo Alto, the Council on June 09,
2008 did adopt a budget for fiscal year 2008-09; and
WHEREAS, ADPI provides service for outsource billing and
collection for Emergency Medical Services (EMS) transports by the
City of Palo Alto Fire Department.
WHEREAS, the current contract with ADPI expired November 2008
and was extended for six months ending in May 2009 pending
recommendations from the City Auditor's report on ambulance billing
procedures.
WHEREAS, On April 27, 2009 the Council approved a contract
amendment extending the term for a second time to give staff
additional time to incorporate the City Auditor's recommendations on
current billing practices into a new expanded scope of services and
Request for Proposal (RFP).
WHEREAS, additional appropriations are requested to fund the
extension of the ADPI contract approved on April 27, 2009.
WHEREAS, City Council authorization is needed to amend the
2008-09 budget as hereinafter set forth.
NOW, THEREFORE, the Council of the City of Palo Alto does
ORDAIN as follows:
SECTION 1. The sum of Two Hundred and Fifteen Thousand Dollars
($215,000) is hereby appropriated to contract services in the
Advanced Emergency Medical -Paramedic Functional Area of the Fire
Department, and the Budget Stabilization Reserve is correspondingly
reduced.
SECTION 2. This transaction will reduce the Budget
Stabilization Reserve from $20,926,089 to $20,711,089.
SECTION 3. As specified in Section 2.28.080(a) of the Palo
Al to Municipal Code, a two-thirds vote of the City Council is
required to adopt this ordinance
SECTION 4. The Council of the City of Palo Alto hereby finds
that this is not a project under the California Environmental
Quality Act and, therefore, no environmental impact assessment is
necessary.
SECTION 5. As provided in Section 2.04.350 of the Palo Alto
Municipal Code, this ordinance shall become effective upon adoption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Senior Asst. City Attorney
APPROVED:
Mayor
City Manager
Director
Services
of Administrative
TO:
FROM: CITY MANAGER
DATE: APRIL 27, 2009
REPORT TYPE: CONSENT
Attachment #2
City of Palo Alto
City Manager's·Report
DEPARTMENT: FIRE
CMR: 211:09
SUBJECT: Approval of Amendment No.2 to Contract No. C06116197, with
Advanced Data Processing West, Incorporated (AD PI) to Extend the
Term and Add $215,000 for a Total not to Exceed Amount of $600,000
RECOMMENDATION
Staff recommends that Council approve and authorize the City Manager to execute the attached
Amendment (Attachment #1) for the extension of the contract with Advanced Data Processing
West, Incorporated (ADPI) through September 30, 2009 with an option to extend for an
additional three month period as necessary to close out existing accounts in the event the City
decides to change contractors.
Staff also recommends Council approve and authorize the City Manager to increase the contract
by $215,000, not to exceed a total of $600,000 to meet the expense obligation generated by the
contract extension. The amount of increase requested is based upon the average monthly costs
for billing fees that would cover the anticipated costs for calendar year 2009 and any overlap.
DISCUSSION
ADPI had a 1 year contract starting December 1, 2005 with the potential of renewal for a total
term up to 3 years and a total amount not to exceed $385,000 in any contract year. ADPI
provides service for outsource billing and collection for Emergency Medical Services (EMS)
transports by the Palo Alto Fire Department. For their service, ADPI retains a 7 percent service
fee for net funds that are collected. The 3 year contract term ended in November 30, 2008 and
was extended by mutual agreement of both parties pending the outcome of the recommendations
from the City Auditor's report on ambulance billing procedures.
As a result of the Auditor's report of current billing practices, staff recommends that the contract
be amended to extend the term. This extension will allow time to incorporate many of the audit
recommendations into a new expanded scope of service and issue a Request for Proposal (RFP)
that will respond more fully to the issues and needs identified in the audit. The September 30,
2009 extension is anticipated to allow adequate time to release an RFP, review responses and
award a new contract.
CMR 211:09 Page 1 of3
Some of the major highlights from the audit called for improved consistency, more detailed
reporting and review procedures for billing reconciliation, stricter controls for billing follow-up,
regular and frequent meetings to discuss billing issues and outstanding items, establishing a
system for payment by credit card, and negotiating a lower rate of commission for service.
ASD and Fire staff members have worked with the vendor and have implemented improvements
in reporting and review procedures, consistent monthly and quarterly meetings to monitor status
and address current issues, and a system for credit card payments. Staff members are continuing
to work with the vendor to improve and refine software data reporting systems, improved
mechanisms for monitoring progress and follow-up, and for improved efficiency in pursuing
uncollected or outstanding accounts. A lower rate of commission will be pursued in the RFP
process for the new billing contract.
The audit recommendations with Staffs progress and work plan to implement them are noted in
Attachment 2 (Pages 31-36 of the Audit City Manager's response dated February 3, 2009).
At the February 3 Finance Committee, members of the committee requested to review the final
RFP document prior to distribution to potential bidders. In addition, in the event a different
vendor is awarded the contract, staff anticipates that it would be beneficial to give ADPI time to
close open accounts for the City. If such overlap is necessary, the additional time through
December 31, 2009 would provide continuity and sufficient time to complete accounts being
appealed or in process with insurance companies, etc.
RESOURCE IMPACT
Contract fees are based on a percentage of funds collected for EMS transport services; thus,
revenue generated during the contract extension period will more than offset the proposed
contract increase.
POLICY IMPLICATIONS
This recommendation is consistent with existing City policies and will allow staff to fully
address the audit recommendations.
ENVIRONMENTAL REVIEW
This contract is not a project under the provisions of the California Environmental Quality Act.
ATTACHMENTS
#1 Amendment No.2 to Agreement No. C06116197
Amendment No.1 to the Agreement No. C06116197
ADPI Agreement
#2 City Manager's Response -Pages 31-36 of the Audit Report
#3 Budget Amendment Ordinance
CMR211:09 Page 2 of3
PREPARED BY:
KIM RODERICK
Emergency Medica] Services Coordinator
APPROVED BY: 'lkl!ik 1YL~ NICOLAS MARINARO
Fire Chief
CITY MANAGER APPROVAL:
CMR211:09 Page 3 of3
I
I
·' I
. I
AMENDMENT NO. 2 TO AGREEMENT NO. C06116197
BE'l"WEEN THE CITY OF PALO ALTO AND
ADPI, WEST INC.
This Amendment No. 2 to Agreement No. C06116197
("Agreement") is enteJ:ed into May 15, 2009, by and between the
CITY OF PALO ALTO ("CITY") I and ADPI I WEST INC., a Delaware
Corporation, located at 7750 Pardee Lane, Suite 1200, Oakland,
CA 9462J. (PH)510-769-9648 ("CONTRACTOR").
R Eel TAL S:
WHEREAS, the Agreement was entered into between the
parties for the provision of Outsource Billj.ng Services; and
WHEREAS, the parties wish to amend the Agreement;
NOW, THEREFORE, in consideration of the covenants, terms,
conditions, and provisions of this Amendment, the parties agree:
ECTION 3. The following provisions shall be added to
Section 3 entitled "TIME OF PERFORMANCE":
(190<117 9(JOOOSO
"TIME OF PERFORMANCE. The Term of this Agreement shall
be extended through September 30, 2009, under the current
Terms and Conditions of this Agreement.u
(a) Option to Renew for Close-Out of the Existing
Claims
The CITY retains the option to renew the Agreement
for the period of October 1, 2009 through December
31, 2009. Such renewal shall be made by CITY in
writing and shall be fo~ the purpose of allowing
CONTRACTOR to complete col.lection proceedings
1
Amend.agl
Rev. July 31, 199R
already in process, including those claims through
Medicare. Upon receipt of "Notice" from CITY, and
every 30 days thereafter, CONTRACTOR shall provide
to cn'Y a list of current accounts and
corresponding age. On December 31, 2009, or within
10 da of request by CITY, CONTRACTOR will
turnover to CITY the aLL accounts receivable and
supporting documents for all outstanding claims.
SECTION 4. The section entitled "COMPENSATION AND
METHOD OF PAYMENT u is hereby amended, to read as follows:
0904 17 90000S()
4. COMPENSATION AND METHOD OF PAYMENT
4.01 The CITY reserves the right to request changes in the
services within the general scope of the Agreement to be
performed upon mutual agreement by the CITY and CONTRACTOR
that shall specify the change ordered and the adjustments of
time and compensation required therefore. The CITY reserves
the right to challenge all or any part of an invoice.
4.02 Any services added to the scope of this Agreement by a
change order shall be executed in compliance with all other
applicable conditions of this Agreement. No c im for
additional compensation or extension shall be recognized
unless contained in the duly executed change order.
4.03 The CONTRACTOR shall be paid by the CITY a monthly
amount representing fees for the services provided computed
2
Amcnd.ngl
Re\, . .lilly 31. 19<)R
a· c' • -' .
Seven percent ('7%) of all monies collected by
CONTRACTOR; not to exceed a total of $600,000.
The CONTRACTOR and the CITY shall agree to
increase fees if the Unj.ted States Postal Services increases
postage, but only to cover additibnal postal costs. The fee
increase shall be determined on the current postal rate and
the new rate increase by cents value.
4.04 The CITY shall issue a check for the amount invoiced,
within thirty (30) days of an accurate invoice. CONTRACTOR
will resolve any disputed amounts within 60 days from the
date CITY gives notification.
4.05 CITY, should they elect to participate in any credit
card acceptance program, agrees to assume and be responsible
for all costs associated with such program,
4.06 All other costs incurred by CONTRACTOR in the
performance of services as specified herein (including, but
not limited to postage, materials, communications and phone
costs and other operating costs) shall be assumed by the
CONTRACTOR.
Except as herein modified, all other provisions of the
Agreement, including any exhibits and subsequent amendments
thereto, shall remain in full force and effect.
3
090117 9000050 AIl1CIllI.~g'
Re\', July J 1.1998
IN WITNESS WHEREOF, the parties have by their duly
authorized J~epresentatives executed this Amendment on the date
first above written.
CITY OF PALO ALTO
APPROVED AS TO FORM:
Sen or Asst. y Attorney
APPROVED:
Pu Manager
O<)()4 17 <)00005()
4
ADPI
Title:
By: _. ______ . __ . ______ . __
Name:
Title:
Amend.flg1
Rev. Jllly ) I, 1998
s Amend~enc ~o. 1 to ~gree~en~ C0611619-:;'
("Agreement") is entered into Ja. 16, 2009, by and between
the CITY OF PALO ALTO ("CITY"), and ADPI, WEST INC. a Delaware
CorDoration located at 7750 Pardee La~e, Suite #200, Oakland, ..L.: _._,
CA 94621 (PH) 510-769 9648 ("CONTRACTOR")
R Eel TAL s:
~lHEREAS, the Agreement was ent into between the
parties the provision of Outsource Billing Services; and
WHEREAS, the parties wish to amend the Agreement;
NOW, THEREFORE, in consideration of the covenants, terms,
conditions, and provisions of this Amendment, the parties
SECTION :3. The following sentence shall beac1ded to
Section 3 entitl "TIfvIE OF PERFORMANCE":
0901189000050
"TINE OF PERFORMANCE. The Term of this Agreement shall
be extended t.hrough May 14, 2009, under the current Terms
and Conditions of this Agreement.
1
Amend,agl
Rev, July 31. t 998
E:{cept as :,. modifi all or:
p_greement, including any exhibits and subsequent amendments
thereto, shall remain in full fc=ce a~d effect.
IN WITNESS vlHEREOF, the parties have by their duly
authori zed representatives executed this Amendment on the date
first above written.
CITY OF PALO ALTO ADPI WEST,
Senior Asst. City ~()torney
By: ___ , .... ~~ _____ ,, ________ ._. __ _
Contra Name: .' ------------------------------
Title: -----------------------------
2
0901289000050 Amend,agt
Rev. July 31, 1998
, ,;
SERVICES AGREEMENT BETWEEN
eTY OF PALO ALTO
AND
ADVANCED DATA PROCESSING, INC.
FOR AMBULANCE BILLING, COLLECTION A~D RELATED PROFESSIONAL
SERVICES.
THIS AGREEMENT, hereinafter "AGREEMENT', made and entered into this __ day of
October, 2005 by and between CITY OF PALO ALTO, a California Charter City, with
principa I offices located at 250 Hamilton Avenue, Palo Alto, California 94301, hereinafter
referred to as the "CITY''. and ADPI West, Inc., a Delaware corporation with offices
located at 7750 Pardee Lane, Oakland, California 94621, hereinafter referred to as the
"CONTRACTOR".
WITNESSETH:
WHEREAS, CITY has need for billing services for EMS fees;
WHEREAS, CONTRACTOR is competent, experienced and able to perform said
services; and,
WHEREAS, CONTRACTOR has provided the most advantageous and best
responsible proposal for such services to another public agency (the City of San
Bernardino); and,
WHEREAS, the parties hereto now wish to enter into an agreement, pursuant to
which the CONTRACTOR will render those professional services in connection with said
project as hereinafter provided;
NOW THEREFORE, the parties hereto agree as follows:
1. DEFINITION OF THE PROJECT. The objective of the project is to utilize the services
of the CONTRACTOR to provide the CITY with billing services for EMS services as
stated on the City's Fee Schedule.
2. SCOPE OF SERVICES. The CONTRACTOR shall perform and carry out the work as
defined in "EXHIBIT B -Scope of Work".
Contractor shall not harass or annoy patients or payers in any correspondence or
telephone contacts seeking payment. Contractor shall exercise extreme sensitivity and
be courteous and professional in any communications with patients and payers .
. '
3. TIME OF PERFORMANCE. This Agreement shall be effective for a one-year period.
This Agreement will automatically renew for two (2) additional one year periods under
the then in force terms and conditions unless notified otherwise by the CITY within thirty
(30) days of the renewal date.
4. COMPENSATION AND METHOD OF PAYMENT.
4.01 The CITY reserves the right to request changes in the services within the general
scope of the Agreement to be performed upon mutual agreement by the CITY and
CONTRACTOR that shall specify the change ordered and the adjustment of time and
Agreement Page 1 of 9
compensation required therefore. The CITY reserves the right to challenge all or any
part of an invoice.
4.02 Any services added to the scope of this Agreement by a change order shall be
executed in compliance with all other applicable conditions of this Agreement. No claim
for additional compensation or extension of time shall be recognized unless contained in
the duly executed change order.
4.03 The CONTRACTOR shall be paid by the CITY a monthly amount representing fees
for the services provided computed as:
Seven percent (7%) of all monies collected by CONTRACTOR.
The Contractor and the CITY shall agree to increase fees if the United States Postal
Service increases postage, but only to cover additional postage costs. The fee increase
shall be determined on the current postage rate and the new rate increase by cents
value.
4.04 The CITY shall issue a check for the amount invoiced, within thirty (30) days of
receipt and acceptance of an accurate invoice. Contractor will resolve any
disputed amounts within 60 days from the date CITY gives notification.
4.05 CITY. should they elect to participate in any credit card acceptance program,
agrees to assume and be responsible for all costs associated with such program.
4.06 All other costs incurred by CONTRACTOR in the performance of services as
specified herein (including, but not limited to postage, materials, communications
and phone costs and other operating costs) shall be assumed by the
CONTRACTOR.
5. COLLECTIONS AND DEPOSITS. The CONTRACTOR will collect and deposit
payments to bank institute pre-designated by the CITY. If the City would like ADPI to
receive all payments and mailings, ADPI will establish a PO Box in Alameda, CA as the
"mail to" address. Daily ADPI will have a courier pickup all correspondence and
payments from the PO Box and deliver them to the Oakland office where a staff member
will sort the mail to payments and non-payments. All non-payments, such as return mail
or insurance information, will be given to the appropriate department for immediate
handling. All payments will be photo copied and then deposited directly into the City's
bank account. ADPI will only have deposit only access to the City's bank account. All
statements and control of this account will be managed and maintained by the City of
Palo Alto. On the same ,day of each deposit, ADPI will fax a copy of the deposit slip
notifying the City of the deposit and amount to reconcile with ADPI month end reports
and bank statements. Along with the monthly reports, ADPI will include an invoice for
our fees based upon the net revenue of the previous month.
6. REPORTS. The CONTRACTOR shall provide the CITY with status reports as set
forth in Exhibit B and included in the Proposal. The CONTRACTOR shall also provide
changes to· such reports and ad hoc report requests on a reasonable basis and as
mutually agreed, CONTRACTOR reserves the right to charge an additional fee for any
Agreement Page 2 ot9
.' ,
programming cost associated with ad hoc reports that would require more than a
reasonable amountJf time to accomplish.
7. DATA TO BE FURNISHED 8'( CITY. The CITY will make availab;e to the
CONTRACTOR, for use in performailc·e of services L:nder this Agreement, all available
reports, studies or any other materials in its possession that may be useful to the
CONTRACTOR All material furnished by the CITY will not be disclosed to any party,
other than as required under the scope of the Agreement, without the CITY's prior
written approval.
8. INDEPENDENT CONTRACTOR. The CONTRACTOR is an independent contractor
and not an employee or agent of the CITY with the following exception:
To the extent necessary to fulfill its billing and collection efforts
under the Agreement, the CONTRACTOR is authorized to sign in an
administrative capacity for the CITY the foJ/owing types of standard
forms and correspondences only: probate filings; letters to patients or
their representatives verifying that an account is paid in full; forms
verifying the tax-exempt status of the CITY; and insurance filings and
related forms. The CONTRACTOR has no authority to sign any
document that imposes any additional liability on the CITY. A copy of all
such documents signed by the CONTRACTOR in an administrative
capacity for the CITY shall be immediately sent to the CITY's
representative designated in Paragraph 17, Notices, herein.
The CONTRACTOR shall perform work tasks as directed by the Fire Chief or designee,
but for all intents and purposes, CONTRACTOR shall be an independent contractor and
not an agent or employee of the CITY.
In the performance of this Agreement and in hiring and recruitment of employees,
CONTRACTOR shall not discriminate on the basis of race, creed, color, religion, sex,
physical handicap, ethnic background or country of origin.
The CONTRACTOR shall retain full control over the employment, direction,
compensation and discharge of all persons assisting in the performance of service by
CONTRACTOR. The CONTRACTOR shall be fully responsible for all matters relating to
payment of employees, including compliance with Social Security, withholding tax and all
other laws and regulations governing such matters. The CONTRACTOR shall be
responsible for its own acts and those of its agents and employees during the term of
this Agreement.
CONTRACTOR shall not utilize subcontractors in the performance of this Agreement.
The use of subcontractors requires the prior approval of the CITY. Subcontractor shall
be defined as persons who perform billing and accounts receivable management
services substantially similar to those services performed by CONTRACTOR.
9. INDEMNIFICATION. Both Parties shall indemnify and hold the other party harmless
from any and all claims, losses and causes of actions which may arise out of each
party's performance of this Agreement as a result of an act of negligence or intentional
acts, omissions, or wrongdoings of the parties including their employees, agents,
representatives, consultants, or subcontractors. The Wrongful Party shall pay all
Agreement Page 30f9
reasonable claims and losses of any nature whatsoever in connection therewith and
shall pay all reasonable costs and judgments (including, but not limited to, attorneys'
fees and expenses incurred at the trial, administrative levels, or on appeal) that may
issue thereon. The above provisions shall survive the termination of this Agreement and
shall pertain to any occurrence during the term of this Agreement, even though the claim
may be made after the termination hereof.
Nothing contained herein is intended nor shall be construed to waive Either Parties
rights and immunities under the common law or applicable State Statutes, as amended
from time to time.
This contract shall not confer rights to third parties in any matters arising out of this
Agreement or any other contract and shall not be construed as consent by the parties to
be sued by third parties in any matter arising out of this Agreement or any other contract.
This contract shall not serve as a waiver of sovereign immunity to which sovereign
immunity may be applicable.
10. INSURANCE. Contractor shall procure and maintain for the duration of the
Agreement, insurance against claims for injuries to persons or damages to property,
which may arise from or in connection with the performance of the work hereunder by
the Contractor, his agents, representatives, employees, or subcontractors. The cost of
such insurance is the responsibility of the Contractor.
10.01 Minimum Limits of Insurance
Contractor shall maintain limits no less than:
a. General Liability: $1,000,000 Combined Single Limit for bodily injury and
property damage per occurrence with a $2,000,000 annual aggregate.
b. Automobile Liability: One Million ($1,000,000.00) Dollars combined single
limit per accident for bodily injury and property damage. (Non-owned, Hired Car).
c. Workers' Compensation Employers Liability: Insurance covering all
employees meeting Statutory Limits in compliance with the applicable state and
federal laws and Employee's Liability with a limit of $500,000 per accident,
$500,000 disease policy limit, $500,000 disease each employee. Waiver of
Subrogation in lieu of Additional Inslired will suffice.
d; Professional Liability Insurance, including errors and omissions: for all services
provided under the terms of this agreement with minimum limits of One Million
($1,000,000.00) Dollars per occurrence; or claims made form with "tail coverage"
extending three (3) years beyond the term of the agreement. Proof of "tail
coverage" must be submitted with the invoice for final payment. In lieu of "tail
coverage", Contractor may submit annually to the CITY a current Certificate of
Insurance proving claims made insurance remains in force throughout the same
three (3) -year periods.
e. Umbrella: $2,000,000 combined single limit for bodily injury and property
damage combined per occurrence and annual aggregate. The coverage shall
provide excess coverage for employer's liability, general liability, including
completed operations and auto liability.
Agreement Page4of9
• t
f. Crime Policy: Contractor shall provide a Crime Policy in the amount of
$500,000. Coverage to be prov;ded shall include: Theft -Per Loss Coverage;
Forgery or Alteration; Inside the Premises -ThE:t of MOr.ESY and S\=:curities;
Inside the Premises -Robbery or ~afe Bur:::lary of :Jther Property; Outside the
Premises; Computer Fraud; Funds Transfer Fral:d; and I\;loney Orders and
Counterfeit Paper Currency.
10.02. OeductibJes and Self-Insured Retentions
Deductibles or self-insurance shall be maintained in amounts or at levels which are
customary for the size, profile and industry in which CONTRACTOR is employed. No
decreases in coverage can occur without the approval of the CITY.
10.03. Other Insurance Provisions
The policies are to contain, or be endorsed to contain, the following provisions:
a. General Liability and Automobile Liability Coverage (CITY is to be named as
Additional Insured).
1. The CITY, its officers, officials, employees and volunteers are to be
covered as additional insured as respects; liability arising out of activities
performed by or on behalf of the Contractor, including the insured general
supervision of the Contractor; products and completed operations of the
Contractor; premises owned, occupied or used by the Contractor; or
automobiles owned, leased, hired or borrowed by the Contractor. The
coverage shall contain no special limitations on the scope of protections
afforded the CITY, its officers, officials, employees or volunteers.
2. The Contractor's insurance coverage shall be primary insurance as
respects the CITY, it officers, officials, employees and volunteers. Any
insurance of self-insurance maintained by the CITY, its officers, officials,
employees or volunteers shall be excess of the Contractor's insurance
and shall not contribute with it. Contractor hereby waives subrogation
rights for loss or damage against the CITY.
3. Any failure to comply with reporting provisions of the policies shall not
affect coverage provided to the CITY, its officers, officials, employees or
volunteers.
4. The Contractor's insurance shall apply separately to each insured
against whom a claim is made or suit is brought, except with respect to
the limits of the insurer's liability.
5. Companies issuing the insurance policy, or policies, shall have no
recourse against the CITY for payment of premiums or assessments for
any deductibles with are all at the sole responsibility and risk of
Contractor.
b. All Coverage
Each insurance policy required by this clause shall be endorsed to state
that coverage shall not be suspended, voided, canceled by either party,
reduced in coverage or in limits except after thirty (30) days prior written
notice by certified mail, return receipt requested, has been given to the
CITY.
10.04. Acceptability of Insurers
Insurance is to be placed with insurers with a Best rating of no less than A: VII.
Agreement Page 5 of 9
10.05. Verification of Coverage
Contractor shall furnish the CITY with certificates of insurance and with original
endorsements effecting coverage required by this clause. The certificates and
endorsements for each insurance policy are to be signed by a person authorized by that
insurer to bind coverage on its behalf. All certificates and endorsements are to be
received and approved by the CITY before work commences. The CITY reserves the
right to require complete, certified copies of all required insurance policies at any time.
11. OWNERSHIP OF DOCUMENTS. CONTRACTOR shall be required to work in
harmony with other consultants relative to providing information requested in a timely
manner and in the specified form. The CONTRACTOR agrees that any and all
documents, records, disks, and electronic data produced in the performance of this
Agreement shall be the sole property of the CITY, including all rights therein of whatever
kind except as may otherwise be provided hereinafter. Failure to turn over such
documents within thirty (30) days of a written request by CITY may be cause for the
CITY to withhold payments due CONTRACTOR or to enforce this clause by legal
remedies.
12. ATTACHMENTS. The following named attachments are made an integral part of this
Agreement:
A. Business Associate Addendum (Exhibit A attached hereto and made a part hereof)
B. Scope of Work (Exhibit 8 attached hereto and made a part hereof)
C. Certificate Of Liability Insurance
D. Provider's Affirmative Action Statement
)
13. TERMINATION. During the time of this agreement either party may terminate this
Agreement either for convenience or for default after first giving to other party thiriy (30)
days written notice.
For cases of default, the CONTRACTOR shall be given opportunity to cure the default
within the thirty (30) day period following such written notice. In the event the acts
constituting default are a violation of law, CONTRACTOR shall be subject to immediate
termination of Agreement.
Upon termination for any cause, the CONTRACTOR shall submit an invoice(s) to the
. CITY in an amount(s) representing fees for services actually performed or obligations
incurred to the date of effective termination for which the CONTRACTOR has not been
previously compensated. Upon payment of all sums found due, the CITY shall be under
no further obligation to the CONTRACTOR, financial or otherwise.
For purposes of this section, the notice period begins when the CONTRACTOR receives
written notice from the CITY.
14. UNCONTROLLABLE FORCES. Neither the CITY nor CONTRACTOR shall be
considered to be in default of this Agreement if delays in or failure of performance shall
be due to Uncontrollable Forces, the effect of which, by the exercise of reasonable
diligence, the non-performing party could not avoid. The term "Uncontrollable Forces"
shall mean any event which results in the prevention or delay of performance by a party
of its obligations under this Agreement and which is beyond the reasonable control of
the non-performing party. It includes, but is not limited to fire, flood, earthquakes, storms,
Agreement Page 6 of 9
lightning, epidemic, war, riot, civil disturbance, sacctage, terrorism and governmental
actions.
Neither party shall, however, be excLsed from performance if non-performance is due to
forces t;,at are preventable, rem0v8ble, or rer':;:;;ble nor which the non-pe:iorming
party cC'.Jld have, with the exercise of reasor.,,·,,: 'e. ::liligence, prevented. remo';ed, or
remedied with reasonable dispatch. The non-perfof;-;ing par:y shall, within a reasonable
time of being prevented or delayed from performance by an uncontrollable force, give
written notice to the other party describing the circumstances and uncontrollable forces
preventing continued performance of the obligations of this Agreement.
15. JURISDICTION, VENUE and CHOICE OF LAW. All questions pertaining to the
validity and interpretations of this Agreement shall be determined in accordance with the
laws of the State of California. Any legal action by either party against the other
concerning this agreement shall be filed in County of Santa Clara, California, which shall
be deemed proper jurisdiction and venue for the action.
16. ASSIGNMENT OF AGREEMENT. Except to a parent, subsidiary, or affiliate, the
CONTRACTOR shall not sell, transfer, assign or otherwise dispose of this Agreement or
any part thereof or work provided therein, or of its right, title or interest therein, unless
otherwise provided in the Agreement, without express prior consent by the CITY.
17. NOTICES. All notices pertaining to this Agreement shall be delivered or mailed, with
the United States Postal Service, Postage Pre-paid. to such party at their respective
address as follows:
To the CITY:
Dan Lindsey, Acting Deputy Chief
711 Serra Street
Stanford, CA 94305
To the CONTRACTOR:
Brad Williams, Vice President-Controller
ADPI West. Inc.
520 NW 165th Street Suite 201
Miami. FL 33169
18. REPESENTATION AND WARRANTY. CONTRACTOR represents that they have
experience and agrees to follow all Federal, State and Local Laws including, but not
limited to, Public Records Laws and those laws and statutes applicable to discrimination.
19. INTEREST OF CONTRACTOR. It is agreed that the CONTRACTOR presently has
no interest and shall not acquire any interest, direct or indirect, which would conflict in
any manner or degree with the performance of the CONTRACTOR'S services under this
Agreement. It is further agreed that in the performance of this Agreement the
CONTRACTOR shall employ no person having any such interest.
Agreement Page 7 of9
20. SERVERABILITY. Should any part, term or provision of this Agreement be by the
courts decided to be illegal or in conflict with any law of the State of California. the
validity of the remaining portions or provisions shall not be affected tllereby.
21. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the
parties. The CONTRACTOR represents that in entering into this Agreement it has not
relied on any previous oral and/or implied representations, inducements or
understandings of any kind or nature.
22. NON*APPROPRIATION. This Contract is subject to the fiscal provisions of the
Charter of the City of Palo Alto and the Palo Alto Municipal Code. This Contract will
terminate without any penalty (a) at the end of any fiscal year in the event that funds are
not appropriated for the following fiscal year. or (b) at any time within a fiscal year in the
event that funds are only appropriated for a portion of the fiscal year and funds for this
Contract are no longer available. This Section shall take precedence in the event of a
conflict with any other covenant, term, condition, or provision of this Contract.
Agreement Page 80f9
· ,
IN WITNESS OF THE FOREGOING, the CITY has caused :his Agreement to be
signed by the Mayor, attested by the CITY Clerk, and the Contractor has executed this
Agreement effect!ve as of the date set forth above.
CITY OF PALO ALTO. CA:"lFORNIA
ATTEST:
"
(SEAL)
Approved as to form:
And legal content:
City Attorney
by:
Mayor
City of Palo Alto
CONTRACTOR:
Adv~~ata .proceSSing, Inc. r~ (/ -',:oo:G ~i'~O;---.
PRESIDENT
BEFORE ME, an officer duly authorized by law to administer oaths and take
acknowledgments, personally appeared Doug Shamon, as President of Advanced
Data Processing, Inc., a Delaware corporation, and acknowledged execution of the
foregoing Agreement for the use and purposes mentioned in it and that the instrument
is the act and deed of the Contractor.
IN WITNESS OF THE FOREGOING, I have set my hand and official seal at in
the State and County aforesaid on -J." ~>h'n~\vr Yj ,2005. (\1 \
\ .\" \ " J \ .~ I\~Y \..1,/"--..... i1 v Notary Public
1 ) <._1'
Agreement Page 90f9
Exhibit A
Business Associate Addendum
Advanced Data Processing, Inc. the "Business Associate" (hereinafter referred to
as "ADPI") and City of Palo Alto (hereinafter referred to as City of Paio Alto) hereby
amend the Agreement entered into on October __ , 2005, ("the Agreement") by
adding the following additional language to the Agreement.
1. ADPI shall carry out its obligations under this Addendum in compliance with the
privacy regulations pursuant to Public Law 104-191 of August 21, 1996, known
as the Health Insurance Portability and Accountability Act of 1996, Subtitle F -
Administrative Simplification, Sections 261, et seq., as amended ("HIPAA"), to
protect the privacy of any personally identifiable protected health information
("PHI") that is collected, processed or learned as a result of the Billing Services
provided hereunder. In conformity therewith, ADPI agrees that it will:
a. Not use or further disclose PHI except as permitted under this Addendum or
required by law;
b. Use appropriate safeguards to prevent use or disclosure of PHI except as
permitted by this Addendum;
c. To mitigate, to the extent practicable, any harmful effect that is known to ADPI of
a use or disclosure of PHI by ADPI in violation of this Addendum.
d. Report to City of Palo Alto any use or disclosure of PH I not provided for by this
Addendum of which ADPI becomes aware;
e. Ensure that any agents or subcontractors to whom ADPI provides PHI, or who
have access to PHI, agree to the same restrictions and conditions that apply to
ADPI with respect to such PHI;
f. Make PHI available to City of Palo Alto and to the individual who has a right of
access as required under HIPAA within 30 days of the request by City of Palo
Alto regarding the individual;
g. Incorporate any amendments to PHI when notified to do so by City of Palo Alto;
h. Provide an accounting of all uses or disclosures of PHI made by ADPI as
required under the HIPAA privacy rule within sixty (60) days;
i. Make their internal practices, books and records relating to the use and
disclosure of PHI available to the Secretary of the Department of Health and
Human Services for purposes of determining ADPI's and City of Palo Alto's
compliance with HIPAA; and
j. At the termination of the Agreement, return or destroy all PHI received from, or
created or received by ADPI on behalf of City of Palo Alto, and if return is
infeasible, the protections of this Addendum will extend to such PHI.
Exhibit A Page 1 of4
.' .
2. The specific uses and disclosures of PHI that may be made by AD?I on behalf of
City of Palo Alto include:
a. The preparation of invoices to patients, carriers. insurers and others responsible
for '::ayment or reimbursement of the services provided by City of Paio Alto to its
patients;
b. Preparation of reminder notices and documents pertaining to collections of
overdue accounts;
c. The submission of supporting documentation to carriers, insurers and other
payers to substantiate the health care services provided by City of Palo Alto to its
patients or to appeal denials of payment for same.
~ d. Uses required for the proper management of ADPI as business associate.
e. Other uses or disclosures of PHI as permitted by the HIPAA privacy rule.
3. Notwithstanding any other provisions of this Addendum, the Agreement may be
terminated by City of Palo Alto if ADPI has violated a term or provision of this
Addendum pertaining to ADPI's material obligations under the HIPAA privacy
rule, or if ADPI engages in conduct which would, if committed by City of Palo
Alto, result in a violation of the HIPAA privacy rule by City of Palo Alto.
Exhibit A
Page 2 of 4
Exhibit s: Scope of Services
Contractor shall provide complete medical billing and accounts receivable management
services for CITY's first responder, paramedic, and membership program fees in
accordance with the responsibilities outlined below.
Contractor's Responsibilities:
Contractor will provide timely and accurate billing services for emergency medical
treatment utilizing information provided by CITY and information obtained from other
reliable sources including:
All services will be provided as stated in the Proposal. The following is a summary of these
responsibilities: c.
I. Provide billing and accounts receivable management services to CITY for Emergency
and Non-Emergency care per City Fee Schedule.
2. Ensure that all required documentation and agreements with payors (e.g. Medicare,
Medicaid, Champus, etc.) are filed and maintained and that the CITY is kept apprised
of important changes to industry regulations.
3. Ensure knowledge of different industry insurance plans and will ensure that every
billable claim is pursued.
4. Provide reasonably necessary training periodically. as requested by CITY. to CITY's
EMS and/or CITY FIRE RESCUE PARAMEDICS personnel regarding the gathering
of the necessary information and proper completion of run tickets. .
5. Provide prompt submission of Medicare, Medicaid and insurance claims after
receiving completed run ticket and corresponding insurance claim information.
Secondary insurance provider claims shall be submitted after the primary insurance
provider has paid.
6. Provide follow-up on rejected and inactive claims.
7. Utilize most up-to-date knowledge and information with regard to coding
requirements and standards. to ensure compliance with applicable Federal. State
and local regulations.
8. Reconcile the number of transports processed with those received.
9. Provide a designated liaison for patienUpayor concerns.
10. Provide all customer-related inquiry services and prepare additional third-party claims
or patient payment arrangements based on this information exchange.
11. Provide a toll free telephone number for patients to be answered as designated by
the CITY.
12. Facilitate proper security of confidential information and proper shredding of all
disposed materials containing such information.
13. Establish arrangements with hospitals to obtain/verify patient insurance and contact
information.
Exhibit B
• J
14. Respond to any CITY or patient ir.l~uiry or questions promptly
15. Maintain appropriate accounting procedures for reconciling all deposits, receivables,
billings, patient accounts, acjL::tmer.~:: :::nd refuncs.
16. Provide access to CITY fer all requested information in order for CITY to perform
appropriate and periodic audits. Re2::'onable notice will be given to CONTRACTOR
for any planned audit and will be conducted during normal business t10urs of
CONTRACTOR
17. Provide timely comprehensive reports facilitating all required aspects of monitoring,
evaluating, auditing and managing the services provided. Process refund requests
and provide the CITY with documentation substantiating each refund requested.
J 8. Provide CITY all unpaid invoices along with the complete processing history once
collection efforts are exhausted.
Specific Scope Compliance
The CONTRACTOR will provide the specific services:
1. Assign billing patient numbers providing cross-reference to the CITY'S assigned transport
numbers.
2. Maintain responsibility for obtaining miSSing or incomplete insurance information.
3. Provide accurate coding of medical claims.
4. Make recommendations for fee schedule changes; regularly advise on changes in
statutes and industry regulations.
5. Respond to all patients' requests and inquiries, either written or verbal.
6. Initial invoices will be mailed out within 2 days of receipt of paramedic run tickets. The
following billing cycle will be followed:
Self Pay Cycle:
Initial Invoice 2 days
Second Notice 30 days
Telephone Contact 45 days
First Letter Contact 60 days
Second Letter ContracU 90 days
Second Telephone Contact
Third Letter Contact 120 days
Delinquent AudiUPhone Audit 135 days
Final Demand Notice 150 days
Refer to City Policy 180 days
Insurance Accounts Cycle:
Initial Invoice 2 days
First Follow Up 30 days
Exhibit B
Page 2 of 4
Continued Follow Ups
Special Accounts Cycle:
Installment Follow Up
Lien/Bankruptcy Follow Up
Special Program Follow UP
Returned Mail Cycle:
30 days (every)
30 days
60 days (every)
60 days (every
Skip Search Request Hospital Assistance
Billing cycles will be reset upon billing a different payor.
All follow-up work required in order to collect insurance payments, including additional
correspondence and telephone calls, will be performed by the CONTRACTOR and
logged automatically in the patient's ledger.
CONTRACTOR will submit to the CITY documentation of each time they work an
account, whether it is a phone call or correspondence with the patient or insurance
company. A notation will be made on the patient's record of the date and information
learned from the contact person. Information such as mail returned or phone
disconnected, etc., will also be recorded. The CONTRACTOR has a message box on
their statements where the patient will be informed he/she is delinquent, and if no
response, a deadline before collection and then a final demand all in the time frame or
cycles previously defined.
Cash accounts (Self-pay) over 180 days delinquent will be referred to the CITY along
with above documentation of contact and' recommendation made for turnover to
collection agency or recommendation for write-off.
A. CONTRACTOR will provide two separate reports to the CITY, one for those
recommended for collection and the other for recommended write-offs. These
reports to be generated twice a month.
B. Both reports will include all information regarding the patient: name, date of service,
employer. reason why account is uncollectible, proof and dates of the
CONTRACTOR's attempts to collect on the account. Upon approval and direction by
the CITY, the CONTRACTOR will reference in billing history the date account is
written-off and reference collection agency aSSigned to account. The
CONTRACTOR will then return to the CITY accounts to be assigned to outside
collection agency.
7. Negotiate and arrange modified payment schedules for individuals unable to pay full
amount when billed.
8. Retain all accounts for a minimum of six (6) months (unless otherwise specified by
mutual agreement) turning over accounts for which no collection has been made (unless
insurance payment is pending or modified schedules are arranged and show payment
progress).
9. Main~ain records in an electronic format that is readily accessible by the CITY personnel
and meets all federal and state requirements for maintaining patient medical records.
10. Maintain daily deposit control sheets and original documentation.
Page 30f4
11. CONTRACTOR shall be capable to receive and send tata compatible with the CITY's
field data system billing extract software. CONTRACTOR shall be able to interface or
tlave a link that is capable of d0'Nnloading or uploading information from the City's data
collection server.
12. Imple;;ent and comply with a Compliance F'c;~1 consiste;~ with the intent and activities
incluC'3d in the U.S. Office of Inspector Generc: (OIG) Ccmpiiance Program Guidance fc~
Third Party Medical Billing Companies 63 FR 7C 138; (December 18, 1998).
CITY's Responsibilities:
Exhibit B
1. CITY will provide Contractor with patient encounter information on a timely
basis and in sufficient detail to support diagnosis and procedure coding.
CITY will also provide patient demographic information necessary for
accurate patient identification including name, address, social security
number, date of birth, and telephone number. Where possible, CITY will
obtain and provide contractor with patient health insurance, auto insurance,
or other insurance information.
2. CITY will provide Contractor with necessary documents required by third
parties to allow for the electronic filing of claims by Contractor on CITY's
behalf.
3. CITY will provide Contractor with its approved billing policies and procedures
including fee schedules and collection protocols. CITY will be responsible for
engaging any third party collection service for uncollectible accounts after
Contractor has exhausted its collection efforts.
4. CITY will timely process refunds identified by Contractor for account
overpayments.
5. CITY will cooperate with Contractor in all matters to ensure proper
compliance with laws and regulations.
Page 4 of4
Palo ~t\lto l':1unicipal Code
2.30.360 Exemptions from competitive sollcitation requirements.
The follovving arc exemptions from the informal and formal competitive solicitation
requirements of this chapter. It is expected that the exemptions will be nan-owly applied.
The department requesting an exemption shall provide all relevant information
supporting the application of the exemption to the purchasing manager. Based on this
infonnation, the purchasing manager shall make a recommendation to the city manager
and the city manager shall determine whether an exemption fro111 competitive solicitation
requirements applies. Nothing herein is intended to preclude use of competitive
solicitations where possible.
U) Contracts with any public agency or governmental body to obtain goods and/or
services that meet either of the following criteria:
(1) Cooperative purchases where the city participates with one or more other
governmental or public agencies in a cooperative agreement, provided at least one of the
agencies has used solicitation process methods substantially similar to those required by
this chapter; or
(2) The use of another governmental or public agency's contract provided
the original parties to the contract agree, the contract was awarded within twelve
months of the date the city contracts for the goods and/or services, and the contract
resulted from solicitation methods similar to those required by this chapter.
To:
PURCHASE REQUISITION (PR)
INFORMATlON TRANSMITTAL
Purchase Requisition Number:_i_! i_' J {j 7
Administrative Services Department
Purchasing/Contract Administration
-a~(t~,'l~t;> IWa,t/f tf7td
(Buyer or Contract Manager Name)
Phone extension
r, _ ,_ .'1 --'cj j" Date: '/-d )) </1 j(r V
''l?2./~,? ...... ___ _
LocationTPhone Extension
fl~G !&/l}!:J /S-t-t'-L qf-~"'
Dept.lOivision/Locat'ion
The following information is attached for your review and reference (check all that
apply and indicate on PR Header text in SAP that the attached will follow via.,
inter-office mail): ~,;
~Amendment/Change Order -'~--. Speclications/Scope of Services/Description of item(s)*
Vendor information (for example, W-9)
Sole Source
Proposal(s)/Quote(s)
Certificate(s) of Insurance
Other (explain): C ~\ 1<-4o"'t ~O~-; COLINe I L-
I A F F 11<-f--\ /::>.",1'\/ t:;.. I:;X: -I I {I N r'C:\2. f-..: \
'If purchase requisition is for a formal bid or proposal request, use project checklist as PR transmittal
sheet.
For Purchasing Use Only
Name /tlv/,l>C"'-!!!" Pr(}~;,,1 A ~o #/Contract #: C 0 C. /I ~j 9 7
1f. IOu '11,-> Amount IttC/,oo,j'
[-qYJ,j}-
\~ ,...----
" '( 0 ' )(,.(,1 :T,,~ Release Strategy ;:;r . ,J
for Release: _I,\,.:b....,~"": ~ .... "'-L~"::'>O<_~. ___ (Contract Manager/Buyer)
___________ {Purchasing Manager) ~
(signature required) ___________ (Assist~nt City Manager)
,-."1
Revised 8115/03
Client#: 16916 ADP!HOl
CERTIFICATE OF LIABILITY INSURANCE DATE IMMJDDIYYYY)
11/08/2005
r:-~DUCER THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION
I Wachovla Insurance Serv-AT, GA ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE
HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR 14401 Northside Pkwy, Suite 400 AL TER THE COVERAGE AFFORDED BY THE POLICIES BELOW.
Atlanta, GA 30327·3071'5
i 770 850-0050 INSURERS AFFORDING COVERAGE NAIC# ! INSURED :NSURERA; St Paul Fire & Marine Insurance Co 24767 I AD PI Holding, Inc. ~:~ Illinois Union Insurance Company , 27960
I
520 NW 165th Street Road; Suite 201
Miami, FL 33169·6303 INSURER 0:
INSURERE:
COVERAGES
THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING
ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR
MAY PERTAIN. THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH
POLICIES. AGGREGATE LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
II~iRI{ ~~c TYPE OF INSURANCE POLICY NUMBER PJlALf~~J~)68tWf p~~fJ 1'f,.x,ft~~N LIMITS
A ~ERAL LIABILITY TT06800205 06/30/05 06/30/06 EACH OCCURRENCE $1000000
,x.. COMMERCIAL GENERAL LIABILITY ~~~~~J?E~~~~ncel $250000
i---:=J CLAIMS MADE ~ OCCUR MED EXP (Anyone person) $10000
f---PERSONAL & ADV INJURY $1 000000
f---GENERAL AGGREGATE $2000000
n'L AGGREAE LIMIT APPlS PER: PRODUCTS COMPJOP AGG $2,000000
POLICY ~~8T LOC
A ~TOMOBILE LIABILITY TT06800205 06/30/05 06/30/06 COMBINED SINGLE LIMIT
X ANY AUTO (Ea accidenl) $1,000,000
~ ALL OWNED AUTOS BODIL Y INJURY i---$
SCHEDULED AUTOS (Per ""rson)
-, .!.. HIRED AUTOS BOOIL Y INJURY $ i ~~:;~::~~S (Per accident)
$1,000 Comp PROPERTY DAMAGE
Deductibles $1,000 Coli (Per acadenl) S
I ~AGE LIABILITY AUTO ONLY -EA ACCIDENT $ -----~
i ANY AUTO I ~J~fRTHAN EAACC Is
o ONLY: AGG Is
A ~ESS/uMBRELLA LIABILITY TT06800205 06/30/05 06/30/06 ~RENCE 53,000000
OCCUR D CLAIMS MADE 53000,000
s i DEDUCTIBLE $
RETENTION $10000 $
A WORKERS COMPENSATION AND WVA6811458 06/30/05 06/30/06 X I T"d~l'l~¥s I IOJ~-
EMPLOYERS' LIABILITY 5500,000 ANY PROPRIETOR/PARTNERlEXECUTIVE E.L. EACH ACCIDENT
OFFICERlMEM!3ER EXCLUDED? 1i..!::..Q1~~AS§.':y~_f:!.<1P-':.~)Y~ ~.~~2 > <!!>2 ________ II yes, describe
SPECIAL PRO'IISIONS below E.L. DISEASE· POLICY LIMIT $500,000
B OTHER Errors And BMI20023494 06/30/05 06/30/06 Limit:$2,OOO,OOO
Omissions Retention: $25,000
DESCRIPTION OF OPERATIONS J LOCATIONS I VEHICLES I EXClUSIONS ADDED BY ENDORSEMENT I SPECIAL PROVISIONS
Evidence of Insurance
CERTIFICATE HOLDER CANCELLATION
SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELI.ED BEFORE THE EXPIRATION
City of Palo Alto DATE THEREOF. THE ISSUING INSURER WILL ENDEAVOR TO MAIL .......30.... DAYS WRllTEN
250 Hamilton Ave NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO DO SO SHALL
Palo Alto, CA 94301 IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE INSURER. ITS AGENTS OR
REPRESENTATIVES.
AUTHORIZED REPRESENTATIVE • .;;;:t.
ForWISby: -;;fhV e::> ~~ •
ACORD 25 (2001/08) 1 of 2 #S714660/M660126 DLS01 @ ACORD CORPORATION 1988
· ,
IMPORTj\NT
If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. A statement
on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).
If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may
require an endorsement. A statement on this certificate does not confer rights to the certificate
holder in lieu of such endorsement(s).
DISCLAIMER
The Certificate of Insurance on the reverse side of this form does not constitute a contract between
the issuing insurer(s), authorized representative or producer, and the certificate holder, nor does it
affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon.
ACORD 25-5 (2001/08) 2 of 2 #S714660/M660126
TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER
DATE: NOVEMBER 14,2005
,\ !I
DEPARTMENT: FIRE
CMR: 404:05
SUBJECT: APPROVAL OF CONTRACT WITH ADVANCED DATA PROCESSING
WEST, INCORPORATED FOR 7 PERCENT OF NET COLLECTED
REVENUE FOR ALL ADVANCED LIFE SUPPORT (ALS) AND BASIC
LIFE SUPPORT (BLS) AMBULANCE TR4NSPORT SERVICES FOR A
ONE YEAR TERM THAT CAN AUTOMATICALLY RENEW FOR TWO
ADDITIONAL ONE YEAR PERIODS
RECOMMENDATION
Staff recommends that Council approve and authorize the Mayor to execute the attached contract
for a one year period with Advanced Data Processing West, Incorporated (ADPI) in the amount
of 7 percent of net collected revenue for patient billing services when Advanced Life SUPpOlt
(ALS) and Basic Life SUppOlt (BLS) is provided by the Palo Alto Fire Department. This
contract will automatically renew for two additional one year periods.
DISCUSSION
Service Description
The work to be performed under the contract is for patient billing services when ALSIBLS
transport is provided by the Palo Alto Fire Department. The need for a billing services contractor
was necessitated by several factors:
• Insurance industry reporting changes require unique expertise in the field of patient billing.
At current staffing levels, it is impossible 10 cope with increasingly complex billing Clud
coding changes each year.
., Medicare's flat rate hilling process requires significant additionClI documentation and
accounts receivable processing. Current billing software utilized by the City does not
incorporate ever-changing mandated data requirements, such as insurance codes and
Medicare rate calculations.
• Inter-facility scheduled transport billing requires significantly unique documentation and
highly detail oriented accounts receivable processing.
• Average revenues for the program over the last three fiscal years (02-03, 03-04, and 04-05)
were $1.6 million. The City'S experience with outsourcing medical billing to a third party
administrator has demonstrated a significant increase in revenue generation.
CMR:404:05 Page lof3
Selection Process
Staff seeks to aware this contract to ADPI as the firm offers a \\'ide-range of servic~s that will
best meet [he Ciry's ,.~.erall ne~d.c. ADPI will pm'jdr the City "\:~:: a cc:;:rrehensive package of
billi,lg, collection, fe,How-up, a :cOl1nt posting, accounts rec?,vable rcc,:cHciliation, financial
accOl;ming, receipts management and reporting services, including the capability :0 extrapc!ate
data from a lap-top based computer system. In addi[ion, ADPI will provide Palo Alto Fire
Emergency Medical Services with customized financial, demographic, volume, acuity,
perfornlance, response, and productivity reports on demand. All services are to be provided on a
contingent fee basis \vith fees paid on a percentage of collections.
The City of San Bernardino conducted an extensive Request For Proposals (RFP) process for
patient billing services in April 2003. ADPI was selected by them due to the vendor's
experience and qualifications in municipal ambulance billing with specific regard to the
insurance industry's changing policies and procedures and due to its favorable level of fees. The
City ofPalo Alto proposes to share in this contract given the following:
• San Bernardino chose ADPI out of a broad range of vendors.
• The vendor agreed to provide to the City of Palo Alto the same basic scope of work for the
same rate as was offered to the City of San Bernardino. The percent offered is a half
percent Jess than the previously negotiated contract.
• The vendor offered an impressive fifteen-year track record of providing EMS billing and
collection services to cities around the Bay Area including Berkeley, San Rafael,
Sacramento, and others.
• ADPI's Oakland-based operation currently bills over 200,000 responses per year, with a staff
of It has the resources to maintain both the expertise and appropriate implementation of
medical billing.
• ADPI has proprietary software and technology for paperless, automated billing.
• AD PI offers extensive and customized reporting capabilities, ensuring the City will have
access to accurate information with which to monitor the program.
RESOURCE IMPACT
Contract language stipulates that 7 percent of net collected revenue for patient billing services
will be the established fee base. In fiscal year 2000-01, the City's gross billings were
approximately $1.33 million, \vith collection rates ranging from 55-60 ;.)crcent. Staff can report
that ADPI has been able to increase the City'S collection rate to 65-70 percent for fiscal year
2003-04 due to the following:
• ADPI has increased the net revenue for all of its clients over fifteen years in the emergency
medical services billing business.
• The average collection rate for ADPI's twenty current comparable customers is 68 percent.
(This includes only customers performing emergency medical transport services.)
POLICY IMPLICATIONS
This recommendation is consistent with existing City policies.
CMR:404:05 Page 20f3
ENVIRONlVIENTAL REVIE\V
This contract is not a project under the provisions of the California Environmental Quality Act.
ATTACHMENTS
Attachment A:
Attachment B:
PREPARED BY:
Contract Between the City of Palo Alto and Advanced Data Processing
West, Incorporated for Ambulance Billing and Collection Services.
Request for Proposal for Paramedic Services Billing and Collection, City
of San Bernardino, San Bernardino Fire Department.
Acting Deputy Chief Dan Lindsey
DEPARTMENT HEAD:
NICHOLAS MARINARO
Fire Chief
CITY MANAGER APPROVAL: ______________ _
CMR:404:05
EMIL Y HARRISON
Assistant City Manager
Page 3 of3
.'
~/lar,ufacturing Combinins District (8) Regulations], 18.60
[Umited Industrial/Research Park District Regulations] and
18.63 [Limited Industria! Site Combining District (3, 5)
P 2guiations]in its Entirety and E(actlng Portions ·of c' New
Chapter 18.20 [Office Research, and fv1anufactl~ring Districts]" (ist
Reading 1 0/1 lies, Passecf 6-1, t<ishimow voting no, Cordell, i"lossa,-, not participating)
2. Ordinance 4(384 entitled "Ordinance of the Council of the City of
Palo ,A,lto Updating the Office, Research, and I"lanufacturing
Districts of Title 18 [Zoning] of the Palo Alto Municipal Code by
Enacting Portions of a New Chapter 18.20 [Office Research, and
Manufacturing Districts]" (1stReading 10/11/05, Passed 7-2, Kleinberg, Mossarno)
3. Ordinance 4885 entitled "Ordinance of the Council of the City of
Palo Alto Amending the Budget for the Fiscal Year 2005-06 to
Provide Additional Appropriation from the Water Fund Rate
Stabilization Reserve of $244,980 into Capital Improvement
Program (CIP) Project Number WS-01010, Reservoir Booster
Station Improvements; $71,916 into Capital Improvement
Program (CIP) Project Number WS01011, Distribution System
Water Quality Enhancements; and $37,825 into Cpaital Program
(CIP) Project Number WS-OI012, Booster Station
Improvementsll
4. Resolution 8565 entitled "Resolution Authorizing the City's
Representative to the San Francisquito Creek Joint Powers
Authority to Vote for the Approval of a Cost Share Agreement
with the United States Army Corps of Engineers for the
Feasibility Phase of a San Francisquito Creek Flood Damage
Reduction and Ecosystem Restoration Project"
5. . Approval of Contract with Advanced Data Processing West,
Incorporated for 7 Percent of Net Collected Revenue for all
Advanced Life Support (ALS) and Basic Life Support (BLS)
Ambulance Transport Services for a One Year Term That Can
. Automatically Renew for Two Additional One Year Periods
MOTION PASSED 6-1 for Item No. I, Kishimoto no, Cordell, Mossar
not participating.
MOTION PASSED 7-2 for Item No.2, Kleinberg, Mossar no.
MOTION PASSED 7-0 for Item No.3, Cordell, Mossar not
participating.
MOTION PASSED 9-0 for Item No.4.
11/14/05 5
MOTION PASSED 8-1 for Item No.5, Freeman no.
Director of Community Services Richard James spoke regarding the
community garden. He said all garden fees would be frozen with
everyone paying the same amount as in the previous year. Staff had
begun discussions with the gardeners. The item would come before the
Parks and Recreation Commission (PARC) in December for review and
recommendations. Staff's goal was to keep the community garden a
quality and sustainable program while reducing fees for the gardeners.
Council Member Morton said he understood the PARC meeting for
December had been cancelled.
Mr. James said the PARe's regular meeting had been cancelled and
rescheduled for December 27, 2005.
Council Member Freeman spoke regarding her "no" vote on Item No.
5. She said staff did not initiate a Request for Proposal (RFP), but used
information from the City of San Bernardino. She recommended future
assurance of open-bidding after the current contract was let.
PUBLIC HEARINGS
6. Public Hearing: Consideration of Recommendations of Staff and
the Planning and Transportation Commission to Approve the
Permanent Implementation of the Second Downtown North Trial
Traffic-Calming Plan. The Recommended Plan Includes Traffic
Circles on Everett at Emerson, Everett at Webster, and
Hawthorne at Cowper; Speed Tables on Hawthorne Near High
and on Palo Alto Avenue Between Alma and Emerson; Right Turn
Restrictions Between 7 a.m. and 10 a.m. from Middlefield onto
Hawthorne and Everett; and Left Turn Restrictions Between 7
a.m. and 10 a.m. and 3 p.m. and 6 p.m. from Alma onto
Hawthorne and Everett
Council Member Beecham stated he would not partiCipate in the item
due to a conflict of interest because his residence was within 500 feet
of the property.
Acting Chief Transportation Official Gayle Likens said in May 2004, the
Council directed staff to remove most of the elements of the first
Downtown North Trial Plan, which included a number of street
closures. The second Trial Plan began in September 2004, and
incorporated less restrictive measures in an "open streets" plan
composed of traffic circles, speed tables and turn restrictions from the
major arterial streets. Staff completed the evaluation of the second
trial, conducted a postcard survey of the residences in the Downtown
11/14/05 6
Exhibit D: Provider1s Affirmative Action Statement
PROVIDER'S AFFIRMATlVE ACTION STATEMENT
Affirmative Action Plan
Declaration of Policy
Date: Oct 17th, 2005
In accordance with requirements of the City of Palo Alto, Advanced Data Processing, Inc. affirms its
commitment to equal employment opportunity and that it has an Affirmative Action Plan for the purpose of
maintaining that promise with particular emphasis on the minority workforce popUlation and the utilization
of Minority professional firms, consultants and/or suppliers.
Date
! I J (:IL-!. ;i D,-:" •
Mari I.Catania Date
Affir ative Action Officer
Exhibit D
City Manager's Response
Date: February 3, 2009
From: James Keene, City Manager
Prepared By: Nicholas Malinaro, Fire Chief
Subject:
Lalo Perez, Director of Administrative Services
City Manager Overview of Emergency Medical Services (EMS) Billing Process
and the 2009 Audit of Ambulance Billing and Revenue Collections
In FY 2002, the City of Palo Alto outsourced ambulance billing in conjunction with a contract
executed by the San Francisco Fire Department. The original vendor was Allied Information
and Service CAIS). The City's current vendor, ADPI, purchased AIS approximately 4 years ago
and completed the initial contract ternl. TIle City entered into a new three-year contract with
ADPI in late 2005. The City has collected more revenue as a result of this contract. EMS
revenues totaled $2,000,000 in FY 2008. In the last year prior to billing being outsourced (FY
2002), the collection rate was approximately $1,300,000. As the program has developed, it was
clear that additional management controls needed to be put in place to ensure the highest rate of
return. Staff has learned much during this initial contract and is working to modify the new
bi1lirig contract in response to these concerns. The audit recommendations presented are part of
the continuing evolution of the City's performance with respect to the ambulance biUing
contract.
Various aspects of non-performance were initially identified in FY 2006 and staff began work at
that time to identify problem areas and improve accountability practices. The issues inc1uded:
lack of prompt invoice processing; minimal follow-up work on outstanding accounts; delays in
referring delinquent accounts to the City; deletion of accounts from the ADPI database; and lack
of timely and accurate reports for City review. Many of these deficiencies were a result of
c1erical errors, outdated data and software systems to meet the needs of Palo Alto and
inadequate management oversight. These deficiencies did result in lower system efficiencies
and revenue collections for the City. The biggest issue resulted from a lack of understanding
about the MedicarelMedi-Cal reimbursement process, which cost the City approximately
$70,000 in revenue during FY2005/06. In spite of these issues, contracting out for ambulance
billing remains a good business decision for the City. The City collects approximately 55% of
its ambulance transport bills, which exceeds industry standards in the area.
Beginning approximately two years ago, the billing vendor acknowledged these as legitimate
issues and City staff proceeded to schedule weekly conference calls and regular monthly
meetings to resolve them. A major problem was inaccurate, untimely, and insufficiently
-31 -
Attachment #2
City Manager's Response
detailed reports that were a result of outdated software programs and inefficient office practices
on the part of the vendor. These reports are critical to staff monitoring of ADPI activity and
achieving maximum reimbursement. ADPI implemented several improvements begilming in
May 2007 with their reporting system. Subsequent changes and improvements included:
increased training and oversight of clerical persOlmel, software updates, top management
reorganization, and improved data entry accountability. TIle final reporting capabilities were
implemented in June 2008. The new reporting system now provides the City with detailed and
transparent reports that are meeting all requirements set forth by ASD and Fire staff. The new
system also provides complete access to the vendor's database and allows staff to monitor
cllstomer accounts and provide improved service.
In addition to inlproving ADPI's internal procedures and reports, new in-house procedures were
implemented to ensure proper billing. In FY 2006, the Fire Department developed a new billing
foml that captured more detailed information. This brought the City into full compliance with
MedicarefMedi-Cal billing requirements and resulted in an immediate increase in revenues
collected. In addition, the Fire Department initiated daily and monthly audits of each account to
ensure all information was collected and processed by the vendor. To ensure these changes
continue, the department has instituted continuous training on up-to-date patient documentation
requirements for staff members.
The ASD and Fire Departments requested the Auditor's Office assistance in verifying the areas
for needed improvement in the current contract and to make recommendations for improved
practices and procedures. In the spring of2008, the Auditor's Office embarked on this audit of
the ambulance billing and revenue collections.
The City Auditor's recommendations identify and reflect issues that will continue to improve
system and operational efficiencies. Staff has begun the work on' a number of these processes
and is in overall agreement with the recommendations in the Auditor's report. At this time,
staff is confident that the numerous improvements in the paramedic billing process will result in
maximizing reimbursement and streamlining efficiencies. Staff is committed to the continuation
of enhanced reports that meet the City specifications and the monitoring of improved and
timelier assessments of ADPI's performance.
Recommendations:
RECOMMENDATION #1: T71e Fire Departmellt, with the assistance of ASD, should:
(1) Work with the ambulance billing contractor to provide the City with monthly lists of
accounts that are 180 days old alld turn those accounts over to the City each month;
(2) Develop a mechanism to ensure ambulance billing contractor returns ullcollected accounts
in a timely manner; and
(3) Work with the ambulance billing contractor to provide the City with a written planfor how it
will ensure that it does not continue to bill accounts that have already been returned to the City.
Staff agrees with this recommendation.
-32-
City Manager's Response
[tern (I) --This improvement was initiated in August 2008 and completed in December 2008.
The billing backlog has been processed and all delinquent aecollnts are being re-assigned to the
City after 180 days if appropriate. The ambulance billing contractor ADP1-lntcnnedix (AD PI) is
providing the City with detailed reports on a monthly basis.
Item (2) -Improved reports cited above address this isslic since thc status of all open accounts
by "age" are provided. ADPl has implemented a system control which prevents invoice
generation once an account is placed in "collection" status. Staff has requested a demonstration
from ADPI for January 26 and will continue to monitor the efficacy ofthis ftll1ction.
It is important to note that the 180 day rule will not apply (0 all invoices since certain siruations
require ADPI to retain the invoice, e.g., invoices undergoing appeal to Medicare or Medi-Cal.
Item (3) -Stan-has requested a written plan fi'om ADP! and has received cOl1lirmation that a
plan is being developed tor our review and comment. It is anticipated the plan and a revie\:-.' will
be completed by the end of February, 2009.
RECOMMENDATION #2:
Once the ambulance billing contractor returns the older accounts to the City, ASD's Revenue
Collections should review the accounts receivable balance to appropriately process and
reconcile'the outstanding balances.
StatTagrees with the recommendation and Revenue Collections has initiated the
process. Monthly meetings with ADPJ to review the oldest, open [lccounts
November and will eonclude by the end of February.
review
began last
RECOMMENDA TJON #3: The Fire Department and ASD should work with the ambulance
billing contractor to: 1) provide the City with timely exception reports it regularly reviews to
provide assurance that accounts do not remain un billed if the system initially rejects the billing
address, and 2) implement a process to follow-up on the unbilled accounts.
Item (I). Staff agrees and will incorporate regular reviews of reports tu monitor billing address
and other issues. As indicated, ADPI \>.till provide standard repOlts to review and will provide
authorized City staffa higher level of access to its billing system. City staffwill receive training
that allows additional, ad-hoc reporting capability from the billing system. Such access will
result in more proactive steps to eon-eet address and other billing issues and to enhance
collection. Currently, the Fire Department is auditing all reports monthly to reconcile the
accounts that are sent and to ensure that there is no duplication and that completed intorrnatioll
is given to ADP) in a timely manncr.
Itcm (2) Staff agrees with the recommendation. With staffs input ADPI has developed a more
rigorous process to review accounts to ensure fi)llow-up. ADPI will contact the Fire Department
if essential patient care report information is missing and will review hospital face sheets for
33 -
City Manager's Response
JllISSJJ1g information required J()f billing. ADPI will access eXlstlllg databases tor this
int()I"l1lation and has initiated a "call the customer process" to obtain required data. Staff will
monitor this process to ensure the required intolll1ation is gathered and will review all monthly
repolts and discuss with the contractor. This toll ow-up wi 11 occur at the staff monthly meetings.
RECOMMENDATION #4: In order to improve and ensure continued improved contractor
pelfonnance, ASD and the Fire Department should continue to award the contract on a short-
term basis (one year for example) and develop and incorporate measurable criteria to renew
the contract based on satisfact01Y contractor peiformance.
Staff agrees with this recommendation. As ptllt of the current RI':P process and in the futtlrc,
stalTwill 'Nark to develop acceptable criteria.
ADI'I has been tasked by City 5tal'l'1o provide more accurate reporting with a higher level of
accounting detail. Clem' speciJications for inlbrmHtion requirements have been communicated
and the Fire Department, which manages this contTact, will implement perfbrmance standards.
These standards wiIl be negotiated as part ofthe contract specifications.
RECOMMENDATION #5: The Fire Department and ASD should request the ambulance billing
contractor to provide more consistent reporting to the City and prOVide supporting evidence
that gives the City a reasonable level of assurance regarding the accuracy of accounts
receivable balance and the predictability of write-offs·
StatT agrees with the rceollll1lcndation and ha') worked with ADPT to resolve this issue. Old
account inventory has been processed and all statutory adjustments are being recorded and
accounted fix in accordance with the City's requirements. Monthly rep0l1s now include the
level of detail nece...,sary to address Ihis recommendation.
RECOMMENDATION #6: ASD should establish a bank account to receive patient credit card
payments so that they are verifiable and no longer deducted from the ambulance billing
contractor's invoice.
Staff agrees and has initiated the process to establish direct deposit of all credit card payments
into the City's bank aCCOl1nt. Our bank (Wells Fargo) has been contacted to establish a new
merchant account number and the application has been submitted to Moneris (ADPl's credit
card provider). Direct deposit to the City's account is anticipated by the end of February 2009.
RECOMMENDATION #7: 171e Fire Department should develop a written process for
conducting spot checks of billed ambulance services to help ensure consistent
billings.
-34-
City Manager's Response
Staff agrees that a written policy will be developed and the Fire Department wiJl confer with the
Auditor's Office to recommend the parameters t()r conducting the "spot" checks.
RECOMMENDATION #8: The Fire Department should request that the ambulallce billing
contractor provide assurances to the City that it has sufficient internal controls ill place to
prevent duplicate billings. The Fire Departme1lt also should assess its own practices alld
identify internal controls that will prevent two PCRs from being completed for the same patient.
StatT agrees and \vill work with the vendor to put the necessary internal controls in place. The
Fire Department will evaluate its' internal controls and develop policies to minimize or
eliminate slIch occurrences. The current implementation of the electronic patient care report
should minimize any possibility ofdupJicalion.
RECOMMENDA TION #9: Revenue Collections should work with the City Attorney's Office to
clarify the applicable statute of limitations for billing patients for ambulance service.
Staff agrees and has already initiated the process. Revenue Collections has had conversations
with the Attorney's Office and a meeting has been scheduled for H)lIow-up. Revenue
Collections will request annual reviews of the procedures to determine if changes are necessary.
RECOMMENDATION #10: After completing recommendation #8, Revenue
Collections should revise write-off procedures for ambulance billing revenue. The revised
procedures should reflect actual practices and should cite the criteria used in deciding whether
to write off accounts.
Stall' agrees and will work to revise CUtTent procedures to re'l1e.c.t the
rec{)ll1mendations/guidelines provided by the City Attorney's Office.
RECOMMENDATION #11: The City Manager's Office should work with the Fire Department
and the Administrative Services Department to identify key roles related to ambulance billing
and to clarify in writing (with a table or matrix) specifically who is responsible for which roles.
Staff agrees regarding the importance of this issue. ASD and Fire will work with the City
Manager's Office to clearly define the necessary roles and responsibilities to achieve this goal.
RECOMMENDATION #12: The Fire Department, the Administrative Services Department,
and the ambulance billing contractor should establish a schedule to meet at least quarterly to
stay infonned about problems and opportunities related to ambulance billing.
Staff agrees and has been eonducting monthly meetings since August 2008. These meetings
have proved vcry bCl1clicial in identifying any arcas of concern and developing solutions for
-35-
City Manager's Response
them by all parties. ADPI has agreed to additional meetings and to more j]'equent meetings as
necessary .
RECOMMENDATION #13: The Fire Department should take a lead role in monitoring the
accuracy of invoices from the ambulance billing contractor. 17zis should include verifYing the
accuracy of the invoice by reviewing supporting documentation if necessGlY, to understand how
the amount was calculated.
Staff agrees and the Fire Depal1mcnt will work to provide the Ilecessary resources to satisfY this
recommendation through reallocation of existing duties or other means.
RECOMMENDATION #14: The Fire Department should work with the Accounting Division in
ASD to ensure the ambulance billing contractor's commission acijustment related to refunds, is
correct.
StaO'agrees and will work with ASD to provide a mechanism for adjustments that is accurate.
RECOMMENDATION #15: For the new ambulance billing contract, the City should clarifY key
provisions such as the 180-day timeframe to return uncollected accounts to the City and the
provisions specifYing the billing timelines the contractor will follow. Both should clearly state
the start date from which the number of days are counted.
Statf agrees and these language provisions can be incorporated into and clearly stated in the
contract language.
RECOMMENDATION #16: The City should attempt to negotiate a lower commission (than the
current 7%) in the new ambulance billing contract.
Stafl' agrees and will attempt to negotiate into the contract language 11 lower commission mte.
RECOMMENDATION #17: The Fire Department should ensure that all employees who access
patient health data related to ambulance billing (ill the Fire Department, ASD, and any other
departments) complete HIP AA training.
StatT agrees and the Fire Department will work with employees in other depaJ1ments and
Human Resources statfto assist in providing the nece...:;sary training. There arc currently training
program mechanisms in plac.e to easily accomplish this task.
-36-
ORDINANCE NO.
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AMENDING THE BUDGET FOR THE FISCAL YEAR 2008-09 TO
PROVIDE AN APPROPRIATION OF $215,000 FOR THE EXTENTION OF
CONTRACT (C06116197) WITH ADVANCED DATA PROCESSING WEST,
INCORPORATED (ADPI)
Attachment #3
WHEREAS, pursuant to the provisions of Section 12 of Article
III of the Charter of the ty of Palo Alto, the Council on June 09,
2008 did adopt a budget fiscal year 2008-09; and
WHEREAS, ADPI provides service for outsource billing and
collection for Emergency Medical Services (EMS) transports by the
City of Palo Alto re Department.
WHEREAS, the current contract with ADPI expired November 2008
and was extended for six months ending in May 2009 pending
recommendations from the City Auditor's report on ambulance bil
procedures.
WHEREAS, additional appropriations are requested to fund the
extension of the current ADPI contract to give staff additional time
to incorporate the ty Auditors recommendations on current billing
practices into a new expanded scope of services and Request
Proposal (RFP).
WHEREAS, City Council authorization is needed to amend
2008-09 budget as hereinafter set forth.
NOW, THEREFORE, the Council of the City of Palo Alto
ORDAIN as follows:
The sum of Two Hundred and Fifteen Thousand Dol
($215,000) s hereby appropriated to contract services in the
Advanced Emergency Medical Paramedic Functional Area of the
Department, and Budget Stabilization Reserve is correspondingly
reduoed.
This transaction will reduce the Budget
Reserve from $20,926,089 to $20,711,089.
As specified in Section 2.28.080(a} of the
Al to Code, a two thirds vote of the Ci ty Council
required to adopt this ordinance
SECTION 4. The Council of the City of Palo Alto hereby
that this is not a project under the California Environmental
Quality Act and, therefore, no environmental impact assessment is
necessary.
SECTION 5. As provided in Section 2.04.350 of the Palo to
Municipal Code, this ordinance shall become ef tive upon adoptioN.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:
City Clerk
APPROVED AS TO FORM:
or Asst. City Attorney
APPROVED:
Mayor
City Manager
Director
Services
Administrative
City of Palo Alto
MEMORANDUM
TO: City Council
DATE: June 08, 2009
SUBJECT: Budget Adoption Ordinance (CMR 280:09)
The attached CMR 280:09 is being provided in this packet without any of the noted
attachments, except for Exhibit B to Attachment 1 (Amendments to City Manager's
Proposed Budget) as a reference for the City Council's discussion of the Budget Adoption
Recommendations on June 8, 2009
The final CMR with all attachments along with any changes that are proposed during the
June 8, 2009 public hearing will be included in the packet for June 15, 2009.
Budget Adoption is scheduled for June 15, 2009
BUDGET
FY 2010 & FY 2011
TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE: JUNE 08, 2009 CMR: 280:09
REPORT TYPE: Public Hearing
SUBJECT: Approval of an Ordinance Adopting the Fiscal Years 2010 and 2011
Budget, Including the Fiscal Year 2010 Capital Improvement
Program, Changes to the Municipal Fee Schedule, Utility Rates and
Charges, and Changes To Compensation Plans
EXECUTIVE SUMMARY
The documents attached outline the amendments to the City's Operating and Capital Fiscal Year
2010 and 2011 Proposed Budgets, Municipal Fee Schedule, Utility Rate changes, and
amendments to two of the City's Compensation Plans. The City Council will first review these
documents on June 8, 2009. The Public Hearing will be continued to June 15, at which point the
Council will be asked to adopt the FY 2010 and 2011 budgets and other associated actions.
RECOMMENDATION
Staff recommends that the City Council approve the following:
1. The Budget Adoption Ordinance (Attachment 1), which includes:
a. The City Manager's Fiscal Years 2010 and 2011 Proposed Budget (Exhibit A -
previously distributed)
b. All changes detailed in the Amendments to the City Manager's Fiscal Years 2010 and
2011 Proposed Budget (Exhibit B)
c. Fiscal Year 2010 Proposed Municipal Fee Schedule (Exhibit C -previously
distributed)
d. Revised pages to the Table of Organization (Exhibit D)
e. Amendments to the Fiscal Year 2010 Proposed Municipal Fee Schedule (Exhibit E)
2. Resolution Amending Utility Rate Schedules for a Refuse Rate Increase (Attachment 2)
3. Resolution Amending Utility Rate Schedules for a Water Rate Increase (Attachment 3)
CMR:280:09 Page 1 of 12
4. Resolution Amending Utility Rate Schedules for a Wastewater Collection Rate Increase
(Attachment 4)
5. Resolution Amending Utility Rate Schedules for a Gas Rate Decrease (Attachment 5)
6. Resolution Amending Utility Rate Schedules for an Electric Rate Increase (Attachment 6)
7. Resolution Amending Utility Rate Schedules for Utility Service Rate changes (Attachment 7)
8. Resolution Amending Utility Rate Schedules for Fiber Optic Rate increases (Attachment 8)
9. Resolution Amending Utility Rate Schedules for the Residential Rate Assistance Program
changes (Attachment 9)
10. Resolution Amending the Compensation Plan for Management and Professional Personnel
and Council Appointed Officers (Attachment 10)
11. Resolution Amending the Compensation Plan for Service Employees International Union
(SEIU) (Attachment 11)
BACKGROUND
The City Manager's Fiscal Years 2010 and 2011 Proposed Operating Budget and the Fiscal
Years 2010 and 2011 Proposed Capital Budget was initially submitted to City Council on April
27, 2009. During the month of May, the Finance Committee held hearings and reviewed the
Proposed Budget, including the General Fund, Enterprise Funds, Internal Service Funds, Capital
Improvement Programs, and the Municipal Fee Schedule. A total of seven public hearings were
held on May 5, 7, 12, 13, 19,26 and 28 during which the Committee reviewed and discussed the
City'S operating and capital expenditures for the next two years.
As a result of the hearings, the Finance Committee and staff have recommended changes to the
Proposed Budget as detailed in Exhibit B. It is important to note that the Fiscal Year 2011
budget is adopted "in-concept" with the attached ordinance (Attachment 1). The Fiscal Year
2011 spending plan will be reviewed and modified as necessary during the interim budget cycle
next year.
DISCUSSION
This staff report focuses primarily on the financial changes recommended by the Finance
Committee during the public hearing process and the budget adjustments proposed by staff
following submission of the original proposed budget. Certain key non-financial changes are also
highlighted in this report. All other non-financial recommended changes to the proposed budget
are described in Appendix 4, which was distributed to the Finance Committee on May 26, and
will be incorporated into the Fiscal Years 2010 and 2011 Adopted Budget document.
Included in the City Manager's FY 2010 Proposed Budget is a $3 million placeholder credit for
anticipated employee compensation reductions. The Palo Alto Police Officers Association
CMR:280:09 Page 2 of 12
(PAPOA) has agreed to defer its previously negotiated 6 percent salary increase for one year.
This results in an expenditure reduction of $ 794,068 which reduces the placeholder credit to
$2.2 million. These changes have been noted in the Exhibit B attachment. The International
Association of Fire Fighters (IAFF) has proposed a similar reduction; however it has not been
finalized at this time. Staff wi1l continue negotiations and discussions with the Service Employee
International Union (SEIU) and ManagementiProfessionallabor groups post budget adoption.
Additionally, the Finance Committee directed staff to report back during Fiscal Year 2010 on the
following issues:
• Evaluation of the future organization of the Office of Emergency Services (OES),
including consolidation and coordination
• Regionalization options for Public Safety functions
• A review of the Capital Improvement Plan review and selection process and to
incorporate input from the Planning and Transportation Commission and public
• Encourage staff to request price discounts on contacts
• Staff to return with Police and Fire Overtime trends and incorporation information into
quarterly financial reports. The five-year trend information that was requested by the
Finance Committee has been included at the end of this report
• Staff to provide Planning and Transportation Commission with quarterly overtime reports
as it relates to PTC meeting coverage by non-exempt staff
• City Manager to review General Fund training budgets and reduce by 10 percent for
discretionary training where possible
• City Manager to review Enterprise Fund training and travel budgets and reduce by 10
percent for discretionary training where possible
The following table summarizes the financial impacts to the General Fund due to the changes
presented in this memorandum:
CMR:280:09 Page 3 of 12
General Fund
FY 2010 FY2011
Beginning balance $571,000 ($3,082,000)
Chanees to Revenue
Remove New Parking Revenue for Foothills Pk. ($150,000) ($150,000)
Increase Golf Course Revenue $148,170 $148,170
Restore BLS Program Revenue $236,000 $236,000 I
Net Changes to Revenue . Increase $234,170 $234,170 ·
Chanees to Exoenditures i
Increase to City Council Contingency ** $43,000 $43,000 •
Increase to City Manager Contingency ** $84,100 $84,100
Reallocation of .5 PTE from PWD to CIP** ($46,160) ($46,160)
Remove Asst. Director of Planning ($236,280) ($236,280) I
Increase to City Manager Budget -Sustainability $32,000 $32,000 •
Remove cost increase for CAO evaluator ($11,000) ($11,000) ,
Restore Funding for Twilight Concerts $41,000 $41,000
Decrease Golf Course Expenses ($11,099) ($11,099)
Restore BLS Program Expense $108,000 $108,000
V2 Estimated savings for sustainability efforts ($132,182) ($132,182)
20 percent travel reduction ($35,500) ($35,500)
Reduce GF transfer to Capital Fund (additional) ($1,000,000)
Net Changes to Expenditures -Decrease ($1,164,121) ($164,121)
Net Change $1,398,291 $398,291
Reduction of Bridge (one-time) options ($1,900,000)
Ending Balance $69,291 ($2,683,709)
Staff Recommendati ons* *
Finance Committee-Recommended Changes to the City Manager's Proposed Budget
The Finance Committee recommends the following changes based on new information following
submittal of the original proposed budget.
General Fund
Office of the City Manager
• Increase budget by $32,000 for both Fiscal Years 2010 and 2011 for the Sustainability
Program. The Finance Committee recommended the ongoing increase instead of a one-
time transfer from the Council contingency account.
City Council
• Remove cost increase for outside CAO evaluator contract, results in an expense reduction
of ($11,000). The Finance Committee indicated that this expense should come out of the
Council contingency account, if the Council moves forward with hiring an outside
evaluator.
CMR:280;09 Page 4 of 12
Community Services Department
• Restore salary and benefit funding of $95,941 for 1.0 FIE Coordinator Recreational
Programs for the Family Resources Program. This includes a Fiscal Year 2010 one-time
revenue reimbursement of $95,941 from the Family Resources Foundation. In addition, if
the Foundation is unable to meet the annual reimbursement expense, the difference would
be considered a loan for the next fiscal year.
• Restore the funding for the Twilight Concert Series in the amount of $41,000.
• Remove the recommended parking fee revenue for the Baylands and Foothills Park,
resulting in a ($150,000) decrease in revenue.
• Recommend an increase to revenue and/or reduce expenditures at the Golf Course to
bring it to a break-even point, resulting in a revenue increase of $148,170 and an expense
reduction of ($11,099).
Fire Department
• Restore revenue and expense for Basic Life Support (BLS) program. This results in a net
change of $108,000 which is comprised of a revenue increase of $236,000 and an
expense increase of $108,000. This includes the elimination of 3 EMT BasiclBLS
Transport FIE, with the on-going program staffed with temporary positions.
Planning and Community Environment Department
• Eliminate Assistant Director of Planning position, resulting in salary and benefit expense
reduction of $236,280.
Non-Departmental
• Include one-half of the estimated utility savings related to the General Fund for
sustainability efforts in the budget, resulting in an expense reduction of ($132,182).
Allocation to departments to be determined by the City Manager.
• Reduce travel expenditures by 20 percent resulting in an expenditure reduction of
($35,500). Allocation to departments to be determined by the City Manager.
• Reduce the General Fund transfer to the Infrastructure Reserve by an addition ($1
million). This anticipates cost savings or timing adjustments in capital programs resulting
in potential savings.
• In FY 2010, reduce the budgeted one-time bridging options credit of $3.1 million by ($1
million). This is based on savings in the previous bulleted item.
• Move $794,068 out of the budgeted $3 million placeholder for employee compensation
reductions out of non-departmental and in to the Police Department. This is to recognize
PAPOA's approved deferral of their FY 2010 negotiated salary increase of 6 percent.
Capital Projects Fund -Infrastructure/CIP
• Increase funding for the Highway 10 1 PedestrianlBicycle OverpassfUnderpass project
(CIP PL-II000) in Fiscal Year 2010 by $100,000 and decrease funding for this project by
$100,000 in Fiscal Year 2011.
• Reduce the Infrastructure Reserve transfer from the General Fund transfer by an
additional $1 million.
CMR:280:09 Page 5 of 12
Enterprise Funds
• Include one-half of the estimated utility savings related to the Enterprise Funds for
sustainability efforts into the budget, resulting in an expense reduction of $202,609.
Allocation to Funds to be determined by the City Manager.
• Include one-half of the estimated City-wide utility savings for sustainability efforts into
the budget, resulting in a revenue reduction of $334,926.
Staff-Recommended Changes to the City Manager's Proposed Budget
Staff recommends the following changes based on new information following submittal of the
original proposed budget.
General Fund
City Council Contingency
• Proposed $43,000 increase in Fiscal Years 2010 and 2011 to the City Council
Contingency account to last year's level.
City Council Contingency Account Status
FY 2010 FY 2011
Be~innin~ balance $207,000 $207,000
Increase to Contingency base budget $43,000 $43,000
Ending Balance $250,000 $250,000
City Manager Contingency
• The City Manager's Contingency Account will be increased $84,100 in Fiscal Years
2010 and 2011 to last year's level.
City Manager's Contingency Account Status
FY2010 FY 2011
Beginning balance .$165,900 $165,900
Increase to Contingency base budget $84,100 $84,100
Ending Balance $250,000 $250,000
Public Works Department
• Reallocate 0.5 FTE Administrative Associate III to the Capital Fund, resulting in an
expense decrease of $46,160 to the General Fund Public Works Operating budget.
Budget Process -Finance Committee "Parking Lot" Issues
• During the Finance Committee's review of the Proposed Budget, items or ideas for
further budget changes were placed in a "parking lot" if two or more committee members
agreed. Parking lot items that received a majority vote were moved into the Finance
Committee recommended changes to the Proposed Budget and incorporated into the table
above. Other items were either withdrawn by the maker, or did not receive a majority of
votes to become permanent reductions. Those items left in the parking lot are described
below.
CMR:280:09 Page 6 of 12
o Review reducing 1 Attorney and 1 Support Staff from the Attorney's Office
Withdrawn
o Reduce the Police Department expenditures by $500,000 (flat amount) -Defer
review until first quarter financial results
o Reduce the Police Department expenditures by $492,000 (specific changes) -
Defer review until first quarter financial results
o Planning department to return with the impact of removing two planners in
current planning -Did not receive a majority of votes
o Eliminate reduction for Comprehensive Plan extension incorporated into the
budget -Did not receive a majority of votes
o Defer Storm Drainage Fund FY 2010 short-term loan repayment to the General
Fund -Withdrawn
Capital Project Fund -InfrastructureiCIP
• The following items were presented to the Finance Committee with the May 19, 2009
"at-places" memo:
o New CIP Project Highway 10 1 PedestrianlBicycle OverpasslUnderpass Project
(PL-11000): Funding of $100,000 will be provided by infrastructure reserve.
o Additional funding of $300,000 to the Mobile Command Vehicle Project (PD-
07000) from Federal and Local agency grants.
o Additional funding of $135,513 to the Street Maintenance CIP Project (PE-
86070) from State Proposition 42 funds.
o Change to the Drying Beds, Material Storage and Transfer Area CIP Project (RF-
10003): Project start date is moved to FY 2011 from FY 2010 and funding is now
split between the Refuse and Wastewater Collection Fund. The Storm Drainage
Fund will not provide funding for this project.
o Increase funding for AS-10000 (Salary and Benefits project) to reflect the
reallocation of 0.5 FTE Administrative Associate III from the General Fund,
$46,160
• Summary of Sources of Funding detailed above: Infrastructure Reserve $146,160;
Other Agencies/Outside funding $435,513
Enterprise Funds
Electric Fund
• Increase Other Income $100,000 in FY 2010 and $400,000 in FY 2011 to correct the
Central Valley Loan Repayment amount.
• Increase Utility Purchases $100,000 in FY 2010 and $400,000 in FY 2011 to correct the
Central Valley Loan Repayment amount.
• Increase Net Sales $2.5 million in FY 2011 due to an inadvertent omission.
Net Change to the Electric Fund: FY 2010 $0.00 FY 2011 $2.5 million increase in revenue
Gas Fund
• Increase Net Sales $142,000 in FY 2010 and FY 2011
• Increase Demand-side program expenditures $135,700 in FY 2010 and $146,440 in FY
2011
CMR:280:09 Page 7 of 12
Net Change to the Gas Fund: FY 2010 $6,300 FY 2011 ($4,440)
Water Fund
• Increase Demand-side program expenditures $45,300 in FY 2010 and $80,279 in FY
2011
Wastewater Collection Fund
• Increase Net Sales $20,000 in FY 2010
• Decrease Operating Transfers to the Refuse Fund in FY 2010 by $250,000 and Increase
Operating Transfers from the Refuse Fund in FY 2011 by $375,000. The start date for
CIP RF-10003 (Drying Beds, Material Storage and Transfer Area) has been moved from
FY 2010 to FY 2011 and the funding for the project has changed from one-third to one-
half for the Wastewater Collection Fund.
Storm Drainage Fund
• Decrease Operating Transfers from the Refuse Fund in FY 2010 by $250,000. This
results from changes to CIP RF-10003. The Storm Drainage fund will not be providing
funding for this project.
Refuse Fund
• Decrease Operating Transfers from the Wastewater Collection Fund in FY 2010 by
$250,000 and Increase Operating Transfers from the Wastewater Collection Fund in FY
2011 by $375,000. The start date for CIP RF-loo03 has been moved from FY 2010 to FY
2011 and the funding for the project has changed from one-third to one-half for the
Wastewater Collection Fund. The Storm Drainage Fund will no longer provide funding
for this project.
Wastewater Treatment Fund
• Decrease allocated charges $3.8 million in the FY 2007-08 "Actuals" column on page
335 due to a posting omission.
Special Revenue Funds
Developer's Impact Fees
• Correction to the presentation of Community Development Funds CIP transfer. The
funding allocation for CIP PE-06007 Park Restroom Installation was deferred to FY 2011
and the funding allocation for CIP PE-07007 Cubberley was moved forward to FY 2009
during the FY 2009 midyear process.
Housing In-Lieu
• Allocate budget for affordable housing projects to be determined in FY 2010, $100,000.
Compensation Plans
Five classification and two compensation changes are proposed in the Management and
Confidential and Service Employees' International Union (SEru) Compensation Plans. New or
CMR:280:09 Page 8 of 12
changed classifications are included, along with the accompanying resolutions in Attachments 10
and 11.
Table of Organization
Amended pages to the Fiscal Years 2010 and 2011 Table of Organization are included with this
report (Exhibit D). The table has been revised to reflect the staffing changes presented in this
report. Changes reflected in the Table of Organization will be incorporated into the relevant
department organization charts and the revised organization charts will be published in the
adopted budget.
Contracts Greater Than $85,000
On May 26, 2009, the Finance Committee approved the Fiscal Year 2010 contract scopes of
professional services agreements greater than $85,000 (CMR 248:09).
RESOURCE IMPACT
The Fiscal Years 2010 and 2011 Proposed Budget as submitted to the Finance Committee
resulted in an increase to the General Fund Budget Stabilization Reserve (BSR) of $0.6 million
in Fiscal Year 2010 and a $3.1 million decrease in Fiscal Year 2011. The changes resulting from
the Finance Committee hearings and staff recommendations resulted in a $1.9 million reduction
to the Bridge (one-time) options in Fiscal Year 201 0 and an $0.4 million increase to BSR
funding in Fiscal Year 2011 (Appendix 1). The projected ending balances for the BSR in Fiscal
Year 2010 and 2011 are $22.8 million and $20.1 million, respectively. As a result of the changes
to the capital budget, the projected ending balances in the Infrastructure Reserve (IR) for Fiscal
Year 2010 and 2011 are $5.2 million and $1.6 million, respectively. Additional changes to the
Enterprise Funds result in an approximate $0.6 million increase in reserve balances in Fiscal
Year 2010 and a $1.6 million increase in Fiscal Year 2011 from the proposed document
(Appendix 2).
POLICY IMPLICATIONS
These recommendations are consistent with existing City policies.
ENVIRONMENTAL REVIEW
Adoption of the budget does not represent a project under the California Environmental Quality
Act (CEQA).
ATTACHMENTS
Attachment 1:
Exhibit A:
Exhibit B:
Exhibit C:
ExhibitD:
Exhibit E:
CMR:280:09
Budget Adoption Ordinance with the following Exhibits:
City Manager's Fiscal Years 2010 and 2011 Proposed Budget
Amendments to the City Manager's Fiscal Years 2010 and 2011 Proposed
Budget
Fiscal Year 2010 Proposed Municipal Fee Schedule
Revised Pages in the Fiscal Years 2010 and 2011 Table of Organization
Amendments to the Fiscal Year 2010 Proposed Municipal Fee Schedule
Page 9 of 12
Attachment 2:
Attachment 3:
Attachment 4:
Attachment 5:
Attachment 6:
Attachment 7:
Attachment 8:
Attachment 9:
Attachment 10:
Exhibit A:
Attachment 11:
CMR:280:09
Resolution of the Council of the City of Palo Alto Amending Utility Rate
Schedules R-l, R-2, and R-3 of the City of Palo Alto Utilities Rates and
Charges Pertaining to Refuse Rates
Resolution of the Council of the City of Palo Alto Amending Utility Rate
Schedules W -1, W -4, and W -7 of the City of Palo Alto Utilities Rates and
Charges Pertaining to Water Rates
Resolution of the Council of the City of Palo Alto Amending Utility Rate
Schedules S-1 and S-2 of the City of Palo Alto Utilities Rates and Charges
Pertaining to Wastewater Collection Rates
Resolution of the Council of the City of Palo Alto Amending City of Palo
Alto Utility Rate Schedules G-l, G-2, G-3, G-4, G-6, G-1O-, G-11, AND
G-12 of the City of Palo Alto Utilities Rates and Charges Pertaining to
Gas Rates
Resolution of the Council of the City of Palo Alto Amending City of Palo
Alto Utility Rate Schedules E-l, E-I-G, E-2, E-2-G, E-4, E-4-TOU, E-4-
G, E-7, E-7-TOU, E-7-G, E-14, E-18, AND E-18-G of the City of Palo
Alto Utilities Rates and Charges Pertaining to Electric Rates.
Resolution of the Council of the City of Palo Alto Amending City of Palo
Alto Utility Rate Schedules C-l, E-16 and W-2 of the City of Palo Alto
Utilities Rates and Charges Pertaining to Utility Service Rates.
Resolution of the Council of the City of Palo Alto Amending City of Palo
Alto Utility Rate Schedules EDF-l and EDF-2 of the City of Palo Alto
Utilities Rates and Charges Pertaining to Fiber Optic Rates.
Resolution of the Council of the City of Palo Alto Amending City of Palo
Alto Utility Rate Schedule C-4 of the City of Palo Alto Utilities Rates and
Charges Pertaining to the Residential Rate Assistance Program
Resolution of the Council of the City of Palo Alto Amending the
Compensation Plan for Management and Professional Personnel and
Council Appointees Adopted by Resolution No. 8844 to Change the Title
of One Classification.
Fiscal Year 2010 Compensation Plan Changes for Management and
Professional Personnel -related to Attachment 10
Resolution of the Council of the City of Palo Alto Amending the
Compensation Plan for Classified Personnel (SEnJ) Adopted by
Resolution No. 8658 to Add Four New Classifications and Change the
Compensation for Two Existing SEIU Classifications
Page 10 of 12
Exhibit A:
Appendix 1:
Appendix 2:
Appendix 3:
Appendix 4:
Appendix 5:
Appendix 6:
Appendix 7:
Related Staff Reports:
CMR:280:09
Fiscal Year 2010 SEIU Compensation Plan Changes
Attachment 11
related to
Fiscal Years 2010 and 2011 General Fund Summary and Reserve
Balances
Fiscal Years 2010 and 2011 Enterprise Fund Summary and Reserve
Balances
Fiscal Years 2009-2014 Capital Improvement Fund Summaries and
Amended Projects
Fiscal Years 2010 and 2011 Special Revenue Funds Summaries
May 26, 2009 Memorandum to Finance Committee detailing changes to
Fiscal Years 2010 and 2011 City Manager's Proposed Budget to date
Memorandums distributed "at-places" during the Finance Committee
budget hearings
Budget Hearing Presentation Slides distributed during the Finance
Committee budget hearings
CMR:160:09;
CMR: 182:09;
CMR:187:09;
CMR: 190:09;
CMR:206:09;
CMR:261:09
CMR:161:09;
CMR:185:09;
CMR: 188:09;
CMR: 199:09;
CMR:209:09;
CMR:180:09;
CMR:186:09;
CMR:189:09;
CMR:205:09;
CMR:248:09;
Page 11 of 12
PREPARED BY:
Budget Manager
DEPARTMENT HEAD APPROVAL: ------~----~========~----
LALOPEREZ
Director of Administrative Services
CITY MANAGER APPROVAL:
City Manager
CMR:280:09 Page 12 of 12
Police and Fire Departments
Overtime Analysis for Fiscal Years 2004 through 2009
Fiscal Year Endina June 30
2004 2005 2006 2007 2008 2009"
POLICE DEPARTMENT
Overtime Expense
Original Budget $947,648 $974,426 $981,862 $1,015,620 $1,036,815 $999,900
Current Budget 1,028,337 1,009,705 1,074,399 1,071,005
Net Overtime Cost see below 1,096,077 780,647 1,025,718 1,096,894
Remaining Budget ($67,740) $229,058 ($25,8891
Overtime Net Cost
Actual Expense $1,309,185 $1,229,851 $1,405,155 $1.785,657 $2,009,542 $1,500.280
Less Reimbursements
Stanford Communications 51.021 30,941 30.937 39,342 65.079 42,160
Utilities Communications Reimbursement 26,699 17,404 17,402 22,130 36,607 23,715
Local Agencies IA) 46.156 32,617 34.565 36,457 41,770 37,413
Federal Grants 12,237
State Grants (8) 86,644 6,135 65,635 63,344 4,672 10,996
Police Service Fees 94,125 37,188 49,185 43,218 67,390 53,812
other 7,489 12,447 18,157
Total Reimbursements 133,774 216,938 233,675
Less Department Vacancies 375,515 426,584 678,973
Net Overtime Cost $1,096,077 $780,647 $1,096,694
Department Vacancies (number of days) 1,710 1,642 1,733 2,280 2,766 2,402
FIRE DEPARTMENT
Overtime Expense
Original Budget $974,594 $962,674 $959,369 $1,032,674 $692,674 $1,017,674
Current Budget 962,674 .959,369 1,032,674 996,674
Net Overtime Cost see below 1.309,234 652,302 965,302 952,879
Remaining Budget ($326,560) $107,067 $67,372 $43,795
Overtime Net Cost
Actual Expense $1,553,410 $1,956,529 $1,582,856 $1,660,757 $1,744,076
Less Reimbursements
Stanford Fire Services 10) 470,683 592,826 479,606 563,809 528,455 422,692
Cal-FireIFEMA (Strike Teams) 69,467 66,269 65,531 140,224 453,619
State Homeland Security
Grant Program (SHSGP) (C) 17,203 72,254 40,697 10,164 4,342
Urban Area Security Initiative (UASI) 26,782 1,150
Total Reimbursements 610,031 644,911 679,993
Less Department Vacancies not available" 37,264 65,645 111,204 121,792
Net Overtime Cost $993,260 $1,309,234 $852,302 $952,679 $392,576
Department Vacancies (number of days) not available" 243 547 851 669 466
NOTES:
ActuaJs are as of June 1, 2009
Information not available within given timeframe.
(A) Includes Animal Services contract with Los Altos, Mountain View and Los Altos Hills.
(B) State Office of Traffic Safety and ABC grants.
(e) Included in the SHSGP and UASI reimbursements is a small amount of per diem reimbursement.
(D) Stanford reimburses 30.3% of Fire expenditures.
615/2009
Exhibit B
Contingency $ 43,000 Increase base budget -City Council Contingency
Contingency $ 84,100 Increase base budget -City Manager Contingency
SalarylBenefits $ 794,068 Move PAPOA Salary Increase Deferral to Police Department
Non-Salary $ (132,182) one half of estimated General Fund utility savings for sustainablity efforts
Non-Salary $ (35,500) 20 perecent reduction to General Fund travel expense
Non-Salary $ 1,900,000 Reduce Bridge Options $1.9 milion
Transfer $ (1 ,000,(00) Reduce General Fund transferto Capital Fund -additional $1 mill ion
Use Changes $ 1,653,486
Non-Salary ...,$:-_-:3",2-:,000=_lncrease for Sustainablity programs
$ 32,000 Use Changes
Non-Salary $ (11,000) Decrease increase for outside CAO evaluator
Use Changes $ (11,000)
Hf.,;);i;h'i1.~I\'lIllr~1:1!,
Revenue $ 95,941 Restore Family Resources Program Revenue
Revenue $ (150,000) Remove parking revenue for Baylands and Foothills Parks
Revenue $ 148,170 Increase Revenue for Golf Course
Source Changes $ 94,111
SalarylBenefits $ 95,941 Restore Family Resources Program expense
Non-Salary $ (11,099) Decrease expense for Golf Course
Non-Salary $ 41,000 Restore Funding for Twilight Concert Series
Use Changes $ 125,842
Net Changes To (Ii'rom) Reserves $ (31,731)
, ~~~¥l~~f::{:;~~~;;~-''''·';:oi~
Revenue $ 236,000 Restore B LS program revenue
Source Changes $ 236,000
Various $ 108,000 Restore B LS program expense
UseCbanges $ 168,000
Net Changes To (From) Reserves $ 128,000
j:;J!ilf',I,lh'!li i.·il~I"nl;;S '1,'!i,,! "~i;il:';l
Salary and Benefits S (236,280) Eliminate Assistant Director of Planning position
Use Changes $ (236,280)
Net Changes To (From) Reserves $ 236,289
Salary and Benefits $ (794,068) PAPOA Salary Increase Deferral
UseCbanges $ (794,668)
Net Changes To (From) Reserves $ 794,068
General Fund -Pa e 1 01 2
Salary and Benefits
Salary and Benefits
UseCbonges
Use Chaoges
Salary and Benefi ts
Salary and Benefits
Non-Salary
UseChaO!!es
Exhibit B
$ (24,835) Reallocate 0.25 FfE Administtative Associate III to Capital Projects Fund
(21,325) Reallocate 0.25 HE Administrative Associate I to Capital Projects Fund
$ (46,H;O)
$ (564,487) Reduction of Transfer from General Fund to Capital Project Fund and various
$
$
funding sources for projects
24,835 Reallocate 0.25 FfE Administrative Associate III from General Fund-Public
Works
21,325 Reallocate 0.25 FfE Administrative Associate I from General Fund-Public
Works
535,513 CIP Project PD-07000 (Mobile Command Vehicle) $300,000; PL-llooo
101 PedestiaJlBicycie Overpass/Underpass Project) $100,000; PE-
General Fund -Pa e 2 Of 2
Use Changes
Use Changes
Transfer
Transfer
Non-Salary
Non-Salary
Transfer
Transfer
Transfer
Exhibit B
$ (220,000) Decrease in CIP expenditures for CIP PE-06oo7 Park Restroom Installation
(Deferred)
$ (100,000) Decrease in CIP expenditures for CIP PE-07oo7 Cubberley Turf Renovation
----:-_____ (Funding moved to FY2oo9)
$ (320,000)
$
$
$
$
$
100,000 Allocate budget for Affordable Housing projects in FY2010
100,000
General Fund -Page 1 of 3
Revenue Cbanges
UseCbanges
Revenue Cbanges
Revenue
Salary and Benefits
Non-Salary
Non-Salary
Non-Salary
Non-Salary
Non-Salary
Revenue
Revenue
Revenue
Non-Salary
UseCbanges
ExhibitB
$ (100,000) Decrease Central Valley Project Operations and
Maintenance Loan Repayments
$ (100,000)
$ (100,000) Decrease Central Valley Project Operations and
Maintenance Loan Advances
$ (100,000)
$ 270,000 Change in Fund Balance -Supply
$ (270,000) Change in Fund Balance -Calaveras
$ in Fund Balance -Distribution
142,000 Increase net sales to reflect correction
142,000
$ l35,700 Increase demand-side management program expenditures
$ 135,700
1::'_ ...... -. .. : __ ~. ............... D ............... 1 ...... -" A
Non-Salary
Use Changes
Revenue
Revenue Changes
Non-Salary
Use Changes
Exhibit B
---:_~4;;:5.:;:,2;::7.::-9 Increase demand-side management program expenditures
$ 45,279
$ 20,000 Increase net sales to reflect correction --:----:-::-'-:-~ $ 20,000
$ (250,000) Decrease in operating transfers to Refuse Fund for eIP RF-
10003 Drying Beds, Material Storage and Transfer Area
(moved to FY 2011)
$ (250,000)
Revenue
Revenue Changes
Non-Salary
Use Changes
Non-Salary
Use Changes
Revenue
Revenue Changes
Non-Salary
Use Changes
ExhibitB
(500,000) Decrease in CIP reimbursements from Wastewater
Collection Fund and Storm Drainage Fund for CIP RF-l0003
Drying Beds, Material Storage and Transfer Area (moved to
FY2011)
(500,000)
$ (750,000) Decrease in CIP expenditures for CIP RF-l0003 Drying
Beds, Material Storage and Transfer Area (moved to FY
2011)
$ (250,000) Decrease in operating transfers to Refuse Fund for CIP RF-
10003 Drying Beds, Material Storage and Transfer Area
(moved to FY 2011, and not to be funded by Storm Drainage
Fund)
(250,000)
(334,926) Decrease in net sales from City sustainability savings
(334,926)
,$ (202,609) Decrease in utility charges from City sustain ability savings
$ (202,609)
Revenue Changes
Revenue
Transfer
Transfer
Revenue Changes
Revenue
Revenue Changes
Non-Salary
Use Changes
ExhibitB
o
o
o
$
Use Changes
Use Changes
Use Changes
Contingency
Contingency
Non-Salary
Non-Salary
Non-Salary
Non-Salary
Revenue
Revenue
Revenue
Source Changes
Use Changes
Source Changes
Use Changes
UseCbanges
SalarylBenefilS
Non-Salary
Non-Salary
Revenue
Various
Salary and Benefits
$
$
$
:)
$
Exhibit B
43,000 Increase base budget -City Council Contingency
84,100 Increase base budget -City Manager Contingency
(132.182) one half of estimated General Fund utility savings for sustainability efforts
(35.500) 20 percent reduction to General Fund travel expense
(40,582)
:) 32,000 Increase for Sustainability programs
-::$:----=32,=-:000~
$
$
$
$
$
(11.000) Decrease increase for outside CAO evaluator
(11,000)
95,941 Restore Family Resources Progrdm Revenue
(150,000) Remove parking revenue for Baylands and Foothills Parks
148,170 Increase Revenue for Golf Course
94,111
$ 95,941 Restore Family Resources Program expense
$ (11,099) Decrease expense for Golf Course
...;$~_~41:-:..000~,...Restore Funding for Twilight Concert Series
$ 125,842
$ 236,000 Restore Bl.S program revenue
$ 236,000
$ 137,571 Restore Bl.S program expense
$ 137,571
:) (236.280) Eliminate Assistant Director of Planning position
$ (236,280)
Salary and Benefits $
Salary and Benefits
Use Changes $
Source Changes $
Salary and Benefits $
Salary and Benefits
Use Changes $
ExhibitB
(24.835) Reallocate 0.25 FfE Administrative Associate HI to Capital Projects Fund
(21,325) Reallocate 0.25 FfE Administrative Associate I to Capital Projects Fund
(46,160)
24.835 Reallocate 0.25 FfE Administrative Associate m from General Fund-Public
Works
21.325 Reallocate 0.25 FfE Administrative Associate I from General Fund-Public
Works
46,160
Revenue Changes
Use Changes
Revenue Changes
Revenue
Revenue
Salary and Benefits
Non-Salary
Non-Salary
Non-Salary
Non-Salary
Non-Salary
Revenue
Revenue
Revenue
Non-Salary
Use Changes
Exhibit B
$ 2.551,259 Increase net sales to reflect correction
$ (400,000) Decrease Central Valley Project Operations and
Maintenance Loan Repayments
$ 2,151,259
$ (400.000) Decrease Central Valley Project Operations and
Maintenance Loan Advances
$ (4(M",)00)
Change in Fund Balance -Supply
Change in Fund Balance -Calaveras
in Fund Balance -Distribution
142.000 Increase net sales to reflect correction
142,000
$ 146,440 Increase demand-side management program expenditures
$ 146,440
Non-Salary
Use Changes
Revenue
Revenue Changes
Use Changes
Non-Salary
Non-Salary
ExhibitB
--,._----:;8..,;;0,:.;;,2;.;.7,;;,..9 Increase demand-side management program expenditures
$ 80,279
$
375,000 Increase in operating transfers to Refuse Fund for CIP RF-
10003 Drying Beds, Material Storage and Transfer Area
(moved from FY 2010)
$ 375,000
Revenue
Revenue Changes
Non-Salary
Use Changes
Revenue
Revenue Changes
Use Changes
Revenue Changes
Non-Salary
Revenue
Transfer
ExhibitB
375,000 Increase in CIP reimbursements from Wastewater Collection
Fund for CIP RF-l 0003 Drying Beds, Material Storage and
Transfer Area (moved from FY 2010)
$ 150,000 Increase in CIP expenditures for CIP RF-I 0003 Drying
Beds, Material Storage and Transfer Area (moved from FY
2010)
(334,926) Decrease in net sales from City sustainability savings
(334,926)
$ (202,609) Decrease in utility charges from City sustainability savings
$ (202,609)
o
Transfer
Revenue Changes
Revenue
Revenue Changes
Non-Salary
ExhibitB
o
o
$
City Manager's Proposed Budget
for Fiscal Years 2010 and 2011
City Council Budget Hearing
June 08, 2009
ProposedBucl9~tfY2010& 2011
o OverViewai'ldFutureMeetings
• June8-:Citj Council Budget Discussion o Budget schedule . ..
o Update onFY 2009 o City Manager's Proposed Budget FY 2010 and 2011
• General Fund
• Enterprise Funds
• Capital Fund o Questions/Discussion
• June 15 o Public Hearings
• Proposition· 2i8 utility rates
• Water Utility Rates
• Wastewater Collection Rates
• Refuse Rates o FY 2010 Budget Adoption o FY 2011 Budget Adoption-in...,concept
12
2
1
FY 2010 & 2011 Budget Hearing
Schedule
o March 31
o April21
o April 27
o MayS
o May 7
o May 12 o May 13
o May 19
o May 26 o May 28
o June 8
o June 15
Utility Rates & Prop 218 noticing
HSRAP/CDBG
Study Session with City Council
Budget Kick-Off, Admin. Depts.
Police, Fire, Library, Planning
CSD, Utilities, Utilities CIP
GF Capital Budget, PWD, ASD
PWD Enterprise and ISF, Atty Office
Wrap-Up, Municipal Fee Schedule
Wrap-up continued
Budget Review with City Council
Budget Adoption
Proposed BudgetFY2010 & 2011
.. ' . .. .
3
o Update of Fiscal Year 2009 -General Fund
• $8;0 million gap due to revenue declines
• Budget Balancing Strategies initiated
o One-time expenditure reductions
• moves structural issues into FY 2010
4
2
Proposed Budget FY 2010 & 2011
o Summary ~ :GeneralFund
• Fisc;ail yea .. ~010deficit -$10 million
• $8 million gap from FY 2009
• $2rilillion in addition revenue declines
o City Manager's PropOSed Budget balailcingstrategies:
• $3,0 million -Employee compensation contributions
• $2.8 million -Departmental expenditure reductions
o One-time options"
• $2.1. million -Suspension of GF Retiree MediCal contribution
• $1.0 million -Suspension of GF year-end contribution to
Capital Fund
• $1.4 million -Additional revenues from other funds
.$0.3 million -Other exoenditure changes
• $10.6 million o $0.6 FY 2010 excess to be applied to one-time options
Proposed Budget FY 2010 & 2011
Fiscal year 2010 General Fund deficit $10 million . .
Budget balancing strategies
5
6
3
Proposed Budget FY 2010 & 2011
Firiance Committee and Staff Recommended**
Changes
General Fund
FY2010 FY2011
Bealnnlnz balance 5571000 ($3 082 000)
CbaDau'to,
Remove New Parking Revenue for Foothills Pk. {SIS0,OOO {SISO 000
Increase Golf,Course, Revenue $148170 S148170
Restore BLS Pi'oa:ram Revenue 5236000 5236000
Net Chanllcs to Revenue -Increase $234170 $234170
Increase to ,City COlUlCil Contingency .... $43000, S43 000
Increase to City Manazer Contingency .... 584100 S84100
Reallocation of .5 f'TE ftomPWD to CIP"· $46160 (546160
Remove ASst. Dltei::tOr of Planiiliig 5236280) 5236280)
Increase to City Manager Budget -Sustainabili/Y 532000 532000
Remove cost 'Increase' fur CAO'evaluator (Sl1 000), (511,000)
Restore Fundinll fur Twiijgbt Concerts $41000 $41000
Decrease OolfCour'se Expenses ,(511 ;(99) 511099)
RestOreBLS PfijJit8ni Expense S108000 $108000
~Est:in1Ilted savina fors~bility efforts 5132182) 5132,182
20 percent,travel redUction 535'500 S35~00
Reduce GF transfer to Capftal, Fund {additiorial Slool>OOO}
Net ChURa to EllDenditures -Decrease $1164121) 51fi40.121l
NetCh.lIRe 51.3P8291 $3P8,z91
ReduetIon of BrldlLe.{one-time) oDtions ($1900000)
Ending Balance $69291 ($2683709)
Proposed Budget FY 2010 & 2011
Finance Committee and Staff Recommended
Changes-GemeralFundFY 2010
Department end Service
Reductions, $2.8
FY 2010 General Fund Deficlt-$10 million
FNnoe COrmfitee Reoornr.ndationa
Other Compensation
Reductions 1, $1.6
i~0~~iiijiiirL'na""1 Fund ReUrea Madic;al
FlnanOl Cornmttwe
Recommend.tlD"., 10.0
Deranal, $0.2
7
8
4
ProposedBud9~t FY 2010 & 2011
o General'Fund:Rest!rves
• Budget StabmzationReserve
o Reserve is. for one-time unexpected needs, not meant to fund
ongoing operating expense
ORange 15-20% ofGF expenditures; 18.5% is the target
o FY 2010 proposed reserve level $21.7 million or 15.3%
o FY 2011 proposed in-concept reserve level $19.0 million or
13.0%
• Additional expenditure reductions will be made prior to FY
2011 budget adoption, June 2010 to bring reserves to 15%
• Infrastructure Reserve
o $5.2 million in FY 2010 and $1.6 million in FY 2011
o The $1 million year-end budgeted transfer from the General
Fund was suspended in FY 2009 and 2010, but resumes in FY
2011
o An additional $1 million reduction in the General Fund transfer
forFY 2010 was recommended by the Finance.Committee 9
Proposed Budget FY 2010 & 2011 ,... '". .. .... . _ ....
o Additional General Fund Budget Pre$sures
• State Borrowing of Property Tax Revenues $2.4 million
• Possible Unknown Additional Revenue Declines
• Other Possible state Budget impacts
• Infrastructure Funding
10
5
Proposed Budget FY 2010 & 2011
o Enterprise Funds Proposed Budgt!ts
• Electric Fund
o FY 2010 $137.1 million
o FY 2011 $146.9 million
• Fiber Optics Fund
o FY 2010 $1.6 million
o FY 2011 $1.6 million
• Gas Fund o FY 2010 $45.8 million
o FY 2011 $51.6 million
• Water Fund o FY 2010 $50.8 million
o FY 2011 $33.3 million
11
Proposed Budget FY 2010 & 2011
. -. ..
o Enterprise Funds Proposed Budgets
• wastewater Collection Fund
o FY 2010 $16.4 million
DFY 2011 $17.3 million
• Refuse Fund
D FY 2010 $36.5 million
o FY 2011 $44.1 million
• Wastewater Treatment Fund
D FY 2010 $20.4 million
o FY 2011 $21. 7 million
• Storm Drainage Fund o FY 2010 $5.6 miilion
D FY 2011 $5.6 million
12
6
Proposed Budget FY 2010 & 2011
o Enterprise Funds
• In Fiscal Year 2010 the average residential
utility bill is increasing by $4.42 or 1.4 percent
• RIJ;t§ 211111_ 21111
_Gas 10 010 decrease 15 % Increase
Electric 10% Increase 15 % Increase
Water 5% increase 7 % increase
Wastewater Collection 5 % Increase 5 % increase
Refuse 17 % Increase
Storm Drainage o 010 Increase
Proposed Budget FY 2010 & 2011
Average Residential Utility Bill
A".~g. ~~jlCtedlt.ittid_.n~lllijj~,,~ 1,I~1IiY.~!iIs:
cuiiiont t~-" ___m ___ ~~-":_':_nH_'_' _
UtIlity FY _ Bill : FY 1010 BIll ' • Dlr. .. noo ; % DIIIw .. noo FY 1011 Bill : % DIIIoninoo -! •
_-68:79 --.7201"': -.-~~-'4:7",' _ -':_hot7:tl%-Wat.,(l4CCF) .
(j.~ fi~tv.:3OjMJ:~·
WBaiOWirt ..
. .~ _:~lio:7i:---~-::'-~-;-~.+-: :~TI:~i=_~~,~_ :_:~i4:3,1::-::1}A'C_
jTciIIIllIOIIt!Ili-lllll-,.
FY 2010: Ga.: 10'1(, d ...... e
FY 2010: Wa1er. 5% Incoea.e
FY 2010: Electrlc: 10% Incoease
FY 2010: Refuse: 17% Increase
.-10.US-:--
12.44 --
:l22.3H,
FY 2010: Stann dratn w;lIlncrease by CPI at 0%
.FY 2010: Wastewater. 6% Increase
lii:95 so.cia -o-ii'Ji. '---
12:39 -1~~L-':ii:4%
... 7HS uzl 1;'" j
FY 2011: Gas: 15" Increase
FY 2011: Wa1er: 7'l!. Incoease
FY 2011: Elec\rlc: 15% Inc ..... e
FY 2011: Wastewatr. 5" Increase
26.68" '6_0%-.. --
10.95 0_0%
1;1:25 i5,0iI --m
• 3111.24 j -10;1I'J(,--_ , ,
13
14
7
Proposed Budget FY 2010 & 2011
o General Fund CIP Overview
• Total CIP $66.8 million in FY 2010 and $17.4
million in FY 2011
o FY 2010 includes $50.5 million for Measure N Library Bond
Construction and improvements
o General Fund Contribution to CIP in FY 2010 $8.9 million
• InfrastructureReserve
o $5.2 million in FY 2010 and $1.6 million in FY 2011
o The $1 million year-end budget transfer from the General Fund
was suspended in FY 2009 and 2011, and resumes in FY 2011
o An additional $1 million reduction in the General Fund transfer
for FY 2010 was recommended by the Finance Committee
Proposed Budget FY 2010 & 2011
Update to Infrastructure Backlog Report
o Infrastructure Backlog Report
• Total Backlog (20 years)
• 2009-13 GF CIP appropriations
• Total Unfunded Backlog 2009-13
$ 450 million
($ 64) million
$ 386 million
15
16
8
Proposed Budget FY 2010 & 2011
i o Questions/Discussion
17
9