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2020-01-27 City Council Agenda Packet
City Council 1 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. Monday, January 27, 2020 Special Meeting Council Chambers 6:00 PM Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in the Council Chambers on the Thursday 11 days preceding the meeting. PUBLIC COMMENT Members of the public may speak to agendized items; up to three minutes per speaker, to be determined by the presiding officer. If you wish to address the Council on any issue that is on this agenda, please complete a speaker request card located on the table at the entrance to the Council Chambers, and deliver it to the City Clerk prior to discussion of the item. You are not required to give your name on the speaker card in order to speak to the Council, but it is very helpful. Public comment may be addressed to the full City Council via email at City.Council@cityofpaloalto.org. TIME ESTIMATES Time estimates are provided as part of the Council's effort to manage its time at Council meetings. Listed times are estimates only and are subject to change at any time, including while the meeting is in progress. The Council reserves the right to use more or less time on any item, to change the order of items and/or to continue items to another meeting. Particular items may be heard before or after the time estimated on the agenda. This may occur in order to best manage the time at a meeting or to adapt to the participation of the public. To ensure participation in a particular item, we suggest arriving at the beginning of the meeting and remaining until the item is called. HEARINGS REQUIRED BY LAW Applicants and/or appellants may have up to ten minutes at the outset of the public discussion to make their remarks and up to three minutes for concluding remarks after other members of the public have spoken. Call to Order Closed Session 6:00-7:00 PM Public Comments: Members of the public may speak to the Closed Session item(s); three minutes per speaker. 1.CONFERENCE WITH CITY ATTORNEY-POTENTIAL LITIGATION Subject: Implementation of California Assembly Bill 5 Effective January 1, 2020, Regarding Worker Classification Authority: Potential Exposure to Litigation Under Government Code Section 54956.9(d)(2) (Multiple Potential Cases, as Defendant) Agenda Changes, Additions and Deletions Oral Communications 7:00-7:15 PM Members of the public may speak to any item NOT on the agenda. Council reserves the right to limit the duration of Oral Communications period to 30 minutes. Minutes Approval 7:15-7:20 PM 2.Approval of Action Minutes for the January 13, 2020 Council Meeting 2 January 27, 2020 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. Consent Calendar 7:20-7:25 PM Items will be voted on in one motion unless removed from the calendar by three Council Members. 3.QUASI-JUDICIAL: Deny Appeal by Crown Castle and Uphold the Director's Decisions to Deny Wireless Communication Facilities on Wood Utility Poles in the Public Right of Way (For Lease to Verizon, Known as Crown Castle Cluster 3) in six Locations Within the Downtown North Neighborhood [File 17PLN-00450], Zoned Public Facilities. Locations are Adjacent to These Zones/Addresses: RM-30 (205 Everett/251 Emerson, 243 Hawthorne, and 258 Waverley); RM-D (NP) (482 Everett and 301 Bryant); RM-15 (201 High). The Project is Exempt From the Provisions of the California Environmental Quality Act (CEQA) in Accordance With Public Resources Code Section 21080 4.Review and Acceptance of the Annual Status Report on Development Impact Fees for Fiscal Year 2019 5.Finance Committee Recommends the City Council: 1) Approve the Fiscal Year (FY) 2019 Comprehensive Annual Financial Report (CAFR); 2) Approve Amendments to the FY 2019 Budget in Various Funds; 3) Approve Recommended use of Excess General Fund Budget Stabilization Reserve Funds; and 4) Accept Macias Gini and O'Connell's Audit of the City of Palo Alto's Financial Statements as of June 30, 2019, and Management Letter 6.Adoption of a Resolution for the City of Palo Alto to Participate With the City of Sunnyvale in the Planning and Development of Cost Estimates for Potential Future use of the Sunnyvale Materials Recovery and Transfer Station (SMaRT Station) for Processing Solid Waste 7.Policy and Services Committee and Staff Recommend the City Council Accept the Status Updates of the Audits of: 1) Citywide Cash Handling and Travel Expense; 2) Cable Franchise and Public Education and Government (PEG) Access Fees; 3) Continuous Monitoring: Overtime; and 4) Continuous Monitoring: Payments 8.Authorization to Amend the Existing Legal Service Agreement With the Law Firm of Colantuono, Highsmith & Whatley, PC (Contract S17167696) to Increase the Contract Amount by an Additional $125,000, Bringing the new Not-to-Exceed Amount of the Contract to $295,000, and Increase the Term by one Year; and to Approve a Budget Amendment in the General Fund 9.Authorization to Increase the Existing Legal Services Agreement (Contract S18170470) With Meyers Nave, a Professional Law Q&A 3 January 27, 2020 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. Corporation by an Additional $15,000 for a Total Not-to-Exceed Amount of $205,000 and to Extend the Term to March 30, 2020 10.Authorization to Amend the Existing Agreement for Litigation Defense Services With the Law Firm of Jarvis, Fay & Gibson (Contract S15159508) to Increase the Contract Amount by an Additional $125,000 for a Total Not-to-Exceed Amount of $820,000; and Approve a Budget Amendment in the General Fund City Manager Comments 7:25-8:15 PM 11.City Manager’s Year in Review Action Items Include: Reports of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Reports of Officials, Unfinished Business and Council Matters. 8:15-9:30 PM 12.Staff Update and Council Consideration Regarding Polling Results, Analysis, and Public Outreach and Potential Direction Regarding a Possible Local Tax Ballot Measure for the 2020 Election 9:30-10:15 PM 13.Approval of: 1) Agreement Between the City of Palo Alto Representing the Cable Joint Powers and Midpeninsula Community Media Center, Inc. for Public, Education, and Government Access (PEG) Channel Support Services; 2) Memorandum of Understanding (MOU) Between the Cable Joint Powers Covering the use of PEG Fees; 3) Contribution Agreement With Midpeninsula Community Media Center, Inc. in the Amount of $511,536, Equivalent to PEG Fees Used for Council Chambers Upgrade Project; and 4) Amendment to the Fiscal Year 2020 Budget Appropriation in the Technology Fund Council Member Questions, Comments and Announcements Members of the public may not speak to the item(s) Adjournment AMERICANS WITH DISABILITY ACT (ADA) 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. Q&A 4 January 27, 2020 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. Additional Information Schedule of Meetings Schedule of Meetings Tentative Agenda Tentative Agenda Informational Report Report on Surplus Property Donated to Nonprofit Organizations Public Letters to Council Set 1 CITY OF PALO ALTO OFFICE OF THE CITY CLERK January 27, 2020 The Honorable City Council Attention: Finance Committee Palo Alto, California Approval of Action Minutes for the January 13, 2020 Council Meeting Staff is requesting Council review and approve the attached Action Minutes. ATTACHMENTS: • Attachment A: 01-13-20 DRAFT Action Minutes (PDF) Department Head: Beth Minor, City Clerk Page 2 CITY OF PALO ALTO CITY COUNCIL DRAFT ACTION MINUTES Page 1 of 7 Regular Meeting January 13, 2020 The City Council of the City of Palo Alto met on this date in the Council Chambers at 6:01 P.M. Present: Cormack, DuBois, Filseth, Fine, Kniss, Kou; Tanaka arrived at 6:04 P.M. Absent: Agenda Changes, Additions and Deletions None. Minutes Approval 1. Approval of Action Minutes for the December 9 and 16, 2019 and January 6, 2020 Council Meetings. MOTION: Council Member Cormack moved, seconded by Council Member Kniss to approve the Action Minutes for the December 9 and 16, 2019 and January 6, 2020 Council Meetings. MOTION PASSED: 7-0 Consent Calendar Council Member Tanaka registered a no vote on Agenda Item Number 3. MOTION: Vice Mayor DuBois moved, seconded by Council Member Cormack to approve Agenda Item Numbers 2-6. 2. Park Improvement Ordinance 5487 Entitled, “Park Improvement Ordinance of the Council of the City of Palo Alto for Renovations and new Amenities at Rinconada Park as Recommended by the Parks and Recreation Commission. 3. Approval of an Exemption From Competitive Solicitation and Approval of Amendment Number 1 to Contract Number C20176003 With Universal Semiconductor Inc. d/b/a Universal Security Company for Security Guard Services, Increasing Maximum Compensation by DRAFT ACTION MINUTES Page 2 of 7 City Council Meeting Draft Action Minutes: 01/13/20 $425,062 to add These Services at the Regional Water Quality Control Plant, for a Total Not-to-Exceed Amount of $897,344. 4. Policy and Services Committee Recommends the City Council Approve the 2020 Legislative Guidelines and Updated Advocacy Manual. 5. Park Improvement Ordinance 5488 Entitled, “Park Improvement Ordinance of the Council of the City of Palo Alto for Installation of Electric Utility Equipment at Peers Park as Recommended by the Parks and Recreation Commission.” 6. Authorize and Approve an Additional $10.5 Million Loan From the Housing In-lieu and Impact Fee Funds for a Total City Contribution of $20.5 Million for the Development of the 100 Percent Affordable Housing Project at 3705 El Camino Real (Wilton Court); and Approve Budget Amendments in the Residential Housing In-lieu Fund, the Commercial Housing Fund, and the Residential Impact Fee Fun. MOTION PASSED FOR AGENDA ITEM NUMBER 3: 6-1 Tanaka no MOTION PASSED FOR AGENDA ITEM NUMBERS 2, 4-6: 7-0 Action Items 7. PUBLIC HEARING: Objections to Weed Abatement and Adoption of Resolution 9875 Entitled, “Resolution of the Council of the City of Palo Alto Ordering Weed Nuisance Abated.” Public Hearing opened and closed without public comment at 6:28 P.M. MOTION: Council Member Cormack moved, seconded by Council Member Filseth to adopt a Resolution ordering the abatement of weed nuisances in the City of Palo Alto. MOTION PASSED: 7-0 8. PUBLIC HEARING: Adoption of an Interim Urgency Ordinance 5489 Entitled, “Interim Urgency Ordinance of the Council of the City of Palo Alto to Implement State Legislation Effective January 2020 Regarding Accessory Dwelling Units and Junior Accessory Dwelling Units Amending Palo Alto Municipal Code Title 18 (Zoning) Section 18.04.030 of Chapter 18.04 (Definitions), and Section 18.42.040 (Accessory and Junior Accessory Dwelling Units) of Chapter 18.42 (Standards for Special Uses).” Environmental Assessment: Exempt From Review Under the California Environmental Quality Act (CEQA) Pursuant to Public DRAFT ACTION MINUTES Page 3 of 7 City Council Meeting Draft Action Minutes: 01/13/20 Resources Code Section 21080.17 and CEQA Guidelines Sections 15061(b)(3), 15282(h), 15301, 15302, and 15305. Public Hearing opened at 7:16 P.M. Public Hearing closed at 7:20 P.M. MOTION: Vice Mayor DuBois moved, seconded by Council Member Kniss to adopt an Interim Urgency Ordinance Amending Title 18 (Zoning) of the Palo Alto Municipal Code to Amend Requirements Relating to Accessory Dwelling Units (ADUs) and Junior Accessory Dwelling Units (JADUs), to be effective upon adoption, including the following: A. Allow Staff to make minor corrections to the Ordinance to align with State Law; and B. Include a catch-all clause. AMENDMENT: Council Member Kou moved, seconded by Council Member XX to add to the Motion “when a deed restriction is recorded, it shall run with the land and will be binding to future owners of the property.” AMENDMENT WITHDRAWN BY THE MAKER INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER AND SECONDER to direct Staff to research whether there should be a termination of permits for ADUs and JADUs as part of the updated Ordinance. AMENDMENT: Council Member Kou moved, seconded by Mayor Fine to add to the Motion “In order to ensure these ADUs and JADUs are used as rentals, require the Owner and all successors in interest in the subject property shall agree to respond to the City of Palo Alto's annual survey of Owners of all ADUs and/or JADUs to determine use, code consistency and for reporting purposes to the State Department of Housing and Community Development (HCD).” AMENDMENT FAILED: 4-3 DuBois, Filseth, Kou yes INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER AND SECONDER to add to the Motion that an ADU or JADU shall not be rented for periods of less than 30 consecutive days. AMENDMENT: Council Member Tanaka moved, seconded by Council Member XX to direct Staff to research whether it is possible to allow underground parking for ADUs and JADUs in order to reduce impacts to street parking as part of the updated Ordinance. DRAFT ACTION MINUTES Page 4 of 7 City Council Meeting Draft Action Minutes: 01/13/20 AMENDMENT FAILED DUE TO THE LACK OF A SECOND MOTION AS AMENDED: Vice Mayor DuBois moved, seconded by Council Member Kniss to adopt an Interim Urgency Ordinance Amending Title 18 (Zoning) of the Palo Alto Municipal Code to Amend Requirements Relating to Accessory Dwelling Units (ADUs) and Junior Accessory Dwelling Units (JADUs), to be effective upon adoption, including the following: A. Allow Staff to make minor corrections to the Ordinance to align with State law; B. Include a catch-all clause; C. Direct Staff to research whether there should be a termination of permits for ADUs and JADUs as part of the updated Ordinance; and D. An ADU or JADU shall not be rented for periods of less than 30 consecutive days. MOTION AS AMENDED PASSED: 7-0 Council took a break at 8:03 P.M. and returned at 8:15 P.M. 9. PUBLIC HEARING: Adoption of Resolution 9876 Entitled, “Resolution of the Council of the City of Palo Alto Establishing a new Priority Development Area (PDA) in Downtown/University Avenue and new Priority Conservation Areas (PCA) in Baylands and Foothills With Proposed or Modified Boundaries;” and Resolution 9877 Entitled, “Resolution of the Council of the City of Palo Alto Consideration of Planning and Transportation Commission's Recommendation for a PDA Designation Along El Camino Real and Other Eligible Areas Citywide.” The Application for PDAs and PCAs and the Accompanying Resolution(s) are not a ‘Project’ as Defined by the California Environmental Quality Act (CEQA) and is Exempted From CEQA Review. Public Hearing opened at 8:22 P.M. Public Hearing closed at 8:26 P.M. MOTION: Mayor Fine moved, seconded by Council Member Kniss to: A. Adopt a Resolution designating a new Priority Development Area (PDA) in Downtown/University Avenue; and B. Adopt a Resolution designating new Priority Conservation Areas (PCAs) in the Foothills and the Baylands. DRAFT ACTION MINUTES Page 5 of 7 City Council Meeting Draft Action Minutes: 01/13/20 MOTION SPLIT FOR THE PURPOSE OF VOTING MOTION PART A PASSED: 4-3 DuBois, Filseth, Kou no MOTION PART B PASSED: 7-0 10. PUBLIC HEARING: Adoption of an Interim Ordinance Amending Title 18 (Zoning) of the Palo Alto Municipal Code to Temporarily Allow Overnight Safe Parking on Sites in all Zoning Districts With a Church or Religious Institution, Establishing Related Regulations, and Finding the Ordinance Exempt From the California Environmental Quality Act (CEQA) Under Guidelines Section 15301. Public Hearing opened at 9:08 P.M. Public Hearing closed at 9:24 P.M. MOTION: Vice Mayor DuBois moved, seconded by Council Member Kou to: A. Find the proposed Ordinance exempt from the California Environmental Quality Act pursuant to Section 15301 of the CEQA Guidelines; B. Adopt an Interim Ordinance Amending Title 18 (Zoning) of the Palo Alto Municipal Code to Temporarily Allow Overnight Safe Parking as an Ancillary Use to a Churches and Religious Institutions Use in All Zoning Districts Where Churches and Religious Institutions are an Allowed Use, and Establishing Temporary Regulations Related to Safe Parking, Including a Maximum Number of Vehicles Per Night on Each Site, with the following changes: i. Notice would be given to immediate neighbors; ii. Establish a pilot period of 18 months; iii. Delete Section 13, removing the sunset; iv. Return to Council for review prior to March 2022; v. Direct Staff to continue to work on safe parking phases and consider: a) Removal of the requirements for this to be done only by religious institutions; b) Look at process to allow lots to host more than 4 vehicles; and DRAFT ACTION MINUTES Page 6 of 7 City Council Meeting Draft Action Minutes: 01/13/20 c) Look at safe parking for oversized vehicles AMENDMENT: Council Member Cormack moved, seconded by Council Member Tanaka to amend the Motion Part B. i. to state “Notice will be given to residents within 600 feet” and delete from the Motion Part B. v. AMENDMENT SPLIT FOR THE PURPOSE OF VOTING AMENDMENT RESTATED: Council Member Cormack moved, seconded by Council Member Tanaka to: A. Delete from the Motion Part B. i. B. Delete from the Motion Part B. v. AMENDMENT SPLIT FOR THE PURPOSE OF VOTING AMENDMENT PART A PASSED: 4-3 DuBois, Fine, Kou no AMENDMENT PART B PASSED: 4-3 DuBois, Filseth, Kou no MOTION AS AMENDED: Vice Mayor DuBois moved, seconded by Council Member Kou to: A. Find the proposed Ordinance exempt from the California Environmental Quality Act pursuant to Section 15301 of the CEQA Guidelines; B. Adopt an Interim Ordinance Amending Title 18 (Zoning) of the Palo Alto Municipal Code to Temporarily Allow Overnight Safe Parking as an Ancillary Use to a Churches and Religious Institutions Use in All Zoning Districts Where Churches and Religious Institutions are an Allowed Use, and Establishing Temporary Regulations Related to Safe Parking, Including a Maximum Number of Vehicles Per Night on Each Site, with the following changes: i. Establish a pilot period of 18 months; ii. Delete Section 13, removing the sunset; iii. Return to Council for review prior to March 2022; INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER AND SECONDER to change the Motion Part B. ii. to state “remove the sunset provision.” DRAFT ACTION MINUTES Page 7 of 7 City Council Meeting Draft Action Minutes: 01/13/20 MOTION AS AMENDED RESTATED: Vice Mayor DuBois moved, seconded by Council Member Kou to: A. Find the proposed Ordinance exempt from the California Environmental Quality Act pursuant to Section 15301 of the CEQA Guidelines; B. Adopt an Interim Ordinance Amending Title 18 (Zoning) of the Palo Alto Municipal Code to Temporarily Allow Overnight Safe Parking as an Ancillary Use to a Churches and Religious Institutions Use in All Zoning Districts Where Churches and Religious Institutions are an Allowed Use, and Establishing Temporary Regulations Related to Safe Parking, Including a Maximum Number of Vehicles Per Night on Each Site, with the following changes: i. Establish a pilot period of 18 months; ii. Remove the sunset provision; and iii. Return to Council for review prior to March 2022. MOTION AS AMENDED PASSED: 7-0 State/Federal Legislation Update/Action None. Adjournment: The meeting was adjourned at 10:28 P.M. City of Palo Alto (ID # 10761) City Council Staff Report Report Type: Consent Calendar Meeting Date: 1/27/2020 City of Palo Alto Page 1 Summary Title: Appeal by Crown Castle of Director's Denial of Six Wireless Communication Nodes (Crown Cluster 3) Title: QUASI-JUDICIAL: Deny Appeal by Crown Castle and Uphold the Director's Decisions to Deny Wireless Communication Facilities on Wood Utility Poles in the Public Right of Way (For Lease to Verizon, Known as Crown Castle Cluster 3) in Six Locations Within the Downtown North Neighborhood [File 17PLN-00450], Zoned Public Facilities. Locations are Adjacent to These Zones/Addresses: RM-30 (205 Everett/251 Emerson, 243 Hawthorne and 258 Waverley); RM-D (NP) (482 Everett and 301 Bryant); RM- 15 (201 High). The Project is Exempt From the Provisions of the California Environmental Quality Act (CEQA) in Accordance With Public Resources Code Section 21080 From: City Manager Lead Department: Planning and Development Services Recommendation Staff recommends that the City Council deny the appeal from Crown Castle and uphold the Director of Planning and Development Services’ (PDS) decision to deny six ‘small cell’ Wireless Communication Facility (WCF) nodes proposed in application #17PLN-00450 (“Crown Castle Cluster 3”). The attached Record of Land Use Action (Attachment A) is for denial of all six of the following WCF nodes on wood utility poles: •Node 20, CPAU Pole #6474 (adjacent to 205 Everett Ave and also near 251 Emerson St) •Node 21m1, CPAU Pole #6362 (adjacent to 301 Bryant St and also near 311 Everett Av) •Node 22m2, CPAU Pole #6288 (adjacent to 258 Waverley St, replaced Node 22 near 386 Everett) •Node 23, CPAU Pole #6350 (adjacent to 482 Everett Avenue) •Node 24, CPAU Pole #6378 (adjacent to 243 Hawthorne Avenue) •Node 32, CPAU Pole #6492 (adjacent to 201 High Street). Executive Summary On October 9, 2019, the Director denied the Crown Castle Cluster 3 applications for six ‘small cell’ WCF nodes in the Downtown North neighborhood (File 17PLN-00450) (Attachments B and City of Palo Alto Page 2 C). The proposed nodes consist of 4G-capable, top-mounted antennas and side-mounted equipment on six existing wood utility poles. The Director’s Decision letter includes background information about the project applications and provides the detailed Findings for Denial. On October 23, 2019, the City received one timely appeal from Crown Castle that challenges all six denial decisions (Attachment D). The appeal deadline was October 23, 2019, and no other appeals were filed. The Crown Castle appeal (19-AP-03) asserts: 1. Violation of 47 U.S.C. SS 332(c)(7)(B)(iii): The Director’s Decision Does Not Rest on Substantial Evidence. 2. Violation of 47 U.S.C. SS 332(c)(7)(i)(II): The Denials Result in a Prohibition of Service. 3. Violation of 47 U.S.C SS 253: The Denials Rest on Prohibitory Requirements that Are Preempted by Federal Law. 4. Violation of 47 U.S.C SS 253(c): The Director’s Denials Impose a Discriminatory Barrier to Market Entry. 5. The Director’s Denials Violate Crown Castle’s Statewide Franchise Rights Under California Public Utilities Code Section 7901. Background In September 2017, the Architectural Review Board (ARB) discussed Crown Castle’s Preliminary Architectural Review application (File 17PLN-00193) regarding conceptual siting criteria and proposed WCF designs.1 On December 13, 2017, Crown Castle formally filed the ‘Cluster 3’ WCF applications (File 17PLN-00450). The ARB received a staff report on the Crown Castle Cluster 3 WCF applications for an initial hearing in December 2018.2 However, the hearing was continued and was instead discussed at the January 17, 2019 ARB meeting date.3 The Crown Castle appeal, the Director’s Decisions letter, the project plans, and public correspondence regarding Crown Castle Cluster 3 are viewable online on the following City webpage: https://www.cityofpaloalto.org/news/displaynews.asp?NewsID=4192. Director’s Decisions 1 ID#8309 Preliminary Architectural Review (17PLN-00193) report September 21, 2017 (https://www.cityofpaloalto.org/civicax/filebank/documents/61856); Meeting Minutes: (https://www.cityofpaloalto.org/civicax/filebank/documents/74815); Video: http://midpenmedia.org/architectural-review-board-70/). 2 ID#9531 ARB report December 6, 2018 (https://www.cityofpaloalto.org/civicax/filebank/documents/68006); Meeting Minutes: (https://www.cityofpaloalto.org/civicax/filebank/documents/74816); Video: (https://midpenmedia.org/architectural-review-board-74-1262018/). 3 ID#9961 ARB report January 17, 2019 (https://www.cityofpaloalto.org/civicax/filebank/documents/68420); Meeting Minutes (https://www.cityofpaloalto.org/civicax/filebank/blobdload.aspx?BlobID=74822); Video: (https://midpenmedia.org/architectural-review-board-74-1172019/). City of Palo Alto Page 3 The Director’s Decisions letter reflects staff review and consideration of the applicant’s proposed WCF nodes for consistency and compliance with applicable municipal code requirements. The Decisions letter also conveys the ARB’s recommendations based on the administrative record. The proposed Cluster 3 WCF node locations are shown in Figure 1. Figure 1: Proposed Crown Castle Cluster 3 WCF Locations in the Downtown North Neighborhood The Director’s Decisions letter also provides relevant background information on Crown Castle Cluster 3, including the following key points: • After the September 21, 2017 Preliminary ARB meeting, Crown Castle adjusted one WCF node location and changed the configuration to include a shroud design for the wood bayonet extension. • The City received applications for the six WCF nodes in Crown Castle Cluster 3 on December 13, 2017. • Prior to the January 17, 2019 ARB meeting, Crown Castle representatives indicated to staff that they wanted feedback from the ARB, the public, and the City’s subconsultants. Crown sought this feedback prior to making any adjustments to their plans. • In ARB staff reports dated December 6, 2018 and January 17, 2019, PDS staff and the Director identified items that remained outstanding for Crown Castle to address for the WCF nodes to meet the standards for WCF approval. • PDS staff regularly contacted Crown Castle after the January 17, 2019 ARB meeting, without any substantive response from Crown Castle. Crown Castle had suggested project plans and other materials may be forthcoming with design modifications, refined antenna placement, perfecting the network. • On September 17, 2019, staff received communication that Crown Castle was in a ‘holding pattern’ on how to proceed with the project. City of Palo Alto Page 4 • The Director issued the denial decisions on October 9, 2019, within a tolling agreement period in effect at that time and agreed upon by the City and Crown Castle. A tolling agreement is a mutual agreement between the agency (City of Palo Alto) and the applicant (Crown Castle, in this case) to extend the FCC imposed timeline (aka ‘shot clock’) end date or ‘deadline’ to issue decisions on the applications and related permits. Applicable Standards The Director’s Decisions letter provides findings for denial under two alternative sections in the Palo Alto Municipal Code (PAMC), due to the changes in the Federal Communication Commission (FCC) regulations and guidance issued while Crown Castle Cluster 3 was under consideration: • The six WCF nodes are described as Tier 3 WCFs under the PAMC Section 18.42.110 in effect at the time of formal application receipt (December 2017) and review by the ARB (January 2019), with approval subject to PAMC Section 18.42.110(h) Tier 3 WCF Permit Process and Findings (2017/2018). • The six WCF nodes are described as Tier 2 WCFs under the current PAMC Section 18.42.110, with approval subject to PAMC Section 18.42.110(g) Tier 2 Wireless Communication Facilities Permit Process and Findings (2019). Council approved amendments to PAMC Section 18.42.110 in mid-2019 to comply with the changes in FCC regulations and guidance that came into effect in January 2019.4 Prior to mid-2019, Tier 3 WCF permit applications were subject to the WCF development standards in PAMC Section 18.42.110(i), the Architectural Review findings in PAMC Section 18.76.020, and the Conditional Use Permit findings in PAMC Section 18.76.010. After mid-2019, Tier 2 WCF permit applications were subject to the objective standards adopted and amended by Council resolution or the Generally Applicable Development Standards in PAMC Section 18.42.110(i). City Council adopted an update to the objective standards on December 16, 2019, after the Director issued the Crown Castle Cluster 3 Decisions letter. The Director’s Decisions letter denied the six WCF nodes in Cluster 3 without prejudice to any potential new application, which would be subject to the objective standards and PAMC Section 18.42.110 in effect at the time of application filing. Appeal Process Under both PAMC Section 18.42.110(h)(1), and 18.42.110(g), the Director's decision on Crown Castle’s wireless application for Cluster 3 is appealable directly to the City Council, either for discussion at a hearing or on the consent calendar. The Crown Castle appeal is currently scheduled for the consent calendar on Council’s January 27, 2020 agenda. If three Council 4 Ordinance No. 5465 shows the Council amendments to PAMC Section 18.42.110 in underline/strikeout form. The fully codified Council amendments to PAMC Section 18.42.110 can be viewed online (http://library.amlegal.com/nxt/gateway.dll/California/paloalto_ca/title18zoning*/chapter1842standardsforspecia luses?f=templates$fn=default.htm$3.0$vid=amlegal:paloalto_ca$anc=JD_18.42.110). City of Palo Alto Page 5 Members vote to remove the appeal from the consent calendar, the appeal will be discussed on the action items portion of the agenda. Whether on the consent or action items portions of the agenda, the City Council will receive public testimony and act on the appeal on January 27, 2020. The FCC Imposed Timeline and Tolling Agreements WCF permit applications have a unique application process involving an FCC imposed timeline, whereby a decision on each WCF node must take place within a “reasonable” timeframe. The September 2018 FCC Small Cell Order defines reasonable timeframe for a small cell application as 60 days for all applicable permits (including any appeals), unless the timeframe is extended by mutual agreement. Regarding Cluster 3, Crown Castle and the City had previously agreed to extend the tolling agreement period through November 18, 2019. The associated tolling agreement specified an intent to cooperate regarding any need for reasonable extension of the action in the event of an appeal. The tolling agreement was subsequently extended to January 31, 2020 at Crown Castle’s request. If Council chooses to take an action other than upholding the Director’s denial decisions, it would require the applicant’s written consent to extend the current tolling agreement deadline beyond January 31, 2020. The tolling agreement establishes the agreed deadline for the City’s final action on the Cluster 3 project, which includes City actions on the entitlement applications, as well as streetwork and encroachment permits for the Cluster 3 WCF nodes. By January 31, 2020, staff will also act on the associated encroachment permits and streetwork permits consistent with the January 27, 2020 Council decisions for the six WCF nodes. Overview of Federal Law Limitations of Local Land Use Decisions Alongside the City of Palo Alto Comprehensive Plan and associated plans and policies, the local values that guide consideration of a WCF applications are set forth in the Palo Alto Municipal Code (“PAMC”) Section 18.42.110, the architectural review findings in Section 18.76.020(d), the conditional use permit findings in Section 18.76.010(c), and Council’s resolution adopting objective standards for WCF attachments on streetlight poles and wood utility poles in the public rights of way. In accordance with federal law, local governments are not to regulate the specific equipment to be used by an applicant. However, local governments may evaluate how the physical characteristics of the WCF designs and locations comply with local values concerning issues like aesthetics, noise, and safety. No “Effective Prohibition” of Personal Wireless Service The 1996 Federal Telecommunications Act recognizes the traditional zoning authority of local governments, while also precluding local governments from prohibiting, or having the effect of prohibiting the provision of wireless services. The FCC’s September 2018 Small Cell Order interprets this law expansively to preclude cities from “materially inhibiting” the provision of wireless services, including inhibitions on “densifying a wireless network, introducing new City of Palo Alto Page 6 services, or otherwise improving service.” In other words, while local governments may enforce local values, they have limited authority to deny an application where alternative means of providing wireless service are technically infeasible or otherwise unavailable. Multiple lawsuits across the nation, including a consolidated action before the Ninth Circuit Court of Appeals, seek to clarify the allowable scope of the FCC’s broad interpretation of this restriction and its preemptive effect on local land use decisions. No Unreasonable Discrimination Among Equivalent Providers The Telecommunications Act precludes a local agency’s wireless facility siting decisions from unreasonably discriminating among wireless service providers of functionally equivalent services. The Ninth Circuit has held that discrimination is unreasonable if a city treats one provider differently from another that is similarly situated with respect to the structure, placement, or impact of the proposed facilities. In other words, if the City wishes to impose different requirements on similarly situated applications, it must have a reasonable basis for why such differential treatment is necessary. No Regulation Based on Radio Frequency (RF) Emissions The FCC established comprehensive rules for human exposure to RF emissions (the “FCC Guidelines”). Under the Telecommunications Act of 1996, federal regulations preempt state and local governments from regulating RF emissions generated by wireless communications facilities. State and local governments cannot regulate wireless facilities based on environmental effects from RF emissions to the extent that the emissions comply with the FCC Guidelines. Although localities cannot establish their own standards for RF exposure, local officials may require wireless applicants to demonstrate compliance with the FCC Guidelines. Public Hearing and Director’s Decisions The ARB and members of the public discussed Crown Castle Cluster 3 at one formal hearing on January 17, 2019. The ARB had received a report regarding the Cluster 3 application in its packet for December 6, 2018, but did not conduct the hearing until January, with another staff report issued January 17, 2019. Both reports identified many design concepts under the Palo Alto Comprehensive Plan and PAMC Section 18.42.110 and other codes that remained outstanding for Crown Castle to address in order to meet the findings in effect for 2017/2018. In order to meet the findings in effect in 2017/2018, staff also identified opportunities to plant new or replacement amenity trees at four WCF nodes (Node 20, Node 21m1, Node 22m2, and Node 23) to help interrupt direct views of the node, contribute to a more cohesive site-specific design, and help maintain neighborhood character. Staff further identified that the side- mounted equipment proposed for Node 23 and Node 24 is near and/or face existing short transfer poles and that the transfer poles adjacent to Node 23 and Node 24 should be removed. The staff reports also incorporate and discuss the City’s subconsultant report, prepared by CTC and dated December 2018. Staff disseminated the CTC report to Crown Castle in hardcopy form on December 6, 2018, in electronic form on December 13, 2018, and as an attachment to the City of Palo Alto Page 7 January 17, 2019 staff report. The Architectural Review Board discussed the staff reports and the CTC report on January 17, 2019. CTC’s analysis noted that it may be possible to reduce visual impacts by reducing the size of the components (antennas and related equipment), by camouflaging the equipment cabinets in some way, by placing equipment in underground vaults, and/or by considering a microcell architecture as a viable alternative. After presentations from staff and Crown Castle, comments from members of the public, and discussion by ARB members, the ARB moved and recommended denial of the Crown Castle Cluster 3 as presented. The Director’s Decisions letter (Attachment C) provides detailed findings for project denial under both the 2017-2018 and 2019 standards for approval or denial. The Director found that each WCF node failed to meet one or more of the required standards, as outlined in detail in the letter. Under the PAMC, where findings of approval cannot be made, a project must be denied. Discussion Applicant’s Appeal 1. Violation of 47 U.S.C. SS 332(c)(7)(B)(iii): The Director’s Decision Does Not Rest on Substantial Evidence. 2. Violation of 47 U.S.C. SS 332(c)(7)(i)(II): The Denials Result in a Prohibition of Service. 3. Violation of 47 U.S.C SS 253: The Denials Rest on Prohibitory Requirements that Are Preempted by Federal Law. 4. Violation of 47 U.S.C SS 253(c): The Director’s Denials Impose a Discriminatory Barrier to Market Entry. 5. The Director’s Denials Violate Crown Castle’s Statewide Franchise Rights Under California Public Utilities Code Section 7901. Staff disputes each of these assertions. Regarding substantial evidence and a node by node analysis, the Director’s Decisions letter (Attachment C) is organized by the standards for approval or denial. The findings explain how the WCF node design submitted by Crown Castle for each WCF location or a subset of locations does or does not meet each of the standards. There is substantial evidence in the record that the proposed WCF nodes are not compatible with the Downtown North neighborhood; and for the specifically-described aesthetic and safety reasons outlined in the Director’s Decisions letter. As a courtesy, staff has added a table to the draft Record of Land Use Action that summarizes which WCF nodes do not meet which applicable standard. The Director’s Decisions letter specifically cites the substantial evidence upon which the decisions were made, under each of the standards utilized. The evidentiary findings are based on the project plans submitted by the applicant team, which were reviewed by City Departments and summarized in the December 6, 2019 and January 17, 2019 Architectural Review Board staff reports. City of Palo Alto Page 8 Substantial evidence is also contained within department review comments on the application materials, photographs of existing site conditions at each proposed location, the discussion by the ARB, and within the CTC report. Regarding prohibition of service, prohibitory requirements, discriminatory barrier to market entry, and Statewide Franchise Rights, the City has approved other applications for 4G equipment that were able to demonstrate compliance with the City’s standards. Recent examples include Vinculums/Verizon Cluster 1 (17PLN-00169) on May 21, 2018, Vinculums/Verizon Cluster 2 (17PLN-00170) on January 23, 2019, and five of the seven WCF nodes proposed in Crown Castle Cluster 2 (17PLN-00433) on February 4, 2019. The decisions to deny the WCF nodes in Crown Castle Cluster 3 are also consistent with state law regarding the City’s authority to regulate aesthetic impacts in the right of way. Regarding PUC Section 7901, in April 2019 the California Supreme Court held: In sum, neither the plain language of section 7901 nor the manner in which it has been interpreted by courts and the PUC supports plaintiffs’ argument that the Legislature intended to preempt local regulation based on aesthetic considerations.5 Furthermore, there are numerous additional wood utility poles and streetlights available to the applicant within the City’s jurisdiction upon which to propose WCF node locations. There may be WCF designs that could meet the findings for approval. As of the publication of this report, the applicant has not provided any evidence showing that it would be infeasible to pursue a WCF node design that complies with the standards for WCF approval. Contrast with City Actions on Previous Crown Castle Cluster Application (Cluster 2) The City Council acted on the Crown Castle Cluster 2 WCF nodes (upholding the Director’s decisions on 17PLN-00433) before the Council adopted the Objective Wireless Administrative Standards (objective standards) in April 2019. The Director had approved five of the seven Crown Castle Cluster 2 WCF nodes proposed for the University South neighborhood. These decisions were appealed to Council and Council subsequently upheld the specific Director’s decisions.6 There are key distinctions between the Crown Castle Cluster 2 and Crown Castle Cluster 3 applications. As examples, the design for Cluster 2, as conditionally approved, utilizes a smaller volume and footprint than what was originally proposed at each location, the design can provide the horizontal and vertical clearance required for public safety, and all equipment and 5 T-Mobile W. LLC v. City & Cty. of San Francisco, 6 Cal. 5th 1107, 1125, 438 P.3d 239, 249 (2019) 6 Documents related to Crown Castle Cluster 2 include: • ID #9429 (City Manager Report to City Council regarding the Crown Castle Cluster 2 appeals)( https://www.cityofpaloalto.org/civicax/filebank/blobdload.aspx?t=60065.04&BlobID=68682) • City Council Record of Land Use Action 2019-02 (https://cityofpaloalto.org/civicax/filebank/blobdload.aspx?t=50359.16&BlobID=73130) • ID #9350 (Staff Report to the Architectural Review Board (ARB) for December 6, 2018)(https://www.cityofpaloalto.org/civicax/filebank/documents/68005). City of Palo Alto Page 9 cabling would be concealed within the streetlight pole itself, in a top-mounted shroud, or in an underground vault. In contrast, these aforementioned aesthetic and public safety issues are still extant in the Cluster 3 application materials, as discussed in the Director’s Decisions letter. Policy Considerations FCC’s September 2018 Small Cell Order In early 2019, the FCC adopted an Order that requires a 60-day turnaround for the City’s decisions on these types of WCF applications. The update to the City’s wireless code in April 2019 was partially in response to the FCC’s order. One of the goals of the code update was to approve objective standards that create a “menu” of designs that can take advantage of a streamlined review process. This menu was intended to relieve the at-times overwhelming burden of small cell wireless applications on City resources, while retaining an appeal process before the City Council. Cluster 3 Denial Allows Applicant to Resubmit Updated Plans, if Applicant Chooses. Crown Castle Cluster 3 was submitted in December 2017, prior to adoption of the City’s more recent objective standards, but the applicant has not provided any material and substansive responses in order to update or supplement the existing applications to comply with the 2017/2018 or the 2019 standards for approval or denial. Indeed, the applicant has taken no substantial action on the applications in nearly a year, since the ARB held the project hearing in January 2019. The Director’s Decisions letter clearly states that the denial decisions are without prejudice to future applications if Crown Castle can provide plans and other application materials that demonstrate WCF nodes that meet the standards for approval. Resource Impact Per the Municipal Fee Schedule, all WCF Permit applications are processed as Cost Recovery applications; the City charges the applicant for the staff time necessary for processing tasks, such as application review and analysis, preparation of staff reports, and presentations to Council. The Municipal Fee Schedule established that when a timely appeal is filed by a party, applicants then submit a deposit for the processing of that appeal. Processing costs are retained when an appeal is upheld, but not charged if an appeal is denied. Timeline The existing tolling agreement deadline requires that Council review and take action to approve or deny the Crown Castle Cluster 3 WCF nodes on or before January 31, 2020. By January 31, 2020, staff will also act on the associated encroachment permits and streetwork permits consistent with the January 27, 2020 Council decisions on the six WCF nodes. For Council actions other than denial, another tolling agreement extension would be required, though the applicant cannot be compelled to sign a tolling agreement extension. Alternative Action The Council may return at a future date, with Applicant’s consent to a further tolling City of Palo Alto Page 10 agreement, to consider conditional approval of the six WCF nodes in Crown Castle Cluster 3 in whole or in part, and to direct staff to prepare findings for approval and conditions of approval. Environmental Review The decisions to deny six WCF nodes are exempt from the California Environmental Quality Act (CEQA) per Public Resources Code Section 21080(b)(5). Attachments: • Attachment A: Draft City Council Record of Land Use Action (RLUA) • Attachment B: WCF Node Location Map • Attachment C: Director's Decisions Letter (dated October 9, 2019) • Attachment D: AP-2019-03 Crown Castle Appeal of 17PLN-00450 • Attachment E: Applicant Project Description (from ARB Staff Report) NOT YET APPROVED ACTION NO. _______: RECORD OF THE COUNCIL OF THE CITY OF PALO ALTO LAND USE ACTION CROWN CASTLE CLUSTER 3 WIRELESS COMMUNICATION FACILITY [FILE 17PLN-00450] On January 27, 2020, the Council held a duly noticed public hearing, and, after considering all of the evidence presented, denied the appeal (19-AP-03) and upheld the Director of Planning and Development Services’ October 9, 2019 decisions to deny the six Wireless Communication Facility (WCF) nodes in the WCF Permit Applications (File 17PLN-00450), making the following findings, determination and declarations: SECTION 1. Background. The City Council of the City of Palo Alto (“City Council”) finds, determines, and declares as follows: A. On December 13, 2017, Sure Site, on behalf of Crown Castle, filed Tier 3 WCF Permit Applications under the application file number 17PLN-00450. The proposed WCF nodes were grouped together into a cluster for processing to allow coordinated City review and transparency to members of the public about what is proposed in their neighborhoods. This group of applications was referred to as “Crown Castle Cluster 3.” Cluster 3 was comprised of six (6) WCF small cell nodes in the public right of way to be leased by Verizon in the Downtown North neighborhood. All six WCF nodes were proposed on existing wood utility poles and were of a project type anticipated by the Master License Agreement. The proposed equipment would include one antenna at the top of each pole, and shrouded equipment mounted to the poles. The applications were for the following proposed WCF nodes: • Node 20, CPAU Pole #6474 (adjacent to 205 Everett Avenue and also near 251 Emerson Street) • Node 21m1, CPAU Pole #6362 (adjacent to 301 Bryant Street and also near 311 Everett Avenue) • Node 22m2, CPAU Pole #6288 (adjacent to 258 Waverley Street) • Node 23, CPAU Pole #6350 (adjacent to 482 Everett Avenue) • Node 24, CPAU Pole #6378 (adjacent to 243 Hawthorne Avenue) • Node 32, CPAU Pole #6492 (adjacent to 201 High Street). B. Director of Planning and Development Services (Director) denied the WCF application following review by the Architectural Review Board on January 17, 2019. Notices of the Director’s decisions were mailed to residents and owners regarding the October 9, 2019 decisions. The denial decisions are without prejudice and do not preclude the applicant from filing new WCF permit application(s). The action is contained in the CMR #10761. C. Within the prescribed timeframe, on October 23, 2019, Crown Castle submitted an appeal (19-AP-03) of the decisions within the Director’s Decisions letter. D. Crown Castle submitted a project design applicable to six distinct WCF nodes; therefore, the findings below are applicable to the design as proposed at each node: Node 20, Node 21m1, Node 22m2, Node 23, Node 24, and Node 32 in relation to site specific characteristics. The substantial evidence upon which the decisions were made is described within the Director’s Decisions letter under each of the standards utilized; the substantial evidence is primarily within the project plans submitted by the applicant team, NOT YET APPROVED which were reviewed by City Departments and summarized in the December 6, 2019 and January 17, 2019 Architectural Review Board staff reports. Substantial evidence is also contained within department review comments on the application materials, photographs of existing site conditions at each proposed location, the discussion by the ARB, and within the CTC report. Table 1 below provides a node by node overview showing which of the City’s standards for approval were not met. E. The six WCF nodes in Crown Castle Cluster 3 were described as Tier 3 Wireless Communication Facilities under the Palo Alto Municipal Code in effect at the time of formal application receipt, with approval subject to PAMC section 18.42.110(h) (2017/2018). The City subsequently updated its wireless ordinance in 2019 to comply with the FCC guidance and regulations effective January 2019. Under the revised City ordinance in effect when the Director’s Decision was issued, these six WCF nodes are classified as Tier 2 WCF, subject to approval in 18.42.110(g) (2019). To promote clarity, findings for denial below are presented separately under both standards. NOT YET APPROVED Table 1: Crown Castle Cluster 3 (17PLN-00450) Node by Node Summary Relative to the Standards for WCF Permit Approval Standards 2017/2018 Development Standards Node 20 Node 21m1 Node 22m2 Node 23 Node 24 Node 32 Development Standard 1 Fail Fail Fail Fail Fail Fail Development Standard 2 Fail Fail Fail Fail Fail Fail Development Standard 3 Fail Fail Fail Fail Fail Fail Development Standard 4 Fail Fail Fail Fail Fail Fail Development Standard 6 Fail Fail Fail Fail Fail Fail Architectural Review Findings Node 20 Node 21m1 Node 22m2 Node 23 Node 24 Node 32 Architectural Review Finding 1 Fail Fail Fail Fail Fail Fail Architectural Review Finding 2 Fail Fail Fail Fail Fail Fail Architectural Review Finding 3 Fail Fail Fail Fail Fail Fail Architectural Review Finding 4 Fail Fail Fail Fail Fail Fail Architectural Review Finding 5 Fail Fail Fail Fail Conditional Use Permit Findings Node 20 Node 21m1 Node 22m2 Node 23 Node 24 Node 32 Conditional Use Permit Finding 1 Fail Fail Fail Fail Fail Fail Conditional Use Permit Finding 2 Fail Fail Fail Fail Fail Fail Standards 2019 Objective Wireless Administrative Standards (“Objective Standards” or “Wireless Administrative Standards”) (2019) Node 20 Node 21m1 Node 22m2 Node 23 Node 24 Node 32 Match Any of the Four Standard Designs Approved by the City Fail Fail Fail Fail Fail Fail Integrated Shroud and “Antenna Skirt” without Gaps Fail Fail Fail Fail Fail Fail Conduit Mounted Flush to Pole Fail Fail Fail Fail Fail Fail Shrouds and Equipment Designed without Gaps between Materials or Sky Visible between Component Surfaces Fail Fail Fail Fail Fail Fail Total Height Fail Fail Fail Absence of Amenity Trees Fail Fail Fail Fail NOT YET APPROVED Less than the Required 1.5 feet of Horizontal Clearance between the Existing Pole and the Adjacent Curbline Fail Fail Fail Fail Fail Generally Applicable Development Standards (2019) Node 20 Node 21m1 Node 22m2 Node 23 Node 24 Node 32 Development Standard 1 Fail Fail Fail Fail Fail Fail Development Standard 2 Fail Fail Fail Fail Fail Fail Development Standard 3 Fail Fail Fail Fail Fail Fail Development Standard 5 Fail Fail Fail Fail Fail Fail E. On January 27, 2020 the City Council held a duly noticed public hearing on the appeal, at which evidence was presented and all persons were afforded an opportunity to be heard in accordance with the Palo Alto Municipal Code and the Council’s Policies and Procedures. SECTION 2. Environmental Review. The denial decisions are exempt from the provisions of the California Environmental Quality Act per Section 21080(b)(5) of the Public Resources Code. SECTION 3. Denial Findings. A. 2017/2018 Palo Alto Municipal Code (PAMC) Section 18.42.110(h)(2)-(3) [Tier 3] According to PAMC Section 18.42.110(h)(2), the Director or Council on appeal shall grant a Tier 3 Wireless Communication Facility (WCF) permit provided the proposed WCF complies with the development standards in PAMC Section 18.42.110(i), the conditions of approval in Section 18.42.110(j), and that all of the architectural review findings in Section 18.76.020(d) and the conditional use permit findings in PAMC Section 18.76.010(c) can be made. Conversely, PAMC Section 18.42.110(h)(3) provides that the Director, or Council on appeal, shall deny a Tier 3 WCF Permit if the findings above cannot be made. These requirements are intended to ensure that wireless communications facilities blend with their existing surroundings and do not negatively impact the environment, historic properties, or public safety. Finding A-1 - WCF compliance with Development Standards, PAMC 18.42.110(i) The basis for finding that each of the six (6) WCF nodes in Crown Castle Cluster 3 (17PLN-00450) fails to comply with one or more of the Development Standards in PAMC Section 18.42.110(i)(1) through (11) is outlined below: 1. All six nodes fail to meet Development Standard 1, that each WCF “shall utilize the smallest footprint possible.” The design of the WCF nodes in Crown Castle Cluster 3 does not utilize the smallest footprint possible. Specifically: • The proposed designs increase the footprint of the existing wood utility pole itself in a highly noticeable and visually intrusive manner because the conduit(s) running along the pole utilize multiple standoff brackets that increase the overall diameter of the WCF and create visible gaps between the conduit and the existing pole (see Project Plans, Sheets D-5, P-3, and P-4), rather than mounting the conduit(s) flush to the pole. • The radio equipment in the proposed design extends horizontally beyond the minimum necessary and employs a configuration that is not the smallest footprint. Project Plans Sheet D-4 calls for a separation of the RRU-32s to be six inches from the pole and is inconsistent NOT YET APPROVED with Sheets P-3 and P-4 that note a separation of three-inches. Utilizing the six-inch separation on Sheet D-4, the unshrouded RRU-32s extend over two-feet horizontally from the pole. Regardless of the aforementioned inconsistencies in the project plans, if the RRU- 32s were mounted parallel instead of perpendicular to the pole, then the WCF could be more horizontally compact, would be arranged to form a slim profile by using vertical alignment of the equipment rather than the current proposal which shows the equipment ‘sandwiching’ the bracket, and would have a smaller footprint. • In the absence of a detailed analysis that investigated the feasibility of placing WCF node equipment in underground vaults at the proposed locations or elsewhere, the City cannot conclude that the footprint of the proposed side-mounted equipment is the smallest possible, or if it could be smaller through placement of the radio and other equipment in underground vaults. 2. All six nodes fail to meet Development Standard 2, that each WCF ”shall be designed to minimize the overall height, mass, and size of the cabinet and enclosure structure.” The design of the WCF nodes in Crown Castle Cluster 3 does not minimize the overall height, mass, and size of the cabinet and enclosure structure. Specifically: • The application materials did not contain information on how overall height of the proposed design could be minimized by utilizing smaller antennas, which is discussed in the CTC report. • The diameter of the wooden bayonet shroud shown on Project Plans Sheet D-6 for all nodes is generally proposed to be the diameter of the antenna, which is wider and creates more mass and size/volume than the tapered minimum necessary to shroud and conceal the wooden bayonet extension and conduit. • As stated in Finding A-1 paragraph 1 above, the proposed design utilizes standoff brackets to create separation between the conduits and the pole and consequently does not minimize the overall mass and size/volume of an enclosure structure. • As stated in Finding A-1 paragraph 1 above, the proposed design horizontally extends for more than what is necessary from the pole. Using the placement of the standoff brackets as an approximate from which to estimate the mass and size of a cabinet or enclosure structure, the overall mass and volume of a related enclosure would extend further from the pole than what would be necessary if the RRU-32s were mounted parallel to the pole. Furthermore, the top of the cabinet or enclosure structure would need to be higher than the top of the proposed RRU-32s mounting brackets in order to shroud and conceal the currently exposed cables/wires extending from the equipment into the conduit. This design would not minimize overall height, mass, and size of an enclosure structure. 3. All six nodes fail to meet Development Standard 3, that each WCF “shall be screened from public view.” The design of the WCF nodes in Crown Castle Cluster 3 is not screened from public view. Specifically: • Although a shroud for the wooden bayonet extension is proposed, Project Plans Sheet D-6 used for all nodes clarifies that the shroud does not fully extend over the conduit and risers, nor does it extend downwards to the top of the existing pole; given the gaps noted on Sheet D-6, the proposed design does not screen all of the WCF node components proposed near the top of the existing pole. • The proposed design does not screen the radio and other equipment, cabling, and mounting brackets, either by use of metal shrouds that are painted to match the existing wood utility poles or through other means; the side mounted radio and other equipment, cabling, and NOT YET APPROVED mounting brackets are entirely unscreened on each pole. • The proposed design has conduit(s) running along the pole that utilize multiple standoff brackets to increase the overall diameter of the WCF and to create visible gaps between the conduit and the existing pole (see Project Plans Sheets D-5, P-3, and P-4 for all nodes), rather than mounting the conduit(s) flush to the pole. The mounting brackets for the conduit near the top of the pole are not shown in the visual simulations, but they are noted on the elevations in the project plans. • Furthermore, amenity trees are not proposed at four (4) WCF nodes (Node 20, Node 21m1, Node 22m2, and Node 23) to help interrupt direct views of the node and ensure appropriate screening. Additionally, the selected pole for Node 32 is highly visible and there isn’t a readily available opportunity to plant an amenity tree to help interrupt direct views of the proposed WCF. • Additionally, the proposed orientation of the equipment at some nodes increases their visibility within the public right of way: i. Instead of proposing an installation that is parallel to the travel way, Node 21m1 is proposed to face toward private property and over the adjacent sidewalk in a manner resulting in a comparatively wider and more highly visible deployment when viewed from the right of way. ii. Instead of proposing an installation that faces away from an intersection, Node 23 is proposed to face toward an intersection without any screening. iii. Instead of proposing an installation that is parallel to the travel way, Node 32 is proposed to face toward private property and over the adjacent sidewalk in a manner resulting in a comparatively wider and more highly visible deployment when viewed from the right of way. 4. All six nodes fail to meet Development Standard 4, that each WCF ”shall be architecturally compatible with the existing site.” The design of the WCF nodes in Crown Castle Cluster 3 is not architecturally compatible with the existing site; on January 17, 2019, the Architectural Review Board considered the architectural compatibility and aesthetics of the pole-mounted equipment as a significant basis for their recommendation to deny the six (6) WCF nodes in Crown Castle Cluster 3, specifically citing that the proposed design was not unified and coherent in a manner that enhances living conditions on the site and in adjacent residential areas. 5. All six nodes fail to meet Development Standard 6, that “an antenna, base station, or tower shall be designed to minimize its visibility from off-site locations and shall be of a "camouflaged" or "stealth" design, including concealment, screening, and other techniques to hide or blend the antenna, base station, or tower into the surrounding area.” The design of the WCF nodes in Crown Castle Cluster 3 does not minimize its visibility from off-site locations and does not use a “camouflaged” or “stealth” design, including concealment, screening, and other techniques to hide or blend the antenna, base station, or tower into the surrounding area. For instance: • Although a shroud for the wooden bayonet extension is proposed, Project Plans Sheet D-6 for all nodes clarifies that the shroud does not fully extend over the conduit and risers, nor does it extend downwards to the top of the existing pole; given the gaps noted on Sheet D- 6, the proposed design does not screen all of the WCF node components proposed near the top of the existing pole. • The proposed design does not screen the radio and other equipment, cabling, and mounting brackets, either by use of metal shrouds that are painted to match the existing wood utility poles or through other means; the side mounted radio and other equipment, cabling, and NOT YET APPROVED mounting brackets are entirely unscreened on each pole. • The proposed design has conduit(s) running along the pole that utilize multiple standoff brackets to increase the overall diameter of the WCF and to create visible gaps between the conduit and the existing pole (see Project Plans Sheets D-5, P-3, and P-4 for all nodes), rather than mounting the conduit(s) flush to the pole. Note that the mounting brackets for the conduit near the top of the pole are not shown in the visual simulations, but they are noted on the elevations in the project plans. • Furthermore, amenity trees are not proposed at four (4) WCF nodes (Node 20, Node 21m1, Node 22m2, and Node 23) to help interrupt direct views of the node and ensure appropriate screening. Additionally, the selected pole for Node 32 is highly visible and there isn’t a readily available opportunity to plant an amenity tree to help interrupt direct views of the proposed WCF. • Additionally, the proposed orientation of the equipment at some nodes increases their visibility within the public right of way: i. Instead of proposing an installation that is parallel to the travel way, Node 21m1 is proposed to face toward private property and over the adjacent sidewalk in a manner resulting in a comparatively wider and more highly visible deployment when viewed from the right of way. ii. Instead of proposing an installation that faces away from an intersection, Node 23 is proposed to face toward an intersection without any screening. iii. Instead of proposing an installation that is parallel to the travel way, Node 32 is proposed to face toward private property and over the adjacent sidewalk in a manner resulting in a comparatively wider and more highly visible deployment when viewed from the right of way. Finding A-2 – WCF compliance with Architectural Review Findings, PAMC Section 18.76.020(d) The basis for finding that each of the six (6) WCF nodes in Crown Castle Cluster 3 (17PLN-00450) fails to comply with one or more of the architectural review findings in PAMC Section 18.76.020(d) is outlined below. 1. All six nodes fail to meet architectural review finding 1, that “The design is consistent with applicable provisions of the Palo Alto Comprehensive Plan, Zoning Code, coordinated area plans (including compatibility requirements), and any relevant design guides.” As outlined in Finding A-1 above, the design of the WCF nodes in Crown Castle Cluster 3 does not comply with one or more of the development standards in PAMC 18.42.110(i). As outlined in Finding A-3 below, there several goals and policies in the City’s Comprehensive Plan that are not met by the design of the WCF nodes in Crown Castle Cluster 3. Therefore, the design of the WCF nodes in Crown Castle Cluster 3 does not comply with all applicable provisions of the Palo Alto Comprehensive Plan, Zoning Code, coordinated area plans (including compatibility requirements), and any relevant design guides. 2. All six nodes fail to meet the following elements of architectural review finding 2, that “The project has a unified and coherent design, that:” A. Creates an internal sense of order and desirable environment for occupants, visitors, and the general community. The design of the WCF nodes in Crown Castle Cluster 3 does not shroud, conceal, or camouflage the proposed radio and other equipment, cabling, and mounting brackets. The design hangs in a discordant manner to the pole leaving gaps between the components and visual exposure of the many different pieces and sizes of equipment. The design does not use the smallest footprint NOT YET APPROVED possible as required by code. Consequently, the design negatively affects the desirability of the environment for occupants, visitors, and the general community. D. Provides harmonious transitions in scale, mass and character to adjacent land uses and land use designations. The design of the WCF nodes in Crown Castle Cluster 3 does not meet this finding, as the WCF nodes are not designed to blend in with the existing character of or adjacent land uses, have more mass than necessary, and are visually intrusive due to the lack of screening, concealment, and camouflage. E. Enhances living conditions on the site (if it includes residential uses) and in adjacent residential areas. On January 17, 2019, the Architectural Review Board considered the architectural compatibility and aesthetics of the pole-mounted equipment as a significant basis for their recommendation to deny the six (6) WCF nodes in Crown Castle Cluster 3, specifically citing that the proposed design was not unified and coherent in a manner that enhances living conditions on the site and in adjacent residential areas. The design of the WCF nodes in Crown Castle Cluster 3 does not shroud, conceal, or camouflage the proposed radio and other equipment, cabling, and mounting brackets, and the conduit is not mounted flush to the pole. Instead, the design appears to hang in a discordant manner to the pole leaving gaps between the components and visually exposing the many different pieces and sizes of equipment. The proposed project does not include residential uses itself. However, the design of the WCF nodes in Crown Castle Cluster 3 does not enhance the living conditions in adjacent residential areas, as the design does not comply with one or more of the City’s development standards (as outlined in Finding A-1 above) and several Comprehensive Plan goals and policies (as outlined in Finding A-3 below). 3. All six nodes fail to meet architectural review finding 3, that “The design is of high aesthetic quality, using high quality, integrated materials and appropriate construction techniques, and incorporating textures, colors, and other details that are compatible with and enhance the surrounding.” The design of the WCF nodes in Crown Castle Cluster 3 does not meet this finding, as the design does not shroud, conceal, or camouflage the proposed radio and other equipment, cabling, and mounting brackets and the conduit is not mounted flush to the pole. Instead, the design appears to hang in a discordant manner to the pole leaving gaps between the components and visual exposure of the many different pieces and sizes of equipment. 4. All six nodes fail to meet the architectural review finding 4, that “The design is functional, allowing for ease and safety of pedestrian and bicycle traffic and providing for elements that support the building's necessary operations (e.g. convenient vehicle access to property and utilities, appropriate arrangement and amount of open space and integrated signage, if applicable, etc.).” The design of the WCF nodes in Crown Castle Cluster 3 fails to demonstrate that each node would have adequate horizontal clearance while not facing private property or extending over adjacent sidewalks, affecting the ease and safety of pedestrian and bicycle traffic. Furthermore, the proposed design is not shown to provide adequate vertical clearance over sidewalks, which is a required 10 feet in the City’s standard conditions of approval, and affects the ease and safety of pedestrian and bicycle traffic. 5. Four of the six nodes fail to meet architectural review finding 5, that “The landscape design complements and enhances the building design and its surroundings, is appropriate to the site's functions, and utilizes to the extent practical, regional indigenous drought resistant plant material capable of providing desirable habitat that can be appropriately maintained.” Node 20, Node 21m1, NOT YET APPROVED Node 22m2, and Node 23 do not meet this finding, as those WCF nodes do not include the use of amenity trees to provide screening where it would be possible. Finding A-3 – WCF compliance with Conditional Use Permit Findings, PAMC Section 18.76.010(c) The basis for finding that each of the six (6) WCF nodes in Crown Castle Cluster 3 (17PLN-00450) fails to comply with one or more of the conditional use permit findings in PAMC Section 18.76.010(c) is outlined below: 1. All six nodes fail to meet conditional use permit finding 1, that “The project will not be detrimental or injurious to property or improvements in the vicinity, and will not be detrimental to the public health, safety, general welfare, or convenience.” The Crown Castle Cluster 3 application materials do not clearly demonstrate that development standards-compliant WCF node designs would be mounted and installed in a manner that complies with the following safety regulations, specifically: • adherence to Federal Communications Commission standards, including those in FCC Bulletin OET 65, • adherence to California Public Utilities Commission (CPUC) General Order (GO) 95 requirements, with regard to equipment mounting orientation not precluding access to the required climbing space on the pole, providing vertical separation of antennas from electric lines, ensuring the post-installation structural integrity of the pole, and providing compliant attachment and mounting details and materials, • providing at least minimum horizontal and/or vertical clearance from intersections, curblines, and the travel way for pedestrians, bicycles, and vehicles (which is important for the operation of bicycle lanes, red curb zones, on-street parking spaces for standard height vehicles as well as oversized delivery vehicles, etc.). • providing at least minimum sight line clearance at intersection street corners, including at least a minimum of three foot horizontal clearance from corners to ensure visibility and safety. • prevention of obstructions to pedestrian and bicycle flow in general and especially on narrow sidewalks any busy sidewalks. Furthermore, there is less than the required 1.5 feet of horizontal clearance between the existing pole and the adjacent curbline at the following five (5) node locations, resulting in the inability to provide the horizontal clearance while also not facing private property or extending over existing sidewalks: o Node 20, CPAU Pole #6474 (adjacent to 205 Everett Avenue and also near 251 Emerson Street) o Node 21m1, CPAU Pole #6362 (adjacent to 301 Bryant Street and also near 311 Everett Avenue) o Node 23, CPAU Pole #6350 (adjacent to 482 Everett Avenue) o Node 24, CPAU Pole #6378 (adjacent to 243 Hawthorne Avenue) o Node 32, CPAU Pole #6492 (adjacent to 201 High Street). 2. All six nodes fail to meet conditional use permit finding 2, that “The project is located and conducted in a manner in accord with the Palo Alto Comprehensive Plan and the purposes of this title (Zoning).” The City’s Municipal Code provides a process to permit WCF’s that blend with their existing surroundings and do not negatively impact the environment, historic properties, or public safety. As outlined in Finding A-1 above, the design of the WCF nodes in Crown Castle Cluster 3 does not comply with one or more of the development standards in PAMC 18.42.110(i). As outlined here, there several NOT YET APPROVED goals and policies in the City’s Comprehensive Plan that are not met by the design of the WCF nodes in Crown Castle Cluster 3: o The design of the WCF nodes in Crown Castle Cluster 3 prevents the finding of consistency with Comprehensive Plan GOAL L-4/POLICY L-4.7/POLICY L-4.8, which emphasize maintaining and enhancing the downtown area by promoting quality design that recognizes the regional and historic importance of the area, reinforces its pedestrian character, and that creates an environment that is inviting to pedestrians and bicyclists. The proposed design fails to minimize its footprint, is not screened from public view, has more mass than necessary, and has other aesthetic challenges as outlined in Finding A-1 above, and does not provide adequate horizontal and vertical clearances for pedestrians, bicyclists, and vehicles as outlined above in Finding A-3 paragraph 1. o The design of the WCF nodes in Crown Castle Cluster 3 prevents the finding of consistency with Comprehensive Plan GOAL L-9/POLICY L-9.3/POLICY L-9.4/POLICY L- 9.5/POLICY L-9.10/PROGRAM L9.10.2, which emphasize creating attractive, inviting public spaces and streets that enhance the image and character of the City, treating residential streets a public ways and neighborhood amenities, promoting walking and “active transportation,” and preserving and enhancing publicly accessible, shared outdoor gathering spaces within walking and biking distance of residential neighborhoods, designing utility structures to meet high-quality design standards and embrace technological advances, and encourage the use of compact and well- designed utility elements such as telecommunications infrastructure and place these elements in locations that will minimize their visual intrusion. As discussed by the Architectural Review Board and as outlined in Finding A-1 above, the design is visually intrusive and is not compact, does not utilize the smallest footprint possible or minimize mass, and is not unified and coherent in a manner that enhances living conditions on the site and in adjacent residential areas. o The design of the WCF nodes in Crown Castle Cluster 3 prevents the finding of consistency with Comprehensive Plan GOAL T-6 that emphasizes providing a safe environment for motorists, pedestrians, and bicyclists because the design does not provide adequate horizontal and vertical clearances for pedestrians, bicyclists, and vehicles as outlined above in Finding A-3 paragraph 1. In staff reports dated December 6, 2018 (ID # 9351, available at: https://www.cityofpaloalto.org/civicax/filebank/documents/68006) and January 17, 2019 (ID # 9961, available at: https://www.cityofpaloalto.org/civicax/filebank/documents/68420), the Director identified many design concepts under the Palo Alto Comprehensive Plan and PAMC Section 18.42.110 and other codes that remained outstanding for Crown Castle to address with a response in order to meet the findings in effect for 2017/2018, including: • Discussion of vaulting of equipment, • Ensuring that no sky shall be seen through the mounting and attachment equipment for the antennas and the conduits, • Reducing the standoff distance for pole mounted equipment, • Utilization of shrouding for pole mounted equipment, • Reducing the volume of pole mounted equipment, • Maintaining required climbing space while also not having pole mounted equipment face directly toward adjacent private property or extend over sidewalks, NOT YET APPROVED • Maintaining minimum horizontal and vertical clearances: o At least 1.5-feet horizontal clearance between any new or relocated equipment and the adjacent face of curb or edge of traveled way for any public roadway, driveway, or alley, unless 16-feet vertical clearance is provided between equipment and the top of adjacent travel way, o At least 3-feet of horizontal clearance from driveways or corners, and o At least 10-feet vertical clearance between the adjacent sidewalk, path, or walkway grade. • Clarifying cohesiveness and integration of the design in regard to: o the shape, design, color, and materiality of the antenna shroud, as well as how far it extends from the base of the antenna to the top of the existing pole, o the cables in the conduit into the bottom of the antenna shroud, and o any separation of the conduit from the top and mid-section of the pole, given that the pole has some tapering. • Any pole-mounted equipment must: o not face the street or adjacent properties, o not extend over the sidewalk, o be positioned to ensure the equipment meets minimum horizontal and vertical clearances relative to driveways, corners, and curblines, o be screened by a painted metal shroud, o be arranged to form a slim profile - using vertical alignment of the equipment rather than the current proposal which shows the equipment ‘sandwiching’ the bracket. In order to meet the findings in effect in 2017/2018, staff also identified opportunities to plant new or replacement amenity trees at four WCF nodes (Node 20, Node 21m1, Node 22m2, and Node 23) to help interrupt direct views of the node, contribute to a more cohesive site specific design, and help maintain neighborhood character. Staff further identified that the side- mounted equipment proposed for Node 23 and Node 24 is near and/or face existing short transfer poles and that the transfer poles adjacent to Node 23 and Node 24 should be removed. The staff reports also incorporate and discuss the City’s subconsultant report, prepared by CTC and dated December 2018. Staff disseminated the CTC report to Crown Castle in hardcopy form on December 6, 2018, electronic form on December 13, 2018, and as an attachment to the January 17, 2019 staff report. The Architectural Review Board discussed the staff reports and the CTC report on January 17, 2019. CTC’s analysis noted that it may be possible to reduce visual impacts by reducing the size of the components (antennas and related equipment), by camouflaging the equipment cabinets in some way, by placing equipment in underground vaults, and/or by considering a microcell architecture as a viable alternative. Based on the foregoing and information contained in the administrative record, each of the WCF nodes cannot be found as consistent with the City’s Comprehensive Plan and the purposes of zoning. B. 2019 Palo Alto Municipal Code (PAMC) Section 18.42.110(g)(2)-(3) [Tier 2] According to PAMC Section 18.42.110(g)(2), the Director or Council on appeal shall grant a Tier 2 Wireless Communication Facility (WCF) permit provided the proposed WCF complies with the with the conditions of approval in Section 18.42.110(j) and all objective standards adopted and amended from time to time by resolution of the City Council or the development standards in NOT YET APPROVED Section 18.42.110(i). If such objective standards are repealed, an application shall not be granted unless, in addition to the other requirements of this section, all of the architectural review findings in Section 18.76.020(d) can be made. Conversely, PAMC Section 18.42.110(g)(3) provides that the Director, or Council on appeal, shall deny a Tier 2 WCF Permit if the findings above cannot be made. These requirements are intended to ensure that wireless communications facilities blend with their existing surroundings and do not negatively impact the environment, historic properties, or public safety. Finding B-1 - WCF compliance with Objective Aesthetic, Noise, and Related Standards for Wireless Communication Facilities in the Public Rights of Way (“Objective Standards” or “Wireless Administrative Standards”) 1. The proposed design for the six (6) WCF nodes proposed in Crown Castle Cluster 3 (17PLN-00450) does not comply with one or more of the City’s Wireless Administrative Standards in effect in October 2019. Specifically, the proposed design: • does not match any of the four standard designs approved by the City: a) Underground design, b) Top-mounted design, c) Minimal sunshield design, or d) Existing signage. • does not include a single integrated shroud and “antenna skirt” that meets the pole without any gaps. • does not show conduit as mounted flush to the pole. • does not show all shrouds and equipment designed without gaps between materials or sky visible between component surfaces. Furthermore, the Project Plans show: • A total height that exceeds 55 feet for three (3) WCF nodes (Node 21m1, Node 22m2, and Node 23). • The absence of amenity trees at four (4) WCF nodes (Node 20, Node 21m1, Node 22m2, and Node 23) to help interrupt direct views of the WCF equipment. Additionally, the selected pole for Node 32 is highly visible and there isn’t a readily available opportunity to plant an amenity tree to help interrupt direct views of the proposed WCF. • That there is less than the required 1.5 feet of horizontal clearance between the existing pole and the adjacent curbline at the following five (5) node locations, resulting in the inability to provide the horizontal clearance while also not facing private property or extending over existing sidewalks: o Node 20, CPAU Pole #6474 (adjacent to 205 Everett Avenue and also near 251 Emerson Street) o Node 21m1, CPAU Pole #6362 (adjacent to 301 Bryant Street and also near 311 Everett Avenue) o Node 23, CPAU Pole #6350 (adjacent to 482 Everett Avenue) o Node 24, CPAU Pole #6378 (adjacent to 243 Hawthorne Avenue) o Node 32, CPAU Pole #6492 (adjacent to 201 High Street). Based on the foregoing and information contained in the administrative record, each of the WCF nodes cannot be found as consistent with the City’s Wireless Administrative Standards in effect in October 2019. Finding B-2 - WCF compliance with Generally Applicable Development Standards, PAMC 18.42.110(i) NOT YET APPROVED The basis for finding that each of the six (6) WCF nodes in Crown Castle Cluster 3 (17PLN-00450) fails to comply with one or more of the Generally Development Standards in PAMC 18.42.110(i) is outlined below: 1. All six nodes fail to meet Development Standard 1, that each WCF “shall utilize the smallest antennae, radio, and associated equipment, as measured by volume, technically feasible to achieve a network objective,” as outlined above in Finding A-1 under paragraphs 1 and 2. 2. All six nodes fail to meet Development Standard 2, that each WCF “shall be screened from public view,” as outlined above in Finding A-1 under paragraph 3. 3. All six nodes fail to meet Development Standard 3, that each WCF “when attached to an existing structure, shall be shrouded or screened using materials or colors found on existing structure.” The design of the WCF nodes in Crown Castle Cluster 3 proposes to paint some or all of the mounted equipment Sherwin Williams Well-Bread brown, which is a paint color that is similar to the color of a new or fairly new wood utility pole. However, it is not clear from the application materials if the exposed cables/wires would also be painted this color, and, regardless, the design is not shrouded. 4. All six nodes fail to meet Development Standard 5, that for each WCF, “an antenna, base station, or tower shall be of a "camouflaged" or "stealth" design, including concealment, screening, and other techniques to hide or blend the antenna, base station, or tower into the surrounding area, such as the use of a monopine design,” as outlined above in Finding A-1 under paragraph 5. For the reasons set forth above, the City Council denies Node 20, CPAU Pole #6474 (adjacent to 205 Everett Avenue and also near 251 Emerson Street). For the reasons set forth above, the City Council denies Node 21m1, CPAU Pole #6362 (adjacent to 301 Bryant Street and also near 311 Everett Avenue). For the reasons set forth above, the City Council denies Node 22m2, CPAU Pole #6288 (adjacent to 258 Waverley Street). For the reasons set forth above, the City Council denies Node 23, CPAU Pole #6350 (adjacent to 482 Everett Avenue). For the reasons set forth above, the City Council denies Node 24, CPAU Pole #6378 (adjacent to 243 Hawthorne Avenue). For the reasons set forth above, the City Council denies Node 32, CPAU Pole #6492 (adjacent to 201 High Street). INTRODUCED AND PASSED: AYES: NOES: ABSENT: NOT YET APPROVED ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: __________________________ ____________________________ Deputy City Attorney City Manager ____________________________ Director of Planning and Development Services ____________________________ Director of Administrative Services PC-2967PC- 3266 RM PC- PC-37 PF CD-C (P) PC-4612 RM-30 PF RM-30 PC-4063 PC-3872 PF PF PF CD-C (P) PC-4374 PF PF PF CD (P CD-N (P) PF P C-3111 PC-3974 PF PC-4262 PC-4243 PC-4195 RM-15 R M D(NP) P C-3429 CD-N (P) CD-C(GF)(P) CD-C (P) CD-C (P)PF PC-4611 PC-4053 RMD (NP) R M D(NP) RM-30 PF PC-2049 PC-3102 RM-15 R-1 RM-30 PC-4339 RM-30 R M-30 PF PF PC-2145 RT-50 CD-S(P) RT-35RT-50 RM-30 CD-C (P) PC-4296 PC-4436 CD-C(GF)(P) PC-5158 CD-C (P)CD-C(GF)(P) CD-S(GF)(P) A R R Y R O A D QU A R R Y R OA D EM ERS ON S TREET E L C A MIN O R E AL EL C A MIN O R E AL BRYANT STR EET PALO ALTO AVENUE PALO ALTO AVENUE HA WTHORNE AVEN UEEM ERS O N STREET RAM ONA STREET E M ERSO N STREET HA W TH ORNE AVEN U E HIG H STR EET EVERETT AVENUE EVERETT AVENUE HIG H STR EET ALMA STREET ALM A STREET ALMA STREET LYTTO N AVEN UE E L C A MIN O R E A L QU AR R Y R OA D ALM A STREET EM ER S O N STREET R A M O N A STREETLYTTON AVENUE UNIVERSITY AVEN UE R A M O N A STR EET BRYANT STR EET HIGH STREET E M ERSON STREET ALM A STREET E M E RSON STREET HIGH STREET HIG H STR EETHAMILTON AVENUE HAMILTO N AVEN U E EM ERS ON STREET HA MILTO N AVE N UE GILM A BRYA NT STREET FOREST AVEN UE RA M O NA STREET RA M O N BRYANT STREET FLO RENCE STR EET KIPLING STREET LYTTO N AVEN UE W AVERLEY STREET W AVE RLEY STREET EVERETT AVENU E EVERETT AVEN UEB RYANT STREET W AVERLEY STREET HA WTHORNE AVEN UE RA M O NA STREET BRYA NT STREET LYTTO N AVE N UE UNIVE RSITY AVENUE C O W PE R STREET KIPLIN G STREET UNIVERSITY AVENUE W AVE RLEY STREET RUTHVEN AVENUE POE STREETPALO ALTO AVENUE PALO ALTO AVEN UE CO W PER STREET C O W PE R STREET W AVERLEY STREET HA W THORNE AVEN UE HA W TH O KIPLING STREET EVERETT AVEN UE CO W PER STREET ET EVE W EBSTER STREET LYTTON AVEN UE TAS UN I V E R S I T Y CI RCLE EVERETT C OURT LA NE 7 EAST LANE 5 EAST LANE 6 EAST LANE 20 EAST LANE 30 LAN E 20 W EST LANE 21 MITC HELL LA NE LA NE 33 LAN E 15 EAST BRYANT C OURT PAULSEN LANE LANE 12 W EST LANE 11 W EST CENTENNIAL W ALK P E A R LA N E EL C A MIN O R E AL PALO A PENINSULA C O R RID O R JOINT PO W ERS BOAR D SULA C O R RID O R JOINT PO W ERS BO A RD P A HIGH STREET ALM A STREET FOREST AVENUE URBAN LANE LAN E 7 This map is a product of the City of Palo Alto GIS This document is a graphic representation only of best available sources. Legend Zone Districts abc Zone District Labels 6 Proposed Node Locations (17PLN 00450) City Jurisdictional Limits 0' 400' 17PLN-00450 Location Map and Zoning Districts Area Map v20181121 CITY O F PALO A L TO IN C O R P O R ATE D C ALIFOR N IA P a l o A l t oT h e C i t y o f A P RIL 16 1894 The City of Palo Alto assumes no responsibility for any errors ©1989 to 2016 City of Palo Alto RRivera, 2018-11-21 13:01:17Cell Application Noticing 17PLN 00450 REV 20180628 ZoneLocMap (\\cc-maps\Encompass\Admin\Personal\RRivera.mdb) PLANNING &COMMUNITY ENVIRONMENT CITY OF 250 Hamilton Avenue,5th Floor PALO Palo Alto,CA 94301 ALTO 6503292441 October 9,2019 Crown Castle Attn:Rochelle Swanson,Government Affairs Manager,Northern California One Park Place,Suite 300 Dublin,CA 94568 Subject:Wireless Communication Facility Permit Applications for Six (6)WCF Nodes —Crown Castle Cluster 3 (Downtown North)[17PLN-00450] Dear Rochelle Swanson and Sharon James: On October 8,2019,the Director of Planning and Development Services (Director)denied Wireless Communication Facility (WCF)nodes referenced under file 7PLN-00450 (Downtown North)based upon the Findings for Denial in Attachment A.These Director’s decisions (Denials)are for the following six (6) WCF nodes proposed on wood utility poles in the public right of way: •Node 20,CPAU Pole #6474 (adjacent to 205 Everett Ave and also near 251 Emerson St) •Node 21m1,CPAU Pole #6362 (adjacent to 301 Bryant St and also near 311 Everett Av) •Node 22m2,CPAU Pole #6288 (adjacent to 258 Waverley St,replaced Node 22 near 386 Everett) •Node 23,CPAU Pole #6350 (adjacent to 482 Everett Avenue) •Node 24,CPAU Pole #6378 (adjacent to 243 Hawthorne Avenue) •Node 32,CPAU Pole #6492 (adjacent to 201 High Street). These denials are based upon the review of all information contained within the project file and the review of this information in comparison to applicable zoning and other municipal code requirements.They also take into consideration and are consistent with the recommendations of the Architectural Review Board, as expressed on January 17,2019. The action taken on these applications does not preclude you from filing a new WCF permit application(s) and the denials are without prejudice.To the extent that you believe that these denials preclude you from achieving your network goals,the City would consider new applications. In accordance with the California Environmental Quality Act (CEQA),the denials are exempt from the California Environmental Quality Act (CEQA)per Public Resources Code Section 21080.b(5). EFFECTIVE DATE FOR DECISIONS AND APPEALS PROCEDURE:The Director’s decisions on each of the above referenced six (6)WCF nodes shall become final and effective fourteen (14)calendar days from the postmark date of the letter and notice card mailing (or on the next business day if it falls on a weekend or holiday),unless an appeal(s)is filed.Any appeal(s)shall be in writing and submitted to Planning and Development Services prior to the end of the business day of the fourteenth day.The Director’s decisions CityOfPaloAlto.org Printed with soy-based inks on 100%recycled paper processed without chlorine for those WCF nodes that are not appealed within this time shall become final,notwithstanding any timely appeal of one or more of the other nodes included in this letter. In accordance with PAMC Section 18.42.110(g)and PAMC Section 18.42.110(h),any appeal(s)may be set for hearing before the City Council or may be placed on the City Council’s consent calendar,pursuant to PAMC Section 18.77.070(f).The appeal form,which contains brief instructions,can be found on the City website fhttps://www.cityofpaloalto.org/civicax/filebank/documents/61907).Each appealed WCF node should be specifically listed by node number on the appeal form and in the letter stating the reason(s)for the appeal.In the event you assert that Federal law pre-empts any element of this decision,please provide all relevant evidence. As outlined in the City’s Fiscal Year 2020 Municipal Fee Schedule (https://www.cityofpaloalto.org/civicax/filebank/documents/73099),the cost to appeal one or more WCF nodes is the $595 appeal filing fee.In the event an appeal is filed,the applicant must provide an initial deposit of $3,811.As outlined in the Municipal Fee Schedule,this deposit and any additional funds are refunded if the City Council denies a third party appeal or upholds an applicant appeal. Should you have any questions regarding the denials,please do not hesitate to contact Rebecca Atkinson, at (650)329-2596,or e-mail Rebecca.Atkinson@CityofPaloAlto.org. Sincerel Jo at Lait,AICP,Director of Planning and Development Services Cc: Michael Miller,Crown Castle Michael W.Shonafelt,Newmeyer &Dillion LLP Sharon James,Government Relations Manager,Northern California Rochelle Swanson,Project Manager,Western Region (Sure Site Address) Molly Stump,City Attorney Rebecca Atkinson,Planner Attachment: FINDINGS FOR DENIAL OF NODE 20,NODE 21M1,NODE 22M2,NODE 23,NODE 24,AND NODE 32 [7PLN- 004501 Page 2 of 2 Attachment A: FINDINGS FOR DENIAL OF NODE 20,NODE 21M1,NODE 22M2,NODE 23,NODE 24,AND NODE 32 [17PLN-00450] Background Prior to receipt of Crown Castle Cluster 3 (17PLN-00450),Crown Castle filed a Preliminary Architectural Review application that was discussed by the Architectural Review Board on September 21,2017 (ID #8309,available at: https://www.cityofpaloalto .0 rg/civicax/fileba nk/documents/61856).After their presentation on September 21, 2017,Crown Castle adjusted the proposed location of one WCF node and made a change to the design configuration to include a shroud design for the wood bayonet extension. The City received applications for the six (6)Wireless Communication Facility (WCF)nodes in Crown Castle Cluster 3 (17PLN-00450)on December 13,2017.While each WCF node requires its own Wireless Communication Facility permit,the proposed locations were grouped together into a Cluster for processing to allow coordinated City review and transparency to members of the public about what is proposed in their neighborhoods. Prior to the January 17,2019 Architectural Review Board meeting for Crown Castle Cluster 3 (17PLN-00450), Crown Castle indicated to staff that they wanted to hear feedback from the ARB,the public,and the City’s subconsultants prior to adjusting their plans to respond to staff comments already presented during the review process regarding node locations and facility design configurations. The Director identified items that remained outstanding for Crown Castle to address in the staff reports dated December 6,2018 (ID #9351,available at:https://www.cityofpaloalto.org/civicax/filebank/documents/68006) and January 17,2019 (ID 9961,available at: https://www.cityofpa loalto.org/civicax/filebank/documents/68420). Staff regularly contacted Crown Castle subsequent to the January 17,2019 Architectural Review Board meeting; planning staff sent follow up emails with no substantive response from Crown Castle,although Crown Castle suggested in some communications that project plans and other materials may be forthcoming,including in regard to design modifications,refined antenna placement,and perfecting the network. The current tolling agreement,which was mutually agreed to and signed by representatives of Crown Castle and the City on September 16,2019,requires decisions by the City on the WCF nodes in Crown Castle Cluster 3 (17PLN- 00450)by November 18,2019. On September 17,2019,staff received communication that Crown Castle was in a ‘holding pattern’on how to proceed with the project. The six WCF nodes in Crown Castle Cluster 3 were described as Tier 3 Wireless Communication Facilities under the Palo Alto Municipal Code in effect at the time of formal application receipt,with approval subject to PAMC section 18.42.110(h)(2017/2018).The City subsequently updated its wireless ordinance in April 2019 to comply with the FCC guidance and regulations effective January 2019.Under the current City ordinance,these six WCF nodes are classified as Tier 2,subject to approval in 18.42.110(g)(2019).For the applicant’s convenience,findings for denial below are presented separately under both standards. 17PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 1 of 10 Standard for Approval or Denial 2017 /2018 Palo Alto Municipal Code (PAMC)Section 18.42.110(h)(2)-(3)[Tier 3] (2)The Director or Council on appeal shall grant a Tier 3 WCF permit provided the proposed WCF complies with the Development Standards in Section 18.42.110(i),and the conditions of approval in Section 18.42.110(j),and all of the architectural review findings in Section 18.76.020(d)and the conditional use permit findings in Section 18.76.010(c)can be made. (3)The Director,or Council on appeal,shall deny a Tier 3 WCF Permit if the findings above cannot be made. A.Findings for Denial 2017/2018 Standard: 1.The Director finds that each of the six nodes fails to meet one or more of the applicable Development Standards in PAMC Section 18.42.110(i)(2017/2018),as detailed below. 2.The Director finds that each of the six nodes fails to meet all the architectural review findings in Section 18.76.020(d),as detailed below,and as discussed by the Architectural Review Board on January 17,2019.1 3.The Director finds that each of the six nodes fails to meet all the conditional use permit findings in Section 18.76.010(c),as detailed below. Finding A-i -WCF compliance with Development Standards,PAMC 18.42.110(i) The basis for finding that each of the six (6)WCF nodes in Crown Castle Cluster 3 (17PLN-00450)fails to comply with one or mote of the Development Standards in PAMC Section 18.42.110(i)(1)through (11)is outlined below: 1.All six nodes fail to meet Development Standard 1,that each WCF “shall utilize the smallest footprint possible.”The design of the WCF nodes in Crown Castle Cluster 3 does not utilize the smallest footprint possible.Specifically: •The proposed designs increase the footprint of the existing wood utility pole itself in a highly noticeable and visually intrusive manner because the conduit(s)running along the pole utilize multiple standoff brackets that increase the overall diameter of the WCF and create visible gaps between the conduit and the existing pole (see Project Plans,Sheets D-5,P-3,and P-4),rather than mounting the conduit(s)flush to the pole. •The radio equipment in the proposed design extends horizontally beyond the minimum necessary and employs a configuration that is not the smallest footprint.Project Plans Sheet D-4 calls for a separation of the RRU-32s to be six inches from the pole and is inconsistent with Sheets P-3 and P 4 that note a separation of three-inches.Utilizing the six-inch separation on Sheet D-4,the unshrouded RRU-32s extend over two-feet horizontally from the pole.Regardless of the aforementioned inconsistencies in the project plans,if the RRU-32s were mounted parallel instead of perpendicular to the pole,then the WCF could be more horizontally compact,would be arranged to form a slim profile by using vertical alignment of the equipment rather than the current proposal which shows the equipment ‘sandwiching’the bracket,and would have a smaller footprint. Meeting minutes can be found online:https://www.cityofpaloalto.org/gov/boards/architectural/default.asp.The draft January 17,2019 meeting minutes were approved as corrected on February 1,2019, 7PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 2 of 10 •In the absence of a detailed analysis that investigated the feasibility of placing WCF node equipment in underground vaults at the proposed locations or elsewhere,the City cannot conclude that the footprint of the proposed side-mounted equipment is the smallest possible,or if it could be smaller through placement of the radio and other equipment in underground vaults. 2.All six nodes fail to meet Development Standard 2,that each WCF “shall be designed to minimize the overall height,mass,and size of the cabinet and enclosure structure.”The design of the WCF nodes in Crown Castle Cluster 3 does not minimize the overall height,mass,and size of the cabinet and enclosure structure. Specifically: •The application materials did not contain information on how overall height of the proposed design could be minimized by utilizing smaller antennas,which is discussed in the CTC report. •The diameter of the wooden bayonet shroud shown on Project Plans Sheet D-6 for all nodes is generally proposed to be the diameter of the antenna,which is wider and creates more mass and size/volume than the tapered minimum necessary to shroud and conceal the wooden bayonet extension and conduit. •As stated in Section A-i paragraph 1 above,the proposed design utilizes standoff brackets to create separation between the conduits and the pole and consequently does not minimize the overall mass and size/volume of an enclosure structure. •As stated in Section A-i paragraph 1 above,the proposed design horizontally extends for more than what is necessary from the pole.Using the placement of the standoff brackets as an approximate from which to estimate the mass and size of a cabinet or enclosure structure,the overall mass and volume of a related enclosure would extend further from the pole than what would be necessary if the RRU-32s were mounted parallel to the pole.Furthermore,the top of the cabinet or enclosure structure would need to be higher than the top of the proposed RRU-32s mounting brackets in order to shroud and conceal the currently exposed cables/wires extending from the equipment into the conduit.This design would not minimize overall height,mass,and size of an enclosure structure. 3.All six nodes fail to meet Development Standard 3,that each WCF “shall be screened from public view.”The design of the WCF nodes in Crown Castle Cluster 3 is not screened from public view.Specifically: •Although a shroud for the wooden bayonet extension is proposed,Project Plans Sheet D-6 used for all nodes clarifies that the shroud does not fully extend over the conduit and risers,nor does it extend downwards to the top of the existing pole;given the gaps noted on Sheet D-6,the proposed design does not screen all of the WCF node components proposed near the top of the existing pole. •The proposed design does not screen the radio and other equipment,cabling,and mounting brackets,either by use of metal shrouds that are painted to match the existing wood utility poles or through other means;the side mounted radio and other equipment,cabling,and mounting brackets are entirely unscreened on each pole. •The proposed design has conduit(s)running along the pole that utilize multiple standoff brackets to increase the overall diameter of the WCF and to create visible gaps between the conduit and the existing pole (see Project Plans Sheets D-5,P-3,and P-4 for all nodes),rather than mounting the conduit(s)flush to the pole.The mounting brackets for the conduit neat the top of the pole are not shown in the visual simulations,but they are noted on the elevations in the project plans. •Furthermore,amenity trees are not proposed at four (4)WCF nodes (Node 20,Node 21m1,Node 22m2,and Node 23)to help interrupt direct views of the node and ensure appropriate screening. Additionally,the selected pole for Node 32 is highly visible and there isn’t a readily available opportunity to plant an amenity tree to help interrupt direct views of the proposed WCF. 17PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 3 of 10 •Additionally,the proposed orientation of the equipment at some nodes increases their visibility within the public right of way: i.Instead of proposing an installation that is parallel to the travel way,Node 21m1 is proposed to face toward private property and over the adjacent sidewalk in a manner resulting in a comparatively wider and more highly visible deployment when viewed from the right of way. ii.Instead of proposing an installation that faces away from an intersection,Node 23 is proposed to face toward an intersection without any screening. iii.Instead of proposing an installation that is parallel to the travel way,Node 32 is proposed to face toward private property and over the adjacent sidewalk in a manner resulting in a comparatively widerand more highly visible deployment when viewed from the right of way. 4.All six nodes fail to meet Development Standard 4,that each WCF “shall be architecturally compatible with the existing site.”The design of the WCF nodes in Crown Castle Cluster 3 is not architecturally compatible with the existing site;on January 17,2019,the Architectural Review Board considered the architectural compatibility and aesthetics of the pole-mounted equipment as a significant basis for their recommendation to deny the six (6)WCF nodes in Crown Castle Cluster 3,specifically citing that the proposed design was not unified and coherent in a manner that enhances living conditions on the site and in adjacent residential areas. 5.All six nodes fail to meet Development Standard 6,that ‘an antenna,base station,or tower shall be designed to minimize its visibilityfrom off-site locations and shall be of a “camouflaged”or “stealth”design,including concealment,screening,and other techniques to hide or blend the antenna,base station,or tower into the surrounding area.”The design of the WCF nodes in Crown Castle Cluster 3 does not minimize its visibility from off-site locations and does not use a “camouflaged”or “stealth”design,including concealment, screening,and other techniques to hide or blend the antenna,base station,or tower into the surrounding area.For instance: •Although a shroud for the wooden bayonet extension is proposed,Project Plans Sheet D-6 for all nodes clarifies that the shroud does not fully extend over the conduit and risers,nor does it extend downwards to the top of the existing pole;given the gaps noted on Sheet D-6,the proposed design does not screen all of the WCF node components proposed near the top of the existing pole. •The proposed design does not screen the radio and other equipment,cabling,and mounting brackets,either by use of metal shrouds that are painted to match the existing wood utility poles or through other means;the side mounted radio and other equipment,cabling,and mounting brackets are entirely unscreened on each pole. •The proposed design has conduit(s)running along the pole that utilize multiple standoff brackets to increase the overall diameter of the WCF and to create visible gaps between the conduit and the existing pole (see Project Plans Sheets D-5,P.3,and P-4 for all nodes),rather than mounting the conduit(s)flush to the pole.Note that the mounting brackets for the conduit near the top of the pole are not shown in the visual simulations,but they are noted on the elevations in the project plans. •Furthermore,amenity trees are not proposed at four (4)WCF nodes (Node 20,Node 21m1,Node 22m2,and Node 23)to help interrupt direct views of the node and ensure appropriate screening. Additionally,the selected pole for Node 32 is highly visible and there isn’t a readily available opportunity to plant an amenity tree to help interrupt direct views of the proposed WCF. •Additionally,the proposed orientation of the equipment at some nodes increases their visibility within the public right of way: i.Instead of proposing an installation that is parallel to the travel way,Node 21m1 is proposed to face toward private property and over the adjacent sidewalk in a manner resulting in a 17PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 4 of 10 comparatively wider and more highly visible deployment when viewed from the right of way. ii.Instead of proposing an installation that faces away from an intersection,Node 23 is proposed to face toward an intersection without any screening. iii.Instead of proposing an installation that is parallel to the travel way,Node 32 is proposed to face toward private property and over the adjacent sidewalk in a manner resulting in a comparatively wider and more highly visible deployment when viewed from the right of way. Finding A-2 —WCF compliance with Architectural Review Findings,PAMC Section 18.76.020(d) The basis for finding that each of the six (6)WCF nodes in Crown Castle Cluster 3 (7PLN-00450)fails to comply with one or more of the architectural review findings in PAMC Section 18.76.020(d)is outlined below. 1.All six nodes fail to meet architectural review finding 1,that “The design is consistent with applicable provisions of the Palo Alto Comprehensive Plan,Zoning Code,coordinated area plans (including compatibility requirements),and any relevant design guides.”As outlined in Section A-i above,the design of the WCF nodes in Crown Castle Cluster 3 does not comply with one or more of the development standards in PAMC 18.42.110(i),As outlined in Section A-3 below,there several goals and policies in the City’s Comprehensive Plan that are not met by the design of the WCF nodes in Crown Castle Cluster 3.Therefore,the design of the WCF nodes in Crown Castle Cluster 3 does not comply with all applicable provisions of the Palo Alto Comprehensive Plan,Zoning Code,coordinated area plans (including compatibility requirements),and any relevant design guides. 2.All six nodes fail to meet the following elements of architectural review finding 2,that “The project has a unified and coherent design,that:” A.Creates an internal sense of order and desirable environment for occupants,visitors,and the general community.The design of the WCF nodes in Crown Castle Cluster 3 does not shroud,conceal,or camouflage the proposed radio and other equipment,cabling,and mounting brackets.The design hangs in a discordant manner to the pole leaving gaps between the components and visual exposure of the many different pieces and sizes of equipment.The design does not use the smallest footprint possible as required by code. Consequently,the design negatively affects the desirability of the environment for occupants,visitors,and the general community. 0.Provides harmonious transitions in scale,mass and character to adjacent land uses and land use designations.The design of the WCF nodes in Crown Castle Cluster 3 does not meet this finding,as the WCF nodes are not designed to blend in with the existing character of or adjacent land uses,have more mass than necessary,and are visually intrusive due to the lack of screening,concealment,and camouflage. E.Enhances living conditions on the site (if it includes residential uses)and in adjacent residential areas.On January 17,2019,the Architectural Review Board considered the architectural compatibility and aesthetics of the pole-mounted equipment as a significant basis for their recommendation to deny the six (6)WCF nodes in Crown Castle Cluster 3,specifically citing that the proposed design was not unified and coherent in a manner that enhances living conditions on the site and in adjacent residential areas.The design of the WCF nodes in Crown Castle Cluster 3 does not shroud,conceal,or camouflage the proposed radio and other equipment, cabling,and mounting brackets,and the conduit is not mounted flush to the pole.Instead,the design appears to hang in a discordant manner to the pole leaving gaps between the components and visually exposing the many different pieces and sizes of equipment.The proposed project does not include residential uses itself. However,the design of the WCF nodes in Crown Castle Cluster 3 does not enhance the living conditions in 17PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 5 of 10 adjacent residential areas,as the design does not comply with one or more of the City’s development standards (as outlined in Section A-i above)and several Comprehensive Plan goals and policies (as outlined in Section A-3 below). 3.All six nodes fail to meet architectural review finding 3,that “The design is of high aesthetic quality,using high quality,integrated materials and appropriate construction techniques,and incorporating textures,colors,and other details that are compatible with and enhance the surrounding.”The design of the WCF nodes in Crown Castle Cluster 3 does not meet this finding,as the design does not shroud,conceal,or camouflage the proposed radio and other equipment,cabling,and mounting brackets and the conduit is not mounted flush to the pole.Instead,the design appears to hang in a discordant manner to the pole leaving gaps between the components and visual exposure of the many different pieces and sizes of equipment. 4.All six nodes fail to meet the architectural review finding 4,that “The design is functional,allowing for ease and safety of pedestrian and bicycle traffic and providing for elements that support the building’s necessary operations (e.g.convenient vehicle access to property and utilities,appropriate arrangement and amount of open space and integrated signage,if applicable,etc.).”The design of the WCF nodes in Crown Castle Cluster 3 fails to demonstrate that each node would have adequate horizontal clearance while not facing private property or extending over adjacent sidewalks,affecting the ease and safety of pedestrian and bicycle traffic. Furthermore,the proposed design is not shown to provide adequate vertical clearance over sidewalks,which is a required 10 feet in the City’s standard conditions of approval,and affects the ease and safety of pedestrian and bicycle traffic. 5.Four of the six nodes fail to meet architectural review finding 5,that “The landscape design complements and enhances the building design and its surroundings,is appropriate to the site’s functions,and utilizes to the extent practical,regional indigenous drought resistant plant material capable of providing desirable habitat that can be appropriately maintained.”Node 20,Node 21m1,Node 22m2,and Node 23 do not meet this finding,as those WCF nodes do not include the use of amenity trees to provide screening where it would be possible. Finding A-3 —WCF compliance with Conditional Use Permit Findings,PAMC Section 18.76.010(c) The basis for finding that each of the six (6)WCF nodes in Crown Castle Cluster 3 (17PLN-00450)fails to comply with one or more of the conditional use permit findings in PAMC Section 18.76.010(c)is outlined below: 1.All six nodes fail to meet conditional use permit finding 1,that “The project will not be detrimental or injurious to property or improvements in the vicinity,and will not be detrimental to the public health,safety,general welfare,or convenience.”The Crown Castle Cluster 3 application materials do not clearly demonstrate that development standards-compliant WCF node designs would be mounted and installed in a manner that complies with the following safety regulations,specifically: •adherence to Federal Communications Commission standards,including those in FCC Bulletin OET 65, •adherence to California Public Utilities Commission (CPUC)General Order (GO)95 requirements,with regard to equipment mounting orientation not precluding access to the required climbing space on the pole,providing vertical separation of antennas from electric lines,ensuring the post-installation structural integrity of the pole,and providing compliant attachment and mounting details and materials, •providing at least minimum horizontal and/or vertical clearance from intersections,curblines,and the travel way for pedestrians,bicycles,and vehicles (which is important for the operation of bicycle lanes, red curb zones,on-street parking spaces for standard height vehicles as well as oversized delivery 7PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 6 of 10 vehicles,etc.). •providing at least minimum sight line clearance at intersection street corners,including at least a minimum of three foot horizontal clearance from corners to ensure visibility and safety. •prevention of obstructions to pedestrian and bicycle flow in general and especially on narrow sidewalks any busy sidewalks. Furthermore,there is less than the required 1.5 feet of horizontal clearance between the existing pole and the adjacent curbline at the following five (5)node locations,resulting in the inability to provide the horizontal clearance while also not facing private property or extending over existing sidewalks: o Node 20,CPAU Pole #6474 (adjacent to 205 Everett Avenue and also neat 252 Emerson Street) o Node 21m1,CPAU Pole #6362 (adjacent to 301 Bryant Street and also near 311 Everett Avenue) o Node 23,CPAU Pole #6350 (adjacent to 482 Everett Avenue) o Node 24,CPAU Pole #6378 (adjacent to 243 Hawthorne Avenue) o Node 32,CPAU Pole #6492 (adjacent to 201 High Street). 2.All six nodes fail to meet conditional use permit finding 2,that “The project is located and conducted in a manner in accord with the Palo Alto Comprehensive Plan and the purposes of this title (Zoning).”The City’s Municipal Code provides a process to permit WCF’s that blend with their existing surroundings and do not negatively impact the environment,historic properties,or public safety.As outlined in Section A-i above,the design of the WCF nodes in Crown Castle Cluster 3 does not comply with one or more of the development standards in PAMC 18.42.110(i).As outlined here,there several goals and policies in the City’s Comprehensive Plan that are not met by the design of the WCF nodes in Crown Castle Cluster 3: o The design of the WCF nodes in Crown Castle Cluster 3 prevents the finding of consistency with Comprehensive Plan GOAL L-4/POLICY L-4.7/POLICY L-4.8,which emphasize maintaining and enhancing the downtown area by promoting quality design that recognizes the regional and historic importance of the area,reinforces its pedestrian character,and that creates an environment that is inviting to pedestrians and bicyclists.The proposed design fails to minimize its footprint,is not screened from public view,has more mass than necessary,and has other aesthetic challenges as outlined in Section A-i above,and does not provide adequate horizontal and vertical clearances for pedestrians,bicyclists,and vehicles as outlined above in Section A-3 paragraph 1. o The design of the WCF nodes in Crown Castle Cluster 3 prevents the finding of consistency with Comprehensive Plan GOAL L-9/POLICY L-9.3/POLICY L-9.4/POLICY L-9.5/POLICY L 9.10/PROGRAM L9.10.2,which emphasize creating attractive,inviting public spaces and streets that enhance the image and character of the City,treating residential streets a public ways and neighborhood amenities,promoting walking and “active transportation,”and preserving and enhancing publicly accessible,shared outdoor gathering spaces within walking and biking distance of residential neighborhoods,designing utility structures to meet high- quality design standards and embrace technological advances,and encourage the use of compact and well-designed utility elements such as telecommunications infrastructure and place these elements in locations that will minimize their visual intrusion.As discussed by the Architectural Review Board and as outlined in Section A-i above,the design is visually intrusive and is not compact,does not utilize the smallest footprint possible or minimize mass, and is not unified and coherent in a manner that enhances living conditions on the site and in adjacent residential areas. o The design of the WCF nodes in Crown Castle Cluster 3 prevents the finding of consistency with Comprehensive Plan GOAL T-6 that emphasizes providing a safe environment for motorists,pedestrians,and bicyclists because the design does not provide adequate 7PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 7 of 10 horizontal and vertical clearances for pedestrians,bicyclists,and vehicles as outlined above in Section A-3 paragraph 1. In staff reports dated December 6,2018 (ID #9351,available at: https://www.cityofpaloalto.org/civicax/filebank/documents/68006)and January 17,2019 (ID 4 9961, available at:https://www.cityofpaloalto.org/civicax/filebank/documents/68420),the Director identified many design concepts under the Palo Alto Comprehensive Plan and PAMC Section 18.42.110 and other codes that remained outstanding for Crown Castle to address with a response in order to meet the findings in effect for 2017/2018,including: •Discussion of vaulting of equipment, •Ensuring that no sky shall be seen through the mounting and attachment equipment for the antennas and the conduits, •Reducing the standoff distance for pole mounted equipment, •Utilization of shrouding for pole mounted equipment, •Reducing the volume of pole mounted equipment, •Maintaining required climbing space while also not having pole mounted equipment face directly toward adjacent private property or extend over sidewalks, •Maintaining minimum horizontal and vertical clearances: o At least 1.5-feet horizontal clearance between any new or relocated equipment and the adjacent face of curb or edge of traveled way for any public roadway,driveway,or alley, unless 16-feet vertical clearance is provided between equipment and the top of adjacent travel way, o At least 3-feet of horizontal clearance from driveways or corners,and o At least 10-feet vertical clearance between the adjacent sidewalk,path,or walkway grade. •Clarifying cohesiveness and integration ot the design in regard to: o the shape,design,color,and materiality of the antenna shroud,as well as how far it extends from the base of the antenna to the top of the existing pole, o the cables in the conduit into the bottom of the antenna shroud,and o any separation of the conduit from the top and mid-section of the pole,given that the pole has some tapering. •Any pole-mounted equipment must: o not face the street or adjacent properties, o not extend over the sidewalk, o be positioned to ensure the equipment meets minimum horizontal and vertical clearances relative to driveways,corners,and curblines, o be screened by a painted metal shroud, o be arranged to form a slim profile -using vertical alignment of the equipment rather than the current proposal which shows the equipment ‘sandwiching’the bracket. In order to meet the findings in effect in 2017/2018,staff also identified opportunities to plant new or replacement amenity trees at four WCF nodes (Node 20,Node 21m1,Node 22m2,and Node 23)to help interrupt direct views of the node,contribute to a more cohesive site specific design,and help maintain neighborhood character.Staff further identified that the side-mounted equipment proposed for Node 23 and Node 24 is near and/or face existing short transfer poles and that the transfer poles adjacent to Node 23 and Node 24 should be removed. The staff reports also incorporate and discuss the City’s subconsultant report,prepared by CTC and dated 7PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 8 of 10 December 2018.Staff disseminated the CTC report to Crown Castle in hardcopy form on December 6, 201$,electronic form on December 13,2018,and as an attachment to the January 17,2019 staff report. The Architectural Review Board discussed the staff reports and the CTC report on January 17,2019.CTC’s analysis noted that it may be possible to reduce visual impacts by reducing the size of the components (antennas and related equipment),by camouflaging the equipment cabinets in some way,by placing equipment in underground vaults,and/or by considering a microcell architecture as a viable alternative. Based on the foregoing and information contained in the administrative record,each of the WCF nodes cannot be found as consistent with the City’s Comprehensive Plan and the purposes of zoning. Standard for Approval or Denial 2019 Palo Alto Municipal Code Section i8.42.110(g)(2)-(3)[Tier 2] (2)The Director,or Council on appeal,shall grant a Tier 2 WCF Permit provided the proposed WCF complies with the conditions of approval in Section 18.42.110(j)and all objective standards adopted and amended from time to time by resolution of the City Council or the development standards in Section 18.42.110(i).If such objective standards are repealed,an application shall not be granted unless,in addition to the other requirements of this section,all of the architectural review findings in Section 18.76.020(d)can be made. (3)The Director,or Council on appeal,shall deny a Tier 2 WCF Permit if the above findings cannot be made. B.Findings for Denial (2019)Standard: 1.The Director finds that each of the six nodes fails to meet one or more of the objective standards adopted by resolution of the City Council,as detailecJ below;or 2.In the alternative,the Director finds that each of the six nodes fails to meet one or more of the generally applicable development standards in PAMC Section 18.42.110(i),as detailed below: Finding B-i -WCF compliance with Objective Aesthetic,Noise,and Related Standards for Wireless Communication Facilities in the Public Rights of Way (“Wireless Administrative Standards”) 1.The proposed design for the six (6)WCF nodes proposed in Crown Castle Cluster 3 f17PLN-00450)does not comply with one or more of the City’s current Wireless Administrative Standards.Specifically,the proposed design: •does not match any of the four standard designs approved by the City:a)Underground design,b)Top- mounted design,c)Minimal sunshield design,or d)Existing signage. •does not include a single integrated shroud and “antenna skirt”that meets the pole without any gaps. •does not show conduit as mounted flush to the pole. •does not show all shrouds and equipment designed without gaps between materials or sky visible between component surfaces. Furthermore,the Project Plans show: •A total height that exceeds 55 feet for three (3)WCF nodes (Node 21m1,Node 22m2,and Node 23). •The absence of amenity trees at four (4)WCF nodes (Node 20,Node 21m1,Node 22m2,and Node 23)to help interrupt direct views of the WCF equipment.Additionally,the selected pole for Node 32 7PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 9 of 10 is highly visible and there isn’t a readily available opportunity to plant an amenity tree to help interrupt direct views of the proposed WCF. •That there is less than the required 1.5 feet of horizontal clearance between the existing pole and the adjacent curbline at the following five (5)node locations,resulting in the inability to provide the horizontal clearance while also not facing private property or extending over existing sidewalks: o Node 20,CPAU Pole #6474 (adjacent to 205 Everett Avenue and also near 251 Emerson Street) o Node 21m1,CPAU Pole #6362 (adjacent to 301 Bryant Street and also near 311 Everett Avenue) o Node 23,CPAU Pole #6350 (adjacent to 482 Everett Avenue) o Node 24,CPAU Pole #6378 (adjacent to 243 Hawthorne Avenue) o Node 32,CPAU Pole #6492 (adjacent to 201 High Street). Based on the foregoing and information contained in the administrative record,each of the WCF nodes cannot be found as consistent with the City’s Wireless Administrative Standards. Finding B-2 -WCF compliance with Generally Applicable Development Standards,PAMC 18.42.110(i) The basis for finding that each of the six (6)WCF nodes in Crown Castle Cluster 3 (7PLN-00450)fails to comply with one or more of the Development Standards in PAMC 18.42.110(i)is outlined below: 1.All six nodes fail to meet Development Standard 1,that each WCF “shall utilize the smallest antennae,radio, and associated equipment,as measured by volume,technically feasible to achieve a network objective,”as outlined above in Section A-i under paragraphs 1 and 2. 2.All six nodes fail to meet Development Standard 2,that each WCF “shall be screened from public view,”as outlined above in Section A-i under paragraph 3. 3.All six nodes fail to meet Development Standard 3,that each WCF “when attached to an existing structure, shall be shrouded or screened using materials or colors found on existing structure.”The design of the WCF nodes in Crown Castle Cluster 3 proposes to paint some or all of the mounted equipment Sherwin Williams Well-Bread brown,which is a paint color that is similar to the color of a new or fairly new wood utility pole. However,it is not clear from the application materials if the exposed cables/wires would also be painted this color,and,regardless,the design is not shrouded. 4.All six nodes fail to meet Development Standard 5,that for each WCF,“an antenna,base station,or tower shall be of a “camouflaged”or “stealth”design,including concealment,screening,and other techniques to hide or blend the antenna,base station,or tower into the surrounding area,such as the use of a monopine design,”as outlined above in Section A-i under paragraph 5. 7PLN-0o450 Findings for Denial City of Palo Alto Attachment:Page 10 of 10 CITY OF PALO ALTO Office of the City Clerk APPEAL FROM THE DECISION OF DIRECTOR OF PLANNING AND COMMUNITY ENVIRONMENT* For appeals of final decisions on Architectural Review Board and Home Improvement Exception applications (rendered after public hearing),this appeal form shall be completed and submitted by appellant within fourteen days from date of the Director’s decision. Appeals of final decisions on Individual Review applications (rendered after public hearing)must be submitted within ten days of the Director’s decision.Complete form,the current fee and a letter stating reasons for the appeal shall be submitted to front desk staff of the Planning Division,5th floor,City Hall,250 Hamilton Avenue,except for 980 Fridays when City Hall is closed,when these items shall be submitted to Planning staff at the Development Center,285 Hamilton Avenue (glass storefront across from City Hall on the corner of Bryant and Hamilton). *Director of Planning includes his designees,which are Planning Managers or the Chief Planning Official Appeal Application 11 IP-G3 Receipt No.b20fl24’(iOOi 2 Name of Appellant Crown Castle Fiber LLC do Michael W.Shonafelt Phone ()949.854.Z000 Address 895 Dove Street,5th Floor,Newport Beach,CA 92660 Newport Beach,California 92660 Street City ZIP LOCATION OF PROPERTY SUBJECT TO APPEAL: Street Address See Attached Letter (multiple public rights-of-way) Name of Property Owner (ifother than appellant)City of Palo Alto Property Owner’s Address See attached Street City ZIP The decision of the Director of Planning and Community Environment dated October 9 ,2019 whereby the application 1ZPLN-00450 by Crown Castle NG West,LLC (predecessor to Crown Castle Fiber LLC) (file number)(original project applicant) was denied ,is hereby appealed for the reasons stated inthe attached letter (in duplicate) (approved/denied) Date:October 23,2019 Signature of Appellant SUBMITTAL REQUIREMENTS SATISFIED: 1.Letter stating reasons for appeal 2.Fee (currently $280.00) ___________ Received by: Received by: ‘7 %Y Cntn ib’r L PLANNING COMMISSION RECOMMENDATION TO THE CITY COUNCIL (TO BE FILLED OUT BY STAFF): Date Approved Denied Remarks and/or Conditions: CITY COUNCIL DECISION (TO BE FILLED OUT BY STAFF): Date Approved Denied Remarks and/or Conditions: By:. :••.:-. r City of Palo Alto Revenue Collections .,:ç 4 -ReceivedFrom:c LLCC/4(IRftDate:3I In Payment 0L r t I v fr-c::e • ITEM ?/%L%4 -Ab(( ()Certified Malt Fee j 40050009 18990 $. ()False Alarm Late Fee 70020002 131 10 $______________ ()Miscellaneous Revenue 10200000 18990 $_____________ ()Transient Occupancy Tax I 0200000 11850 $_______________ ()Sateslax 10200000 60050 $_____________ t )UtllityUserlax 10300000 11870 $_____________ ()ZoneMapSates 6002O2Oi 17030 $______________ ()Univ Ave Parking 23600000 1451 0 $______________ t )CalifAve Parking 23700000 14520 $.()14500 $.cJ) _________ Copies to: ________________ 22-37 REV 10/03 c- Cl. ;:: z - r*D r— r ,_ n m.çq (51 Lot S Parking 23600000 _______________ Other /5/3 $5 t3 . Total :s____________ ________ ;:‘j Cash ()Check ()Q_-- g e:c)Lfl oo_r—e N-r-c LUc_3 r—r-‘—..-‘—.-C%J CJ ci *C)*I c::**‘—LO --.*--*D a,-**cD Cd .*‘—*LO ‘c-LU *D*c r:D cfl ‘—o-*£:cn *0 CJ *cD 1—GD *Q—*u)cD O *.c%q Cl)j-*u_U)cD *r *_*II .c:C.J *u)Zt cD ..c—.C Q —*&Cj >.+-J -I-J ..--..a.)+J ‘-C)*Q_—fJ Q):(%%J L.+cJ ..D :t C)j ‘::a 4Z2 ZIZcciLC)Q_)I r=‘:r .--.—-G)cD U)0 C .—,_r—f2 ....‘3 -—Q .‘—£:i i-——.—c c:c.j t3 U)Q a)—.—a)-CD ct D .-Q =,c L >>f 8 1s ..*Q-Q-L)c:as 1-+-J D +-‘‘4-4-U)ç .,-cci —I +J ci4—0)S.—Q 43 U)0 :3 _—LO ..+-J QjQ::r-:..>.a a)::C a -a)1 >—I4J>J U).—D *.-.-C)G)ct i:C5 1.2:z L.,-a)cci i—i ct :3 C)*L CJ Q 0::—•D ---c_)ct::U)C c *c’j ‘II ...-1 NEWMEYER OF PALO ALl 0 CA Nevmyer &D or LLP DILLION(CITY CLERWS OFFICE 395 DDve Str: Fifth Foor I9OCT23 PM12 Newort Beach CA 92660,949 .364 7000 October 23,201 9 Michael W.Shonafelt Michael.Shonafelt@ndlf.com VIA PERSONAL SERVICE Mayor Filseth and Councilmembers of the Palo Alto City Council City Hall —Planning Division,Fifth Floor 250 Hamilton Avenue,Palo Alto,CA,94301 Re:APPEAL of the Director of Planning and Community Environment Decision on Six Pending Applications for Wireless Communications Facilities Permits Pursuantto Palo Alto Municipal Code section 18.77.070(f)—Crown Castle Cluster 3 (1 7PLN-00450). Dear Mayor Filseth: This office represents Crown Castle Fiber LLC,successor to Crown Castle NG West,LLC (“Crown Castle”)in the above-referenced matter related to six pending applications for wireless communications facility permits (“Applications”).1 This letter constitutes Crown Castle’s appeal of the City of Palo Alto’s (“City”)Director of Planning and Community Environment’s (“Director”)decision to deny six wireless communication facilities (“Nodes”)pursuantto Palo Alto Municipal Code (“PAMC”)section 18.77.070(f) (“Appeal”).This Appeal is timely filed pursuant to the written requirements prescribed by the Director,pursuant to PAMC section 18.77.070(f).A brief summary of the grounds for the appeal follows. Please note that Crown Castle reserves the right to supplement this letter and/or present additional evidence and grounds for the Appeal up to the date of the hearing on this Appeal. I .Violation of 47 U.S.C.§332(c)(7)(B)(iii):The Director’s Decision Does Not Rest on Substantial Evidence:The Director’s decisions and findings are not supported by substantial evidence,and in many instances are based on mere speculation and conclusion.The Director’s decision contains no node-by-node factual analysis and otherwise contain no reasoning to which Crown Castle can adequately respond.(See Pub.Resources Code,§21080,subd.(e)(2) [“[s]ubstantial evidence is not argument,speculation,unsubstantiated opinion or 1 A list ofthe proposed Node sites is attached herewith as Exhibit A. Las ‘egas Neocrr Ba r \J’]alnut Cee newmeyerdillion.com City Council of the City of Palo Alto October23,2019 Page 2 .‘.,Ck . narrative,[or]evidence that is clearly inaccurate or erroneous ....“J;Topanga Assn.for a Scenic Community v.County of Los Angeles (1974)11 Cai3d 506, 51 5 [agency “must set forth findings to bridge the analytic gap between the raw evidence and ultimate decision or order.”].)The failure to base the denial on substantial evidence violates federal law.(47 U.S.C.§332(c)(7)(B)(iii)[requiring state and local governments to have substantial evidence when denying requests to construct or modify wireless services facilities].) 2.Violation of 47 U.S.C.§332(c)(7)(i)(ll):The Denials Result in a Prohibition of Service:The Director’s denials materially inhibit Crown Castle’s ability to compete in a fair and balanced legal and regulatory environment,in violation of 47 U.S.C.§332(c)(7)(B)(i)(ll).Among other things,the denials represent a misplaced and unlawful effort by the City to regulate Crown Castle’s technology by imposing aesthetic requirements,such as size restrictions,that preclude delivery of Crown Castle’s proposed 4-G communications network. 3.Violation of 47 u.s.c.§253:The Denials Rest on Prohibitory Requirements that Are Preempted by Federal Law:The City’s design constraints force applicants to deploy lower power radios and smaller antennas that cannot support 4-G systems.Those constraints therefore represent an unlawful attempt to regulate a matter that is preempted by federal law.“Congress intended the FCC to possess exclusive authority over technical matters related to radio broadcasting”and that “Congress’s grant of authority to the FCC was intended to be exclusive and to preempt local regulation.”(Freeman v.Burlington Broadcasters,Inc.(2d Cir.2000)204 F.3d 31 1 at 320-21 ,emphasis added; accord Southwestern Bell Wireless Inc.v.Johnson County Bd.of County Comm’rs (1 0th Cir.1999)199 F.3d I I 85,1193 [“Congress intended federal regulation of [radio frequency interference];N.Y.SMSA Ltd.P’ship v.Town of Clarkstown (2nd Cir.201 0)61 2 F.3d 97 [issues to be so pervasive as to occupy the field.”]Bennett v.T-Mobile United States,Inc.,(C.D.Cal.2008)597 F.Supp. 2d 1050,1053 [same principle,Central District].)The City’s approval criteria also impose onerous standards (e.g.,requiring that WCFs use the “smallest footprint possible”).Such standards impose impermissibly vague thresholds for approval, and vest staff with excessive discretionary authority to issue arbitrary denials. 4.Violation of 47 u.s.c.§253(c):The Director’s Denials Impose a Discriminatory Barrier to Market Entry:The Director’s denials discriminate against Crown Castle,in violation ofthe 47 U.S.C.§253(a),(c).Among other things,the denials discriminate against applicants that seek to deploy 4G technologies,which require larger radio sizes to operate.Additionally,the City’s requirements allow ROW users such as Pacific Gas and Electric to operate transformers in the ROW,while denying Crown Castle’s applications based on use of similar installations. City Council of the City of Palo Alto October 23,2019 Page 3 5.The Director’s Denials Violate Crown Castle’s Statewide Franchise Rights Under California Public Utilities Code Section 7901 :Crown Castle’s special regulatory status as a competitive local exchange carrier (‘CLEC”)gives rise to a vested right under Public Utilities Code section 7901 to use the City ROW to “construct .telephone lines along and upon any public road or highway,along or across any of the waters or lands within this State”and to “erect poles,posts, piers,or abutments for supporting the insulators,wires,and other necessary fixtures of their lines,in such manner and at such points as not to incommode the public use of the road or highway[.]”(Pub.Util.Code,§7901 ;Williams Communications v.City ofRiverside (2006)114 Cal.App.4th 642,648;County of L.A.V.Southern Cal.Tel.Co.(1948)32 Cal.2d 378,384.)The denials manifest a City program to pre-condition entry into the ROW on adoption of certain pre approved technologies.It therefore operates as the equivalent of a ROW franchise in violation of Public Utilities Code sections 7901 and 7901.1. For the foregoing reasons,among others,the City Council should grant this Appeal and approve the Applications. If you have any questions about this correspondence,please do not hesitate to contact me. Very truly yours, Michael W.Shonafelt MWS:mws 2464.109 I 8453716.2 CITY OF PALO ALTOI CA/\CITY CLERWS OFFICE W;1)PLANNING &COMMUNITY ENVIRONMENT 19OCT23 PM1235CITYO%O hmor .Avemi.h Foo PALO Paio Ao.C:A %6O1 ALTO 65O.32%,241i ..1 /•i\1t•H, 1(-.;:r ••):;,-• October9,2019 ‘-‘,:. .‘ Crown Castle Attn:Rochelle Swanson,Government Affairs Manager,Northern California One Park Place,Suite 300 Dublin,CA 94568 Subject:Wireless Communication Facility Permit Applications for Six (6)WCF Nodes -Crown Castle Cluster 3 (Downtown North)[17PLN-00450J Dear Rochelle Swanson and Sharon James: On October 8,2019,the Director of Planning and Development Services (Director)denied Wireless Communication Facility fWCF)nodes referenced under file 17PLN-00450 (Downtown North)based upon the Findings for Denial in Attachment A.These Director’s decisions (Denials)are for the following six (6) WCF nodes proposed on wood utility poles in the public right of way: .Node 20,CPAU Pole #6474 (adjacent to 205 Everett Ave and also near 251 Emerson St) .Node 21m1,CPAU Pole #6362 (adjacent to 301 Bryant St and also near 311 Everett Av) .Node %2m2,CPAU Pole #6288 (adjacent to 258 Waverley St.replaced Node 22 near 386 Everett) .Node 23,CPAU Pole #6350 (adjacent to 48%Everett Avenue) .Node 24,CPAU Pole #6378 (adjacent to 243 Hawthorne Avenue) .Node 32,CPAU Pole #6492 (adjacent to 201 High Street). These denials are based upon the review ofall information contained within the projectfile and the review of this information in comparison to applicable zoning and other municipal code requirements.They also take into consideration and are consistent with the recommendations ofthe Architectural Review Board, as expressed on January 17,2019. The action taken on these applications does not preclude you from filing a new WCF permit application(s) and the denials are without prejudice.To the extent that you believe that these denials preclude you from achieving your networkgoals,the City would consider new applications. In accordance with the California Environmental Quality Act (CEQA),the denials are exempt from the California Environmental Quality Act (CEQA)per Public Resources Code Section 21080.b(5). EFFECTIVE DATE FOR DECISIONS AND APPEALS PROCEDURE:The Director’s decisions on each of the above referenced six (6)WCF nodes shall become final and effective fourteen (14)calendar days from the postmark date of the letter and notice card mailing (or on the next business day if it falls on a weekend or holiday),unless an appeal(s)is filed.Any appeal(s)shalt be in writing and submitted to Planning and Development Services prior to the end of the business day of the fourteenth day.The Director’s decisions C t yOtRaloAlto org:rnc wV oy sed nk o;ICO%rcyc1cci •r w cut uorne :i: c •% for those WCF nodes that are not a pealed within this tirnshaII become final,notwithstanding any timely appeal of one or more of the other nodes included in this letter. In accordance wIth PAMC Section 18.42.110(g)and PAMC Section 18.42.110(h),any appeal(s)may be set for hearing before the City Council may be placed on the City Council’s consent calendar,pursuant to PAMC Section 18.77.070(f).The appeal form,which contains brief instructions,can be found on the City website (https:J/www.cityofpaloalto.org/civicax/filebank/documents/61907).Each appealed WCF node should be specifically listed by node number on the appeal form and in the letter stating the reason(s)for the appeal.In the event you assert that Federal law pre-empts any element ofthis decision,please provide all relevant evidence. As outlined in the City’s Fiscal Year 2020 Municipal Fee Schedule (https://www.cityofpaloalto.org/civicax/filebank/documents/73099),the cost to appeal one or more WCF nodes is the $595 appeal filing fee.In the event an appeal is filed,the applicant must provide an initial deposit of$3,811.As outlined in the Municipal Fee Schedule,this deposit and any additional funds are refunded ifthe City Council denies a third party appeal or upholds an appLicant appeal. Should you have any questions regarding the denials,please do not hesitate to contact Rebecca Atkinson, at (650)329-2596,or e-mail Rebecca,Atkinson @CityofPatoAlto.org. Sincerel Jo at •Lait,AICP,Director of Planning and Development Services Cc: Michael Miller,Crown Castle Michael W.Shonafelt,Newmeyer &Dillion LLP . Sharon James,Government Relations Manager,Northern California Rochelle Swanson,Project Manager,Western Region (Sure Site Address) Molly Stump,City Attorney Rebecca Atkinson,Planner Attachment: FINDINGS FOR DENIAL OF NODE 20,NODE 21M1,NODE 2%M2,NODE 23,NODE 24,AND NODE 32 [17PLN- 00450] Page2of2 0140i:aea:uawipev °m’aej:°ADe!Uea]04SU!pU!OSVOO-N]dLt •spepuesqoqiapunAieeiedspauasdaiewojaqte!uap.oj S2U!PU!J‘aDUa!UaAUODs,ueDiiUUeaq]OdiGtoz)()ottv2iUfeAoJdUeopaqns‘!1sePBWSSIDaespou dDMX!Sasoq:‘aDueupJoA!DUJJfl31Biapu610ZAinueaAIpaJJsuoenapueuepn11!M AfUwoDo610Zi!JdVU!aDUEU!pJOSSaaJ!MS!pepUnAjwanbasqnsA!Daqiisto/Lioz)(q)ott’V8IUO!PS DIAJVUo:iqnsIeA0JddGfl!M‘d!aDaJUOfeD!jddeiewiooewaiepejjauapoIeU!D!unviOOIUO14 ]apUnSa!!I!Deuo!eD!uflwwoDSSjaJ!M£]fjsepaqI]DSapaafa:isniajseUMOJDU!SOUX!S1 pfoidInIMpaaDoJd oMOUO,uJEdUfplOq,U!SMIDUMOJDeqUO!eD!UflWWODpA!8DJJ4eS‘ic‘LIiaqwdau •GIOZ‘81JWAONAq(ovoo -NldLt)asniasejUNOJU!SOUJDMLflUOA!JAqSUO!S!apsaJ!nbaJ‘610Z‘91aqwadas110A!D11 pUeUMOJ40SaA!WUOSJdJAqpau!spueopaieAflnflwsetvqDqM‘uawaaJeu!IIoUJ]flDaqj )jJOMOUaq:uflDepedpue‘UaWaDetUeuuaepau!J]‘suo!wD!J!powu!sapo pieaiU!U!Pfl13U!‘U!WOD1flJO4qAewSIe!JeWiaqopuesueidpe[oideqSUOfleD!UnwW0DawosU!aiseUMOJDL1naflIe‘ISDUMOJJwoiasuodsaaiuesqnsouqfMst!ewaUnM01101usjjesUfUUejd U!BaWpeoMfAat8JflPPPJV6IO‘LIAienuelaounbasqnsaiseuiioipapuoAiietnijje eoedJoA!DMMM//:sdq :ejqejeetT966al)to‘LIAJeflUefpe (9oo89/suawniop/U:eeqeI!eAe‘i#ci)to‘9iaqwaaa peps.ioUjje:sq:U!ssappeoUMOJDJ04&ipUeSflOpBU!eWJeiSW8!pa!J!U9P!]0P0J!a1! SUO!WJfl!4UO3U2!SpApeJpUeSUO!eDOjapouu!pJeaJssaDoJU Ma!ABJ1BU!JflppauasaidAp2aJIesuewwojjsopuodseiosUejdJaipu!sn[peojopdsuejnsuoqns s1A!D31flpUl?‘Dqndei‘jVW0J4peqpjieaqopaueivAaqeqjjesopoe!pu!ajsejUMOJD ‘(osvoo-Nlacr)sninseuivoijoU!OWpioM3!Aa1eJflPNJV6tO‘LIAJeflUeloioua spoo1poq1!uJ1LflU!pasodoidS!11Mnoqe!IqndajosiaqwwoA3u3JedsUeJpueMa!AaJ A!JpOeU!pJOODMOIIOU!SSaDOJdjojOU!JO1flOpdno]9J9MSUO!2DOIposodoid‘!wJad A!I!Deduo!eD!unwwoDSSelaJ!MUMOS!SaJ!flbeJpouiDMqeI!qMtoz‘tqwaaUOtOSt’OO-NlULT) JSfltDaiseUMOJDU!SOU(JDM)A!I!DeUO!eD!UflWWOJSSaIaJ!M(9)X!SaqiojsUofleD!IddepaA!ODa]A!D11d. •uofsuaxauoAeqROOM1flJOJUfSappflO]1SOpflIDU!OUO!JflUOD u2!sapato:euepeapewpUeOOUJDMUOJOUO!eDOIpasodoidaipesnfpeaseUMO]D‘LIOZ ‘tiaqwadauoUO!eUSBJd!flJUV :eeqe!eAe‘6O8#ai)io‘i.iqwadasuopieoMa!AaN1flPNDJVoqAqpaSSflDS!peqUO!e3!tdde MfAtJflPNDJVAJeU!W!Ie]dBPI!JUMO]D‘fosoo-N1aLt)i&sninsUMOJDJOd!DJoJO!]d puno2peg [ostoo-N1dLt] .Zf3ONaNy‘iz]ONtEZ3ON‘ZVIZZ3ON‘WJIZ]ON‘O300N101VIN3IOJS9NlNIJ :vuawpen Standard for Approval or Denial 2017 1 2018 Palo Alto Municipal Code (PAMC)Section 18.42.lIOfh)(2)-(3)[Tier 31 (2)The Director or Council on appeal shall grant a Tier 3 WCF permit provided the proposed WCF complies with the Development Standards in Section 18.42.110(1),and the conditions of approval in Section 18.42.110(j),and all ofthe architectural review findings in Section 18.76020(d)and the conditional use permit findings in Section 18.76.010(c)can be made. (3)The Director,or Council on appeal,shall deny a Tier 3 WCF Permit ifthe findings above cannot be made. A.Findings for Denial 2017/2018 Standard: 1.The Director finds that each of the six nodes fails to meet one or more of the applicable Development Standards in PAMC Section 18.42.110(i)(2017/2018),as detailed below. 2.The Director finds that each of the six nodes fails to meet all the architectural review findings in Section 18.76.020(d),as detailed below,and as discussed by the Architectural Review Board on January 17,2019.1 3,The Director finds that each of the six nodes fails to meet all the conditional use permit findings in Section 18.76.010(c),as detailed below. FindingA4.WçF compliance withDeveloprnent Standard PAMC 18.42.110(i) The basis for finding that each of the six (6)WCF nodes in Crown Castle Cluster 3 f17PLN-00450)fails to comply with one or more of the Development Standards in PAMC Section 18.42.llOfi)(1)through (11)is outlined below: 1.All six nodes fail to meet Development Standard 1,that each WCF “shall utilize the smallest footprint possible.”The design of the WCF nodes in Crown Castle Cluster 3 does not utilize the smallest footprint possible.Specifically: .The proposed designs increase the footprint of the existing wood utility pole itself in a highly noticeable and visually intrusive manner because the conduit(s)running along the pole utilize multiple standoff brackets that increase the overall diameter of the WCF and create visible gaps between the conduit and the existing pole (see Project Plans,Sheets D-5,P-3,and P-4),rather than mounting the conduit(s)flush to the pole. .The radio equipment in the proposed design extends horizontally beyond the minimum necessary and employs a configuration that is not the smallest footprint.Project Plans Sheet D-4 calls for a separation of the RRU-32s to be six inches from the pole and is inconsistent with Sheets P-3 and P 4 that note a separation of three-inches.Utilizing the six-inch separation on Sheet D-4,the unshrouded RRU-32s extend over two-feet horizontally from the pole.Regardless of the aforementioned inconsistencies in the project plans,ifthe RRU-32s were mounted parallel instead of perpendicular to the pole,then the WCF could be more horizontally compact,would be arranged to form a slim profile by using vertical alignment of the equipment rather than the current proposal which shows the equipment ‘sandwiching’the bracket,and would have a smaller footprint. 1 Meeting minutes can be found online:https://www.cityofpaloalto.org/gov/boards/architectural/default.asp.The draft January 17,2019 meeting minutes were approved as corrected on February 1,2019. 17PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 2 of 10 .In the absence of a detailed analysis that investigated the feasibility of placing WCF node equipment in underground vaults at the proposed locations or elsewhere,the City cannot conclude that the footprint ofthe proposed side-mounted equipment is the smallest possible,or if it could be smaller through placement ofthe radio and other equipment in underground vaults. 2.All six nodes fail to meet Development Standard 2,that each WCF “shall be designed to minimize the overall height,mass,andsize ofthe cabinetandenctosurestructure.”The design ofthe WCF nodes in Crown Castle Cluster 3 does not minimize the overall height,mass,and size of the cabinet and enclosure structure. Specifically: .The application materials did not contain information on how overall height of the proposed design could be minimized by utilizing smaller antennas,which is discussed in the CTC report. .The diameter of the wooden bayonet shroud shown on Project Plans Sheet D-6 for all nodes is generally proposed to be the diameter of the antenna,which is wider and creates more mass and size/volume than the tapered minimum necessary to shroud and conceal the wooden bayonet extension and conduit..As stated in Section A-i paragraph 1 above,the proposed design utilizes standoff brackets to create separation between the conduits and the pole and consequently does not minimize the overall mass and size/volume of an enclosure structure. .As stated in Section A-i paragraph i above,the proposed design horizontally extends for more than .what is necessary from the pole.Using the placement of the standoff brackets as an approximate from which to estimate the mass and size of a cabinet or enclosure structure,the overall mass and volume of a related enclosure would extend further from the pole than what would be necessary if the RRU-32s were mounted parallel to the pole.Furthermore,the top of the cabinet or enclosure structure would need to be higher than the top of the proposed RRU-32s mounting brackets in order to shroud and conceal the currently exposed cables/wires extending from the equipment into the conduit,This design would not minimize overall height,mass,and size ofan encfosure structure. 3,All six nodes fail to meet Development Standard 3,that each WCF “shalibe screenedfrom public view.”The design of the WCF nodes in Crown Castle Cluster 3 is not screened from public view.Specifically: .Although a shroud for the wooden bayonet extension is proposed,Project Plans Sheet D-6 used for all nodes clarifies that the shroud does not fully extend over the conduit and risers,nor does it extend downwards to the top ofthe existing pole;given the gaps noted on Sheet D-6,the proposed design does not screen all of the WCF node components proposed near the top of the existing pole. .The proposed design does not screen the radio and other equipment,cabling,and mounting brackets,either by use of metal shrouds that are painted to match the existing wood utility poles or through other means;the side mounted radio and other equipment,cabling,and mounting brackets are entirety unscreened on each pole. .The proposed design has conduit(s)running along the pole that utilize multiple standoff brackets to increase the overall diameter of the WCF and to create visible gaps between the conduit and the existing pole (see Project Plans Sheets D-5,P-3,and P-4 for all nodes),rather than mounting the conduit(s)flush to the pole.The mounting brackets for the conduit near the top of the pole are not shown in the visual simulations,but they are noted on the elevations in the project plans. .Furthermore,amenity trees are not proposed at four (4)WCF nodes (Node 20,Node 21m1,Node 22m2,and Node 23)to help interrupt direct views of the node and ensure appropriate screening. Additionalty,the selected pole for Node 32 is highly visible and there isn’t a readily available opportunity to plant an amenity tree to help interrupt direct views of the proposed WCF. 17PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 3 of 10 .Additionally,the proposed orientation of the equipment at some nodes increases their visibitfty within the public right of way: i,Instead of proposing an installation that is parallel to the travel way,Node 21m1 is proposed to face toward private property and over the adjacent sidewalk in a manner resulting in a comparatively wider and more highly visible deployment when viewed from the right of way. ii.Instead of proposing an installation that faces away from an intersection,Node 23 is proposed to face toward an intersection without any screening. iiL Instead of proposing an installation that is parallel to the travel way,Node 32 is proposed to face toward private property and over the adjacent sidewalk in a manner resulting in a comparatively wider and more highly visible deployment when viewed from the right of way. 4,All six nodes fail to meet Development Standard 4,that each WCF “shall be architecturally compatible with the existing site/’The design ofthe WCF nodes in Crown Castle Cluster 3 is not architecturally compatible with the existing site;on January 17,2019,the Architectural Review Board considered the architectural compatibility and aesthetics ofthe pole-mounted equipment as a significant basis for their recommendation to deny the six (6)WCF nodes in Crown Castle Cluster 3,specifically citing that the proposed design was not unified and coherent in a manner that enhances living conditions on the site and in adjacent residential areas. 5.All six nodes fail to meet Development Standard 6,that “an antenna,basestation,ortowershailbe designed to minimize its visthilityfrom off-site locations and shall be of a ‘camouflaged”or “stealth “design,including concealment,screening,and other techniques to hide or blend the antenna,base station,or tower into the surrounding area.”The design of the WCF nodes in Crown Castle Cluster 3 does not minimize its visibility from off-site locations and does not use a “camouflaged”or “stealth”design,including concealment, screening,and other techniques to hide or blend the antenna,base station,or tower into the surrounding area.For instance: .Although a shroud for the wooden bayonet extension is proposed,Project Plans Sheet D-6 for all nodes clarifies that the shroud does not fully extend over the conduit and risers,nor does it extend downwards to the top of the existing pole;given the gaps noted on Sheet D-6,the proposed design does not screen all of the WCF node components proposed near the top of the existing pole. a The proposed design does not screen the radio and other equipment,cabling,and mounting brackets,either by use of metal shrouds that are painted to match the existing wood utility poles or through other means;the side mounted radio and other equipment,cabling,and mounting brackets are entirely unscreened on each pole. a The proposed design has conduit(s)running along the pole that utilize multiple standoff brackets to increase the overall diameter of the WCF and to create visible gaps between the conduit and the existing pole (see Project Plans Sheets D-5,P-3,and P-4 for all nodes),rather than mounting the conduit(s)flush to the pole.Note that the mounting brackets for the conduit near the top of the pole are not shown in the visual simulations,but they are noted on the elevations in the project plans. .Furthermore,amenity trees are not proposed at four (4)WCF nodes (Node 20,Node 21m1,Node 22m2,and Node 23)to help interrupt direct views of the node and ensure appropriate screening. Additionally,the selected pole for Node 32 is highly visible and there isn’t a readily available opportunity to plant an amenity tree to help interrupt direct views of the proposed WCF. a Additionally,the proposed orientation of the equipment at some nodes increases their visibility within the public right of way: I.Instead of proposing an installation that is parallel to the travel way,Node %lml is proposed to face toward private property and over the adjacent sidewalk in a manner resulting in a 17PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 4 of 10 comparatively wider and more highly visible deployment when viewed from the right of way. ii Instead of proposing an installation that faces away from an intersection,Node 23 is proposed to face toward an intersection without any screening. iii.Instead of proposing an installation that is parallel to the travel way,Node 32 is proposed to face toward private property and over the adjacent sidewalk in a manner resulting in a comparatively wider and more highly visible deployment when viewed from the right of way. Finding A2 —WCF compliance with Architectural Review Findings,PAMC Section 18.76.020(d) The basis for finding that each of the six (6)WCF nodes in Crown Castle Cluster 3 (17PLN-00450)fails to comply with one or more of the architectural review findings in PAMC Section 18.76.020(d)is outlined below. 1.All six nodes fail to meet architectural review finding 1,that “The design is consistent with applicable provisions of the Polo Alto Comprehensive Plan,Zoning Code,coordinated area plans (including compatibility requirements),and any relevant design guides.”As outlined in Section A-i above,the design of the WCF nodes in Crown Castle Cluster 3 does not comply with one or more of the development standards in PAMC 18.42.110(i).As outlined in Section A-3 below,there several goals and policies in the City’s Comprehensive Plan that are not met by the design of the WCF nodes in Crown Castle Cluster 3.Therefore,the design of the WCF nodes in Crown Castle Cluster 3 does not comply with all applicable provisions of the Palo Alto Comprehensive Plan,Zoning Code,coordinated area plans (including compatibility requirements),and any relevant design guides. 2.All six nodes fail to meet the following elements of architectural review finding 2,that “The project has a unified and coherent design,that:” A.Creates an internal sense of order and desirable environment for occupants,visitors,and the general community.The design of the WCF nodes in Crown Castle Cluster 3 does not shroud,conceal,or camouflage the proposed radio and other equipment,cabling,and mounting brackets.The design hangs in a discordant manner to the pole leaving gaps between the components and visual exposure of the many different pieces and sizes of equipment.The design does not use the smallest footprint possible as required by code. Consequently,the design negatively affects the desirability of the environment for occupants,visitors,and the general community. D.Provides harmonious transitions in scale,mass and character to adjacent land uses and land use designations.The design of the WCF nodes in Crown Castle Cluster 3 does not meet this finding,as the WCF nodes are not designed to blend in with the existing character ofor adjacent land uses,have more mass than necessary,and are visually intrusive due to the lack ofscreening,concealment,and camouflage. E.Enhances living conditions on the site (if it includes residential uses)and in adjacent residential areas.On January 17,2019,the Architectural Review Board considered the architectural compatibility and aesthetics of the pole-mounted equipment as a sIgnificant basis for their recommendation to deny the six (6)WCF nodes in Crown Castle Cluster 3,specifically citing that the proposed design was not unified and coherent in a manner that enhances living conditions on the site and in adjacent residential areas.The design ofthe WCF nodes in Crown Castle Cluster 3 does not shroud,conceal,or camouflage the proposed radio and other equipment, cabling,and mounting brackets,and the conduit is not mounted flush to the pole.Instead,the design appears to hang in a discordant manner to the pole leaving gaps between the components and visually exposing the many different pieces and sizes of equipment.The proposed project does not include residential uses itself. However,the design of the WCF nodes in Crown Castle Cluster 3 does not enhance the living conditions in 17PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 5 of 10 adjacent residential areas,as the design does not comply with one or more of the City’s development standards (as outlined in Section A-i above)and several Comprehensive Plan goals and policies (as outlined in Section A-3 below). 3.All six nodes fail to meet architectural review finding 3,that “The design is ofhigh aesthetic quality,using high quality,integrated materials and appropriate construction techniques,and incorporating textures,colors,and other details that are compatible with and enhance the surrounding.“The design of the WCF nodes in Crown Castle Cluster 3 does not meet this finding,as the design does not shroud,conceal,or camouflage the proposed radio and other equipment,cabling,and mounting brackets and the conduit is not mounted flush to the pole.Instead,the design appears to hang in a discordant manner to the pole leaving gaps between the components and visual exposure of the many different pieces and sizes of equipment. 4.All six nodes fail to meet the architectural review finding 4,that “The design isfunctional,allowingfor ease and safety of pedestrian and bicycle traffic and providing for elements that support the buildings necessary operations (e.g.convenient vehicle access to property and utilities,appropriate arrangement and amount of open space and integratedsignage,fappIicabIe,etc.).”The design ofthe WCF nodes in Crown Castle Cluster 3 fails to demonstrate that each node would have adequate horizontal clearance while not facing private property or extending over adjacent sidewalks,affecting the ease and safety of pedestrian and bicycle traffic. Furthermore,the proposed design is not shown to provide adequate vertical clearance over sidewalks,which is a required 10 feet in the City’s standard conditions of approval,and affects the ease and safety of pedestrian and bicycle traffic. 5.Four of the six nodes fail to meet architectural review finding 5,that “The landscape design complements and enhances the building design and its surroundings,is appropriate to the site’s functions,and utilizes to the extent practical,regional indigenous drought resistant plant material capable of providing desirable habitat that can be appropriately maintained.”Node 20,Node 2imi,Node 22m2,and Node 23 do not meet this finding,as those WCF nodes do not include the use of amenity trees to provide screening where it would be possible. Finding A-3 .WçF compliance with Conditional Use Permit Findings,PAMC Section 18.76.010(c) The basis for finding that each of the six (6)WCF nodes in Crown Castle Cluster 3 fI7PLN-00450)fails to comply with one or more of the conditional use permit findings in PAMC Section 18.76.010(c)is outlined below: 1.All six nodes fail to meet conditional use permit finding 1,that “The project will not be detrimental or injurious to property or improvements in the vicinity,and will not be detrimental to the publIc health,safety,general welfare,or convenience.”The Crown Castle Cluster 3 application materials do not clearly demonstrate that development standards-compliant WCF node designs would be mounted and installed in a manner that complies with the following safety regulations,specifically: .adherence to Federal Communications Commission standards,including those in FCC Bulletin OET 65, .adherence to California Public Utilities Commission fCPUC)General Order (GO)95 requirements,with regard to equipment mounting orientation not precluding access to the required climbing space on the pole,providing vertical separation of antennas from electric lines,ensuring the post-installation structural integrity of the pole,and providing compliant attachment and mounting details and materials, .providing at least minimum horizontal and/or vertical clearance from intersections,curblines,and the travel way for pedestrians,bicycles,and vehicles (which is important for the operation of bicycle lanes, .red curb zones,on-street parking spaces for standard height vehicles as well as oversized delivery 17PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 6 of 10 vehictes,etc.). .providing at least minimum sight line clearance at intersection street corners,including at least a minimum of three foot horizontal clearance from corners to ensure visibility and safety. .prevention of obstructions to pedestrian and bicycle flow in general and especially on narrow sidewalks any busy sidewalks. Furthermore,there is less than the required 1.5 feet of horizontal clearance between the existing pole and the adjacent curbline at the following five (5)node locations,resulting in the inability to provide the horizontal clearance while also not facing private property or extending over existing sidewalks: 0 Node 20,CPAU Pole #6474 (adjacent to 205 Everett Avenue and also near 251 Emerson Street) 0 Node 21m1,CPAU Pole #6362 (adjacent to 301 Bryant Street and also near 311 Everett Avenue) 0 Node 23,CPAU Pole #6350 (adjacent to 482 Everett Avenue) 0 Node 24,CPAU Pole #6378 (adjacentto 243 Hawthorne Avenue) 0 Node 32,CPAU Pole #6492 (adjacent to 201 High Street). 2.All six nodes fail to meet conditional use permit finding 2,that “The project is located and conducted in a manner in accord with the Palo Alto Comprehensive Plan and the purposes of this title (Zoning).”The City’s Municipal Code provides a process to permit WCF’s that blend with their existing surroundings and do not negatively impact the environment,historic properties,or public safety.As outlined in Section A-i above,the design of the WCF nodes in Crown Castle Cluster 3 does not comply with one or more of the development standards in PAMC 18.42.110(1).As outlined here,there several goats and policies in the City’s Comprehensive Plan that are not met by the design of the WCF nodes in Crown Castle Cluster 3: 0 The design of the WCF nodes in Crown Castle Cluster 3 prevents the finding of consistency with Comprehensive Plan GOAL L-4/POLICY L-4.7/POLICY L-4.8,which emphasize maintaining and enhancing the downtown area by promoting quality design that recognizes the regional and historic importance of the area,reinforces its pedestrian character,and that creates an environment that is inviting to pedestrians and bicyctists.The proposed design fails to minimize its footprint,is not screened from public view,has more mass than necessary,and has other aesthetic challenges as outlined in Section A-I above,and does not provide adequate horizontal and vertical clearances for pedestrians,bicyclists,and vehicles as outlined above in Section A-3 paragraph 1. 0 The design of the WCF nodes in Crown Castle Cluster 3 prevents the finding of consistency with Comprehensive Plan GOAL L-9/POLtCY L-9.3/POLICY L-9,4/POLICY L-9.5/POLICY L 9.10/PROGRAM L9.1O.2,which emphasize creating attractive,inviting public spaces and streets that enhance the image and character of the City,treating residential streets a public ways and neighborhood amenities,promoting walking and “active transportation,”and preserving and enhancing publicly accessible,shared outdoor gathering spaces within walking and biking distance of residential neighborhoods,designing utility structures to meet high- quality design standards and embrace technological advances,and encourage the use of compact and well-designed utility elements such as telecommunications infrastructure and place these elements in locations that wilt minimize their visual intrusion.As discussed by the Architectural Review Board and as outlined in Section A-i above,the design is visually intrusive and is not compact,does not utilize the smallest footprint possible or minimize mass, and is not unified and coherent in a manner that enhances living conditions on the site and in adjacent residential areas. 0 The design of the WCF nodes in Crown Castle Cluster 3 prevents the finding of consistency with Comprehensive Plan GOAL 1-6 that emphasizes providing a safe environment for motorists,pedestrians,and bicyclists because the design does not provide adequate 17PLN-00450 Findings for Denial City of Palo Alto .Attachment:Page 7 of 10 horizontal and vertical clearances for pedestrians,bicyclists,and vehicles as outlined above in Section A-3 paragraph 1. In staff reports dated December 6,2018 (ID #9351,available at: https://wwwcityofpatoaltoorg/civicax/filebank/Uocuments/68006)and January 17,2019 (ID 1*9961, availa ble at:https://www.cityofpaloaItoorg/civicax/fiIebank/documents/6842O),the Director identified many design concepts under the Palo ALto Comprehensive Plan and PAMC Section 18.42.110 and other codes that remained outstanding for Crown Castle to address with a response in order to meet the findings in effect for 2017/2012,including: .Discussion of vaulting of equipment, .Ensuring that no sky shall be seen through the mounting and attachment equipment for the antennas and the conduits, .Reducing the standoff distance for pole mounted equipment, .Utilization of shrouding for pole mounted equipment, .Reducing the volume of pole mounted equipment, .Maintaining required climbing space while also not having pole mounted equipment face directly toward adjacent private property or extend over sidewalks, .Maintaining minimum horizontaL and vertical clearances: 0 At least 1.5-feet horizontal clearance between any new or relocated equipment and the adjacent face of curb or edge of traveled way for any public roadway,driveway,or alley, unless 16-feet vertical clearance is provided between equipment and the top of adjacent travel way,. 0 At least 3-feet of horizontal clearance from driveways or corners,and 0 At least 10-feet vertical clearance between the adjacent sidewalk,path,or walkway grade. .Clarifying cohesiveness and integration ofthe design in regard to: 0 the shape,design,color,and materiality ofthe antenna shroud,as well as how far it extends from the base ofthe antenna to the top ofthe existing pole, 0 the cables in the conduit into the bottom ofthe antenna shroud,and 0 any separation of the conduit from the top and mid-section of the pole,given that the pole has some tapering. I Any pole-mounted equipment must: 0 not face the Street or adjacent properties, 0 not extend over the sidewalk, 0 be positioned to ensure the equipment meets minimum horizontal and vertical clearances relative to driveways,corners,and curblines, 0 be screened by a painted metal shroud, 0 be arranged to form a slim profile -using vertical alignment of the equipment rather than the current proposal which shows the equipment ‘sandwiching’the bracket. In order to meet the findings in effect in 2017/2018,staff also identified opportunities to plant new or replacement amenity trees at four WCF nodes (Node 20,Node 21m1,Node 22m2,and Node 23)to help interrupt directviews ofthe node,contribute to a more cohesive site specific design,and help maintain neighborhood character.Staff further identified that the side-mounted equipment proposed for Node 23 and Node 24 is near and/or face existing short transfer poles and that the transfer poles adjacent to Node 23 and Node 24 should be removed. The staff reports also incorporate and discuss the City’s subconsultant report,prepared by CTC and dated 17PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 8 of 10 December 2018.Staff disseminated the CTC report to Crown Castle in hardcopy form on December 6, 2018,electronic form on December 13,2018,and as an attachment to the January 17,2019 staff report. The Architectural Review Board discussed the staff reports and the CTC report on January 17,2019.CTC’s analysis noted that it may be possible to reduce visual impacts by reducing the size of the components (antennas and related equipment),by camouflaging the equipment cabinets in some way,by placing equipment in underground vaults,and/or by considering a microcell architecture as a viable alternative. Based on the foregoing and information contained inthe administrative record,each ofthe WCF nodes cannot be found as consistent with the City’s Comprehensive Plan and the purposes of zoning. Standard for Approval or Denial . 2019 Palo Alto Municipal Code Section 18.42.llOfg)(2)-(3)[Tier 2] (2)The Director,or Council on appeal,shall grant a Tier 2 WCF Permit provided the proposed WCF complies with the conditions of approval in Section 18.42.110(j)and all objective standards adopted and amended from time to time by resolution of the City Council or the development standards in Section 18.42.110(i),11 such objective standards are repealed,an application shall not be granted unless,in addition to the other requirements ofthis section,all ofthe architectural review findings in Section 18.76.020(d)can be made. (3)The Director,or Council on appeal,shall deny a Tier 2 WCF Permit if the above findings cannot be made. B.Findings for Denial (2019)Standard: 1.The Director finds that each of the six nodes fails to meet one or more of the objective sta ndards adopted by resolution of the City Council,as detaileçi below;or 2.ln the alternative,the Director finds that each of the six nodes fails to meet one or more of the generally applicable development standards in PAMC Section 18.42.110(1),as detailed below: Finding B-i WCF compliance with Obiective Aesthetic,Noise,and Related_Standards for Wireless Communication Facilities in the Public Rightof Way (“Wireless Administrative Standards”) 1.The proposed design for the six (6)WCF nodes proposed in Crown Castle Cluster 3 f17PLN-00450)does not comply with one or more of the City’s current Wireless Administrative Standards.Specifically,the proposed design: .does not match anyofthe fourstandard designs approved bythe City:a)Underground design,b)Top mounted design,c)Minimal sunshietd design,or U)Existing signage. .does not include a single integrated shroud and “antenna skirt”that meets the pole without any gaps. .does not show conduit as mounted flush to the pole. .does not show all shrouds and equipment designed without gaps between materials or sky visible between component surfaces. Furthermore,the Project Plans show: .Atotal height that exceeds 55 feet for three (3)WCF nodes (Node 21m1,Node 22m2,and Node 23). .The absence of amenity trees at four (4)WCF nodes (Node 20,Node 21m1,Node 22m2,and Node 23)to help interrupt direct views of the WCF equipment.Additionally,the selected pole for Node 32 17PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 9 of 10 is highly visible and there isn’t a readily available opportunity to plant an amenity tree to help interrupt direct views of the proposed WCF. .That there is less than the required 1.5 feet of horizontal clearance between the existing pole and the adjacent curbline at the following five (5)node locations,resulting in the inability to provide the horizontal clearance while also not facing private property or extending over existing sidewalks: 0 Node 20,CPAU Pole #6474 (adjacent to 205 Everett Avenue and also near 251 Emerson Street) 0 Node 21m1,CPAU Pole #6362 (adjacent to 301 Bryant Street and also near 311 Everett Avenue) 0 Node 23,CPAU Pole #6350 (adjacent to 482 Everett Avenue) 0 Node 24,CPAU Pole #6378fadjacentto 243 Hawthorne Avenue) 0 Node 32,CPAU Pole #6492 (adjacent to 201 High Street). Based on the foregoing and information contained in the administrative record,each ofthe WCF nodes cannot be found as consistent with the City’s Wireless Administrative Standards. Finding B2 WCF compflancewfthGenerallyApplicableDevelopment Standards,PAMC 18A2.11O(i) The basis for finding that each of the six (6)WCF nodes in Crown Castle Cluster 3 (17PLN-00450)fails to comply with one or more of the Development Standards in PAMC 18.42.110(1)is outlined below: 1.All six nodes fail to meet Development Standard 1,that each WCF “shall utilize the smallest antennae,radio, and associated equipment,as measured by volume,technically feasible to achieve a network objective,”as outlined above in Section A-i under paragraphs 1 and 2. 2.Alt six nodes fail to meet Development Standard 2,that each WCF “shall be screenedfrom public view,”as outlined above in Section A-i under paragraph 3. 3.All six nodes fail to meet Development Standard 3,that each WCF “when attached to an existing structure, shall be shrouded or screened using materials or colors found on existing sttucture.“The design of the WCF nodes in Crown Castle Cluster 3 proposes to paint some or all of the mounted equipment Sherwin Williams Well-Bread brown,which is a paint color that is similar to the color of a new or fairly new wood utility pole. However,it is not clearfrom the application materials ifthe exposed cables/wires would also be painted this color,and,regardless,the design is not shrouded. 4.All six nodes fail to meet Development Standard 5,that for each WCF,“an antenna,bose station,or tower shall be ofa “camouflaged”or “stealth”design,including concealment,screening,and other techniques to hide or blend the antenna,base station,or tower into the surrounding area,such as the use of a monopine design,”as outlined above in Section A-i under paragraph 5. 17PLN-00450 Findings for Denial City of Palo Alto Attachment:Page 10 of 10 ARB Submittal for Major Project PROJECT DESCRIPTION 17PLN‐00450 RE: Crown Castle – Cluster 3 of 3 for 16 Small Cell Node Expansion Project in Downtown Palo Alto. Cluster 3: Six small cell nodes on wood utility poles within the Downtown North Neighborhood. Introduction Crown Castle (formerly NextG Networks) is seeking approval of a Crown Castle node expansion project in the core area of Palo Alto. This project will utilize the similar designs as approved in the previous project in 2015 (15PLN‐00140). As with the 2015 small cell project, the 2017 expansion project proposes sixteen (16) nodes overall to provide capacity coverage to the macro cell at 525 University Avenue. This application seeks approval for six (6) nodes within the Downtown North Neighborhood. Crown Castle has a Master License Agreement with the City of Palo Alto that allows for use of city‐controlled space on utility poles and streetlight poles and in conduits owned by CPAU. This Crown Castle project small cell project is designed to be installed in the public right of way on existing utility poles, including wood poles and streetlights. The small cell wireless sites provide capacity coverage to the larger cell site or cell tower in the area. Verizon Wireless is the carrier is the identified tenant in these Crown Castle expansion nodes. As stated above, this application requests approval for Cluster 3 consisting of six (6) nodes of the 16 nodes in proposed expansion project. To summarize the overall expansion 16 node project, Verizon Wireless and Crown Castle Radio Frequency (RF) engineers have identified locations throughout the city that require service. Sixteen (16) installations are currently planned to be co‐located on wood utility poles and metal streetlights. Six (6) of these small cells are proposed to be co‐located on new and existing city street light poles, one (1) new streetlight, and the remaining nine (9) small cells are proposed to be installed on existing wood utility poles. These small cells will provide the City of Palo Alto much needed improvements in network capacity and coverage. Small cells are currently proposed in three (3) configurations that are dependent on the design opportunities and constraints of specific pole locations within the City of Palo Alto. The six (6) nodes in this application are distributed within the Downtown North Neighborhood. Please see Vicinity Map. Coverage Needs The unprecedented current and future demand for wireless service requires the densification of existing cellular networks. More people are using a wireless connection for personal and professional needs, both in home and in transit. As a result, wireless communication facilities are diminishing in height and being located closer to the user to meet both daily needs as well as provide essential coverage for emergency personnel. The coverage map below demonstrates the current need. Blue indicates poor coverage and green indicates good coverage. Diagram 1 shows the area identified for the six (6) nodes is limited green and yellow. On the following page, Diagram 2 shows the improvement in capacity where green is consistent. Diagram 1 ‐ Current level of capacity for 700 MHz: Diagram 2 ‐ Proposed Improvement in capacity for 700 MHz: Diagram 3 ‐ Current level of coverage for 1900 MHz: Diagram 4 ‐ Proposed Improvement in coverage for 1900 MHz: Diagram 5 – Current level of coverage for 2100 MHz: Diagram 6 – Proposed improvement in coverage for 2100 MHz: Site Locations The process for site selection by Crown Castle aim to meet the need for service coverage, while at the same time locating poles that will have the least impact. With high demand of wireless services, the small facilities need to be located within a relatively narrow area as compared to a ‘macro’ or traditional larger wireless facility. The sites were initially chosen based upon the greatest needs in coverage in the area identified. Each site was walked by a team that included RF (radio frequency) engineers, a construction manager, A&E (architectural and engineering) professionals and government relations consultants in order to make on the spot decisions of the best pole in the neighborhood that could accommodate the wireless equipment within the City’s criteria and with sensitivity to the neighborhood. Pole location proximity to a residence and sidewalk, orientation of the placement of the equipment on the pole and general visibility were taken into account as to which pole in any given area was finally chosen. There are typically only one or two poles that are viable candidates due to the small size design of the sites and limited range of the signal. Pole selection in determined in the field ensuring the RF need for the facility and constructability are met while meeting zoning and other requirements by the City, including sensitivity to the community needs. The team also walked the sites with staff from Compliance to confirm which locations were feasible. The pole top design with antenna and extension was determined by staff on joint site walk to be the only allowable space on the specific six (6) nodes in this proposal, as opposed to locating lower on the pole. It is a clean design that accommodates the needs of the utility operations while providing space for the needed small cell equipment. During the application resubmittal process, a new location has been identified for Node 22 (Node 22m2). The new location is at the corner of Bryant Ct and Waverley Street, adjacent to 258 Waverley St. During the process between the original submittal and the Preliminary ARB hearing on September 21, 2017, an alternative location to the original Node 22 (22m1) was included in the original Formal ARB application. The original node was proposed to be collocated on the wood utility pole adjacent to 386 Everett Avenue. The alternative proposed location to the ARB was directly across the street adjacent to 311 Waverley (also identified as 404 Everett). Upon further review, the RF engineer was able to determine that coverage and capacity needs of the network could be accommodated on the alternative pole now identified as Node 22m2, thereby further mitigating visual impacts and concerns of proximity to the units on higher floors. Site information on each node: Node Closest address for identity purposes Assessor's address based on location in plans Adjacent APN Pole # Adjacent Zone Overlay Zone 20 251 Emerson St (near 205 Everett St) 205 Everett St 12025024 6474 RM‐30 MF 21 301 Bryant ( across from 311 Everett Ave) 301 Bryant St 12014045 6362 RMD (NP) MF 22m2 258 Waverley (corner of Waverley & Bryant Ct) 258 Waverley St 12013005 6288 RM‐30 MF 23 482 Everett Ave (across from 305 Cowper St) 482 Everett Ave 12014057 6350 RMD (NP) MF 24 243 Hawthorne Ave 221 Hawthorne Ave 12024002 6378 RM‐30 MF 32 201 High St 201 High St 12025049 6492 RM‐15 MF Elevation of example of the installation. Please see site plans for specific elevation of each Node and accompanying radio equipment. Minimizing Visual Impacts To minimize the visual impact, the antenna and extension bracket will be enclosed within a shroud at the top of the wood utility pole. Where feasible, wood utility poles near trees were chosen to further mitigate visual impacts. The radio equipment will be attached to the side of the wood utility pole in a manner that keeps the distance between the radios and the wooden pole as close as possible. All equipment and shrouds will be painted to match in order to blend with the wood pole. Colors identified at this time are Sherwin Williams Fairfax Brown and Well‐Bred Brown. Final colors choice subject to direction by staff. Example of shroud and equipment on Node 22m2. See site plans for specifics on each node. Scope of Work The scope of work includes the installation includes adding a 48” antenna and extension mount enclosed within a shroud on the top of six existing wood utility poles with additional radio equipment to be mounted on the side of the pole. Any disturbance to landscaping or the asphalt in the street to accommodate the work will also be completely repaired and restored. Project information can be found at http://www.crowncastle.com/projects/palo‐alto_ca.aspx Respectfully submitted, Rochelle Swanson Government Relations Consultant for Crown Castle r.swanson@sure‐site.com 916‐801‐3178 City of Palo Alto (ID # 10796) City Council Staff Report Report Type: Consent Calendar Meeting Date: 1/27/2020 City of Palo Alto Page 1 Summary Title: Annual Status Development Impact Fees FY2020 Title: Review and Acceptance of the Annual Status Report on Development Impact Fees for Fiscal Year 2019 From: City Manager Lead Department: Administrative Services RECOMMENDATION Staff recommends that the City Council review and accept the Annual Report on Development Impact Fees for the period ending June 30, 2019 (Attachment A). BACKGROUND State law (Government Code Section 66006) requires that each local agency that imposes development impact fees prepare an annual report providing specified information about those fees. This requirement is part of the law commonly referred to as AB 1600 or the Mitigation Fee Act. It codifies the legal requirement that fees on new development must have the proper nexus to any project on which they are imposed. In addition, AB 1600 imposes certain accounting and reporting requirements with respect to the fees collected. The fees, for accounting purposes, must be segregated from the general funds of the City and from other funds or accounts containing fees collected for other improvements. Interest on each development fee fund or account must be credited to that fund or account and used only for the purposes for which the fees were collected. Government Code Section 66006 contains comprehensive annual reporting requirements for development impact fees. This statute requires that, within 180 days after the close of the fiscal year, the agency that collected the fees must make available to the public the following information regarding each fund or account: • Brief description of the type of fee in the fund. • Amount of the fee. • Beginning and ending balance in the fund. City of Palo Alto Page 2 • Amount of fees collected, and interest earned. • Identification of each public improvement on which fees were expended and the amount of the expenditure on each improvement, including the total percentage of the cost of the public improvement that was funded with fees. • Identification of an approximate date by which the construction of a public improvement will commence, if the local agency determines that enough funds have been collected to complete financing on an incomplete public improvement. • Description of each interfund transfer or loan made from the account or fund, including the public improvement on which the loaned funds will be expended, and in the case of an interfund loan, the date on which the loan will be repaid and the rate of interest that the account or fund will receive on the loan. • Amount of any refunds made due to inability to expend fees within the required time frame. This report must also be reviewed by the City Council at a regularly scheduled public meeting not less than 15 days after the information is made available to the public. In addition, notice of the time and place of the meeting shall be mailed at least 15 days prior to the meeting to any interested party who files a written request with the local agency for such a mailed notice. An early packet consisting only of Attachment A was made available to the public and included in the packet for the December 16, 2019 meeting of the City Council. The law also provides that, for the fifth fiscal year following the first deposit into the fund and every five years thereafter, the local agency shall make findings with respect to any portion of the fee remaining unexpended, whether committed or uncommitted. The finding must: • identify the purpose to which the fee is to be put; • demonstrate a nexus between the fee and the purpose for which it was originally charged; and • identify all sources and amounts of funding anticipated to complete financing of incomplete improvements along with the approximate dates on which the anticipated funding is expected to be deposited into the fund. If the agency no longer needs the funds for the purposes collected, or if the agency fails to make required findings, or to perform certain administrative tasks prescribed by AB 1600, the agency may be required to refund to property owners a prorated portion of the monies collected for that project and any interest earned on those funds. DISCUSSION City of Palo Alto Page 3 The City of Palo Alto development fees covered by AB 1600, and documented in Attachment A, include the following: • Stanford Research Park/El Camino Real traffic impact fees (PAMC Ch. 16.45): Fee for new nonresidential development in the Stanford Research Park/El Camino Real Service Commercial zone, to fund capacity improvements at eight intersections. • San Antonio/West Bayshore Area traffic impact fees (PAMC Ch. 16.46): Fee for new nonresidential development in the San Antonio/West Bayshore area to fund capacity improvements at four intersections. • Housing impact fees imposed on mixed-use, nonresidential and residential rental projects (PAMC 16.65) Fee on commercial and industrial development to contribute to programs that increase the City's low income and moderate-income housing stock. • Parking in-lieu fees for University Avenue Parking District (PAMC Ch. 16.57): Fee on new non-residential development in the University Avenue Parking Assessment District in lieu of providing required parking spaces. • Parks, Community Centers, and Libraries impact fees (PAMC Ch. 16.58): Fee on new residential and non-residential development to provide community facility funds for parks, community centers, and libraries, public safety, and general government. • Residential housing in-lieu fees (PAMC Ch. 16.65): Fee on residential developments in- lieu of providing required below-market rate units to low- and moderate-income households. • Charleston-Arastradero Corridor pedestrian and bicyclist safety fees (PAMC Ch. 16.60): Fee on new development and re-development within the Charleston-Arastradero Corridor to provide for pedestrian and bicyclist improvements. • Citywide Transportation impact fees (PAMC Ch 16.59): Fee on development in all parts of the City to fund transportation projects and programs to reduce congestion. • Public Safety facilities (PAMH Ch. 16.58): Fee on residential and non-residential development to fund police and fire facilities, including fire apparatus and vehicles. • General Government facilities (PAMH Ch. 16.58): Fee on residential and non-residential development to fund facilities associated with municipal administration. • Public Art fees (PAMH 16.61): Fee for private developments. City of Palo Alto Page 4 • Parkland dedication fees (Quimby Act) (California Government code Section 66477): Fee or parkland dedication imposed on new residential and non-residential development. • Water and sewer capacity fees (California Government code Section 66000): Fee on developments adding load to water and sewer systems. AB 1600 requires the City to make specified findings in the event any funds are not expended within five fiscal years of collection and every five years thereafter. While there are several funds containing collected fees that have not been expended in five or more years, the required statutory carryover findings have already been made for those funds and no further findings are required. On January 13, 2019 the City Council approved an additional $10,518,971 loan to the Palo Alto Housing Corporation for the development of a 100% affordable housing project at 3705 El Camino Real (Wilton Court) (CMR 10928). This information will be reflected in future Annual Reports on Development Impact Fees. STAKEHOLDER ENGAGEMENT In accordance with Government Code Section 66006 (AB1600), an early packet consisting of Attachment A was made available to the public and included in the packet for the December 16, 2019 meeting of the City Council to allow time for public notice in excess of the minimum 15-day advanced posting requirement. RESOURCE IMPACT Council approved the required findings with respect to unexpended fees for Stanford Research Park/El Camino Fund and San Antonio/West Bayshore Fund in Fiscal year 2018. The next finding date will be in Fiscal year 2020 for New Public Safety Facilities Fund and General Government Facilities Fund. The expended balances for each fee type are noted at the bottom of each section in Attachment A. ENVIRONMENTAL REVIEW This is not a project for purposes of the California Environmental Quality Act (CEQA). Attachments: • Attachment A-Annual Report on Development Impact Fees for FY19 Attachment A City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2019 Stanford Research Park/San Antonio/West FUND El Camino Fund Bayshore Fund Purpose and Authority Traffic impact fees imposed on new Traffic impact fees imposed on new for Collection nonresidential development in the nonresidential development in the Stanford Research Park/El Camino San Antonio/West Bayshore Areas Real CS zone to fund improvements to fund capacity improvements at at eight identified intersections.four identified intersections. PAMC Ch. 16.45 PAMC Ch. 16.46 Amount of the Fee $12.85 per square foot $2.65 per square foot Fund Balance July 1, 2018 $2,288,715 $904,216 Activity in 2018-19 Revenues Fees Collected 925,290 358,553 Interest Earnings 56,145 18,407 Unrealized Gain/Loss Investments 79,431 26,834 ------------------------------------------------------------------------------------------------------------------- Total Revenues $1,060,866 $403,794 Expenditures Inter-agency expenses 0 0 ------------------------------------------------------------------------------------------------------------------- Total Expenditures 0 0 ------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2019 $3,349,581 $1,308,010 Other Commitments/Appropriations Reserve for Reappropriation (2,200,000) Reserve for Unrealized Gain on Investments (15,576)(6,130) Net Funds Available $1,134,005 $1,301,880 Unexpended balance at next finding date (FY 2022-23)$2,283,139 $898,086 USE OF FEES:USE OF FEES: No expenditures have been made for this fund in Fiscal Year 2019. The $2.2M Reserve for Reappropiration is for the County of Santa Clara for support of intersection improvements at Page Mill Road/Hanover and Page Mill Road/Hansen concurrent with construction of the project at 1050 Page Mill Road No expenditures have been made from this fund in Fiscal Year 2019. FUTURE USE OF FEES: Budget transfers in FY 2020 budgeted to Capital Improvement Fund in the amount of $900K for traffic signal and intelligent transportation (PL-05030) Page 1 of 11 Attachment A City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2019 Commercial Housing University Avenue Parking FUND In-Lieu Fund In-Lieu Fund Purpose and Authority Fees imposed on large commercial Fees collected from non-residential for Collection and industrial development to development within the University Ave. contribute to programs that increase Parking Assessment District in lieu of the City's low income and moderate-providing the required number of income housing stock.parking spaces. PAMC Ch.16.65 PAMC Ch 16.57 Amount of the Fee Hotel / Retail / Other Non Residential: $21.08 per sq. ft. Office/R&D: $36.22 per sq. ft.$70,094 per space Fund Balance July 1, 2018 $19,499,101 $5,476,120 Activity in 2018-19 Revenues Fees Collected 4,798,747 420,564 Interest Earnings 235,207 84,067 Unrealized Gain/Loss Investments 280,833 136,997 ------------------------------------------------------------------------------------------------------------------- Total Revenues 5,314,787 641,628 Expenditures Salaries and Benefit (16,157) Liability Insurance (57) Operating transfer to General Benefit Fund (288) ------------------------------------------------------------------------------------------------------------------- Total Expenditures (16,502)0 ------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2019 $24,797,386 $6,117,748 Other Commitments/Appropriations Reserve for Notes Receivable include:$1,290,000 for 2811 Alma, and $4,137,254 for 801 Alma, $7,700,000 for Bueva Vista Mobile Home Park.(13,127,254) Reserve for Reappropriations (9,000,000) Reserve for unrealized gain on investments (49,729)(32,143) ------------------------------------------------------------------------------------------------------------------- Net Funds Available $2,620,403 $6,085,605 Unexpended balance at next finding date (FY 2022-23)$6,305,616 $5,443,977 USE OF FEES:USE OF FEES: Expenditure in Fiscal Year 2019 is for $16K for Senior Planner and Management Analyst salaries. The $9M Reserve for Reappropriaton is for Affordable Housing Loan Agreement: 3705 El Camino Real (Wilton Court). FUTURE USE OF FEES: $2.6M planned to be used for additional loan to 3705 El Camino Real (Wilton Court) No expenditures have been made from this fund in Fiscal Year 2019. FUTURE USE OF FEES: $5.5M planned to be used for the New Downtown Parking Garage (PE-15007) in FY 2022 as part of the 2020-2024 5-year Capital Improvement Plan Page 2 of 11 Attachment A City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2019 Page 3 of 11 Attachment A City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2019 Residential & Non-Residential Residential & Non-Residential Community Facilities Community Facilities FUND Parks Community Centers Purpose and Authority Fees imposed on new residential and Fees imposed on new residential and for Collection non-residential development approved non-residential development approved after Jan 28, 2002 for Parks. after Jan 28, 2002 for Community Centers. PAMC Ch. 16.58 PAMC Ch. 16.58 Amount of the Fee Residential: Single family $12,333 per residence (or $18,416 per residence larger than 3,000 sq ft); Multi-family $8,073 per unit (or $4,082 per unit smaller than or equal to 900 sq ft) Residential: Single family $3,196 per residence (or $4,787 per residence larger than 3,000 sq ft); Multi-family $2,104 per unit (or $1,062 per unit smaller than or equal to 900 sq ft) Nonresidential: Commercial/Industrial $5,237 per 1,000 sq ft or fraction thereof; Hotel/Motel $2,368 per 1,000 sq ft or fraction thereof. Nonresidential: Commercial/industrial $296 per 1,000 sq ft or fraction thereof; Hotel/Motel $133 per 1,000 sq ft or fraction thereof. Fund Balance July 1, 2018 $4,533,306 $3,492,984 Activity in 2018-19 Revenues Fees Collected 935,889 134,543 Transfer Development Rights (TDR)3,942,978 Interest Earnings 110,456 109,846 Unrealized Gain/Loss 131,594 128,666 ------------------------------------------------------------------------------------------------------------------- Total Revenues $1,177,939 $4,316,033 Inter-Agency Expenses (2,500,000) Operating Transfer to Capital Projects Fund (100,000)(1,025,717) ------------------------------------------------------------------------------------------------------------------- Total Expenditures (100,000)(3,525,717) ------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2019 $5,611,245 $4,283,300 Reserve for unrealized gain on investments (27,933)(21,402)-------------------------------------------------------------------------------------------------------------------Net Funds Available $5,583,312 $4,261,898 Unexpended balance at next finding date (FY 2021-22)$4,068,356 $3,765,337 Page 4 of 11 Attachment A City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2019 USE OF FEES:USE OF FEES: Budget transfer in FY 2019 was made to Capital Project fund in the amount of $100K for Bayland Athletic Center (PG- 19001) FUTURE USE OF FEES: Budget transfers in FY 2020 budgeted to Capital Improvement Fund in the amount of $150K for dog park installation (PG- 18001), $350K for park restroom installation (PG-19000) and $2.7M for Birch Street Improvements (PE-19003) CMR 10416 Expenditure in Fiscal Year 2019 is an addiitonal payment of $2.5M to Avenida. This is a total of $5M ($2.5 M was paid in FY2018) grant funding for necessary seismic and other improvements to the existing building at 450 Bryant Street. The source of the $5M was $3.9 from TDR and $1.1 from impact fees. Transfer to Capital Improvement Fund Project is for JMZ Renovation (AC-18001) FUTURE USE OF FEES: Budget transfers in FY2020 budgeted to Capital Improvement Fund in the amount of $2M for Rinconada Park Improvement (PE- 08001) and $672K for JMZ Renovation (AC- 18001) Page 5 of 11 Attachment A City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2019 Residential & Non-Residential Residential Housing Community Facilities In-Lieu Fund FUND Libraries Purpose and Authority Fees imposed on new residential and Fees collected from residential for Collection non-residential development approved developments of three or more units in after Jan 28, 2002 for Libraries. lieu of providing the required below- PAMC Ch. 16.58 market rate unit(s) to low and moderate income households. PA Comprehensive Plan and PAMC Chapter 18, PAMC 16.65 Amount of the Fee Residential: Single family $1,117 per residence (or $1,662 per residence larger than 3,000 sq ft); Multi-family $668 per unit (or $367 per unit smaller than or equal to 900 sq ft) Single family $77.62 per sq. ft. Single family detached; $51.75 per sq. ft. single family attached. Multi Family $51.75 per sq. ft. condos. Nonresidential: Commercial/industrial $282 per 1,000 sq ft or fraction thereof; Hotel/Motel $118 per 1,000 sq ft or fraction thereof. Fund Balance July 1, 2018 $1,042,847 $23,475,232 Activity in 2018-19 Revenues Fees Collected 68,370 814,715 Webster Wood Property Rental 6,175 Interest Earnings 24,918 239,983 Bad debt recovery 25,031 Unrealized Gain/Loss Investments 29,711 291,143 ------------------------------------------------------------------------------------------------------------------- Total Revenues $122,998 $1,377,047 Expenditures Salaries and Benefits (16,157) Contract Services (118,163) Liability Insurance (57) Transfer to General Benefits Fund (288) Transfer to General Fund (15,000) ------------------------------------------------------------------------------------------------------------------- Total Expenditures (15,000)(134,665) ------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2019 $1,150,845 $24,717,614 Other Commitments/Appropriations Reserve for Reappropriations (1,225,032) Reserve for Potential Housing Project (3,000,000) Reserve for Encumbrances (72,410) Reserve for unrealized gain on investments (6,066)(46,387) Reserve for Notes Receivable include $375,000 for 3053 Emerson, $3,504,850 for Tree House Apts, $747,734 for Sheridan Apts., $2,285,026 for 801 Alma, $901,201 for Palo Alto Housing Project, $600,000 for 2811-2825 Alma St., $203,561 for Colorado Park Housing, $149,968 for El Dorado Palace, and $6,800,000 for Buena Vista Mobile Home Park.(15,567,340) -------------------------------------------------------------------------------------------------------------------Net Funds Available $1,144,779 $4,806,445 Page 6 of 11 Attachment A City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2019 Unexpended balance at next finding date (FY 2021-2022 Residential & Non Residential Housing Communities Facilities Libraries, FY2022-23 Residential Housing In-Lieu)$984,421 $7,751,871 USE OF FEES:USE OF FEES: Budget transfer in FY 2019 was made to General Fund in the amount of $15K for new materials for International Languages Collection. FUTURE USE OF FEES: Transfer to the Capital Improvement Fund of $300K is being planned for FY 2021 for Digital Lab Upgrades at the Mitchell Park Library Expenditures in Fiscal Year 2019 include $16.1K for Senior Planner and Management Analyst salaries and benefit, $95K to Palo Alto Housing Corp for BMR admin fees and $23K for consultancy fees. The bad debt recovery is a payment received for a notes receivable that was written off and considered uncollectible. Fiscal Year 2019 Reserves for Reapprorpation is for affordable housing loan agreement with Eldorado and Wilton Court amounting to $225K and $1M respectively. Reserves for $3M is for 231 Grant Avenue: Potential Teacher Housing Project. FUTURE USE OF FEES: $7.2M planned to be used for additional loan to 3705 El Camino Real (Wilton Court) Page 7 of 11 Attachment A City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2019 Charleston-Arastradero Corridor Citywide Transportation Pedestrian and Bicyclist Safety FUND Purpose and Authority Fees collected from new development and Transportation impact fees imposed for Collection re-development within the Charleston-on new development in all parts of the Arastradero Corridor to provide for pedest-City to fund congestion reduction rian and bicyclist safety improvements.projects. PAMC Ch. 16.60 PAMC Ch. 16.59 Amount of the Fee Residential: $1,351 per residential unit; Commercial: $0.40 per sq ft $3,700 per net new PM peak hour trip Fund Balance July 1, 2018 $8,557 $1,833,471 Activity in 2018-19 Revenues Fees Collected 9,511 923,490 Interest Earnings 325 44,464 Unrealized Gain/Loss 277 66,592 ------------------------------------------------------------------------------------------------------------------- Total Revenues $10,113 $1,034,546 Expenditures Operating Transfer to Capital Projects Fund 0 (506,475) ------------------------------------------------------------------------------------------------------------------- Total Expenditures 0 (506,475) ------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2019 $18,670 $2,361,542 Other Commitments/Reappropriations Reserve for unrealized gain on investments (76)(11,558) -------------------------------------------------------------------------------------------------------------------Net Funds Available $18,594 $2,349,984 Unexpended balance at next finding date (FY2021- 22 Charleston-Arastradero, FY2022-23 Citywide Transportation)$0 $1,315,438 USE OF FEES:USE OF FEES: No expenditure of funds have been made from this Fund in Fiscal Year 2019. Budget transfer to Capital Project Fund in Fiscal Year 2019 in the amount of $506K for Traffic Signal and Intelligent Transporation (PL-05030) FUTURE USE OF FUNDS: $383K Budgeted to the Capital Project Fund in FY 2020 for Traffic Signal and Intelligent Transportation Systems Upgrade (PL-05030) Page 8 of 11 Attachment A City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2019 New Public Safety Facilities General Government Facilities FUND Purpose and Authority Fees imposed on residential and Fees imposed on residential and non- for Collection non-residential development to fund residential development to fund facilities police and fire facilities (including fire associated with municipal administration. apparatus and vehicles)PAMH Ch. 16.58 PAMC Ch. 16.58 Amount of the Fee Residential: Single family $1,072 per unit; Multi-family $858 per unit Residential: Single family $1,351 per unit; Multi-family $1,080 per unit Nonresidential: Commercial $599 per 1,000 sq ft. or fraction thereof; Industrial $200 per 1,000 sq. ft. or fraction thereof; Office/Institutional $799 per 1,000 sq ft or fraction thereof. Nonresidential: Commercial $754 per 1,000 sq ft. or fraction thereof; Industrial $251 per 1,000 sq. ft. or fraction thereof; Hotel/Motel $1,008 per 1,000 sq ft or fraction thereof. Fund Balance July 1, 2018 $146,779 $184,946 Activity in 2018-19 Revenues Fees Collected 190,186 239,417 Interest Earnings 5,758 7,252 Unrealized Gain/(Loss)4,103 5,170 ------------------------------------------------------------------------------------------------------------------- Total Revenues $200,047 $251,839 ------------------------------------------------------------------------------------------------------------------- Total Expenditures 0 0 ------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2019 $346,826 $436,785 Other Commitments/Reappropriations Reserve for unrealized gain on investments (1,376)(1,733) -------------------------------------------------------------------------------------------------------------------Net Funds Available $345,450 $435,052 Unexpended balance at next finding date FY 2019-20 $221 $278 USE OF FEES:USE OF FEES: No expenditure of funds have been made from this Fund in Fiscal Year 2019. No expenditure of funds have been made from this Fund in Fiscal Year 2019. Page 9 of 11 Attachment A City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2019 (INFORMATION ONLY) Public Art Fund Parkland Dedication FUND Purpose and Authority for collection Fees imposed on new commercial develoments (including mixed use projects), including new construction, remodels, additions and reconstruction that (i) have a floor area of 10,000 sq. ft. or more, and (ii) have a construction value of $200,000, or more, exclusive of costs for architecture, design, engineering, and required studies; and all new residential projects of five or more units to fund public art for private developments. Fees on parkland dedication imposed on new residential and non-residential development. Govt Code Sec. 66477 (Quimby Act) PAMC Ch. 16.61 Amount of the Fee 1% of first $113.18 million construction valuation and 0.9% of construction valuation for valuation in excess of $113.18 million Single Family: $62,583.66 per unit; Multi- Family: $43,136.76 per unit. This applies only to residential projects that require a subdivision or pacel map. Land dedication is required for subdivisions resulting in more than 50 parcels. Parkland Dedication Fee - Land: Single Family: 531 sq. ft, per unit; Multi-Family: 366 sq. ft. per unit. When parkland dedication applies, park impact fees do not apply. Fund Balance July 1, 2018 $729,193 $3,634,309 Activity in 2018-19 Revenues Fees Collected 571,309 644,048 Interest Earnings 25,018 71,529 Unrealized Gain/Loss Investments 19,133 101,679 Operating Transfer from General Fund 169,998 ------------------------------------------------------------------------------------------------------------------- Total Revenues $785,457 $817,256 Expenditures Salaries and benefits (187,699) Liability Insurance (1,858) Transfer to General Benefit Fund (1,655) Transfer to Capital Projects Fund (470,000) ------------------------------------------------------------------------------------------------------------------- Total Expenditures (191,211)(470,000) ------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2019 $1,323,439 $3,981,565 Other Commitments/Reappropriations Reserve for unrealized gain on investments (5,437)(21,065) -------------------------------------------------------------------------------------------------------------------Net Funds Available $1,318,002 $3,960,500 This fund is not subject to AB1600 requirements and is listed only for information purposes. This fund is not subject to AB1600 requirements and is listed only for information purposes.Page 10 of 11 Attachment A City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2019 (INFORMATION ONLY) FUND Water and Wastewater Collection Purpose and Authority Capacity fees charged to developers that for Collection are adding load to the water and sewer systems effective July 1, 2005. California Government Code Sect 66000 Amount of the Fee Water Capacity Fees: 5/8 in., 3/4 in E- Meter. $5,000, 1 in. E-Meter $9,400, 1 1/2 in. E-Meter $18,850, 2 in. E-Meter $56,250 , 4 in. Compound Meter by est. $125/FU (min. 5,000 FU) , 6 in. Compound Meter by est. $125/FU (min. 7,000 FU) Fire Service Capacity Fees: 2 in. $750, 4 in. $9,000, 6 in. $22,530, 8 in. $43,080, 10in. $69,510 Sewer Capacity Charges: 4 in. connection with 5/8 in Water Meter (WM) $5,250, 4 in connection. with 1-in WM $15,750, 4 or 6 in. connection with 1-1/2 in WM $31,668, 6 in. connection with 2 in. WM $94,500, 6 in. and larger connection with 4 in. or larger WM by est. at $210/FU Activity in 2018-19 Capacity Fees Collected Water $524,100 Wastewater Collection 283,250 Total USE OF FEES: The fees are used exclusively for water and sewer system improvements Page 11 of 11 City of Palo Alto (ID # 10892) City Council Staff Report Report Type: Consent Calendar Meeting Date: 1/27/2020 City of Palo Alto Page 1 Summary Title: Approve FY 2019 CAFR and accompanying reports and Various FY 2019 Budget Amendments Title: Finance Committee Recommends the City Council: 1) Approve the FY 2019 Comprehensive Annual Financial Report (CAFR); 2) Approve Amendments to FY 2019 Budget in Various Funds; 3) Approve Recommended use of Excess General Fund Budget Stabilization Reserve Funds; and, 4) Accept the Macias Gini and O'Connell's Audit of the City of Palo Alto's Financial Statements as of June 30, 2019 and Management Letter From: City Manager Lead Department: Administrative Services RECOMMENDATION Finance Committee and Staff recommend that the City Council approve: 1. The City of Palo Alto’s audited financial statements for fiscal year ended June 30, 2019, and the accompanying reports provided by Macias Gini & O’Connell (“MGO”) LLP (Office of the City Auditor Report) Attachment I. Reports include: a. Report to the City Council (the “Management Letter”), b. Cable TV Franchise, Independent Auditor’s Report and Statements of Franchise Revenues and Expenses for the years ended December 31, 2018 and 2017, c. Palo Alto Public Improvement Corporation (a component unit of the City of Palo Alto) Annual Financial Report for the year ended June 30, 2019 d. Regional Water Quality Control Plant, Independent Auditor’s Report and Financial Statements for the year ended June 30, 2019, e. Independent Accountant’s Report on Applying Agreed-Upon Procedures related to the Article XIII-B Appropriations (GANN) Limit for the year ended June 30, 2019; 2. 2019 Comprehensive Annual Financial Report (CAFR), included in CMR #10644 as Attachment II. An electronic copy is available at: https://www.cityofpaloalto.org/gov/depts/asd/reporting.asp, and hard copies are available at the Administrative Services Department upon request – Attachment A; City of Palo Alto Page 2 3. Amendments to the Fiscal Year (FY) 2019 Budget Appropriation Ordinance for various funds as identified in CMR 10644 Recommended Amendments to the City Manager’s FY 2019 Budget as Attachment B – Exhibit 1 and various capital projects as identified in Attachment B – Exhibit 2; 4. Recommended uses of excess Budget Stabilization Reserve funds in the General Fund to be completed in the FY 2020 Mid-Year Budget Review. SUMMARY At the November 19th, 2019 Finance Committee meeting, the Committee reviewed two staff reports, one transmitted by the City Auditor’s Office and one by the City Manager’s Office via the Administrative Services Department, and unanimously approved both reports for City Council consideration. • Office of the City Auditor: Discussion and Recommendation to the City Council to Accept the Macias Gini & O’Connell’s Audit of the City of Palo Alto’s Financial Statements as of June 30, 2019 and Management Letter. https://www.cityofpaloalto.org/civicax/filebank/documents/73989 • Administrative Services Department: Recommendation to Approve the Fiscal Year (FY) 2019 Comprehensive Annual Financial Report (CAFR) and Approve FY 2019 Budget Amendments in Various Funds. (CMR #10644) https://www.cityofpaloalto.org/civicax/filebank/blobdload.aspx?t=71116.9&BlobID=740 81 These reports transmitted the City’s FY 2019 financials through the Comprehensive Annual Financial Report (CAFR) for the year ending June 30, 2019. As is customary, the City Council is required to close out the City’s financial results at the end of each fiscal year. Overall, the City ended the year as expected and planned in an overall net positive position. No current year findings were reported, and all corrective actions have been completed for the deficiency in internal controls over financial reporting that MGO identified last year. The committee discussed the clean audit and recommended uses of excess funds. As outlined in the staff report to the Committee, the General Fund Budget Stabilization Reserve (BSR) was above the City Council target level of 18.5 percent by up to $12.1 million. Staff and the Committee recommend use of approximately $11.3 million by: appropriating $2.9 million of the excess to a Reserve from proceeds of sale of 335 Webster, $1.4 million additional funding for General Liability & Workers Compensation Reserves, a $3.5 million transfer to the Capital Improvement Fund, and $3.5 million transfer to the General Benefits fund for an additional Section 115 Pension Trust fund contribution. These transactions will be carried out in the FY 2020 Mid-Year Budget report should the City Council approve these recommendations. In addition, as the City Auditor’s position is vacant at this time, The Office of the City Auditor recommends acceptance of the City of Palo Alto’s audited financial statements and the accompanying reports provided by MGO at the meeting on November 19, 2019. The Finance City of Palo Alto Page 3 Committee approved and unanimously recommended that the City Council accept the City of Palo Alto’s audited financial statements and accompanying reports. Staff in coordination with the City Auditor’s Office is transmitting this in conjunction with the staff work for administrative ease due to the vacancy. Stakeholder Engagement This report has been prepared by the Accounting Division and coordinated with the Office of the City Auditor and the Office of Management and Budget. Resource Impact The actions recommended in CMR 10644, Attachment B, both Exhibits 1 and 2, recommend adjustments to the FY 2019 appropriated level of funds to align budgeted levels with year-end activities. Overall, these transactions ensure all funds remain in a positive financial picture. Environmental Review This is not a project for purposes of the California Environmental Quality Act (CEQA). Attachments: • Attachment A: Office of the City Auditor_Macias Gini & O’Connell’s Audit of the City of Palo Alto’s Financial Statements as of June 30, 2019 and Management Letter • Attachment II: City Manager Report ID #10644_Fiscal Year (FY) 2019 Comprehensive Annual Financial Report (CAFR) and FY 2019 Budget Amendments in Various Funds CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR The Honorable City Council Palo Alto, California November 19, 2019 Discussion and Recommendation to the City Council to Accept the Macias Gini & O'Connell's Audit of the City of Palo Alto's Financial Statements as of June 30, 2019 and Management Letter RECOMMENDATION We recommend the Finance Committee review and forward to the City Council for approval the DISCUSSION The City Charter requires that the City Council, through the City Auditor, engage an independent certified public accounting firm to conduct the annual financial audit. The selected firm reports the results of the audit, in writing, to the City Counc fiscal year ended June 30, 2019. The Administrative Services Department provides the Comprehensive Annual Financial Report Finance Committee: (pp. 1-3 of CAFR) ancial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards (Single Audit Report) (pp. 173-174 of CAFR) Federal Program and on Internal Control Over Compliance Required by the Uniform Guidance (Single Audit Report, pp. 175-176 of CAFR) We are providing copies of the following financial statements and reports, as prepared by MGO: Report to the City Counci Attachment A Revenues and Expenses for the years ended December 31, 2018 and 2017 Attachment B Palo Alto Public Improvement Corporation (a Component Unit of the City of Palo Alto), Annual Financial Report for the year ended June 30, 2019 Attachment C Statements for the year ended June 30, 2019 Attachment D Independ -Upon Procedures Related to the Article XIII-B Appropriations (GANN) Limit for the year ended June 30, 2019 Attachment E No current year findings were reported. Corrective actions have been completed for the deficiency in internal controls over financial reporting identified last year related to how the City drew down funds against a grant for the Sludge Dewatering and Loadout Facility project that was partially federally funded and partially state funded (pp. 182 of CAFR). their staff in the Administrative Services Department for their hard work and cooperation during the audit. Respectfully submitted, Don Rhoads Special Advisor to the Office of the City Auditor ATTACHMENTS: Attachment A: Report to the City Council (PDF) Attachment B: Cable TV Franchise (PDF) Attachment C: Palo Alto Public Improvement Corporation (PDF) Attachment D: Regional Water Quality Control Plant (PDF) Attachment E: Agreed Upon Procedures Related to the Article XIII-B Appropriations Limit (PDF) Department Head: Don Rhoads, Special Advisor to the Office of the City Auditor Page 2 Page 3 Certified Public Accountants Aua chm Q nt. A CITY OF PALO ALTO Report to the City Council For the Year Ended June 30, 2019 ,- 1(;() Attachment A Table of Contents Page(s) Attachment A O � - L 2 u NK 2 2 668 2 2 deficiency in internal control material weakness Government Auditing Standards Attachment A Qualitative Aspects of Accounting Practices Certain Asset Retirement Obligations and Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements. Estimated allowance for losses on notes and loans receivable Fair value of investments Attachment A Valuation and disclosure of net pension liability, pension expense and pension related deferred outflows and inflows of resources Valuation and disclosure of net OPEB liability, OPEB expense and OPEB related deferred outflows and inflows of resources Annual required contributions to pension and other postemployment benefit plans Claims loss reserve. Difficulties Encountered in Performing the Audit Corrected and Uncorrected Misstatements Useful life estimates for capital assets Landfill post-closure Liability. Attachment A Disagreements with Management Management Representations Management Consultations with Other Independent Accountants Other Audit Findings or Issues Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards CITY OF PALO ALTO Report to the City Council For the Year Ended June 30, 2019 CURRENT YEAR RECOMMENDATIONS None noted. STATUS OF PRIOR YEAR RECOMMEDATIONS Item 2018-001 Significant Deficiency Internal Controls over Financial Reporting Atta c h m e nt A Condition Effective March 20, 2017, the City aod the State Water Resources Control Board (SWRCB) entered ioto ao agreement to award the City up to $30 million from its Cleao Water State Revolving Fund for the Sludge Dewatering aod Loadout Facility project. The SWRCB loao is to be repaid over 30 years at a rate of 1.8%, with the first annual installment due on May 31, 2020. InSeptember 2017, due to the projected lower project costs, the agreement was amended to reduce the SWRCB loao amount to $29.7 million. Under the terms of the agreement, $4 million of the SWRCB loao is a federal pass through graot from the U.S. Environmental Protection Agency under its Capitalization Grants for Cleao Water Tate Revolving Funds program. On August 4, 2018, the City received a letter from the SWRCB explaioing the status of the SWRCB loao aod the federal pass through graot. The letter clarified the funding sources aod summarized the project draws through the date of the letter. Based on the information provided in the SWRCB letter, we observed the following two issues: 1. The SWRCB letter on August 4, 2018 clarified that the project costs included in the first two draws submitted to SWRCB were applied to the federal awards first, before applying them to State funding sources. Therefore, ao adjustment of $4,000,000 was necessary to reduce the SWRCB loao balaoce aod recogoize grant revenue for the year ended June 30, 2018. 2. The City incurred eligible project costs of $4,964,775 during the year ended June 30, 2018 aod submitted the loao draws subsequent to year end. Accordingly, the City accrued draws made in July aod August as a receivable from the SWRCB aod as ao obligation for SWRCB loao payable. The draws for the $4,964,775 were not made by June 30, 2018, therefore City does not owe that amount to SWRCB as of year-end aod overstated its obligation for the SWRCB loao. An audit adjustment of $4,964,775 was necessary to reduce the SWRCB loao balaoce at June 30, 2018 aod reduce receivables from the SWRCB to properly account for the loan. Recommendation Itwas recommended that the City document the important terms aod conditions of the SWRCB loao to ensure proper internal controls over the financial reporting aod compliaoce. It was recommended that the City's Finaoce department collaborate with other departmeots that have material or complex transactions to strengthen internal controls over financial reporting aod compliaoce. Corrective action plao has been implemented. 4 Certified Public Accountants Aua chm Q nt. B CABLE TV FRANCHISE Independent Auditor's Report and Statements of Franchise Revenues and Expenses For the Years Ended December 31, 2018 and 2017 ,- 1(;() Attachment B Table of Contents Page Attachment B Management’s Responsibility for the Financial Statements Auditor’s Responsibility Opinion O � - L 2 u NK 2 2 668 2 2 Attachment B Basis of Accounting Restriction on Use Aua chm Q nt. B CABLE TV FRANCIDSE Statements of Franchise Revenues and Expenses For the Years Ended December 31, 2018 and 2017 Revenues: 2018 2017 Franchise fees $ 1,763,182 $ 1,878,392 Expenses: Franchise administration 47,144 44,293 Consulting fees 6,278 12,609 Total expenses 53,422 56,902 Net revenues $ 1,709,760 $ 1,821,490 2018 2017 Amount Percent Amount Percent Allocation of Net Revenues: City of Palo Alto $ 824,236 48.2% $ 890,738 48.9% City of Menlo Park 455,822 26.7% 486,334 26.7% City of East Palo Alto 172,521 10.1% 179,809 9.9% Town of Atherton 137,686 8.1% 141,690 7.8% County of Santa Clara 90,855 5.3% 97,564 5.4% County of San Mateo 28,640 1.7% 25,355 1.4% Total allocated net revenues $ 1,709,760 100.0% $ 1,821,490 100.0% See accompanying notes to the financial statements. 3 Aua chm Q nt. B CABLE TV FRANCHISE Notes to the Financial Statements For the Years Ended December 31, 2018 and 2017 NOTE 1-JOINT OPERATING AGREEMENT AND BASIS OF ACCOUNTING In July 1983, a Joint Exercise of Powers Agreement was entered into by and between the Cities of Palo Alto, Menlo Park, East Palo Alto, the Counties of San Mateo and Santa Clara, and the Town of Atherton (Members) for the purpose of obtaining a state-of-the-art cable service for residents, businesses, and institutions, within each of their jurisdictions in the most efficient and economical manner possible. On August 9, 2000, the City of Palo Alto (City), acting on behalf of the Members, signed a Franchise Agreement with TCI Cablevision of California, Inc., a wholly owned subsidiary of AT&T Broadband (AT&T), a third party contractor, which was granted a non-exclusive franchise to construct, operate, maintain and repair a cable television system within the Members jurisdictions. In 2002, the Franchise Agreement was transferred from AT&T to Comcast Corporation (Comcast). TCI Cablevision of California, Inc. also signed an asset purchase agreement with Cable Communications Cooperative of Palo Alto, Inc. (CCCOPA), the former cable television system operator/owner, and acquired the system. In October 1988, the Members entered into a Joint Operating Agreement in which the City was granted the power and the authority to administer and coordinate the activities of the franchise and exercise the rights and responsibilities of the City pursuant to the Franchise Agreement. The activities are administered by the City and are accounted for within the City's Agency Fund. The program is accounted for using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recognized when the liability is incurred. On January 1, 2007, the Digital Infrastructure and Video Competition Act (DIVCA) went into effect. Under DIVCA, cable and video service franchises are now granted exclusively by the California Public Utilities Commission (Commission) rather than by local franchising entities. On March 30, 2007, the Commission granted AT&T a statewide franchise. Comcast was allowed to seek a state franchise after January 1, 2008, when another state franchise holder (in this case AT&T) entered the local market. On January 2, 2008, the Commission granted Comcast a state franchise. On June 9, 2009, the Members approved an amended and restated Joint Exercise of Powers Agreement, in substitution of the existing Joint Exercise of Powers Agreement and the Joint Operating Agreement, to reflect changes in the law due to DIVCA and to continue to allow the City to administer the cable and video franchise enforcement and monitoring process for state franchise holders. The accompanying financial statements are intended to present the Franchise's revenues and expenses pursuant to the Joint Exercise of Powers Agreement and are not intended to be a complete presentation of the Franchise's financial position or results of operations. As compensation for services under the state franchise agreements, AT&T and Comcast pay annual franchise fees in an amount equal to 5% of annual gross revenues, taking into account a reasonable adjustment for bad debts. From these fees the City is first reimbursed for out-of-pocket franchise administration costs. The remaining fees are distributed to each Member according to the percentage of revenues derived from the residents and businesses in each of the entities compared to revenues in total. 4 Aua chm Q nt. B CABLE TV FRANCHISE Notes to the Financial Statements For the Years Ended December 31, 2018 and 2017 NOTE 2 -PRIOR FRANCHISE SETTLEMENTS A prior Franchise Agreement with CCCOPA was set to expire on March 24, 2001. On June 21, 1999, the City hired a cable communications consultant and retained the services of a law firm to assist in the franchise renewal process. On July 31, 2000, CCCOPA reimbursed the City $185,000 toward the actual costs incurred as part of the franchise renewal efforts. On July 24, 2000, the City reached a settlement with CCCOPA in the amount of $220,000 to resolve outstanding claims resulting from CCCOPA's alleged failure to fully perform under the prior Franchise Agreement. On November 22, 2004, the City reached a settlement agreement with Comcast regarding cable plant construction claims in the amount of $175,000. This money was to be used towards the institutional network connection costs. In 2006, the City conducted a franchise compliance audit performed by the City Auditor's Office. A settlement was reached in the amount of $155,391. Inaddition, CCCOPA paid the City a $250,000 grant to acquire, install, and/or maintain equipment to be used in connection with an institutional network defined in the Franchise Agreement. In 2016, the City Auditor discovered that AT&T and Comcast did not consistently calculate the fees due in accordance with DIVCA and the municipal code of each of the cablejoint powers members. As a result of the audit, the City received a settlement from AT&T in the amount of $75,647 in 2016. Additionally, the City received a settlement from Comcast in the amount of $25,000 in 2018. The settlements and grant have been deposited and are being held by the City and earning interest. The City has since spent a part of the balance on various projects including installing and maintaining the institutional network equipment. As of December 31, 2018 and 2017, the remaining balances on deposit with the City were $684,471 and $963,535 (with a subsequent payment of $239,029 to its members in January 2018), respectively. These balances include interest receivable of $2,940 on December 31, 2018 and $2,642 on December 31, 2017. 5 Certified Public Accountants Att a ch m Q n t C PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Annual Financial Report For the Year Ended June 30, 2019 ,- 1(;() Attachment C Page Attachment C Management’s Responsibility for the Financial Statements Auditor’s Responsibility Opinions O � - L 2 u NK 2 2 668 2 2 Attachment C Other Matters Required Supplementary Information Attachment C Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local Governments. Att a ch m Q n t C PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Management' s Discussion & Analysis (Unaudited) For the Year Ended June 30, 2019 OVERVIEW OF THE CORPORATION' SBASIC FINANCIAL STATEMENTS The annual financial report is comprised of two parts: I) Management's discussion and analysis (this part), 2) The basic financial statements, which include the government-wide and the fund financial statements, along with the notes to these financial statements. The basic financial statements comprise the government-wide financial statements and the fund financial statements. These two sets of financial statements provide two different views of the Corporation's financial activities and financial positions, both short-term and long-term. The government-wide financial statements provide a long-tenn view of the Corporation's activities as a whole, and comprise the statement of net position and the statement of activities. The statement of net position provides information about the financial position of the Corporation as a whole, including all its long-tenn liabilities on the full accrual basis, similar to that used by corporations. The statement of activities provides information about all the Corporation's revenues and expenses on the full accrual basis, with the emphasis on measuring net revenues or expenses of the Corporation's program. The statement of activities explains in detail the change in net position for the year. The fund financial statements report the Corporation's operations in more detail than the corporate-wide statements and focus primarily on the short-term activities of the debt service fund. Fund financial statements measure only current revenues and expenditures; current assets, liabilities and fund balances; and they exclude capital assets and long-term debt. Together, these statements along with the notes to the financial statements are called the basic financial statements. DEBT ADMINISTRATION The Corporation issues debt in the form of COPs for future lease receipts from the City. Legally, these COPs issues are the Corporation's debt only; the City is liable only for the payment of the amounts set forth in the lease securing each COPs issue. As of June 30, 2019, the Corporation has the following outstanding debts: 2018, 2019A and 2019B COPs, with outstanding principal balances of $8.9 million and $37.4 million, respectively. ECONOMIC OUTLOOK AND MAJOR INITIATIVES The economy of the City and its major initiatives for the coming year are discussed in detail in the City's Comprehensive Annual Financial Report. CONTACTING THE CORPORATION' SFINANCIAL MANAGEMENT These Basic Financial Statements are intended to provide citizens, taxpayers, investors, and creditors with a general overview of the Corporation's finances. Questions about these financial statements should be directed to the Finance Department of the City of Palo Alto, 250 Hamilton Avenue, Palo Alto, CA 94301. 4 Att a ch m Q n t C PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Statement of Net Position June 30, 2019 Assets Cash and investments held for operations 494 Cash and investments held by trustee 33,850 Lease interest receivable 521,340 Investment in leases to the City of Palo Alto 51,183,463 Total assets 51,739,147 Liabilities Interest payable 521,341 Long-term debt: Due in one year 747,571 Due in more than one year 50,435,892 Total liabilities 51,704,804 Net Position Restricted for debt service $ 34,343 See accompanying notes to financial statements. 5 Att a ch m Q n t C PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Statement of Activities For the Year Ended June 30, 2019 Expenses Interest and fiscal agent charges $ 1,049,919 Program revenues Interest on leases from the City of Palo Alto 1,067,660 Net program revenues 17,741 (;eneral revenues Investment earnings 1,011 Change in net position 18,752 Net position, beginning of the year 15,591 Net position, end of the year $ 34,343 See accompanying notes to financial statements. 6 Att a ch m Q n t C PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Balance Sheet Debt Service Fund June 30, 2019 Assets Cash and investments held for operations $ 494 Cash and investments held by trustee 33,850 Lease interest receivable 521,340 Investment in leases to City of Palo Alto 51,183,463 Total assets $ 51,739,147 Deferred Inflows of Resources Unavailable lease receipts from the City of Palo Alto $ 51,704,804 Fund balance Restricted for debt service 34,343 Total deferred inflows of resources and fund balance $ 51,739,147 Reconciliation of fund balance to net position Fund balance restricted for debt service $ 34,343 Long-term receivables are not available to pay for current period expenditures and are considered unavailable on the governmental fund balance sheet 51,704,804 Some liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the Fund: Interest payable (521,341) Long-term debt due within one year (747,571) Long-term debt due in more than one year (50,435,892) Net position of governmental activities $ 34,343 See accompanying notes to financial statements. 7 Att a ch m Q n t C PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Statement of Revenues, Expenditures and Changes in Fund Balance Debt Service Fund For the Year Ended June 30, 2019 Revenues: Lease receipts from the City of Palo Alto: Principal s 35,000 Interest 319,602 Others 1,916 Investments earnings 1011 Total revenues 357,529 Expenditures: Lease proceeds to the City of Palo Alto 41,995,000 Debt service: Principal repayment 35,000 Interest and fiscal agent charges 319,602 Costs of issuance 285,781 Total expenditures 42,635,383 Exces:i of Revenue:i over Expenditures (42,277,854) Other Financing Sources (Uses): Issuance of Debt 37,370,000 Bond Premium 4,926,606 Total other financing sources (uses) 42,296,606 Net change in fund balance Fund balance, beginning of the year Fund balance, end of the year Reconciliation of net change infund balance to change innet position Net change in fund balance - debt service fund Amounts reported for governmental activities in the statement of activitie:i are different beC1111Se: Repayment of bond principal is an expenditure in the governmental funds, Statement ofNet Position, the repayment reduces long-term liabilities. Interest accrued on long-term debt and amortization of bond premium do not require the use of current financial resources andtherefore are not reported as expenditures in governmental funds. Change in interest payable Amortization of bond premium The issuance of bonds are reported as other financing sources ingovernmental funds and thus contribute to the change in fund balances. However, bonds issuance change long-term liabilities inthe statement ofnet position and do not affect the statement of activitie:i. Issuance of Bonds Bonds premium Some amounts reported in the statement of revenues, expenditures and changes infund balances reflect the collection of an asset which are not includable as revenues and expenses on the statement of activities. 18,752 15,591 s 34,343 18,752 35,000 (492,679) 48,143 (37,370,000) (4,926,606) Lease receipt fur bond principal repayment (35,000) Lease receipt for interest payment 492,679 Lease receipt fur new bond issuance 42,296,606 Impact of bond premium amortization on lease receipt (48,143) Change in net position of governmental activities s 18,752 See accompanying notes to financial statements. 8 Attachment C Debt Service Fund Fund Financial Statements: Government-wide Statements: Attachment C Restricted Fund Balance Restricted Net Position Att a ch m Q n t C PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to the Basic Financial Statements For the Year Ended June 30, 2019 NOTE 3-CASH AND INVESTMENTS HELD BY TRUSTEE (a) Interest Rate Risk Interest rate risk is the risk that a change in market interest rates will adversely affect the fair value of an investment. Normally, the longer it takes an investment to reach maturity, the greater will be that investment's sensitivity to changes in market rates. Information about the sensitivity of the fair values of the Corporation's investments to market interest rate fluctuations is provided by the following table that shows the distribution of the Corporation's investments by maturity: Investment Type Amount Maturity Date Money Market Mutual Fund $ 33,850 19 days (b) Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. As of June 30, 2019, the Corporation's investments in money market mutual funds are rated AAAm by Standard & Poor's. (c) Fair Value Hierarchy The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs. The Corporation's investments in money market mutual funds are not subject to the fair value hierarchy. (d) Investment Policy The Corporation must maintain required amounts of cash and investments by trustee under the terms of certain debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if the Corporation fails to meet its obligation under these debt issues. The California Government Code (Code) requires these funds to be invested in accordance with bond indentures or State statutes. All these funds have been invested as permitted under the Code. The Investment Policy is described in detail in the City's Comprehensive Annual Financial Report. The table below identifies the investment types that are authorized by the City's Investment Policy. The table also identifies certain provisions of the City's Investment Policy that address interest rate risk, credit risk and concentration of credit risk. 11 Att a ch m Q n t C PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to the Basic Financial Statements For the Year Ended June 30, 2019 NOTE 3-CASH AND INVESTMENTS HELD BY TRUSTEE (continued) Maxim.um Maxirmm Maximum Minimum Percentage Investment in Autboriz.ed Investment Type Maturity Credit Quality of Portfolio One Issuer U.S. Government Securities U.S. Government Agency Securities lO years (*) IO years (*) NIA NIA No Limit No Limit (A) No Limit No Limit Certificates of Deposit IO years (*) NIA 2CJCAi 10% of the par value of portfoi:l Bankers Acceptances 180days NIA 30% $5mil00n Commercial Paper 270days A-1 15% $3 m.illim (B) Local Agency Investment Fund NIA NIA No Limit $50 m.illim per accoum Short-Term Repurchase Agreements 1year NIA No Limit No Limit City of Palo Alto Bonds NIA NIA No Limit No Limit Money Market Deposit Accoums NIA NIA No Limit No Limit Mutual Funds NIA NIA 20% 100.A. Negotiable Certificates of Deposit IO years (*) NIA 10% $5 m.illim Medium-Term Corporate Notes 5 years AA 100.A. $5mil00n Bonds of State of California Municipal Agencils & Other U.S. States IO years (*) AA/AA2 30% No Limit Supranational 5 years AA/AA2 20% 10% of the par value of portfoi:l (A) Callable andmuhi-step securities are limited to no more than 25% of the par value of the portfolio, provXled that: 1) the potential call dates are known at the time of purchase, 2) the interest rates at which they "step-up" are known at the time of purchase, 3) the entire face value of the security is redeemed at (B) The lesser of $3 miIOOn or 100/o of outstanding commercial paper of any one instituti:m. (*) The maximum maturity is based onthe Investment Policy that is approved bythe City CoWl.Cil and is less restrictive than the California Governmental Code. NOTE 4 -CERTIFICATES OF PARTICIPATION The Corporation's changes in long-term debt are presented below: Certificateii of Participation 2018 Capital Improvement Project Balance Balance Amomrt due June 30, 2018 Additions Retirements June 30, 2019 in one year 2.20-4.22%, due 11/112047 $ 8,970,000 $ $ 35,000 $ 8,935,000 $ 180,000 2019 California Ave. Parking Garage Series A& B 2.5%-5%, due 11/112048 37,370,000 37,370,000 375,000 AddL Unamorti7.ed Premiwn 4,926,606 48,143 4,878,463 192,571 Total $ 8,970,000 $ 42,296,606 $ 83,143 $ 51,183,463 $ 747,571 Att a ch m Q n t C PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to the Basic Financial Statements For the Year Ended June 30, 2019 12 Att a ch m Q n t C PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to the Basic Financial Statements For the Year Ended June 30, 2019 NOTE 4 -CERTIFICATES OF PARTICIPATION (Continued) On June 1, 2018, the City issued the 2018 Capital Improvement Project and Refinancing Certificates of Participation (2018 COPs) in the amount of $9.0 million to fully refinance the 2002B COPs and to fund the renovation of the Palo Alto Municipal Golf Course. Principal payments are due annually on November 1 and interest payments semi-annually at various rates on May 1 and November 1. The 2018 COPs are secured by lease revenues received by the Corporation from any City's General Fund revenue source. On March 21, 2019, the City issued the 2019 California Avenue Parking Garage tax exempt Series A and taxable Series B Certificates of Participation (2019A and 2019B COPs) in the amount of $26.8 million plus $4.9 million premium, and $10.6 million, respectively, for the construction of the new California Avenue Parking Garage. Principal payments are due annually on November 1 and interest payments semi-annually at various rates on May 1 and November 1. The 2019A and 2019B COPs are secured by lease revenues received by the Corporation from any City's General Fund revenue source. Future annual debt service on the outstanding debt is shown below: For the Year Ending June 30, Principal Interest Payment Total Payment 2020 $ 555,000 $ 2,307,898 $ 2,862,898 2021 815,000 2,093,575 2,908,575 2022 835,000 2,070,960 2,905,960 2023 860,000 2,043,531 2,903,531 2024 890,000 2,007,303 2,897,303 2025-2029 5,100,000 9,360,666 14,460,666 2030-2034 6,425,000 7,997,194 14,422,194 2035-2039 8,125,000 6,257,467 14,382,467 2040-2044 10,285,000 4,044,229 14,329,229 2045-2048 12,415,000 1,354,105 13,769,105 $ 46,305,000 $ 39,536,928 $ 85,841,928 Events of Default and Acceleration Clauses Generally, the Corporation is considered to be in default if the Corporation fails to pay the principal of and interest on the outstanding long-term debt when become due and payable. Ifan event of default has occurred and is continuing, the principal of the long-term debt, together with the accrued interest. may be declared due and payable immediately. 13 Atta chm Qn t D Certified Public Accountants CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Independent Auditor's Report and Financial Statements For the Year Ended June 30, 2019 ,- 1(;() Attachment D Table of Contents Page Attachment D Management’s Responsibility for the Financial Statements Auditor’s Responsibility Opinion O � - L 2 u NK 2 2 668 2 2 Attachment D Basis of Accounting Restriction on Use Atta chm Qn t D CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Statement of Net Expenditures For the Year Ended June 30, 2019 City of City of City of Total Mountain View Los Altos Palo Alto Direct Expenditures: Source control program Public outreach Permitting andenforcement Operations and maintenance System improvement C1P (Note 3) Total Direct Expenditures Indirect Administrative Expenditures (Note 4): s 1,224,010 s 482,994 s 121,177 s 619,839 116,316 45,898 11,515 58,903 1,042,481 287,642 17,056 737,783 14,575,798 5,751,610 1,443,004 7,381,184 3,625,353 1,430,564 358,910 1,835,879 20,583,958 7,998,708 1,951,662 10,633,588 Source control program 948,573 374,307 93,909 480,357 Public outreach 2,757 1,088 273 1,396 Permitting and enforcement 422,513 265,51S 15,744 141,254 Operations andmaintenance 3,798,519 1,498,895 376,055 1,923,569 Total Indirect Administrative Expenditures 5,172,362 2,139,805 485,981 2,546,576 Debt Service Expenditures (Note 5): Refunding 1990 Series A Bonds 282,665 144,159 22,048 116,458 1999 Wastewater Treatment New Project 545,854 206,824 51,692 287,338 2009 State Water Resource Loan 555,126 210,565 52,627 292,534 Total Debt Service Expenditures 1,384,245 561,548 126,367 696,330 Total Expenditures 27,140,565 10,700,061 2,564,010 13,876,494 Deduct Joint Systems Revenues (Note 6) 387,093l 152,74:z2 38,322l 196,024l Net Expenditures s 26,753,472 s 10,547,314 s 2,525,688 s 1 3,680,470 See accompanying notes to the financial statements. 3 Atta chm Qn t D CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Statement of Quarterly Billings For the Year Ended June 30, 2019 City of City of Mountain View Los Altos Billings by Quarter, Beginning: July 1, 2018 $ 2,673,214 $ 632,674 October 1, 2018 2,929,282 694,846 January 1, 2019 2,673,214 632,674 April 1, 2019 2,978,598 696,801 Total billings 11,254,308 2,656,995 Net expenditures 10,547,314 2,525,688 Excess of total billings over net expenditures $ 706,994 $ 131,307 See accompanying notes to the financial statements. 4 Atta chm Qn t D CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Notes to the Financial Statements For the Year Ended June 30, 2019 NOTE 1-THE REPORTING ENTITY The Cities of Palo Alto, Mountain View and Los Altos (the Members) participate jointly in the cost of maintaining and operating the Regional Water Quality Control Plant and related system (the Plant). The Members share the original costs of acquisition and construction of the Plant in the same proportions as the allocation of capacity rights to them. The City of Palo Alto (the City) is the owner and administrator of the Plant. The Cities of Mountain View and Los Altos are entitled to use a portion of the capacity of the Plant, as set forth in the Basic Agreement between the City of Palo Alto, the City of Mountain View and the City of Los Altos (collectively, the ''Members") for the Acquisition, Construction and Maintenance of a Joint Sewer System dated October 10, 1968, as amended by addenda dated December 5, 1977, January 14, 1980, April 9, 1985, May 30, 1991, July 31, 1992, March 16, 1998, April 15, 2009 and October 17, 2016 (collectively, the "Basic Agreement"). The Basic Agreement will terminate on December 31, 2060, unless a written notice of withdrawal is tendered ten years preceding the date of withdrawal. Effective October 17, 2016, the Members entered into an amendment to approve the projects for planning and design of the primary sedimentation tanks, the fixed film reactors, a new laboratory and Environmental Service building, and the design and construction of a sludge dewatering and load-out facility (the Projects). The Members also authorized the City to pursue State Revolving Fund loans from the State Water Resources Control Board to fund the costs of the Projects. NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Plant is an enterprise that is operated by the City and its operations are accounted for as an enterprise fund in the City's basic financial statements. The accompanying financial statements are intended to present the Plant's net expenditures and quarterly billings by the Plant to the Cities of Mountain View and Los Altos pursuant to the agreement of the Members as described above and are not intended to be a complete presentation of the Plant's financial position or results of operations. Additionally, the capital cost and the outstanding debt of the Plant are not presented in these statements but are presented in the basic financial statements of the City. Plant expenditures, joint system revenues, debt service and industrial waste compliance expenditures are shared by the Members based on agreed upon allocation percentages. The expenditures, including indirect administrative expenditures (see Note 4), are allocated to each of the Members based primarily on their respective percentages of the annual sewage flow and treatment needed for suspended solids, chemical oxygen demand and ammonia. Revenues from services, fines and penalties are allocated to each of the Members in the same proportions as those of expenditures. Debt service payments are allocated based on percentages established at the time of bond issuance. Industrial waste compliance (Public outreach and permitting and enforcement) charges are allocated to Members primarily based on upon the number of industries and efforts required to maintain compliance with sewage use ordinances and other regulations from Environmental Protection Agency. 5 Atta chm Qn t D CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Notes to the Financial Statements For the Year Ended June 30, 2019 NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The percentages used for the year ended June 30, 2019, to allocate expenditures and revenues were as follows: Public outreach, source control program, City of City of Mountain View Los Altos City of Palo Alto operations and maintenance, system improvement CIP, and joint system revenues 39.46% 9.90% 50.64% Debt services expenditures: 1999 Utility Refunding Bonds 1999 Wastewater Treatment New Project 37.89% 9.47% 52.64% Refunding 1990 Series A Bonds 51.00% 7.80% 41.20% 2009 State Water Resoun:es Loan 37.89% 9.47% 52.64% Permitting and enforcement 37.76% 2.24% 60.00% The City is allocated 50.64% of total usage of the treatment plant. The City does not fully utilize its percentage allocation. Therefore, the City has entered into separate contracts to allocate portions of its excess to other entities. Fiscal year 2019 allocations are as follows: East Palo Alto Sanitary District Stanford University Town of Los Altos Hills Remaining City percentages Total 6.78% 6.18% 1.75% 35.93% 50.64% The agreement the City has with the above entities has no effect on the partnership agreement between the Members. Billings are made in advance and are based on the adopted budget for the plant and estimated sewage flow. Excess billings (over) under net expenditures are offset against the payments during the second quarter of the subsequent fiscal year. NOTE 3-SYSTEM IMPROVEMENT CIP The basic agreement between the Members, dated October 10, 1968, provides that the administrator of the Plant is responsible for capital additions. These capital additions should be for the replacement of obsolete or worn-out units, or minor capital additions to improve the efficiency of the Plant's operations. Per an addendum to the agreement dated March 16, 1998, the Members agreed that capital additions should not exceed $1.9 million in 1998-99 (base year). For future years, the base year amount will be adjusted annually based on increases to the Consumer Price Index-Urban Wage Earners and Clerical Workers for the San Francisco-Oaldand-San Jose area. For fiscal year 2019, the adjusted capital additions limit is $3,257,896. Actual System Improvement CIP expenditures amounted to $3,625,353 for fiscal year 2019. As of June 30, 2019, the commitments for minor capital additions, including unspent capital additions is $6,426,784 which have been carried forward to fiscal year 2020. 6 Atta chm Qn t D CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Notes to the Financial Statements For the Year Ended June 30, 2019 NOTE 3-SYSTEM IMPROVEMENT CIP (Continued) As of June 30, 2019, the City also committed $1,755,902 for major projects such as the Dewatering and Loadout Facility project that was approved in October 2016. These commitments are not subject to the minor capital addition limit. NOTE 4 -INDIRECT ADMINISTRATIVE EXPENDITURES Indirect expenditures include those costs allocated from the City's General Fund administrative services, which supports all operating departments of the City. Other indirect expenses are administrative charges from the City's Internal Services Funds. These allocations are applied on a uniform basis throughout the City. The allocations are applied in accordance with the subsequent letter of agreement dated April 9, 1985. NOTE S-DEBT SERVICE EXPENDITURES Debt service expenditures include principal repayments, interest expense and amortization of bond discount reduced by any interest income earned from investments with the fiscal agent, related to the 1999 Series A Bonds (split for the portions used for the ''New Project" and refunding of the 1990 Series A Bonds) and the 2009 State Water Resources loan. In prior years, the City, City of Mountain View, City of Los Altos, Town of Los Altos Hills, East Palo Alto Sanitary District, and Stanford University agreed to issue bonds (1999 Series A Bonds) to finance the rehabilitation of the Wastewater Treatment System's two sludge incinerators and to refund the 1990 Series A Bonds. In October 2009, the City approved the 2009 State Water Resources Loan to finance the Ultraviolet Disinfection Project. The principal amount of the debt outstanding as of June 30, 2019 are allocated as follows: 1999 Utili!l'. Revenue Refun Bonds 1999 Wastewater Refunding of 2009 Treatment 1990 Series A State Water New Project Bonds ResoUICc:B Loan Total City of Palo Alto $ 871,956 $ 300,588 $ 2,162,201 $ 3,334,745 City of Mountain View 865,786 613,199 2,146,903 3,625,888 City of Los Altos 216,390 93,784 536,584 846,758 East Palo Alto Sanitary District 174,574 143,080 432,893 750,547 Stanford University 120,191 49,296 298,039 467,526 Town of Los Altos Hills 36,103 2,404 89,525 128,032 Total $ 2,285,000 $ 1,202,351 $ 5,666,145 $ 9,153,496 As required by the Indenture of the 1999 Series A Bonds, the City established a debt service reserve fund (the Reserve Account), with a minimum funding level requirement in the Reserve Account (the Reserve Requirement). At the time the bond issuance, the City satisfied the Reserve Requirement with a deposit into the Reserve Account of a surety bond in the amount of $1,647,300 issued by Ambac Assurance Corporation. 7 Atta chm Qn t D CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Notes to the Financial Statements For the Year Ended June 30, 2019 NOTE 5-DEBT SERVICE EXPENDITURES (Continued) 2017 State Water Resources Loan - In June 2017, the State Water Resources Control Board (SWRCB) and the City executed an agreement for an award up to $30 million, 30 years at 1.8% to finance the project replacing the sewage sludge "bio-solids" incinerators at the Plant. Under the terms of the contract, a portion of the loan amount, $4 million, has been forgiven due to the City's performance of its obligations under the agreement. On September 13, 2017, the City and SWRCB amended the original agreement of the 2017 SRF loan to lower the total amount to $29.7 million and the due date of the last debt service payment be May 31, 2049. The new facility will dewater the bio-solids and allow it to be loaded onto trucks and taken offsite for further treatment until further treatment units can be built onsite. The Plant provides treatment and disposal for wastewater for the City, City of Mountain View, City of Los Altos, Town of Los Altos Hills, East Palo Alto Sanitary District, and Stanford University. Though the City is the recipient of the loan, the City's agreement with the partner agencies oblige them to pay their proportionate share of the principal and interest of this loan. The City's share of the loan payment is 38.2% with the partner agencies paying 61.8%. Per the SWRCB agreement, the first debt service payment of this loan is due on May 31, 2020, a year after the project is expected to be completed. NOTE 6 -JOINT SYSTEM REVENUES The Plant's joint system revenues for the year ended June 30, 2019 total $387,093 which consisted of the following: Septic hauling services $ 340,252 Other i:niscellaneous revenues 6,196 Salt water marsh services 7,500 Utility service to other utility funds 36,757 Bad debt expense (3,612) $ 387,093 NOTE 7-RELATED PARTY TRANSACTIONS During fiscal year 2019, the Plant paid the City $2,984,282 for utility costs. Such costs are included in the Statement of Net Expenditures as source control program, permitting and enforcement, and operations and maintenance expenditures. Vehicle replacement charges of $12,209 were paid to the City's Equipment Replacement Fund, which is included in the Statement of Net Expenditures as operations and maintenance expenditures. 8 Atta chm Qn t D This page is intentionally left blank. 9 Aua chm Q nt. E Certified Public Accountants CITY OF PALO ALTO, CALIFORNIA Independent Accountant' s Report on Applying Agreed-Upon Procedures Related to the Article XIII-B Appropriations Limit For the Year Ended June 30, 2019 ,- 1(;() O � - L 2 u NK 2 2 668 2 2 Attachment E Agreed-upon Procedures Applied to the Appropriations Limitation Prescribed by Article XIII-B of the California Constitution Atta chm e nt E This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants.We were not engaged to and did not conduct an examination or review, the objective of which would be the expression of an opinion or conclusion, respectively, on the Appropriations Limit Worksheet. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. No procedures have been performed with respect to the determination of the appropriations limit for the base year, as defined by Article XIII-B of the California Constitution. This report is intended solely for the information and use of the City Council and City management and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited. H<>CJ°u.5 Gw i O'GMdl l1iP Walnut Creek. California November 4, 2019 2 ) <2 3 CITY OF PALO ALTO, CALIFORNIA Appropriations Limit Worksheet For the Year Ended June 30, 2019 2017-2018 appropriation limit, as adopted $ 158,370,000 Aua chm Q nt. E Adjustment factors: Population (I) Inflation <2 1.0099 1.0367 3 Total adjustment factors (rounded) C ) 1.0470 Total adjustments 7,440,000 2018-2019 appropriation limit, as adopted $ 165,810,000 (t) The population factor may be based on the change in population of 1) the City or 2) the County of Santa Clara, as provided by the State of California's Department of Finance. The population factor adopted by the City for the current year appropriation limit represents the change in population of the County of Santa Clara. ) The inflation factor may be based on 1) the change in per capita personal income for the State of California, as provided by the State of California's Department of Finance; or 2) the change in the assessed valuation due to new non-residential construction within the City. The inflation factor adopted by the City for the current year appropriation limit represents the change in per capita personal income. C J The total adjustment factor is calculated by multiplying the population factor by the inflation factor. 3 City of Palo Alto (ID # 10644) Finance Committee Staff Report Report Type: Action Items Meeting Date: 11/19/2019 City of Palo Alto Page 1 Council Priority: Fiscal Sustainability Summary Title: Approval of FY 2019 Comprehensive Annual Financial Report (CAFR) & Budget Amendments Title: Recommendation to Approve the FY 2019 Comprehensive Annual Financial Report (CAFR) and Approve FY 2019 Budget Amendments in Various Funds From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that the Finance Committee forward to the City Council for its approval: 1. Amend the Fiscal Year (FY) 2019 Budget Appropriation Ordinance for various funds as identified in the attached Recommended Amendments to the City Manager’s FY 2019 Budget (Operating Budget: Attachment B – Exhibit 1; Capital Budget: Attachment B – Exhibit 2); and 2. The City’s FY 2019 Comprehensive Annual Financial Report (CAFR) (Attachment C). Executive Summary At the close of FY 2019, the City’s overall Net Position remains positive. The Statement of Activities (p. 31 of the attached CAFR), reports Governmental Activities Net Position at $450.0 million, a $22.6 million increase over prior year, and Business-Type Activities as $751.5 million, a $53.4 million increase. Various factors contribute to these increases, including accounting adjustments required by the Governmental Accounting Standards Board (GASB). Financial highlights by fund category can be found in the Discussion section of this report. Background The City’s fiscal year ends on June 30, at which time its financial records are closed for the year and financial reports are prepared. The reports, along with the City’s financial data, are audited by Macias Gini & O’Connell LLP (MGO), Certified Public Accountants, a firm hired by the City Auditor. MGO issues an audit opinion on the financial position of the City’s activities and, City of Palo Alto Page 2 together with the City’s financial statements and other information; this comprises the City’s Comprehensive Annual Financial Report (CAFR) that can be found at Attachment C. Also attached to this staff report is Recommended Amendments to the City Manager’s FY 2019 Budget. These recommended actions close the fiscal year by reallocating and realigning budget to reappropriate funds or adjust transfers between operating and capital funds. The General Fund Summary found at Attachment A, provides detailed information of the fund’s activity this year. The CAFR includes fund level financial statements that provide a snapshot of fund balances and activity for the year. An overview of financial results, information on how to navigate the CAFR document, and highlights of key fiscal issues affecting the City can be found in the Management’s Discussion and Analysis (MD&A) section (CAFR p. 5). The MD&A also provides a discussion and analysis of the City’s current fiscal health and includes financial statements and analysis that is compared to the prior year, along with capital asset and debt administration data. In addition, staff has prepared and attached a budgetary basis summary of General Fund Revenues and Expenditures to provide a snapshot of the fund’s revenue and expenditures by department (Attachment A). The Discussion section of this staff report includes Results by Fund which discusses position of fund balances, major revenue sources, and expense highlights. Discussion Financial Highlights for FY 2019 General Fund The General Fund ended FY 2019 with $13 million surplus, which includes adjustments for assumptions used in the development of the FY 2020 Adopted Operating Budget when compared to necessary funding to reach the Council approved Budget Stabilization (BSR) target level of 18.5%. The primary driver of the surplus was revenue receipts being higher than the Adjusted Budget by $8.4 million primarily due to increased Sales Tax, Property Tax, as well as the proceeds from the disposition of the former City Manager’s house. Overall department expense savings was $3.3 million and is attributed to position vacancy savings, particularly positions at the executive and management level of the organization. Enterprise Funds The Enterprise Funds ended the year in surplus positions. The Electric Fund financial condition improved notably ending with a surplus of $19.0 million due hydroelectric generation which was 17 percent above average and approximately $7.4 million of the change in Net Position is attributed to additional sales revenue from sale of excess hydroelectric generation. The Gas Fund ended with a surplus of $5.3 million due to higher operating revenues as a result of a rate increase and higher consumption. City of Palo Alto Page 3 Internal Service Funds Internal Service Funds ended the fiscal year with $57.8 million fund balance. All funds showed positive balances except the Printing and Mailing which reported a $0.4 million negative balance due to the pension liability per GASB 68 and OPEB liability per GASB 75. Results by Fund: General Fund Reserves At the end of the current fiscal year, fund balance of the General Fund was $75.2 million. The $75.2 million fund balance is comprised of several reserves: the Budget Stabilization Reserve (BSR), encumbrances and reappropriations, notes and loans, inventory, prepaid items, and other general government special purposes reserves (this includes reserve from donations, trusts and store inventories). As described in the BSR reserve (City’s general reserve) policy approved by Council, the reserve is to remain between 15 and 20 percent of the General Fund operating budget, with a target goal of 18.5 percent. Any reserve balance in excess of 18.5 percent of expenditures and transfers may be transferred to the Infrastructure Reserve (IR) in the Capital Projects Fund at the discretion of the City Manager. The Fiscal Year 2020 Budget is projected to have a $41.4 million Budget Stabilization Reserve Balance as of June 30, 2019, compared to the actual balance of $54.8 million (this is a component of the General Fund, fund balance noted above). This is $13.4 million above estimates. The chart below outlines the recommended uses. Once all these adjustments are taken into consideration, the remaining BSR would be at $44.4 million; approximately 19.2 percent of the FY 2020 Adopted expenses of $230.8 million. This level is approximately $1.6 million above the target level of 18.5 percent. Staff recommends leaving the BSR above the targeted level in order to anticipate a higher reserve level to meet the Council target of 18.5 percent in FY 2021. Year-End Budget Stabilization Reserve (BSR) Summary (000’s) General Fund BSR Balance, June 30 2019 54,811 Uses of the FY 2019 Surplus FY 2020 Approved Adjustments to the BSR Balance FY 2020 Adopted Budget 1,292 FY 2020 City Manager Reports Budget Amendments (450) Recommended Budget Amendments Reserve for proceeds from the sale of 335 Webster (2,900) Additional funding for General Liability & Workers Compensation Reserves (1,400) Transfer to the General Capital Improvement Fund (471) (3,500) Transfer to the General Benefits Fund: 115 Pension Trust Fund Contribution (3,500) Current Projected FY 2020 BSR Level (June 30, 2019) $44,352 City of Palo Alto Page 4 General Fund Revenues General Fund revenues for FY 2019 were $197.1 million, which is $17.0 million or 9.4 percent higher than the prior year. Year over year changes in each of the major tax revenue categories are summarized in the following table. Category FY 2019 FY 2018 % Change Increase (Decrease) Property tax $ 47,327 $ 42,839 10.5% Sales tax 36,508 31,091 17.4% Utility user tax 16,402 15,414 6.4% Transient occupancy tax 25,649 24,937 2.9% Documentary transfer tax 6,923 9,229 (25.0%) Property tax revenue increased by $4.5 million or 10.5 percent due to higher assessed values because of continued robust commercial and residential real estate markets. Fiscal years 2019 and 2018 included unusual receipts of $2.7 million and $1.4 million, respectively, for excess Educational Revenue Augmentation Fund (ERAF) distributions from the County of Santa Clara. ERAF is the fund used to collect and disburse property taxes that are shifted to/from cities, the county, and special districts prior to their reallocation to K-14 school agencies. When the state shifts more local property tax than required to support schools these funds are returned and known as excess ERAF. After adjusting for the unusual excess ERAF receipts in this and the prior fiscal year, the property tax growth for fiscal year 2019 is 7.7 percent. Sales tax revenue substantially increased in FY 2019. This growth is primarily attributable to combination of economic performance in sectors such as auto sales and leasing and restaurants and one-time receipts totaling $2.7 million. In addition, in fiscal year 2018 the California Department of Tax and Fee Administration (CDTFA) was established and introduced new technology and collection process which had issues resulting to delays of distribution in sales tax. This resulted in fiscal year 2018 being economically lower by $0.7 million and Fiscal Year 2019 being higher by the same amount. After adjusting for the one-time and delayed payments, the base sales tax growth is 6.5 percent. In addition, there is continued erosion of brick and mortar receipts caused by steady growth in on-line retail sales. However, increased receipts from the county pool, which include a growing number of on-line retailers collecting sales and use tax, has been offsetting these losses. Utility user tax (UUT) revenues were $1.0 million or 6.5 percent, higher compared to the prior year. Approximately, 45 percent of this growth is due to City provided utilities (electric, gas, and water) rate increases and 55 percent due to local telecommunications activity increasing. Transient occupancy tax (TOT) revenues ended the year $0.7 million, or 2.9 percent higher than prior year. The increase is attributable to the voter approval of 1.5 percent tax rate increase from 14 percent to 15.5 percent effective April 1, 2019. The base TOT decreased by 5.4 percent with average occupancy declining by 1.8 percent but average room rates increasing by 2.6 percent the 1.5 percent increase has been allocated to the Infrastructure Plan pursuant City of Palo Alto Page 5 to prior City Council direction. Following is a comparative breakdown of the allocation of transient occupancy tax receipts: FY 2019 FY 2018 % Change Increase (Decrease) General Fund: $ 16,957 $ 16,697 1.6% Infrastructure Plan: New hotels – 12% 4,423 4,678 (5.5%) All hotels – 2% 4,269 3,562 19.8% Subtotal Infrastructure 8,692 8,240 5.5% Total TOT Receipts $ 25,649 $ 24,937 2.9% Documentary Transfer Tax (DTT) revenues decreased $2.3 million or 25 percent to $6.9 million. This revenue source is volatile since it is highly dependent on sales volume and the mix of commercial and residential sales so it can greatly fluctuate. The prior year’s receipts were boosted by large commercial sales. Other revenue increased $7.1 million from prior year levels mostly due to an increase in investment earnings, rental income, and other revenues (disposition of 335 Webster). Following is a chart which depicts the relative contribution of each tax category over the past seven years (2013 through 2019), as well as the current budgeted year (2020). City of Palo Alto Page 6 General Fund Tax Revenues Actual Fiscal Years 2013 – 2019 Budget Fiscal Year 2020 ($ in thousands) 0 25,000 50,000 75,000 100,000 125,000 150,000 FY 2020 Budget FY 2019 Actual FY 2018 Actual FY 2017 Actual FY 2016 Actual FY 2015 Actual FY 2014 Actual FY 2013 Actual FY 2020 Budget FY 2019 Actual FY 2018 Actual FY 2017 Actual FY 2016 Actual FY 2015 Actual FY 2014 Actual FY 2013 Actual Property Tax 48,634 47,327 42,839 39,381 36,607 34,117 30,587 28,742 Sales Tax 34,346 36,508 31,091 29,923 30,018 29,675 29,424 25,606 Utility User Tax 17,581 16,402 15,414 14,240 12,469 10,861 11,008 10,861 Trans Occ Tax 29,309 25,649 24,937 23,477 22,366 16,699 12,255 10,794 Doc Transfer Tax 8,369 6,923 9,229 7,491 6,266 10,384 7,811 6,810 General Fund Expenditures General Fund expenditures for FY 2019, including encumbrances and reappropriations, totaled $193.0 million; an increase of 4.3 percent from the prior year. The Original Budget of $183.6 million was increased to the Final Adjusted Budget amount of $196.3 million, primarily due to the expenditure of prior year encumbered and reappropriated balances; increases for several departments throughout the year also occurred based on City Council direction per recommendations contained in City Manager Reports. Following is a chart which compares actual departmental costs, including encumbrances and reappropriations, over the past seven years and budgeted costs for FY 2019. City of Palo Alto Page 7 General Fund Departments Actual Expenditures Fiscal Years 2013– 2019 (including encumbrances) Budgeted Expenditures Fiscal Year 2020 ($ in thousands) 0 20 40 60 80 100 120 140 160 180 200 FY 2019 Budget FY 2018 Actual FY 2017 Actual FY 2016 Actual FY 2015 Actual FY 2014 Actual FY 2013 Actual FY 2012 Actual FY 2019 Budget FY 2018 Actual FY 2017 Actual FY 2016 Actual FY 2015 Actual FY 2014 Actual FY 2013 Actual FY 2012 Actual Public Safety 76,765 75,975 72,815 65,005 62,459 63,403 61,222 63,879 Community Services 30,096 28,395 26,573 25,262 23,902 23,402 22,279 21,399 Admin Depts 23,408 22,127 21,406 22,059 19,771 19,784 18,544 18,693 Public Works 19,004 18,908 17,475 15,084 14,210 14,138 13,987 13,789 Planning & Comm Env 11,009 10,446 10,732 10,912 9,026 14,637 13,112 11,186 Development Svcs 13,098 12,560 11,668 10,872 11,335 0 0 0 Library 9,900 9,357 9,266 8,217 8,144 8,072 7,555 7,714 Capital Projects Fund The Capital Projects Fund ended the year with a fund balance of $109.5 million, which are comprised of the following: Fund Balance Component Amount ($ in millions) Restricted for Library projects $ 588 Reserved for Roth Building rehabilitation 4,920 Reserved for Cubberley expenditures 5,422 Restricted for California Avenue Parking Garage 42,151 Assigned for all other Capital projects 56,439 Total Capital Projects Fund Balance 109,520 City of Palo Alto Page 8 Restricted for Library projects $0.6 million is the portion of fund balance dedicated to remaining Library expenditures which, if considered bond expenses will be paid for with cash from Bond proceeds. Non-bondable expenditures such as salaries and benefits are funded from the Infrastructure Reserve, as established at the time of the bond issuance. Staff is reviewing the need for this reserve due to completion of library projects and will make adjustments in future as necessary. Restricted for California Avenue Parking Garage $42.2 million represents the bond funding dedicated to the construction of the new California Avenue parking garage. Assigned for all other Capital projects of $56.4 million represents the amount of unspent funds associated with Adopted Capital projects and other noted items. Outside funding sources such as grants, donations and future debt issues are not factored into this component of the fund balance until they are actually received. Enterprise Funds The City’s Enterprise Funds reported a total Net Position of $741.5 million, a $53.4 million increase from the prior year. The overall change in Net Position is driven by the Electric Fund, Water Fund, and Airport Fund. The table below summarizes the overall change in Net Position for each Enterprise Fund. Compared to FY 2018, the Change in Net Position for Enterprise funds increased $23.5 million and is driven primarily by the Water Fund, Electric Fund, Gas Fund and Airport Fund – details of these funds summarized following this table. Enterprise Funds Change in Net Position for the Year Ended June 30 (in Millions) Increase/ Fund Name 2019 2018 (Decrease) Water 8.0$ 5.1$ 2.9$ Electric 19.0 (1.2)20.2 Fiber Optics 3.5 1.7 1.8 Gas 5.3 1.5 3.8 Wastewater Collection 3.3 1.0 2.3 Wastewater Treatment 1.5 4.8 (3.3) Refuse 4.9 6.1 (1.2) Storm Drainage 2.3 1.8 0.5 Airport 6.6 10.1 (3.5) Total Change in Net Position 54.4$ 30.9$ 23.5$ The Water Fund had a change in Net Position totaling $8.0 million, a $2.9 million increase City of Palo Alto Page 9 compared to the change in Net Position reported in prior year. Capital projects that were planned in FY 2019 were deferred and to be completed in FY 2020. The savings as a result of deferring these projects will be added to the fund’s capital reserves and used in future years. In the Electric Fund, the change in Net Position is $19.0 million, a $20.2 million increase compared to prior year. Hydroelectric generation was 17 percent above average and approximately $7.4 million of the change in Net Position is attributed to additional sales revenue from sale of excess hydroelectric generation. In addition, expenditures tracked 9 percent, approximately $13.0 million, below budget due to capital project deferrals, vacancy savings, delays in energy and water efficiency contracts, and lower energy purchase due to decreased load demand. The Gas Fund had a Net Change in Position totaling $5.3 million, a $3.8 million increase compared to prior year. Sales revenue was 6 percent higher than expected, accounting for approximately $6.0 million of the increase, and was offset by higher commodity costs totaling $3.0 million. The Airport Fund Change in Net Position decreased by $3.5 million due to $9.3 million in grant revenues received in FY 2018. The table below details the Change in Unrestricted Reserves in the Enterprise Funds. Enterprise Fund Rate Stabilization, Operations and other reserve balances are shown in detail in the CAFR (CAFR p. 86, Footnote 10). Overall, except for the Wastewater Treatment Fund and the Airport Fund, each Enterprise Funds maintained a positive unrestricted reserve balance as of June 30, 2019. Adjustments for the Pension Reserve (as required by GASB Pronouncement No. 68) and OPEB Reserve (as required by GASB Pronouncement No. 75) total $136.0 million for all Enterprise Funds and reduce each fund’s Unrestricted Reserves. The Wastewater Treatment Fund reflects a $13.8 million Unrestricted Reserve deficit and is driven by $27.0 million in Pension Reserves and OPEB Reserves negative adjustments. The Airport Fund reports a $3.3 million Unrestricted Reserve deficit which is attributed to the Pension Reserve and OPEB Reserve adjustments. Second, the fund deficit in the Airport Fund is also a result of cumulative fund deficits over the life of the fund as fiscal operations at the airport stabilize and capital projects near completion. The General Fund transferred a series of advances totaling $3.1 million for “start-up” costs for the airport. It is expected that the Airport Fund will be able to make its first payment to the General Fund in FY 2020. City of Palo Alto Page 10 Enterprise Funds Change in Reserves (Unrestricted) for the Year Ended June 30 (in Millions) Increase/ Fund Name 2019 2018 (Decrease) Water 25.5$ 22.2$ 3.3$ Electric 69.8 58.3 11.5 Fiber Optics 30.2 27.1 3.1 Gas 7.5 8.7 (1.2) Wastewater Collection 2.2 0.1 2.1 Wastewater Treatment (13.8)(15.0)1.2 Refuse 15.1 10.2 4.9 Storm Drainage 1.9 1.1 0.8 Airport (3.3)(3.3)0.0 Total Change in Reserves (Unrestricted)135.3$ 109.4$ 25.9$ Resource Impact Recommended actions in the report will align the FY 2019 appropriations with final financial activities as outlined in Attachment B. The appropriation of funds in FY 2020 as recommended in the BSR table would be brought forward as part of the FY 2020 Mid-Year Budget Report. Overall, the City ended the 2019 fiscal year in a positive position and in certain areas where net reserves are higher than estimated in the development of the FY 2020 Adopted budget, those additional funds will be included as part of the FY 2021 budget balancing and rate setting activities. Environmental Review This is not a project for purposes of the California Environmental Quality Act. Attachments: • Attachment A: FY 2019 General Fund Financial Summary (Budget to Actuals) • Attachment B: Recommended FY 2019 Year-end Adjustments • Attachment C: City of Palo Alto Fiscal Year 2019 Comprehensive Annual Financial Report Attachment A GENERAL FUND SUMMARY ($000s) FY 2019 FY 2019 FY 2019 FY 2019 FY 2019 FY 2019 FY 2019 Adopted Adjusted CAFR Basis Allocated Encum /Actual Actual to Budget Budget Rev/Exp Charges Reappropriation Rev/Exp Adj BudgetVariance Revenues Sales Tax 31,246 31,746 36,508 36,508 4,761 Property Tax 45,332 46,232 47,327 47,327 1,095 Transient Occupancy Tax 25,049 25,391 25,649 25,649 258 Documentary Transfer Tax 7,434 8,034 6,923 6,923 (1,111) Utility User Tax 16,092 16,092 16,402 16,402 310 Other Taxes, Fines and penalties 2,032 2,032 1,888 1,888 (145) Charges for Services 28,419 28,419 27,346 27,346 (1,073) Permits and Licenses 8,545 8,545 8,410 8,410 (134) Investment Earnings 1,194 1,194 2,167 2,167 974 Rental Income 15,734 15,734 16,338 16,338 604 From Other Agencies 2,943 3,229 2,480 79 2,942 (287) Charges to Other Funds 10,093 10,147 - 10,685 10,685 538 Other Revenues 568 1,599 4,195 - 4,195 2,596 Total Revenues 194,681 198,394 195,633 10,685 79 206,780 8,387 Add: Operating Transfers In 19,772 20,154 20,154 20,154 - Prior Year Encum / Reappropriation - 7,821 7,821 7,821 - Total Source of Funds 214,453 226,369 223,608 10,685 79 234,755 8,387 Expenditures 3,263 3,783 2,649 1,002 132 3,783 (0) City Auditor 1,258 1,238 865 318 55 1,238 (0) City Clerk 1,282 1,267 805 291 97 1,193 73 City Council 488 501 265 103 42 411 90 City Manager 4,386 4,905 2,883 972 595 4,450 455 Administrative Services 7,963 7,834 5,512 2,076 206 7,794 40 Community Services 28,929 30,282 28,903 112 1,186 30,201 82 Fire 31,825 33,894 33,489 164 241 33,894 (0) Police 43,460 43,912 42,854 577 266 43,698 215 Human Resources 3,591 3,796 2,567 976 154 3,697 98 Library 9,664 9,767 9,288 - 203 9,491 276 Planning and Community Environment 8,791 10,346 8,132 34 1,740 9,906 439 Development Services 12,561 13,103 11,549 727 424 12,700 403 Public Works 18,462 18,362 13,757 3,331 839 17,928 435 Non-Departmental 1,531 7,201 6,368 2 368 6,737 464 Cubberley Lease 6,101 6,101 5,830 - 5,830 271 Total Expenditures 183,555 196,291 175,719 10,685 6,548 192,952 3,339 Add: Operating Trans Out 5,726 9,574 9,574 - 9,574 - Transfer to Infrastructure 25,172 27,514 27,514 - 27,514 - Total Use of Funds 214,453 233,380 212,807 10,685 6,548 230,040 3,339 Net Surplus/(Deficit)0 (7,011) 10,801 0 6,548 4,716 11,726 CAFR Reconciliation:Unrealized gain/loss on investments 3,505 Current year encumbrance / reappropriations 6,469 Prior Year encumbrances / reappropriations (7,821) CAFR Net Income 6,869 City Attorney Department Adjustment Adjustment GENERAL FUND (102) Administrative Services Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2021. -$ (16,000)$ City Attorney's Office Non Salary Contractual Expenses This action reallocates funding as a result of higher than anticipated contract expenses for legal services in FY 2019. These higher expenditures are due to more than anticipated time spent on litigation for the City and a higher level of department support than originally estimated. -$ 103,000$ City Auditor's Office Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2021. -$ (4,000)$ City Auditor's Office Salaries & Benefits This action reallocates funding as a result of higher than anticipated salary expenses in FY 2019. These higher anticipated expenditures are due to a number of variables including a higher than anticipated payout for paid leave as a result of the departure of the City Auditor. In addition, at the City Council's direction, funding was used for a contract with an outside consultant to manage the Auditor's Office after the departure of the City Auditor. The funding need for this contract ended up being more than originally anticipated in order to maintain services provided by the Auditor's Office while the search for a new City Auditor was conducted. -$ 70,000$ City Clerk's Office Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2021. -$ (2,000)$ City Manager's Office Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2021. -$ (7,000)$ Community Services Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2021. -$ (6,500)$ Development Services Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2021. -$ (9,500)$ Fire Salaries & Benefits This action reallocates funding as a result of higher than anticipated salary expenses in FY 2019. These higher anticipated expenditures are due to a number of variables including the Department being allowed to hire ahead for its recruit academy in an attempt to reduce the number of vacancies across the department. In addition, the Department was over it's budgeted overtime due to the need to backfill for the vacancies as well as employees out on various types of leave. -$ 690,000$ Human Resources Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2021. -$ (1,000)$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET Revenues Expenses ATTACHMENT B, EXHIBIT 1 Department Adjustment Adjustment GENERAL FUND (102) CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET Revenues Expenses ATTACHMENT B, EXHIBIT 1 Library Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2021. -$ (5,000)$ Non- Departmental Management Development & Training (reallocation from various departments) This action reallocates departmental management savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2020. -$ 80,000$ Office of Emergency Services Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2021. -$ (2,000)$ Office of Sustainability Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2021. -$ (2,000)$ Non- Departmental Elections This action appropriates funding to cover an invoice from Santa Clara County for elections costs that were higher than originally anticipated due to the higher number of measures that ended up on the ballot. -$ 88,384$ Non- Departmental Transient Occupancy Tax/Transfer to Capital Improvement Fund This action increases the transfer to the Capital Improvement Fund as it relates to Transient Occupancy Tax (TOT) revenues earmarked for city-wide infrastructure improvements due to higher than anticipated TOT collections. 341,300$ 341,300$ Non- Departmental Transfer to the 2002 Downtown Parking Improvement Fund The 2002 Downtown Parking Improvement Fund (Fund 360) was established to pay the annual debt service costs associated with the bond issued to construct downtown parking improvements in 2002. The payments were funded through a transfer from the General Fund. This action eliminates the transfer to Fund 360, because the debt service payments were refinanced as part of the bond issuance for the Golf Course Reconfiguration capital project. As a result, Fund 360 will be closed and the remaining debt service costs for the parking improvements will be accounted for in the 2018 Golf Course COP Fund (Fund 361). -$ (161,154)$ Non- Departmental Transfer to the 2018 Golf Course COP Fund This action transfers funds to the 2018 Golf Course COP Fund (Fund 361) to pay the annual debt service costs associated with the bond issued for the Golf Course Reconfiguration capital project as well as the refinanced debt service costs associated with the bond issued to construct a parking garage on Bryant Street in 2002. Costs for annual the debt service are funded through a transfer from the General Fund. -$ 339,010$ Non- Departmental Debt Service for Golf Course Reconfiguration As part of the FY 2019 Adopted Budget, it was assumed that once the bond was issued, the debt service payments for the Golf Course Reconfiguration capital project would be paid directly from the General Fund. Once the bond was issued, it was determined that a separate 2018 Golf Course COP Fund (Fund 361) would be established to pay the debt service costs associated with the bond. This action reduces the amount budgeted in the General Fund for the debt service costs. -$ (177,856)$ Planning & Community Environment Departmental Expense Savings This action reallocates departmental vacancy savings within the General Fund in order to offset departments with higher than anticipated expenses in FY 2019. -$ (163,000)$ Planning & Community Environment Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2021. -$ (9,000)$ Department Adjustment Adjustment GENERAL FUND (102) CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET Revenues Expenses ATTACHMENT B, EXHIBIT 1 Police Departmental Expense Savings This action reallocates departmental vacancy savings within the General Fund in order to offset departments with higher than anticipated expenses in FY 2019. -$ (400,000)$ Police Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2021. -$ (6,500)$ Public Works Departmental Expense Savings This action reallocates departmental vacancy savings within the General Fund in order to offset departments with higher than anticipated expenses in FY 2019. -$ (300,000)$ Public Works Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2021. -$ (9,500)$ Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments recommended in this report. -$ (88,384)$ GENERAL FUND (102) SUBTOTAL 341,300$ 341,300$ Department Adjustment Adjustment CAPITAL IMPROVEMENT FUNDS GENERAL FUND CAPITAL IMPROVEMENT FUND (471) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 2. (23,157,000)$ (19,954,400)$ Capital Bond Proceeds This action appropriates the full amount of the COP funding issued to fund the construction of the New California Avenue Area Parking Garage (PE-18000) in the appropriate category, Bond Proceeds. 41,995,000$ -$ Capital Miscellaneous Revenue As part of the FY 2019 Adopted Budget, the budgeted Certificates of Participation (COP) revenue ($39.5 million) related to the New California Avenue Area Parking Garage (PE-18000) was categorized as Miscellaneous Revenue. After the final COP funding amount ($42.0 million) was issued, the funding was recategorized as Bond Proceeds. This action reduces the funding in Miscellaneous Revenue in order to properly record the full funding in the appropriate category. (39,487,000)$ -$ Capital Transfer from General Fund This action increases the transfer from the General Fund related to TOT revenue Council earmarked to use for city-wide infrastructure improvements due to actual revenue collected being higher than budgeted in FY 2019. 341,300$ -$ Capital Transfer from Gas Tax Fund/ Street Maintenance (PE-86070) This action increases the transfer from the Gas Tax Fund due to actual revenue collected being higher than budgeted in FY 2019. A corresponding transfer is recommended from the Gas Tax Fund to the Capital Improvement Fund to appropriate funding for this project. 30,000$ 30,000$ Capital Transfer to 2018 Golf Course COP Fund This action transfers the remaining funding that was set aside in the Capital Improvement Fund to pay for the 2018 Golf Course COP issuance. These will be used to pay for the annual debt service costs in the 2018 Golf Course COP Fund. -$ 17,507$ Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments recommended in this report. -$ (370,807)$ GENERAL FUND CAPITAL IMPROVEMENT FUND (471) SUBTOTAL (20,277,700)$ (20,277,700)$ CUBBERLEY PROPERTY INFRASTRUCTURE FUND (472) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 2. -$ 3,500$ Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments recommended in this report. -$ (3,500)$ CUBBERLEY PROPERTY INFRASTRUCTURE FUND (472) SUBTOTAL -$ -$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET Revenues Expenses ATTACHMENT B, EXHIBIT 1 Department Adjustment Adjustment ENTERPRISE FUNDS ELECTRIC FUND (513 & 523) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 2. -$ 388,800$ Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments recommended in this report. -$ (388,800)$ ELECTRIC FUND (513 & 523) SUBTOTAL -$ -$ GAS FUND (514 & 524) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 2. -$ 600$ Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments recommended in this report. -$ (600)$ GAS FUND (514 & 524) SUBTOTAL -$ -$ STORM DRAINAGE FUND (528) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 2. -$ 22,800$ Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments recommended in this report. -$ (22,800)$ STORM DRAINAGE FUND (528) SUBTOTAL -$ -$ WASTEWATER COLLECTION FUND (527) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 2. -$ 104,700$ Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments recommended in this report. -$ (104,700)$ WASTEWATER COLLECTION FUND (527) SUBTOTAL -$ -$ WATER FUND (522) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 2. -$ 96,800$ Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments recommended in this report. -$ (96,800)$ WATER FUND (522) SUBTOTAL -$ -$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET Revenues Expenses ATTACHMENT B, EXHIBIT 1 Department Adjustment Adjustment INTERNAL SERVICE FUNDS PRINT AND MAILING FUND (683) Administrative Services Charges to Other Funds This action increases the estimate for revenue for printing services to align with year end revenues collected. 18,000$ -$ Administrative Services Non Salary Expense (Rents and Leases) This action increases the appropriation for non salary expenses related to the City's central printing contract to align with year-end actuals. -$ 155,000$ Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments recommended in this report. -$ (137,000)$ PRINT AND MAILING FUND (683) SUBTOTAL 18,000$ 18,000$ WORKERS' COMPENSATION FUND (688) Non- Departmental Excess Insurance Reimbursement/Insurance Claims Paid This action increases the estimate for insurance reimbursements as well as the appropriation for insurance claims paid. The City is self-insured for workers’ compensation up to a specified dollar amount per claim and has a workers’ compensation insurance policy through California State Association of Counties (CSAC) Excess Insurance Authority for excess coverage. This recommendation reflects the reimbursements received and the corresponding costs incurred by the City during the period as result of excess insurance claims. 100,000$ 100,000$ WORKERS' COMPENSATION FUND (688) SUBTOTAL 100,000$ 100,000$ GENERAL LIABILITIES INSURANCE FUND (689) Non- Departmental Charges to Other Funds This action increases the estimate for charges to other funds by $950,000 ($518,000 in the General Fund) due to an updated actuarial analysis in August 2019 for general liabilities that have been incurred but not reported (IBNR) being $3.0 million higher than budgeted. Departments had sufficient savings at the end of FY 2019 to support the additional costs and did not require budgetary adjustments. The remaining $2.1 million is anticipated to be brought forward as a midyear adjustment in FY 2020 to fully adjust for the liability and ensure appropriate distribution across the City. 950,000$ -$ Non- Departmental Excess Insurance Reimbursement This action increases the estimate for insurance reimbursements as result of higher than anticipated revenues in FY 2019. The City is self-insured for liability claims up to a specified dollar amount per claim and has an insurance policy through California State Association of Counties (CSAC) Excess Insurance Authority for excess coverage. This recommendation reflects the reimbursements received by the City during the period as result of excess liability claims. 550,000$ -$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET Revenues Expenses ATTACHMENT B, EXHIBIT 1 Department Adjustment Adjustment INTERNAL SERVICE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET Revenues Expenses ATTACHMENT B, EXHIBIT 1 Non- Departmental Liability Insurance This action increases the appropriation for liability insurance costs due to an updated actuarial analysis in August 2019 for general liabilities that have been incurred but not reported (IBNR) being $3.0 million higher than budgeted. The additional liability expense has been fully recognized in FY 2019 and has been partially recovered through additional allocations to departments. Due to sufficient savings elsewhere in the General Liability Fund a reduced adjustment of $1.5 million is recommended for the additional liability expense. -$ 1,500,000$ GENERAL LIABILITIES INSURANCE FUND (689) SUBTOTAL 1,500,000$ 1,500,000$ Department Adjustment Adjustment SPECIAL REVENUE FUNDS PUBLIC ART FUND (207) Community Services Public Art Fee Revenue This action increases the estimate for Art Fees as result of higher than anticipated revenues in FY 2019. 530,000$ -$ Community Services Salaries & Benefits This action increases the salaries and benefits appropriation as result of slightly higher than anticipated expenses in FY 2019. -$ 2,100$ Fund Balance Adjustment to Fund Balance This action increases the fund balance to offset adjustments recommended in this report. -$ 527,900$ PUBLIC ART FUND (207) SUBTOTAL 530,000$ 530,000$ PUBLIC SERVICES DONATION FUND (191) Various Donations Revenue/Non-Salary Expenses This action increases the appropriation for expenses in the Public Services Donation Fund to align with FY 2019 year end expense and encumbered funds. Donations in this fund are for activities such as parks and open space activities, art center programs, and animal care services. A corresponding adjustment to revenue reflecting higher than budgeted donations is recommended to offset this increase. 60,000$ 16,000$ Fund Balance Adjustment to Fund Balance This action increases the fund balance to offset adjustments recommended in this report. -$ 44,000$ PUBLIC SERVICES DONATION FUND (191) SUBTOTAL 60,000$ 60,000$ GAS TAX FUND (231) Non- Departmental State of California Revenue: SB1/Transfer to Capital Improvement Fund This action increases the revenue estimate for State of California SB1 allocations to align with higher than anticipated actuals during the period. In FY 2019, the total allocation to the City was $1,170,000 which was $30,000 higher than preliminary estimates from the State Department of Finance. Funding from SB1 is earmarked for transportation and traffic-related capital projects and was used during the period to partially fund the Street Maintenance Capital Improvement Project (PE-86070). The additional revenues are recommended to offset an additional appropriation to this project through a corresponding transfer from the Gas Tax Fund to the Capital Fund. 30,000$ 30,000$ GAS TAX FUND (231) SUBTOTAL 30,000$ 30,000$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET Revenues Expenses ATTACHMENT B, EXHIBIT 1 Department Adjustment Adjustment SPECIAL REVENUE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET Revenues Expenses ATTACHMENT B, EXHIBIT 1 COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) FUND (232) Planning & Community Environment Transfer from Housing Rehabilitation Fund This action increases the transfer from the Housing Rehabilitation Fund to the CDBG Fund to consolidate funding for the CDBG Program. Historically, three funds have been used to track CDBG reimbursements: the Community Development Block Grant (CDBG) Fund (232); the Housing Rehabilitation Fund (238); and the Non-profit Housing Rehabilitation Fund (241). The latter two funds have been inactive for longer than five years and remaining cash balances are recommended to be consolidated into the active CDBG Fund to centralize activity. A corresponding transfer is recommended in the Non-Profit Rehabilitation Fund to the CDBG Fund. 44,178$ -$ Planning & Community Environment Transfer from Non-Profit Housing Rehabilitation Fund This action increases the transfer from the Non-Profit Housing Rehabilitation Fund to the CDBG Fund to consolidate funding for the CDBG Program. Historically, three funds have been used to track CDBG reimbursements: the Community Development Block Grant (CDBG) Fund (232); the Housing Rehabilitation Fund (238); and the Non-profit Housing Rehabilitation Fund (241). The latter two funds have been inactive for longer than five years and remaining cash balances are recommended to be consolidated into the active CDBG Fund to centralize activity. A corresponding transfer is recommended in the Housing Rehabilitation Fund to the CDBG Fund. 22,625$ -$ Fund Balance Adjustment to Fund Balance This action increases the fund balance to offset adjustments recommended in this report. -$ 66,803$ COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) FUND (232) SUBTOTAL 66,803$ 66,803$ HOUSING REHABILIATION FUND (238) Planning & Community Environment Transfer to CDBG Fund This action increases the transfer from the Housing Rehabilitation Fund to the CDBG Fund to consolidate funding for the CDBG Program. Historically, three funds have been used to track CDBG reimbursements: the Community Development Block Grant (CDBG) Fund (232); the Housing Rehabilitation Fund (238); and the Non-profit Housing Rehabilitation Fund (241). The latter two funds have been inactive for longer than five years and remaining cash balances are recommended to be consolidated into the active CDBG Fund to centralize activity. A corresponding transfer is recommended in the CDBG Fund from the Housing Rehabilitation Fund. -$ 44,178$ Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments recommended in this report. -$ (44,178)$ HOUSING REHABILIATION FUND (238) SUBTOTAL -$ -$ Department Adjustment Adjustment SPECIAL REVENUE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET Revenues Expenses ATTACHMENT B, EXHIBIT 1 NON-PROFIT HOUSING REHABILIATION FUND (241) Planning & Community Environment Transfer to CDBG Fund This action increases the transfer from the Housing Rehabilitation Fund to the CDBG Fund to consolidate available funding for the CDBG Program. Historically, three funds have been used to track CDBG reimbursements: the Community Development Block Grant (CDBG) Fund (232); the Housing Rehabilitation Fund (238); and the Non-profit Housing Rehabilitation Fund (241). The latter two funds have been inactive for longer than five years and remaining cash balances are recommended to be consolidated into the active CDBG Fund to centralize activity. A corresponding transfer is recommended in the CDBG Fund from the Non-Profit Housing Rehabilitation Fund. -$ 22,625$ Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments recommended in this report. -$ (22,625)$ NON-PROFIT HOUSING REHABILIATION FUND (241) SUBTOTAL -$ -$ Department Adjustment Adjustment DEBT SERVICE & AGENCY TRUST FUNDS 2002 DOWNTOWN PARKING IMPROVEMENT FUND (360) Administrative Services Transfer from General Fund/Debt Service Payments The 2002 Downtown Parking Improvement Fund (Fund 360) was established to pay the annual debt service costs associated with the bond issued to construct downtown parking improvements in 2002. The payments were funded through a transfer from the General Fund. This action eliminates the transfer to Fund 360, because the debt service payments were refinanced as part of the bond issuance for the Golf Course Reconfiguration capital project. As a result, Fund 360 will be closed and the remaining debt service costs for the parking improvements will be accounted for in the 2018 Golf Course COP Fund (Fund 361). (161,154)$ (161,154)$ Administrative Services Transfer to 2018 Golf Course COP Fund This action appropriates the remaining amount in this fund to be transferred to the 2018 Golf Course COP Fund in order to be used towards the remaining debt service for the 2002 downtown parking improvements that was refinanced as part of the 2018 Golf Course COP issuance. -$ 15,591$ Fund Balance Adjustment to Fund Balance This action decreases the fund balance to offset adjustments recommended in this report and close this fund. -$ (15,591)$ 2002 DOWNTOWN PARKING IMPROVEMENT FUND (360) SUBTOTAL (161,154)$ (161,154)$ 2018 GOLF COURSE COP FUND (361) Administrative Services Transfer from General Fund This action establishes the transfer from the General Fund to the 2018 Golf Course COP Fund (Fund 361) to pay the annual debt service costs associated with the bond issued for the Golf Course Reconfiguration capital project as well as the refinanced debt service costs associated with the bond issued to construct downtown parking improvements in 2002. Ongoing costs for annual the debt service will be funded through this transfer from the General Fund. 339,010$ -$ Administrative Services Transfer from 2002 Downtown Parking Improvement Fund This action recognizes a transfer of the remaining funds from the 2002 Downtown Parking Improvement Fund to be used towards the remaining debt service for the 2002 downtown parking improvements that was refinanced as part of the 2018 Golf Course COP issuance. 15,591$ -$ Administrative Services Transfer from Capital Improvement Fund This action recognizes a transfer of funding that was set aside in the Capital Improvement Fund to pay for the 2018 Golf Course COP issuance. The remaining funds will be used to pay for the annual debt service costs. 17,507$ Administrative Services Debt Service Payments This action appropriates funding for the debt service payments associated with the 2018 Golf Course COP issuance and the remaining refinanced 2002 Downtown Parking Improvement debt. -$ 354,602$ Fund Balance Adjustment to Fund Balance This action increases the fund balance to offset adjustments recommended in this report. -$ 17,506$ 2018 GOLF COURSE COP FUND (361) SUBTOTAL 372,108$ 372,108$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET Revenues Expenses ATTACHMENT B, EXHIBIT 1 Department Adjustment Adjustment DEBT SERVICE & AGENCY TRUST FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET Revenues Expenses ATTACHMENT B, EXHIBIT 1 2019 CALIFORNIA AVENUE PARKING GARAGE COP FUND (362) Administrative Services Bond Proceeds This action appropriates revenue to fund the costs associated with the issuance of the New California Avenue Area Parking Garage (PE-18000) COP funding. 301,606$ -$ Administrative Services Debt Service Payments This action appropriates funding for the costs associated with the issuance of the 2019 California Avenue Parking Garage COP funding. -$ 285,781$ Fund Balance Adjustment to Fund Balance This action increases the fund balance to offset adjustments recommended in this report and close this fund. -$ 15,825$ 2019 CALIFORNIA AVENUE PARKING GARAGE COP FUND (362) SUBTOTAL 301,606$ 301,606$ Project Number Title Revenue Expense Comments AS-10000 Capital Improvement Fund Administration $ (299,500) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures AC-18000 Performing Arts Venues Seat Replacement $ (3,800) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures AC-18001 JMZ Renovation $ (34,300) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures FD-18000 Self-Contained Breathing Apparatus (SCBA) Replacement $ (16,900) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures FD-19000 Fire and Utilities Trench Training Facility $ (55,000) $ (55,000) Adjustment to shift a Transfer from the Utility Administration Fund to FY 2020 to align with project expenditures. OS-00001 Open Space Trails and Amenities $ 121,200 Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures OS-00002 Open Space Lakes And Pond Maintenance $ (2,300) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures OS-09001 Off-Road Pathway Resurfacing And Repair $ (14,000) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-08001 Rinconada Park Improvements $ 54,900 Adjustment to increase project due to higher than anticipated expenditures in FY 2019. Funding budgeted for this project in FY 2020 is being used to maintain the total project budget of $4.7 million. PE-09003 City Facility Parking Lot Maintenance $ (10,800) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-12003 Rinconada Park Long Range Plan $ (3,500) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-13003 Parks, Trails, Open Space, & Recreation Master Plan $ 3,400 Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-13011 Charleston/Arastradero Corridor Project $ 261,400 Adjustment to increase project due to higher than anticipated expenditures in FY 2019. Funding budgeted for this project in FY 2020 is being used to maintain the total project budget of $19.6 million. PE-13014 Street Lights Condition Assessment $ (8,600) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-14015 Lucie Stern Buildings Mechanical and Electrical Upgrades $ 172,400 Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-15001 New Public Safety Building $ 151,200 Adjustment to increase project due to higher than anticipated expenditures in FY 2019. Funding budgeted for this project in FY 2020 is being used to maintain the total project budget of $115.5 million. ATTACHMENT B, EXHIBIT 2 CAPITAL IMPROVEMENT FUND CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 CAPITAL IMPROVEMENT PROGRAM Project Number Title Revenue Expense Comments ATTACHMENT B, EXHIBIT 2 CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 CAPITAL IMPROVEMENT PROGRAM PE-15003 Fire Station 3 Replacement $ 212,900 Adjustment to increase project due to higher than anticipated expenditures in FY 2019. Funding budgeted for this project in FY 2020 is being used to maintain the total project budget of $10.1 million. PE-15007 New Downtown Parking Garage $ (14,613,000) $ (14,613,000) Adjustments to shift Transfers from the Stanford University Medical Center (SUMC) Fund ($9,072,000) and University Avenue Parking In Lieu Fund ($5,541,000) to FY 2022 to align with project expenditures. PE-15028 Baylands Levee Improvements Feasibility $ (500) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-17000 Michell Park Adobe Creek Bridge Replacement $ 125,800 Adjustments to allocate Salaries and Benefits across capital projects based on actual expenditures ($93,700) and to increase project due to higher than anticipated expenditures ($32,100). PE-17002 City Hall Floor 3 Remodel $ (9,300) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-17004 California Avenue District Gateway Signs $ 500 Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-17005 Boulware Park Improvements $ 22,700 Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-17006 Baylands Flood Protection Levee Improvements $ (39,100) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-17008 City Hall Floor 4 Remodel $ 46,400 Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-17009 City Hall Floor 5 Remodel $ 45,100 Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-18006 Byxbee Park Completion $ (2,400,000) $ - Adjustment to shift a Transfer from the Parks Dedication Fee Fund to align with project expenditures budgeted in FY 2021. PE-18016 Civic Center Fire Life Safety Upgrades $ (8,400) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-19000 City Hall Space Planning $ (2,900) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PE-86070 Street Maintenance $ (900,000) $ (900,000) Adjustment to shift a Transfer from the San Antonio/West Bayshore Fee Fund to the Traffic Signal & Intelligent Transportation System Upgrades project (PL-05030) in FY 2020 as approved in the FY 2020 Adopted Capital Budget. PF-01003 Building Systems Improvements $ 3,500 Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PF-02022 Facility Interior Finishes Replacement $ (26,000) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures Project Number Title Revenue Expense Comments ATTACHMENT B, EXHIBIT 2 CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 CAPITAL IMPROVEMENT PROGRAM PF-07011 Roth Building Maintenance $ (1,100) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PF-14003 University Avenue Parking Improvements $ (13,300) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PF-16006 Municipal Service Center Lighting, Mechanical, and Electrical Improvements $ (456,000) $ (478,100) Adjustments to allocate Salaries and Benefits across capital projects based on actual expenditures ($22,100) and shift Transfers from the Refuse Fund ($8,000), Utility Administration Fund ($288,000), and Vehicle & Maintenance Fund ($160,000) to FY 2020 to align with reappropriation actions approved in the FY 2020 Adopted Capital Budget. PF-17000 Municipal Service Center A, B, & C Roof Replacement $ (1,083,000) $ (1,157,300) Adjustments to allocate Salaries and Benefits across capital projects based on actual expenditures ($74,300) and shift Transfers from the Refuse Fund ($19,000), Utility Administration Fund ($684,000), and Vehicle & Maintenance Fund ($380,000) to FY 2020 to align with reappropriation actions approved in the FY 2020 Adopted Capital Budget. PF-18000 Parking Lot J Elevator Modernization $ (29,300) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PG-06003 Benches, Signage, Walkways, Perimeter Landscaping, and Site Amenities $ 28,200 Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PG-09002 Park & Open Space Emergency Repairs $ 28,800 Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PG-15000 Buckeye Creek Hydrology Study $ (17,300) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PG-17000 Baylands Comprehensive Conservation Plan $ (4,600) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PG-17001 Foothills Park, Pearson Arastradero Preserve, and Esther Clark Park Conservation Plan $ (15,100) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PG-18001 Dog Park Installation and Renovation $ 1,800 Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PG-18002 Turf Management Plan $ (5,000) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PG-19000 Park Restroom Installation $ (350,000) $ (367,600) Adjustments to allocate Salaries and Benefits across capital projects based on actual expenditures ($17,600) and shift a Transfer from the Parks Development Impact Fee Fund ($350,000) to FY 2020 to align with reappropriation actions approved in the FY 2020 Adopted Capital Budget. Project Number Title Revenue Expense Comments ATTACHMENT B, EXHIBIT 2 CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 CAPITAL IMPROVEMENT PROGRAM PG-19001 Baylands Athletic Center 10.5 Acre Expansion Plan $ (5,100) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PL-00026 Safe Routes To School $ (13,400) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PL-04010 Bicycle and Pedestrian Transportation Plan Implementation $ (1,200,000) $ (1,200,000) Adjustment to shift a Transfer from the Stanford University Medical Center (SUMC) Fund to FY 2020 to align with reappropriation actions approved in the FY 2020 Adopted Capital Budget. PL-05030 Traffic Signal and Intelligent Transportation Systems $ (103,000) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PL-11002 California Avenue - Transit Hub Corridor Project $ (15,000) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PL-12000 Transportation and Parking Improvements $ (25,000) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PL-15002 Downtown Automated Parking Guidance Systems, Access Controls & Revenue Collection Equip. $ (1,100,000) $ (1,100,000) Adjustment to remove a Transfer from the University Avenue Parking District Fund to this project in order to preserve the funds for future parking related capital needs. PL-15003 Parking District Implementation $ (11,600) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PL-15004 Downtown Parking Wayfinding $ (31,900) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PL-16000 Quarry Road Improvements and Transit Center Access $ (17,300) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PL-16002 Parking Management and System Implementation $ (1,000,000) $ (1,115,900) Adjustments to allocate Salaries and Benefits across capital projects based on actual expenditures ($115,900) and shift Transfers from the California Avenue Parking District Fund ($138,000), Residential Parking Permits Program Fund ($255,000), and University Avenue Parking District Fund ($607,000) to FY 2020 to align with reappropriation actions approved in the FY 2020 Adopted Capital Budget. PL-18000 El Camino Real Pedestrian Safety and Streetscape Project $ (17,900) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PL-19000 Emergency Vehicle Traffic Signal Preemption System Pilot $ 400 Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PO-11000 Sign Reflectivity Upgrade $ (6,500) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PO-11001 Thermoplastic Lane Marking and Striping $ (15,800) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures PO-12001 Curb and Gutter Repairs $ (16,500) Adjustment to allocate Salaries and Benefits across capital projects based on actual expenditures Project Number Title Revenue Expense Comments ATTACHMENT B, EXHIBIT 2 CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 CAPITAL IMPROVEMENT PROGRAM PO-89003 Sidewalk Repairs $ 596,500 Adjustments to allocate Salaries and Benefits across capital projects based on actual expenditures ($506,400) and to increase project due to higher than anticipated expenditures ($90,100). Total $ (23,157,000) $ (19,954,400) CB-19000 Cubberley Track and Field Replacement $ 3,500 Increase to project due to higher than anticipated expenditures. Total $ - $ 3,500 ELECTRIC FUND EL-89038 Substation Protection Improvements $ 127,600 Increase to project due to higher than anticipated expenditures. EL-98003 Electric System Improvements $ 261,200 Increase to project due to higher than anticipated expenditures. Total $ - $ 388,800 GS-11002 Gas Distribution System Improvements $ 600 Increase to project due to higher than anticipated expenditures. Total $ - $ 600 SD-13003 Matadero Creek Storm Water Pump Station $ 22,800 Increase to project due to higher than anticipated expenditures. Total $ - $ 22,800 WC-80020 Sewer System, Customer Connections $ 29,700 Increase to project due to higher than anticipated expenditures. WC-99013 Sewer Lateral/Manhole Rehabilitation and Replacement $ 75,000 Increase to project due to higher than anticipated expenditures. Total $ - $ 104,700 WS-80013 Water System, Customer Connections $ 96,800 Increase to project due to higher than anticipated expenditures. Total $ - $ 96,800 $ (23,157,000) $ (19,337,200)TOTAL CIP ADJUSTMENTS CUBBERLEY PROPERTY INFRASTRUCTURE FUND GAS FUND STORMWATER MANAGEMENT FUND WASTEWATER COLLECTION FUND WATER FUND Comprehensive Annual Financial Report CITY OF PALO ALTO, CALIFORNIA FOR THE FISCAL YEAR ENDED: JUNE 30, 2019 Fiscal Year 2019 Comprehensive Annual Financial Report City of Palo Alto, CA Fiscal Year Ended June 30, 2019 City Council Eric Filseth, Mayor Adrian Fine, Vice Mayor Alison Cormack Tom DuBois Liz Kniss Lydia Kou Greg Tanaka Edward K. Shikada, City Manager Kiely Nose, Director of Administrative Services/Chief Financial Officer Rima Lobo, Finance Manager Prepared by: Administrative Services Department CITY OF PALO ALTO For the Year Ended June 30, 2019 Table of Contents Page INTRODUCTORY SECTION: Transmittal Letter .................................................................................................................................... i City Officials ........................................................................................................................................... vi Organizational Structure……………………………………………………………… … .................................................. vii Administrative Services Organization .................................................................................................. viii GFOA Certificate of Achievement for Excellence in Financial Reporting ............................................... ix FINANCIAL SECTION: Independent Auditor’s Report .............................................................................................................. 1 Management’s Discussion and Analysis (Required Supplementary Information – Unaudited) ...................................................................... 5 Basic Financial Statements Government‐wide Financial Statements: Statement of Net Position ....................................................................................................... 29 Statement of Activities ............................................................................................................ 31 Governmental Fund Financial Statements: Balance Sheet .......................................................................................................................... 33 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position ‐ Governmental Activities ................................................. 34 Statement of Revenues, Expenditures and Changes in Fund Balances .................................. 35 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities – Governmental Activities ................................................................................................... 36 Statement of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual – General Fund ................................................................................... 37 Proprietary Fund Financial Statements: Statement of Net Position ....................................................................................................... 38 Statement of Revenues, Expenses and Changes in Fund Net Position ................................... 40 Statement of Cash Flows ......................................................................................................... 42 Fiduciary Fund Financial Statement: Statement of Assets and Liabilities ......................................................................................... 44 Index to the Notes to the Basic Financial Statements ................................................................. 45 Notes to the Basic Financial Statements ...................................................................................... 47 Required Supplementary Information: Schedule of Changes in Net Pension Liability and related Ratios – Miscellaneous Plan ............. 109 Schedule of Pension Contributions – Miscellaneous Plan ........................................................... 110 CITY OF PALO ALTO For the Year Ended June 30, 2019 Table of Contents (Continued) Page Required Supplementary Information: Schedule of Changes in Net Pension Liability and Related Ratios – Safety Plan ......................... 111 Schedule of Pension Contributions – Safety Plan ........................................................................ 112 Schedule of Changes in Net OPEB Liability and Related Ratios ................................................... 113 Schedule of Employer OPEB Contributions ................................................................................. 114 Supplementary Information: Non‐Major Governmental Funds: Combining Balance Sheet ...................................................................................................... 115 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ............................................................................................... 117 Non‐Major Special Revenue Funds: Combining Balance Sheet ...................................................................................................... 120 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ............................................................................................... 122 Combining Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual ............................................................. 124 Non‐Major Debt Service Funds: Combining Balance Sheet ...................................................................................................... 130 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ............................................................................................... 131 Combining Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual ............................................................. 132 Non‐Major Permanent Fund: Schedule of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual ............................................................... 134 Internal Service Funds: Combining Statement of Fund Net Position .......................................................................... 136 Combining Statement of Revenues, Expenses and Changes in Fund Net Position ......................................................................................... 137 Combining Statement of Cash Flows ..................................................................................... 138 Fiduciary Funds: Statement of Changes in Assets and Liabilities – All Agency Funds ...................................... 140 CITY OF PALO ALTO For the Year Ended June 30, 2019 Table of Contents (Continued) Page STATISTICAL SECTION: Financial Trends: Net Position by Component ......................................................................................................... 143 Changes in Net Position ............................................................................................................... 144 Fund Balances of Governmental Funds ....................................................................................... 146 Changes in Fund Balances of Governmental Funds ..................................................................... 148 Revenue Capacity: Electric Operating Revenue by Source ......................................................................................... 149 Supplemental Disclosure for Water Utilities ............................................................................... 150 Supplemental Disclosure for Gas Utilities .................................................................................... 151 Assessed Value of Taxable Property ............................................................................................ 152 Property Tax Rates, All Overlapping Governments ..................................................................... 153 Property Tax Levies and Collections ............................................................................................ 154 Principal Property Taxpayers ....................................................................................................... 155 Assessed Valuation and Parcels by Land Use .............................................................................. 156 Per Parcel Assessed Valuation of Single Family Residential ........................................................ 157 Debt Capacity: Ratio of Outstanding Debt by Type .............................................................................................. 158 Computation of Direct and Overlapping Debt ............................................................................. 159 Computation of Legal Bonded Debt Margin ................................................................................ 160 Revenue Bond Coverage .............................................................................................................. 161 Demographic and Economic Information: Taxable Transactions by Type of Business ................................................................................... 162 Demographic and Economic Statistics ......................................................................................... 163 Principal Employers...................................................................................................................... 164 Operating Information: Operating Indicators by Function/Program ................................................................................. 166 Capital Asset Statistics by Function/Program .............................................................................. 168 Full‐Time Equivalent City Government Employees by Function .................................................. 170 SINGLE AUDIT SECTION: Index to the Single Audit Report .................................................................................................. 171 Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards ........................................ 173 Independent Auditor’s Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by Uniform Guidance .................... 175 Schedule of Expenditures of Federal Awards .............................................................................. 177 Notes to the Schedule of Expenditures of Federal Awards ......................................................... 179 Schedule of Findings and Questioned Costs ................................................................................ 180 Schedule of Prior Years Findings and Questioned Costs ............................................................. 182 Introduction ……….……………………………………………………………………………………………. City of Palo Alto i Transmittal Letter…………………………………………………...… November 4, 2019 THE HONORABLE CITY COUNCIL Palo Alto, California Attention: Finance Committee COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2019 Members of the Council and Citizens of Palo Alto: I am pleased to present the Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2019 in accordance with Article III, Section 16 and Article IV, Section 13 of the City of Palo Alto Charter. The format and content of this CAFR complies with the principles and standards of accounting and financial reporting adopted by the Governmental Accounting Standards Board (GASB), and contains all information needed for readers to gain a reasonable understanding of City of Palo Alto (City) financial affairs. Management takes sole responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control that it has established for this purpose. The objective of internal controls is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements. The City’s financial statements have been audited by Macias Gini & O’Connell LLP, Certified Public Accountants (MGO). The goal of the audit is to obtain reasonable assurance that the financial statements are free of material misstatements and are fairly presented in conformity with generally accepted accounting principles (GAAP). MGO issued an unmodified opinion for the fiscal year ended June 30, 2019. Their report is presented as the first component of the financial section of this report. In addition, MGO conducted the federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing the Single Audit require the independent auditor to report on the fair presentation of the financial statements, government’s internal controls and compliance with legal requirements. These reports are included in the Single Audit section of the CAFR. An overview of the City’s financial activities for the fiscal year is discussed in detail in the Management’s Discussion and Analysis (MD&A) section of the CAFR. MD&A complements this transmittal letter and should be read in conjunction with it. City of Palo Alto Office of the City Manager Introduction …….……………………………………………………………………………………………. ii City of Palo Alto CITY OF PALO ALTO PROFILE The City was incorporated in 1894 and named after a majestic coastal redwood tree which lives along the San Francisquito Creek where early Spanish explorers settled. Located between the cities of San Francisco and San Jose, the City is a largely built-out community of approximately 67,000 residents. The City delivers a full range of municipal services and public utilities under the Council-Manager form of government, and offers an outstanding quality of life for its residents. It covers an area of twenty- six square miles, and has dedicated almost one-half of the area to open spaces of parks and wildlife preserves. Public facilities include five libraries, four community centers, a cultural arts center, an adult and children’s theater, a junior museum and zoo, and a golf course. The City provides a diverse array of services for seniors and youth, an extensive continuing education program, concerts, exhibits, team sports and special events. The independent Palo Alto Unified School District (PAUSD) has achieved state and national recognition for the excellence of its programs. City Council: Effective January 1, 2019, Council was reduced from nine to seven members. The seven members are elected at-large for four year staggered terms. At the first meeting of each calendar year, Council elects a Mayor and Vice-Mayor from its membership, with the Mayor having the duty of presiding over Council meetings. Council is the appointing authority for the positions of City Manager and three other officials, the City Attorney, City Clerk, and City Auditor, all of whom report to Council. Finance Committee and Policy and Services Committee: While retaining the authority to approve all actions, Council has established two subcommittees to consider and make recommendations on matters relating to finance, budget, audits, capital planning and debt. Each of the subcommittee is comprised of three Council members. Staff provides the subcommittees and Council with reports such as the CAFR, quarterly budget-versus-actual results, and investment and performance measure reports, all of which are utilized in their review of the City’s financial position. FISCAL/ECONOMIC CONDITIONS AND OUTLOOK Employment Trends: The City is located in the heart of Silicon Valley and is adjacent to Stanford University, one of the premier institutions of higher education in the nation which has produced much of the talent that founded many successful high-tech companies in Palo Alto and Silicon Valley. With varied and relatively stable employers such as Stanford University, Stanford Medical Center, Palo Alto Medical Foundation, Palo Alto Unified School District, Stanford Shopping Center and businesses such as Hewlett-Packard, VMware, Tesla, Palantir and Space Systems Loral, Palo Alto has enjoyed diverse employment and revenue bases. The City’s unemployment rate ended the year at 2.2 percent. This compares to Santa Clara County’s unemployment rate of 2.7 percent. The state’s unemployment rate was 4.5 percent. Real Estate Market: The 2018-19 Santa Clara County Assessor’s Annual Report noted that the county’s annual assessment roll increased by $33 billion to $483.2 billion, a 7.34 percent increase over the prior year. Palo Alto’s assessment roll represents 7.63 percent of the county roll and grew 6.88 percent over the prior year to $36.86 billion. Home prices in Palo Alto are well above the county average at $3,767,393 as of second quarter 2019, per Santa Clara County Association of Realtors statistics. According to Cushman & Wakefield, Silicon Valley’s office/research and development markets represent one of the strongest growth markets in the country driven by technology activity. As of second quarter 2019, the overall average asking rent for Class A office space was reported at $8.62 per square foot per month, while research and development space was noted at $6.78 per square foot per month. Its outlook remains upbeat. Introduction ……….……………………………………………………………………………………………. City of Palo Alto iii Local Trends: National, state, regional and local economic indicators are mixed. Unemployment remains low, job growth is slowing down and the trade war is negatively showing up in the economic data. Economically sensitive revenue sources such as transient occupancy tax and documentary transfer tax are showing a decline while base sales tax is levelled off. Looking forward, funding sources are sufficient to cover projected FY 2020 expenses, as written in the City’s Adopted Budget. The Council adopted a General Fund budget with expenses of $230.8 million for FY 2020 an increase of 9.5 percent from the prior year Adopted Budget. However, that increase is not exclusively representative of increased costs. The General Fund had one-time savings included in FY 2019 of almost $2.0 million for payments to the City’s self-insured workers’ compensation and general liability insurance funds; it also had a $4.0 million reduction included in the Adopted Budget as a placeholder for future Council action. Once we adjust the FY 2019 Adopted Budget for these one- time actions, the year-over-year growth would be 6.5%, from $216.7 million to $230.8 million. After the adoption of the FY 2019 Operating Budget, City Council ratified new contracts with the safety labor bargaining groups, with resultant increases. If these figures were restored to the FY 2019 budget starting point, the year-over-year increase would be much less in the General Fund. To accommodate the contribution toward the City’s long-term pension obligations, adjustments to service delivery levels will be necessary. Reductions have been made across the organization over the past several years with the goal of containing costs while minimizing impacts on services. This budget makes progress towards ongoing cost containment, with specific resulting service impacts. The FY 2020 budget also includes a number of one-time actions that are designed to contain costs while departments continue to evaluate service delivery options and redeployment of resources. In addition to past practice - the agreed upon labor terms outlined in memorandums of agreement, CalPERS- determined retirement contribution levels, and a vacancy factor in the General Fund - this year’s budget includes a proactive pension funding contribution to the City’s irrevocable Section 115 Pension Trust Fund. In the General Fund, this resulted in $3.8 million in additional contributions from various departments and reflects what retirement costs would be if the “normal cost” of contributions was budgeted at a 6.2 percent discount rate (CalPERS is currently at a 7.25 percent discount rate). The City’s irrevocable pension trust fund, will have a total of $22.0 million by the end of FY 2020, of which $14.3 million will be from the General Fund. As economic growth continues to flourish in this area of Silicon Valley, it also underscores the challenges of increased traffic and congestion in conjunction with choosing a ”preferred alternative” for grade separations at rail crossings. In addition, making sure the City remains focused on implementing a Sustainability and Climate Action Plan while structurally balancing revenues and expenses to maintain high quality services. These issues were reflected in the setting of Council priorities for 2019: • Climate/Sustainability and Climate Action Plan • Grade Separations • Transportation and Traffic • Fiscal Sustainability While each of these priorities require long-term strategies, progress will be made on all through FY 2020 Budget. Staff presented a “Fiscal Sustainability” workplan to the Finance Committee, articulating the ecosystem of available resources, desired outcomes, and long-term solvency of the City. Proactively contributing to the City’s supplemental pension trust fund will help ensure pension funding and minimize the need for future service reductions. It also means Introduction …….……………………………………………………………………………………………. iv City of Palo Alto including cost containment actions, such as the elimination of positions throughout the organization, changes in Fire’s deployment model, and reductions in non-salary funding in several departments to balance the FY 2020 budget and better position the City for FY 2021. In addition the FY 2020 budget established an Office of Transportation in the City Manager’s Office to address the growing complexity and demands associated with parking, traffic, and pending decisions regarding grade separation. This new office will be better able to proactively engage the community and address critical transportation needs. In FY 2014, the City Council approved a $125.8 million Infrastructure Plan (IP), which includes projects such as a new Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan and two parking garages. Through the development of the 2020-2024 Capital Improvement Plan (CIP), a tenth project was added to the IP, Downtown Automated Parking Guidance Systems, and the IP projects were updated for scope increases and cost escalations, resulting in a revised Infrastructure Plan of $280.6 million. These projects will be funded partially by debt to be repaid with voter approved increases of 3.5 percent in the transient occupancy tax (TOT) rate and from other sources such as impact fees and Stanford University Medical Center development agreement monies. The 2020-2024 CIP assumes the opening of new Marriott hotels in FY 2021, and the additional annual TOT funding is estimated to cover the cost of the IP projects. Rates increased in 2020 for electric, gas, storm drain, wastewater, and water services. In general, the size and timing of rate adjustments take into account current and future revenue requirements and reserve levels for needs such as increasing costs of commodity purchases, capital construction costs, and contractually obligated increases to compensate for inflation, usually based on the annual change to the Bay Area consumer price index (CPI). Long Range Financial Forecast: The City produces a 10 year General Fund Long Range Financial Forecast (LRFF) annually. This comprehensive report analyzes local, state, and federal economic conditions, short and long-term revenue and expense trends, and addresses challenges such as funding long-term pension and healthcare liabilities and infrastructure needs. The forecast is designed to highlight finance issues which the City can address proactively. Moreover, it is a tool that allows policymakers an opportunity to prioritize funding needs over time. It sets the tone for the annual budget process and is one of the many tools and reports that Council uses for financial planning. The FY 2020 – FY 2029 LRFF was presented to the Finance Committee in December 2018 and approved by the City Council in March 2019. The forecast anticipated a near-term gap in the General Fund. Staff identified and recommended a course of action that would structurally balance the General Fund in FY 2020 and largely balance the General Fund on an ongoing basis. As discussed above, this year’s budget includes a proactive pension funding contribution to the City’s irrevocable Section 115 Pension Trust Fund, and reflects what retirement costs would be if the “normal cost” of contributions was budgeted at a 6.2 percent discount rate (CalPERS completed its ‘step-down’ to a 7.0 percent discount rate). This resulted in the need to include cost containment actions with specific resulting service impacts such as the elimination of positions and non-salary funding throughout the organization. Both Moody’s and Standard and Poor’s (S&P) awarded their highest credit rating of Triple A to the City’s general obligation debt. This rating has been awarded to only a few cities in California. Introduction ……….……………………………………………………………………………………………. City of Palo Alto v SIGNIFICANT EVENTS AND ACCOMPLISHMENTS The City is a community dedicated to meeting the social, cultural, recreational, educational, commercial and retail needs of its citizens and businesses. As such, open space, education, recreational facilities, cultural events and safe streets and neighborhoods are important aspects of the community and the City has been recognized for its accomplishments with a wide variety of awards and recognitions over the past year. Following is a sampling of those awards: • Santa Clara County Healthy City Awards named the City as the Best Overall, 2018; • The International City/County Managers Association recognized Palo Alto with the Voice of the People award for Excellence in the Natural Environment. The Voice of the People Awards is the only award given in local government based on community opinion; • Tree Line USA Award for the fifth year in a row by the National Arbor Day Foundation for delivering safe and reliable electricity while maintaining healthy community trees; and • Diamond Level Award as a Public Power Provider - the highest honor - for proficiency, sound business practices, and a utility-wide commitment to safe and reliable delivery of electricity, system improvement, energy efficiency and workforce development, from the American Public Power Association. Awards: During the past year, the City received an award for the prior fiscal year CAFR from the Government Finance Officers Association (GFOA) for “excellence in financial reporting.” The 2019 CAFR will be submitted to the GFOA award program to be considered for this distinguished financial reporting award. Acknowledgments: This CAFR reflects the hard work, talent and commitment of the staff members of the Administrative Services Department. This document could not have been accomplished without their efforts and each contributor deserves sincere appreciation. Management wishes to acknowledge the support of the entire accounting staff for their high level of professionalism and dedication. Management would also like to express its appreciation to Macias Gini & O’Connell, the City’s independent external auditors, who assisted and contributed to the preparation of this Comprehensive Annual Financial Report. Special acknowledgment must be given to City Council and the Finance and Policy and Services Committees for their dedication to directing the financial affairs of the City in a responsible, professional and progressive manner. Respectfully submitted, KIELY NOSE EDWARD SHIKADA Chief Financial Officer City Manager Introduction …….……………………………………………………………………………………………. vi City of Palo Alto City of Palo Alto City Officials ………………………….………… Finance Committee Tom Dubois, Chair Alison Cormack Adrian Fine Nancy Shepherd Policy and Services Committee Liz Kniss, Chair Lydia Kou Greg Tanaka Council-Appointed Officers City Manager Ed Shikada City Attorney Molly Stump City Clerk Beth Minor Interim City Auditor Don Rhoads City Council Eric Filseth, Mayor Adrian Fine, Vice-Mayor Alison Cormack Tom DuBois Liz Kniss Lydia Kou Greg Tanaka Introduction ……….……………………………………………………………………………………………. City of Palo Alto vii City Attorney Molly Stump City Manager Edward K. Shikada Interim City Auditor Don Rhoads City Clerk Beth Minor City of Palo Alto Organization …………………………………… Palo Alto Residents City Council Community Services Kristen O’Kane, Director Administrative Services Kiely Nose, Chief Financial Officer Fire Eric Nickel, Chief Human Resources Rumi Portillo, Director Police Robert Jonsen, Chief Planning & Community Environment Jonathan Lait, Director Utilities Dean Batchelor, Director Public Works Brad Eggleston, Director Library Monique le Conge, Director Office of Emergency Services Kenneth Dueker, Director Information Technology Darren Numoto, Interim Chief Information Officer Introduction …….……………………………………………………………………………………………. viii City of Palo Alto Administrative Services Organization ……… Administrative Division Treasury Division Accounting Division Budget Division Purchasing Division Real Estate Division Mission Statement To provide proactive administrative and technical support to City departments and decision makers, and to safeguard and facilitate the optimal use of City resources. Administrative Services Department Introduction ……….……………………………………………………………………………………………. City of Palo Alto ix Government Finance Officers Association of the United States and Canada – Award …… x This page is left intentionally blank. www.mgocpa.com Macias Gini & O’Connell LLP 2121 N. California Boulevard, Suite 750 Walnut Creek, CA 94596 1 Independent Auditor’s Report Honorable Mayor and the Members of the City Council of City of Palo Alto, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Palo Alto, California (City), as of and for the year ended June 30, 2019, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 2 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2019, and the respective changes in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, the schedules of changes in net pension liability and related ratios, the schedules of pension contributions, the schedule of changes in net OPEB liability and related ratios, and the schedule of employer OPEB contributions, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and schedules, statistical section and the schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3 The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 4, 2019 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. Walnut Creek, California November 4, 2019 4 This page is left intentionally blank. Management’s Discussion and Analysis ◼ ……….…………………………………………………………………… City of Palo Alto 5 Management’s Discussion and Analysis Management’s Discussion and Analysis (MD&A) provides an overview of the City of Palo Alto’s financial performance for the fiscal year ended June 30, 2019. To obtain a complete understanding of the City’s financial condition, this document should be read in conjunction with the accompanying Transmittal Letter and Basic Financial Statements. Financial Highlights ▪ The assets and deferred outflows of resources of the City of Palo Alto (City) exceeded its liabilities and deferred inflows of resources at the close of Fiscal Year (FY) 2019 by $1.2 billion. Of this amount, $46.0 million represents unrestricted net position, which may be used to meet the government’s ongoing obligations to citizens and creditors. ▪ At the close of FY 2019, the City’s governmental funds reported combined fund balances of $305.0 million, an increase of $53.8 million from prior year. Approximately 17.9 percent of this amount, or $54.8 million, is unassigned fund balance and available for spending at the government’s discretion. ▪ At the end of the current fiscal year, unrestricted fund balance (the total of the committed, assigned and unassigned components of fund balance) for the General Fund was $66.7 million, or 31.4 percent of total general fund expenditures, including transfers. ▪ The City’s total outstanding long-term debt increased by $48.1 million during the current fiscal year. This is due to the issuance of 2019 Certificates of Participation (COP’s) tax exempt Series A and taxable Series B of $26.8 million plus $4.9 million premium and $10.6 million, respectively, receipt of $12.7 million in loan proceeds from the State Water Resource Control Board, and net of $6.9 million scheduled debt retirements. ▪ The City implemented GASB Statement No.83, Certain Asset Retirement Obligations (AROs), effective fiscal year ending June 30, 2019. An ARO is a legally enforceable liability associated with the retirement of a tangible capital asset. A government that has legal obligations to perform future asset retirement activities related to its tangible capital assets should recognize a liability. Implementation of this statement did not have a significant impact on the City’s financial statements for the fiscal year ended June 30, 2019. ▪ The City implemented GASB statement No 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements, effective fiscal year ending June 30, 2019. The objective of this statement is to improve the information that is disclosed in the notes to governmental financial statements related to debt, including direct borrowings and direct placements. It also clarifies which liabilities governments should include when disclosing information related to debt. Implementation of this statement is reflected in Note 7 of the City’s Notes to the Basic Financial Statements. OVERVIEW OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) The CAFR is presented in six sections: ▪ An introductory section that includes the Transmittal Letter and general information ▪ Management’s Discussion and Analysis ▪ The Basic Financial Statements that include the Government-wide and Fund Financial Statements, along with the Notes to these statements ▪ Required and Other Supplemental Information ▪ Statistical Information ▪ Single Audit ◼ Management’s Discussion and Analysis ……….…………………………………………………………………… 6 City of Palo Alto Basic Financial Statements The Basic Financial Statements contain the Government-wide Financial Statements, the Fund Financial Statements and the Notes to these financial statements. This report also includes supplementary information intended to furnish additional detail to support the Basic Financial Statements. For certain entities and funds, the City acts solely as a depository agent. For example, the City has several Assessment Districts for which it produces fiduciary statements detailing the cash balances and activities of these districts. These entities are independent, and their balances are excluded from the City’s government- wide financial statements. Government-wide Financial Statements The Government-wide Financial Statements provide a longer-term view of the City’s activities as a whole. They include the Statement of Net Position and the Statement of Activities. The Statement of Net Position includes the City’s capital assets and long-term liabilities on a full accrual basis of accounting similar to that used by private sector companies. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The Statement of Activities provides information about the City’s revenues and expenses on a full accrual basis, with an emphasis on measuring net revenues or expenses for each of the City’s programs. The Statement of Activities explains in detail the change in net position for the year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. The amounts in the Statement of Net Position and the Statement of Activities are separated into Governmental and Business-type Activities in order to provide a summary of each type of activity. Governmental Activities - All of the City’s basic services are considered to be governmental activities. Included in basic services are the City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative Services, Human Resources, Public Works, Planning and Community Environment, Development Services, Police, Fire, Community Services, and Library. These services are supported by general City revenues such as taxes, and by specific program revenues such as fees and grants. The City’s governmental activities also include the activities of the Palo Alto Public Improvement Corporation, which is a separate legal entity financially accountable to the City. Business-type Activities - All of the City’s enterprise activities are reported as business-type activities, including Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse, Storm Drainage, and Airport. Unlike governmental services, these services are intended to recover all or a significant portion of their costs through user fees and charges. The Government-wide Financial Statements can be found on pages 29 and 31 of this report. Management’s Discussion and Analysis ◼ ……….…………………………………………………………………… City of Palo Alto 7 Fund Financial Statements The Fund Financial Statements provide detailed information about each of the City’s most significant funds, called major funds. The concept of major funds, and the determination of which are major funds, was established by Governmental Accounting Standards Board (GASB) Statement No. 34 and replaced the concept of combining like funds and presenting them in total. Therefore, each major fund is presented individually, with all non-major funds combined in a single column on each fund statement. Subordinate schedules display these non-major funds in more detail. Major funds present the major activities of the City for the year. The General Fund is always considered a major fund, but other funds may change from year to year as a result of changes in the pattern of City activities. The Fund Financial Statements display the City’s operations in more detail than the Government-wide Financial Statements. Their focus is primarily on the short-term activities of the City’s General Fund and other major funds. Budget and actual financial comparison information is presented only for the General Fund. Fund Financial Statements include Governmental, Proprietary, and Fiduciary Funds. Governmental Funds Governmental Fund Financial Statements are prepared on the modified accrual basis of accounting, which means they measure only current financial resources and uses. Capital assets and other long-lived assets, along with long-term liabilities, are presented only in the Government-wide Financial Statements. In FY 2019, the City had two major governmental funds, the General Fund and the Capital Projects Fund. Data from the other governmental funds are combined into a single aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the Supplemental section of this report. Because the focus of governmental funds is narrower than that of the Government-wide Financial Statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the Government-wide Financial Statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the Governmental Fund Balance Sheet and the Governmental Fund Statement of Revenues, Expenditures and Changes in Fund Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The Governmental Fund Financial Statements can be found on pages 33-37 of this report. Proprietary Funds Enterprise and Internal Service Fund Financial Statements are prepared on the full accrual basis of accounting, similar to that used by private sector companies. These statements include all of their assets, deferred outflows and inflows of resources and liabilities, both current and long-term. Since the City’s Internal Service Funds provide goods and services exclusively to the City’s governmental and business-type activities, their activities are only reported in total at the fund level. Internal Service Funds, such as Technology and General Benefits, cannot be considered major funds because their revenues are derived from other City funds. Revenues between funds are eliminated in the Government-wide Financial Statements, and any related profits or losses in Internal Service Funds are returned to the activities in which they were created, along with any residual net assets of the Internal Service Funds. The Proprietary Fund Financial Statements can be found on pages 38-43 of this report. ◼ Management’s Discussion and Analysis ……….…………………………………………………………………… 8 City of Palo Alto Fiduciary Funds The City is the fiduciary agent for certain assessment districts such as the University Avenue Area Off-Street Parking Assessment District. In this role, the City holds money collected from property owners and awaiting transfer to the districts’ bond trustees. The City’s fiduciary activities are reported in the separate Statement of Fiduciary Net Position and the supplemental Agency Funds Statement of Changes in Assets and Liabilities. These activities are excluded from the City’s governmental-wide financial statements because the City cannot utilize these assets to finance its own operations. The Fiduciary Fund Financial Statement can be found on page 44 of this report. Notes to the Financial Statements The Notes provide additional information that is necessary to acquire a full understanding of the data provided in the Government-wide and Fund Financial Statements. The Notes to the financial statements can be found on pages 47-106 of this report. Other Information The Required Supplementary Information related to the City’s pension and OPEB plans is included after the Notes to the Financial Statements on pages 107-112. The combining statements referred to earlier in connection with non-major Governmental Funds and Internal Service Funds, are presented immediately following the Required Supplementary Information. Combining statements and individual fund statements and schedules can be found on pages 113-138 of this report. Management’s Discussion and Analysis ◼ ……….…………………………………………………………………… City of Palo Alto 9 Financial Analysis of Government-wide Financial Statements This section focuses on the City’s net position and changes in net position of its governmental and business- type activities for the fiscal year ending June 30, 2019. As noted earlier, the City’s total assets and deferred outflows of resources exceeded total liabilities and deferred inflows of resources by $1.2 billion at the end of the fiscal year, a change in net position of $76.0 million. STATEMENT OF NET POSITION As of June 30, 2019 (in millions) 2019 2018 2019 2018 2019 2018 Cash and investments 354.0$ 286.9$ 253.4$ 241.8$ 607.4$ 528.7$ Other assets 69.8 62.5 51.3 42.1 121.1 104.6 Capital assets 566.1 547.7 673.5 636.7 1,239.6 1,184.4 Total Assets 989.9 897.1 978.2 920.6 1,968.1 1,817.7 Unamortized loss from refunding - - 0.2 0.2 0.2 0.2 Pension and OPEB related 63.4 78.8 21.5 28.9 84.9 107.7 Total Deferred Outflows of Resources 63.4 78.8 21.7 29.1 85.1 107.9 Net pension and OPEB liabilities 417.3 411.4 154.4 157.1 571.7 568.5 Long-term debt 115.1 75.1 74.2 66.1 189.3 141.2 Other liabilities 63.8 54.5 26.6 36.0 90.4 90.5 Total Liabilities 596.3 541.0 255.2 259.2 851.5 800.2 Pension and OPEB related 7.1 7.4 3.2 2.4 10.3 9.8 Total Deferred Inflows of Resources 7.1 7.4 3.2 2.4 10.3 9.8 Net Position Net investment in capital assets 493.7 473.2 602.1 573.7 1,095.8 1,046.9 Restricted 45.6 41.2 4.0 4.0 49.7 45.2 Unrestricted (89.4)(87.0)135.4 110.4 46.0 23.4 Total Net Position 449.9$ 427.4$ 741.5$ 688.1$ 1,191.5$ 1,115.5$ Governmental Activities Business-type Activities Government-wide Totals The largest portion of the City’s net position (92.0 percent) is its net investment in capital assets such as land, buildings, infrastructure and vehicles, less any related outstanding debt that was used to acquire those assets. The City uses these capital assets to provide a variety of services to its citizens. Accordingly, these assets are not available for future spending. Although the City’s investment in capital assets is reported net of related debt, it should be noted that the resources used to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. ◼ Management’s Discussion and Analysis ……….…………………………………………………………………… 10 City of Palo Alto The restricted portion of the City’s net position (4.2 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of $46.0 million, representing 3.9 percent of the City’s net position, is unrestricted and may be used to meet the government’s ongoing obligations to its citizens and creditors. At the end of the current fiscal year, the City is able to report positive unrestricted net positions for the government as a whole. The unrestricted net position for governmental activities is negative due to the implementation of GASB Statement No. 68 and 75. The business-type activities has positive unrestricted net position at the end of the current fiscal year. Components of the $76.0 million increase in total net position are discussed in the following sections for governmental activities and business-type activities. Governmental Activities – Net Position The following analysis focuses on the net position and changes in net position of the City’s Governmental Activities, presented in the Government-wide Statement of Net Position and Statement of Activities. Increase/ 2019 2018 (Decrease) Cash and investments 354.0$ 286.9$ 67.1$ Other assets 69.8 62.5 7.3 Capital assets 566.1 547.7 18.4 Total Assets 989.9 897.1 92.8 Pension and OPEB related 63.4 78.8 (15.4) Total Deferred Outflows of Resources 63.4 78.8 (15.4) Net pension and OPEB liabilities 417.3 411.4 5.9 Long-term debt 115.2 75.1 40.1 Other liabilities 63.8 54.5 9.3 Total Liabilities 596.3 541.0 55.3 Pension and OPEB related 7.1 7.4 (0.3) Total Deferred Inflows of Resources 7.1 7.4 (0.3) Net investment in capital assets 493.7 473.2 20.5 Restricted 45.6 41.2 4.4 Unrestricted (89.4) (87.0) (2.4) Total Net Position 449.9$ 427.4$ 22.5$ GOVERNMENTAL ACTIVITIES Net Position at June 30 (in millions) Management’s Discussion and Analysis ◼ ……….…………………………………………………………………… City of Palo Alto 11 The City’s Governmental Activities total net position increased $22.5 million to $449.9 million as of June 30, 2019. This increase resulted from the following: ▪ Cash and Investments increased $67.1 million primarily due to $42.0 million proceeds from issuance of COPs restricted for construction of the California Avenue Parking Garage. The $25.1 million remaining increase is from the results of operations. ▪ Capital assets net of depreciation increased $18.4 million due to continued construction of the Fire Station #3, Charleston/Arastradero Corridor and the new Cal Avenue Area Parking Garage. ▪ Pension and OPEB related deferred outflows of resources decreased $15.4 million mainly due to change of assumption because the inflation rate reduced from 2.75 percent to 2.50 percent and lower OPEB contributions subsequent to measurement date. ▪ Long-term debt increased $40.1 million due to the issuance of 2019 COPs tax exempt Series A $26.8 million plus $4.9 million premium and taxable Series B of $10.6 million for the construction of the new California Avenue Area Parking Garage, net of the $2.3 million scheduled debt retirements. ▪ Other liabilities increased $9.3 million primarily due to an increase in claims payable of $4.6 million for workers’ compensation and general liabilities and higher accruals. ▪ Net investment in capital assets increased $20.5 million to $493.7 million due to the current year capital additions noted above. Restricted net position increased $4.4 million to $45.6 million primarily due to the increased fund balance in the Transportation infrastructure fund. Unrestricted net position decreased $2.4 million from prior year. The unrestricted net position for governmental activities is negative primarily due to the implementation of GASB Statement No 68 and 75. Unrestricted net position for June 30, 2019 includes the City’s $265.1 million net pension liability and deferred outflow/inflow and $95.9 million Net OPEB liability and deferred outflow/inflow. Governmental Activities – Revenues The table below shows that Governmental Activities revenues totaled $238.4 million in FY 2019, an increase of $27.1 million from prior year revenues of $211.3 million. ◼ Management’s Discussion and Analysis ……….…………………………………………………………………… 12 City of Palo Alto Increase/ Revenues by Source 2019 2018 (Decrease) Program Revenues: Charges for services 70.9$ 63.4$ 7.5$ Operating grants and contributions 2.1 14.1 (12.0) Capital grants and contributions 8.3 1.5 6.8 Total Program Revenues 81.3 79.0 2.3 General Revenues: Property tax 51.7 47.2 4.5 Sales tax 36.5 31.1 5.4 Utility user tax 16.4 15.4 1.0 Transient occupancy tax 25.6 24.9 0.7 Documentary transfer tax 6.9 9.2 (2.3) Other tax 2.6 2.1 0.5 Investment earnings 15.4 0.4 15.0 Rents and miscellaneous 1.9 2.0 (0.1) Total General Revenues 157.1 132.3 24.8 Total Revenues 238.4$ 211.3$ 27.1$ GOVERNMENTAL ACTIVITIES Revenues for the Year Ended June 30 (in millions) Program Revenues such as charges for services, operating grants and contributions, and capital grants and contributions are generated from or restricted to each activity. General Revenues increased $24.8 million, or 18.75 percent, from the prior year primarily due to increases in General fund tax revenues and investment earnings resulted from the recognition of unrealized gains. Further analysis of general revenues can be found in the Financial Analysis of Governmental Funds section of the MD&A. Governmental Activities – Revenues by Source The chart below presents revenues by source for Governmental Activities. General Revenues are composed of taxes and other revenues not specifically generated by, or restricted to, individual activities. All tax revenues and investment earnings are included in General Revenues. Management’s Discussion and Analysis ◼ ……….…………………………………………………………………… City of Palo Alto 13 Program Revenues 34% Property Tax 22% Sales Tax 15% Other 8% Transient Occupancy Tax 11% Utility User Tax 7% Documentary User Tax 3% ◼ Management’s Discussion and Analysis ……….…………………………………………………………………… 14 City of Palo Alto Governmental Activities – Expenses The table below presents a comparison of FY 2019 and FY 2018 expenses by function, along with interest and other expenses. Total Governmental Activities functional expense was $234.4 million in FY 2019, an increase of $23.3 million. Increase/ Activities 2019 2018 (Decrease) City Council 0.3$ 0.3$ (0.0)$ City Manager 3.3 2.8 0.5 City Attorney 3.1 2.5 0.6 City Clerk 0.8 0.9 (0.1) City Auditor 1.1 1.0 0.1 Administrative Services 19.2 13.9 5.3 Human Resources 3.0 2.7 0.3 Public Safety 89.2 83.9 5.3 Planning and Community Environment 12.2 11.4 0.8 Development Services 12.6 12.7 (0.1) Public Works 36.6 30.3 6.3 Community Services 36.8 33.7 3.1 Library 12.6 12.2 0.4 Interest and Other Expense 3.7 2.8 0.9 Total Functional Expense 234.4 211.1 23.3 Increase in Net Position before Transfers 3.8 0.2 3.6 Transfers in 18.7 19.1 (0.4) Change in Net Position 22.5 19.3 3.2 Net Position, Beginning 427.4 527.3 (99.9) Restatement for implemation of GASB 75 - (119.2) 119.2 Net Position, Ending 449.9$ 427.4$ 22.5$ GOVERNMENTAL ACTIVITIES Expenses and Change in Net Position for the Year Ended June 30 (in millions) Management’s Discussion and Analysis ◼ ……….…………………………………………………………………… City of Palo Alto 15 In addition to the variances at the fund level which are explained in the Financial Analysis of Governmental Funds section of the MD&A, year over year variances in Functional expenses at the government-wide level are due to the following: ▪ Change in pension related adjustments for GASB 68 of $3.5 million; ▪ Change in OPEB related adjustments for GASB 75 of ($3.5 million); ▪ Capital asset activities such as depreciation and asset retirements of ($1.3 million); ▪ Long –Term debt activities such as payments and premium amortization of ($1.3 million); and ▪ Internal service funds allocation and crossover (1.8 million). Governmental Activities – Functional Expenses The functional expenses chart below includes only current year expenses. It does not include capital outlays, as those are added to the City’s capital assets. Functions which comprise 1 percent or less of total expenses are combined into the All Other category in the chart below. All Other includes City Council, City Manager, City Attorney, City Clerk, City Auditor and Human Resources. Administrative Services 8% Public Works 16% Interest and Other 2% Planning and Community Environment 5% Development Services 5% Public Safety 38% Community Services 16% Library 5% All Other 5% ◼ Management’s Discussion and Analysis ……….…………………………………………………………………… 16 City of Palo Alto Business-type Activities – Net Position The following analysis focuses on the net position and changes in net position of the City’s Business-type Activities presented in the Government-wide Statement of Net Position and Statement of Activities. Increase/ 2019 2018 (Decrease) Cash and investments 253.4$ 241.8$ 11.6$ Other assets 51.3 42.1 9.2 Capital assets 673.5 636.7 36.8 Total Assets 978.2 920.6 57.6 Unamortized loss from refunding 0.2 0.2 - Deferred pension contribution 21.5 28.9 (7.4) Total Deferred Outflows of Resources 21.7 29.1 (7.4) Net pension and OPEB liabilities 154.4 157.1 (2.7) Long-term debt 74.2 66.1 8.1 Other liabilities 26.6 36.0 (9.4) Total Liabilities 255.2 259.2 (4.0) Difference between expected and actual earnings on investments 3.2 2.4 0.8 Total Deferred Outflows of Resources 3.2 2.4 0.8 Net Position Net investment in capital assets 602.1 573.7 28.4 Restricted 4.0 4.0 0.0 Unrestricted 135.4 110.4 25.0 Total Net Position 741.5$ 688.1$ 53.4$ BUSINESS-TYPE ACTIVITIES Net Position at June 30 (in millions) The City’s Business-type Activities total net position increased $53.4 million to $741.5 million as of June 30, 2019. Cash and investments increased $11.6 million primarily due to revenues exceeding expenses in the Electric, Fiber Optics and Refuse Funds. Other assets increased $9.2 million due to higher accounts receivable balances in the Electric and Wastewater Treatment Funds. Management’s Discussion and Analysis ◼ ……….…………………………………………………………………… City of Palo Alto 17 Other liabilities decreased $9.4 million as a result of return of deposits in the Electronic Fund and a decrease in liabilities in the Wastewater Treatment Fund and Water Fund. Capital assets increased $36.8 million to $673.5 million in FY 2019 primarily due to capital improvements in Electric, Gas, Water, Wastewater Treatment, and Airport Funds. These capital improvements contributed to the $28.4 million increase in net investment in capital assets to $602.1 million in FY 2019. Unrestricted net position of $135.4 million, an increase of $25.0 million from the prior year, represents assets available to finance day-to-day operations and other expenditures approved by Council. This amount includes rate stabilization reserves (RSR) of $51.0 million and operations reserves of $81.3 million, along with the electric special projects (Calaveras) reserve of $41.7 million, and the hydro stabilization reserve of $11.4 million. The positive balances in these reserves are offset by the GASB 68 adjustment pension reserve of $97.3 million and GASB 75 OPEB reserve of $38.7 million. Additional details are included in Note 10. Business-type Activities – Revenues The table below presents the revenues for each of the City’s Business-type Activities or Enterprise Funds. The City operates the Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse, Storm Drainage and Airport Funds. BUSINESS-TYPE ACTIVITIES Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2019 2018 (Decrease) Program Revenues: Charges for services 347.4$ 330.2$ 17.2$ Operating grants and contributions 0.4 0.5 (0.1) Capital grants and contributions 6.7 14.2 (7.5) Total Program Revenues 354.5 344.9 9.6 General Revenues: Investment earnings 12.7 0.6 12.1 Total General Revenues 12.7 0.6 12.1 Total Revenues 367.2$ 345.5$ 21.7$ Business-type Activities revenues totaled $367.2 million, an increase of $21.7 million from the prior year. Program revenues increased $9.6 million year over year. Charges for services increased $17.2 million from the prior year due to the rate increase in the Electric, Water, Gas, Storm Water Management, and Wastewater funds. ◼ Management’s Discussion and Analysis ……….…………………………………………………………………… 18 City of Palo Alto Capital grants and contributions decreased by $7.5 million from the prior year due to a decrease in grant revenues for the Airport Fund and a decrease in capital contributions for the Wastewater Treatment Fund. Business-type Activities – Expenses The table below presents a comparison of the FY 2019 and FY 2018 expenses for the City’s Business-type Activities. Encumbrances and reappropriations are not included. BUSINESS-TYPE ACTIVITIES Expenses and Change in Net Position for the Year Ended June 30 (in millions) Increase/ Business-type Activities 2019 2018 (Decrease) Water 40.6$ 40.8$ (0.2)$ Electric 139.6 146.0 (6.4) Fiber Optics 2.5 2.7 (0.2) Gas 30.9 27.9 3.0 Wastewater Collection 17.3 16.8 0.5 Wastewater Treatment 27.1 27.5 (0.4) Refuse 30.4 28.8 1.6 Storm Drainage 4.9 5.1 (0.2) Airport 1.8 1.7 0.1 Total Functional Expense 295.1 297.3 (2.2) Increase in Net Position before Transfers 72.1 48.2 23.9 Transfers out (18.7)(19.1)0.4 Change in Net Position 53.4 29.1 24.3 Net Position, Beginning 688.1 699.3 (11.2) Reinstatement for implementationfor GASB 75 0.0 (40.3)40.3 Net Position, Ending 741.5$ 688.1$ 53.4$ Business-type Activities expenses decreased $2.2 million for a total of $295.1 million. Year over year expenses were affected by the following events: ▪ Electric Fund expenses decreased 6.4 million due to decreased energy purchase costs. ▪ Gas fund expenses increased $3.0 million due to increased commodity rate purchases as a result of higher market gas prices and higher transportation costs. ▪ Refuse fund expenses increased $1.6 million due to increased processing costs for recycling and compost material and higher operating costs. Management’s Discussion and Analysis ◼ ……….…………………………………………………………………… City of Palo Alto 19 FUND FINANCIAL STATEMENTS Financial Analysis of Governmental Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds The focus of the City’s Governmental Funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, the unassigned fund balance may serve as a useful measure of a government’s net resources available for discretionary use as it represents the portion of fund balance not yet limited to use for a particular purpose by either an external party, the City itself, or an entity that has been delegated authority by the City Council to assign resources for use. As of June 30, 2019, the City’s Governmental Funds reported combined fund balances of $305.0 million, an increase of $53.8 million from the prior year. Approximately 18.0 percent, or $54.8 million, constitutes unassigned fund balance, which is available for spending at the government’s discretion and other purposes. The remainder of the fund balance is either non-spendable, restricted, committed, or assigned to indicate that it is: 1) not in spendable form ($10.1 million); 2) restricted for particular purposes ($85.9 million); 3) committed for particular purposes ($89.7 million); or 4) assigned for particular purposes (64.5 million). Governmental Fund revenues increased $21.2 million, or 10.0 percent, from the prior year to $232.5 million. Revenues in the General Fund increased $17.0 million and Capital Projects Fund revenue increased $0.2 million. Other Governmental Funds revenue increased $3.9 million due to sale of Transfer Development Rights (TDR) for the construction of the historic Avenida’s building. Governmental Fund expenditures were $234.9 million, an increase of $15.4 million from the prior year. General Fund expenditures increased $10.1 million, Capital Projects Fund expenditures increased by $5.9 million, and Non-major Fund expenditures decreased by $0.7 million. Details of significant changes are discussed in the following sections. General Fund Balance Sheet The General Fund is the primary operating fund of the City. At the end of the current fiscal year, fund balance of the General Fund was $75.2 million, compared to $68.3 million in the prior year. The fund balance has been classified as $7.6 million non-spendable, $5.0 million committed, $7.7 million assigned and $54.8 million unassigned. The unassigned amount is designated by the Council for Budget Stabilization Reserve (BSR) and other purposes. ◼ Management’s Discussion and Analysis ……….…………………………………………………………………… 20 City of Palo Alto Statement of Revenues, Expenditures and Changes in Fund Balance Revenues The City’s General Fund revenues totaled $197.1 million in FY 2019. This represents an increase of $17.1 million, or 9.5 percent, compared to the prior year. The year over year change in significant revenue sources is noted in the following table. Property tax revenue increased $4.5 million or 10.5 percent, due to increased property assessed value growth and an increase of $1.3 million for a temporary Educational Revenue Augmentation Fund (ERAF) distribution from the County of Santa Clara. Sales tax receipts were $5.4 million or 17.4 percent higher compared to the prior fiscal year, due to a combination of economic performance in sectors such as auto sales, leasing factors and restaurants. In addition, in fiscal year 2018 the California Department of Tax and Fee Administration (CDTFA) was established and introduced new technology and collection process which had issues resulting in delays of distribution of sales tax. This resulted in lower sales tax by $0.7 million in fiscal year 2018 and higher sales tax in fiscal year 2019. Utility user tax revenues were $1.0 million or 6.5 percent, higher compared to the prior year due to an increased utility rate and local telecommunications activity. Transient occupancy tax (TOT) ended the year $0.7 million, or 2.8 percent, higher than prior year. The increase is due to the voter approval of a 1.5 percent tax rate increase effective April 1, 2019. After adjusting the 1.5 percent tax rate, the base TOT decreased by 5.4% with an average occupancy decline of 1.8 percent but with an average room rate increase of 2.6 percent. Documentary transfer tax decreased $2.3 million, or 25 percent to $6.9 million, due to larger commercial sales in prior fiscal year. Increase/ Revenues by Source 2019 2018 (Decrease) Property tax 47.3$ 42.8$ 4.5$ Sales tax 36.5 31.1 5.4 Utility user tax 16.4 15.4 1.0 Transient occupancy tax 25.6 24.9 0.7 Documentary transfer tax 6.9 9.2 (2.3) Charges for services 27.3 26.8 0.5 Permits and licence 8.4 8.6 (0.2) Rental income 16.3 15.9 0.4 All other 12.4 5.3 7.1 Total Revenues 197.1$ 180.0$ 17.1$ GENERAL FUND Revenues for the Year Ended June 30 (in millions) Management’s Discussion and Analysis ◼ ……….…………………………………………………………………… City of Palo Alto 21 All other revenues increased from prior year by $7.1 million primarily due to $6.5 million increase in investment earnings which included $5.9 million in unrealized gains. Expenditures General Fund expenditures totaled $175.7 million for FY 2019 compared to $165.6 in the prior year. This amount excludes encumbrances and reappropriations. The year over year change for major functions is noted in the following table. Increase/ Expenditures by Function 2019 2018 (Decrease) Administrative Services 5.5$ 5.3$ 0.2$ Public Works 13.8 14.6 (0.8) Planning and Community Environment 8.1 8.3 (0.2) Development Services 11.5 11.7 (0.2) Police 42.9 40.3 2.6 Fire 33.5 33.5 (0.0) Community Services 28.9 27.1 1.8 Library 9.3 9.1 0.2 Non-Departmental 11.8 6.0 5.8 All other 10.5 9.6 0.9 Total Expenditures 175.7$ 165.5$ 10.2$ GENERAL FUND Expenditures for the Year Ended June 30 (in millions) Police department expenditures increased $2.6 million mainly due to salaries and benefits and overtime. Community Services department expenditures increased $1.8 million, mainly due to golf course maintenance, which operations resumed in May 2018. Non-Departmental expenditures increased $5.8 million primarily due to a $5.5 million settlement agreement for an overpayment claim by Stanford University regarding fire protection services. ◼ Management’s Discussion and Analysis ……….…………………………………………………………………… 22 City of Palo Alto Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Original budget compared to final budget Revenues were originally budgeted at $194.7 million and were revised upward by $11.5 million. Revenue categories that were adjusted are shown in the table below. In FY 2019, the final budget increased $11.4 million from the Adopted Budget general fund revenues. There were changes to the Property tax, Sales tax, Transient occupancy tax, Documentary transfer tax, all other revenues, and prior year encumbrances and reappropriations. Actual revenues of $212.2 million were $5.9 million higher than final budgeted revenues of $206.2 million due to an unforeseen $5.9 million higher than anticipated sales and property tax revenues. Adopted Final Increase/ Budgeted Revenues Budget Budget (Decrease) Property tax 45.3$ 46.2$ 0.9$ Sales tax 31.2 31.7 0.5 Utility user tax 16.1 16.1 0.0 Transient occupancy tax 25.0 25.4 0.3 Documentary transfer tax 7.4 8.0 0.6 All other 59.6 60.8 1.2 184.6 188.2 3.6 Charges to other funds 10.1 10.1 - Prior year encumbrances and reappropriations - 7.8 7.8 Total Budgeted Revenues 194.7$ 206.2$ 11.4$ GENERAL FUND Budgeted Revenues for the Year Ended June 30 (in millions) Management’s Discussion and Analysis ◼ ……….…………………………………………………………………… City of Palo Alto 23 Expenditures were originally budgeted at $183.6 million and were revised upward by $12.7 million, for a final budgeted amount of $196.3 million. GENERAL FUND Budgeted Expenditures for the Year Ended June 30 (in millions) Adopted Final Increase/Actuals, plus Budgeted Expenditures Budget Budget (Decrease)Encumbrances Community Services 28.9$ 30.2$ 1.3$ 30.2$ Fire 43.5 43.9 0.4 43.7 Police 31.8 33.9 2.1 33.9 Library 9.7 9.8 0.1 9.5 Planning and Community Environment 8.8 10.3 1.6 9.9 Public Works 18.5 18.4 (0.1)17.9 Development Services 12.6 13.1 0.5 12.7 Non-departmental 7.6 13.3 5.7 12.6 All other 22.2 23.4 1.2 22.5 Total Budgeted Expenditures 183.6$ 196.3$ 12.7$ 192.9 Less: Charges to Other Funds (10.7) Less: Encumbrances/reappropriations (6.5) Net General Fund Expenditures 175.7$ Adjustments of $12.7 million to the original budget were primarily due to the following: • $7.8 million carry-forward of encumbrances from prior year and reappropriations • $5.5 million settlement agreement for an overpayment claim by Stanford University regarding fire protection services The final budgeted expenditure amount of $196.3 million compares to the actual expenditures plus encumbrances/reappropriations of $193.0 million, a difference of $3.3 million, of which $6.5 million is encumbrances and reappropriations carried forward to FY 2020. Transfers out were originally budgeted at $30.9 million, with the final budget number at $37.1 million, an increase of $6.2 million. The increase was due to an additional $4.0 million transfer to General Benefits Internal Services Fund for Irrevocable Section 115 Pension Trust and $2.0 million transfer to the Infrastructure Reserve. Capital Projects Fund Capital Projects Fund expenditures and other uses were $46.9 million in FY 2019, an increase of $5.9 million from the prior year driven by construction of Fire Station #3, Charleston/Arastradero Corridor and the new California Avenue parking garage. This level of expenditure is consistent with the City’s effort to rehabilitate and maintain its existing infrastructure. ◼ Management’s Discussion and Analysis ……….…………………………………………………………………… 24 City of Palo Alto Non-major Funds These funds are not presented separately in the Basic Financial Statements, but are individually presented as Supplemental Information. Financial Analysis of Enterprise Funds At June 30, 2019, the City’s Enterprise Funds reported total net position of $741.5 million, an increase of $53.4 million or 7.8 percent from the prior year. The increase was primarily from the Electric Fund. Further analysis is noted in the following section. Unrestricted net position for the Enterprise Funds totaled $135.3 million, a 23.7 percent increase from FY 2018. The following is a table which compares the year over year change in net position for each of the Enterprise Funds. ENTERPRISE FUNDS Change in Net Position for the Year Ended June 30 (in millions) Increase/ Fund Name 2019 2018 (Decrease) Water 8.0$ 5.1$ 2.9$ Electric 19.0 (1.2)20.2 Fiber Optics 3.5 1.7 1.8 Gas 5.3 1.5 3.8 Wastewater Collection 3.3 1.0 2.3 Wastewater Treatment 1.5 4.8 (3.3) Refuse 4.9 6.1 (1.2) Storm Drainage 2.3 1.8 0.5 Airport 6.6 10.1 (3.5) Total Change in Net Position 54.4$ 30.9$ 23.5$ The most significant factors in the year over year change in net position for Enterprise Funds are as follows: ▪ The net position for Electric Fund increased by $20.2 million due to higher operating revenues as a result of a 6.0 percent rate increase effective July 2018, an increase in investment earnings and a decrease in operating expenses. ▪ The net position for Gas Fund increased $3.8 million as a result of higher revenue due to higher consumption and a rate increase. ▪ The net positon for Water increased $2.9 million as a result of an increase in operating revenues of $0.5 million due to a three percent rate increase effective July 2018 and a $2.0 million increase in investment earnings. The increase is also due to a decrease of $0.3 million in operating expenses. ▪ The net position for Wastewater Collection Fund increased $2.3 million due to 11.0 percent rate increase effective July 1, 2018. ▪ Wastewater Treatment Fund decreased its net position by $3.3 million due to a decrease in federal grant revenues of $4.0 million from prior year offset by the increase in investment earnings. Management’s Discussion and Analysis ◼ ……….…………………………………………………………………… City of Palo Alto 25 ▪ The Airport Fund decreased in net position $3.5 million due to the decrease in federal grant revenues for the Apron Reconstruction project. CAPITAL ASSETS GASB 34 requires that the City record all its capital assets, including infrastructure and intangible assets. Infrastructure includes roads, bridges, signals and similar assets used by the entire population. The table below shows capital assets and the amount of accumulated depreciation for these assets for Governmental and Business-type Activities. Further detail can be found in Note 6 to the financial statements. Increase/ 2019 2018 (Decrease) Governmental activites Capital Assets Land and improvements 77.6$ 78.5$ (0.9) Street trees 14.7 14.8 (0.1) Construction in progress 104.5 69.3 35.2 Building and improvements 247.3 246.5 0.8 Intangible assets 3.8 3.8 0.0 Equipment 12.6 12.6 - Roadway network 334.3 334.3 - Recreation and open space network 35.2 35.2 - Less accumulated depreciation (285.7) (269.0) (16.7) Internal Service funds - Construction in progress 2.5 1.9 0.6 Equipment 62.3 61.6 0.7 Less accumulated depreciation (43.0) (41.7) (1.3) Total Governmental Activities 566.1 547.8 18.3 Business-Type Activities Land 5.0 5.0 (0.0) Construction in progress 158.0 153.4 4.6 Buildings and improvements 68.3 59.9 8.4 Capital Leases 0.5 0.5 - Infrastructure 0.6 0.6 - Transmission, distribution and treatment systems 822.4 779.3 43.1 Less accumulated depreciation (381.3) (362.0) (19.3) Total Business-type Activities 673.5$ 636.7$ 36.8$ CAPITAL ASSETS AT JUNE 30 (in millions) Governmental Activities’ capital assets net of depreciation increased by $18.3 million from the prior year. The increase was primarily due to various city projects such as the Fire Station #3, Charleston/Arastradero Corridor and the new California Avenue Area Parking Garage. ◼ Management’s Discussion and Analysis ……….…………………………………………………………………… 26 City of Palo Alto Council approved a $125.8 million Infrastructure Plan (IP) in June 2014, which includes projects such as a new Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan and two parking garages. Through the development of the 2020-2024 Capital Improvement Plan (CIP), a tenth project was added to the IP, Downtown Automated Parking Guidance Systems, and the IP projects were updated for scope increases and cost escalations, resulting in a revised Infrastructure Plan of $280.6 million. These projects will be funded partially by debt to be repaid with voter approved increases of 3.5 percent in the transient occupancy tax (TOT) rate and from other sources such as impact fees and Stanford University Medical Center development agreement monies. The 2020-2024 CIP assumes the opening of new Marriott hotels in FY 2021, and the additional annual TOT funding is estimated to cover the cost of the IP projects. Major Governmental Activities’ capital projects that are currently in progress, including the remaining capital commitment of each, are as follows: ▪ New Cal Ave Area Parking Garage - $40.2 million ▪ New Downtown Parking Garage – $27.0 million ▪ Highway 101 Pedestrian/Bicycle Overcrossing - $13.3 million ▪ Bicycle Boulevards Implementation Project - $9.2 million ▪ Embarcadero Road Corridor Improvements - $6.3 million Business-type Activities’ capital assets net of depreciation increased by $36.8 million over FY 2018. The increase is primarily due to Water, Electric, Wastewater Treatment, Storm Drainage and Airport infrastructure improvements. Major Business-type Activities’ capital projects that are currently in progress, including the remaining capital commitment of each, are as follows: ▪ Water Main Replacement for Water fund - $7.1 million ▪ Wastewater Collection Fund Rehabilitation/Augmentation – $4.6 million ▪ Airport Apron Reconstruction Project - $7.7 million The City depreciates its capital assets over their estimated useful lives, as required by GASB 34. The purpose of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable portion of the cost of the asset is borne by all users. Additional information on capital assets and depreciable lives are in Note 6. Management’s Discussion and Analysis ◼ ……….…………………………………………………………………… City of Palo Alto 27 DEBT ADMINISTRATION Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements. The City’s debt as of June 30, 2019 is shown in the following table. Increase/ 2019 2018 (Decrease) Governmental Activities General Long-Term Obligations General Obligation Bonds 2010 44.6$ 45.8$ (1.2)$ 2013A 15.9 16.3 (0.4) 2011 Lease Purchase Agreement 0.0 0.4 (0.4) Add: unamortized premium 0.0 3.6 (3.6) Certificates of Participation 2018 Capital Improvement Projects 8.9 9.0 (0.1) 2019 California Ave Parking Garage Series A & B 37.4 0.0 37.4 Add: unamortized premium 8.3 0.0 8.3 Total Governmental Activities 115.1$ 75.1$ 40.0$ Business-type Activities Enterprise Long-Term Obligations Utility Revenue Bonds 1995 Series A 0.6$ 1.3$ (0.7)$ 1999 Refunding 7.5 8.2 (0.7) 2009 Series A 26.6 27.7 (1.1) 2011 Refunding 9.1 10.2 (1.1) Add: unamortized premium 0.6 0.6 (0.0) Energy Tax Credit Bonds 2007 Series A 0.3 0.4 (0.1) Less: unamortized discount (0.1)(0.1)- State Water Resources Loan 2007 4.5 5.0 (0.5) 2009 5.7 6.1 (0.4) 2017 19.4 6.7 12.7 Total Business-type Activities 74.2$ 66.1$ 8.1$ LONG-TERM DEBT AT JUNE 30 (in millions) City-wide long-term debt increased a total of $48.1 million due to the issuance of 2019 COPs tax exempt Series A of $26.8 million plus $4.9 million premium and taxable Series B of $10.6 million, and receipt of $12.7 additional loan from the State Water Reserve Control Board (SWRCB), net of $6.9 million scheduled retirements. ◼ Management’s Discussion and Analysis ……….…………………………………………………………………… 28 City of Palo Alto SPECIAL ASSESSMENT DISTRICT DEBT Special assessment districts throughout different parts of the City have also issued debt to finance infrastructure and facilities construction exclusively in their districts. As of June 30, 2019, the City had no special assessment district debt with City commitment outstanding. CONTACTING THE CITY’S FINANCIAL MANAGEMENT The CAFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the City’s finances. Questions about this report should be directed to the Administrative Services Department, located at 250 Hamilton Avenue, 4th Floor, Palo Alto, California. The Department can also be contacted by email at: adminsvcs@cityofpaloalto.org. This report and other financial reports can be viewed on the City of Palo Alto website at: www.cityofpaloalto.org. On the home page, select Departments, select Administrative Services, and select Financial Reporting. Within Financial Reporting, there are links to reports by title and reporting date. CITY OF PALO ALTO Statement of Net Position June 30, 2019 (Amounts in thousands) Governmental Business‐Type Activities Activities Total ASSETS: Cash and investments available for operations (Note 3) 297,243$ 249,368$ 546,611$ Receivables, net: Accounts and intergovernmental 25,574 49,424 74,998 Interest receivable 2,248 1,626 3,874 Notes and loans receivable (Note 5) 34,099 ‐ 34,099 Internal balances (Note 4) 3,069 (3,069) ‐ Deposits 65 ‐ 65 Due from other government agencies ‐ 3,000 3,000 Inventory of materials and supplies, prepaids and deposits 4,765 291 5,056 Restricted cash and investments with fiscal agents and trustees (Note 3)56,803 4,016 60,819 Capital assets (Note 6): Nondepreciable 202,857 162,959 365,816 Depreciable, net of accumulated depreciation 363,246 510,562 873,808 Total assets 989,969 978,177 1,968,146 DEFERRED OUTFLOWS OF RESOURCES: Unamortized loss from refunding ‐ 209 209 Pension related (Note 11) 52,032 16,963 68,995 OPEB related (Note 12) 11,397 4,600 15,997 Total deferred outflows of resources 63,429 21,772 85,201 LIABILITIES: Accounts payable and accruals 18,388 18,835 37,223 Accrued salaries and benefits 1,780 771 2,551 Unearned revenue 2,976 ‐ 2,976 Accrued compensated absences (Note 1): Due in one year 6,273 ‐ 6,273 Due in more than one year 6,062 ‐ 6,062 Claims payable (Note 14): Due in one year 6,171 ‐ 6,171 Due in more than one year 22,194 ‐ 22,194 Landfill post‐closure liability (Note 9): Due in more than one year ‐ 6,975 6,975 Net pension liabilities (Note 11): Due in more than one year 312,021 111,875 423,896 Net OPEB liabilities (Note 12): Due in more than one year 105,322 42,498 147,820 Long‐term debt (Note 7): Due in one year 2,631 5,291 7,922 Due in more than one year 112,505 68,957 181,462 Total liabilities 596,323 255,202 851,525 DEFERRED INFLOWS OF RESOURCES: Pension related (Note 11) 5,142 2,417 7,559 OPEB related (Note 12) 1,950 787 2,737 Total deferred inflows of resources 7,092 3,204 10,296 NET POSITION (Note 10): Net Investment in capital assets 493,706 602,136 1,095,842 Restricted for: Transportation, infrastructure and other 39,507 ‐ 39,507 Debt service 3,694 4,016 7,710 Nonexpendable ‐ Eyerly Family 2,438 ‐ 2,438 Total restricted net position 45,639 4,016 49,655 Unrestricted (89,362) 135,391 46,029 Total net position $ 449,983 $ 741,543 $ 1,191,526 See accompanying notes to the basic financial statements. 29 30 This page is left intentionally blank. CITY OF PALO ALTO Statement of Activities For the Year Ended June 30, 2019 (Amounts in thousands) Net (Expense) Revenue and Program Revenues Changes in Net Position Operating Capital Charges for Grants and Grants and Governmental Business‐Type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Governmental Activities: City Council 270$ ‐$ ‐$ ‐$ (270)$ ‐$ (270)$ City Manager 3,336 ‐ 341 ‐ (2,995) ‐ (2,995) City Attorney 3,086 ‐ ‐ ‐ (3,086) ‐ (3,086) City Clerk 822 ‐ ‐ ‐ (822) ‐ (822) City Auditor 1,081 ‐ ‐ ‐ (1,081) ‐ (1,081) Administrative Services 19,169 6,413 ‐ ‐ (12,756) ‐ (12,756) Human Resources 3,021 ‐ ‐ ‐ (3,021) ‐ (3,021) Public Works 36,617 1,478 ‐ 2,046 (33,093) ‐ (33,093) Planning and Community Environment 12,169 11,997 1,041 ‐ 869 ‐ 869 Development Services 12,622 13,904 ‐ ‐ 1,282 ‐ 1,282 Police 49,816 4,180 418 ‐ (45,218) ‐ (45,218) Fire 39,373 9,999 266 ‐ (29,108) ‐ (29,108) Community Services 36,815 22,805 ‐ 6,201 (7,809) ‐ (7,809) Library 12,557 134 34 ‐ (12,389) ‐ (12,389) Interest on long‐term debt 3,653 ‐ ‐ ‐ (3,653) ‐ (3,653) Total Governmental Activities 234,407 70,910 2,100 8,247 (153,150) ‐ (153,150) Business‐Type Activities: Water 40,606 45,571 488 524 ‐ 5,977 5,977 Electric 139,605 163,514 ‐ ‐ ‐ 23,909 23,909 Fiber Optics 2,476 4,657 ‐ ‐ ‐ 2,181 2,181 Gas 30,915 42,113 ‐ ‐ ‐ 11,198 11,198 Wastewater Collection 17,324 20,219 ‐ 283 ‐ 3,178 3,178 Wastewater Treatment 27,070 27,573 ‐ ‐ ‐ 503 503 Refuse 30,391 33,996 ‐ ‐ ‐ 3,605 3,605 Storm Drainage 4,951 7,249 ‐ ‐ ‐ 2,298 2,298 Airport 1,790 2,483 ‐ 5,870 ‐ 6,563 6,563 Total Business‐Type Activities 295,128 347,375 488 6,677 ‐ 59,412 59,412 Total 529,535$ 418,285$ 2,588$ 14,924$ (153,150) 59,412 (93,738) General Revenues: Taxes: Property tax 51,718 ‐ 51,718 Sales tax 36,508 ‐ 36,508 Utility user tax 16,402 ‐ 16,402 Transient occupancy tax 25,649 ‐ 25,649 Documentary transfer tax 6,923 ‐ 6,923 Other taxes 2,602 ‐ 2,602 Investment earnings 15,375 12,680 28,055 Miscellaneous 1,906 ‐ 1,906 Transfers (Note 4)18,680 (18,680) ‐ Total general revenues and transfers 175,763 (6,000) 169,763 Change in net position 22,613 53,412 76,025 Net position, beginning of year 427,370 688,131 1,115,501 Net position, end of year 449,983$ 741,543$ 1,191,526$ See accompanying notes to the basic financial statements. 31 32 This page is left intentionally blank. CITY OF PALO ALTO Governmental Funds Balance Sheet June 30, 2019 (Amounts in thousands) Capital Other Total General Projects Governmental Governmental Fund Fund Funds Funds ASSETS: Cash and investments available for operations (Note 3) 55,139$ 74,689$ 85,722$ 215,550$ Receivables, net: Accounts and intergovernmental 21,669 1,313 328 23,310 Interest receivable 1,167 32 523 1,722 Notes and loans receivable (Note 5) ‐ ‐ 34,099 34,099 Deposits 15 ‐ 50 65 Due from other fund (Note 4) 843 ‐ ‐ 843 Advances to other funds (Note 4) 3,115 ‐ ‐ 3,115 Inventory of materials and supplies 4,517 ‐ ‐ 4,517 Restricted cash and investments with fiscal agents (Note 3) ‐ 42,739 34 42,773 Total assets 86,465$ 118,773$ 120,756$ 325,994$ LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities: Accounts payable and accruals 6,501$ 7,978$ 349$ 14,828$ Accrued salaries and benefits 1,562 80 17 1,659 Unearned revenue 2,976 ‐ ‐ 2,976 Due to other funds (Note 4) ‐ ‐ 106 106 Total liabilities 11,039 8,058 472 19,569 Deferred inflows of resources Deferred inflows of resources ‐ Unavailable revenue 211 1,195 ‐ 1,406 11,250 9,253 472 20,975 Fund balances (Note 10): Nonspendable: Deposits 15 ‐ ‐ 15 Inventories 4,517 ‐ ‐ 4,517 Advance to other fund 3,115 ‐ ‐ 3,115 Eyerly family ‐ ‐ 2,438 2,438 Restricted for: Transportation mitigation ‐ ‐ 13,091 13,091 Federal revenue ‐ ‐ 5,300 5,300 Street improvement ‐ ‐ 250 250 Local law enforcement ‐ ‐ 494 494 California Avenue parking garage ‐ 42,151 ‐ 42,151 Library bond project ‐ 588 ‐ 588 Public benefit ‐ ‐ 20,372 20,372 Debt service ‐ ‐ 3,694 3,694 Committed for: Development services 4,399 ‐ ‐ 4,399 Roth building rehabilitation ‐ 4,920 ‐ 4,920 Cubberley improvements ‐ 5,422 ‐ 5,422 Developer impact fees ‐ ‐ 17,049 17,049 Housing in‐lieu ‐ ‐ 51,558 51,558 Special districts ‐ ‐ 5,667 5,667 Edgewood Plaza 701 ‐ ‐ 701 Assigned for: Unrealized gains on investments 709 ‐ 403 1,112 Capital projects ‐ 56,439 ‐ 56,439 Other general government purposes 5,622 ‐ ‐ 5,622 Electric charger 17 ‐ ‐ 17 College Terrace fines 160 ‐ ‐ 160 Reappropriations 1,149 ‐ ‐ 1,149 Unassigned for: Budget Stabilization 54,811 ‐ ‐ 54,811 Downtown business ‐ ‐ (32) (32) Total fund balances 75,215 109,520 120,284 305,019 Total liabilities, deferred inflows of resources, and fund balances 86,465$ 118,773$ 120,756$ 325,994$ Total liabilities and deferred inflows of resources See accompanying notes to the basic financial statements. 33 CITY OF PALO ALTO Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position ‐ Governmental Activities June 30, 2019 Total fund balances reported on the governmental funds balance sheet 305,019$ Amounts reported for governmental activities in the statement of net position are different from those reported in the governmental funds balance sheet because of the following: Deferred outflows and inflows of resources in governmental activities are not financial resources and, therefore, are not reported in the governmental funds. Deferred outflows of resources 63,429 Deferred inflows of resources (7,092) Certain receivables are not available to pay for current period expenditures and therefore are deferred in the governmental funds. 1,406 Capital assets used in governmental activities are not current assets or financial resources and therefore are not reported in the governmental funds (Note 6) 566,103 Internal service funds are used by management to charge the costs of activities such as insurance, equipment acquisition and maintenance, and certain employee benefits to individual funds. The assets and liabilities of the internal service funds are therefore included in governmental activities in the statement of net position (excludes capital assets, deferred outflows of resources, deferred inflows of resources, net pension liabilities and net OPEB liabilities reported herein) 55,263 Some liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the governmental funds: Interest payable (1,666) Net pension liabilities (Note 11) (312,021) Net OPEB liabilities (Note 12) (105,322) Long‐term debt (Note 7) (115,136) Net position of governmental activities 449,983$ (Amounts in thousands) See accompanying notes to the basic financial statements. 34 CITY OF PALO ALTO Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2019 (Amounts in thousands) Capital Other Total General Projects Governmental Governmental Fund Fund Funds Funds REVENUES: Property tax 47,327$ ‐$ 4,391$ 51,718$ Special assessments ‐ ‐ 58 58 Sales tax 36,508 ‐ ‐ 36,508 Utility user tax 16,402 ‐ ‐ 16,402 Transient occupancy tax 25,649 ‐ ‐ 25,649 Documentary transfer tax 6,923 ‐ ‐ 6,923 Other taxes and fines 1,888 ‐ 2,663 4,551 Charges for services 27,346 ‐ ‐ 27,346 Intergovernmental 2,863 903 923 4,689 Permits and licenses 8,410 ‐ 9,349 17,759 Investment earnings 5,672 1,449 3,827 10,948 Rental income 16,338 ‐ 6 16,344 Housing In‐Lieu ‐ residential ‐ ‐ 5,613 5,613 Other revenue 1,753 590 5,612 7,955 Total revenues 197,079 2,942 32,442 232,463 EXPENDITURES: Current: City Council 265 ‐ ‐ 265 City Manager 2,883 ‐ ‐ 2,883 City Attorney 2,649 ‐ ‐ 2,649 City Clerk 805 ‐ ‐ 805 City Auditor 865 ‐ ‐ 865 Administrative Services 5,512 ‐ 253 5,765 Human Resources 2,567 ‐ ‐ 2,567 Public Works 13,757 ‐ 1,007 14,764 Planning and Community Environment 8,132 ‐ 2,779 10,911 Development Services 11,549 ‐ ‐ 11,549 Police 42,854 ‐ 1 42,855 Fire 33,489 ‐ ‐ 33,489 Community Services 28,903 ‐ 2,716 31,619 Library 9,288 ‐ ‐ 9,288 Non‐Departmental 11,769 ‐ 462 12,231 Capital outlay ‐ 46,914 ‐ 46,914 Debt service: Principal 426 ‐ 1,675 2,101 Interest and fiscal charges 5 ‐ 3,393 3,398 Total expenditures 175,718 46,914 12,286 234,918 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 21,361 (43,972) 20,156 (2,455) OTHER FINANCING SOURCES (USES): Issuance of debt ‐ 41,995 302 42,297 Proceeds from sale of capital assets 2,442 ‐ ‐ 2,442 Transfers in (Note 4) 20,154 33,661 896 54,711 Transfers out (Note 4) (37,088) (74) (5,985) (43,147) Total other financing sources (uses) (14,492) 75,582 (4,787) 56,303 Change in fund balances 6,869 31,610 15,369 53,848 FUND BALANCES, BEGINNING OF YEAR 68,346 77,910 104,915 251,171 FUND BALANCES, END OF YEAR 75,215$ 109,520$ 120,284$ 305,019$ See accompanying notes to the basic financial statements. 35 CITY OF PALO ALTO Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities ‐ Governmental Activities For the Year Ended June 30, 2019 Net change in fund balances ‐ total governmental funds 53,848$ Amounts reported for governmental activities in the statement of activities are different from those reported in the governmental funds because of the following: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of these assets are capitalized and allocated over their estimated useful lives and reported as depreciation expense. Therefore, the activities associated with capital assets are as follows: Capital outlay added back to fund balance for current year additions 39,100 Depreciation expense is deducted from fund balance (depreciation expense is net of internal service fund depreciation of $3,500) (Note 6), which has already been allocated through the internal service fund activities below (16,836) Disposal of capital assets (3,935) Pension and OPEB contribution made subsequent to the measurement date is an expenditure in the governmental funds, but reported as a deferred outflows of resources in the government‐wide financial statements 36,550 Pension and OPEB expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds (56,544) Principal payments on long‐term liabilities are reported as expenditures in governmental funds when paid. The governmental activities, however, report principal payments as a reduction of long‐term debt on the statement of net position. Interest accrued on long‐term debt and amortization of premiums do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Therefore, the activities associated with long‐term debt are as follows: Principal paid during the year 2,101 Proceeds from debt issuance (42,297) Change in interest payable (461) Amortization of bond premium 206 Revenues earned but not available are deferred in the governmental funds but are recognized in the government‐wide financial statements. Also, revenues recognized in the governmental funds during the current year that were earned and recognized in previous years in the government‐wide financial statements are reported as beginning net position in the statement of activities 1,406 Internal service funds are used by management to charge the costs of activities, such as insurance, equipment acquisition and maintenance, and employees benefits to individual funds. The portion of the net expense of these internal service funds arising out of their transactions with governmental funds is reported with governmental activities. 9,475 Change in net position of governmental activities 22,613$ (Amounts in thousands) See accompanying notes to the basic financial statements. 36 Variance with Budgeted Amounts Final Budget Actual, Budgetary Positive Adopted Final Basis (Negative) 31,246$ 31,746$ 36,508$ 4,762$ 45,332 46,232 47,327 1,095 25,049 25,391 25,649 258 Documentary transfer tax 7,434 8,034 6,923 (1,111) 16,092 16,092 16,402 310 2,032 2,032 1,888 (144) 28,419 28,419 27,346 (1,073) 8,545 8,545 8,410 (135) 1,194 1,194 2,167 973 15,734 15,734 16,338 604 2,943 3,229 2,942 (287) 568 1,599 1,753 154 184,588 188,247 193,653 5,406 10,093 10,147 10,685 538 ‐ 7,821 7,821 ‐ 194,681 206,215 212,159 5,944 3,263 3,783 3,783 ‐ 1,258 1,238 1,238 ‐ 1,282 1,267 1,193 74 488 501 411 90 4,386 4,905 4,450 455 7,963 7,834 7,794 40 28,929 30,282 30,201 81 Police 31,825 33,894 33,894 ‐ 43,460 43,912 43,698 214 3,591 3,796 3,697 99 9,664 9,767 9,491 276 8,791 10,346 9,906 440 Development Services 12,561 13,103 12,700 403 18,462 18,362 17,928 434 7,632 13,302 12,567 735 183,555 196,292 192,951 3,341 11,126 9,923 19,208 9,285 ‐ ‐ 2,442 2,442 19,772 20,154 20,154 ‐ (30,898) (37,088) (37,088) ‐ (11,126) (16,934) (14,492) 2,442 ‐$ (7,011)$ 4,716 11,727$ Unrealized gain/loss on investments 3,505 Current year encumbrances and reappropriations 6,469 Prior year encumbrances and reappropriations (7,821) 6,869 68,346 75,215$ FUND BALANCE AT BEGINNING OF YEAR, GAAP BASIS FUND BALANCE AT END OF YEAR, GAAP BASIS EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES, BUDGETARY BASIS Adjustment to Budgetary Basis: CHANGE IN FUND BALANCE, GAAP BASIS Total other financing sources (uses) Human Resources Library Planning and Community Environment Total expenditures EXCESS OF REVENUES OVER EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers in Transfers out Public Works Non‐Departmental Proceeds from sale of capital assets Fire Prior year encumbrances Total revenues EXPENDITURES: Current: City Attorney City Auditor City Clerk City Council City Manager Administrative Services Community Services Charges to other funds and departments Sales tax Property tax Transient occupancy tax Utility user tax Other taxes, fines and penalties Charges for services Permits and licenses Investment earnings Rental income Intergovernmental Other revenues REVENUES: CITY OF PALO ALTO General Fund Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual For the Year Ended June 30, 2019 (Amounts in thousands) See accompanying notes to the basic financial statements. 37 Fiber Water Electric Optics Gas ASSETS: Current assets: Cash and investments available for operations (Note 3) 40,443$ 93,173$ 31,196$ 25,522$ Accounts receivable, net of allowance of $462 6,333 24,105 1,134 3,066 Interest receivable 265 615 200 182 Due from other government agencies ‐ ‐ ‐ ‐ Inventory of materials and supplies ‐ ‐ ‐ ‐ Restricted cash and investments with fiscal agents and trustees (Note 3) 3,221 ‐ ‐ 795 Total current assets 50,262 117,893 32,530 29,565 Noncurrent assets: Due from other government agencies ‐ ‐ ‐ ‐ Deposit ‐ 41 ‐ ‐ Prepaid expense 83 ‐ ‐ ‐ Capital assets (Note 6): Nondepreciable 30,464 23,618 1,611 14,262 Depreciable, net 99,153 177,761 7,554 95,635 Total noncurrent assets 129,700 201,420 9,165 109,897 Total assets 179,962 319,313 41,695 139,462 DEFERRED OUTFLOWS OF RESOURCES: Unamortized loss from refunding 91 ‐ ‐ 118 Pension related (Note 11) 2,213 5,463 410 2,412 OPEB related (Note 12) 517 1,683 ‐ 741 Total deferred outflows of resources 2,821 7,146 410 3,271 LIABILITIES: Current liabilities: Accounts payable and accruals 4,084 2,725 302 1,090 Accrued salaries and benefits 106 260 20 110 Due to other funds ‐ ‐ ‐ ‐ Accrued compensated absences (Note 1) ‐ ‐ ‐ ‐ Current portion of long term debt (Note 7) 1,707 100 ‐ 644 Accrued claims payable (Note 14) ‐ ‐ ‐ ‐ Total current liabilities 5,897 3,085 322 1,844 Noncurrent liabilities: Accrued compensated absences (Note 1) ‐ ‐ ‐ ‐ Accrued claims payable (Note 14) ‐ ‐ ‐ ‐ Advance from other fund (Note 4) ‐ ‐ ‐ ‐ Landfill post‐closure liability (Note 9) ‐ ‐ ‐ ‐ Net pension liabilities (Note 11) 14,999 36,044 2,351 15,939 Net OPEB liabilities (Note 12) 4,775 15,551 ‐ 6,844 Long term debt, net of unamortized discounts/premiums (Note 7) 29,752 184 ‐ 4,678 Total noncurrent liabilities 49,526 51,779 2,351 27,461 Total liabilities 55,423 54,864 2,673 29,305 DEFERRED INFLOWS OF RESOURCES: Pension related (Note 11) 290 743 61 297 OPEB related (Note 12) 88 288 ‐ 127 Total deferred inflows of resources 378 1,031 61 424 NET POSITION (Note 10): Net Investment in capital assets 98,249 200,749 9,165 104,693 Restricted for debt service 3,221 ‐ ‐ 795 Unrestricted (deficit) 25,512 69,815 30,206 7,516 Total net position 126,982$ 270,564$ 39,371$ 113,004$ Some amounts reported for Business‐type Activities in the statement of net position are different because certain Internal Service Fund net positions are included with Business‐type Activities Net position reported in Business‐type Activities Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Net Position June 30, 2019 (Amounts in thousands) See accompanying notes to the basic financial statements. 38 Governmental Non‐Major Activities ‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 10,242$ 12,792$ 28,883$ 6,201$ 916$ 249,368$ 81,693$ 2,735 2,927 4,070 830 4,224 49,424 2,264 60 83 176 38 7 1,626 526 ‐ 300 ‐ ‐ ‐ 300 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 248 ‐ ‐ ‐ ‐ ‐ 4,016 14,030 13,037 16,102 33,129 7,069 5,147 304,734 98,761 ‐ 2,700 ‐ ‐ ‐ 2,700 ‐ ‐ ‐ ‐ ‐ ‐ 41 ‐ ‐ 167 ‐ ‐ ‐ 250 ‐ 28,102 31,182 1,952 11,683 20,085 162,959 2,530 60,785 36,164 3,243 29,678 589 510,562 19,281 88,887 70,213 5,195 41,361 20,674 676,512 21,811 101,924 86,315 38,324 48,430 25,821 981,246 120,572 ‐ ‐ ‐ ‐ ‐ 209 ‐ 1,312 3,450 756 687 260 16,963 2,914 283 872 315 138 51 4,600 617 1,595 4,322 1,071 825 311 21,772 3,531 537 2,530 2,954 445 4,168 18,835 1,894 58 149 27 30 11 771 121 ‐ ‐ ‐ ‐ ‐ ‐ 737 ‐ ‐ ‐ ‐ ‐ ‐ 6,273 99 2,011 ‐ 730 ‐ 5,291 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 6,171 694 4,690 2,981 1,205 4,179 24,897 15,196 ‐ ‐ ‐ ‐ ‐ ‐ 6,062 ‐ ‐ ‐ ‐ ‐ ‐ 22,194 ‐ ‐ ‐ ‐ 3,115 3,115 ‐ ‐ ‐ 6,975 ‐ ‐ 6,975 ‐ 8,965 22,703 6,022 4,006 846 111,875 16,527 2,616 8,056 2,912 1,271 473 42,498 5,691 452 30,555 ‐ 3,336 ‐ 68,957 ‐ 12,033 61,314 15,909 8,613 4,434 233,420 50,474 12,727 66,004 18,890 9,818 8,613 258,317 65,670 174 463 109 182 98 2,417 492 48 149 54 24 9 787 106 222 612 163 206 107 3,204 598 88,336 37,780 5,195 37,295 20,674 602,136 21,811 ‐ ‐ ‐ ‐ ‐ 4,016 ‐ 2,234 (13,759) 15,147 1,936 (3,262) 135,345 36,024 90,570$ 24,021$ 20,342$ 39,231$ 17,412$ 741,497 57,835$ 46 741,543$ Business‐Type Activities‐Enterprise Funds See accompanying notes to the basic financial statements. 39 Fiber Water Electric Optics Gas OPERATING REVENUES: Sales to: Customers 41,275$ 126,370$ 3,470$ 38,456$ City departments 2,136 4,403 1,118 1,448 Surplus energy ‐ 13,752 ‐ ‐ Service connection charges and miscellaneous 1,193 3,255 42 1,000 Charges for services ‐ ‐ ‐ ‐ Other 967 15,734 27 1,209 Total operating revenues 45,571 163,514 4,657 42,113 OPERATING EXPENSES: Purchase of utilities: Retail purchase of utilities 21,210 76,659 ‐ 15,958 Surplus energy ‐ 13,022 ‐ ‐ Administrative and general 5,658 8,513 774 4,535 Engineering (operating) 382 1,835 ‐ 397 Resource management and energy efficiency 959 5,613 ‐ 931 Operations and maintenance 5,961 11,508 1,250 4,923 Rent 1,833 5,454 78 621 Depreciation and amortization 2,808 8,277 377 3,209 Claims payments and changes in estimated self‐insurance liability ‐ ‐ ‐ ‐ Refund of charges for services ‐ ‐ ‐ ‐ Employment benefits ‐ ‐ ‐ ‐ Total operating expenses 38,811 130,881 2,479 30,574 Operating income (loss) 6,760 32,633 2,178 11,539 NONOPERATING REVENUES (EXPENSES): Investment earnings 2,113 4,958 1,499 1,403 Interest expense (1,641) (8,388) ‐ (180) Gain on disposal of capital assets ‐ ‐ ‐ ‐ Loss on disposal of capital assets (109) (103) ‐ (76) Other nonoperating revenues 488 ‐ ‐ ‐ Total nonoperating revenues (expenses) 851 (3,533) 1,499 1,147 Income (loss) before transfers and capital contributions 7,611 29,100 3,677 12,686 Capital contributions 524 ‐ ‐ ‐ Transfers in (Note 4) 539 3,335 ‐ ‐ Transfers out (Note 4) (645) (13,470) (139) (7,400) Change in net position 8,029 18,965 3,538 5,286 NET POSITION, BEGINNING OF YEAR 118,953 251,599 35,833 107,718 NET POSITION, END OF YEAR 126,982$ 270,564$ 39,371$ 113,004$ Some amounts reported for Business‐type Activities in the statement of activities are different because certain Internal Service Fund activities are included with Business‐type Activities Change in net position reported in Business‐type Activities Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Revenues, Expenses and Changes in Fund Net Position For the Year Ended June 30, 2019 (Amounts in thousands) See accompanying notes to the basic financial statements. 40 Governmental Non‐Major Activities‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 19,209$ 16,907$ 30,242$ 6,787$ 1,753$ 284,469$ ‐$ 133 9,887 823 405 ‐ 20,353 ‐ ‐ ‐ ‐ ‐ ‐ 13,752 ‐ 311 ‐ ‐ ‐ ‐ 5,801 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 103,010 566 779 2,931 57 730 23,000 796 20,219 27,573 33,996 7,249 2,483 347,375 103,806 9,843 ‐ 16,056 ‐ ‐ 139,726 ‐ ‐ ‐ ‐ ‐ ‐ 13,022 ‐ 1,719 ‐ 1,542 1,066 1,078 24,885 12,659 326 2,173 237 210 ‐ 5,560 ‐ ‐ ‐ ‐ 971 ‐ 8,474 ‐ 2,836 20,930 9,987 1,418 598 59,411 13,578 320 ‐ 2,182 43 ‐ 10,531 ‐ 2,210 2,870 116 941 21 20,829 3,500 ‐ ‐ ‐ ‐ ‐ ‐ 8,998 ‐ ‐ ‐ ‐ ‐ ‐ 147 ‐ ‐ ‐ ‐ ‐ ‐ 68,258 17,254 25,973 30,120 4,649 1,697 282,438 107,140 2,965 1,600 3,876 2,600 786 64,937 (3,334) 452 649 1,239 317 49 12,679 4,429 (34) (674) (196) (259) (72) (11,444) ‐ ‐ ‐ ‐ ‐ ‐ ‐ 275 (10) ‐ ‐ ‐ ‐ (298) ‐ ‐ ‐ ‐ ‐ ‐ 488 42 408 (25) 1,043 58 (23) 1,425 4,746 3,373 1,575 4,919 2,658 763 66,362 1,412 283 ‐ ‐ ‐ 5,870 6,677 ‐ ‐ ‐ ‐ ‐ ‐ 3,874 9,560 (388) (107) (43) (355) (7) (22,554) (2,444) 3,268 1,468 4,876 2,303 6,626 54,359 8,528 87,302 22,553 15,466 36,928 10,786 49,307 90,570$ 24,021$ 20,342$ 39,231$ 17,412$ 57,835$ (947) 53,412$ Business‐Type Activities‐Enterprise Funds See accompanying notes to the basic financial statements. 41 Fiber Water Electric Optics Gas Cash flows from operating activities: Cash received from customers 41,850$ 137,999$ 3,472$ 38,866$ Cash payments to suppliers for goods and services (31,869) (119,373) (1,981) (24,762) Cash payments to employees (5,027) (6,694) (625) (3,983) Internal activity‐ receipts (payments) from (to) other funds 2,136 4,403 1,118 1,448 Other receipts 967 15,734 27 1,209 Net cash provided by operating activities 8,057 32,069 2,011 12,778 Cash flows from noncapital financing activities: Receipt of loans from other funds ‐ ‐ ‐ ‐ Interest subsidy received from Build America Bonds 488 ‐ ‐ ‐ Transfers in 539 3,335 ‐ ‐ Transfers out (645) (13,470) (139) (7,400) Net cash provided by (used in) noncapital financing activities 382 (10,135) (139) (7,400) Cash flows from capital and related financing activities: Acquisition and construction of capital assets (6,038) (15,617) (792) (9,146) Proceeds from sale of capital assets ‐ ‐ ‐ ‐ Capital grants and contributions 524 ‐ ‐ ‐ Proceeds from debt issuance ‐ ‐ ‐ ‐ Principal paid on long‐term debt (1,636) (99) ‐ (619) Interest paid on long‐term debt (1,642) (8,388) ‐ (180) Net cash used in capital and related financing activities (8,792) (24,104) (792) (9,945) Cash flows from investing activities: Interest received 2,072 4,873 1,460 1,384 Net cash provided by (used in) investing activities 2,072 4,873 1,460 1,384 Net change in cash and cash equivalents 1,719 2,703 2,540 (3,183) Cash and cash equivalents, beginning of year 41,945 90,470 28,656 29,500 Cash and cash equivalents, end of year $ 43,664 $ 93,173 $ 31,196 $ 26,317 Financial statement presentation: Cash and investments available for operations 40,443$ 93,173$ 31,196$ 25,522$ Restricted cash and investments with fiscal agent 3,221 ‐ ‐ 795 Cash and cash equivalents, end of year 43,664$ 93,173$ 31,196$ 26,317$ Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) 6,760$ 32,633$ 2,178$ 11,539$ Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation and amortization 2,808 8,277 377 3,209 Other ‐ ‐ ‐ ‐ Change in assets and liabilities: Accounts receivable (618) (5,378) (40) (590) Inventory of materials and supplies ‐ ‐ ‐ ‐ Deposit 9 (6) ‐ ‐ Deferred outflow of resources ‐ pension plans 726 1,940 157 741 Deferred outflow of resources ‐ OPEB 173 563 ‐ 247 Accounts payable and accruals (1,533) (5,276) (653) (1,932) Accrued salaries and benefits 12 19 2 10 Accrued compensated absences ‐ ‐ ‐ ‐ Landfill closure and post‐closure care ‐ ‐ ‐ ‐ Accrued claims payable ‐ ‐ ‐ ‐ Net Pension liability (181) (340) (30) (263) Net OPEB liability (183) (598) ‐ (263) Deferred inflow of resources ‐ pension plans 77 212 20 69 Deferred inflow of resources ‐ OPEB 7 23 ‐ 11 Net cash provided by operating activities $ 8,057 $ 32,069 $ 2,011 $ 12,778 Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Cash Flows For the Year Ended June 30, 2019 (Amounts in thousands) See accompanying notes to the basic financial statements. 42 Governmental Non‐Major Activities‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 18,950$ 16,484$ 29,720$ 6,711$ (217)$ 293,835$ 101,300$ (13,360) (24,034) (28,102) (2,754) 1,064 (245,171) (15,396) (1,344) 8 (1,285) (752) (887) (20,589) (78,371) 133 9,887 823 405 ‐ 20,353 (4,611) 566 779 3,081 57 730 23,150 42 4,945 3,124 4,237 3,667 690 71,578 2,964 ‐ ‐ ‐ ‐ ‐ ‐ 737 ‐ ‐ ‐ ‐ ‐ 488 ‐ ‐ ‐ ‐ ‐ ‐ 3,874 9,560 (388) (107) (43) (355) (7) (22,554) (2,444) (388) (107) (43) (355) (7) (18,192) 7,853 (3,329) (14,724) ‐ (1,675) (6,647) (57,968) (3,637) ‐ ‐ ‐ ‐ ‐ ‐ 379 283 300 ‐ ‐ 5,870 6,977 ‐ ‐ 12,725 ‐ ‐ ‐ 12,725 ‐ (94) (1,398) ‐ (685) ‐ (4,531) ‐ (34) (674) (196) (259) (72) (11,445) ‐ (3,174) (3,771) (196) (2,619) (849) (54,242) (3,258) 440 649 1,182 319 47 12,426 4,366 440 649 1,182 319 47 12,426 4,366 1,823 (105) 5,180 1,012 (119) 11,570 11,925 8,419 12,897 23,703 5,189 1,035 241,814 83,798 $ 10,242 $ 12,792 $ 28,883 $ 6,201 $ 916 $ 253,384 $ 95,723 10,242$ 12,792$ 28,883$ 6,201$ 916$ 249,368$ 81,693$ ‐ ‐ ‐ ‐ ‐ 4,016 14,030 10,242$ 12,792$ 28,883$ 6,201$ 916$ 253,384$ 95,723$ 2,965$ 1,600$ 3,876$ 2,600$ 786$ 64,937$ (3,334)$ 2,210 2,870 116 941 21 20,829 3,500 ‐ ‐ ‐ ‐ ‐ ‐ 42 (570) (423) (522) (76) (1,970) (10,187) (2,211) ‐ ‐ ‐ ‐ ‐ ‐ (34) ‐ 16 ‐ ‐ ‐ 19 ‐ 442 1,289 210 185 45 5,735 881 95 292 106 46 17 1,539 205 (35) (2,072) 360 (112) 1,662 (9,591) (810) ‐ 8 (3) 3 ‐ 51 18 ‐ ‐ ‐ ‐ ‐ ‐ 277 ‐ ‐ 150 ‐ ‐ 150 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 4,617 (110) (281) 13 15 71 (1,106) (183) (101) (310) (112) (49) (18) (1,634) (219) 46 123 39 112 75 773 206 3 12 4 2 1 63 9 $ 4,945 $ 3,124 $ 4,237 $ 3,667 $ 690 $ 71,578 $ 2,964 Business‐Type Activities‐Enterprise Funds See accompanying notes to the basic financial statements. 43 Agency Funds ASSETS: Cash and investments available for operations (Note 3) 2,767$ Restricted cash and investments with fiscal agents (Note 3) 2,657 Account receivable 508 Interest receivable 17 Total assets 5,949$ LIABILITIES: Due to bondholders 4,709$ Due to other governments 1,240 Total liabilities 5,949$ CITY OF PALO ALTO Statement of Assets and Liabilities June 30, 2019 (Amounts in thousands) Agency Funds See accompanying notes to the basic financial statements. 44 CITY OF PALO ALTO Index to the Notes to the Basic Financial Statements For the Year Ended June 30, 2019 45 Page 1. Summary of Significant Accounting Policies ........................................................................... 47 2. Budgets and Budgetary Accounting ........................................................................................ 56 3. Cash and Investments ............................................................................................................. 56 4. Interfund Transactions ............................................................................................................ 62 5. Notes and Loans Receivable .................................................................................................... 65 6. Capital Assets .......................................................................................................................... 70 7. Long‐Term Debt ....................................................................................................................... 77 8. Special Assessment Debt ......................................................................................................... 84 9. Landfill Post‐Closure Maintenance ......................................................................................... 84 10. Net Position and Fund Balances .............................................................................................. 84 11. Pension Plans ........................................................................................................................... 88 12. Other Post‐Employment Benefits (OPEB) ............................................................................... 95 13. Deferred Compensation Plan .................................................................................................. 99 14. Risk Management .................................................................................................................. 100 15. Joint Ventures ........................................................................................................................ 101 16. Commitments and Contingencies ......................................................................................... 104 Notes are essential to present fairly the information contained in the overview level of the basic financial statements. Narrative explanations are intended to communicate information that is not readily apparent or cannot be included in the statements themselves, and to provide additional disclosures as required by the Governmental Accounting Standards Board. 46 This page is left intentionally blank. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 47 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Palo Alto (the City) was incorporated in 1894 and operates as a charter city, having had its first charter granted by the State of California in 1909. The City operates under the Council‐Manager form of government and provides the following services: public safety (police and fire), public works, electric, fiber optics, water, gas, wastewater, storm drain, refuse, airport, golf course, planning and zoning, general administration services, library, open space and science, recreational and human services. (a) Reporting Entity The City is governed by a seven‐member council, elected by City residents. The City is legally separate and fiscally independent, which means it can issue debt, set and modify budgets and fees, and sue or be sued. The accompanying basic financial statements present the financial activities of the City, which is the primary government presented, along with the financial activities of its component unit, which is an entity for which the City is financially accountable. Although a separate legal entity, a blended component unit is, in substance, part of the City’s operations and is reported as an integral part of the City’s financial statements. The City’s component unit described below is blended. The Palo Alto Public Improvement Corporation (the Corporation) provides financing of public capital improvements for the City through the issuance of Certificates of Participation (COPs), a form of debt that allows investors to participate in a stream of future lease payments. Proceeds from the COPs are used to construct projects that are leased to the City. The lease payments are sufficient in timing and amount to meet the debt service requirements of the COPs. The Board of Directors of the Corporation is composed of the same members as the City Council. The Corporation is controlled by the City, which performs all accounting and administrative functions for the Corporation. The financial activities of the Corporation are included in the Downtown Parking Improvement Debt Service Fund. Financial statements for the Corporation may be obtained from the City of Palo Alto, Administrative Services Department, 4th Floor, 250 Hamilton Avenue, Palo Alto, CA 94301. (b) Basis of Presentation The City’s basic financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board (GASB) is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the United States. These standards require that the financial statements described below be presented: Government‐wide Statements: The Statement of Net Position and the Statement of Activities display information about the primary government and its component unit. These statements include the financial activities of the overall City government, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. However, interfund goods and services transactions have not been eliminated in the consolidation process. These statements distinguish between the governmental and business‐type activities of the City. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 48 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (b) Basis of Presentation (Continued) Governmental activities generally are financed through taxes, intergovernmental revenues, and other non‐exchange transactions. Business‐type activities are financed in whole or in part by fees charged to external parties. The Statement of Activities presents a comparison between direct expenses and program revenues for each segment of the business‐type activities of the City and for each function of the City’s governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include: (a) charges paid by the recipients for goods and services offered by the programs, (b) grants and contributions that are restricted to meeting the operational needs of a particular program, and (c) fees, grants and contributions that are restricted to financing the acquisition or construction of capital assets. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the City’s funds, including fiduciary funds and its blended component unit. Separate statements for each fund category – governmental, proprietary and fiduciary – are presented. The emphasis of fund financial statements is on major individual governmental and enterprise funds, each of which is displayed in a separate column. All remaining governmental and internal service funds are aggregated and reported as non‐major funds. Proprietary fund operating revenues, such as utilities sales and charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result from non‐exchange transactions or ancillary activities. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All expenses not meeting this definition are reported as nonoperating expenses. (c) Major Funds and Other Funds The City’s major governmental and enterprise funds need to be identified and presented separately in the fund financial statements. All other funds, called non‐major funds, are combined and reported in a single column, regardless of their fund type. Major funds are defined as funds that have assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues or expenditures/expenses equal to at least 10 percent of their fund type total and at least 5 percent of the grand total. The General Fund is always a major fund. The City may also select other funds it believes should be presented as major funds on a qualitative basis. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 49 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (c) Major Funds and Other Funds (Continued) The City reported the following major governmental funds in the accompanying financial statements: General Fund – This is the City’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. Capital Projects Fund – This fund accounts for resources used for the acquisition and construction of capital facilities by the City, with the exception of those assets financed by proprietary funds. The City reported the following enterprise funds as major funds in the accompanying financial statements: Water Services Fund – This fund accounts for all financial transactions relating to the City’s water service. Services are on a user‐charge basis to residents and business owners located in the City. Electric Services Fund – This fund accounts for all financial transactions relating to the City’s electric service. Services are on a user‐charge basis to residents and business owners located in the City. Fiber Optics Fund – This fund accounts for all financial transactions relating to the City’s fiber optics service. Services are on a user‐charge basis to licensees located in the City. Gas Services Fund – This fund accounts for all financial transactions relating to the City’s gas service. Services are on a user‐charge basis to residents and business owners located in the City. Wastewater Collection Services Fund – This fund accounts for all financial transactions relating to the City’s wastewater collection service. Services are on a user‐charge basis to residents and business owners located in the City. Wastewater Treatment Services Fund – This fund accounts for all financial transactions relating to the City’s wastewater treatment. Services are on a user‐charge basis to residents and business owners located in the City. Refuse Services Fund – This fund accounts for all financial transactions relating to the City’s refuse service. Services are on a user‐charge basis to residents and business owners located in the City. Storm Drainage Services Fund – This fund accounts for all financial transactions relating to the City’s storm drainage service. Services are on a user‐charge basis to residents and business owners located in the City. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 50 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (c) Major Funds and Other Funds (Continued) The City also reports the following funds: Airport Fund – This non‐major enterprise fund accounts for all financial transactions relating to the Palo Alto Airport (PAO). The City assumed control over operation of PAO from the County of Santa Clara, effective August 11, 2014. Internal Service Funds – These funds account for fleet replacement and maintenance, technology, central duplicating, printing and mailing services, administration of compensated absences and health benefits, and the City’s self‐insured workers’ compensation and general liability programs, all of which are provided to other departments on a cost‐reimbursement basis. Also included is the Retiree Health Benefits Internal Service Fund, which accounts for benefits to retirees. Vehicle Replacement and Maintenance – This fund accounts for the maintenance and replacement of vehicles and equipment used by all City departments. The source of revenue is from reimbursement of fleet replacement and maintenance costs allocated to each department by usage of vehicle. Technology – This fund accounts for replacement and upgrade of technology, and covers four primary areas used by all City departments: desktop, infrastructure, applications, and technology research and development. The source of revenue is from reimbursement of costs for support provided to other departments. Printing and Mailing Services – This fund accounts for central duplicating, printing and mailing services provided to all City departments. The source of revenue for this fund is from reimbursement of costs for services and supplies purchased by other departments. General Benefits – This fund accounts for the administration of compensated absences and health benefits. Workers’ Compensation Insurance Program – This fund accounts for the administration of the City’s self‐insured workers’ compensation program. General Liability Insurance Program – This fund accounts for the administration of the City’s self‐ insured general liability program. Retiree Health Benefits – This fund accounts for retiree health benefits. Fiduciary Funds – These funds account for assets held by the City, an agent for assessment districts, and members of the Cable Joint Powers Authority. These funds are custodial in nature and do not involve measurement of results of operations. The City maintains two agency funds. The financial activities of these funds are excluded from the government‐wide financial statements, but are presented in separate fiduciary fund financial statements. Agency funds apply the accrual basis of accounting but do not have a measurement focus. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 51 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (c) Major Funds and Other Funds (Continued) Cable Joint Powers Authority – This fund accounts for the activities of the cable television system on behalf of the members. University Avenue Area Off‐Street Parking Assessment District – This fund accounts for the receipts and disbursements associated with the 2012 Limited Obligation Refunding Improvement Bonds. (d) Basis of Accounting The government‐wide and proprietary fund financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting. Agency funds do not have a measurement focus but are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The City considers revenues susceptible to accrual reported in the governmental funds to be available if the revenues are collected within ninety days after year‐ end, except for property taxes, which are available if collected within sixty days after year‐end. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long‐term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long‐term debt and acquisitions under capital leases are reported as other financing sources. Revenues susceptible to accrual include taxes, intergovernmental revenues, interest and charges for services. Grant revenues are recognized in the fiscal year in which all eligibility requirements are met. Under the terms of grant agreements, the City may fund certain programs with a combination of cost‐reimbursement grants, categorical block grants, and general revenues. Thus, both restricted and unrestricted net position may be available to finance program expenditures. The City’s policy is to first apply restricted grant resources to such programs, followed by general revenues if necessary. Certain indirect costs are included in program expenses reported for individual functions and activities. Transactions representing the exchange of interfund goods and services have also been included. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 52 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (e) Cash and Cash Equivalents Restricted and unrestricted pooled cash and investments held in the City Treasury, and other unrestricted investments invested by the City Treasurer, are considered cash equivalents for purposes of the statement of cash flows because the City’s cash management pool and funds invested by the City Treasurer possess the characteristics of demand deposit accounts. Other restricted and unrestricted investments with maturities of less than three months at the time of purchase are considered cash equivalents for purposes of the statement of cash flows. (f) Investments The City’s investments are carried at fair value, and its fair value measurements are categorized within the fair value hierarchy established by generally accepted accounting principles. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (g) Inventory of Materials and Supplies Materials and supplies are held for consumption and are valued at average cost. The consumption method is used to account for inventories. Under the consumption method, inventories are recorded as expenditures at the time inventory items are used, rather than purchased. (h) Prepaid items Prepaid items are recorded at cost. Using the consumption method, prepaid items are recorded as expenditures over the period that service is provided. (i) Compensated Absences The liability for compensated absences includes the vested portion of vacation, sick leave, and overtime compensation pay. The City’s liability for accrued compensated absences is recorded in the General Benefits Internal Service Fund. The fund is reimbursed through payroll charges to all other funds. Earned but unpaid vacation and overtime compensation pay are recognized as an expense or expenditure in the proprietary and governmental fund types when earned because the City has provided financial resources for the full amount through its budgetary process. Vested accumulated sick pay is paid in the event of termination due to disability and, under certain conditions, is specified in employment agreements. During the fiscal year ended June 30, 2019, changes to the compensated absences liabilities were as follows (in thousands): Beginning balance 12,058$ Additions 6,473 Payments (6,196) Ending balance 12,335$ Current portion 6,273$ CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 53 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (j) Property Tax Santa Clara County (the County) assesses properties and bills, collects, and distributes property taxes to the City. The County remits the entire amount levied and handles all delinquencies, retaining interest and penalties. The County assesses property values, levies bills and collects taxes as follows: Secured Unsecured Lien Dates January 01 January 01 Levy Dates October 01 July 01 Due Dates 50% on November 01 Upon receipt of billing 50% on February 01 Delinquent after December 10 (for November) August 31 April 10 (for February) The term “unsecured” refers to taxes on personal property other than real estate, land and buildings. These taxes are secured by liens on the property being taxed. Property tax revenues are recognized by the City in the fiscal year they are assessed, provided they become available as defined previously within sixty days after year‐end. (k) Deferred Outflows of Resources and Deferred Inflows of Resources A deferred outflow of resources is the consumption of net position that is applicable to a future reporting period. A deferred inflow of resources is defined as an acquisition of net position applicable to a future reporting period. (l) Pensions and OPEB For purposes of measuring the net pension liability and net OPEB liability, deferred outflows/inflows of resources related to pensions and OPEB, and pension and OPEB expense, information about the fiduciary net position of the City’s pension and OPEB plans and additions to/deductions from the plans’ fiduciary net positions have been determined on the same basis as they are reported by the California Public Employees’ Retirement System (CalPERS) and the California Employer’s Retiree Benefit Trust Fund Program (CERBT). For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. (m) Rounding All amounts included in the basic financial statements and footnotes are presented to the nearest thousand. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 54 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (n) Effects of New Pronouncements As of July 1, 2018, the City implemented the following GASB Statements: In November 2016, the GASB issued Statement No. 83, Certain Asset Retirement Obligations. The statement addresses accounting and financial reporting for certain asset retirement obligations (AROs). An ARO is a legally enforceable liability associated with the retirement of a tangible capital asset. A government that has legal obligations to perform future asset retirement activities related to its tangible capital assets should recognize a liability based on the guidance in this statement. Implementation of this statement did not have a significant impact on the City’s financial statements for the fiscal year ended June 30, 2019. In March 2018, the GASB issued Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements. The objective of this statement is to improve the information that is disclosed in notes to government financial statements related to debt, including direct borrowings and direct placements. It also clarities which liabilities governments should include when disclosing information related to debt. Implementation of this statement is reflected in Note 7 of the City’s Notes to the Basic Financial Statements. The City is currently analyzing its accounting practices to determine the potential impact on the financial statements for the following GASB Statements: In January 2017, the GASB issued Statement No. 84, Fiduciary Activities. The statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities. The statement also provides for recognition of a liability to the beneficiaries in a fiduciary fund when an event has occurred that compels the government to disburse fiduciary resources. The requirements of this statement are effective for the City’s fiscal year ending June 30, 2020. In June 2017, the GASB issued Statement No. 87, Leases. The objective of this statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 55 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (n) Effects of New Pronouncements (Continued) a lease liability and an intangible right‐to‐use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities. The requirements of this statement are effective for the City’s fiscal year ending June 30, 2021. In June 2018, the GASB issued Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period. The objectives of this statement are 1) to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period, and 2) to simplify accounting for interest cost incurred before the end of a construction period. The requirements of this statement are effective for the City’s fiscal year ending June 30, 2021. In August 2018, the GASB issued Statement No. 90, Majority Equity Interests, an amendment of GASB Statements No.14 and No.61. The objectives of this statement are to improve the consistency and comparability of reporting a government’s majority equity interest in a legally separate organization and to improve the relevance of financial statement information for certain component units. The requirements of this statement are effective for the City’s fiscal year ending June 30, 2020. In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations. The objectives of this statement are to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice associated with 1) commitments extended by issuers, 2) arrangements associated with conduit debt obligations, and 3) related note disclosure. The requirements of this statement are effective for the City’s fiscal year ending June 30, 2022. (o) Use of Estimates The accompanying basic financial statements have been prepared on the modified accrual and accrual basis of accounting in accordance with generally accepted accounting principles. This requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 56 NOTE 2 – BUDGETS AND BUDGETARY ACCOUNTING 1. The City Manager submits proposed operating and capital budgets to the City Council for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and the means of financing them. 2. Public hearings are conducted to obtain comments on the proposed budgets. 3. The Budget is approved with the adoption of a budget ordinance for all funds except Agency Funds. 4. Per the Palo Alto Municipal Code, only the City Manager is authorized to reallocate funds from contingency accounts maintained in the General Fund. Additional appropriations to departments in the General Fund, or to total appropriations for all other budgeted funds, or transfers of appropriations between funds, require approval by the City Council. Amendments to budgeted revenue and expenditures are added to or subtracted from the Adopted Budget and the resulting totals are reflected as Final Budget amounts. 5. As defined in the Palo Alto Municipal Code, expenditures may not exceed budgeted appropriations at the department level for the General Fund, and at the fund level for Enterprise, Special Revenue and Debt Service Funds. 6. Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting principles (GAAP), except that unrealized gains or losses on investments, changes in advances to other funds and notes receivable are not recognized on a budgetary basis and encumbrances are treated as budgetary expenditures when incurred. 7. Expenditures for the Capital Projects Fund are budgeted and maintained at a project level for the life of the project. Budget to actual comparisons for these expenditures have been excluded from the accompanying financial statements. NOTE 3 – CASH AND INVESTMENTS The City pools cash from all sources and all funds, except restricted bond proceeds with fiscal agents and Public Agency Retirement Services, and invests its pooled idle cash according to State of California law and the City’s Investment Policy. The basic principles underlying the City’s investment philosophy are to ensure the safety of public funds, ensure that sufficient funds are available to meet current expenditures, and achieve a reasonable rate of return on investments. Policies The City invests in individual investments and in investment pools. Individual investments are evidenced by specific identifiable securities instruments, or by an electronic entry registering the owner in the records of the institution issuing the security, called the book entry system. In order to increase security, the City employs the trust department of a bank as the custodian of certain City managed investments. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 57 NOTE 3 – CASH AND INVESTMENTS (Continued) Classification Cash and investments are classified in the financial statements as shown below, based on whether or not their use is restricted under the terms of City debt instruments or agreements (in thousands): Governmental Business‐Type Fiduciary Activities Activities Funds Total Cash and investments: Available for operations 297,243$ 249,368$ 2,767$ 549,378$ Held with fiscal agents and trustees 56,803 4,016 2,657 63,476 Total cash and investments 354,046$ 253,384$ 5,424$ 612,854$ Investments Authorized by the City’s Investment Policy, Debt Agreements and Trust Agreements The table below summarizes the investment types that are authorized by the California Government Code (Code) and the City’s Investment Policy, and includes the interest rate risk, credit risk and concentration of credit risk as outlined in the Investment Policy. In addition, the table discloses investment of debt proceeds held by bond trustees. These investments are governed by the provisions of each debt agreement of the City, rather than the general provisions of the City’s Investment Policy. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 58 NOTE 3 – CASH AND INVESTMENTS (Continued) Maximum Maturity Minimum Credit Quality Maximum Percentage of Portfolio Maximum Investment in One Issuer U.S. Government Securities 10 years (*) N/A No Limit No Limit U.S. Federal Agency Securities (C) 10 years (*) N/A No Limit (A) No Limit Certificates of Deposit 10 years (*) N/A 20% 10% of the par value of portfolio Bankers Acceptances 180 days (D) N/A (D) 30% $5 million Commercial Paper 270 days A‐1 15% $3 million (B) Local Agency Investment Fund N/A N/A No Limit $50 million per account Short‐Term Repurchase Agreements 1 year N/A No Limit No Limit City of Palo Alto Bonds N/A N/A No Limit No Limit Money Market Mutual Funds N/A N/A (E) No Limit No Limit Mutual Funds (F) N/A N/A 20% 10% Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million Medium‐Term Corporate Notes 5 years AA 10% $5 million 10 years (*) AA/AA2 30% No Limit 5 years AA/AA2 20% 10% of the par value of portfolio (A) (B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution. Debt Agreements: (C) (D) (E) (F) (*)The maximum maturity is based on the Investment Policy that is approved by the City Council and is less restrictive than the California Government Code. Utility Revenue Bonds 2011 Refunding, General Obligation Bonds 2010 and 2013A, and University Avenue Parking Bond 2012 are allowed to invest in the California Asset Management Program. Authorized Investment Type Bonds of State of California Municipal Agencies & Other U.S. States Callable and multi‐step securities are limited to no more than 25% of the par value of the portfolio, provided that: 1) the potential call dates are known at the time of purchase, 2) the interest rates at which they "step‐up" are known at the time of purchase, 3) the entire face value of the security is redeemable at the call date. Utility Revenue Bonds 2011 Refunding and 1999 Refunding allow general obligations of states with a minimum credit quality rating of A2/A by Moody's and Standard & Poor's. Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a minimum credit quality rating of A‐1/P‐1 by Moody's and Standard & Poor's and maturing after no more than 360 days. Utility Revenue Bonds 1995 Series A limit the maximum maturity to 365 days. Water Revenue Bonds 2009 Series A, Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a minimum credit quality rating of AAAm or AAAm‐G by Standard & Poor's. Supranational The City must maintain required amounts of cash and investments with trustees under the terms of certain debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if the City fails to meet its obligations under these debt issues. The Code requires these funds to be invested in accordance with City ordinance, bond indentures or state statute. All of these funds have been invested as permitted under the Code and the investment policy approved by the City Council. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 59 NOTE 3 – CASH AND INVESTMENTS (Continued) The City has implemented investment guidelines for its Public Agencies Retirement Services (PARS) Trust which authorizes the investments in U.S. Treasury securities, federal agencies and U.S. guaranteed obligations, corporate notes, certificates of deposit, bankers’ acceptances, equities investments, and mutual funds. Fair Value Measurements The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs. All of the investments are measured using level 2 inputs, except for investments in money market mutual funds, California Asset Management Program and Local Agency Investment Fund, which are not subject to the fair value hierarchy. Investment securities classified in Level 2 of the fair value hierarchy are valued using prices determined by the use of matrix pricing techniques maintained by the pricing vendors for these securities. Matrix pricing is used to value securities based on the securities relationship to benchmark quoted prices. The following is a summary of the fair value measurements of the City as of June 30, 2019 (in thousands): Type of Investment June 30, 2019 Level 2 Investments by fair value hierarchy U.S. Federal Agency Securities 286,885$ 286,885$ U.S. Treasury Notes 13,504 13,504 Local Government Bonds 128,734 128,734 Negotiable Certificates of Deposit 46,731 46,731 Corporate Bonds 20,308 20,308 Total investments by fair value hierarchy 496,162 496,162$ Investment not subject to fair value hierarchy Bonds Fund: Money Market Mutual Funds 3,069 U.S. Bank Trust Services 46,201 Equity Mutual Funds (Irrevocable for pension) 14,030 California Asset Management Program 3,245 Local Agency Investment Fund 45,901 Total investments not subject to fair value hierarchy 112,446 Total investments measured at fair value 608,608$ Local Agency Investment Fund The City participates in the Local Agency Investment Fund (LAIF) which, under the oversight of the Treasury of the State of California, is regulated by California Government Code Section 16429. LAIF management calculates the fair value and cost of the entire LAIF pool. The City adjusts its cost basis invested in LAIF to fair value based on this ratio. The fair value of the City’s position in the pool is the same as the value of the pool share. The balance available for withdrawal on demand is based on accounting records maintained by LAIF, which are recorded on an amortized cost basis. At June 30, 2019, LAIF had a weighted average maturity of 173 days. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 60 NOTE 3 – CASH AND INVESTMENTS (Continued) Fidelity Institutional Asset Management Money market mutual funds are available for withdrawal on demand and at June 30, 2019, had a weighted average maturity of 20 days. California Asset Management Program The City is a voluntary participant in the California Asset Management Program (CAMP). CAMP is an investment pool offered by the California Asset Management Trust (the Trust). The Trust is a joint powers authority and public agency created by the Declaration of Trust and established under the provisions of the California Joint Exercise of Powers Act (California Government Code Sections 6500 et seq., or the “Act”) for the purpose of exercising the common power of its participants to invest certain proceeds of debt issues and surplus funds. The City’s investments are limited to investments permitted by subdivisions (a) to (n), inclusive, of Section 53601 of the California Government Code. The City reports its investments in CAMP at the fair value amounts provided by CAMP, which is the same as the value of the pool share. At June 30, 2019, the fair value approximated the City’s cost. CAMP had a weighted average maturity of 54 days at June 30, 2019. Interest Rate Risk Interest rate risk is the risk that changes in market interest rates may adversely affect the fair value of an investment. Normally, the longer the maturity of an investment, the greater the sensitivity its fair value is to changes in market interest rates. As of June 30, 2019, the City’s investments consisted of the following (in thousands): Type of Investment Less Than One Year One to Three Years Three to Five Years Over Five Years Total U.S. Federal Agency Securities 36,512$ 68,126$ 72,781$ 109,466$ 286,885$ U.S. Treasury Notes 2,995 1,501 9,008 ‐ 13,504 Local Government Bonds 6,015 39,001 42,079 41,639 128,734 Corporate Bonds 7,739 10,137 2,432 ‐ 20,308 Bond Funds: Money Market Mutual Funds 3,069 ‐ ‐ ‐ 3,069 U.S Bank Trust Services 46,201 ‐ ‐ ‐ 46,201 Equity Mutual Funds (pension trust) 14,030 ‐ ‐ ‐ 14,030 Negotiable Certificates of Deposit 9,044 22,316 14,879 492 46,731 California Asset Management Program 3,214 ‐ ‐ ‐ 3,245 Local Agency Investment Fund 45,901 ‐ ‐ ‐ 45,901 Total Investments 174,720$ 141,081$ 141,179$ 151,597$ 608,608 Cash in bank and on hand 4,246 Total Cash and Investments 612,854$ Maturities Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations At June 30, 2019, the City’s investments (including investments held by bond trustees) include U.S. Federal Agency Callable Securities totaling $128 million. These investments are highly sensitive to interest rate fluctuations (to a greater degree than already indicated in the information provided above) and are subject to early redemption. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 61 NOTE 3 – CASH AND INVESTMENTS (Continued) Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the actual rating as provided by Standard & Poor’s, Moody’s and/or Fitch’s investment rating system as of June 30, 2019, for each investment type (in thousands): Type of Investment Rating Total U.S. Federal Agency Securities AAA 6,749$ AA+ 156,979$ N/A 123,157 Total U.S Federal Agency Securities 286,885 Corporate Bonds AAA 9,986 AA+ 6,916 AA 974 N/A 2,432 Total Corporate Bonds 20,308 Local Government Bonds AAA 56,934 AA+ 34,727 AA 23,941 N/A 13,132 Total Government Bonds 128,734 Money Market Mutual Funds AAAm 3,069 Total Money Market Mutual Funds 3,069 Total Investments 438,996 Not Applicable: U.S. Treasury Notes 13,504 Not Rated: Bond Fund: Union Bank Trust Services 46,201 California Asset Management Program 3,245 Local Agency Investment Fund 45,901 Negotiable Certificates of Deposit 46,731 Equity Mutual Funds 14,030 Cash in bank and on hand 4,246 Total Cash and Investments 612,854$ CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 62 NOTE 3 – CASH AND INVESTMENTS (Continued) Concentration of Credit Risk Investments in any one issuer, other than U.S. Treasury securities, mutual funds, and external investment pools, that represent 5 percent or more of total City portfolio investments are as follows at June 30, 2019 (in thousands): Investments Reporting Type Fair Value at Year‐End Federal Home Loan Bank U.S. Federal Agency Securities 83,281$ Federal Agricultural Mortgage Corporation U.S. Federal Agency Securities 96,488 Federal Farm Credit Bank U.S. Federal Agency Securities 56,869 Custodial Credit Risk California law requires banks and savings and loan institutions to pledge government securities with a market value of 110 percent of the City’s cash on deposit or first trust deed mortgage notes with a value of 150 percent of the deposit as collateral for these deposits. Under California Law, this collateral is considered held in the City’s name and places the City ahead of general creditors of the institution. The City has waived collateral requirements for the portion of deposits covered by federal deposit insurance. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, the City will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The City’s Investment Policy limits its exposure to custodial credit risk by requiring that all security transactions entered into by the City be conducted on a delivery‐versus‐ payment basis. Securities are to be held by a third‐party custodian. NOTE 4 – INTERFUND TRANSACTIONS Transfers Between Funds With Council approval, resources may be transferred from one City fund to another. The purpose of the majority of transfers is to subsidize a fund. Less often, a transfer may be made to open or close a fund. Transfers between City funds during FY 2019 were as follows on the following page (in thousands): CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 63 NOTE 4 – INTERFUND TRANSACTIONS (Continued) Fund Making Transfer Amount Transferred General Fund Nonmajor Governmental Funds 580$ A Electric Services Fund 12,973 B Gas Services Fund 6,601 B Capital Projects Fund General Fund 27,514 C Nonmajor Governmental Funds 5,377 C Water Services Fund 93 C Electric Services Fund 199 C Fiber Optics Fund 15 C Gas Services Fund 85 C Storm Drainage 330 C Wastewater Collection 47 C Nonmajor Governmental Funds General Fund 792 A Capital Projects Fund 18 F Nonmajor Governmental Funds 17 A Water Services Fund 10 A Electric Services Fund 21 A Fiber Optics Fund 2 A Gas Services Fund 9 A Wastewater Collection Fund 5 A Internal Service Funds 24 A Water Services Fund Gas Services Fund 270 C Wastewater Collection Fund 270 C Electric Services Fund General Fund 2,365 D Water Services Fund 426 C Gas Services Fund 316 C Fiber Optics Fund 102 C Internal Service Funds 125 C Internal Service Funds General Fund 6,417 E/F Capital Projects Fund 56 E/F Nonmajor Governmental Funds 13 E/F Water Services Fund 115 E/F Electric Services Fund 277 E/F Fiber Optics Fund 20 E/F Gas Services Fund 119 E/F Wastewater Collection Fund 66 E/F Wastewater Treatment Fund 107 E/F Refuse Services Fund 43 E/F Storm Drainage Services Fund 25 E/F Airport 7 E/F Internal Service Funds 2,294 E/G Total 68,145$ Fund Receiving Transfer CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 64 NOTE 4 – INTERFUND TRANSACTIONS (Continued) The reasons for these transfers are set forth below: (A) Transfer to fund street maintenance activities, to pay debt service, fund City employee parking, and to return unspent project funds. (B) Transfer to fund the return of initial investment made by general fund when utility department was created. (C) Transfers of funds to construct, purchase or maintain capital assets. (D) Transfer to fund electricity costs associated with City streetlight and traffic signal costs. (E) Transfer to fund supplemental pension trust fund. (F) Transfer to fund replacement and maintenance of critical desktop, software, infrastructure, vehicles and equipment. (G) Transfer to fund an implied subsidy for retiree healthcare. Current Interfund Balances Current interfund balances arise in the normal course of business and are expected to be repaid shortly after the end of the fiscal year. At June 30, 2019, the non‐major Downtown Business Development District Special Revenue Fund, the non‐major Federal Revenue Special Revenue Fund, and the Retiree Health Benefits Internal Service Fund owed the General Fund $13 thousand, $93 thousand, and $737 thousand, respectively. Long‐Term Interfund Advance On December 6, 2010, the City Council accepted an Airport Business Plan of the Palo Alto Airport (PAO) and approved creation of the Airport Enterprise Fund to facilitate the transition of PAO control from the County of Santa Clara to the City. The City Council approved six separate general fund advances to the non‐major Airport Fund totaling $3.1 million. All advances bear interest equal to the average return yield on the City’s investment portfolio. The six separate advances have been consolidated and are scheduled to be repaid by June 2034. At June 30, 2019, the outstanding advances was $3.1 million. Internal Balances Internal balances represent the net interfund receivables and payables remaining after the elimination of all such balances within governmental and business‐type activities. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 65 NOTE 5 – NOTES AND LOANS RECEIVABLE At June 30, 2019, the City’s notes and loans receivable totaled (in thousands): Palo Alto Housing Corporation: Tree House Apartments 5,344$ Emerson Street Project 375 Alma Single Room Occupancy Development 2,222 Barker Hotel 2,111 Sheridan Apartments 2,222 Oak Court Apartments, L.P. 7,834 El Dorado Palace LLC 150 Mid‐Peninsula Housing Coalition: Palo Alto Gardens Apartments 100 Community Working Group, Inc.1,280 Opportunity Center Associates, L.P.945 Home Rehabilitation Loans 46 Below Market Rate Assessment Loans 53 Oak Manor Townhouse Water System 114 Lytton Gardens Assisted Living 101 Emergency Housing Consortium 75 Alma Gardens Apartments 1,150 2811‐2825 Alma Street Acquisition 1,890 Palo Alto Family Housing, 801 Alma Street 6,422 Palo Alto Senior Housing Project ‐ Stevenson House, LLC 901 MP Palo Alto Garden, LLC 672 Colorado Park Housing Corporation 204 Buena Vista ‐ County of Santa Clara 14,500 Total Notes and Loans 48,711 Less: Valuation Allowance (14,612) Total Notes and Loans, Net 34,099$ Housing Loans The City engages in programs designed to encourage construction or improvement in low‐to‐moderate income housing or other projects. Under these programs, grants or loans are provided under favorable terms to homeowners or developers who agree to spend these funds in accordance with the City’s terms. These loans have been offset by restricted or committed fund balances, as they are not expected to be repaid immediately. Some of these loans contain forgiveness clauses that provide for the amount loaned to be forgiven if the third party maintains compliance with the terms of the loan and associated regulatory agreements. Since some of these loans are secured by trust deeds that are subordinated to other debt on the associated projects or are only repayable from residual cash receipts on the projects, collectability of some of the outstanding balances may not be realized. As a result of the forgiveness clauses and nature of these housing projects and associated cash flows, a portion of the outstanding balances of the loans has been offset by a valuation allowance. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 66 NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued) Tree House Apartments In March 2009, the City agreed to loan $2.8 million to Tree House Apartments, L.P. (THA) for the purchase of the real property located at 488 West Charleston Road. The loan accrues simple interest at the rate of 3 percent per annum. The loan was funded with $1.8 million of Community Development Block Grant (CDBG) funds and $1.0 million of residential housing funds. An additional development loan in the amount of $2.5 million was approved by the City on October 18, 2010. As of June 30, 2019, the outstanding balance for THA in aggregate is $5.3 million. Principal and interest payments will be deferred, however if the borrower has earned extra income, and if it is acceptable to the other entities providing final permanent sources of funds, payment of interest and principal based on the City’s proportionate share of the project’s residual receipts from net operating income shall be made by the borrower. In no event shall full payment be made by the borrower later than concurrently with the expiration or earlier termination of the loan agreement, which is December 31, 2067. Emerson Street Project On November 8, 1994, the City loaned $375,000 to Palo Alto Housing Corporation (PAHC) for expenses necessary to acquire an apartment complex for the preservation of rental housing for low and very low income households in the City. This loan is collateralized by a second deed of trust. The loan bears interest at 3 percent. Alma Single Room Occupancy Development On December 13, 1996, the City loaned $2.2 million to Alma Place Associates, L.P. for development of a 107‐unit single room occupancy development. This loan bears interest at 3 percent and is collateralized by a subordinated deed of trust. The principal balance is due in 2041. Barker Hotel On April 12, 1994, the City loaned a total of $2.1 million for the preservation, rehabilitation and expansion of a low‐income, single occupancy hotel. This loan was funded by three sources: $400,000 from the Housing In‐Lieu Fund, $1.0 million from HOME Investment Partnership Program Funds, and $670,000 from CDBG funds. All three notes bear no interest and are collateralized by a deed of trust, which is subordinated to private financing. Loan repayments are deferred until 2035. In July 2004, the City agreed to loan up to $41,000 to PAHC to rehabilitate the interior of the Barker Hotel. The loan was funded with CDBG funds and is collateralized by a deed of trust on the property. Annual loan payments are deferred until certain criteria defined in the loan agreement are reached. The loan will be forgiven if the borrower satisfactorily complies with all terms and conditions of the loan agreement. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 67 NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued) Sheridan Apartments On December 8, 1998, the City loaned $2.2 million to PAHC for the purchase and rehabilitation of a 57‐ unit apartment complex to be used for senior and low‐income housing. The loan was funded with $1.6 million in CDBG funds, and $825,000 of Housing In‐Lieu funds. The note is collateralized by a second deed of trust and an affordability reserve account held by PAHC. The loan was amended in June 2017. It will not accrue interest between May 1, 2017 and March 1, 2030. The loan will be forgiven on June 30, 2030 if PAHC uses the funds that would otherwise have been due to the City for another affordable housing project. Oak Court Apartments, L.P. On August 18, 2003, the City loaned $5.9 million to PAHC for the purchase of land. The note bears interest of 5 percent and is secured by a deed of trust. Note payments are due annually after 55 years, or beginning in 2058, unless PAHC elects to extend the note until 2102, as defined in the regulatory agreement. The City also loaned $1.9 million to Oak Court Apartments, L.P. for the construction of a 53‐unit rental apartment complex for low and very low‐income households with children, which was completed in April 2005. The note bears no interest until certain criteria defined in the note are satisfied, at which time the note will bear an interest rate not to exceed 3 percent. The note is secured by a subordinate deed of trust. The principal balance is due in 2060. El Dorado Palace, LLC On June 22, 2015, the City approved a loan to PAHC in the amount of $375,000 to increase the supply of affordable low income housing in the City. The City loaned $52,000 and $13,000 in June 2017 and March 2018, respectively. In February 2019, the City loaned an additional $85,000. The loan bears three percent (3%) interest, however in the event of default will accrue at the lesser of 8% or the highest rate permitted by law. The term of the loan shall expire 55 years unless the City agree to extend an additional 44 years. As of June 30, 2019, the outstanding balance was $150,000. Palo Alto Gardens Apartments On April 22, 1999, the City loaned $1.0 million to Mid‐Peninsula Housing Coalition (the Coalition) for the purchase and rehabilitation of a 155‐unit complex for the continuation of low‐income housing. The loan was funded with $659,000 of CDBG funds and $341,000 of Housing In‐Lieu funds. The two notes bear interest at 3 percent and are secured by second deeds of trust and a City Affordability Reserve Account held by the Coalition. Principal and interest payments began in FY 2008. The principal balance of $100,000 is due in 2039. Community Working Group, Inc. On May 13, 2002, the City loaned $1.3 million to Community Working Group, Inc. for predevelopment, relocation and acquisition of land for development of an 89‐unit complex and homeless service center for very low income households. The loan was funded with $1.3 million of CDBG funds. The note bears no interest and is secured by a first deed of trust. No repayment is required as long as the borrower complies with all terms and conditions of the agreement. After 89 years of compliance with the regulatory agreement, the City’s loan would convert to a grant and its deed of trust would be re‐conveyed. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 68 NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued) Opportunity Center Associates, L.P. On July 19, 2004, the City loaned $750,000 for a 55‐year term to Opportunity Center Associates, L.P. for construction of 89 units of rental housing for extremely low‐income and very low‐income households. The loan was funded with $750,000 of residential housing funds. The note bears 3 percent interest and is secured by a deed of trust. The loan remains outstanding and becomes due at the end of the 55‐year term. During fiscal year 2019, the City received $25,000 in principal payments. On April 17, 2019, the City approved up to an additional $220,000 loan drawn from CDBG for the improvement of rental housing. In February 2019 and April 2019, the City loaned $191,000 and $29,000, respectively. The note bears 3 percent interest, and all payments of interest and principal shall be deferred until July 19, 2103. The loan balance owed as of June 30, 2019 was $945,000. Home Rehabilitation Loans The City administers a closed housing rehabilitation loan program initially funded with CDBG funds. Under this program, individuals with incomes below a certain level are eligible to receive low interest loans for rehabilitation work on their homes. These loans are secured by deeds of trust, which may be subordinated to subsequent encumbrances upon said real property with the prior written consent of the City. The loan repayments may be amortized over the life of the loans, deferred, or a combination of both. Executive Relocation Assistance Loans The City Council may authorize a mortgage loan as part of a relocation assistance package to executive staff. The loans are secured by first deeds of trust, and interest is adjusted annually based on the rate of return of invested funds of the City for the year ended June 30 plus one‐quarter of 1 percent. Principal and interest payments are due bi‐weekly. Employees must pay any outstanding balance on their loans within a certain period after ending employment with the City. The original purchase cost for the City Manager’s home was $1.9 million and the City held a 75 percent equity share. During FY 2011, the Council authorized a capital improvement loan of $125,000. Loans for capital improvements are made on a dollar for dollar matching basis, with an equal equity contribution made by the City Manager. In fiscal year 2019, the former City Manager sold the home and paid off the loan balance. Below Market Rate Assessment Loans In December 2002, the City loaned $53,000 to below market rate homeowners with low incomes and/or very limited assets for capital repairs, special assessments and improvements of their properties. The loans bear interest at 3 percent and are secured by a deed of trust on each property. Loan payments are deferred until 2032. Oak Manor Townhouse Water System On May 12, 2003, the City Council approved an allocation of $114,000 to Palo Alto Housing Corporation Apartments, Inc (PAHCA, Inc) to replace the water pipes. Repayment of the loan will not be required unless the property is sold, the program is terminated or purpose of the program is changed without City’s approval prior to July 1, 2033. The loan for this project is subordinated to the existing City loan with PAHCA, Inc dated January 7, 1991 for the acquisition of the project site, which is discussed earlier in this section. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 69 NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued) Lytton Gardens Assisted Living In June 2005, the City loaned $101,000 to Community Housing, Inc. to upgrade and modernize the existing kitchens at the senior residential facility known as Lytton Gardens Assisted Living. The loan was funded with CDBG funds, and bears simple interest of 3 percent. Principal and interest payments are deferred until July 1, 2035, as long as the borrower continues to comply with all terms and conditions of the agreement. Emergency Housing Consortium In November 2005, the City agreed to loan up to $75,000 to Emergency Housing Consortium to cover architectural expenses that will be incurred in rehabilitating and expanding the property. The loan was funded with CDBG funds, and bears simple interest of 3 percent. Principal and interest payments are deferred until July 1, 2035, as long as the borrower continues to comply with all terms and conditions of the agreement. Alma Garden Apartments In March 2006, the City agreed to loan up to $1.2 million to Community Working Group, Inc. to acquire a 10‐unit multi‐family housing complex known as Alma Garden Apartments. The loan was funded with CDBG funds. Principal and interest payments are deferred until July 1, 2061 as long as the borrower complies with all terms and conditions of the agreement. 2811‐2825 Alma Street Acquisition On October 9, 2011, the City agreed to loan $1.3 million to PAHC to acquire properties on Alma Street for the purpose of developing an affordable rental housing project. On June 29, 2015, the City loaned PAHC an additional $0.6 million, and entered into an Amended and Restated Acquisition and Development Agreement which combined the two loans for a total loan of $1.9 million. The loan term expires on December 8, 2066 with an option to extend the term for an additional 44 years. The loan bears simple interest of 3 percent, however in the event of default interest will accrue at the lesser of 8 percent or the highest rate permitted by law. Principal and interest payments are payable during the term of the agreement on a “residual receipt” basis as described in the agreement. All principal and interest is due in the event of an unauthorized transfer, a default or the expiration of the term. As of June 30, 2019, the outstanding balance was $1.9 million. Palo Alto Family Housing, 801 Alma Street On February 14, 2011, the City agreed to loan Palo Alto Family, LP up to $9.3 million for the purposes of predevelopment expenses and acquiring certain real property for the Alma Street Affordable Multi‐Family Rental Housing Project. The loan bears simple interest of 3 percent. Principal and interest are due and payable during the term of the agreement on a “residual receipt” basis as described in the agreement. Except in the case of default, all remaining principal and interest shall be payable on the Restriction Termination Date as defined in the agreement. As of June 30, 2019, the outstanding amount is $6.4 million. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 70 NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued) Palo Alto Senior Housing Project On October 1, 2015, the City entered into an affordable housing fund loan agreement with PASHPI Stevenson House LP, a California limited partnership, in the principal amount of $1 million to assist in the rehabilitation of the Stevenson House. The loan bears simple interest of 3 percent. As of June 30, 2019, the loan outstanding balance is $901,000 and is due at the end of the 55‐year term. MP Palo Alto Garden, LLC The City loaned $619,000 and $53,000 in March 2017 and October 2017, respectively, in CDBG funds for the rehabilitation of the property. The note bears 3% simple interest and shall be deferred until April 24, 2054. If there are no Events of Default prior to the end of the terms, the unpaid principal and interest will be treated as a grant and no repayment will be due to the City. Colorado Park Housing Corporation On September 8, 2014, the City entered into an affordable housing fund loan agreement with Colorado Park Housing Corporation (CPHC), a California nonprofit public benefit corporation, in the principal amount of $204,000. The loan bears no interest except in the event of default. The principal and any accrued interest is due and payable on the earlier of (a) expiration of the term, or (b) a default by CPHC which has not been cured as provided for in the agreement. Buena Vista Mobile Home Park – Santa Clara County In September 2017, the City entered into an agreement with the Santa Clara County Housing Authority (SCCHA) for the acquisition of Buena Vista Mobile Home Park. The City loaned SCCHA $14.5 million for the acquisition. The City is entitled to twenty six percent of all residual receipts. Interest for the promissory note is 3% simple interest. Principal and interest payments will commence on September 30, 2019 and the note and all interest is payable in full on September 29, 2092. As of June 30, 2019, the loan balance is $14.5 million. NOTE 6 – CAPITAL ASSETS Valuation Capital assets are valued at historical cost if purchased or constructed. Donated capital assets, donated works of art and similar items, and capital assets received in a service concession arrangement are recorded at acquisition value at the time received. The City’s policy is to capitalize all assets when costs are equal to or exceed $5,000 and the useful life exceeds one year. Infrastructure assets are capitalized when costs are equal to or exceed $100,000. Proprietary fund capital assets are recorded at cost including significant interest costs incurred under restricted tax‐exempt borrowings, which finance the construction of capital assets. These interest costs, net of interest earned on investment of proceeds of such borrowings, are capitalized and added to the cost of capital assets during the construction period. Maintenance and repairs are expensed as incurred. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 71 NOTE 6 – CAPITAL ASSETS (Continued) The City has recorded all its public domain capital assets, consisting of roadway and recreation and open space, in its government‐wide financial statements. GASB Statement No. 34 requires that all capital assets with limited useful lives be depreciated over their estimated useful lives. Alternatively, the “modified approach” may be used for certain capital assets. Depreciation is not provided under this approach, but all expenditures on these assets are expensed unless they are additions or improvements. The City has elected to use the depreciation method for its capital assets. The purpose of depreciation is to spread the cost of capital assets equitably among all users over the life of those assets. The amount charged to depreciation expense each year represents that year’s pro rata share of the cost of capital assets. Depreciation of capital assets is charged as an expense against operations each year and the total amount of depreciation taken over the years, called accumulated depreciation, is reported on the statement of net position as a reduction in the book value of capital assets. Depreciation is calculated using the straight line method, which means the cost of the asset is divided by its expected useful life in years, and the result is charged to expense each year until the asset is fully depreciated. The City has assigned the useful lives listed below to capital assets. Governmental Activities Years Buildings and structures 20 ‐ 30 Equipment: Computer equipment 3 ‐ 5 Office machinery and equipment 5 Machinery and equipment 5 ‐ 30 Intangible assets ‐ software 5‐20 Roadway network: 5 ‐ 40 Recreation and open space network: 25 ‐ 40 Business‐type Activities Buildings and structures 25 ‐ 60 Vehicles and heavy equipment 3 ‐ 10 Machinery and equipment 10 ‐ 50 Transmission, distribution and treatment systems 10 ‐ 100 Includes pavement, striping and legends, curbs, gutters and sidewalks, parking lots, traffic signage, and bridges Includes major park facilities, park trails, bike paths and medians CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 72 NOTE 6 – CAPITAL ASSETS (Continued) General Capital Assets Changes in the City’s general capital assets during the year ended June 30, 2019 were (in thousands): Balance Balance July 1, 2018 Additions Retirements Transfers June 30, 2019 Governmental activities Nondepreciable capital assets: Land and improvements 78,481$ ‐$ (906)$ ‐$ 77,575$ Street trees 14,762 82 (124) ‐ 14,720 Intangible assets ‐ Easement 3,567 ‐ ‐ ‐ 3,567 Construction in progress 69,343 39,018 (2,549) (1,347) 104,465 Total nondepreciable capital assets 166,153 39,100 (3,579) (1,347) 200,327 Depreciable capital assets: Buildings and structures 246,466 ‐ (510) 1,318 247,274 Intangible assets ‐ Software 279 ‐ ‐ ‐ 279 Equipment 12,571 ‐ ‐ 29 12,600 Roadway network 334,330 ‐ ‐ ‐ 334,330 Recreation and open space network 35,186 ‐ ‐ ‐ 35,186 Total depreciable capital assets 628,832 ‐ (510) 1,347 629,669 Less accumulated depreciation: Buildings and structures (91,534) (7,277) 154 ‐ (98,657) Intangible assets ‐ Software (279) ‐ ‐ ‐ (279) Equipment (7,860) (516) ‐ ‐ (8,376) Roadway network (155,990) (7,789) ‐ ‐ (163,779) Recreation and open space network (13,359) (1,254) ‐ ‐ (14,613) Total accumulated depreciation (269,022) (16,836) 154 ‐ (285,704) Depreciable capital assets, net 359,810 (16,836) (356) 1,347 343,965 Internal service fund capital assets Construction in progress 1,873 3,620 ‐ (2,963) 2,530 Equipment 61,569 17 (2,242) 2,963 62,307 Less accumulated depreciation (41,664) (3,500) 2,138 ‐ (43,026) Net internal service fund capital assets 21,778 137 (104) ‐ 21,811 Governmental activities capital assets, net 547,741$ 22,401$ (4,039)$ ‐$ 566,103$ CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 73 NOTE 6 – CAPITAL ASSETS (Continued) Business‐type Capital Assets Changes in the City’s enterprise fund capital assets during the year ended June 30, 2019 were (in thousands): Balance Balance July 1, 2018 Additions Retirements Transfers June 30, 2019 Business‐type activities Nondepreciable capital assets: Land and improvements 4,973$ ‐$ ‐$ ‐$ 4,973$ Construction in progress 153,404 57,332 ‐ (52,750) 157,986 Total nondepreciable capital assets 158,377 57,332 ‐ (52,750) 162,959 Depreciable capital assets: Buildings and structures 59,895 ‐ (9) 8,436 68,322 Capital Leases 531 ‐ ‐ ‐ 531 Infrastructure 633 ‐ ‐ ‐ 633 Transmission, distribution and treatment systems 779,286 636 (1,787) 44,314 822,449 Total depreciable capital assets 840,345 636 (1,796) 52,750 891,935 Less accumulated depreciation: Buildings and structures (13,597) (1,215) ‐ ‐ (14,812) Infrastructure (23) (21) ‐ ‐ (44) Transmission, distribution and treatment systems (348,388) (19,627) 1,498 ‐ (366,517) Total accumulated depreciation (362,008) (20,863) 1,498 ‐ (381,373) Depreciable capital assets, net 478,337 (20,227) (298) 52,750 510,562 Business‐type activities capital assets, net 636,714$ 37,105$ (298)$ ‐$ 673,521$ Capital Asset Contributions Some capital assets may be acquired using federal and state grant funds, or they may be contributed by developers or other governments. Generally accepted accounting principles require that these contributions be accounted for as revenues at the time the capital assets are contributed. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 74 NOTE 6 – CAPITAL ASSETS (Continued) Depreciation Allocation Depreciation expense was charged to functions and programs based on their usage of the related assets. The amount allocated to each function or program is as follows (in thousands): Governmental Activities Business‐type Activities City Manager 19$ Water 2,832$ City Attorney 1 Electric 8,271 City Clerk 4 Fiber Optics 377 City Auditor 1 Gas 3,241 Administrative Services 4 Wastewater Collection 2,209 Community Services 3,202 Wastewater Treatment 2,868 Public Safety 346 Refuse 116 Public Works 10,557 Storm Drainage 928 Planning and Community Environment 331 Airport 21 Library 2,371 20,863$ Internal Service Funds 3,500 20,336$ CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 75 NOTE 6 – CAPITAL ASSETS (Continued) Construction In Progress Construction in progress as of June 30, 2019 is comprised of the following (in thousands): Governmental Activities Expended to June 30, 2019 Charleston/Arastradero Corridor 9,180$ Bicycle Boulevards Implementation Project 9,055 New California Ave Area Parking Garage 8,843 Fire Station No. 3 Replacement Design 8,365 Lucie Stern Buildings Mech/Electrical Improvements 6,354 Highway 101 Pedestrian/Bicycle Overpass 5,243 New Public Safety Building 5,241 Traffic Signal Upgrades 4,456 Transportation and Parking Improvements 2,662 Baylands Interpretive Center & Boardwalk Improvement 2,283 Rinconada Park Improvement 2,270 Railroad Grade Separation 2,132 Downtown Mobility & Safety Improvements 1,985 Safe Routes To School 1,736 Telephone Infrastructure and Network 1,617 Curb & Gutter Repairs 1,562 CalTrain Corridor Video Management System Installation 1,516 Cubberley Roof Replacement 1,481 New Downtown Parking Garage 1,434 Benches/Signage/Fencing/Walkways 1,340 Newell Road Bridge/SFC Bridge Replacement 1,286 Quarry Road 1,282 Parks Master Plan 1,254 Roofing Replacement 1,082 Baylands Interpretive Center Improvements 1,078 City Facility Parking Lot Maintenance 1,067 JMZ Renovation 1,060 VRF 913 Embarcadero Corridor Improvements 872 Residential Preferential Parking 838 Parks & Open Space Emergency Repairs 813 Street Lights Improvements 721 Other Construction In Progress 15,974 Total Governmental Activities Construction In Progress 106,995$ Business‐type Activities Expended to June 30, 2019 Water system extension replacements and improvements 20,551$ Sewer system rehabilitation and extensions 15,982 Gas system extension replacements and improvements 13,520 Storm drainage structural and water quality improvements 11,341 Electric distribution system improvements 11,153 Water quality control plant equipment replacement and lab facilities 1,682 Fiber optic system improvements 1,592 Other construction in progress 82,165 Total Business‐type Activities Construction In Progress 157,986$ CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 76 NOTE 6 – CAPITAL ASSETS (Continued) Construction In Progress Allocations of business‐type activity administration and general expenses of $12.0 million have been capitalized and included in amounts expended to June 30, 2019. Major governmental capital projects that are currently in progress, and the remaining capital commitment of each, are as follows: New Cal Ave Area Parking Garage ‐ $40.2 million New Downtown Parking Garage – $27.0 million Highway 101 Pedestrian/Bicycle Overcrossing ‐ $13.3 million Bicycle Boulevards Implementation Project ‐ $9.2 million Embarcadero Road Corridor Improvements ‐ $6.3 million Major business‐type capital projects that are currently in progress, and the remaining capital commitment of each, are as follows: Water Main Replacement for Water fund ‐ $7.1 million Wastewater Collection Fund Rehabilitation/Augmentation ‐ $4.6 million Airport Apron Reconstruction Project ‐ $7.7 million Vehicle Registration Fees (VRF) In FY 2019, the City received VRF funds from the Santa Clara Valley Transportation Authority and expended the full amount on capital expenditures for the Overlay Resurfacing Project (PE‐86070): Starting VRF balance July 1, 2018 ‐$ VRF revenue 429,419 VRF interest 3,488 VRF expense (432,907) Ending VRF balance June 30, 2019 ‐$ CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 77 NOTE 7 – LONG‐TERM DEBT Bond premiums and discounts of long‐term debt issues are amortized over the life of the related debt. The City’s long‐term debt issues and transactions, other than special assessment debt discussed in Note 8, are as follows (in thousands): Original Balance Balance Current Issue Amount July 1, 2018 Additions Retirements June 30, 2019 Portion Governmental Activities Debt: 2010 General Obligation Bonds, 3.25% ‐ 5%, due 08/01/2040 55,305$ 45,810$ ‐$ 1,225$ 44,585$ 1,290$ 2013A General Obligation Bonds, 2 ‐ 5%, due 08/01/2041 20,695 16,330 ‐ 415 15,915 435 2018 Captial Improvement Project and Refinancing Certficates of Participation, 2.2%‐ 4.22%, due 11/1/2047 8,970 8,970 ‐ 35 8,935 180 2019 California Ave Parking Garage Certficates of Participation, Series A & B 2.5%‐5%, due 11/1/2048 37,370 ‐ 37,370 ‐ 37,370 375 Add: Unamortized Premium ‐ 3,610 4,927 206 8,331 351 Total Bonds and Certificates 122,340 74,720 42,297 1,881 115,136 2,631 Direct Borrowing: 2011 Lease‐Purchase Agreement 3,222 426 ‐ 426 ‐ ‐ Total Governmental Activities Debt 125,562$ 75,146$ 42,297$ 2,307$ 115,136$ 2,631$ Original Issue Amount Balance July 1, 2018 Additions Retirements Balance June 30, 2019 Current Portion Business‐type Activities Debt: Utility Revenue Bonds 1995 Series A, 5.00‐6.25%, due 06/01/2020 8,640$ 1,250$ ‐$ 605$ 645$ 645$ 1999 Refunding, 5.125‐5.25%, due 06/01/2024 17,735 8,245 ‐ 775 7,470 810 2009 Series A, 1.80‐5.95%, due 06/01/2035 35,015 27,720 ‐ 1,080 26,640 1,130 2011 Refunding, 3‐4%, due 06/01/2035 17,225 10,185 ‐ 1,125 9,060 1,170 Add: Unamortized Premium ‐ 630 ‐ 70 561 ‐ Energy Tax Credit Bonds 2007 Series A, 0%, Due 12/15/2021 1,500 400 ‐ 100 300 100 Less: Unamortized Discount ‐ (22) ‐ (6) (16) ‐ Total Bonds 80,115 48,408 ‐ 3,749 44,660 3,855 State Water Resources Loans Direct Borrowings: 2007, 1.02%, due 06/30/2029 9,000 4,950 ‐ 450 4,500 450 2009, 2.6%, due 11/30/2030 8,500 6,064 ‐ 398 5,666 408 2017, 1.8%, due 3/30/2049 29,684 6,697 12,725 ‐ 19,422 578 Total Direct Borrowings 47,184 17,711 12,725 848 29,588 1,436 Total Business‐type Activities Debt 127,299$ 66,119$ 12,725$ 4,597$ 74,248$ 5,291$ CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 78 NOTE 7 – LONG‐TERM DEBT (Continued) Description of Long‐Term Debt Issues 2010 General Obligation Bonds (2010 GO Bonds) – On June 30, 2010, the City issued $55.3 million of 2010 GO Bonds to finance costs for constructing a new Mitchell Park Library and Community Center, and to fund substantial improvements to the Rinconada Library and the Downtown Library. Principal payments are due annually on August 1 and interest payments semi‐annually on February 1 and August 1 and are payable from property tax revenues. The true interest cost (TIC) is 4.21 percent. On June 28, 2016, the City defeased $2.3 million of 2010 GO Bonds using funds from bond premiums received at time of issue by depositing the amount in an irrevocable trust account. The trust account assets and the liability for the defeased bonds are not included in the City’s financial statements. The City legally remains the primary obligor on the $2.3 million of defeased bonds until they are paid on August 1, 2020. 2013A General Obligation Bonds (2013A GO Bonds) – On June 30, 2013, the City issued $20.7 million of 2013A GO Bonds to finance costs for constructing a new Mitchell Park Library and Community Center, as well as making substantial improvements to the Rinconada Library and the Downtown Library. Principal payments are due annually on August 1 and interest payments semi‐annually on February 1 and August 1 from 2 percent to 5 percent, and are payable from property tax revenues. The TIC is 3.85 percent. On June 28, 2016, the City defeased $2.8 million of 2013A GO Bonds using funds remaining at completion of the project by depositing the amount in an irrevocable trust account The trust account assets and the liability for the defeased bonds are not included in the City’s financial statements. The City legally remains the primary obligor on the $2.8 million of defeased bonds until they are paid on August 1, 2023. The City’s 2010 and 2013A GO Bonds are general obligations of the City, secured and payable solely from ad valorem property taxes levied by the City and collected by the County of Santa Clara. The City is empowered and obligated to annually levy ad valorem taxes for the payment of the Bonds and the interest thereon upon all property within the City subject to taxation by the City, without limitation of rate or amount (except certain personal property which is taxable at limited rates) until the final maturity dates of the bonds on August 1, 2040 and August 1, 2041 respectively. For the fiscal year ended June 30, 2019, the City received $4.4 million in ad valorem property taxes for principal of $1.6 million and interest of $2.8 million for the 2010 and 2013A GO Bonds. 2018 Capital Improvement (“Golf Course”) Project and Refinancing Certificates of Participation (2018 COPs) – On June 1, 2018, the City issued taxable COPs of $9.0 million for the renovation of the Palo Alto Municipal Golf Course ($8.4 million) and to fully refinance the 2002B COPs ($0.6 million). There are two semi‐annual debt service payments, consisting of principal payments due annually on November 1 and interest payments due on May 1 and November 1, which are payable solely from and secured by the lease payments to be made by the City’s General Fund to the Public Improvement Corporation pursuant to the Lease Agreement. The leased property is the Palo Alto University Fire Station 1. The 2018 COPs has a final maturity date of November 1, 2047. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 79 NOTE 7 – LONG‐TERM DEBT (Continued) 2019 California Avenue Parking Garage Series A and B Certificates of Participation (2019A and 2009B COPs) – On March 21, 2019, the City issued tax exempt 2019A COPs of $26.8 million and taxable 2019B COPs of $10.6 million for the construction of the California Avenue Parking Garage. There are two semi‐ annual debt service payments, consisting of principal payments due annually on November 1 and interest payments due on May 1 and November 1. The debt service is payable solely from and secured by the lease payments to be made by the City’s General Fund to the Public Improvement Corporation pursuant to the Lease Agreement. The leased property is the Rinconada Library and after construction and the substantial readiness of the California Avenue Parking Garage project, the garage will become the leased property. The maturity dates and TIC for 2019A COPs are November 2044 and 3.51 percent, respectively, and 2019B COPs are November 2048 and 4.32 percent, respectively, with a combined rate of 3.75 percent. The reserve account requirement was waived due to the City being a highly rated bond issuer. Direct Borrowing ‐ 2011 Lease‐Purchase Agreement – On August 2, 2011, the City entered into a master lease‐purchase direct private placement agreement with JP Morgan Chase Bank, N.A. to finance redemption of the 1998 Golf Course COPs. The lease is secured by a first priority security interest in twenty‐one Fire Department emergency vehicles. Lease proceeds were $3.2 million. Principal payments are due annually on September 1 and interest payments are due semi‐annually on September 1 and March 1 at a rate of 2.49 percent, payable from General Fund revenues. As of June 30, 2019, all principal and interest payments for the lease‐purchase agreement have been made by the City and the outstanding balance is $0. 1995 Utility Revenue Bonds, Series A – The City issued $8.6 million of Utility Revenue Bonds on February 1, 1995 to finance certain extensions and improvements to the City’s Storm Drainage and Surface Water System. The Bonds are special obligations of the City payable solely from and secured by a pledge of and lien upon the revenues derived by the City from the funds, services and facilities of all Enterprise Funds except the Refuse Services Fund, Fiber Optics Fund and Airport Fund. Principal payments are payable annually on June 1 and interest payments semi‐annually on June 1 and December 1. As required by the Indenture, the City established a debt service reserve fund for the Bonds (the “Reserve Account”), with a minimum funding level requirement in the Reserve Account (the “Reserve Requirement”). At the time it issued the Bonds, the City satisfied the Reserve Requirement with a deposit into the Reserve Account of a surety bond (the “Surety Bond”) in the amount of $685,340 issued by Ambac Indemnity Corporation (renamed to Ambac Assurance Corporation in 1997). CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 80 NOTE 7 – LONG‐TERM DEBT (Continued) The pledge of future Net Revenues for the above bonds ends upon repayment of the $0.6 million principal and $0.1 million interest as the remaining debt service on the bonds, which is scheduled to occur in FY 2020. For FY 2019, Net Revenues, including operating revenues and non‐operating interest earnings, amounted to $316.1 million; operating costs, including operating expenses but not interest, depreciation or amortization, amounted to $227.8 million. Net Revenues available for debt service amounted to $88.3 million, which represented coverage of 129.3 times over the $0.7 million in debt service. 1999 Utility Revenue and Refunding Bonds – The City issued $17.7 million of Utility Revenue Bonds on June 1, 1999, to refund the 1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue Bonds, Series A, and to finance rehabilitation of two Wastewater Treatment sludge incinerators. The 1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue Bonds, Series A, were subsequently retired. The 1999 Bonds are special obligations of the City payable solely from and secured by a pledge of and lien upon certain net revenues derived by the City’s sewer system and its storm and surface water system (the “Storm Drain System”). As of June 30, 2001, the 1999 Bonds had been allocated to and were repayable from net revenues of the following enterprise funds: Wastewater Collection (10.2 percent), Wastewater Treatment (64.6 percent) and Storm Drainage (25.2 percent). Principal payments are payable annually on June 1 and interest payments semi‐annually on June 1 and December 1. A $3.1 million 5.3 percent term bond and a $5.1 million 5.3 percent term bond are due June 1, 2021 and 2024, respectively. As required by the Indenture, the City established a Reserve Account with a Reserve Requirement. At the time it issued the Bonds, the City satisfied the Reserve Requirement with a deposit into the Reserve Account of a Surety Bond in the amount of $1,647,300 issued by Ambac Indemnity Corporation (renamed to Ambac Assurance Corporation in 1997). The pledge of future Net Revenues for the above bonds ends upon repayment of the $7.5 million principal and $1.3 million interest as the remaining debt service on the bonds, which is scheduled to occur in FY 2024. For FY 2019, Net Revenues, including operating revenues and non‐operating interest earnings, amounted to $56.5 million; operating costs, including operating expenses but not interest, depreciation or amortization, amounted to $41.9 million. Net Revenues available for debt service amounted to $14.6 million, which represents coverage of 12.1 times over the $1.2 million in debt service. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 81 NOTE 7 – LONG‐TERM DEBT (Continued) 2009 Water Revenue Bonds, Series A – On October 6, 2009, the City issued $35.0 million of Water Revenue Bonds to finance certain improvements to the City’s water utility system. Principal payments are due annually on June 1, and interest payments are due semi‐annually on June 1 and December 1 from 1.80 percent to 5.95 percent. The 2009 Revenue Bonds are secured by net revenues generated by the Water Services Fund. The 2009 Bonds were issued as bonds designated as “Direct Payment Build America Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (“Build America Bonds”). The City expects to receive a cash subsidy payment from the United States Treasury equal to 35 percent of the interest payable on the 2009 Bonds. The lien of the 1995 Bonds on the Net Revenues is senior to the lien on Net Revenues securing the 2009 Bonds and the 2011 Bonds. The City received subsidy payments amounting to $488 thousand, which represents 32.8 percent of the interest payments due on December 1 and June 1. The pledge of future Net Revenues for the above bonds ends upon repayment of the $26.6 million principal and $14.4 million interest as the remaining debt service on the bonds, which is scheduled to occur in FY 2035. For FY 2019, Net Revenues, including operating revenues and non‐operating interest earnings, amounted to $47.7 million; operating costs, including operating expenses but not interest, depreciation or amortization, amounted to $36.0 million. Net Revenues available for debt service amounted to $11.7 million, which represented coverage of 4.6 times over the $2.6 million in debt service. 2011 Utility Revenue Refunding Bonds – On September 8, 2011, the City issued $17.2 million in Lease Revenue Bonds (2011 Bonds) to refund the outstanding 2002 Series A Utility Revenue Bonds (2002 Bonds) on a current basis. The 2002 Bonds were issued to finance improvement to the City’s municipal water utility system and the natural gas utility system. Principal of the 2011 Bonds is payable annually on June 1, and interest on the 2011 Bonds is payable semi‐annually on June 1 and December 1. The 2011 Bonds are secured by net revenues generated by the Water Services and Gas Services Funds. The TIC is 2.28 percent. The pledge of future Net Revenues of the above bonds ends upon repayment of the $9.0 million principal and $1.1 million interest as remaining debt service on the bonds, which is scheduled to occur in FY 2026. For FY 2019, Net Revenues, including operating revenues and non‐operating interest earnings, amounted to $91.2 million; operating costs, including operating expenses but not interest, depreciation or amortization, amounted to $63.4 million. Net Revenues available for debt service amounted to $27.8 million, which represented coverage of 19.2 times over the $1.5 million in debt service. 2007 Electric System Clean Renewable Energy Tax Credit Bonds, Series A – In October 2007, the City issued $1.5 million of Electric Utility Clean Renewable Energy Tax Credit Bonds (CREBs), 2007 Series A, to finance the City’s photovoltaic solar panel project. The CREBs do not bear interest. In lieu of receiving periodic interest payments, bondholders are allowed annual federal income tax credits in an amount equal to a credit rate for such CREBs multiplied by the outstanding principal amount of the CREBs owned by the bondholders. The CREBs are payable solely from and secured solely by a pledge of the Net Revenues of the Electric system and the other funds pledged under the Indenture. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 82 NOTE 7 –LONG‐TERM DEBT (Continued) The pledge of future Electric Fund Net Revenues ends upon repayment of the $0.3 million remaining debt service on the bonds, which is scheduled to occur in FY 2022. For FY 2019, Net Revenues, including operating revenues and non‐operating interest earnings, amounted to $168.5 million; operating costs, including operating expenses but not interest, depreciation or amortization, amounted to $122.6 million. Net Revenues available for debt service amounted to $45.9 million, which represented coverage of 458.7 times over the $0.1 million in debt service. Direct Borrowing ‐ 2007 State Water Resources Loan – In October 2007, the City approved a $9 million direct loan agreement with State Water Resources Control Board (SWRCB) to finance the City’s Mountain View/Moffett Area reclaimed water pipeline project. Under the terms of the contract, the City has agreed to repay $9 million to the State in exchange for receiving $7.5 million in proceeds to be used to fund the Project. The difference of $1.5 million between the repayment obligation and proceeds represents in‐ substance interest on the outstanding balance. Principal payments are payable annually on June 30. Concurrently with the loan, the City entered into various other agreements including a cost sharing arrangement with the City of Mountain View. Pursuant to that agreement, City of Mountain View agreed to finance a portion of the project with a $6.0 million loan repayable to the City. This loan has been recorded as “Due from other government agencies” in the accompanying financial statements. The balance due to the City at June 30, 2019 was $3.0 million. Direct Borrowing ‐ 2009 State Water Resources Loan – In October 2009, the City approved an $8.5 million direct loan agreement with SWRCB to finance the City’s Ultraviolet Disinfection project. Principal and interest payments are payable annually on November 30. The loan interest rate is 2.60 percent which represents a combination of loan service charge and interest. Direct Borrowing ‐ 2017 State Water Resources Loan ‐ In June 2017, the SWRCB and the City executed a direct loan agreement for an award up to $30 million, payable over 30 years to finance the replacement of sewage sludge “bio‐solids” incinerators at the City’s Regional Water Quality Control Plant (RWQCP). In September 2017, due to the projected lower project costs, the agreement was amended to a lower loan amount of $29.7 million. Under the terms of the contract, a portion of the loan amount, $4.0 million, is federally funded and has been adjusted to reflect the correct long term obligation balance. The loan interest rate is 1.80 percent. The new facility will dewater the bio‐solids and allow the material to be loaded onto trucks and taken to a separate facility for further treatment. The RWQCP provides treatment and disposal for wastewater for Palo Alto, Mountain View, Los Altos, Los Altos Hills, East Palo Alto Sanitary District, and Stanford University. Though Palo Alto is the recipient of the loan, the City’s agreement with the partner agencies oblige them to pay their proportionate share of the principal and interest of this loan. Palo Alto’s share of the loan payment is 38.2 percent with the partner agencies paying 61.8 percent. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 83 NOTE 7 – LONG‐TERM DEBT (Continued) Debt Service Requirements (in thousands): Debt service requirements are shown below for all long‐term debt. For the Year Ending June 30 Principal Interest Total Principal Interest Total Principal Interest Total 2020 2,280$ 5,026$ 7,306$ 3,855$ 2,153$ 6,008$ 1,436$ 498$ 1,934$ 2021 2,595 4,740 7,335 4,030 1,982 6,012 1,532 541 2,073 2022 2,695 4,640 7,335 4,215 1,797 6,012 1,563 562 2,125 2023 2,795 4,535 7,330 4,300 1,616 5,916 1,582 542 2,124 2024 2,910 4,413 7,323 4,485 1,427 5,912 1,606 518 2,124 2025‐2029 16,720 19,874 36,594 10,595 5,137 15,732 8,408 2,215 10,623 2030‐2034 21,050 15,426 36,476 10,215 2,607 12,822 5,129 1,577 6,706 2035‐2039 26,285 10,053 36,338 2,420 144 2,564 4,438 1,157 5,595 2040‐2044 17,060 4,337 21,397 ‐ ‐ ‐ 3,894 743 4,637 2045‐2049 12,415 1,354 13,769 ‐ ‐ ‐ ‐ ‐ ‐ Total 106,805$ 74,398$ 181,203$ 44,115$ 16,863$ 60,978$ 29,588$ 8,353$ 37,941$ Governmental Activities Bonds Direct Borrowings Business‐Type Activities Debt Call Provisions Long‐term debt as of June 30, 2019 is callable on the following terms and conditions: Initial Call Date Governmental Activities Long‐Term Debt 2010 General Obligation Bonds $6.595 million due 08/01/2032 08/01/31 (2) $4.890 million due 08/01/2034 08/01/33 (2) $17.725 million due 08/01/2040 08/01/35 (2) Business‐Type Activities Long‐Term Debt Utility Revenue Bonds 1999 Refunding 06/01/09 (1) 2011 Refunding 06/01/21 (1) (1) Callable in inverse numerical order of maturity at par plus a premium of 2 percent beginning on the initial call date. The call price declines subsequent to the initial date. (2) Callable in any order specified by the City at par value plus any accrued interest beginning on the initial call date. Leasing Arrangements COPs and Capital Leases are issued for the purpose of financing the construction or acquisition of projects defined in each leasing arrangement. Projects are leased to the City for lease payments which, together with unspent proceeds of the leasing arrangement, will be sufficient to meet the debt service obligations of the leasing arrangement. At the termination of the leasing arrangement, title to the project will pass to the City. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 84 NOTE 7 – LONG‐TERM DEBT (Continued) Leasing arrangements are similar to debt in that they allow investors to participate in a share of guaranteed payments made by the City. Because they are similar to debt, the present value of the total payments to be made by the City is recorded as long‐term debt. The City’s leasing arrangements are included in long‐term obligations discussed above. Events of Default and Acceleration Clauses Generally, the City is considered to be in default if the City fails to pay the principal of and interest on the outstanding long‐term debt when become due and payable. If an event of default has occurred and is continuing, the principal of the long‐term debt, together with the accrued interest, may be declared due and payable immediately. NOTE 8 – SPECIAL ASSESSMENT DEBT Special Assessment Debt with no City Commitment On February 29, 2012, the University Avenue Area Off‐Street Parking Assessment District issued Limited Obligation Refunding Improvement Bonds (2012 Bonds), but the City has no legal or moral liability with respect to the payment of this debt, which is secured only by assessments on properties in this District. Therefore, this debt is not included in Governmental Activities long‐term debt of the City. At June 30, 2019, the District’s outstanding debt amounted to $20.9 million. The proceeds from the 2012 Bonds, combined with available Assessment Funds, were used to redeem the outstanding University Avenue Area Off‐Street Parking Assessment District Series 2001‐A and Series 2002‐A Bonds. On June 28, 2016, the District defeased $1.6 million of the 2012 Bonds using funds remaining from completion of the project. The defeased debt will be paid on September 2, 2022. The TIC is 3.97 percent. NOTE 9 – LANDFILL POST‐CLOSURE MAINTENANCE The 126 acre Palo Alto Refuse Disposal Site (Palo Alto Landfill) was filled to capacity and stopped accepting waste in July 2011. State and federal laws and regulations require the City to construct a final cover to cap the waste, and to perform certain post‐closure maintenance and monitoring activities at the site for a minimum of thirty years after closure. As of November 2015, the Palo Alto Landfill has been fully capped and subsequently converted to a pastoral park (Byxbee Park) that is open to the public. A final post‐ closure maintenance plan and cost estimate for the thirty year post‐closure related activities was approved by state and local regulatory agencies in 2014. This cost estimate is adjusted annually for inflation at a percentage provided by the State. Landfill post‐closure liabilities as of June 30, 2019 are $7.0 million, an increase of $0.2 million from the previous year. The City is required by state and federal laws and regulations to fund post‐closure maintenance activities by pledging future revenue received from Refuse customers through rate fees. NOTE 10 – NET POSITION AND FUND BALANCES Net Position Net Position is the excess of the City’s assets and deferred outflows of resources over its liabilities and deferred inflows of resources. Net position is divided into three categories that are described below: CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 85 NOTE 10 – NET POSITION AND FUND BALANCES (Continued) Net Investment in Capital Assets describes the portion of net position, which is represented by current net book value of the City’s capital assets, less the outstanding balance of any debt issued to finance these assets. Restricted describes the portion of net position that is reduced by liabilities related to restricted assets. Generally a liability relates to restricted assets if the asset results from a resource flow that also results in the recognition of a liability or if the liability will be liquidated with the restricted assets reported. Unrestricted describes the portion of net position which is not restricted as to use. Fund Balances As prescribed by GASB Statement No. 54, governmental funds report fund balances in classifications based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the funds can be spent. Fund balances for governmental funds are made up of the following: Nonspendable – This category is comprised of amounts that are: (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The “not in spendable form” criterion includes items that are not expected to be converted to cash, for example: prepaid items. The corpus of the permanent fund is contractually required to be maintained intact. Restricted – This category is comprised of amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers. Committed – This category is comprised of amounts that can only be used for the specific purposes determined by the action that constitutes the most binding constraint (i.e. ordinance) of the City’s highest level of decision‐making authority, the City Council. Commitments may be changed or lifted only by the City taking the same formal action that imposed the constraint originally. Assigned – This category is comprised of amounts intended to be used by the City for specific purposes that are neither restricted nor committed. Intent is expressed by the City Council or the City Manager, to whom the City Council has delegated the authority to assign amounts to be used for specific purposes. Unassigned –This category is the residual classification for the General Fund and includes all amounts not contained in the other classifications. Unassigned amounts are technically available for any purpose. Other governmental funds may report negative unassigned fund balance, which occurs when a fund has a residual deficit after allocation of fund balance to the nonspendable, restricted or committed categories. The fund balances of all governmental funds are presented by the above mentioned categories on the face of the financial statements. In circumstances when an expenditure is made for a purpose for which amounts are available in multiple fund balance categories, fund balance is depleted in the order of restricted, committed, assigned, and unassigned. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 86 NOTE 10 – NET POSITION AND FUND BALANCES (Continued) The General Fund Budget Stabilization Reserve (BSR) is established by authority of the General Fund Reserve Policy, which is approved by the City Council and included in the City’s annual adopted budget. The BSR is maintained in the range of 15 to 20 percent of General Fund expenditures and operating transfers, with a target of 18.5 percent. Any reserve level below 15 percent requires City Council approval. At the discretion of the City Manager, a reserve balance above 18.5 percent may be transferred to the Infrastructure Reserve within the Capital Projects Fund. The purpose of the General Fund BSR is to fund unbudgeted, unanticipated one‐time costs. The BSR is not meant to fund ongoing, recurring General Fund expenditures. As of June 30, 2019 total outstanding encumbrances and reappropriations related to governmental activities were $6.5 million for the General Fund, $79.4 million for the Capital Projects Fund, and $13.6 million for the Special Revenue Funds. General Fund encumbrances and reappropriations are reserved for the following governmental activities: Planning & Community Environment $1.7 million, City Manager $0.6 million, Development Services $0.4 million, Public Works $0.8 million, Community Services $1.2 million, Police $0.3 million, Non‐Departmental $0.4 million and the remaining City departments $1.1 million. Enterprise Funds At June 30, 2019, Enterprise Fund unrestricted net position (in thousands) were as follows: Water Electric Fiber Optics Gas Wastewater Collection Wastewater Treatment Refuse Storm Drainage Airport Total Unrestricted Rate stabilization Supply ‐$ ‐$ ‐$ (3,829)$ ‐$ ‐$ ‐$ ‐$ ‐$ (3,829)$ Distribution 4,069 ‐ 30,358 6,363 342 856 20,737 2,061 (9,914) 54,872 4,069 ‐ 30,358 2,534 342 856 20,737 2,061 (9,914) 51,043 Operations Supply ‐ 28,709 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 28,709 Distribution 20,652 16,536 ‐ 9,966 5,391 ‐ ‐ ‐ ‐ 52,545 20,652 45,245 ‐ 9,966 5,391 ‐ ‐ ‐ ‐ 81,254 Emergency plant replacement ‐ ‐ 1,000 ‐ ‐ 1,980 ‐ ‐ ‐ 2,980 Electric special projects ‐ 41,665 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 41,665 Reappropriations 13,977 7,375 475 1,217 2,636 1,973 ‐ 4,054 ‐ 31,707 Commitments 1,510 7,192 375 10,033 3,096 7,922 1,409 479 7,767 39,783 Underground loan ‐ 727 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 727 Notes and loans ‐ ‐ ‐ ‐ ‐ 559 ‐ ‐ ‐ 559 Landfill corrective action ‐ ‐ ‐ ‐ ‐ ‐ 758 ‐ ‐ 758 Hydro stabilization reserve ‐ 11,400 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 11,400 Public benefit program ‐ 810 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 810 CIP reserve 2,726 880 ‐ 3,820 978 ‐ ‐ ‐ ‐ 8,404 Geng Road reserve ‐ ‐ ‐ ‐ ‐ ‐ 268 ‐ ‐ 268 GASB 68 Pension reserve (13,076) (31,323) (2,002) (13,824) (7,827) (19,716) (5,374) (3,501) (684) (97,327) GASB 75 OPEB reserve (4,346) (14,156) (6,230) (2,382) (7,333) (2,651) (1,157) (431) (38,686) Total 25,512$ 69,815$ 30,206$ 7,516$ 2,234$ (13,759)$ 15,147$ 1,936$ (3,262)$ 135,345$ CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 87 NOTE 10 – NET POSITION AND FUND BALANCES (Continued) The City Council has set aside unrestricted net position for general contingencies, and future capital and debt service expenditures including operating and capital contingencies for unusual or emergency expenditures. Internal Service Funds At June 30, 2019, Internal Service Funds unrestricted net position (in thousands) were as follows: Vehicle Replacement and Maintenance Technology Printing and Mailing Services General Benefits Workers' Compensation Insurance Program General Liabilities Insurance Program Retiree Health Benefits Total Unrestricted net position: Commitments 1,706$ 2,871$ 108$ 546$ 10$ 34$ ‐$ 5,275$ Future catastrophic losses ‐ ‐ ‐ ‐ 489 285 ‐ 774 Retiree health care ‐ ‐ ‐ ‐ ‐ ‐ 1,150 1,150 Capital projects 2,594 3,101 ‐ ‐ ‐ ‐ ‐ 5,695 GASB68 pension reserve (3,213) (10,578) (286) ‐ (28) ‐ ‐ (14,105) PARS supplemental pension reserve ‐ ‐ ‐ 14,030 ‐ ‐ ‐ 14,030 GASB75 OPEB reserve (1,655) (3,377) (148) ‐ ‐ ‐ ‐ (5,180) Available 6,233 19,725 (116) 2,543 ‐ ‐ ‐ 28,385 Total 5,665$ 11,742$ (442)$ 17,119$ 471$ 319$ 1,150$ 36,024$ Commitments represent the portion of net position set aside for open purchase orders. Future catastrophic losses represent the portion of net position to be used for unforeseen future losses. Retiree health care represents the portion of net position set aside to defer future costs of retiree health care coverage. Capital projects represent the portion of net position set aside for adopted capital projects. GASB68 pension reserve is the portion of net position required to be set aside to meet defined benefit pension obligations. PARS supplemental pension reserve represents Section 115 irrevocable trust with the PARS to prefund pension obligations. GASB75 OPEB reserve is the portion of net position required to be set aside to meet OPEB obligations. Funds with deficits: At June 30, 2019, the City’s Downtown Business Development District non‐major special revenue fund had a deficit fund balance of $32,000. The fund balance will be cured through collection of future special assessments. At June 30, 2019, the City’s Printing and Mailing Services internal service revenue fund had a deficit net position of $402,000. The deficit is due to the impact of Pension and OPEB items. The deficit is expected to be funded by future internal service charges to other City funds. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 88 NOTE 11 – PENSION PLANS (a) General Information about the Pension Plans Plan Descriptions ‐ Substantially all permanent City employees are eligible to participate in the City’s separate Safety (police and fire) and Miscellaneous (all other) Plans, agent multiple‐employer defined benefit pension plans administered by California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. Benefits provisions under the Plans are established by State statute and City resolution. CalPERS issues publicly available reports that include a full description of the pension plans including benefits provisions, assumptions and membership information. The reports can be found on the CalPERS website. Benefits Provided ‐ CalPERS provides retirement and disability benefits, annual cost of living adjustments and death benefits to Plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service (equal to one year of full‐time employment), age at retirement and final compensation. The death benefit is one of the following: the 1959 Survivor Benefit, or the pre‐retirement option 2W Death Benefit for local fire members only. The Plans’ provisions and benefits in effect at June 30, 2019, are summarized in the following table. Contribution rates are based on the Actuarial Valuation Report as of June 30, 2016. Safety Plan Fire Fighters, Fire Chief Association, Police Officers, Fire Fighters, Fire Chief Association Police Officers, Police Management Fire Fighters, Fire Chief Association, Police Officers, Hire Date Prior to June 8, 2012 On or after June 8, 2012 On or after Dec. 8, 2012 On or after Jan 1, 2013 Benefit formula1 3% at 55 3% at 55 3% at 50 2.7% at 57 Benefit vesting schedule 5 years service 5 years service 5 years service 5 years service Benefit payment monthly for life monthly for life monthly for life monthly for life Retirement age 50 55 1 551 571 Monthly benefit as % of eligible compensatio 3% 3% 3% 2.7% Actuarially determined contribution rate ‐ EE 9% 9% 9% 11.25% Actuarially determined contribution rate ‐ ER 55.633% 55.633% 55.633% 55.633% Hire Date Prior to July 17, 2010 On or after July 17, 2010 On or after Jan 1, 2013 Benefit formula 2.7% at 55 2 2% at 602 2% at 623 Benefit vesting schedule 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life Retirement age 55 2 602 623 Monthly benefit as % of eligible compensatio 2.70% 2.0% ‐ 2.418% 2% Actuarially determined contribution rate ‐ EE 8% 7% 6.25% Actuarially determined contribution rate ‐ ER 32.556% 32.556% 32.556% 1 Employees can retire at age 50 with reduced benefits of 2.4% ‐ 2.88% if hired before Jan 1, 2013, or 2.0% ‐ 2.6% if hired on or after Jan 1, 2013. 2 Employees can retire at age 50 with reduced benefits of 2.0% ‐ 2.56% if hired before July 17, 2010, or 1.092% ‐ 1.874% if hired on or after July 17, 2010. 3 Employees can retire at age 52 with reduced benefits of 1.0% ‐ 1.9% Miscellaneous Plan CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 89 NOTE 11 – PENSION PLANS (Continued) Employees Covered – Based on the Actuarial Valuation Report as of June 30, 2018, the most recent information available, the following employees were covered by the benefits terms for each Plan: Miscellaneous Plan Safety Plan Inactive employees or beneficiaries currently receiving benefits 1,129 430 Inactive employees entitled to but not yet receiving benefits 796 109 Active employees 808 167 Total 2,733 706 Contributions –Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Further detail can be found in the Required Supplemental Information Schedule of Contributions. In April 2017, the City established a Section 115 irrevocable trust with the Public Agency Retirement Services (PARS). The Council approved an initial deposit of $2.1 million in General Fund proceeds into the General Fund subaccount of the City’s PARS Trust Account. The Trust Account allows more control and flexibility in investment allocations compared to City’s portfolio which is restricted by State regulations to fixed income instruments. The City proactively contributes to the Section 115 irrevocable trust amounts reflective of what retirement costs would be if the normal cost of contributions was budgeted at a 6.2% discount rate. As of June 30, 2019, the City reported the account balance of $14.0 million as restricted cash in the General Benefits, an Internal Service Fund. (b) Net Pension Liability The City’s net pension liability for both Plans is measured as the total pension liability, less the plan’s fiduciary net position. Net pension liability is measured as of June 30, 2018 (measurement date), using the Actuarial Valuation Report as of June 30, 2017 rolled forward to June 30, 2018 using standard update procedures. At June 30, 2019, the City reported a net pension liability of $423.9 million for both plans. A summary of principal assumptions and methods used to determine the net pension liability is as follows: CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 90 NOTE 11 – PENSION PLANS (Continued) Actuarial Assumptions ‐ The total pension liabilities were determined using the following actuarial assumptions in the Accounting Valuation Report: Miscellaneous Plan Safety Plan Valuation Date June 30, 2017 June 30, 2017 Measurement Date June 30, 2018 June 30, 2018 Actuarial Cost Method Entry Age Normal Entry Age Normal Actuarial Assumptions: Discount Rate 7.15% 7.15% Inflation 2.50% 2.50% Salary Increases Mortality1 Poste Retirement Benefit Increase The table includes 15 years of mortality improvements using Society of Actuaries Scale 90% of scale MP 2016. For more details on this table, please refer to the CalPERS 2017 experience study report available on the CalPERS website. Further details of the Experience Study can be found on the CalPERS website. Derived using CalPERS membership data Contract COLA up to 2.0% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.50% thereafter Varies by Entry Age and Service 1 The mortality table used was developed based on CalPERS' specific data. Change in Assumptions – Demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Actuarial Assumptions December 2017. The inflation rate reduced from 2.75 percent to 2.50 percent for the June 30, 2017 actuarial valuations. Discount Rate – The discount rate used to measure the total pension liability was 7.15 percent for each Plan. The projection of cash flows used to determine the discount rate assumed that the contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long‐term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 91 NOTE 11 – PENSION PLANS (Continued) The long‐term expected rate of return on pension plan investments was determined using a building‐ block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long‐term expected rate of return, CalPERS took into account both short‐term and long‐term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds’ asset classes, expected compound geometric returns were calculated over the short‐term (first ten years) and the long‐term (11‐60 years) using a building‐block approach. Using the expected nominal returns for both short‐term and long‐term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short‐term and long‐term returns. The expected rate of return was then set equal to the single equivalent rate calculated and adjusted to account for assumed administrative expenses. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. The long‐term expected real rate of return by asset class and the target allocation adopted by the CalPERS Board effective on July 1, 2017, are as follows: Asset Class Current Target Allocation Real Return Years 1 ‐ 101 Real Return Years 11+2 Global Equity 50.0% 4.80% 5.98% Global Fixed Income 28.0 1.00 2.62 Inflation Assets ‐ 0.77 1.81 Private Equity 8.0 6.30 7.23 Real Asset 13.0 3.75 4.93 Liquidity 1.0 ‐ ‐0.92 1 An expected inflation of 2.00% used for this period. 2 An expected inflation of 2.92% used for this period. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 92 NOTE 11 – PENSION PLANS (Continued) (c) Changes in the Net Pension Liability The following table is based on the GASB 68 Accounting Valuation Report and shows the changes in the net pension liability for the Miscellaneous and Safety Plans (in thousands): Total Pension Liability Plan Net Position Net Pension Liability Miscellaenous Plan: Balances calculated at July 1, 2018 780,729$ 512,924$ 267,805$ Changes for the year: Service cost 14,724 ‐ 14,724 Interest on total pension liability 54,903 ‐ 54,903 Changes in benefit terms ‐ ‐ ‐ Differences between expected and actual experiences 4,271 ‐ 4,271 Changes in assumptions (5,673) ‐ (5,673) Contributions from employer ‐ 23,342 (23,342) Contributions from employees ‐ 6,654 (6,654) Net investment income ‐ 43,690 (43,690) Benefit payments, including refunds of employee contributions (37,624) (37,624) ‐ Administrative expense ‐ (799) 799 Other non‐investment expenses ‐ (1,518) 1,518 Net changes 30,601 33,745 (3,144) Balances reported at June 30, 2019 811,330 546,669 264,661 Safety Plan: Balances calculated at July 1, 2018 $415,775 $268,468 $147,307 Changes for the year: Service cost 7,168 ‐ 7,168 Interest on total pension liability 29,871 ‐ 29,871 Change of assumption (1,374) ‐ (1,374) Differences between expected and actual experiences 11,604 ‐ 11,604 Contributions from employer ‐ 11,030 (11,030) Contributions from employees ‐ 2,799 (2,799) Net investment income ‐ 22,724 (22,724) Benefit payments, including refunds of employee contributions (23,636) (23,636) ‐ Administrative expense ‐ (418) 418 Other non‐investment expenses ‐ (794) 794 Net changes 23,633 11,705 11,928 Balances reported at June 30, 2019 439,408 280,173 159,235 Total for Miscellaneous & Safety Plans 1,250,738$ 826,842$ 423,896$ CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 93 NOTE 11 – PENSION PLANS (Continued) Sensitivity of the Net Pension Liability to Changes in the Discount Rate ‐ The following table presents the net pension liability of the Plans as of the measurement date, calculated using the discount rate of 7.15 percent, compared to a discount rate that is 1 percentage point lower (6.15 percent) or 1 percentage point higher (8.15 percent). Amounts shown below are in thousands: Discount Rate ‐ 1% (6.15%) Current Discount Rate (7.15%) Discount Rate + 1% (8.15%) Miscellaneous Plan: Plan's Net Pension Liability/(Asset)368,520$ 264,661$ 178,315$ Safety Plan: Plan's Net Pension Liability/(Asset)215,925$ 159,235$ 112,413$ Plan Fiduciary Net Position – Detailed information about the Plan’s fiduciary net position is available in the separately issued CalPERS financial report: Schedule of Changes in Fiduciary Net Position by Rate Plan. (d) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions For the year ended June 30, 2019, the City recognized a pension expense of $39.2 million and $24.9 million for the Miscellaneous and Safety Plan respectively, for a total of $57.6 million. At June 30, 2019, the City reported pension related deferred outflows of resources and deferred inflows of resources for the Miscellaneous and Safety Plans from the following sources (in thousands): Miscellaneous Plan: Deferred Outflows of Resources Deferred Inflows of Resources Pension contributions subsequent to measurement date 25,359$ ‐$ Change of assumptions 13,109 3,782 Difference between expected and actual experience 2,847 1,979 Net difference between projected and actual earnings on plan investments 332 ‐ Balance reported at June 30, 2019 41,647 5,761 Safety Plan: Pension contributions subsequent to measurement date 12,367 ‐ Change of assumptions 7,003 883 Difference between expected and actual experience 7,460 915 Net difference between projected and actual earnings on plan investments 518 ‐ Balance reported at June 30, 2019 27,348 1,798$ Total, Miscellaneous & Safety Plans 68,995$ 7,559$ CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 94 NOTE 11 – PENSION PLANS (Continued) The $37.7 million reported as deferred outflows of resources relates to contributions paid by the City from July 1, 2018 through June 30, 2019 which is subsequent to the City’s measurement date of June 30, 2018 for both the Miscellaneous and Safety Plans. This amount will be recognized as a reduction of the net pension liability in the year ended June 30, 2020. The net differences reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in future pension expense as follows (in thousands): Year Ended June 30, Miscellaneous Plan Safety Plan Total 2020 16,875$ 13,253$ 30,128$ 2021 692 3,637 4,329 2022 (5,539) (2,915) (8,454) 2023 (1,501) (792) (2,293) 10,527$ 13,183$ 23,710$ CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 95 NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (a) General Information about the OPEB Plan In addition to providing pension benefits, the City participates in the California Public Employees’ Medical and Health Care Act program to provide certain health care benefits for retired employees. The City’s Other Post‐Employment Benefit plan is an agent multiple‐employer defined benefit plan. Employees who retire directly from the City are eligible for retiree health benefits if they retire on or after age 50 with 5 years of service and are receiving a monthly pension from CalPERS. Details of benefits to retirees are noted in the following tables: Unit Hired Before Retiree Coverage1 Dependent Coverage Retired on or After Retiree Contribution Management & Professional2 1/1/2004 100% 100% 5/1/2011 Flat rate 4 Police Management2 1/1/2004 100% 100% 6/1/2012 Flat rate 4 Fire Fighters2 1/1/2004 100% 100% 12/1/2011 Flat rate 4 Fire Chiefs Association2 1/1/2004 100% 100% 1/1/2013 Flat rate 4 SEIU 1/1/2005 100% 100% 5/1/2011 Flat rate 4 Police Officers3 1/1/2006 100% 100% 4/1/2015 Flat rate 4 Utilities Managers & Professional2 1/1/2004 100% 100% 5/1/2011 10% 2 Effective 1/1/2007 plan capped at the second highest CalPERS Bay Area Basic plan premium. 3 Effective 7/1/2014 plan capped at the second highest CalPERS Bay Area Basic plan premium. 4 Effective 1/1/2017 City pays $773 for employee, $1,544 for employee +1, $2,008 for family. Effective 1/1/2018 City pays $804 for employee, $1,606 for employee +1, $2,088 for family. Unit Hired on or After Retiree Coverage1 Dependent Coverage2 Management & Professional 1/1/2004 50%‐100% Max. 90% Police Management 1/1/2004 50%‐100% Max. 90% Fire Fighters 1/1/2004 50%‐100% Max. 90% Fire Chiefs Association 1/1/2004 50%‐100% Max. 90% Utilities Managers & Professional 1/1/2004 50%‐100% Max. 90% SEIU 1/1/2005 50%‐100% Max. 90% Police Officers 1/1/2006 50%‐100% Max. 90% specified employer contribution, with the City portion increasing by 5% for each additional year of service credit. 2 The City will contribute an additional 90 percent of the weighted average of the additional premiums required for enrollment of those family members, during the benefit year to which the forumla is applied. 1 100% of benefits if the employee has five years CalPERS service credit and the employee retired from the City. 1 Employees with ten years of CalPERS service, at least five of which are at the City of Palo Alto, receive 50% of the Retiree contributions for units with the following hire dates are determined by Government Code Section 22893, 20 year graduated schedule: CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 96 NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued) In FY 2008, the City elected to participate in an irrevocable trust to provide a funding mechanism for retiree health benefits. The Trust, California Employers’ Retirees Benefit Trust (CERBT), is administrated by CalPERS and managed by a separately appointed board, which is not under control of the City Council. This Trust is not considered a component unit of the City. Employees Covered – Employees covered by the benefit terms as of June 30, 2017, the most recent information available, are as follows: Inactive employees or beneficiaries currently receiving benefits 921 Inactive employees entitled to but not yet receiving benefits 113 Active employees 967 Total 2,001 Contributions – The City’s OPEB funding policy is to prefund these benefits by accumulating assets in the Trust Fund discussed above pursuant to City Council Resolution. For the year ended June 30, 2019, the City’s contributions totaled $16.0 million. (b) Net OPEB Liability The City’s net OPEB liability is measured as the total OPEB liability, less the OPEB plan’s fiduciary net position. The net OPEB liability is measured as of June 30, 2018, using an annual actuarial valuation as of June 30, 2017. A summary of principal assumptions and methods used to determine the net OPEB liability is shown below. Valuation Date June 30, 2017 Measurement Date June 30, 2018 Actuarial Cost Method Entry‐Age, level percentage of payroll Actuarial Assumptions: Discount Rate 6.75% Inflation 2.75% Payroll Growth 3.00% Projected Salary Increase CalPERS 1997‐2015 Experience Study Investment Rate of Return 6.75% Net of OPEB Plan Investment Expenses, includes Inflation. Post Retirement Benefit Increase For medical plan premiums: 6.50% for 2019, decreasing to 4.00% for 2076 and later; For pre‐ Medicare premiums: 7.50% for 2019, decreasing to 4.00% for 2076 and later Disability, Termination, Retirement CalPERS 1997‐2015 Experience Study Mortality CalPERS 1997‐2011 Experience Study, and Society of Actuaries mortality improvement scale MP‐17 Increase to Group 3 Flat Dollar Caps 1/2 of Medical Trend, not less than assumed inflation (2.75%) Healthcare Participation for Future Future retirees: 90%, Based on Plan experience ACA Excise Tax Estimate by 2% load on cash subsidy CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 97 NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued) Discount Rate – The discount rate used to measure the total OPEB liability was 6.75%. The projection of cash flows used to determine the discount rate assumed that the City’s contribution will be made equal to the actuarially determined contribution. Based on those assumptions, the OPEB plan’s fiduciary net position was projected to be available to make all projected OPEB payments for current active and inactive employees. Therefore, the long‐term expected rate of return on OPEB plan investments applied to all periods of projected benefit payments to determine the total OPEB liability. The long‐term expected rate of return for OPEB plan investments was 6.75%. The asset class target allocation and geometric real rates of return for each major asset class are summarized in the following table. Asset Class Current Target Allocation Expected Real Rate of Return Global Equity 57.0% 4.82% Fixed Income 27.0 1.47 TIPS 5.0 1.29 Commodities 3.0 0.84 REITS 8.0 3.76 (a) Assumed long‐term rate of inflation of 2.75% (b) Expected long‐term net rate of return, rounded of 6.75% (c) Changes in the Net OPEB Liability The following table shows the changes in the net OPEB liability for the fiscal year ended June 30, 2019. Total OPEB Liability Plan Fiduciary Net Position Net OPEB Liability Balance at June 30, 2018 244,759$ 91,250$ 153,509$ Changes during the measurement period: Service cost 6,429 ‐ 6,429 Interest on the total OPEB liability 16,546 ‐ 16,546 Contributions ‐ employer ‐ 21,349 (21,349) Investment income ‐ 7,519 (7,519) Administrative expenses ‐ (204) 204 Benefit payments (12,104) (12,104) ‐ Net changes 10,871 16,560 (5,689) Balance at June 30, 2019 255,630$ 107,810$ 147,820$ Increase (Decrease) CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 98 NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued) Sensitivity of the Net OPEB Liability to Changes in the Discount Rate – The following presents the net OPEB liability of the City as of the measurement date, calculated using the discount rate of 6.75 percent, as well as what the City’s net OPEB liability would be if it were calculated using a discount rate that is 1 percentage‐point lower (5.75 percent) or 1 percentage‐point higher (7.75 percent) than the current discount rate: Discount Rate ‐1% (5.75%) Current Discount Rate (6.75%) Discount Rate +1% (7.75%) 181,724$ 147,820$ 119,906$ Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rate – The following presents the net OPEB liability of the City, as well as what the City’s net OPEB liability would be if it were calculated using healthcare cost trends rates that are 1% lower or 1% higher than the current healthcare cost trend rates. Healthcare Trend Rate ‐ 1% Healthcare Trend Current Rate Healthcare Trend Rate + 1% 115,526$ 147,820$ 187,522$ OPEB Plan Fiduciary Net Position – Detailed information about the OPEB plan’s fiduciary net position is available in the separately issued CalPERS financial report. (d) OPEB Expenses and Deferred Outflows/Inflows of Resources Related to OPEB For the fiscal year ended June 30, 2019, the City recognized an OPEB expense of $15.8 million for the OPEB plan. At June 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources (dollars in thousands): Deferred Outflows of Resources Deferred Inflows of Resources OPEB contributions subsequent to measurement date $ 15,997 $ ‐ Net differences between projected and actual earnings on plan investments ‐ 2,737 Total $ 15,997 $ 2,737 CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 99 NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued) The $16.0 million reported as deferred outflows of resources relates to contributions made by the City from July 1, 2018 through June 30, 2019, which is subsequent to the City’s measurement date of June 30, 2018. This amount will be recognized as a reduction of the net OPEB liability in the fiscal year ended June 30, 2020. The net difference between projected and actual earnings on plan investments will be recognized in future OPEB expense as follows (dollars in thousands): Fiscal Year Ending June 30, 2020 (841)$ 2021 (841) 2022 (841) 2023 (214) Total (2,737)$ NOTE 13 – DEFERRED COMPENSATION PLAN City employees may defer a portion of their compensation under City sponsored Deferred Compensation Plans created in accordance with Internal Revenue Code Section 457. Under these Plans, participants are not taxed on the deferred portion of their compensation until distributed to them. Distributions may be made only at termination, retirement, death or in an emergency as defined by the Plans. The laws governing deferred compensation plan assets require plan assets to be held by a Trust for the exclusive benefit of plan participants and their beneficiaries. Since the assets held under these plans are not the City’s property and are not subject to City control, they have been excluded from these financial statements. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 100 NOTE 14 – RISK MANAGEMENT Coverage The City provides dental coverage to employees through a City plan, which is administered by a third party service agent. The City is self‐insured for dental claims. The City has a workers’ compensation insurance policy with coverage up to the statutory limit set by the State of California. The City retains the risk for the first $750,000 in losses for each accident and employee under this policy. The City also has public employee dishonesty insurance with a $5,000 deductible and coverage up to $1.0 million per loss. The Director of Administrative Services/CFO and City Manager each have coverage up to $4.0 million per loss. The City’s property, boiler, and machinery insurance policy has various deductibles and coverage based on the type of property. The City is a member of the Authority for California Cities Excess Liability (ACCEL), which provides excess general liability insurance coverage, including auto liability, up to $200 million per occurrence. The City retains the risk for the first $1.0 million in losses for each occurrence under this policy. ACCEL was established for the purpose of creating a risk management pool for central California municipalities. ACCEL is governed by a Board of Directors consisting of representatives of its member cities. The board controls the operations of ACCEL, including selection of claims management, general administration and approval of the annual budget. The City’s deposits with ACCEL equal the ratio of the City’s payroll to the total payroll of all entities. Actual surpluses or losses are shared according to a formula developed from overall loss costs and spread to member entities on a percentage basis after a retrospective rating. During the year ended June 30, 2019, the City paid $1.2 million to ACCEL for current year coverage. Audited financial statements are available from ACCEL at 100 Pine Street, 11th Floor, San Francisco, California 94110. Claims Liability The City provides for the uninsured portion of claims and judgments in the General Liabilities insurance program funds. Claims and judgments, including a provision for claims incurred but not reported, and claim adjustment expenses are recorded when a loss is deemed probable of assertion and the amount of the loss is reasonably determinable. As discussed above, the City has coverage for such claims, but it has retained the risk for the deductible or uninsured portion of these claims. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 101 NOTE 14 – RISK MANAGEMENT (Continued) The City’s liability for uninsured claims is limited to dental, general liability, and workers’ compensation claims, as discussed above. Dental liability is based on a percentage of current year actual expense. General and workers’ compensation liabilities are based on the results of actuarial studies, and include amounts for claims incurred but not reported as follows as of June 30 (in thousands): 2019 2018 Beginning balance 23,748$ 22,470$ Claims expense, including claims incurred but not reported (IBNR)8,998 4,705 Claims paid (4,381) (3,427) Ending balance 28,365$ 23,748$ Current portion 6,171$ 5,835$ Year Ended June 30 The City has not incurred a claim that has exceeded its insurance coverage limits in any of the last three years, nor have there been any significant reductions in insurance coverage. NOTE 15 – JOINT VENTURES General The City participates in joint ventures through Joint Powers Authorities (JPAs) established under the Joint Exercise of Powers Act of the State of California. As separate legal entities, these JPAs exercise full powers and authorities within the scope of the related Joint Powers Agreement, including the preparation of annual budgets, accountability for all funds, the power to make and execute contracts and the right to sue and be sued. Obligations and liabilities of the JPAs, including the long‐term debt in which the City participates in repayment, are not obligations and liabilities of the City, and are not reported on the City’s financial statements. Each JPA is governed by a board consisting of representatives from each member agency. Each board controls the operations of its respective JPA, including selection of management and approval of operating budgets, independent of any influence by member agencies beyond their representation on the Board. Northern California Power Agency The City is a member of Northern California Power Agency (NCPA), a joint powers agency which operates under a joint powers agreement among fifteen public agencies. The purpose of NCPA is to use the combined strength of its members to purchase, generate, sell and interchange electric energy and capacity through the acquisition and use of electrical generation and transmission facilities. Each agency member has agreed to fund a pro rata share of certain assessments by NCPA and enter into take‐or‐pay power supply contracts with NCPA. While NCPA is governed by its members, none of its obligations are those of its members unless expressly assumed by them. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 102 NOTE 15 – JOINT VENTURES (Continued) During the year ended June 30, 2019, the City incurred expenses totaling $76.7 million for purchased power and assessments earned by NCPA. The City’s interest in NCPA projects and reserves, as computed by NCPA, was $10.4 million at June 30, 2019. This amount represents the City’s portion of funds, which resulted from the settlement with third parties of issues with financial consequences and reconciliations of several prior years’ budgets for programs. It is recognized that all the funds credited to the City are linked to the collection of revenue from the City’s ratepayers, or to the settlement of disputes relating to electric power supply and that the money was collected from the City’s ratepayers to pay power bills. Additionally, the NCPA Commission identified and approved the funding of specific reserves for working capital, accumulated employees’ post‐retirement medical benefits, and billed property taxes for the geothermal project. The Commission also identified a number of contingent liabilities that may or may not be realized, the cost of which in most cases is difficult to estimate at this time. One such contingent liability is the steam field depletion, which will require funding to cover debt service and operational costs in excess of the expected value of the electric power. The General Operating Reserve (GOR) is intended to minimize the number and amount of individual reserves needed for each project, protect NCPA’s financial condition and maintain its credit worthiness. There are no funds on deposit with NCPA as a reserve against these contingencies identified by NCPA. Members of NCPA may participate in an individual project of NCPA without obligation for any other project. Member assessments collected for one project may not be used to finance other projects of NCPA without the member’s permission. Geothermal Projects A purchased power agreement with NCPA obligated the City for 6.2 percent and 6.2 percent, respectively, of the operating costs and debt service of the two NCPA 110‐megawatt geothermal steam‐powered generating plants, Project Number 2 and Project Number 3. The City’s participation in the Geothermal Project was sold to Turlock Irrigation District in October 1984. Accordingly, the City is liable for payment of outstanding geothermal related debt only in the event that Turlock fails to make specified payments. Total outstanding debt of the NCPA Geothermal Project at June 30, 2019 is $133.5 million. The City’s participation in this project was 6.2 percent, or $8.3 million. Calaveras Hydroelectric Project In July 1981, NCPA agreed with Calaveras County Water District to purchase the output of the North Fork Stanislaus River Hydroelectric Development Project and to finance its construction. Debt service payments to NCPA began in February 1990 when the project was declared substantially complete and power was delivered to the participants. Under its power purchase agreement with NCPA, the City is obligated to pay 22.9 percent of this Project’s debt service and operating costs. At June 30, 2019, the book value of this Project’s plant, equipment and other assets was $349 million, while its long‐term debt totaled $282 million and other liabilities totaled $52.9 million. The City’s share of the Project’s long‐term debt amounted to $67.9 million at that date. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 103 NOTE 15 – JOINT VENTURES (Continued) Geothermal Public Power Line In 1983, NCPA, the Sacramento Municipal Utility District, the City of Santa Clara and the Modesto Irrigation District (Joint Owners) initiated studies for a Geothermal Public Power Line (GPPL), which would carry power generated at several existing and planned geothermal plants in The Geysers area to a location where the Joint Owners could receive it for transmission to their load centers. NCPA has an 18.5 percent share of this Project and the City has an 11.1 percent participation in NCPA’s share. In 1989, the development of the proposed Geothermal Public Power Line was discontinued because NCPA was able to contract for sufficient transmission capacity to meet its needs in The Geysers. However, because the project financing provided funding for an ownership interest in a Pacific Gas & Electric (PG&E) transmission line, a central dispatch facility and a performance bond pursuant to the Interconnection Agreement with PG&E, as well as an ownership interest in the proposed GPPL, NCPA issued $16 million in long‐term, fixed‐rate revenue bonds in November 1989 to defease the remaining variable rate refunding bonds used to refinance this project. The City is obligated to pay its 11.1 percent share of the related debt service, but debt service costs are covered through NCPA billing mechanisms that allocate the costs to members based on use of the facilities and services. At June 30, 2019, the book value of this Project’s plant, equipment and other assets was zero, and its long‐ term debt totaled zero. NCPA’s financial statements can be obtained from NCPA, 180 Cirby Way, Roseville, CA 95678. Transmission Agency of Northern California (TANC) The City is a member of a joint powers agreement with 14 other entities in Transmission Agency of Northern California (TANC). TANC’s purpose is to provide electrical transmission or other facilities for the use of its members. While governed by its members, none of TANC’s obligations are those of its members unless expressly assumed by them. The City was obligated to pay 4 percent of TANC’s debt‐service and operating costs. However, a Resolution was approved authorizing the execution of a Long‐Term Layoff Agreement (LTLA) between the Cities of Palo Alto and Roseville. These two agencies desired to “layoff” their entitlement rights to the California‐Oregon Transmission Project (COTP) (and Roseville’s South of Tesla entitlement rights) for a period of 15 years to those acquiring members (Sacramento Municipal Utility District, Turlock Irrigation District, and Modesto Irrigation District). The effective date of this Agreement was February 1, 2009. As a result, the City is not obligated to pay TANC’s debt‐service and operating costs starting February 1, 2009, for a period of fifteen years. TANC’s financial statements can be obtained from TANC, P.O. Box 15129, Sacramento, CA 95851. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 104 NOTE 15 – JOINT VENTURES (Continued) Bay Area Water Supply and Conservation Agency (BAWSCA) The City is a member of a regional water district with 26 other entities, the Bay Area Water Supply and Conservation Agency (BAWSCA). BAWSCA was created on May 27, 2003 to represent the interests of 24 cities and water districts and two private utilities in Alameda, Santa Clara and San Mateo counties that purchase water on a wholesale basis from the San Francisco regional water system. It has the power to issue debt and plan, finance, construct, and operate water supply, transmission, reclamation, and conservation projects on behalf of its members. In 2013 the City participated in a debt issuance by BAWSCA. The debt was issued to repay certain long‐ term costs associated with the San Francisco Public Utilities Commission (SFPUC) water supply contract. During the fiscal year, the City paid its share of the annual debt service of $1.9 million, which will vary based on annual water purchases of the City compared to other BAWSCA agencies. BAWSCA’s financial statements can be obtained from BAWSCA, 155 Bovet Road, Suite 650, San Mateo, California 94402. NOTE 16 – COMMITMENTS AND CONTINGENCIES Palo Alto Unified School District – The City leases 27 acres of the former Cubberley School site and twelve extended day care sites from Palo Alto Unified School District (PAUSD). The lease includes a mechanism for a joint planning process between the City and PAUSD to develop a long‐term master plan for the Cubberley site. The City will pay $1.86 million annually into a separate fund to be used for repairing, renovating and/or improving the infrastructure at the Cubberley site. The previous lease term expired on December 31, 2014, and the City and PAUSD reached an agreement to extend the lease agreement for an additional five (5) years, with a new expiration date of December 31, 2019. The City and PAUSD also agreed to distribute gains or losses of revenue that resulted from the Foothill College departure from Cubberley. The City’s rent and infrastructure payment for the facilities is $7.3 million per year plus insurance, repairs and maintenance. Lease expenditures for the year ended June 30, 2019 amounted to $7.6 million. Future minimum annual lease and infrastructure payments are as follows (in thousands): Year Ending June 30 Payment 2020 3,845 CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 105 NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued) GreenWaste of Palo Alto – GreenWaste of Palo Alto is the City’s contractor for waste collection, transportation, and processing services. The agreement expires June 30, 2021. The base compensation for GreenWaste is adjusted annually based on CPI indicators stipulated in the contract. In FY 2019 payments to GreenWaste were $9.9 million. City of Palo Alto Regional Water Quality Control Plant – The cities of Palo Alto, Mountain View and Los Altos (the Partners) participate jointly in the cost of maintaining and operating the City of Palo Alto Regional Water Quality Control Plant and related system (the Plant). The City is the owner and administrator of the Plant, which provides the transmission, treatment and disposal of sewage for the Partners. The cities of Mountain View and Los Altos are entitled to use a portion of the capacity of the Plant for a specified period of time. Each partner has the right to rent unused capacity from/to the other partners. The expenses of operations and maintenance are paid quarterly by each partner based on its pro rata share of treatment costs. Additionally, joint system revenues are shared by the partners in the same ratio as expenses are paid. The amended agreement has a term of fifty years beginning from the original signing in October 1968, but may be terminated by any partner upon ten years’ notice to the other partners. All sewage treatment property, plant and equipment are included in the Wastewater Treatment Enterprise Fund’s capital assets balance. If the City initiates the termination of the contracts, it is required to pay the other partners their unamortized contribution towards the capital assets. Solid Waste Materials Recovery and Transfer Station (SMaRT Station) – On June 9, 1992, the City, along with the City of Mountain View, signed a Memorandum of Understanding (MOU) with the City of Sunnyvale (Sunnyvale) to participate in the construction and operation of the SMaRT Station, which recovers recyclable materials from the municipal solid waste delivered from participating cities. Per the MOU, the City has a capacity share of 21.3 percent of this facility and reimburses its proportionate capacity share of design, construction and operation costs to Sunnyvale. In FY 2008, the members agreed to finance an Equipment Replacement Project from existing reserves and proceeds from the Solid Waste Revenue Bond, Series 2007. The City has committed to repay 27.8 percent of the remaining debt service on the Bonds. The City’s portion of the Bonds amounts to $0.4 million as of June 30, 2019. During the year ended June 30, 2019, the City paid $0.2 million as its portion of current debt service. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 106 NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued) UTILITIES ENERGY RESOURCE MANAGEMENT Electric Power Supply Purchase Agreements – The City has numerous power purchase agreements with power producers to purchase capacity and energy to supply a portion of its load requirements. As of June 30, 2019, the approximate minimum obligations for the contracts, assuming the energy is delivered over the next five years, are as follows: Fiscal Year Projected Obligation 2020 $60.34 million 2021 $61.77 million 2022 $65.10 million 2023 $63.81 million 2024 $62.41 million Contractual Commitments beyond 2022 (Electricity) – Several of the City’s purchase power and transmission contracts extend beyond the five‐year summary presented above. These contracts expire between 2026 and 2051 and provide for power under various terms and conditions. The City also has a new solar power purchase agreement that is schedule to start in January 2023. The City estimates that its annual minimum commitments under all of its contracts, assuming the energy is delivered, ranges between $62.41 million in 2024 and $51.63 million in 2034. The City’s largest single purchase power source is the Western Base Resource contract, whereby the City receives 12.31 percent of the amount of energy made available by Western, after meeting Central Valley Project use requirements, in any given year at a 12.31 percent share of their revenue requirement. The Western contract expires on December 31, 2024. The City expects to have the option to extend the Western contract for an additional 30‐year period beyond 2024, although at a slightly lower share of the total energy output and revenue requirement (12.06 percent instead of 12.31 percent). Gas Transmission and Local Transportation Rates – The City relies on Pacific Gas and Electric Company’s (PG&E) natural gas pipeline infrastructure, including both high‐pressured transmission and medium‐ pressure local transportation, to move gas from the California border to the City’s distribution system. New rates are determined through proceedings at the California Public Utilities Commission. The rate Palo Alto pays for gas transmission increased by 4.9% from FY18 to FY19; the rate Palo Alto pays for local transportation increased by 6.8% from FY18 to FY19. A final decision on PG&E’s 2019 rate case has not been issued, but the rate Palo Alto pays for gas transmission is expected to increase by about 90% in 2020, and the rate Palo Alto pays for local transportation is expected to increase by 5% in 2020. San Francisco Public Utilities Commission – The City purchases water to deliver to the customers of its water utility from the San Francisco Public Utilities Commission (SFPUC) under a contract terminating in 2034. The City’s wholesale water rate under this contract is determined by a ratemaking process under the authority of the SFPUC, with contractual limitations on the types of costs that may be allocated to wholesale water purchasers like the City. The City is prohibited from purchasing from other water suppliers under this contract, though it is not prohibited from using ground water or developing other local water supplies such as recycled water. The City’s cost of water under this contract is projected to remain flat through 2022. CITY OF PALO ALTO Notes to the Basic Financial Statements For the Year Ended June 30, 2019 107 NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued) Litigation The City is subject to litigation arising in the normal course of business. In the opinion of the City Attorney, there is no pending litigation, claims or assessments that are likely to have a materially adverse effect on the City’s financial condition. A class action lawsuit for refund of telephone users tax was filed against the City in August 2015. The City Attorney is of the opinion that a loss is reasonably possible but cannot be reasonably estimated at this time. A class action lawsuit for refund of allegedly illegal charges to gas and electrical customers was filed against the City in October 2016. At this time, the City Attorney is of the opinion that the loss is not probable and any potential loss cannot be reasonably estimated at this time. Grant Programs The City participates in Federal and State grant programs. These programs have been audited by the City’s independent auditors in accordance with the provisions of the Federal Single Audit Act amendments of 1996 and applicable State requirements. No costs were questioned as a result of these audits; however, these programs are still subject to further examination by the grantors and the amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time. The City expects such amounts, if any, to be immaterial. 108 This page is left intentionally blank. CITY OF PALO ALTO Required Supplementary Information (Unaudited) Last 5 Fiscal Years* 109 I. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – MISCELLANEOUS PLAN (In thousands) Fiscal year 2018‐19 2017‐18 2016‐17 2015‐16 2014‐15 Measurement Period 2017‐18 2016‐17 2015‐16 2014‐15 2013‐14 Total pension liability Service cost 14,724$ 14,423$ 12,582$ 12,183$ 12,442$ Interest 54,903 52,831 51,531 49,345 46,963 Changes of assumptions (5,673) 42,239 ‐ (11,552) ‐ Difference between expected and actual experience 4,271 (6,378) 757 3,507 ‐ Benefit payments, including refunds of employee contributions (37,624) (36,405) (34,825) (32,980) (31,781) Net change in total pension liability 30,601 66,710 30,045 20,503 27,624 Total pension liability ‐ beginning 780,729 714,019 683,974 663,471 635,847 Total pension liability ‐ ending (a) 811,330$ 780,729$ 714,019$ 683,974$ 663,471$ Plan fiduciary net position Contributions ‐ employer 23,342$ 20,638$ 18,840$ 18,610$ 17,400$ Contributions ‐ employee 6,654 6,314 5,812 5,730 6,345 Net investment income 43,690 53,259 2,464 10,597 70,989 Benefit payments, including refunds of employee contributions (37,624) (36,405) (34,825) (32,980) (31,781) Administrative expense (799) (694) (291) (538) ‐ Other non‐investment expenses (1,518) 30 ‐ ‐ ‐ Net change in fiduciary net position 33,745 43,142 (8,000) 1,419 62,953 Plan fiduciary net position ‐ beginning 512,924 469,782 477,782 476,363 413,410 Plan fiduciary net position ‐ ending (b) 546,669$ 512,924$ 469,782$ 477,782$ 476,363$ Plan net pension liability/(asset) ‐ Ending (a) ‐ (b) 264,661$ 267,805$ 244,237$ 206,192$ 187,108$ Plan fiduciary net position as a percentage of total pension liability 67.38% 65.70% 65.79% 69.85% 71.80% Covered payroll 80,634$ 77,606$ 73,722$ 69,837$ 66,373$ Plan net pension liability/(asset) as a percentage of covered employee payroll 328.23% 345.08% 331.29% 295.25% 281.90% Notes to Schedule: Changes in assumptions ‐ In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Actuarial Assumptions December 2017. There were no changes in the discount rate. In 2017, the discount rate was reduced from 7.65 percent to 7.15 percent. In 2016, there were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction for pension plan administrative expense.) In 2014, amounts reported were based on the 7.5 percent discount rate. * Fiscal year ended June 30, 2015 was the first year of implementation of GASB Statement No. 68, therefore only five years of information is shown. Benefit changes ‐ The figures above do not include any liability that may have resulted from plan changes which occurred after the June 30, 2017 valuation date. This applies for voluntary benefit changes as well as any offers of two years additional service credit (Golden Handshake). CITY OF PALO ALTO Required Supplementary Information (Unaudited) Last 6 Fiscal Years* 110 II. SCHEDULE OF PENSION CONTRIBUTIONS– MISCELLANEOUS PLAN (In thousands) Fiscal Year 2018‐19 2017‐18 2016‐17 2015‐16 2014‐15 2013‐14 Contractually required contribution (actuarially determined) 25,359$ 23,342$ 20,638$ 18,840$ 18,611$ 17,400$ Actual contribution (25,359) (23,342) (20,638) (18,840) (18,611) (17,400) Contribution deficiency/(excess) ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Covered payroll 82,333$ 80,634$ 77,606$ 73,722$ 69,837$ 66,373$ Contributions as percentage of covered‐employee payroll 30.80% 28.95% 26.59% 25.56% 26.65% 26.22% Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for fiscal year 2019 contribution rates are as follows: ADC for fiscal year June 30, 2019 Actuarial valuation date June 30, 2016 Actuarial cost method Entry‐Age Normal Cost Method Asset valuation method Actuarial value of assets Inflation 2.75% Salary increases Varies by entry age and services Payroll growth 3.00% Investment rate of return Retirement age Mortality 7.375%, net of pension plan investment and administrative expenses, includes inflation. The probabilities of retirement are based on the 2014 CalPERS Experience Study for the period 1997 to 2011. The probabilities of mortality are based on the 2014 CalPERS Experience Study for the period from 1997 to 2011. Pre‐retirement and Post‐ retirement mortality rates include 20 years of projected mortality improvement using Scale BB published by the Society of Actuaries. * Fiscal year ended June 30, 2015 was the first year of implementation of GASB Statement No. 68, therefore only six years of information is shown. CITY OF PALO ALTO Required Supplementary Information (Unaudited) Last 5 Fiscal Years* 111 III. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – SAFETY PLAN (In thousands) Fiscal year 2018‐19 2017‐18 2016‐17 2015‐16 2014‐15 Measurement Period 2017‐18 2016‐17 2015‐16 2014‐15 2013‐14 Total pension liability Service cost 7,168$ 6,584$ 5,916$ 5,959$ 6,221$ Interest 29,871 28,272 27,816 27,047 26,113 Changes of assumptions (1,374) 22,566 ‐ (6,327) ‐ Difference between expected and actual experience 11,604 (2,790) (1,516) 75 ‐ Benefit payments, including refunds of employee contributions (23,636) (22,413) (21,669) (21,148) (19,985) Net change in total pension liability 23,633 32,219 10,547 5,606 12,349 Total pension liability ‐ beginning 415,775 383,556 373,009 367,403 355,054 Total pension liability ‐ ending (a) 439,408$ 415,775$ 383,556$ 373,009$ 367,403$ Plan fiduciary net position Contributions ‐ employer 11,030$ 10,220$ 9,403$ 8,617$ 7,616$ Contributions ‐ employee 2,799 2,475 2,059 2,047 2,762 Net investment income 22,724 28,112 1,259 5,774 40,033 Benefit payments, including refunds of employee contributions (23,636) (22,413) (21,669) (21,148) (19,985) Administrative expense (418) (370) (157) (290) ‐ Other non‐investment expenses (794) (30) ‐ ‐ ‐ Net change in fiduciary net position 11,705 17,994 (9,105) (5,000) 30,426 Plan fiduciary net position ‐ beginning 268,468 250,474 259,579 264,579 234,153 Plan fiduciary net position ‐ ending (b) 280,173$ 268,468$ 250,474$ 259,579$ 264,579$ Plan net pension liability/(asset) ‐ Ending (a) ‐ (b) 159,235$ 147,307$ 133,082$ 113,430$ 102,824$ Plan fiduciary net position as a percentage of total pension liability 63.76% 64.57% 65.30% 69.59% 72.01% Covered payroll 24,131$ 21,906$ 21,822$ 21,912$ 21,896$ Plan net pension liability/(asset) as a percentage of covered employee payroll 659.88% 672.45% 609.85% 517.66% 469.60% Notes to Schedule: Changes in assumptions ‐ In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Actuarial Assumptions December 2017. There were no changes in the discount rate. In 2017, the discount rate was reduced from 7.65 percent to 7.15 percent. In 2016, there were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction for pension plan administrative expense.) In 2014, amounts reported were based on the 7.5 percent discount rate. * Fiscal year ended June 30, 2015 was the first year of implementation of GASB Statement No. 68, therefore only five years of information is shown. Benefit changes ‐ The figures above do not include any liability that may have resulted from plan changes which occurred after the June 30, 2017 valuation date. This applies for voluntary benefit changes as well as any offers of two years additional service credit (Golden Handshake). CITY OF PALO ALTO Required Supplementary Information (Unaudited) Last 6 Fiscal Years* 112 IV. SCHEDULE OF PENSION CONTRIBUTIONS – SAFETY PLAN (In thousands) Fiscal Year 2018‐19 2017‐18 2016‐17 2015‐16 2014‐15 2013‐14 Contractually required contribution (actuarially determined) 12,368$ 11,031$ 10,220$ 9,403$ 8,617$ 7,616$ Actual contribution (12,368) (11,031) (10,220) (9,403) (8,617) (7,616) Contribution deficiency/(excess) ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Covered payroll 23,240$ 24,131$ 21,906$ 21,822$ 21,912$ 21,896$ Contributions as percentage of covered‐employee payroll 53.22% 45.71% 46.65% 43.09% 39.33% 34.78% Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for fiscal year 2019 contribution rates are as follows: ADC for fiscal year June 30, 2019 Actuarial valuation date June 30, 2016 Actuarial cost method Entry‐Age Normal Cost Method Asset valuation method Actuarial value of assets Inflation 2.75% Salary increases Varies by entry age and services Payroll growth 3.00% Investment rate of return Retirement age Mortality 7.375%, net of pension plan investment and administrative expenses, includes inflation. The probabilities of retirement are based on the 2014 CalPERS Experience Study for the period 1997 to 2011. The probabilities of mortality are based on the 2014 CalPERS Experience Study for the period from 1997 to 2011. Pre‐retirement and Post‐ retirement mortality rates include 20 years of projected mortality improvement using Scale BB published by the Society of Actuaries. * Fiscal year ended June 30, 2015 was the first year of implementation of GASB Statement No. 68, therefore only six years of information is shown. CITY OF PALO ALTO Required Supplementary Information (Unaudited) Last 2 Fiscal Years* 113 V. SCHEDULE OF CHANGES IN NET OPEB LIABILITY AND RELATED RATIOS (In thousands) Fiscal year 2018‐19 2017‐18 Measurement Period 2017‐18 2016‐17 Total OPEB liability Service cost 6,429$ 6,242$ Interest 16,546 15,853 Benefit payments, including refunds of employee contributions (12,104) (11,916) Net change in total OPEB liability 10,871 10,179 Total OPEB liability ‐ beginning 244,759 234,580 Total OPEB liability ‐ ending (a) 255,630$ 244,759$ Plan fiduciary net position Contributions ‐ employer 21,349$ 14,739$ Net investment income 7,519 8,628 Benefit payments, including refunds of employee contributions (12,104) (11,916) Administrative expense (204) (44) Net change in fiduciary net position 16,560 11,407 Plan fiduciary net position ‐ beginning 91,250 79,843 Plan fiduciary net position ‐ ending (b) 107,810$ 91,250$ Plan net OPEB liability/(asset) ‐ Ending (a) ‐ (b) 147,820$ 153,509$ Plan fiduciary net position as a percentage of total OPEB liability 42.17% 37.28% Covered payroll 119,090$ 118,774$ Plan net OPEB liability/(asset) as a percentage of covered employee payroll 124.12% 129.24% Notes to Schedule: Benefit changes ‐ The figures above do not include any liability that may have resulted from plan changes which occurred after the measurement dates. Changes in assumptions ‐ There were no changes in assumptions * Fiscal year ended June 30, 2018 was the first year of implementation of GASB Statement No. 75, therefore only two years of information is shown. CITY OF PALO ALTO Required Supplementary Information (Unaudited) Last 3 Fiscal Years* 114 VI. SCHEDULE OF EMPLOYER OPEB CONTRIBUTIONS (In thousands) Fiscal Year 2018‐19 2017‐18 2016‐17 Contractually required contribution (actuarially determined) 15,997$ 16,938$ 16,365$ Actual contribution (15,997) (21,349) (14,739) Contribution deficiency/(excess) ‐$ (4,411)$ 1,626$ Covered payroll 118,014$ 119,090$ 118,774$ Contributions as percentage of covered‐employee payroll 13.56% 17.93% 12.41% Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for fiscal year 2019 contribution rates are as follows: ADC for fiscal year June 30, 2019 Actuarial valuation date June 30, 2017 Actuarial cost method Entry‐Age, level percentage of payroll Amortization method Level percent of pay Amortization period 26‐year fixed period for 2018/19 Asset valuation method Market value, no smoothing Inflation 2.75% Payroll growth 3.00% Investment rate of return Medical trend Mortality Mortality Improvement 6.75%, net of pension plan investment and administrative expenses, includes inflation. * Fiscal year ended June 30, 2018 was the first year of implementation of GASB Statement No. 75, therefore only three years of information is shown. Non‐Medicare ‐ 7.5% for 2020, decreasing to an ultimate rate of 4.0% in 2076 Medicare ‐ 6.5% for 2020, decreasing to an ultimate rate of 4.0% in 2076 CalPERS 1997‐2011 experience study Post‐retirement mortality projected fully generational with Society of Actuaries Scale MP‐2017 Total Special Debt Other Revenue Service Permanent Governmental Funds Funds Fund Funds ASSETS: Cash and investments: Available for operations 79,677$ 3,620$ 2,425$ 85,722$ Cash and investments with fiscal agents ‐ 34 ‐ 34 Receivables, net: Accounts 312 16 ‐ 328 Interest 486 24 13 523 Notes 34,099 ‐ ‐ 34,099 Deposits 50 ‐ ‐ 50 Total assets 114,624$ 3,694$ 2,438$ $120,756 Liabilities: Accounts payable and accruals 349$ ‐$ ‐$ 349$ Accrued salaries and benefits 17 ‐ ‐ 17 Due to other funds 106 ‐ ‐ 106 Total liabilities 472 ‐ ‐ 472 Fund balances: Nonspendable Eyerly family ‐ ‐ 2,438 2,438 Restricted Transportation mitigation 13,091 ‐ ‐ 13,091 Federal revenue 5,300 ‐ ‐ 5,300 Street improvement 250 ‐ ‐ 250 Local law enforcement 494 ‐ ‐ 494 Debt service ‐ 3,694 ‐ 3,694 Public benefit 20,372 ‐ ‐ 20,372 Committed Developer impact fee 17,049 ‐ ‐ 17,049 Housing In‐Lieu 51,558 ‐ ‐ 51,558 Special districts 5,667 ‐ ‐ 5,667 Assigned Unrealized gain on investment 403 ‐ ‐ 403 Unassigned Downtown business (32) ‐ ‐ (32) Total fund balances 114,152 3,694 2,438 120,284 Total liabilities and fund balances 114,624$ 3,694$ 2,438$ 120,756$ LIABILITIES AND FUND BALANCES: CITY OF PALO ALTO Non‐major Governmental Funds Combining Balance Sheet June 30, 2019 (Amounts in thousands) 115 116 This page is intentionally left blank. Total Special Debt Other Revenue Service Permanent Governmental Funds Funds Fund Funds REVENUES: Property tax ‐$ 4,391$ ‐$ 4,391$ Special assessments 58 ‐ ‐ 58 Other taxes and fines 2,663 ‐ ‐ 2,663 Contributions ‐ ‐ ‐ ‐ Charges for services ‐ ‐ ‐ ‐ Intergovernmental: Community Development Block Grants 687 ‐ ‐ 687 State of California 236 ‐ ‐ 236 Licenses, permits and fees University Avenue Parking 3,037 ‐ ‐ 3,037 California Avenue Parking 546 ‐ ‐ 546 Other licenses, permits and fees 5,766 ‐ ‐ 5,766 Investment earnings 3,593 141 93 3,827 Rental income 6 ‐ ‐ 6 Housing In‐Lieu ‐ residential 5,613 ‐ ‐ 5,613 Other revenue 4,765 ‐ 847 5,612 Total revenues 26,970 4,532 940 32,442 EXPENDITURES: Current: Administrative Services 253 ‐ ‐ 253 Public Works 1,007 ‐ ‐ 1,007 Planning and Community Environment 2,779 ‐ ‐ 2,779 Police 1 ‐ ‐ 1 Community Services 2,716 ‐ ‐ 2,716 Non‐Departmental 462 ‐ ‐ 462 Debt service: Principal retirement ‐ 1,675 ‐ 1,675 Interest and fiscal charges ‐ 3,393 ‐ 3,393 Total expenditures 7,218 5,068 ‐ 12,286 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 19,752 (536) 940 20,156 OTHER FINANCING SOURCES (USES): Issuance of debt ‐ 302 ‐ 302 Transfers in 524 372 ‐ 896 Transfers out (5,970) (15) ‐ (5,985) Total other financing sources (uses) (5,446) 659 ‐ (4,787) Change in fund balances 14,306 123 940 15,369 FUND BALANCES, BEGINNING OF YEAR 99,846 3,571 1,498 104,915 FUND BALANCES, END OF YEAR 114,152$ 3,694$ 2,438$ 120,284$ CITY OF PALO ALTO Non‐major Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2019 (Amounts in thousands) 117 118 This page is intentionally left blank. 119 NON‐MAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Street Improvement This fund accounts for revenues received from state gas tax. Allocations must be spent on the construction and maintenance of the road network system of the City. Federal Revenue This fund accounts for grant funds received under the Community Development Act of 1974 and HOME Investment Grant Programs, for activities approved and subject to federal regulations. Housing In‐Lieu This fund accounts for revenues from commercial and residential developers to provide housing under the City’s Below Market Rate program. Special Districts This fund accounts for revenues from parking permits and for maintenance of various parking lots within the City’s parking districts. Transportation Mitigation This fund accounts for revenues from fees or contributions required for transportation mitigation issues encountered as a result of City development. Local Law Enforcement This fund accounts for revenues received in support of City’s law enforcement program. Asset Seizure This fund accounts for seized property and funds associated with drug trafficking. Under California Assembly Bill No. 4162, the monies are released to the City for specific expenditures related to law enforcement activities. Developer Impact Fee This fund accounts for fees imposed on new developments to be used for parks, community centers and libraries. Downtown Business Development District The Downtown Business Development District Fund was established to account for the activities of the Palo Alto Downtown Business Development District, which was established to enhance the viability of the downtown business district. Public Benefit This fund accounts for the activities of the Stanford University Medical Center (SUMC) Development Agreement (DA) whereby SUMC will enhance and expand their facilities and the City will grant SUMC the right to develop the facilities in accordance with the DA. Street Federal Housing Special Improvement Revenue In‐Lieu Districts ASSETS: Cash and investments: Available for operations 130$ ‐$ 22,801$ 5,841$ Receivables: Accounts 120 192 ‐ ‐ Interest 2 ‐ 129 37 Notes ‐ 5,351 28,748 ‐ Deposit ‐ ‐ ‐ ‐ Total assets 252$ 5,543$ 51,678$ 5,878$ Liabilities: Accounts payable and accruals ‐$ 149$ 12$ 167$ Accrued salaries and benefits ‐ 1 1 13 Due to other funds ‐ 93 ‐ ‐ Total liabilities ‐ 243 13 180 Fund balances: Restricted Transportation mitigation ‐ ‐ ‐ ‐ Federal revenue ‐ 5,300 ‐ ‐ Street improvement 250 ‐ ‐ ‐ Local law enforcement ‐ ‐ ‐ ‐ Public benefit ‐ ‐ ‐ ‐ Committed Developer impact fee ‐ ‐ ‐ ‐ Housing In‐Lieu ‐ ‐ 51,558 ‐ Special districts ‐ ‐ ‐ 5,667 Assigned Unrealized gain on investment 2 ‐ 107 31 Unassigned Downtown business ‐ ‐ ‐ ‐ Total fund balances 252 5,300 51,665 5,698 Total liabilities and fund balances 252$ 5,543$ 51,678$ 5,878$ LIABILITIES AND FUND BALANCES: CITY OF PALO ALTO Non‐major Special Revenue Funds Combining Balance Sheet June 30, 2019 (Amounts in thousands) 120 Downtown Total Business Special Transportation Local Law Asset Developer Development Public Revenue Mitigation Enforcement Seizure Impact Fee District Benefit Funds 13,077$ 490$ 3$ 16,984$ 2$ 20,349$ 79,677$ ‐ ‐ ‐ ‐ ‐ ‐ 312 79 3 ‐ 102 ‐ 134 486 ‐ ‐ ‐ ‐ ‐ ‐ 34,099 ‐ ‐ ‐ 50 ‐ ‐ 50 13,156$ 493$ 3$ 17,136$ 2$ 20,483$ 114,624$ ‐$ ‐$ ‐$ ‐$ 21$ ‐$ 349$ ‐ ‐ ‐ 2 ‐ ‐ 17 ‐ ‐ ‐ ‐ 13 ‐ 106 ‐ ‐ ‐ 2 34 ‐ 472 13,091 ‐ ‐ ‐ ‐ ‐ 13,091 ‐ ‐ ‐ ‐ ‐ ‐ 5,300 ‐ ‐ ‐ ‐ ‐ ‐ 250 ‐ 491 3 ‐ ‐ ‐ 494 ‐ ‐ ‐ ‐ ‐ 20,372 20,372 ‐ ‐ ‐ 17,049 ‐ ‐ 17,049 ‐ ‐ ‐ ‐ ‐ ‐ 51,558 ‐ ‐ ‐ ‐ ‐ ‐ 5,667 65 2 ‐ 85 ‐ 111 403 ‐ ‐ ‐ ‐ (32) ‐ (32) 13,156 493 3 17,134 (32) 20,483 114,152 13,156$ 493$ 3$ 17,136$ 2$ 20,483$ 114,624$ 121 Street Federal Housing Special Improvement Revenue In‐Lieu Districts REVENUES: Property tax ‐ ‐ ‐ ‐ Special assessments ‐$ ‐$ ‐$ ‐$ Other taxes and fines 2,524 ‐ ‐ 139 Contributions ‐ ‐ ‐ ‐ Charges for services ‐ ‐ ‐ ‐ Intergovernmental: Community Development Block Grants ‐ 687 ‐ ‐ State of California 79 ‐ ‐ ‐ Licenses, permits and fees University Avenue Parking ‐ ‐ ‐ 3,037 California Avenue Parking ‐ ‐ ‐ 546 Other licenses, permits and fees ‐ ‐ ‐ 766 Investment earnings 21 ‐ 1,146 257 Rental income ‐ ‐ 6 ‐ Housing In‐Lieu ‐ ‐ 5,613 ‐ Other revenue ‐ 143 196 62 Total revenues 2,624 830 6,961 4,807 EXPENDITURES: Current: Administrative Services ‐ ‐ ‐ 253 Public Works ‐ ‐ ‐ 1,007 Planning and Community Environment ‐ 610 141 2,028 Police ‐ ‐ ‐ ‐ Community Services ‐ ‐ ‐ 26 Non‐Departmental ‐ ‐ 17 386 Total expenditures ‐ 610 158 3,700 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 2,624 220 6,803 1,107 OTHER FINANCING SOURCES (USES): Transfers in ‐ ‐ ‐ 354 Transfers out (2,934) ‐ (1) (906) Total other financing sources (uses) (2,934) ‐ (1) (552) Change in fund balances (310) 220 6,802 555 FUND BALANCES, BEGINNING OF YEAR 562 5,080 44,863 5,143 FUND BALANCES, END OF YEAR 252$ 5,300$ 51,665$ 5,698$ CITY OF PALO ALTO Non‐major Special Revenue Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2019 (Amounts in thousands) 122 Downtown Total Business Special Transportation Local Law Asset Developer Development Public Revenue Mitigation Enforcement Seizure Impact Fee District Benefit Funds ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐$ ‐$ ‐$ ‐$ 58$ ‐$ 58$ ‐ ‐ ‐ ‐ ‐ ‐ 2,663 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 687 ‐ 157 ‐ ‐ ‐ ‐ 236 ‐ ‐ ‐ ‐ ‐ ‐ 3,037 ‐ ‐ ‐ ‐ ‐ ‐ 546 2,217 ‐ ‐ 2,783 ‐ ‐ 5,766 513 18 ‐ 776 1 861 3,593 ‐ ‐ ‐ ‐ ‐ ‐ 6 ‐ ‐ ‐ ‐ ‐ ‐ 5,613 421 ‐ ‐ 3,943 ‐ ‐ 4,765 3,151 175 ‐ 7,502 59 861 26,970 ‐ ‐ ‐ ‐ ‐ ‐ 253 ‐ ‐ ‐ ‐ ‐ ‐ 1,007 ‐ ‐ ‐ ‐ ‐ ‐ 2,779 ‐ 1 ‐ ‐ ‐ ‐ 1 ‐ ‐ ‐ 2,690 ‐ ‐ 2,716 ‐ ‐ ‐ ‐ 59 ‐ 462 ‐ 1 ‐ 2,690 59 ‐ 7,218 3,151 174 ‐ 4,812 ‐ 861 19,752 ‐ ‐ ‐ 170 ‐ ‐ 524 (506) ‐ ‐ (1,612) ‐ (11) (5,970) (506) ‐ ‐ (1,442) ‐ (11) (5,446) 2,645 174 ‐ 3,370 ‐ 850 14,306 10,511 319 3 13,764 (32) 19,633 99,846 13,156$ 493$ 3$ 17,134$ (32)$ 20,483$ 114,152$ 123 Street Improvement Federal Revenue Variance Variance Actual, Positive Actual, Positive Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative) REVENUES: Special assessments ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Other taxes and fines 2,813 2,523 (290) ‐ ‐ ‐ Contributions ‐ ‐ ‐ ‐ ‐ ‐ Charges for services ‐ ‐ ‐ ‐ ‐ ‐ Intergovernmental: Community Development Block Grants ‐ ‐ ‐ 485 687 202 State of California 78 79 1 ‐ ‐ ‐ Licenses, permits and fees University Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐ California Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐ Other licenses, permits and fees ‐ ‐ ‐ ‐ ‐ ‐ Investment earnings 13 6 (7) ‐ ‐ ‐ Rental income ‐ ‐ ‐ ‐ ‐ ‐ Other: Housing In‐Lieu ‐ residential ‐ ‐ ‐ ‐ ‐ ‐ Loan payoffs ‐ ‐ ‐ ‐ ‐ ‐ Other revenue ‐ ‐ ‐ 136 143 7 Total revenues 2,904 2,608 (296) 621 830 209 EXPENDITURES: Current: Administrative Services ‐ ‐ ‐ ‐ ‐ ‐ Public Works ‐ ‐ ‐ ‐ ‐ ‐ Planning and Community Environment ‐ ‐ ‐ 1,049 1,041 8 Police ‐ ‐ ‐ ‐ ‐ ‐ Community Services ‐ ‐ ‐ ‐ ‐ ‐ Non‐Departmental ‐ ‐ ‐ ‐ ‐ ‐ Total expenditures ‐ ‐ ‐ 1,049 1,041 8 Excess (deficiency) of revenues over (under) expenditures 2,904 2,608 (296) (428) (211) 217 OTHER FINANCING SOURCES (USES): Transfers in ‐ ‐ ‐ ‐ ‐ ‐ Transfers out (2,934) (2,934) ‐ ‐ ‐ ‐ Total other financing sources (uses) (2,934) (2,934) ‐ ‐ ‐ ‐ Change in fund balances, budgetary basis (30)$ (326) (296)$ (428)$ (211) 217$ Adjustment to Budgetary Basis: Unrealized gain/loss on investments 16 ‐ Changes in notes receivable ‐ 220 Current year encumbrances/reappropriations ‐ 211 (310) 220 FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 562 5,080 FUND BALANCES, END OF YEAR, GAAP BASIS 252$ 5,300$ CHANGE IN FUND BALANCE, GAAP BASIS (Amounts in thousands) CITY OF PALO ALTO Non‐major Special Revenue Funds Combining Schedule of Revenues, Expenditures and Changes in Fund Balances ‐ Budget and Actual For the Year Ended June 30, 2019 124 Housing In‐Lieu Special Districts Transportation Mitigation Variance Variance Variance Actual, Positive Actual, Positive Actual, Positive Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative) ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐ ‐ ‐ 333 139 (194) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 3,107 3,037 (70) ‐ ‐ ‐ ‐ ‐ ‐ 501 546 45 ‐ ‐ ‐ ‐ ‐ ‐ 787 766 (21) 276 2,217 1,941 428 527 99 27 114 87 203 208 5 9 6 (3) ‐ ‐ ‐ ‐ ‐ ‐ 2,150 5,613 3,463 ‐ ‐ ‐ ‐ ‐ ‐ 25 47 22 ‐ ‐ ‐ ‐ ‐ ‐ 170 196 26 ‐ 62 62 ‐ 421 421 2,782 6,389 3,607 4,755 4,664 (91) 479 2,846 2,367 ‐ ‐ ‐ 283 253 30 ‐ ‐ ‐ ‐ ‐ ‐ 1,374 1,167 207 ‐ ‐ ‐ 10,539 10,437 102 3,589 2,659 930 2,200 2,200 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 26 26 ‐ ‐ ‐ ‐ 190 127 63 449 386 63 ‐ ‐ ‐ 10,729 10,564 165 5,721 4,491 1,230 2,200 2,200 ‐ (7,947) (4,175) 3,772 (966) 173 1,139 (1,721) 646 2,367 ‐ ‐ ‐ 354 354 ‐ ‐ ‐ ‐ ‐ ‐ ‐ (906) (906) ‐ (506) (506) ‐ ‐ ‐ ‐ (552) (552) ‐ (506) (506) ‐ (7,947)$ (4,175) 3,772$ (1,518)$ (379) 1,139$ (2,227)$ 140 2,367$ 617 143 305 63 ‐ ‐ 10,297 791 2,200 6,802 555 2,645 44,863 5,143 10,511 51,665$ 5,698$ 13,156$ 125 Local Law Enforcement Asset Seizure Variance Variance Actual, Positive Actual, Positive Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative) REVENUES: Special assessments ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Other taxes and fines ‐ ‐ ‐ ‐ ‐ ‐ Contributions ‐ ‐ ‐ ‐ ‐ ‐ Charges for services ‐ ‐ ‐ ‐ ‐ ‐ Intergovernmental: Community Development Block Grants ‐ ‐ ‐ ‐ ‐ ‐ State of California 106 157 51 ‐ ‐ ‐ Licenses, permits and fees University Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐ California Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐ Other licenses, permits and fees ‐ ‐ ‐ ‐ ‐ ‐ Investment earnings 2 9 7 ‐ ‐ ‐ Rental income ‐ ‐ ‐ ‐ ‐ ‐ Other: Housing In‐Lieu ‐ residential ‐ ‐ ‐ ‐ ‐ ‐ Loan payoffs ‐ ‐ ‐ ‐ ‐ ‐ Other revenue ‐ ‐ ‐ ‐ ‐ ‐ Total revenues 108 166 58 ‐ ‐ ‐ EXPENDITURES: Current: Administrative Services ‐ ‐ ‐ ‐ ‐ ‐ Public Works ‐ ‐ ‐ ‐ ‐ ‐ Planning and Community Environment ‐ ‐ ‐ ‐ ‐ ‐ Police 133 51 82 ‐ ‐ ‐ Community Services ‐ ‐ ‐ ‐ ‐ ‐ Non‐Departmental ‐ ‐ ‐ ‐ ‐ ‐ Total expenditures 133 51 82 ‐ ‐ ‐ Excess (deficiency) of revenues over (under) expenditures (25) 115 140 ‐ ‐ ‐ OTHER FINANCING SOURCES (USES): Transfers in ‐ ‐ ‐ ‐ ‐ ‐ Transfers out ‐ ‐ ‐ ‐ ‐ ‐ Total other financing sources (uses) ‐ ‐ ‐ ‐ ‐ ‐ Change in fund balances, Budgetary basis (25)$ 115 140$ ‐$ ‐ ‐$ Adjustment to Budgetary Basis: Unrealized gain/loss on investments 9 ‐ Changes in notes receivable ‐ ‐ Current year encumbrances/reappropriations 50 ‐ 174 ‐ FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 319 3 FUND BALANCES, END OF YEAR, GAAP BASIS 493$ 3$ CHANGE IN FUND BALANCE, GAAP BASIS (Amounts in Thousands) CITY OF PALO ALTO Non‐major Special Revenue Funds Combining Schedule of Revenues, Expenditures and Changes in Fund Balances ‐ Budget and Actual For the Year Ended June 30, 2019 126 Developer Impact Fee Downtown Business Improvement District Public Benefit Variance Variance Variance Actual, Positive Actual, Positive Actual, Positive Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative) ‐$ ‐$ ‐$ 140$ 58$ (82)$ ‐$ ‐$ ‐$ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 708 2,783 2,075 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 571 571 ‐ ‐ ‐ ‐ ‐ ‐ 215 362 147 2 (1) (3) 296 374 78 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 3,983 3,943 (40) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ (571) (571) ‐ ‐ ‐ ‐ ‐ ‐ 4,906 7,088 2,182 142 57 (85) 296 374 78 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2,738 2,690 48 ‐ ‐ ‐ 45 ‐ 45 ‐ ‐ ‐ 170 79 91 ‐ ‐ ‐ 2,738 2,690 48 170 79 91 45 ‐ 45 2,168 4,398 2,230 (28) (22) 6 251 374 123 170 170 ‐ ‐ ‐ ‐ ‐ ‐ ‐ (1,612) (1,612) ‐ ‐ ‐ ‐ (11) (11) ‐ (1,442) (1,442) ‐ ‐ ‐ ‐ (11) (11) ‐ 726$ 2,956 2,230$ (28)$ (22) 6$ 240$ 363 123$ 414 1 487 ‐ ‐ ‐ ‐ 21 ‐ 3,370 ‐ 850 13,764 (32) 19,633 17,134$ (32)$ 20,483$ 127 128 This page is left intentionally blank. 129 NON‐MAJOR GOVERNMENTAL FUNDS DEBT SERVICE FUNDS Downtown Parking Improvement This fund accounts for revenues received from the General Fund to provide payment of principal and interest associated with the 2002B Downtown Parking Improvement Certificates of Participation as they become due. 2018 Golf Course Capital Improvement This fund accounts for revenues received from the General Fund to provide payment of principal and interest associated with the 2018 Golf Course Capital Improvement Certificates of Participation as they become due. 2019 California Avenue Parking Garage COPs This fund accounts for revenues received from the General Fund to provide payment of principal and interest associated with the 2019 California Avenue Parking Garage Certificates of Participation as they become due. Library Projects This fund accounts for revenues received from property taxes to provide payment of principal and interest associated with the 2010 and 2013A General Obligation Bonds as they become due. CITY OF PALO ALTO Non‐major Debt Service Funds Combining Balance Sheet June 30, 2019 (Amounts in thousands) Downtown 2018 Golf Course 2019 California Total Parking Capital Avenue Parking Library Debt Service Improvement Improvement Garage COPs Projects Funds ASSETS: Cash and investments: Available for operations ‐$ ‐$ ‐$ 3,620$ $3,620 Cash and investments with fiscal agents ‐ 18 16 ‐ 34 Receivables: Accounts ‐ ‐ ‐ 16 16 Interest ‐ ‐ ‐ 24 24 Total assets ‐$ 18$ 16$ 3,660$ 3,694$ FUND BALANCES: Debt service ‐$ 18$ 16$ 3,660$ 3,694$ 130 CITY OF PALO ALTO Non‐major Debt Service Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2019 (Amounts in thousands) Downtown 2018 Golf Course 2019 California Total Parking Capital Avenue Parking Library Debt Service Improvement Improvement Garage COPs Projects Funds REVENUES: Property tax ‐$ ‐$ ‐$ 4,391$ 4,391$ Investment earnings ‐ 1 ‐ 140 141 Total revenues ‐ 1 ‐ 4,531 4,532 EXPENDITURES: Current: Debt service: Principal retirement ‐ 35 ‐ 1,640 1,675 Interest and fiscal charges ‐ 320 286 2,787 3,393 Total expenditures ‐ 355 286 4,427 5,068 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES ‐ (354) (286) 104 (536) OTHER FINANCING SOURCES (USES): Issuance of debt ‐ ‐ 302 ‐ 302 Transfers in ‐ 372 ‐ ‐ 372 Transfers out (15) ‐ ‐ ‐ (15) Total other financing sources (uses) (15) 372 302 ‐ 659 Change in fund balances (15) 18 16 104 123 FUND BALANCES, BEGINNING OF YEAR 15 ‐ ‐ 3,556 3,571 FUND BALANCES, END OF YEAR ‐$ 18$ 16$ 3,660$ 3,694$ 131 Variance Variance Variance Actual, Positive Actual Positive Actual Positive Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative) REVENUES: Property tax ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ 4,427$ 4,391$ (36)$ Investment earnings ‐ ‐ ‐ ‐ ‐ ‐ ‐ 40 40 Total revenues ‐ ‐ ‐ ‐ ‐ ‐ 4,427 4,431 4 EXPENDITURES: Debt service: Principal retirement 35 35 ‐ ‐ ‐ ‐ 1,640 1,640 ‐ Interest and fiscal charges 320 320 ‐ 286 286 ‐ 2,787 2,787 ‐ Total expenditures 355 355 ‐ 286 286 ‐ 4,427 4,427 ‐ Excess (deficiency) of revenues over (under) expenditures (355) (355) ‐ (286) (286) ‐ ‐ 4 4 OTHER FINANCING SOURCES (USES): Issuance of debt ‐ ‐ ‐ 302 302 ‐ ‐ ‐ ‐ Transfers in 372 372 ‐ ‐ ‐ ‐ ‐ ‐ ‐ Transfers out ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Total other financing sources (uses) 372 372 ‐ 302 302 ‐ ‐ ‐ ‐ Change in fund balances, Budgetary basis 17$ 17 ‐$ 16$ 16 ‐$ ‐$ 4 4$ Adjustment to Budgetary Basis: Unrealized gain/loss on investments 1 ‐ 100 18 16 104 FUND BALANCES, BEGINNING OF YEAR ‐ ‐ 3,556 FUND BALANCES, END OF YEAR 18$ 16$ 3,660$ CHANGE IN FUND BALANCE, GAAP BASIS (Amounts in thousands) CITY OF PALO ALTO Non‐major Debt Service Funds Combining Schedule of Revenues, Expenditures and Changes in Fund Balances ‐ Budget and Actual For the Year Ended June 30, 2019 2018 Golf Course Capital Improvement 2019 California Avenue Parking Garage COPs Library Projects 132 133 NON‐MAJOR GOVERNMENTAL FUNDS PERMANENT FUND Eyerly Family This fund accounts for the revenues received from assets donated by Mr. and Mrs. Fred Eyerly for the City and or its citizenry. Eyerly Family Permanent Fund Variance Actual, Positive Budget Budgetary Basis (Negative) REVENUES: Investment earnings 30$ 49$ 19$ Other fees ‐ 847 847 Total revenues 30 896 866 Change in fund balance 30$ 896 866$ Adjustment to Budgetary Basis: Unrealized gain/loss on investments 44 940 FUND BALANCE, BEGINNING OF YEAR 1,498 FUND BALANCE, END OF YEAR 2,438$ CHANGE IN FUND BALANCE, GAAP BASIS (Amounts in thousands) CITY OF PALO ALTO Non‐major Permanent Fund Schedule of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual For the Year Ended June 30, 2019 134 135 INTERNAL SERVICE FUNDS INTRODUCTION Internal Service Funds are used to finance and account for special activities and services performed by a designated department for other departments in the City on a cost reimbursement basis. Vehicle Replacement and Maintenance This fund accounts for the maintenance and replacement of vehicles and equipment used by all City departments. The source of revenue is from reimbursement of fleet replacement and maintenance costs allocated to each department by usage of vehicle. Technology This fund accounts for replacement and upgrade of technology, and covers four primary areas used by all City departments: desktop, infrastructure, applications, and technology research and development. The source of revenue is from reimbursement of costs for support provided to other departments. Printing and Mailing Services This fund accounts for central duplicating, printing and mailing services provided to all City departments. Source of revenue for this fund is from reimbursement of costs for services and supplies purchased by other departments. General Benefits This fund accounts for the administration of compensated absences and health benefits. Workers’ Compensation Insurance Program This fund accounts for the administration of the City’s self‐insured workers’ compensation programs. General Liabilities Insurance Program This fund accounts for the administration of the City’s self‐insured general liability programs. Retiree Health Benefits This fund accounts for the retiree health benefits contributions. Vehicle Printing Workers' General Total Replacement and Compensation Liabilities Retiree Internal and Mailing General Insurance Insurance Health Services Maintenance Technology Services Benefits Program Program Benefits Funds ASSETS: Current Assets: Cash and investments: Available for operations 10,387$ 25,644$ 149$ 16,557$ 20,964$ 7,991$ 1$ 81,693$ Restricted investments with trustees ‐ ‐ ‐ 14,030 ‐ ‐ ‐ 14,030 Accounts receivable, net 40 319 ‐ 22 ‐ ‐ 1,883 2,264 Interest receivable 67 164 1 110 136 45 3 526 Inventory of materials and supplies 248 ‐ ‐ ‐ ‐ ‐ ‐ 248 Total current assets 10,742 26,127 150 30,719 21,100 8,036 1,887 98,761 Noncurrent Assets: Capital assets: Nondepreciable 913 1,617 ‐ ‐ ‐ ‐ ‐ 2,530 Depreciable, net 17,461 1,780 40 ‐ ‐ ‐ ‐ 19,281 Total noncurrent assets 18,374 3,397 40 ‐ ‐ ‐ ‐ 21,811 Total assets 29,116 29,524 190 30,719 21,100 8,036 1,887 120,572 DEFERRED OUTFLOWS OF RESOURCES: Pension related 671 2,132 54 ‐ 57 ‐ ‐ 2,914 OPEB related 197 402 18 ‐ ‐ ‐ ‐ 617 Total deferred outflows of resources 868 2,534 72 ‐ 57 ‐ ‐ 3,531 LIABILITIES: Current Liabilities: Accounts payable and accruals 180 340 155 1,123 76 20 ‐ 1,894 Accrued salaries and benefits 24 78 3 ‐ 16 ‐ ‐ 121 Due to other funds ‐ ‐ ‐ ‐ ‐ ‐ 737 737 Accrued compensated absences 5 12 ‐ 6,255 1 ‐ ‐ 6,273 Accrued claims payable ‐ current ‐ ‐ ‐ 160 3,442 2,569 ‐ 6,171 Total current liabilities 209 430 158 7,538 3,535 2,589 737 15,196 Noncurrent liabilities: Accrued compensated absences ‐ ‐ ‐ 6,062 ‐ ‐ ‐ 6,062 Accrued claims payable ‐ ‐ ‐ ‐ 17,066 5,128 ‐ 22,194 Net pension liabilities 3,753 12,354 338 ‐ 82 ‐ ‐ 16,527 Net OPEB liabilities 1,818 3,710 163 ‐ ‐ ‐ ‐ 5,691 Total noncurrent liabilities 5,571 16,064 501 6,062 17,148 5,128 ‐ 50,474 Total liabilities 5,780 16,494 659 13,600 20,683 7,717 737 65,670 DEFERRED INFLOWS OF RESOURCES: Pension related 131 356 2 ‐ 3 ‐ ‐ 492 OPEB related 34 69 3 ‐ ‐ ‐ ‐ 106 Total deferred inflows of resources 165 425 5 ‐ 3 ‐ ‐ 598 NET POSITION: Net Investment in capital assets 18,374 3,397 40 ‐ ‐ ‐ ‐ 21,811 Unrestricted 5,665 11,742 (442) 17,119 471 319 1,150 36,024 Total net position 24,039$ 15,139$ (402)$ 17,119$ 471$ 319$ 1,150$ 57,835$ CITY OF PALO ALTO Internal Service Funds Combining Statement of Fund Net Position June 30, 2019 (Amounts in thousands) 136 Vehicle Printing Workers' General Total Replacement and Compensation Liabilities Retiree Internal and Mailing General Insurance Insurance Health Services Maintenance Technology Services Benefits Program Program Benefits Funds OPERATING REVENUES: Charges for services 8,915$ 14,905$ 1,604$ 57,060$ 3,764$ 2,962$ 13,800$ 103,010$ Other ‐ ‐ ‐ ‐ 295 501 ‐ 796 Total operating revenues 8,915 14,905 1,604 57,060 4,059 3,463 13,800 103,806 OPERATING EXPENSES: Administrative and general 1,615 6,465 1,199 307 944 2,105 24 12,659 Operations and maintenance 4,084 8,395 367 567 165 ‐ ‐ 13,578 Depreciation and amortization 3,007 486 7 ‐ ‐ ‐ ‐ 3,500 Claim payments and change in estimated self‐insured liability ‐ ‐ ‐ 1,514 5,108 2,376 ‐ 8,998 Refund of charges for services 123 24 ‐ ‐ ‐ ‐ ‐ 147 Employment benefits ‐ ‐ ‐ 52,261 ‐ ‐ 15,997 68,258 Total operating expenses 8,829 15,370 1,573 54,649 6,217 4,481 16,021 107,140 Operating income (loss) 86 (465) 31 2,411 (2,158) (1,018) (2,221) (3,334) NONOPERATING REVENUES (EXPENSES): Investment earnings 507 1,244 2 1,134 1,039 328 175 4,429 Gain on disposal of capital assets 275 ‐ ‐ ‐ ‐ ‐ ‐ 275 Other nonoperating revenues 42 ‐ ‐ ‐ ‐ ‐ ‐ 42 Total nonoperating revenues (expenses) 824 1,244 2 1,134 1,039 328 175 4,746 Income (loss) before transfers 910 779 33 3,545 (1,119) (690) (2,046) 1,412 Transfers in ‐ 1,366 ‐ 5,992 ‐ 5 2,197 9,560 Transfers out (143) (100) (2) (2,197) (2) ‐ ‐ (2,444) Change in net position 767 2,045 31 7,340 (1,121) (685) 151 8,528 NET POSITION (DEFICIT), BEGINNING OF YEAR 23,272 13,094 (433) 9,779 1,592 1,004 999 49,307 NET POSITION, END OF YEAR 24,039$ 15,139$ (402)$ 17,119$ 471$ 319$ 1,150$ 57,835$ CITY OF PALO ALTO Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Position For the Year Ended June 30, 2019 (Amounts in thousands) 137 Vehicle Printing Workers' General Total Replacement and Compensation Liabilities Retiree Internal and Mailing General Insurance Insurance Health Services Maintenance Technology Services Benefits Program Program Benefits Funds Cash flows from operating activities: Cash received from customers 8,879$ 14,586$ 1,604$ 57,070$ 3,781$ 3,463$ 11,917$ 101,300$ Cash refunds to customers ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Cash payments to suppliers for goods and services (3,373) (6,974) (1,404) (1,308) (124) (1,560) (653) (15,396) Cash payments to employees (2,365) (7,393) (221) (51,427) (944) ‐ (16,021) (78,371) Cash payments for judgments and claims ‐ ‐ ‐ (1,514) (2,571) (526) ‐ (4,611) Other cash receipts 42 ‐ ‐ ‐ ‐ ‐ ‐ 42 Net cash flows provided by (used in) operating activities 3,183 219 (21) 2,821 142 1,377 (4,757) 2,964 Cash flows from noncapital financing activities: Receipt of loans from other funds ‐ ‐ ‐ ‐ ‐ ‐ 737 737 Transfers in ‐ 1,366 ‐ 5,992 ‐ 5 2,197 9,560 Transfers out (143) (100) (2) (2,197) (2) ‐ ‐ (2,444) Net cash flows provided by (used in) noncapital financing activities (143) 1,266 (2) 3,795 (2) 5 2,934 7,853 Cash flows from capital and related financing activities: Acquisition of capital assets (3,113) (506) (18) ‐ ‐ ‐ ‐ (3,637) Proceeds from sale of capital assets 349 30 ‐ ‐ ‐ ‐ ‐ 379 Net cash flows (used in) capital and related financing activities (2,764) (476) (18) ‐ ‐ ‐ ‐ (3,258) Cash flows from investing activities: Interest received (charged) 497 1,216 2 1,120 1,019 320 192 4,366 Net change in cash and cash equivalents 773 2,225 (39) 7,736 1,159 1,702 (1,631) 11,925 Cash and cash equivalents, beginning of year 9,614 23,419 188 22,851 19,805 6,289 1,632 83,798 Cash and cash equivalents, end of year $ 10,387 $ 25,644 $ 149 $ 30,587 $ 20,964 $ 7,991 $ 1 $ 95,723 Reconciliation of operating income (loss) to net cash flows provided by (used in) operating activities: Operating income (loss) 86$ (465)$ 31$ 2,411$ (2,158)$ (1,018)$ (2,221)$ (3,334)$ Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation 3,007 486 7 ‐ ‐ ‐ ‐ 3,500 Other 42 ‐ ‐ ‐ ‐ ‐ ‐ 42 Change in assets and liabilities: Accounts receivable (36) (319) ‐ 10 17 ‐ (1,883) (2,211) Inventory of materials and supplies (34) ‐ ‐ ‐ ‐ ‐ ‐ (34) Net OPEB asset ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Deferred outflows of resources ‐ pension plan 207 644 10 ‐ 20 ‐ ‐ 881 Deferred outflows of resources ‐ OPEB 66 134 5 ‐ ‐ ‐ ‐ 205 Accounts payable and accruals (206) (95) (38) 121 41 20 (653) (810) Accrued salaries and benefits 1 2 1 ‐ 14 ‐ ‐ 18 Accrued compensated absences 1 (4) ‐ 279 1 ‐ ‐ 277 Accrued claims payable ‐ ‐ ‐ ‐ 2,242 2,375 ‐ 4,617 Net pension liability 49 (172) (28) ‐ (32) ‐ ‐ (183) Net OPEB liability (70) (143) (6) ‐ ‐ ‐ ‐ (219) Deferred inflows of resources ‐ pension plans 67 145 (3) ‐ (3) ‐ ‐ 206 Deferred inflows of resouces ‐ OPEB 3 6 ‐ ‐ ‐ ‐ ‐ 9 Net cash flows provided by (used in) operating activities 3,183$ 219$ (21)$ 2,821$ 142$ 1,377$ (4,757)$ 2,964$ CITY OF PALO ALTO Internal Service Funds Combining Statement of Cash Flows For the Year Ended June 30, 2019 (Amounts in thousands) 138 139 FIDUCIARY FUNDS INTRODUCTION Fiduciary Funds are used to account for assets held by the City acting in a fiduciary capacity for other entities and individuals. The funds are operated to carry out the specific actions required by the trust agreements, ordinances and other governing regulations. Fiduciary Funds are presented separately from the Citywide and Fund financial statements. Agency Funds are custodial in nature and do not involve measurement of results of operations. The City maintains two agency funds, as follows: Cable Joint Powers Authority The fund was established to account for the activities of the cable television system on behalf of the members. University Avenue Area Off‐Street Parking Assessment District The fund accounts for the receipts and disbursements associated with the Series 2012 Limited Obligation Refunding Improvement Bonds. CITY OF PALO ALTO All Agency Funds Statement of Changes in Assets and Liabilities For the Year Ended June 30, 2019 Balance Balance June 30, 2018 Additions Deletions June 30, 2019 Cable Joint Powers Authority ASSETS: Cash and investments available for operations 549$ 190$ ‐$ 739$ Accounts receivable 515 ‐ 18 497 Interest receivable 3 1 ‐ 4 Total assets 1,067$ 191$ 18$ 1,240$ LIABILITIES: Due to other governments 1,067$ 173$ ‐$ 1,240$ ASSETS: Cash and investments available for operations 1,973$ 55$ ‐$ 2,028$ Cash and investments with fiscal agents 2,594 63 ‐ 2,657 Accounts receivable 17 ‐ 6 11 Interest receivable 11 2 ‐ 13 Total assets 4,595$ 120$ 6$ 4,709$ LIABILITIES: Due to bondholders 4,595$ 114$ ‐$ 4,709$ Total Agency Funds ASSETS: Cash and investments available for operations 2,522$ 245$ ‐$ 2,767$ Cash and investments with fiscal agents 2,594 63 ‐ 2,657 Accounts receivable 532 ‐ 24 508 Interest receivable 14 3 ‐ 17 Total assets 5,662$ 311$ 24$ 5,949$ LIABILITIES: Due to bondholders 4,595$ 114$ ‐$ 4,709$ Due to other governments 1,067 173 ‐ 1,240 Total liabilities 5,662$ 287$ ‐$ 5,949$ (Amounts in thousands) University Avenue Area Off‐Street Parking Assessment District 140 141 STATISTICAL SECTION The statistical section contains comprehensive statistical data, which relates to physical, economic, social and political characteristics of the City. It is intended to provide users with a broader and more complete understanding of the City and its financial affairs than is possible from the financial statements and supporting schedules included in the financial section. In this section, readers will find comparative information related to the City’s revenue sources, expenditures, property tax valuations, levies and collections, general obligation bonded debt, utility revenue debt service, and demographics. Where available, the comparative information is presented for the last ten fiscal years. In addition, this section presents information related to the City’s legal debt margin computation, principal taxpayers, notary and security bond coverages, and other miscellaneous statistics pertaining to services provided by the City. In contrast to the financial section, the statistical section information is not usually subject to independent audit. Financial Trends These schedules contain trend information to help the reader understand how the City’s financial performance and well‐being have changed over time: Net Position by Component Changes in Net Position Fund Balances of Governmental Funds Changes in Fund Balances of Governmental Funds Revenue Capacity These schedules contain information to help the reader assess the City’s most significant local revenue sources, property tax and electric charges: Electric Operating Revenue by Source Supplemental Disclosure for Water Utilities Supplemental Disclosure for Gas Utilities Assessed Value of Taxable Property Property Tax Rates, All Overlapping Governments Property Tax Levies and Collections Principal Property Taxpayers Assessed Valuation and Parcels by Land Use Per Parcel Assessed Valuation of Single Family Residential Debt Capacity These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future: Ratio of Outstanding Debt by Type Computation of Direct and Overlapping Debt Computation of Legal Bonded Debt Margin Revenue Bond Coverage 142 STATISTICAL SECTION Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the City’s financial activities take place: Taxable Transactions by Type of Business Demographic and Economic Statistics Principal Employers Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the City provides and the activities it performs: Operating Indicators by Function/Program Capital Asset Statistics by Function/Program Full‐Time Equivalent City Government Employees by Function Sources Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual Financial Reports for the relevant year. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Governmental Activities Investment in capital assets 369,499$ 364,747$ 370,111$ 378,047$ 386,696$ 405,921$ 425,179$ 453,878$ 473,233$ 493,706$ Restricted 34,323 16,437 52,934 71,717 68,331 55,963 47,907 36,081 41,177 45,639 Unrestricted 102,199 134,722 142,102 165,810 187,386 1,972 37,905 37,330 (87,040) (89,362) Total Governmental Activities Net Position 506,021$ 515,906$ 565,147$ 615,574$ 642,413$ 463,856$ 510,991$ 527,289$ 427,370$ 449,983$ Business‐type Activities Investment in capital assets 399,317$ 416,418$ 437,151$ 446,597$ 473,795$ 490,874$ 512,918$ 532,063$ 573,688$ 602,136$ Restricted 4,300 ‐ ‐ 4,060 4,166 4,142 4,115 4,073 4,014 4,016 Unrestricted 232,420 253,740 262,602 269,926 266,794 172,802 162,806 163,158 110,429 135,391 Total Business‐type Activities Net Position 636,037$ 670,158$ 699,753$ 720,583$ 744,755$ 667,818$ 679,839$ 699,294$ 688,131$ 741,543$ Primary Government Investment in capital assets 768,816$ 781,165$ 807,262$ 824,644$ 860,491$ 896,795$ 938,097$ 985,941$ 1,046,921$ 1,095,842$ Restricted 38,623 16,437 52,934 75,777 72,497 60,105 52,022 40,154 45,191 49,655 Unrestricted 334,619 388,462 404,704 435,736 454,180 174,774 200,711 200,488 23,389 46,029 Total Primary Government Net Position 1,142,058$ 1,186,064$ 1,264,900$ 1,336,157$ 1,387,168$ 1,131,674$ 1,190,830$ 1,226,583$ 1,115,501$ 1,191,526$ Notes: Source: Annual Financial Statements, Statement of Net Position The City implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions, effective July 1, 2014, and GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pension, effective July 1, 2017. The City's unrestricted net position decreased in FY 2015 and again in FY 2018 as a result. Fiscal Year Ended June 30 CITY OF PALO ALTO Net Position by Component Last Ten Fiscal Years (Amounts in thousands) (Accrual basis of accounting) $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 $ T h o u s a n d s Primary Government Investment in capital assets Restricted Unrestricted 143 PROGRAM REVENUES 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Governmental Activities Charges for services City Attorney 53$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Administrative Services 984 2,889 1,647 15,629 4,055 5,460 9,444 5,242 6,536 6,413 Public Works 1,258 2,419 1,008 1,314 1,093 1,209 599 878 781 1,478 Planning & Community Environment 4,813 7,237 31,491 28,768 12,896 8,090 9,071 6,067 5,119 11,997 Development Services1 ‐ ‐ ‐ ‐ ‐ 12,019 12,570 11,768 16,000 13,904 Public Safety 14,337 15,274 15,658 16,139 14,902 15,726 13,945 12,670 13,507 14,179 Community Services 8,729 7,724 11,365 13,808 20,882 20,912 21,551 20,472 21,285 22,805 Library 199 480 1,600 187 166 137 198 139 145 134 Operating grants and contributions 4,829 2,884 3,441 5,038 5,360 5,300 2,164 1,990 14,054 2,100 Capital grants and contributions 1,280 1,903 1,064 515 917 619 344 1,929 1,534 8,247 Total Governmental Activities Program Revenues 36,482 40,810 67,274 81,398 60,271 69,472 69,886 61,155 78,961 81,257 Business‐type Activities Charges for services Water 26,259 26,624 31,467 37,746 40,291 35,847 37,588 42,678 45,087 45,571 Electric 121,900 122,109 118,886 121,805 121,916 120,842 120,743 137,543 154,142 163,514 Fiber Optics 3,105 3,322 3,662 4,382 4,485 4,627 4,505 4,553 4,529 4,657 Gas 44,450 43,584 41,774 34,633 35,737 30,751 30,212 36,431 37,044 42,113 Wastewater Collection 15,136 15,094 14,942 16,077 15,599 16,182 16,496 17,748 17,990 20,219 Wastewater Treatment 16,915 18,830 22,200 21,528 18,460 24,120 23,825 23,649 27,382 27,573 Refuse 28,568 30,469 30,645 30,583 30,297 31,576 32,169 33,918 34,647 33,996 Storm Drainage 5,647 5,796 5,892 6,053 6,183 6,281 6,520 6,693 6,964 7,249 Airport ‐ ‐ ‐ ‐ ‐ 683 826 1,286 2,382 2,483 Operating grants and contributions 361 610 605 572 549 534 744 512 501 488 Capital grants and contributions 475 3,004 1,526 2,224 2,005 2,080 1,061 4,265 14,194 6,677 Total Business‐type Activities Program Revenues 262,816 269,442 271,599 275,603 275,522 273,523 274,689 309,276 344,862 354,540 Total Primary Government Program Revenues 299,298$ 310,252$ 338,873$ 357,001$ 335,793$ 342,995$ 344,575$ 370,431$ 423,823$ 435,797$ EXPENSES Governmental Activities City Council 455$ 15$ 345$ 94$ 387$ 271$ 352$ 329$ 345$ 270$ City Manager 2,399 1,842 1,960 1,237 2,180 2,155 2,662 1,975 2,757 3,336 City Attorney 2,621 953 1,656 1,642 1,797 1,759 2,472 2,140 2,511 3,086 City Clerk 1,369 803 908 330 641 680 582 762 931 822 City Auditor 2,601 138 235 464 489 362 414 847 994 1,081 Administrative Services 17,893 9,888 10,100 7,614 11,388 9,980 10,637 11,887 13,949 19,169 Human Resources 3,707 1,346 1,071 1,420 1,346 1,464 2,224 2,272 2,674 3,021 Public Works 18,658 19,357 14,568 20,816 24,577 21,075 24,613 25,539 30,349 36,617 Planning & Community Environment 12,114 15,031 12,074 13,549 14,926 8,423 10,208 10,918 11,357 12,169 Development Services1 ‐ ‐ ‐ ‐ ‐ 10,449 11,158 11,102 12,664 12,622 Public Safety 55,799 58,996 62,817 59,452 62,883 58,660 56,653 73,320 83,923 89,189 Community Services 17,171 22,845 21,915 22,705 23,822 24,688 28,547 27,866 33,709 36,815 Library 6,143 6,920 7,323 7,319 7,758 7,721 10,825 11,437 12,208 12,557 Interest on long term debt 370 2,742 2,575 2,562 3,367 3,658 3,552 2,846 2,761 3,653 Total Governmental Activities Expenses 141,300 140,876 137,547 139,204 155,561 151,345 164,899 183,240 211,132 234,407 Business‐type Activities Water 21,037 24,268 29,093 30,707 31,593 33,205 35,120 37,535 40,836 40,606 Electric 107,910 100,130 102,030 106,438 113,004 122,499 120,319 128,603 146,033 139,605 Fiber Optics 1,407 1,561 1,489 1,437 1,661 1,891 2,107 2,159 2,653 2,476 Gas 32,498 32,051 28,878 26,749 26,869 23,525 20,879 26,783 27,930 30,915 Wastewater Collection 10,696 12,275 14,825 14,313 13,235 14,595 15,199 16,405 16,801 17,324 Wastewater Treatment 13,466 19,731 20,712 20,635 21,018 21,553 22,546 23,498 27,518 27,070 Refuse 28,119 30,684 31,900 28,542 28,413 27,974 30,370 30,665 28,808 30,391 Storm Drainage 2,491 3,229 3,103 3,703 3,644 3,721 3,735 4,106 5,059 4,951 Airport ‐ 31 153 246 466 1,004 970 1,274 1,656 1,790 Total Business‐type Activities Expenses 217,624 223,960 232,183 232,770 239,903 249,967 251,245 271,028 297,294 295,128 Total Primary Government Expenses 358,924$ 364,836$ 369,730$ 371,974$ 395,464$ 401,312$ 416,144$ 454,268$ 508,426$ 529,535$ CITY OF PALO ALTO Changes in Net Position Last Ten Fiscal Years (Accrual basis of accounting) (Amounts in thousands) Fiscal Year Ended June 30 144 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 NET (EXPENSE)/REVENUE Governmental Activities (104,818)$ (100,066)$ (70,273)$ (57,806)$ (95,290)$ (81,873)$ (95,013)$ (122,085)$ (132,171)$ (153,150)$ Business‐type Activities 45,192 45,482 39,416 42,833 35,619 23,556 23,444 38,248 47,568 59,412 Total Primary Government Net (Expense)/Revenue (59,626)$ (54,584)$ (30,857)$ (14,973)$ (59,671)$ (58,317)$ (71,569)$ (83,837)$ (84,603)$ (93,738)$ GENERAL REVENUES AND OTHER CHANGES IN NET POSITION Governmental Activities Taxes Property tax 25,981$ 29,156$ 30,104$ 31,929$ 35,299$ 38,750$ 41,189$ 43,953$ 47,170$ 51,718$ Sales tax 17,991 20,746 22,132 25,606 29,424 29,675 30,018 29,923 31,091 36,508 Utility user tax 11,295 10,851 10,834 10,861 11,008 10,861 12,469 14,240 15,414 16,402 Transient occupancy tax 6,858 8,082 9,664 10,794 12,255 16,699 22,366 23,477 24,937 25,649 Other taxes 4,055 8,156 8,173 10,504 9,660 11,867 7,868 8,989 11,337 9,525 Investment earnings 6,514 3,500 6,238 (1,228) 5,859 5,010 8,639 (711) 420 15,375 Miscellaneous 12,729 12,377 14,943 518 2,575 3,428 894 168 1,973 1,906 Transfers 13,994 17,083 17,426 19,249 17,103 16,405 18,705 18,344 19,077 18,680 Total Governmental Activities 99,417 109,951 119,514 108,233 123,183 132,695 142,148 138,383 151,419 175,763 Business‐type Activities Investment earnings 10,769 5,722 7,605 (2,754) 6,379 4,857 7,282 (449) 596 12,680 Transfers (13,994) (17,083) (17,426) (19,249) (17,103) (16,405) (18,705) (18,344) (19,077) (18,680) Total Business‐type Activities (3,225) (11,361) (9,821) (22,003) (10,724) (11,548) (11,423) (18,793) (18,481) (6,000) Total Primary Government 96,192$ 98,590$ 109,693$ 86,230$ 112,459$ 121,147$ 130,725$ 119,590$ 132,938$ 169,763$ CHANGE IN NET POSITION Governmental Activities (5,401)$ 9,885$ 49,241$ 50,427$ 27,893$ 50,822$ 47,135$ 16,298$ 19,248$ 22,613$ Business‐type Activities 41,967 34,121 29,595 20,830 24,895 12,008 12,021 19,455 29,087 53,412 Total Primary Government Change in Net Position 36,566$ 44,006$ 78,836$ 71,257$ 52,788$ 62,830$ 59,156$ 35,753$ 48,335$ 76,025$ Notes:1The Development Services Department was formed in FY15. Source: Annual Financial Statements, Statement of Activities Fiscal Year Ended June 30 145 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 General Fund Nonspendable 6,581$ 6,085$ 6,007$ 5,749$ 6,188$ 6,296$ 7,088$ 7,709$ 8,049$ 7,647$ Committed ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 373 5,100 Assigned 7,295 6,235 6,400 5,415 5,432 7,976 8,261 7,280 7,098 7,657 Unassigned 27,581 31,859 29,616 30,913 36,690 48,198 51,582 48,118 52,826 54,811 Total General Fund 41,457$ 44,179$ 42,023$ 42,077$ 48,310$ 62,470$ 66,931$ 63,107$ 68,346$ 75,215$ Source: Annual Financial Statements, Balance Sheet Fiscal Year Ended June 30 CITY OF PALO ALTO Fund Balances of Governmental Funds (General Fund) Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts in thousands) $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 $ T h o u s a n d s Nonspendable Committed Assigned Unassigned 146 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 All Other Governmental Funds Nonspendable 1,402$ 1,422$ 11,112$ 18,189$ 14,869$ 1,468$ 1,505$ 1,499$ 1,498$ 2,438$ Restricted 55,400 50,646 61,324 84,688 68,468 59,650 47,113 35,298 40,317 85,940 Committed 16,962 24,775 14,284 20,400 27,145 48,434 65,745 71,566 72,781 84,616 Assigned 38,538 20,114 33,264 45,514 55,211 52,627 64,411 63,225 68,261 56,842 Unassigned ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ (32) (32) Total All Other Governmental Funds 112,302$ 96,957$ 119,984$ 168,791$ 165,693$ 162,179$ 178,774$ 171,588$ 182,825$ 229,804$ Source: Annual Financial Statements, Balance Sheet Fiscal Year Ended June 30 CITY OF PALO ALTO Fund Balances of Governmental Funds (All Other Governmental Funds) Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts in thousands) $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 $ T h o u s a n d s Nonspendable Restricted Committed Unassigned ($50,000) $0 $50,000 $100,000 $150,000 $200,000 $250,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 $ T h o u s a n d s Nonspendable Restricted Committed Assigned Unassigned 147 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Revenues Property tax 25,981$ 29,248$ 30,216$ 32,040$ 35,393$ 38,836$ 41,289$ 44,050$ 47,242$ 51,776$ Sales tax 17,991 20,746 22,132 25,606 29,424 29,675 30,018 29,923 31,091 36,508 Other taxes and fines 25,063 27,890 29,231 32,141 35,305 41,576 44,909 48,875 53,837 53,525 Contributions3 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 11,733 ‐ Charges for services 19,775 22,311 46,273 38,976 23,962 25,973 23,910 22,267 26,835 27,346 From other agencies 3,035 1,614 1,116 4,109 5,700 7,727 4,417 5,443 5,392 4,689 Permits and licenses 4,408 5,433 7,136 8,218 8,990 9,179 11,228 10,523 12,786 17,759 Interest and rentals 19,045 16,553 18,583 12,136 18,445 18,658 22,269 15,348 16,288 32,905 Other revenue 4,724 8,624 12,739 17,570 7,471 12,837 13,827 4,985 6,067 7,955 Total Revenues 120,022 132,419 167,426 170,796 164,690 184,461 191,867 181,414 211,271 232,463 Expenditures Administration1 17,353 8,351 9,412 8,291 9,961 10,806 11,501 13,192 14,721 15,799 Public Works 9,787 11,317 11,304 11,489 12,439 12,276 13,112 14,485 15,426 14,764 Planning and Community Environment 9,480 10,309 11,966 13,474 14,761 8,628 9,722 10,568 10,332 10,911 Development Services2 ‐ ‐ ‐ ‐ ‐ 11,152 10,643 10,908 11,749 11,549 Public Safety 51,022 58,874 62,418 59,537 62,028 61,447 63,784 71,164 73,916 76,344 Community Services 16,451 20,029 20,860 21,661 22,644 23,553 25,511 25,408 29,831 31,619 Library 5,900 6,509 7,072 6,902 7,340 7,980 7,960 8,953 9,120 9,288 Non‐departmental 10,149 7,352 6,819 4,567 8,135 6,180 8,068 6,566 7,579 12,231 Special revenue and capital projects 22,006 35,486 29,154 29,542 37,035 41,754 24,457 39,643 40,971 46,914 Debt service ‐ principal payments 840 870 1,743 1,489 1,524 1,948 7,130 2,066 2,961 2,101 Debt service ‐interest and fiscal fees 382 1,815 2,757 2,659 3,196 3,404 4,266 3,032 2,956 3,398 Payment to bond refunding escrow ‐ ‐ 586 540 ‐ ‐ ‐ ‐ ‐ ‐ Total Expenditures 143,370 160,912 164,091 160,151 179,063 189,128 186,154 205,985 219,562 234,918 Excess (Deficiency) of Revenues Over (Under) Expenditures (23,348) (28,493) 3,335 10,645 (14,373) (4,667) 5,713 (24,571) (8,291) (2,455) Other Financing Sources (Uses) Issuance of Debt ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 8,970 42,297 Proceeds from sale of capital assets ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2,442 Transfers in 34,835 30,323 47,200 50,343 41,683 45,137 61,835 58,331 56,882 54,711 Transfers out (21,415) (14,352) (29,782) (33,833) (24,175) (29,824) (46,492) (44,770) (41,085) (43,147) Other ‐ (101) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Proceeds from long term debt 59,071 ‐ 3,222 21,706 ‐ ‐ ‐ ‐ ‐ ‐ Payments to refund bond escrow ‐ ‐ (3,104) ‐ ‐ ‐ ‐ ‐ ‐ ‐ Total Other Financing Sources (Uses)72,491 15,870 17,536 38,216 17,508 15,313 15,343 13,561 24,767 56,303 Net Change in Fund Balances 49,143$ (12,623)$ 20,871$ 48,861$ 3,135$ 10,646$ 21,056$ (11,010)$ 16,476$ 53,848$ Debt Service as a Percentage of Non‐Capital Expenditures 1.0% 2.2% 3.5% 3.2% 3.3% 3.7% 7.1% 3.1% 3.3% 2.8% Notes: 2The Development Services Department was formed in FY15. 3Contributions from the Stanford University Medical Center. Source: Annual Financial Statements, Governmental Funds, Statement of Revenues, Expenditures and Changes in Fund Balances 1Comprised of the following departments: City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative Services and Human Resources. Fiscal Year Ended June 30 CITY OF PALO ALTO Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts in thousands) 148 Fiscal Commercial & City of Year Residential Industrial Palo Alto Total 2010 19,898$ 89,315$ 2,890$ 112,103$ 2011 19,848 88,076 2,991 110,915 2012 20,328 85,895 3,352 109,575 2013 19,951 86,998 3,265 110,214 2014 18,744 88,419 3,225 110,388 2015 17,404 88,257 3,234 108,895 2016 18,191 86,715 3,127 108,033 2017 20,269 90,635 3,780 114,684 2018 22,764 100,200 4,264 127,228 2019 23,613 103,509 4,404 131,526 * The electric operating revenues include sales to customers and city departments, and excludes the sale of surplus energy, utility billing discounts, and bad debt expense. 529 Bryant Street LLC Technology City of Palo Alto Municipal Communications & Power Industries (CPI) Research Lucille Packard Children's Hospital Hospital Space Systems/Loral, LLC Satellite & Satellite Systems Stanford Hospital & Clinics Hospital Tesla, Inc. Manufacturing Varian Medical Systems, Inc. Manufacturing Veterans Administration Hospital Hospital VMware, Inc. Computer Number Kilowatt‐hour of Customers Sales (kWh)Revenue2 Residential 25,675 150,602,255 23,613$ Commercial 3,703 568,750,819 85,332 Industrial 72 133,791,543 18,177 CPA 141 29,258,401 4,404 Total 29,591 882,403,018 131,526$ City of Palo Alto Power Purchase Western Area Power Administration Hydroelectric 42.2% Forward Market Purchases ‐3.1% Wind Energy 11.3% Landfill Gas Energy 11.0% Solar Energy 37.3% Northern California Power Agency Hydroelectric 21.5% Short‐Term Market ‐20.3% Source: City of Palo Alto, Utilities and Accounting Departments Customer (alphabetical order)Type of Business 1The top ten customers accounted for approximately 35.3% of total kWh consumption (311,586,525 kWh) and 31.2% of revenue ($42,456,824). The largest customer accounted for 9.1% of total kWh consumption and 7.8% of revenue. The smallest customer accounted for 1.9% of total kWh consumption and 1.6% of revenue. Revenue used to determine top ten electric customers includes metered and non‐metered charges, adjustments, surcharges and discounts. Revenue does not include Utility Users Tax (UUT) and deposits. 2Revenue includes metered and non‐metered charges and revenue adjustments. Revenue does not include California Energy Commission (CEC) surcharges, Utility Users Tax (UUT), Primary Voltage and Rate Assistance (RAP) discounts and deposits. Parts of this schedule are provided as required by the Continuing Disclosure Agreement for the City's Utility Revenue Bond and are not required by Governmental Accounting Standards Board (GASB). CITY OF PALO ALTO Electric Operating Revenue by Source * Last Ten Fiscal Years (Amounts in thousands) Top Ten Electric Customers by Revenue1 149 Top Ten Largest Water Utility Customers (alphabetical order) City of Palo Alto Oak Creek Apartments Palo Alto Hills Golf & Country Club Palo Alto Unified School District Simon Property Group Stanford Hospital & Clinics Stanford West Management Veterans Administration Hospital Vi at Palo Alto VMware Inc. The top ten customers total consumption is 817,423 CCF with revenue of $7,752,774. This amount accounts for approximately 18.5% of total consumption and 16.9% of total revenue. The largest customer (other than the City of Palo Alto) accounted for 2.7% of consumption and 2.4% of revenue. The smallest customer accounted for 0.7% of consumption and 0.7% of revenue. Revenue used to determine top ten water utility customers includes metered and non‐metered charges, adjustments, surcharges and discounts. Revenue does not include Utility Users Tax (UUT) and deposits. Note: Source: City of Palo Alto, Utilities Department CITY OF PALO ALTO Supplemental Disclosure for Water Utilities Fiscal Year 2019 This schedule is provided as required by the Continuing Disclosure Agreement for the City's Utility Revenue Bond and is not required by Governmental Accounting Standards Board (GASB). 150 Top Ten Largest Gas Utility Customers (alphabetical order) City of Palo Alto Communications & Power Industries (CPI) Genencor International Hewlett Packard Palo Alto Unified School District Space Systems/Loral, LLC Stanford Hospital & Clinics Stanford University Veterans Administration Hospital VMware Inc. The top ten customers total consumption is 7,172,798 THM with revenue of $8,791,874. This amount accounts for approximately 24.7% of total consumption and 21.1% of total revenue. The largest customer (other than the City of Palo Alto) accounted for 6.1% of consumption and 5.1% of revenue. The smallest customer accounted for 1.1% of consumption and 1% of revenue. Note: Source: City of Palo Alto, Utilities Department CITY OF PALO ALTO Supplemental Disclosure for Gas Utilities Fiscal Year 2019 This schedule is provided as required by the Continuing Disclosure Agreement for the City's Utility Revenue Bond and is not required by Governmental Accounting Standards Board (GASB). 151 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Net Local Secured Roll Land 11,007,650$ 11,011,160$ 11,352,993$ 12,255,515$ 13,357,851$ 14,409,837$ 15,718,665$ 17,333,969$ 18,770,642$ 20,386,904$ Improvements 10,752,671 10,962,928 11,703,597 12,381,306 12,984,735 13,633,986 14,998,502 16,752,295 18,642,970 19,845,666 Personal property 288,148 241,280 257,436 287,296 307,499 290,590 310,929 306,576 300,352 181,381 22,048,469 22,215,368 23,314,026 24,924,117 26,650,085 28,334,413 31,028,096 34,392,840 37,713,964 40,413,951 Less: Exemptions net of state aid (1,809,119) (1,757,241) (2,346,728) (2,589,653) (2,610,521) (2,761,495) (3,409,836) (4,244,500) (5,203,968) (5,522,323) Total Net Local Secured Roll 20,239,350 20,458,127 20,967,298 22,334,464 24,039,564 25,572,918 27,618,260 30,148,340 32,509,996 34,891,628 Public utilities 2,573 2,573 2,573 2,573 2,573 2,573 2,573 2,573 2,573 7,004 Unsecured property 1,638,436 1,495,574 1,516,837 1,355,970 1,493,922 1,622,636 1,794,921 1,803,468 1,922,170 1,902,781 Total Assessed Value 21,880,359$ 21,956,274$ 22,486,708$ 23,693,007$ 25,536,059$ 27,198,127$ 29,415,754$ 31,954,381$ 34,434,739$ 36,801,413$ Total Direct Tax Rate 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% Note: The State Constitution requires property to be assessed at 100% of the most recent purchase price, plus an increment of no more than 2% annually, plus any local over‐rides. These values are considered to be full market values. Source: County of Santa Clara Assessor's Office CITY OF PALO ALTO Assessed Value of Taxable Property Last Ten Fiscal Years (Amounts in thousands) Fiscal Year Ended June 30 $13,000,000 $15,000,000 $17,000,000 $19,000,000 $21,000,000 $23,000,000 $25,000,000 $27,000,000 $29,000,000 $31,000,000 $33,000,000 $35,000,000 $37,000,000 $39,000,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 $ T h o u s a n d s Total Assessed Value 152 Basic County County Total County County Hospital City Library Santa Clara Affordable Direct and Fiscal Wide Retirement G.O. Bond G.O. Bond Valley Water School Community Midpeninsula Housing Bond Overlapping Year Levy Levy (Measure A)1 (Measure N)2 District District College Open Space3 (Measure A)4 Rates 2010 1.00 0.0388 0.0122 ‐ 0.0074 0.0686 0.0322 1.16 2011 1.00 0.0388 0.0095 0.0171 0.0072 0.0751 0.0326 1.18 2012 1.00 0.0388 0.0047 0.0155 0.0064 0.0742 0.0297 1.17 2013 1.00 0.0388 0.0051 0.0129 0.0069 0.0718 0.0287 1.16 2014 1.00 0.0388 0.0035 0.0177 0.0070 0.0655 0.0290 1.16 2015 1.00 0.0388 0.0091 0.0159 0.0065 0.0657 0.0276 1.16 2016 1.00 0.0388 0.0088 0.0148 0.0057 0.0604 0.0240 0.0008 1.15 2017 1.00 0.0388 0.0086 0.0129 0.0086 0.0591 0.0234 0.0006 1.15 2018 1.00 0.0388 0.0082 0.0118 0.0062 0.0570 0.0220 0.0009 0.0127 1.16 2019 1.00 0.0388 0.0072 0.0111 0.0042 0.0858 0.0217 0.0018 0.0105 1.18 Notes:1The County General Obligation Bond (Measure A) was passed in 2008 to fund the seismic upgrade of the Santa Clara Valley Medical Center. Rates were first levied for the 2009‐10 fiscal year. 2The City of Palo Alto General Obligation Bond (Measure N) was passed in 2008 to fund the construction and renovation of three of the City's libraries. Rates were first levied for the 2010‐11 fiscal year. 3The Midpeninsula Regional Open Space District Bond Issue and Property Tax, Measure AA, passed in 2014. 4The Santa Clara County Affordable Housing Bond ‐ Measure A 2016 passed on November 8, 2016. Source: County of Santa Clara, Tax Rates and Information CITY OF PALO ALTO Property Tax Rates All Overlapping Governments Last Ten Fiscal Years $1.10 $1.12 $1.14 $1.16 $1.18 $1.20 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Rate per $100 of Assessed Value 153 Fiscal Year Total Tax Percentage Collections in Percentage of Ended June 30 Levy1 for FY Amount of Levy Subsequent Years2 Amount Levy 2010 25,981$ 25,981$ 100% ‐ 25,981$ 100% 2011 25,688 25,688 100% ‐ 25,688 100% 2012 26,494 26,494 100% ‐ 26,494 100% 2013 28,742 28,742 100% ‐ 28,742 100% 2014 30,587 30,587 100% ‐ 30,587 100% 2015 34,117 34,117 100% ‐ 34,117 100% 2016 36,607 36,607 100% ‐ 36,607 100% 2017 39,381 39,381 100% ‐ 39,381 100% 2018 42,839 42,839 100% ‐ 42,839 100% 2019 47,327 47,327 100% ‐ 47,327 100% Notes: Source:Annual Financial Statements, Government Funds, Statement of Revenues, Expenditures and Changes in Fund Balances. 1During fiscal year 1995, the County of Santa Clara began providing the City 100% of its tax levy under an agreement which allows the county to keep all interest and delinquency charges collected. 2Effective fiscal year 1994, the City is on the Teeter Plan, under which the County of Santa Clara pays the full tax levy due. CITY OF PALO ALTO Property Tax Levies and Collections Last Ten Fiscal Years (Amounts in thousands) Collected within the Fiscal Year of the Levy Total Collections to Date 154 Taxable Assessed Value Rank Percentage of Total Taxable Assessed Value Taxable Assessed Value Rank Percentage of Total Taxable Assessed Value Leland Stanford Jr. University 5,446,309$ 1 14.8% 3,339,922$ 1 15.3% Loral Space & Communications 248,247 2 0.7% 210,132 2 1.0% Google Inc. 213,982 3 0.6% 395 Page Mill LLC 118,303 4 0.3% ARE‐San Francisco 69 LLC 114,575 5 0.3% SVF Sherman Palo Alto Corporation 97,856 6 0.3% Hohbach Realty Co. LP 94,642 7 0.3% SI 45 LLC 81,145 8 0.2% Gwin Property Inc. 78,540 9 0.2% BVK Hamilton Ave LLC 73,189 10 0.2% Arden Realty Limited Partnership 111,897 3 0.5% Whisman Ventures, LLC 104,529 4 0.5% ECI 2 Bayshore LLC/ECI Hamilton LLC 73,523 5 0.3% Blackhawk Parent LLC 49,939 6 0.2% Pacific Hotel Dev Venture LP 43,686 7 0.2% 300 / 400 Hamilton Associates 41,221 8 0.2% Ronald & Ann Williams Charitable Foundation 40,346 9 0.2% 505 Hamilton Avenue Partners LLC 40,142 10 0.2% Total 6,566,788$ 17.8% 4,055,337$ 18.5% Total City Taxable Assessed Value: FY 2019 36,801,413$ FY 2010 21,880,359$ Source: California Municipal Statistics, Inc. Fiscal Year 2019 Fiscal Year 2010 Taxpayer CITY OF PALO ALTO Principal Property Taxpayers Current Year and Nine Years Ago (Amounts in thousands) 155 2018‐2019 No. of Assessed % of No. of % of Taxable % of Valuation1 Total Parcels Total Parcels Total Non‐Residential: Agricultural/forest 33,351,880$ 0.10 % 49 0.24 % 31 0.15 % Commercial 1,957,286,113 5.61 459 2.20 456 2.23 Professional/office 5,325,032,104 15.26 551 2.64 531 2.60 Industrial/research & development 1,995,220,030 5.72 232 1.11 231 1.13 Recreational 46,286,052 0.13 15 0.07 13 0.06 Government/social/institutional 115,102,472 0.33 115 0.55 51 0.25 Miscellaneous 7,825,940 0.02 18 0.09 17 0.08 Subtotal Non‐Residential 9,480,104,591$ 27.17 % 1,439 6.90 % 1,330 6.50 % Residential: Single family residence 20,621,273,432$ 59.10 % 15,094 72.42 % 15,046 73.54 % Condominium/townhouse 2,590,656,482 7.42 3,091 14.83 3,087 15.09 Mobile Home 73,254 0.00 7 0.03 7 0.03 2‐4 Residential units 494,582,920 1.42 497 2.38 497 2.43 5+ Residential units 1,523,956,988 4.37 341 1.64 326 1.59 Subtotal Residential 25,230,543,076$ 72.31 % 19,030 91.31 % 18,963 92.68 % Vacant Parcels 180,979,844$ 0.52 % 373 1.79 % 168 0.82 % Total 34,891,627,511$ 100 % 20,842 100 % 20,461 100 % Notes: This schedule is provided as required by the Continuing Disclosure Agreement for the City's General Obligation 2010 and 2013A Bonds and is not required by Governmental Accounting Standards Board (GASB). Therefore, ten years of comparison data is not presented. 1Local secured assessed valuation, excluding tax‐exempt property. Source: California Municipal Statistics, Inc. CITY OF PALO ALTO Assessed Valuation and Parcels by Land Use As of June 30, 2019 156 No. of Taxable Average Parcels1 Assessed Valuation Single Family Residential 15,046 $1,370,549 No. of % of Cumulative % of Cumulative Taxable Total % of Total Total Total % of Total Parcels1 Parcels Parcels Valuation Valuation Valuation 989 6.57 6.57 79,633,247$ 0.39 0.39 1,694 11.26 17.83 235,648,435 1.14 1.53 763 5.07 22.90 189,109,555 0.92 2.45 685 4.55 27.46 237,520,031 1.15 3.60 582 3.87 31.32 261,675,882 1.27 4.87 637 4.23 35.56 350,220,578 1.70 6.57 657 4.37 39.92 425,039,262 2.06 8.63 570 3.79 43.71 427,135,161 2.07 10.70 478 3.18 46.89 407,331,229 1.98 12.67 584 3.88 50.77 554,955,818 2.69 15.36 531 3.53 54.30 557,321,101 2.70 18.07 516 3.43 57.73 592,667,085 2.87 20.94 413 2.74 60.47 515,011,442 2.50 23.44 434 2.88 63.36 585,810,095 2.84 26.28 388 2.58 65.94 563,108,182 2.73 29.01 386 2.57 68.50 597,626,574 2.90 31.91 378 2.51 71.02 623,525,260 3.02 34.93 331 2.20 73.22 578,946,367 2.81 37.74 298 1.98 75.20 551,743,555 2.68 40.41 284 1.89 77.08 553,327,425 2.68 43.10 3,448 22.92 100.00 11,733,917,348 56.90 100.00 15,046 100.00 20,621,273,632$ 100.00 Notes: Source: California Municipal Statistics, Inc. This schedule is provided as required by the Continuing Disclosure Agreement for the City's General Obligation 2010 and 2013A Bonds and is not required by Governmental Accounting Standards Board (GASB). Therefore, ten years of comparison data is not presented. 1Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. $1,900,000‐1,999,999 $2,000,000 and greater Total $1,800,000‐1,899,999 $700,000‐799,999 $800,000‐899,999 $900,000‐999,999 $1,000,000‐1,099,999 $1,100,000‐1,199,999 $1,200,000‐1,299,999 $1,300,000‐1,399,999 $1,400,000‐1,499,999 $1,500,000‐1,599,999 $1,600,000‐1,699,999 $1,700,000‐1,799,999 $600,000‐699,999 $20,621,273,432 $981,333 2018‐2019 Assessed Valuation $0‐99,999 $100,000‐199,999 $200,000‐299,999 $300,000‐399,999 $400,000‐499,999 $500,000‐599,999 Assessed Valuation Assessed Valuation CITY OF PALO ALTO Per Parcel Assessed Valuation of Single Family Residential As of June 30, 2019 2018‐2019 Median 157 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 6,765$ 5,895$ 1,685$ 1,560$ 1,430$ 1,285$ 1,135$ 975$ 8,970$ 46,305$ 55,305 55,305 54,540 74,235 73,215 71,795 65,210 63,710 62,140 60,500 2011 Lease‐Purchase Agreement ‐ ‐ 2,764 2,400 2,026 1,643 1,248 842 426 ‐ Add: unamortized premium 3,766 3,640 3,514 4,400 4,242 4,084 3,926 3,768 3,610 8,331 (571) ‐ ‐ ‐ ‐ ‐ ‐ ‐ 65,265 64,840 62,503 82,595 80,913 78,807 71,519 69,295 75,146 115,136 72,104 69,551 65,879 63,104 60,224 57,224 54,095 50,825 47,400 43,815 Energy Tax Credits 1,200 1,100 1,000 900 800 700 600 500 400 300 State Water Resources Loan 13,080 16,696 15,900 15,109 14,309 13,500 12,681 15,034 17,711 29,589 (2,737) (229) 580 543 867 803 737 673 608 544 83,647 87,118 83,359 79,656 76,200 72,227 68,113 67,032 66,119 74,248 Outstanding Debt 148,912$ 151,958$ 145,862$ 162,251$ 157,113$ 151,034$ 139,632$ 136,327$ 141,265$ 189,384$ 4.51% 3.86% 3.36% 3.36% 3.24% 2.94% 2.52% 2.38% 2.33% 2.88% Population 65,408 64,417 65,544 66,368 66,861 66,029 66,968 66,478 66,649 67,082 2.28$ 2.36$ 2.23$ 2.44$ 2.35$ 2.29$ 2.09$ 2.05$ 2.12$ 2.82$ Notes: Sources: 2019 Official City Data Set (population) California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income) Annual Financial Statements and Note 7 General Long‐Term Obligations Debt Per Capita 1See the schedule of Demographic and Economic Statistics for personal income data. Per capita personal income is only available for Santa Clara County, therefore personal income is the product of the countywide per capita amount and the City's population. County of Santa Clara (assessed valuation) Percentage of Personal Income1 Certificates of Participation General Obligation Bonds Less: unamortized discount/ issuance costs Total Governmental Activities Business‐type Activities Utility Revenue Bonds Less: unamortized discount/ issuance costs Total Business‐type Activities Total Primary Government Governmental Activities CITY OF PALO ALTO Ratio of Outstanding Debt by Type Last Ten Fiscal Years (Amounts in thousands) Fiscal Year Ended June 30 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 $ T h o u s a n d s Total Governmental Activities Total Business‐type Activities 158 2018‐2019 Assessed Valuation 36,801,413,139$ Percentage Amount Applicable Applicable Total Debt to City of to City of Outstanding Palo Alto1 Palo Alto Santa Clara County 947,220,000$ 7.62% 72,197,108$ Foothill‐DeAnza Community College District 620,143,886 21.99% 136,344,835 Palo Alto Unified School District 269,174,345 90.02% 242,321,512 Fremont Union High School District 562,210,088 0.01% 50,599 Los Gatos‐Saratoga Joint Union High School District 95,760,000 0.01% 11,491 Mountain View‐Los Altos Union High School District 148,973,967 0.94% 1,403,335 Cupertino Union School District 274,238,303 0.02% 46,621 Los Altos School District 50,665,000 1.19% 601,900 Mountain View‐Whisman School District 180,470,000 0.72% 1,304,798 Saratoga Union School District 23,580,378 0.03% 6,131 Whisman School District 13,105,005 1.94% 254,892 City of Palo Alto 60,500,000 100% 60,500,000 El Camino Hospital District 124,490,000 0.08% 99,592 Midpeninsula Regional Open Space District 92,460,000 12.86% 11,885,733 City of Palo Alto Special Assessment Bonds 20,935,000 100% 20,935,000 Santa Clara Valley Water District Benefit Assessment District 73,570,000 7.62% 5,607,505 Total Direct and Overlapping Tax and Assessment Debt 553,571,052 710,539,120 7.62% 54,157,292 352,378,882 7.62% 26,858,318 4,255,000 7.62% 324,316 26,723,002 21.99% 5,875,319 3,538,000 0.01% 425 1,745,000 0.94% 16,438 Mountain View‐Whisman School District Certificates of Participation 31,645,000 0.72% 228,793 3,535,000 0.03% 919 Los Altos School District Certificates of Participation 2,405,945 1.19% 28,583 City of Palo Alto General Fund Obligations 46,305,000 100% 46,305,000 2,245,000 7.62% 171,114 Midpeninsula Regional Open Space Park District General Fund Obligations 117,450,600 12.86% 15,098,275 $ 149,064,792 24,532,813 $ 124,531,979 $ 678,103,031 Ratio to Assessed Valuation Total Direct Debt 0.29% 106,805,000$ 3 Total Overlapping Debt 1.55% 571,298,031 Total Direct and Overlapping Debt 1.84% 678,103,031$ 2 Notes: 1Percentage of overlapping agency's assessed valuation located within boundaries of the city. 2Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non‐bonded capital lease obligations. Source: California Municipal Statistics, Inc. 3Total direct debt excludes any premiums, discounts or other amortization amounts. Santa Clara County Pension Obligations Santa Clara County Board of Education Certificates of Participation Foothill‐DeAnza Community College District Certificates of Participation Los Gatos‐Saratoga Joint Union High School District Certificates of Participation Mountain View‐Los Altos Union High School District Certificates of Participation Saratoga Union High School District Certificates of Participation Less: Santa Clara County supported obligations Total Net Direct and Overlapping General Fund Debt Overlapping debt is the financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction. The amount of debt of each unit applicable to the reporting unit is arrived at by 1) determining what percentage of the total assessed value of the overlapping jurisdiction lies within the limits of the reporting unit, and 2) applying this percentage to the total debt of the overlapping jurisdiction. Santa Clara County Vector Control District Certificates of Participation Total Gross Direct and Overlapping General Fund Debt Total Combined Debt Santa Clara County General Fund Obligations CITY OF PALO ALTO Computation of Direct and Overlapping Debt As of June 30, 2019 Direct and Overlapping Tax and Assessment Debt Direct and Overlapping General Fund Debt 159 Assessed Valuation: Secured property assessed value, net of exempt real property 36,801,413$ Bonded Debt Limit (3.75% of Assessed Value) 1 1,380,053 Direct Debt: Certificates of Participation 46,305 General Obligation bonds 60,500 Total Direct Debt3 106,805 Less: Amount of Debt Not Subject to Limit 2 46,305 Total Net Debt Applicable to Limit 60,500 Legal Bonded Debt Margin 1,319,553$ Total Bonded Total Net Debt Legal Total Net Debt Ratio of Net General Fiscal Assessed Debt Limit Applicable to Bonded Debt Applicable to the Debt to Bonded Debt Year Value (AV)(3.75% of AV)Limit Margin Population Debt as a %Assessed Value Per Capita 2010 21,085,609$ 790,710$ 55,305$ 735,405$ 65,408 6.99% 0.0026 0.85 2011 21,880,359 820,513 55,305 765,208 64,417 6.74% 0.0025 0.86 2012 21,956,274 823,360 54,540 768,820 65,544 6.62% 0.0025 0.83 2013 22,486,708 843,252 74,235 769,017 66,368 8.80% 0.0033 1.12 2014 23,693,007 888,488 73,215 815,273 66,861 8.24% 0.0031 1.10 2015 27,198,127 1,019,930 71,795 948,135 66,029 7.04% 0.0026 1.09 2016 29,415,754 1,103,091 65,210 1,037,881 66,968 5.91% 0.0022 0.97 2017 31,954,381 1,198,289 63,710 1,134,579 66,478 5.32% 0.0020 0.96 2018 34,434,739 1,291,303 62,140 1,229,163 66,649 4.81% 0.0018 0.93 2019 36,801,413 1,380,053 60,500 1,319,553 67,082 4.38% 0.0016 0.90 Notes: Source: Annual Financial Statements, Assessed Value of Taxable Property and Note 7 General Long‐Term Obligations 2In accordance with California Government Code Section 43605, only the City's General Obligation bonds are subject to the legal debt limit of 15%. Enterprise Fund debt is not subject to legal debt margin. CITY OF PALO ALTO Computation of Legal Bonded Debt Margin As of June 30, 2019 (Amounts in thousands) 1California Government Code, Section 43605 sets the debt limit at 15% of the assessed value of all real and personal property of the City. Because this Code section was enacted when assessed value was 25% of market value, the limit is calculated at one‐fourth, or 3.75%. This legal debt margin applies to General Obligation debt. Prior year limits have been adjusted to conform to the current year methodology. 3Total direct debt excludes any premiums, discounts or other amortization amounts. 160 Less: Net Revenue Fiscal Gross Direct Operating Available for Year Revenue Expenses2 Debt Service Principal Interest3 Total Coverage Ratio 2010 230,308$ 171,320$ 58,988$ 1,755$ 1,954$ 3,709$ 15.90 2011 234,278 151,641 82,637 2,655 3,261 5,916 13.97 2012 235,160 169,777 65,383 2,945 2,959 5,904 11.07 2013 237,842 173,510 64,332 2,875 3,167 6,042 10.65 2014 239,948 176,718 63,230 2,980 3,073 6,053 10.45 2015 234,025 188,276 45,749 3,100 2,954 6,054 7.56 2016 235,386 186,793 48,593 3,230 2,823 6,053 8.03 2017 264,734 205,102 59,632 3,370 2,678 6,048 9.86 2018 288,610 231,255 57,355 3,525 2,524 6,049 9.48 2019 306,237 227,824 78,413 3,685 2,359 6,044 12.97 Notes:1Airport, Refuse and Fiber Optics funds have no debt and are therefore excluded from this schedule. 2Excludes depreciation and amortization expense. 3Excludes joint venture debt service and federal interest subsidy. Source: City of Palo Alto, Accounting Department Debt Service CITY OF PALO ALTO Revenue Bond Coverage Business‐type Activities1 Last Ten Fiscal Years (Amounts in thousands) $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 $ T h o u s a n d s Net Revenue Available for Debt Service Total Debt Service 161 Fiscal Year 2010 2,215$ 2,418$ 1,402$ 1,254$ 343$ 549$ 219$ 4,458$ 5,556$ 18,414$ 2011 2,374 2,621 1,564 1,292 381 630 242 4,873 6,322 20,299 2012 2,445 2,937 1,590 1,492 387 722 257 5,049 7,034 21,913 2013 2,478 3,160 1,465 1,656 424 765 259 4,056 13,729 27,992 2014 2,097 3,541 1,555 2,041 392 772 444 4,845 9,890 25,577 2015 2,398 3,894 1,672 1,708 435 699 265 3,674 11,253 25,998 2016 2,250 4,134 1,410 1,694 448 582 257 4,949 12,423 28,147 2017 2,036 4,079 1,513 1,794 542 502 259 3,810 14,325 28,860 2018 2,001 4,224 1,716 1,647 428 614 243 3,184 15,663 29,720 2019 1,934 4,299 1,795 1,994 409 706 810 2,245 22,254 36,446 Source: California State Board of Equalization, compiled by MuniServices LLC Sales Tax Rates for the Fiscal Year ended June 30, 2019 State Rate:7.25% Special District Tax Rates: Santa Clara County Transit District (SCCT) 0.50% Santa Clara County Valley Transportation Authority (SCVT) 0.50% Santa Clara VTA BART Operating and Maintenance Transactions and Use Tax (SVTB) 0.125% Santa Clara Retail Transactions and Use Tax (SCCR) 0.125% Santa Clara County Valley Transportation Authority (SCVT) 0.50% Total Sales and Use Tax Rate:9.000% Source: California State Board of Equalization CITY OF PALO ALTO Taxable Transactions by Type of Business Last Ten Fiscal Years (Amounts in thousands) Total ECONOMIC SEGMENT Department Stores Restaurants Furniture/ Appliance Food Markets Service Stations Drug Stores Other Retail All Other Apparel Stores Department Stores 5%Restaurants 12% Furniture/ Appliance 5% Apparel Stores 6% Food Markets 1% Service Stations 2% Drugs Stores 2% Other Retail 6% All Other 61% Fiscal Year 2019 162 Santa Clara Santa Clara City of Palo Alto City of Palo Alto Santa Clara City Population County Total County Per Capita Fiscal City of Palo Alto Unemployment School County as a Percentage of Personal Income Personal Income Year Population Rate Enrollment Population County Population (in thousands)(in thousands) 2010 65,408 6.2% 11,565 1,880,876 3.48% 95,000,000 50,508 2011 64,417 5.3% 12,024 1,786,443 3.61% 109,300,000 * 61,183 * 2012 65,544 4.7% 12,286 1,813,860 3.61% 120,100,000 * 66,212 * 2013 66,368 3.6% 12,396 1,840,218 3.61% 134,000,000 * 72,817 * 2014 66,861 2.8% 12,483 1,866,208 3.58% 135,200,000 * 72,446 * 2015 66,029 2.7% 12,532 1,890,929 3.49% 147,300,000 * 77,898 * 2016 66,968 2.9% 12,488 1,915,102 3.50% 158,700,000 * 82,868 * 2017 66,478 2.4% 12,261 1,930,215 3.44% 166,600,000 86,312 2018 66,649 2.5% 12,230 1,948,176 3.42% 177,600,000 91,162 2019 67,082 2.1% 11,938 1,965,597 3.41% 192,600,000 97,985 Note: Data on personal income and per capita personal income is only available for Santa Clara County. Source: Beginning in 2015 population is sourced from the US Census Bureau Community Survey (via the City of Palo Alto's Official City Data Set). State of California Employment Development Office (unemployment rate) Palo Alto Unified School District (school enrollment) * California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income). Forecasts from prior years are updated annually. CITY OF PALO ALTO Demographic and Economic Statistics Last Ten Fiscal Years 63,000 64,000 65,000 66,000 67,000 68,000 City Population 10,000 10,500 11,000 11,500 12,000 12,500 13,000 School Enrollment 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%City Unemployment Rate 163 Number of Employees Rank Percentage of Total City Employment Number of Employees Rank Percentage of Total City Employment Stanford Health Care 5,500 1 4.2% 5,569 2 5.1% Lucile Packard Children's Hospital 5,700 2 4.3% 3,549 3 3.2% Stanford University2 4,500 3 3.4% 10,101 1 9.2% Veteran's Affairs Palo Alto Health Care System 3,900 4 3.0% 3,500 4 3.2% VMware Inc. 3,500 5 2.6% SAP Labs Inc. 3,500 6 2.6% Space Systems/Loral 2,800 7 2.1% 1,700 7 1.5% Hewlett‐Packard Company 2,500 8 1.9% 2,001 5 1.8% Palo Alto Medical Foundation 2,200 9 1.7% 2,000 6 1.8% Varian Medical Systems 1,400 10 1.1% Wilson Sonsini Goodrich & Rosati 1,500 8 1.4% Palo Alto Unified School District 1,336 9 1.2% City of Palo Alto 1,100 10 1.0% Total 35,500 26.9% 32,356 29.3% Estimated Total City Day Population: FY 2019 132,112 FY 2010 110,246 Notes: Source: 2019 Official City Data Set (total City day population); AtoZ databases; Stanford website, Stanford Planning Office. CITY OF PALO ALTO Principal Employers Current Year and Nine Years Ago FY 20191 FY 2010 Employer 1Available data sources are limited and may be unreliable. The City does not affirm the validity of this data. 2019 numbers are rounded. Figures may include employees not located within City limits. 2FY19 data was not available for Stanford Health Care and Stanford University. Prior year's data was used. 164 165 This page is left intentionally blank. 2009 2010 2011 2012 Governmental activities Community Services Number of theater performances 159 174 175 175 Total hours of athletic field usage2 45,762 41,705 42,687 44,226 Number of rounds of golf 72,170 69,791 67,381 65,653 Enrollment in recreation classes (includes summer camps) 13,091 12,880 12,310 11,703 Planning and Community Environment Planning applications completed 273 226 238 204 Building permits issued 2,543 2,847 3,559 3,320 Caltrain average weekday boarding3 4,407 4,359 4,923 5,730 Police Calls for service 53,275 55,860 52,159 51,086 Total arrests 2,612 2,451 2,288 2,212 Parking citations issued 49,996 42,591 40,426 41,875 Animal Services Number of service calls 2,873 2,692 2,804 3,051 Number of animals handled 3,422 3,147 3,323 3,379 Fire Calls for service 7,549 7,468 7,555 7,796 Number of fire incidents 239 182 165 186 Number of fire inspections4 1,028 1,526 1,807 1,654 Library Total number of cardholders 54,878 51,969 53,246 60,283 Total number of items in collection 293,735 298,667 314,101 306,160 Total checkouts 1,633,955 1,624,785 1,476,648 1,559,932 Public Works Street resurfacing (lane miles) 23 32 29 40 Number of potholes repaired 3,727 3,149 2,986 3,047 Sq. ft. of sidewalk replaced or permanently repaired 56,909 54,602 71,174 72,787 Number of trees planted 250 201 150 143 Tons of materials recycled or composted 49,911 48,811 56,586 51,725 Business‐type activities Electric Number of customer accounts 28,527 29,430 29,708 29,545 Residential MWH consumed 159,899 163,098 160,318 160,604 Gas Number of customer accounts 23,090 23,724 23,816 23,915 Residential therms consumed 11,003,088 11,394,712 11,476,609 11,522,999 Water Number of customer accounts 19,422 20,134 20,248 20,317 Residential water consumption (CCF) 2,566,962 2,415,467 2,442,415 2,513,595 Wastewater collection Number of customer accounts 22,210 22,231 22,320 22,421 Millions of gallons processed 7,958 8,184 8,652 8,130 Notes: 2According to the department, this measure was not accurately tracked during FY13 or FY14. Source: FUNCTIONS/PROGRAMS 4The method for calculating the number of fire inspections changed in FY17. The department now uses a more detailed feature which categorizes inspections by type and location. CITY OF PALO ALTO Operating Indicators by Function/Program Last Ten Fiscal Years1 City of Palo Alto Performance Report (formerly the Service Efforts and Accomplishments Report); 2018 Official City Data Set (Caltrain) 3Prior‐year data has been updated based on annual counts revised by Caltrain. Beginning 2015, data source is Official City Data Set. 1Ten most recent years available. Fiscal Year Ended June 30 166 2013 2014 2015 2016 2017 2018 184 108 172 161 171 160 ‐ ‐ 47,504 65,723 71,431 65,443 60,153 46,527 42,048 42,573 ‐ 6,790 11,598 11,997 12,586 12,974 11,649 10,652 307 310 335 383 365 376 3,682 3,624 3,844 3,492 2,970 3,105 6,763 7,564 8,294 9,622 9,994 9,977 54,628 58,559 59,795 53,870 53,901 55,480 2,274 2,589 3,273 2,988 2,745 2,678 43,877 36,551 41,412 37,624 33,661 37,441 2,909 2,398 2,013 2,421 1,674 1,737 2,675 2,480 2,143 2,184 2,211 2,077 7,904 7,829 8,548 8,882 9,153 8,981 150 150 135 150 155 189 2,069 1,741 1,964 2,806 5,476 9,581 51,007 46,950 51,792 57,307 54,676 56,159 277,749 361,103 429,460 461,292 427,548 472,895 1,512,975 1,364,872 1,499,406 1,400,926 1,524,614 1,538,118 36 36 31 39 39 31 2,726 3,418 2,487 3,435 3,449 2,835 82,118 74,051 120,776 115,293 17,275 38,557 245 148 305 387 319 411 47,941 49,594 50,546 56,438 60,582 57,744 29,299 29,338 29,065 29,304 29,616 29,475 156,411 153,190 145,284 150,112 148,986 149,526 23,659 23,592 23,461 23,467 23,637 23,395 10,834,793 10,253,776 8,537,754 9,535,377 10,233,669 10,261,276 20,043 20,037 20,061 19,994 20,213 20,000 2,521,930 2,496,549 2,052,176 1,696,383 1,856,879 2,120,588 22,152 22,105 21,990 22,016 22,216 21,979 7,546 7,186 6,512 6,387 7,176 6,464 Fiscal Year Ended June 30 167 2010 2011 2012 2013 2014 FUNCTION/PROGRAM Public Safety Fire: Fire Stations Operated 8 8 7 7 7 Police: Police Stations 1 1 1 1 1 Police Patrol Vehicles 30 30 30 30 30 Community Services Acres ‐ Downtown/Urban Parks2 157 157 157 157 157 Acres ‐ Open Space2 3,744 3,744 3,744 3,744 3,744 Acres ‐ Parks and Preserves2 ‐ ‐ ‐ ‐ ‐ Acres ‐ Open Space2 ‐ ‐ ‐ ‐ ‐ Acres ‐ Municipal Golf Course2 ‐ ‐ ‐ ‐ ‐ Parks and Preserves 36 36 36 36 36 Golf Course (see above for acreage) 1 1 1 1 1 Tennis Courts 51 51 51 51 51 Athletic Center 4 4 4 4 4 Community Centers 4 4 4 4 4 Theaters 3 3 3 3 3 Cultural Center/Art Center 1 1 1 1 1 Junior Museum and Zoo 1 1 1 1 1 Swimming Pools 1 1 1 1 1 Nature Center 3 3 3 3 3 Libraries Libraries 5 5 5 5 5 Public Works: Number of Trees Maintained3 32,007 31,993 31,890 31,923 31,757 Electric Utility1 Miles of Overhead Lines 193 193 223 222 223 Miles of Underground Lines 253 253 245 246 249 Water Utility Miles of Water Mains 214 214 234 233 236 Gas Utility Miles of Gas Mains 205 205 210 210 214 Waste Water Miles of Sanitary Sewer Lines 207 207 217 217 217 Note: Source: City of Palo Alto 3Due to an error in the beginning balance, the number of trees maintained was adjusted for all prior years in FY18. 1The City of Palo Alto Utilities Department recently completed the conversion of its electric system maps to a GIS mapping system database. Therefore, the distances reported for FY 11/12 and forward are more accurate than the distances reported in previous years. 2Beginning in 2016 park acreage is sourced from the Official City Data Set. The discrepancy between FY16 and FY17 is because FY16 numbers were derived off GIS parcels identified as parks or zoned in the Open Space Zoning District. For FY17, Council approved Parks Master Plan numbers were used. CITY OF PALO ALTO Capital Asset Statistics by Function/Program Last Ten Fiscal Years Fiscal Year Ended June 30 168 2015 2016 2017 2018 2019 7 7 7 7 7 1 1 1 1 1 30 30 30 30 30 157 ‐ ‐ ‐ ‐ 3,752 ‐ ‐ ‐ ‐ ‐ 3,921 174 174 174 ‐ 4,489 4,030 4,030 4,030 ‐ ‐ 181 181 181 36 36 36 36 36 1 1 1 1 1 51 51 51 51 51 4 4 4 4 4 4 4 4 4 4 3 3 3 3 3 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 3 3 3 3 3 5 5 5 5 5 31,652 31,699 31,712 31,849 31,815 223 222 223 222 220 262 268 264 272 274 236 235 236 236 236 211 209 210 210 210 217 216 216 216 216 Fiscal Year Ended June 30 169 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Governmental Funds General Fund: Administrative 89 83 83 85 83 84 86 87 89 87 Community Services 94 74 74 74 74 76 77 78 79 78 Development Services5 ‐ ‐ ‐ ‐ ‐ 38 38 36 36 36 Fire 123 121 122 119 116 107 107 109 109 98 Library 42 41 41 41 42 44 48 48 48 48 Office of Emergency Services4 ‐ ‐ ‐ ‐ 3 3 3 3 3 3 Planning and Community Environment5 49 44 43 48 49 28 31 32 30 30 Police 161 157 157 154 155 155 155 155 155 155 Public Works1 64 59 56 57 56 53 54 56 55 51 Subtotal General Fund 622 579 576 578 578 588 599 604 604 586 All Other Funds: Capital Projects Fund 24 24 24 26 27 27 28 31 34 33 Special Revenue Fund 1 2 2 2 9 10 9 10 9 10 Total Governmental Funds 647 605 602 606 614 625 636 645 647 629 Enterprise Funds Public Works2 115 115 115 104 99 100 95 99 101 101 Utilities3 242 251 251 254 255 258 256 255 257 257 External Services4 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Total Enterprise Funds 357 366 366 358 354 358 351 354 358 358 Internal Service Funds Printing and Mailing 4 2 2 2 2 2 2 2 2 2 Technology 31 30 30 31 32 32 34 35 36 36 Vehicle Replacement 16 16 16 17 17 17 17 16 16 16 Total Internal Service Funds 51 48 48 50 51 51 53 53 54 54 Total 1,055 1,019 1,016 1,014 1,019 1,034 1,040 1,052 1,059 1,041 Notes: 1Fleet and Facilities Management 2Refuse, Storm Drainage, Wastewater Treatment Numbers adjusted for rounding purposes. Source: City of Palo Alto ‐ Fiscal Year 2019 Adopted Operating Budget 5ln FY15, staff was moved from Planning and Community Environment (PC&E), Public Works and Fire to create Development Services. 4In 2014, emergency services and disaster preparation activities have been removed from the Fire Department and are now shown in newly created Office of Emergency Services. CITY OF PALO ALTO Full‐Time Equivalent City Government Employees by Function Last Ten Fiscal Years Full Time Equivalent Employees as of June 30 3Electric, Gas, Wastewater Collection, Water 0 200 400 600 800 1,000 1,200 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Fu l l T i m e E q u i v a l e n t s Governmental Funds Enterprise Funds Internal Service Funds 170 CITY OF PALO ALTO Index to the Single Audit Report For the Year Ended June 30, 2019 171 Page Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards ..................................... 173 Independent Auditor’s Report on Compliance for Each Major Federal Program and on Internal Control Over Compliance Required by the Uniform Guidance ........................................... 175 Schedule of Expenditures of Federal Awards ........................................................................................... 177 Notes to the Schedule of Expenditures of Federal Awards ...................................................................... 179 Schedule of Findings and Questioned Costs ............................................................................................. 180 Schedule of Prior Year Findings and Questioned Costs ............................................................................ 182 172 This page is intentionally left blank. www.mgocpa.com Macias Gini & O’Connell LLP 2121 N. California Boulevard, Suite 750 Walnut Creek, CA 94596 173 Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Honorable Mayor and the Members of the City Council of the City of Palo Alto Palo Alto, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Palo Alto, California (City), as of and for the year ended June 30, 2019, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements and have issued our report thereon dated November 4, 2019. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 174 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Walnut Creek, California November 4, 2019 www.mgocpa.com Macias Gini & O’Connell LLP 2121 N. California Boulevard, Suite 750 Walnut Creek, CA 94596 175 Independent Auditor’s Report on Compliance for Each Major Federal Program and on Internal Control Over Compliance Required by the Uniform Guidance Honorable Mayor and the Members of the City Council of the City of Palo Alto Palo Alto, California Report on Compliance for Each Major Federal Program We have audited the City of Palo Alto’s, California (City) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended June 30, 2019. The City’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the City’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the City’s compliance. Opinion on Each Major Federal Program In our opinion, the City of Palo Alto, complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2019. 176 Report on Internal Control Over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Walnut Creek, California November 4, 2019 Grantor Federal Identifying CFDA Subrecipients Grantor/Pass‐Through Grantor/Program Title Number Number Expenditures Expenditures U.S Department of Housing and Urban Development Direct CDBG ‐ Entitlement Grants Cluster Community Development Block Grants/Entitlement Grants B‐16‐MC‐06‐0020 B‐17‐MC‐06‐0020 B‐18‐MC‐06‐0020 14.218 830,121$ 747,128$ U.S. Department of Justice Direct Bulletproof Vest Partnership n/a 16.607 8,529 ‐ U.S. Department of Transportation Direct Public Transportation Research, Technical Assistance and Training CA‐2017‐020‐00 20.514 317,278 ‐ Airport Improvement Program 3‐06‐0182‐011‐2016, 3‐06‐0182‐013‐2017, 3‐06‐0182‐014‐2018 20.106 5,876,389 ‐ Subtotal ‐ Direct Awards 6,193,667 ‐ Pass‐through from State of California Department of Transportation Highway Planning and Construction BRLS‐5100(017) 20.205 78,137 ‐ Highway Planning and Construction CMAQ‐T4 20.205 1,000,000 ‐ Highway Planning and Construction SR2SL 5100(020) 20.205 450,000 ‐ Highway Planning and Construction SCL 170021 20.205 211,236 ‐ Subtotal ‐ Highway Planning and Construction 1,739,373 ‐ Total U.S. Department of Transportation 7,933,040 ‐ National Endowment for the Humanities Pass‐through from California State Library Museums for America MA‐10‐17‐0327‐17 45.301 56,893 ‐ MA‐11‐15‐0104‐15 45.301 9,364 ‐ Total National Endownment for the Humanities 66,257 ‐ U.S. Department of Homeland Security Pass‐through from County of Santa Clara Office of Emergency Management Emergency Management Performance Grants 2018‐0008 97.042 3,900 ‐ TOTAL FEDERAL FINANCIAL AWARDS 8,841,847$ 747,128$ CITY OF PALO ALTO Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2019 See accompanying notes to the Schedule of Expenditures of Federal Awards 177 178 This page is intentionally left blank. CITY OF PALO ALTO Notes to the Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2019 179 NOTE 1 – REPORTING ENTITY The schedule of expenditures of federal awards (the Schedule) includes expenditures of federal awards for the City of Palo Alto, California (City), and its component unit as disclosed in the notes to the basic financial statements. NOTE 2 – BASIS OF ACCOUNTING Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements, regardless of measurement focus applied. All governmental funds are accounted for using the modified accrual basis of accounting. All proprietary funds are accounted for using the accrual basis of accounting. Expenditures of federal awards reported in the Schedule are recognized when incurred and all eligibility requirements have been met. Such expenditures are recognized following the cost principles contained in 2 CFR 200, Subpart E (Cost Principles), wherein certain types of expenditures are not allowable or are limited as to reimbursement. The City did not elect to use the 10% de minimis cost rate as covered in 2 CFR 200.414(F&A) costs. NOTE 3 – DIRECT AND INDIRECT (PASS‐THROUGH) FEDERAL AWARDS Federal awards may be granted directly to the City by a federal granting agency or may be granted to other government agencies which pass‐through federal awards to the City. The Schedule includes both of these types of federal award programs when they occur. NOTE 4 – RELATIONSHIP TO FEDERAL FINANCIAL REPORTS Amounts reported in the Schedule agree to or can be reconciled with the amounts reported in the related federal financial reports. NOTE 5 – RELATIONSHIP TO BASIC FINANCIAL STATEMENTS Federal awards and expenditures agree to or can be reconciled with the amounts reported in the City’s basic financial statements. CITY OF PALO ALTO Schedule of Findings and Questioned Costs For the Year Ended June 30, 2019 180 Section I ‐ Summary of Auditor’s Results Financial Statements Type of auditor’s report issued on the basic financial statements of the City: Unmodified Internal control over financial reporting: Material weakness(es) identified? No Significant deficiency(ies) identified? None reported Noncompliance material to the financial statements noted? No Federal Awards Internal control over major programs: Material weakness(es) identified? No Significant deficiency(ies) identified? None reported Type of auditor’s report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Uniform Guidance? No Identification of Major Programs: CFDA No. 14.218 – CDBG Entitlement Grants Cluster CFDA No. 20.106 ‐ Airport Improvement Program CFDA No. 20.205 – Highway Planning and Construction Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as a low‐risk auditee? No CITY OF PALO ALTO Schedule of Findings and Questioned Costs For the Year Ended June 30, 2019 181 Section II – Financial Statements Findings No current year findings are reported. Section III ‐ Federal Award Findings and Questioned Costs No current year findings are reported. ADMINISTRATIVE SERVICES CITY OF 250 Hamilton Avenue,4th FloorPALOPaloAlto,CA 94301 ALTO 6503292692 CITYOFPALOALTO Schedule of Prior Year Finding and Questioned Costs For the Year Ended June 30,2019 Reference Number:2018-001 —Significant Deficiency -Internal Controls over Financial Reporting Condition:Effective March 20,2017,the City and the State Water Resources Control Board (SWRCB) entered into an agreement to award the City up to $30 million from its Clean Water State Revolving Fund for the Sludge Dewatering and Loadout Facility project.The SWRCB loan is to be repaid over 30 years at a rate of 1.8%,with the first annual installment due on May 31,2020.In September 2017,due to the projected lower project costs,the agreement was amended to reduce the SWRCB loan amount to $29.7 million.Under the terms of the agreement,$4 million of the SWRCB loan is a federal pass through grant from the U.S. Environmental Protection Agency under its Capitalization Grants for Clean Water Tate Revolving Funds program. On August 4,2018,the City received a letter from the SWRCB explaining the status of the SWRCB loan and the federal pass through grant.The letter clarified the funding sources and summarized the project draws through the date of the letter.Based on the information provided in the SWRCB letter,we observed the following two issues: 1.The SWRCB letter on August 4,2018 clarified that the project costs included in the first two draws submitted to SWRCB were applied to the federal awards first, before applying them to State funding sources.Therefore,an adjustment of $4,000,000 was necessary to reduce the SWRCB loan balance and recognize grant revenue for the year ended June 30,2018. 2.The City incurred eligible project costs of $4,964,775 during the year ended June 30,2018 and submitted the loan draws subsequent to year end.Accordingly, the City accrued draws made in July and August as a receivable from the SWRCB and as an obligation for SWRCB loan payable.The draws for the $4,964,775 were not made by June 30,2018,therefore City does not owe that amount to SWRCB as of year-end and overstated its obligation for the SWRCB loan.An audit adjustment of $4,964,775 was necessary to reduce the SWRCB loan balance at June 30,2018 and reduce receivables from the SWRCBto properly account for the loan. Recommendation:It was recommended that the City document the important terms and conditions of the SWRCB loan to ensure proper internal controls over the financial reporting and compliance. It was recommended that the City’s Finance department collaborate with other departments that have material or complex transactions to strengthen internal controls over financial reporting and compliance. Status:Corrective action plan has been implemented. CityOfPaloAlto.org Printed with soy-based inks on 100%recycled paper processed w::hcut chlorine. 183 This page is left intentionally blank. Americans with Disabilities Act Statement IN COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT (ADA) OF 1990, THIS DOCUMENT MAY BE PROVIDED IN OTHER ACCESSIBLE FORMATS. For information contact: ADA Coordinator City of Palo Alto 250 Hamilton Ave (650) 329-2550 ADA@cityofpaloalto.org City of Palo Alto 250 Hamilton Avenue, Palo Alto, CA 94301 P 650.329.2100 W cityofpaloalto.org Spanish explorers named the area for the tall, twin-trunked redwood tree they camped beneath in 1769. Palo Alto incorporated in 1894 and the State of California granted its first charter in 1909. The City has long been known for its innovative people and its exploration of ideas that have changed the world. In Palo Alto, our history has always been about the future. Palo Alto City of Palo Alto (ID # 10942) City Council Staff Report Report Type: Consent Calendar Meeting Date: 1/27/2020 City of Palo Alto Page 1 Summary Title: Resolution to Further Discussions on the Future Use of the SMaRT Station for Processing Solid Waste Title: Adoption of a Resolution for the City of Palo Alto to Participate With the City of Sunnyvale in the Planning and Development of Cost Estimates for Potential Future use of the Sunnyvale Materials Recovery and Transfer Station (SMaRT Station) for Processing Solid Waste From: City Manager Lead Department: Public Works Recommendation Staff recommends that Council adopt the attached resolution (Attachment A), requested by the City of Sunnyvale, to continue discussions on the potential future use of the SMaRT Station by the City of Palo Alto beyond 2021. Executive Summary The City of Sunnyvale, the owner of the Sunnyvale Materials Recovery and Transfer (SMaRT) Station, has requested that cities potentially interested in partnering with it on the continued use of the SMaRT Station to adopt a resolution indicating that interest. Council’s adoption of the attached resolution would provide the requested assurance to Sunnyvale that it is appropriate to continue discussions with City of Palo Alto staff on the potential future use of the SMaRT Station. Palo Alto’s current contract with Sunnyvale for use of the SMaRT Station expires in late 2021, and Palo Alto must determine where to send its garbage (contents of the black carts and bins) after the expiration date. Palo Alto staff will be requesting information from Sunnyvale on costs and diversion and comparing that data to the results of a Request for Proposal (RFP) process for solid waste processing and disposal about to be initiated by Palo Alto. The RFP process is designed to solicit solutions other than the Sunnyvale SMaRT Station and identify the cost and other information for those alternatives. Adoption of the resolution would not bind Palo Alto to any particular course, including continuing utilization of the SMaRT Station after the current contract’s expiration. Background Collection, processing, and disposal of solid waste, compostable, and recyclable materials in Palo Alto is handled through three main agreements. GreenWaste of Palo Alto (GreenWaste) CITY OF PALO ALTO City of Palo Alto Page 2 provides curbside collection, transportation, and processing services for recyclable, compostable, and construction and demolition materials. GreenWaste also collects solid waste/garbage from all residential and commercial customers but transports the material to be processed at the Sunnyvale Materials Recovery and Transfer (SMaRT®) Station in Sunnyvale. The SMaRT Station is owned by Sunnyvale and operated by their contractor, Bay Counties. Under a 1991 Memorandum of Understanding (MOU) between the cities of Palo Alto, Mountain View, and Sunnyvale, Palo Alto pays Sunnyvale for solid waste processing services and removal of recyclable and compostable materials at the SMaRT Station. The residuals from the processing are then transported for disposal at the Kirby Canyon Landfill in South San Jose, through a separate agreement that Palo Alto has with Waste Management. The MOU with the City of Sunnyvale for solid waste processing and the agreement with Waste Management for landfill disposal will both end in 2021. Discussion The current contracts with Sunnyvale and Waste Management for garbage processing and landfill disposal were developed nearly 30 years ago and the industry and processing equipment have changed immensely. In August 2018 (ID# 9237), Council directed staff to prepare and issue a Request for Proposals (RFP) for solid waste/garbage (the contents of the black containers) processing and disposal services. The RFP was recommended as a first step to replace these 30-year agreements and solicit proposals for the same processing and disposal services that are provided by the SMaRT Station and Waste Management. The RFP is scheduled to be issued in early 2020. The City of Sunnyvale has been planning the future of the SMaRT Station, including determining future partnerships, facility needs, post-2021 facility improvements, and conceptual designs for priority improvements. Palo Alto and Mountain View, as existing partners, have been involved in the initial planning discussions, along with the cities of Santa Clara and Cupertino as potential future partners. Parallel to Palo Alto’s RFP process, staff will meet with the City of Sunnyvale and its consultants to determine if continuing processing garbage at the SMaRT Station is the best service and value for Palo Alto. The City of Sunnyvale has requested a Council resolution for this level of engagement from all the municipalities involved in these discussions, including the cities of Mountain View, Santa Clara, and Cupertino. The city councils of these other cities have already adopted a similar resolution. The adoption of the recommended resolution indicates the City’s assurance to progress on the discussions but does not commit the City to entering into the future partnership. Timeline Staff will begin planning and cost discussions with the City of Sunnyvale immediately upon the resolution approval. Concurrently, an RFP for garbage processing and disposal services will be issued with the procurement process expected to be completed in Spring 2020 followed by a recommendation to Council. Stakeholder Engagement City of Palo Alto Page 3 As this is an administrative step with no commitment beyond staff participation, no external stakeholder engagement has been involved. Resource Impact There are no fiscal impacts associated with adoption of this resolution. Environmental Review The resolution does not constitute a project under CEQA. Attachments: • Resolution - Smart Station Planning Participation by City of Palo Alto *Not Yet Approved* 1 Resolution No.________ A Resolution of the Council of the City of Palo Alto of Intent to Participate in the Planning and Preparation of Cost Estimates for Potential Future Use of the Sunnyvale Materials Recovery and Transfer Station RECITALS A.The City of Palo Alto (City) has an agreement with the City of Sunnyvale and Waste Management for the processing of solid waste and removal of recyclable and compostable materials and transportation of residuals for disposal that will terminate in 2021. B.The City has an agreement with Waste Management Kirby Canyon Landfill for the disposal of residuals that will also terminate in 2021. C.The City is evaluating long-term options for the processing and disposal of garbage. D.The City has a Zero-Waste goal of diverting 95 percent of waste from landfill by 2030, and a current diversion rate of 82 percent. E.The City of Sunnyvale owns the Sunnyvale Materials Recovery and Transfer (SMaRT®) Station, a materials processing and transfer facility. F.The City and the cities of Sunnyvale and Mountain View have worked collaboratively to process solid waste at the SMaRT Station through a Memorandum of Understanding since 1992. G.The use of the SMaRT Station offers fiscal and operational management, proximity that makes solid waste processing efficient and minimizes transport and climate change emissions compared to more distant facilities, and long-term capacity sufficient to meet material processing needs for City. H.Use of the SMaRT Station offers Palo Alto residents’ drop-off for recyclable beverage containers for redemption and compost pickup. I.The City of Sunnyvale is evaluating options for the future use of the SMaRT Station facility, which includes a partnership option with those cities interested in participation. J.The City of Sunnyvale invited the City of Palo Alto to discuss partnership opportunities in the use of the SMaRT Station beyond 2021. Attachment A *Not Yet Approved* 2 K. The City of Palo Alto has interest in exploring its continued partnership in the operation of the SMaRT Station. L. The City of Sunnyvale has requested that the City of Palo Alto adopt a resolution committing City staff participation in the planning of City’s continued use of the SMaRT Station. NOW, THEREFORE, THE COUNCIL OF THE CITY OF PALO ALTO HEREBY RESOLVES: SECTION 1. The Council directs City staff to continue meeting with the City of Sunnyvale to determine whether and how the SMaRT Station can best meet the future needs of Palo Alto, and to share pertinent information with City of Sunnyvale regarding planning for the disposal of solid waste, including current and projected material tonnages. SECTION 2. The Council directs City staff to return to Council following discussion with the City of Sunnyvale with a summary of the results, estimated costs of utilizing the SMaRT Station after 2021 to process solid waste, a comparison to other alternatives, and the recommended next steps. // // // // // // // // // // // // // *Not Yet Approved* 3 SECTION 3. The Council finds that the adoption of this resolution is not a project subject to California Environmental Quality Act (CEQA) review because adoption of this resolution is an administrative government activity that will not result in any direct or indirect physical change to the environment as a result (CEQA Guidelines section 15378(b)(5)). INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ________________________________ ________________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ________________________________ ________________________________ Assistant City Attorney City Manager ________________________________ Director of Public Works City of Palo Alto (ID # 10961) City Council Staff Report Report Type: Consent Calendar Meeting Date: 1/27/2020 City of Palo Alto Page 1 Summary Title: P&S Recommendation to Accept Status Updates of Audits Title: Policy and Services Committee and Staff Recommend the City Council Accept the Status Updates of the Audits of; 1) Citywide Cash Handling and Travel Expense; 2) Cable Franchise and PEG Fees; 3) Continuous Monitoring: Overtime; and 4) Continuous Monitoring: Payments From: City Manager Lead Department: Administrative Services Recommendation The Policy and Services Committee and staff recommend the City Council accept the status updates of the audits of 1) Citywide Cash Handling and Travel Expense; 2) Cable Franchise and PEG Fees; 3) Continuous Monitoring: Overtime; and 4) Continuous Monitoring: Payments. Discussion The Policy and Services Committee convened on December 10, 2019 (CMR: 10773) and unanimously approved and recommended that the City Council accept the report on the status of the four audits. The video from the meeting can be found here and the action minutes can be found here (minutes are not yet available for the meeting). Stakeholder Engagement Staff report 10773 was coordinated with the City Auditor’s Office staff. The roll out of citywide changes such as the new meals policy included two citywide training offerings to allow staff to be trained and engage with the new policy and provide feedback and areas for clarification prior to finalizing. Resource Impact The implementation of the audit recommendations thus far have been handled with existing resources limiting the pace of implementation as well as the absorption of additional duties and processes as requested in the findings. Policy Implications The implementation of the audit recommendations is consistent with existing city policies. CITY OF PALO ALTO OFFICE OF THE CITY ATTORNEY January 27, 2020 The Honorable City Council Palo Alto, California Authorization to Amend the Existing Legal Service Agreement With the Law Firm of Colantuono, Highsmith & Whatley, PC (Contract S17167696) to Increase the Contract Amount by an Additional $125,000 Bringing the new Not-to-Exceed Amount of the Contract to $295,000; to Increase the Term by one Year; and to Approve a Budget Amendment in the General Fund Recommendation The City Attorney recommends that the City Council: 1. Approve and authorize an increase the legal services agreement with the law firm of Colantuono, Highsmith & Whatley, PC for litigation defense in the case of Green v. City of Palo Alto, et al. Santa Clara Co. Sup. Ct. Case No. 16CV300760 (Contract S17167696) by an additional $125,000 for a total not to exceed amount of $295,000 and to extend the term to October 1, 2020. 2. Amend the Fiscal Year 2020 Budget Appropriation Ordinance for the General Fund by: (a) increasing the City Attorney Department appropriation for contractual services by $125,000; and (b) decreasing the General Fund Budget Stabilization Reserve by $125,000. Discussion In October 2016, the City retained Colantuono, Highsmith & Whatley, PC (Contract S17167696) to represent the City in the case of Miriam Green v. City of Palo Alto, et al., Santa Clara Superior Court Case No. 16CV300760. An additional $125,000 is needed to fund the City’s defense in the litigation. Resource Impact The estimated additional cost for the City’s contract for legal services with Colantuono, Highsmith & Whatley, PC exceeds the City Attorney’s Department budgeted funds for contractual services. The City Attorney and Chief Financial Officer recommend that the appropriation to fund needed legal defense services be offset by a reduction in the General Fund Budget Stabilization Reserve (BSR). The BSR will remain at or above the City Council Page 2 approved target level of 18.5%. This appropriation of additional funds requires a super majority if City Council votes, or 2/3 approval per the City’s Charter and Municipal Code. Environmental Review Amendment of legal services contracts is not a project requiring environmental review under the California Environmental Quality Act (CEQA). Department Head: Molly Stump, City Attorney Page 3 CITY OF PALO ALTO OFFICE OF THE CITY ATTORNEY January 27, 2020 The Honorable City Council Palo Alto, California Authorization to Increase the Existing Legal Services Agreement (Contract S18170470) With Meyers Nave, a Professional Law Corporation (Meyers Nave), by an Additional $15,000 for a Total Not- to-Exceed Amount of $205,000 and to Extend the Term to March 30, 2020 Recommendation Staff recommends that the City Council authorize an increase to the legal services agreement (Contract S18170470) with the law firm of Meyers Nave, a Professional Law Corporation, by an additional $15,000 for a total not to exceed amount of $205,000, and to extend the term to March 30, 2020. Discussion In October 2017, the City retained Meyers Nave (Contract S18170470) to provide legal services on an as-needed basis with respect to complex matters requiring expertise in labor grievances and arbitrations, and general employment law. An additional $15,000 is needed to continue to fund the City’s contract for legal services. Resource Impact Funding for the recommended amendment does not require additional budgetary authority as it can be accommodated within the Office of the City Attorney’s FY2020 budget. Environmental Review Amendment of legal services contracts is not a project requiring environmental review under the California Environmental Quality Act (CEQA). Department Head: Molly Stump, City Attorney Page 2 CITY OF PALO ALTO OFFICE OF THE CITY ATTORNEY January 27, 2020 The Honorable City Council Palo Alto, California Authorization to Amend the Existing Agreement for Litigation Defense Services With the Law Firm of Jarvis, Fay & Gibson (Contract S15159508) to Increase the Contract Amount by an Additional $125,000 for a Total Not-to-Exceed Amount of $820,000; and to Approve a Budget Amendment in the General Fund Recommendation The City Attorney recommends that the City Council: 1. Approve and authorize an increase to the legal services agreement with the law firm of Jarvis Fay & Gibson for litigation defense in the case of Staats v. City of Palo Alto, Santa Clara Co. Sup. Ct. Case No. 1-15-CV-284956 (Contract S15159508) by an additional $125,000 for a total not to exceed amount of $820,000. 2. Amend (by a 2/3 majority) the Fiscal Year 2020 Budget Appropriation Ordinance for the General Fund by: a) increasing the City Attorney Department appropriation for contractual services by $125,000; and b) decreasing the General Fund Budget Stabilization Reserve by $125,000. Discussion In April 2015, the City entered into a $50,000 agreement with Jarvis Fay & Gibson LLP for pre- litigation and initial litigation defense services in a Government Claims Act claim and subsequently- filed civil suit Staats v. City of Palo Alto, Santa Clara Co. Sup. Ct. Case No. 1-15- CV-284956. In November 2016 and March 2018, the City Council authorized amendment of the agreement to add $325,000 and $120,000, respectively, for a total of $495,000. The contract term was also extended to June 30, 2019. In June 2019, City Council authorized amendment of the agreement to add $200,000 and extend the term to June 30, 2021 to fund continuing defense services in this matter. At the time of that request, the City Attorney informed Council additional funding authority may be needed. Staff now recommends appropriating an additional $125,000 for a total not to exceed $820,000 for continuing litigation defense. Resource Impact The estimated additional cost for the City’s contract for legal services with Jarvis Fay & Gibson LLP is exceeds the City Attorney’s Department budgeted funds for contractual services. The City Page 2 Attorney and Chief Financial Officer recommend that the appropriation to fund needed legal defense services be offset by a reduction in the General Fund Budget Stabilization Reserve (BSR). The BSR will remain at or above the City Council approved target level of 18.5%. This appropriation of additional funds requires a 2/3 super majority (5 votes) under the City’s Charter and Municipal Code. Environmental Review Amendment of a legal services contract is not a project requiring environmental review under the California Environmental Quality Act (CEQA). Department Head: Molly Stump, City Attorney Page 3 City of Palo Alto (ID # 11019) City Council Staff Report Report Type: Action Items Meeting Date: 1/27/2020 City of Palo Alto Page 1 Council Priority: Fiscal Sustainability Summary Title: Update, Consideration, and Potential Direction on Possible Local Tax Measure for 2020 Election Title: Consideration of Polling Results, Analysis, and Public Outreach, and Direction on Parameters for a Possible Local Business Tax Ballot Measure for 2020 Election From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that the City Council: 1) Accept the Finance Committee recommendation from December 17, 2019 to the City Council: a) Consider the following taxes in the following order of preference: Business Tax by Employee Headcount, Parcel Tax by Square Footage, and Business Tax by Square Footage; b) Approve the following characteristics: i) An escalator as a preference; ii) No sunset; iii) Online and administratively easy filing available, including having some ability to enforce the filings; c) Make a decision on the following, to be informed by polling results: i) A specific tax or a general tax; ii) Who is being taxed, a tiered rate versus flat rate, as well as tiered by business use; and d) Direct Staff to continue to work on the following: i) Work on a metric stating the average dollars by the number of employees for comparable cities, regardless of exemptions, tier, or rate structure ii) Begin to develop proposed use of funds and 2) Review the results of the initial public opinion survey; and City of Palo Alto Page 2 3) Provide direction to staff on next steps in developing a potential local tax ballot measure including, but not limited to: a) Tax type and metric (e.g. business tax by employee count); b) Target magnitude of estimated new revenue to be raised by a tax; and c) Inclusion of different tiers and/or exemptions and desired characteristics of each Executive Summary This report continues work on the 2019 Fiscal Sustainability Council priority by further exploring a revenue generating local tax ballot measure. The ballot measure work plan is spread across three tracks that continuously interact with each other throughout this process: 1) modeling and analysis, 2) polling, and 3) stakeholder engagement. The City administration has iteratively engaged both the City Council and the Finance Committee throughout the process for the past eight months and will continue this work throughout the rest of this process. This report provides an update to date across each of these three tracks, outlines recommended direction from the Finance Committee at its December 17, 2019 meeting and seeks further direction from the City Council on next steps in developing a potential local tax ballot measure. On December 17, 2019, the Finance Committee reviewed the third report (CMR 10655 ) in a series which discuss the modeling and analysis component of the ballot measure work plan. The action minutes for that meeting can be found online here. The PowerPoint presentation made as part of that discussion can be found online here. On December 2, 2019 the City Council provided feedback on the first round of polling, specifically regarding the polling questions and what would be measured. This was further discussed at the December 17, 2019 Finance Committee meeting in conjunction with CMR 10655. This report transmits the preliminary results from the first round of polling which incorporated City Council’s feedback. A top-line summary of the round one polling results is included in Attachment A and a full set of presentation slides will be presented on January 27 when the City Council discusses this item. A verbal update on the stakeholder engagement work will also be provided at the meeting on January 27. The remaining timeline for these different elements is discussed later in the timeline section of this report. Attachment B details all Staff Reports to the Finance Committee and City Council that have been issued to date in regard to a potential local tax ballot measure. City of Palo Alto Page 3 Discussion Modeling and Analysis Update The Finance Committee discussion on December 17, 2019 focused on narrowing a recommendation to the full City Council regarding the methodology for a business tax and concurring on certain desired elements. As described in the recommended motion at the beginning of this report, the Finance Committee reached consensus on the desirability of the different methodologies. The Finance Committee ranked the options in the following order: 1. Employee Headcount Tax 2. Parcel Tax (assessed via property tax roll) 3. Parcel Tax (assessed based on square footage) The Finance Committee also reached agreement on a few provisions related to the implementation of a business tax, which are also included in the recommendation at the beginning of this report. The Committee recommended that the ballot measure include a year- over-year escalator, that there be no sunset on the tax, and that the implementation of the tax should minimize the administrative burden on the business that is paying it, including the ability to pay it online. The Finance Committee also recommended that some enforcement provisions be included in the tax. The Finance Committee agreed that the decision on whether the business tax should be a special tax (requiring a 2/3rd majority to pass) or a general tax (requiring a 50% +1 majority to pass) should be informed by recent polling. These items are discussed later in this report in the Polling Update section, and poll results are included in Attachment A. The Finance Committee requested that staff work on a metric that calculates the average dollars by the number of employees, regardless of exemptions, or tiers, or whatever the rate structure may be. The City has begun work on this request to provide the average dollars by the number of employees. A preliminary calculation of this is in the table below. It should be noted that the number of employees comes from a dataset that contained projections from the Association of Bay Area Governments (ABAG). They are provided below only to show an “apples to apples” comparison of the different business tax revenues among the different jurisdictions. City of Palo Alto Page 4 Figure 1: Average Business License Tax (BLT) / Business Tax Revenue by City City Actual Business License Revenue BLT Revenue as % of Total General Fund Revenue Projected Total Employment in City Business License Tax Per Employee Total Number of Businesses Business License Tax Revenue Per Business Cupertino $876,000 1% 27,515 $32 3,800 $ 231 East Palo Alto $1,175,000 4% 5,185 $227 1,527 $ 769 Mountain View $6,000,000 4% 58,860 $102 3,700 $ 1,622 Redwood City $2,628,000 2% 69,460 $38 6,275 $ 419 San Francisco $820,000,000 9% 748,230 $1,096 102,556 $ 7,996 San Jose $72,200,000 6% 457,075 $158 58,000 $ 1,245 San Mateo $5,940,000 5% 60,305 $98 7,486 $ 793 Santa Clara $915,000 0.5% 136,980 $7 13,000 $ 70 Sunnyvale $1,840,000 1% 87,085 $21 7,875 $ 234 East Palo Alto (A)$2,850,000 10% 5,185 $550 1,527 $ 1,866 San Francisco (A)$1,120,000,000 12% 748,230 $1,497 102,556 $ 10,921 Palo Alto $2,320,000 1% 126,305 $18 4,167 $ 557 Palo Alto $11,600,000 5% 126,305 $92 4,167 $ 2,784 Palo Alto $23,200,000 10% 126,305 $184 4,167 $ 5,568 Palo Alto shown at 1%, 5%, and 10% of General Fund as discussed with FC on 12/17 NOTES:Employment data from projections developed by Association of Bay Area Governments. (A) - East Palo Alto and San Francisco restated to include $1.675 million of Measure HH (Commercial Office Space Parcel Tax) revenue and $300 million of Proposition C (Additional Business Taxes to Fund Homeless Services) revenue, respectively. Number of businesses and revenue amounts from survey of communities' business license offices except for City of Palo Alto, which was taken from EDD Data on number of firms. Staff has engaged the state Employment Development Department (EDD) for their authoritative data set that shows the total annual number of jobs per jurisdiction as of 2018. This is the same data source that was previously provided in consultant reports for both employee head count and payroll information for modeling purposes. This request is considered a “custom” data request and EDD will charge the City for the production of that data. Staff will transmit the refined calculation with employee numbers generated by the authoritative EDD data set as soon as administratively feasible. To the extent that EDD employment data differs from the ABAG projections used in Figure 1 above, the business license tax per employee figures will change accordingly. The Finance Committee also requested that the polling be used to inform who is being taxed (whether it is a property owner or a business), whether the tax should be tiered or a flat rate, City of Palo Alto Page 5 and whether the tax should be tiered by business use. Some of these items are discussed later in this report in the Polling Update section, and at greater length in Attachment A. It is anticipated that subsequent rounds of polling may further explore these potential dimensions of a business tax. Finally, the Finance Committee requested that work begin on developing a use of funds including potential projects. As staff continues to work with the City Council and the Finance Committee on this topic, the list of potential uses, and approximate costs will be identified to provide additional context to the conversation. At the August 20, 2019 Finance Committee Meeting there was consensus among the Finance Committee members that transportation focused initiatives and/or affordable housing should be the focus and that potential needs could be determined later and informed by polling. This was approved by the City Council at the special meeting on September 16, 2019 as part of CMR 10615. The City’s potential costs for grade separation/train track crossings have been discussed extensively over the past year with the City Council. Revenues from a potential Business Tax could help contribute to those costs, but alone would be insufficient to pay for the needed work to pursue grade separation/train track crossings. However, business tax funding could defray some of those costs, could be used for other transportation improvements that positively impact mobility, or could be used to augment the City’s contributions towards affordable housing. Given the nature of efforts on affordable housing, the magnitude of the contribution could change depending on the needs identified at a given point in time. As the City Council continues to progress on which type of Business Tax it would like to potentially put forth to the voters, staff anticipates that future polling would seek feedback on possible uses of the revenues generated through the tax and refining what types of commitments the revenues may be allocated towards. Polling Update On December 2, 2019, the City Council approved the substantive content of the first round of polling questions to be conducted by the City’s polling consultant, FM3 Associates. FM3 began polling in January, employing a multi-modal methodology that prompted participation either over the internet or through a facilitated telephone conversation. It should be noted that there were more than 514 successful engagements. In subsequent iterations of the polling, to address a concern that surfaced, staff and FM3 will continue to refine the outreach communication to ensure it is identified as an official poll that has been commissioned by the City. As outlined in the timeline and workplan for the polling, staff will continue to engage the City Council in the development of the content of the proposed second round of polling with more refined analysis and feedback. The top-line report of survey results is attached to this report as Attachment A and will be presented on January 27 to the City Council. City of Palo Alto Page 6 Stakeholder Outreach and Engagement Update Through CMR 10792, approved by the City Council on November 4, 2019, the City has engaged TBWB as the consultant to conduct outreach through this process. This process is underway. TBWB will provide a verbal update on the status of the stakeholder outreach and engagement workplan on January 27. Resource Impact No additional resources are needed at this time. To date, City Council authorized funding of $75,000 for consultant work related to analysis (provided by Matrix Consulting Group) as part of CMR 10615 on September 16, 2019 of which nearly $50,000 has been spent on work to date. This work is represented in CMR 10655 and included analyzing different business tax environments in various jurisdictions. To the extent additional rounds of analysis continue to be requested, staff may need to increase the contract and budgeted funds. Funding for polling and outreach of $179,125 was authorized and appropriated as part of CMR 10792 on November 4, 2019. This included the funding for two rounds of polling, and stakeholder outreach and engagement on the business side. Timeline/Next Steps It is anticipated that the City Council will discuss the Finance Committee recommendation and the initial polling results to provide additional direction to staff regarding next steps including type of business tax, desired revenue to be raised by a business tax, and direction on whether to include tiering and/or exemptions in the business tax. These next steps may consist of refined analysis once the tax structure and methodology has been agreed upon, with additional refined polling and stakeholder outreach to further contextualize these elements. City of Palo Alto Page 7 A potential draft timeline is detailed below: Activity Estimated Schedule Round 1 Polling January Stakeholder Outreach (Business Community) January– March Report out on Round 1 of Ballot Measure Polling/ City Council Approval of Business Tax Methodology January 27 Finance Committee (FC) Discussion of scenarios w/rates and structures, administration and implementation, penalties/reporting, and additional needs assessment at defined levels (including Gross vs. Net analysis and Bondable Revenue) February (est 2/18) City Council Discussion of FC Recommendation from February, review round 2 refined polling questions to inform final recommendation on scenario March (est 3/9) Round 2 refined Polling March - April City Council to discuss round 2 refined polling, and provide direction on specific tax structure for preparation of ballot measure for voter approval Nov 2020 April (est 4/20) City Council review of ordinance language, review of ballot language June City Council takes policy action to place measure on ballot June (est 6/22) City Council adopts resolution of necessity City Council adopts resolution calling election Deadline to submit Ballot Measure to Santa Clara County August 7 Election Day November 3 In order to place a local tax ballot measure on the November 2020 ballot, the City Council needs to provide direction on the type of tax it would like to potentially pursue, whether it would like to include tiers and/or exemptions for certain businesses, and the order of magnitude of the revenue to be generated by a tax to ensure sufficient time for staff and consultants to complete the work necessary to reach the November 2020 election timelines. In addition to refinement of the revenue projections associated with the measure, time will be needed to address: staffing, administration, implementation timelines (including analysis of the advantages and disadvantages of a phase-in period), enforcement mechanisms, and continued refinement of the stakeholder outreach to the business community and the community at large. If the City Council is unable to narrow the focus regarding the critical elements of a potential ballot measure at a sufficiently early stage in the process, the tight timelines necessary to comply with the election deadlines may be jeopardized. It is expected that many of these reports will be transmitted in late packet due to the quick turnaround times and flow of information. City of Palo Alto Page 8 Environmental Review This report is not a project for the purposes of the California Environmental Quality Act (CEQA). Attachments: • Attachment A: Palo Alto Business Tax Exploratory Survey • Attachment B: Ballot Measure Staff Reports to Finance Committee and Council JANUARY 13-20, 2020 CITY OF PALO ALTO BALLOT MEASURE SURVEY 220-5591-WT N=514 MARGIN OF SAMPLING ERROR ±4.9% (95% CONFIDENCE INTERVAL) A/B SPLITS Hello, I'm ___________ from _________, a public opinion research company. I am definitely not trying to sell you anything. We are conducting an opinion survey about issues that interest people living in the City of Palo Alto and we are only interested in your opinions. May I speak to______________? (YOU MUST SPEAK TO THE VOTER LISTED. VERIFY THAT THE VOTER LIVES AT THE ADDRESS LISTED, OTHERWISE TERMINATE). A. Before we begin, I need to know if I have reached you on a cell phone, and if so, are you in a place where you can talk safely without endangering yourself or others? (IF NOT ON A CELL PHONE, ASK: “Do you own a cell phone?”) Yes, cell and can talk safely ------------------------------------------------- 73% Yes, cell but cannot talk safely --------------------------------- TERMINATE No, not on cell ----------------------------------------------------------------- 27% (DON’T READ) DK/NA/REFUSED ------------------------- TERMINATE 1. First, how would you rate the City of Palo Alto’s need for additional funding? Is there a great need for additional funding, some need, a little need or no real need for additional funding? 2013 2016 2018 2020 GREAT/SOME NEED ---------------------------- 40% ------- 36% ----- 32% ---- 33% Great need ---------------------------------------------- 5% -------- 5% ------ 6% -------- 7% Some need --------------------------------------------- 35% ------- 31% ----- 26% ---- 25% LITTLE/NO REAL NEED ----------------------- 50% ------- 54% ----- 53% ---- 38% Little need --------------------------------------------- 19% ------- 18% ----- 20% ---- 18% No real need ------------------------------------------ 31% ------- 36% ----- 32% ---- 20% (DON'T READ) Don't know --------------------- 11% ------- 10% ----- 15% ---- 29% Attachment A FM3 RESEARCH 220-5591-WT PAGE 2 2. I'd like to read you some problems facing Palo Alto that other people have mentioned. For each one I read, please tell me whether you think it is an extremely serious problem, a very serious problem, somewhat serious problem, or a not too serious problem in Palo Alto. (RANDOMIZE) EXT VERY SMWT NOT TOO SER SER SER SER (DK/ EXT/ PROB PROB PROB PROB NA) VERY [ ]a. Unsafe railroad crossings ------------------------------- 11% ----- 18% ---- 29% ----- 40% ----- 2% 29% (SPLIT SAMPLE A ONLY) [ ]b. A lack of parking in commercial districts 2020 -------------------------------------------------------- 13% ----- 17% ---- 35% ----- 32% ----- 3% 30% 2016 -------------------------------------------------------- 14% ----- 23% ---- 38% ----- 25% ----- 0% 37% [ ]c. The cost of housing 2020 -------------------------------------------------------- 51% ----- 26% ---- 14% ------ 9% ------ 0% 77% 2016 -------------------------------------------------------- 46% ----- 30% ---- 15% ------ 7% ------ 1% 76% [ ]d. Waste and inefficiency in local government 2020 -------------------------------------------------------- 13% ----- 16% ---- 24% ----- 26% ---- 21% 29% 2016 ---------------------------------------------------------8% ------ 9% ----- 34% ----- 36% ---- 13% 17% [ ]e. Too much office and commercial growth and development ----------------------------------------------- 20% ----- 14% ---- 25% ----- 36% ----- 5% 34% [ ]f. The amount local businesses pay in City taxes ------5% ------ 8% ----- 20% ----- 19% ---- 48% 13% [ ]g. Crime, in general 2020 ---------------------------------------------------------4% ----- 11% ---- 28% ----- 54% ----- 2% 16% 2016 ---------------------------------------------------------1% ------ 5% ----- 29% ----- 64% ----- 1% 6% (SPLIT SAMPLE B ONLY) [ ]h. The condition of the local economy 2020 ---------------------------------------------------------3% ----- 10% ---- 18% ----- 62% ----- 7% 13% 2016 ---------------------------------------------------------2% ------ 5% ----- 16% ----- 73% ----- 5% 6% [ ]i. Traffic and congestion on local streets and roads 2020 -------------------------------------------------------- 30% ----- 23% ---- 33% ----- 13% ----- 0% 53% 2016 -------------------------------------------------------- 22% ----- 31% ---- 29% ----- 16% ----- 2% 53% [ ]j. Too much residential growth and development ----- 14% ----- 18% ---- 20% ----- 46% ----- 3% 32% [ ]k. The amount people pay in City taxes 2020 ---------------------------------------------------------6% ----- 14% ---- 20% ----- 46% ---- 15% 19% 2016 ---------------------------------------------------------8% ----- 10% ---- 33% ----- 39% ---- 10% 18% [ ]l. Changing character of the community 2020 -------------------------------------------------------- 10% ----- 16% ---- 22% ----- 46% ----- 6% 26% 2016 -------------------------------------------------------- 10% ----- 14% ---- 33% ----- 39% ----- 5% 24% [ ]m. Homelessness 2020 -------------------------------------------------------- 21% ----- 23% ---- 30% ----- 25% ----- 1% 44% 2016 ---------------------------------------------------------7% ----- 15% ---- 49% ----- 26% ----- 3% 22% Attachment A FM3 RESEARCH 220-5591-WT PAGE 3 (RESUME ASKING ALL RESPONDENTS) NOW I WOULD LIKE TO ASK YOU A FEW QUESTIONS ABOUT A MEASURE THAT MAY APPEAR ON THE BALLOT IN NOVEMBER. 3. The City of Palo Alto is considering a measure raising taxes on businesses to raise funds for general city services, including to reduce traffic congestion, provide affordable housing, improve public safety services, maintain parks, and improve bicycle and pedestrian options. Do you think you would vote yes or no on such a measure? (IF YES/NO, ASK: “Is that definitely or just probably?”) (IF UNDECIDED, DON’T KNOW, NO ANSWER, ASK: “Do you lean toward voting yes or no?”) TOTAL YES ------------------------------ 64% Definitely yes ------------------------------- 28% Probably yes -------------------------------- 31% Undecided, lean yes ------------------------- 5% TOTAL NO -------------------------------- 27% Undecided, lean no -------------------------- 3% Probably no ----------------------------------- 9% Definitely no -------------------------------- 15% (DON'T READ) DK/NA ------------------ 9% Attachment A FM3 RESEARCH 220-5591-WT PAGE 4 (ASK Q4 IF CODES 1-6 - YES/NO - IN Q3) 4. In a few words of your own, why do you think you would vote YES/NO this measure? (OPEN END, RECORD VERBATIM RESPONSES - PROBE FOR A SPECIFIC RESPONSE, NOT JUST “SOUNDS GOOD” / “SOUNDS BAD”) a. Yes, N=330: Improve infrastructure/traffic congestion/roads -------------------------------------------- 27% They need to provide affordable housing ---------------------------------------------------- 22% Need to pay their fair share of tax/some businesses are undertaxed -------------------- 16% Agree with raising taxes/support the measure ---------------------------------------------- 12% Needed to provide more funds/money -------------------------------------------------------- 11% Business is good for the city --------------------------------------------------------------------- 7% Need to address important/critical issues ------------------------------------------------------ 5% Reduce homeless/poverty ------------------------------------------------------------------------- 4% They give back to the community --------------------------------------------------------------- 4% It is needed/necessary services ------------------------------------------------------------------- 4% Need improvement/should be better ------------------------------------------------------------ 4% Maintain/upkeep the city -------------------------------------------------------------------------- 4% Provide safety/reduce crime ---------------------------------------------------------------------- 3% Provide good budget/spending ------------------------------------------------------------------- 3% Need more information --------------------------------------------------------------------------- 3% Reduce business development -------------------------------------------------------------------- 3% It support small business -------------------------------------------------------------------------- 3% More parking spaces ------------------------------------------------------------------------------- 2% Need to develop appropriate transportation --------------------------------------------------- 2% None -------------------------------------------------------------------------------------------------- 0% Other ------------------------------------------------------------------------------------------------- 6% Don't know/refused -------------------------------------------------------------------------------- 1% b. No, N=140: Taxes are already too high/raising tax is not a solution ---------------------------------- 42% This will hurt small businesses/It will hurt the economy ---------------------------------- 16% City should learn how to manage the budget ------------------------------------------------ 14% Palo Alto does not need more money/have enough money ------------------------------- 14% Wasting money/spending ----------------------------------------------------------------------- 12% Corrupt government ------------------------------------------------------------------------------- 7% We don't need it/don't like it -------------------------------------------------------------------- 7% Need to know more information/Not clear ---------------------------------------------------- 5% Too much traffic congestion --------------------------------------------------------------------- 3% None ------------------------------------------------------------------------------------------------- 1% Other ------------------------------------------------------------------------------------------------ 9% Attachment A FM3 RESEARCH 220-5591-WT PAGE 5 (RESUME ASKING ALL RESPONDENTS) 5. Next, here are statements from supporters and opponents of this idea. (ROTATE) [ ] Supporters say many challenges facing Palo Alto – like increased traffic and rising housing costs – are in part due to the presence of a growing number of successful businesses in our city. It is only fair that we ask those businesses to pay a little more to protect our city’s quality of life. OR [ ] Opponents say that increasing taxes on local businesses could have negative consequences for our city. It could lead businesses to relocate outside Palo Alto, costing us jobs and making local residents commute further to work, and business tax costs could be passed on to consumers. Having heard this, let me ask you again - do you think you would vote yes or no on such a measure? (IF YES/NO, ASK: “Is that definitely or just probably?”) (IF UNDECIDED, DON’T KNOW, NO ANSWER, ASK: “Do you lean toward voting yes or no?”) TOTAL YES ------------------------------ 65% Definitely yes ------------------------------- 33% Probably yes -------------------------------- 29% Undecided, lean yes ------------------------- 3% TOTAL NO -------------------------------- 30% Undecided, lean no -------------------------- 2% Probably no --------------------------------- 12% Definitely no -------------------------------- 16% (DON'T READ) DK/NA ------------------ 5% Attachment A FM3 RESEARCH 220-5591-WT PAGE 6 6. Next, I am going to read you a list of ways in which funds generated by a tax on businesses could be spent. After I read each one, please tell me how important each item is to you personally: extremely important, very important, somewhat important, or not too important. (RANDOMIZE) EXT VERY SMWT NOT TOO (DK/ EXT/ IMP IMP IMP IMP NA) VERY [ ]a. Maintaining City buildings ------------------------------5% ----- 25% ---- 47% ----- 19% ----- 3% 30% [ ]b. (T) Maintaining City streets and roads --------------- 24% ----- 39% ---- 29% ------ 6% ------ 1% 64% [ ]c. (T) Reducing traffic congestion ----------------------- 30% ----- 37% ---- 24% ------ 9% ------ 1% 66% [ ]d. (T) Making sidewalks, city buildings and parks accessible for people with disabilities ---------------- 18% ----- 29% ---- 38% ----- 14% ----- 1% 47% [ ]e. (T) Fixing potholes -------------------------------------- 20% ----- 35% ---- 33% ----- 11% ----- 2% 55% [ ]f. (T) Repairing and maintaining City sidewalks ------ 13% ----- 36% ---- 41% ----- 10% ----- 1% 49% [ ]g. (T) Improving traffic light timing and flow --------- 25% ----- 33% ---- 31% ----- 11% ----- 1% 58% [ ]h. Preparing for natural disasters such as earthquake or flooding ---------------------------------- 25% ----- 37% ---- 30% ------ 8% ------ 1% 62% [ ]i. (T) Maintaining City parks and recreation facilities ---------------------------------------------------- 18% ----- 41% ---- 36% ------ 5% ------ 1% 58% [ ]j. (T) Ensuring a modern, stable 911 emergency communications network ------------------------------- 33% ----- 40% ---- 20% ------ 5% ------ 1% 73% [ ]k. (T) Ensuring earthquake-safe fire stations and emergency command center ---------------------------- 25% ----- 38% ---- 27% ------ 8% ------ 1% 64% [ ]l. (T) Maintaining community centers that serve Palo Alto children, families, and seniors ------------ 22% ----- 38% ---- 31% ------ 9% ------ 1% 60% [ ]m. Providing safer crossings at railroad tracks for traffic, bicycles, and pedestrians ---------------------- 21% ----- 28% ---- 31% ----- 21% ----- 1% 48% [ ]n. Providing shuttles for travel within Palo Alto ------- 14% ----- 27% ---- 33% ----- 24% ----- 2% 41% [ ]o. Providing free transit passes for low-income workers ---------------------------------------------------- 21% ----- 32% ---- 29% ----- 17% ----- 2% 52% (SPLIT SAMPLE A ONLY) [ ]p. Providing affordable housing -------------------------- 40% ----- 22% ---- 18% ----- 19% ----- 1% 62% (SPLIT SAMPLE B ONLY) [ ]q. Providing subsidized housing for low-income residents --------------------------------------------------- 27% ----- 26% ---- 31% ----- 14% ----- 2% 54% Attachment A FM3 RESEARCH 220-5591-WT PAGE 7 (RESUME ASKING ALL RESPONDENTS) 7. Next, here is a list of several ways a tax on business might be structured to raise funds for some of these services. After you hear each one, please tell me whether you would generally support or oppose a tax on business structured in that way. FIRST/NEXT, would you support or oppose _____ (RANDOMIZE)? (IF SUPPORT/ OPPOSE, ASK:) “Is that strongly SUPPORT/OPPOSE or just somewhat?” STR SMWT SMWT STR (DK/ TOTAL TOTAL SUPP SUPP OPP OPP NA) SUPP OPP [ ]a. A property tax on commercial buildings based on the building’s size -------------------------------------------- 34% ----- 36% ---- 13% ----- 10% -------7% 70% 23% [ ]b. A business tax based on the number of employees a company has in Palo Alto ------------------------------------------- 27% ----- 38% ---- 14% ----- 13% -------8% 65% 28% [ ]c. A payroll tax based on the salaries a company pays to employees in Palo Alto ------------------------------------- 21% ----- 32% ---- 21% ----- 18% -------9% 53% 38% (SPLIT SAMPLE A ONLY) 8. Next, I am going to read you a list of some categories of businesses that could be exempted from a tax on Palo Alto businesses. Each exemption would reduce the amount of revenue generated by the tax. After you hear each one, please tell me whether you would support or oppose exempting that type of business. (IF SUPPORT/ OPPOSE, ASK:) “Is that strongly SUPPORT/OPPOSE or just somewhat? STR SMWT SMWT STR (DK/ TOTAL TOTAL SUPP SUPP OPP OPP NA) SUPP OPP [ ]a. Retail businesses --------------------------- 20% ----- 26% ---- 27% ----- 19% -------8% 46% 46% [ ]b. Hospitality businesses, such as hotels and restaurants ---------------------- 17% ----- 22% ---- 30% ----- 23% -------8% 39% 53% [ ]c. Medical businesses ------------------------- 26% ----- 27% ---- 21% ----- 17% -------9% 53% 38% [ ]d. Small businesses ---------------------------- 45% ----- 25% ---- 15% ----- 11% -------5% 69% 26% (SPLIT SAMPLE B ONLY) 9. Next, I am going to read you a list of some categories of businesses that could be taxed at a lower rate. Each lower rate would reduce the amount of revenue generated by the tax. After you hear each one, please tell me whether you would support or oppose a lower rate for that type of business. (IF SUPPORT/ OPPOSE, ASK:) “Is that strongly SUPPORT/OPPOSE or just somewhat?” STR SMWT SMWT STR (DK/ TOTAL TOTAL SUPP SUPP OPP OPP NA) SUPP OPP [ ]a. Retail businesses --------------------------- 19% ----- 36% ---- 24% ----- 16% -------5% 55% 41% [ ]b. Hospitality businesses, such as hotels and restaurants ---------------------- 18% ----- 23% ---- 33% ----- 22% -------4% 42% 54% [ ]c. Medical businesses ------------------------- 22% ----- 33% ---- 25% ----- 17% -------3% 55% 42% [ ]d. Small businesses ---------------------------- 41% ----- 31% ---- 11% ----- 14% -------3% 72% 25% Attachment A FM3 RESEARCH 220-5591-WT PAGE 8 (RESUME ASKING ALL RESPONDENTS) 10. Next, I’m going to read you a list of accountability provisions that may be included in a business tax measure. After you hear each one, please tell me how important it is to you personally that each provision be included: extremely important, very important, somewhat important, or not too important. (RANDOMIZE) EXT VERY SMWT NOT TOO (DK/ EXT/ IMP IMP IMP IMP NA) VERY [ ]a. Requiring annual independent financial audits ------ 31% ----- 34% ---- 20% ------ 8% ------ 7% 64% [ ]b. Requiring a citizens’ oversight committee to review spending and program implementation ------ 24% ----- 30% ---- 28% ----- 14% ----- 5% 53% [ ]c. Legally requiring that all funds be used as promised in the measure -------------------------------- 46% ----- 30% ---- 13% ------ 7% ------ 3% 76% [ ]d. Requiring that no more than one percent of revenue from the measure be spent on program administration --------------------------------------------- 27% ----- 25% ---- 22% ----- 17% ----- 9% 52% MY NEXT QUESTIONS ARE ABOUT THE STRUCTURE OF A POTENTIAL MEASURE, REGARDLESS OF WHICH TAXING MECHANISM IS SELECTED. 11. There are two ways this measure could be structured. (ROTATE) [ ] It could be written as a special-purpose measure dedicated to one specific category of City spending, with clearly defined spending priorities that cannot be changed at a later date. OR [ ] It could be written as a general-purpose measure, with revenue going into the general fund to be spent as needed on a variety of City needs, which could include transportation, parks, police, fire, emergency medical services, and disaster preparedness. Would you prefer a special-purpose measure or a general-purpose measure? (IF GENERAL/ SPECIAL, ASK: “Do you prefer that strongly, or just somewhat?”) TOTAL GENERAL PURPOSE ------ 43% General purpose, strongly ---------------- 19% General purpose, somewhat ------------- 24% TOTAL SPECIAL PURPOSE -------- 46% Special purpose, somewhat -------------- 15% Special purpose, strongly ---------------- 31% (DON’T READ) DK/NA ---------------- 11% Attachment A FM3 RESEARCH 220-5591-WT PAGE 9 12. Next, I am going to read you brief arguments from supporters of each approach. After I do, please tell me again which you prefer. (ROTATE PARAGRAPHS) [ ] Supporters of a general-purpose measure say we should preserve the option of flexibility as technology, growth, and other pressures continue to impact our city. A general-purpose measure allows us to prioritize our most-important needs, which will not be the same in ten years as they are today. OR [ ] Supporters of a special-purpose measure say that we can’t trust the City to spend money wisely without clear direction from the voters. We should support a special-purpose measure, clearly dedicated to one specific kind of spending, that cannot be re-directed by City Council. Having heard this, would you prefer a special-purpose measure or a general-purpose measure? (IF GENERAL/ SPECIAL, ASK: “Do you prefer that strongly, or just somewhat?”) TOTAL GENERAL PURPOSE ------ 42% General purpose, strongly ---------------- 19% General purpose, somewhat ------------- 23% TOTAL SPECIAL PURPOSE -------- 50% Special purpose, somewhat -------------- 22% Special purpose, strongly ---------------- 28% (DON’T READ) DK/NA ------------------ 8% 13. Next, if the City pursues a special-purpose measure, there are several different ways the money could be dedicated. Please tell me whether you would generally support or oppose a business tax measure that dedicated funding specifically to the following purposes. (IF SUPPORT/ OPPOSE, ASK:) “Is that strongly SUPPORT/OPPOSE or just somewhat? STR SMWT SMWT STR (DK/ TOTAL TOTAL SUPP SUPP OPP OPP NA) SUPP OPP [ ]a. Providing more housing ------------------- 43% ----- 27% ------ 9% ----- 18% -------2% 71% 28% [ ]b. Improving transportation ------------------ 44% ----- 40% ------ 9% ------ 6% -------1% 84% 15% [ ]c. Improving safety at railroad crossings ------------------------------------- 27% ----- 40% ---- 20% ----- 11% -------3% 67% 30% Attachment A FM3 RESEARCH 220-5591-WT PAGE 10 14. And which one of these would you most like to see dedicated funding from a tax on businesses dedicated to: providing more housing, improving transportation, or improving safety at railroad crossings? (RE- READ IF NECESSARY) [ ] Providing more housing -------------------------------- 41% [ ] Improving transportation ------------------------------- 29% [ ] Improving safety at railroad crossings --------------- 14% (DON’T READ) All ------------------------------------------ 6% (DON’T READ) None --------------------------------------- 7% (DON’T READ) DK/NA ------------------------------------ 3% (SPLIT SAMPLE A ONLY) 15. Broadly speaking, there are two approaches for setting tax rates. (ROTATE) [ ] The measure could apply a flat tax of the same amount to all businesses regardless of size or revenue. OR [ ] The measure could have tiered rates, so that larger businesses, or those with higher revenues, pay a higher rate than smaller businesses. Which of these approaches do you prefer? (IF FLAT/TIERED, ASK: “Do you prefer that strongly, or just somewhat?”) TOTAL FLAT TAX --------------------- 15% Flat tax, strongly----------------------------- 6% Flat tax, somewhat -------------------------- 9% TOTAL TIERED RATES -------------- 78% Tiered rates, somewhat ------------------- 17% Tiered rates, strongly --------------------- 62% (DON’T READ) DK/NA ------------------ 7% Attachment A FM3 RESEARCH 220-5591-WT PAGE 11 (SPLIT SAMPLE A ONLY) 16. Next, I am going to read you brief arguments from supporters of each approach. After I do, please tell me which you prefer. (ROTATE PARAGRAPHS) [ ] Supporters of a flat tax it is the simplest, most straightforward way to establish a tax on businesses. OR [ ] Supporters of a tiered-rate tax say that larger and more profitable businesses should pay a higher tax than smaller and less profitable businesses. Having heard this, do you prefer that Palo Alto charge a flat tax on businesses or a tax with tiered rates? (IF FLAT/TIERED, ASK: “Do you prefer that strongly, or just somewhat?”) TOTAL FLAT TAX --------------------- 13% Flat tax, strongly----------------------------- 6% Flat tax, somewhat -------------------------- 7% TOTAL TIERED RATES -------------- 78% Tiered rates, somewhat ------------------- 19% Tiered rates, strongly --------------------- 58% (DON’T READ) DK/NA ------------------ 9% (SPLIT SAMPLE B ONLY) 17. In general, would you prefer that Palo Alto establish business tax (ROTATE) [ ] rates that are slightly higher, [ ] rates that are comparable to neighboring cities, or [ ] rates that are slightly lower? (IF HIGHER/COMPARABLE/LOWER, ASK: “Do you prefer that strongly, or just somewhat?”) TOTAL HIGHER ------------------------ 30% Higher, strongly --------------------------- 14% Higher, somewhat ------------------------- 16% TOTAL COMPARABLE--------------- 48% Comparable, strongly --------------------- 27% Comparable, somewhat ------------------- 21% TOTAL LOWER ------------------------- 12% Lower, somewhat ---------------------------- 5% Lower, strongly ------------------------------ 7% (DON’T READ) DK/NA ------------------ 9% Attachment A FM3 RESEARCH 220-5591-WT PAGE 12 (SPLIT SAMPLE B ONLY) 18. Next, I am going to read you brief arguments from supporters of each approach. After I do, please tell me which you prefer. (ROTATE PARAGRAPHS) [ ] Supporters of higher rates say businesses choose to locate in Palo Alto because of unique advantages like access to talent and quality of life, and they should pay rates that reflect that high standard. OR [ ] Supporters of comparable rates say Palo Alto businesses should pay their fair share by investing at least as much in our city as they do in neighboring cities. OR [ ] Supporters of lower rates say that raising business taxes as high as neighboring cities will push businesses away from Palo Alto to other cities with lower business tax rates. Having heard this, do you prefer that Palo Alto’s business tax (ROTATE) [ ] rates that are slightly higher, [ ] rates that are comparable to neighboring cities, or [ ] rates that are slightly lower? (IF HIGHER/COMPARABLE/LOWER, ASK: “Do you prefer that strongly, or just somewhat?”) TOTAL HIGHER ------------------------ 32% Higher, strongly --------------------------- 16% Higher, somewhat ------------------------- 16% TOTAL COMPARABLE--------------- 48% Comparable, strongly --------------------- 30% Comparable, somewhat ------------------- 17% TOTAL LOWER ------------------------- 13% Lower, somewhat ---------------------------- 5% Lower, strongly ------------------------------ 8% (DON’T READ) DK/NA ------------------ 6% Attachment A FM3 RESEARCH 220-5591-WT PAGE 13 (RESUME ASKING ALL RESPONDENTS) NEXT, I AM GOING TO READ YOU SOME STATEMENTS FROM SUPPORTERS AND OPPONENTS OF EACH OF THE THREE TYPES OF BUSINSS TAXES WE DISCUSSED EARLIER. FOR QUESTIONS Q19-Q21, ROTATE PAIRS AND WITHIN PAIRS. 19. FIRST/NEXT, let me ask you about the idea of establishing a property tax on commercial buildings based on the building’s size. [ ] Supporters say this approach ensures that owners of large business properties will pay more, which is only fair, as their greater size means more impact on traffic, public safety, and other City resources. [ ] Opponents say this approach is unfair, and has little to do with ability to pay – a medical warehouse is much larger than a venture capital firm, for example, but the latter has much greater profits. Having heard this, would you support or oppose establishing a property tax on commercial buildings based on the building’s size as a way of raising revenue for the City? (IF SUPPORT/OPPOSE, ASK: “Is that strongly or just somewhat?”) TOTAL SUPPORT ---------------------- 48% Strongly support --------------------------- 18% Somewhat support ------------------------- 30% TOTAL OPPOSE ------------------------ 43% Somewhat oppose -------------------------- 25% Strongly oppose ---------------------------- 19% (DON’T READ) DK/NA ------------------ 8% Attachment A FM3 RESEARCH 220-5591-WT PAGE 14 20. FIRST/NEXT, let me ask you about the idea of a business tax based on the number of employees a company has in Palo Alto. [ ] Supporters say that businesses with more employees put more strain on public services – limiting parking, increasing traffic, and more. This approach ensures that companies who host many employees in Palo Alto still pay their fair share. [ ] Opponents say that this approach would give companies an incentive to turn employees into contractors to avoid the tax. And it would disproportionately hurt businesses with many part-time employees, like hotels and restaurants, relative to businesses with smaller staffs and higher profits. Having heard this, would you support or oppose establishing a business tax based on the number of employees a company has in Palo Alto as a way of raising revenue for the City? (IF SUPPORT /OPPOSE, ASK: “Is that strongly or just somewhat?”) TOTAL SUPPORT ---------------------- 57% Strongly support --------------------------- 20% Somewhat support ------------------------- 37% TOTAL OPPOSE ------------------------ 35% Somewhat oppose -------------------------- 18% Strongly oppose ---------------------------- 17% (DON’T READ) DK/NA ------------------ 8% 21. FIRST/NEXT, let me ask you about the idea of establishing a payroll tax based on the salaries a company pays to employees in Palo Alto. [ ] Supporters say that a tax scaled to payroll ensures that businesses with the highest revenues and most ability to pay invest in Palo Alto – not just those with the most employees. [ ] Opponents say that a payroll tax gives businesses the incentive to locate elsewhere, especially those with highly paid and skilled employees. Having heard this, would you support or oppose establishing a payroll tax based on the salaries a company pays to employees in Palo Alto as a way of raising money for the City? (IF SUPPORT/OPPOSE, ASK: “Is that strongly or just somewhat?”) TOTAL SUPPORT ---------------------- 58% Strongly support --------------------------- 25% Somewhat support ------------------------- 34% TOTAL OPPOSE ------------------------ 34% Somewhat oppose -------------------------- 17% Strongly oppose ---------------------------- 17% (DON’T READ) DK/NA ------------------ 7% Attachment A FM3 RESEARCH 220-5591-WT PAGE 15 HERE ARE MY LAST QUESTIONS, AND THEY ARE FOR STATISTICAL PURPOSES ONLY. 22. Do you own a business in Palo Alto? Yes --------------------------------------------- 7% No -------------------------------------------- 91% (DON'T KNOW/NA) ---------------------- 2% 23. (T) What was the last level of school you completed? High school graduate or less --------------- 2% Some college/vocational school --------- 11% College graduate (4 years) --------------- 42% Post graduate work/ Professional school ---------------------- 44% (DON'T READ) Refused ------------------ 1% 24. (T) With which racial or ethnic group do you identify yourself: Latino or Hispanic, African American or Black, White or Caucasian, Asian or Pacific Islander, or some other ethnic or racial background? (IF ASIAN OR PACIFIC ISLANDER, ASK: “Are you Vietnamese, Chinese, South Asian or East Indian, or of some other Asian background?”) Latino/Hispanic ------------------------------ 2% African American/Black -------------------- 0% White/Caucasian --------------------------- 64% Vietnamese ------------------------------------ 0% Chinese -------------------------------------- 11% South Asian/East Indian -------------------- 3% Other Non-Asian/Pacific Islander -------- 1% Other Asian/Pacific Islander --------------- 4% (DON'T READ) Multiracial -------------- 2% (DON'T READ) DK/NA/Refused ----- 12% Attachment A FM3 RESEARCH 220-5591-WT PAGE 16 THANK AND TERMINATE GENDER: Male ------------------------------------------ 48% Female --------------------------------------- 51% Rather not say -------------------------------- 1% PARTY REGISTRATION: Democrat ------------------------------------ 56% Republican ---------------------------------- 12% No Party Preference ----------------------- 28% Other ------------------------------------------- 4% FLAGS P14 ------------------------------------------- 32% G14 ------------------------------------------ 51% P16 ------------------------------------------- 56% G16 ------------------------------------------ 72% P18 ------------------------------------------- 57% G18 ------------------------------------------ 81% BLANK ------------------------------------- 11% VOTE BY MAIL 1 ---------------------------------------------- 19% 2 ------------------------------------------------ 9% 3+ ------------------------------------------- 47% Blank ---------------------------------------- 25% AGE 18-24 ------------------------------------------ 8% 25-29 ----------------------------------------- 6% 30-34 ----------------------------------------- 7% 35-39 ------------------------------------------ 4% 40-44 ----------------------------------------- 9% 45-49 ----------------------------------------- 6% 50-54 ---------------------------------------- 10% 55-59 ---------------------------------------- 11% 60-64 ----------------------------------------- 9% 65-74 ---------------------------------------- 13% 75+ ------------------------------------------ 17% PERMANENT ABSENTEE Yes ------------------------------------------- 86% No -------------------------------------------- 14% HOUSEHOLD PARTY TYPE Dem 1 --------------------------------------- 33% Dem 2+ ------------------------------------- 14% Rep 1 ------------------------------------------ 6% Rep 2+ ---------------------------------------- 3% Ind 1+ --------------------------------------- 26% Mix ------------------------------------------- 18% MODE Phone ---------------------------------------- 50% Online --------------------------------------- 50% Attachment A ATTACHMENT B Detailed Timeline of Discussions with Finance Committee and City Council regarding the November 2020 Ballot Measure As discussed in the body of CMR 10655, the City of Palo Alto has been discussing its options for a revenue generating ballot measure in 2020 throughout 2019. A brief timeline of the CMRs and discussions with the Finance Committee and the City Council since April of 2019, when staff was formally directed to begin working on this project by the City Council, is included below for additional context. The date, the forum of the meeting (Finance Committee or City Council), the summary title, and the CMR number are included for ease of reference. Timeline: ▪ 4/22/2019 City Council, “2019 Fiscal Sustainability Workplan”, CMR 10267 ▪ 4/22/2019 City Council, “Approve Workplan for a Potential Revenue Generated Ballot Measure”, CMR 10261 ▪ 6/18/2019 Finance Committee, “Review, Comment, and Accept Preliminary Revenue Estimates for Consideration of a Ballot Measure”, CMR 10392 ▪ 8/20/2019 Finance Committee, “Evaluation and Discussion of Potential Revenue Generating Ballot Measures”, CMR 10445 ▪ 9/16/2019 City Council, “Evaluation and Discussion of Potential Revenue Generating Ballot Measures and Budget Amendment”, CMR 10615 ▪ 10/1/2019 Finance Committee, “Revised Workplan for Consideration of a Ballot Measure”, CMR 10712 ▪ 10/15/2019 Finance Committee, “Stakeholder Outreach, Initial Polling, and Discussion of a Potential Ballot Measure”, CMR 10743 ▪ 11/4/2019 City Council, “Potential Ballot Measure Polling/Outreach, Contract, Solicitation Exemption and Budget Amendment”, CMR 10792 ▪ 12/2/2019 City Council, “Structure and Scenarios of Initial Round of Polling for a Potential Local Tax Measure”, CMR 10891 ▪ 12/17/2019 Finance Committee, “Consideration, Evaluation, and Discussion of a Revenue Generating Local Tax Ballot Measure, Review of Refined Modeling, Analysis, Tax Structure and Recommendation to the City Council”, CMR 10655 City of Palo Alto (ID # 11006) City Council Staff Report Report Type: Action Items Meeting Date: 1/27/2020 City of Palo Alto Page 1 Summary Title: Approval of Agreements with Midpen Media Center and Cable Joint Powers & Budget Amendment Title: Approval of: 1) Agreement Between the City of Palo Alto Representing the Cable Joint Powers and Midpeninsula Community Media Center, Inc. for Public, Education, and Government Access (PEG) Channel Support Services; 2) Memorandum of Understanding (MOU) Between the Cable Joint Powers Covering the use of PEG Fees; 3) Contribution Agreement With Midpeninsula Community Media Center, Inc. in the Amount of $511,536, Equivalent to PEG Fees Used for Council Chambers Upgrade Project; and 4) Amendment to the Fiscal Year 2020 Budget Appropriation in the Technology Fund From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that the City Council: 1) Approve a five-year agreement between the City of Palo Alto, representing the Cable Joint Powers (cities of Palo Alto, East Palo Alto, and Menlo Park, the Town of Atherton and portions of San Mateo and Santa Clara counties), and Midpeninsula Community Media Center, Inc., for public, education, and government (PEG) access channel support services (Attachment A). 2) Approve and authorize the City Manager to execute a Memorandum of Understanding (MOU) between the Cable Joint Powers covering the use of PEG support fees paid by Comcast, AT&T, and any other State Franchisee (Attachment B). 3) Approve and authorize the City Manager to execute a contribution agreement between the City of Palo Alto and the Midpeninsula Community Media Center, Inc., in the amount of $511,536, equivalent to the amount in PEG support fees to be expended by the City on the Council Chambers Upgrade project (Attachment C). City of Palo Alto Page 2 4) Amend the Fiscal Year 2020 Budget Appropriation Ordinance (by a 2/3 vote of approval) for the Technology Fund by: a. Recognizing $511,536 in Revenue from Other Agency for the City Council Chambers Upgrade (TE-19001) capital project; and b. Appropriating $511,536 for Inter-Agency Expenses for Media Center operations. Background In 1983 a Joint Powers Agreement (JPA agreement) was entered into by the cities of Palo Alto, East Palo Alto, and Menlo Park, the Town of Atherton, and San Mateo and Santa Clara counties for the purpose of obtaining cable television services within these jurisdictions (only portions of the counties are covered). The JPA agreement gives the City of Palo Alto (the City) the sole authority to act on behalf of the Joint Powers communities and describes the scope of that authority. Cable franchise holders provide various forms of compensation (franchise and PEG fees) for the use of the Joint Powers’ public rights-of-way. The City of Palo Alto’s Cable Television Ordinance provides that the City may designate a nonprofit entity to administer the Joint Powers’ PEG channels and provide PEG access support services. Midpeninsula Community Media Center, Inc. (Midpen Media) has served in this capacity since the early 1990’s. In this role, Midpen Media administers the Joint Powers’ seven PEG channels, broadcasts local community programs, provides gavel-to-gavel coverage of local government meetings, offers video production classes and workshops to community members, and provides local election coverage. Palo Alto has been forwarding PEG fee revenue from franchise holders (currently AT&T and Comcast) to Midpen Media in support of these services. PEG revenue, for all the Joint Powers collectively, will be approximately $300,000 in calendar year 2019. The existing agreement with Midpen Media Center expires on June 30, 2020. A Cable Franchise and PEG Fee Audit (issued in May 2016) identified that Midpen Media had been using PEG revenue for operating expenses, rather than solely for capital expenses, which is the only use permitted by federal law. The Council directed staff to work with Midpen Media to correct this practice, preferably in a way that enables Midpen Media to continue operations. On January 28, 2019, staff recommended the option of using PEG fees to purchase Midpen Media’s video production and training facility at 900 San Antonio Road in Palo Alto. The Council directed staff to proceed with the necessary agreements for the purchase of the facility, using PEG fees (CMR 9804). While working through this process, staff identified several concerns related to the potential facility purchase: First, under the existing JPA agreement, the Joint Powers are a “joint action committee,” not a separate legal entity. Neither the joint action committee, nor Palo Alto as the administering agency, is authorized to acquire real property on behalf of the Joint Powers. To allow for the joint acquisition of property, it would be necessary to form a new Joint Powers Authority, as a separate legal entity, with the power to acquire and hold title to real property. This would require the Joint Powers to negotiate a new agreement that must be approved by City of Palo Alto Page 3 the legislative bodies of each member agency. This would be a complex and a lengthy process to finalize. Second, the Joint Powers have heightened concerns about the stability of PEG fees. PEG fees continue to decline, from a high of $347,000 per year in calendar year 2014 to about $300,000 in 2019. This trend is expected to accelerate as more and more subscribers “cut the cord” and move away from traditional cable to Internet-delivered service. The Joint Powers considers it risky to commit to a long-term (15 to 20 year) facility purchase with uncertainty surrounding the future of PEG revenue. Finally, there have been recent legal changes that could impact cable franchise revenue, PEG channel capacity and facilities. On August 2, 2019, the FCC released new rules that rewrite and expand the Cable Act’s “franchise fee” definition to include non-monetary franchise obligations. Under the new rules, the value of non-monetary cable franchise obligations is considered franchise fees and counts against the 5 percent franchise fee cap. The FCC deferred action on determining whether or not PEG channel capacity can be deducted from franchise fees under this ruling. Pending FCC actions could force the Joint Powers to pick between continuing to receive franchise revenue and preserving access to PEG channel programming. Palo Alto has joined a coalition of local governments to oppose the FCC’s proposals and appeal its recent ruling. Given these concerns, staff informed Council that it would be considering alternatives to the facility purchase (CMR 10396). Discussion Staff recommends that the City Council consider proceeding with the proposed alternative instead of the facility purchase at this time. Under this alternative, the Joint Powers would use PEG revenue to pay for the PEG-related capital projects of individual members, such as a Council chambers renovation project. The member agency would provide a grant to Midpen Media in the amount of its total PEG-related expenditures for the project. The granted funds would be unrestricted and could be used by the Midpen Media for both its operating and capital needs. At the present time, two members have budgeted PEG-related capital projects: 1) City of Palo Alto Council Chambers Upgrade (TE-19001) project ($1.7 million budget); and 2) Town of Atherton Council Chambers Building Construction project ($2.9 million budget). The City of Palo Alto plans to issue a design/build solicitation for its project in 2020. PEG funds can be used for the portion of these projects that enable the Joint Powers to provide for, or upgrade to enhance, the cablecasting of government meetings on the government channels (i.e., broadcast systems including cameras, switchers, captioning and supporting equipment; audio visual systems including speakers, microphones, and supporting infrastructure; broadcast lighting; glare reduction film at windows; blackout shades, etc.). The Town of Atherton Council Chambers Building project is currently underway and will allow the Town to televise its City Council meetings on the government channels. Staff is in the process of determining the total value of the qualifying PEG-related expenditures for both the Palo Alto and Atherton projects. City of Palo Alto Page 4 The City of East Palo Alto may also have a qualifying project in 2021. PEG funds could also be used for Midpen Media PEG capital project needs, if available and not needed for Joint Powers projects. It is expected that the grants to Midpen Media would be sufficient to address its budget gap for up to 5 years (in an amount of approximately $300,000 per year). However, this is expected to be a short-term solution since there are a limited number of qualifying Joint Powers’ projects. As the PEG-related projects begin to dwindle, the Joint Powers could revisit the Midpen Media facility purchase, as long as PEG fees stay strong and the FCC actions do not significantly impact local PEG channels. Another option involves using Cable Fund reserves to defray a portion of the Midpen Media’s operating costs for several years. However, this is another short-term solution since Cable Fund resources are limited (available balance of $684,471 as of December 31, 2018) and there is no ongoing source of revenue to replenish Cable Fund reserves. Staff recommends that Council approve a new PEG access support services agreement with Midpen Media, on behalf of the Joint Powers, that incorporates this new grant arrangement. The key terms are discussed below. PEG Services Agreement Term: The new agreement is for a five-year time period. Public Channel Administration: Operate and manage public access channel numbers 27, 28, and 30 for local community programming purposes. Create an inclusive and transparent environment for video programming by the public that fosters free speech and celebrates local achievements, education, cultural exchange, arts appreciation, science and technology, and civic engagement. Government Channel Administration: Operate and manage government access channel numbers 26 and 29 to inform residents about their local government and to provide live unedited coverage of government meetings. These duties include coordinating Joint Powers’ member requests for use of the channels, program scheduling, program acquisition, replays of local agency meetings, channel publicity and maintenance of scrolling text. Educational Channel Administration: The two educational access channels numbers 75 and 76 are operated by Stanford University and the Bay Voice Regional Channel consortium. Midpen Media would be called upon to manage these channels on an as needed basis. Classes, Facilities, and Equipment: Manage and maintain production studios, facilities, and equipment to facilitate the dissemination of non-commercial programming on the public channels, the Internet, social media and other platforms. Provide training, workshops, internship opportunities, and technical advice in the creation and executions of productions, City of Palo Alto Page 5 emphasizing the use of new media platforms. Certify students to become community producers to create non-commercial programs for distribution on the local public channels and other appropriate platforms. Standard Rates: The new agreement implements a new set of standard hourly rates that will be used by Joint Powers’ communities, schools, non-profits, and small businesses when contracting with Midpen Media for the creation and production of custom videos or for cablecasting government meetings. Funding: Joint Powers’ communities will provide individual grants to Midpen Media anytime a member uses PEG fee revenue for its own PEG capital project needs. The grant will be in the same amount as the member’s PEG capital expenditures. Joint Powers’ members may agree to grant money to Midpen Media Center in advance of the receipt of PEG fee revenue. PEG funds can also be used to reimburse Midpen Media for its PEG capital requirements, when not needed for Joint Powers’ PEG-related projects. PEG fees: The Joint Powers receives PEG fees of 88 cents per subscriber per month, or approximately $300,000 in 2019. The member share of 2019 PEG revenue is: City of Palo Alto $144,000; City of Menlo Park $81,000; City of East Palo Alto $30,000; Town of Atherton $24,000; County of Santa Clara $15,000; and County of San Mateo $6,000. Following the 2016 Cable Franchise and PEG Fee Audit, PEG revenue has been placed in a restricted account managed by Midpen Media. These funds have been accumulating and total $1,065,701 as of November 7, 2019. The member share of the restricted account is: City of Palo Alto $511,536; City of Menlo Park $287,739; City of East Palo Alto $106,570; Town of Atherton $85,257; County of Santa Clara $53,285; and County of San Mateo $21,314. Midpen Media will continue to hold the PEG restricted account and it will be used (drawn down) to fund Joint Powers’ communities PEG-related capital projects. All subsequent PEG fee revenue will be held in the City of Palo Alto Cable Fund, on behalf of the Joint Powers, and will be used after the money in the PEG restricted account is exhausted. Memorandum of Understanding Staff recommends that the Council approve a Memorandum of Understanding (MOU) between the Cable Joint Powers communities covering the new arrangement for the use of PEG fees. Under this arrangement, individual Joint Powers members will use PEG fee revenue for the acquisition or improvement of their own PEG access equipment and facilities. When this happens, the member agency agrees to provide a grant to Midpen Media in the same amount as the PEG-related capital expenditures. The MOU includes an “Authorization Form” that will be approved by the City of Palo Alto, as administrator of the Cable JPA, and the member agency. This form will document the member request for use PEG fees and the agreement to contribute a matching sum to Midpen Media. Although Comcast and AT&T are required to remit all Joint Powers’ PEG fee payments directly to the City of Palo Alto, each jurisdiction has a share of the revenue (based on each member’s pro rata share of total JPA area cable subscribers). The Joint Powers members have agreed to pool the PEG revenue to support qualifying projects that may City of Palo Alto Page 6 exceed an individual member’s share of the revenue. Palo Alto will maintain an accounting of each member’s share of the funds to facilitate the prioritization and availability of funds for all jurisdictions with qualifying PEG-capital projects. The City of Menlo Park City and the Town of Atherton approved the MOU in December 2019. The remaining members will bring the MOU to their governing bodies for approval following Palo Alto City Council approval. City of Palo Alto Grant Agreement Staff recommends that the Council authorize the City Manager to execute a Contribution Agreement to provide Midpen Media grant funding in the amount of $511,536. The proposed grant amount represents the City’s share of the restricted PEG account. Although it is expected that the City’s qualifying PEG-related expenditures for the Council Chambers Audio/Video Upgrade Capital Improvement (CIP) Project will exceed this amount, the grant allows the City to provide some amount of funding to Midpen Media in advance of obtaining MOU approval from all Joint Powers’ jurisdictions (anticipated to be about a 3-month process). In order to support Midpen Media’s 2020 operating budget and its cash flow requirements, staff proposes issuing the grant prior to receipt of the PEG fee payment. Stakeholder Engagement In June 2019, staff met with JPA Working Group members and their attorneys to reach consensus on an alternative to the Midpen Media building acquisition by the JPA, which resulted in the approach reflected in the proposed MOU. In July 2019, staff reviewed this option with Midpen Media’s Board of Directors and obtained its support. Following Palo Alto City Council approval of the proposed MOU, it will be forwarded to each Joint Powers’ jurisdiction for approval. The City of Menlo Park City and the Town of Atherton approved the MOU in December 2019. The remaining members will bring the MOU to their governing bodies for approval following Palo Alto City Council approval. Resource Impact The JPA receives PEG fee revenue of approximately $300,000 annually. The new arrangement for the use of PEG fees would not have any resource impact on the City. The qualifying portions of the City’s budgeted Council Chambers Upgrade (TE-19001) capital project would be paid for with PEG fees and funding from the Technology Fund currently appropriated to the project would be used to fund the grant to Midpen Media to use for operating expenses. The current amount recommended for this transaction is $511,536. Staff will continue to evaluate the expenses for TE-19001 to determine the full amount eligible to be funded with PEG funds. Staff plans return to Council with another grant request in late 2020 or early 2021. Appropriation of these funds requires a 2/3 super-majority vote, or 5 affirmative votes for the appropriation of these additional funds to be approved. Policy Implications The recommendations in this report are consistent with Council direction to restrict the use of PEG fees to capital costs while preserving the Media Center’s operational budget funding. City of Palo Alto Page 7 Environmental Review This is not a project for purposes of the California Environmental Quality Act (CEQA). Attachments: • Attachment A - PEG Services Agreement • Attachment B - MOU between Cable JPA Members • Attachment C - Contribution Agreement to Media Center 1 Midpen Media PEG Services Agreement 2020010803 CONTRACT NO. ___________ AGREEMENT BETWEEN THE CITY OF PALO ALTO ON BEHALF OF THE JOINT POWERS AND THE MIDPENINSULA COMMUNITY MEDIA CENTER, INC. FOR PUBLIC, EDUCATION AND GOVERNMENT ACCESS CHANNEL SUPPORT SERVICES This AGREEMENT is entered into on ____________, 2020 (“Effective Date”) by and between the CITY OF PALO ALTO, a California municipal corporation, ON BEHALF OF THE JOINT POWERS ("City"), and the MIDPENINSULA COMMUNITY MEDIA CENTER, INC., a California nonprofit corporation ("Midpen Media"), in reference to the following facts and circumstances: RECITALS: 1. The City is a party to the Amended and Restated Joint Exercise of Powers Agreement, dated June 9, 2009, and as hereinafter may be amended ("JPA Agreement"), by and between the Cities of Palo Alto, East Palo Alto and Menlo Park, the Town of Atherton and the Counties of San Mateo and Santa Clara (collectively, “Joint Powers” or “JPA”), and is authorized to act on behalf of the JPA members. 2. The City desires to provide support for the use of cable television public, educational, and government (“PEG”) access channels provided pursuant to federal, state and City law. 3. Pursuant to the Digital Infrastructure and Video Competition Act of 2006, codified at Cal. Util. Code §§ 5800 et seq. (“DIVCA”), the California Public Utilities Commission (“CPUC”) has granted separate video franchises to AT&T and Comcast to serve areas that include the jurisdictions of the JPA members. (AT&T, Comcast and any other entity franchised by the CPUC as a video service provider to provide video service within the jurisdictional area of any JPA member is hereinafter referred to individually as “Cable Company” and collectively as “Cable Companies”.) 4. DIVCA permits, and the City’s Cable Television Ordinance No. 4636, adopted May 8, 2000, provides that (A) the City may designate a nonprofit access management entity (“Access Corporation”) to operate and administer PEG access facilities, equipment and channels (“PEG Facilities” or "PEG Facilities and Channels,” as appropriate), (B) certain channel capacity shall be provided for PEG access, and (C) certain ongoing payments shall be made by Cable Companies for PEG Facilities. 5. The City, by City Council Resolution No. 8100, adopted October 22, 2001, has designated the Midpen Media as the Access Corporation to operate and manage the PEG Facilities and Channels. DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 2 Midpen Media PEG Services Agreement 2020010803 6. Midpen Media agreed to serve as the Access Corporation designated by the City and to serve the JPA community by providing PEG Facilities, programming and services. 7. Midpen Media has served in such capacity since 2001, through a series of agreements. The term of the current agreement with Midpen Media commenced on July 1, 2011 and will terminate and be superseded by this Agreement upon the execution of this Agreement. 8. The parties desire that Midpen Media continue to serve as the Access Corporation to serve the JPA community by providing PEG Facilities, programming and services. NOW, THEREFORE, in consideration of the recitals and the following mutual covenants, terms and conditions, the parties agree: SECTION 1. TERM OF AGREEMENT; TERMINATION 1.1 The term of this Agreement is five (5) years, commencing on the Effective Date, unless terminated earlier, as provided in this Agreement. 1.2 A party may terminate this Agreement for convenience, provided that party serves the other party with not less than one hundred eighty (180) days’ prior written notice. SECTION 2. SCOPE OF SERVICES 2.1 In exchange for agreeing to designate Midpen Media as the Access Corporation and for the funding provided to Midpen Media pursuant to this Agreement, Midpen Media shall provide the services set forth in Sections 2.2-2.5. 2.2 With respect to the JPA’s seven Public, Education and Government (PEG) access channels, Midpen Media shall: (A) Manage production studios, facilities and equipment to facilitate the dissemination of non-commercial programming for the public benefit within the JPA-area communities. Programming distribution shall primarily occur on the PEG channels, and shall include the Internet, social media and other platforms to be determined. (B) Establish, post, and maintain reasonable operating times and dates to ensure access to studios, facilities, and equipment by the public. (C) Develop policies, procedures, and cost-recovery fees for the use and operation of PEG Facilities and channels that are consistent with the lawful purpose of PEG access, and file such policies and procedures with the City. DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 3 Midpen Media PEG Services Agreement 2020010803 (D) Operate and administer the PEG Facilities and Channels in compliance with all applicable federal, state and City laws, rules, and regulations, and in compliance with the California Public Utility Commission (CPUC) video service franchise agreements. (E) Provide training, internship opportunities, and technical advice to JPA-area residents in video production and programming. (F) Provide, upon special request and mutually agreed upon costs, additional video production services. (G) Create an inclusive and transparent environment for video programming by the public that fosters free speech and celebrates local achievements, education, cultural exchange, arts appreciation, science and technology, and civic engagement. (H) Provide video production and programming opportunities for youth that emphasize new media platforms. (I) Provide for the playback/cablecasting of programs on the PEG access channel(s). Midpen Media shall cablecast, at a minimum, an average of fifty-six (56) hours per week on each channel of local original, replayed, and outside video-produced programming. (J) Provide regular maintenance and repair of all video equipment purchased with monies received pursuant to this Agreement or received pursuant to City law and the CPUC video service franchises. (K) Support special needs groups, including but not limited to the hearing impaired, in program production through training and other means. (L) Actively promote the use and benefit of the PEG Facilities and Channels to cable subscribers, the general public, and PEG access users in the JPA-area communities. (M) Undertake other PEG access programming activities and services as may be deemed appropriate by the City or Midpen Media and consistent with the obligation to facilitate and promote access programming and to provide non-discriminatory access. 2.3 With respect to the public access (free speech) channel(s), Midpen Media shall: (A) Operate and manage three public access cable channel(s) for the non-commercial benefit of the community. (B) Provide training and/or certification in the use of equipment, channels, and services for members of the JPA communities for non-commercial programming purposes on a non-discriminatory basis pursuant to the operating rules of Midpen Media. (C) Provide access to facilities, equipment, channels and services to all who satisfactorily complete training classes taught by Midpen Media on a cost recovery basis. 2.4 With regard to the two educational access channel(s): DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 4 Midpen Media PEG Services Agreement 2020010803 (A) One educational access channel is currently managed and operated by Stanford University, and the other is currently managed and operated under the Bay Voice Regional Channel consortium. The parties intend that these entities shall continue to operate their respective channels, until or unless the City otherwise directs Midpen Media to operate and manage those channels. 2.5 With regard to the governmental access channel(s), Midpen Media shall: (A) Operate and manage two governmental access channel(s) to inform residents about their local government activities and to encourage civic engagement. Services shall include, but are not limited to, administrating, coordinating, scheduling, and assisting JPA members' requests for use of those channel(s). (B) Be responsible for program scheduling, the selection and acquisition of outside source programming, channel digital signage, replays of local agency meetings, channel publicity, and publication and distribution of a governmental access channel(s) schedules. (C) In consultation with the JPA members, develop guidelines for the scheduling and prioritization of governmental access programming requests. (D) Midpen Media shall charge JPA members for cablecasting of local agency meetings and other program production services, in accordance with the schedule of rates attached hereto as Exhibit “A”, which may be updated by Midpen Media on an annual basis in consultation with the JPA members. SECTION 3. OPEN ACCESS TO CHANNELS 3.1 Midpen Media shall provide access to the PEG access channel(s) to eligible users regardless of their viewpoint, subject to FCC rules and regulations and other applicable laws. Neither the City, the Cable Companies, nor Midpen Media shall have the authority to control the content of programming placed on the public access channel(s) so long as such programming is lawful. Nothing in this Agreement shall be interpreted or construed to prevent Midpen Media, the City, or a Cable Company from producing or sponsoring programming, underwriting programming, or engaging in activities designed to promote the production of certain types of programming or use by targeted groups, consistent with applicable laws and rules governing the use of PEG channels. Midpen Media may promulgate and enforce policies and procedures that are designed to promote the local use of the channel(s) and make the programming accessible to the viewing public, consistent with such appropriate time, manner, and place regulations that provide for and promote the use of PEG Facilities and Channels. SECTION 4. INDEMNITY; LIMITATION OF LIABILITY 4.1 Midpen Media shall indemnify and defend the City, the JPA members, and their elected and appointed officers and employees (an “Indemnified Party” or collectively “Indemnified Parties”), against any third-party claim (a) arising or resulting from or out of the DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 5 Midpen Media PEG Services Agreement 2020010803 failure to comply with any applicable laws, rules, regulations or other requirements of local, state or federal authorities, or (b) of libel, slander, invasions of privacy, or infringement of common law or statutory copyright, which claim, directly or indirectly, results from Midpen Media’s use, or Midpen Media’s supervision of use by others, of channels, funds, equipment, facilities or staff granted under this Agreement, City law or the Cable Companies’ CPUC video service franchises. Midpen Media shall pay any costs or damages finally awarded by a court of competent jurisdiction or agreed upon in settlement. Midpen Media’s obligations under this Section are contingent on Midpen Media receiving prompt notice of any claim from the applicable Indemnified Party, sole control of the defense and settlement of any dispute (provided that an Indemnified Party may participate in such defense with counsel of its own choice at its own cost), and reasonable cooperation, at Midpen Media’s sole expense, from the Indemnified Parties. 4.2 IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT, EXEMPLARY, SPECIAL OR INCIDENTAL DAMAGES, INCLUDING ANY LOST DATA AND LOST PROFITS, ARISING FROM OR RELATING TO THIS AGREMENT, EVEN IF THE PARTIES HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. MIDPEN MEDIA’S TOTAL CUMULATIVE LIABILITY IN CONNECTION WITH THIS AGREEMENT, WHETHER IN CONTRACT OR TORT OR OTHERWISE, WILL NOT EXCEED $1,000,000. THIS SECTION DOES NOT LIMIT EITHER PARTY’S LIABLITY FOR BODILY INJURY OR PROPERTY DAMAGE. SECTION 5. COPYRIGHTS 5.1 Before Midpen Media cablecasts video transmissions, Midpen Media shall require each person submitting, or responsible for submitting, material for cablecasting (a “Producer”) to agree, in writing, as follows: (A) Each Producer shall obtain the rights to all materials that are cablecast and all clearances from broadcast stations, networks, sponsors, music licensing organizations, and without limiting the foregoing, any and all other persons as may be necessary to transmit the Producer’s program material over the PEG access channels that are operated and managed by Midpen Media; and (B) Each Producer shall indemnify and hold harmless Midpen Media and the City, and their officers, agents, employees and volunteers from and against any and all claims, demands, or causes of action, including, without limitation, all liabilities, losses and damages, arising out of or resulting from the use or cablecasting of the Producer’s materials over the PEG access channel(s). 5.2 Midpen Media shall maintain for the term of the applicable statute of limitations copies of all Producer agreements required by Section 5.1 hereof, and shall make such Producer agreements available for City inspection on reasonable notice from the City. DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 6 Midpen Media PEG Services Agreement 2020010803 5.3 Midpen Media shall own the copyright of any programs, which it may choose from time to time to produce. Copyright of programming produced by the public shall be held by such person(s) who produces said programming. SECTION 6. DISTRIBUTION RIGHTS 6.1 Midpen Media shall require that all programs produced with funds, equipment, facilities, or staff granted under this Agreement shall be distributed on the channels whose use is authorized by this Agreement. This paragraph shall not be interpreted to restrict other distribution (beyond distribution on channels authorized by this Agreement), so long as such other distribution is consistent with any pertinent guidelines established in the PEG access operating policies and procedures and with applicable law. SECTION 7. EQUIPMENT AND FACILITIES 7.1 Midpen Media shall be responsible for maintenance of all equipment and facilities owned, leased or loaned to it under this Agreement or purchased with funds provided pursuant to this Agreement, City law or the Cable Companies’ CPUC video service franchises. 7.2 Midpen Media shall own all equipment and facilities acquired by it and purchased with funds received pursuant to this Agreement, City law or the Cable Companies’ CPUC video service franchises. Upon the termination of this Agreement, any such equipment or facilities purchased with funds received pursuant to this Agreement, City law or the Cable Companies’ CPUC video service franchises shall become the property of the City. 7.3 Midpen Media shall, upon its dissolution and subject to the approval of the City, transfer all of its assets consisting of City-funded or Cable Company-funded equipment and facilities and the proceeds, if any, to the City, or at the City's option, to such entity or entities designated by the City to manage access, provided that any such entity or entities shall at the time of transfer qualify as a tax exempt organization(s) under Section 501(c)(3) of the Internal Revenue Code of 1986 (or the corresponding provisions of any future United States Internal Revenue Law). SECTION 8. INSURANCE 8.1 Midpen Media, at its sole cost and expense, shall obtain and maintain, in full force and effect during the term of this Agreement, the insurance coverage described in Exhibit “B”, attached hereto and made a part hereof, and as follows in 8.1(A). Midpen Media and its contractors, if any, shall obtain a policy endorsement naming CITY as additional insured under any general liability or automobile policy or policies. (A) Cablecasters’ Errors and Omissions Insurance in an amount not less than $1,000,000, each occurrence and aggregate covering the content of productions which are cablecast on the access channel(s) in, at a minimum, the following areas: libel and slander; DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 7 Midpen Media PEG Services Agreement 2020010803 copyright or trademark infringement; infliction of emotional distress; invasion of privacy; plagiarism; and the misuse of musical or literary materials. 8.2 All insurance coverage required hereunder shall be provided through carriers with AM Best’s Key Rating Guide ratings of A-:VII or higher which are authorized to transact insurance business in the State of California. Any and all contractors of Midpen Media retained to perform services under this Agreement will obtain and maintain, in full force and effect during the term of this Agreement, identical insurance coverage, naming the CITY as additional insured under such policies as required above. 8.3 Certificates evidencing such insurance shall be filed with CITY concurrently with the execution of this agreement. The certificates will be subject to the approval of the City’s Risk Manager and will contain an endorsement stating that the insurance is primary coverage and will not be canceled, or materially reduced in coverage or limits, except after filing with the Purchasing Manager thirty (30) days’ prior written notice of the cancellation or modification. Midpen Media shall provide the Purchasing Manager written notice of the cancellation or modification within two (2) business days of Midpen Media’s receipt of such notice. Midpen Media shall be responsible for ensuring that current certificates evidencing the insurance are provided to CITY’s Chief Procurement Officer during the entire term of this Agreement. 8.4 The procuring of such required policy or policies of insurance will not be construed to limit Midpen Media’s liability hereunder nor to fulfill the indemnification provisions of this Agreement. Notwithstanding the policy or policies of insurance, Midpen Media 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 Agreement, including such damage, injury, or loss arising after the Agreement is terminated or the term has expired. SECTION 9. NONDISCRIMINATION 9.1 Midpen Media shall not discriminate against any person, employee or applicant for employment or subcontractor on the basis of race, skin color, gender, gender identity, age, religion, disability, national origin, ancestry, sexual orientation, pregnancy, genetic information or condition, housing status, marital status, familial status, weight or height of such person. 9.2 Midpen Media shall not discriminate in the delivery of services on the basis race, skin color, gender, gender identity, age, religion, disability, national origin, ancestry, sexual orientation, pregnancy, genetic information or condition, housing status, marital status, familial status, weight or height of such person. SECTION 10. INDEPENDENT CONTRACTOR 10.1 It is understood and agreed that Midpen Media is an independent contractor and that no relationship of principal and agent or employer and employee exists between the City and Midpen Media. If in the performance of this Agreement any third persons are employed by DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 8 Midpen Media PEG Services Agreement 2020010803 Midpen Media, such persons shall be entirely and exclusively under the control, direction and supervision of Midpen Media. All terms of employment, including hours, wages, working conditions, discipline, hiring and discharging or any other term of employment shall be determined by Midpen Media, and the City shall have no right or authority over such persons or terms of employment. SECTION 11. ASSIGNMENT 11.1 Neither this Agreement, nor any interest herein, nor control of Midpen Media shall be assigned, encumbered or transferred by Midpen Media or its current board or members to any other person, either directly or indirectly, except as may be expressly authorized in writing by the City prior to any such assignment, encumbrance or transfer. SECTION 12. ANNUAL REPORTS 12.1 Prior to June 30 of each fiscal year, Midpen Media shall submit to the City an annual report for the preceding fiscal year (January 1 – December 31), which shall contain, at a minimum, the following information: (A) Statistics on programming and services provided; (B) Current and complete listing of Midpen Media’s Board of Directors and officers; and (C) Year-end financial statements, including a balance sheet, and sources and uses of funds statement and an income statement. SECTION 13. RECORDS 13.1 Midpen Media shall maintain all necessary books and records, in accordance with generally accepted accounting principles. 13.2 Midpen Media shall produce audited financial statements every three years. 13.3 Upon receipt of a reasonable request of the City, Midpen Media shall, at any time during its normal business hours, make available to the City or its agents or representatives all of its records with respect to all matters covered by this Agreement. SECTION 14. FUNDING AND OTHER RESOURCES 14.1 Subject to, and consistent with, the terms and conditions of this Agreement, the City agrees to make the following funds and other resources available to Midpen Media: DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 9 Midpen Media PEG Services Agreement 2020010803 (A) The City agrees to permit Midpen Media to manage that certain channel capacity that is dedicated for PEG access use by the Cable Companies for PEG access programming purposes. (B) Funding. Background: In accordance with DIVCA, City law, and the federal Cable Communications Policy Act of 1984, as amended, 47 U.S.C. §§ 521 et seq. (“Cable Act”), AT&T, Comcast and any other Cable Company provide ongoing funding to the JPA members, equivalent to $0.88 per residential subscriber per month (“PEG Fee”). Under the JPA Agreement, City collects and oversees expenditures of the PEG Fees on behalf of the JPA members. In past agreements, City forwarded all PEG Fees to Midpen Media for use in a manner consistent with federal law, which allows PEG Fees to be used only for capital costs associated with PEG access facilities and equipment. Since 2016, PEG Fee revenue has been placed in a restricted account managed by Midpen Media (the “PEG Fee Account”). Since that time, although Midpen Media has used the PEG Fees for some minor capital improvements, these funds have been accumulating and amounts to $1,065,701 as of November 7, 2019. In order to make PEG Fees available for individual JPA members’ PEG capital projects, to provide Midpen Media with funding for its PEG programming, and to comply with federal requirements related to PEG Fees, the parties agree that: 1) Until the PEG Fee Account is exhausted as provided herein, Midpen Media will continue to hold the PEG Fee Account, which will be available to fund JPA members’ individual PEG-related capital projects on a draw-down basis. City shall authorize expenditure of funds from the PEG Fee Account for individual JPA members’ PEG-eligible capital projects. Upon being presented with City-authorization, Midpen Media shall, within forty-five (45) days, remit the authorized amount from the PEG Fee Account to the individual JPA member. 2) Anytime a JPA member receives a payment from the PEG Fee Account as described above, it in turn shall pay to Midpen Media an equivalent amount of money from its local funds (the source of which will be determined by the individual JPA member but must be unrestricted funds), no later than forty-five (45) days after it receives the PEG Fees from City, or, in the case of an advance, no later than 45 days after the final accounting for the project is completed, which money may be used without restriction to support PEG programming. 3) Midpen Media will continue to hold the PEG Fee Account until it has been depleted through the expenditure draw-down process described above. All PEG Fee revenue received after the execution date of this Agreement will be held in the City of Palo Alto Cable Fund, on behalf of the Joint Powers, and will be used for PEG-related capital expenditures by the JPA members or Midpen Media after the money in the PEG Fee Account is exhausted. 4) City may authorize reimbursement to Midpen Media for any approved actual and documented PEG-eligible capital expenditures it may incur, upon application for such by Midpen Media. DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 10 Midpen Media PEG Services Agreement 2020010803 14.2 The provisions of this Agreement, including this Section 14, are subject to the fiscal provisions of the City Charter and the City Code. SECTION 15. ANNUAL PLAN AND BUDGET 15.1 On or before December 15 of each fiscal year in which this Agreement is in effect, Midpen Media shall provide to the City an annual plan and budget, outlining the activities and programs that are planned for the following fiscal year with funds and channel(s) received from the City. Such plan shall contain budget assumptions, programmatic activities, funding sources, and expenses. 15.2 On or before December 31 of each fiscal year, the City may comment upon Midpen Media’s annual plan and budget, and Midpen Media shall take the City’s comments into account when it finalizes the annual plan and budget. 15.3 Midpen Media will consult with the City when considering any major changes in the direction of its programmatic activities. SECTION 16. RECEIPT AND EXPENDITURE OF FUNDS 16.1 Midpen Media shall spend funds received from the City and the Cable Companies solely for the purposes listed in its annual plan and budget and in accordance with this Agreement and applicable law. Funds that are not expended in the year covered by the annual plan and budget may be carried over by Midpen Media into succeeding years. Upon the expiration or termination of this Agreement, all funds received from the City and the Cable Companies and not spent by Midpen Media shall be returned to the City within thirty (30) of the expiration date or termination date. Midpen Media shall establish all reasonably necessary fiscal control and accounting procedures to assure the proper disbursement and accounting of funds received from the City. SECTION 17. DEFAULT; REMEDIES FOR DEFAULT 17.1 Midpen Media shall be in default of this Agreement if it fails to perform any of its material obligations under this Agreement. If Midpen Media fails to cure a default within forty- five (45) days, the City shall give written notice to Midpen Media that it has materially breached this Agreement, and the notice of termination shall become effective on the date specified in the notice by the City. 17.2 Section 17.1 notwithstanding, Midpen Media shall be in immediate default of this Agreement if any of its officers, employees, or agents misappropriates public funds provided to Midpen Media under this Agreement by the City or any Cable Company pursuant to City law or the Cable Company’s CPUC video service franchise, or if it fails to obtain and maintain its tax exemption status under Section 501(c)(3) of the Internal Revenue Code of 1986. DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 11 Midpen Media PEG Services Agreement 2020010803 17.3 Upon the termination of this Agreement, Midpen Media shall immediately transfer to the City all equipment, real property, fixtures, contracts, leases, deposit accounts or other assets received by or purchased by Midpen Media with funds received pursuant to this Agreement, City law or the Cable Companies’ CPUC video service franchises. SECTION 18. NOTICES 18.1 All notices and other communications to be given by either party may be given, in writing, by depositing the same in the United States mail, postage prepaid and addressed to the appropriate party, as follows: To City: Office of the City Clerk City of Palo Alto Post Office Box 10250 Palo Alto, CA 94303 To Midpen Media: Midpeninsula Community Media Center, Inc. 900 San Antonio Road Palo Alto, CA 94303 18.2 Any party may change its address for notice by written notice to the other party at any time. SECTION 19. MISCELLANEOUS PROVISIONS 19.1 Time is of the essence in this Agreement in the performance of all covenants, terms and conditions of this Agreement. 19.2 Each party agrees to execute all documents and do all things necessary and appropriate to carry out the provisions of this Agreement. 19.3 This Agreement shall be governed and interpreted in accordance with the laws of the State of California, without regard to its conflicts of law rules or principles. 19.4 This Agreement is the entire agreement of the parties and supersedes all prior negotiations and agreements whether written or oral, including that certain Contract No. C12142180 Between the City of Palo Alto (on Behalf of the Joint Powers) and Midpeninsula Community Media Center, Inc. dated July 1, 2011 which is terminated as of the Effective Date of this Agreement. This Agreement may be amended only by written agreement and no purported oral amendment to this Agreement shall be valid. IN WITNESS WHEREOF, the parties by their duly appointed representatives have executed this Agreement as of the date written above. DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 12 Midpen Media PEG Services Agreement 2020010803 ATTEST: CITY OF PALO ALTO __________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: MIDPENINSULA COMMUNITY MEDIA CENTER, INC. __________________________ City Attorney or Designee By:__________________________ APPROVED: Name: _______________________ __________________________ Title: ______________________ Assistant City Manager _____________________________ By: _________________________ Director of Administrative Services Name: _______________________ __________________________ Risk Manager Title: ______________________ Taxpayer Identification No. _____________________________ DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 President Susan Purdy Pelosi 13 Midpen Media PEG Services Agreement 2020010803 EXHIBIT “A” SCHEDULE OF RATES Midpen Media shall charge JPA Members according to the following schedule of rates for performing the following services related to governmental access programming: Meeting Coverage (three-hour minimum): City Hall Video Coverage: $112.00 per hour Single Camera Coverage with City equipment at location: $112.00 per hour Single Camera Coverage with Media Center equipment: $127.00 per hour Remote video coverage with the studio $287.00 per hour in a box. Crew of 3 requires 4.0 hrs/set up, plus breakdown and transportation time (minimum of 2 hrs of meeting coverage) Parking Permit Reimbursement for meetings starting Visitor Permit Fee before 3pm Cancellation fee (for a JPA member's cancellation of scheduled Midpen Media coverage without 24 hours' prior notice the Midpen Media): $287.00 flat fee Additional Services: Web indexing and archiving: $203.00 per meeting Server storage for archived meetings: $164.00 per month Video clip preparation: $105.00 per hour I-Net Services: $145.00 per hour Program Development: Site visit and planning: $145.00 per hour Videography with equipment: $120.00 per hour Editing: $105.00 per hour Hosting and preparation: $145.00 per hour Studio crew per person: $65.00 per hour Technical Consult/Troubleshooting $145.00 per hour Duplication of videotapes/DVD’s of meetings: Meetings under two hours $25.00 per dup Meetings over two hours $35.00 per dup The foregoing rates shall remain unchanged though December 31, 2020. Thereafter, the Midpen Media may increase these rates, no more often than once per calendar year, provided that, absent the prior consent of the City, any such increase in rates shall not exceed the amount of the increase in the Consumer Price Index – All Urban Consumers for the San Francisco-Oakland-San Jose MSA during the preceding calendar year. DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 14 Midpen Media PEG Services Agreement 2020010803 EXHIBIT “B” INSURANCE REQUIREMENTS CONTRACTORS TO THE CITY OF PALO ALTO (CITY), AT THEIR SOLE EXPENSE, SHALL FOR THE TERM OF THE CONTRACT OBTAIN AND MAINTAIN INSURANCE IN THE AMOUNTS FOR THE COVERAGE SPECIFIED BELOW, AFFORDED BY COMPANIES WITH AM BEST’S KEY RATING OF A-:VII, OR HIGHER, LICENSED OR AUTHORIZED TO TRANSACT INSURANCE BUSINESS IN THE STATE OF CALIFORNIA. AWARD IS CONTINGENT ON COMPLIANCE WITH CITY’S INSURANCE REQUIREMENTS, AS SPECIFIED, BELOW: REQUIRED TYPE OF COVERAGE REQUIREMENT MINIMUM LIMITS EACH OCCURRENCE AGGREGATE YES YES WORKER’S COMPENSATION EMPLOYER’S LIABILITY STATUTORY STATUTORY YES GENERAL LIABILITY, INCLUDING PERSONAL INJURY, BROAD FORM PROPERTY DAMAGE BLANKET CONTRACTUAL, AND FIRE LEGAL LIABILITY BODILY INJURY PROPERTY DAMAGE BODILY INJURY & PROPERTY DAMAGE COMBINED. $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 YES AUTOMOBILE LIABILITY, INCLUDING ALL OWNED, HIRED, NON-OWNED BODILY INJURY - EACH PERSON - EACH OCCURRENCE PROPERTY DAMAGE BODILY INJURY AND PROPERTY DAMAGE, COMBINED $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 YES PROFESSIONAL LIABILITY, INCLUDING, CABLECASTER’S ERRORS AND OMISSIONS, MALPRACTICE (WHEN APPLICABLE), AND NEGLIGENT PERFORMANCE, LIBEL AND SLANDER; COPYRIGHT OR TRADEMARK INFRINGEMENT; INFLICTION OF EMOTIONAL DISTRESS; INVASION OF PRIVACY; PLAGIARISM; AND THE MISUSE OF MUSICAL OR LITERARY MATERIALS ALL DAMAGES $1,000,000 YES THE CITY OF PALO ALTO IS TO BE NAMED AS AN ADDITIONAL INSURED: CONTRACTOR, AT ITS SOLE COST AND EXPENSE, SHALL OBTAIN AND MAINTAIN, IN FULL FORCE AND EFFECT THROUGHOUT THE ENTIRE TERM OF ANY RESULTANT AGREEMENT, THE INSURANCE COVERAGE HEREIN DESCRIBED, INSURING NOT ONLY CONTRACTOR AND ITS SUBCONSULTANTS, IF ANY, BUT ALSO, WITH THE EXCEPTION OF WORKERS’ COMPENSATION, EMPLOYER’S LIABILITY AND PROFESSIONAL INSURANCE, NAMING AS ADDITIONAL INSUREDS CITY, ITS COUNCIL MEMBERS, OFFICERS, AGENTS, AND EMPLOYEES. DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 15 Midpen Media PEG Services Agreement 2020010803 I. INSURANCE COVERAGE MUST INCLUDE: A. A CONTRACTUAL LIABILITY ENDORSEMENT PROVIDING INSURANCE COVERAGE FOR CONTRACTOR’S AGREEMENT TO INDEMNIFY CITY. II. CONTACTOR MUST SUBMIT CERTIFICATES(S) OF INSURANCE EVIDENCING REQUIRED COVERAGE AT THE FOLLOWING URL: https://www.planetbids.com/portal/portal.cfm?CompanyID=25569. III. ENDORSEMENT PROVISIONS, WITH RESPECT TO THE INSURANCE AFFORDED TO “ADDITIONAL INSUREDS” A. PRIMARY COVERAGE WITH RESPECT TO CLAIMS ARISING OUT OF THE OPERATIONS OF THE NAMED INSURED, INSURANCE AS AFFORDED BY THIS POLICY IS PRIMARY AND IS NOT ADDITIONAL TO OR CONTRIBUTING WITH ANY OTHER INSURANCE CARRIED BY OR FOR THE BENEFIT OF THE ADDITIONAL INSUREDS. B. CROSS LIABILITY THE NAMING OF MORE THAN ONE PERSON, FIRM, OR CORPORATION AS INSUREDS UNDER THE POLICY SHALL NOT, FOR THAT REASON ALONE, EXTINGUISH ANY RIGHTS OF THE INSURED AGAINST ANOTHER, BUT THIS ENDORSEMENT, AND THE NAMING OF MULTIPLE INSUREDS, SHALL NOT INCREASE THE TOTAL LIABILITY OF THE COMPANY UNDER THIS POLICY. C. NOTICE OF CANCELLATION 1. IF THE POLICY IS CANCELED BEFORE ITS EXPIRATION DATE FOR ANY REASON OTHER THAN THE NON-PAYMENT OF PREMIUM, THE CONSULTANT SHALL PROVIDE CITY AT LEAST A THIRTY (30) DAY WRITTEN NOTICE BEFORE THE EFFECTIVE DATE OF CANCELLATION. 2. IF THE POLICY IS CANCELED BEFORE ITS EXPIRATION DATE FOR THE NON- PAYMENT OF PREMIUM, THE CONSULTANT SHALL PROVIDE CITY AT LEAST A TEN (10) DAY WRITTEN NOTICE BEFORE THE EFFECTIVE DATE OF CANCELLATION. VENDORS ARE REQUIRED TO FILE THEIR EVIDENCE OF INSURANCE AND ANY OTHER RELATED NOTICES WITH THE CITY OF PALO ALTO AT THE FOLLOWING URL: HTTPS://WWW.PLANETBIDS.COM/PORTAL/PORTAL.CFM?COMPANYID=25569 OR HTTP://WWW.CITYOFPALOALTO.ORG/GOV/DEPTS/ASD/PLANET_BIDS_HOW_TO.ASP DocuSign Envelope ID: 51C4CCB1-9121-4C34-923E-8DD2427EF951 2020010801 1 MEMORANDUM OF UNDERSTANDING BETWEEN THE MEMBERS OF THE AMENDED AND RESTATED JOINT POWERS AGREEMENT DATED JUNE 9, 2009, RELATING TO THE ADMINISTRATION OF CABLE TELEVISION AND VIDEO FRANCHISES This Memorandum of Understanding (“MOU”) between and amongst the members of the Amended and Restated Joint Powers Agreement dated June 9, 2009, relating to the administration of cable television and video franchises, outlines the general understanding of each member’s agreement with respect to the utilization of PEG Fees. BACKGROUND Under the terms of the Amended and Restated Joint Exercise of Powers Agreement, dated June 9, 2009, and as hereinafter may be amended ("JPA Agreement"), by and between the Cities of Palo Alto, East Palo Alto and Menlo Park, the Town of Atherton and the Counties of San Mateo and Santa Clara (collectively, “Joint Powers” or “JPA”), the City of Palo Alto (“CPA”) is authorized, on behalf of the JPA members, to administer and enforce the State Franchises awarded to Comcast and AT&T to provide cable and video services within the Franchise Area. In accordance with California Digital Infrastructure and Video Competition Act of 2006 (“DIVCA”), and the federal Cable Communications Policy Act of 1984, as amended, 47 U.S.C. §§ 521 et seq. (“Cable Act”), AT&T and Comcast provide ongoing funding to the JPA members, equivalent to $0.88 per residential subscriber per month, to support the operation of the public, educational and government (“PEG”) channels provided for by the Franchises (“PEG Fee”). Under the JPA Agreement, CPA collects and oversees expenditures of the PEG Fees on behalf of the JPA members. The JPA designated the Midpeninsula Community Media Center (“Midpen Media”) to operate and administer the PEG channels, and CPA oversees Midpen Media’s PEG operations on behalf of the JPA members through a contract between CPA and Midpen Media. Pursuant to the JPA Agreement, CPA has been collecting and remitting all PEG Fees to Midpen Media for support of the PEG facilities and channels. Under federal law, PEG Fees may only be used for capital costs associated with PEG access facilities and equipment. Since 2016, the PEG Fee revenue has been placed in a restricted account managed by Midpen Media (the “PEG Fee Account”). These funds have been accumulating and currently amount to $1,065,701 as of November 7, 2019. The JPA members desire to maintain Midpen Media as the PEG access- provider for the franchise territory. Midpen Media needs funding in order to continue providing PEG access facilities, programming and services. Midpen Media does not have sufficient capital needs at this time eligible for use of the PEG Fees. However, some of the individual JPA members do have capital projects planned that will be eligible for PEG Fee expenditure because they will entail updating and improving their individual capital facilities and equipment related to producing and cablecasting council and other public meetings on PEG channels. In order to make PEG Fees available for individual JPA Attachment B 2020010801 2 members’ PEG capital projects, to provide Midpen Media with continued funding to operate and administer the PEG access facilities, equipment and channels, and to comply with federal requirements related to PEG Fees, the JPA members have agreed to utilize the PEG Fees and to contribute other funds to Midpen Media’s operations, as follows. UNDERSTANDING 1)Although Comcast and AT&T are required to remit PEG Fee payments directly to CPA, each jurisdiction has a share of the PEG Fee revenue (based on each JPA member’s pro rata share of total JPA area cable subscribers). JPA members have agreed to pool the PEG Fee revenue to support qualifying PEG capital projects that may exceed an individual member’s share of PEG Fee revenue. CPA will maintain an accounting of each member’s share of the PEG Fee funds to ensure money is available for all jurisdictions that have qualifying PEG-capital projects. However, because PEG Fee funds are limited, not all jurisdictions with qualifying projects may receive the requested amount; the distribution of the funds will depend on availability. Further, if at any time PEG Fees are no longer paid by cable subscribers or PEG Fee revenue is substantially diminished due to changes in federal law or for another reason, the jurisdictions that have utilized the pooled PEG Fee revenue are not required to reimburse the other jurisdictions that have not utilized their share of the PEG Fee funds provided the JPA member makes the payment required in Paragraph 3 of this MOU. 2)Midpen Media will continue to hold the existing PEG Fee Account, which will be available to fund JPA members’ individual PEG-related capital projects on a draw-down basis. CPA shall authorize expenditure of PEG Fees for individual JPA members’ PEG- eligible capital projects. Upon being presented with CPA authorization, Midpen Media shall, within forty-five (45) days, remit the authorized amount from the PEG Fee Account to the individual JPA Member. 3) Anytime a JPA member receives a payment from the PEG Fee Account as described above, it in turn shall pay to Midpen Media an equivalent amount of money from its local funds (the source of which will be determined by the individual JPA Member but shall not be restricted funds), no later than forty-five (45) days after it receives the PEG Fees from Midpen Media, which money may be used by Midpen Media without restriction to support PEG programming. In the interest of supplying Midpen Media with ongoing revenue, JPA members, in their sole discretion, may agree to provide the authorized expenditure amount to Midpen Media in advance of their receipt of the PEG Fee payment. 4)Midpen Media will continue to hold the existing PEG Fee Account until it has been depleted through the expenditure draw-down process described above. All PEG Fee revenue received after the execution date of this MOU will be held in the CPA Cable Fund, on behalf of the Joint Powers, and will be used for PEG-related capital expenditures by the JPA members or Midpen Media after the money in the PEG Fee Account is exhausted. 5)CPA may authorize reimbursement to Midpen Media for any approved actual and documented PEG-eligible capital expenditures it may incur, upon application for such by Midpen Media. 2020010801 3 6)JPA members will use the form (or one substantially similar) attached hereto as Attachment 1 (“PEG Fee Use Authorization and Corresponding Contribution Obligation”) to memorialize their respective use of the PEG Fees and agreement to contribute an equivalent sum to Midpen Media. The JPA Working Group shall meet and review the PEG Fee process described in this MOU every 6 months to determine its efficacy, and is authorized to make any adjustments it deems necessary or desirable. NOW, THEREFORE, the parties have executed this MOU as follows: CITY OF PALO ALTO: By: Name: Title: Date of Execution: CITY OF EAST PALO ALTO: By: Name: Title: Date of Execution: CITY OF MENLO PARK: By: Name: Title: Date of Execution: 2020010801 4 TOWN OF ATHERTON: By: Name: Title: Date of Execution: COUNTY OF SANTA CLARA: By: Name: Title: Date of Execution: COUNTY OF SAN MATEO: By: Name: Title: Date of Execution: 2020010802 1 ATTACHMENT 1 AUTHORIZATION TO UTILIZE CABLE JPA PEG FEES FOR CAPITAL PROJECT AND AGREEMENT TO CONTRIBUTE MATCHING SUM TO MEDIA MIDPENINSULA COMMUNITY MEDIA CENTER This Authorization to Utilize PEG Fees for Capital Project and Agreement to Contribute Matching Sum to Midpeninsula Community Media Center (“Midpen Media”), dated ___________, is made by the City of Palo Alto, as administrator of the Cable JPA (“CPA”), and ________________________, as member of the Cable JPA (“Member”). RECITALS WHEREAS, pursuant to the Memorandum of Understanding (“MOU”) dated ________________, between and amongst the members of the Amended and Restated Joint Powers Agreement, incorporated herein by reference, which outlines the process for utilizing PEG Fees, JPA members may use PEG Fees for their individual capital projects which qualify as PEG-eligible, and, in return, will contribute the same amount of money to Midpen Media to support PEG programming; and WHEREAS, in order to use PEG Fees, Member must demonstrate to CPA that the funds it is seeking will be used only for capital costs associated with PEG access facilities and equipment; and WHEREAS, Member has demonstrated that the amount it is seeking for its ______________ Project is an eligible PEG Fee expenditure, and has agreed to contribute an equivalent amount of funding to Midpen Media in exchange for the use of PEG Fees. AUTHORIZATION 1. Authorization. Member is hereby authorized to receive $___________________ from the Restricted PEG Fee Account held by Midpen Media (or PEG funds held by CPA after the restricted Midpen Media Account is depleted) for its _______________Project (“PEG Fee Payment”). 2.PEG Fee Payment. The PEG Fee Payment to Member shall be made in the form of an advance (pre-funding of PEG capital costs) or a reimbursement of actual PEG capital expenditures. A. Advance. In the case of an advance, Member shall submit a request for payment of the authorized amount, and Midpen Media (or CPA after the Restricted PEG Account is depleted) shall remit the PEG Fee Payment to Member within 45 days of 2020010802 2 receiving Member’s executed authorization. At the end of the project, Member shall provide CPA with an accounting of its actual PEG capital expenditures. If the amount of the advance is in excess of actual PEG capital expenditures, Member shall reimburse CPA for the difference within 45 days of completing the project or within 1 year of the remittance of the advance, whichever occurs earlier. CPA may extend the period for reimbursement upon request; any extension shall be in writing. If the PEG capital expenditures are in excess of the amount of the advance, Member may seek reimbursement from the PEG fund for the difference. B. Reimbursement. For a reimbursement, upon receiving evidence of payment made by Member for authorized costs, Midpen Media (or CPA after the Restricted PEG Account is depleted) shall remit the PEG Fee Payment to Member within 45 days. CONTRIBUTION TO MIDPEN MEDIA 3. Contribution. In return for its use of PEG Fees, Member agrees to contribute a like sum, or $_____________ (“Member Contribution”) to Midpen Media. The source of funding for Member Contribution shall be in Member’s sole discretion but shall be unrestricted funds, and Midpen Media may use the Member Contribution in any manner that supports PEG programming. 4.Timing of Contribution. The Member Contribution may be made any time following Member’s authorization to use PEG Fees, as evidenced by this Agreement, but in no event later than 45 days following receipt of the PEG Fee Payment, or, in the case of an advance, no later than 45 days after the final accounting for the project is completed or within 1 year of the remittance of the advance, whichever occurs earlier. If CPA approves an extension of the period for reimbursement under Section 2.A above, CPA may also extend the timing of the contribution. IN WITNESS WHEREOF, the parties by their duly appointed representatives have executed this Agreement as of the date written above. CITY OF PALO ALTO: By: Name: Title: Date of Execution: 2020010802 3 MEMBER ENTITY: By: Name: Title: Date of Execution: 2020010701 1 AGREEMENT BETWEEN THE CITY OF PALO ALTO AND MIDPENINSULA COMMUNITY MEDIA CENTER FOR CONTRIBUTION OF FUNDS MATCHING CABLE JPA PEG FEES ALLOCATED TO COUNCIL CHAMBERS UPGRADE PROJECT This Agreement (“Agreement”) is entered into on this ____ day of __________, 2020 (“Effective Date”), by and between Midpeninsula Community Media Center (“Midpen Media”), and the City of Palo Alto, a California chartered municipal corporation ("CITY"). RECITALS WHEREAS, under the Amended and Restated Joint Exercise of Powers Agreement, dated June 9, 2009, and as hereinafter may be amended ("JPA Agreement"), by and between the Cities of Palo Alto, East Palo Alto and Menlo Park, the Town of Atherton and the Counties of San Mateo and Santa Clara (collectively, “Joint Powers” or “JPA”), the City of Palo Alto (“CITY”) is both an individual JPA member and the entity authorized, on behalf of the JPA members, to administer and enforce the State Franchises awarded to Comcast and AT&T (“Franchises”) to provide cable and video services within the Franchise Area; and WHEREAS, under state and federal law, the Franchises provide funding equivalent to $0.88 per subscriber in the Franchise Area to the JPA members to support the operation of the public, educational and government (“PEG”) channels provided for by the Franchises (“PEG Fee”). Under the JPA Agreement, CITY collects and oversees expenditures of the PEG Fees on behalf of the JPA members; and WHEREAS, the JPA designated the Midpeninsula Community Media Center (“Midpen Media”) to operate and administer the PEG channels, and CITY oversees Midpen Media’s PEG operations on behalf of the JPA members through a contract between CITY and Midpen Media. Pursuant to the JPA Agreement, CPA has been collecting and remitting all PEG Fees to Midpen Media for support of the PEG facilities and channels; and WHEREAS, under federal law, PEG Fees may only be used for capital costs associated with PEG access facilities and equipment. Since 2016, the PEG Fee revenue has been placed in a restricted account managed by Midpen Media (the “PEG Fee Account”). These funds have been accumulating and currently amount to $1,065,701 as of November 7, 2019; and WHEREAS, the JPA members desire to maintain Midpen Media as the PEG access-provider for the Franchise Area. Midpen Media needs funding in order to continue providing PEG access facilities, programming and services. Midpen Media does not have sufficient capital needs at this time eligible for use of the PEG Fees. However, some of the individual JPA members, including CITY, do have capital projects planned that will be eligible for PEG Fee expenditure because they will entail updating and improving their individual capital facilities and equipment related to producing and cablecasting council DocuSign Envelope ID: 2C669D7A-61F1-48D3-83BF-5BEB5BC9298C 2020010701 2 and other public meetings on PEG channels. In order to make PEG Fees available for individual JPA members’ PEG capital projects, to provide Midpen Media with continued funding to operate and administer the PEG access facilities, equipment and channels, and to comply with federal requirements related to PEG Fees, the JPA members have agreed to utilize the PEG Fees and to contribute other funds to Midpen Media’s operations, in accordance with the Memorandum of Understanding (“MOU”) dated ________________, between and amongst the members of the Amended and Restated Joint Powers Agreement; and WHEREAS, pursuant to the MOU, which outlines the process for utilizing PEG Fees, JPA members may use PEG Fees for their individual capital projects which qualify as PEG-eligible, and, in return, will contribute the same amount of money to Media Center to support PEG programming; and WHEREAS, CITY is authorized to and will receive $511,536 in PEG Fees for the Council Chambers Upgrade Project, and in exchange for the use of PEG Fees, consistent with the MOU, grants an equivalent sum in advance in CITY funds to Midpen Media through this Agreement. AGREEMENT 1. Term. The term of this Agreement is from the Effective Date through June 30, 2020. 2. Contribution to Midpen Media. In return for its use of PEG Fees, CITY shall contribute a like sum, or $511,536 (“Member Contribution”) to Midpen Media. The source of funding for the Member Contribution shall be in CITY’s sole discretion but shall be unrestricted funds, and Midpen Media may use the Member Contribution in any manner that supports PEG programming. 3. Timing of Contribution. CITY shall provide the Member Contribution to Midpen Media within thirty (30) days of the Effective Date. 4. Remittance of PEG Fees to CITY. Within forty-five (45) days of receipt of the Member Contribution, Midpen Media shall remit $511,536 from the PEG Fee Account to CITY. [SIGNATURES ON FOLLOWING PAGE] DocuSign Envelope ID: 2C669D7A-61F1-48D3-83BF-5BEB5BC9298C 2020010701 3 IN WITNESS WHEREOF, the parties by their duly appointed representatives have executed this Agreement as of the date written above. MIDPENINSULA COMMUNITY MEDIA CENTER: ________________________________ Name: __________________________ Title: ___________________________ CITY OF PALO ALTO: _______________________________ Ed Shikada City Manager APPROVED AS TO FORM: ______________________________ Assistant City Attorney DocuSign Envelope ID: 2C669D7A-61F1-48D3-83BF-5BEB5BC9298C President Susan Purdy Pelosi City of Palo Alto (ID # 10940) City Council Staff Report Report Type: Informational Report Meeting Date: 1/27/2020 City of Palo Alto Page 1 Summary Title: Surplus Property Donated to Nonprofit Organizations Title: Report on Surplus Property Donated to Nonprofit Organizations From: City Manager Lead Department: Administrative Services Recommendation This is an informational report and no Council action is required. Discussion Section 2.31.010 of the Palo Alto Municipal Code allows for the donation of unusable or obsolete City property and equipment to nonprofit or other organizations and to provide a report on such donations, as follows: . . . (b) Property with No Commercial Value. The city manager may authorize the abandonment, destruction or donation to public bodies, charitable, civic or nonprofit organizations, of city property which has no commercial value or of which the estimated cost of continued care, handling, maintenance or storage would exceed the estimated proceeds of sale. Such determination shall be made in writing and countersigned by the director of administrative services. (c) Donations to Nonprofit Support Organizations. Notwithstanding any other provisions of this chapter, the city manager may adopt policies and procedures authorizing the donation of surplus property that is no longer suitable for use by the city to nonprofit organizations that are formed for the purpose of supporting city programs. The city's donation of surplus property shall be contingent on a written agreement that any profits from the sale of such items shall be used for the purchase of equipment, books or capital expenses related to the program supported by the nonprofit organization. (d) Annual Report to Council. The city manager shall identify all property donated to nonprofit agencies pursuant to subsection (b) or (c) above. In January of each year, the city manager shall provide a report to the city council that includes an inventory of the City of Palo Alto Page 2 items donated by the city and all contributions made to the city from nonprofit organizations that have received surplus city property. This report is for calendar years 2018 and 2019. In calendar year 2018 there were no donations from the City and for CY 2019 four donations are reported as shown in the table below. Donated Item Receiving Organization Municipal Code Reference Estimated Value Fire Truck* Neighbors Abroad for the Sister Cities program (Mexico) NA Sold for $5,000 (est. value $15k-$20k.) Computer Laptops (70) Neighbors Abroad for Sister Cities: Oaxaca, Mexico; Palo, Philippines 2.31.010 (b) $14,000 Tables (20) and Chairs (83) Saint Mark AME Zion Church 2.31.010 (b) No est. resale value Flea Medications** Grateful Dog Rescue 2.31.010 (b) $1,987 Pupz N Palz 2.31.010 (b) $1,070 Companions in Waiting 2.31.010 (b) $2,108 Guardian’s Light Dog Rescue 2.31.010 (b) $1,550 SPCA of Stanislaus 2.31.010 (b) $3,184 City of Oakdale Animal Shelter 2.31.010 (b) $1,901 Total Flee Medications $11,800 Total CY 2019 $35,800 * The fire truck is listed even though the City received money for the transfer since it supports the Sister Cities program similar to a donation. **The flea medications needed to be used before expiration and appropriate organizations were contacted to receive the medications. Resource Impact The donated items are accomplished with existing staff in city departments. No other resource impacts are identified with this report. Stakeholder Engagement The Administrative Services Department collaborated with City departments to prepare the donation information contained in this report.