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HomeMy WebLinkAbout2013-02-04 City Council Agenda PacketCITY OF PALO ALTO CITY COUNCIL Special Meeting Council Chambers February 4, 2013 6:00 PM Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in the Council Chambers on the Thursday preceding the meeting. 1 February 4, 2013 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. * The agenda now includes time estimates for each section or item. These 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. Call to Order Study Session 6:00-7:15 PM 1. City of Palo Alto Performance Report for FY 2012 (Service Efforts and Accomplishments), The National Citizen Survey 2012, and Citizen Centric Report for Fiscal Year 2012 City Manager Comments 7:15-7:30 PM Oral Communications 7:25-7:40 PM Members of the public may speak to any item not on the agenda; three minutes per speaker. Council reserves the right to limit the duration of Oral Communications period to 30 minutes. Consent Calendar 7:40-7:45 PM Items will be voted on in one motion unless removed from the calendar by two Council Members. 2. Adoption of an Ordinance to Close FY 2012 Budget and Authorize Reappropriations into FY 2013 Budget; Close Completed Capital Improvement Projects and Transfer Remaining Balances to Reserves; Approve the City's FY 2012 Comprehensive Annual Financial Report (CAFR) 3. Finance Committee Recommendation to Accept Macias Gini & O'Connell's (LLP) Financial Statements and Management Letter 2 February 4, 2013 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Agenda Changes, Additions and Deletions HEARINGS REQUIRED BY LAW: Applications and/or appellants may have up to ten minutes at the outset of the public discussion to make their remarks and put up to three minutes for concluding remarks after other members of the public have spoken. OTHER AGENDA ITEMS: Public comments or testimony on agenda items other than Oral Communications shall be limited to a maximum of three minutes per speaker. Action Items Include: Reports of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Reports of Officials, Unfinished Business and Council Matters. 4. Response to Colleague's Memo: Health Care 7:45-10:15 PM 5. Colleagues Memo From Council Members Klein and Schmid Regarding Annual Council Reorganization Meeting 10:15-10:30 PM 6. Approval of Resolution Scheduling the City Council Vacation and Winter Closure for 2013 10:30-10:45 PM Council Member Questions, Comments and Announcements 10:45-10:50 PM 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. PUBLIC COMMENT Members of the Public are entitled to directly address the City Council/Committee concerning any item that is described in the notice of this meeting, before or during consideration of that item. If you wish to address the Council/Committee 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/Committee, but it is very helpful. 3 February 4, 2013 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 Standing Committee Meetings City Council Retreat Agenda Packet Finance Committee Agenda Packet Special City Council Meeting Cubberley Policy Advisory Committee Agenda Packet Schedule of Meetings Schedule of Meetings Tentative Agenda Tentative Agenda Informational Report City of Palo Alto Energy Risk Management Report for the First Quarter, Fiscal Year 2013 Public Letters to Council CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR February 4, 2013 The Honorable City Council Palo Alto, California City of Palo Alto Performance Report for FY 2012 (Service Efforts and Accomplishments) The Office of the City Auditor presents the City of Palo Alto Performance Report (Service Efforts and Accomplishments) for Fiscal Year 2012. This is the 11th annual Service Efforts and Accomplishments (SEA) Report for the City of Palo Alto. The report also incorporates results from the annual National Citizen Survey™ conducted through the National Research Center. SEA reporting is intended to supplement the City’s financial reports and statements with additional performance data, trends, and comparisons. Our goal is to provide the City Council, staff, and the public with an independent, impartial assessment of past performance to help inform future decisions. This report uses financial data obtained from various City documents as well as directly from departments. Expenditure and revenue data is primarily based on FY 2012 Actuals from the City’s budget. An alternative view of the data, based on the City’s Comprehensive Annual Financial Report (CAFR), can be seen at a high level in the Citizen Centric Report. Respectfully submitted, Jim Pelletier City Auditor ATTACHMENTS:  Attachment A: City of Palo Performance Report for Fiscal Year 2012 (PDF) Department Head: Jim Pelletier, City Auditor Page 2 Mission: To engage individuals and families in creating a strong and healthy community through parks, recreation, social services, arts, and sciences CITY OF PALO ALTO PERFORMANCE REPORT 2012 The government of the City of Palo Alto exists to promote and sustain a superior quality of life in Palo Alto. In partnership with our community, our goal is to deliver cost-effective services in a personal, responsive, and innovative manner. Quality Superior delivery of services Courtesy Providing service with respect and concern Efficiency Productive, effective use of resources Integrity Straight-forward, honest and fair relations Innovation Excellence in creative thought and implementation MISSION VALUES Service Efforts and Accomplishments Office of the City Auditor January 30, 2013 Honorable City Council Palo Alto, California City of Palo Alto Performance Report for FY 2012 This is the City Auditor’s eleventh annual Performance Report (formerly known as the Service Efforts and Accomplishments Report) for the City of Palo Alto. This year, I am excited to introduce a new format for the report including a visually appealing layout that still includes all of the data we have presented in past reports. Our new format goes hand in hand with our push to make the report more accessible. The mission of the Office of the City Auditor is to promote honest, efficient, effective, and fully accountable city government and this report is a critical component in our successful implementation of that mission. The goal of this report is to provide the residents of Palo Alto, City Council, City Staff, and other stakeholders with information on past performance to strengthen public accountability, improve government efficiency and effectiveness, and support ongoing decision making. To facilitate this, the report includes data about the costs, quality, quantity, and timeliness of City services. It includes a variety of comparisons to other cities, the results of the National Citizen SurveyTM, and data from various other sources including the State Controller’s Cities Report, various U.S. Census Bureau Reports, and Crime Statistics, among others. Working closely with each of the City departments, we consider all of this data and identify what we believe best represents the overall performance of the City and its individual departments and divisions. OVERALL SATISFACTION The tenth annual National Citizen SurveyTM, administered in conjunction with this report, indicates high ratings for City services. The chart below illustrates the survey responses to some of the questions we feel best represent the overall value of City services. The chart at the right illustrates Palo Alto’s rankings in key service areas when compared to other surveyed jurisdictions. 67% 59% 58% 92% 0%20%40%60%80%100% Citizen Survey: Percent Rating “Good” or “Excellent” 97th 98th 85th 85th 91st 3rd 5th 15th 0 20 40 60 80 100 Educational Opportunities Place to Work Place to Live Place to Raise Children Overall Quality of Life Affordable Housing Housing Options Affordable, Quality Child Care Citizen Survey: Percentile Rank Compared to Other Surveyed Jurisdictions Source: National Citizen SurveyTM Source: National Citizen SurveyTM 1 Value of services for taxes paid Overall direction that Palo Alto is taking Overall image or reputation of Palo Alto City government welcoming citizen involvement OVERALL SPENDING, STAFFING, RESIDENT PERCEPTIONS & COUNCIL PRIORITIES In FY 2012, the City’s General Fund expenditures and other uses of funds totaled $162.1 million, an increase of 13 percent from last year and an increase of 22 percent from FY 2007. Palo Alto’s estimated population increased 1 percent from last year and 7 percent from FY 2007 while inflation increased 2.6 percent and 11.0 percent over the same periods, respectively. In FY 2012, total City authorized staffing, including temporary and hourly positions was 1,114 full-time equivalent employees (FTE). On a per capita basis, FY 2012 General Fund expenditures of $2,395 included: The General Fund has invested $147.4 million in capital projects since FY 2007 and the Infrastructure Reserve decreased from $15.8 million in FY 2007 to $12.1 million in FY 2012. Capital spending last year totaled $62.3 million including $34.7 million in the Governmental Funds and $27.6 million in the Enterprise Funds. The City Council established the following top priority areas for calendar year 2012: City Finances, Land Use and Transportation, Emergency Preparedness, Environmental Sustainability, and Community Collaboration for Youth Well-Being. By Reviewing the entire report, readers will gain a better understanding of the mission and work of each of the City’s departments. The background section includes a community profile, discussion of service efforts and accomplishments (performance) reporting, and information about the preparation of this report. Chapter 1 provides a summary of overall City spending and staffing. Chapters 2 through 11 present the mission statements, description of services, background information, workload, selected performance measures, and selected survey results for the various City departments and services. This report was designed to be viewed in color and is available on our website. Color hardcopies have been distributed to each of the City’s library branches. Additionally, individuals can obtain a color hardcopy from my office in City Hall. We thank the departments and staff that contributed to this report. Respectfully submitted, Jim Pelletier, CIA City Auditor Audit Staff: Houman Boussina, Yuki Matsuura, Mimi Nguyen, Deniz Tunc, Lisa Wehara $513 $371 $338 $318 $271 $202 $157 $118 $108 Police Services Fire & Emergency Op Transfers Out Community Serivces Adminstrative Public Works Planning & Community Env.Non-Departmental Library $2,395 per resident Source: City of Palo Alto Financial Data 2 MANAGEMENT DISCUSSION AND ANALYSIS (from the City Manager) Palo Alto is a community with a high quality of life, high comparative income levels and home values, one of the finest school districts in the state, and low crime rates. Our residents are engaged and active, providing thousands of hours of volunteer time and expertise in partnership with the City. The 2012 National Citizen Survey continues to affirm that residents experience a good or excellent quality of life in Palo Alto, that it is a great place to live and that the City provides high quality services. Palo Alto's wealth of talent and the creative ideas and businesses this engenders is a cornerstone of our community and in conjunction with strong financial management by the City, has helped us weather the current economic and fiscal challenges and allowed our community to continue to be a great place to live and work. Like other communities in the Bay Area, the City is now starting to show signs of recovery from the recession. As with past years, the City continues to proactively take steps to align revenues with expenses with a focus on permanent, ongoing (structural) solutions as much as possible. The City Council adopted a General Fund budget of $152 million for FY 2013, reducing the on-going structural deficit by $5.8 million. Beginning in FY 2010, the City negotiated significant compensation and benefit changes with its labor units that are expected to save the City almost $9 million Citywide on an ongoing annual basis. However, the City is facing a need for important investments in infrastructure. Based on a report issued in 2011 from the City’s Infrastructure Blue Ribbon Commission identifying over $300 million dollars in infrastructure needs, the Council adopted an infrastructure plan and strategy that will over the next 18 months assess the feasibility of placing a revenue measure on the November 2014 ballot to address the City’s infrastructure backlog and known future needs. While opinion research will formally commence in the spring of 2013, it is encouraging that preliminary responses from the National Citizen SurveyTM indicate 65% of residents could support some new infrastructure bond measure to increase revenues to maintain and repair City infrastructure. The City Council reaffirmed its Council priorities for FY 2012: 1) City Finances, 2) Land Use and Transportation, 3) Emergency Preparedness, 4) Environmental Sustainability, and 5) Community Collaboration for Youth Well-Being. Here are a few highlights: In June 2011, the City Council approved the Stanford Hospitals Project. This multi-billion dollar project, the largest in the City's history, includes renovation of the Hoover Pavilion building and the addition of a medical office building at the Hoover Pavilion site, the upgrade and relocation of the Welch Road utilities, the expansion of Lucile Packard Children's Hospital, the replacement of Stanford Hospital & Clinics and a one-for-one replacement of some of the School of Medicine's laboratory buildings. The newly renovated Art Center opened, and major construction of Mitchell Park Library and Community Center and planning efforts for the future of Cubberley Community Center community progressed. The City adopted a state-of-the-art bicycle and pedestrian plan and in partnership with Stanford received over $10 million in grant money for trail improvements. Significant progress was made on the Development Center Blueprint and changes to the City's building and development permitting processes to improve customer satisfaction and expedite service delivery. The average number of days to respond to the first plan check and issuance of a building permit improved over 63% in the past five years. The average number of days for first response to plan checks improved 37% over last year. As leaders in environmental sustainability, the City finalized its roadmap for upgrades that will be needed to protect San Francisco Bay and produce recycled water for future generations. The City also designed and implemented a local feed-in-tariff program (Palo Alto CLEAN) to purchase electricity generated by solar, launched an “Innovation and Emerging Technology Demonstration Program,” and made significant progress in developing a plan to achieve carbon neutrality for the City’s electric supply portfolio with 100% renewable resources. The City also revisited efforts to achieve its Climate Action Plan including evaluating options for a potential waste to energy facility. 3 MANAGEMENT DISCUSSION AND ANALYSIS As an integral part in the well-being and success of Palo Alto's residents and youth, the City continued its leadership role working with major partners such as the Palo Alto Unified School District (PAUSD) and mental health providers in supporting youth and creating a plan and strategy that includes education, prevention and intervention strategies that together provide a Safety Net for youth and teens in Palo Alto. A Director for Project Safety Net was hired, using Stanford funds as seed funding. The City also implemented a new “Gatekeeper” program to expand public awareness of teenage stress effects. To bring both longstanding and new neighbors together in their neighborhoods and incorporate interaction between generations and cultures, the City adopted a neighborhood grant program to be implemented in 2013. In addition, an Office of Emergency Services (OES) was created including hiring a full-time OES Director to help the City strategically focus time and resources on emergency, readiness and planning to address emergency readiness. While the economy is slowly recovering, the City remains cautiously optimistic. Local government is in a period of extraordinary flux with numerous forces of change shaping our future. The years ahead will continue to bring fiscal challenges that will require the City to continue to evaluate how to provide city services and expand engagement and partnership with citizens and businesses across Palo Alto. The need to look for innovative opportunities to promote shared responsibility to maintain our strong, healthy, and vibrant community will be essential. James Keene City Manager 4 BACKGROUND 6 Chapter 7 (continued) Introduction 6 Advance Planning 70 Community Profile 7 Building Permits and Inspections 71 Sense of Community 8 Transportation 72 Quality of Services 9 Data Tables 73 Palo Alto City Government 10 Chapter 8: PUBLIC SAFETY – POLICE DEPARTMENT 77 Scope and Methodology 11 Department Wide 78 CHAPTER 1: OVERALL 15 Crime 81 Overall Spending 16 Calls for Service 82 Overall Staffing 17 Animal Services 83 Capital Spending 18 Traffic and Parking Control 84 City Council Priorities 19 Data Tables 85 Data Tables 20 Chapter 9: PUBLIC WORKS DEPARTMENT 89 Chapter 2: COMMUNITY SERVICES DEPARTMENT 23 Department Wide 90 Department Wide 24 Public Services – Streets, Sidewalks & Facilities 92 Arts & Sciences 26 Public Services – Trees 93 Open Space, Parks, and Golf 28 Engineering Services 94 Recreation & Cubberley 31 Storm Drainage 97 Data Tables 33 Wastewater Treatment 98 Chapter 3: PUBLIC SAFETY – FIRE DEPARTMENT 39 Refuse 99 Department Wide 40 City Vehicle and Equipment 100 Emergency Response 43 Data Tables 101 Environmental Safety Management 44 Chapter 10: STRATEGIC AND SUPPORT SERVICES 107 Training and Personnel 45 Overall 108 Data Tables 46 Office of the City Manager 109 Chapter 4: INFORMATION TECHNOLOGY 49 Office of the City Attorney 110 Department Wide 50 Office of the City Clerk 111 Data Tables 51 Office of the City Auditor 112 Chapter 5: LIBRARY DEPARTMENT 53 Administrative Services Department 113 Department Wide 54 Human Resources Department 114 Collection and Technical Services 57 Data Tables 115 Public Services 58 Chapter 11: UTILITIES DEPARTMENT 117 Data Tables 59 Department Wide 118 Chapter 6: PUBLIC SAFETY – OFFICE OF EMERGENCY SERVICES 61 Electricity 120 Department Wide 62 Fiber Optics 121 Data Table 63 Gas 122 Chapter 7: PLANNING AND COMMUNITY ENVIRONMENT 65 Water 123 Department Wide 66 Wastewater Collection 124 Current Planning & Code Enforcement 68 Data Tables 125 Green Building 69 Ta b l e o f C o n t e n t s 5 INTRODUCTION This is the eleventh annual Performance Report (formerly Service Efforts and Accomplishment or SEA Report) for the City of Palo Alto. The purpose of the report is to provide consistent, reliable information on the performance of City services to: •Support users in assessing whether the City is achieving its goals and objectives in an efficient and effective manner; and •Assist the City in meeting its responsibilities to be publicly accountable in the stewardship of public resources. The report contains summary information on spending and staffing, workload, and performance results for the fiscal year ended June 30, 2012 (FY 2012). It also includes the results of a resident survey rating the quality of City services. The report provides two comparisons: •Historical trends for fiscal years 2007 through 2012. •Selected comparisons to other cities. There are many ways to look at services and performance. This report looks at services on a department-by-department basis. All City departments are included in this report. Chapter 1 provides a summary of overall spending and staffing since FY 2007, as well as an overall discussion on resident perceptions and the City Council’s priorities. Chapter 2 through 11 present the mission statements, descriptions of services, background information, workload, performance measures, and survey results for: •Community Services •Fire •Information Technology •Library •Office of Emergency Services •Planning and Community Environment •Police •Public Works •Strategic and Support Services •Utilities Each chapter begins with performance information and financial data at the department level drilling down into each division, service, or program within the department as you proceed. At the end of each chapter, you will find all of the data organized into tables for easy consumption. Ba c k g r o u n d •This is the first year that the Office of Emergency Services and the Information Technology Department each have their own chapter in this report. •Additional emphasis has been placed on Department goals/objectives and relevant key performance measures. •Focus on insightful visual representations of key performance data by aggregating and disaggregating data in meaningful ways. •Each Council Appointed Officer (CAO) has a page for his/her office (included in the Strategic and Support Services Chapter). Key Changes in This Year’s Report The City re-launched its internet site in FY 2012, www.cityofpaloalto.org, giving residents and visitors an improved interface with the City. 6 COMMUNITY PROFILE Incorporated in 1894, Palo Alto is a largely built-out community of 65,544 residents. The City covers approximately 26 square miles, stretching from the edges of San Francisco Bay to the ridges of the San Francisco peninsula. Located mid-way between San Francisco and San Jose, Palo Alto is in the heart of the Silicon Valley. Stanford University, adjacent to Palo Alto and one of the top-rated institutions of higher education in the nation, has produced much of the talent that founded successful high-tech companies in Palo Alto and Silicon Valley. SELECTED KEY DEMOGRAPHIC DATA (source: U.S. Census Bureau) Ba c k g r o u n d Residents Aged 25+ Holding Advanced Degrees Estimated Household Income 21% 38% 41% $49,999 or less $50,000 to $149,999 $150,000 or more Age Breakdown of Palo Alto Residents 0% 5% 10% 15% 20% 25% Household Occupancy 6% 52% 42% Vacant Owner Occupied Renter Occupied Age of Housing Units by Decade 9% 5% 8% 12% 14% 27% 11% 15% 0% 10% 20% 30% Commuting to Work 67.3% 6.3% 4.6% 5.3% 7.9% 8.6% Drove Alone Carpooled Public Trans. Walked Other Means Worked at Home School Enrollment (3 yrs. & older enrolled in school) 8% 5% 41% 17% 29% Nursery/Preschool Kindergarten Elemendtary (1-8)High School (9-12) College or Graduate Year Householder Moved Into Unit 38% 18% 19% 10% 8% 7% 0% 10% 20% 30% 40% 50% 2005 or later 2000 to 2004 1990 to 1999 1980 to 1989 1970 to 1970 1969 or prior Where Residents Were One Year Prior to Survey Palo Alto’s Median Age: 41.9 79% 49% 0% 20% 40% 60% 80% 100% Bachelor's or Higher Graduate or Professional 83.0% 8.0% 4.0% 3.0% 2.0% Same House Same County Same State Different State Abroad 7 SENSE OF COMMUNITY Residents continue to generally give favorable ratings to the quality of Palo Alto as a community. This assessment is based upon residents’ responses to selected questions in the National Citizen SurveyTM. The chart below summarizes these responses. Ba c k g r o u n d 0%10%20%30%40%50%60%70%80%90%100% Palo Alto as a place to live Quality of life in Palo Alto Palo Alto as a place to raise children Overall appearance of Palo Alto Educational opportunities Your neighborhood as a place to live Palo Alto as a place to work Cleanliness of Palo Alto Recreational opportunties Volunteer opportunities Openness and acceptance of diversity Sense of community Palo Alto as a place to retire Shopping opportunities Employment opportunities Quality of new development in Palo Alto Excellent Good Fair PoorSource: National Citizen SurveyTM Residents’ Ratings of the Quality of Palo Alto as a Community 8 QUALITY OF CITY SERVICES Residents continue to generally give favorable ratings to the quality of services offered by the City of Palo Alto. This assessment is based upon residents’ responses to selected questions in the National Citizen SurveyTM. The chart below summarizes these responses. Ba c k g r o u n d 0%10%20%30%40%50%60%70%80%90%100% Fire Services City Parks Garbage Collection Public Library Services Recreation Programs/Classes Police Services Gas Utility Electric Utility Preservation of Natural Areas Services to Youth Public Information Services Emergency Preparedness Economic Development Code Enforcement Sidewalk Maintenance Land Use, Planning, & Zoning Street Repair Excellent Good Fair Poor Residents’ Ratings of the Quality of Selected Services in Palo Alto Source: National Citizen SurveyTM 9 PALO ALTO CITY GOVERNMENT Palo Alto residents elect nine members to the City Council. Council Members serve staggered four-year terms. The Council appoints a number of boards and commissions, and each January, the Council appoints a new Mayor and Vice-Mayor and adopts priorities for the calendar year. The City Council’s top five priorities for 2012 are shown on the right: Ba c k g r o u n d City Finances Land Use & Transportation Emergency Preparedness Palo Alto Residents Planning & Community Env. City Council City Attorney City Auditor City Manager City Clerk Administrative Services Community Services Fire Human Resources Public Works Library Utilities Palo Alto is a charter city, operating under a council/manager form of government. The City Council appoints the City Manager, City Attorney, City Auditor, and City Clerk. Environmental Sustainability Community Collaboration for Youth Well-Being Did You Know? Regular Council meetings are held on the first three Mondays of each month. Meetings are cablecast live in most cases (and replayed) on Government Channel 26 or 29 and broadcast via KZSU Radio, 90.1 FM. Video streaming of Council meetings may be accessed at http://www.midpenmedia.org/watch/pacc_w ebcast/pacc_ondemand2.html. You can see the Tentative Council Agenda in the Palo Alto Weekly on the Fridays preceding the City Council meetings. Agendas are also available on the City Webpage under Agendas/Minutes/Reports. Agendas are also posted in front of City Hall in King Plaza on the elevator walls closest to Bryant Street on Wednesday evenings. City Council’s Top 5 Priorities Information Technology Emergency Services Police 10 SCOPE AND METHODOLOGY The City Auditor’s Office prepared this report in accordance with the City Auditor’s FY 2013 Work Plan. The scope of our review covered information and results for the City’s Departments for the fiscal year beginning July 1, 2011 and ending June 30, 2012 (FY 2012). We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The City Auditor’s Office compiled and reviewed departmental data for reasonableness and consistency, based on our knowledge and information from comparable sources and prior years’ reports. Our reviews are not intended to provide assurance on the accuracy of data provided by City Departments. Rather, we intend to provide reasonable assurance that the data present a picture of the efforts and accomplishments of the City Departments and programs. Prior year data may differ from previous Service Efforts and Accomplishments (SEA) reports in some instances due to corrections or changes reported by City Departments or other agencies. When possible, we have included in the report a brief explanation of internal or external factors that may have affected the performance results. However, while the report may offer insights on service results, this insight is for informational purposes and does not thoroughly analyze the causes of negative or positive performance. Some results or performance changes can be explained simply. For others, more detailed analysis by City Departments or the City Auditor’s Office may be necessary to explain the results. This report can help focus efforts on the most significant areas of interest or concern. SERVICE EFFORTS AND ACCOMPLISHMENTS REPORTING In 1994, the Governmental Accounting Standards Board (GASB) issued Concepts Statement No. 2, Service Efforts and Accomplishments Reporting. The statement broadly described “why external reporting of SEA measures is essential to assist users both in assessing accountability and in making informed decisions to improve the efficiency and effectiveness of governmental operations.” According to the statement, the objective of SEA reporting is to provide more complete information about a governmental entity’s performance than can be provided by the traditional financial statements and schedules, and to assist users in assessing the economy, efficiency, and effectiveness of services provided. In 2003, GASB issued a special report on Reporting Performance Information: Suggested Criteria for Effective Communication that describes 16 criteria state and local governments can use when preparing external reports on performance information.1 Using the GASB criteria, the Association of Government Accountants (AGA) initiated a Certificate of Achievement in Service Efforts and Accomplishments Reporting project in 2003, of which Palo Alto was a charter participant. In 2008, GASB issued Concept Statement No. 5, which amended Concept Statement No. 2 to reflect changes since the original statement was issued in 1994. In 2010, GASB issued “Suggested Guidelines for Voluntary Reporting of Service Efforts and Accomplishments (SEA) Performance Information.” The guidelines are intended to provide a common framework for the effective external communication of SEA performance information to assist users and governments. Other organizations including the Government Finance Officers Association (GFOA) and the International City/County Management Association (ICMA) have long been advocates of performance measurement in the public sector. For example, the ICMA Performance Measurement Program provides local government benchmarking information for a variety of public services. The City of Palo Alto has reported various performance indicators for a number of years. In particular, the City’s budget document includes “benchmarking” measures which are developed by staff and reviewed by the City Council as part of the annual budget process. Benchmarks include input, output, efficiency, and effectiveness measures. This Performance Report includes selected targets as reported by the departments. Ba c k g r o u n d Footnote 1 A summary of the GASB special report on reporting performance information is online at www.seagov.org/sea_gasb_project/criteria_summary.pdf. 11 The AGA awarded Palo Alto their Gold Award for the FY 2011 SEA Report and their Certificate of Excellence in Citizen Centric Reporting for Palo Alto’s Citizen Centric Report. Palo Alto has also been honored with AGA’s Circle of Excellence Award in 2009 recognizing the City’s continued excellence in SEA reporting. These awards are AGA’s highest report distinctions making Palo Alto one of the top cities nationally for transparency and accountability in performance reporting. SELECTION OF INDICATORS We limited the number and scope of workload and performance measures in this report to items where information was available and meaningful in the context of the City’s performance, and items we thought would be of general interest to the public. This report is not intended to be a complete set of performance measures for all users. From the outset of this project, we decided to use existing data sources to the extent possible. We examined existing benchmarking measures from the City’s adopted budget documents, we reviewed performance measures and other financial reports from other jurisdictions and other professional organizations, and we used audited information from the City’s Comprehensive Annual Financial Report (CAFR).2,3 We cited departmental mission statements, goals, objectives, and performance targets that are generally taken from the City’s annual operating budget where they are subject to public scrutiny and City Council approval as part of the annual budget process. We held numerous discussions with City staff to determine what information was available and reliable, and best summarized the services they provide. Wherever possible we have included five years of historical data in addition to the current year’s data. Generally speaking, it takes at least three data points to show a trend. Although Palo Alto’s size precludes us from significantly disaggregating data (such as into many districts), where program data was available, we disaggregated the information. For example, we have disaggregated performance information about some services based on age of participant, location of service, or other relevant factors. Consistency of information is important to us. However, we occasionally add or delete some information that was included in a previous report. Performance measures and survey information in the report are noted as <NEW> if they did not appear in the prior year SEA Report or <REVISED> if there was a significant change in the methodology used to calculate the measure. We will continue to use feedback from the residents of Palo Alto, City Council, and City Staff to ensure that the information we include in this report is meaningful and useful. We welcome your input. Please contact us with suggestions via email at city.auditor@cityofpaloalto.org. THE NATIONAL CITIZEN SURVEYTM The National Citizen SurveyTM is a collaborative effort between the National Research Center, Inc. (NRC), and the International City/County Management Association (ICMA).4 Respondents in each jurisdiction are selected at random. Participation is encouraged with multiple mailings and self-addressed, postage-paid envelopes. Results are statistically weighted to reflect the proper demographic composition of the entire community. Surveys were mailed to a total of 1,200 Palo Alto households in August 2012. Completed surveys were received from 316 residents, for a response rate of 27 percent. Typical response rates obtained on citizen surveys range from 25 percent to 40 percent. It is customary to describe the precision of estimates made from surveys by a “level of confidence” and accompanying “confidence interval” (or margin of error). The confidence interval for this survey of 1,200 residents is no greater than plus or minus 5 percentage points around any given percent reported for the entire sample (316 completed surveys). Ba c k g r o u n d Footnotes 2 The budget is online at <www.cityofpaloalto.org/gov/depts/asd/budget.asp>. The operating budget includes additional performance information. 3 The Comprehensive Annual Financial Report is available online at <http://www.cityofpaloalto.org/gov/depts/asd/reporting.asp>. 4 This report is available on the City Auditor’s website. 12 The scale on which respondents are asked to record their opinions about service and community quality is “excellent,” “good,” “fair,” and “poor.” Unless stated otherwise, the survey data included in this report displays the responses only from respondents who had an opinion about a specific item – “don’t know” answers have been removed. This report contains comparisons of survey data from prior years. Differences from the prior year can be considered “statistically significant” if they are greater than 7 percentage points. The NRC has collected citizen survey data from approximately 500 jurisdictions in the United States. Inter-jurisdictional comparisons are available when similar questions are asked in at least five other jurisdictions. When comparisons are available, results are noted as being “above,” “below,” and “similar” to the benchmark. In instances where ratings are considerably higher or lower than the benchmark, these ratings have been further demarcated by the attribute of “much,” (for example, “much above, much below, much less, and much more”). For questions related to resident behavior, circumstance or to a local problem, the comparison to the benchmark is designated as “more,” “similar” or “less.” In 2006, the ICMA and NRC announced “Voice of the People” awards for surveys conducted in the prior year. To win a Voice of the People Award for Excellence, a jurisdiction’s National Citizen SurveyTM rating for service quality must be one of the top three among all eligible jurisdictions and in the top 10 percent of all the jurisdictions in the NRC database of citizen surveys. Since the beginning of the award program, Palo Alto has won: 2005 – 5 categories (Emergency medical, Fire, Garbage collection, Park, and Police services), 2006 – 4 categories (Emergency medical, Fire, Garbage collection, and Recreation services), 2007 – 5 categories (Emergency medical, Fire, Garbage collection, Park, and Recreation services), 2008 – 1 category (Garbage collection), 2009 – 1 category (Garbage collection). POPULATION For population figures, we used the most recent estimates of Palo Alto resident population from the California Department of Finance, as shown in the following table.5 Ba c k g r o u n d Footnotes 5 The Department of Finance periodically revises prior year estimates. Where applicable we used their revised population estimates to recalculate certain indicators in this report. 6 Additional information about the City’s departments can be found at <http://www.cityofpaloalto.org/depts/default.asp>. We used population figures from sources other than the Department of Finance for some comparisons to other jurisdictions, but only in cases where comparative data was available only on that basis. Some departments serve expanded service areas.6 For example, the Fire Department serves Palo Alto, Stanford, and unincorporated areas of Santa Clara County. The Regional Water Quality Control Plant serves Palo Alto, Mountain View, Los Altos, Los Altos Hills, Stanford, and East Palo Alto. Year Population FY 2007 61,385 FY 2008 62,173 FY 2009 63,496 FY 2010 64,352 FY 2011 64,853 FY 2012 65,544 Change from last year +1.1% Change from FY 2007 +6.8% 13 City of Palo Alto Population Source: California Department of Finance INFLATION Financial data has not been adjusted for inflation. In order to account for inflation, readers should keep in mind that the San Francisco Area Consumer Price Index for All Urban Consumers increased by 2.6 percent from last year and increased by 11.0 percent from 2007, which affects the financial data that is included in this report. The index, from 2007 through 2012, can be seen in the table to the right. Ba c k g r o u n d Date Index June 2007 216.1 June 2008 225.2 June 2009 225.7 June 2010 228.1 June 2011 233.6 June 2012 239.8 Change from last year +2.6% Change from 2007 +11.0% ROUNDING AND PERCENT CHANGE For readability, most numbers in this report are rounded. In some cases, tables or graphs may not add up to 100 percent or to the exact total because of rounding. In most cases, the calculated “percent change from last year (FY 2011) and from FY 2007” is based on the percentage change in the underlying numbers, not the rounded numbers, and reflects the percent change between the current fiscal year (FY 2012), the last fiscal year (FY 2011), and from five years ago (FY 2007). Where the data are expressed in percentages, the change is the difference between the percentages being compared. COMPARISONS TO OTHER CITIES Where possible, we included comparisons to nearby California cities. The choice of the cities that we use for our comparisons varies depending upon the availability of the data. Regardless of which cities are included, comparisons to other cities should be used carefully. We tried to include “apples to apples” comparisons, but differences in methodologies and program design may account for unexplained variances between cities. For example, the California State Controller’s Office gathers and publishes comparative financial information from all California cities. We used this information where possible, but noted that cities provide different levels of service and categorize expenditures in different ways. ACKNOWLEDGEMENTS This report could not have been prepared without the cooperation and assistance of City management and staff from every City department. We would like to thank each department for contributing to this report as well as the City Council and community members who reviewed last year’s report and provided thoughtful comments. 14 Consumer Price Index – All Urban Consumers San Francisco – Oakland – San Jose, CA Source: Bureau of Labor Statistics Palo Alto uses various funds to track Overall Spending in the City. The General Fund tracks all general revenues and governmental functions including parks, fire, police, libraries, planning, public works, and support services. These services are supported by general City revenues and program fees. Enterprise funds are proprietary funds used to report an activity for which a fee is charged to external users for goods or services. For Palo Alto, these include: Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse, Storm Drainage, and Airport. Authorized Staffing is measured in full-time equivalent (FTE) which is a count of authorized salaried, hourly, and temporary positions within the City. In 2012, the City Council set five Council Priorities including: City Finances, Land Use and Transportation, Emergency Preparedness, Community Collaboration for Youth Well-Being, and Environmental Sustainability. The National Citizen SurveyTM provides some insights into residents’ perceptions in these areas. The City spends sizeable resources on Capital Projects which are projects with a minimum cost of $50,000 that have a useful life of at least five to seven years, or extend the life or provide for a new functional use for an existing asset for at least five years. Chapter 1: Citywide Spending, Staffing, Resident Perceptions & Council Priorities Mission: The government of the City of Palo Alto exists to promote and sustain a superior quality of life in Palo Alto. In partnership with our community, our goal is to deliver cost-effective services in a personal, responsive, and innovative manner. 15 (in millions) FY 12 Actual % of Total Property Tax $26.5 17.1% Charges for Services $24.4 15.7% Sales Tax $22.1 14.2% Operating Transfers-In $19.2 12.3% Rental Income $14.3 9.2% Charges to Other Funds $11.7 7.5% Utility Users Tax $10.8 7.0% Transient Occupancy Tax $9.7 6.2% Permits & Licenses $7.1 4.6% Documentary Transfer Tax $4.8 3.1% Other Revenue $2.5 1.6% Other Taxes & Fines $1.1 0.7% Return on Investment $1.0 0.7% From Other Agencies $0.8 0.1% (in millions) FY 12 Actual % of Total Salaries & Benefits $96.7 59.7% Transfer to Infrastructure $18.6 11.5% Allocated Charges $18.0 11.1% Contract Services $10.4 6.4% General Expense $9.9 6.1% Operating Transfers Out $3.5 2.2% Supplies & Materials $3.1 1.9% Rents & Leases $1.0 0.6% Debt Service $0.5 0.3% Facilities & Equip. Purchases $0.3 0.2% What were the sources of FY 2012 General Fund revenues? (Total = $155.3 million) How were the FY 2012 General Fund dollars used? (Total = $162.1 million) Net Deficit = $(6.8) million 16 Footnotes 1 Includes revenue and expenditure appropriations not related to a specific department or function, but typically benefit the City as a whole (e.g. Cubberley lease payments to PAUSD). May also include provision or placeholder for certain revenues and expenditures that are just an estimate at budget adoption time (e.g. salary and benefit concessions from bargaining units and possible increases in fee related revenues with the Council approval of Municipal Fee Schedule and Cost of Service study by a consultant. Can be one-time or ongoing depending on nature and frequency. 2 Comprised of Strategic & Support Services (City Manager, City Attorney, City Clerk, City Auditor, Administrative Services Department, and Human Resources Department), as well as City Council. 3 Funds transferred to Capital Projects and Debt Service funds on an annual basis. Total Spending by General Fund Department (in millions) Ch a p t e r 1 Ci t y w i d e $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 Current Year Last Year FY 2007 ↑UP 9% from last year, ↑UP 21% from FY 2007 ↓DOWN 3% from last year, ↓DOWN 9% from FY 2007 ↑UP 8% from last year, ↑UP 9% from FY 2007 ↑UP 1% from last year, ↑UP 6% from FY 2007 ↑UP 12% from last year, ↑UP 12% from FY 2007 ↑UP 4% from last year, ↑UP 4% from FY 2007 ↑UP 101% from last year, ↑UP 74% from FY 2007 ↑UP 2% from last year, ↑UP 36% from FY 2007 ↑UP 9% from last year, ↑UP 30% from FY 2007 Total General Fund spending in FY 2012 was $162.1 million Overall Spending In FY 2012, the City’s General Fund expenditures and other uses of funds totaled $162.1 million, a 13% increase from last year and a 22% increase from FY 2007. Inflation increased by 2.6% from last year and increased by 11.0% from FY 2007. General Fund Spending by Category excludes Salaries & Benefits (see next page) $0 $10 $20 $30 $40 $50 $60 $70 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 (i n m i l l i o n s ) Transfer to Infrastructure Operating Transfers Out Allocated Charges Facilities & Equipment Purchases Rents & Leases General Expense Supplies & Materials Contract Services Important: Salaries and benefits were excluded from this chart to give the reader better visibility over other types of General Fund spending. Details on salaries and benefits spending can be found on the next page (Overall Staffing). Source: City of Palo Alto financial data Source: City of Palo Alto financial data 17 Ch a p t e r 1 Ci t y w i d e Citywide Staffing by Department 0 50 100 150 200 250 300 EGWWF Other Wastewater Treatment Fund Refuse Fund Storm Drainage Fund Police Fire Community Services Strategic & Support Public Works Library Planning & Community Env Current Year Last Year FY 2007 ↓DOWN 2% from last year, ↓DOWN 17% from FY 2007 ↑UP 4% from last year, ↓DOWN 6% from FY 2007 ↓DOWN 1% from last year, ↓DOWN 1% from FY 2007 ↑UP 2% from last year, →NO CHANGE from FY 2007 →NO CHANGE from last year, ↑UP 8% from FY 2007 ↓DOWN 4% from last year, ↓DOWN 16% from FY 2007 ↓DOWN 2% from last year, ↓DOWN 13% from FY 2007 ↓DOWN 1% from last year, ↓DOWN 17% from FY 2007 ↑UP 2% from last year, →NO CHANGE from FY 2007 →NO CHANGE from last year, ↓DOWN 4% from FY 2007 →NO CHANGE from last year, ↑UP 9% from FY 2007 ↑UP 1% from last year, ↑UP 2% from FY 2007 Budgeted positions, some of which may not have been filled City staffing is measured in full-time equivalents (FTEs). In FY 2012, 1,114 FTE positions were authorized citywide, including 655 FTEs in General Fund departments and 459 FTEs in other funds. As of June 30, 2012, 141 positions were vacant. Authorized Staffing Per 1,000 Residents Overall Staffing Salaries/Wages, Overtime, and Benefits Spending 0.0 20.0 40.0 60.0 80.0 100.0 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 53.9 57.3 59.6 56.6 55.8 54.6 4.0 4.2 3.7 4.5 4.1 5.4 26.1 29.8 28.3 30.9 34.2 36.8 (i n m i l l i o n s ) Salaries/Wages Overtime Benefits Source: City of Palo Alto financial data Source: City of Palo Alto financial data Footnotes 1 Includes City Manager, City Attorney, City Clerk, City Auditor, Administrative Services Department, and Human Resources Department. 2 Includes Electric Fund, Gas Fund, Water Fund, Wastewater Collection Fund, and Fiber Optics Fund. 1 2 Source: City of Palo Alto financial data 0.0 5.0 10.0 15.0 20.0 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 18.9 18.8 18.1 17.9 17.3 17.0 18 Ch a p t e r 1 Ci t y w i d e The FY 2012 combined Capital Budget (General Fund, Enterprise Funds, and Internal Service Funds) is $72.9 million. The five year Capital Improvement Program Plan for FY 2012-2016 was $309.5 million. The FY 2012-16 Proposed CIP Plan was developed in coordination with all City departments responsible for capital projects. The Infrastructure Reserve was created in 1998 to accumulate funding to repair or renovate existing buildings and facilities, streets and sidewalks, parks and open space, and transportation systems. The FY 2012 Capital Budget for the Enterprise Funds was $34.4 million. The City continues to proactively repair and replace utility poles, electrical substations, gas and water mains, and the plant system as needed. The Capital Budget for the Technology Fund (Internal Service Fund) was $2.6 million. The Technology Fund is used for technology projects designed to enhance service. Capital Spending $0 $5 $10 $15 $20 $25 $30 $35 $40 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 $17.5 $21.6 $15.8 $21.2 $36.6 $34.7 $0 $5 $10 $15 $20 $25 $30 $35 $40 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 $28.9 $36.1 $36.2 $29.7 $24.4 $27.6 What Qualifies as a Capital Project? Must have a minimum cost of $50,000 for each stand-alone unit or combined project AND Must have a useful life of at least five to seven years (the purchase or project will still be functioning and not be obsolete at least five to seven years after implementation) OR Must extend the life of an existing asset or provide a new functional use for an existing asset for at least five years. Source: Administrative Services Department Source: Comprehensive Annual Financial Reports Capital Outlay – Governmental Funds (in millions) Capital Expenses – Enterprise Funds (in millions) 19 Ch a p t e r 1 Ci t y w i d e In 2012, the City Council outlined five interconnected priorities to address the most important challenges facing the City. The five Council Priorities are: City Finances, Land Use and Transportation, Emergency Preparedness, Community Collaboration for Youth Well- Being, and Environmental Sustainability. Resident Perceptions of the City’s Performance Related to the Council Priorities Percent Rating “Good” or “Excellent” City Council Priorities How Do Residents Rate the City’s Performance Related to the Council’s Priorities? The graph illustrates certain questions from the National Citizen SurveyTM that most closely relate to each of the Council Priorities. 0%10%20%30%40%50%60%70%80%90% Economic Development Value of Services for Taxes Paid Overall Quality of New Development Emergency Preparedness Quality of Natural Environment Preservation of Natural Areas Services to Youth Current Year Last Year FY 2007 City Finances Land Use & Transportation Emergency Preparedness Environmental Sustainability Youth Well-being ↑UP 15% from last year ↑ UP 5% from FY 2007 ↑UP 1% from last year →NO CHANGE from FY 2007 ↓ DOWN 1% from last year ↓ DOWN 1% from FY 2007 ↑UP 9% from last year ↑UP 2% from FY 2008* ↑UP 4% from last year ↑UP 3% from FY 2008* ↑UP 5% from last year ↑UP 3% from FY 2008* ↓ DOWN 3% from last year ↑UP 2% from FY 2007 Source: National Citizen SurveyTM *Question was not asked in the FY 2007 survey 20 General Fund Operating Expenditures and Other Uses of Funds (in millions) Enterprise Funds Community Services Fire1 Library Planning and Community Environment Police Public Works Administrative Departments2 Non- Departmental3 Operating Transfers Out4 TOTAL Operating Expenses FY 07 $20.1 $21.6 $5.9 $9.5 $25.9 $12.4 $15.8 $8.5 $12.7 $132.4 $190.3 FY 08 $21.2 $24.0 $6.8 $9.7 $29.4 $12.9 $17.4 $7.4 $12.9 $141.8 $215.8 FY 09 $21.1 $23.4 $6.2 $9.9 $28.2 $12.9 $16.4 $6.8 $15.8 $140.8 $229.0 FY 10 $20.5 $27.7 $6.4 $9.4 $28.8 $12.5 $18.1 $8.7 $14.6 $146.9 $218.6 FY 11 $20.1 $28.7 $6.5 $9.6 $31.0 $13.1 $15.9 $7.9 $11.0 $143.7 $214.0 FY 12 $20.9 $29.4 $7.1 $10.3 $33.6 $13.2 $17.8 $7.7 $22.1 $162.1 $219.6 Change from: Last year +4% +2% +9% +8% +9% +1% +12% -3% +101% +13% +3% FY 07 +4% +36% +21% +9% +30% +6% +12% -9% +74% +22% +15% Ch a p t e r 1 Ci t y w i d e Footnotes 1 The City classified OES financial data under the Fire Department for budgeting purposes. The underlying data is also incorporated in the financial information reported for the Fire Department. OES is included as a separate chapter in this report. 2 Comprised of Strategic & Support Services (City Manager, City Attorney, City Clerk, City Auditor, Administrative Services Department, and Human Resources Department), and City Council. 3 Includes revenue and expenditure appropriations not related to a specific department or function, but typically benefit the City as a whole (e.g. Cubbereley lease payments to PAUSD). May also include provision or placeholder for certain revenues and expenditures that are just an estimate at budget adoption time (e.g. salary and benefit concessions from bargaining units and possible increases in fee related revenues with the Council approval of Municipal Fee Schedule and Cost of Service study by a consultant. Can be one-time or ongoing depending on nature and frequency. 4 Funds transferred to Capital Projects and Debt Service funds on an annual basis. 5 Adjusted for Fire Department’s expanded service area (Palo Alto and Stanford). PER CAPITA SPENDING OVERALL SPENDING General Fund Expenditures Per Capita Community Services Fire1,5 Library Planning and Community Environment Police Public Works Administrative Departments2 Non- Departmental3 Operating Transfers Out4 TOTAL General Fund Enterprise Funds Operating Expenses Per Capita FY 07 $328 $287 $95 $155 $422 $203 $257 $138 $208 $2,092 $3,100 FY 08 $342 $316 $110 $155 $473 $208 $279 $119 $208 $2,210 $3,471 FY 09 $333 $303 $98 $156 $445 $203 $258 $108 $249 $2,152 $3,607 FY 10 $318 $355 $99 $145 $448 $195 $282 $136 $227 $2,206 $3,397 FY 11 $309 $365 $100 $147 $478 $202 $244 $122 $170 $2,138 $3,300 FY 12 $318 $371 $108 $157 $513 $202 $271 $118 $338 $2,395 $3,350 Change from: Last year +3% +2% +8% +7% +7% 0% +11% -4% +99% +12% +2% FY 07 -3% +29% +13% +2% +22% 0% +5% -15% +63% +14% +8% 21 Authorized Staffing (FTE1) – General Fund Authorized Staffing (FTE1) – Other Funds CSD Fire Lib PCE Pol PW S&SS2 Subtotal RF SDF WWTF EGWWF Other3 Subtotal TOTAL FY 07 148 128 57 55 168 68 100 725 35 10 69 243 78 435 1,160 FY 08 147 128 56 54 169 71 108 733 35 10 69 244 78 436 1,168 FY 09 146 128 57 54 170 71 102 727 35 10 70 235 74 423 1,150 FY 10 146 127 55 50 167 65 95 705 38 10 70 252 77 446 1,151 FY 11 124 125 52 47 161 60 89 657 38 10 70 263 76 457 1,114 FY 12 123 127 54 46 161 57 87 655 38 9 71 263 78 459 1,114 Change from: Last year -1% +2% 4% -2% 0% -4% -2% 0% 0% -1% +1% 0% +2% 0% 0% FY 07 -17% 0% -6% -17% -4% -16% -13% -10% +9% -1% +2% +8% 0% +5% -4% Ch a p t e r 1 Ci t y w i d e Footnotes 1 Includes authorized temporary and hourly positions and allocated departmental administration. 2 Includes City Manager, City Attorney, City Clerk, City Auditor, Administrative Services Department, and Human Resources Department. 3 Includes the Technology and other Internal Service Funds, Capital Projects Fund, and Special Revenue Funds. 4 Does not include overtime. 5 “Employee benefits rate” is General Fund employee benefits as a percent of General Fund salaries and wages, excluding overtime. AUTHORIZED STAFFING CSD – Community Services Pol – Police RF – Refuse Fund EGWWF – Electric, Gas, Water, Wastewater Collection, Fiber Optics Fire – Fire PW – Public Works SDF – Storm Drainage Fund Lib – Library S&SS – Strategic & Support Services WWTF – Wastewater Treatment Fund PCE – Planning & Community Environment Authorized Staffing (FTE) - Citywide General Fund Employee Costs Regular Temporary TOTAL Per 1,000 residents Salaries and wages4 (in millions) Overtime (in millions) Employee benefits (in millions) TOTAL Employee benefits rate5 Employee costs as a percent of total General Fund expenditures FY 07 1,080 80 1,160 18.9 $53.9 $4.0 $26.1 $84.0 48% 63% FY 08 1,077 91 1,168 18.8 $57.3 $4.2 $29.8 $91.3 52% 64% FY 09 1,076 74 1,150 18.1 $59.6 $3.7 $28.3 $91.6 48% 65% FY 10 1,055 95 1,151 17.9 $56.6 $4.5 $30.9 $92.1 55% 63% FY 11 1,019 95 1,114 17.3 $55.8 $4.1 $34.2 $94.2 61% 66% FY 12 1,017 98 1,114 17.0 $54.6 $5.4 $36.8 $96.7 67% 60% Change from: Last year 0% +3% 0% -2% -2% +30% +7% +3% +6% -6% FY 07 -6% +22% -4% -10% +1% +33% +41% +15% +19% -3% 22 Governmental Funds (in millions) Enterprise Funds (in millions) Infrastructure Reserves Net general capital assets Capital outlay Depreciation Net Enterprise Funds capital assets Capital expenses Depreciation FY 07 $15.8 $335.7 $17.5 $11.0 $383.8 $28.9 $12.7 FY 08 $17.9 $351.9 $21.6 $11.2 $416.6 $36.1 $12.7 FY 09 $7.0 $364.3 $15.8 $9.6 $426.1 $36.2 $13.6 FY 10 $8.6 $376.0 $21.2 $14.4 $450.3 $29.7 $15.3 FY 11 $3.2 $393.4 $36.6 $14.4 $465.7 $24.4 $15.9 FY 12 $12.1 $413.2 $34.7 $16.4 $490.0 $27.6 $16.7 Change from: Last year +277% +5% -5% +14% +5% +13% +5% FY 07 -24% +23% +99% +50% +28% -4% +31% Ch a p t e r 1 Ci t y w i d e CITY COUNCIL PRIORITIES CAPITAL SPENDING National Citizen Survey City Finances Land Use & Transportation Emergency Preparedness Environmental Sustainability Youth Well-being Percent rating economic development “good” or “excellent” Percent rating value of services for the taxes paid “good” or “excellent” Percent rating overall quality of new development in Palo Alto “good” or “excellent” Percent Rating emergency preparedness services “good” or “excellent” Percent rating quality of overall natural environment “good” or “excellent” Percent rating preservation of natural areas “good” or “excellent” Percent rating services to youth “good” or “excellent” FY 07 62% 67% 57% - - - 73% FY 08 63% 64% 57% 71% 85% 78% 73% FY 09 54% 58% 55% 62% 84% 82% 75% FY 10 49% 62% 53% 59% 84% 78% 70% FY 11 52% 66% 57% 64% 84% 76% 78% FY 12 67% 67% 56% 73% 88% 81% 75% Change from: Last year +15% +1% -1% +9% +4% +5% -3% FY 07 +5% 0% -1% - - - +2% 23 The Arts and Sciences Division provides visual and performing arts, music, dance, and science programs to youth and adults, with a focus on family programs. The division manages the Art Center, Children’s Theatre, Community Theatre, Junior Museum and Zoo, and Art in Public Places. The Open Space, Parks and Golf Division maintains and operates more than 4,000 acres of open space and urban parkland. The division offers programs in ecology and natural history in open space, maintenance of facilities for outdoor recreational use in city parks, and a full service golf complex. The Recreation Services Division provides a diverse range of programs and activities for the community establishing a culture of fitness and healthy living for families and individuals of all ages. Programs include childhood learning, youth development, and adult recreation. 27% 3% 2% 1% 67% What are the sources of CSD funding? (Total = $20.9 million) Service Fees (27%) Rentals and Leases (3%) State and Local Revenues (2%) Other External Revenues (1%) Other General Fund Revenues (67%) 14% 22% 39% 25% How are CSD dollars used? (Total = $20.9 million) Administration & Human Services (14%) Arts and Sciences (22%) Open Space, Parks, & Golf (39%) Recreation & Cubberley (25%) The Office of Human Services provides assistance to people in need by funding and coordinating grants to non-profit organizations while also referring those in need to services throughout the county. Human Services manages Project Safety Net, a community collaboration focusing on suicide prevention and youth well-being. Chapter 2: Community Services Department Mission: To engage individuals and families in creating a strong and healthy community through parks, recreation, social services, arts, and sciences 24 Footnotes 1 Each jurisdiction offers different levels of service and may account for those services differently. 2 The Department attributes the decrease since FY 2009 to the elimination of one staff member in the Family Resources program budget and the elimination of seven positions in Golf operations resulting from the outsourcing of golf course maintenance services. Ch a p t e r 2 Co m m u n i t y S e r v i c e s Comparison for Parks and Recreation Operating Expenditures Per Capita in FY 20111 148.2 146.7 145.9 146.4 123.8 122.7 100 110 120 130 140 150 160 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 17% decrease Total # of Full Time Equivalents (FTEs)2 Source: City of Palo Alto financial data Department Wide YOUR MONEY AT WORK Expenditures by Category 52.1% 20.6% 17.9% 6.2% 2.9% 0.2% 0.1% 0.0% Salaries & Benefits (52.1%) Allocated Charges (20.6%) Contract Services (17.9%) General Expense (6.2%) Supplies & Materials (2.9%) Facilities & Equipment (0.2%) Rents & Leases (0.1%) Op Transfers Out (0.0%) Source: California State Controller, Cities Annual Report FY 2011 Source: City of Palo Alto financial data Source: City of Palo Alto financial data $0 $100 $200 $300 $400 Menlo Park Palo Alto Walnut Creek Santa Clara San Mateo Mountain View Redwood City Sunnyvale $328 $342 $333 $319 $310 FY 07 FY 08 FY 09 FY 10 FY 11 $318 FY 12 In FY 2012, about 40% of total staff were temporary employees CSD Per Capita Spending2 Did you know? The Office of Human Services manages the Human Services Resource Allocation Program (HSRAP), distributing $1.1 million annually in grants to community non-profit service providers and reaching approximately 3,000 low-income individuals. The Office also provides information on a variety of resources related to child care, physical and mental health care, basic needs, and disability needs, among others. 25 Footnote 1 Data shown is in format available from Community Services registration system. Types of classes offered include arts, sports, nature and outdoors, and recreation. Department Wide Ch a p t e r 2 Co m m u n i t y S e r v i c e s DEPARTMENT GOALS  Provide high-quality, relevant, and diverse services for the public  Ensure parks and recreational areas are safe and environmentally sensitive  Provide innovative, well-managed programs and services Average Enrollment Per Class/Camp Offered - 10 20 30 40 50 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Camps Kids Adults Preschool 51% of registrations are done online, 9% more than in 2007 0 50 100 150 200 250 300 350 400 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Total Enrollment in Classes/Camps Camps Kids Adults Preschool Source: Community Services Department Source: Community Services Department Did you know? The City has an extensive collection of public art managed by the Department valued at $1.4 million including: •37 permanently sited sculptures •34 murals •15 portable sculptures •304 paintings, textiles, photographs and works on paper 10 artwork projects were completed or in progress in FY 2012. D-2.1_10/1, R2 The Department attributes the decrease in enrollment to increased competition from private camp providers and reduced household spending on adult classes. The Department offers classes to the public on a variety of topics including recreation and sports, arts and culture, and nature and the outdoors. Classes for children include aquatics, sports, digital art, animation, music, and dance. Other classes are targeted specifically for adults, senior citizens, and preschool children. 26 Enrollment in Art Classes, Camps, and Workshops Arts & Sciences Enrollment in the Children’s Theatre classes has increased by 321% since FY 2007, which the department attributes to offering year round arts-based education and a program to teach theater classes in Palo Alto Unified School District (PAUSD) schools. Source: Community Services Department Ch a p t e r 2 Co m m u n i t y S e r v i c e s KEY DIVISION OBJECTIVES  Achieve a high level of customer satisfaction for all programs and services offered by the department  Ensure programs are responsive to a broad range of needs within the community 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Music & Dance Children's Theatre Art Center Expenditures (000’s) FTE’s According to the Department, significant increases in FY 2012 are due to “On the Road” installations and Project LOOK! outreach programs. During the facility’s closure from May 2011 through October 2012 for renovations, the Art Center staff launched the “On the Road” initiative offering exhibits, classes, and events throughout the City. In addition, through funding from the Palo Alto Art Center Foundation and grants, an Art Truck was acquired to provide community members “see and make” art activities at local schools, parks, and events. Source: Community Services Department Art Center Exhibition Visitors and Project LOOK!, and Outreach Attendance 6,855 6,900 8,353 8,618 6,773 14,238 16,191 17,198 15,830 17,244 13,471 29,717 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Attendance at Project LOOK! and Outreach Exhibition and estimated On the Road art installation visitors Project LOOK! offers docent-led tours of exhibitions for K-12 school groups Arts & Sciences Spending $72 $72 $69 $70 FY 09 FY 10 FY 11 FY 12 Expenditures (in thousands) Authorized FTEs Source: City of Palo Alto financial data Expenditures per capita $4,569 $4,606 $4,494 $4,573 39.7 39.5 36.7 36.9 The Art Center was closed from May 2011 through October 2012 27 Arts & Sciences Ch a p t e r 2 Co m m u n i t y S e r v i c e s Source: Community Services Department The Department attributes the increase in school program participants to additional school contracts funded by Partners In Education (PIE) and Friends of the Palo Alto Junior Museum and Zoo. During FY 2012, the Department offered hands-on science classes at seven public elementary schools in Palo Alto and one elementary school in East Menlo Park. Enrollment in Science Programs at the Junior Museum and Elementary Schools 2,532 2,722 3,300 6,971 6,614 9,701 1,805 2,089 2,054 2,433 1,889 2,575 0 2,000 4,000 6,000 8,000 10,000 12,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Estimated number of children participating in school programs Enrollment in Junior Museum classes and camps Source: Community Services Department Junior Museum & Zoo Science Interpretation Outreach Classes and Enrollment in Open Space Classes 1,226 2,689 2,615 3,978 3,857 3,970 63 85 178 208 156 131 0 1,000 2,000 3,000 4,000 5,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Enrollment in open space interpretive classes Number of Arastradero, Baylands, & Foothill outreach classes for school-age children 283% increase 224% increase The Department attributes the increase in classes and enrollment to school programs provided in the Baylands Nature Center and Foothills Park. The Junior Museum and Zoo began operation of these programs four years ago, and has since increased marketing to boost the number of schools utilizing this service. Children’s Theatre Attendance at Performances 23,117 19,811 14,786 24,983 27,345 27,907 0 5,000 10,000 15,000 20,000 25,000 30,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Source: Community Services Department 21% increase 28 Footnotes 1 Does not include 273 acres of developed parks and land maintained by Parks and Golf. Does not include 2,200 acres of Montebello Open Space Preserve and 200 acres of Los Trancos Open Space Preserve that are operated by the Midpeninsula Regional Open Space District. 2 The Department attributes the increase in operating expenditures to the reorganization, transferring Golf from the Recreation and Golf Division to this new division, and to the increase in water rates charged to the division. Open Space, Parks, and Golf Open Space, Parks, and Golf Spending $102 $91 $88 $1252 FY 09 FY 10 FY 11 FY 12 $6,455 $5,839 $5,699 $8,2202 38.7 35.9 30.2 30.7 Expenditures (in thousands) Authorized FTEs Ch a p t e r 2 Co m m u n i t y S e r v i c e s KEY DIVISION OBJECTIVES  Maintain grounds in good condition and facilities in good repair Protect public land and utilize best management practices for environmental preservation  Increase and diversify community involvement and volunteerism Citizen Survey: Open Space (Percent Rating “Good” or “Excellent”) 65% 70% 75% 80% 85% 90% FY 08 FY 09 FY 10 FY 11 FY 12 Quality of overall natural environment Preservation of natural areas such as open space, farmlands, and greenbelts Availability of paths or walking trails Palo Alto has 4,029 acres1 of open space that it maintains, consisting of Baylands Nature Preserve (including Byxbee Park), Foothills Park, Esther Clark Park, and Pearson- Arastradero Preserve. Compared to other surveyed jurisdictions, Palo Alto ranks in the 94th percentile for open space preservation (14th nationally) and in the 83rd percentile for the quality of the overall natural environment. Source: Community Services Department Restoration Projects Volunteer Hours and Number of Native Plants 0 5,000 10,000 15,000 20,000 25,000 30,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Volunteer hours for restorative/ resource management projects Number of native plants in restoration projects A new greenhouse at the Baylands significantly boosted plant propagation Source: National Citizen Survey™ Source: City of Palo Alto financial data Expenditures per capita 29 Ch a p t e r 2 Co m m u n i t y S e r v i c e s Open Space, Parks, and Golf Citizen Survey: Parks (Percent Rating “Good” or “Excellent”) 82% 84% 86% 88% 90% 92% 94% 96% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 City parks Neighborhood park Source: National Citizen Survey™ $15,042 $15,931 $16,940 $15,413 $15,286 $16,669 $14,000 $14,500 $15,000 $15,500 $16,000 $16,500 $17,000 $17,500 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Maintenance Cost per Acre of Developed Parks/Land Source: Community Services Department Parks/Land Maintained # Acres Urban/neighborhood parks 157 City facilities 31 School athletic fields 43 Utility sites 11 Median strips 26 Business districts and parking lots 5 TOTAL 273 Compared to other surveyed jurisdictions, Palo Alto ranks in the 89th percentile for quality of City parks. Citizen Survey: Visited a Neighborhood Park or City Park 45% 48% 46% 49% 41% 42% 28% 31% 33% 31% 32% 35% 18% 14% 15% 14% 18% 18% 8% 7% 6% 6% 9% 5% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 12 time or more 3-12 times Once or twice Never Source: National Citizen Survey™ 95% of survey respondents reported they visited a neighborhood park or City park in the last 12 months, ranking Palo Alto in the 97th percentile compared to other surveyed jurisdictions (9th nationally). The division maintains approximately 273 acres of developed parks and land. In FY 2012, maintenance expenditures totaled about $4.5 million. Approximately 23% ($811,510) of the parks and landscape maintenance was contracted out in FY 2012. 30 Golf Course Revenue and Number of Rounds of Golf Open Space, Parks, and Golf Source: Community Services Department Ch a p t e r 2 Co m m u n i t y S e r v i c e s 76,241 74,630 72,170 69,791 67,381 65,653 60,000 62,000 64,000 66,000 68,000 70,000 72,000 74,000 76,000 78,000 $2.4 $2.5 $2.6 $2.7 $2.8 $2.9 $3.0 $3.1 $3.2 $3.3 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Golf Course Revenue Number of rounds of golf Re v e n u e ( i n m i l l i o n s ) According to the Department, the decrease in the number of rounds of golf mirrors a general decline in golf play throughout the United States in the past several years. A pending flood control project has also contributed to the decrease by impacting golf course tournament bookings. 14% decrease Did you know? The Department sought public input for renovations to the Golf Course and development of the Rinconada Park Master Plan. The Department is in the process of refining the two plans in collaboration with other City departments through community meetings, the Parks & Recreation Commission (an advisory committee), and City Council. Golf Course Expenditures and Net Revenue/(Cost) Source: Community Services Department $0.04 ($0.02) ($0.33) $0.08 $0.17 $0.27 -$0.5 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Debt service Operating Expenditures Net revenue/(cost) Ex p e n d i t u r e s ( i n m i l l i o n s ) Golf course operating expenditures have decreased by 24% since FY 2007 and the golf course has reported minimal net revenue for the last three years. The Department attributes the decrease in expenditures to the outsourcing of golf course maintenance in FY 2010. Opened in 1956, the Palo Alto Municipal Golf Course consists of a 18-hole championship length course, lighted driving range, full service restaurant and bar, pro shop, practice putting green area and bunker, and golf carts. The Department contracts with outside providers to operate the pro shop, driving range, and restaurant. 31 Enrollment in Major Recreation Classes Recreation & Cubberley 5,304 4,712 3,750 3,726 3,613 3,532 1,391 1,396 1,393 1,309 1,310 1,455 1,195 1,129 1,075 972 889 886 0 1,000 2,000 3,000 4,000 5,000 6,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Recreation Middle school sports Dance According to the Department, enrollment in recreation classes decreased due to the temporary closure of the Mitchell Park Community Center for construction of a new building, increased fees, and an increased supply of recreation services by other organizations. The increase in middle school sports is due to increasing parent and student demand for afterschool sports. Recreation & Cubberley Spending $99 $91 $88 $79 FY 09 FY 10 FY 11 FY 12 $6,281 $5,841 $5,729 $5,197 48.4 51.3 41.6 39.4 Expenditures (in thousands) Authorized FTEs Source: Community Services Department Ch a p t e r 2 Co m m u n i t y S e r v i c e s KEY DIVISION OBJECTIVES  Achieve a high level of customer satisfaction for all programs and services offered by the department  Increase public awareness of - and participation in - recreational services  Ensure programs are responsive to a broad range of needs within the community Source: City of Palo Alto financial data Citizen Survey: Recreation Services (Percent Rating “Good” or “Excellent”) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Recreation centers/facilities Recreation programs/classes Source: National Citizen Survey™ Compared to other surveyed jurisdictions, Palo Alto ranks in the 95th percentile for its recreational programs and classes (16th nationally) and in the 86th percentile for recreation centers and facilities. 33% decrease Expenditures per capita 32 Cubberley Rental Revenue and Hours Rented Source: Community Services Department Ch a p t e r 2 Co m m u n i t y S e r v i c e s 36 32 35 35 31 29 0 5 10 15 20 25 30 35 40 $700 $750 $800 $850 $900 $950 $1,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Hourly rental revenue Hours rented Re v e n u e ( i n t h o u s a n d s ) The Department attributes the decrease to a conversion of the center’s auditorium in FY 2010 to house the temporary Mitchell Park Library. The new library is anticipated to open in Spring of 2013. 20% decrease Cubberley Lease Revenue Recreation & Cubberley Classrooms Theatre Ho u r s ( i n t h o u s a n d s ) $1,360 $1,492 $1,414 $1,584 $1,599 $1,611 $1,200 $1,250 $1,300 $1,350 $1,400 $1,450 $1,500 $1,550 $1,600 $1,650 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 (i n t h o u s a n d s ) Source: Community Services Department Did you know? Located in south Palo Alto, the Cubberley Community Center has been operated by the City of Palo Alto since 1990. The Cubberley campus includes: •170,540 sq. ft. of building space used by long-term leaseholders, renters, and the City; •Four softball fields, track, tennis courts, and a soccer field; and •A theatre, gymnasium, and pavilion. Space is available for rent by the hour for community meetings, seminars, social events, dances, theatre performances, music rehearsals and athletic events. The center also leases former classroom space to artists, Foothill College, childcare centers, and other non-profit organizations. 33 Footnotes 1 The FY 2007 and FY 2008 numbers for these divisions were not available in the operating budgets due to the FY 2008 reorganization. The Department attributes the FY 2012 increase in Open Space, Parks, and Golf to the reorganization, transferring Golf from the Recreation and Golf Division to this new division, and to the increase in water rates charged to the division. 2 The amount reflects the total operating expenditures for the Department including the expenditures of all operating divisions prior to the FY 2008 reorganization. 3 Revenues include rental revenue generated at the Cubberley Community Center that is passed through to the Palo Alto Unified School District per the City’s agreement with the district. 4 Data shown is in format available from Community Services registration system. Types of classes offered include arts, sports, nature and outdoors, and recreation. The Department attributes the decrease in enrollment to increased competition from private camp providers and reduced household spending on adult classes. Ch a p t e r 2 Co m m u n i t y S e r v i c e s Operating Expenditures (in millions) Administration and Human Services1 Arts and Sciences Open Space, Parks, and Golf1 Recreation and Cubberley1 TOTAL CSD expenditures per capita Total Revenues3 (in millions) Total FTEs Temporary Percent of Temporary FTEs Authorized staffing per 1,000 population FY 07 - $3.9 - - $20.12 $328 $7.1 148.2 48.9 33% 2.4 FY 08 - $4.1 - - $21.22 $342 $7.4 146.7 49.4 34% 2.4 FY 09 $3.9 $4.6 $6.5 $6.3 $21.2 $333 $7.1 145.9 49.4 34% 2.3 FY 10 $4.2 $4.6 $5.8 $5.8 $20.5 $319 $7.3 146.4 52.1 36% 2.3 FY 11 $4.2 $4.5 $5.7 $5.7 $20.1 $310 $7.2 123.8 49.3 40% 1.9 FY 12 $2.9 $4.6 $8.2 $5.2 $20.9 $318 $6.8 122.7 48.7 40% 1.9 Change from: Last year -31% +2% +44% -9% +4% +3% -5% -1% -1% 0% -2% FY 07 - +17% - - +4% -3% -5% -17% 0% +7% -22% DEPARTMENT WIDE CLASSES DEPARTMENT WIDE SPENDING AND STAFFING Total number of classes/camps offered4 Total enrollment4 Camp sessions Kids (excluding camps) Adults Pre-school Total (Target: 967) Camps Kids (excluding camps) Adults Pre-school Total Percent of Class Registrations online (Target: 60%) Percent of class registrants who are non- residents (Target: 12%) FY 07 145 206 318 137 806 5,843 4,376 4,936 3,278 18,433 42% 13% FY 08 151 253 327 143 874 5,883 4,824 4,974 3,337 19,018 43% 15% FY 09 160 315 349 161 985 6,010 4,272 4,288 3,038 17,608 45% 13% FY 10 162 308 325 153 948 5,974 4,373 4,190 2,829 17,366 55% 14% FY 11 163 290 283 142 878 5,730 4,052 3,618 2,435 15,835 52% 14% FY 12 155 279 203 148 785 5,259 4,136 2,688 2,667 14,750 51% 12% Change from: Last year -5% -4% -28% +4% -11% -8% +2% -26% +10% -7% -1% -2% FY 07 +7% +35% -36% +8% -3% -10% -5% -46% -19% -20% +9% -1% 34 Footnotes 1 According to the Department, the increase is due to a shift in emphasis from performance to education to promote a philosophy of life-long skills. 2 The Art Center closed to the public for renovation from May 2011 through October 2012, which accounts for some of the decreases in FY 2011 and FY 2012. Some of the increases in FY 2012 are due to “On the Road” installations and outreach programs in the community. Volunteer hours increased from 3,998 hours in FY 2011 to 6,014 hours (including1,000 hours of commission volunteer support) in FY 2012. 3 Exhibition visitors include estimated On the Road art installation visitors. 4 All of the concerts are part of the Community Theatre program. 5 The Department attributes the increase to additional school contracts funded by Partners In Education (PIE) and Friends of the Palo Alto Junior Museum and Zoo. 6 The Department attributes the increase in classes and enrollment to school programs provided in the Baylands Nature Center and Foothills Park. The Junior Museum and Zoo began operation of these programs four years ago, and has since increased marketing to boost the number of schools utilizing this service. Ch a p t e r 2 Co m m u n i t y S e r v i c e s ARTS AND SCIENCES DIVISION - ARTS Junior Museum & Zoo Science Interpretation Citizen Survey Enrollment in Junior Museum classes and camps Estimated number of children participating in school outreach programs Number of Arastradero, Baylands, & Foothill outreach classes for school-age children Enrollment in open space interpretive classes Percent rating services to youth ”good” or “excellent” FY 07 1,805 2,532 63 1,226 73% FY 08 2,089 2,722 85 2,689 73% FY 09 2,054 3,300 178 2,615 75% FY 10 2,433 6,971 208 3,978 70% FY 11 1,889 6,614 156 3,857 78% FY 12 2,575 9,701 131 3,970 75% Change from: Last year +36%5 +47%5 -16% +3% -3% FY 07 +43%5 +283%5 +108%6 +224%6 +2% Community Theatre Children's Theatre Art Center2 Number of performances Attendance at performances Enrollment in music & dance classes Attendance at performances (Target: 21,000) Participants in performances & programs (Target: 650) Enrollment in theatre classes, camps, and workshop (Target: 1,400) Exhibition visitors3 Concerts4 Total attendance (users) (Target: 42,600) Enrollment in art classes, camps and workshops (adults and children) Outside funding for visual arts programs Attendance at Project LOOK! and Outreach (Target: 5,300) FY 07 171 45,571 1,195 23,117 1,845 472 16,191 43 70,387 3,956 $345,822 6,855 FY 08 166 45,676 982 19,811 1,107 407 17,198 42 69,255 3,913 $398,052 6,900 FY 09 159 46,609 964 14,786 534 334 15,830 41 58,194 3,712 $264,580 8,353 FY 10 174 44,221 980 24,983 555 1,436 17,244 41 60,375 3,304 $219,000 8,618 FY 11 175 44,014 847 27,345 1,334 1,475 13,471 28 51,373 2,334 $164,624 6,773 FY 12 175 45,635 941 27,907 1,087 1,987 29,717 0 62,055 905 $193,000 14,238 Change from: Last year 0% +4% +11% +2% -19% +35%1 +121% -100% +21% -61% +17% +110% FY 07 +2% 0% -21% +21% -41% +321%1 +84% -100% -12% -77% -44% +108% ARTS AND SCIENCES DIVISION - SCIENCES 35 Footnotes 1 Includes collaborative partnerships with non-profit groups. Staff attributes the increase in volunteer hours primarily to the Baylands Nature Preserve through Save the Bay (non-profit partner) activities and the use of court-referred (community service hours) volunteers. 2 The marked increase in the number of native plants planted in restoration projects is due to the completion of a new greenhouse at the Baylands that has significantly boosted plant propagation. 3 PAUSD partially reimburses the City for maintenance costs on these school district sites. 4 The Department reports it has experienced increased volunteerism from service organizations and school students. Volunteer projects have ranged from weed removal to playground repair, landscape renovation, and installation of shade structures. Ch a p t e r 2 Co m m u n i t y S e r v i c e s Citizen Survey Visitors at Foothills Park (Target: 140,000) Volunteer hours for restorative/ resource management projects1 (Target: 14,500) Number of native plants in restoration projects (Target: 14,000) Percent rating quality of overall natural environment “good” or “excellent” Percent rating preservation of natural areas such as open space “good” or “excellent” (Target: 82%) Percent rating availability of paths or walking trails “good” or “excellent” (Target: 80%) FY 07 140,437 11,380 14,023 - - - FY 08 135,001 13,572 13,893 85% 78% 74% FY 09 135,110 16,169 11,934 84% 82% 75% FY 10 149,298 16,655 11,303 84% 78% 75% FY 11 181,911 16,235 27,655 84% 76% 75% FY 12 171,413 16,142 23,737 88% 81% 77% Change from: Last year -6% -1% -14% +4% +5% +2% FY 07 +22% +42% +69%2 - - - OPEN SPACE, PARKS, AND GOLF DIVISION – OPEN SPACE Maintenance Expenditures Citizen Survey Parks and landscape maintenance (in millions) Athletic fields in City parks (in millions) Athletic fields on school district sites3 (in millions) TOTAL (in millions) Total maintenance cost per acre Total hours of athletic field usage Number of permits issued for special events Volunteer hours for neighborhood parks Number of participants in community gardening program Percent rating City parks as “good” or “excellent” Percent rating their neighborhood park “good” or “excellent” FY 07 $2.7 $0.6 $0.7 $3.9 $15,042 70,769 22 150 231 91% 89% FY 08 $2.9 $0.6 $0.7 $4.2 $15,931 63,212 22 180 233 89% 86% FY 09 $3.0 $0.7 $0.7 $4.4 $16,940 45,762 35 212 238 92% 87% FY 10 $3.0 $0.5 $0.6 $4.1 $15,413 41,705 12 260 238 90% 88% FY 11 $3.2 $0.4 $0.5 $4.1 $15,286 42,687 25 927 260 94% 89% FY 12 $3.5 $0.4 $0.6 $4.5 $16,669 44,226 27 1,120 292 91% 92% Change from: Last year +9% +19% +5% +9% -2% +4% +8% +21% +12% -3% +3% FY 07 +30% -26% -18% +14% +13% -38% +23% +647%4 +26% 0% +3% OPEN SPACE, PARKS, AND GOLF DIVISION – PARKS AND LANDSCAPE MAINTENANCE 36 Footnotes 1 The Department attributes the decrease in expenditures and increase in net revenue to the outsourcing of golf course maintenance in FY 2010. 2 These enrollment figures are also included in the total stated in the Department-wide Classes page. 3 The Department attributes the decreased to the temporary closure of the Mitchell Park Community Center for construction of a new building, increased fees, and an increased supply of recreation services by other organizations. Ch a p t e r 2 Co m m u n i t y S e r v i c e s Citizen Survey Number of rounds of golf (Target: 67,000) Golf Course Revenue (in millions) (Target: $3.0) Golf Course Operating Expenditures (in millions) (Target: $2.3) Golf course debt Service (in millions) Net revenue/ (cost) FY 07 76,241 $3.1 $2.5 $0.6 $43,015 FY 08 74,630 $3.2 $2.2 $0.7 ($23,487) FY 09 72,170 $3.0 $2.4 $0.7 ($326,010) FY 10 69,791 $3.0 $2.3 $0.6 $76,146 FY 11 67,381 $2.8 $2.0 $0.7 $166,017 FY 12 65,653 $2.7 $1.9 $0.6 $271,503 Change from: Last year -3% -3% -5% -14% +64%1 FY 07 -14% -12% -24%1 -7% +531%1 OPEN SPACE, PARKS, AND GOLF DIVISION – GOLF Enrollment in Recreational Classes2 Citizen Survey Dance Recreation Aquatics Middle school sports Therapeutics Private tennis lessons TOTAL Enrollment in Recreational Summer Camps1 Percent rating recreation centers/facilities good or excellent Percent rating recreation programs/classes good or excellent (Target: 90%) FY 07 1,195 5,304 225 1,391 228 274 8,617 5,843 82% 90% FY 08 1,129 4,712 182 1,396 203 346 7,968 5,883 77% 87% FY 09 1,075 3,750 266 1,393 153 444 7,081 6,010 80% 85% FY 10 972 3,726 259 1,309 180 460 6,906 5,974 81% 82% FY 11 889 3,613 228 1,310 178 362 6,580 5,730 75% 81% FY 12 886 3,532 196 1,455 135 240 6,444 5,259 86% 87% Change from: Last year 0% -2% -14% +11% -24% -34% -2% -8% +11% +6% FY 07 -26% -33%3 -13% +5% -41% -12% -25% -10% +4% -3% RECREATION SERVICES 37 Ch a p t e r 2 Co m m u n i t y S e r v i c e s Cubberley Community Center Hours rented (Target: 33,000) Hourly rental revenue (in millions) (Target: $0.9) Number of lease-holders1 Lease revenue (in millions) (Target: $1.5) FY 07 36,489 $0.8 39 $1.4 FY 08 32,288 $0.9 39 $1.5 FY 09 34,874 $1.0 37 $1.4 FY 10 35,268 $0.9 41 $1.6 FY 11 30,878 $0.9 48 $1.6 FY 12 29,282 $0.8 33 $1.6 Change from: Last year -5% -3% -31% +1% FY 07 -20% +4% -15% +18% CUBBERLEY COMMUNITY CENTER Footnote 1 The Department reports that the maximum number of lease-holders is 33 and that applicable records could not be located to determine the methodology used to report the number in prior years. This Page Intentionally Left Blank 38 39 Fire Suppression maintains a state of readiness to effectively respond to emergency and non-emergency calls. It provides a means for a safer Palo Alto through community outreach, public education and prevention. 29% 9% 5% 1% 3% 53% What are the sources of Fire Department funding? (Total = $29.4 million) Stanford Service Contract (29%) Paramedic Services Fee (9%) Plan Checking Fee (5%) Hazardous Materials Permits (1%) Other External Revenues (3%) Other General Fund (53%) 71% 10% 10% 6% 3% How are Fire Department dollars used? (Total = $29.4 million) Emergency Response (71%) Environmental and Fire Safety (10%) Training and Personnel Management (10%) Administration (6%) Records and Information (3%) Disaster Preparedness/Office of Emergency Services prevents, prepares for and mitigates, responds to, and recovers from all hazards. Chapter 3: Public Safety - Fire Department Mission: The City of Palo Alto Fire Department serves and safeguards the community from the impacts of fires, medical emergencies, environmental emergencies, and natural disasters by providing the highest level of service through action, innovation and investing in education, training and prevention. Emergency Medical Services (EMS) provides in an emergency setting, rapid assessment, treatment and transport of patients to definitive care in a safe and efficient manner. Fire Prevention Bureau improves the quality of life for the Palo Alto community through risk assessment, code enforcement, fire investigation, public education and hazardous materials management. Employee Fire/EMS Certification Training maintains, through training, safe, efficient, and effective practices when responding to emergencies. It ensures personnel are familiar with and able to utilize the most up to date and proven techniques in the field. Training specific to required Emergency Medical Technician (EMT) and/or Paramedic re- certification is also incorporated. The Office of Emergency Services (OES) was reorganized as a result of a study and recommendations made to City Council in April 2011. OES is included as a separate chapter in this report. 40 Ch a p t e r 3 Fi r e D e p a r t m e n t $0 $50 $100 $150 $200 $250 $300 Mountain View Berkeley Santa Clara PALO ALTO San Mateo Redwood City Milpitas Sunnyvale Fremont San Jose Comparison of net Fire and EMS Expenditures Per Capita in FY 20111,2,3 127.5 128.1 127.7 126.5 125.1 127.3 100 105 110 115 120 125 130 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Total # of Full Time Equivalents (FTEs) Source: California State Controller’s Office, United States Census Bureau Source: City of Palo Alto financial data Footnotes 1 Expenditures may not reconcile to total spending due to differences in the way the information was compiled. Cities may categorize their expenditures in different ways. 2 Palo Alto population includes the expanded service area (Palo Alto and Stanford), however, it does not account for the daytime population increase of about 70 percent in the area. 3 The Controller’s Cities Annual Report does not state net EMS revenues or expenditures for Mountain View, Santa Clara, or Sunnyvale. San Jose EMS costs do not include contract expenditures. Department Wide YOUR MONEY AT WORK Expenditures by Category 86.3% 10.2% 1.3% 1.2% 0.6% 0.4% 0.002% Salaries & Benefits (86.3%) Allocated Charges (10.2%) Supplies & Materials (1.3%) Contract Services (1.2%) Facilities & Equipment (0.6%) General Expense (0.4%) Rents & Leases (0.002%) Source: City of Palo Alto financial data Did You Know? The Fire Department is responsible for emergency response, regional assistance response, code enforcement, fire prevention, and public safety education. In FY 2012, the City classified OES under the Fire Department for budgeting. $287 FY 07 $316 FY 08 $303 FY 09 $365 FY 11 Source: City of Palo Alto financial data $371 FY 12 FY 10 $355 Fire Department Per Capita Spending2 41 The Palo Alto Fire Department reports it had 29 fire response vehicles in 2012, including 11 first line pieces of equipment. First line equipment includes: •Six 2009 Pierce Arrow XT fire engines (shown on the right), one for each fire station across the City and Stanford. •A ladder truck for large fires and technical rescues, which is housed at Fire Station 6. •A rescue truck for response to vehicle accidents, hazardous materials incidents, and technical rescues assigned to Station 2. •Two ambulances housed at Stations 1 and 2. Ch a p t e r 3 Fi r e D e p a r t m e n t DEPARTMENT GOALS Arrive at the scene of emergencies safely and in a timely manner within the department’s targeted response times. Ensure reasonable life safety conditions through inspection programs. Develop, maintain, and sustain a citywide, comprehensive, all hazard, risk-based emergency management program that engages the whole community. Enhance training and maintain all certifications required by governing agencies. Internalize commitment to excellence in public service by continuously evaluating the assistance provided, identifying areas needing improvement and implementing mitigation methods. Prevent fires and the damaging impact of fires and emergencies through planning, coordination, and education of adults and children. 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Fire Hazardous Condition Service Calls False Alarms Other Medical/Rescue Source: Palo Alto Fire Department Department Wide In FY 2012, the Fire Department handled 7,796 calls for service, averaging 21 calls per day. Total calls for service increased 8% from FY 2007. Calls for Service 42 Ch a p t e r 3 Citizen Survey: Service Ratings (Percent Rating “Good” or “Excellent”) Source: Cities, California Department of Finance, U.S. Census Bureau Footnotes 1 For Palo Alto, population includes residents in the Fire Department’s expanded service area (Palo Alto and Stanford). 2 For Palo Alto, calculation is based on six fire stations, and does not include Station 7 (formerly dedicated to the Stanford Linear Accelerator Center complex and closed as of May, 2012) and Station 8 (Foothills Park, open seasonally). Department Wide Citizen Survey: Fire Services (Percent Rating “Good” or “Excellent”) Source: National Citizen SurveyTM 0% 20% 40% 60% 80% 100% 120% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Fire prevention and education Ambulance/emergency medical services Emergency preparedness Da t a n o t a v a i l a b l e Fi r e D e p a r t m e n t 80% 85% 90% 95% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Resident Population Served Per Fire Station in FY 20121,2 Source: National Citizen SurveyTM 0 5,000 10,000 15,000 20,000 25,000 30,000 Santa Clara PALO ALTO Mountain View Redwood City San Mateo Berkeley Milpitas Fremont Sunnyvale San Jose Target (FY 12): 90% The Department has a total of six full-time fire stations. To provide coverage in the sparsely developed hillside areas, an additional fire station in the foothills is operated during summer months when fire danger is high. The chart on the right shows the number of residents served per fire station is lower than many other local jurisdictions. However, the total daytime population of Palo Alto and Stanford increases to over 130,000, which results in a daytime population served per fire station of over 22,000. 43 Percent of Responses to Emergencies Within 8 or 12 Minutes1,2 Emergency Response Average Response Times: Fire and Medical/Rescue Calls1 Footnotes 1 Response time is from receipt of 911-call to arrival on scene; does not include cancelled in route, not completed incidents, or mutual aid calls. 2 Ambulance response to paramedic calls includes non-City ambulance responses. Source: Fire Department Source: Fire Department Ch a p t e r 3 KEY OBJECTIVES Fire response time will be within 8 minutes 90% of the time Basic Life Support (BLS) medical response times will be within 8 minutes 90% of the time. Advanced Life Support (ALS) response times will be within 12 minutes 90% of the time. Fi r e D e p a r t m e n t 0 1 2 3 4 5 6 7 8 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Average response time for fire calls Average response time for medical/rescue calls FY 12 Target: 6 minutes Mi n u t e s 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Percent responses to fire emergencies within 8 minutes First response to emergency medical requests for service within 8 minutes Ambulance response to paramedic calls for service within 12 minutes FY 12 Target: 90% Source: Fire Department 0 1,000 2,000 3,000 4,000 5,000 6,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Medical/Rescue incidents Fire Incidents Number of Fire and Medical/Rescue Incidents The Fire Department had an average on duty staffing of 31 during the day and 29 at night. In FY 2012, the Department had 70 line personnel certified as emergency medical technicians (EMTs) and 49 certified paramedics. In addition, three FTE from the Department’s Basic Life Support (BLS) transport program provided inter-facility transports and offered a downgrade option to the 911 system. In FY 2012, the Fire Department met its average response time target for medical/rescue calls but not fire calls. 44 Environmental Safety Management Footnotes 1 Hazardous materials incidents involve flammable gas or liquid, chemical release or spill, or chemical release reaction or toxic condition. 2 In FY 2010, the method for calculating the number of inspections was changed to avoid over counting. Prior year numbers are higher than would be indicated using the revised method. 3 Number of plan reviews does not include over-the-counter building permit reviews. Source: Fire Department Ch a p t e r 3 KEY OBJECTIVES Perform periodic inspections of all facilities within department’s designated target cycle time. Identify and direct abatement of conditions or operating procedures which could cause an increase in probability or severity of a fire or hazardous materials release. Fi r e D e p a r t m e n t Source: Fire Department 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Fire incidents Number of fire inspections Number of plan reviews Fire Incidents, Fire Inspections, and Plan Reviews3: 78% 79% 80% 81% 82% 83% 84% 85% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Source: National Citizen SurveyTM 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0 10 20 30 40 50 60 70 80 90 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Hazardous materials incidents Percent of permitted hazardous materials facilities inspected Ha z a r d o u s m a t e r i a l s i n c i d e n t s Pe r c e n t o f p e r m i t t e d h a z a r d o u s ma t e r i a l s f a c i l i t i e s i n s p e c t e d Hazardous Materials Incidents1 and Percent of Permitted Hazardous Material Facilities Inspected2 Source: Fire Department The Fire Department reports there were 485 facilities permitted for hazardous materials in FY 2012. The number of hazardous materials incidents rose 24 percent from last year and 110 percent compared to FY 2007. The number of fire incidents increased 13 percent from last year but decreased 16 percent compared to FY 2007. In FY 2012, Palo Alto ranked in the 60th percentile compared to other surveyed jurisdictions for citizen perception of safety from environmental hazards, including toxic waste. Da t a n o t a v a i l a b l e Citizen Survey: Percent of Residents Feeling “Very” or “Somewhat” Safe From Environmental Hazards 45 Training and Personnel Footnote 1 Prior to FY 2012, the Fire Department included disaster preparedness trainings and events in this figure. Source: Fire Department Ch a p t e r 3 KEY OBJECTIVES Maintain the required minimum of 20 hours/month per employee of fire related training. Maintain, as mandated, records of training related to EMS and EMT/Paramedic certification. Fi r e D e p a r t m e n t Source: Fire Department 0 50 100 150 200 250 300 350 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Total Number of Fire Safety and Bike Safety Presentations, Including Demonstrations and Fire Station Tours:1 0 20 40 60 80 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 70% 75% 80% 85% 90% Number of residential structure fires Percent rating fire prevention and education "good" or "excellent" Nu m b e r o f r e s i d e n t i a l s t r u c t u r e f i r e s Pe r c e n t r a t i n g f i r e p r e v e n t i o n a n d ed u c a t i o n “ g o o d ” o r “ e x c e l l e n t ” In FY 12 Palo Alto ranked in the 68th percentile for fire prevention and education. Source: Fire Department, National Citizen SurveyTM 0 5 10 15 20 25 30 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Average Training Hours Per Firefighter Per Month Source: Fire Department Comparison of Citizen Ratings for Fire Prevention and Education and the Number of Residential Fires FY 12 Target: 20 hrs. per employee Did You Know? The Fire Department provides training for City employees and the community. In FY 2012, the Fire Department reports it provided: •An average of 313 training hours per firefighter. •120 hours of training to other City departments (compared to 208 hours in FY 2011). •162 fire safety and bike safety presentations, including demonstrations and fire station tours to 13,724 participants. 46 Operating Expenditures (millions) Citizen Survey Administration Emergency response Environmental and fire safety Training and personnel management Records and information TOTAL Resident population of area served1 Expenditures per resident served1 Revenue (in millions) Percent rating fire services “good” or “excellent” (Target: 90%) Percent rating fire prevention and education “good” or “excellent” (Target: 85%) FY 07 $1.6 $15.0 $2.0 $2.0 $0.9 $21.6 75,194 $287 $ 9.9 98% 86% FY 08 $1.6 $16.7 $2.4 $2.3 $1.0 $24.0 75,982 $316 $ 9.7 96% 87% FY 09 $0.4 $17.4 $2.3 $2.3 $1.0 $23.4 77,305 $303 $11.0 95% 80% FY 10 $2.3 $19.3 $2.5 $2.6 $1.0 $27.7 78,161 $355 $10.6 93% 79% FY 11 $1.6 $20.8 $2.6 $2.7 $1.0 $28.7 78,662 $365 $12.0 92% 76% FY 12 $1.7 $20.9 $3.0 $2.8 $1.0 $29.4 79,353 $371 $13.9 96% 80% Change from: Last year +8% 0% +13% +6% +1% +2% +1% +2% +16% +4% +4% FY 07 +5% +40% +45% +38% +14% +36% +6% +29% +40% -2% -6% Ch a p t e r 3 Fi r e D e p a r t m e n t Footnotes 1 Based on number of residents in the Fire Department’s expanded service area (Palo Alto and Stanford). Prior year population revised per California Department of Finance estimates and updated information from the United States Census Bureau. 2 “Other” calls include alarm testing, station tours, good intent calls, training incidents, and cancelled calls. Good intent calls are those where a person genuinely believes there is an actual emergency, however, an emergency does not exist. 3 For Palo Alto, calculation is based on six fire stations, and does not include Station 7 (formerly dedicated to the Stanford Linear Accelerator Center complex and closed as of May, 2012) and Station 8 (Foothills Park, open seasonally). Calls for service Staffing Fire (Target: 240) Medical/ rescue (Target: 4,500) False alarms Service calls Hazardous condition (Target: 75) Other2 TOTAL (Target: 7,500) Average number of calls per day Total authorized staffing (FTE) Staffing per 1,000 residents served1 Average training hours per firefighter Overtime as a percent of regular salaries Resident population served per fire station1,3 FY 07 221 3,951 1,276 362 199 1,227 7,236 20 127.5 1.70 235 21% 12,532 FY 08 192 4,552 1,119 401 169 1,290 7,723 21 128.1 1.69 246 18% 12,664 FY 09 239 4,509 1,065 328 165 1,243 7,549 21 127.7 1.65 223 16% 12,884 FY 10 182 4,432 1,013 444 151 1,246 7,468 20 126.5 1.62 213 26% 13,027 FY 11 165 4,521 1,005 406 182 1,276 7,555 21 125.1 1.60 287 21% 13,035 FY 12 186 4,584 1,095 466 216 1,249 7,796 21 127.3 1.60 313 36% 13,226 Change from: Last year +13% +1% +9% +15% +19% -2% +3% +3% +2% +1% +9% +15% +1% FY 07 -16% +16% -14% +29% +9% +2% +8% +8% 0% -5% +33% +15% +6% STAFFING AND CALLS FOR SERVICE DEPARTMENT WIDE SPENDING 47 Citizen Survey Number of fire incidents (Target: 240) Average response time for fire calls1 (Target: 6:00 minutes) Percent responses to fire emergencies within 8 minutes1 (Target: 90%) Percent of fires confined to the room or area of origin2 (Target: 90%) Number of residential structure fires Number of fire deaths Fire response vehicles3 Fire safety and bike safety presentations, including demonstrations and fire station tours Percent rating emergency preparedness “good” or “excellent” FY 07 221 5:48 minutes 87% 70% 68 2 25 240 - FY 08 192 6:48 minutes 79% 79% 43 0 25 242 71% FY 09 239 6:39 minutes 78% 63% 20 0 25 329 62% FY 10 182 7:05 minutes 90% 56% 11 0 29 219 59% FY 11 165 6:23 minutes 83% 38% 14 0 30 173 64% FY 12 186 7:00 minutes 81% 50% 16 0 29 162 73% Change from: Last year +13% +10% -2% +12% +14% 0% -3% -6% +9% FY 07 -16% +21% -6% -20% -76% -100% +16% -33% - Ch a p t e r 3 Fi r e D e p a r t m e n t Footnotes 1 Response time is from receipt of 911-call to arrival on scene; does not include cancelled in route, not completed incidents, or mutual aid calls. 2 The Fire Department defines containment of structure fires as those incidents in which fire is suppressed and does not spread beyond the involved area upon firefighter arrival. 3 This includes ambulances, fire apparatus, hazardous materials, and mutual aid vehicles. 4 Includes non-City ambulance responses. 5 The Department reported the number of ambulance transports from its ADPI Billing System. In prior years, the information provided was from the Department’s Computer Aided Dispatch system. EMERGENCY MEDICAL SERVICES SUPPRESSION AND FIRE SAFETY Citizen Survey Medical/rescue incidents (Target: 4,500) Average response time for medical/rescue Calls1 (Target: 6:00) First response to emergency medical requests for service within 8 minutes1 (Target: 90%) Ambulance response to paramedic calls for service within 12 minutes1,4 (Target: 90%) Number of Ambulance transports Ambulance Revenue (in millions) Percent rating ambulance/emergency medical services “good” or “excellent” FY 07 3,951 5:17 minutes 92% 97% 2,527 $1.9 94% FY 08 4,552 5:24 minutes 93% 99% 3,236 $2.0 95% FY 09 4,509 5:37 minutes 91% 99% 3,331 $2.1 91% FY 10 4,432 5:29 minutes 93% 99% 2,9915 $2.2 94% FY 11 4,521 5:35 minutes 91% 99% 3,0055 $2.3 93% FY 12 4,584 5:36 minutes 91% 99% 3,2205 $2.8 96% Change from: Last year +1% 0% 0% 0% +7% +20% +3% FY 07 +16% +6% -1% +2% +27% +46% +2% 48 Ch a p t e r 3 Fi r e D e p a r t m e n t HAZARDOUS MATERIALS AND INSPECTIONS Footnotes 1 Hazardous materials incidents involve flammable gas or liquid, chemical release or spill, or chemical release reaction or toxic condition. 2 In FY 2010, the method for calculating the number of inspections was changed to avoid over counting. Prior year numbers were not calculated in this manner, so the reported numbers for those years are higher than would be indicated using the revised method. 3 Does not include over-the-counter building permit reviews. 4 The Department attributes this change to its reconciliation of data to provide more accurate records for the several consultant studies conducted in FY 2011. Hazardous Materials Citizen Survey Number of hazardous materials incidents1 Number of facilities permitted for hazardous materials Number of permitted hazardous materials facilities inspected (Target: 150) Percent of permitted hazardous materials facilities inspected (Target: 60%) Number of fire inspections Number of plan reviews3 (Target: 850) Percent of residents feeling “very” or “somewhat” safe from environmental hazards FY 07 39 501 268 53% 1,021 928 - FY 08 45 503 406 81% 1,277 906 80% FY 09 40 509 286 56% 1,028 841 81% FY 10 26 510 1262 25%2 1,526 851 83% FY 11 66 484 2372 49%2 1,807 1,169 84% FY 12 82 485 402 8%2 1,654 1,336 81% Change from: Last year +24% 0% -83% -41% -8% +14% -3% FY 07 +110%4 -3% -85% -45% +62% +44% - 49 52% 17% 5% 26% What are the sources of IT funding? (Total = $13.6 million) IT Support Charges (52%) Application Maintenance Charges (17%) Desktop Replacement Charges (5%) Other Revenues (26%) 35% 27% 13% 11% 7% 7% How are IT dollars used? (Total = $13.6 million) IT Project Services (35%) IT Operations (27%) Enterprise Systems (13%) Office of the CIO (11%) Technology Capital Improvement Program (7%) Technology Fund Reserve (7%) Chapter 4: Information Technology The Office of the Chief Information Officer (CIO) provides strategic leadership and advisory services to the IT department and the City. The IT Governance and Planning division's primary focus is to manage requests for new technology projects and services. The IT Project Services division coordinates all approved IT projects and provides project management services. The Information Technology (IT) Operations division maintains and supports all deployed back office, front office and citizen facing technologies including the process of retiring products and services. The team also ratifies standards working alongside other IT department divisions and city departments. The Enterprise Systems division is responsible for maintaining a core set of large, shared enterprise-wide systems. The Information Security Services division is responsible for developing and implementing a citywide information security program that includes the preservation of the availability, integrity, and confidentiality of city information resources. Mission: To provide innovative technology solutions that support City departments in delivering quality services to the community. The IT Department was established in 2012, headed by a Chief Information Officer. 50 Ch a p t e r 4 In f o r m a t i o n T e c h n o l o g y 33% 59% 64% 87% 0%20%40%60%80%100% Resolved At time of call Resolved Within 4 hours Resolved Within 8 hours Resolved Within 5 days Requests For Help Desk Services in FY 2012 Citizen Survey: Service Ratings IT Expenditures and City Staff Ratings The IT Department had 34 Authorized Full Time Equivalents in FY 12. Source: Information Technology Department Source: Information Technology Department Department Wide YOUR MONEY AT WORK 39.1% 26.9% 20.9% 6.9% 5.0% 0.5% 0.5% 0.2% Salaries & Benefits (39.1%) General Expense (26.9%) Contract Services (20.9%) Allocated Charges (6.9%) Facilities & Equipment Purchases (5.0%) Rents & Leases (0.5%) Supplies & Materials (0.5%) Operating Transfers Out (0.2%)Source: City of Palo Alto financial data Source: National Citizen SurveyTM 50% 60% 70% 80% 90% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Percent visiting the City's website Percent rating public information services "good" or "excellent" Percentile rank compared to other jurisdictions (Visiting the City's website) Percentile rank compared to other jurisdictions (Public information services) $6,938 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 95% 0% 20% 40% 60% 80% 100% Expenditures by Category Percent of surveyed City staff rating IT services as “excellent” in FY 2012 IT expenditures per workstation in FY 2012 IT reports 9,460 Help Desk requests were received in FY 12 FY 07 Percentile Rank Not Available 51 Ch a p t e r 4 In f o r m a t i o n T e c h n o l o g y Operating expenditures (in millions)1 IT Project Services IT Operations Enterprise Systems Office of the CIO Technology Capital Improvement Program1 TOTAL1 Revenue (in millions) Total authorized FTE Number of Workstations IT Expenditures Per Workstation2,3 FY 07 - - - - - - - - 1,000 - FY 08 - - - - - - - - 1,000 - FY 09 - - - - - - - - 1,005 - FY 10 - - - - - - - - 1,005 - FY 11 - - - - - - - - 1,020 - FY 12 $4.7 $3.7 $1.8 $1.5 $0.9 $12.7 $13.6 34.2 1,100 $6,938 Change from: Last year - - - - - - - - +8% - FY 07 - - - - - - - - +10% - Percent of requests for help desk services resolved: City Staff Survey Citizen Survey Number of requests for help desk services At time of call Within 4 hours Within 8 hours Within 5 days Percent rating IT services as “excellent” Percent visiting the City’s website Percent rating public information services "good" or "excellent" FY 07 - - - - 87% - 62% 73% FY 08 - - - - 88% - 78% 76% FY 09 - - - - 87% - 75% 68% FY 10 - - - - 89% - 79% 67% FY 11 - - - - 90% - 76% 67% FY 12 9,460 33% 59% 64% 87% 95% 79% 74% Change from: Last year - - - - -3% - +3% +7% FY 07 - - - - 0% - +17% +1% Footnotes: 1 Consistent with the City’s operating budget documents, capital improvement program (CIP) expenditures are included as “operating expenditures” for this department. 2 Includes all technology expenditures except Capital Improvement Program and Project Services. 3 The IT Department used FY 2011 expenditures and the FY 2012 count of workstations in calculating this number. DEPARTMENT WIDE This Page Intentionally Left Blank 52 53 7% 3% 1% 89% Donations/Contributions (7%) Fines, Forfeitures, & Penalities (3%) Other External Revenues (1%) Other General Fund Revenues (89%) 17% 59% 24% Administration (17%) Public Services (59%) Collections and Technical Services (24%) Chapter 5: Library Department Mission: To enable people to explore library resources to enrich their lives with knowledge, information, and enjoyment How are Library dollars used? (Total = $7.1 million) What are the sources of Library funding? (Total = $7.1 million) Collections: Provides a diverse selection of print and non-print materials, as well as digital resources to meet the educational, informational, and recreational needs of its clientele, reflecting the variety of languages, cultures, and interests of our community, inspiring innovation, creativity, and community engagement. Buildings: By funding major facility improvements to three libraries through a dedicated library bond, as well as two additional renovation projects already completed, by 2014 -- when all libraries will be opened, Palo Alto will have modern libraries offering comfortable, inviting, and flexible spaces for everyone in our community to gather and learn. Support and Administration: Provides information, training, and support for City employees, as well as the public, and ensures that all aspects of library services and policies are delivered with the highest degree of public stewardship in mind. Technology: Provides opportunities for the public to access a variety of technologies, both inside and outside the library facilities, including hardware devices, online databases and electronic books, free WiFi, mobile applications, and experimental partnerships. Programs: Offers a variety of programs free of charge to library users of all ages, interests, and abilities, to provide educational, self-help, recreational, technological, and multi-lingual outreach. When appropriate, partners with other civic, non-profit, business, and educational organizations to present these programs. 54 Footnote 1 Each jurisdiction offers different levels of service and may account for those services differently. 48.0 50.0 52.0 54.0 56.0 58.0 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Ch a p t e r 5 Li b r a r y D e p a r t m e n t $122 $104 $95 $87 $67 $61 $57 $51 $0 $20 $40 $60 $80 $100 $120 $140 Berkeley Palo Alto Burlingame Redwood City Menlo Park Mountain View Santa Clara Sunnyvale Comparison of Library Expenditures Per Capita in FY 20111 6% decrease Total # of Full Time Equivalents (FTEs) Library Per Capita Spending Source: California Library Statistics 2012 (reporting FY 2011) Department Wide YOUR MONEY AT WORK Expenditures by Category 73.1% 14.3% 9.3% 2.8% 0.4% 0.1% 0.0% Salaries & Benefits (73.1%) Allocated Charges (14.3%) Supplies & Materials (9.3%) Contract Services (2.8%) General Expense (0.4%) Facilities & Equipment (0.1%) Rents & Leases (0.0%) Source: City of Palo Alto financial data Volunteers contributed 6,552 hours to the libraries in FY 2012. This was a 26% increase from 5,209 hours in FY 2011, and a 12% increase from 5,865 hours in FY 2007. $95 $110 $98 $99 $101 FY 07 FY 08 FY 09 FY 10 FY 11 $108 FY 12 Source: City of Palo Alto financial data Source: City of Palo Alto financial data 55 Source: Library Department Department Wide Ch a p t e r 5 Li b r a r y D e p a r t m e n t DEPARTMENT GOALS Maintain a high rate of return on the City's investment in library materials and services Develop and provide library services and programs supporting the 41 Developmental Assets for Adolescents model Position the library as a community destination for informational and recreational needs 56 56 46 38 32 0 20 40 60 Main Mitchell Park Children's Downtown College Terrace Branch Hours Open per Week 1,415 1,542 1,634 1,625 1,477 1,560 53 54 55 52 53 60 50 60 70 80 90 100 1,300 1,400 1,500 1,600 1,700 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Ca r d h o l d e r s (i n t h o u s a n d s ) Ch e c k o u t s (i n t h o u s a n d s ) Number of Checkouts and Cardholders Checkouts Cardholders 3,155 3,275 3,875 4,507 4,784 8,855 9,256 13,623 0 5,000 10,000 15,000 Mountain View (1) Sunnyvale (1) Santa Clara (2) Menlo Park (2) Burlingame (2) Palo Alto (5) Redwood City (4) Berkeley (5) Comparison of Total Hours Open Annually in FY 2011 (Number of libraries) Source: California Library Statistics 2012 (reporting FY 2011) •Re-opened the Downtown branch following a 14-month renovation which provided infrastructure upgrades as well as introduced public meeting rooms and group study rooms as a library resource. Also added another open day of service. •The Mitchell Park branch has been relocated to a temporary facility while a new joint facility, to include the library and a community center, is under construction. The new library, originally scheduled to open in July 2012, is anticipated to open in Spring of 2013. •The Main Library branch is scheduled to close for renovation in Spring of 2013. During FY 2011, the Downtown branch was closed all year and the College Terrace was closed until November 2010 for renovation. Total open hours increased to 11,142 in FY 2012. Source: Library Department 56 Ch a p t e r 5 Department Wide 0% 20% 40% 60% 80% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Citizen Survey: Service Ratings (Percent Rating “Good” or “Excellent”) Public library services Neighborhood branch libraries Citizen Survey: Variety of Library Materials 29% 22% 26% 28% 31% 36% 46% 44% 47% 47% 41% 52% 19% 28% 23% 19% 19% 10% 6% 6% 4% 6% 8% 2% FY 07 FY 08 FY 09 FY 10 FY 11* FY 12 Excellent Good Fair Poor Li b r a r y D e p a r t m e n t Source: National Citizen Survey™ Source: National Citizen Survey™ Palo Alto was named a 4-star library in Library Journal’s Index of Public Library Service 2012. The Star designation is based on per capita: • Circulation; • Visits; • Program attendance; and • Public Internet terminal use. 1,050 1,155 1,272 1,606 1,708 1,728 2,049 2,774 0 1,000 2,000 3,000 Berkeley Burlingame Palo Alto Menlo Park Redwood City Mountain View Santa Clara Sunnyvale Comparison of Population Served Per FTE in FY 2011 Source: California Library Statistics 2012 (reporting FY 2011) 23.0 22.9 22.7 22.5 20.9 19.2 17.9 17.2 0 5 10 15 20 25 Mountain View Redwood City Palo Alto Menlo Park Santa Clara Burlingame Sunnyvale Berkeley Comparison of Checkouts Per Capita in FY 2011 Source: California Library Statistics 2012 (reporting FY 2011) Footnote * The FY 2011 numbers do not add up to 100% due to rounding. 57 Footnote * Estimate. According to the Department, this metric was not consistently monitored in FY 2012 due to staff transitions, including a new division head. Total Number of Items in Collection and Average Number of Checkouts per Item Collection and Technical Services 0 5 10 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12* Number of business days for new materials to be available for customer use This is a Department initiative incorporating new methods of tracking how quickly the staff can acquire, prepare, and make new materials available for customers. According to the Department, the increase in FY 2012 is due to more international language materials ordered, which take longer to catalog and prepare for use. Collection and Technical Services Spending $29 $27 $25 $25 FY 09 FY 10 FY 11 FY 12 $1,834 $1,762 $1,622 $1,677 11.1 11.2 10.7 10.7 Expenditures (in thousands) Authorized FTEs Source: Library Department Source: City of Palo Alto financial data Source: Library Department Ch a p t e r 5 KEY DIVISION OBJECTIVES Apply technology and lean business efficiency principles to increase work quality and improve service delivery to customers High use of collections and facilities Li b r a r y D e p a r t m e n t 4.2 4.4 4.6 4.8 5.0 5.2 5.4 5.6 5.8 240 250 260 270 280 290 300 310 320 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 To t a l # o f i t e m s ( i n t h o u s a n d s ) Total # of items Average # of checkouts per item The Department attributes the fluctuation to facility closure for renovation and re-opening, which is expected to be completed in 2014. Expenditures per capita Did You Know? Chromebooks, a simplified laptop computer based on Google's Chrome browser & operating system, are available for in-library use and 7-day checkout at all branches. Data not available 58 Footnote 1 According to the Department, the number includes 1.0 FTE that was frozen during FY 2012. Public Services According to the Department, adolescents who enjoy reading are more likely to grow up into healthy, caring, and responsible adults. This measure tracks the level of interest and participation in the Library’s recreational reading programs. Public Services Spending $63 $62 $60 $64 FY 09 FY 10 FY 11 FY 12 $4,009 $3,992 $3,886 $4,189 45.7 42.3 40.5 42.61 Expenditures (in thousands) Authorized FTEs Source: Library Department Ch a p t e r 5 KEY DIVISION OBJECTIVES Encourage adolescents between the ages of 12 and 18 to read for pleasure three or more hours a week (Developmental Asset #25) High use of collections and facilities Increase annual participation in library programs and services, both in-library and virtual Li b r a r y D e p a r t m e n t The City of Palo Alto adopted the 41 Developmental Assets initiative to support the health, resiliency, and overall well-being of youth within the community. Assets are the positive values, relationships and experiences that help youth and teens succeed and thrive. Research shows a significant correlation between higher number of assets and positive indicators, such as school performance and resiliency. The 41 Developmental Assets framework has been adopted by the City of Palo Alto, the Palo Alto Unified School District, YMCA, Youth Community Services and many other youth-serving agencies. 1,900 1,573 1,588 1,906 1,795 2,211 0 500 1,000 1,500 2,000 2,500 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Number of Teens Participating in Teen Programs The number of programs offered was increased in response to Council’s FY 2012 Top 5 priority of community collaboration for youth health and well‐being Did You Know? Three meeting rooms are available for public use at the newly renovated Downtown Library. According to the Department, 846 meeting reservations were made in FY 2012. Additional meeting rooms will be made available in the future at the Mitchell Park Library and Main Library. Source: City of Palo Alto financial data Expenditures per capita 16% increase 59 Footnotes 1 The Department attributes the increase to a change in methodology for allocating Information Technology charges in FY 2011. Allocated charges for the entire department are reflected in the Administration division. Maintenance and replacement schedules were also updated. 2 According to the Department, the number includes 1.0 FTE that was frozen during FY 2012. 3 The Department attributes the fluctuation to facility closure for renovation and re-opening, which is expected to be completed in 2014. Operating Expenditures (in millions) Citizen Survey Administration Collections and Technical Services Public Services TOTAL Library expenditures per capita Percent rating quality of library services “good” or “excellent” (Target: 85%) Percent rating quality of neighborhood branch libraries “good” or “excellent” FY 07 $0.5 $1.5 $3.9 $5.9 $95 81% 75% FY 08 $0.5 $1.8 $4.5 $6.8 $110 75% 71% FY 09 $0.4 $1.8 $4.0 $6.2 $98 78% 75% FY 10 $0.6 $1.8 $4.0 $6.4 $99 82% 75% FY 11 $1.0 $1.6 $3.9 $6.5 $100 83% 81% FY 12 $1.2 $1.7 $4.2 $7.1 $108 88% 85% Change from: Last year +22% +3% +8% +10% +8% +5% +4% FY 07 +132%1 +14% +9% +45%1 +35%1 +7% +10% Ch a p t e r 5 Li b r a r y D e p a r t m e n t STAFFING DEPARTMENT WIDE SPENDING Authorized Staffing (FTE) Citizen Survey Regular Temporary/hourly TOTAL Number of residents per library staff FTE Volunteer hours Total hours open annually3 (Target: 10,878) FTE per 1,000 hours open FY 07 44.3 12.6 56.9 1,079 5,865 9,386 6.1 FY 08 43.8 12.7 56.5 1,101 5,988 11,281 5.0 FY 09 43.8 13.5 57.2 1,110 5,953 11,822 4.8 FY 10 42.3 12.8 55.0 1,169 5,564 9,904 5.6 FY 11 41.3 10.4 51.7 1,255 5,209 8,855 5.8 FY 12 41.32 12.5 53.72 1,220 6,552 11,142 4.8 Change from: Last year 0% +20% +4% -3% +26% +26% -17% FY 07 -7% -1% -6% +13% +12% +19% -20% Number of items in collection Citizen Survey Book volumes Media items eBook & eMusic items TOTAL Number of Items in collection per capita Total number of titles in collection Total checkouts (Target: 1,589,900) Checkouts per capita (Target: 23.8) Number of items on hold Average number of checkouts per item Number of business days for new materials to be available for customer use <NEW> Percent of first time checkouts completed on self - check machines (Target: 91%) Percent rating variety of library materials “good” or “excellent” (Target: 80%) FY 07 240,098 30,657 - 270,755 4.41 167,008 1,414,509 23.0 208,719 5.22 - 88% 75% FY 08 241,323 33,087 4,993 279,403 4.49 174,683 1,542,116 24.8 200,470 5.52 - 89% 66% FY 09 246,554 35,506 11,675 293,735 4.63 185,718 1,633,955 25.7 218,073 5.56 - 90% 73% FY 10 247,273 37,567 13,827 298,667 4.64 189,828 1,624,785 25.3 216,719 5.44 9.0 90% 75% FY 11 254,392 40,461 19,248 314,101 4.84 193,070 1,476,648 22.8 198,574 4.70 8.0 91% 72% FY 12 251,476 41,017 13,667 306,361 4.67 187,359 1,559,932 23.8 211,270 5.09 9.52 88% 88% Change from: Last year -1% +1% -29%1 -2% -4% -3% +6% +4% +6% +8% +19% -3% +16% FY 07 +5% +34% - +13% +6% +12% +10% +3% +1% -3% - 0% +13% 60 Footnotes 1 The Department attributes the decrease to the discontinuation of purchasing ebooks from two vendors (NetLibrary and Ingram MyiLibrary) to maintain only one ebook platform (OverDrive) until additional staff resources are made available to facilitate the maintenance of multiple ebook platforms. 2 Estimate. According to the Department, this metric was not consistently monitored in FY 2012 due to staff transitions, including a new division head. 3 Programs include planned events for the public that promote reading, support school readiness and education, and encourage lifelong learning. Many programs are sponsored by the Friends of the Palo Alto Library. 4 The Department attributes this decline to change of the primary database provider and subsequent change of how the primary vendor defines session. 5 According to the Department, the number of programs offered was increased in response to Council’s FY 2012 Top 5 priority of community collaboration for youth health and well‐being. 6 The Department attributes the decrease to improvements in technology and greater access to the Internet with free WiFi, which is available at all the branches. More library customers are using their own laptop, tablet, and/or smartphone devices instead of library computers. Ch a p t e r 5 Li b r a r y D e p a r t m e n t PUBLIC SERVICES COLLECTION AND TECHNICAL SERVICES Citizen Survey Total number of cardholders Percent of Palo Alto residents who are cardholders Library visits Meeting room reservations <NEW> Total number of reference questions Total number of online database sessions Number of internet sessions Number of laptop checkouts Number of programs3 (Target: 468) Number of teens participating in teen programs <NEW> Total program attendance (Target: 31,600) Percent who used libraries or their services more than 12 times during the year (Target: 32%) FY 07 53,099 57% 862,081 - 57,255 52,020 149,280 11,725 580 1,900 30,221 33% FY 08 53,740 62% 881,520 - 48,339 49,148 137,261 12,017 669 1,573 37,955 31% FY 09 54,878 62% 875,847 - 46,419 111,228 145,143 12,290 558 1,588 36,582 34% FY 10 51,969 60% 851,037 - 55,322 150,895 134,053 9,720 485 1,906 35,455 31% FY 11 53,246 64% 776,994 - 53,538 51,1114 111,076 5,279 425 1,795 24,092 30% FY 12 60,283 69% 843,981 846 43,269 42,179 112,910 4,829 598 2,211 30,916 28% Change from: Last year +13% +5% +9% - -19% -17% +2% -9% +41%5 +23%5 +28%5 -2% FY 07 +14% +12% -2% - -24%6 -19% -24%6 -59%6 +3% +16% +2% -5% 61 16% 5% 4% 2% 73% What are the sources of Office of Emergency Services (OES) funding? ($0.6 million) General Fund Services Provided to Enterprise Funds (16%) Donations/Contributions (5%) Other Revenues from Other Agencies (4%) Other External Revenues (2%) Other General Fund (73%) Chapter 6: Public Safety – Office of Emergency Services OES operates the City’s Mobile Emergency Operations Center (MEOC), which has greatly improved the City’s emergency response capabilities. Goal: To develop, maintain, and sustain a citywide, comprehensive, all hazard, risk-based emergency management program that engages the whole community. Mission: To prevent, prepare for and mitigate, respond to, and recover from all hazards. Promote operational readiness (i.e., the City’s ability to handle a major critical incident or disaster). Lead a process to identify threats and hazards and to assess risks the City faces. Lead or coordinate the development and maintenance of policies and plans related to disasters, critical incidents, and City safety. Maintain awareness of threats to our area by coordinating with law enforcement and other agencies. Engage the whole community by developing structures to link non-governmental organizations, residents, and businesses to the incident command system (i.e., the systems and processes developed to mitigate incidents). Develop training and exercises. Seek funding and manage awarded grants pertaining to emergency management and homeland security. Coordinate development of new technologies for emergency management. Participate in regional planning efforts. Coordinate the development of emergency public information protocols. 62 Ch a p t e r 6 Em e r g e n c y S e r v i c e s Did You Know? In 2008, the United States Geological Survey (USGS) reported a 63% probability for one or more magnitude 6.7 or greater earthquakes from 2007 to 2036 in the San Francisco Bay region. The USGS offers a handbook (Putting Down Roots in Earthquake Country), in addition to links to other informative earthquake preparedness resources on its webpage at: Citizen Survey: Emergency Preparedness (Percent Rating “Good" or “Excellent“) OES Per Capita Spending1,3 $7 FY 12 OES reported the following key facts and figures for FY 2012: 1.5 Full Time Equivalents (actual) 32 presentations/training sessions were provided to the public 6 presentations/training sessions were provided to City staff $139,300 in grant funding was awarded 27 deployments of the Mobile Emergency Operations Center (MEOC) – Deployments have addressed high-risk targets or incidents such as: Stanford Football Games The Lehigh Cupertino Quarry multiple homicide incident VIP & Presidential Visits Department Wide YOUR MONEY AT WORK1 Expenditures by Category 73.3% 8.4% 7.6% 4.7% 2.9% 2.8% 0.2% 0.1% Salaries & Benefits (73.3%) Supplies & Materials (8.4%) Facilities & Equipment (7.6%) Indirect Charges (4.7%) Contract Services (2.9%) Capitalized Equipment (2.8%) General Expense (0.2%) Rents & Leases (0.1%) 0% 10% 20% 30% 40% 50% 60% 70% 80% FY 08 FY 09 FY 10 FY 11 FY 12 Source: National Citizen SurveyTM Footnotes 1 The City classified OES financial data under the Fire Department for budgeting purposes. The underlying data is also incorporated in the financial information reported for the Fire Department. 2 Jurisdictions have different levels of service and categorize expenditures in different ways. For example, Palo Alto provides emergency services to Stanford in addition to its own residents. 3 OES Per Capita Spending is based on the City’s financial records and the total population of Palo Alto and Stanford. Source: City of Palo Alto financial data In the most recent Citizen Survey, Palo Alto ranked equal to or higher than 74% of surveyed jurisdictions for emergency preparedness services. Source: City of Palo Alto financial data The Office of Emergency Services (OES) was reorganized as a result of a study and recommendations made to City Council in April 2011. Although included here as a separate chapter, OES is part of the Fire Department budget. http://earthquake.usgs.gov/regional/nca/prepare/ 63 Ch a p t e r 6 Em e r g e n c y S e r v i c e s Citizen Survey Operating Expenditures1 (thousands) Revenues1 (thousands) Authorized staffing1 (FTE) Presentations, Training Sessions, and Exercises1 Emergency Operations Center Activations/ Deployments1 Grant funding awarded to OES1 Percent rating emergency preparedness (services that prepare the community for natural disasters or other emergency services) “good” or “excellent” FY 07 - - - - - - - FY 08 - - - - - - 71% FY 09 - - - - - - 62% FY 10 - - - - - - 59% FY 11 - - - - - - 64% FY 12 $5941,2 $1591,2 2.01,2 381,2 271,2 $139,3001,2 73% Change from: Last year - - - - - - +9% FY 07 - - - - - - - DEPARTMENT WIDE Footnotes 1 The Office of Emergency Services (OES) was reorganized as a result of a study and recommendations made to City Council in April 2011. Data prior to 2012 is generally not available or applicable. 2 In FY 2012, the City was in process of restructuring the OES budget and classified OES under the Fire Department for budgeting. The underlying data is also incorporated in the financial information reported for the Fire Department. This Page Intentionally Left Blank 64 65 Administration provides personnel, contract, budget, and project management support for the Department; liaisons with other departments, Boards, Commissions and the City Council. 45% 16% 10% 4% 13% 12% What are the sources of PCE funding? (Total = $10.3 million) New Construction Permits (45%) Plan Checking Fees (16%) Zoning Plan Check Fees (10%) Architectural Review Board Fees (4%) Other External Revenues (13%) Other General Fund (12%) 51% 41% 8% Planning and Transportation (51%) Building (41%) Administration (8%) Current Planning works collaboratively with customers/stakeholders involved in the City's planning entitlement processes; leads the City’s green building program, including diversion of construction and demolition debris. Chapter 7: Planning and Community Environment Department Mission: To provide the Council and community with creative guidance on, and effective implementation of, land use development, planning, transportation, housing and environmental policies, and plans and programs that maintain and enhance the City as a safe, vital, and attractive community. Advance Planning administers the City’s housing, historic preservation, and community development programs; administers the City’s Community Development Block Grant program, manages the City’s below market rate housing program; and oversees organization and development of the Comprehensive Plan. Building protects the public’s health, safety and real property interests by enforcing laws and regulations that govern the design, construction, use and occupancy of buildings. The Development Center integrates the efforts of several City programs within the Fire, Public Works, Utilities, and Planning & Community Environment (PCE) departments to ensure a high level of customer service. Transportation is responsible for traffic operations in the city, the bicycle system, area transportation studies, public transit service, and regional transportation activities. Code Enforcement investigates complaints and resolves violations of City’s Municipal Code. Monitors and verifies compliance with conditions of approval for private development projects. How are PCE dollars used? (Total = $10.3 million) 66 Ch a p t e r 7 PC E D e p a r t m e n t $0 $50 $100 $150 $200 $250 $300 $350 PALO ALTO Livermore Redwood City Menlo Park Mountain View Milpitas Sunnyvale Santa Clara San Mateo Comparison of Planning & Construction and Engineering Regulation Enforcement Expenditures Per Capita in FY 20111 55.2 54.5 54.3 50.5 47.0 45.9 0 10 20 30 40 50 60 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 17% Decrease Total # of Full Time Equivalents (FTEs) PCE Per Capita Spending $155 FY 07 $155 FY 08 Source: California State Controller, Cities Annual Report Fiscal Year 2011 Source: City of Palo Alto financial data Source: City of Palo Alto financial data Footnote 1 Palo Alto’s expenditures per capita appear higher than those of surrounding jurisdictions, but it should be noted that different cities budget expenditures in different ways. Department Wide YOUR MONEY AT WORK Expenditures by Category 62.4% 14.8% 12.3% 5.6% 4.0% 0.4% 0.4% 0.1% Salaries & Benefits (62.4%) Allocated Charges (14.8%) Contract Services (12.3%) Rents & Leases (5.6%) General Expense (4.0%) Facilities & Equipment (0.4%) Supplies & Materials (0.4%) Operating Transfers Out (0.1%) Source: City of Palo Alto financial data FY 10 $146 FY 09 $156 FY 11 $147 $158 FY 12 The Development Center at 285 Hamilton Avenue (across from City Hall) offers forms, handouts, and information about obtaining permits in addition to assistance on all aspects of construction, renovation, or development projects. Forms and handouts are also offered online. City staff from the Fire, Public Works, Planning & Community Environment, and Utilities departments monitor code compliance and enhance the quality of development projects at the Development Center. 67 Footnote 1 This measure does not include over the counter plan checks or building permits; it tracks projects that require multi-departmental review and approval. The average number of days includes an applicant's response time to the City's initial review, which is not within the City’s control. Source: National Citizen SurveyTM Department Wide Ch a p t e r 7 PC E D e p a r t m e n t DEPARTMENT GOALS Work with customers (property owners and developers) and the public to efficiently process planning, land use and zoning applications for quality design. Enhance the safety and mobility of the transportation system while protecting environmental resources and preserving the community’s quality of life. Provide a high level of customer service and decrease application review, processing and permit issuance times. Work collaboratively with City departments, which support development services, to adequately staff and respond to workload demands, meet specific performance criteria established for the Blueprint Initiative (an organization change process focused on permit and application approvals), and achieve excellent customer service. 0% 10% 20% 30% 40% 50% 60% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Quality of land use, planning, and zoning in Palo Alto Overall quality of new development in Palo Alto Citizen Survey: Land Use, Planning, Zoning, and New Development (Percent Rating “Good” or “Excellent”) Palo Alto ranked in the 60th percentile compared to other surveyed jurisdictions for quality of land use, planning, and zoning and in the 36th percentile for overall quality of new development in Palo Alto. 0% 10% 20% 30% 40% 50% 60% 70% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Traffic flow on major streets Amount of public parking Citizen Survey: Transportation (Percent Rating “Good” or “Excellent”) Source: National Citizen SurveyTM 0 20 40 60 80 100 120 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Source: Planning and Community Environment Department Average Number of Days to Issue Building Permits1 The average number of days to issue building permits has decreased 63 percent compared to FY 07. Palo Alto ranked in the 25th percentile, much below other surveyed jurisdictions for traffic flow on major streets. Da t a N o t A v a i l a b l e 68 Completed Planning Applications in FY 2012 Current Planning & Code Enforcement $72 $67 Ch a p t e r 7 KEY OBJECTIVES Improve customer satisfaction and staff response time Interpret and apply building code through inspection and enforcement PC E D e p a r t m e n t Planning and Architectural Review Board Applications Source: Planning and Community Environment Department 0 50 100 150 200 250 300 350 400 450 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Planning applications received Planning applications completed Architectural Review Board applications completed 0% 10% 20% 30% 40% 50% 60% 70% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Percent rating quality of code enforcement "good" or "excellent" Percent considering run down buildings, weed lots, or junk vehicles a "major" or "moderate" problem Citizen Survey: Code Enforcement Source: National Citizen SurveyTM 2012 (Palo Alto) Architectural Review Board 44% Individual Review Permits 25% Other 17% Conditional Use Permits 7% Home Improvement Exception 3% Temporary Use Permit 2% Variances 1% Protected Tree Removals 1% Individual Review Permit Applications Received 0 10 20 30 40 50 60 70 80 90 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Number of applications for a new two story single family home Number of applications for the addition of a second story Source: Planning and Community Environment Department Source: Planning and Community Environment Department Source: Planning and Community Environment Department The Department reported 618 new code enforcement cases for FY 2012, a 67 percent increase from FY 2007. The Department reported a total of 204 planning applications were completed in FY 2012, 32 percent fewer than in FY 2007. The Department reported 12.5 weeks on average to complete staff-level applications, a 7 percent decrease from FY 2007. 69 Energy Savings & CO2 Emissions Reduction In FY 2009, the Department established a new Green Building Program under the City’s Green Building Ordinance to build a new generation of efficient buildings in Palo Alto that are environmentally responsible and healthy places in which to live and work.1 As of FY 2011, the program had influenced over $187 million of project valuation and it was estimated that a little over 2,000 people were either working or living in green buildings throughout the City. In FY 2011, 82 percent of survey respondents rated the City of Palo Alto “good” or “excellent” on water and energy preservation. The Department did not maintain FY 2012 data. 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 FY 09 FY 10 FY 11 FY 12 Energy savings (kBtu/yr)CO emissions reduction (tons) FY 1 2 d a t a not a v a i l a b l e kB t u / y r . or to n s FY 0 9 d a t a not a v a i l a b l e Ch a p t e r 7 PC E D e p a r t m e n t Source: Planning and Community Environment Department Water Reduction & Waste Diversion Footnote 1 The City’s Green Building Ordinance requires specific project types to meet specified green building standards. KBtu – Kilo British Thermal Units, CO2 – Carbon Dioxide 0 200 400 600 800 1,000 1,200 1,400 FY 09 FY 10 FY 11 FY 12 Sq u a r e f e e t ( t h o u s a n d s ) Source: Planning and Community Environment Department Green Building Square Feet with Mandatory Regulations Source: Planning and Community Environment Department KEY OBJECTIVE Promote increased levels of green building and sustainability practices with development Green Building 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 0 5,000 10,000 15,000 20,000 25,000 30,000 FY 09 FY 10 FY 11 FY 12 Water reduction (gallons)Waste diversion from landfill (tons) Wa s t e d i v e r s i o n f r o m l a n d f i l l ( t o n s ) Wa t e r r e d u c t i o n ( g a l l o n s ) FY 1 2 d a t a not a v a i l a b l e FY 1 2 d a t a n o t a v a i l a b l e In FY 11, the Department processed 961 green building permit applications, a 73 percent increase from FY 2010. 2 Footnotes 1 The number of residential units for FY 2007 through FY 2010 are estimates based on the 2000 Decennial Census. The FY 2011 and FY 2012 figures are estimates based on the 2010 Decennial Census. 2 Source: Real Estate Market Trends Report (http://rereport.com) 70 Advance Planning Ch a p t e r 7 KEY OBJECTIVE Increase the number of affordable housing units PC E D e p a r t m e n t Citizen Survey: Housing in Palo Alto (Percent Rating “Good” or “Excellent”) Source: Planning and Community Environment Department Estimated New Jobs Resulting From Projects Approved During the Year -500 0 500 1,000 1,500 2,000 2,500 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Source: Planning and Community Environment Department 0 100 200 300 400 500 600 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Cumulative number of below market rate (BMR) units Number of new housing units approved Palo Alto Housing Units The Department estimated a total of 28,380 residential units in Palo Alto as of FY 2012.1 The average home price for a single family home in Palo Alto was $1.7 million in 2011, or about 11 percent higher than in 2010.2 Palo Alto ranked in the 3rd percentile for availability of affordable quality housing. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Availability of affordable quality housing Variety of housing options Da t a N o t A v a i l a b l e Compared to other surveyed jurisdictions, the City ranked in the 3rd and 4th percentile respectively for availability of affordable quality housing and the variety of housing options, much lower than other surveyed jurisdictions. Did You Know? A Comprehensive Plan is a long-range document that includes goals, policies and programs for how a community will manage its land use, housing, circulation, natural resources, economics and public services. The City of Palo Alto currently is undertaking a Comprehensive Plan Amendment that will cover the period through 2025. The purpose of the Amendment is to extend the horizon year of the existing Comprehensive Plan adopted in 1998 from 2010 to 2025, revise base conditions and growth projections, modify policies and programs, and update the land use map and revise the Housing Element. These efforts will continue in 2013, with review of a draft Comprehensive Plan and associated Environmental Impact Report expected in late 2013. For more information visit: http://www.paloaltocompplan2020.org Sources: National Citizen SurveyTM 71 Number of Inspections & Average Cost2 Building Permits and Inspections According to the Department, issuing permits in a timely fashion has a direct correlation to the economic vitality of the City. Additionally, it reduces costs for developers and property owners, demonstrates the efficiency and productivity of City staff, and improves customer satisfaction. $0 $20 $40 $60 $80 $100 $120 $140 0 5,000 10,000 15,000 20,000 25,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Number of inspections completed City's average cost per inspection Ci t y ’ s a v e r a g e c o s t p e r i n s p e c t i o n Ch a p t e r 7 KEY OBJECTIVES Decrease number of days to issue a permit Process over the counter and submitted plan check review in a timely manner Interpret and apply building code through inspection and enforcement PC E D e p a r t m e n t 0 20 40 60 80 100 120 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Average number of days to issue building permits Average number of days for first response to plan checks Source: Planning and Community Environment Department Average Number of Days to Issue Building Permits And For First Response to Plan Checks1 Footnotes 1 These measures do not include over the counter plan checks or building permits. 2 According to the Department, as of FY 2008 each type of inspection is counted as an individual inspection whereas in the past combined inspections were counted as one. $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Building permits issued Building permit revenue Source: Planning and Community Environment Department Building Permits Issued & Building Permit Revenues Source: Planning and Community Environment Department Compared to FY 2007, the average number of days to issue building permits and for first response to plan checks has decreased 63 percent and 19 percent, respectively. Bu i l d i n g p e r m i t s i s s u e d Bu i l d i n g p e r m i t r e v e n u e ( i n m i l l i o n s ) The Department reports it responded to 99 percent of inspection requests within one working day or within the timeframe of the customer’s request. Nu m b e r o f i n s p e c t i o n s c o m p l e t e d 72 Transportation Footnote 1 Alternative commute modes include carpooling, public transportation, walking, bicycling, and working at home. Ch a p t e r 7 KEY OBJECTIVES Increase walkability and bicycle travel Decrease traffic congestion on roads and intersections Promote use of regional transportation systems PC E D e p a r t m e n t Source: National Citizen SurveyTM 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Walking Bicycle travel Rail travel Car travel Bus travel Citizen Survey: Percent Rating the Ease of the Following Forms of Transportation in Palo Alto as “Good” or “Excellent” Surveyed residents rated the ease of walking and bicycle travel highest, consistent with prior years. While more residents rated the ease of rail travel “good” or “excellent” in comparison with prior years, only 51 percent rated car travel “good” or “excellent,” placing Palo Alto in the 34th percentile in comparison with other surveyed jurisdictions. 0% 10% 20% 30% 40% 50% 60% 70% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Percent of days per week commuters used alternative commute modes Percent rating traffic flow on major streets "good" or "excellent" Percent rating the amount of public parking "good" or "excellent" Da t a n o t a v a i l a b l e Citizen Survey: Commuting and Traffic1 Source: National Citizen SurveyTM 0 2,500 5,000 7,500 10,000 0 50,000 100,000 150,000 200,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 City Shuttle boarding Caltrain average weekday boarding Ci t y S h u t t l e B o a r d i n g City Shuttle and Caltrain Boardings Source: Planning and Community Environment Department Ca l t r a i n a v e r a g e w e e k d a y b o a r d i n g Did You Know? In May 2003, Palo Alto was designated a Bicycle Friendly Community by the League of American Bicyclists. This designation ranks Palo Alto with only 15 other "Gold Level" communities. The City of Palo Alto strives to reach the “Platinum Level,” which only three other cities have reached. The award is only presented to communities with remarkable commitments to bicycling. 73 Footnotes 1 In FY 2012, Economic Development was moved to the City Manager’s Office. 2 The Department advises that the method for counting new code enforcement cases and re-inspections changed in FY 2008. Inspections or cases with multiple components that in the past were counted as a single inspection or case are now counted as multiples. This is the reason for the increase in the numbers compared to FY 2007. Ch a p t e r 7 PC E D e p a r t m e n t Operating Expenditures (millions) Administration Planning and Transportation Building Economic Development1 TOTAL Expenditures per capita Revenue (in millions) Authorized staffing (FTE) FY 07 $0.7 $5.2 $3.4 $0.2 $9.5 $155 $6.6 55 FY 08 $0.6 $5.2 $3.6 $0.2 $9.7 $155 $5.8 54 FY 09 $0.2 $5.7 $3.5 $0.4 $9.9 $156 $5.1 54 FY 10 $0.6 $5.5 $2.9 $0.4 $9.4 $146 $5.5 50 FY 11 $0.9 $5.1 $3.3 $0.3 $9.6 $147 $7.5 47 FY 12 $0.9 $5.2 $4.2 $0.0 $10.3 $158 $9.1 46 Change from: Last year -6% +3% +28% -99% +8% +7% +22% -2% FY 07 +28% 0% +25% -99% +9% +2% +39% -17% Citizen Survey Code Enforcement Planning applications received Planning applications completed Architectural Review Board applications completed Average weeks to complete staff-level applications (Target: 13.0 weeks) Percent rating quality of code enforcement “good” or “excellent” Percent considering run down buildings, weed lots, or junk vehicles a “major” or “moderate” problem Number of new cases Number of re-inspections Percent of cases resolved within 120 days of date received FY 07 386 299 100 13.4 59% 17% 369 639 76% FY 08 397 257 107 12.7 59% 23% 6842 9812 93% FY 09 312 273 130 10.7 50% 25% 545 1,065 94% FY 10 329 226 130 12.5 53% 22% 680 1,156 88% FY 11 359 238 121 10.4 56% 21% 652 1,228 94% FY 12 325 204 101 12.5 61% 18% 618 1,120 91% Change from: Last year -9% -14% -17% +20% +5% -3% -5% -9% -3% FY 07 -16% -32% +1% -7% +2% +1% +67% +75% +15% DEPARTMENT WIDE SPENDING CURRENT PLANNING AND CODE ENFORCEMENT 74 Ch a p t e r 7 PC E D e p a r t m e n t Green Building permit applications processed Green Building valuations with mandatory regulations Green building square feet with mandatory regulations Energy savings in Kilo British Thermal Units per Year (kBtu/yr.) Water reduction (gallons) Waste diversion from landfill (tons) Carbon Dioxide (CO2) emissions reductions (tons) FY 07 - - - - - - - FY 08 - - - - - - - FY 09 341 $ 80,412,694 666,500 - 119,500 705 200 FY 10 556 $ 81,238,249 774,482 449 84,539 10,137 1,013 FY 11 961 $187,725,366 1,249,748 3,399 2,119,485 28,177 2,818 FY 121 - - - - - - - Change from: Last year - - - - - - - FY 07 - - - - - - - Advance Planning Citizen Survey Number of residential units2 Average price – single family home in Palo Alto3 (in millions) Estimated new jobs resulting from projects approved during the year Number of new housing units approved Cumulative number of below market rate (BMR) units Percent rating quality of land use, planning, and zoning in Palo Alto as “good” or “excellent” Percent rating overall quality of new development in Palo Alto as “good” or “excellent” FY 07 27,763 $1.52 0 517 381 49% 57% FY 08 27,938 $1.87 +193 103 395 47% 57% FY 09 28,291 $1.76 -58 36 395 47% 55% FY 10 28,445 $1.51 +662 86 434 49% 53% FY 11 28,257 $1.55 +2,144 47 434 45% 57% FY 12 28,380 $1.72 +760 93 434 51% 56% Change from: Last year 0% +11% -65% +98% 0% +6% -1% FY 07 +2% +13% - -82% +14% +2% -1% GREEN BUILDING1 ADVANCE PLANNING Footnotes 1 The Department did not have updated FY 2012 figures for the Green Building Program. 2 The number of residential units for FY 2007 through FY 2010 are estimates based on the 2000 Decennial Census. From FY 2011, the figures are estimates based on the 2010 Decennial Census. 3 Average home price is on a calendar year basis (e.g., FY 2012 data is for calendar year 2011). Source is http://rereport.com. 75 Footnotes 1 Average number of days does not include over the counter plan checks or building permits. 2 In some cases, a customer requests a specific day or time as opposed to within one working day; this percentage indicates how often the Department met the one working day deadline or, when applicable, the customer's specific request. The Department’s target was 98%. 3 According to the Department, the increase in the number of inspections in FY 2008 is due to a change in the method for counting inspections. Under the new method, each type of inspection now counted as an individual inspection whereas in the past combined inspections were counted as one. 4 The City is required through its membership with the Valley Transportation Agency to monitor eight intersections on a bi-annual basis. Prior to FY 2010, when resources were available, the City monitored 13 additional intersections. The Department was considering monitoring 21 intersections in FY 2012 and in subsequent years. The FY 2012 figure was not available. 5 Alternative commute modes include carpooling, public transportation, walking, bicycling, and working at home. Ch a p t e r 7 PC E D e p a r t m e n t Building permit applications City’s average Cost per permit application Building permits issued Percent of building permits issued over the counter Valuation of construction for issued permits (in millions) Building permit revenue (in millions) Average number of days for first response to plan checks1 Average number of days to issue building permits1 Number of inspections completed City’s average cost per inspection Percent of inspection requests for permitted work responded to within one working day2 (Target: 98%) FY 07 3,236 $736 3,136 76% $298.7 $4.6 27 days 102 days 14,822 $127 99% FY 08 3,253 $784 3,046 53% $358.9 $4.2 23 days 80 days 22,8203 $94 98% FY 09 3,496 $584 2,543 75% $172.1 $3.6 31 days 63 days 17,945 $105 98% FY 10 3,351 $576 2,847 75% $191.2 $4.0 30 days 44 days 15,194 $116 99% FY 11 4,132 $629 3,559 79% $251.1 $5.6 35 days 47 days 16,858 $120 99% FY 12 3,733 $697 3,320 78% $467.9 $6.8 22 days 38 days 18,778 $104 99% Change from: Last year -10% +11% -7% -1% +86% +21% -37% -19% +11% -13% 0% FY 07 +15% -5% +6% +2% +57% +46% -19% -63% +27% -18% 0% Citizen Survey Number of monitored intersections with an unacceptable level of service during evening peak4 City Shuttle boarding (Target: 110,685) City’s cost per shuttle boarding (Target: $1.86) Caltrain average weekday boarding Average number of employees participating in the City commute program (Target: 115) Percent rating traffic flow on major streets “good” or “excellent” Percent of days per week commuters used alternative commute modes5 Percent considering the amount of public parking “good” or “excellent” FY 07 2 of 21 168,710 $2.00 4,132 105 - - 65% FY 08 3 of 21 178,505 $1.97 4,589 114 38% 40% 52% FY 09 2 of 21 136,511 $2.61 4,863 124 46% 41% 55% FY 10 1 of 8 137,825 $2.65 4,796 113 47% 39% 60% FY 11 1 of 8 118,455 $1.82 5,501 92 40% 38% 54% FY 12 -4 140,321 $1.46 5,730 93 36% 45% 51% Change from: Last year - +18% -20% +4% +1% -4% +7 -3% FY 07 - -17% -27% +39% -11% - - -14% BUILDING PERMITS AND INSPECTIONS TRANSPORTATION PLANNING 76 This Page Intentionally Left Blank 77 The Field Services Division is responsible for police response, critical incident resolution, regional assistance response, and police services for special events. 4% 2% 1% 1% 5% 87% What are the sources of Police Department funding? (Total = $33.6 million) Parking Violations (4%) Stanford Service Contract (2%) Communications (1%) Spay/Neuter Clinic and Vaccination Fees (1%) Other External Revenues (4%) Other General Fund (87%) 44% 23% 11% 7% 5% 4% 3% 2% How are Police Department dollars used? (Total = $33.6 million) Field Services (44%) Technical Services (23%) Investigations and Crime Prevention Services (11%) Traffic Services (7%) Animal Services (5%) Parking Services (4%) Police Personnel Services (3%) Administration (2%) The Police Personnel Services Division oversees police hiring, retention, personnel records, and training. Chapter 8: Public Safety – Police Department Mission: To proudly serve and protect the public with respect and integrity. The Technical Services Division provides 911 dispatch services for police, fire, utilities, public works, Stanford, and police information management. The Traffic Services Division is responsible for traffic enforcement, complaint resolution, and school safety. The Investigations Division conducts police investigations, oversees storage and maintenance of evidence and coordinates some youth services activities. The Parking Services Division is responsible for parking enforcement, parking citations and adjudication, and abandoned vehicle abatement. The Animal Services Division provides animal control, pet recovery/adoption services, animal care, animal health and welfare, and regional animal services. 78 Ch a p t e r 8 Po l i c e D e p a r t m e n t $0 $100 $200 $300 $400 $500 $600 $700 Menlo Park PALO ALTO Redwood City Mountain View Santa Clara Milpitas San Mateo Fremont Sunnyvale Cupertino Comparison Net Police Expenditures Per Capita in FY 20111 $328 $32 $333 $312 Source: California State Controller, Cities Annual Report FY 2011 Footnote 1 Operating expenditures comparisons do not include animal control. Department Wide YOUR MONEY AT WORK Expenditures by Category 83.8% 10.3% 3.3% 1.5% 0.8% 0.2% 0.0% Salaries & Benefits (83.8%) Allocated Charges (10.3%) Contract Services (3.3%) Supplies & Materials (1.5%) General Expense (0.8%) Facilities & Equipment (0.2%) Rents & Leases (0.0%) Source: City of Palo Alto financial data FY 07 $422 FY 08 $473 FY 10 $448 FY 11 478 FY 09 $445 Source: City of Palo Alto financial data Police Per Capita Spending FY 12 513 168.1 168.5 169.5 166.8 161.1 161.2 0 25 50 75 100 125 150 175 200 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 4% decrease Total # of Full Time Equivalents (FTEs) Source: City of Palo Alto financial data A comparison of net police expenditures shows Palo Alto appears to spend more per capita than many local jurisdictions. It should be noted that every jurisdiction has different levels of service and categorizes expenditures differently. In addition, Palo Alto’s population increases substantially during the day. 79 The Art Center went “On the Road” offering Source: Federal Bureau of Investigation (FBI) Uniform Crime Reporting Program Ch a p t e r 8 DEPARTMENT GOALS Protect and serve the public through proactive and effective policing, animal services and emergency preparedness. Cultivate, enhance, and foster trustworthy relationships with the community. Minimize injury and property damage by promoting a safe and orderly flow of pedestrian, bicycle, and vehicular traffic. Ensure the protection and well-being of animals and people by providing responsive animal services and spay/neuter advocacy. Manage, enforce, and resolve vehicle parking regulations and issues in an effort to facilitate the timely movement of vehicles and provide for public safety within the City. Palo Alto’s total staffing is higher than many local jurisdictions; however, Palo Alto’s population increases substantially during the day, by over 90 percent. On average, eight police officers are on patrol at all times. Authorized departmental staffing decreased from 167 to 161 full time equivalents (FTE), or 4 percent from FY 2007. The number of police officers has decreased from 93 to 91. The Department reports it received 137 citizen commendations and 1 complaint during FY 2012, which was not sustained. Po l i c e D e p a r t m e n t Sworn and Civilian Full-Time Equivalent Positions Per 1,000 Residents in Calendar Year 2011 Department Wide 0 10,000 20,000 30,000 40,000 50,000 60,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Noise Directed patrol Accidents Alarms Phone messages - officer followup Service False Calls Fire Assist Crime Calls Miscellaneous Vehicle stops Calls For Service Source: Police Department 0 0.5 1 1.5 2 2.5 Fremont San Mateo Redwood City East Palo Alto Milpitas Santa Clara Mountain View Sunnyvale Menlo Park PALO ALTO Officers Civilians The Police Department handled over 51,000 calls for service during FY 2012, or about 140 calls per day. 80 Source: National Citizen SurveyTM Ch a p t e r 8 Citizen Survey: Overall Police Services (Percent Rating “Good” or “Excellent”) Department Wide Po l i c e D e p a r t m e n t 0%20%40%60%80%100%120% In their neighborhood (during the day) In their neighborhood (after dark) In Palo Alto's downtown area (during the day) In Palo Alto's downtown area (after dark) From violent crime From property crime Percent of Survey Respondents Feeling "Very" or "Somewhat" Safe Percentile rank - compared to other surveyed jurisdictions Citizen Survey: Percent of Survey Respondents in FY 2012 Feeling “Very” or “Somewhat” Safe KEY OBJECTIVES – CUSTOMER SATISFACTION Maintain and enhance the community’s satisfaction with police services. Create opportunities for increased communication, visibility, and interaction with community members. Increase quality and timeliness of response to citizens' complaints regarding use of force, canine investigations, and other internal affairs matters. Provide assistance, enforcement, and guidance to the community regarding animal services. 80% 82% 84% 86% 88% 90% 92% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Source: National Citizen SurveyTM Source: National Citizen SurveyTM Citizen Survey: Service Ratings (Percent Rating “Good” or “Excellent”) FY 12 Target: 90% In FY 12, Palo Alto ranked in the 79th percentile for overall police services compared to other surveyed jurisdictions. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Animal control services Traffic enforcement Crime prevention Quality of their contact In FY 2012, 31 percent of survey respondents reported contact with the Police Department, of which 74 percent rated their overall impression of their most recent contact “good” or “excellent,” ranking Palo Alto in the 58th percentile, similar to other surveyed jurisdictions. 81 The Art Center went “On the Road” offering Footnotes 1 Commercial Burglary includes shoplifting. The data is presented in the chart on a calendar year basis. 2 Violent crime includes murder and non-negligent manslaughter, forcible rape, robbery, and aggravated assault. Property crime includes burglary, larceny-theft, and motor vehicle theft. Arson is not included in these categories. Source: FBI Uniform Crime Reporting Program Crime Ch a p t e r 8 KEY OBJECTIVES - CRIME Reduce crime rates, traffic violations, and accidents. Apprehend and assist with prosecution of offenders. Po l i c e D e p a r t m e n t 0 5 10 15 20 25 30 35 40 Sunnyvale Fremont Mountain View San Mateo PALO ALTO Menlo Park Redwood City Santa Clara Milpitas East Palo Alto Violent crimes Property crimes Violent and Property Crimes per 1,000 Residents in Calendar Year 20112 0 1,000 2,000 3,000 4,000 5,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Part II Crimes Part I Crimes 0 100 200 300 400 500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Residential Burglaries Commercial Burglaries Auto Burglaries Residential Burglaries have increased 77% from 2007. Residential, Commercial, and Auto Burglaries1 Part I and Part II Crimes Source: Police Department The total number of crime incidents has decreased 24 percent since FY 2007. Source: Police Department In the most recent Citizen Survey, 9 percent of households reported being the victim of a crime in the last 12 months (25th percentile compared to other surveyed jurisdictions). Of those households, 62 percent said they reported the crime, ranking Palo Alto in the 3rd percentile. This indicates residents in Palo Alto are much less likely to report crimes compared to other surveyed jurisdictions. Part I crimes include homicide, rape, robbery, assault, burglary, larceny/theft, vehicle theft, and arson. Part II crimes include assaults or attempted assaults where a weapon is not used and where serious injuries did not occur; forgery and counterfeiting; fraud; embezzlement; buying, receiving, and possessing stolen property; vandalism; weapons offenses; prostitution and other vice crimes; sex offenses other than rape; drug offenses; gambling; offenses against family and children; drunk driving; liquor laws; drunk in public; disorderly conduct; and vagrancy. 82 The Art Center went “On the Road” offering Calls for Service Ch a p t e r 8 KEY OBJECTIVE – CALLS FOR SERVICE Respond promptly to urgent calls for service. Po l i c e D e p a r t m e n t Response to Emergency, Urgent, and Non-emergency Calls Within Target Times 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Percent emergency calls responded within 6 minutes (Target: 90%) Percent urgent calls responded within 10 minutes (Target: N/A) Percent non-emergency calls responded within 45 minutes (Target: N/A) Mi n u t e s Source: Police Department Average Response Times 96% 96% 94% 95% 93% 92% 50% 60% 70% 80% 90% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 4% decrease Percent Emergency Calls Dispatched Within 60 Seconds of Call Receipt Source: Police Department Source: Police Department 0 5 10 15 20 1 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Average emergency response (minutes) Target: 6:00 minutes Average urgent response (minutes) Target: 10:00 minutes Average non- emergency response (minutes) Target: 45:00 minutes In FY 12, the Department responded to 78% of emergency calls within 6 minutes, missing its target of 90 percent. In FY 12, the Police Department met its targets for average response times to emergency, urgent, and non-emergency calls. Emergency calls are generally “life threatening” or “high danger” crimes in progress. Urgent calls are generally non-life threatening, or less dangerous property crimes that are in progress or just occurred. Non-emergency calls are generally routine or report-type calls that can be handled as time permits. Did You Know? The Palo Alto Police Department engages with the community on several social media platforms: Twitter: www.twitter.com/PaloAltoPolice Facebook: www.facebook.com/PaloAltoPolice Nixle: http://local.nixle.com/palo-alto-police-department 83 Animal Services Ch a p t e r 8 KEY OBJECTIVES – ANIMAL SERVICES Provide assistance, enforcement, and guidance to the community regarding animals. Promote responsible pet ownership through adoption counseling, education, and support services. Po l i c e D e p a r t m e n t Percent Palo Alto Live Animal Calls for Service Response Within 45 minutes 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 12 Target: 93% Source: Police Department Percent Dogs and Cats Received by Shelter Returned to Owner Source: Police Department Source: Police Department 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Percent dogs received by shelter returned to owner Percent cats received by shelter returned to owner FY 12 Target (Dogs): 65% FY 12 Target (Cats): 8% 0 1,000 2,000 3,000 4,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Number of Palo Alto animal services calls (Target: 3,000) Number of regional animal services calls (Target: 1,700) Number of sheltered animals (Target: 3,800) Source: Police Department Number of Animal Service Calls and Sheltered Animals 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Percent of Respondents Rating Animal Control Services "Good" or "Excellent" Percentile rank - compared to other surveyed jurisdictions Citizen Survey: Animal Control Services (Percent Rating “Good” or “Excellent”) Source: National Citizen SurveyTM In FY 12, the Police Department responded to 91 percent of live animal calls for service within 45 minutes, just short of its target of 93 percent. In FY 12, animal control services ranked in the 95th percentile compared to other surveyed jurisdictions. 84 The Art Center went “On the Road” offering Traffic and Parking Control Ch a p t e r 8 KEY OBJECTIVES – TRAFFIC AND PARKING CONTROL Enforce traffic laws, with an emphasis on speed reduction, red light violations, and bicycle and pedestrian safety around schools. Participate in regional and statewide initiatives designed to ensure vehicle occupant safety through the use of safety belts and to reduce deaths and injuries in crashes involving alcohol, speed, red light running, and aggressive driving. Monitor compliance with parking regulations and time limits and issue citations for infractions. Po l i c e D e p a r t m e n t Citizen Survey: Traffic Enforcement (Percent Rating “Good” or “Excellent”) 50% 55% 60% 65% 70% 75% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 12 Target: 66% Source: Police Department Collisions Source: Police Department 0% 10% 20% 30% 40% 50% 0 100 200 300 400 500 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Bicycle/pedestrian collisions Alcohol related collisions Total injury collisions Percent of traffic collisions with injury Nu m b e r o f c o l l i s i o n s Pe r c e n t o f t r a f f i c c o l l i s i o n s w i t h i n j u r y 0 10,000 20,000 30,000 40,000 50,000 60,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Number of traffic stops Traffic citations issued Parking citations issued Source: Police Department Traffic Stops, Traffic Citations, and Parking Citations Collisions per 1,000 Residents in Calendar Year 2010 Source: California Highway Patrol 2010 Annual Report of Fatal and Injury Motor Vehicle Traffic Collisions, and California Department of Finance 0 5 10 15 Fremont Sunnyvale San Mateo Mountain View East Palo Alto Santa Clara Redwood City Milpitas PALO ALTO Menlo Park Property damage collisions Injury and Fatal collisions Source: National Citizen SurveyTM In FY 2012, there were a total of 1,031 traffic collisions in Palo Alto, an 18 percent decrease from 2007. About 37 percent of these traffic collisions involved injuries. 85 Ch a p t e r 8 Po l i c e D e p a r t m e n t Operating Expenditures (millions) Citizen Survey Administration Field services Technical services Investigations and crime prevention Traffic services Parking services Police personnel services Animal services Total Total spending per resident Total Revenue (in millions) Percent rating OVERALL police services “good” or “excellent” (Target:90%) FY 07 $0.6 $11.1 $6.1 $3.1 $1.7 $1.0 $1.0 $1.5 $25.9 $422 $5.0 91% FY 08 $0.5 $13.7 $6.6 $3.3 $1.7 $0.8 $1.1 $1.7 $29.4 $473 $5.0 84% FY 09 $0.4 $13.6 $5.0 $3.7 $1.8 $1.1 $1.0 $1.7 $28.2 $445 $4.6 84% FY 10 $0.1 $13.1 $6.6 $3.4 $2.0 $1.1 $1.0 $1.7 $28.8 $448 $4.9 87% FY 11 $0.2 $14.4 $6.8 $3.5 $2.2 $1.1 $1.1 $1.7 $31.0 $478 $4.4 88% FY 12 $0.8 $14.9 $7.7 $3.7 $2.5 $1.2 $1.1 $1.8 $33.6 $513 $4.3 86% Change from: Last year +273% +3% +12% +6% +14% +9% +1% +5% +9% +7% -1% -2% FY 07 +37% +34% +27% +19% +49% +23% +15% +22% +30% +22% -13% -5% Footnote 1 The Department revised FY 2007 through 2009 values due to prior calculation errors. CALLS FOR SERVICE DEPARTMENT WIDE SPENDING Citizen Survey Total Police Department calls for service False alarms Percent emergency calls dispatched within 60 seconds of receipt of call Average emergency response (minutes) (Target: 6:00) Average urgent response (minutes) (Target: 10:00) Average non- emergency response (minutes) (Target: 45:00) Percent emergency calls response within 6:00 minutes (Target: 90%) Percent urgent calls response within 10:00 minutes Percent non- emergency calls response within 45:00 minutes Percent reported having contact with the Police Department Percent rating quality of their contact “good” or “excellent” FY 07 60,079 2,610 96% 5:08 7:24 19:161 73% 79% 91%1 33% 81% FY 08 58,742 2,539 96% 4:32 7:02 19:091 81% 80%1 92%1 34% 73% FY 09 53,275 2,501 94% 4:43 7:05 18:351 81% 82%1 92%1 35% 72% FY 10 55,860 2,491 95% 4:44 6:53 18:32 78% 83% 92% 32% 78% FY 11 52,159 2,254 93% 4:28 6:51 18:26 78% 83% 92% 33% 74% FY 12 51,086 2,263 92% 4:28 6:56 19:29 78% 83% 91% 31% 74% Change from: Last year -2% 0% -1% 0% +1% +6% 0% 0% -1% -2% 0% FY 07 -15% -13% -4% -13% -6% +1% +5% +4% 0% -2% -7% 86 Ch a p t e r 8 Po l i c e D e p a r t m e n t Reported crimes Citizen Survey Arrests Clearance rates for part I crimes1,5 Part I1 crimes reported (Target: 2,000) Part II2 crimes reported Reported crimes per 1,000 residents Reported crimes per officer3 Percent households reported being victim of crime in last 12 months Percent households that reported the crime (of households reported being victim of crime) Juvenile arrests Total arrests4 # of Homicide Cases/% cleared or closed <REVISED> # of Rape cases/% cleared or closed <REVISED> # of Robbery cases/% cleared or closed <REVISED> # of Theft cases/% cleared or closed <REVISED> FY 07 1,855 2,815 76 50 9% 62% 244 3,059 0 /(N/A) 2/(50%) 37/(51%) 1092/(18%) FY 08 1,843 2,750 74 49 10% 73% 257 3,253 2/(100%) 3/(67%) 41/(66%) 1161/(21%) FY 09 1,880 2,235 65 44 11% 80% 230 2,612 1/(100%) 7/(29%) 42/(31%) 1414/(20%) FY 10 1,595 2,257 60 42 9% 86% 222 2,451 1/(100%) 9/(33%) 30/(53%) 1209/(22%) FY 11 1,424 2,208 56 40 9% 71% 197 2,288 0 /(N/A) 3/(0%) 42/(36%) 1063/(20%) FY 12 1,277 2,295 54 39 9% 62% 170 2,212 0 /(N/A) 4/(50%) 19/(68%) 893/(19%) Change from: Last year -10% +4% -3% -2% 0% -9% -14% -3% - - - - FY 07 -31% -18% -28% -22% 0% 0% -30% -28% - - - - Footnotes 1 Part I crimes include homicide, rape, robbery, assault, burglary, larceny/theft, vehicle theft, and arson. 2 Part II crimes include simple assaults or attempted assaults where a weapon is not used or where serious injuries did not occur; forgery and counterfeiting; fraud; embezzlement; buying, receiving, and possessing stolen property; vandalism; weapons offenses; prostitution and other vice crimes; sex offenses other than rape; drug offenses; gambling; offenses against family and children; drunk driving; liquor laws; drunk in public; disorderly conduct; and vagrancy. 3 Based on authorized sworn staffing. 4 Total arrests do not include being drunk in public where suspects are taken to the sobering station, or traffic warrant arrests. 5 Clearance rates (percentages) include cases resolved with or without arrests as of January 2013. Clearance rates may not reconcile with figures on file at the Department of Justice due to a difference in the definition used by the Department and also timing differences. PERCEPTIONS OF SAFETY CRIME Citizen Survey: Percent of surveyed respondents feeling “very” or “somewhat” safe Citizen Survey From violent crime (Target: 90%) From property crime In their neighborhood during the day In their neighborhood after dark In Palo Alto’s downtown area during the day In Palo Alto’s downtown area after dark Percent rating crime prevention “good” or “excellent” FY 07 86% 75% 98% 85% 94% 74% 83% FY 08 85% 74% 95% 78% 96% 65% 74% FY 09 82% 66% 95% 78% 91% 65% 73% FY 10 85% 75% 96% 83% 94% 70% 79% FY 11 85% 71% 98% 83% 91% 65% 81% FY 12 87% 61% 96% 82% 92% 71% 74% Change from: Last year +2% -10% -2% -1% +1% +6% -7% FY 07 +1% -14% -2% -3% -2% -3% -9% 87 Ch a p t e r 8 Po l i c e D e p a r t m e n t Authorized staffing (FTE) Authorized staffing per 1,000 residents Number of police officers Police officers per 1,000 residents Average number of officers on patrol1 Number of patrol vehicles Number of motorcycles Training hours per officer2 (Target: 145) Overtime as a percent of regular salaries Number of citizen commendations received (Target: 150) Number of citizen complaints filed (Target: 10) FY 07 168.1 2.7 93 1.52 8 30 9 142 16% 121 11 (1 sustained) FY 08 168.5 2.7 93 1.50 8 30 9 135 17% 141 20 (1 sustained) FY 09 169.5 2.7 93 1.46 8 30 9 141 14% 124 14 (3 sustained) FY 10 166.8 2.6 92 1.43 8 30 9 168 12% 156 11 (3 sustained) FY 11 161.1 2.5 91 1.40 8 30 9 123 12% 149 7 (0 sustained) FY 12 161.2 2.5 91 1.39 8 30 9 178 13% 137 1 (0 sustained) Change from: Last year 0% -1% 0% -1% 0% 0% 0% +44% +1% -8% -86% FY 07 -4% -10% -2% -8% 0% 0% 0% +26% -3% +13% -91% Footnotes 1 This does not include traffic motor officers. 2 This does not include the academy. 3 The Police Department revised previously reported number. TRAFFIC AND PARKING CONTROL STAFFING, EQUIPMENT, AND TRAINING Citizen Survey Traffic collisions Bicycle/ pedestrian collisions (Target: 100) Alcohol related collisions Total injury collisions (Target: 375) Traffic collisions per 1,000 residents Percent of traffic collisions with injury Number of DUI Arrests (Target: 250) Number of traffic stops Traffic citations issued (Target: 7,000) Parking citations (Target: 60,000) Percent rating traffic enforcement “good” or “excellent” (Target: 66%) FY 07 1,257 103 31 2913 20 23% 257 15,563 6,232 57,222 72% FY 08 1,122 84 42 324 18 29% 343 19,177 6,326 50,706 64% FY 09 1,040 108 37 371 16 36% 192 14,152 5,766 49,996 61% FY 10 1,006 81 29 368 16 37% 181 13,344 7,520 42,591 64% FY 11 1,061 127 38 429 16 40% 140 12,534 7,077 40,426 61% FY 12 1,032 123 42 379 16 37% 164 10,651 7,505 41,875 66% Change from: Last year -3% -3% +11% -12% -4% -3% +17% -15% +6% +4% +5% FY 07 -18% +19% +35% +30% -23% +14% -36% -32% +20% -27% -6% 88 Ch a p t e r 8 Po l i c e D e p a r t m e n t Citizen Survey Animal Services expenditures (in millions) Animal Services revenue (in millions) Number of Palo Alto animal services calls (Target: 3,000) Number of regional animal services calls (Target: 1,700) Percent Palo Alto live animal calls for service response within 45 minutes (Target: 93%) Number of sheltered animals (Target: 3,800) Percent dogs received by shelter returned to owner (Target: 65%) Percent cats received by shelter returned to owner (Target: 8%) Percent rating animal control services “good” or “excellent” FY 07 $1.5 $1.0 2,990 1,773 88% 3,578 82% 18% 79% FY 08 $1.7 $1.2 3,059 1,666 91% 3,532 75% 17% 78% FY 09 $1.7 $1.0 2,873 1,690 90% 3,422 70% 11% 78% FY 10 $1.7 $1.4 2,692 1,602 90% 3,147 75% 10% 76% FY 11 $1.7 $1.0 2,804 1,814 88% 3,323 68% 20% 72% FY 12 $1.8 $1.0 3,051 1,793 91% 3,379 69% 14% 78% Change from: Last year +5% -4% +9% -1% +3% +2% +1% -6% +6% FY 07 +22% -5% +2% +1% +3% -6% -13% -4% -1% ANIMAL SERVICES 89 The Environmental Services Division operates and maintains the Regional Water Quality Control Plant; maintains a Pretreatment Program for control of industrial and commercial dischargers; provides pollution and waste prevention information and programs to residents and businesses; manages the City’s refuse programs including the collection and processing of recyclables, compostables and garbage, in addition to household hazardous waste materials and street sweeping programs. The Public Services Division maintains and renovates City-owned and leased structures, streets, sidewalks, storm drains, street signage, striping, and parking lots; sweeps City streets; manages the City’s Urban Forest; and maintains the City’s fleet. The Engineering Services Division designs and constructs City-owned facilities, streets, sidewalks, storm drains and parks infrastructure; provides engineering support to City Departments and the private development community for construction in the public right of way. Chapter 9: Public Works Department Mission: To provide efficient, cost effective and environmentally sensitive operations for construction, maintenance, and management of Palo Alto streets, sidewalks, parking lots, facilities and parks; ensure continuous operation of our Regional Water Quality Control Plant, City vehicles and equipment, and storm drain system; provide maintenance, replacement and utility line clearing services for the City's urban forest; provide efficient and cost effective garbage collection; to promote reuse and recycling to minimize waste; and to ensure timely support to other City departments and the private development community in the area of engineering services. 17% 41% 6% 25% 11% How are PWD dollars used? (Total = $78.4 million) General Fund (17%) Refuse Fund (41%) Storm Drainage Fund (6%) Wastewater Treatment Fund (25%) Vehicle Replacement Fund (11%) 4% 10% 57% 20% 9% What are the sources of PWD funding? (Total = $78.4 million) General Fund (4%) Internal Service Fund (10%) Enterprise Fund - Sale of Utilities (57%) Enterprise Fund - Other Revenues (20%) Reserves (9%) 90 Ch a p t e r 9 Pu b l i c W o r k s PWD Revenues and Expenditures by Fund PWD Total # of Full Time Equivalents1 (FTEs) Footnote 1 Full-time equivalent (FTE) does not include capital FTE for Public Services and Engineering Services. Capital FTE information is provided under Engineering Services. Department Wide YOUR MONEY AT WORK Expenditures by Category Source: City of Palo Alto financial data Source: City of Palo Alto financial data PWD Full Time Equivalents (FTEs) by Fund Source: City of Palo Alto financial data Source: City of Palo Alto financial data 198.8 200.2 201.4 197.7 193.5 192.2 185 190 195 200 205 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 3% decrease The department is responsible for the following services that are provided through general, enterprise, and internal service funds: •General Fund – Streets, Trees, Structures and Grounds, and Engineering services (Operating and Capital) •Enterprise Funds – Refuse collection, disposal, and recycling collection; Storm Drainage; Wastewater Treatment •Internal Service Fund – Vehicle replacement and maintenance (includes equipment) 0 50 100 150 200 250 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 General Fund Refuse Fund Storm Drainage Fund Wastewater Treatment Fund Vehicle Fund 16.4% 28.8% 13.4% 5.4% 1.1% 3.5% 12.3% 10.6% 2.2% 5.0% 1.3% Utility Purchases & Charges (16.4%) Salaries & Benefits (28.8%) Contract Services (13.4%) Supplies & Materials (5.4%) Facilities & Equip Purchases (1.1%) General Expense (3.5%) Rents & Leases (12.3%) Allocated Charges (10.6%) Debt Service (2.2%) Capital Improvement Program (5.0%) Operating Transfers Out (1.3%) $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 General Refuse Storm Drainage WWT Vehicle Expenditures Revenues 91 Department Wide Ch a p t e r 9 DEPARTMENT GOALS Ensure the City’s assets and infrastructure inventory are updated and well-maintained Provide high quality, cost-effective oversight of the City’s capital improvement and facilities maintenance programs Preserve the public’s health safety and ensure a vibrant, sustainable community for future generations The Department will soon be responsible for an additional service provided through the Airport enterprise fund. Transition activities began in Fiscal Year 2012 and will continue in Fiscal Year 2013, with the development of a business plan. This fund has been created in anticipation of early termination of the lease with the County of Santa Clara for operational and fiscal oversight of the Palo Alto Airport. Citizen Survey: Service Quality Citizen Survey: Service (Percent Rating “Good” or “Excellent”) Pu b l i c W o r k s Source: National Citizen SurveyTM 17% 11% 38% 41% 23% 22% 36% 31% 51% 45% 53% 49% 32% 37% 9% 11% 19% 22% 15% 21% 2% 2% 6% 7% Sidewalk maintenance Street repair Garbage collection Recycling collection Storm drainage Street tree maintenance Excellent Good Fair Poor 0% 20% 40% 60% 80% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Street tree maintenance Storm drainage Recycling collection Sidewalk maintenance Garbage collection Street repair Source: National Citizen SurveyTM Source: National Citizen SurveyTM 41% 55% 73% 87% 87% 0%20%40%60%80%100% Street repair Sidewalk maintenance Garbage collection Storm drainage Street cleaning Citizen Survey: Percentile rank * Footnote * Numbers do not add up to 100% due to rounding. * 92 $1 . 0 4 $1 . 1 2 $1 . 1 9 $1 . 1 8 $1 . 1 6 $1 . 1 4 $1 . 3 8 $1 . 5 2 $1 . 6 2 $1 . 7 5 $1 . 7 0 $1 . 7 4 $0.00 $0.50 $1.00 $1.50 $2.00 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Custodial cost per square foot Maintenance cost per square foot Public Services – Streets, Sidewalks & Facilities Source: City of Palo Alto financial data Ch a p t e r 9 KEY DIVISION OBJECTIVES Maintain and enhance the overall condition of the City’s streets and sidewalks Provide cost-effective custodial and facilities maintenance services Pu b l i c W o r k s Public Services – Streets Operating Expense Authorized FTEs FY 09 FY 10 FY 11 FY 12 $2.2M $2.2M $2.3M $2.3M $2.4M $2.5M 13.4 13.8 13.4 14.0 12.9 12.9 FY 08 $35.48 FY 07 Operating Expense Per Capita 7% 6% 5% 7% 6% 9% 82 % 78 % 80 % 86 % 81 % 81 % 0% 20% 40% 60% 80% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 # of potholes repaired # of signs repaired or replaced Source: Public Works Department $36.13 $36.38 $36.03 $36.90 $37.53 Sidewalk and Pothole repairs Source: Public Works Department 98 % 88 % 86 % 78 % 83 % 82 % 82 % 78 % 80 % 86 % 81 % 81 % 0% 50% 100% 150% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 % of temporary sidewalk repairs completed within 15 days of initial inspection % of street potholes repaired within 15 days of notification Source: City of Palo Alto financial data Public Services – Facilities Operating Expense Authorized FTEs $81.98 FY 09 FY 10 FY 11 FY 12 $4.9M $5.1M $5.7M $5.5M $5.6M $5.5M 23.3 23.5 24.5 23.8 20.6 19.9 FY 08 $89.20 $85.94 $85.90 $83.43 $79.61 FY 07 Operating Expense Per Capita Maintenance and Custodial cost per square foot (Total square feet of facilities maintained: 1,608,137 square feet) Source: Public Works Department Potholes and signage repair or replacement 93 Public Services – Trees Source: City of Palo Alto financial data Ch a p t e r 9 KEY DIVISION OBJECTIVE Maintain the health of the City’s urban forest, including proper clearance of utility lines Percent of Urban Forest pruned and Tree Line cleared Number of trees planted Source: Utilities Department Pu b l i c W o r k s Public Services – Trees Operating Expense Authorized FTEs $37.00 FY 09 FY 10 FY 11 FY 12 $2.2M $2.3M $2.1M $2.3M $2.6M $2.4M 13.9 14.7 14.2 14.0 14.0 13.1 FY 08 $33.18 $35.08 $39.74 $36.66 $35.83 FY 07 Operating Expense Per Capita 10 % 18 % 18 % 18 % 15 % 16 % 30 % 27 % 33 % 27 % 26 % 28 % 0% 25% 50% 75% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 % of urban forest pruned % of total tree line cleared Source: Public Works Department Trees maintained and serviced 34 , 5 5 6 35 , 3 2 2 35 , 2 5 5 35 , 4 7 2 33 , 1 4 6 35 , 3 2 4 3, 4 0 9 6, 5 7 9 6, 6 1 8 6, 0 9 4 5, 0 4 5 5, 5 2 7 0 10,000 20,000 30,000 40,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Total # of City-maintained trees # of all tree-related services completed Source: Public Works Department 164 188 250 201 150 143 0 200 400 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Did you know? Preparation of the Urban Forest Master Plan began in December 2010 when the City contracted with Hort Science, Inc. to work with staff on the plan. The purpose of the plan is to establish long-term management goals and strategies to foster a sustainable urban forest in Palo Alto. Palo Alto's urban forest consists of all trees in the City on public and private property. This forest includes street trees, park trees, forested parklands and trees in many private ownership settings. The Urban Forest Master Plan is scheduled for completion in summer 2013. 94 Number of Private Development Permits Issued Engineering Services Engineering Services - Operation Source: City of Palo Alto financial data Ch a p t e r 9 KEY DIVISION OBJECTIVES Provide high quality, cost-effective oversight of the City’s capital improvement programs Support the City’s infrastructure improvement plan Ensure compliance with all applicable regulations related to the public’s health and safety Pu b l i c W o r k s Operating Expense Authorized FTEs $34 FY 09 FY 10 FY 11 FY 12 $2.0M $2.1M $2.2M $1.6M $1.5M $1.6M 14.0 15.9 15.6 10.2 9.2 9.2 FY 08 $34 $25 $23 $24 $32 FY 07 Operating Expense Per Capita 215 338 304 321 375 411 0 100 200 300 400 500 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 The Engineering Services Division includes a Private Development group that reviews development plans and issues permits for activities including onsite grading and construction work in the public right of way. Located at the City’s Development Center, the Private Development group is an integral part of the Development Center Blueprint effort to streamline and improve the development process. The Department also provides citywide capital improvement program (CIP) support including design, engineering, contract administration, and project management. Maintaining and improving infrastructure continue to be a City priority. A few of the Division’s Capital Improvement Program key accomplishments include: Opened the newly renovated Downtown Library. Began construction on the new Mitchell Park Library and Community Center scheduled to open late 2013. ✓ Began construction of the Arts Center renovation. Number of Private Development Permits per FTE Source: Public Works Department Source: Public Works Department Did you know? 83 112 101 107 125 103 0 50 100 150 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 95 Capital Expense - Enterprise Funds (in thousands) Capital Expenditures – General Fund (in thousands) Engineering Services Ch a p t e r 9 KEY DIVISION OBJECTIVES Provide high quality, cost-effective oversight of the City’s capital improvement programs Support the City’s infrastructure improvement plan Pu b l i c W o r k s $1 , 4 5 6 $3 , 6 4 6 $5 , 3 1 2 $1 , 6 4 9 $1 , 0 9 8 1, 9 1 8 $1 , 7 6 7 $1 0 , 9 0 4 $9 , 2 0 4 $5 , 9 6 4 $3 , 1 3 0 $1 , 4 9 0 $0 $0 $7 4 0 $1 8 7 $1 7 1 $7 4 5 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Storm Drain Wastewater Treatment Refuse Source: City of Palo Alto financial data Metropolitan Transportation Commission (MTC) 2011 Pavement Condition Index (PCI) Ratings Source: MTC – Pavement Condition Of Bay Area Jurisdictions 2011 Every year, local jurisdictions analyze pavement conditions to help gauge their success in maintaining their local street and road networks. Metropolitan Transportation Commission (MTC), in turn, collects this information to determine regional state of repair. MTC and local jurisdictions use a Pavement Condition Index (PCI) score that rates segments of paved roadways on a scale from 0 to 100. The department has implemented a plan to achieve an average PCI of 85 ("excellent" street condition) by 2021. Rating PCI Score Rating PCI Score Very Good - Excellent 80-100 Good 70-79 Fair 60-69 At Risk 50-59 Poor 25-49 Failed 0-24 $2 , 4 5 0 $2 , 2 2 2 $2 , 0 6 2 $1 , 9 1 9 $1 , 9 1 1 $1 , 9 8 8 $5 , 2 5 2 $3 , 4 5 7 $4 , 4 8 6 $3 , 9 5 6 $5 , 5 0 1 $3 , 9 8 4 $8 5 3 $2 , 7 1 7 $1 , 9 4 3 $3 , 3 1 5 $1 , 3 5 5 $1 , 1 6 9 $8 , 1 5 9 $8 , 3 1 1 $1 0 , 8 0 1 $1 0 , 0 9 1 $2 5 , 4 9 6 $2 1 , 4 7 6 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Sidewalks Streets Parks Facilities Source: City of Palo Alto financial data 53 68 68 70 73 75 76 77 78 0 20 40 60 80 East Palo Alto Menlo Park Milpitas Cupertino Palo Alto Sunnyvale Mountain View Redwood City Santa Clara 96 Engineering Services Ch a p t e r 9 KEY DIVISION OBJECTIVES Provide high quality, cost-effective oversight of the City’s capital improvement programs Support the City’s infrastructure improvement plan Pu b l i c W o r k s Capital Full Time Equivalent (FTE) – General Fund Source: Adopted Capital Budget By the year 2015, the current cycle of the sidewalk replacement program should have reached all areas of the City, and a new cycle of sidewalk maintenance will begin. Square feet of sidewalk replaced or permanently repaired Source: Public Works Department 94,620 83,827 56,909 54,602 71,174 72,787 0 50,000 100,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Street Resurfacing 32 . 0 27 . 0 23 . 0 32 . 4 28 . 9 40 . 0 7% 6% 5% 7% 6% 9% 0% 2% 4% 6% 8% 10% 0.00 10.00 20.00 30.00 40.00 50.00 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Street lane miles resurfaced % of street lane miles resurfaced Source: Public Works Department Palo Alto's Street Maintenance Program improves and maintains 473 lane-miles of city streets. Approximately 30 percent of these streets were originally constructed with portland cement concrete (PCC) in the 1930s. The remaining streets are asphalt concrete, which is the standard material for modern street construction. PCC streets are longer-lived than asphalt streets, but are significantly more expensive to repair and maintain. In Palo Alto, many PCC streets have been overlaid with asphalt, creating additional problems and cost when the asphalt surfaces need repairs. Beginning in fiscal year 2011, the City Council more than doubled the annual Street Maintenance Program budget in order to improve the quality of Palo Alto's streets. 1.4 3.0 2.0 1.6 8.9 7.0 8.4 10.4 - 2.0 4.0 6.0 8.0 10.0 12.0 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Streets Parks and Landscape Sidewalk Facilities 97 History of Average Monthly Residential Bill Percent of Industrial/Commercial sites inspected for compliance Storm Drainage Operating Revenues and Expenses Op Revenue Op Expense Source: City of Palo Alto financial data Ch a p t e r 9 KEY SERVICE OBJECTIVES Effectively manage the storm drainage system to ensure adequate local drainage Reduce storm water runoff and protect the quality of waters discharged to creeks and the San Francisco Bay Calls for assistance with storm drains Feet of storm drain pipelines cleaned $114 FY 09 FY 10 FY 11 FY 12 $5.3M $5.9M $5.8M $5.8M $6.3M $6.1M $4.3M $7.1M $7.5M $3.9M $3.5M $4.3M FY 08 $119 $61 $54 $65 $71 FY 07 Source: Public Works Department Pu b l i c W o r k s Source: Public Works Department Source: Public Works Department Source: Public Works Department $10.20 $10.55 $10.95 $10.95 $11.23 $11.73 $0 $2 $4 $6 $8 $10 $12 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 4 80 44 119 45 18 0 50 100 150 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 287,957 157,337 107,223 86,174 129,590 157,398 0 150,000 300,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Operating Expense Per Capita 71% 65% 70% 81% 81% 88% 0% 20% 40% 60% 80% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 98 Millions of gallons processed and Millions of gallons of recycled water delivered Percent of industrial discharge tests in compliance and Fish toxicity testing (percent survival) Wastewater Treatment Operating Revenues and Expenses Op Revenue Op Expense Footnote 1 Prior to 2009, only automotive sites were reported. Beginning in 2009, inspections reported include 44 manufacturing, 86 automotive and 300 food service facilities. These figures have been restated. Source: City of Palo Alto financial data Ch a p t e r 9 KEY SERVICE OBJECTIVES Protect the environment and the public’s health Operate high quality, cost-effective and visually neutral facilities Inspections of Commercial/Industrial Sites1 Percent of operating expenses reimbursed by other jurisdictions $503 FY 09 FY 10 FY 11 FY 12 $17.7M $23.9M $29.1M $17.6M $20.9M $22.8M $20.4M $31.3M $39.3M $22.4M $20.5M $19.8M FY 08 $619 $347 $316 $302 $332 FY 07 Source: Public Works Department Pu b l i c W o r k s Source: Public Works Department 64% 64% 63% 62% 61% 60% 50% 60% 70% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 99 . 4 % 99 . 3 % 98 . 9 % 98 . 8 % 99 . 0 % 99 . 3 % 10 0 % 10 0 % 10 0 % 10 0 % 10 0 % 10 0 % 0% 20% 40% 60% 80% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Discharge tests in compliance Fish Toxicity Test Source: Public Works Department Operating Expense Per Capita 114 111 250 300 295 300 0 50 100 150 200 250 300 350 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Source: Public Works Department 8, 8 5 3 8, 5 1 0 7, 9 5 8 8, 1 8 4 8, 6 5 2 8, 1 3 0 130 138 97 168 236 279 0 100 200 300 0 2,000 4,000 6,000 8,000 10,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Mi l l i o n s o f g a l l o n s o f r e c y c l e d wa t e r d e l i v e r e d Mi l l i o n s o f g a l l o n s p r o c e s s e d Millions of gallons processed Millions of gallons of recycled water delivered 99 History of Average Monthly Residential Bill Percent of all scheduled sweeping routes completed (Residential and Commercial) Refuse Operating Revenues and Expenses Op Revenue Op Expense Source: City of Palo Alto financial data Ch a p t e r 9 KEY SERVICE OBJECTIVES Minimize waste generation and maximize recycling and reuse Effectively manage the City’s solid waste, hazardous waste and street sweeping programs Tons of Waste Landfilled Tons of Household Hazardous Materials Collected $473 FY 09 FY 10 FY 11 FY 12 $26.3M $29.8M $30.0M $29.2M $31.6M $31.6M $25.1M $29.4M $35.5M $31.4M $31.0M $32.4M FY 08 $560 $488 $479 $495 $410 FY 07 Source: Public Works Department Pu b l i c W o r k s 59,938 61,866 68,228 48,955 38,524 43,947 0 20,000 40,000 60,000 80,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 $21.38 $24.16 $26.58 $31.00 $32.40 $36.33 $0 $5 $10 $15 $20 $25 $30 $35 $40 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Source: Public Works Department Source: Public Works Department 93% 90% 92% 88% 92% 90% 0% 20% 40% 60% 80% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Source: Public Works Department 320 315 243 234 216 188 0 250 500 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Operating Expense Per Capita 100 Vehicle Expenditures (in thousands) Preventative Maintenance & Alternative Fuel Consumption City Vehicle and Equipment Source: City of Palo Alto financial data Ch a p t e r 9 KEY SERVICE OBJECTIVES Ensure the City’s vehicles, equipment and storage/dispensing facilities are safe, reliable and energy efficient Provide cost-effective preventive maintenance and repair services Median Mileage and Age of Light Duty Vehicles Current Value of Fleet and Equipment (in thousands) Source: Public Works Department Source: Public Works Department Pu b l i c W o r k s Operating Revenues and Expenses Op Revenue Op Expense $111 FY 09 FY 10 FY 11 FY 12 $6.4M $6.8M $8.8M $7.8M $8.1M $8.1M $7.0M $6.9M $14.8M $7.5M $6.8M $8.7M FY 08 $233 $117 $105 $132 $114 FY 07 Operating Expense Per Capita 41,920 50,345 6.8 9.7 0 5 10 15 0 20,000 40,000 60,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 (A g e ) (# o f m i l e s ) Mileage Age $11,885 $10,014 $8,000 $10,000 $12,000 $14,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Source: Public Works Department $1 , 4 4 5 $1 , 0 6 5 $8 , 7 0 5 $8 1 2 $1 , 4 6 2 $1 , 5 5 1 $3 , 3 1 5 $3 , 7 8 9 $4 , 2 9 9 $4 , 0 4 6 $3 , 1 2 9 $3 , 5 1 4 $0 $2,000 $4,000 $6,000 $8,000 $10,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Replacement & Additions Operations & Maintenance Source: Adopted Operating Budget 86% 74% 94% 93% 98% 98% 20% 25% 25% 24% 24% 25% 0% 50% 100% 150% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 % of preventative maintenance completed within 5 days of original schedule % of fuel consumption that is alternative fuel 101 Footnotes 1 Includes trees planted by Canopy; data source is Public Works Department workload statistics. 2 Excludes trees trimmed to clear power lines. 3 FY 2011 was the first year, since 1989, the trees were officially counted. Data prior to FY 2011 were estimated. Ch a p t e r 9 Operating Expenditures (in millions) Streets Sidewalks Facilities Citizen Survey Streets City Facilities Number of potholes repaired (Target: 3,000) Percent of potholes repaired within 15 days of notification (Target: 80%) Number of signs repaired or replaced Percent of temporary repairs completed within 15 days of initial inspection Total square feet of facilities maintained Maintenance cost per square foot (Target: $1.70) Custodial cost per square foot (Target: $1.16) Percent rating street repair “good” or “excellent” Percent rating sidewalk maintenance “good” or “excellent” FY 07 $2.2 $4.9 1,188 82% 1,475 98% 1,613,392 $1.38 $1.04 47% 57% FY 08 $2.2 $5.1 1,977 78% 1,289 88% 1,616,171 $1.52 $1.12 47% 53% FY 09 $2.3 $5.7 3,727 80% 1,292 86% 1,616,171 $1.62 $1.19 42% 53% FY 10 $2.3 $5.5 3,149 86% 2,250 78% 1,617,101 $1.75 $1.18 43% 51% FY 11 $2.4 $5.6 2,986 81% 1,780 83% 1,617,101 $1.70 $1.16 40% 51% FY 12 $2.5 $5.5 3,047 81% 2,439 82% 1,608,137 $1.74 $1.14 42% 53% Change from: Last year +3% -2% +2% 0% +37% -1% -1% +2% -2% +2% +2% FY 07 +13% +11% +156% -1% +65% -16% 0% +26% +10% -5% -4% PUBLIC SERVICES – STREETS, SIDEWALKS, AND FACILITIES Pu b l i c W o r k s Citizen Survey Operating Expenditures (in millions) Authorized staffing (FTE) (General Fund) Total number of City- maintained trees3 Number of trees planted1 (Target: 250) Number of all tree-related services completed2 (Target: 6,000) Percent of urban forest pruned Percent of total tree line cleared (Target: 25%) Number of tree- related electrical service disruptions (Target: 0) Percent rating street tree maintenance “good” or “excellent” FY 07 $2.2 14.0 34,556 164 3,409 10% 30% 15 67% FY 08 $2.3 14.0 35,322 188 6,579 18% 27% 9 68% FY 09 $2.1 14.0 35,255 250 6,618 18% 33% 5 72% FY 10 $2.3 14.0 35,472 201 6,094 18% 27% 4 69% FY 11 $2.6 14.0 33,146 150 5,045 15% 26% 8 70% FY 12 $2.4 12.8 35,324 143 5,527 16% 28% 4 71% Change from: Last year -7% -8% +7% -5% +10% +1% +2% -50% +1% FY 07 +9% -8% +2% -13% +62% +6% -2% -73% +4% PUBLIC SERVICES – TREES 102 Footnotes 1 This includes permits for street work, encroachment, and certificate of compliance. 2 Includes both in-house and contracted work. 3 ADA (Americans with Disabilities Act) requires that accessibility to buildings and facilities be provided to individuals with disabilities. 4 The Department advises that the FY 2007 number is an estimate. 5 Capital expenditures includes direct labor, materials, supplies, and contractual services. Does not include overhead. Ch a p t e r 9 Engineering Operating Expenditures (in millions) Engineering authorized staffing (FTE) Number of private development permits issued1 (Target: 250) Number of private development permits per FTE (Target: 77) Lane miles resurfaced Percent of lane miles resurfaced Square feet of sidewalk replaced or permanently repaired2 Number of ADA3 ramps FY 07 $2.0 14.3 215 834 32.0 7% 94,620 70 FY 08 $2.1 14.6 338 112 27.0 6% 83,827 27 FY 09 $2.2 14.6 304 101 23.0 5% 56,909 21 FY 10 $1.6 10.0 321 107 32.4 7% 54,602 22 FY 11 $1.5 9.2 375 125 28.9 6% 71,174 23 FY 12 $1.6 9.2 411 103 40.0 9% 72,787 45 Change from: Last year +5% 0% +10% -18% +38% +3% +2% +96% FY 07 -20% -36% +91% +24% +25% +2% -23% -36% ENGINEERING SERVICES Pu b l i c W o r k s Capital Expenditures5 - General Fund (in millions) Capital Expenditures - Enterprise Fund (in millions) Capital Authorized Staffing (FTE) Streets (Target: $3.8) Sidewalks Parks Facilities (Target: $16.9) Storm Drainage Wastewater Treatment Refuse Streets Sidewalks Parks Facilities FY 07 $5.3 $2.5 $0.1 $8.2 $1.5 $1.8 $0.0 1.4 8.9 2.0 8.4 FY 08 $3.5 $2.2 $2.7 $8.3 $3.6 $10.9 $0.0 1.4 8.9 2.0 8.4 FY 09 $4.5 $2.1 $1.9 $10.8 $5.3 $9.2 $0.7 1.4 7.1 2.0 9.2 FY 10 $4.0 $1.9 $3.3 $10.1 $1.6 $6.0 $0.2 2.9 7.1 2.7 11.4 FY 11 $5.5 $1.9 $1.4 $25.5 $1.1 $3.1 $0.2 3.0 6.9 1.6 10.0 FY 12 $4.0 $2.0 $1.2 $21.5 $1.9 $1.5 $0.7 3.0 7.0 1.6 10.4 Change from: Last year -28% +4% -14% -16% +75% -52% +335% 0% +1% 0% +4% FY 07 -24% -19% +37% +163% +32% -16% - +113% -22% -23% +25% 103 Footnotes 1 Consistent with the City’s operating budget documents, capital improvement program (CIP) expenditures are included as “operating expenditures” for this department. 2 Includes direct labor, materials, supplies, and contractual services. 3 The Department advises that these figures are estimates. 4 Includes gallons processed for all cities served by Palo Alto’s RWQCP. 5 Prior to 2009 only automotive sites were reported. Beginning 2009 inspections reported include 44 manufacturing, 86 automotive and 300 food service facilities. These figures have been restated. Ch a p t e r 9 Revenues, Expenses, and Unrestricted Reserves (in millions) Citizen Survey Operating Revenues Operating Expenses1 Capital Expenses2 Storm Drain Fund Reserves Average Monthly Residential Bill Authorized Staffing (FTE) Feet of storm drain pipelines cleaned (Target: 100,000) Calls for assistance with storm drains3 Percent of Industrial/ Commercial sites inspected for compliance (Target: 80%) Percent Rating the quality of storm drainage “good” or “excellent” FY 07 $5.3 $4.3 $1.5 $4.5 $10.20 9.5 287,957 4 71% 60% FY 08 $5.9 $7.1 $3.6 $3.3 $10.55 9.5 157,337 80 65% 71% FY 09 $5.8 $7.5 $5.3 $1.2 $10.95 9.5 107,223 44 70% 73% FY 10 $5.8 $3.9 $1.6 $2.7 $10.95 9.5 86,174 119 81% 73% FY 11 $6.3 $3.5 $1.1 $5.0 $11.23 9.5 129,590 45 81% 74% FY 12 $6.1 $4.3 $1.9 $6.5 $11.73 9.4 157,398 18 88% 76% Change from: Last year -2% +21% +75% +28% +4% -1% +21% -60% +8% +2% FY 07 +15% -2% +32% +44% +15% -1% -45% +350% +18% +16% STORM DRAINAGE Pu b l i c W o r k s Revenues, Expenses, and Unrestricted Reserves (in millions) Wastewater Treatment Fund Regional Water Quality Control Plant Wastewater Environmental Compliance Operating Revenues Operating Expenses1 Percent of operating expenses reimbursed by other jurisdictions Capital Expenses2 Wastewater Treatment Fund Reserves Authorized Staffing (FTE) Millions of gallons processed4 (Target: 8,200) Fish toxicity test - percent survival (Target: 95%) Authorized Staffing (FTE) Inspections of Commercial/ Industrial sites5 Percent of industrial discharge tests in compliance (Target: 99%) FY 07 $17.7 $20.4 64% $1.8 $13.8 54.8 8,853 100.00% 13.85 114 99.40% FY 08 $23.9 $31.3 64% $10.9 $11.1 54.8 8,510 100.00% 13.85 111 99.25% FY 09 $29.1 $39.3 63% $9.2 $12.9 54.3 7,958 100.00% 13.70 250 98.90% FY 10 $17.6 $22.4 62% $6.0 $11.8 54.3 8,184 100.00% 13.70 300 98.82% FY 11 $20.9 $20.5 61% $3.1 $15.8 55.5 8,652 100.00% 13.70 295 99.00% FY 12 $22.8 $19.8 60% $1.5 $18.0 55.5 8,130 100.00% 14.6 300 99.27% Change from: Last year +9% -3% -1% -52% +14% 0% -6% 0% +7% +2% 0% FY 07 +29% -3% -4% -16% +30% +1% -8% 0% +5% +163% 0% WASTEWATER TREATMENT AND ENVIRONMENTAL COMPLIANCE 104 Footnotes 1 Consistent with the City’s operating budget documents, capital improvement program (CIP) expenditures are included as “operating expenditures” for this department. 2 Includes direct labor, materials, supplies, and contractual services. 3 Does not include materials disposed of by self-haul customers, going to other landfills. 4 Most streets are swept weekly; some business districts are swept three times a week. Ch a p t e r 9 REFUSE AND ZERO WASTE Pu b l i c W o r k s Zero Waste Citizen Survey Tons of materials recycled3 Tons of household hazardous materials collected Tons of C&D diverted Percent of customers using reusable bags at grocery stores Per capita disposal rate (pounds per day) (Target: 4.50) Percent rating recycling services “good” or “excellent” (Target: 90%) Percent of residents recycling more than 12 times during the year FY 07 56,837 320 - - - 93% 92% FY 08 52,196 315 6,656 9% 6.00 90% 94% FY 09 49,911 243 10,508 19% 5.90 90% 92% FY 10 48,811 234 10,137 21% 4.20 90% 93% FY 11 56,586 216 28,177 22% 3.30 91% 89% FY 12 51,725 188 - 21% 3.70 86% 92% Change from: Last year -9% -13% - -1% +12% -5% +3% FY 07 -9% -41% - - - -7% 0% Revenues, Expenses, and Unrestricted Reserves (in millions) Citizen Survey Operating Revenues Operating Expenses1 Capital Expenses2 Refuse Fund Reserves Average Monthly Residential Bill Authorized Staffing (FTE) Total tons of waste landfilled3 Percent of all sweeping routes completed4 (residential and commercial) (Target: 92%) Percent rating garbage collection “good” or “excellent” Percent rating City’s composting process and pickup services “good” or “excellent” FY 07 $26.3 $25.1 $0.0 $5.9 $21.38 34.7 59,938 93% 91% - FY 08 $29.8 $29.4 $0.0 $6.3 $24.16 34.9 61,866 90% 92% - FY 09 $30.0 $35.5 $0.7 $0.8 $26.58 35.3 68,228 92% 89% 86% FY 10 $29.2 $31.4 $0.2 ($1.4) $31.00 38.0 48,955 88% 88% 83% FY 11 $31.6 $31.0 $0.2 ($0.7) $32.40 38.0 38,524 92% 90% 81% FY 12 $31.6 $32.4 $0.7 ($1.6) $36.33 38.1 43,947 90% 89% - Change from: Last year 0% +5% +335% +120% +12% 0% +14% -2% -1% - FY 07 +20% +29% - -127% +70% +10% -27% -3% -2% - 105 Footnote 1 Includes all maintenance costs, except fuel and accident repairs. Maintenance costs for 30 police patrol cars are included. Ch a p t e r 9 Revenues and Expenditures (in millions) Operating Revenues Operating Expenditures Replacement and Additions Expenditures Operations and Maintenance Expenditures Authorized staffing (FTE) Current value of vehicle and equipment Number of alternative fuel vehicles (Target: 67) Percent of vehicle fuel consumption that is alternative fuels (Target: 27%) FY 07 $6.4 $7.0 $1.4 $3.3 16.0 $11,885 79 20% FY 08 $6.8 $6.9 $1.1 $3.8 16.3 $10,815 80 25% FY 09 $8.8 $14.8 $8.7 $4.3 16.2 $10,004 75 25% FY 10 $7.8 $7.5 $0.8 $4.0 16.0 $11,222 74 24% FY 11 $8.1 $6.8 $1.5 $3.1 16.6 $10,842 63 24% FY 12 $8.1 $8.7 $1.6 $3.5 16.1 $10,014 60 25% Change from: Last year +1% +28% +6% +12% -3% -8% -5% +1% FY 07 +26% +24% +7% +6% 0% -16% -24% +5% CITY VEHICLE AND EQUIPMENT Pu b l i c W o r k s Total miles traveled of light duty vehicles Median mileage of light duty vehicles Median age of light duty vehicles Maintenance cost per light duty vehicle1 Percent of scheduled preventive maintenance performed within five business days of original schedule FY 07 1,849,600 41,920 6.8 $1,886 86% FY 08 1,650,743 42,573 7.4 $1,620 74% FY 09 1,615,771 44,784 8.0 $2,123 94% FY 10 1,474,747 47,040 8.7 $1,836 93% FY 11 1,447,816 47,252 8.8 $2,279 98% FY 12 1,503,063 50,345 9.7 $2,168 98% Change from: Last year +4% +7% +10% -5% 0% FY 07 -19% +20% +43% +15% +12% This Page Intentionally Left Blank 106 107 40% 16% 15% 15% 9% 5% Administrative Services Department (40%) City Attorney’s Office (16%) Human Resources Department (15%) City Manager’s Office (15%) City Clerk’s Office (9%) City Auditor’s Office (5%) Chapter 10: Strategic and Support Services Office of the City Manager: Leading the City in providing exemplary service and creating partnerships with citizens in an ever changing environment, in response to City Council priorities. Office of the City Attorney: Serving Palo Alto and its policy makers by providing legal representation of the highest quality. Human Resources Department: Recruiting, developing, and retaining a diverse, well-qualified, and professional workforce that reflects the high standards of the community, and providing a high level of support to the City departments. Office of the City Auditor: Promoting honest, efficient, effective, and fully accountable city government. Office of the City Clerk: Helping administer the laws and services that directly affect the daily lives of our citizens by administering elections and records management, and maintaining the legislative process of all City Council meetings. How are Strategic and Support Services dollars used? (General Fund Total = $17.4 million) Administrative Services Department: Providing proactive administrative and financial support to City departments and decision makers, and safeguarding and facilitating the optimal use of City resources. 108 Ch a p t e r 1 0 Strategic & Support Services Per Capita Spending1 Overall $255 $276 $253 $278 $242 FY 07 FY 08 FY 09 FY 10 FY 11 $265 FY 12 Source: City of Palo Alto financial data St r a t e g i c & S u p p o r t S e r v i c e s 52.9 53.5 50.6 44.2 40.2 39.1 15.6 17.2 16.0 16.3 16.3 16.3 8.9 12.9 11.8 11.0 9.9 11.1 11.6 11.6 11.6 11.6 10.1 9.0 7.3 8.3 7.4 7.2 7.2 7.2 4.1 4.3 4.3 4.3 4.8 4.3 0.0 20.0 40.0 60.0 80.0 100.0 120.0 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 City Auditor City Clerk City Attorney City Manager Human Resources Administrative Services Total # of Full Time Equivalents (FTEs)1 Source: City of Palo Alto financial data 13% decrease Footnote 1 FTE counts and operating expenditures in this section are for the General Fund only. Planning & Community Env. City Council City Attorney City Auditor City Manager City Clerk Administrative Services Community Services Fire Human Resources Public Works Library Utilities Information Technology Palo Alto Residents Did You Know? There are four City Council Appointed Officers (CAOs); City Manager, City Attorney, City Clerk, and City Auditor. The Director of Administrative Services and the Director of Human Resources are appointed by the City Manager with the approval of the Council. Palo Alto Municipal Code requires that each officer “perform all duties required of his or her office by state laws, the Charter, and ordinances of the city, and such duties not in conflict therewith as may be required either by the council or the city manager, whichever makes the appointment.” These offices and departments provide various services to assist other City departments including operations involving the nine enterprise funds (water, electricity, gas, wastewater collection, wastewater treatment, refuse, storm drainage, fiber optic, and airport). Strategic & Support Services Emergency Services Police 109 Office of the City Manager 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Citizen Survey: Service Ratings (Percent Rating “Good” or “Excellent”) Overall quality of services provided by the City Public information services Office of the City Manager Spending FY 09 FY 10 FY 11 FY 12 $1,951 $2,284 $2,302 $2,526 11.8 11.0 9.9 11.1 Expenditures (in thousands) Authorized FTEs1 Source: City of Palo Alto financial data Ch a p t e r 1 0 DEPARTMENT GOALS Implement the City Council’s policy direction and ensure their goals and objectives are achieved in a timely manner Lead the City’s management team to ensure the provision of high quality, cost-effective and customer focused services Advocate sound financial planning by developing and implementing operating and capital improvement budgets Promote and sustain citizen participation and engagement in public matters St r a t e g i c & S u p p o r t S e r v i c e s for every 1 City Manager Staff Employees 98 Employees 104 Employees 112 Employees 101 62% 63% 54% 49% 52% 67% 0% 20% 40% 60% 80% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Citizen Survey: Percent Rating Economic Development “Good” or “Excellent” The Office assists companies of all sizes in locating or expanding in Palo Alto by providing needed information and facilitating permit processes. The Office attributes the increase to enhanced relationships with the business community which raised awareness of the tools and resources available to businesses. Source: National Citizen Survey™ Source: National Citizen Survey™ Footnote 1 FTE counts and operating expenditures in this section are for the General Fund only. 110 Office of the City Attorney 149 160 126 144 130 112 0 20 40 60 80 100 120 140 160 180 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Number of Claims Handled Office of the City Attorney Spending FY 09 FY 10 FY 11 FY 12 $2,474 $2,583 $2,338 $2,753 11.6 11.6 10.1 9.0 Source: City of Palo Alto financial data Ch a p t e r 1 0 DEPARTMENT GOALS Advance the public interest by providing high quality legal representation to the City Evaluate all claims and litigation promptly, resolving disputes where appropriate and vigorously defending the City's interests Identify and reduce exposure to legal risks St r a t e g i c & S u p p o r t S e r v i c e s for every 1 City Attorney Staff Employees 100 Employees 100 Employees 110 Employees 124 Source: Office of the City Attorney Footnote 1 FTE counts and operating expenditures in this section are for the General Fund only. Did You Know? Among the most important functions of the Office is providing training to the City Council, City Manager, boards, commissions, and operating departments. During 2012, the Office conducted training sessions on the Brown Act, Conflict of Interest, and public ethics. New Performance Measures for FY 2013 The Office is in the process of implementing new performance measures to improve its performance management. Key metrics identified and to be reported beginning next year include: •Percent of claims resolved within 45 days of filing measures the timeliness of investigating and resolving claims, demonstrating responsiveness to residents’ concerns and safeguarding public resources by reducing unnecessary lawsuits. Under California law, anyone who wishes to bring a claim for money or damages against a public entity must first present their claim directly to the local agency. Common claims include automobile accidents, tree limb failures, accidents such as “trip and falls,” and utility services issues. The Office’s goal is to resolve 90% of all claims within 45 days of filing. •Client Services Survey rating measures the Office’s progress toward the goal of advancing the public interest by providing high quality legal representation to the City. The Office conducted the first Client Services Survey in 2011, and received an overall Client Satisfaction rating of 92%. Expenditures (in thousands) Authorized FTEs1 25% decrease 111 Office of the City Clerk 3.2 3.0 1.9 6.5 0 1 2 3 4 5 6 7 FY 09 FY 10 FY 11 FY 12 Ratio of Applicants to Vacancies for Boards and Commissions Office of the City Clerk Spending FY 09 FY 10 FY 11 FY 12 $1,150 $1,455 $1,246 $1,500 7.4 7.2 7.2 7.2 Source: City of Palo Alto financial data Ch a p t e r 1 0 DEPARTMENT GOALS Maintain a records management program that promotes transparency, accountability and effective service delivery Respond to the legislative needs of the City Council and the community in a timely and effective manner Effectively administer municipal elections and appointments to boards and commissions St r a t e g i c & S u p p o r t S e r v i c e s for every 1 City Clerk Staff Employees 155 Employees 159 Employees 154 Employees 154 Source: Office of the City Clerk Did You Know? The Office of the City Clerk is the legislative administrator for the City and provides support to the City Council and the public by preparing the agendas, coordinating the agenda packet process, verifying legal notices, scheduling public hearings, and managing the transcription of all City Council and Standing Committee meeting minutes. The Office also oversees the legislative process of preserving and protecting the public record including minutes, ordinances, and resolutions. As the elections official, the City Clerk administers Federal, State, and Local procedures for elections, and assists local candidates and elected officials in meeting their legal responsibilities. Boards and Commissions recruitments are also a function of the Office of the City Clerk. Additional information on volunteer opportunities is available on the City Clerk’s Webpage under Board/Commission Recruitment. Footnote 1 FTE counts and operating expenditures in this section are for the General Fund only. The Office of the City Clerk attributes the FY 2012 increase to solicitation of additional public interest to serve on Boards and Commissions by using various alternative advertising methods, including placing flyers and bookmarks at locations around the City, advertising online, and facilitating contact between potential applicants and council/commissioners/staff. Expenditures (in thousands) Authorized FTEs1 112 Office of the City Auditor Office of the City Auditor Spending FY 09 FY 10 FY 11 FY 12 $823 $965 $956 $927 4.3 4.3 4.8 4.3 Source: City of Palo Alto financial data Ch a p t e r 1 0 DEPARTMENT GOALS Add value and improve operations by providing independent, objective analysis and information regarding the stewardship, performance, and/or financial impact of City programs and operations. Provide the residents of Palo Alto, City Council, and other stakeholders with information on past performance to strengthen public accountability, improve government efficiency and effectiveness, and support future decision making. Maintain efficient and effective audit processes. St r a t e g i c & S u p p o r t S e r v i c e s for every 1 City Auditor Staff Employees 266 Employees 266 Employees 233 Employees 258 Footnotes 1 FTE counts and operating expenditures in this section are for the General Fund only. 2 The fluctuation is due to numerous potential misallocations pending resolution by the State Board of Equalization. The Office of the City Auditor does not have control over when these potential misallocations are resolved. Other revenue recoveries include transient occupancy tax, alternative fuel tax credit, and/or unclaimed property which are generally non-recurring. Revenue Recoveries2 Source: Office of the City Auditor $0 $50 $100 $150 $200 $250 $300 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 (I n t h o u s a n d s ) Sales and Use Tax recoveries Other revenue recoveries New Performance Measures for FY 2013 The Office is in the process of implementing new performance measures to improve its performance management. Key metrics identified and to be reported beginning next year include: •Percent of audit recommendations accepted and implemented on time measures the effectiveness of audit recommendations. Recommendations are effective when they are addressed to parties that have the authority to act and when the recommended actions are specific, cost effective, and measurable. •Client Satisfaction Survey rating measures the department’s satisfaction with the value of the audit services provided and skill level of the audit staff. •Percent of work plan completed measures the effectiveness of annual planning and resource management. Did You Know? The Office of the City Auditor (OCA) publishes all of its reports (including this one) on its website at: http://www.cityofpaloalto.org/gov/depts/aud/ Expenditures (in thousands) Authorized FTEs1 113 Administrative Services Department Administrative Services Spending FY 09 FY 10 FY 11 FY 12 $6,994 $7,873 $6,267 $6,981 50.6 44.2 40.2 39.1 Source: City of Palo Alto financial data Ch a p t e r 1 0 DEPARTMENT GOALS Ensure the City of Palo Alto’s short and long-term financial status is healthy and sound Provide timely and accurate financial transactions Ensure public funds and assets are invested prudently and are well-managed Implement performance management programs to support and enhance communication, accountability, and positive outcomes St r a t e g i c & S u p p o r t S e r v i c e s for every 1 Administrative Services Staff Employees 23 Employees 26 Employees 28 Employees 29 Did You Know? The City of Palo Alto launched an online “Open Budget” in partnership with Delphi Solutions to provide easy, visual access to the City’s budget data for the last five years. The new Open Budget tool can be accessed at: http://data.cityofpaloalto.org/openbudget Footnote 1 FTE counts and operating expenditures in this section are for the General Fund only. Cash and Investments and Rate of Return 4.4% 4.5% 4.4% 4.0% 3.3% 2.8% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% $0 $100 $200 $300 $400 $500 $600 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Cash and investments Rate of return on investments United States 5 year Treasury's Average Yields Source: Administrative Services Department Ca s h a n d i n v e s t m e n t s ( i n m i l l i o n s ) Ra t e o f r e t u r n A credit rating on the City’s General Obligation bonds remains AAA Expenditures (in thousands) Authorized FTEs1 10,310 11,350 12,665 12,089 13,547 15,256 2,692 2,549 2,577 2,314 2,322 2,232 0 5,000 10,000 15,000 20,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Number of Purchasing Documents Processed and Number of Purchasing Card Transactions Number of purchasing card transactions Number of purchasing documents processed Source: Administrative Services Department 48% increase 114 Footnotes 1 FTE counts and operating expenditures in this section are for the General Fund only. 2 Estimated cost outstanding represents early estimates of current claim costs incurred less costs paid as of July 31, 2012. Human Resources Department Human Resources Spending FY 09 FY 10 FY 11 FY 12 $2,700 $2,707 $2,572 $2,676 16.0 16.3 16.3 16.3 Source: City of Palo Alto financial data Ch a p t e r 1 0 DEPARTMENT GOALS Attract and retain a highly qualified workforce that values and reflects diversity, innovation and a strong commitment to public service Promote collaborative and effective labor management relationships while representing the public’s interests in all bargaining matters Promote continuous improvement in the responsiveness and effectiveness of staff performance through timely and relevant employee learning and development opportunities Reduce liability exposure to the City for employee- involved vehicle collisions Provide a safe environment for employees Minimize loss of productivity and disruption of services St r a t e g i c & S u p p o r t S e r v i c e s for every 1 HR Staff Employees 72 Employees 70 Employees 68 Employees 68 Workers’ Compensation Cost Paid and Estimated Cost Outstanding2 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Workers' Compensation Estimated Cost Outstanding Workers' Compensation Cost Paid Source: Human Resources Department Co s t ( i n t h o u s a n d s ) 7,121 9,054 8,710 3,429 3,774 4,823 0 2,000 4,000 6,000 8,000 10,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Citywide Training Hours Provided Source: Human Resources Department 32% decrease According to the Department, costs continue to grow for many claims as they progress. For example, an injured employee may return to work with a level of permanent disability requiring further medical care including a future surgery. Expenditures (in thousands) Authorized FTEs1 115 Footnotes 1 FTE counts and operating expenditures in this section are for the General Fund only. 2 The Office of the City Clerk attributes the FY 2012 increase to solicitation of additional public interest to serve on Boards and Commissions by using various alternative advertising methods. 3 The fluctuation is due to numerous potential misallocations pending resolution by the State Board of Equalization. The Office of the City Auditor does not have control over when these potential misallocations are resolved. 4 Other revenue recoveries include transient occupancy tax, alternative fuel tax credit, and/or unclaimed property which are generally non-recurring. Operating Expenditures (in millions) Authorized Staffing (FTE)1 City Manager’s Office City Attorney’s Office City Clerk’s Office City Auditor’s Office Administrative Services Department Human Resources Department City Manager’s Office City Attorney’s Office City Clerk’s Office City Auditor’s Office Administrative Services Department Human Resources Department FY 07 $1.7 $2.5 $0.9 $0.9 $7.0 $2.6 8.9 11.6 7.3 4.1 52.9 15.6 FY 08 $2.3 $2.7 $1.3 $0.9 $7.3 $2.7 12.9 11.6 8.3 4.3 53.5 17.2 FY 09 $2.0 $2.5 $1.2 $0.8 $7.0 $2.7 11.8 11.6 7.4 4.3 50.6 16.0 FY 10 $2.3 $2.6 $1.5 $1.0 $7.9 $2.7 11.0 11.6 7.2 4.3 44.2 16.3 FY 11 $2.3 $2.3 $1.2 $1.0 $6.3 $2.6 9.9 10.1 7.2 4.8 40.2 16.3 FY 12 $2.5 $2.8 $1.5 $0.9 $7.0 $2.7 11.1 9.0 7.2 4.3 39.1 16.3 Change from: Last year +10% +18% +20% -3% +11% +4% +11% -11% 0% -10% -3% 0% FY 07 +46% +12% +58% +3% -1% +4% +24% -22% -1% +5% -26% +5% Ch a p t e r 1 0 OFFICE OF THE CITY MANAGER, CITY ATTORNEY, CITY CLERK, CITY AUDITOR STRATEGIC AND SUPPORT SERVICES SPENDING AND STAFFING St r a t e g i c & S u p p o r t S e r v i c e s City Manager/Citizen Survey City Attorney City Clerk City Auditor Percent rating overall quality of services provided by the City "good" or "excellent" Percent rating public information services "good" or "excellent“ (Target: 76%) Percent rating opportunities to learn about City services through social networking sites "good" or "excellent" Percent rating economic development "good" or "excellent" Number of claims handled Ratio of applicants to vacancies for boards and commissions (Target: 4.0) Sales and Use Tax recoveries3 Other revenue recoveries4 Total revenue recoveries (Target: $150,000) FY 07 86% 73% - 62% 149 - $65,116 $13,654 $78,770 FY 08 85% 76% - 63% 160 - $149,810 - $149,810 FY 09 80% 68% 60% 54% 126 3.2 $84,762 - $84,762 FY 10 80% 67% 57% 49% 144 3.0 $135,118 $124,442 $259,560 FY 11 83% 67% 63% 52% 130 1.9 $24,014 $71,611 $95,625 FY 12 88% 74% 63% 67% 112 6.5 $111,253 $49,235 $160,488 Change from: Last year +5% +7% 0% +15% -14% +237%2 +363% -31% +68% FY 07 +2% +1% - +5% -25% - +71% +261% +104% 116 Footnotes 1 Includes transfers and internal promotions (excludes hourly staff, seasonal staff, and interns). 2 Early estimates of current claim costs incurred and costs outstanding as of July 31, 2012. Costs are expected to increase as claims develop. Prior year estimates were updated to reflect current costs for claims incurred during that fiscal year. 3 Based on calendar days. According to the Department, the number of days lost to work-related illness or injury is expected to increase as claims develop, although it is capped at 180 days per claim according to federal reporting requirements. Prior year numbers were revised to reflect the updated numbers. Ch a p t e r 1 0 ADMINISTRATIVE SERVICES DEPARTMENT Cash and investments (in millions) (Target: $353.0) Rate of return on investments (Target: 2.40%) General Fund Budget Stabilization Reserve (in millions) Number of accounts payable checks issued (Target: 13,000) Percent invoices paid within 30 days (Target: 80%) Number of purchasing documents processed (Target: 2,350) Number of purchasing card transactions Dollar value goods and services purchased (in millions) FY 07 $402.6 4.35% $27.5 14,802 80% 2,692 10,310 $107.5 FY 08 $375.7 4.45% $26.1 14,480 83% 2,549 11,350 $117.2 FY 09 $353.4 4.42% $24.7 14,436 83% 2,577 12,665 $132.0 FY 10 $462.4 3.96% $27.4 12,609 78% 2,314 12,089 $112.5 FY 11 $471.6 3.34% $31.4 13,680 82% 2,322 13,547 $149.8 FY 12 $502.3 2.79% $28.1 10,966 81% 2,232 15,256 $137.0 Change from: Last year +6% -1% -10% -20% -1% -4% +13% -9% FY 07 +25% -2% +2% -26% +1% -17% +48% +27% St r a t e g i c & S u p p o r t S e r v i c e s HUMAN RESOURCES DEPARTMENT Number of new hires processed1 (Target: 120) Percent of first year turnover (Target: 5%) Citywide training hours provided (Target: 2,600) Workers’ Compensation Estimated Cost Incurred2 (in thousands) Workers’ Compensation Cost Paid (in thousands) Workers’ Compensation Estimated Cost Outstanding2 (in thousands) Days lost to work- related illness or injury3 Number of claims filed with days away from work <NEW> FY 07 138 7% 7,121 $2,146 $1,786 $360 2,242 40 FY 08 157 9% 9,054 $2,956 $2,224 $733 1,561 32 FY 09 130 8% 8,710 $2,727 $1,867 $860 1,407 26 FY 10 126 6% 3,429 $2,476 $1,788 $688 1,506 15 FY 11 134 8% 3,774 $1,601 $905 $696 1,372 18 FY 12 165 10% 4,823 $1,310 $455 $854 1,236 22 Change from: Last year +23% +2% +28% -18% -50% +23% -10% +22% FY 07 +20% +3% -32% -39% -75% +137% -45% -45% 117 52% 22% 18% 7% 1% How are Utilities Dollars used? (Total = $227.2 million) Electric (52%)Gas (22%) Water (18%)WWC (7%) Fiber Optics (1%) The Resource Management Division is responsible for the long-term acquisition plan of resources including electricity, natural gas, and water; contract negotiations to acquire renewable resources; rate development; and legislation and regulatory policy analysis. The Administration Division is responsible for the overall management of the Utilities Department including communication, regulatory compliance, budget coordination, and personnel and administrative support to the entire department. The Engineering Division is responsible for managing all phases of the Utilities Department’s capital improvement projects including replacement and rehabilitation of the City's electric, fiber, water, gas, and wastewater distribution systems. The Operations Division is responsible for operations, maintenance, and emergency response for the electric, fiber, water, gas, and wastewater distribution systems. Chapter 11: Utilities Department Mission: To provide safe, reliable, environmentally sustainable and cost-effective services The Customer Support Services Division is responsible for customer services for the electric, fiber, water, gas, and wastewater collection systems including the Utilities Department customer service center; meter reading; utility billing; credit and collections; water conservation, energy efficiency and renewable energy programs; dark fiber installation project management; and liaison with key accounts. 86% 3% 12% 0% What are the sources of Utilities funding? (Total = $227.2 million) Sale of Utilities (86%) Interest Income (3%) Other Revenues (12%) Reserves (0%) 118 Ch a p t e r 1 1 Ut i l i t i e s Operating Expenses by Utility Fund Total # of Full Time Equivalents (FTEs) Source: City of Palo Alto financial data Department Wide YOUR MONEY AT WORK Expenses by Category Source: Comprehensive Annual Financial Report $147 $36 $23 $17 $14 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 (i n m i l l i o n s ) FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 235.1 232.3 234.5 236.5 244.5 243.0 100 150 200 250 300 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 3% increase Source: City of Palo Alto financial data Important: Utility purchases and charges were excluded from the chart above to give the reader better visibility over other types of utility fund spending. Details on utility purchases and charges can be found in the chart to the left. Source: City of Palo Alto financial data Source: City of Palo Alto financial data Utility Fund Reserves $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 Electric Gas Water WWC $ $5 $10 $15 Electric Gas Water WWC Fiber Optics (i n m i l l i o n s ) Salaries & Benefits Contract Services Supplies & Materials Facilities & Equip Purchases General Expense Rents & Leases (General Fund) Allocated Charges Debt Service Equity Transfer (General Fund)Capital Imprvmt Program Operating Transfers Out 43.5% 10.8% 2.6% 0.8% 0.0% 2.0% 2.9% 8.0% 5.0% 7.7% 12.9% 3.8% Utility Purch & Chrg (43.5%) Salaries & Benefits (10.8%) Contract Services (2.6%) Supplies & Materials (0.8%) Facilities & Equip Purchases (0.0%) General Expense(2.0%) Rents & Leases (General Fund) (2.9%) Allocated Charges (8.0%) Debt Service (5.0%) Equity Transfer (General Fund) (7.7%) Capital Imprvmt Program (12.9%) Operating Transfers Out (3.8%) Utility Commodity Purchases and Charges (in thousands) Electric Gas Water WWC Fiber 119 Department Wide Ch a p t e r 1 1 DEPARTMENT GOALS Maintain safe, reliable, and environmentally sustainable Utilities Provide excellent customer service Ensure fiscally sound and cost-effective services Did you know? City of Palo Alto Utilities offers a variety of programs and services, including: •My Utilities Account On-Line •Rebates for becoming more energy and water efficient •Low Income Programs •Rate Assistance Program •Project Pledge Go to http://www.cityofpaloalto.org/gov/depts/utl/billpay for more information. Ut i l i t i e s Citizen Survey: Quality of each of the following services in Palo Alto: Source: National Citizen SurveyTM Citizen Survey: Utilities (Percent rating of services “good” or “excellent”) The "My Utilities Account" customer self-service portal provides 24/7 customer access to Utilities account information and allows on-line bill payment. Source: National Citizen Survey TM Source: City of Palo Alto website 74% 76% 78% 80% 82% 84% 86% 88% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Electric Utility Gas Utility Sewer Services Drinking Water 46% 29% 28% 27% 38% 53% 58% 57% 14% 17% 13% 13% 3% 1% 1% 4% Drinking water Sewer services Gas Utility Electric Utility Excellent Good Fair Poor * * Footnote * The numbers do not add up to 100% due to rounding. 120 History of Average Monthly Residential Electric Bills 650 kilowatt hour (KWH3)/month Electric Efficiency Program Expense and Savings Electricity Residential Electric Usage 2.62 FY 09 FY 10 FY 11 FY 12 162.4 162.7 159.9 163.1 160.3 160.6 $64.97 $76.84 $83.34 $74.11 $64.01 $65.00 GWH2 consumed Average purchase cost/MWH Footnotes 1 MWH – megawatt hours 2 GWH – gigawatt hours 3 KWH – kilowatt hours Source: Utilities Department Source: Utilities Department Ch a p t e r 1 1 KEY SERVICE OBJECTIVES Provide safe and reliable delivery of electric services for our customers Increase environmental sustainability and promote efficient use of resources Ut i l i t i e s FY 08 2.52 2.53 2.47 2.45 Electric Service Interruptions and Affected Customers 2.65 FY 07 $5 7 . 9 3 $6 0 . 8 3 $6 9 . 3 8 $7 6 . 3 3 $7 6 . 3 3 $7 6 . 3 3 $0 $50 $100 $150 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Palo Alto PG&E Alameda Santa Clara Source: Utilities Department Source: Utilities Department Average consumed MWH1 per capita 0 20 40 60 80 0 25 50 75 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 (# o f s e r v i c e i n t e r r u p t i o n s ) (i n m i n u t e s ) Service interruptions over 1 minute Avg minutes per customer affected No. of minutes over the year the avg customer is without power 0.56% 0.47% 0.55% 0.70% 1.52% $1.5 $1.9 $2.1 $2.7 $2.7 $3.2 0.00% 0.40% 0.80% 1.20% 1.60% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 $0.0 $1.0 $2.0 $3.0 $4.0 (i n m i l l i o n s ) First year energy savings achieved through electric efficiency programs as a percentage of total sales Energy conservation/efficiency program expense (in millions) Data not available Palo Alto’s average residential electric bill remains lower than Pacific Gas & Electric (PG&E) rates. In FY 2012, Palo Alto’s $76.33 was 37% lower than PG&E’s average monthly bill of $120.73. 121 Number of Connections serving Individual Users Fiber Optics Fiber Optics Operating FTE, Revenues, and Expenses Op Revenues Op Expenses Source: City of Palo Alto financial data Ch a p t e r 1 1 KEY SERVICE OBJECTIVE Increase value of fiber utility services to customers and ensure dependable returns to the City Ut i l i t i e s Fiber Optics Number of Wholesale Resellers and Account-holders Source: Utilities Department Staff continues to evaluate the utilization of Fiber Optics Fund reserves to independently proceed with a phased build-out of the existing backbone. A business plan is being developed for the Broadband System Project which includes: •An assessment of potential fiber backbone extensions. •A conceptual proposal for fiber-to-the-premise (FTTP) deployment. •Providing dark fiber service connections to Palo Alto Unified School District facilities. •Coordination of the Broadband System Project business plan with the development of the Smart Grid Strategic Plan. Source: Utilities Department 0.7 FY 09 FY 10 FY 11 FY 12 $2.3M $3.4M $3.8M $3.6M $3.7M $4.1M $1.3M $1.1M $1.5M $1.4M $1.9M $1.8M FY 08 6.0 5.5 7.7 7.4 3.1 FY 07 49 41 47 47 59 59 0 10 20 30 40 50 60 70 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 161 173 178 196 189 199 0 50 100 150 200 250 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Authorized FTEs Fiber Optics Reserves (in thousands) $2,730 $4,956 $6,435 $10,190 $11,939 $14,251 $0 $5,000 $10,000 $15,000 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Source: Comprehensive Annual Financial Report 122 History of Average Monthly Residential Gas Bills 30 (summer)/100 (winter) therms/month Gas Ground and Meter Leaks Gas Residential Gas Usage Therms consumed Average purchase cost/therm Source: Utilities Department Ch a p t e r 1 1 KEY SERVICE OBJECTIVES Provide safe and efficient delivery of natural gas services for our customers Increase environmental sustainability and promote efficient use of resources Ut i l i t i e s Gas Service Disruptions and Affected Customers Source: Utilities Department 193 FY 09 FY 10 FY 11 FY 12 11.8M 12.0M 11.0M 11.4M 11.5M 11.5M $0.69 $0.82 $0.80 $0.71 $0.65 $0.52 FY 08 173 177 177 176 192 FY 07 307 105 766 939 114 111 18 18 46 58 22 35 0 200 400 600 800 1000 0 20 40 60 80 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 # o f c u s t o m e r s a f f e c t e d # o f s e r v i c e d i s r u p t i o n s Total customers affected Unplanned number of service disruptions Source: Utilities Department 91.0 102.0 110.7 99.4 99.4 99.4 $0 $50 $100 $150 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Palo Alto PG&E Long Beach 56 239 210 196 124 95 85 108 265 355 166 257 0 100 200 300 400 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Number of ground leaks found Number of meter leaks found Source: Utilities Department 0.46% of customers were affected in FY 2012 Average consumed Therms per capita 0.11% 0.28% 0.40% 0.55% 0.73% $0.3 $0.3 $0.4 $0.4 $0.6 $0.6 $0.0 $0.5 $1.0 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 0.00% 0.50% 1.00% First year gas savings achieved through gas efficiency programs as a percentage of total sales Gas Energy conservation/efficiency program expense (in millions) Source: Utilities Department Gas Energy Efficiency Savings Data not available 123 History of Average Monthly Residential Water Bills (CCF/month) Percent of Miles of Water Mains Replaced Water Residential Water Usage CCF Consumed Average purchase cost/CCF Footnote 1 CCF – hundred cubic feet Ch a p t e r 1 1 KEY SERVICE OBJECTIVES Provide safe and clean drinking water for our customers Ensure adequate water supplies are available to meet existing and future water demands Ut i l i t i e s Water Service Disruptions and Affected Customers 44.2 FY 09 FY 10 FY 11 FY 12 2.8M 2.7M 2.6M 2.4M 2.4M 2.5M $1.32 $1.41 $1.46 $1.69 $1.96 $2.65 FY 08 40.4 37.5 37.7 38.3 45.7 FY 07 783 374 230 291 92 70 27 17 19 25 11 10 0 200 400 600 800 1,000 0 5 10 15 20 25 30 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 # o f c u s t o m e r s a f f e c t e d # o f s e r v i c e d i s r u p t i o n s Total customers affected Unplanned number of service disruptionsSource: Utilities Department Source: Utilities Department $5 8 . 1 7 $6 4 . 2 1 $6 8 . 7 9 $7 2 . 0 1 $7 2 . 0 1 $9 0 . 3 2 $0 $25 $50 $75 $100 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Palo Alto Mountain View Los Altos Redwood City Menlo Park Source: Utilities Department 1.4% 1.4% 0.7% 2.3% 3.0% 0.0% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 0.0% 1.0% 2.0% 3.0% 4.0% Source: Utilities Department 0.34% of customers were affected in FY 2012 Average consumed CCF Per capita Water Conservation Savings 0.72% 0.98% 1.35% 0.47% 1.09% $0.1 $0.3 $0.3 $0.4 $0.4 $0.4 $0.0 $0.2 $0.4 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 0.00% 1.00% 2.00% First year water savings achieved through water efficiency programs as a percentage of total sales Water Energy conservation/efficiency program expense (in millions) Source: Utilities Department Data not available 124 History of Average Monthly Wastewater Bills Percent Miles of Mains Cleaned/Treated Wastewater Collection Wastewater Collection Millions of gallons processed Average Operating cost/million gallon Footnote 1 Beginning FY 2008, the number of sewage overflows data was derived from the California Integrated Water Quality System Project (CIWQS). Source: Utilities Department Source: Utilities Department Ch a p t e r 1 1 KEY SERVICE OBJECTIVES Maintain and provide reliable wastewater services to our customers Ut i l i t i e s Number of Sewage Overflows1 28.0 FY 09 FY 10 FY 11 FY 12 8,853 8,510 7,958 8,184 8,652 8,130 $2,150 $1,850 $1,890 $1,640 $1,790 $2,070 FY 08 25.5 26.1 28.5 29.7 25.5 FY 07 $2 3 . 4 8 $2 3 . 4 8 $2 3 . 4 8 $2 4 . 6 5 $2 4 . 6 5 $2 7 . 9 1 $0 $20 $40 $60 $80 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Palo Alto Mountain View Los Altos Redwood City Menlo Park Source: Utilities Department Source: Utilities Department 152 164 277 348 332 131 0 100 200 300 400 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 69% 40% 44% 66% 75% 63% 0% 20% 40% 60% 80% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Percent Miles of Sewer Lines Replaced Source: Utilities Department 3% 1% 1% 2% 2% 0% 0% 2% 4% FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 Since FY 2009, 100% of sewage spills and line blockages were responded to within two hours. Authorized FTEs 125 Footnotes 1 Consistent with the City’s operating budget documents, capital improvement program (CIP) expenditures are included as “operating expenditures” for this department. 2 Includes direct labor, materials, supplies, and contractual services. 3 Qualifying renewable electricity include bio mass, biogas, geothermal, small hydro facilities (not large hydro), solar, and wind. The City Council established a target of 33% renewable power by FY 2015. Ch a p t e r 1 1 Ut i l i t i e s Revenues, Expenses, and Unrestricted Reserves (in millions) Citizen Survey Operating Revenues Operating Expenses1 Capital Expense2 General Fund Transfers Electric Fund Reserves Electricity Purchases (in millions) Average Purchase Cost (per megawatt hour) (Target: $75.75) Energy Conservation/ Efficiency Program Expenses (in millions) Average Monthly Residential Bill (650 kilowatt hour/month) Authorized Staffing (FTE) Percent Rating Electric Utility “good” or “excellent” (Target: 85%) FY 07 $108.7 $118.0 $10.5 $8.8 $156.4 $62.5 $64.97 $1.5 $57.93 114.0 86% FY 08 $112.6 $130.6 $10.2 $9.4 $145.3 $71.1 $76.84 $1.9 $60.83 111.0 85% FY 09 $129.9 $139.7 $5.3 $9.7 $129.4 $82.3 $83.34 $2.1 $69.38 107.0 83% FY 10 $130.7 $126.4 $7.5 $11.5 $133.4 $68.7 $74.11 $2.7 $76.33 109.0 79% FY 11 $125.9 $116.5 $7.3 $11.2 $142.7 $61.2 $64.01 $2.7 $76.33 107.0 85% FY 12 $123.1 $118.3 $6.4 $11.6 $147.3 $58.7 $65.00 $3.2 $76.33 108.7 84% Change from: Last year -2% +2% -13% +3% +3% -4% +2% +19% 0% +2% -1% FY 07 +13% 0% -40% +31% -6% -6% 0% +113% +32% -5% -2% Percent power content Number of Customer Accounts Residential MWH consumed Commercial & Other MWH consumed Average residential electric usage per capita (MWH/ person) Renewable large hydro facilities Qualifying renewables3 First year energy savings achieved through efficiency programs (as a % of total sales) Percent customers enrolled in Palo Alto Green (Target: 21%) Electric service interruptions over 1 minute in duration Average minutes per customer affected (Target: <60 minutes) Circuit miles under- grounded during the year Electric Supply CO2 Emissions FY 07 28,684 162,405 815,721 2.65 84% 10% - 19% 48 48 1.0 156,000 FY 08 29,024 162,680 814,695 2.62 53% 14% 0.56% 20% 41 53 1.2 177,000 FY 09 28,527 159,899 835,784 2.52 47% 19% 0.47% 20% 28 63 0.0 173,000 FY 10 29,430 163,098 801,990 2.53 34% 17% 0.55% 22% 20 52 0.0 150,000 FY 11 29,708 160,318 786,201 2.47 45% 20% 0.70% 21% 33 66 1.2 71,000 FY 12 29,545 160,604 781,960 2.45 65% 20% 1.52% 20% 25 66 1.2 80,000 Change from: Last year -1% 0% -1% -1% +20% 0% +1% -1% -24% 0% 0% +13% FY 07 +3% -1% -4% -7% -20% +10% - +2% -48% +38% +20% -49% ELECTRICITY 126 Footnotes 1 Consistent with the City’s operating budget documents, capital improvement program (CIP) expenditures are included as “operating expenditures” for this department. 2 Includes direct labor, materials, supplies, and contractual services. 3 30/100 therms represents summer/winter usage. Ch a p t e r 1 1 Ut i l i t i e s Revenues, Expenses, and Unrestricted Reserves (in millions) Citizen Survey Operating Revenues Operating Expenses1 Capital Expenses2 General Fund Transfers Gas Fund Reserves Gas Purchases (in millions) Average Purchase Costs (per therm) Average Monthly Residential Bill (30/1003 therms per month) Authorized Staffing (FTE) Percent Rating Gas Utility “good” or “excellent” (Target: 83%) FY 07 $42.9 $40.0 $3.6 $3.0 $16.9 $22.3 0.69 $90.97 47.9 85% FY 08 $50.4 $46.2 $4.4 $3.2 $21.8 $27.2 0.82 $102.03 46.4 84% FY 09 $49.5 $44.4 $4.5 $3.3 $26.4 $25.1 0.80 $110.71 48.4 81% FY 10 $46.8 $43.0 $5.1 $5.4 $29.6 $22.5 0.71 $99.42 49.0 80% FY 11 $50.4 $45.7 $2.0 $5.3 $34.4 $21.5 0.65 $99.42 54.3 82% FY 12 $50.9 $48.7 $5.1 $6.0 $36.2 $16.2 0.52 $99.42 51.4 86% Change from: Last year +1% +7% +153% +13% +5% -24% -20% 0% -5% +4% FY 07 +18% +22% +43% +102% +114% -27% -25% +9% +7% +1% Number of Customer Accounts Residential therms consumed Commercial & Other therms consumed Average residential gas usage per capita (therms/person) Unplanned number of service disruptions Total customers affected Number of ground leaks found Number of meter leaks found First year gas energy savings achieved through efficiency programs (as a % of total sales) FY 07 23,357 11,759,842 19,581,761 192 18 307 56 85 - FY 08 23,502 11,969,151 20,216,975 193 18 105 239 108 0.11% FY 09 23,090 11,003,088 19,579,877 173 46 766 210 265 0.28% FY 10 23,724 11,394,712 19,350,424 177 58 939 196 355 0.40% FY 11 23,816 11,476,609 19,436,897 177 22 114 124 166 0.55% FY 12 23,915 11,522,999 18,460,195 176 35 111 95 257 0.73% Change from: Last year 0% 0% -5% -1% +59% -3% -23% +55% 0% FY 07 +2% -2% -6% -8% +94% -64% +70% +202% - GAS 127 Footnotes 1 Consistent with the City’s operating budget documents, capital improvement program (CIP) expenditures are included as “operating expenditures” for this department. 2 Includes direct labor, materials, supplies, and contractual services. 3 Includes commercial, industrial research, and City facilities. Ch a p t e r 1 1 Ut i l i t i e s Revenues, Expenses, and Unrestricted Reserves (in millions) Operating Revenues Operating Expenses1 Capital Expenses2 General Fund Transfers Water Fund Reserves Water Purchases (in millions) Average Purchases Cost (per 100 CCF) (Target: $2.74) Average Monthly Residential Bill Authorized Staffing (FTE) Total Water in CCF sold (in millions) FY 07 $26.3 $24.1 $3.9 $2.5 $21.3 $7.8 $1.32 $58.17 44.7 5.5 FY 08 $29.3 $24.9 $3.4 $2.6 $26.4 $8.4 $1.41 $64.21 46.2 5.5 FY 09 $29.5 $28.9 $4.9 $2.7 $26.6 $8.4 $1.46 $68.79 47.7 5.4 FY 10 $28.8 $30.5 $7.1 $0.1 $28.7 $9.1 $1.69 $72.01 46.8 5.0 FY 11 $28.4 $31.8 $7.6 $0.0 $25.5 $10.7 $1.96 $72.01 46.9 5.0 FY 12 $33.8 $41.6 $9.7 $0.0 $23.1 $14.9 $2.65 $90.32 45.8 5.1 Change from: Last year +19% +31% +28% -100% -9% +39% +35% +25% -2% +2% FY 07 +29% +73% +151% -100% +8% +91% +101% +55% +3% -7% Water consumption Citizen Survey Number of Customer Accounts Residential water consumed (CCF) Commercial & Other water consumed3 (CCF) Average residential water usage per capita (CCF/ person) Unplanned number of service disruptions Total customers affected Percent of miles of water mains replaced First year water energy savings achieved through efficiency programs (as a % of total sales) Water quality compliance with all required CA Dept of Health and EPA testing (Target: 100%) Percent rating drinking water “good” or “excellent” (Target: 83%) FY 07 19,726 2,807,477 2,673,126 46 27 783 1% - 100% 79% FY 08 19,942 2,746,980 2,779,664 44 17 374 1% 0.72% 100% 87% FY 09 19,422 2,566,962 2,828,163 40 19 230 1% 0.98% 100% 81% FY 10 20,134 2,415,467 2,539,818 38 25 291 2% 1.35% 100% 84% FY 11 20,248 2,442,415 2,550,043 38 11 92 3% 0.47% 100% 86% FY 12 20,317 2,513,595 2,549,409 38 10 70 0% 1.09% 100% 84% Change from: Last year 0% +3% 0% +2% -9% -24% -3% +1% 0% -2% FY 07 +3% -10% -5% -16% -63% -91% -1% +1% 0% +5% WATER 128 Footnotes 1 Consistent with the City’s operating budget documents, capital improvement program (CIP) expenditures are included as “operating expenditures” for this department. 2 Includes direct labor, materials, supplies, and contractual services. Ch a p t e r 1 1 Ut i l i t i e s Revenues, Expenses, and Unrestricted Reserves (in millions) Citizen Survey Operating Revenues Operating Expenses1 Capital Expenses2 Wastewater Collection Fund Reserves Average Monthly Residential Bill Authorized staffing (FTE) Number of Customer Accounts Percent miles of mains cleaned/ treated Percent miles of sewer lines replaced Number of sewage overflows Percent sewage spills and line blockage responses within 2 hours Percent rating quality of sewer services “good” or “excellent” (Target: >83%) FY 07 $15.7 $19.1 $7.7 $12.4 $23.48 25.5 21,789 69% 3% 152 99% 82% FY 08 $16.6 $15.7 $3.6 $13.8 $23.48 28.0 21,970 40% 1% 164 99% 81% FY 09 $15.5 $15.0 $2.9 $14.1 $23.48 25.5 22,210 44% 1% 277 100% 81% FY 10 $15.9 $13.4 $2.8 $16.6 $24.65 26.1 22,231 66% 2% 348 100% 82% FY 11 $16.1 $15.5 $2.6 $17.1 $24.65 28.5 22,320 75% 2% 332 100% 84% FY 12 $15.8 $16.8 $1.7 $16.8 $27.91 29.7 22,421 63% 0% 131 100% 82% Change from: Last year -2% +9% -36% -2% +13% +4% 0% -12% -2% -61% 0% -2% FY 07 +1% -12% -78% +35% +19% +16% +3% -6% -3% -14% +1% 0% WASTEWATER COLLECTION Revenues, Expenses, and Unrestricted Reserves (in millions) Operating Revenues Operating Expenses1 Capital Expenses2 Fiber Optics Fund Reserves Authorized staffing (FTE) Number of Customer Accounts (Target: 70) Number of service connections (Target: 193) Backbone fiber miles FY 07 $2.3 $1.3 $0.1 $2.7 3.1 49 161 40.6 FY 08 $3.4 $1.1 $0.1 $5.0 0.7 41 173 40.6 FY 09 $3.8 $1.5 $0.3 $6.4 6.0 47 178 40.6 FY 10 $3.6 $1.4 $0.1 $10.2 5.5 47 196 40.6 FY 11 $3.7 $1.9 $0.4 $11.9 7.7 59 189 40.6 FY 12 $4.1 $1.8 $0.6 $14.3 7.4 59 199 40.6 Change from: Last year +12% -6% +36% +19% -3% 0% +5% 0% FY 07 +82% +33% +297% +422% +139% +20% +24% 0% FIBER OPTICS City of Palo Alto (ID # 3423) City Council Staff Report Report Type: Consent Calendar Meeting Date: 2/4/2013 City of Palo Alto Page 1 Summary Title: Close Budget and Approve CAFR for FY 2012 Title: Adoption of an Ordinance to Close FY 2012 Budget and Authorize Reappropriations into FY 2013 Budget; Close Completed Capital Improvement Projects and Transfer Remaining Balances to Reserves; Approve the City's FY 2012 Comprehensive Annual Financial Report (CAFR) From: City Manager Lead Department: Administrative Services Recommendation The Finance Committee and Staff recommend that Council:  Adopt the attached Ordinance (Attachment B) authorizing closing of the Budget for the Fiscal Year (FY) ending June 30, 2012 and authorize reappropriation of 2012 funds into the 2013 Budget;  Close completed Capital Improvement Projects, as set forth in Exhibit 3 of Attachment B, and transfer remaining balances to the appropriate reserves including the transfer of General Fund surplus of $7.6 million to the Infrastructure Reserve in the Capital Projects Fund;  Approve the City’s 2012 Comprehensive Annual Financial Report (CAFR), Attachment A to CMR #3262. An electronic copy is available at: www.cityofpaloalto.org/gov/depts/asd/financialreporting, and hard copies are available at the Administrative Services Department upon request. Motion: Council adopts the attached Ordinance (Attachment B) authorizing closing of the Budget for the Fiscal Year (FY) ending June 30, 2012 and authorizes reappropriation of 2012 funds into the 2013 Budget; Council closes the completed Capital Improvement Projects, as set City of Palo Alto Page 2 forth in Exhibit 3 of Attachment B, and transfers remaining balances to the appropriate reserves including the transfer of General Fund surplus of $7.6 million to the Infrastructure Reserve in the Capital Projects Fund; Council approves the City’s 2012 Comprehensive Annual Financial Report (CAFR), Attachment A to CMR #3262. Background As is customary, the City Council is required to close out the City’s financial results at the end of each fiscal year. At its December 4, 2012 meeting, the Finance Committee unanimously approved closing of the 2012 fiscal year (Attachment A, Attachment C). Financial Highlights for FY 2012  General Fund ended on a positive note, with a net surplus position of $4.4 million. This, combined with prior years’ surplus of $3.2 million, made for a total of $7.6 million that was transferred to the Infrastructure Reserve. This reduced the Budget Stabilization Reserve in the General Fund to 18.5 percent of FY 2013 budgeted expenditures and operating transfers, which is in accordance with the City’s General Fund reserve policy. General Fund expenditures were kept in line with budget, permitting revenue increases to go toward reserves. Labor negotiations resulted in significant compensation and benefit changes, including an increase in employee contributions to the CalPERS retirement plan and to health care premiums, as well as implementation of two-tier retirement plans. The annual savings resulting from these changes is estimated at almost $9 million City-wide on a going forward annual basis. Approximately $5.7 million in savings was realized in FY 2012.  Enterprise Fund highlights include: o Water Fund implemented a rate increase of 20.9 percent effective October 1, 2011 which resulted in increased revenues of $4.8 million; o Gas supply costs decreased by $5.2 million, or 24 percent, as a result of the continuing trend of natural gas price decreases.  The City received a “clean” audit opinion for FY 2012 from the external audit firm, Macias Gini & O’Connell LLP. The City also received the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association for its FY 2011 CAFR. Details that were presented at the December 4, 2012 meeting are included in Attachment A City of Palo Alto Page 3 and minutes from the meeting are included in Attachment C. Attachments:  Attachment A: CMR #3262 (PDF)  Attachment B: Ordinance of the Council of the City of Palo Alto Authorizing Closing of the Budget for the Fiscal Year Ending June 30, 2012 (PDF)  Attachment C: Excerpt from December 4, 2012 Finance Committee Minutes (PDF) City of Palo Alto (ID # 3262) Finance Committee Staff Report Report Type: Action ItemsMeeting Date: 12/4/2012 City of Palo Alto Page 1 Summary Title: Close FY2012 Budget and Approve FY2012 CAFR Title: Recommendation Regarding Adoption of Ordinance Authorizing Closing of the Budget for the Fiscal Year Ending June 30, 2012, Including Reappropriation Requests, Closing Completed Capital Improvement Projects, Authorizing Transfers to Reserves and Approval of Comprehensive Annual Financial Report (CAFR) From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that the Finance Committee review, provide input, and forward the attached ordinance (Attachment A) and associated exhibits to the City Council for its approval to:  Close the Fiscal Year (FY) 2012 Budget;  Authorize re-appropriation of FY 2012 funds into the FY 2013 Budget (Exhibits 1 and 2);  Close completed capital improvement projects (Exhibit 3), and  Transfer remaining balances to the appropriate reserves (Table 1 for General Fund and Exhibits 5 and 6 for Enterprise Funds), including the transfer of the General Fund surplus of $7.6 million from the General Fund to the Infrastructure Reserve in the Capital Projects Fund. In addition, staff recommends the Finance Committee review and forward to the City Council for its approval the City’s FY 2012 Comprehensive Annual Financial Report (CAFR) (Attachment B). Financial Highlights for FY 2012 – General Fund  Fiscal Year 2012 ended on a positive note, with a net surplus position of $4.4 million for the Budget Stabilization Reserve. The surplus was largely a result of revenue increases in plan and zoning check fees, construction permits and transient occupancy tax, all of which City of Palo Alto Page 2 exceeded mid-year budget expectations.  General Fund expenditures were kept in line with budget, permitting revenue increases to go toward reserves.  The FY 2012 surplus of $4.4 million, combined with a surplus of $3.2 million from prior years, allowed staff to make a recommendation to transfer $7.6 million from the General Fund to the Infrastructure Reserve in the Capital Projects Fund, a step to address the key City priority of infrastructure. This reduced the Budget Stabilization Reserve to 18.5 percent of FY 2013 budgeted expenditures and operating transfers, which is in accordance with the City’s General Fund Reserve Policy.  Labor negotiations resulted in significant compensation and benefit changes, including an increase in employee contributions to the CalPERS retirement plan and to health care premiums, as well as implementation of two-tier retirement plans. The annual savings resulting from these changes is estimated at almost $9 million City-wide on a going forward annual basis. Approximately $5.7 million in savings was realized in FY 2012. Financial Highlights for FY 2012 – Enterprise Funds  Water Fund implemented a rate increase of 20.9 percent effective October 1, 2011, resulting in increased revenues of $4.8 million.  Gas supply costs decreased by $5.2 million, or 24.0 percent as a result of the continuing trend of natural gas price decreases. It should also be noted that the City received a “clean” audit opinion for FY 2012 from the external audit firm, Macias Gini & O’Connell LLP. In addition, staff has made a concerted effort to make the information in the CAFR more relevant and easier to understand, in particular the MD&A and Statistical Schedules sections, while remaining within the confines of Government Finance Officers Association (GFOA) and Government Accounting Standards Board (GASB) guidelines. Finance Committee members had several comments during last year’s review which were instrumental in staff making these changes. Background The City’s fiscal year closes 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, together with the City’s financial statements and other information, this comprises the City’s Comprehensive Annual Financial Report. City of Palo Alto Page 3 The attachments to this Staff Report provide the necessary documents for closing the FY 2012 Budget and reauthorizing FY 2012 funds to FY 2013. In addition, they provide detailed information on the City’s financial activities for FY 2012 and highlight key fiscal issues affecting the City of Palo Alto. The Management’s Discussion and Analysis (MD&A) section of the CAFR (Attachment B) 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. Discussion Economy: Like jurisdictions throughout the country, the City was impacted by the Great Recession, but is now starting to show signs of stabilization and recovery. In the past year, there has been a rebound in economically sensitive revenue sources such as sales tax, which is being driven by department store and electronics sales. Increased business activities within the City are resulting in higher transient occupancy tax revenues and development plan fees. Other key revenue sources continue to grow, albeit more slowly. Property taxes have remained fairly stable in FY 2012, and documentary transfer tax revenue has decreased from the prior year although it is forecasted to start rising again in FY 2013 as the residential and commercial property markets improve. As with past economic downturns, the City is proactively taking steps to align expenses and revenues through employee compensation savings, service and program cuts, and revenue enhancements. The City Council adopted a General Fund budget of $152.4 million in revenue funding sources (including operating transfers in) for FY 2013, an increase of 4.0 percent from the prior year Adopted Budget. Revenue increases are led by sales, property, transient occupancy and documentary transfer taxes. The primary drivers of increased expenditures for FY 2013 are rising pension and health care costs, as well as $2.2 million to alleviate the City’s infrastructure maintenance backlog. Beginning in FY 2010, the City negotiated significant compensation and benefit changes with its labor units. These changes include an increase in employee contributions to the PERS retirement plan and to health care premiums, as well as implementation of two-tier retirement plans. Negotiations with labor groups such as management, SEIU, firefighters and police are expected to save the City almost $9 million City- wide on an ongoing annual basis. The City is facing a significant backlog in infrastructure investment. Staff has identified approximately $305 million in infrastructure needs, including ongoing maintenance and new facilities such as a Public Safety building. City of Palo Alto Page 4 A detailed discussion of financial results for FY 2012 is included in the CAFR MD&A. In addition, staff will present the 10 year Long Range Financial Forecast to the Finance Committee in early 2013. Results by Fund: General Fund At the end of the current fiscal year, fund balance of the General Fund was $42.0 million, a decrease of $2.2 million from the prior year. The $42.0 million balance is comprised of several reserves: the Budget Stabilization Reserve (BSR), encumbrances, notes and loans, inventory, prepaid items, unrealized gain on investments, and reappropriations. As described in the BSR reserve policy approved by Council, any reserve balance in excess of 18.5 percent of expenditures and transfers may be transferred to the Infrastructure Reserve in the Capital Projects Fund at the discretion of the City Manager. At the close of FY 2011, the accumulated excess reserve balance was retained in the General Fund BSR based on Staff’s recommendation. This provided the City flexibility for FY 2012 in the event that safety labor groups did not provide compensation concessions. At the close of FY2012, there was an additional excess reserve balance, resulting in a total excess reserve amount of $7.6 million as of June 30, 2012. Staff recommended the BSR be reduced to the target level of 18.5 percent of FY 2013 expenditures and operating transfers and $7.6 million was transferred to the Infrastructure Reserve in the Capital Projects Fund at the conclusion of FY 2012. The combination of the net difference between revenues and expenditures, transfers in and out, transfer of excess BSR, and the change in other General Fund reserve balances for the fiscal year ending June 30, 2012 resulted in a net decrease of $2.2 million to the total Fund Balance for the General Fund. The ending Fund Balance for FY 2012 is $42.0 million and the BSR portion of that Fund Balance is $28.1 million, which is 18.5 percent of FY 2013 budgeted expenditures and operating transfers. City of Palo Alto Page 5 The year over year change in the General Fund reserve balances is summarized in the following table: Table 1 Balance Net From Transfer to Balance 06/30/11 Operations Infrastructure 06/30/12 Budget Stabilization Reserve 31,376 4,412 (7,666)28,122 Other Reserves: Encumbrances 3,405 (36) 3,369 Reappropriations 483 1,011 1,494 Notes and loans receivable 1,285 (26)1,259 Prepaid items 1,213 (281)932 Inventories 3,587 229 3,816 Unrealized gains on investments 2,830 201 3,031 Total General Fund Reserves 44,179 5,510 (7,666)42,023 GENERAL FUND RESERVE SUMMARY ($000s) FISCAL YEAR 2012 City of Palo Alto Page 6 The following graph provides a snapshot of the General Fund BSR balance and percentage of budgeted expenditures for the past ten years: General Fund revenues for FY 2012 were $125.6 million, which is $8.3 million or 7.1 percent higher than the prior year. The largest drivers of the increase were sales tax (up 6.7 percent) and transient occupancy tax (up 19.8 percent), as well as increased permit and plan check fees and new construction permits. City of Palo Alto Page 7 Following is a chart which presents a five year history of each of the major tax revenue categories: Property Tax Sales Tax Utility User Tax TransientOccupancy Tax DocumentaryTransfer Tax FY 2008 23084 22623 10285 7976 5382 FY 2009 25432 20089 11030 7111 3092 FY 2010 25981 17991 11295 6858 3707 FY 2011 25688 20746 10851 8082 5167 FY 2012 26494 22132 10834 9664 4821 1000 6000 11000 16000 21000 26000 31000 Major General Fund Tax Revenues Fiscal Years 2008-2012 ($ in thousands) General Fund expenditures, including encumbrances, for FY 2012 totaled $144.9 million, an increase of $8.2 million, or 6.0 percent over the prior year. The increase in expenditures was driven primarily by increased retiree medical costs of $1.6 million, increased benefit allocation costs, primarily pension, of $1.9 million, and an increase in liability insurance of $1.0 million. These increases had an impact across all City Departments. In addition, there were cost increases specific to departments, including Library for book purchases of $.5 million, Community Services for contract services of $.9 million, and Planning expenses for technology enhancements of $.6 million. City of Palo Alto Page 8 Following is a graph which compares departmental costs over a five year period: Administrative Departments CSD Fire Library Planning & CommunityEnvironment Police Public Works FY 2008 19098 21866 24279 7033 10145 29784 13243 FY 2009 17717 21677 23765 6502 10483 28464 13489 FY 2010 19219 20846 28180 6623 10058 29090 13405 FY 2011 16906 20518 29012 6722 10416 31286 13842 FY 2012 18693 21399 30117 7714 11186 33762 13789 5000 10000 15000 20000 25000 30000 35000 General Fund Department Expenditures Fiscal Years 2008-2012 ($ in thousands) The FY 2012 year-end Budget Amendment Ordinance (BAO) includes transfers of unencumbered appropriation balances between General Fund Departments. Table 2 depicts a before and after view of these General Fund adjustments. City of Palo Alto Page 9 Table 2 General Fund Reallocation of Unencumbered Appropriations (in thousands) Budget Remaining Before Adj Change After Adj Actual Budget City Attorney 3,141$ -$ 3,141$ 3,106$ 36$ City Auditor 1,109 - 1,109 961 149 City Clerk 1,542 - 1,542 1,526 17 City Council 453 10 463 436 28 City Manager 2,885 - 2,885 2,747 139 Administrative Services 7,087 120 7,207 7,203 5 Community Services 21,578 45 21,623 21,399 224 Fire 30,030 150 30,180 30,117 63 Human Resources 3,049 (270) 2,779 2,714 65 Library 7,814 - 7,814 7,714 100 Planning 12,580 (505) 12,075 11,186 889 Police 33,011 800 33,811 33,762 48 Public Works 14,320 (350) 13,970 13,789 181 Non-Departmental 7,412 - 7,412 8,230 (818) Transfers out 15,096 - 15,096 22,136 (7,040) Total 161,107$ -$ 161,107$ 167,026$ (5,914)$ Capital Projects Fund For FY 2012, the Capital Projects Fund reported expenditures and transfers out of $32.6 million, which is a decrease of $3.7 million from the prior year. The Capital Projects Fund ended the year with a fund balance of $53.8 million, a decrease of $8.9 million from the prior year. The decrease in expenditures and transfers out are due to reduced spending levels on large projects such as the Mitchell Park Library and Community Center and the Civic Center infrastructure improvements. Capital projects activities are discussed in more detail in the MD&A section of the CAFR. Enterprise Funds At June 30, 2012 the City’s Enterprise Funds reported total net assets of $697.5 million, an increase of $29.3 million, or 4.4 percent compared with the prior year. The change in net assets for each of the Enterprise Funds is detailed in the following table: City of Palo Alto Page 10 Enterprise Funds Change in Net Assets for the Year Ended June 30 (in Millions) Increase/ Fund Name 2012 2011 (Decrease) Water 4.5$ 3.5$ 1.0$ Electric 9.0 13.1 (4.1) Fiber Optics 2.6 2.1 0.5 Gas 7.8 6.2 1.6 Wastewater Collection 0.9 3.4 (2.5) Wastewater Treatment 2.1 1.4 0.7 Refuse (0.5)0.3 (0.8) Storm Drainage 3.0 3.0 - Airport (0.1) -(0.1) Total Change in Net Assets 29.3$ 33.0$ (3.7)$ The total Change in Net Assets of $29.3 million, a decrease of $3.7 million from the prior year, was due mainly to the Electric Fund decline of $4.1 million which was due to a decrease in commercial and industrial revenue of $3.2 million, and a $0.8 million increase in non-operating expenses. Other changes are discussed in the MD&A. Enterprise Fund RSR and other reserve balances are shown in detail in Exhibit 6 which is attached to this report. Environmental Review This is not a project for purposes of the California Environmental Quality Act. Attachments:  Attachment A: BAO FY 2012 Year-End (DOCX)  Exhibit 1: FY 2012 Year End BAO (PDF)  Exhibit 2: FC Reappropriations (PDF)  Exhibit 3: Capital Projects Completed and Closed FY 2012 (XLS)  Exhibit 4: General Fund Summary (XLS) City of Palo Alto Page 11  Exhibit 5: Enterprise Balances To (From) Reserves (XLSX)  Exhibit 6: Enterprise Reserve Balances (XLSX) ATTACHMENT A Page of 5 1 ORDINANCE NO. XXXXX ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AUTHORIZING CLOSING OF THE BUDGET FOR THE FISCAL YEAR ENDING JUNE 30, 2012 The Council of the City of Palo Alto does ordain as follows: SECTION 1. The Council of the City of Palo Alto finds and determines as follows: A. Pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto and as set forth in Section 2.28.070 of the Palo Alto Municipal Code, the Council on June 20, 2011 did adopt a budget for fiscal year 2012; and B. Fiscal year 2012 has ended and the financial results, although subject to post-audit adjustment, are now available and are herewith reported in summarized financial Exhibits “1”, “2”, “3”, “4”, “5”, and “6” prepared by the Director, Administrative Services, which are attached hereto, and by reference made a part hereof. SECTION 2. Pursuant to Section 2.28.080 of the Palo Alto Municipal Code, the City Manager during fiscal year 2012 did amend the budgetary accounts of the City of Palo Alto to reflect: A. Additional appropriations authorized by ordinance of the City Council. B. Amendments to employee compensation plans adopted by the City Council. C. Transfers of appropriations from the contingent account as authorized by the City Manager. D. Redistribution of appropriations between divisions, cost centers, and objects within various departments as authorized by the City Manager. E. Fiscal Year 2012 appropriations which on July 1, 2011 were encumbered by properly executed, but uncompleted, purchase orders or contracts. ATTACHMENT A Page of 5 2 SECTION 3. The Council hereby approves adjustments to the fiscal year 2012 budget for Fund Balancing Entries as shown on attached Exhibit 1. SECTION 4. The Council hereby re-appropriates fiscal year 2012 appropriations in certain departments and categories, as shown on the attached Exhibit 2, which were not encumbered by purchase order or contract, at year end into the fiscal year 2013 budget. SECTION 5. The fiscal year 2012 encumbered balances for the departments and categories shown on Exhibit 4 shall be carried forward and re-appropriated to those same departments and categories in the fiscal year 2013 budget. SECTION 6. The City Manager is authorized and directed: A. To close the fiscal year 2012 budget accounts in all funds and departments and, as required by the Charter of the City of Palo Alto, to make such interdepartmental transfers in the 2012 budget as adopted or amended by ordinance of the Council; and B. To close various completed Capital Improvement Projects (CIP) as shown in Exhibit 3 and move all completed CIP to their respective reserve funds indicated in Exhibit 1; and C. To establish reserves as shown in Exhibits 5 and 6 for all Funds as necessary to provide for: (1) A reserve for encumbrances and re- appropriations in the various funds, the purpose of which is to carry forward into the fiscal year 2013 budget and continue, in effect, the unexpended balance of appropriations for fiscal year 2012 departmental expenditures as shown in Exhibits 5 and 6; and (2) Reserves for Advances to Other Funds, Stores Inventory, and other reserves in accordance with ordinance and policy guidelines as shown in Exhibit 5; and ATTACHMENT A Page of 5 3 (3) A reserve for general contingencies of such amount that the City Council has approved; and (4) Reserves for utilities plant replacement, rate stabilization, and other reserves in accordance with Charter and policy guidelines as shown Exhibit 6. D. To fund the Budget Stabilization Reserve in accordance with the General Fund Reserves Policy adopted by the City Council. SECTION 7. The General Fund Budget Stabilization Reserve is hereby increased by the sum of One Hundred Ten Thousand One Hundred Seventy Six Dollars ($110,176) as described in Exhibit 1. This transaction will change the General Fund Reserve amount to $28,122,000. SECTION 8. The Electric Distribution Rate Stabilization Reserve is hereby increased by the sum of One Hundred Seven Thousand Nine Hundred Sixty Two Dollars ($107,962) as described in Exhibit 1. This transaction will change the Electric Distribution Rate Stabilization Reserve to $8,680,000. SECTION 9. The Gas Distribution Rate Stabilization Reserve is hereby increased by the sum of Ninety Seven Thousand Nine Hundred Twenty Two Dollars ($97,922) as described in Exhibit 1. This transaction will change the Gas Distribution Rate Stabilization Reserve to $8,374,000. SECTION 10. The Wastewater Collection Rate Stabilization Reserve is hereby increased by One Hundred Forty Four Thousand Nine Hundred Eighty Dollars ($144,980) as described in Exhibit 1. This transaction will change the Wastewater Collection Rate Stabilization Reserve to $4,751,000. SECTION 11. The Water Rate Stabilization Reserve is hereby increased by the sum of Four Hundred Eight Thousand One Hundred Dollars ($408,100) as described in Exhibit 1. This transaction will change the Water Rate Stabilization Reserve to $7,997,000. ATTACHMENT A Page of 5 4 SECTION 12. The Wastewater Treatment Rate Stabilization Reserve is hereby increased by the sum of Two Million Two Hundred Sixty One Thousand Six Hundred Sixty Six Dollars ($2,261,666) as described in Exhibit 1. This transaction will change the Wastewater Treatment Rate Stabilization Reserve to $7,461,000. SECTION 13. The University Avenue Parking Permit Fund is hereby increased by Five Hundred Ninety Six Thousand Dollars ($596,000) as described in Exhibit 1. This transaction will change the University Avenue Parking Permit Fund to $976,000. SECTION 14. The Stanford Development Fund Reserve is hereby decreased by Two Hundred Fifty Thousand Dollars ($250,000) as described in Exhibit 1. This transaction will change the Stanford Development Fund Balance to $21,865,000. SECTION 15. The Capital Projects Fund Reserve is hereby decreased by Four Million Fifty Two Thousand Seventy Five Dollars ($4,052,075) as described in Exhibit 1. This transaction will change the Capital Projects Fund Balance to $53,798,000. SECTION 16. The Golf Course Debt Service Fund Reserve is hereby decreased by Six Hundred Sixty Seven Thousand Two Hundred Sixty Two Dollars ($667,262) as described in Exhibit 1. This transaction will change the Golf Course Fund Reserve to $0. SECTION 17. The Library Project Debt Service Fund Reserve is hereby increased by Three Million Four Hundred Fifty Six Thousand Seventy Five Dollars ($3,456,075) as described in Exhibit 1. This transaction will change the Library Project Debt Service Fund Balance to $5,978,000. SECTION 18. The Technology Fund net assets are hereby decreased by Twenty Two Thousand Nine Hundred Twenty Nine Dollars ($22,929) as described in Exhibit 1. This transaction will change the Technology Fund Balance to $17,494,000. ATTACHMENT A Page of 5 5 SECTION 19. Upon completion of the independent audit, detailed financial statements reflecting the changes made by the Sections 7 through 18 of this ordinance shall be published as part of the annual financial report of the City as required by Article III, Section 16, of the Charter of the City of Palo Alto and in accordance with generally accepted accounting principles. SECTION 20. As specified in Section 2.28.080(a) of the Palo Alto Municipal Code, a two-thirds vote of the City Council is required to adopt this ordinance. SECTION 21. The Council of the City of Palo Alto hereby finds that the enactment of this ordinance is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. SECTION 22. As provided in Section 2.04.330 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST: ________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ________________________ ____________________________ City Attorney City Manager ____________________________ Director of Administrative Services EXHIBIT 1 CITY OF PALO ALTO FISCAL YEAR ENDING JUNE 30, 2012 BUDGET SUMMARY DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE GENERAL FUND Category Amount Description GENERAL FUND Other Financing Sources $3,221,782 Proceeds from lease‐purchase agreement. $3,221,782 ($22,929) Transfer to Information Technology Fund from City Manager Contingency for  internet consultant Peak Democracy Transfer Out $2,576,422 Transfer to Golf Course Debt Service Fund to defease 1998 Golf Course COPs Facilities/Equip $499,075 Lease‐purchase agreement payment (1st installment) Contract Services $59,038 Lease‐purchase agreement legal expense $3,111,606 $110,176 Sa Salaries & Benefits $120,000 Additional appropriations from other departments $120,000 ($120,000) CITY COUNCIL Contract Services $10,000 Additional appropriations from other departments $10,000 ($10,000) General Expenses $45,000 Additional appropriations from other departments $45,000 ($45,000) FIRE Sa Salaries and Benefits $150,000 Additional appropriations from other departments Source Changes $150,000 ($150,000) General Expenses ($10,000) Allocate savings to other departments Salaries and Benefits ($260,000) Allocate savings to other departments ($270,000) $270,000 HUMAN RESOURCES Use Changes Net Changes To (From) Reserves Use Changes NON‐DEPARTMENTAL CITY OF PALO ALTO FY 2012 YEAR‐END BUDGET AMENDMENT ORDINANCE DETAIL Source Changes Net Changes To (From) Reserves Net Changes To (From) Reserves COMMUNITY SERVICES ADMINISTRATIVE SERVICES Use Changes Net Changes To (From) Reserves Net Changes To (From) Reserves Use Changes Net Changes To (From) Reserves Use Changes Exhibit 1, Page 1 of 5 EXHIBIT 1 CITY OF PALO ALTO FISCAL YEAR ENDING JUNE 30, 2012 BUDGET SUMMARY DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE GENERAL FUND Category Amount Description CITY OF PALO ALTO FY 2012 YEAR‐END BUDGET AMENDMENT ORDINANCE DETAIL Salaries and Benefits ($460,000) Allocate savings to other departments Contract Services ($45,000) Allocate savings to other departments ($505,000)   $505,000 Salaries and Benefits $650,000 Additional appropriations from other departments Contract Services $150,000 Additional appropriations from other departments $800,000 ($800,000) Salaries and Benefits ($300,000)Allocate savings to other departments Contract Services ($50,000)Allocate savings to other departments ($350,000) $350,000 Total General Fund Changes to BSR $110,176 Transfer Out $3,456,075 Transfer to Library Project Debt Service Fund ‐ associated premium from  bond issuance; unspent issuance funds  Transfer Out $596,000 Transfer to University Avenue Parking Assessment District Agency Fund. related to surplus of Garage Project  Use Changes $4,052,075 ($4,052,075)Capital Fund Infrastructure Reserve PLANNING & COMMUNITY PUBLIC WORKS Use Changes Net Changes To (From) Reserves GENERAL FUND CIP  Net Changes To (From) Reserves POLICE Use Changes Net Changes To (From) Reserves Use Changes Net Changes To (From) Reserves Exhibit 1, Page 2 of 5 EXHIBIT 1 CITY OF PALO ALTO FISCAL YEAR ENDING JUNE 30, 2012 BUDGET SUMMARY DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE ENTERPRISE FUNDS Category Amount Description ENTERPRISE FUNDS ELECTRIC FUND CIP ($107,962) Completed and closed projects in FY 2012  Use Changes ($107,962)  Net Changes To (From) Reserves $107,962   Fund Balancing Entries  ($107,962) Change in Fund Balance  Total Electric Fund ($107,962)  GAS FUND  CIP ($97,922) Completed and closed projects in FY 2012  Use Changes ($97,922)  Net Changes To (From) Reserves $97,922   Fund Balancing Entries  $97,922 Change in Fund Balance  Total Gas Fund $97,922  CIP ($144,980) Completed and closed projects in FY 2012  Use Changes ($144,980)  Net Changes To (From) Reserves $144,980   Fund Balancing Entries  $144,980 Change in Fund Balance  Total Wastewater Collection Fund $144,980  WASTEWATER COLLECTION FUND CITY OF PALO ALTO FY 2012 YEAR‐END BUDGET AMENDMENT ORDINANCE DETAIL Exhibit 1, Page 3 of 5 EXHIBIT 1 CITY OF PALO ALTO FISCAL YEAR ENDING JUNE 30, 2012 BUDGET SUMMARY DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE ENTERPRISE FUNDS Category Amount Description CITY OF PALO ALTO FY 2012 YEAR‐END BUDGET AMENDMENT ORDINANCE DETAIL  WATER FUND  CIP ($408,100) Completed and closed projects in FY 2012  Use Changes ($408,100)  Net Changes To (From) Reserves $408,100   Fund Balancing Entries  $408,100 Change in Fund Balance  Total Water Fund $408,100  WASTEWATER TREATMENT FUND CIP ($2,261,666) Completed and closed projects in FY 2012  Use Changes ($2,261,666) Net Changes To (From) Reserves $2,261,666  Fund Balancing Entries $2,261,666 Change in Fund Balance Total Refuse Fund $2,261,666  Exhibit 1, Page 4 of 5 EXHIBIT 1 CITY OF PALO ALTO FISCAL YEAR ENDING JUNE 30, 2012 BUDGET SUMMARY DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE OTHER FUNDS FY 2013 Category Description Tranfers In $596,000 Transfer to University Avenue Parking Assessment District Agency Fund. Use Changes $596,000 related to surplus of Garage Project  $596,000 Contract Services $250,000 To cover additional expenses for FY2012 Use Changes $250,000 ($250,000) Interest Income ($30,000)Reduce interest income Transfer In $2,576,422 From General Fund to defease the 1998 Golf Course COPs Source Changes $2,546,422 Debt Service $3,213,684 Defease principal Use Changes $3,213,684 ($667,262) Transfer In $3,456,075 From General CIP Fund related to bond issuance premium  Source Changes $3,456,075 $3,456,075 $22,929 Transfer from City Manager Contingency for internet consultant Peak  Democracy Use Changes $22,929 ($22,929) Net Changes To (From) Reserves DEBT SERVICE FUNDS Net Changes To (From) Reserves INTERNAL SERVICE Net Changes To (From) Reserves CITY OF PALO ALTO FY 2012 YEAR‐END BUDGET AMENDMENT ORDINANCE DETAIL TRUST AND AGENCY FUNDS SPECIAL REVENUE FUNDS STANFORD DEVELOPMENT FUND UNIVERSITYAVE PARKING ASESS FUND Net Changes To (From) Reserves Amount GOLF COURSE INFORMATION TECHNOLOGY FUND LIBRARY PROJECT Net Changes To (From) Reserves Exhibit 1, Page 5 of 5 Page 1 of 7 FY 2012 REAPPROPRIATION REQUESTS SUMMARY OF REQUESTS Total Requests Total Recommended GENERAL FUND $1,017,394 $1,017,394 ENTERPRISE FUND $1,926,688 $1,926,688 INTERNAL SERVICE FUND $343,064 $343,064 CAPITAL IMPROVEMENT PROJECTS $5,649,066 $5,649,066 TOTAL $8,936,212 $8,936,212 $ AMOUNT INTENDED USE COMMENTS/REASONS FOR NOT COMPLETING IN FY 2012 STATUS City Manager’s Office $162,300 Office/space reconfigurations in City Hall This reappropriation is requested to carry over unused FY 2012 City Manager contingency to the City Manager’s Fiscal Year 2013 contingency. The request will be used to continue needed space/office planning and office reconfigurations to improve public counter, general operations and meeting spaces in City Hall. Recommended $162,300: This request is funded by unused Fiscal Year 2012 City Manager Contingency Funds and there is sufficient balance that can be reappropriated. Administrative Services $59,545 Cost of services study This reappropriation is being requested to continue the cost of services study initiated in Fiscal Year 2012. A consultant was hired to update the cost allocation plan, municipal fee schedule, and development impact fees. Part of that work is now complete, some still remains to be completed. Recommended $59,545. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Community Services $8,491 Children’s Theater This reappropriation is requested to carry forward the remaining, unused portion of a donation. Recommended $8,491. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Library $3,250 Parenting Program This reappropriation is requested to carry forward the remaining, unused portion of a federal grant. The grant funds the Parenting Program Series at the Palo Alto City Library. Funds will be spent on speaker fees and supplies for lectures and workshops given by parenting experts. Recommended $3,250. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated Exhibit 2 Page 2 of 7 $ AMOUNT INTENDED USE COMMENTS/REASONS FOR NOT COMPLETING IN FY 2012 STATUS $100,000 Mitchell Park This reappropriation is requested to carry forward the unused portion of a gift from the Palo Alto Library Foundation for the purchase of library collection materials (Staff Report 2258; BAO 5137). Materials will be purchased close to the time of the library opening, providing customers with the most current productions and publications. Recommended $100,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated Planning and Community Environment $105,373 Development Center Blueprint Process This reappropriation is being requested for furnishings for implementation of the Development Center Blueprint Process. In FY 2012, Staff Report 2364 and BAO 5134 increased the budget for the Blueprint Process by $155,639 for workstations, carpeting, and furniture moving. Shortly thereafter, the approval of Staff Report 2389 authorized the rent of the second floor of the Development Center. To maximize purchasing power and end up with more cohesive functionality, furnishing and carpeting was delayed until second floor plans could be made. Reappropriations of these funds will be combined with an expected request for funding to complete furnishing the second floor. Recommended $105,373. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Public Safety $88,435 Fire - Uniforms and protective gear This reappropriation is requested for uniforms and protective gear for the new staff hires. Upon review of the Fire budget, the Office of Management and Budget did not recommend Fire’s request for a midyear budget amendment in Fiscal Year 2012 and requested that Fire instead release budget from an over-budgeted contract. Because the contract budgeting was released too late in the Fiscal Year to encumber, this budget needs to be reappropriated. Recommended $88,435. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. $490,000 Office of Emergency Services This reappropriation is to reappropriate unused budget from Fiscal Year 2012 approved for the establishment of an Office of Emergency Services (OES). The Director of OES was hired halfway through Fiscal Year 2012, allowing only six months to staff the office and undertake program plans. Recruitment is currently underway to provide capacity for project management. Projects are expected to include: sustainable power for generator; backup data links; solar powered WiFi links; emergency management software and systems; voice and data systems in support of PAPD communications and regional projects; GIS entry of infrastructure and key resources; new computer systems; vulnerability assessment. Recommended $490,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated Public Works Department- Storm Drainage Fund Page 3 of 7 $ AMOUNT INTENDED USE COMMENTS/REASONS FOR NOT COMPLETING IN FY 2012 STATUS $40,631 Storm Drain Innovative Improvements This reappropriation is being requested for innovative storm drain improvements. These funds must be reappropriated because they were specifically earmarked for innovative storm drain improvements per the 2005 Storm Drainage ballot measure approved by Palo Alto property owners. These funds have been budgeted for a stormwater rebate program that offers incentives to residents and businesses to reduce stormwater runoff. Recommended $40,631. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Utilities Department- Electric Fund $1,886,057 Electric Efficiency loans Council approved a multi-year program to be funded from the Calaveras Reserve (CMR 430:09). Beginning in Fiscal Year 2011, this program was to be used for four years to provide no interest loans to Palo Alto businesses that are implementing electric energy efficiency projects. The program continues in Fiscal Year 2013. Recommended $1,886,057. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated Information Technology $140,879 Server replacement and network monitoring The reappropriation is being requested for server replacement and a network monitoring application. Due to some unanticipated problems, these funds did not get encumbered in a timely manner to be able to move forward into the next Fiscal Year. Recent server problems have caused significant delays to city operations underscoring the critical nature of this need. Recommended $140,879. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. $97,674 Wireless connectivity This is the remaining balance of the $104,000 amount granted midyear for wireless access points. Due to timing, this project was not completed in Fiscal Year 2012. Recommended $97,674. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. $104,511 Public Safety Mobile Systems This reappropriation is requested to cover: the costs of moving to a new wireless provider with a more secure platform in order to meet the requirements of the U.S. Department of Justice for public safety mobile systems; installing monitors for Councilmembers in Council Chambers; the purchase of a Project Management application for the reporting, diagnostics, and managing of various projects; and, 10 Track-It software licenses and Change Management module for the tracking of work orders and inventory. These activities were not completed in Fiscal Year 2012 due to workload issues. Recommended $104,511. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Page 4 of 7 CAPITAL IMPROVEMENT PROJECTS (CIP) CIP $ AMOUNT INTENDED USE COMMENTS /REASONS FOR NOT COMPLETING IN FY 2012 STATUS Police Department- Technology Fund TE-11002 $305,535 Police Mobile In-Car Video System Replacement This reappropriation is being requested for the replacement of the mobile in-car video system deployed in all of the police patrol cars. The current system is over five years old and is at the end of its lifecycle. Newer technology with better resolution and enhanced storage and retrieval capabilities is available. The system was not replaced during FY 2012 because staff was managing competing priorities and multiple projects. The initial product evaluation process has been started and several demonstrations have been evaluated in the vehicles. Recommended $305,535. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Public Works Department- Capital Projects Fund PF-09000 $100,000 Children’s Theater Improvements This reappropriation is being requested to replace or upgrade mechanical and electrical systems, and replace building finishes at the Children’s Theater. The project was not completed in FY 2012 due to staff workload constraints. A consultant will be hired to design the improvements in Summer 2012. Recommended $100,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Community Services Department- Capital Projects Fund OS-09002 $175,000 Baylands Emergency Access Levee Repair This reappropriation is being requested to restore the width and height of the earthen flood levee between Harbor Road near the Baylands Nature Center and the perimeter levee of the airport to 6 inches above its original height. This project was delayed to coincide with the San Francisquito Creek Joint Powers Authority’s flood control project. However, as the timing of the JPA’s project is still undetermined, staff will move forward with the Baylands levee repair in FY 2013 separately. Recommended $175,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. PG-11002 $250,000 Monroe Park Improvements This reappropriation is being requested to provide necessary upgrades to pathways, benches, trash and recycling receptacles and play equipment at Monroe Park. Due to various unforeseen emergency repair projects in FY 2012, this project was not completed. Improvements will include the renovation of existing playground to comply with ADA standards. Recommended $250,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Page 5 of 7 CAPITAL IMPROVEMENT PROJECTS (CIP) CIP $ AMOUNT INTENDED USE COMMENTS /REASONS FOR NOT COMPLETING IN FY 2012 STATUS AC- 09001 $100,000 Replacement of Children’s Theater Audio and Visual Monitoring Systems This reappropriation is being requested to replace the non-functioning Children Theater audio and visual monitoring systems, and expand the monitoring systems to the Wang Library/Rehearsal Hall and the Magic Castle Stage. The project will include an audio and video monitoring system, paging system, and intercom system. This project was not completed in FY 2012 due to staffing shortages. The project is now expected to be completed by January 2013. Recommended $100,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. AC- 09002 $200,000 New Sound System for Lucie Stern Community Theater This reappropriation is being requested to provide a new sound system that includes sound mixer, house speakers (including a new center luster), audio snake system to connect the booth and the right back-of-house, amplifiers, audio patch for microphones and speakers, hard drive audio editing/storage unit and CD recorder/player, and monitor speakers in the costume shop and rehearsal hall. This project was not completed in FY 2012 due to scheduling conflicts and staffing shortages. The project is now expected to be completed by November 2012. Recommended $200,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Information Technology Department- Technology Fund TE-07006 $95,694 SAP Continuous Improvement This reappropriation is being requested to support a comprehensive security assessment and to implement the City Auditor’s recommendations related to the security of the City’s information systems. Staff worked on security audit recommendations in FY 2012, and additional work to be performed in FY 2013 requires the attention of the newly hired Information Security Manager. Recommended $95,694. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. TE-01012 $578,337 IT Disaster Recovery Plan This reappropriation is being requested to provide the means to promptly resume mission critical and business operations should a natural disaster occur that renders the City’s primary computer system infrastructure inoperable. The project was not addressed in FY 2012 due to a lack of resources and other competing priorities. With the hiring of the Information Security Manager, the project will be initiated in FY 2013 and is expected to be a multi-year project. Recommended $578,337. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Page 6 of 7 CAPITAL IMPROVEMENT PROJECTS (CIP) CIP $ AMOUNT INTENDED USE COMMENTS /REASONS FOR NOT COMPLETING IN FY 2012 STATUS Administrative Services Department- Capital Projects Fund AS-10001 $100,000 Sustainability Contingency This reappropriation is being requested to provide funding for elements of General Fund CIP projects that meet the criteria for Sustainability. This project will be used for specific measures that are either cost-effective, resource- efficient projects or sustainability measures identified under nationally recognized standards. Funding will be transferred out from this project into the qualifying project. Recommended $100,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Utilities Department- Water Fund WS- 11001 $275,000 Vacuum Excavation Equipment This reappropriation is being requested for the purchase of a new vacuum excavation machine for new water service installations. This purchase will include all auxiliary equipment to provide keyhole excavation and minimize pavement disruption associated with service line installations. The equipment purchase requires specifications from Fleet staff acceptance by WGW Operations, and review by the Fleet Review Committee. These processes are expected to occur in FY 2013. Recommended $275,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Utilities Department- Wastewater Collection Fund WC- 11000 $3,119,500 Wastewater Collection Rehabilitation / Augmentation Project 24 This reappropriation is being requested to implement high priority rehabilitation, augmentation, and lateral replacement work, which reduces inflow of rainfall and ground water into the collection system. This project was delayed due to the cross-bore inspection project which took priority over wastewater CIP projects. Recommended $3,119,500. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Utilities Department- Technology Fund TE-11003 $150,000 Recurring Credit Card Payments This reappropriation is being requested to implement recurring credit card payments in the Utilities online customer service program. Resources were not available to implement the project in FY 2012. The recurring credit card feature will lower transaction fees for credit card processing. Recommended $150,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Page 7 of 7 CAPITAL IMPROVEMENT PROJECTS (CIP) CIP $ AMOUNT INTENDED USE COMMENTS /REASONS FOR NOT COMPLETING IN FY 2012 STATUS TE-11005 $200,000 Implementation of New Utility Rate Structures This reappropriation is being requested to reconfigure Pitney Bowes bill print software to allow new rate structures and time differentiated pricing. The project also includes the development of a customized bill design for time-of-use customers. Resources were not available to implement the project in FY 2012. Recommended $200,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. PROJECT NUMBER PROJECT TITLE PROJECT BALANCE General Fund AS-09000 City of Palo Alto Municipal Airport Transition Project - AS-08000 Acquisition of Los Altos Treatment Plant - AS-10001 Sustainability Contingency - PL-05003 College Terrace Traffic Calming - PL-06005 Installation of Ticket Machines - PL-06002 Comprehensive Parking Signage Plan - PL-11004 Alma Street Traffic Signal Improvements - PL-98013 School Commute Safety Improvements (SIF) - PE-06005 University Avenue Gateway Landscaping Improvements - PE-07005 California Avenue Improvements - PE-06006 Alma Street Landscape Improvements - Total $0 Internal Service Fund TE-00021 New Phone System - TE-01006 Enterprise Backup System - TE-08000 Library Technology Plan - TE-08002 Electronic Patient Care Report - TE-08003 Fire Radio Communications Equipment - Total $0 Water Fund WS-06002 WMR - Project 20 10,780 WS-07003 WMR - Project 21 188,487 WS-07004 Water Sys Portable E 208,833 Total $408,100 Electric Fund EL-06000*Park Blvd. 4/12 kV C 9,973 EL-06003*Utility Control Center 7,989 EL-11000*Seale/Waverley 4/12k 40,000 EL-11002*St. Francis Oregon 4 50,000 Total $107,962 Gas Fund GS-10002 General Shop Equipment 3,219 GS-10003 Cathodic Current Interrupters 12,866 GS-10004 Automatic Test Station 81,837 Total $97,922 Wastewater Collection Fund WC-05003 WC Reh/Aug. Prj 18 52,344 WC-09002*Root, Sediment, Dew 59,636 WC-12002*Pipe Bursting Machine 33,000 Total $144,980 Wastewater Treatment Fund WQ-06014 Disinfection Facility Improvement Program 2,261,666 Total $2,261,666 * Projects are closed. No expenditures were incurred in the current fiscal year. Exhibit 3 CAPITAL IMPROVEMENT PROGRAM PROJECTS Completed and Closed in FY 2012 City of Palo Alto 1 EXHIBIT 4 11/26/12 FY 2012 FY 2012 FY 2012 FY 2012 FY 2012 FY 2012 FY 2012 Adopted Adjusted CAFR Basis Allocated Encum+Budgetary Variance Budget Budget Rev/Exp Charges Reapprop Rev/Exp Adj Budget Revenues Sales Taxes 20,246 21,594 22,132 n/a 22,132 538 Property Taxes 26,052 25,989 26,494 n/a 26,494 505 Transient Occupancy Tax 8,204 8,674 9,664 n/a 9,664 990 Documentary Tranfer Tax 4,269 4,769 4,821 n/a 4,821 52 Utility Users Tax 10,859 10,677 10,834 n/a 10,834 157 Other Taxes and Fines 2,330 2,156 2,033 n/a 2,033 (123) Charges for Services 21,841 22,566 25,143 n/a 25,143 2,577 Permits and Licenses 5,778 6,486 6,534 n/a 6,534 48 Return on Investment 1,318 974 1,055 n/a 1,055 81 Rental Income 13,914 13,914 14,294 n/a 14,294 380 From Other Agencies 155 174 81 n/a 81 (93) Charges to Other Funds 10,505 10,505 11,639 n/a 11,639 1,134 Other Revenues 1,428 5,428 5,824 - n/a 5,824 396 Total Revenues 126,899 133,906 128,909 11,639 n/a 140,548 6,643 Add: Operating Transfers In 19,606 19,651 19,459 n/a 19,459 (192) Prior Year Encum & Reapprop 3,887 3,888 n/a 3,888 1 Total Source of Funds 146,505 157,444 148,368 15,527 n/a 163,895 6,452 Expenditures City Attorney 2,355 3,141 2,632 121 353 3,106 36 City Auditor 1,006 1,109 868 50 43 961 149 City Clerk 1,479 1,542 1,386 115 25 1,526 17 City Council 319 463 401 - 35 436 28 City Manager 2,512 2,885 2,402 122 223 2,747 139 Administrative Services 6,514 7,207 6,258 722 223 7,203 5 Community Services 20,711 21,623 16,585 4,295 519 21,399 224 Fire 29,780 30,180 26,417 2,992 708 30,117 63 Human Resources 2,919 2,779 2,444 232 38 2,714 65 Library 6,944 7,814 6,063 1,012 639 7,714 100 Planning 10,021 12,075 8,786 1,532 868 11,186 889 Police 31,918 33,811 30,129 3,478 155 33,762 48 Public Works 13,007 13,970 9,843 3,379 567 13,789 181 Non-Departmental/School Site 5,038 7,412 7,742 20 468 8,230 (818) Total Expenditures 134,523 146,011 121,956 18,070 4,864 144,890 1,126 Add: Operating Trans Out 11,837 15,096 22,136 - 22,136 (7,040) - - - - Total Use of Funds 146,360 161,107 144,092 18,070 4,864 167,026 (5,914) Net Surplus/(Deficit)145 (3,663) 4,276 (2,543) (4,864) (3,131) 538 CAFR Reconciliation:Current year encumbrance/reappropriations 4,863 Prior Year encumbrances/reappropriations (3,888) CAFR Net Income (2,156) GENERAL FUND SUMMARY ($000s) FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Water sales 26,115 30,762 30,674 (88) Other revenues 2,831 2,434 3,266 832 Bond Proceeds - - - - Bonded Reappropriations/Enc 28,853 28,727 28,727 - Restricted Bond Proceeds 2,358 1,264 1,264 - Reappropriations / Enc 10,639 13,872 13,872 - TOTAL REVENUE 70,796 77,059 77,803 744 EXPENSES Purchases 10,678 15,774 14,889 885 Other Expenses 14,398 13,370 14,163 (793) TOTAL OPERATING EXPENSES 25,076 29,144 29,052 92 Capital Expenses 50,917 42,876 50,079 (7,203) Principal Payments 1,201 1,226 1,314 (88) TOTAL EXPENSES 77,194 73,246 80,445 (7,199) TO/(FROM) RESERVES (6,398) 3,813 (2,642) (6,455) FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Electric retail sales 109,950 110,614 107,343 (3,271) Electric wholesale sales - - - - Other revenues 15,915 17,726 15,736 (1,990) Bond Proceeds - - - - Reappropriations / Enc 13,393 15,584 15,584 - TOTAL REVENUE 139,258 143,924 138,663 (5,261) EXPENSES Purchases 61,247 63,754 58,724 5,030 NCPA & TANC Debt Svc 7,243 8,810 8,803 7 Other Expenses 42,570 48,818 47,428 1,390 TOTAL OPERATING EXPENSES 111,060 121,382 114,955 6,427 Capital Expenses 21,020 21,503 22,543 (1,040) Principal Payments 100 100 100 - TOTAL EXPENSES 132,180 142,985 137,598 5,387 TO/(FROM) RESERVES 7,078 939 1,065 126 FIBER OPTICS FUND EXHIBIT 5 ELECTRIC FUND WATER FUND ($000) EXHIBIT 5 FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Revenues 3,660 3,659 4,100 441 Reappropriations / Enc 921 810 810 - TOTAL REVENUE 4,581 4,469 4,910 441 EXPENSES Operating Expenses 1,575 1,645 1,416 229 TOTAL OPERATING EXPENSES 1,575 1,645 1,416 229 Capital Expenses 1,146 1,220 1,154 66 TOTAL EXPENSES 2,721 2,865 2,570 295 TO/(FROM) RESERVES 1,860 1,604 2,340 736 FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Gas retail sales 42,855 42,997 41,034 (1,963) Gas wholesale sales - - - - Other revenues 7,586 9,754 9,857 103 Reappropriations / Enc 10,042 16,910 16,910 - TOTAL REVENUE 60,483 69,661 67,801 (1,860) EXPENSES Purchases 21,464 18,416 16,235 2,181 Other Expenses 22,778 30,404 28,988 1,416 TOTAL OPERATING EXPENSES 44,242 48,820 45,223 3,597 Capital Expenses 18,142 22,534 22,188 346 Principal Payments 459 479 586 (107) TOTAL EXPENSES 62,843 71,833 67,997 3,836 TO/(FROM) RESERVES (2,360) (2,172) (196) 1,976 FIBER OPTICS FUND GAS FUND EXHIBIT 5 FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Revenues 16,129 15,868 15,841 (27) Reappropriations / Enc 8,789 10,250 10,250 - TOTAL REVENUE 24,918 26,118 26,091 (27) EXPENSES Sewer Treatment Exp.7,414 7,954 8,895 (941) Operating Expenses 4,898 4,959 4,909 50 TOTAL OPERATING EXPENSES 12,312 12,913 13,804 (891) Capital Expenses 13,417 12,416 13,364 (948) Principal Payments 65 68 68 - TOTAL EXPENSES 25,794 25,397 27,236 (1,839) TO/(FROM) RESERVES (876) 721 (1,145) (1,866) FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Operating Revenues 20,932 21,226 22,835 1,609 Restricted Bond Proceeds - - - - Loan Proceeds 3,972 - - - Reappropriations / Enc 22,043 10,499 10,499 - Bonded Reappro/Encum - - - - TOTAL REVENUE 46,947 31,725 33,334 1,609 EXPENSES Operating Expenses 18,385 19,194 20,595 (1,401) TOTAL OPERATING EXPENSES 18,385 19,194 20,595 (1,401) Capital Expenses 12,610 9,877 7,347 2,530 Principal Payments 400 769 769 - TOTAL EXPENSES 31,395 29,840 28,711 1,129 TO/(FROM) RESERVES 15,552 1,885 4,623 2,738 WASTEWATER TREATMENT FUND WASTEWATER COLLECTION FUND EXHIBIT 5 FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Revenues 31,605 31,770 31,560 (210) Reappropriations / Enc 2,836 3,656 3,656 - TOTAL REVENUE 34,441 35,426 35,216 (210) EXPENSES Payments to GreenWaste 12,529 12,807 12,882 (75) Other Expenses 18,940 19,817 19,657 160 TOTAL OPERATING EXPENSES 31,469 32,624 32,539 85 Capital Expenses 3,079 8,906 1,703 7,203 TOTAL EXPENSES 34,548 41,530 34,242 7,288 TO/(FROM) RESERVES (107) (6,104) 974 7,078 FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Revenues 6,286 5,815 6,130 315 Reappropriations / Enc 2,408 3,388 3,388 - TOTAL REVENUE 8,694 9,203 9,518 315 EXPENSES Operating Expenses 3,349 3,215 2,557 658 TOTAL OPERATING EXPENSES 3,349 3,215 2,557 658 Capital Expenses 3,561 5,515 5,420 95 Principal Payments 430 455 455 - TOTAL EXPENSES 7,340 9,185 8,432 753 TO/(FROM) RESERVES 1,354 18 1,086 1,068 STORM DRAINAGE FUND REFUSE FUND EXHIBIT 5 FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Revenues -- 5 5 Reappropriations / Enc -91 91 - TOTAL REVENUE - 91 96 5 EXPENSES Operating Expenses 118 269 201 68 TOTAL OPERATING EXPENSES 118 269 201 68 Capital Expenses -- - - Principal Payments -- - - TOTAL EXPENSES 118 269 201 68 TO/(FROM) RESERVES (118) (178) (105) 73 AIRPORT FUND FISCAL YEAR 2012 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total Beginning Reserves $11,639 $127,069 $11,130 $17,188 $6,896 $5,326 ($4,384)$1,640 ($118)$176,386 To (From) Reserves (2,642)1,065 2,340 (196)(1,145)4,623 974 1,086 (105)6,000 Ending Reserves 8,997 128,134 13,470 16,992 5,751 9,949 (3,410)2,726 (223)182,386 Adj Budgeted Reserves 17,099 133,141 10,141 19,644 8,882 4,489 (695)1,576 (296)193,981 % of Budgeted Reserves 53%96%133%86%65%222%491%173%75%94% FISCAL YEAR 2012 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total Rate Stabilization General RSR $7,997 $12,470 $4,751 $7,461 ($4,089)$2,726 ($223)$31,093 Supply RSR 65,929 7,618 $73,547 Distribution RSR 8,680 8,374 $17,054 Total RSR 7,997 74,609 12,470 15,992 4,751 7,461 (4,089) 2,726 (223) $121,694 Emergency Plant Replace 1,000 1,000 1,000 1,000 1,000 1,929 $6,929 Electric Special Projects 50,320 $50,320 Underground Loan 742 $742 Notes and Loans 559 $559 Landfill Corrective Action 679 $679 Shasta rewind Loan $0 Central Valley Project 314 $314 Public Benefit Program 1,149 $1,149 Ending Reserves 8,997 128,134 13,470 16,992 5,751 9,949 (3,410) 2,726 (223) 182,386 FISCAL YEAR 2012 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total Beginning RSR $10,639 $66,331 $10,130 $16,188 $5,896 $3,020 ($5,049)$1,640 ($118)$108,677 To(from) RSR (2,642) 8,278 2,340 (196) (1,145)4,441 960 1,086 (105) 13,017 Ending RSR 7,997 74,609 12,470 15,992 4,751 7,461 (4,089) 2,726 (223) 121,694 RSR Minimum 4,614 37,409 670 7,341 2,156 3,050 2,462 N/A N/A 57,702 RSR Maximum 9,229 74,817 1,675 14,683 4,311 6,100 4,924 N/A N/A 115,739 RSR % of Maximum 87%100%744%109%110%122%-83%N/A N/A 105% EXHIBIT 6 RATE STABILIZATION RESERVE RESERVE SUMMARY ($000) RESERVE DETAIL Page 1 of 1 11/26/2012 Fiscal Year Ended June 30, 2012 2011-2012 Comprehensive Annual Financial Report City of Palo Alto, California   Fiscal Year Ended June 30, 2012 2011-2012 Comprehensive Annual Financial Report Prepared by: Administrative Services Department City of Palo Alto, California   CITY OF PALO ALTO  For the Year Ended June 30, 2012    Table of Contents   Page  INTRODUCTORY SECTION:   Transmittal Letter .................................................................................................................................... i   City Officials ............................................................................................................................................ v   Organizational Structure ....................................................................................................................... vi   Administrative Services Department Organization ............................................................................... vii   GFOA Certificate of Achievement for Excellence in Financial Reporting ............................................. viii    FINANCIAL SECTION:   Independent Auditor’s Report ............................................................................................................... 1      Management’s Discussion and Analysis    (Required Supplementary Information – Unaudited) ...................................................................... 3   Basic Financial Statements:   Government‐wide Financial Statements:   Statement of Net Assets .......................................................................................................... 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 Assets ‐ 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 Fund Net Assets ................................................................................................. 38   Statement of Revenues, Expenses and Changes in Fund Net Assets ...................................... 40   Statement of Cash Flows ......................................................................................................... 42   Fiduciary Funds Financial Statement:   Statement of Fiduciary Net Assets .......................................................................................... 44   Index to the Notes to the Basic Financial Statements ................................................................. 45   Notes to the Basic Financial Statements ...................................................................................... 47  CITY OF PALO ALTO  For the Year Ended June 30, 2012    Table of Contents (Continued)   Page   Supplementary Information:   Non‐Major Governmental Funds:   Combining Balance Sheet ...................................................................................................... 105   Combining Statement of Revenues, Expenditures and    Changes in Fund Balances ............................................................................................... 106   Non‐Major Special Revenue Funds:   Combining Balance Sheet ...................................................................................................... 108   Combining Statement of Revenues, Expenditures and    Changes in Fund Balances ............................................................................................... 110   Combining Schedule of Revenues, Expenditures and    Changes in Fund Balances – Budget and Actual ............................................................. 112   Non‐Major Debt Service Funds:   Combining Balance Sheet ...................................................................................................... 118   Combining Statement of Revenues, Expenditures and    Changes in Fund Balances ............................................................................................... 119   Combining Schedule of Revenues, Expenditures and    Changes in Fund Balances – Budget and Actual ............................................................. 120   Non‐Major Permanent Fund:   Schedule of Revenues, Expenditures and    Changes in Fund Balances – Budget and Actual ............................................................. 124   Internal Service Funds:   Combining Statement of Fund Net Assets ............................................................................ 126   Combining Statement of Revenues, Expenses and    Changes in Fund Net Assets ............................................................................................ 127   Combining Statement of Cash Flows ..................................................................................... 128   Fiduciary Funds:   Statement of Changes in Assets and Liabilities– All Agency Funds ....................................... 130  STATISTICAL SECTION:   Financial Trends:   Net Assets by Component ........................................................................................................... 133   Changes in Net Assets .................................................................................................................. 134   Fund Balances of Governmental Funds ....................................................................................... 136   Changes in Fund Balances of Governmental Funds ..................................................................... 138  CITY OF PALO ALTO  For the Year Ended June 30, 2012    Table of Contents (Continued)   Page   Revenue Capacity:   Electric Operating Revenue by Source ......................................................................................... 139   Supplemental Disclosure for Water Utilities ............................................................................... 140   Assessed Value of Taxable Property ............................................................................................ 141   Property Tax Rates, All Overlapping Governments ..................................................................... 142   Property Tax Levies and Collections ............................................................................................ 143   Principal Property Taxpayers ....................................................................................................... 144   Assessed Valuation and Parcels by Land Use .............................................................................. 145   Per Parcel Assessed Valuation of Single Family Residential ........................................................ 146   Debt Capacity:   Ratio of Outstanding Debt by Type .............................................................................................. 147   Computation of Direct and Overlapping Debt ............................................................................. 148   Computation of Legal Bonded Debt Margin ................................................................................ 149   Revenue Bond Coverage .............................................................................................................. 150   Demographic and Economic Information:    Taxable Transactions by Type of Business ................................................................................... 151   Demographic and Economic Statistics ......................................................................................... 152   Principal Employers...................................................................................................................... 153   Operating Information:   Operating Indicators by Function/Program ................................................................................. 154      Capital Asset Statistics by Function/Program .............................................................................. 156   Full‐Time Equivalent City Government Employees by Function .................................................. 158  SINGLE AUDIT SECTION:   Index to the Single Audit Report .................................................................................................. 159  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 ......................................... 161   Independent Auditor’s Report on Compliance with Requirements That Could Have a    Direct and Material Effect on Each Major Program and on Internal Control    Over Compliance in Accordance with OMB Circular A‐133 .................................................. 163   Schedule of Expenditures of Federal Awards .............................................................................. 165   Notes to the Schedule of Expenditures of Federal Awards ......................................................... 166   Section I – Summary of Auditor’s Results .................................................................................... 167   Section II – Financial Statement Findings .................................................................................... 167   Section III – Federal Award Findings and Questioned Costs ........................................................ 168   Section IV – Status of Prior Year Findings and Questioned Costs ................................................ 170                                          This page left intentionally blank.    Introduction   …………………………………………………………………………. City of Palo Alto   i   Transmittal Letter…………………………………………………...…  November 26, 2012  THE HONORABLE CITY COUNCIL  Palo Alto, California    Attention:  Finance Committee  COMPREHENSIVE ANNUAL FINANCIAL REPORT  YEAR ENDED JUNE 30, 2012      Members of the Council and Citizens of Palo Alto:    The Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2012, is  submitted for Council’s review in accordance with Article III, Section 16 and Article IV, Section 13 of  the City of Palo Alto Charter, and is published as a matter of public record for interested citizens.   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 CAFR information is accurate in all material respects.    The City of Palo Alto’s financial statements have been audited by Macias Gini & O’Connell LLP,  Certified Public Accountants.  The goal of the audit is to obtain reasonable assurance that the  financial statements are free of material misstatement and are fairly presented in conformity with  generally accepted accounting principles (GAAP).  Macias Gini & O’Connell issued an unqualified  opinion for the fiscal year ended June 30, 2012.  Their report is presented as the first component of  the financial section of this report.    In addition, Macias Gini & O’Connell 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  THE PALO ALTO GOVERNMENT  As a charter city serving a population of 65,544, Palo Alto 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.  The City has dedicated almost 4,000 acres of open space to 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 human services for seniors and youths, 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:  The Council consists of nine members elected at‐large for four year staggered terms. At  the first meeting of each calendar year, the 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 the Council.     Finance Committee:  While retaining the authority to approve all actions, the City Council has  established a subcommittee to review financial matters.  Staff provides the Finance Committee and  Council with reports such as the CAFR, quarterly budget‐versus‐actual results, and investment and  performance measure reports, which are utilized in their evaluation of the City’s financial position.    THE PALO ALTO ECONOMY  Employment Trends:  The City of Palo Alto is a largely built‐out community in the heart of Silicon  Valley, in between the greater San Francisco and San Jose areas.  The adjacent Stanford University,  one of the premier institutions of higher education in the nation, 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 Company, VMware, and Space Systems Loral, Palo Alto has enjoyed diverse  employment and revenue bases.  At the end of Fiscal Year (FY) 2012, the City’s unemployment rate  had dropped to 4.7 percent from 5.3 percent the prior year, as compared to Santa Clara County’s  unemployment rate of 8.7 percent, and the state’s unemployment rate of 10.7 percent.    Real Estate Market:  In its most recent annual report, the Santa Clara County Assessor’s Office noted  that Santa Clara County’s 2012/2013 assessment roll increased a modest 3.25%, from $299 billion to  $309 billion, and “this year’s increase in property assessments reflects an encouraging trend and  concrete evidence that the Silicon Valley economy is heading in a positive direction.”  There are,  however, significant geographic differences within the County.  For example, Cupertino and  Mountain View had increases of 6.35 and 6.56 percent, respectively; Palo Alto’s roll increased by 5.32  percent; but Gilroy experienced a .43 percent decline.    With its highly regarded school district, well‐educated and high‐income population, cultural  amenities, and the presence of Stanford University, the City’s real estate values are typically shielded  from major price swings.  Palo Alto experienced 2.42 percent growth in 2012 after .35 percent  growth in 2011, which in turn was down from its 11.43 percent growth in FY 2008.    Local Trends:  Like jurisdictions throughout the country, the City was impacted by the Great  Recession, but is now starting to show some signs of stabilization and recovery.  In the past year, we  Introduction   …………………………………………………………………………. City of Palo Alto   iii   have witnessed a rebound in economically sensitive revenue sources such as sales tax, which is being  driven by department store and electronics sales.  Increased business activities within the City are  resulting in higher transient occupancy tax revenues and development plan fees.    While these revenue sources are showing solid gains, other key revenue sources have been slow to  grow.  Property taxes have remained fairly stable in FY 2012 and are expected to increase modestly in  FY 2013.  Documentary transfer tax revenue has decreased this year compared to FY 2011, but is  forecasted to start rising again in FY 2013 as the residential and commercial property markets  improve.    Overall, the anticipated increase in funding sources is expected to be sufficient to cover projected FY  2013 expenses, as forecasted in the City’s Adopted Budget.  The City faces rising benefit costs and a  significant backlog in infrastructure investment.  Staff has identified approximately $305 million in  infrastructure needs, including ongoing maintenance and new facilities such as a Public Safety  building.  The City Council plans to go through a prioritization process with the Community to  determine possible funding sources for projects identified as priorities.     As with past economic downturns, the City is proactively taking steps to align expenses and revenues  through employee compensation savings, service and program cuts, and revenue enhancements.   The City Council adopted a General Fund budget with funding sources of $151 million for FY 2013, an  increase of 3.1 percent from the prior year Adopted Budget.  The primary drivers of the increase are  rising pension and health care costs as well as $2.2 million to alleviate the City’s infrastructure  maintenance backlog.  Beginning in FY 2010, the City of Palo Alto negotiated significant  compensation and benefit changes with its labor units.  These changes include an increase in  employee contributions to the PERS retirement plan and to health care premiums, as well as  implementation of two‐tier retirement plans.  Negotiations with labor groups such as management,  SEIU, firefighters and police will save the City almost $9 million on an ongoing annual basis.    Long Range Financial Forecast:  The City of Palo Alto produces a 10 year Long Range Financial  Forecast (LRFF) annually.  This comprehensive report analyzes local, state, and federal economic  conditions, short and long‐term revenue and expense trends, expense challenges such as funding  retiree medical benefits, revenue opportunities such as instituting an occupancy tax increase, 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.  Delivered to Council in December or January, this forecast sets the tone and themes for  the annual budget process that begins in January.  The forecast is one of the many tools and reports  the City uses for financial planning.    The City is conscientious and proactive in its financial planning.  During the last two economic  downturns, the City has balanced its annual budget via expenditure reductions and revenue  enhancements and has not materially drawn down reserves.  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.    Cash and Investments:  The City of Palo Alto invests its excess cash prudently and has adopted an  investment policy as prescribed by State law.  The policy states that investments are to be made in  the following priority order: safety, liquidity, and yield. As of June 30, 2012, the City had $428 million  (par value) in its portfolio.  Its principal investments were in agency securities, treasuries, and a State  of California investment pool.  The City’s investment practice is to buy securities and hold them to     Introduction  …………………………………………………………………………. iv    City of Palo Alto  maturity to avoid principal loss.  Staff provides a quarterly report of investments for Council review.   During FY 2012, staff complied with all requirements of the City’s investment policy.    SUMMARY  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 2012  CAFR has been submitted to the GFOA award program and management believes that, once again, it  will meet the criteria for this distinguished financial reporting award.     Acknowledgment:  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 Laura Kuryk, Accounting Manager, and the Senior Accountants, Staff  Accountants, Payroll Analysts and Accounting Specialists for the high level of professionalism and  dedication they bring to the City of Palo Alto.  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 the City Council Finance Committee for its support and  interest in directing the financial affairs of the City in a responsible, professional and progressive  manner.     Respectfully submitted,  LALO PEREZ, JAMES KEENE,  Administrative Services Director                                                                 City Manager  Introduction   …………………………………………………………………………. City of Palo Alto   v   City of Palo Alto City Officials ………………………….…………                                                                                Finance Committee  Nancy Shepherd, Chair  Pat Burt  Gail A. Price  Greg Scharff Policy and Services Committee  Karen Holman, Chair  Sid Espinosa  Larry Klein  Greg Schmid  Council‐Appointed Officers    City Manager  James Keene    City Attorney  Molly Stump    City Clerk  Donna Grider    City Auditor  Jim Pelletier  Pat Burt  Sid Espinosa  Karen Holman Larry Klein  Gail A. Price  Greg Schmid City Council    Yiaway Yeh, Mayor  Greg Scharff, Vice‐Mayor  Nancy Shepherd     Introduction  …………………………………………………………………………. vi    City of Palo Alto  Assistant City Manager  Pam Antil  City Attorney  Molly Stump  City Manager  James Keene  City Auditor  Jim Pelletier City Clerk  Donna Grider Community Services Department  Greg Betts, Director  Administrative Services Department  Lalo Perez, Director  Fire Department  Dennis Burns, Acting Chief  Human Resources Department  Kathryn Shen, Director  Police Department  Dennis Burns, Chief  Planning & Community Environment Dept  Curtis Williams, Director  Utilities Department  Valerie Fong, Director  Public Works Department  Mike Sartor, Director  Library Department  Monique le Conge, Director  City of Palo Alto Organization ……………………………………                                                                            Palo Alto Residents  City Council  Information Technology Department  Jonathan Reichental, Director  Introduction   …………………………………………………………………………. City of Palo Alto   vii   Administrative Services Organization ……… Administrative Division Treasury Division  Accounting Division Budget Division  Purchasing Division Real Estate Division  Administrative Services Department  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.     Introduction  …………………………………………………………………………. viii    City of Palo Alto  Government Finance Officers Association of the United States and Canada – Award …… 1 Honorable Mayor and the Members Of the City Council of City of Palo Alto, California INDEPENDENT AUDITOR’S REPORT 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 City of Palo Alto, California (City), as of and for the year ended June 30, 2012, which collectively comprise the City’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of City’s management. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our 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, 2012, 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 conformity with accounting principles generally accepted in the United States of America,. In accordance with Government Auditing Standards, we have also issued our report dated November 26, 2012, 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 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis 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. 2 Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s financial statements as a whole. The introductory section, combining and individual nonmajor fund financial statements and schedules, and statistical section are presented for purposes of additional analysis and are not a required part of the financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the 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 financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. 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. Walnut Creek, California November 26, 2012 Management’s Discussion and Analysis  3  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, 2012. 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 of City of Palo Alto exceeded its liabilities at the close of Fiscal Year (FY) 2012 by $1,264.9  million.  Of this amount, $404.7 million represents unrestricted net assets, which may be used to  meet the government’s ongoing obligations to citizens and creditors.   The City’s total net assets increased by $78.8 million primarily due to the receipt of $20.8 million  under the terms of a Development Agreement with Stanford Hospital and Clinics, Lucile Salter  Packard Children’s Hospital at Stanford and the Board of Trustees of the Leland Stanford Junior  University (SUMC Parties).      At the close of FY 2012, the City’s governmental funds reported combined fund balances of $162.0  million, an increase of $20.9 million from prior year.  Approximately 18.3 percent of this amount, or  $29.6 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 $36.0 million, or 23.9  percent of total general fund expenditures, including transfers.   The City’s total outstanding long‐term debt decreased by $6.0 million during the current fiscal year  due to loan repayments, refinancing of Golf Course Certificates of Participation (COPs), and the  refunding of a Utility Revenue Bond.  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   Supplemental Information   Statistical Information    Single Audit   Management’s Discussion and Analysis 4  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 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 Assets and the Statement of Activities.     The Statement of Net Assets 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  assets 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 assets for the year.  These changes 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 Assets 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, 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 and the Palo Alto Redevelopment Agency, which are separate legal entities financially  accountable to the City.  The Redevelopment Agency was dissolved effective October 7, 2011.    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, except for Airport which is currently  supported by a long‐term advance from the General Fund, as discussed in Note 4.    The Government‐wide Financial Statements can be found on pages 29‐31 of this report.    Management’s Discussion and Analysis  5  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 such as Capital Projects, Water Services, Electric Services, Fiber Optics, Gas Services,  Wastewater Collection Services, Wastewater Treatment Services, Refuse Services, Storm Drainage Services  and Airport.    Budget and actual financial comparison information is presented only for the General Fund and all major  Special Revenue Funds.     Fund Financial Statements include Governmental, Enterprise and Internal Service 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  2012, 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  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   Management’s Discussion and Analysis 6  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.  Fiduciary Funds  The City is the fiduciary agent for certain assessment districts such as the University Avenue Area Parking  Assessment District, and holds amounts collected from property owners that await transfer to the districts’  bond trustees. The City’s fiduciary activities are reported in the separate Statement of Fiduciary Assets and  Liabilities and the supplemental Agency Funds Statement of Changes in Assets and Liabilities. These  activities are excluded from the City’s other financial statements because the City cannot utilize these assets  to finance its own operations.    The Fiduciary Fund Financial Statements 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 45‐104 of this report.      Other Information  The combining statements referred to earlier in connection with non‐major Governmental Funds and  Internal Service Funds are presented immediately following the Notes to the financial statements.   Combining statements and individual fund statements and schedules can be found on pages 105‐130 of this  report.  Management’s Discussion and Analysis  7  Financial Analysis of Government‐wide Financial Statements  This section focuses on the City’s net assets and changes in net assets of its governmental and business‐type  activities for the fiscal year ending June 30, 2012.  As noted earlier, the City’s total assets exceed total  liabilities by $1,264.9 million at the end of the fiscal year, an improvement in net position of $78.8 million.   STATEMENT OF NET ASSETS As of June 30, 2012 (in millions)  2012 2011 2012 2011 2012 2011 Cash and investments 215.9$    190.6$   281.0$    274.0$     496.9$      464.6$      Other assets 49.8 47.5 39.2 40.8 89.0           88.3         Capital assets 413.2 393.4 490.0 465.7 903.2 859.1  Total Assets 678.9      631.5    810.2     780.5      1,489.1     1,412.0    Long‐term debt 62.5 64.8 83.4 87.1 145.9 151.9 Other liabilities 51.3 50.8 27.0 23.2 78.3 74.0 Total Liabilities 113.8      115.6    110.4     110.3      224.2        225.9          Net Assets    Invested in capital assets,     net of related debt 370.1 364.8 437.2 416.4 807.3 781.2 Restricted 52.9 16.4    ‐    ‐52.9 16.4 Unrestricted 142.1 134.7 262.6 253.8 404.7 388.5 Total Net Assets 565.1$   515.9$  699.8$   670.2$     1,264.9$   1,186.1$  Governmental Activities Business‐type Activities Government‐wide Totals The largest portion of the City’s net asset position (63.8 percent) is its 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.    The restricted portion of the City’s net asset position (4.2 percent) represents resources that are subject to  external restrictions on how they may be used.  The remaining balance of $404.7 million, representing 32.0  percent of the City’s net assets, is unrestricted and may be used to meet the government’s ongoing  obligations to its citizens and creditors.     Management’s Discussion and Analysis 8  At the end of the current fiscal year, the City is able to report positive balances in all reported categories of  net assets, both for the government as a whole, and for its separate governmental and business‐type  activities.  The same situation held true for the prior fiscal year.    Reasons for the $78.8 million increase in total net assets are discussed in the following sections for  governmental activities and business‐type activities.  Governmental Activities – Net Assets  The following analysis focuses on the net assets and changes in net assets of the City’s Governmental  Activities, presented in the Government‐wide Statement of Net Assets and Statement of Activities.  GOVERNMENTAL ACTIVITIES Net Assets at June 30 (in millions) Increase/  2012 2011 (Decrease) Cash and investments 215.9$    190.6$    25.3$        Other assets 49.8 47.5 2.3 Capital assets 413.2 393.4 19.8  Total Assets 678.9     631.5     47.4          Long‐term debt 62.5 64.8 (2.3) Other liabilities 51.3 50.8 0.5 Total Liabilities 113.8     115.6     (1.8)                Net Assets   Invested in capital assets, net of related debt 370.1 364.8 5.3 Restricted 52.9 16.4 36.5 Unrestricted 142.1 134.7 7.4 Total Net Assets 565.1$   515.9$   49.2$        The City’s Governmental activities total net assets increased $49.2 million to $565.1 million as of June 30,  2012. This increase was a result of the following:   Cash and investments increased $25.3 million primarily due to the receipt of $20.8 million for the  Development Agreement with SUMC Parties that was signed in June, 2011.    Capital assets net of depreciation increased $19.8 million due to improvements to the Downtown  Library, Art Center electrical and mechanical upgrades, construction of the Mitchell Park Library and  Community Center, and additions to the City’s network of roadways and sidewalks.   Management’s Discussion and Analysis  9   Net assets invested in capital assets, net of related debt, increased $5.3 million to $370.1 million.   Restricted net assets increased $36.5 million to $52.9 million. Unrestricted net assets increased $7.4  million to $142.1 million.   Unrestricted net assets represent current net assets available to finance  subsequent year operations and other expenditures approved by City Council.  Governmental Activities – Revenues  The table below shows that Governmental activities revenues totaled $169.4 million in FY 2012, an increase  of $35.7 million over prior year revenues of $133.7 million.    GOVERNMENTAL ACTIVITIES Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2012 2011 (Decrease) Program Revenues: Charges for services 62.8$     36.0$     26.8$       Operating grants and contributions 3.4 2.9 0.5 Capital grants and contributions 1.1 1.9 (0.8) Total Program Revenues 67.3$     40.8$     26.5$       General Revenues: Property tax 30.1 29.2 0.9 Sales tax 22.1 20.7 1.4 Utility user tax 10.8 10.8 ‐              Transient occupancy tax 9.7 8.1 1.6 Documentary transfer tax 4.8 5.2 (0.4) Other tax 3.4 3.0 0.4 Investment earnings 6.2 3.5 2.7 Rents and miscellaneous 15.0 12.4 2.6 Total General Revenues 102.1 92.9 9.2 Total Revenues 169.4$   133.7$   35.7$       Total Program Revenues increased $26.5 million from the prior year, primarily due to increased charges for  services.  The majority of the increase is due to the following:   $20.8 million received from the SUMC Parties Development Agreement;   $2.3 million increase in building and zone plan check fees due to increased building activity;   $1.5 million due to an increase in new construction permits.   Management’s Discussion and Analysis 10    A donation of $1.4 million was received from the Palo Alto Library Foundation.    Program revenues such as charges for services, operating grants and contributions, and capital grants and  contributions are generated from or restricted to each activity. Program revenues include contributions  from the University Avenue Off‐Street Parking Assessment District as well as other recurring sources.    General revenues increased $9.2 million, or 9.9 percent, over the prior year.  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.   Utility User Tax 6% Transient Occupancy Tax 6% Rents and Miscellaneous 8% Sales Tax 13% Documentary  Transfer Tax 3% Other 2% Investment Earnings 4% Program Revenues 40% Property Tax 18% Management’s Discussion and Analysis  11  Governmental Activities – Expenses  The table below presents a comparison of FY 2012 and FY 2011 expenses by function, and interest on long‐ term debt.  Encumbrances and reappropriations are not included.  Total Governmental Activities functional  expense was $137.5 million in FY 2012, a decrease of $3.4 million, or 2.4 percent.  GOVERNMENTAL ACTIVITIES Expenses and Change in Net Assets for the Year Ended June 30 (in millions) Increase/ Activities 2012 2011 (Decrease) City Council 0.3$        0.1$        0.2$          City Manager 1.9 1.8 0.1 City Attorney 1.7 1.0 0.7 City Clerk 0.9 0.8 0.1 City Auditor 0.2 0.1 0.1 Administrative Services 10.1 9.9 0.2 Human Resources 1.1 1.3 (0.2) Public Works 14.6 19.4 (4.8) Planning and Community Environment 12.1 15.0 (2.9) Police 33.5 30.5 3.0 Fire 29.3 28.5 0.8 Community Services 21.9 22.9 (1.0) Library 7.3 6.9 0.4 Interest on long‐term debt 2.6 2.7 (0.1) Total Functional Expense 137.5 140.9 (3.4) Increase/(Decrease) in Net Assets    before Transfers 31.8 (7.2) 39.0 Transfers in 17.4 17.1 0.3   Change in net Assets 49.2 9.9 39.3 Net Assets, Beginning 515.9 506.0 9.9 Net Assets, Ending 565.1$   515.9$   49.2$       Changes in year‐over‐year balances are described at the fund level in the Financial Analysis of Governmental  Funds section of the MD&A.  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% or less of total expenses are   Management’s Discussion and Analysis 12  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.      Interest on long‐term  debt 2% Police 25% Fire 21% Library 5% All Other 4% Public Works 12% Administrative Services 6% Community Services 16% Planning and Community  Environment 9% Management’s Discussion and Analysis  13  Business‐type Activities – Net Assets  The following analysis focuses on the net assets and changes in net assets of the City’s Business‐type  Activities presented in the Government‐wide Statement of Net Assets and Statement of Activities.  Increase/  2012 2011 (Decrease) Cash and investments 281.0$    274.0$     7.0$         Other assets 39.2 40.8 (1.6) Capital assets 490.0 465.7 24.3  Total Assets 810.2     780.5      29.7         Long‐term debt 83.4 87.1 (3.7) Other liabilities 27.0 23.2 3.8 Total Liabilities 110.4     110.3      0.1                Net Assets   Invested in capital assets, net of related debt 437.2 416.4 20.8 Unrestricted 262.6 253.8 8.8 Total Net Assets 699.8$   670.2$   29.6$       BUSINESS‐TYPE ACTIVITIES Net Assets at June 30 (in millions) The City’s Business‐type activities total net assets increased $29.6 million to $699.8 million as of June 30,  2012.   Capital assets increased $24.3 million to $490.0 million in FY 2012 as a result of Water, Electric and Gas  infrastructure improvements. Additions include $9.7 million of capital improvements in Water, $6.4 million  of capital improvements in Electric, and $5.1 million of capital improvements in Gas.   Other liabilities increased $3.8 million primarily due to Water engineering services.  Net assets invested in capital assets, net of related debt, increased $20.8 million to $437.2 million.   Unrestricted net assets of $262.6 million, an increase of $8.8 million from the prior year, represent liquid  assets available to finance day‐to‐day operations and other expenditures approved by the City Council. This  amount includes Council‐designated reserves such as the rate stabilization reserves of $121.7 million, the  Electric special projects (Calaveras) reserve for stranded costs of $50.3 million, and the emergency plant  replacement reserve of $6.9 million.   Management’s Discussion and Analysis 14  Business‐type Activities – Revenues  The table below presents the revenues for each of the City’s Business‐type Activities or Enterprise Funds.  The City operates the Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment,  Refuse, Storm Drainage and Airport Funds, which are major funds and are presented in the Basic Financial  Statements.    BUSINESS‐TYPE ACTIVITIES Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2012 2011 (Decrease) Program Revenues: Charges for services 269.5$    265.8$    3.7$          Operating grants and contributions 0.6         0.6 ‐            Capital grants and contributions 1.5 3.0 (1.5)           Total Program Revenues 271.6$   269.4$   2.2$          General Revenues: Investment earnings 7.6 5.7 1.9 Total General Revenues 7.6 5.7 1.9 Total Revenues 279.2$   275.1$   4.1$          Business‐type Activities revenues totaled $279.2 million, an increase of $4.1 million, or 1.5 percent, from the  prior year.  Revenues were affected by the following events:   Charges for services increased by $3.7 million from the prior year due to a Water Fund rate increase  in October 2011.   Capital grants and contributions decreased by $1.5 million from the prior year due to the decrease  of grant revenues for Wastewater Treatment Fund.  Management’s Discussion and Analysis  15  Business‐type Activities – Expenses  The table below presents a comparison of the FY 2012 and FY 2011 expenses for the City’s Business‐type  Activities. Encumbrances and reappropriations are not included.  BUSINESS‐TYPE ACTIVITIES Expenses and Change in Net Assets for the Year Ended June 30 (in millions) Increase/ Business‐type Activities 2012 2011 (Decrease) Water 29.1$     24.3$     4.8$          Electric 102.0 100.1 1.9 Fiber optics 1.5 1.6 (0.1) Gas 28.9 32.0 (3.1) Wastewater collection 14.8 12.3 2.5 Wastewater treatment 20.7 19.7 1.0 Refuse 31.9 30.7 1.2 Storm drainage 3.1 3.2 (0.1) Airport 0.2 0.1 0.1 Total Functional Expense 232.2 224.0 8.2 Increase/(Decrease) in Net Assets    before Transfers 47.0 51.3 (4.3) Transfers out 17.4 17.1 0.3   Change in net Assets 29.6 34.2 (4.6) Net Assets, Beginning 670.2 636.0 34.2 Net Assets, Ending 699.8$   670.2$   29.6$       Business‐type Activities expenses increased $8.2 million for a total of $232.2 million. Year over year  expenses were significantly affected by the following events:   Water Fund expenses increased $4.8 million from prior year primarily due to an increase in retail  purchase of utilities.  Further detail can be found in Note 16 to the financial statements.   Electric Fund expenses increased $1.9 million primarily due to a $1.5 million increase in interest  expense charged by the NCPA joint agency and increased administrative and general expenses.   Gas Fund expenses decreased $3.1 million due to a decrease in retail purchase of utilities.  Further  detail can be found in Note 16 to the financial statements.   Wastewater Collection Fund expenses increased by $2.5 million due to a $1.5 million increase in  retail purchase of utilities and a $.8 million increase in depreciation expense.   Management’s Discussion and Analysis 16  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 they represent the portion of fund balance which has not yet been limited  to use for a particular purpose by either an external party, the City itself, or a group or individual that has  been delegated authority to assign resources for use for particular purposes by the City’s Council.    As of June 30, 2012, the City’s Governmental Funds reported combined fund balances of $162.0 million, an  increase of $20.9 million from the prior year.  Approximately 18.3 percent, or $29.6 million, constitutes  unassigned fund balance, which is available for spending at the government’s discretion.  The remainder of  the fund balance is either nonspendable, restricted, committed, or assigned to indicate that it is 1) not in  spendable form ($17.1 million), 2) restricted for particular purposes ($61.3 million), 3) committed for  particular purposes ($14.3 million), or 4) assigned for particular purposes ($39.7 million).    Governmental Fund revenues increased $35.0 million, or 26.4 percent, from prior year to $167.4 million.   Revenues in the General Fund increased $8.3 million and Capital Projects Fund revenue decreased $1.0  million.  Other Governmental Funds revenue increased by $27.8 million primarily due to the receipt of $20.8  million from the SUMC Parties Development Agreement and a $2.8 million increase in Housing‐In‐Lieu  residential funds.    Governmental Fund expenditures were $164.1 million, an increase of $3.2 million from the prior year.  General Fund expenditures increased $6.8 million, Capital Projects Fund expenditures decreased by $6.3  million, and Non‐major Fund expenditures increased by $2.8 million.  General Fund   Balance Sheet  The General Fund is the chief operating fund of the City.  At the end of the current fiscal year, fund balance  of the General Fund was $42.0 million, compared to $44.2 million in the prior year.  The fund balance has  been classified as $6.0 million nonspendable, $6.4 million assigned, and $29.6 million unassigned.  Of the  unassigned amount, $28.1 million is designated by the Council for budget stabilization.  That amount  represents 18.5 percent of the FY 2013 budgeted expenditures and operating transfers, and is the target  balance intended to fund unbudgeted, unanticipated one‐time costs.  Funds in excess of the target balance  were transferred to the Infrastructure Reserve in the Capital Projects Fund, as allowed by the General Fund  Reserve Policy.        Management’s Discussion and Analysis  17  Statement of Revenues, Expenditures and Changes in Fund Balance    Revenues  The City’s General Fund revenues totaled $125.6 million in FY 2012. This represents an increase of $8.3  million, or 7.1 percent, compared to the prior year.  The year over year change in significant revenue sources  is noted in the following table.        GENERAL FUND Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2012 2011 (Decrease) Property tax 26.5$     25.7$     0.8$         Sales tax 22.1 20.7 1.4 Utility user tax 10.8 10.9 (0.1) Transient occupancy tax 9.7 8.1 1.6 Documentary transfer tax 4.8 5.2 (0.4) Charges for services 24.9 22.3 2.6 Permits and licences 6.6 5.1 1.5 Rental income 14.3 14.3         ‐ All other 5.9 5.0 0.9 Total Revenues 125.6$   117.3$   8.3$             Property tax revenue increased by $0.8 million, or 3.1 percent, over FY 2011 for a total of $26.5 million,  which was in line with County growth expectations.  The recent rise in median home sale prices in Palo Alto  will be reflected in FY 2013 property tax revenues.    Sales tax revenue increased by $1.4 million, or 6.7 percent, over FY 2011 levels for a total of $22.1 million.   The increase was driven by strong retail sales in the department store and electronics sales categories.     Utility user tax remained flat year over year.  Higher utility‐generated revenues were offset by lower  telephone‐generated revenues, which are declining due to fewer land lines and changes in the billing  practices of the providers.     Transient occupancy tax continued to improve, and increased by $1.6 million, or 19.8 percent, due to  increased business activity and improving occupancy and room rates.  Both occupancy and room rates have  been steadily increasing through FY 2012.      Documentary transfer tax declined $0.4 million to $4.8 million.  This tax source was particularly lucrative in  FY 2011 due to a small number of high dollar commercial transactions.  In FY 2012 the revenue declined due  to a shift in the mix of commercial and residential transactions.   Management’s Discussion and Analysis 18    Charges for services totaled $24.9 million in FY 2012, an increase of $2.6 million from the prior year.  The  increase was primarily due to an increase in building and zone plan check fees as a result of increased  building activity within the City.  The City also implemented a Development Center Blue Print Process which  streamlined and modernized the City’s permit process.    Permits and licenses revenue increased over prior year by $1.5 million, most of which is attributed to an  increase in new construction permits.    Expenditures  General Fund expenditures totaled $128.3 million for FY 2012 compared to $121.5 in the prior year.  This  amount excludes encumbrances and reappropriations.  The year over year change for major functions is  noted in the following table:      GENERAL FUND Expenditures for the Year Ended June 30 (in millions) Increase/ Expenditures by Function 2012 2011 (Decrease) Administrative Services 3.3$        3.3$         ‐$            Public Works 11.3 11.3 ‐              Planning and Community Environment 10.3 9.4 0.9 Police 33.2 30.5 2.7 Fire 29.1 28.4 0.7 Community Services 20.8 20.0 0.8 Library 7.1 6.5 0.6 Non‐Departmental 6.6 7.1 (0.5) All other 6.6 5.0 1.6 Total Expenditures 128.3$   121.5$   6.8$             The increase from prior year of $6.8 million, or 5.6 percent, includes the following costs which are spread  across all functions:   $1.6 million increase in retiree medical costs;   $1.9 million increase in benefit allocation costs, primarily pension, and   $1.0 million increase for liability insurance.    In addition to the above, the following cost increases are specific to the named function:   Library increased by $0.6 million due to increased book purchases;   Community Services increased due to increased contract services costs, and  Management’s Discussion and Analysis  19   Planning and Community Environment increased due to  technology enhancements for the  Development Center.    Transfers out for FY 2012 were $22.1 million compared to $11.0 million in the prior year.  Of the $11.1  million increase, $7.6 million was due to the transfer of funds in excess of the 18.5 percent target for  General Fund Budget Stabilization Reserve (BSR) to the Infrastructure Reserve in the Capital Projects Fund.      General Fund – Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual    Original budget compared to final budget:  Revenues were originally budgeted at $126.9 million and were revised upward by $10.9 million, which  included $3.9 million for the prior year encumbrance reserve.  Significant items contributing to the  difference between original budget amounts and final budget amounts for revenue categories were as  follows:    GENERAL FUND Budgeted Revenues for the Year Ended June 30 (in millions) Original Final Increase/ Budgeted Revenues Budget Budget (Decrease) Sales tax 20.2$     21.6$     1.4$          Transient occupancy tax 8.2 8.7 0.5 Documentary transfer tax 4.3 4.8 0.5 Charges for services 21.8 22.6 0.8 Permits and licences 5.8 6.5 0.7 All other 56.1 56.0 (0.1) 116.4 120.2 3.8 Charges to other funds 10.5 10.5 ‐              Lease proceeds ‐           3.2 3.2            Prior year encumbrances and appropriations ‐           3.9 3.9 Total Budgeted Revenues 126.9$   137.8$   10.9$           Adjustments to the original budget were based on the following:   Sales tax was increased by $1.4 million from the original budget due to stronger sales tax  performance in the calendar year third quarter and indications of strong retail sales in the fourth  quarter.  The projected target was in line with the sales tax consultant’s estimate.   Transient occupancy tax budgeted amount of $8.2 million was increased by $0.5 million due to  higher trending receipts from existing establishments.   Documentary transfer tax budgeted amount was increased by $0.5 million based on recent revenue  trends and the real estate market outlook.   Management’s Discussion and Analysis 20   Charges for services budget was increased by $0.8 million to $22.6 million due to implementation of  the Development Center Blueprint Process Plan which streamlined and modernized the City’s permit  process.   Permits and licenses budget was increased by $0.7 million due to an increase in development  activity in the City.   The budget for other revenue was increased by $0.8 million, primarily due to the receipt of Library  donations.    Revenue from lease proceeds was increased by $3.2 million due to the receipt of proceeds resulting  from execution of a master lease agreement with JP Morgan Chase N.A.        Significant differences between final budgeted revenues of $137.8 million and actual revenues of $144.4  million, a difference of $6.6 million, are explained by the following:   Sales and transient occupancy taxes were $1.5 million higher than the final budget due to the  continued upward trend in sales and business activity.   Charges for services actual revenue for the year was $25.1 million, or $2.6 million more than the  final budgeted amount, as a result of increased paramedic fees and building and zone plan check  fees.   Charges to other funds actual revenue was $11.6 million, or $1.1 million higher than the final budget  amount, due to the true‐up of cost plan charges at the end of the year.                                                   Management’s Discussion and Analysis  21  Expenditures were originally budgeted at $134.5 million and were revised upward by $11.5 million for a final  budgeted amount of $146.0 million.  Significant items contributing to the difference between original  budget amounts and final budget amounts for expenditure categories were as follows:    GENERAL FUND Budgeted Expenditures for the Year Ended June 30 (in millions) Original Final Increase/ Actuals, plus Budgeted Expenditures Budget Budget (Decrease) Encumbrances Administrative Services 6.5$        7.2$        0.7$        7.2$                   Community Services 20.7 21.6 0.9 21.4 Fire 29.8 30.2 0.4 30.1 Library 6.9 7.8 0.9 7.7 Planning and Community Environment 10.0 12.1 2.1 11.2 Police 31.9 33.8 1.9 33.8 Public Works 13.0 14.0 1.0 13.8 Non‐Departmental 5.0 7.4 2.4 8.2 All other 10.7 11.9 1.2 11.5 Total Budgeted Expenditures 134.5$   146.0$   11.5$      144.9                 Less:  Charges to Other Funds (11.7) Less:  Encumbrances (4.9) Net General Fund Expenditures 128.3$                  Adjustments of $11.5 million to the original budget were based on the following:   $2.3 million for increased retiree medical costs;   $3.4 million for Public Safety labor concessions which were not achieved;   $1.5 million for expenses related to implementation of the Blueprint Process Plan for the  Development Center, and   $3.8 million for carry‐forward of encumbrances from prior year.      The final budgeted expenditure amount of $146.0 million compares to the actual expenditures plus  encumbrances of $144.9 million, a difference of $1.1 million.  The lower than budgeted expenditures were  primarily due to the delay in completion of the Development Center expansion project.    Transfers out were originally budgeted at $11.8 million, with the final budget number at $15.1 million, an  increase of $3.3 million which was the result of a $2.6 million transfer to the Debt Service Fund for refinance  of Golf Course COPs and $0.6 million that was budgeted for a loan to the Refuse Fund.  The actual transfers  out for the year were $22.1 million, or $7.0 million greater than final budget due to the end of year transfer   Management’s Discussion and Analysis 22  from the General Fund BSR to the Capital Projects Infrastructure Reserve of $7.6 million, offset by a  reduction of $0.6 million as the Refuse Fund loan was not required.    Capital Projects Fund  Capital Projects Fund expenditures and other uses were $32.6 million in FY 2012, which is a decrease of $3.7  million from the prior year. This level of expenditure is consistent with the City’s effort to rehabilitate and  maintain its existing infrastructure.      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, 2012, the City’s Enterprise Funds reported total net assets of $697.5 million, an increase of $29.3  million or 4.4 percent over the prior year. The increase was primarily from the Water, Electric and Gas Funds   for $4.5 million, $9.0 million and $7.8 million, respectively.  Unrestricted net assets for the Enterprise Funds  totaled $260.3 million, a 3.4 percent increase from FY 2011.    Following is a table which compares the year over year change in net assets for each of the Enterprise  Funds:    ENTERPRISE FUNDS Change in Net Assets for the Year Ended June 30 (in millions) Increase/ Fund Name 2012 2011 (Decrease) Water 4.5$        3.5$        1.0$          Electric 9.0 13.1 (4.1)           Fiber Optics 2.6 2.1 0.5 Gas 7.8 6.2 1.6 Wastewater Collection 0.9 3.4 (2.5) Wastewater Treatment 2.1 1.4 0.7 Refuse (0.5) 0.3 (0.8) Storm Drainage 3.0 3.0 ‐              Airport (0.1)            ‐(0.1) Total Change in Net Assets 29.3$      33.0$      (3.7)$         Management’s Discussion and Analysis  23    The most significant factors in the year over year change in net assets for Enterprise Funds are as follows:   Electric change in net assets for the year was $9.0 million, a decrease of $4.1 million from the prior  year.  The decrease was a combination of a $3.2 million decrease in operating revenues, primarily  commercial revenue, and a $0.8 million increase in non‐operating expenses.  The ending RSR  balance is $74.6 million, an increase of $8.3 million from prior year.    Gas ended the year with change in net assets of $7.8 million, compared to $6.2 million in the prior  year, an increase of $1.6 million.  The increase is due to a $3.3 million decrease in operating  expenses, offset by a $1.8 million decrease in operating revenue.  The ending RSR balance is $16.0  million, a decrease of $0.2 million from prior year.    Wastewater Collection ended the year with change in net assets of $0.9 million compared to $3.4  million in the prior year.  The decreased change in net assets is primarily due to a $1.5 million  increase in purchase of utilities expense and a $1.0 million increase in operating expenses.  The  ending RSR balance is $4.8 million, a decrease of $1.1 million from prior year.     Refuse ended the year with a change in net assets of negative $0.5 million, compared to a $0.3  million change in net assets in FY 2011.  The decrease of $0.8 million is due to increased operations  and maintenance expense.  The ending RSR balance is negative $4.1 million, compared to a negative  $5.0 million the prior year, an improvement of $0.9 million.  Compliance requirements for the  landfill closure and post‐closure maintenance plan are discussed in detail in Note 9.                                   Management’s Discussion and Analysis 24  CAPITAL ASSETS  GASB 34 requires that the City record all its capital assets, including infrastructure and intangible assets.   Infrastructure includes roads, bridges, signals and similar assets used by the entire population.  The table  below shows capital assets and the amount of accumulated depreciation for these assets for Governmental  and Business‐type Activities.  Further detail can be found in Note 6 to the financial statements.    Increase/  2012 2011 (Decrease) Governmental Activities Capital Assets Land and improvements 78.6$      78.6$        ‐$           Street trees 15.4 15.4           ‐ Construction in progress 55.3 36.2 19.1 Buildings and improvements 132.9 124.0 8.9 Intangible assets ‐ Easement 3.8 3.8           ‐ Equipment 10.1 9.7 0.4 Roadway network 272.4 267.5 4.9 Recreation and open space network 23.1 21.8 1.3 Less accumulated depreciation (194.2) (183.7) (10.5) Internal Service Fund Assets   Construction in progress 0.2 0.2 ‐             Equipment 51.5 51.7 (0.2) Less accumulated depreciation (35.9) (31.8) (4.1) Total Governmental 413.2$   393.4$    19.8$       Business‐type Activities Land 5.0$        5.0$          ‐$           Construction in progress 99.3 132.4 (33.1) Buildings and improvements 32.7 31.9 0.8 Transmission, distribution and treatment systems 616.0 545.6 70.4 Less accumulated depreciation (263.0) (249.2) (13.8) Total Business‐type 490.0$   465.7$    24.3$       CAPITAL ASSETS AT JUNE 30 (in millions) Governmental Activities’ capital assets net of depreciation increased by $19.8 million from the prior year.   The increase was primarily due to improvements for the Downtown Library, Art Center electrical and  mechanical upgrades, construction of the Mitchell Park Library and Community Center, and street and  sidewalk improvements.    Management’s Discussion and Analysis  25  In early 2010, the Palo Alto City Council established an Infrastructure Blue Ribbon Commission (IBRC) to  review the City’s General Fund infrastructure needs and to recommend resources to fill any funding gaps  identified.  The Commission issued their report dated December 22, 2011 in which they identified a deferred  maintenance backlog of $41.5 million for “keep up” needs, and major capital expenditures of $210.7 million  for “new and replacement” needs, including replacement of the Public Safety Building and the Municipal  Services Center.  Funding sources include an increase in the annual capital transfer from the General Fund  for “keep up” needs, and potentially placing an infrastructure financing measure on a future ballot to  finance “new and replacement” needs.    Major governmental activities’ capital projects that are currently in progress, and the remaining capital  commitment of each, are as follows:   Mitchell Park Library and Community Center ‐ $21.0 million   Main Library ‐ $16.2 million   Art Center electrical and mechanical upgrades ‐ $2.7 million  Business‐type Activities’ capital assets net of depreciation increased by $24.3 million over FY 2011.  The  increase is due to Water, Electric and Gas infrastructure improvements.    Major business‐type activities’ capital projects that are currently in progress, and the remaining capital  commitment of each, are as follows:   Emergency water supply improvement for Water Fund ‐ $17.6 million   Gas main replacement project for Gas Fund ‐ $6.6 million   Plant equipment replacement for Wastewater Treatment Fund ‐ $3.9 million   Wastewater Collection Fund rehabilitation/augmentation project ‐ $3.1 million    The City depreciates its capital assets over their estimated useful lives, as required by GASB 34.  The purpose  of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable  portion of the cost of the asset is borne by all users. Additional information on capital assets and depreciable  lives are in Note 6.     Management’s Discussion and Analysis 26  DEBT ADMINISTRATION  Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements.  At June 30, 2012,  the City’s debt was comprised of the following:  LONG‐TERM DEBT AT JUNE 30 (in millions) Increase/  2012 2011 (Decrease) Governmental Activities General Long‐Term Obligations Certificates of Participation 1998 Golf Course ‐$          3.7$         (3.7)$        2002A Civic Center Refinancing ‐           0.4 (0.4)          2002B Downtown Parking Improvements 1.7 1.8 (0.1) General Obligation Bonds    2010 Series A 54.5 55.3 (0.8) 2011 Lease Purchase Agreement 2.8 ‐             2.8  Add: unamortized premium 3.5 3.6 (0.1) Total Governmental 62.5$     64.8$      (2.3)$       Business‐type Activities Enterprise Long‐Term Obligations Utility Revenue Bonds     1995 Series A4.2$        4.6$         (0.4)  1999 Refunding 12.2 12.7 (0.5)  2002 Series A ‐           18.1 (18.1) 2009 Series A 33.4       34.2 (0.8) 2011 Series A 16.2        ‐             16.2 Less: unamortized premium (discount)    and loss on refunding 0.6         (0.2) 0.8 Energy Tax Credit Bonds 2007 Series A1.0         1.1 (0.1) Less: unamortized premium (discount) (0.1) (0.1)‐             State Water Resources Loan 2007 7.7         8.1 (0.4) 2009 8.2         8.6 (0.4) Total Business‐type 83.4$     87.1$      (3.7)$       Management’s Discussion and Analysis  27  On August 2, 2011, the City entered into a master lease‐purchase agreement with JP Morgan Chase Bank,  N.A. and the proceeds, together with the reserve fund, were used to pay off the 1998 Golf Course  Certificates of Participation.    As noted in the Statistical Section of the CAFR, the combined direct debt ratio to assessed valuation for the  General Fund is a low 0.24 percent compared to the allowable legal debt margin of 15 percent.    On September 8, 2011, the City issued a $17.2 million 2011 Series A Utility Revenue Bond to refund the  outstanding 2002 Series A Utility Revenue Bond.  The 2002 Bond was issued to finance improvements to the  City’s municipal water utility system and the natural gas utility system.  The pledge of future revenues ends  upon repayment of the remaining debt service on the bond in 2026.   SPECIAL ASSESSMENT DISTRICT DEBT  Special assessment districts throughout different parts of the City have also issued debt to finance  infrastructure and facilities construction exclusively in their districts. As of June 30, 2012, the City had no  special assessment district debt with City commitment outstanding.    ECONOMIC OUTLOOK  The economy of the City is discussed in the accompanying Transmittal Letter.  CONTACTING THE CITY’S FINANCIAL MANAGEMENT  The CAFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the  City’s finances. Questions about this report should be directed to the Administrative Services Department, at  250 Hamilton Avenue, 4th Floor, Palo Alto, California. This report and other financial reports can be viewed  on the City of Palo Alto website at: www.cityofpaloalto.org. On the home page, select Departments, select  Administrative Services, and select Financial Reporting. Within Financial Reporting, there are links to reports  by title and reporting date or use the following link: www.cityofpaloalto.org/gov/depts/asd/reporting.asp  28                                      This page left intentionally blank.  CITY OF PALO ALTO Statement of Net Assets June 30, 2012 (Amounts in thousands) Governmental Business‐Type  Activities Activities Total ASSETS: Cash and investments available for operations (Note 3) 193,697$          251,226$           444,923$           Receivables, net: Accounts and intergovernmental 8,566                29,003               37,569               Interest receivable 1,179                1,657                 2,836                 Notes and loans receivable (Note 5) 14,831               ‐                     14,831               Internal balances (Note 4) (1,998)               1,998                  ‐                     Net OPEB asset (Note 12) 21,271               ‐                     21,271               Due from other government agencies ‐                    4,250                 4,250                 Inventory of materials and supplies and prepaids 5,416                27                       5,443                 Deferred charges 533                    2,131                 2,664                 Restricted cash and investments with fiscal agents (Note 3) 22,207              24,085               46,292               Restricted cash for post‐closure landfill (Note 3)‐                    5,717                 5,717                 Capital assets (Note 6): Nondepreciable 149,529            104,304             253,833             Depreciable, net of accumulated depreciation 263,709            385,740             649,449             Total assets 678,940            810,138             1,489,078         LIABILITIES: Accounts payable and accruals 11,945              13,825               25,770               Accrued salaries and benefits 2,719                1,272                 3,991                 Unearned revenue 198                    932                     1,130                 Accrued compensated absences (Note 1): Due in one year 2,879                 ‐                     2,879                 Due in more than one year 6,083                 ‐                     6,083                 Claims payable (Note 14): Due in one year 7,043                 ‐                     7,043                 Due in more than one year 20,423               ‐                     20,423               Accrued landfill closure liability and post‐closure care (Note 9): Due in more than one year ‐                    10,997               10,997               Long‐term debt (Note 7): Due in one year 1,614                3,666                 5,280                 Due in more than one year 60,889              79,693               140,582             Total liabilities 113,793            110,385             224,178             NET ASSETS (NOTE 10): Invested in capital assets, net of related debt 370,111            437,151             807,262             Restricted for: Special revenue programs 43,410               ‐                     43,410               Capital projects 1,609                 ‐                     1,609                 Debt service 6,468                 ‐                     6,468                 Eyerly Family 1,447                 ‐                     1,447                 Total restricted net assets 52,934               ‐                     52,934               Unrestricted 142,102            262,602             404,704             Total net assets $           565,147 $           699,753 $        1,264,900  See accompanying notes to basic financial statements. 29 30                                      This page left intentionally blank.      CITY OF PALO ALTO Statement of Activities For the Year Ended June 30, 2012 (Amounts in thousands) Net (Expense) Revenue and Program Revenues Changes in Net Assets Operating Capital Charges for Grants and Grants and Governmental Business‐Type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Governmental Activities: City Council 345$                     ‐$                    ‐$                    ‐$                   (345)$                   ‐$                   (345)$            City Manager 1,960                   ‐                       ‐                      ‐                     (1,960)                 ‐                      (1,960)          City Attorney 1,656                   ‐                       ‐                      ‐                     (1,656)                 ‐                      (1,656)          City Clerk 908                       ‐                       ‐                      ‐                     (908)                    ‐                      (908)             City Auditor 235                       ‐                       ‐                      ‐                     (235)                    ‐                      (235)             Administrative Services 10,100                1,647                  ‐                     880                    (7,573)                 ‐                      (7,573)          Human Resources 1,071                   ‐                       ‐                      ‐                     (1,071)                 ‐                      (1,071)          Public Works 14,568                1,008                 5                        11                      (13,544)               ‐                      (13,544)       Planning and Community Environment 12,074                31,491               3,291                173                    22,881                ‐                      22,881         Police 33,533                2,160                 110                     ‐                     (31,263)               ‐                      (31,263)       Fire 29,284                13,498                ‐                      ‐                     (15,786)               ‐                      (15,786)       Community Services 21,915                11,365               24                       ‐                     (10,526)               ‐                      (10,526)       Library 7,323                  1,600                 11                       ‐                     (5,712)                 ‐                      (5,712)          Interest on long‐term debt 2,575                   ‐                       ‐                      ‐                     (2,575)                 ‐                      (2,575)          Total Governmental Activities 137,547              62,769               3,441                1,064                (70,273)               ‐                      (70,273)       Business‐Type Activities: Water 29,093                31,467               605                    1,121                 ‐                      4,100                  4,100           Electric 102,030              118,886              ‐                      ‐                      ‐                      16,856                16,856         Fiber Optics 1,489                  3,662                  ‐                      ‐                      ‐                      2,173                  2,173           Gas 28,878                41,774                ‐                      ‐                      ‐                      12,896                12,896         Wastewater Collection 14,825                14,942                ‐                     405                     ‐                      522                     522              Wastewater Treatment 20,712                22,200                ‐                      ‐                      ‐                      1,488                  1,488           Refuse 31,900                30,645                ‐                      ‐                      ‐                      (1,255)                 (1,255)          Storm Drainage 3,103                  5,892                  ‐                      ‐                      ‐                      2,789                  2,789           Airport 153                       ‐                       ‐                      ‐                      ‐                      (153)                   (153)             Total Business‐Type Activities 232,183              269,468             605                    1,526                 ‐                      39,416                39,416         Total 369,730$            332,237$           4,046$               2,590$               (70,273)              39,416                (30,857)       General Revenues: Taxes: Property tax 30,104                ‐                      30,104         Sales tax 22,132                ‐                      22,132         Utility user tax 10,834                ‐                      10,834         Transient occupancy tax 9,664                  ‐                      9,664           Documentary transfer tax 4,821                  ‐                      4,821           Other taxes 3,352                  ‐                      3,352           Investment earnings 6,238                 7,605                  13,843         Rents and miscellaneous 14,943                ‐                      14,943         Transfers (Note 4)17,426               (17,426)                ‐               Total general revenues and transfers               119,514 (9,821)                 109,693      Change in net assets 49,241               29,595                78,836         Net assets, beginning of year 515,906            670,158              1,186,064   Net assets, end of year 565,147$           699,753$            1,264,900$  See accompanying notes to basic financial statements. 31 32                                      This page left intentionally blank.    CITY OF PALO ALTO Governmental Funds Balance Sheet June 30, 2012 (Amounts in thousands) Capital Other Total General Projects Governmental Governmental Fund Fund Funds Funds ASSETS: Cash and investments available for operations (Note 3) 36,151$          33,967$          51,858$           121,976$        Receivables, net: Accounts and intergovernmental 7,804             191                 317                   8,312              Interest receivable 510                  ‐                  300                   810                  Notes and loans receivable (Note 5) 959                  ‐                  13,872             14,831            Prepaid items 932                  ‐                   ‐                    932                  Advance to other fund (Note 4) 300                  ‐                   ‐                    300                  Inventory of materials and supplies 3,816              ‐                   ‐                    3,816              Restricted cash and investments with fiscal agents (Note 3)‐                  21,968           239                   22,207            Total assets 50,472$          56,126$          66,586$           173,184$        LIABILITIES AND FUND BALANCES: Liabilities: Accounts payable and accruals 5,823$            2,227$            391$                8,441$             Accrued salaries and benefits 2,428             101                 9                       2,538              Deferred revenue 198                  ‐                   ‐                    198                  Total liabilities 8,449             2,328             400                   11,177            Fund balances (Note 10): Nonspendable: Notes and loans receivable 959                  ‐                  9,665               10,624            Prepaid items 932                  ‐                   ‐                    932                  Inventories 3,816              ‐                   ‐                    3,816              Advance to other fund 300                  ‐                   ‐                    300                  Eyerly family ‐                   ‐                  1,447               1,447              Restricted for:  Transportation mitigation ‐                   ‐                  6,095               6,095              Federal revenue ‐                   ‐                  4,519               4,519              Street improvement ‐                   ‐                  1,015               1,015              Local law enforcement ‐                   ‐                  251                   251                  Library bond project ‐                  21,350            ‐                    21,350            Public benefits ‐                   ‐                  21,865             21,865            Debt service ‐                   ‐                  6,229               6,229              Committed to: Developer's impact fees ‐                   ‐                  5,935               5,935              Housing in‐lieu ‐                   ‐                  7,322               7,322              Special districts ‐                   ‐                  934                   934                  Downtown business ‐                   ‐                  93                     93                    Assigned to: Unrealized gains on investments 3,031              ‐                  816                   3,847              Infrastructure ‐                  12,055            ‐                    12,055            Capital projects ‐                  20,393            ‐                    20,393            Other general government purposes 3,369              ‐                   ‐                    3,369              Unassigned to: Budget Stabilization 28,122            ‐                   ‐                    28,122            Reappropriations 1,494              ‐                   ‐                    1,494              Total fund balances 42,023           53,798           66,186             162,007          Total liabilities and fund balances 50,472$          56,126$          66,586$           173,184$        See accompanying notes to basic financial statements. 33 CITY OF PALO ALTO Reconciliation of the Balance Sheet of Governmental Funds to  the Statement of Net Assets ‐ Governmental Activities June 30, 2012 Total fund balances reported on the governmental funds balance sheet 162,007$       Amounts reported  for governmental activities in the statement of net assets are different from those reported in the governmental funds above because of the following: Costs of issuance related to the bonds are capitalized and amortized 533                over the life of the bonds in the government‐wide financial statements Capital assets used in governmental activities are not current assets or financial  resources and therefore are not reported in the governmental funds (Note 6) 413,238         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 assets (excludes capital assets reported above) 52,948            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 (1,076)            Long‐term debt (Note 7) (62,503)          Net assets of governmental activities 565,147$       (Amounts in thousands) See accompanying notes to 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, 2012 (Amounts in thousands) Capital Other General Projects Governmental Fund Fund Funds Total REVENUES: Property tax 26,494$           ‐$                3,610$             30,104$           Special assessments ‐                  ‐                 112                   112                  Sales tax 22,132            ‐                  ‐                   22,132            Utility user tax 10,834            ‐                  ‐                   10,834            Transient occupancy tax 9,664              ‐                  ‐                   9,664              Documentary transfer tax 4,821              ‐                  ‐                   4,821              Other taxes and fines 2,033              ‐                 1,879               3,912              Charges for services 24,912           10                   21,351             46,273            From other agencies 82                   262                 772                   1,116              Permits and licenses 6,633              ‐                 503                   7,136              Investment earnings 1,055             1,057             2,173               4,285              Rental income 14,294            ‐                 4                       14,298            Other revenue 2,599             1,573             8,567               12,739            Total revenues 125,553         2,902             38,971             167,426          EXPENDITURES: Current: City Council 344                  ‐                  ‐                   344                  City Manager 1,926              ‐                  ‐                   1,926              City Attorney 1,654              ‐                  ‐                   1,654              City Clerk 909                  ‐                  ‐                   909                  City Auditor 236                  ‐                  ‐                   236                  Administrative Services 3,275              ‐                  ‐                   3,275              Human Resources 1,068              ‐                  ‐                   1,068              Public Works 11,304            ‐                  ‐                   11,304            Planning and Community Environment 10,276            ‐                 1,690               11,966            Police 33,178            ‐                 132                   33,310            Fire 29,108            ‐                  ‐                   29,108            Community Services 20,832            ‐                 28                     20,860            Library 7,072              ‐                  ‐                   7,072              Non‐Departmental 6,573              ‐                 246                   6,819              Capital outlay ‐                 29,154            ‐                   29,154            Debt service: Principal 458                  ‐                 1,285               1,743              Interest and fiscal charges 41                    ‐                 2,716               2,757              Payment to bond refunding escrow ‐                  ‐                 586                   586                  Total expenditures 128,254         29,154           6,683               164,091          EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (2,701)            (26,252)          32,288             3,335              OTHER FINANCING SOURCES (USES): Issuance of debt 3,222              ‐                  ‐                   3,222              Payment to bond refunding escrow ‐                  ‐                 (3,104)              (3,104)             Transfers in (Note 4) 19,459           20,841           6,900               47,200            Transfers out (Note 4) (22,136)          (3,456)            (4,190)              (29,782)           Total other financing sources (uses) 545                 17,385           (394)                 17,536            Change in fund balances (2,156)            (8,867)            31,894             20,871            FUND BALANCES, BEGINNING OF YEAR 44,179           62,665           34,292             141,136          FUND BALANCES, END OF YEAR 42,023$          53,798$          66,186$           162,007$         See accompanying notes to 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, 2012 Net change in fund balances ‐ total governmental funds 20,871$        Amounts reported for governmental activities in the statement of activities are different from those reported in the governmental funds above 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 34,741           Depreciation expense is deducted from fund balance (depreciation expense is net of  internal service fund depreciation of $4,695 (Note 6), which has already been allocated through the internal service fund activities below (10,547)         Disposal and impairment of capital assets (140)               Principal payments on long‐term liabilities are reported as expenditures in governmental funds when paid.  The governmental activities, however, report principal payments as  a reduction of long‐term debt on the statement of net assets.  Interest accrued on  long‐term debt and amortization of bond issuance costs and premiums do not require  the use of current financial resources and therefore are not reported as expenditures  in governmental funds.  Therefore, the activities associated with long‐term debt are as follows: Principal paid during the year 1,743             Proceeds from debt issuance (3,222)           Payment to bond refunding escrow 3,690             Change in interest payable 75                  Amortization of deferred costs of issuance (19)                 Amortization of bond premium 126                Internal service funds are used by management to charge the costs of activities, such  as insurance, equipment acquisition and maintenance, and employees benefits to  individual funds.  The portion of the net revenue (expense) of these internal service  funds arising out of their transactions with governmental funds is reported with  governmental activities. 1,923             Change in net assets of governmental activities 49,241$        (Amounts in thousands) See accompanying notes to basic financial statements. 36 Variance with Budgeted Amounts Final Budget Actual, plus Positive Original Final Encumbrances (Negative) 20,246$      21,594$      22,132$       538$             26,052        25,989        26,494          505              8,204          8,674          9,664            990              Documentary transfer tax 4,269          4,769          4,821            52                10,859        10,677        10,834          157              2,330          2,156          2,033            (123)             21,841        22,566        25,143          2,577           5,778          6,486          6,534            48                1,318          974             1,055            81                13,914        13,914        14,294          380              155             174             81                 (93)               1,428          2,206          2,602            396              116,394     120,179     125,687       5,508           10,505        10,505        11,639          1,134           Lease proceeds ‐              3,222          3,222             ‐               ‐              3,887          3,888            1                   126,899     137,793     144,436       6,643           2,355          3,141          3,106            35                1,006          1,109          961               148              1,479          1,542          1,526            16                319             463             436               27                2,512          2,885          2,747            138              6,514          7,207          7,203            4                   20,711        21,623        21,399          224              29,780        30,180        30,117          63                2,919          2,779          2,714            65                6,944          7,814          7,714            100              10,021        12,075        11,186          889              31,918        33,811        33,762          49                13,007        13,970        13,789          181              5,038          7,412          8,230            (818)             134,523     146,011     144,890       1,121           (7,624)         (8,218)         (454)              7,764           19,606        19,651        19,459          (192)             (11,837)      (15,096)      (22,136)        (7,040)          7,769          4,555          (2,677)           (7,232)          145$            (3,663)$       (3,131)           532$             4,863             (3,888)            (2,156)            44,179           42,023$        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, 2012 (Amounts in thousands) Charges to other funds 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 From other agencies Other revenues Fire Prior year encumbrances and reappropriations Total revenues EXPENDITURES: Current: City Attorney City Auditor City Clerk City Council City Manager Administrative Services Community Services Total other financing sources (uses) Human Resources Library Planning and Community Environment Police Public Works Non‐Departmental Total expenditures (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES):  Transfers in Transfers out FUND BALANCES AT BEGINNING OF YEAR, GAAP BASIS FUND BALANCES AT END OF YEAR, GAAP BASIS EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES, BUDGETARY BASIS Adjustment to Budgetary Basis: Current year encumbrances/reappropriations Prior year encumbrances/reappropriations EXCESS OF REVENUES OVER EXPENDITURES, GAAP BASIS See accompanying notes to basic financial statements. 37 Fiber Water Electric Optics Gas ASSETS: Current assets: Cash and investments available for operations (Note 3) 23,712$          135,946$        13,715$           36,263$           Accounts receivable, net 5,245             13,148           535                   2,546              Interest receivable 171                 871                 82                     227                  Due from other government agencies ‐                   ‐                   ‐                     ‐                   Inventory of materials and supplies ‐                   ‐                   ‐                     ‐                   Restricted cash and investments with fiscal agents (Note 3) 23,268            ‐                   ‐                    817                  Restricted cash for landfill closure (Note 3)‐                   ‐                   ‐                     ‐                   Total current assets 52,396           149,965         14,332             39,853            Noncurrent assets: Due from other government agencies ‐                   ‐                   ‐                     ‐                   Deferred bond issuance costs 558                 48                    ‐                    113                  Deposit ‐                  27                    ‐                     ‐                   Capital assets (Note 6): Nondepreciable 30,782           24,048           1,090               18,199            Depreciable, net 60,871           142,935         6,135               67,611            Net OPEB asset (Note 12)‐                   ‐                   ‐                     ‐                   Total noncurrent assets 92,211           167,058         7,225               85,923            Total assets 144,607         317,023         21,557             125,776          LIABILITIES: Current liabilities: Accounts payable and accruals 5,865             2,260             50                     2,637              Accrued salaries and benefits 170                 429                 31                     196                  Unearned revenue ‐                   ‐                   ‐                     ‐                   Accrued compensated absences (Note 1)‐                   ‐                   ‐                     ‐                   Current portion of revenue bonds (Note 7) 1,319             100                  ‐                    506                  Accrued claims payable (Note 14)‐                   ‐                   ‐                     ‐                   Total current liabilities 7,354             2,789             81                     3,339              Noncurrent liabilities: Accrued compensated absences (Note 1)‐                   ‐                   ‐                     ‐                   Accrued claims payable (Note 14)‐                   ‐                   ‐                     ‐                   Advance from other fund (Note 4)‐                   ‐                   ‐                     ‐                   Landfill closure and post‐closure care (Note 9)‐                   ‐                   ‐                     ‐                   Utility revenue bonds, net of  unamortized discounts/premiums (Note 7) 40,480           846                  ‐                    8,823              Total noncurrent liabilities 40,480           846                  ‐                    8,823              Total liabilities 47,834           3,635             81                     12,162            NET ASSETS: Invested in capital assets, net of related debt 73,680           166,085         7,225               77,411            Unrestricted (deficit) 23,093           147,303         14,251             36,203            Total net assets 96,773$          313,388$        21,476$           113,614$         Some amounts reported for Business‐type Activities in the statement of net assets are different because certain Internal Service Fund net assets are included with Business‐type Activities Net assets reported in Business‐type Activities Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Fund Net Assets June 30, 2012 (Amounts in thousands) See accompanying notes to basic financial statements. 38 Governmental Activities ‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 15,513$           16,699$           2,398$            6,842$            138$               251,226$        71,721$            1,718               2,090               3,098              623                  ‐                  29,003           254                    106                   101                   56                    42                   1                     1,657             369                    ‐                    250                    ‐                    ‐                   ‐                  250                   ‐                    ‐                     ‐                     ‐                    ‐                   ‐                   ‐                   668                    ‐                     ‐                     ‐                    ‐                   ‐                  24,085            ‐                    ‐                     ‐                    5,717               ‐                   ‐                  5,717              ‐                    17,337             19,140             11,269            7,507             139                 311,938         73,012              ‐                    4,000                ‐                    ‐                   ‐                  4,000              ‐                    20                     1,262                ‐                   130                  ‐                  2,131              ‐                    ‐                     ‐                     ‐                    ‐                   ‐                  27                     ‐                    12,603             10,241             3,540              3,801              ‐                  104,304         204                    56,176             28,480             12                    23,520            ‐                  385,740         15,662              ‐                     ‐                     ‐                    ‐                   ‐                   ‐                   21,271              68,799             43,983             3,552              27,451            ‐                  496,202         37,137              86,136             63,123             14,821            34,958           139                 808,140         110,149            439                   684                   1,781              95                   14                   13,825           2,428                103                   215                   96                    32                    ‐                  1,272             181                    ‐                     ‐                     ‐                   932                  ‐                  932                   ‐                    ‐                     ‐                     ‐                    ‐                   ‐                   ‐                   2,879                71                     1,190                ‐                   480                  ‐                  3,666              ‐                    ‐                     ‐                     ‐                    ‐                   ‐                   ‐                   7,043                613                   2,089               1,877              1,539             14                   19,695           12,531              ‐                     ‐                     ‐                    ‐                   ‐                   ‐                   6,083                ‐                     ‐                     ‐                    ‐                   ‐                   ‐                   20,423              ‐                     ‐                     ‐                    ‐                  300                 300                   ‐                    ‐                     ‐                    10,997             ‐                   ‐                  10,997            ‐                    1,051               20,955              ‐                   7,538              ‐                  79,693            ‐                    1,051               20,955             10,997            7,538             300                 90,990           26,506              1,664               23,044             12,874            9,077             314                 110,685         39,037              67,677             22,088             3,552              19,433            ‐                  437,151         15,866              16,795             17,991             (1,605)             6,448             (175)               260,304         55,246              84,472$           40,079$           1,947$            25,881$          (175)$              697,455         71,112$            2,298              699,753$         Business‐Type Activities‐Enterprise Funds See accompanying notes to basic financial statements. 39 Fiber Water Electric Optics Gas OPERATING REVENUES: Sales of utilities: Customers 29,115$    105,225$   ‐$           40,265$     City departments 1,380       3,352       710             769            Surplus energy ‐           2,323        ‐              ‐            Service connection charges and miscellaneous 534           1,468        ‐             592            Charges for services ‐            ‐            ‐              ‐            Other 438           6,518       2,952         148            Total operating revenues 31,467     118,886   3,662         41,774      OPERATING EXPENSES: Purchase of utilities: Retail 14,889     55,526      ‐             16,235      Surplus energy ‐           3,198        ‐              ‐            Administrative and general 3,548       5,323       375             3,451        Engineering (operating) 301           1,204        ‐             333            Resource management and energy efficiency 553           7,196        ‐             1,343        Operations and maintenance 4,901       9,288       817             5,032        Rent 2,157       3,688       25               230            Depreciation and amortization 1,481       7,761       275             1,881        Claims payments and changes in estimated self‐insurance liability ‐            ‐            ‐              ‐            Refund of charges for services ‐            ‐            ‐              ‐            Compensated absences and other benefits ‐            ‐            ‐              ‐            Total operating expenses 27,830     93,184     1,492         28,505      Operating income (loss) 3,637       25,702     2,170         13,269      NONOPERATING REVENUES (EXPENSES): Investment earnings 520           4,100       436             1,119        Interest expense (943)         (8,803)       ‐             (406)          Gain (loss) on disposal of capital assets (361)         (180)          ‐             (44)            Other nonoperating revenues 605            ‐            ‐              ‐            Total nonoperating revenues (expenses) (179)         (4,883)      436             669            Income (loss) before transfers and capital contributions 3,458       20,819     2,606         13,938      Capital contributions 1,121        ‐            ‐              ‐            Transfers in 75             103            ‐              ‐            Transfers out (104)         (11,886)    (9)                (6,176)       Change in net assets 4,550       9,036       2,597         7,762        NET ASSETS, BEGINNING OF YEAR 92,223     304,352   18,879       105,852    NET ASSETS (DEFICIT), END OF YEAR 96,773$    313,388$  21,476$     113,614$   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 assets 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 Assets For the Year Ended June 30, 2012 (Amounts in thousands) See accompanying notes to basic financial statements. 40 Governmental Activities‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 13,983$     13,006$     25,870$     5,465$       ‐$          232,929    ‐$                 111             8,947         1,131        331            ‐           16,731      ‐                   ‐              ‐              ‐             ‐            ‐           2,323        ‐                   584              ‐              ‐             ‐            ‐           3,178        ‐                   ‐              ‐              ‐             ‐            ‐            ‐           79,605            264             247             3,342         96              ‐           14,005      ‐                   14,942       22,200       30,343       5,892        ‐           269,166   79,605            8,895          ‐             12,882        ‐            ‐           108,427    ‐                   ‐              ‐              ‐             ‐            ‐           3,198        ‐                   826              ‐             1,901         339           153           15,916     8,368               258             2,343         261            349            ‐           5,049        ‐                   ‐              ‐              ‐            202            ‐           9,294        ‐                   2,466         15,498       11,617       847            ‐           50,466     8,896               106              ‐             4,289          ‐            ‐           10,495      ‐                   2,282         2,163          ‐            877            ‐           16,720     5,884               ‐              ‐              ‐             ‐            ‐            ‐           7,603               ‐              ‐              ‐             ‐            ‐            ‐           65                    ‐              ‐              ‐             ‐            ‐            ‐           48,542            14,833       20,004       30,950       2,614       153           219,565   79,358            109             2,196         (607)          3,278       (153)         49,601     247                  494             490             222            219           5               7,605       1,904               (36)             (604)           (605)          (493)          ‐           (11,890)     ‐                   (10)              ‐             (404)           ‐            ‐           (999)         3                      ‐              ‐             302             ‐            ‐           907           32                    448             (114)           (485)          (274)         5               (4,377)      1,939               557             2,082         (1,092)        3,004       (148)         45,224     2,186               405              ‐              ‐             ‐            ‐           1,526        ‐                   ‐             145             692            19              ‐           1,034       858                  (88)             (105)           (74)            (18)            ‐           (18,460)    (850)                 874             2,122         (474)          3,005       (148)         29,324     2,194               83,598       37,957       2,421         22,876     (27)           68,918                              84,472$     40,079$     1,947$       25,881$    (175)$        71,112$          271            29,595$     Business‐Type Activities‐Enterprise Funds See accompanying notes to basic financial statements. 41 Fiber Water Electric Optics Gas Cash flows from operating activities: Cash received from customers 27,911$    111,440$  (1)$             41,308$      Cash refunds to customers ‐             ‐             ‐             ‐               Cash payments to suppliers for goods and services (19,440)    (80,517)    (832)          (21,771)       Cash payments to employees (3,529)      (5,241)      (369)          (3,423)         Internal activity‐ receipts (payment) from (to) other funds 1,380        3,352        710           769              Other receipts 438           6,518        2,952        148              Net cash provided by (used in)  operating activities 6,760        35,552     2,460        17,031        Cash flows from noncapital financing activities: Transfers in 75             103            ‐             ‐               Transfers out (104)          (11,886)    (9)              (6,176)         Cash flows provided by (used in) noncapital financing activities (29)            (11,783)    (9)              (6,176)         Cash flows from capital and related financing activities: Acquisition and construction of capital assets (14,203)    (12,227)    (560)          (7,462)         Proceeds from sale of capital assets ‐             ‐             ‐             ‐               Capital grants and contributions 1,330         ‐             ‐             ‐               Interest subsidy received from Build America Bond 396            ‐             ‐             ‐               Proceeds from debt issuance 131            ‐             ‐            160              Cost of issuance paid (98)             ‐             ‐            (119)             Principal paid on long‐term debt (1,331)      (100)           ‐            (628)             Interest paid on long‐term debt (977)          (8,803)       ‐            (364)             Cash flows used in capital and related financing activities (14,752)    (21,130)    (560)          (8,413)         Cash flows from investing activities: Interest received 645           4,170        432           1,116           Net change in cash and cash equivalents (7,376)      6,809        2,323        3,558           Cash and cash equivalents, beginning of year 54,356     129,137   11,392     33,522        Cash and cash equivalents, end of year $     46,980 $  135,946 $     13,715 $     37,080  Financial statement presentation: Cash and investments available for operations 23,712$    135,946$  13,715$    36,263$      Cash and investments with fiscal agent 23,268      ‐             ‐            817              Cash and cash equivalents, end of year 46,980$    135,946$  13,715$    37,080$      Reconciliation of operating income (loss) to  net cash provided by (used in) operating activities: Operating income (loss) 3,637$      25,702$    2,170$      13,269$      Adjustments to reconcile operating income (loss) to  net cash provided by (used in) operating activities: Depreciation and amortization 1,481        7,761        275           1,881           Other ‐             ‐             ‐             ‐               Change in assets and liabilities: Accounts receivable (1,738)      2,424        (1)              451              Inventory of materials and supplies ‐             ‐             ‐             ‐               Deposits ‐            (18)             ‐             ‐               Net OPEB asset ‐             ‐             ‐             ‐               Accounts payable and accruals 3,361        (399)          10             1,402           Accrued salaries and benefits 19             82             6               28                Accrued compensated absences ‐             ‐             ‐             ‐               Unearned revenue ‐             ‐             ‐             ‐               Landfill closure and post‐closure care ‐             ‐             ‐             ‐               Accrued claims payable and other liabilities ‐             ‐             ‐             ‐               Net cash provided by (used in)  operating activities $       6,760 $     35,552 $       2,460 $     17,031  Noncash capital and related financing activities: Payment to refunded bond escrow from refunding bond proceeds 8,204$       ‐$            ‐$           10,027$      Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Cash Flows For the Year Ended June 30, 2012 (Amounts in thousands) See accompanying notes to basic financial statements. 42 Governmental Activities‐ Wastewater Wastewater Storm Internal Service Collection Treatment Refuse Drainage Airport Totals Funds 14,532$     13,160$     25,981$     5,147$        ‐$           239,478$  79,411$              ‐               ‐               ‐               ‐               ‐             ‐            (65)                     (11,617)      (18,446)      (29,004)      (1,593)         ‐            (183,220)  (9,168)                (815)            8                 (1,908)        (339)            (145)          (15,761)    (53,702)              111             8,947          1,131          331              ‐            16,731     (4,040)                264             247             3,568          96                ‐            14,231     32                       2,475          3,916          (232)            3,642          (145)          71,459     12,468               ‐              145             692            19                ‐            1,034        858                    (88)              (105)            (74)              (18)               ‐            (18,460)    (850)                   (88)              40               618            1                  ‐            (17,426)    8                         (3,452)        (1,254)        (806)            (2,006)         ‐            (41,970)    (1,707)                ‐               ‐               ‐               ‐               ‐             ‐            46                       405             250             302             ‐               ‐            2,287         ‐                     ‐               ‐               ‐               ‐               ‐            396            ‐               ‐               ‐               ‐               ‐            291            ‐                     ‐               ‐               ‐               ‐               ‐            (217)           ‐                     (68)              (1,169)         ‐              (455)             ‐            (3,751)       ‐                     (34)              (553)            (605)            (494)             ‐            (11,830)     ‐                     (3,149)        (2,726)        (1,109)        (2,955)         ‐            (54,794)    (1,661)                501             495             230            217             5               7,811        1,896                 (261)            1,725          (493)            905             (140)          7,050        12,711                           15,774       14,974       8,608          5,937          278           273,978   60,738                $     15,513  $     16,699  $       8,115  $       6,842 $          138 $  281,028 $             73,449  15,513$     16,699$     2,398$       6,842$       138$          251,226$  71,721$              ‐               ‐              5,717           ‐               ‐            29,802      ‐                     15,513$     16,699$     8,115$       6,842$       138$          281,028$  71,721$              109$           2,196$       (607)$         3,278$       (153)$        49,601$    247$                   2,282          2,163           ‐              877              ‐            16,720     5,884                 ‐               ‐               ‐               ‐               ‐             ‐            32                       (35)              154             111            (37)               ‐            1,329        (194)                   ‐               ‐               ‐               ‐               ‐             ‐            (55)                     ‐               ‐               ‐               ‐               ‐            (18)             ‐                     ‐               ‐               ‐               ‐               ‐             ‐            1,735                 108             (605)            45               (195)            9               3,736        (95)                     11               8                 (7)                 ‐              (1)              146           47                       ‐               ‐               ‐               ‐               ‐             ‐            (424)                   ‐               ‐               ‐              (281)             ‐            (281)           ‐                     ‐               ‐              226             ‐               ‐            226            ‐                     ‐               ‐               ‐               ‐               ‐             ‐            3,563                  $       2,475  $       3,916  $         (232) $       3,642 $         (145)$     71,459 $             10,740  ‐$             ‐$             ‐$             ‐$             ‐$           18,231$     ‐$                    Business‐Type Activities‐Enterprise Funds See accompanying notes to basic financial statements. 43 Agency Funds ASSETS: Cash and investments available for operations (Note 3) 2,816$           Restricted cash and investments with fiscal agents (Note 3) 2,538             Interest receivable 18                   Total assets 5,372$           LIABILITIES: Due to bondholders 4,456$           Due to other governments 916                 Total liabilities 5,372$           CITY OF PALO ALTO Statement of Fiduciary Net Assets June 30, 2012 (Amounts in thousands) See accompanying notes to basic financial statements. 44 CITY OF PALO ALTO  Index to the Notes to the Basic Financial Statements   For the Year Ended June 30, 2012  45   Page    1. Summary of Significant Accounting Policies ........................................................................... 47  2. Budgets and Budgetary Accounting ........................................................................................ 56  3. Cash and Investments ............................................................................................................. 57  4. Interfund Transactions ............................................................................................................ 61  5. Notes and Loans Receivable .................................................................................................... 63  6. Capital Assets .......................................................................................................................... 69  7. General Long‐Term Obligations .............................................................................................. 74  8. Special Assessment Debt ......................................................................................................... 81  9. Landfill Closure and Post‐Closure Care ................................................................................... 82  10. Net Assets and Fund Balances ................................................................................................. 83  11. Pension Plans ........................................................................................................................... 85  12. Retiree Health Benefits ........................................................................................................... 89  13. Deferred Compensation Plan .................................................................................................. 92  14. Risk Management .................................................................................................................... 93  15. Joint Ventures .......................................................................................................................... 94  16. Commitments and Contingencies ........................................................................................... 97    Notes are essential to present fairly the information contained in the overview level of basic financial  statements.  Narrative explanations are intended to communicate information that is not readily  apparent or cannot be included in the statements and schedules themselves, and to provide additional  disclosures as required by the Governmental Accounting Standards Board.  46                                              This page left intentionally blank.      CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  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, 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 nine‐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 units, which are entities for which the City is financially accountable.   Although separate legal entities, blended component units are, in substance, part of the City’s  operations and are reported as an integral part of the City’s financial statements.  The City’s  component units, which are described below, are 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 Golf  Course and Civic Center Refinancing Debt Service Funds and the Capital Projects Fund.    The Palo Alto Redevelopment Agency (the Agency) was a separate government entity whose  purpose was to prepare and implement plans for improvement, rehabilitation, and development  of certain areas within the City.  The City Council and the Redevelopment Agency Board were  composed of the same individuals.  Certain administrative and accounting functions were  performed by City staff.  The financial activities of the Agency have been included in these  financial statements in the Redevelopment Agency Special Revenue Fund.  As of June 29, 2011,  changes to the California Redevelopment Law have terminated the authority of redevelopment  agencies to undertake new obligations to redevelop property.  On September 6, 2011, the City  filed Ordinance No. 5126 dissolving the operations of the Agency effective October 7, 2011.     Financial statements for the Corporation and the Agency 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.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  48  NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (b) Basis of Presentation (Continued)    These standards require that the financial statements described below be presented:    Government‐wide Statements: The Statement of Net Assets and the Statement of Activities  display information about the primary government and its component units.  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.  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 blended component units.  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, enterprise and internal service  funds are aggregated and reported as non‐major funds.    Proprietary fund operating revenues, such as 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.  Non‐operating 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 non‐operating expenses.    (c) Major 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.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  49  NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (c) Major Funds (Continued)    Major funds are defined as funds that have either assets, liabilities, 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.    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 all of its enterprise funds as major funds in the accompanying financial  statements.  These funds are:    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 in the City.    Wastewater Collection Services Fund – This fund accounts for all financial transactions relating  to the City’s wastewater collection.  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.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  50  NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (c) Major Funds (Continued)    Storm Drainage Services Fund – This fund accounts for all financial transactions relating to the  City’s storm drain service.  Services are on a user‐charge basis to residents and business owners  located in the City.    Airport Fund – This fund  accounts for all financial transactions relating to the Palo Alto Airport.   The City will be taking over operation of the airport from Santa Clara County no later than 2017.    The City also reports the following funds:    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.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  51  NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (c) Major Funds (Continued)  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 three 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.     California Avenue Parking Assessment District – This fund accounts for the receipts and  disbursements associated with the 1993 Parking District No. 92‐13 Assessment Bonds.    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 Series 2001‐A and Series 2002‐A University  Avenue Area Off‐Street Parking Assessments Bonds, and 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.  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 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.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  52  NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (d) Basis of Accounting (Continued)    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 assets 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.    The City follows those Financial Accounting Standards Board (FASB) Statements and predecessor  pronouncements issued before November 30, 1989, which do not conflict with GASB  Statements, in both the government‐wide financial statements for business‐type activities and  the proprietary fund financial statements. The City has elected not to apply FASB  pronouncements issued after November 30, 1989 to business‐type activities and enterprise  funds.     (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)  Deposits and Investments    The City’s investments are carried at fair value, as required by GASB Statement No. 31,  Accounting and Financial Reporting for Certain Investments and for External Investment Pools.   The City adjusts the carrying value of its investments to reflect their fair value at each fiscal year‐ end, and it includes the effects of these adjustments in income for that fiscal year.    (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.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  53  NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (h) 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 Fund.  Amounts expected to be permanently liquidated, such as what is  due to be paid because of a realized employment action, are recorded as fund liabilities in the  General Benefits 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, specified in employment agreements.    During the fiscal year ended June 30, 2012, changes to the compensated absences were as  follows (in thousands):    Beginning balance 9,386$          Additions 6,729            Payments (7,153)           Ending balance 8,962$          Current portion 2,879$             (i) 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 above within 60 days after year‐end.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  54  NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (j) Rounding    All amounts included in the basic financial statements and footnotes are presented to the  nearest thousand.    (k) Effects of New Pronouncements     During the year ended June 30, 2012, the City implemented the following GASB Statement:     In June 2011, GASB issued Statement No. 64, Derivative Instruments: Application of Hedge  Accounting Termination Provisions.  This Statement sets forth criteria to establish when the  effective hedging relationship continues and hedge accounting should continue to be applied.   The requirements of this Statement enhance comparability and improve financial reporting by  clarifying the circumstances in which hedge accounting should continue when swap  counterparty, or swap counterparty’s credit support provider, is replaced.  The requirements of  this Statement are effective for the City’s fiscal year ending June 30, 2012.      The City is currently analyzing its accounting practices to determine the potential impact on the  financial statements for the following GASB Statements:      GASB Statement No. 60 issued November 2010, Accounting and Financial Reporting for Service  Concession Arrangements, addresses how to account for and report service concession  arrangements (SCAs), a type of public‐private or public‐public partnership that state and local  governments are increasingly entering into. Common examples of SCAs include long‐term  arrangements between a transferor (a government) and an operator (governmental or  nongovernmental entity) in which the transferor conveys to an operator the right and related  obligation to provide services through the use of infrastructure or another public asset in  exchange for significant consideration, and the operator collects and is compensated by fees  from third parties. Application of this Statement is effective for the City’s fiscal year ending June  30, 2013.    GASB Statement No. 61 issued November 2010, The Financial Reporting Entity: Omnibus, is  designed to improve financial reporting for governmental entities by amending the  requirements of GASB Statement No. 14, The Financial Reporting Entity, and GASB Statement  No. 34, Basic Financial Statements ‐ and Management’s Discussion and Analysis ‐ for State and  Local Governments, to better meet the needs of users and address reporting entity issues that  have come to light since these statements were issued in 1991 and 1999, respectively. GASB  Statement No. 61 improves the information presented about the financial reporting entity,  which is comprised of a primary government and related entities (component units) and amends  the criteria for blending – that is, reporting component units as if they were part of the primary  government – in certain circumstances. Application of this Statement is effective for the City’s  fiscal year ending June 30, 2013.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  55  NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (k) Effects of New Pronouncements (Continued)    GASB Statement No. 62 issued December 2010, Codification of Accounting and Financial  Reporting Guidance Contained in Pre‐November 30, 1989 FASB and AICPA Pronouncements, is  incorporating into the GASB’s authoritative literature certain accounting and financial reporting  guidance that is included in the FASB and AICPA pronouncements issued on or before November  30, 1989, which does not conflict with or contradict GASB pronouncements. This Statement also  supersedes Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and  Other Governmental Entities That Use Proprietary Fund Accounting. The requirements of this  Statement are effective for the City’s fiscal year ending June 30, 2013.    GASB Statement No. 63 issued June 2011, Financial Reporting of Deferred Outflows of  Resources, Deferred Inflows of Resources, and Net Position, provides financial reporting  guidance for deferred outflows of resources and deferred inflows of resources. This Statement  also amends the net asset reporting requirements in Statement No. 34, Basic Financial  Statements ‐ and Management’s Discussion and Analysis ‐ for State and Local Governments, and  other pronouncements by incorporating deferred outflows of resources and deferred inflows of  resources into the definitions of the required components of the residual measure and by  renaming that measure as net position, rather than net assets.  The requirements of this  Statement are effective for the City’s fiscal year ending June 30, 2013.    GASB Statement No. 65 issued March 2012, Items Previously Reported as Assets and Liabilities,  establishes accounting and financial reporting standards that reclassify, as deferred outflows of  resources or deferred inflows of resources, certain items that were previously reported as assets  and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that  were previously reported as assets and liabilities. This Statement amends the financial  statement element classification of certain items previously reported as assets and liabilities to  be consistent with the definitions in Concepts Statements No. 6, Elements of Financial  Statements. It also provides other financial reporting guidance related to the impact of the  financial statements elements deferred outflows of resources and deferred inflows of resources,  such as changes in the determination of the major fund calculations and limiting the use of the  term deferred in financial statement presentations. The requirements of this Statement are  effective for the City’s fiscal year ending June 30, 2014.    GASB Statement No. 68 issued June 2012, Accounting and Financial Reporting for Pensions,  establishes accounting and financial reporting requirements for pension plans that are  administered through trusts. Statement No. 68 requires governments participating in the single  and agent for multiple employer defined benefit plans to recognize a liability equal to the net  pension liability. The net pension liability is required to be measured as of a date no later than  the end of the employer’s prior fiscal year (the measurement date), consistently applied from  period to period. The pension expense and deferred outflows of resources and deferred inflows  of resources related to pensions that are required to be recognized by an employer primarily  result from changes in the components of the net pension liability—that is, changes in the total  pension liability and in the pension plan’s fiduciary net position. It requires that most changes in     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  56  NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (k) Effects of New Pronouncements (Continued)  the net pension liability be included in pension expense in the period of the change. The effects  of certain other changes in the net pension liability are required to be included in pension  expense over the current and future periods. It also requires that notes to financial statements  of single and agent employers include descriptive information, such as the types of benefits  provided and the number and classes of employees covered by the benefit terms, sources of  changes in the net pension liability for current year, significant assumptions and other inputs  used in the valuations and the valuation date. The Statement also requires the government to  present required supplementary information for each of the ten most recent fiscal years. The  requirements of this Statement are effective for the City’s fiscal year ending June 30, 2015.     (l) 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.        NOTE 2 – BUDGETS AND BUDGETARY ACCOUNTING     1. The City Manager submits to the City Council a proposed operating budget 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 public comments.  3. The Adopted Budget is legally enacted through passage of a budget ordinance for all funds except  Agency Funds.  4. The City Manager is authorized to reallocate funds from a contingent account maintained in the  General Fund in conformance with the adopted policies set by the City Council.  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.  These  amendments are added to the Adopted Budget and the resulting totals are reflected as Adopted  Budget amounts.  5. As defined in the municipal code, expenditures may not exceed budgeted appropriations at the  department level for the General Fund, and at the fund level for Special Revenue and Debt Service  Funds.  6. Formal budgetary integration is employed as a management control device during the year in all  funds except Agency Funds.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  57  NOTE 2 – BUDGETS AND BUDGETARY ACCOUNTING (Continued)    7. Budgets for governmental funds are adopted on a basis consistent with generally accepted  accounting principles (GAAP) for all funds, except that General Fund encumbrances are treated as  budgetary expenditures when incurred.  8. Expenditures for the Capital Projects Fund are budgeted and maintained on a project length basis.   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 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.    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 agency agreements (in  thousands):    Governmental Business‐Type Fiduciary Activities Activities Funds Total Cash and investments: Available for operations 193,697$         251,226$         2,816$             447,739$          Restricted for post‐closure landfill ‐                    5,717                ‐                    5,717                Held with fiscal agents 22,207             24,085             2,538               48,830              Total cash and investments 215,904$         281,028$         5,354$             502,286$             Investments Authorized by the City’s Investment Policy and Debt Agreements  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.  The table addresses investments of debt proceeds held by  bond trustees that are governed by the provisions of debt agreements 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, 2012  58  NOTE 3 – CASH AND INVESTMENTS (Continued)    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 California Government Code requires  these funds to be invested in accordance with City ordinance, bond indentures or state statute.  All  these funds have been invested as permitted under the Code.    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. Government 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 AAA 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 Deposit Accounts 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 10% No Limit (A) (B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution. Debt Agreements: (C)  (D) (E) (F)Utility Revenue Bonds 2011 Series A 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 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 redeemed at the call date. Utility Revenue Bonds 2011 Series A and 1999 Series A 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 Series A and 1999 Series A 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 limit the maximum maturity  to 365 days. Water Revenue Bonds 2009 Series A, Utility Revenue Bonds 2011 Series A and 1999 Series A require a minimum credit  quality rating of AAAm or AAAm‐G by Standard & Poor's. CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  59  NOTE 3 – CASH AND INVESTMENTS (Continued)    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 of its fair  value to changes in market interest rates.    Information about the sensitivity of the fair values of the City’s investments (including investments held  by bond trustees) to market rate fluctuations is provided by the following table that shows the  distribution of the City’s investments by maturity or earliest call date (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 38,311$        114,290$     149,474$     116,339$     418,414$      U.S. Treasury Notes 4,062             ‐                      ‐                      ‐                     4,062             Local Government Bond 4,682           3,329           ‐                   4,974           12,985           Money Market Mutual Funds 23,351          ‐                    ‐                    ‐                    23,351           California Asset Management 24,489          ‐                    ‐                    ‐                    24,489           Local Agency Investment Fund 17,167          ‐                    ‐                    ‐                    17,167          Total Investments 112,062$     117,619$     149,474$     121,313$     500,468         Cash in bank and on hand 1,818            Total Cash and Investments 502,286$      Maturities     Local Agency Investment Fund  The City is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California  Government Code Section 16429 under the oversight of the Treasurer of the State of California.  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 balance available for withdrawal on demand is  based on accounting records maintained by LAIF, which are recorded on an amortized cost basis.  3.47%  of LAIF’s investment portfolio are collateralized mortgage obligations, mortgage‐backed securities, other  asset‐backed securities, loans to certain state funds, and floating rate securities issued by federal  agencies, government‐sponsored enterprises, and corporations.  At June 30, 2012, these investments  matured in an average of 268 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 Pool’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, 2012, the fair value approximated the City’s cost.  These  investments have an average maturity of 53 days.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  60  NOTE 3 – CASH AND INVESTMENTS (Continued)    Money market mutual funds are available for withdrawal on demand and at June 30, 2012, matured in  an average of 50 days.    Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations  At June 30, 2012, the City’s investments (including investments held by bond trustees) include U.S.  Federal Agency Callable Securities in the amount of $99.2 million that are highly sensitive to interest  rate fluctuations (to a greater degree than already indicated in the information provided above).  These  securities are subject to early redemption in a period of declining interest rates.  The resultant reduction  in expected total cash flows affects the fair value of these securities and makes the values of these  securities highly sensitive to changes in interest rates.     Credit Risk  Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the  investment.  This is measured by the assignment of a rating by a nationally recognized statistical rating  organization.  Presented below is the actual rating as provided by Standard & Poor’s investment rating  system as of June 30, 2012, for each investment type (in thousands):    Type of Investment Rating Total U.S. Federal Agency Securities AA+ 418,414$          Local Government Bond AAA/AAAm 12,985              Money Market Mutual Funds AAA/AAAm 23,351              California Asset Management Program AAA/AAAm 24,489              Total Investments 479,239            Not Applicable:  U.S. Treasury Notes 4,062                Not Rated: Local Agency Investment Fund 17,167              Cash in bank and on hand 1,818                Total Cash and Investments 502,286$              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, 2012 (in thousands):    Investments Reporting Type  Fair Value at Year‐End  Federal Home Loan Bank U.S. Federal Agency Securities 159,773$                           Federal Farm Credit Bank U.S. Federal Agency Securities 96,446                               Federal National Mortgage Corporation U.S. Federal Agency Securities 80,681                               Federal Home Loan Mortgage Corporation U.S. Federal Agency Securities 41,882                               Federal Agricultural Mortgage Corporation U.S. Federal Agency Securities 35,545                                  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  61  NOTE 3 – CASH AND INVESTMENTS (Continued)    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 2012 were as follows (in thousands):    Fund Making Transfer Amount  Transferred General Fund Nonmajor Governmental Funds 1,258$                A Electric Services Fund 11,587                A Gas Services Fund 6,007                  A Internal Service Funds 607                     A Capital Projects Fund General Fund 18,644                B Nonmajor Governmental Funds 2,197                  B Nonmajor Governmental Funds General Fund 3,401                  A Capital Projects Fund 3,456                  C Nonmajor Governmental Funds 43                        A Subtotal 47,200$              Fund Receiving Transfer   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  62  NOTE 4 – INTERFUND TRANSACTIONS (Continued)  (Continued) Fund Making Transfer Amount  Transferred Water Services Fund Gas Services Fund 33                       B Wastewater Collection Fund 33                       B Internal Service Funds 9                         D Electric Services Fund General Fund 33                       E Internal Service Funds 70                       D Refuse Services Fund Nonmajor Governmental Funds 692                    E Wastewater Treatment Fund Internal Service Funds 145                    D Storm Drainage Services Fund Internal Service Funds 19                       D Internal Service Funds General Fund 58                       F Water Services Fund 104                    B Electric Services Fund 299                    B Gas Services Fund 136                    B Wastewater Collection Fund 55                       B Wastewater Treatment Fund 105                    B Refuse Services Fund 74                       B Storm Drainage Services Fund 18                       B Fiber Optics Fund 9                         B Subtotal 1,892                  Total 49,092$              The reasons for these transfers are set forth below: (A) Transfer to reimburse the Governmental Fund for costs incurred for the benefit of funds making the transfer. (B) Allocation of funds to construct capital assets. (C) Transfer to allocate bond premium from Debt Service Fund to Capital Projects Fund.  (D) Transfer to refund replacement charges. (E) Transfer to reimburse the Utility Funds for costs incurred for the benefit of funds making the transfer. (F) Transfer to reimburse Internal Service Funds for costs incurred for the benefit of funds making the transfer. Fund Receiving Transfer     Interfund Commitment  During FY 2002, the City established the Palo Alto Redevelopment Agency (the Agency).  The Agency and  the City have an agreement whereby the City advanced funds to the Agency in support of start‐up and  formation costs.  However, the interfund advances have no specific repayment date.  Generally  accepted accounting principles require that such amounts be treated as transfers in the year made.   Advances without specified repayment terms total approximately $399,000 as of June 30, 2012.  On  September 6, 2011, the City filed Ordinance No. 5126 dissolving the operations of the Agency and,  accordingly, this advance will not be repaid to the City.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  63  NOTE 4 – INTERFUND TRANSACTIONS (Continued)    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 a new Airport Enterprise Fund to facilitate the transition of PAO control from  the Santa Clara County to the City. The Council approved the General Fund to fund the new Airport  Enterprise Fund in the amount of $300,000 for environmental analysis, legal and personnel costs related  to the transition. According to the agreement, the Airport Fund will repay the $300,000 with interest  equal to the average return yield on the City’s investment portfolio in 6 years to the General Fund. As of  June 30, 2012, the outstanding amount is $300,000.     Internal Balances  Internal balances represent the net interfund receivables and payables remaining after the elimination  of all such balances within governmental and business‐type activities.        NOTE 5 – NOTES AND LOANS RECEIVABLE     At June 30, 2012, the City’s notes and loans receivable totaled (in thousands):    Palo Alto Housing Corporation: Oak Manor Townhouse 585$                Tree House Apartments 5,344              Emerson Street Project 375                 Alma Single Room Occupancy Development 2,222              Barker Hotel 2,111              Sheridan Apartments 2,248              Oak Court Apartments, L.P. 7,835              Mid‐Peninsula Housing Coalition: Palo Alto Gardens Apartments 100                 Community Working Group, Inc.1,280              Opportunity Center Associates, L.P.750                 Home Rehabilitation Loans 76                   Executive Relocation Assistance Loans 959                 Below Market Rate Assessment Loans 53                   Stevenson Housing Fire Alarm 48                   Oak Manor Townhouse Water System 114                 Palo Alto Senior Housing Project 28                   Clara‐Mateo Alliance 11                   Lytton Gardens Assisted Living 101                 Emergency Housing Consortium 75                   Alma Gardens Apartments 1,150              2811‐2825 Alma Street Acquisition 1,290              Palo Alto Family Housing, 801 Alma Street 2,800              Total Notes and Loans 29,555            Less: Valuation Allowance (14,724)          Total Notes and Loans, Net 14,831$            CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  64  NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    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 nonspendable, 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.    Oak Manor Townhouse  On January 7, 1991, the City loaned $2.1 million to assist in the acquisition of an apartment complex to  be used to provide rental housing for low and very low income households.  This loan bears interest at 3  percent, is due in annual installments until 2011 and is collateralized by a subordinated deed of trust.   Under the terms of the loan agreement, loan payments are forgiven if the Corporation meets the  objective of this project.  During the year ended June 30, 2012, the objective was met.  The annual loan  payment was forgiven for the calendar year ended December 31, 2011.    Tree House Apartments  In March 2009, the City agreed to loan $2.8 million to the Tree House Apartments, L.P. for the purchase  of the real property located at 488 West Charlton Road.  On March 23, 2010, the City wired the full loan  amount to an escrow account.  The loan consisted of $1.8 million funded by Community Development  Block Grant funds; the remaining $1 million was funded by residential 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, 2012,  the outstanding balance for the Tree House Apartments in aggregate is $5.3 million. Principal and  interest payments will be deferred for 55 years.  However, if the borrower has earned extra income, and  if 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 March 23,  2064.    Emerson Street Project  On November 8, 1994, the City loaned $375,000 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 no interest until 2010 after which the  loan bears interest at 3 percent.  The principal balance is due in 2034.    Alma Single Room Occupancy Development  On December 13, 1996, the City authorized $2.7 million to the Alma Place Associates, L.P. for the  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  65  NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    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.  Loan payments are deferred until 2014.  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 million from HOME Investment Partnership Program Funds, and  $670,000 from Community Development Block Grant 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 the Palo Alto Housing Corporation to rehabilitate  the interior of the Barker Hotel.  The loan is funded entirely by Community Development Block Grant  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 shall be forgiven if the borrower  satisfactorily complies with all the terms and conditions of the loan agreement.    Sheridan Apartments  On December 8, 1998, the City loaned $2.5 million to the Palo Alto Housing Corporation for the  purchase and rehabilitation of a 57‐unit apartment complex to be used for senior and low‐income  housing.  The loan is funded by $1.6 million in Community Development Block Grant funds, and  $825,000 in Housing In‐Lieu funds.  The note bears interest at 9 percent when available surplus cash  from the project equals or exceeds 25 percent of interest calculated using 9 percent.  When available  surplus cash falls below this level, the note bears interest at 3 percent.  The note is collateralized by a  second deed of trust and an affordability reserve account held by the Palo Alto Housing Corporation.   Annual loan payments were deferred until the Palo Alto Housing Corporation accumulated $1 million in  an affordability reserve account.  Two principal payments totaling $202,438 have been made, and  interest has also been paid.  The remaining principal balance is due in 2033.    Oak Court Apartments  On August 18, 2003, in connection with the loan to Oak Court Apartments, L.P. discussed below, the City  loaned $5.9 million to the Palo Alto Housing Corporation for the purchase of land on which Oak Court  Apartments, L.P. constructed a 53‐unit rental apartment complex for low and very low income  households with children.  The note bears interest of 5 percent and is secured by a deed of trust.   Annually accrued interest is added to the principal balance and note payments are due annually after 55  years, or beginning in 2058, unless the Palo Alto Housing Corporation elects to extend the note until  2102, as defined in the regulatory agreement.    Oak Court Apartments, L.P.  On August 18, 2003, the City 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.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  66  NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    Palo Alto Gardens Apartments  On April 22, 1999, the City loaned $1 million to the Mid‐Peninsula Housing Coalition (the Coalition) for  the purchase and rehabilitation of a 155‐unit complex for the continuation of low‐income housing.  This  loan is funded by $659,000 in Community Development Block Grant funds and $341,000 in 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. Annual loan payments are deferred until certain  criteria defined in the notes are reached.  Principal and interest payments began in FY 2008.  The  principal balance is due in 2039.    Community Working Group, Inc.  On May 13, 2002, the City loaned $1.3 million to the 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 is funded by $1.3 million of  Community Development Block Grant funds.  The note bears no interest and is secured by a first deed of  trust.  No repayment of the $1.3 million will be required, provided that compliance with the City’s  agreement is maintained.  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.    Opportunity Center Associates, L.P.  On July 19, 2004, the City loaned $750,000 for a 55‐year term to the Opportunity Center Associates, L.P.  for construction of 89 units of rental housing for extremely low‐income and very low‐income  households.  The loan is funded by $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.     Home Rehabilitation Loans  The City administers a closed housing rehabilitation loan program initially funded with Community  Development Block Grant 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 the 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 off any outstanding balance of  their loans within a certain period after ending employment with the City.  As of June 30, 2012, the City  had two outstanding home loans, one from the previous City Manager and one from the current City  Manager.      The original purchase cost for the previous City Manager’s home was $1.4 million and the City holds a 60  percent equity share.  The loan balance owed as of June 30, 2012 was approximately $387,000.  The  previous City Manager can remain in the home until December 2017, or until his children have left Palo  Alto public schools, whichever occurs first.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  67  NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    The original purchase cost for the current City Manager’s home was $1.9 million and the City holds a 75  percent equity share.  The loan balance owed as of June 30, 2012 is approximately $449,000.  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.  The loan balance owed as of June 30, 2012 was approximately $122,000.    Below Market Rate Assessment Loans  In December 2002, the City loaned $74,000 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.  In 2012, the City did not receive interest payments.    Stevenson Housing Fire Alarm  In December 2006, the City agreed to loan up to $48,000 to the Palo Alto Senior Housing Project, Inc. to  repair and upgrade the existing fire alarm system at the Stevenson House Senior Housing facility.  The  loan is funded entirely by Community Development Block Grant funds and bears simple interest of 6  percent.  Principal and interest payments are deferred until July 1, 2012, as long as the borrower  continues to comply with all terms and conditions of the agreement.    Oak Manor Townhouse Water System  On May 12, 2003, the City Council approved an allocation of $113,672 to Palo Alto Housing Corporation  Housing Apartments, Inc (PAHCA, Inc) to replace the water pipes with an intention to provide a  permanent solution to Oak Manor’s plumbing needs. 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 of January 7, 1991 for the acquisition of the project site, which is discussed earlier in this  section.     Palo Alto Senior Housing Project   In July 2003, the City agreed to loan up to $45,000 to the Palo Alto Senior Housing Project for home  improvements in the independent living facility for low‐income seniors.  The loan is funded entirely by  Community Development Block Grant funds, bears interest at 6 percent and is secured by a deed of  trust on the property.  Principal and interest on the loan shall be forgiven if the borrower satisfactorily  complies with all the terms set forth in the July 2003 agreement. In April 2008, the City provided  $47,600 for the purpose of repairing and upgrading the fire alarm system at the Senior Housing facility.  As of June 30, 2012, the outstanding balance was $28,000.    Clara‐Mateo Alliance   In July 2003, the City agreed to loan up to $200,000 to Clara‐Mateo Alliance for rehabilitation of the  kitchen and the Elsa Segovia Center to provide services for the homeless.  The loan is funded entirely by  Community Development Block Grant funds, bears interest at 6 percent and is secured by a deed of  trust on the property.  Repayment of the loan will not be required unless the property is sold or the  program terminated.  Principal and interest on the loan shall be forgiven if the borrower satisfactorily  complies with all the terms and conditions set forth in the July 2003 agreement.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  68  NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    Lytton Gardens Assisted Living  In June 2005, the City agreed to loan up to $109,000 to Community Housing, Inc. to upgrade and  modernize the existing kitchens at the senior residential facility known as Lytton Gardens Assisted  Living.  The loan is funded entirely by Community Development Block Grant 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 the Emergency Housing Consortium to  cover architectural expenses that will be incurred in rehabilitating and expanding the property.  The loan  is funded entirely by Community Development Block Grant 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 the Alma Garden Apartments.  The loan is funded  entirely by Community Development Block Grant funds.  Principal and interest payments are deferred  until July 1, 2061, as long as the borrower continues to comply 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 Properties Corporation (PAHC) to  acquire the properties on Alma Street for the purpose of developing an affordable rental housing  project. The loan bears simple interest of 3 percent, with an option to forgive the loan at maturity as  long as PAHC maintains the affordability restrictions. Provided PAHC is not in default of the agreement,  no principal payments shall be due and interest shall not begin to accrue until the closing of the project’s  permanent funding. Principal and interest payments are payable during the term of the agreement on a  “residual receipt” basis as described in the agreement.    Palo Alto Family Housing, 801 Alma Street  On February 14, 2011, the City agreed to loan to Palo Alto Family, LP up to $5.8 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 a default, all remaining principal and interest shall be payable on the  Restriction Termination Date as defined in the agreement. As of June 30, 2012, the outstanding amount  is $2.8 million.      CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  69  NOTE 6 – CAPITAL ASSETS    Valuation  All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not  available.  Contributed capital assets are valued at their estimated fair value on the date contributed.   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.    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 has been provided on capital assets.  Depreciation of all 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 assets 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 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, 2012  70   NOTE 6 – CAPITAL ASSETS (Continued)    General Capital Assets  Changes in the City’s general capital assets during the year ended June 30, 2012 were (in thousands):    Balance Balance July 1, 2011 Additions Retirements Transfers June 30, 2012 Governmental activities Nondepreciable capital assets: Land and improvements 78,561$           86$                   ‐$                      ‐$                     78,647$               Street trees 15,374             31                      ‐                         ‐                        15,405                 Intangible assets 3,800                ‐                         ‐                        (3,800)              ‐                             Construction in progress 36,297             32,281            (140)                 (13,165)           55,273                 Total nondepreciable capital assets 134,032           32,398            (140)                 (16,965)           149,325               Depreciable capital assets: Buildings and structures 123,916           1,575                ‐                        7,462               132,953               Intangible assets ‐ Easement ‐                         ‐                         ‐                        3,800               3,800                    Equipment 9,710               78                      ‐                        280                  10,068                 Roadway network 267,575            ‐                         ‐                        4,844               272,419               Recreation and open space network 21,788            690                 ‐                      579                 23,057                 Total depreciable capital assets 422,989           2,343                ‐                        16,965            442,297               Less accumulated depreciation: Buildings and structures (63,236)           (2,899)              ‐                         ‐                        (66,135)                Intangible assets ‐ Easement ‐                        (16)                    ‐                         ‐                        (16)                        Equipment (6,435)              (483)                  ‐                         ‐                        (6,918)                  Roadway network (107,453)         (6,408)              ‐                         ‐                        (113,861)             Recreation and open space network (6,579)              (741)                  ‐                         ‐                        (7,320)                  Total accumulated depreciation (183,703)         (10,547)            ‐                         ‐                        (194,250)             Depreciable capital assets, net 239,286           (8,204)              ‐                        16,965            248,047               Internal service fund capital assets Construction in progress 151                   1,558                ‐                        (1,505)             204                       Equipment 51,715             149                  (1,792)             1,505               51,577                 Less accumulated depreciation (31,780)           (5,884)             1,749                ‐                        (35,915)                Net internal service fund capital assets 20,086             (4,177)             (43)                    ‐                        15,866                 Governmental activities capital assets, net 393,404$        20,017$          (183)$               ‐$                     413,238$                CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  71  NOTE 6 – CAPITAL ASSETS (Continued)    Business‐type Capital Assets  Changes in the City’s enterprise fund capital assets during the year ended June 30, 2012 were  (in thousands):    Balance Balance July 1, 2011 Additions Retirements Transfers June 30, 2012 Business‐type activities Nondepreciable capital assets: Land and improvements 4,971$              ‐$                      ‐$                             ‐$                     4,971$                 Construction in progress 132,437          40,851             ‐                              (73,955)           99,333                 Total nondepreciable capital assets 137,408          40,851             ‐                              (73,955)           104,304               Depreciable capital assets: Buildings and structures 31,860              ‐                        ‐                              849                  32,709                 Transmission, distribution and treatment systems 545,548          1,119              (3,801)                    73,106            615,972               Total depreciable capital assets 577,408          1,119              (3,801)                    73,955            648,681               Less accumulated depreciation: Buildings and structures (7,973)              (603)                 ‐                               ‐                       (8,576)                  Transmission, distribution and treatment systems (241,119)         (16,048)           2,802                      ‐                       (254,365)             Total accumulated depreciation (249,092)         (16,651)           2,802                      ‐                       (262,941)             Depreciable capital assets, net 328,316          (15,532)           (999)                       73,955            385,740               Business‐type activities capital assets, net 465,724$       25,319$         (999)$                     ‐$                     490,044$           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.    Depreciation Allocation  Depreciation expense was charged to functions and programs based on their usage of the related assets.   The amounts allocated to each function or program are as follows (in thousands):    Governmental Activities Business‐type Activities City Manager 33$                 Water 1,468$             Community Services 1,095            Electric 7,751               Fire 169                Fiber Optics 275                   Police 134                Gas 1,896               Public Works 8,789            Wastewater Collection 2,282               Planning 89                  Wastewater Treatment 2,134               Non‐departmental 10                  Storm Drainage 845                   Library 228                16,651$           Internal Service Funds 5,884             16,431$            CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  72  NOTE 6 – CAPITAL ASSETS (Continued)    Construction In Progress and Completed Projects  Construction in progress during FY 2012 is comprised of the following (in thousands):  Governmental Activities Expended to  June 30, 2012 Mitchell Park Library & Community Center 28,382$           Civic Center Infrastructure Improvements 5,755               Art Center Electrical & Mechanical Upgrades 5,592               San Antonio Road Median Improvements 2,141               Main Library Construction & Improvements 1,933               Greer Park Phase IV 1,752               Americans With Disabilities ‐ Other 1,234               Charleston/Arastradero Corridor Plan 1,001               Traffic Signal Upgrades 895                  Library & Community Center Temporary Facilities 660                  El Camino / Stanford Intersection 594                  Park Restroom Installation 476                  Highway 101 Pedestrian/Bicycle Overpass 345                  Interior Finishes Construction 269                  Roofing Replacement 228                  Security Systems Improvements 215                  Bicycle Boulevards Implementation Project 214                  Furniture/Technology for Library Bond 207                  Vehicle Replacement Fund 204                  Public Safety Building 198                  Foothills Park Interpretive Center Improvements 197                  Municipal Service Center Improvements 192                  Dinah SummerHill Pedestrian/Bicycle Path 188                  Park Trails 179                  Roth Building 166                  Thermoplastic Lane Marking & Striping 158                  Foothills Park Road Improvements 150                  Safe Routes To Schools 138                  Magical Bridge Playground 128                  Rinconada Park Master Plan and Design 122                  Building Systems Improvements 113                  El Camino / Ventura Traffic Signal 110                  Other Construction In Progress 1,341               Total Governmental Activities Construction In Progress 55,477$                 CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  73  NOTE 6 – CAPITAL ASSETS (Continued)    Construction In Progress and Completed Projects  Business‐type Activites  Expended to  June 30, 2012 Water system extension replacements and improvements 22,972$           Electric distribution system improvements 7,401               Water quality control plant equipment replacement and lab facilities 7,222               Gas system extension replacements and improvements 6,977               Sewer system rehabilitation and extensions 4,781               Storm drainage structural and water quality improvements 1,339               Other electrical improvements projects 1,016               Other construction in progress 47,625             Total Business‐type Activities Construction In Progress 99,333$             Allocations of business‐type activity administration and general expenses of $11.6 million have been  capitalized and included in amounts expended through June 30, 2012.    Major governmental capital projects that are currently in progress, and the remaining capital  commitment of each, are as follows:   Mitchell Park Library and Community Center ‐ $21.0 million   Main Library ‐ $16.2 million   Art Center electrical and mechanical upgrades ‐ $2.7 million    Major business‐type capital projects that are currently in progress, and the remaining capital  commitment of each, are as follows:   Emergency water supply improvement for Water Fund ‐ $17.6 million   Gas main replacement project for Gas Fund ‐ $6.6 million   Plant equipment replacement for Wastewater Treatment Fund ‐ $3.9 million   Wastewater Collection Fund rehabilitation/augmentation project ‐ $3.1 million  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  74  NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS    Long‐Term Obligations  Bond premiums and discounts of long‐term debt issues are amortized over the life of the related debt.   Gains or losses between the net book value of debt and funds placed in escrow to defease that debt are  amortized over the remaining life of either the refunded debt or the refunding debt, whichever is  shorter.      The City’s long‐term debt issues and transactions, other than special assessment debt discussed in Note  8, were as follows (in thousands):    Original Balance Balance Current Issue Amount July 1, 2011 Additions Retirements June 30, 2012 Portion Governmental Activities Debt: General Long‐Term Obligations: 1998 Golf Course  Certificates of Participation,  4.00 ‐5.00%, due 09/01/2018 7,750$             3,690$              ‐$                     3,690$             ‐$                         ‐$              2002A Civic Center Refinancing  Certificates of Participation,  2.00‐4.00%, due 03/01/2012 3,500               405                   ‐                       405                   ‐                       ‐                2002B Downtown Parking Improvements  Certificates of Participation,  2.00‐4.00%, due 03/01/2022 3,555               1,800                ‐                       115                  1,685                  125           General Obligation Bonds 2010 Series A,  2.00‐5.00%, due 08/01/2040 55,305             55,305              ‐                       765                  54,540                1,000       2011 Lease‐Purchase Agreement 3,222                ‐                        3,222              458                  2,764                  364           Add: unamortized premium ‐                        3,640                ‐                       126                  3,514                  125           Total Governmental Activities Debt 73,332$          64,840$         3,222$           5,559$           62,503$              1,614$        CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  75  NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    Original Balance Balance Current Issue Amount July 1, 2011 Additions Retirements June 30, 2012 Portion Business‐type Activities Debt: Enterprise Long‐Term Obligations: Utility Revenue Bonds 1995 Series A,  5.00‐6.25%, due 06/01/2020 8,640$              4,594$              ‐$                     395$               4,199$                420$         1999 Refunding,  3.25‐5.25%, due 06/01/2024 17,735              12,715              ‐                       550                  12,165                580           2002 Series A,  3.00‐5.00%, due 06/01/2026 26,055              18,052              ‐                       18,052             ‐                            ‐                 2009 Series A,  1.80‐5.95%, due 06/01/2035 35,015              34,190              ‐                       835                  33,355                855           2011 Series A,  1.80‐5.95%, due 06/01/2035 17,225               ‐                        17,225            1,065              16,160                920           Less: Unamortized Premium (Discount)(170)                1,297            32                   1,095                   ‐               Less: Loss on refunding ‐                      (440)              22                   (462)                     ‐               Energy Tax Credit Bonds 2007 Series A, 0%, Due 12/15/2021 1,500               1,100               ‐                     100                1,000                  100         Less: unamortized Premium (Discount)(59)                   ‐                     (6)                    (53)                        ‐               State Water Resources Loans 2007, 0%, due 06/30/2029 9,000               8,100               ‐                     450                7,650                  450         2009, 2.6%, due 11/30/2030 8,500               8,596               ‐                     346                8,250                  341         Total Business‐type Activities Debt 123,670$        87,118$          18,082$         21,841$         83,359$              3,666$         Description of Long‐Term Debt Issues    1998 Golf Course Certificates of Participation (COPs) – In August 1998, the City’s Public Improvement  Corporation issued Golf Course Improvement COPs, Series 1998, in the amount of $7.8 million to retire  the 1978 Golf Course Lease Revenue Bonds, and to finance various improvements at the Palo Alto Public  Golf Course, including upgrading five fairways and various traps, trees and greens, constructing new  storm drain facilities, replacing the existing irrigation system, upgrading the driving range, and installing  new cart paths.  The 1998 COPs were secured by lease revenues received by the Public Improvement  Corporation from golf course revenues or other unrestricted revenues of the City. On August 2, 2011,  the City entered into a master lease‐purchase agreement with JP Morgan Chase Bank, N.A. Proceeds  together with the COPs reserve fund were deposited into an escrow account to redeem all of the COPs  in the aggregate amount of $3.7 million. At June 30, 2012, the 1998 COPs were fully redeemed.    2002A Civic Center Refinancing COPs – On January 16, 2002, the City issued $3.5 million of COPs to  refund the City’s 1992 COPs, which were subsequently retired.  Principal payments for the 2002A COPs  are due annually on March 1 and interest payments semi‐annually on March 1 and September 1, and are  payable from lease revenues received by the Corporation from the City’s available funds. As of  June 30, 2012, the City has fully paid off the outstanding COPs.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  76  NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    2002B Downtown Parking Improvement Project COPs – On January 16, 2002, the City issued $3.6  million of COPs to finance the construction of certain improvements to the non‐parking area contained  in the City’s Bryant/Florence Garage complex.  Principal payments are due annually on March 1 and  interest payments semi‐annually on March 1 and September 1, and are payable from lease revenues  received by the Corporation from the City’s available funds.    2010 General Obligation Bonds (GO) – On June 30, 2010, the City issued $55.3 million of GO bonds to  finance costs for constructing a new Mitchell Park Library and Community Center, as well as substantial  improvements to the Main 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 pledge of future Net Revenues for the above funds ends upon repayment of the $54.5 million  principal and $40.6 million interest as the remaining debt service on the bonds, which is scheduled to  occur in FY 2041.    2011 Lease‐Purchase Agreement – On August 2, 2011, the City entered into a master lease‐purchase  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.    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 and Fiber Optics Fund. Principal payments are payable  annually on June 1 and interest payments semi‐annually on June 1 and December 1. A $2.9 million 6.3  percent term bond is due June 1, 2020.    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).    On November 9, 2010, Ambac Financial Group Inc. (Ambac Financial) filed for bankruptcy protection  under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern  District of New York.  Ambac Financial is a holding company whose affiliates provide financial guarantees  and financial services to its customers.  Ambac Indemnity Corporation, now known as Ambac Assurance  Corporation, is a subsidiary of Ambac Financial.  Ambac has issued a reserve fund surety bond of  $685,340 that expires on June 1, 2020 and is on deposit in the Reserve Fund account securing the  Bonds.  According to the Trust Agreement for these bonds, in the event that such surety bond for any  reason terminates or expires, and the remaining amount on deposit in the Reserve Fund account is less   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  77  NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    than the required reserve, the City is to address such shortfall by delivering to the trustee a surety bond  or a letter of credit meeting the criteria of a Qualified Reserve Facility under the Trust Agreement, or  depositing cash to the General Account in up to twelve equal monthly installments.  Information about  Ambac Financial is available on Form 10‐K and Form 10‐Q filed by Ambac Financial; the City refers to this  information for reference only, and does not intend to incorporate any such information herein.  The  City is not certain about the effect of the bankruptcy proceedings, if any, on the Surety Bond.    The pledge of future Net Revenues for the above funds ends upon repayment of the $4.2 million  principal and $1.3 million interest as the remaining debt service on the bonds, which is scheduled to  occur in 2020. For FY 2012, Net Revenues, including operating revenues and non‐operating interest  earnings, amounted to $242.1 million; operating costs, including operating expenses but not interest,  depreciation or amortization, amounted to $169.9 million. Net Revenues available for debt service  amounted to $72.2 million, which represented coverage of 105.83 times over the $0.7 million in debt  service.    1999 Utility Revenue and Refunding Bonds, Series A – 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 the 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 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 $1,647,300  issued by Ambac Indemnity Corporation (renamed to Ambac Assurance Corporation in 1997).    On November 9, 2010, Ambac Financial Group Inc. (Ambac Financial) filed for bankruptcy protection  under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern  District of New York.  Ambac Financial is a holding company whose affiliates provide financial guarantees  and financial services to its customers.  Ambac Indemnity Corporation, now known as Ambac Assurance  Corporation, is a subsidiary of Ambac Financial.  Ambac has issued a reserve fund surety bond of  $1,647,300 that expires on June 1, 2024 and is on deposit in the Reserve Fund account securing the  Bonds.  According to the Trust Agreement for these bonds, in the event that such surety bond for any  reason terminates or expires, and the remaining amount on deposit in the Reserve Fund account is less  than the required reserve, the City is to address such shortfall by delivering to the trustee a surety bond   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  78  NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    or a letter of credit meeting the criteria of a Qualified Reserve Facility under the Trust Agreement, or  depositing cash to the General Account in up to twelve equal monthly installments.  Information about  Ambac Financial is available on Form 10‐K and Form 10‐Q filed by Ambac Financial; the City refers to this  information for reference only, and does not intend to incorporate any such information herein.  The  City is not certain about the effect of the bankruptcy proceedings, if any, on the Surety Bond.    The pledge of future Net Revenues for the above funds ends upon repayment of the $12.2 million  principal and $5.0 million interest as the remaining debt service on the bonds, which is scheduled to  occur in 2024. For FY 2012, Net Revenues, including operating revenues and non‐operating interest  earnings, amounted to $44.2 million; operating costs, including operating expenses but not interest,  depreciation or amortization, amounted to $32.1 million. Net Revenues available for debt service  amounted to $12.1 million, which represents coverage of 10 times over the $1.2 million in debt service.    2002 Utility Revenue Bonds, Series A – On January 24, 2002, the City issued $26.1 million of Utility  Revenue Bonds (2002 Bonds) to finance certain improvements to the City’s water utility system and the  City’s natural gas utility system. Principal payments are due annually on June 1, and interest payments  are due semi‐annually on June 1 and December 1 from 3 percent to 5 percent. The 2002 Revenue Bonds  are secured by net revenues generated by the Water Services and Gas Services Funds.     On September 8, 2011, the City issued a $17.2 million utility lease revenue bond 2011, Series A with an  average interest rate of 3.33 percent and an original bond premium of $1.3 million. Proceeds together  with the existing 2002 bond reserve fund were used to refund on a current basis the 2002 Bonds. The  money deposited in the escrow fund will be invested in U.S. Treasury Securities so that the interest  thereon and the maturing principal thereof will be sufficient to redeem the outstanding 2002 Bonds in  full on December 1, 2011. As of June 30, 2012, the 2002 Bonds were completely paid off.      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 Bonds 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 Bonds 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.     The pledge of future Electric Fund Net Revenues ends upon repayment of the $1.0 million remaining  debt service on the bonds, which is scheduled to occur in 2022. For FY 2012, Net Revenues, including  operating revenues and non‐operating interest earnings, amounted to $123.0 million; operating costs,  including operating expenses but not interest, depreciation or amortization, amounted to $85.4 million.  Net Revenues available for debt service amounted to $37.6 million, which represented coverage of  376 times over the $0.1 million in debt service.    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   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  79  NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    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 2002 Bonds. The City  received subsidy payments amounting to $604,600, which represents 35 percent of the two interest  payments due on December 1, 2011 and June 1, 2012.    The pledge of future Net Revenues for the above funds ends upon repayment of the $33.4 million  principal and $25.6 million interest as the remaining debt service on the bonds, which is scheduled to  occur in 2035. For FY 2012, Net Revenues, including operating revenues and non‐operating interest  earnings, amounted to $32.0 million; operating costs, including operating expenses but not interest,  depreciation or amortization, amounted to $26.4 million. Net Revenues available for debt service  amounted to $5.6 million, which represented coverage of 2.2 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 aggregate difference in debt service between the 2002 Bonds and the  2011 Bonds was $4.0 million. The economic gain on the bond refunding was $3.1 million. 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 pledge of future Net Revenues of the above funds ends upon repayment of the $16.2 million  principal and $4.2 million interest as remaining debt service on the bonds, which is scheduled to occur in  2026. For FY 2012, Net Revenues, including operating revenues and non‐operating interest earnings,  amounted to $74.9 million; operating costs, including operating expenses but not interest, depreciation  or amortization, amounted to $52.2 million. Net Revenues available for debt service amounted to $22.7  million, which represented coverage of 15.5 times over the $1.5 million in debt service.    2007 State Water Resources Loan – In October 2007, the City approved the $9 million 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 between the repayment obligation and proceeds amounts to $1.5 million and represents in‐ substance interest on the outstanding balance. Loan proceeds are drawn down as the project  progresses, and debt service payments commenced on June 30, 2010. 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 $5 million loan repayable to the City. This loan has been recorded as “Due from other  government agencies” in the accompanying financial statements.    2009 State Water Resources Loan – In October 2009, the City approved an $8.5 million loan agreement  with State Water Resources Control Board (SWRCB) to finance the City’s Ultraviolet Disinfection project.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  80  NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    As of June 30, 2011, the full loan in the amount of $8.5 million was drawn down and became  outstanding.  Interest in the amount of $96,000 was accrued and added to the outstanding loan balance.    Debt Service Requirements (in thousands):  Debt service requirements are shown below for all long‐term debt.    For the Year Ending  June 30 Principal Interest Total Principal Interest Total 2013 1,489$             2,659$            4,148$            3,666$           3,355$               7,021$             2014 1,524               2,617              4,141              3,780            3,237                7,017               2015 1,578               2,572              4,150              3,909            3,108                7,017               2016 1,615               2,522              4,137            4,049            2,972                7,021               2017 1,676               2,453              4,129              4,198            2,818                7,016               2018‐2022 8,227               11,135            19,362            23,603          11,482              35,085             2023‐2027 7,935               9,340              17,275            20,603          6,858                27,461             2028‐2032 10,035             7,197              17,232            12,110          3,835                15,945             2033‐2037 12,525             4,648              17,173            6,861            832                    7,693               2038‐2041 12,385             1,276              13,661             ‐                        ‐                            ‐                        Total 58,989$          46,419$          105,408$       82,779$         38,497$             121,276$         Governmental Activities Business‐Type Activities   Debt Call Provisions  Long‐term debt as of June 30, 2012 is callable on the following terms and conditions:    Initial Call Date Governmental Activities Long‐Term Debt 2002B Certificates of Participation 03/01/11 (2) 2010A General Obligation Bonds $6.595 million due 08/01/2032 08/01/31 (3) $4.890 million due 08/01/2034 08/01/33 (3) $17.725 million due 08/01/2040 08/01/35 (3) Business‐Type Activities Long‐Term Debt Utility Revenue Bonds 1999 Refunding 06/01/09 (1) 2011 Series A06/01/21(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 plus a premium of 1 percent beginning on the  initial call date. The call price declines subsequent to the initial date.    (3)  Callable in any order specified by the City at par value plus any accrued interest beginning on the  initial call date.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  81  NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    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.    Leasing arrangements are similar to debt in that they allow investors to participate in a share of  guaranteed payments, which are made by the City. Because they are similar to debt, the present value  of the total of the 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.    Conduit Financing  On December 15, 1996, the City acted as a financial intermediary in order to assist Lytton Gardens  Health Care Center in issuing Insured Revenue Refunding Bonds. The Bonds are payable solely from  revenues collected by Lytton Gardens Health Care Center. The City has not included these bonds in its  basic financial statements since it is not legally or morally obligated for the repayment of the bonds. At  June 30, 2012, the amount of bonds outstanding was $5.1 million.    Long‐term Debt without City Commitment  On July 23, 2007, the City approved the issuance of two variable rate demand Tax‐Exempt Revenue  Bonds by the Association of Bay Area Governments (ABAG) Finance Authority in the amounts of $160  million and $180 million for the construction of the Albert L. Schultz Jewish Community Center and a  new continuing care retirement community, respectively. The debt is payable by the borrowers, Albert  L. Schultz Jewish Community Center and 899 Charleston, LLC. The City has no legal or moral liability with  respect to the payment of these debts.      NOTE 8 – SPECIAL ASSESSMENT DEBT    Special Assessment Debt with no City Commitment  The California Avenue Parking Assessment District No. 92‐13 issued Assessment Bonds of 1993, but the  City has no legal or moral liability with respect to the payment of this debt, which is secured only by  assessments on the properties in this District. Therefore, this debt is not included in Governmental  Activities long‐term debt of the City. At June 30, 2012, the District’s outstanding debt amounted to  $620 thousand.    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 the properties in this  District. Therefore, this debt is not included in Governmental Activities long‐term debt of the City. At  June 30, 2012, the District’s outstanding debt amounted to $31.13 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.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  82   NOTE 9 – LANDFILL CLOSURE AND POST‐CLOSURE CARE    State and federal laws and regulations require the City to properly close the Palo Alto Refuse Disposal  Site (Palo Alto Landfill) after it stops accepting waste by constructing a final cover on top of the  approximately 126 acre landfill to cap the wastes, and by performing certain maintenance and  monitoring activities at the site for a minimum of thirty years after closure. The first section of the  landfill closed in 1991 was a 29‐acre section designated “Phase I” costing $1.6 million. Phase I was  subsequently converted to a pastoral park (Byxbee Park) and opened to the public. The remaining  sections of the landfill are designated as Phase IIA (22.5 acres closed in 1992 at a cost of $0.9 million),  Phase IIB (23.2 acres closed in 2000 at a cost of $1.2 million) and Phase IIC, a 51.2 acre active area that is  currently filled to capacity and ceased accepting waste after July 28, 2011. Phase IIC is currently  scheduled for closure in 2013. The 30 years of post‐closure maintenance costs will be paid after the  state certifies the Phase IIC closure (expected in early 2014).    In accordance with state regulations, a final closure and post‐closure maintenance plan was produced by  a consultant and submitted to state and local regulatory agencies in 2009. As part of this plan, the City’s  consultant updated cost forecasts for both the remaining Phase IIC closure and for the 30 year post‐ closure maintenance activities.    Landfill closure and post‐closure liabilities for FY 2012 and 2011 were $11.0 million and $10.8 million,  respectively. 100 percent of the landfill capacity has been used to date. Based on costs incurred in  FY 2012, $11.0 million is expected to be recorded as future landfill closure and post‐closure liability.    The City is required by state and federal laws and regulations to make annual funding contributions to  finance closure and post‐closure care. In FY 2012, for the $5.3 million post‐closure maintenance, the City  changed its financial assurance mechanism from an enterprise fund mechanism to a pledge of revenue  agreement with the California Integrated Waste Management Board. The $5.7 million closure liability  remains under the enterprise fund mechanism. The City is in compliance with these requirements for  the year ended June 30, 2012.    The landfill closure balance as of June 30, 2012 comprised the following (in thousands):    Funding Mechanism Closure 5,717$             Cash on hand Post‐closure care 5,280               Future revenues Balance 10,997$             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  83  NOTE 10 – NET ASSETS AND FUND BALANCES    Net Assets  Net assets are the excess of all the City’s assets over all its liabilities, regardless of fund. Net assets are  divided into three categories and are described below:    Invested in Capital Assets, Net of Related Debt describes the portion of net assets, which is represented  by the 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 assets, which is restricted as to use by the terms and conditions  of agreements with outside parties, governmental regulations, laws, or other restrictions which the City  cannot unilaterally alter. These principally include bond proceeds received for use on capital projects,  debt service requirements, and special revenue programs subject to limitations, defined regulations, and  laws underlying such programs.    Unrestricted describes the portion of net assets 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 Fund Balance – This fund 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, land held for  redevelopment and long‐term notes receivable. The corpus of the permanent fund is contractually  required to be maintained intact.    Restricted Fund Balance – This fund 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 Fund Balance – This fund 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 Fund Balance – This fund 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 official to  which the City Council has delegated the authority to assign amounts to be used for specific purposes.    Unassigned Fund Balance –This fund 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 only 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.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  84  NOTE 10 – NET ASSETS AND FUND BALANCES (Continued)    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.    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 operating expenditures, 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 operating expenditures.     As of June 30, 2012 total outstanding encumbrances related to governmental activities were $3.4 million  for the General Fund, $20.0 million for the Capital Projects Fund, and $1.0 million for the Special  Revenue Funds.    Enterprise Funds  At June 30, 2012, Enterprise Fund unrestricted net assets (in thousands) were as follows:    Water Electric Fiber Optics Gas Wastewater  Collection Wastewater  Treatment Refuse Storm  Drainage Airport Total Unrestricted Rate stabilization Supply ‐$                      65,929$           ‐$                    7,618$        ‐$                   ‐$                  ‐$               ‐$              ‐$             73,547$          Distribution ‐                        8,680               ‐                      8,374         ‐                    ‐                   ‐                ‐                ‐                17,054            Operations 7,997                ‐                       12,470            ‐                 4,751          7,461         (4,089)     2,726      (223)         31,093            7,997               74,609            12,470           15,992      4,751          7,461         (4,089)     2,726      (223)         121,694          Emergency plant replacement 1,000               1,000              1,000             1,000        1,000          1,929          ‐                ‐                ‐                6,929              Electric special projects ‐                        50,320             ‐                       ‐                  ‐                    ‐                   ‐                ‐                ‐                50,320            Reappropriations 8,355               11,466            690                 13,621      9,849          4,504         821          3,351       ‐                52,657            Commitments 5,741               7,703              91                   5,590        1,195          3,538         984          371         48            25,261            Underground loan ‐                        742                   ‐                       ‐                  ‐                    ‐                   ‐                ‐                ‐                742                  Notes and loans ‐                         ‐                        ‐                       ‐                  ‐                   559              ‐                ‐                ‐                559                  Landfill corrective action ‐                         ‐                        ‐                       ‐                  ‐                    ‐                  679           ‐                ‐                679                  Public benefit program ‐                        1,149               ‐                       ‐                  ‐                    ‐                   ‐                ‐                ‐                1,149              Central Valley Project ‐                        314                   ‐                       ‐                  ‐                    ‐                   ‐                ‐                ‐                314                   Total 23,093$           147,303$       14,251$         36,203$     16,795$       17,991$      (1,605)$    6,448$     (175)$       260,304$           The City Council has set aside unrestricted net assets for general contingencies, future capital and debt  service expenditures including operating and capital contingencies for unusual or emergency  expenditures.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  85  NOTE 10 – NET ASSETS AND FUND BALANCES (Continued)    Internal Service Funds  At June 30, 2012, Internal Service Funds unrestricted net assets (in thousands):    Vehicle  Replacement  and  Maintenance Technology Printing and  Mailing  Services General  Benefits Workers'  Compensatio n Insurance  Program General  Liabilities  Insurance  Program Retiree  Health  Benefits Total Unrestricted net assets: Commitments 1,193$              2,743$            155$                286$           300$                 4$                   ‐$              4,681$            Future catastrophic losses ‐                      ‐                    ‐                    ‐               ‐                    96                   ‐                 96                    Retiree health care ‐                      ‐                    ‐                    ‐               ‐                     ‐                26,265          26,265            Software and hardware replacement ‐                     343                   ‐                    ‐               ‐                     ‐                 ‐                 343                  Capital Projects 917                    8,768                ‐                    ‐               ‐                     ‐                 ‐                 9,685              Available 7,300                 5,640               (160)                 1,226          (100)                  270                ‐                 14,176            Total 9,410$              17,494$          (5)$                   1,512$        200$                 370$             26,265$        55,246$          Commitments represent the portion of net assets set aside for open purchase orders.     Future catastrophic losses represent the portion of net assets to be used for unforeseen future losses.    Retiree health care represents the portion of net assets set aside to defer future costs of retiree health  care coverage.     Capital projects represent the portion of net assets set aside for adopted capital projects.      NOTE 11 – PENSION PLANS    CalPERS Safety and Miscellaneous Employees’ Plans  Substantially all permanent City employees are eligible to participate in pension plans offered by the  California Public Employees’ Retirement System (CalPERS), an agent for multiple employer defined  benefit pension plans, which acts as a common investment and administrative agent for its participating  member employers. CalPERS provides retirement and disability benefits, annual cost of living  adjustments and death benefits to Plan members, who must be public employees and beneficiaries. The  City’s employees participate in the Safety (police and fire) and Miscellaneous (all other) Employee Plans.  Benefit provisions under both Plans are established by State statute and City resolution. Benefits are  based on years of credited service, equal to one year of full‐time employment. Funding contributions for  both Plans are determined annually on an actuarial basis as of June 30 by CalPERS.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  86  NOTE 11 – PENSION PLANS (Continued)    The Plans’ provisions and benefits in effect at June 30, 2012, as determined by the valuation dated June  30, 2009, are summarized as follows:    Safety Plan Safety Plan Fire Fighters, Fire Chiefs Association, Fire Fighters Police Officers, Police Management Hire Date Before 6/8/12 Hire Date on or After 6/8/12 Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life Full retirement age 50 551 Monthly benefits, as a % of annual salary 3% 3% Required employee contribution rates2 9% 9% Required employer contribution rates 30.125% 30.125% 1 Employees can retire at age 50 with reduced benefits of 2.4% ‐ 2.88%. 2 Effective October 22, 2011, Fire Fighters contribute 6.5% and City pays remainder.  Effective March 10, 2012, Fire Chiefs Association contributes  9%.  Effective May 19, 2012, Police Officers contribute 9%.  Effective July 1, 2012, Fire Fighters contribute 9%. Miscellaneous Plan Miscellaneous Plan Hire Date Before 7/17/10 Hire Date on or After 7/17/10 Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life Full retirement age3 55 60 Monthly benefits, as a % of annual salary3 2.7% 2.0% ‐ 2.418% Required employee contribution rates4 8% 7% Required employer contribution rates 21.725% 21.725% 3 Employees can retire at age 50 with reduced benefits of 2.0% ‐  2.56% if hired before 7/17/10, or 1.092% ‐ 1.874% if hired on or after 7/17/10. 4 Management employees contribute 2% and City pays remainder; Service Employees International Union  (SEIU) employees contribute 5.75%   and City pays remainder.  Effective July 1, 2012 for SEIU and  October 6, 2012 for management, employees will contribute 8% if hired before   7/17/10 and 7% if hired on or after 7/17/10.     Contributions are collected through payroll deductions and the City remits those contributions to  CalPERS.     CalPERS determines contribution requirements using a modification of the Entry Age Normal Method.  Under this method, the City’s total normal benefit cost for each employee from date of hire to date of  retirement is expressed as a level percentage of the related total payroll cost. Normal benefit cost under  this method is the level amount the employer must pay annually to fund an employee’s projected  retirement benefit. This level percentage of payroll method is used to amortize any unfunded actuarial  liabilities. The actuarial assumptions used to compute contribution requirements are also used to  compute the actuarial accrued liability. The City does not have a net pension obligation since it pays  these actuarially required contributions monthly.    Actuarially determined employer and employee contributions for all plans for fiscal years 2012, 2011  and 2010 were $27.7, $24.0 and $24.0 million, respectively. The City made these contributions as  required, together with certain immaterial amounts required as the result of the payment of overtime  and other additional employee compensation.    The City uses the actuarially determined percentages of payroll to calculate and pay contributions to  CalPERS. This results in no net pension obligations or unpaid contributions.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  87  NOTE 11 – PENSION PLANS (Continued)    Annual Pension Costs representing the payment of annual required contributions determined by  CalPERS for the last three fiscal years were as follows (in thousands):    Fiscal Year Ended Annual  Pension Cost  (APC) Percent of  APC  Contributed Net Pension  Obligation Safety Plan June 30, 2010 5,441$            100%‐$                      June 30, 2011 6,029               100%‐                         June 30, 2012 7,324               100%‐                         Miscellaneous Plan June 30, 2010 10,891$          100%‐                         June 30, 2011 12,354            100%‐                         June 30, 2012 15,687            100%‐                             CalPERS uses the 15 year smoothed market method of valuing the Plan assets. An investment rate of  return of 7.75 percent is assumed, including inflation at 3 percent. Annual salary increases are assumed  to vary by duration of service. Changes in liability due to plan amendments, changes in actuarial  assumptions, or changes in actuarial methods are amortized as a level percentage of payroll on a closed  basis over twenty years. Investment gains and losses are tracked and amortized over a 30 year rolling  period, except for special gains and losses in fiscal years 2009 through 2011 which are being amortized  over fixed and declining 30 year periods.     The Schedule of Funding Progress presents multi‐year trend information about whether the actuarial  value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for  benefits. The  actuarial value (which differs from market value) and funding progress of the Plans over  the most recently available three years is set forth below at their actuarial valuation date of June 30 (in  thousands):    Safety Plan: Valuation Date Entry Age  Accrued  Liability Value of  Assets Unfunded  Liability Funded  Ratio Annual  Covered  Payroll Unfunded  Liability as a  % of Payroll 2008 258,964$          228,883$        30,081$      88.4% 22,181$      135.6% 2009 280,293            236,274          44,019        84.3% 22,087         199.3% 2010 293,895            244,413          49,482        83.2% 23,030         214.9% Miscellaneous Plan: Valuation Date Entry Age  Accrued  Liability Value of  Assets Unfunded  Liability Funded  Ratio Annual  Covered  Payroll Unfunded  Liability as a  % of Payroll 2008 443,337$          379,837$        63,500$      85.7% 63,934$      99.3% 2009 499,200            398,765          100,435      79.9% 65,602         153.1% 2010 521,269            416,810          104,459      80.0% 62,496         167.1% Actuarial Actuarial   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  88  NOTE 11 – PENSION PLANS (Continued)    The significant actuarial assumptions adopted by CalPERS’ Board of Administration that were used to  prepare the City’s actuarial valuations for both the Safety and Miscellaneous Plans are as follows:     Safety Plan Valuation Date 6/30/2010* 6/30/2009** Actuarial Cost Method  Entry Age Normal Cost Method Entry Age Normal Cost Method  Amortization Method  Level percent of payroll Level percent of payroll  Average Remaining Period  29 Years as of the Valuation Date 30 Years as of the Valuation Date  Asset Valuation Method  15 Year Smoothed Market 15 Year Smoothed Market  Actuarial Assumptions:    Investment Rate of Return  7.75% (net of administrative  expenses)   7.75% (net of administrative  expenses)     Projected Salary Increases 3.55% to 13.15% depending on age,  service, and type of employment   3.55% to 13.15% depending on age,  service, and type of employment     Inflation 3.00% 3.00%    Payroll Growth 3.25% 3.25%    Individual Salary Growth A merit scale varying by duration of  employment coupled with an  assumed annual inflation growth of  3.00% and an annual production  growth of 0.25%. A merit scale varying by duration of  employment coupled with an  assumed annual inflation growth of  3.00% and an annual production  growth of 0.25%. Miscellaneous Plan Valuation Date 6/30/2010* 6/30/2009** Actuarial Cost Method  Entry Age Normal Cost Method Entry Age Normal Cost Method  Amortization Method  Level percent of payroll Level percent of payroll  Average Remaining Period  20 Years as of the Valuation Date 21 Years as of the Valuation Date  Asset Valuation Method  15 Year Smoothed Market 15 Year Smoothed Market  Actuarial Assumptions:    Investment Rate of Return 7.75% (net of administrative  expenses)   7.75% (net of administrative  expenses)     Projected Salary Increases 3.55% to 14.45% depending on age,  service, and type of employment   3.55% to 14.45% depending on age,  service, and type of employment     Inflation 3.00% 3.00%    Payroll Growth 3.25% 3.25%    Individual Salary Growth A merit scale varying by duration of  employment coupled with an  assumed annual inflation growth of  3.00% and an annual production  growth of 0.25%. A merit scale varying by duration of  employment coupled with an  assumed annual inflation growth of  3.00% and an annual production  growth of 0.25%. * The June 30, 2010 valuations, which are the most recent valuations, were used to disclose the funded status. ** The June 30, 2009 valuations were used to determine the contribution requirements for FY 2012.     Audited annual financial statements and six‐year trend information are available from CalPERS at P.O.  Box 942703, Sacramento, CA 94229‐2709.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  89  NOTE 12 – RETIREE HEALTH BENEFITS    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.  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 provided to retirees are noted in the following tables:       Unit Hired  Before Retiree  Coverage1 Dependent  Coverage Retired on  or After Retiree  Contribution Management & Professional 1/1/2004 100% 95% 4/1/2011 up to 10% Police Management 1/1/2004 100% 95% N/A 0% Fire Fighters 1/1/2004 100% 95% 12/1/2011 10% Fire Chiefs Association 1/1/2004 100% 95% 1/1/2013 10% SEIU 1/1/2005 100% 95% 4/1/2011 up to 10% Police Officers 1/1/2006 100% 95% N/A 0%   Unit Hired on or  After Retiree  Coverage2 Dependent  Coverage3 Retired on  or After Retiree  Contribution Management & Professional4 1/1/2004 50%‐100% Max. 90% 4/1/2011 up to 10% Police Management4 1/1/2004 50%‐100% Max. 90% N/A 0% Fire Fighters4 1/1/2004 50%‐100% Max. 90% 12/1/2011 10% Fire Chiefs Association4 1/1/2004 50%‐100% Max. 90% 1/1/2013 10% SEIU5 1/1/2005 50%‐100% Max. 90% 4/1/2011 up to 10% Police Officers4 1/1/2006 50%‐100% Max. 90% N/A 0%   lifetime medical benefit,  with the City portion increasing by 5% for each additional year of service.  3 Maximun of 90% once employee completes 20 years of service. 4 Effective 1/1/2006 plan capped at the second highest CalPERS Bay Area Basic plan premium. 5 Effective 1/1/2007 plan capped at the second highest CalPERS Bay Area Basic plan premium.  1 100% of benefits if the employee was vested in CalPERS for five years and the employee retired from the City of Palo  2 Employees with ten years of CalPERS service, at least five of which are at the City of Palo Alto, receive 50% of the         CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  90  NOTE 12 – RETIREE HEALTH BENEFITS (Continued)    During FY 2008, the City implemented the provisions of Governmental Accounting Standards Board  Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other  Than Pensions. This Statement establishes uniform financial reporting standards for employers providing  other postemployment benefits (OPEB). As part of the implementation, the City elected to participate in  an irrevocable trust to provide a funding mechanism for the OPEB and to apply the provisions of the  statement on a prospective basis. 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.    Funding Policy and Actuarial Assumptions  The City’s policy is to prefund these benefits by accumulating assets in the Trust Fund discussed above  pursuant to City Council Resolution. The annual required contribution (ARC) was determined as part of a  January 1, 2011, actuarial valuation using the entry age normal actuarial cost method. This is a projected  benefit cost method, which takes into account those benefits that are expected to be earned in the  future as well as those already accrued. The actuarial assumptions include: (a) 7.75 percent investment  rate of return, (b) 3.25 percent projected annual salary increase, (c) actuarial value of assets, (d) inflation  rate of 3 percent, and (e) health care cost trend data as noted in the following table:     Year Non‐Medicare Medicare 2013 9.0% 9.4% 2014 8.5% 8.9% 2015 8.0% 8.0% 2016 7.5% 7.8% 2017 7.0% 7.2% 2018 6.5% 6.7% 2019 6.0% 6.1% 2020 5.5% 5.6% 2021+ 5.0% 5.0%    The funded status of the plan was determined as part of the June 30, 2011 actuarial valuation. The  actuarial assumptions used for the June 30, 2011 actuarial valuation were the same as the actuarial  assumptions used for the January 1, 2011 actuarial valuation, except for the investment rate of return,  which is 7.61 percent instead of 7.75 percent.     The actuarial methods and assumptions used include techniques that smooth the effects of short‐term  volatility in actuarial accrued liabilities and the actuarial value of assets. Actuarial calculations reflect a  long‐term perspective and actuarial valuations involve estimates of the value of reported amounts and  assumptions about the probability of events far into the future. The calculations are based on the types  of benefits provided under the terms of the substantive plan at the time of each valuation and on the  pattern of sharing costs between the City and Plan members to that point. Actuarially determined  amounts are subject to revision at least biannually as results are compared to past expectations and  new estimates are made about the future. The City’s OPEB unfunded actuarial accrued liability is being  amortized as a level percentage of projected payroll using a 30 year open amortization period.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  91  NOTE 12 – RETIREE HEALTH BENEFITS (Continued)    Generally accepted accounting principles permit assets to be treated as OPEB assets and deducted from  the Actuarial Accrued Liability when such assets are placed in an irrevocable trust or equivalent  arrangement. During the year ended June 30, 2012, the City made contributions and amortized the Net  OPEB asset to fund the current year ARC. As a result, the City has calculated and recorded the Net OPEB  Asset, representing the difference between the ARC, amortization and contributions, as presented  below (in thousands):    Annual required contribution 12,584$           Amortization on the Net OPEB Asset 2,257                Interest on the Net OPEB Asset (1,783)               Annual OPEB Cost 13,058              Contributions made: Contributions to OPEB Trust 3,158                Contributions to Retirees 5,665                City portion of current year premiums paid* 2,500                Total contributions made 11,323              Change in Net OPEB Asset (1,735)               Net OPEB Asset, beginning of year 23,006              Net OPEB Asset, end of year 21,271$             * FY 2012 premiums for 921 retirees.    Shortly after year‐end, the City contributed an additional $3.7 million to the Trust.    The Plan’s annual required contributions and actual contributions for the past three years ended June 30  are set forth below (in thousands):  Fiscal Year Annual OPEB  Cost Actual  Contribution Percentage  of OPEB  Cost Net OPEB  Obligation  (Asset) June 30, 2010 10,329$           7,219$            70% (23,242)$         June 30, 2011 10,265             10,029            98% (23,006)           June 30, 2012 13,058             11,323            87% (21,271)              CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  92  NOTE 12 – RETIREE HEALTH BENEFITS (Continued)    The Schedule of Funding Progress presents multi‐year trend information about whether the actuarial  value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for  benefits. Trend data from the actuarial studies is presented below (in thousands):    Valuation Date Entry Age  Accrued  Liability Value of  Assets Unfunded  Liability Funded  Ratio Annual  Covered  Payroll Unfunded  Liability as a  % of Payroll January 1, 2007 102,237$         ‐$                     102,237$  0.0% 97,600$     104.8% January 1, 2009 129,661          24,616            105,045    19.0% 98,940       106.2% January 1, 2011 165,660          40,213            125,447    24.3% 80,664       155.5% June 30, 2011 * 168,053          44,774            123,279    26.6% 83,285       148.0% * In accordance with GASB Statement No. 57, the CERBT required all trust participants to use a common valuation date. Therefore, the City is required to conduct its biennial valuation on June 30, rather than January 1, effective for 2011.    The retiree activities in the City’s Retiree Health Benefit Internal Service Fund consist of the following for  the year ended June 30 (in thousands):    Retiree Health Benefits 2012 2011 Net assets, beginning of year 26,285$           25,504$            Interest earnings 81                     60                      Unrealized gain (loss) on investments 74                     35                      Interdepartmental charges 12,238             10,980              Compensated benefits (12,413)           (10,294)            Net assets, end of year 26,265$           26,285$                    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 now 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, 2012  93  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 the 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 million per loss.     The City’s property, boiler, and machinery insurance policy has various deductibles and various 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, including auto liability, insurance coverage up to $100 million per occurrence. The City  retains the risk for the first $1 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 payrolls 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, 2012, the City contributed $0.9 million to ACCEL for current year  coverage.    Audited financial statements are available from ACCEL at 100 Pine Street, 11th Floor, San Francisco,  California 94110.    Claims Liability  The City provides for the uninsured portion of claims and judgments in the General Benefits and  Insurance Internal Service Funds. Claims and judgments, including a provision for claims incurred but not  reported, and claim adjustment expenses are recorded when a loss is deemed probable of assertion and  the amount of the loss is reasonably determinable. As discussed above, the City has coverage for such  claims, but it has retained the risk for the deductible or uninsured portion of these claims.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  94  NOTE 14 – RISK MANAGEMENT (Continued)    The City’s liability for uninsured claims is limited to dental, general liability, and workers’ compensation  claims, as discussed above. Dental liability is based on a percentage of current year actual expense.   General and workers’ compensation liabilities are based on the results of actuarial studies, and include  amounts for claims incurred but not reported as follows as of June 30 (in thousands):    2012 2011 Beginning balance 23,903$          21,478$           Liability for current and prior fiscal years claims and  claims incurred but not reported (IBNR)7,603               6,665                Claims paid (4,040)              (4,240)               Ending balance 27,466$          23,903$           Current portion 7,043$             5,873$              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 are not those of the City.    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, 2012  95  NOTE 15 – JOINT VENTURES (Continued)    During the year ended June 30, 2012, the City incurred expenses totaling $55.5 million for purchased  power and assessments earned by NCPA.    The City’s interest in NCPA projects and reserves, as computed by NCPA, was $3.5 million at  June 30, 2012. 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 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. These funds are available on demand, but the City has left them 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  steampowered 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, 2012 is $78.1 million. The City’s participation in this project was 6.2 percent, or $4.8 million.    NCPA’s Geothermal Project has experienced a greater than originally anticipated decline in steam  production from geothermal wells on its leasehold property. Results of the continuing well analysis  program indicate that the potential productive capacity of the geothermal steam reservoir is less than  originally estimated. Therefore, NCPA has modified the operations of the Geothermal Project to reduce  the average annual output from past levels. As a result, the per unit cost of energy generated by the  projects will be higher than anticipated.    NCPA will continue to monitor the wells while pursuing alternatives for improving and extending  reservoir performance, including supplemental water re‐injection, plant equipment modifications, and  changes in operating methodology. NCPA, along with other steam field operators, has observed a  substantial increase in steam production in the vicinity of re‐injection wells and is attempting to increase  water re‐injection at strategic locations. NCPA, other steam developers, and the Lake County Sanitation   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  96  NOTE 15 – JOINT VENTURES (Continued)    District are constructing a wastewater pipeline project that will greatly increase the amount of water  available for re‐injection.    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, 2012, the  book value of this Project’s plant, equipment and other assets was $428.4 million, while its long‐term  debt totaled $359.9 million and other liabilities totaled $68.5 million. The City’s share of the Project’s  long‐term debt amounted to $82.4 million at that date.    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, 2012, the book value of this Project’s plant, equipment and other assets was zero, and its  long‐term debt totaled zero.     NCPA Financial Information  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 the 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  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  97  NOTE 15 – JOINT VENTURES (Continued)    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 obligated to pay zero percent of TANC’s  debt‐service and operating costs starting February 1, 2009, for a period of fifteen years.    According to the 1985 Project Agreement with TANC for the development of the California‐Oregon  Transmission Project (COTP) and subsequent related project agreements, the City is obligated to pay its  share of the project’s costs, including debt service, and is entitled to the use of a percentage of the  project’s transmission or transfer capacity. TANC has issued four series of Revenue Bonds and  Commercial Paper Notes totaling $421.4 million as of June 30, 2010. The City’s share of this debt is zero  due to the LTLA mentioned above.    Construction of the COTP was complete as of June 30, 1993. The transmission line was energized  March 24, 1993. Because funding of certain participants’ shares in the project was needed pending  approval of their applications for participation, TANC issued $93.8 million of Commercial Paper debt  backed by a Letter of Credit. The City’s share of the Commercial Paper was zero at June 30, 2011, due to  the LTLA mentioned above.    TANC Financial Information  TANC’s financial statements can be obtained from TANC, P.O. Box 15129, Sacramento, CA 95851.        NOTE 16 – COMMITMENTS AND CONTINGENCIES    Palo Alto Unified School District – The City leases a portion of the former Cubberley School site and  twelve extended day care sites from the Palo Alto Unified School District (PAUSD). The lease is part of a  larger agreement, which includes a covenant not to develop certain properties owned by the PAUSD.  The lease term expired on December 31, 2004, upon which the City exercised its first option to extend  for 10 years, for a new expiration date of 12/31/2014. The lease provides for two more five‐year options  to extend, 1/1/2015 to 12/31/2019, and 1/1/2020 to 12/31/2024. The City’s rent for the facilities is $7.1  million per year plus insurance, repairs and maintenance. Should any new law or regulation require the  expenditure of work in excess of $250,000, per the terms of the lease, the City and PAUSD may  renegotiate the lease. This lease is cancelable upon 90 days’ written notice in the event funds are not  appropriated by the City. In addition, the lease is contingent upon authorization by the Palo Alto  electorate if it exceeds the City’s Proposition 4 (Gann) appropriations limitation in any fiscal year. Lease  expenditures for the year ended June 30, 2012, amounted to $7.1 million.    Future minimum annual lease and covenant payments are as follows (in thousands):  Year ending June 30 Payments 2013 7,133$            2014 7,347              2015 7,567              2016 7,795              2017 8,028              2018‐2020 25,559            63,429$            CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  98  NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)    GreenWaste of Palo Alto –GreenWaste of Palo Alto continues as the City’s contractor for waste  collection, transportation, and processing services. The agreement has a term of eight years, expiring  June 30, 2017, with an option to extend the contract to 2021. The base compensation for GreenWaste is  adjusted annually based on CPI indicators stipulated in the contract. In FY 2012 payments to  GreenWaste were $10.6 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 at June 30, 2012. 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.    On December 1, 1992, the Sunnyvale Financing Authority issued $24.6 million in revenue bonds to  finance the design and construction costs of the SMaRT Station. During the fiscal year ended June 30,  2003, the 1992 bonds were refunded by issuing the 2003 Solid Waste Revenue Bonds in the amount of  $20.6 million. Even though these bonds are payable from and secured by the net revenues of  Sunnyvale’s Utilities Enterprise, the City is obligated to reimburse Sunnyvale 21.3 percent of total debt  service payments related to these bonds. The City’s portion of remaining principal balance for SMaRT  revenue bonds as of June 30, 2012, is $2.1 million. During the year ended June 30, 2012, the City paid  $0.3 million as its portion of current debt service.    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 $1.7  million as of June 30, 2012. During the year ended June 30, 2012, the City paid $0.1 million as its portion  of current debt service.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  99  NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)    UTILITIES ENERGY RESOURCE MANAGEMENT    Energy Markets in the United States and California  U.S. and California electric and gas prices continued to be volatile during the year. The City purchased  electricity in FY 2012 in conformance with the Council‐approved Long‐term Electric Acquisition Plan  (LEAP) established in 2001 and last modified in April 2012 and Council approved Energy Risk  Management Policy. In April 2012, Council updated the Gas Utility Long‐Term Plan (GULP) and changed  the natural gas purchasing strategy so no new fixed‐priced purchases will be made and all gas will be  purchased on the spot market. Prior to that, natural gas purchases were made on a 3‐year forward basis  in a laddered fashion and forward purchases for delivery through October 2013 exist. Due to the  forward purchases done prior to April 2012 and since the price of natural gas has declined since those  purchases were made, the City’s gas utility had a higher average cost of gas for its pool customers in FY  2012  compared to the average market price during the year. The City’s average natural gas commodity  cost for the gas pool customers was $5.20/MMBtu compared to a spot market price of $3.46/MMBtu.  The primary reason the City’s natural gas costs were higher than market was due to a dramatic drop in  spot market prices after gas had been purchased and costs were locked in. The City’s average purchase  cost for bilateral forward market purchases for electricity during FY 2012 was  approximately 5.1¢/kWh  while the average spot market prices were approximately 3.0¢/kWh.    Hydroelectric supplies were at high levels in FY 2012, which resulted in less energy purchased from the  market. Hydroelectric production accounted for 52 percent of the City’s electric supply in FY 2012  instead of 50 percent in a normal hydrologic year. These hydroelectric supplies derive from two sources  – from contract with the Western Area Power Administration and from the City’s partial ownership of  the Calaveras Hydroelectric Project. Wind and landfill gas resources accounted for 21 percent of the  electric supply in FY 2012, with the balance purchased from the wholesale electric market. The City  transacts with qualified suppliers for the market purchases, and the Northern California Power Agency  (NCPA), which provides scheduling services for the City, buys and sells electricity within the month as  needed to meet the City’s demands.    Incidental sales of surplus energy resulted in revenues of $2.3 million during the year. The expense  associated with the surplus energy sold from the overall electric supply portfolio was calculated at $3.2  million for the year, and is shown separately on the Statement of Revenues, Expenses and Changes in  Fund Net Assets.    During FY 2009, the City executed a 15‐year assignment of its full share of ownership and obligations in  the California Oregon Transmission Project (COTP). The assignment resulted in lower cost to serve the  City’s electric rate payers and is projected to continue saving the City throughout the term of the  assignment.    The City has executed Electric and Gas Master Agreements with suppliers to procure wholesale  electricity and natural gas supplies. The table below outlines the electric and natural gas commodity  supply commitments made by the City with these suppliers as of June 30, 2012. Monthly payments are  made to suppliers upon delivery of supplies for the month. The City’s procurement plans conform to the  Council‐approved Energy Risk Management Policy. These include a formal oversight role (Middle Office)   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  100  NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)    within the Administrative Services Department. A quarterly energy risk management report is provided  to the Council as part of this oversight role.    Forward Electricity Commodity Supply Commitments as of June 30, 2012    Supplier FY 2013 FY 2014 Total BP 3,204,120$      ‐$                    3,204,120$   Powerex 7,437,483     2,693,876   10,131,359  SENA 201,520          ‐                    201,520        10,843,123   2,693,876   13,536,999  Average Cost  ($/MWh)36.28               40.65             37.08                 Forward Natural Gas Commodity Supply Commitments as of June 30, 2012    Supplier FY 2013 FY 2014 Total JP Morgan 967,910$           ‐$               967,910$           Powerex 1,227,170        611,310       1,838,480         SENA 1,582,064         ‐                     1,582,064         3,777,144        611,310       4,388,454         Average Cost  ($/MMBtu)4.99                    4.97                4.99                         The City’s natural gas transportation contract with the Pacific Gas and Electric Company (PG&E) went  into effect starting January 1, 2011, and will be in place until the end of 2014. This contract, commonly  known as Gas Accord V, between PG&E and its transportation customers provides the City’s retail  customers stable transportation costs. Palo Alto retains access to transmission capacity on par with  PG&E’s core customers although rates increased for all shippers.  Palo Alto’s backbone transmission rate  increased by approximately 40 percent or $150,000 per year.  This is due to a shifting of costs from the  pipeline in the south to the northern pipeline. Despite this projected cost increase, the City will continue  to benefit from its transportation contract with PG&E.    Future Outlook    Electric  The market price for fossil fuel based electricity is projected to be relatively low for the next 12 months  – at 3 to 4¢/kWh – but in the longer term it is expected to return to a higher level of 5 to 7¢/kWh. The  price premium commanded by renewable energy projects remains significantly higher than “brown”  market power. Costs for renewable energy are expected to remain relatively high in the foreseeable  future resulting in higher costs to meet the City’s renewable energy supply targets.  However, recently  the price of solar photovoltaic projects has declined dramatically, resulting in lower projected renewable  energy costs than in past years.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  101  NOTE 16 – COMMITMENTS AND CONTINGENCIES (continued)    The Council‐approved Renewable Portfolio Standard (RPS), last updated in April 2012, is to meet 33  percent of the City’s retail electric sales with renewable resource supplies by 2015. On April 12, 2011  California adopted legislation (SB X12) requiring an RPS for all load serving entities including public  owned utilities.  The law requires utilities to procure renewable energy supplies to meet 20 percent of  their retail sales by December 31, 2013, 25 percent of their retail sales by December 31, 2016 and 33  percent of their retail sales by December 31, 2020.  For calendar year 2011, renewable supplies  accounted for approximately 20.7 percent of retail sales.  Going forward, the City continues to be on  track to meet the City’s RPS as well as the state mandated RPS.  Based on existing and committed  renewable supplies – which are detailed in the table below – the City expects to have a renewable  energy supply level as a percentage of retail sales of 23.3 percent in calendar year 2013, 28.0 percent in  calendar year 2016, and 27.7 percent in calendar year 2020.  In order to help procure the remaining  renewable energy to achieve RPS level of 33 percent of retail sales, Council adopted a feed‐in‐tariff  program (Palo Alto CLEAN) to buy energy from projects developed in Palo Alto.  The City also plans to  pursue additional long‐term renewable energy purchase contracts from projects located throughout the  western United States through competitive solicitation.    Long‐term Renewable Energy Contracts:     Project Name Technology Nameplate  Capacity  (MW) Nominal  Generation  (MWh/yr) Currently  Online Actual or  Expected  Contract  Start Date Location  (state) Contracting  Date Contract  Term  (years) Shiloh Wind 25 74,400 Yes 2006 California 2005 15 High Winds Wind 20 51,800 Yes 2004 California 2004 23.5 Santa Cruz Landfill LFG 1.6 11,200 Yes 2006 California 2004 20 Ox Mountain Landfill LFG 5.7 40,800 Yes 2009 California 2005 20 Keller Canyon Landfill LFG 2 11,800 Yes 2009 California 2005 20 Johnson Canyon Landfill LFG 1.4 11,400 No 2012 California 2009 20 San Joaquin Landfill LFG 4.1 30,300 No 2013 California 2010 20 Crazy Horse Canyon Landfill LFG 2.9 21,600 No 2013 California 2010 20 Western GeoPower Geothermal 3.9 33,100 No 2014 California 2011 25     Energy efficiency is the most cost‐effective electric resource available to the City. It is considered a  primary resource for the electric utility. Reducing the need for energy and renewable energy supplies  are two of the main methods the City plans to employ to achieve the greenhouse gas reduction targets  established in the City’s Climate Protection Plan. The City’s first 10‐year Electric Energy Efficiency Plan,  adopted by the Council in 2007, had a goal of reducing the City’s electric and gas needs by 3.5 percent  by 2016 by employing energy efficiency measures. For the first three years of the 2007 Plan’s  implementation, actual energy savings exceeded the annual goals set in the plan. In May 2010, Council  adopted the updated 2010 10‐year Electric Energy Efficiency Plan, which more than doubled the electric  energy efficiency goals of the 2007 Plan.  The goal for the 2010 Plan is to reduce the City’s electric needs  by 7.2 percent by 2020.  In April 2011, Council updated the energy efficiency goals for natural gas,  increasing the goal to reduce the City’s natural gas needs by 5.5 percent by 2020.  The potential for  future savings in both the electric and natural gas utilities is currently being modeled, and revised goals  will be developed at the end of calendar year 2012.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  102  NOTE 16 – COMMITMENTS AND CONTINGENCIES (continued)    PaloAltoGreen, the City’s volunteer green power program, currently accounts for an additional 8 percent  of the City’s energy needs from renewable resources. The City also has several programs to encourage  renewable distributed generation and small scale ultra‐clean co‐generation within the City.    The California Independent System Operator (CAISO) implemented its Market Redesign and Technology  Update (MRTU) in April 2009. An underlying component of MRTU is the use of location‐specific prices  for the scheduling of energy transactions. These locational prices are determined hourly and reflect the  marginal costs of meeting demand and resolving congestion on the transmission grid, which adds more  uncertainty and volatility to the cost of transmission services for the City.    The City continues to follow the development of laws and associated regulations related to  implementation of AB 32 (California Global Warming Solutions Act of 2006, Chaptered 9/27/2006). In  December 2008, the California Air Resources Board (CARB) approved the Scoping Plan, which is the  primary guidance document for shaping how California will reduce its greenhouse gas (GHG) emissions  to 1990 levels by 2020 as called for by AB 32. The scoping plan has a range of GHG reduction actions,  which include direct regulations, alternative compliance mechanisms, monetary and non‐monetary  incentives, voluntary actions, market‐based mechanisms such as a cap‐and‐trade system, and an AB 32  cost of implementation fee regulation to fund the program. In October 2011, CARB adopted the  California Cap‐and‐Trade Regulation which creates an aggregate GHG emission limit on the sources  responsible for 85 percent of California’s GHG emissions.  The GHG cap will decline 2‐3 percent a year  resulting in a 15 percent reduction in 2020.  CARB will distribute allowances (defined as the  authorization to emit up to one metric ton of carbon dioxide equivalent per allowance), which are  tradable  permits, equal to the emission allowed under the cap.  The City’s electric utility operations will  fall under the cap starting 2013.  As an electric distribution company, the City will be allocated GHG  emission allowances through 2020, with an estimated value of $5 million per year.  The regulation  requires that the City utilize the value of these allocated allowances “exclusively for the benefit of retail  (electric) ratepayers”, consistent with the State’s GHG reduction goals.    At this time it is anticipated  that the first auction of allowances will take place in November 2012 and the cap‐and‐trade system will  go into full effect in 2013.    Natural Gas  Long‐term market prices for natural gas have remained depressed since the market price peak in July  2008.  Increasing U.S. and international demand resulting from economic recovery and potential clean  energy legislation may put pressure on gas prices in the long term, however low to moderate gas prices  are forecasted for the next year or two.  The gas laddering strategy that was used since 2002 to hedge  gas portfolio costs was changed by Council in April 2012 when a new strategy to purchase gas on the  short‐term (spot) market was adopted.  In June 2012, Council adopted a change in gas retail rates so  that the spot market gas price is passed on to customers on a monthly basis.  The City also employs  asset management strategies to lower overall commodity costs.      In March 2011, the Council approved a plan to implement a voluntary customer program similar to  PaloAltoGreen if reasonably priced non‐fossil gas supplies could be found.  While the City continues to  search for potential supplies that are priced in a reasonable range for program marketability, such  supplies have not yet been found.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  103  NOTE 16 – COMMITMENTS AND CONTINGENCIES (continued)    Water  The City’s water use during FY 2012 increased about 2.0 percent from the prior year. Usage is highly  dependent on weather conditions, but has remained essentially flat for the past 10 years. Current water  usage is only 65 percent of what it was in 1975. The small increase in usage in FY 2012 compared to FY  2011 may be attributed to some level of economic recovery and increased rainfall.  Water supply costs  for FY 2012 increased by 38.2 percent from FY 2011, primarily due to a 38.0 percent increase in the San  Francisco Public Utilities Commission (SFPUC) wholesale water rate in FY 2012.  The increase was related  in part to extensive capital improvements on the Hetch Hetchy Water System and in part decreased  consumption in San Francisco and other Bay Area Water Supply & Conservation Agency (BAWSCA)  agencies, which required a higher per unit wholesale rate in order to recover fixed costs.    Water supply costs are expected to continue to trend upward as the SFPUC implements its upgrade to  the regional water system facilities, the Water System Improvement Program (WSIP). Costs for the WSIP  are expected to be about $4.6 billion. Estimates for these increased costs have been factored into the  City’s long‐term water supply cost projections.    Palo Alto is a member of the BAWSCA, which represents all the agencies that buy water on a wholesale  basis from the City and County of San Francisco (San Francisco.) The relationship between each of the  BAWSCA agencies and  San Francisco is specified in a 25‐year water service contract, which expired on  June 30, 2009. Each agency, including Palo Alto, has approved a new 25‐year Water Supply Agreement  with San Francisco effective on July 1, 2009. The new contract contains the same mechanism for cost  allocation as in the old contract and the contract has other improvements regarding water quality and  fair treatment in water supply emergencies. However, a new supply limitation will require that the  BAWSCA agencies work together to reduce long‐term demand so that additional diversions from the  Tuolumne River are minimized or eliminated.    During FY 2009, the City completed a Recycled Water Facility Plan, which provides more detailed design  information on the project to expand the recycled water distribution. After circulating a Draft Mitigated  Negative Declaration document for comments, it was determined that additional study would be  required to address the water quality of the recycled water, particularly the salinity levels, which would  negatively impact plant materials. The City embarked on a single‐issue Environmental Impact Report in  FY 2010 to address this issue. The environmental documents, which are necessary to compete for grant  funding opportunities, are expected to be completed in FY 2013.    Contingent Liabilities  Many of the uncertainties faced by the Utilities Department as an aftermath of the 2000‐01 energy crisis  have been resolved. The Ninth Circuit Court determined that the Federal Energy Regulatory Commission  (FERC) lacked authority under the Federal Power Act to grant refund relief against governmental  agencies, and the United States Supreme Court declined to review that decision. Nonetheless a number  of entities (“the California Parties”) filed suit against the NCPA and other municipal utilities seeking  refunds for sales made to the CAISO and Power Exchange during the energy crisis. The suit was filed in  the Superior Court in Los Angeles in April 2007.  In March 2010, the issue was resolved in a settlement  agreement and the City made a payment to the California Parties and no further claims are expected.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2012  104  NOTE 16 – COMMITMENTS AND CONTINGENCIES (continued)    On April 29, 2010, FERC issued an order approving the settlement between NCPA and the California  Parties.  Another dispute between the Western Area Power Administration and PG&E regarding PG&E’s  claim to recover certain CAISO related costs has not been resolved.     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.    Sales Tax Adjustment  On April 14, 1999, the State Board of Equalization informed the City that it had been allocated and paid  $0.6 million sales taxes in error and that the City was obligated to refund these taxes from future sales  tax revenues. The City is in process of challenging the Board’s findings. However, as of June 30, 2012, the  issue had not been settled and the refund had not been returned.    Grant Programs  The City participates in Federal and State grant programs. These programs have been audited by the  City’s independent accountants in accordance with the provisions of the Federal Single Audit Act  amendments of 1996 and applicable State requirements. No costs were questioned as a result of these  audits; however, these programs are still subject to further examination by the grantors and the  amount, if any, of expenditures which may be disallowed by the granting agencies cannot be  determined at this time. The City expects such amounts, if any, to be immaterial.        Special Debt Revenue Service Permanent Funds Funds Fund Total ASSETS: Cash and investments: Available for operations 44,455$      5,959$         1,444$          51,858$       Cash and investments with fiscal agents ‐              239              ‐               239              Receivables, net: Accounts 305             12                ‐               317              Interest 272             19               9                   300              Notes 13,872         ‐               ‐               13,872         Total assets 58,904$      6,229$         1,453$          66,586$       LIABILITIES AND FUND BALANCES: Liabilities: Accounts payable and accruals 385$             ‐$             6$                 391$             Accrued salaries and benefits 9                   ‐               ‐               9                   Total liabilities 394              ‐              6                   400              Fund balances: Nonspendable Notes and loans receivable 9,665           ‐               ‐               9,665           Eyerly family ‐               ‐              1,447           1,447           Restricted Transportation mitigation 6,095           ‐               ‐               6,095           Federal revenue 4,519           ‐               ‐               4,519           Street improvement 1,015           ‐               ‐               1,015           Local law enforcement 251              ‐               ‐               251              Debt service ‐              6,229           ‐               6,229           Public benefits 21,865         ‐               ‐               21,865         Committed Developer's impact fee 5,935           ‐               ‐               5,935           Housing In‐Lieu 7,322           ‐               ‐               7,322           Special districts 934              ‐               ‐               934              Downtown business 93                ‐               ‐               93                Assigned Unrealized gain on investment 816              ‐               ‐               816              Total fund balances 58,510        6,229          1,447           66,186         Total liabilities and fund balances 58,904$      6,229$         1,453$          66,586$       CITY OF PALO ALTO Non‐major Governmental Funds Combining Balance Sheet June 30, 2012 (Amounts in thousands) 105 Special Debt Revenue Service Permanent Funds Funds Fund Total REVENUES: Property tax ‐$             3,610$          ‐$              3,610$          Special assessments 112              ‐                ‐                112              Other taxes and fines 1,879           ‐                ‐                1,879           Charges for services 21,351         ‐                ‐                21,351         From other agencies: Community Development Block Grants 662              ‐                ‐                662              State of California 114              ‐                ‐                114              Other revenue from other agencies (4)                  ‐                ‐                (4)                  Permits and licenses 503              ‐                ‐                503              Investment earnings 1,949          183              41                  2,173           Rental income 4                   ‐                ‐                4                   Other: Housing In‐Lieu ‐ residential 5,367           ‐                ‐                5,367           University Avenue Parking 1,002           ‐                ‐                1,002           California Avenue Parking 97                 ‐                ‐                97                 Other fees 2,101           ‐                ‐                2,101           Total revenues 35,137        3,793          41                  38,971         EXPENDITURES: Current: Planning and Community Environment 1,690           ‐                ‐                1,690           Public safety ‐ Police 132              ‐                ‐                132              Community Services 28                 ‐                ‐                28                 Non‐Departmental 230              ‐               16                  246              Debt service: Principal retirement ‐              1,285           ‐                1,285           Interest and fiscal charges ‐              2,716           ‐                2,716           Payment to bond refunding escrow ‐              586               ‐                586              Total expenditures 2,080          4,587          16                  6,683           EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 33,057        (794)            25                  32,288         OTHER FINANCING SOURCES (USES): Payment to bond refunding escrow ‐              (3,104)          ‐                (3,104)          Transfers in 38                6,862           ‐                6,900           Transfers out (4,190)          ‐                ‐                (4,190)          Total other financing sources (uses) (4,152)         3,758           ‐                (394)             Change in fund balances 28,905        2,964          25                  31,894         FUND BALANCES, BEGINNING OF YEAR 29,605        3,265          1,422            34,292         FUND BALANCES, END OF YEAR 58,510$      6,229$         1,447$          66,186$       CITY OF PALO ALTO Non‐major Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2012 (Amounts in thousands) 106 107  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.    Assets 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’s Impact Fee  This fund accounts for fees imposed on new developments to be used for parks, community centers and  libraries.    Redevelopment Agency   This fund accounts for the activities of administrating the Redevelopment Agency.    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 Benefits  This fund accounts for the activities of the SUMC Parties 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 Transportation Improvement Revenue In‐Lieu Districts Mitigation ASSETS: Cash and investments: Available for operations 868$               289$               7,605$            971$                6,390$             Receivables: Accounts 185                  81                    ‐                  ‐                    ‐                  Interest 8                       ‐                 46                   7                       34                    Notes ‐                  4,207             9,665              ‐                    ‐                  Total assets 1,061$            4,577$            17,316$          978$                6,424$             LIABILITIES AND FUND BALANCES: Liabilities: Accounts payable and accruals ‐$                55$                  49$                   ‐$                 122$                Accrued salaries and benefits ‐                  3                      ‐                 2                        ‐                  Total liabilities ‐                  58                   49                   2                       122                  Fund balances: Nonspendable Notes and loans receivables ‐                   ‐                 9,665              ‐                    ‐                  Prepaid costs ‐                   ‐                  ‐                  ‐                    ‐                  Inventories ‐                   ‐                  ‐                  ‐                    ‐                  Advance to other funds ‐                   ‐                  ‐                  ‐                    ‐                  Eyerly family ‐                   ‐                  ‐                  ‐                    ‐                  Restricted Transportation mitigation ‐                   ‐                  ‐                  ‐                   6,095              Federal revenue ‐                  4,519              ‐                  ‐                    ‐                  Street improvement 1,015               ‐                  ‐                  ‐                    ‐                  Local law enforcement ‐                   ‐                  ‐                  ‐                    ‐                  Public benefits ‐                   ‐                  ‐                  ‐                    ‐                  Library bond project ‐                   ‐                  ‐                  ‐                    ‐                  Improvement to parking garage ‐                   ‐                  ‐                  ‐                    ‐                  Debt Service ‐                   ‐                  ‐                  ‐                    ‐                  Committed Capital projects ‐                   ‐                  ‐                  ‐                    ‐                  Developer's impact fee ‐                   ‐                  ‐                  ‐                    ‐                  Housing In‐Lieu ‐                   ‐                 7,322              ‐                    ‐                  Special districts ‐                   ‐                  ‐                 934                    ‐                  Downtown business ‐                   ‐                  ‐                  ‐                    ‐                  Assigned Unrealized gain on investment 46                     ‐                 280                 42                     207                  Total fund balances 1,061              4,519             17,267           976                   6,302              Total liabilities and fund balances 1,061$            4,577$            17,316$          978$                6,424$             Non‐major Special Revenue Funds Combining Balance Sheet June 30, 2012 (Amounts in thousands) CITY OF PALO ALTO 108 Downtown Business Local Law Assets Developer's Redevelopment Development Public  Enforcement Seizure Impact Fee Agency District Benefits Total 217$                2$                     6,158$           ‐$                     96$                  21,859$           44,455$        39                      ‐                    ‐                 ‐                        ‐                  ‐                  305               1                        ‐                   38                  ‐                       1                     137                  272               ‐                    ‐                    ‐                 ‐                        ‐                  ‐                  13,872          257$                2$                     6,196$           ‐$                     97$                  21,996$           58,904$        ‐$                  ‐$                 32$                ‐$                      ‐$                127$                385$             ‐                    ‐                    ‐                 ‐                        ‐                 4                      9                    ‐                    ‐                   32                  ‐                        ‐                 131                  394               ‐                    ‐                    ‐                 ‐                        ‐                  ‐                  9,665            ‐                    ‐                    ‐                 ‐                        ‐                  ‐                   ‐                ‐                    ‐                    ‐                 ‐                        ‐                  ‐                   ‐                ‐                    ‐                    ‐                 ‐                        ‐                  ‐                   ‐                ‐                    ‐                    ‐                 ‐                        ‐                  ‐                   ‐                ‐                    ‐                    ‐                 ‐                        ‐                  ‐                  6,095            ‐                    ‐                    ‐                 ‐                        ‐                  ‐                  4,519            ‐                    ‐                    ‐                 ‐                        ‐                  ‐                  1,015            249                   2                        ‐                 ‐                        ‐                  ‐                  251               ‐                    ‐                    ‐                 ‐                        ‐                 21,865            21,865          ‐                    ‐                    ‐                 ‐                        ‐                  ‐                   ‐                ‐                    ‐                    ‐                 ‐                        ‐                  ‐                   ‐                ‐                    ‐                    ‐                 ‐                        ‐                  ‐                   ‐                ‐                    ‐                    ‐                 ‐                        ‐                  ‐                   ‐                ‐                    ‐                   5,935              ‐                        ‐                  ‐                  5,935            ‐                    ‐                    ‐                 ‐                        ‐                  ‐                  7,322            ‐                    ‐                    ‐                 ‐                        ‐                  ‐                  934               ‐                    ‐                    ‐                 ‐                       93                    ‐                  93                  8                        ‐                   229                ‐                       4                      ‐                  816               257                   2                       6,164              ‐                       97                   21,865            58,510          257$                2$                     6,196$           ‐$                     97$                  21,996$           58,904$        109 Street Federal Housing Special Transportation Improvement Revenue In‐Lieu Districts Mitigation REVENUES: Special assessments ‐$                  ‐$                  ‐$                  ‐$                   ‐$                  Other taxes and fines 1,830               ‐                   ‐                  49                      ‐                   Charges for services ‐                   ‐                   ‐                   ‐                    551                  From other agencies: Community Development Block Grants ‐                  662                  ‐                   ‐                     ‐                   State of California ‐                   ‐                   ‐                   ‐                     ‐                   Other revenue from other agencies ‐                   ‐                   ‐                   ‐                     ‐                   Permits and licenses ‐                   ‐                   ‐                  503                    ‐                   Investment earnings 29                   (78)                  249                 31                     183                  Rental income ‐                   ‐                  4                       ‐                     ‐                   Other Housing In‐Lieu ‐ residential ‐                   ‐                  5,367               ‐                     ‐                   University Avenue Parking ‐                   ‐                   ‐                  1,002                 ‐                   California Avenue Parking ‐                   ‐                   ‐                  97                      ‐                   Other fees ‐                  220                 279                  ‐                    1,109               Total revenues 1,859              804                 5,899              1,682                1,843               EXPENDITURES: Current: Planning and Community Environment ‐                  890                 481                 72                      ‐                   Public safety ‐ Police ‐                   ‐                   ‐                   ‐                     ‐                   Community Services ‐                   ‐                   ‐                   ‐                     ‐                   Non‐Departmental ‐                  14                   53                   84                      ‐                   Total expenditures ‐                  904                 534                 156                    ‐                   EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 1,859              (100)                5,365              1,526                1,843               OTHER FINANCING SOURCES (USES): Transfers in ‐                   ‐                   ‐                  29                      ‐                   Transfers out (2,442)             ‐                   ‐                  (1,692)              (47)                   Total other financing sources (uses) (2,442)             ‐                   ‐                  (1,663)              (47)                   Change in fund balances (583)                (100)                5,365              (137)                  1,796               FUND BALANCES, BEGINNING OF YEAR 1,644              4,619              11,902           1,113                4,506               FUND BALANCES, END OF YEAR 1,061$            4,519$            17,267$          976$                 6,302$             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, 2012 (Amounts in thousands) 110 Downtown Business Local Law Assets Developer's Redevelopment Development Public Enforcement Seizure Impact Fee Agency District Benefits Total ‐$                   ‐$                   ‐$                   ‐$                 112$                 ‐$                 112$             ‐                     ‐                     ‐                     ‐                    ‐                   ‐                  1,879           ‐                     ‐                     ‐                     ‐                    ‐                  20,800           21,351         ‐                     ‐                     ‐                     ‐                    ‐                   ‐                  662               114                    ‐                     ‐                     ‐                    ‐                   ‐                  114               (4)                       ‐                     ‐                     ‐                    ‐                   ‐                  (4)                   ‐                     ‐                     ‐                     ‐                    ‐                   ‐                  503               7                         ‐                    183                    ‐                   5                      1,340              1,949           ‐                     ‐                     ‐                     ‐                    ‐                   ‐                  4                    ‐                     ‐                     ‐                     ‐                    ‐                   ‐                  5,367           ‐                     ‐                     ‐                     ‐                    ‐                   ‐                  1,002           ‐                     ‐                     ‐                     ‐                    ‐                   ‐                  97                 1                         ‐                    492                    ‐                    ‐                   ‐                  2,101           118                    ‐                    675                    ‐                   117                 22,140           35,137         ‐                     ‐                     ‐                     ‐                    ‐                  247                 1,690           132                    ‐                     ‐                     ‐                    ‐                   ‐                  132               ‐                     ‐                     ‐                     ‐                    ‐                  28                   28                 ‐                     ‐                     ‐                     ‐                   79                    ‐                  230               132                    ‐                     ‐                     ‐                   79                   275                 2,080           (14)                     ‐                    675                    ‐                   38                   21,865           33,057         ‐                     ‐                     ‐                    9                        ‐                   ‐                  38                 ‐                     ‐                     ‐                    (9)                      ‐                   ‐                  (4,190)          ‐                     ‐                     ‐                     ‐                    ‐                   ‐                  (4,152)          (14)                     ‐                    675                    ‐                   38                   21,865           28,905         271                   2                        5,489                 ‐                   59                    ‐                  29,605         257$                 2$                     6,164$              ‐$                 97$                  21,865$          58,510$        111 Street Improvement Federal Revenue Variance Variance Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) REVENUES: Special assessments ‐$            ‐$               ‐$           ‐$           ‐$           ‐$            Other taxes and fines 1,764         1,830           66             ‐            ‐            ‐             Charges for services ‐              ‐                ‐            ‐            ‐            ‐             From other agencies: Community Development Block Grants ‐              ‐                ‐           663          662          (1)               State of California ‐              ‐                ‐            ‐            ‐            ‐             Other revenue from other agencies ‐              ‐                ‐           276           ‐           (276)           Permits and licenses ‐              ‐                ‐            ‐            ‐            ‐             Investment earnings 14              29                15             ‐           (78)           (78)             Rental income ‐              ‐                ‐            ‐            ‐            ‐             Other: Housing In‐Lieu ‐ residential ‐              ‐                ‐            ‐            ‐            ‐             University Avenue Parking ‐              ‐                ‐            ‐            ‐            ‐             California Avenue Parking ‐              ‐                ‐            ‐            ‐            ‐             Other fees ‐              ‐                ‐           220          220            Total revenues 1,778         1,859           81            939          804          (135)           EXPENDITURES: Current: Planning and Community Environment ‐              ‐                ‐           1,698       890          808            Public safety ‐ Police ‐              ‐                ‐            ‐            ‐             Community Services Non‐Departmental 664             ‐               664           ‐           14            (14)             Total expenditures 664             ‐               664          1,698       904          794            Excess (deficiency) of revenues  over (under) expenditures 1,114         1,859           745          (759)         (100)         659            OTHER FINANCING SOURCES (USES): Transfers in ‐              ‐                ‐           5                ‐           (5)               Transfers out (2,442)       (2,442)          ‐            ‐            ‐             Total other financing sources (uses) (2,442)       (2,442)          ‐           5                ‐           (5)               Change in fund balances (1,328)$     (583)             745$         (754)$       (100)         654$           FUND BALANCES, BEGINNING OF YEAR 1,644           4,619        FUND BALANCES, END OF YEAR 1,061$         4,519$      (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, 2012 112 Housing In‐Lieu Special Districts Transportation Mitigation Variance Variance Variance Actual, plus Positive Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative) ‐$            ‐$            ‐$            ‐$            ‐$            ‐$           ‐$           ‐$           ‐$           ‐              ‐              ‐             43              49              6                 ‐            ‐            ‐            ‐              ‐              ‐              ‐              ‐              ‐            282          551          269           ‐              ‐              ‐              ‐              ‐              ‐             ‐            ‐            ‐            ‐              ‐              ‐              ‐              ‐              ‐             ‐            ‐            ‐            ‐              ‐              ‐              ‐              ‐              ‐             ‐            ‐            ‐            ‐              ‐              ‐             288            503            215            ‐            ‐            ‐            188            249            61              30              31              1                135          183          48             9                 4                 (5)                ‐              ‐              ‐             ‐            ‐            ‐            3,500         5,367         1,867          ‐              ‐              ‐             ‐            ‐            ‐            ‐              ‐              ‐             885            1,002         117            ‐            ‐            ‐            ‐              ‐              ‐             104            97              (7)               ‐            ‐            ‐            222            279            57               ‐              ‐              ‐            280          1,109       829           3,919         5,899         1,980         1,350        1,682         332           697          1,843       1,146        4,859         481            4,378         96              72              24             410           ‐           410           ‐              ‐              ‐              ‐              ‐              ‐             ‐            ‐            ‐            2,183         53              2,130         34              84              (50)             ‐            ‐            ‐            7,042         534            6,508         130            156            (26)            410           ‐           410           (3,123)       5,365         8,488         1,220        1,526         306           287          1,843       1,556        ‐              ‐              ‐              ‐             29              29              ‐            ‐            ‐            ‐              ‐              ‐             (1,526)       (1,692)       (166)          (47)           (47)            ‐            ‐              ‐              ‐             (1,526)       (1,663)       (137)          (47)           (47)            ‐            (3,123)$     5,365         8,488$      (306)$        (137)           169$         240$         1,796       1,556$      11,902      1,113         4,506        17,267$    976$          6,302$      (Continued) 113 Local Law Enforcement Asset Seizure Developer's Impact Fee Variance Variance Variance Actual, plus Positive Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative) Revenues: Special assessments ‐$            ‐$           ‐$           ‐$           ‐$           ‐$           ‐$            ‐$            ‐$           Other taxes and fines ‐              ‐             ‐            ‐            ‐            ‐            ‐             ‐              ‐            Charges for services ‐              ‐             ‐            ‐            ‐            ‐            ‐             ‐              ‐            From other agencies: Community Development Block Grants ‐              ‐             ‐            ‐            ‐            ‐            ‐             ‐              ‐            State of California 105            114           9                ‐            ‐            ‐            ‐             ‐              ‐            Other revenue from other agencies ‐             (4)              (4)              ‐            ‐            ‐            ‐             ‐              ‐            Permits and licenses ‐              ‐             ‐            ‐            ‐            ‐            ‐             ‐              ‐            Return on investments 6                 7                1                ‐            ‐            ‐           161           183            22             Rental income ‐              ‐             ‐            ‐            ‐            ‐            ‐             ‐              ‐            Other: Housing In‐Lieu ‐ residential ‐              ‐             ‐            ‐            ‐            ‐            ‐             ‐              ‐            University Avenue Parking ‐              ‐             ‐            ‐            ‐            ‐            ‐             ‐              ‐            California Avenue Parking ‐              ‐             ‐            ‐            ‐            ‐            ‐             ‐              ‐            Other fees ‐             1                1                ‐            ‐            ‐           553           492            (61)            Total revenues 111            118           7                ‐            ‐            ‐           714           675            (39)            Expenditures: Current: Planning and Community Environment ‐              ‐             ‐            ‐            ‐            ‐            ‐             ‐              ‐            Public safety ‐ Police 152            132           20             ‐            ‐            ‐            ‐             ‐              ‐            Community Services Non‐Departmental ‐              ‐             ‐            ‐            ‐            ‐            ‐             ‐              ‐            Total expenditures 152            132           20             ‐            ‐            ‐            ‐             ‐              ‐            Excess (deficiency) of revenues  over (under) expenditures (41)             (14)            27             ‐            ‐            ‐           714           675            (39)            Other financing sources (uses): Transfers in ‐              ‐             ‐            ‐            ‐            ‐            ‐             ‐              ‐            Transfers out ‐             ‐            ‐            ‐            ‐            ‐              ‐            Total other financing sources (uses)‐              ‐             ‐            ‐            ‐            ‐            ‐             ‐              ‐            Change in fund balances (41)$           (14)            27$            ‐$           ‐            ‐$          714$          675            (39)$           Fund balances, beginning of year 271           2               5,489          Fund balances, end of year 257$         2$             6,164$       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, 2012 (Amounts in Thousands) 114 Redevelopment Agency Downtown Business Improvement District Public Benefits Total Non‐major Special Revenue Funds Variance Variance Variance Variance Actual, plus Positive Actual, plus Positive Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative) ‐$            ‐$            ‐$           160$           112$           (48)$            ‐$            ‐$            ‐$           160$          112$           (48)$            ‐              ‐              ‐              ‐                ‐                ‐              ‐              ‐              ‐             1,807        1,879          72                ‐              ‐              ‐              ‐                ‐                ‐             20,800      20,800       ‐             21,082      21,351        269              ‐              ‐              ‐              ‐                ‐                ‐              ‐              ‐              ‐             663            662              (1)                 ‐              ‐              ‐              ‐                ‐                ‐              ‐              ‐              ‐             105            114              9                  ‐              ‐              ‐              ‐                ‐                ‐              ‐              ‐              ‐             276            (4)                 (280)            ‐              ‐              ‐              ‐                ‐                ‐              ‐              ‐              ‐             288            503              215              ‐              ‐              ‐             2                  5                  3                460            1,340        880            996            1,949          953              ‐              ‐              ‐              ‐                ‐                ‐              ‐              ‐              ‐             9                 4                  (5)                 ‐              ‐              ‐              ‐                ‐                ‐              ‐              ‐              ‐             3,500        5,367          1,867          ‐              ‐              ‐              ‐                ‐                ‐              ‐              ‐              ‐             885            1,002          117              ‐              ‐              ‐              ‐                ‐                ‐              ‐              ‐              ‐             104            97                (7)                 ‐              ‐              ‐              ‐                ‐                ‐              ‐              ‐              ‐             1,055        2,101          1,046          ‐              ‐              ‐             162              117              (45)             21,260      22,140      880            30,930      35,137        4,207          ‐              ‐              ‐              ‐                ‐                ‐             250            247            3                7,313        1,690          5,623          ‐              ‐              ‐              ‐                ‐                ‐              ‐              ‐              ‐             152            132              20                ‐               65              28              65               28                 ‐               ‐              ‐             194              79                115             ‐              ‐              ‐             3,075        230              2,845          ‐              ‐              ‐             194              79                115            315            275            3                10,605      2,080          8,488          ‐              ‐              ‐             (32)               38                70              20,945      21,865      920            20,325      33,057        12,732        9                 9                  ‐              ‐                ‐                ‐              ‐              ‐              ‐             14               38                24                ‐             (9)               (9)                ‐                ‐                ‐              ‐              ‐              ‐             (4,015)       (4,190)         (175)            9                  ‐             (9)                ‐                ‐                ‐              ‐              ‐              ‐             (4,001)       (4,152)         (151)            9$               ‐             (9)$             (32)$            38                70$             20,945$     21,865      920$          16,324$     28,905        12,581$      ‐             59                 ‐             29,605         ‐$           97$              21,865$     58,510$       115 116                                      This page left intentionally blank.    117  NON‐MAJOR GOVERNMENTAL FUNDS    DEBT SERVICE FUNDS     Golf Course  This fund accounts for revenues received from the General Fund to provide payment of principal and  interest associated with Certificates of Participation issued for the City’s golf course.    Civic Center Refinancing  This fund accounts for revenues received from the General Fund to provide payment of principal and  interest associated with the 2002A Civic Center Refinancing Certificates of Participation as they become  due.    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 Certificate of Participation as they  become due.    Library Project  This fund accounts for revenues received from property taxes to provide payment of principal and  interest associated with the 2010 General Obligation Bonds as they become due.  CITY OF PALO ALTO Non‐major Debt Service Funds Combining Balance Sheet June 30, 2012 (Amounts in thousands) Civic Downtown Golf Center Parking Library Course Refinancing Improvement Projects Total ASSETS: Cash and investments : Available for operations ‐$                 ‐$                12$                   5,947$             5,959$             Cash and investments with fiscal agents ‐                  ‐                 239                   ‐                   239                  Receivables: Accounts ‐                  ‐                  ‐                  12                     12                    Interest ‐                  ‐                  ‐                  19                     19                    Total assets ‐$                 ‐$                251$               5,978$             6,229$             Fund balances: Restricted: Debt service ‐                  ‐                 251                  5,978               6,229              Total fund balances ‐                  ‐                 251                  5,978               6,229              Total liabilities and fund balances ‐$                 ‐$                251$               5,978$             6,229$             118 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, 2012 (Amounts in thousands) Civic Downtown Golf Center Parking Library Course Refinancing Improvement Project Total REVENUES: Property tax ‐$                 ‐$                 ‐$                 3,610$             3,610$             Investment earnings ‐                  ‐                 1                      182                   183                  Total revenues ‐                  ‐                 1                      3,792               3,793              EXPENDITURES: Debt service: Principal retirement ‐                 405                 115                  765                   1,285              Interest and fiscal charges 81                   16                   117                  2,502               2,716              Payment to bond refunding escrow 586                  ‐                  ‐                   ‐                   586                  Total expenditures 667                 421                 232                  3,267               4,587              EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (667)               (421)               (231)               525                   (794)                OTHER FINANCING SOURCES (USES): Payment to bond refunding escrow (3,104)             ‐                  ‐                   ‐                   (3,104)             Transfers in 3,104             70                   232                  3,456               6,862              Total other financing sources (uses)‐                 70                   232                  3,456               3,758              Change in fund balances (667)               (351)               1                      3,981               2,964              FUND BALANCES, BEGINNING OF YEAR 667                 351                 250                  1,997               3,265              FUND BALANCES, END OF YEAR ‐$                 ‐$                251$                5,978$             6,229$             119 Golf Course Civic Center Refinancing Variance Variance Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) REVENUES: Special assessments ‐$              ‐$              ‐$              ‐$               ‐$              ‐$              Investment earnings ‐                ‐               ‐               ‐                ‐               Total revenues ‐                ‐               ‐               ‐                ‐                ‐               EXPENDITURES: Debt service: Principal retirement ‐               ‐              405              405               ‐               Interest and fiscal charges 172              81               (91)              16                16                 ‐               Payment to bond refunding escrow ‐               586             586              ‐                ‐                ‐               Total expenditures 172              667             495             421              421               ‐               Excess (deficiency) of revenues  over (under) expenditures (172)             (667)            (495)            (421)             (421)               ‐               OTHER FINANCING SOURCES (USES): Payment to bond refunding escrow (3,599)          (3,104)        495              ‐                ‐                ‐               Transfers in 3,104            3,104           ‐              72                70                (2)                 Total other financing sources (uses) (495)              ‐              495             72                70                (2)                 Change in fund balances (667)$          (667)             ‐$             (349)$          (351)              (2)$                FUND BALANCES, BEGINNING OF YEAR 667             351               FUND BALANCES, END OF YEAR ‐$              ‐$              (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, 2012 120 Downtown Parking Improvement Library Project Total Non‐major Debt Service Funds Variance Variance Variance Actual, plus Positive Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative) ‐$               ‐$               ‐$              3,495$        3,610$        115$            3,495$         3,610$        115$             1                   1                   182             182              ‐               183              183              ‐                1                   1                   3,495           3,792          297             3,495           3,793           298              115               115                ‐                765              765              ‐              1,285           1,285            ‐               117               117                ‐                2,502           2,502           ‐              2,807           2,716           (91)               ‐                 ‐                 ‐                 ‐                ‐               ‐               ‐               586              586              232               232                ‐                3,267           3,267           ‐              4,092           4,587           495              (232)              (231)              1                   228              525             297             (597)             (794)             (197)             ‐                 ‐                 ‐                 ‐                ‐               ‐              (3,599)         (3,104)         495              232               232                ‐                3,456           3,456           ‐              6,864           6,862           (2)                 232               232                ‐                3,456           3,456           ‐              3,265           3,758           493              ‐$              1                   1$                 3,684$        3,981          297$            2,668$         2,964           296$             250               1,997          3,265            251$             5,978$        6,229$         121 122                                              This page left intentionally blank.          123  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 Permanent Fund Variance Actual, plus Positive Budget Encumbrances (Negative) REVENUES: Investment earnings 43$              41$               (2)$                Other fees ‐               ‐                ‐               Total revenues 43                41                 (2)                  EXPENDITURES: Current: Non‐Departmental 1                  16                 (15)               Total expenditures 1                  16                 (15)               Excess (deficiency) of revenues  over (under) expenditures 42                25                 (17)               Change in fund balances 42$              25                 (17)$              FUND BALANCES, BEGINNING OF YEAR 1,422            FUND BALANCES, END OF YEAR 1,447$           (Amounts in thousands) CITY OF PALO ALTO Non‐major Permanent Fund Schedule of Revenues, Expenditures and Changes in Fund Balances ‐  Budget and Actual For the Year Ended June 30, 2012 124 125  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 on 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 on 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 on 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.      Vehicle Printing Workers' General Replacement and Compensation Liabilities Retiree and Mailing General Insurance Insurance Health Maintenance Technology Services Benefits Program Program Benefits Total ASSETS: Current Assets: Cash and investments: Available for operations 8,530$             17,786$           ‐$                12,837$          19,877$          7,722$             4,969$             71,721$           Accounts receivable, net 230                    ‐                   ‐                  24                    ‐                   ‐                    ‐                   254                  Interest receivable 52                     103                  ‐                  63                   97                   27                    27                    369                  Inventory of materials and supplies 668                    ‐                   ‐                   ‐                   ‐                   ‐                    ‐                   668                  Total current assets 9,480               17,889            ‐                  12,924           19,974           7,749              4,996               73,012            Noncurrent Assets: Capital assets: Non‐Depreciable 204                    ‐                   ‐                   ‐                   ‐                   ‐                    ‐                   204                  Depreciable, net 12,637             3,016             9                      ‐                   ‐                   ‐                    ‐                   15,662            Net OPEB asset ‐                     ‐                   ‐                   ‐                   ‐                   ‐                   21,271             21,271            Total noncurrent assets 12,841             3,016             9                      ‐                   ‐                   ‐                   21,271             37,137            Total assets 22,321             20,905           9                     12,924           19,974           7,749              26,267             110,149          LIABILITIES: Current Liabilities: Accounts payable and accruals 26                     259                  ‐                  2,105             30                   6                      2                      2,428              Accrued salaries and benefits 41                     131                 4                     5                      ‐                   ‐                    ‐                   181                  Accrued compensated absences 3                       5                     1                     2,870              ‐                   ‐                    ‐                   2,879              Accrued claims payable ‐ current ‐                     ‐                   ‐                  349                 4,263             2,431               ‐                   7,043              Total current liabilities 70                     395                 5                     5,329             4,293             2,437              2                      12,531            Noncurrent liabilities: Accrued compensated absences ‐                     ‐                   ‐                  6,083              ‐                   ‐                    ‐                   6,083              Accrued claims payable ‐                     ‐                   ‐                   ‐                  15,481           4,942               ‐                   20,423            Total noncurrent liabilities ‐                     ‐                   ‐                  6,083             15,481           4,942               ‐                   26,506            Total liabilities 70                     395                 5                     11,412           19,774           7,379              2                      39,037            NET ASSETS: Invested in capital assets 12,841             3,016             9                      ‐                   ‐                   ‐                    ‐                   15,866            Unrestricted (deficit) 9,410               17,494           (5)                    1,512             200                 370                  26,265             55,246            Total net assets 22,251$           20,510$          4$                    1,512$            200$               370$                26,265$           71,112$           CITY OF PALO ALTO Internal Service Funds Combining Statement of Fund Net Assets June 30, 2012 (Amounts in thousands) 126 Vehicle Printing Workers' General Replacement and Compensation Liabilities Retiree and Mailing General Insurance Insurance Health Maintenance Technology Services Benefits Program Program Benefits Total OPERATING REVENUES: Charges for services 7,713$                12,187$             1,134$               38,850$             4,109$               3,374$                12,238$              79,605$              Other ‐                        ‐                       ‐                      ‐                      ‐                      ‐                       ‐                       ‐                      Total operating revenues 7,713                   12,187               1,134                 38,850              4,109                 3,374                  12,238                79,605               OPERATING EXPENSES: Administrative and general 744                      4,063                  1,081                 213                    615                    1,113                  539                     8,368                  Operations and maintenance 3,262                   5,524                   ‐                     110                     ‐                      ‐                       ‐                      8,896                  Depreciation and amortization 2,788                   3,093                  3                         ‐                      ‐                      ‐                       ‐                      5,884                  Claim payments and change in estimated self‐insured liability ‐                        ‐                       ‐                     1,624                 3,883                 2,096                   ‐                      7,603                  Refund of charges for services 57                        8                          ‐                      ‐                      ‐                      ‐                       ‐                      65                       Compensated absences and other benefits ‐                        ‐                       ‐                     36,668               ‐                      ‐                      11,874                48,542               Total operating expenses 6,851                   12,688               1,084                 38,615              4,498                 3,209                  12,413                79,358               Operating income (loss) 862                      (501)                    50                      235                    (389)                   165                     (175)                    247                     NONOPERATING REVENUES (EXPENSES): Investment earnings 273                      576                     (6)                       312                    489                    105                     155                     1,904                  Gain on disposal of capital assets 3                           ‐                       ‐                      ‐                      ‐                      ‐                       ‐                      3                         Other nonoperating revenues 32                         ‐                       ‐                      ‐                      ‐                      ‐                       ‐                      32                       Total nonoperating revenues (expenses) 308                      576                     (6)                       312                    489                    105                     155                     1,939                  Income (loss) before transfers 1,170                   75                       44                      547                    100                    270                     (20)                      2,186                  Transfers in 35                        823                      ‐                      ‐                      ‐                      ‐                       ‐                      858                     Transfers out (825)                     (25)                       ‐                      ‐                      ‐                      ‐                       ‐                      (850)                    Change in net assets 380                      873                     44                      547                    100                    270                     (20)                      2,194                  NET ASSETS (DEFICIT), BEGINNING OF YEAR 21,871                19,637               (40)                     965                    100                    100                     26,285                68,918               NET ASSETS, END OF YEAR 22,251$              20,510$             4$                       1,512$               200$                   370$                    26,265$              71,112$              CITY OF PALO ALTO Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Assets For the Year Ended June 30, 2012 (Amounts in thousands) 127 Vehicle Printing Workers' General Replacement and Compensation Liabilities Retiree and Mailing General Insurance Insurance Health Maintenance Technology Services Benefits Program Program Benefits Total Cash flows from operating activities: Cash received from customers 7,543$                12,187$             1,134$               38,826$             4,109$               3,374$                12,238$             79,411$              Cash refunds to customers (57)                     (8)                        ‐                     ‐                     ‐                     ‐                       ‐                     (65)                     Cash payments to suppliers for goods and services (3,412)                 (5,611)               (49)                    (96)                     ‐                     ‐                       ‐                     (9,168)                Cash payments to employees (733)                    (4,039)               (1,079)               (37,178)             (618)                  621                      (10,676)              (53,702)              Cash payments for judgments and claims ‐                      ‐                     ‐                    (1,603)               (2,069)               (368)                     ‐                     (4,040)                Other cash receipts 32                        ‐                     ‐                     ‐                     ‐                     ‐                       ‐                     32                       Cash flows provided by (used in)  operating activities 3,373                  2,529                6                        (51)                    1,422                3,627                  1,562                 12,468               Cash flows from noncapital financing activities: Transfers in 35                       823                     ‐                     ‐                     ‐                     ‐                       ‐                     858                     Transfers out (825)                    (25)                     ‐                     ‐                     ‐                     ‐                       ‐                     (850)                   Cash flows provided by (used in)  noncapital financing activities (790)                    798                     ‐                     ‐                     ‐                     ‐                       ‐                     8                         Cash flows from capital and related financing activities: Acquisition of capital assets (1,611)                 (96)                     ‐                     ‐                     ‐                     ‐                       ‐                     (1,707)                Proceeds from sale of capital assets 46                        ‐                     ‐                     ‐                     ‐                     ‐                       ‐                     46                       Cash flows provided by (used in)  capital and related financing activities (1,565)                 (96)                     ‐                     ‐                     ‐                     ‐                       ‐                     (1,661)                Cash flows from investing activities: Interest received(paid) 271                     565                    (6)                       318                    494                    109                      145                     1,896                 Net change in cash and cash equivalents 1,289                  3,796                 ‐                    267                    1,916                3,736                  1,707                 12,711               Cash and cash equivalents, beginning of year 7,241                  13,990               ‐                    12,570              17,961              5,714                  3,262                 60,738               Cash and cash equivalents, end of year  $                8,530 $             17,786 $                       ‐   $             12,837 $             19,877  $                9,450  $                4,969 $             73,449  Reconciliation of operating income (loss) to net cash flows provided by (used in) operating activities: Operating income (loss) 862$                  (501)$                 50$                     235$                  (389)$                 165$                   (175)$                 247$                   Adjustments to reconcile operating income (loss)  to net cash provided by (used in) operating activities: Depreciation 2,788                  3,093                3                         ‐                     ‐                     ‐                       ‐                     5,884                 Other 32                        ‐                     ‐                     ‐                     ‐                     ‐                       ‐                     32                       Change in assets and liabilities: Accounts receivable (170)                     ‐                     ‐                    (24)                     ‐                     ‐                       ‐                     (194)                   Inventory of materials and supplies (55)                      ‐                     ‐                     ‐                     ‐                     ‐                       ‐                     (55)                     Net OPEB asset ‐                      ‐                     ‐                     ‐                     ‐                     ‐                      1,735                 1,735                 Accounts payable and accruals (95)                     (87)                    (49)                    131                    (3)                       6                          2                         (95)                     Accrued salaries and benefits 12                       29                      1                        5                         ‐                     ‐                       ‐                     47                       Accrued compensated absences (1)                        (5)                       1                        (419)                   ‐                     ‐                       ‐                     (424)                   Accrued claims payable ‐                      ‐                     ‐                    21                      1,814                1,728                   ‐                     3,563                 Cash flows provided by (used in)  operating activities 3,373$                2,529$               6$                       (51)$                   1,422$               1,899$                1,562$               10,740$              CITY OF PALO ALTO Internal Service Funds Combining Statement of Cash Flows For the Year Ended June 30, 2012 (Amounts in thousands) 128 129  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 three agency funds, as follows:    California Avenue Parking Assessment District  This fund accounts for receipts and disbursements associated with the 1993 Parking District No. 92‐13  Assessment Bonds.    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 2001‐A University  Avenue Area Off‐Street Parking Assessments Bonds.      CITY OF PALO ALTO All Agency Funds Statement of Changes in Assets and Liabilities For the Year Ended June 30, 2012 Balance Balance California Avenue Parking Assessment District June 30, 2011 Additions Deletions June 30, 2012 ASSETS: Cash and investments available for operations 208$                   ‐$                   10$                      198$                   Total Assets 208$                   ‐$                   10$                      198$                   LIABILITIES: Due to bondholders 208$                  (10)$                    ‐$                    198$                   Cable Joint Powers Authority ASSETS: Cash and investments available for operations 904$                  6$                        ‐$                    910$                   Interest receivable 7                         ‐                    1                         6                         Total assets 911$                  6$                       1$                        916$                   LIABILITIES: Due to other governments 911$                  5$                        ‐$                    916$                   University Avenue Parking Assessment District ASSETS: Cash and investments available for operations 2,006$               (298)$                  ‐$                    1,708$                Cash and investments with fiscal agents 3,906                 ‐                    1,368                 2,538                 Interest receivable 25                       ‐                    13                       12                       Total assets 5,937$               (298)$                 1,381$                4,258$                LIABILITIES: Due to bondholders 5,937$               (1,679)$               ‐$                    4,258$                Total Agency Funds ASSETS: Cash and investments available for operations 3,118$               (292)$                 10$                      2,816$                Cash and investments with fiscal agents 3,906                 ‐                    1,368                 2,538                 Interest receivable 32                       ‐                    14                       18                       Total assets 7,056$               (292)$                 1,392$                5,372$                LIABILITIES: Due to bondholders 6,145$               (1,689)$               ‐$                    4,456$                Due to other governments 911                    5                         ‐                     916                     Total liabilities 7,056$               (1,684)$               ‐$                    5,372$                (Amounts in thousands) 130 131  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, 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 Assets by Component   Changes in Net Assets   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    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    132  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.  2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Governmental Activities Invested in capital assets, net of related debt 279,306$   297,125$   305,225$   311,335$       326,411$       343,537$       356,657$       369,499$       364,747$       370,111$        Restricted 37,112        30,417        27,273        29,885           32,576           27,428           36,632           34,323           16,437           52,934            Unrestricted 130,463     123,762     117,301     123,823         127,190         130,460         118,133         102,199         134,722         142,102          Total Governmental Activities Net Assets 446,881$   451,304$   449,799$   465,043$       486,177$       501,425$       511,422$       506,021$       515,906$       565,147$        Business‐type Activities Invested in capital assets, net of related debt 279,885$   294,197$   303,473$   318,738$       342,922$       370,303$       384,313$       399,317$       416,418$       437,151$        Restricted 1,728          1,798          1,750          1,732             1,732             1,732             1,732             4,300              ‐                       ‐                       Unrestricted 228,308     226,278     215,128     228,032         230,912         226,539         208,025         232,420         253,740         262,602          Total Business‐type Activities Net Assets 509,921$   522,273$   520,351$   548,502$       575,566$       598,574$       594,070$       636,037$       670,158$       699,753$        Primary Government Invested in capital assets, net of related debt 559,191$   591,322$   608,698$   630,073$       669,333$       713,840$       740,970$       768,816$       781,165$       807,262$        Restricted 38,840        32,215        29,023        31,617           34,308           29,160           38,364           38,623           16,437           52,934            Unrestricted 358,771     350,040     332,429     351,855         358,102         356,999         326,158         334,619         388,462         404,704          Total Primary Government Net Assets 956,802$   973,577$   970,150$   1,013,545$   1,061,743$   1,099,999$   1,105,492$   1,142,058$   1,186,064$   1,264,900$    Source:  Annual Financial Statements, Statement of Net Assets Fiscal Year Ended June 30 CITY OF PALO ALTO Net Assets by Component Last Ten Fiscal Years (Amounts in thousands) (Accrual basis of accounting) $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Primary Government Invested in capital assets, net of related debt Restricted Unrestricted 133 PROGRAM REVENUES 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Governmental Activities Charges for services City Attorney 92$                   64$               22$               22$               13$               16$               12$                 53$                  ‐$                     ‐$                   City Clerk 1                        1                     ‐                    2                     ‐                     ‐                     ‐                         ‐                         ‐                         ‐                     City Auditor 1                         ‐                     ‐                     ‐                     ‐                     ‐                     ‐                         ‐                         ‐                         ‐                     Administrative Services 406                   815               480               627               835               870               726                 984                 2,889              1,647             Human Resources ‐                          ‐                     ‐                     ‐                    11                  ‐                     ‐                         ‐                         ‐                         ‐                     Public Works 1,058               260               573               805               968               1,310            1,169              1,258              2,419              1,008             Planning & Community Environment 5,119               3,074            4,090            5,509            6,267            5,498            4,704              4,813              7,237              31,491           Police 3,396               4,415            3,801            4,178            4,179            4,274            3,947              4,093              3,237              2,160             Fire 7,811               7,565            8,555            9,078            9,610            9,418            10,723            10,244            12,037            13,498           Community Services 7,537               7,846            7,592            10,803          9,128            10,314          8,522              8,729              7,724              11,365           Library ‐                          ‐                    133               129               146               176               177                 199                 480                 1,600             Operating grants and contributions 4,468               4,213            3,677            3,976            5,642            4,029            3,599              4,829              2,884              3,441             Capital grants and contributions 635                   1,990           804             3,156          1,756          1,930          3,810             1,280              1,903            1,064           Total Governmental Activities Program Revenues 30,524             30,243          29,727          38,285          38,555          37,835          37,389            36,482            40,810            67,274           Business‐type Activities Charges for services Water 17,654             21,993          21,041          21,108          23,495          26,510          27,120            26,259            26,624            31,467           Electric 91,622             92,617          88,737          119,418        102,549        103,833        119,320          121,900          122,109          118,886         Fiber Optics1 ‐                          ‐                     ‐                     ‐                     ‐                     ‐                    3,336              3,105              3,322              3,662             Gas 29,714             24,839          31,206          36,977          42,221          49,021          47,838            44,450            43,584            41,774           Wastewater Collection 10,676             12,647          12,041          13,801          14,848          15,102          14,486            15,136            15,094            14,942           Wastewater Treatment 13,556             14,744          15,982          18,778          16,957          22,889          28,425            16,915            18,830            22,200           Refuse 21,691             21,923          23,387          24,795          25,532          28,805          29,101            28,568            30,469            30,645           Storm Drainage 2,192               2,170            2,484            5,174            5,181            5,450            5,505              5,647              5,796              5,892             External Services 605                   585               766               854               789               112                ‐                         ‐                         ‐                         ‐                     Operating grants and contributions ‐                          ‐                     ‐                     ‐                     ‐                     ‐                     ‐                        361                 610                 605                Capital grants and contributions ‐                        ‐                   ‐                  ‐                  756             1,594          639                475                 3,004            1,526           Total Business‐type Activities  Program Revenues 187,710           191,518        195,644        240,905        232,328        253,316        275,770          262,816          269,442          271,599         Total Primary Government  Program Revenues 218,234$         221,761$     225,371$     279,190$     270,883$     291,151$     313,159$        299,298$        310,252$        338,873$      EXPENSES Governmental Activities City Council 234$                 269$             130$             141$             180$             323$             394$               455$               15$                 345$              City Manager 1,565               1,663            1,725            1,563            1,760            2,273            2,085              2,399              1,842              1,960             City Attorney 2,028               2,300            2,653            2,598            2,390            2,653            2,575              2,621              953                 1,656             City Clerk 598                   808               770               945               900               1,241            1,098              1,369              803                 908                City Auditor 646                   668               764               843               838               1,379            2,053              2,601              138                 235                Administrative Services2 9,723               6,271            6,982            6,972            6,419            15,477          17,784            17,893            9,888              10,100           Human Resources 1,728               2,078            2,410            2,546            2,472            2,806            3,448              3,707              1,346              1,071             Public Works 13,702             14,460          16,400          17,596          16,645          18,565          21,270            18,658            19,357            14,568           Planning & Community Environment 7,485               8,898            10,162          9,931            12,929          16,388          12,940            12,114            15,031            12,074           Police 19,273             20,414          22,416          23,411          23,861          27,740          29,288            29,351            30,465            33,533           Fire 16,859             17,308          18,127          18,747          19,530          22,386          23,199            26,448            28,531            29,284           Community Services 19,633             20,864          17,240          17,296          15,729          17,736          19,862            17,171            22,845            21,915           Library ‐                          ‐                    4,835            5,323            5,347            6,321            6,244              6,143              6,920              7,323             Non‐departmental2 7,449               7,618            12,474          10,400          12,133           ‐                     ‐                         ‐                         ‐                         ‐                     Interest on long term debt 675                   635              693             512             477             438             404                370                 2,742            2,575           Total Governmental Activities Expenses 101,598           104,254        117,781        118,824        121,610        135,726        142,644          141,300          140,876          137,547         Business‐type Activities Water 13,237             16,047          14,969          15,881          16,794          18,842          20,271            21,037            24,268            29,093           Electric 73,744             73,545          73,051          91,570          99,294          108,032        122,268          107,910          100,130          102,030         Fiber Optics1 ‐                          ‐                     ‐                     ‐                     ‐                     ‐                    1,284              1,407              1,561              1,489             Gas 22,270             22,994          26,656          29,107          30,690          37,211          34,603            32,498            32,051            28,878           Wastewater Collection 8,712               9,203            8,907            11,005          10,085          12,023          14,875            10,696            12,275            14,825           Wastewater Treatment 14,312             14,868          17,457          16,747          15,901          18,902          36,896            13,466            19,731            20,712           Refuse 24,635             24,282          24,959          26,989          25,372          28,827          37,217            28,119            30,684            31,900           Storm Drainage 2,489               2,975            3,336            2,673            2,517            3,202            2,943              2,491              3,229              3,103             Airport ‐                          ‐                     ‐                     ‐                     ‐                     ‐                     ‐                         ‐                        31                    153                External Services 583                   688              760             868             767             984             ‐                      ‐                       ‐                     ‐                   Total Business‐type Activities Expenses 159,982           164,602        170,095        194,840        201,420        228,023        270,357          217,624          223,960          232,183         Total Primary Government Expenses 261,580$         268,856$     287,876$     313,664$     323,030$     363,749$     413,001$        358,924$        364,836$        369,730$      CITY OF PALO ALTO Changes in Net Assets Last Ten Fiscal Years (Accrual basis of accounting) (Amounts in thousands) Fiscal Year Ended June 30 134 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 NET (EXPENSE)/REVENUE Governmental Activities (71,074)$          (74,011)$      (88,054)$      (80,539)$      (83,055)$      (97,891)$      (105,255)$      (104,818)$      (100,066)$      (70,273)$       Business‐type Activities 27,728             26,916          25,549        46,065        30,908        25,293        5,413             45,192            45,482          39,416         Total Primary Government Net (Expense)/Revenue (43,346)$          (47,095)$      (62,505)$      (34,474)$      (52,147)$      (72,598)$      (99,842)$         (59,626)$         (54,584)$         (30,857)$       GENERAL REVENUES AND OTHER CHANGES IN NET ASSETS Governmental Activities Taxes Property tax 13,882$           13,707$        16,657$        18,731$        21,466$        23,084$        25,432$          25,981$          29,156$          30,104$         Sales tax 18,041             18,151          19,308          20,315          22,194          22,623          20,089            17,991            20,746            22,132           Utility user tax 7,067               7,152            7,269            8,759            9,356            10,285          11,030            11,295            10,851            10,834           Transient occupancy tax 5,333               5,489            5,686            6,393            6,709            7,976            7,111              6,858              8,082              9,664             Other taxes 7,275               8,493            5,580            7,033            6,293            6,261            3,364              4,055              8,156              8,173             Investment earnings 10,213             326               4,988            2,567            8,747            12,313          8,525              6,514              3,500              6,238             Rents and miscellaneous 15,333             10,165          12,997          10,440          13,670          11,896          15,682            12,729            12,377            14,943           Transfers 14,730             14,951          14,064        21,545        15,754        18,701        24,020           13,994            17,083          17,426         Total Governmental Activities 91,874             78,434          86,549          95,783          104,189        113,139        115,253          99,417            109,951          119,514         Business‐type Activities Investment earnings 13,583             387               8,093            3,631            11,910          16,416          14,103            10,769            5,722              7,605             Special item ‐                          ‐                    (21,500)          ‐                     ‐                     ‐                     ‐                         ‐                         ‐                         ‐                     Transfers (14,730)            (14,951)         (14,064)       (21,545)       (15,754)       (18,701)       (24,020)         (13,994)           (17,083)         (17,426)        Total Business‐type Activities (1,147)              (14,564)         (27,471)         (17,914)         (3,844)           (2,285)           (9,917)             (3,225)             (11,361)           (9,821)            Total Primary Government 90,727$           63,870$        59,078$        77,869$        100,345$     110,854$     105,336$        96,192$          98,590$          109,693$      CHANGE IN NET ASSETS Governmental Activities 20,800$           4,423$          (1,505)$         15,244$        21,134$        15,248$        9,998$            (5,401)$           9,885$            49,241$         Business‐type Activities 26,581             12,352          (1,922)         28,151        27,064        23,008        (4,504)            41,967            34,121          29,595         Total Primary Government Change in Net Assets 47,381$           16,775$        (3,427)$         43,395$        48,198$        38,256$        5,494$            36,566$          44,006$          78,836$         Notes:1Prior to 2009, Fiber Optics was included in Electric. 2Beginning in 2008, includes Non‐departmental expenses. Source: Annual Financial Statements, Statement of Activities   Fiscal Year Ended June 30 135 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 General Fund Nonspendable 3,303$      3,762$      3,931$      4,052$      5,002$      7,286$      6,476$      6,581$      6,085$      6,007$       Restricted ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  Committed ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  Assigned 6,386        2,973        3,401        3,914        6,855        4,851        6,100        7,295        6,235        6,400         Unassigned 56,618      60,087      24,498      26,251      27,551      30,278      30,648      27,581      31,859      29,616       Total General Fund 66,307$    66,822$    31,830$    34,217$    39,408$    42,415$    43,224$    41,457$    44,179$    42,023$     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 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 $ Th o u s a n d s Nonspendable Assigned Unassigned 136 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 All Other Governmental Funds Nonspendable ‐$                 ‐$                 ‐$                 ‐$                 ‐$                731$          1,308$       1,402$        1,422$       11,112$      Restricted 11,574       2,761         1,522         1,822         1,540         1,406         1,412         55,400        50,646       61,324         Committed 7,127         4,206         7,521         18,430       22,883       15,207       22,043       16,962        24,775       14,284         Assigned 40,606       36,117       57,336       46,723       41,684       44,116       36,629       38,538        20,114       33,264         Unassigned ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                   ‐                  ‐                    Total All Other Governmental Funds 59,307$    43,084$    66,379$    66,975$    66,107$    61,460$    61,392$    112,302$   96,957$    119,984$    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 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 $ Th o u s a n d s Nonspendable Restricted Committed Assigned 137 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Revenues Property tax 13,821$          13,707$      16,657$      18,731$      21,466$      23,084$      25,432$      25,981$          29,248$      30,216$       Sales tax 18,041            18,151         19,308         20,315         22,194         22,623         20,089         17,991             20,746         22,132          Other taxes and fines 23,194            25,311         22,037         25,840         26,215         27,385         24,843         25,063             27,890         29,231          Charges for services 16,798            16,018         17,159         18,672         19,929         19,610         19,837         19,775             22,311         46,273          From other agencies 3,776              4,661           2,757           5,931           3,448           4,300           5,984           3,035               1,614           1,116            Permits and licenses 3,161              2,563           3,183           4,305           4,711           4,761           4,033           4,408               5,433           7,136            Interest and rentals 19,981            11,480         14,968         13,776         17,750         20,507         19,183         19,045             16,553         18,583          Other revenue 5,095              1,681           4,269           4,058           7,503           4,713           6,223           4,724               8,624           12,739          Total Revenues 103,867          93,572         100,338      111,628      123,216      126,983      125,624      120,022          132,419      167,426       Expenditures Administration1 17,521            13,862         14,509       14,299       14,399       16,250       16,002        17,353             8,351         9,412          Public Works 9,858              8,031           9,060           9,036           9,256           10,072         10,064         9,787               11,317         11,304          Planning and Community Environment 7,721              8,793           9,692           9,292           11,874         9,861           10,462         9,480               10,309         11,966          Police 19,719            19,962         21,117         22,279         23,305         27,006         27,053         26,728             30,519         33,310          Fire 16,841            16,891         17,615         18,114         19,146         21,644         21,904         24,294             28,355         29,108          Community Services2 19,793            19,934         16,298       19,740       16,533       17,138       17,451        16,451             20,029       20,860        Library2 ‐                       ‐                  4,800         5,170         5,260         6,219         5,985          5,900               6,509         7,072          Non‐departmental 7,442              7,598           9,028           10,389         12,122         14,089         10,765         10,149             7,352           6,819            Special revenue and capital projects 33,584            22,289         21,317         13,243         17,478         21,626         21,485         22,006             35,486         29,154          Debt service ‐ principal payments 875                 780              785              810              850              885              800              840                  870              1,743            Debt service ‐interest and fiscal fees 696                 639              583              523              489              451              416              382                  1,815           2,757            Payment to bond refunding escrow ‐                      ‐                   ‐                   ‐                   ‐                   ‐                   ‐                   ‐                       ‐                   586               Total Expenditures 134,050          118,779      124,804      122,895      130,712      145,241      142,387      143,370          160,912      164,091       Excess (Deficiency) of Revenues Over (Under) Expenditures (30,183)           (25,207)       (24,466)       (11,267)       (7,496)         (18,258)       (16,763)       (23,348)           (28,493)       3,335            Other Financing Sources (Uses) Transfers in 31,402            28,632         60,429         26,640         27,701         33,437         39,903         34,835             30,323         47,200          Transfers out (16,603)           (19,133)       (46,622)       (12,390)       (15,882)       (16,819)       (22,399)       (21,415)           (14,352)       (29,782)        Other ‐                       ‐                    ‐                    ‐                    ‐                    ‐                    ‐                    ‐                       (101)              Contribution from assessment district 425                  ‐                    ‐                    ‐                    ‐                    ‐                    ‐                    ‐                        ‐                    ‐                    Proceeds from long term debt ‐                       ‐                    ‐                    ‐                    ‐                    ‐                    ‐                   59,071              ‐                   3,222            Payments to refund bond escrow ‐                      ‐                   (1,038)         ‐                   ‐                   ‐                   ‐                   ‐                       ‐                   (3,104)          Total Other Financing Sources (Uses)15,224            9,499           12,769         14,250         11,819         16,618         17,504         72,491             15,870         17,536          Net Change in Fund Balances (14,959)$        (15,708)$     (11,697)$     2,983$         4,323$         (1,640)$       741$            49,143$          (12,623)$     20,871$       Debt Service as a Percentage of Non‐Capital Expenditures 1.6% 1.5% 1.3% 1.2% 1.2% 1.1% 1.0% 1.0% 2.1% 3.3% Notes: 2Prior to 2005, Library was included in Community Services. 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. CITY OF PALO ALTO Change in Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts in thousands) Fiscal Year Ended June 30 138 Commercial and Fiscal Year Residential Industrial City of Palo Alto Total 2003 11,657$            55,353$                2,028$                      69,038$                  2004 12,245              54,881                  2,113                        69,239                    2005 13,009              56,683                  2,289                        71,981                    2006 14,973              67,389                  2,492                        84,854                    2007 15,150              68,214                  2,466                        85,830                    2008 16,109              72,632                  2,571                        91,312                    2009 17,939              83,710                  2,823                        104,472                  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                 529 Bryant Street LLC Technology City of Palo Alto Municipal Communications & Power Industries (CPI) Research Hewlett‐Packard Company Computer Space Systems/Loral Satellite & Satellite Systems Stanford Property Management Stanford Hospital & Clinics Hospital Varian Medical Systems, Inc. Manufacturing Veterans Admin Hospital Hospital VMware, Inc. Computer Number Kilowatt‐hour of Customers Sales (kWh)Revenue Residential 26,713              191,635,563        20,328$                    Commercial 2,449                 428,810,305        60,443                       Industrial 150                    236,814,330        25,452                       CPA/Other 215                    85,303,689          3,352                         Total 29,527              942,563,887      109,575$                 City of Palo Alto Power Purchase  Western Area Power Administration 42% Forward Market Purchases 24% Wind Energy contracts with PPM Energy, Inc. 12% Northern California Power Agency 11% Landfill Gas Energy 7% Short‐Term Market 4% Note: Source: City of Palo Alto, Utilities and Accounting Departments *The top ten customers accounted for approximately 37.45% of total kWh consumption (352,980,717 kWh)  and 33.79% of revenue ($37,064,825). The largest customer accounted for 8.83% of total kWh consumption  and 7.62% of revenue. The smallest customer accounted for 1% of total kWh consumption and 1% of revenue. Revenue includes all utilities (metered and non‐metered), revenue adjustments, and Primary Voltage discount.  Revenue does not include CEC surcharge, UUT, Solar and 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 Revenue* Customer (alphabetical order)Type of Business 139 The top ten customers total consumption is 850,951 CCF with revenue of $4,830,969. This amount accounts for approximately 16.81% of total consumption and 16.18% of revenue.  The largest customer (other than the City of Palo Alto) accounted for 3% of  consumption and 3% of revenue.  The smallest customer accounted for 1% of consumption and 1% of revenue. Note: Source: City of Palo Alto, Utilities Department CITY OF PALO ALTO Supplemental Disclosure for Water Utilities Fiscal Year 2012 Top Ten Largest Water Utility Customers (alphabetical order) City of Palo Alto Hewlett‐Packard Company VMware Inc. VI at Palo Alto This schedule is provided as required by the Continuing Disclosure Agreement for the City's Utility Revenue Bond and is not required by Governmental Accounting Standards Board (GASB).  Palo Alto Hills Golf & Country Club Palo Alto Unified School District Oak Creek Apartments Stanford Hospital & Clinics Stanford West Management Veterans Admin Hospital 140 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Net Local Secured Roll Land 6,140,438$         6,588,474$         7,075,300$         7,941,482$         8,725,485$         9,497,746$         10,420,139$       11,007,650$       11,011,160$       11,352,993$        Improvements 6,692,162           6,996,106           7,722,660           8,364,668           8,915,623           9,453,436           10,527,617         10,752,671         10,962,928         11,703,597          Personal property 309,386               195,859               220,585               174,666               213,154               228,875               303,688               288,148               241,280               257,436                13,141,986         13,780,439         15,018,545         16,480,816         17,854,262         19,180,057         21,251,444         22,048,469         22,215,368         23,314,026          Less: Exemptions net of state aid (951,807)             (1,196,546)          (1,402,039)          (1,595,871)          (1,639,856)          (1,797,327)          (1,871,292)          (1,809,119)          (1,757,241)          (2,346,728)           Total Net Local Secured Roll 12,190,179         12,583,893         13,616,506         14,884,945         16,214,406         17,382,730         19,380,152         20,239,350         20,458,127         20,967,298          Public utilities 3,859                   3,956                   4,150                   4,084                   3,923                   3,174                   2,573                   2,573                   2,573                   2,573                    Unsecured property 1,612,179           1,582,368           1,354,310           1,361,117           1,391,284           1,536,584           1,702,884           1,638,436           1,495,574           1,516,837            Total Assessed Value 13,806,217$       14,170,217$       14,974,966$       16,250,146$       17,609,613$       18,922,488$       21,085,609$       21,880,359$       21,956,274$       22,486,708$        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 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 $ Th o u s a n d s Total Assessed Value 141 Basic County Total County County Hospital City Library Santa Clara Direct and Fiscal Wide Retirement G.O. Bond G.O. Bond Valley Water School Community Overlapping Year Levy Levy (Measure A)1 (Measure N)2 District District College Rates 2003 1.00       0.0388           ‐                    ‐                    0.0072             0.0586        0.0108             1.12               2004 1.00       0.0388           ‐                    ‐                    0.0087             0.0666        0.0110             1.13               2005 1.00       0.0388           ‐                    ‐                    0.0092             0.0680        0.0129             1.13               2006 1.00       0.0388           ‐                    ‐                    0.0078             0.0526        0.0119             1.11               2007 1.00       0.0388           ‐                    ‐                    0.0072             0.0720        0.0346             1.15               2008 1.00       0.0388           ‐                    ‐                    0.0071             0.0702        0.0113             1.13               2009 1.00       0.0388           ‐                    ‐                    0.0061             0.0674        0.0123             1.12               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               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. 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 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Rate per $100 of Assessed Value 142 Fiscal Year Total Tax Percentage Collections in Percentage of Ended June 30 Levy1 for FY Amount of Levy Subsequent Years2 Amount Levy 2003 13,821$         13,821$       100%‐$                                13,821$     100% 2004 13,707            13,707         100%‐                                   13,707       100% 2005 16,657            16,657         100%‐                                   16,657       100% 2006 18,731            18,731         100%‐                                   18,731       100% 2007 21,466            21,466         100%‐                                   21,466       100% 2008 23,084            23,084         100%‐                                   23,084       100% 2009 25,432            25,432         100%‐                                   25,432       100% 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% 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. All prior delinquent taxes were also received in that fiscal year. 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 143 Taxable  Assessed Value Rank Percentage of  Total Taxable  Assessed Value Taxable  Assessed  Value Rank Percentage of  Total Taxable  Assessed Value Leland Stanford Jr. University 3,035,075$        1 13.5% 2,034,196$   1 15.5% Space Systems/Loral, Inc. 226,246              2 1.0% 255,731         2 1.9% Arden Realty Limited Partnership 112,472              3 0.5% Whisman Ventures, LLC 105,066              4 0.5% ECI 2 Bayshore, LLC / ECI Hamilton, LLC 73,901                5 0.3% Ronald & Ann Williams Charitable Foundation 58,804                6 0.3% Blackhawk Parent, LLC 50,196                7 0.2% 300 / 400 Hamilton Associates 41,433                8 0.2% Thoit Bros., Inc. 31,740                9 0.1% 529 Bryant St. 31,737                10 0.1% Agilent Technologies 82,038           3 0.6% Sun Microsystems, Inc.78,072           4 0.6% Harbor Investment Partners 59,186           5 0.5% Embarcadero Place Associates 49,250           6 0.4% Cowper‐Hamilton Associates 41,168           7 0.3% California Pacific Commercial Corp. 34,226           8 0.3% Pacific Hotel Development Venture LP 31,131           9 0.2% Embarcadero Bayshore Investors 31,093           10 0.2% Total 3,766,670$        16.7% 2,696,091$   20.5% Total City Taxable Assessed Value: FY 2012 22,486,708$       FY 2003 13,141,986$       Source: County of Santa Clara; data compiled by Hunt Consulting, LLC Fiscal Year 2012 Fiscal Year 2003 Taxpayer CITY OF PALO ALTO Principal Property Taxpayers Current Year and Nine Years Ago (Amounts in thousands) 144 2011‐2012 No. of Assessed % of No. of % of Taxable % of Valuation1 Total Parcels Total Parcels Total Non‐Residential: Agricultural/forest 35,335,945$           0.17 % 50           0.25 % 34           0.17 % Commercial 1,130,031,385        5.39 471        2.32 465        2.31 Professional/office 2,516,156,240        12.00 496        2.44 474        2.35 Industrial/research & development 1,961,860,451        9.36 192        0.95 187        0.93 Recreational 32,558,018             0.16 15           0.07 12           0.06 Government/social/institutional 230,486,654           1.10 103        0.51 40           0.20 Miscellaneous 9,790,872                0.05 21         0.10 20          0.10 Subtotal Non‐Residential 5,916,219,565$      28.22 % 1,348     6.64 % 1,232     6.12 % Residential: Single family residence 11,969,379,972$   57.09 % 14,916   73.50 % 14,889   73.95 % Condominium/townhouse 1,542,232,765        7.36 2,764     13.62 2,759     13.70 2‐4 Residential units 340,348,321           1.62 523        2.58 523        2.60 5+ Residential units 1,050,912,445        5.01 332        1.64 307        1.52 Mobile home 69,416                    0.00 7           0.03 7            0.03 Subtotal Residential 14,902,942,919$   71.08 % 18,542   91.37 % 18,485   91.81 % Vacant Parcels 148,135,184$         0.71 % 403        1.99 % 417        2.07 % Total 20,967,297,668$   100       % 20,293   100        % 20,134   100 % Notes: This schedule is provided as required by the Continuing Disclosure Agreement for the City's Series 2010A General Obligation Bond 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, 2012 145 No. of Taxable Average Parcels1 Assessed Valuation Single Family Residential 14,889 $803,908 No. of % of Cumulative % of Cumulative Taxable Total % of Total Total Total % of Total Parcels1 Parcels Parcels Valuation Valuation Valuation 1,950       13.10    13.10           148,603,010$            1.24         1.24              1,957       13.14  26.24         269,755,993            2.25         3.50             998          6.70       32.94           249,756,101              2.09         5.58              829          5.57       38.51           290,578,648              2.43         8.01              846          5.68       44.19           382,411,765              3.19         11.20            843          5.66       49.86           464,061,669              3.88         15.08            737          4.95       54.81           479,782,639              4.01         19.09            679          4.56       59.37           509,862,657              4.26         23.35            792          5.32       64.69           673,658,430              5.63         28.98            783          5.26       69.94           744,073,696              6.22         35.19            700          4.70       74.65           733,320,880              6.13         41.32            510          3.43       78.07           586,775,917              4.90         46.22            467          3.14       81.21           582,154,595              4.86         51.09            382          2.57       83.77           514,563,580              4.30         55.39            356          2.39       86.16           514,840,345              4.30         59.69            285          1.91       88.08           440,908,304              3.68         63.37            276          1.85       89.93           455,100,960              3.80         67.17            198          1.33       91.26           346,158,183              2.89         70.07            168          1.13       92.39           310,346,564              2.59         72.66            160          1.07       93.46           311,367,708              2.60         75.26            973          6.54     100.00      2,961,298,328         24.74       100.00        14,889     100.00  11,969,379,972$       100.00      Notes: Source: California Municipal Statistics, Inc. This schedule is provided as required by the Continuing Disclosure Agreement for the City's Series  2010A General Obligation Bond 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 $11,969,379,972 $601,768 2011‐2012 Assessed Valuation $0‐99,999 $100,000‐199,999 $200,000‐299,999 $300,000‐399,999 $400,000‐499,999 $500,000‐599,999 Assessed Valuation Assessed Valuation CITY OF PALO ALTO Per Parcel Assessed Valuation of Single Family Residential As of June 30, 2012 2011‐2012 Median 146 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 12,905$ 12,215$ 10,625$ 9,915$    9,175$    8,405$    7,605$    6,765$       5,895$       1,685$        ‐                ‐                ‐                ‐                ‐                ‐                ‐               55,305       55,305       54,540        510         420         325         225         115          ‐                ‐                ‐                   ‐                   ‐                   57            25             ‐                ‐                ‐                ‐                ‐                ‐                   ‐                   ‐                   2011 Lease‐Purchase Agreement ‐                ‐                ‐                ‐                ‐                ‐                ‐                ‐                   ‐                  2,764          Add: unamortized premium ‐                ‐                ‐                ‐                ‐               3,766         3,640         3,514          ‐               ‐               ‐               ‐               ‐               ‐               ‐               (571)           ‐                  ‐                   13,472    12,660    10,950    10,140    9,290      8,405      7,605      65,265       64,840       62,503        47,410    46,100    44,735    43,325    41,859    40,334    38,744    72,104       69,551       65,879        Energy Tax Credits 1,400      1,300      1,200         1,100         1,000          State Water Resources Loan 5,629      9,000      13,080       16,696       15,900        (1,341)     (1,238)     (1,137)     (1,037)     (972)        (1,053)     (2,479)     (2,737)        (229)           580              46,069    44,862    43,598    42,288    40,887    46,310    46,565    83,647       87,118       83,359        Outstanding Debt 59,541$ 57,522$ 54,548$52,428$50,177$54,715$54,170$148,912$  151,958$  145,862$  2.19% 2.11% 1.89% 1.69% 1.51% 1.53% 1.50% 4.30% 4.00% 3.57% Population 60,465    60,246    61,674    62,148    62,615    63,367    64,484    65,408       64,417       65,544        0.98$      0.95$      0.88$      0.84$      0.80$      0.86$      0.84$      2.28$         2.36$         2.23$          Notes: Sources: State of California, Department of Finance (population) California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income) Annual Financial Statements, Note 7 General Long‐Term Obligations and Note 8 Special Assessment Debt 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 Special Assessment Debt Capital Lease Obligations 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 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 $ Th o u s a n d s Total Governmental Activities Total Business‐type Activities 147 2011‐2012 Assessed Valuation 22,486,707,664$      Percentage Amount Applicable Applicable Total Debt to City of to City of Outstanding Palo Alto1 Palo Alto Santa Clara County 316,800,000$           8.38% 26,544,672$              Foothill‐DeAnza Community College District 628,424,288             23.61% 148,352,122              Palo Alto Unified School District 221,669,249             89.17% 197,662,469              Fremont Union High School District 260,605,108             0.02% 62,545                        Los Gatos Joint Union High School District 51,160,000               0.01% 5,628                           Mountain View‐Los Altos Union High School District 47,971,663               1.02% 488,831                      Cupertino Union School District 120,672,535             0.04% 48,269                        Los Altos School District 83,603,480               1.04% 871,148                      Saratoga Union School District 45,413,558               0.02% 10,445                        Whisman School District 17,964,376               3.59% 645,280                      City of Palo Alto 54,540,000               100% 54,540,000                El Camino Hospital District 142,280,000           0.10% 138,012                    City of Palo Alto Special Assessment Bonds 31,750,000             100% 31,750,000              Santa Clara Valley Water District Benefit Assessment District 133,440,000           8.38% 11,180,938              Total Direct and Overlapping Tax and Assessment Debt 472,300,359            786,980,000             8.208% 64,597,649                           386,024,822 8.31%               32,094,488                 12,580,000 7.69%                     966,937                 21,215,000 21.02%                 4,459,362                   9,650,000 0.01%                             998                   6,115,000 0.95%                       58,185                   6,110,000 0.02%                         1,341  City of Palo Alto Certificates of Participation                  1,685,000 100%                 1,685,000                   3,800,000 8.00%                     304,158  Midpeninsula Regional Open Space Park District General Fund Obligations 131,003,031           14.65%               19,191,211               123,359,329  $           595,659,688  Ratio to  Assessed Valuation Total Direct Debt 0.25% 56,225,000$              Total Overlapping Debt 2.40%539,434,688              Total Direct and Overlapping Debt 2.65%595,659,688$           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. Santa Clara County Vector Control District Certificates of Participation Total Direct and Overlapping General Fund Debt Total Combined Debt 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 Santa Clara County General Fund Obligations CITY OF PALO ALTO Computation of Direct and Overlapping Debt As of June 30, 2012 Direct and Overlapping Tax and Assessment Debt Direct and Overlapping General Fund Debt 148 Assessed  Valuation: Secured property assessed value, net of exempt real property 22,486,708$              Bonded Debt Limit (3.75% of Assessed Value) 1 843,252                       Direct Debt: Certificates of Participation 1,685                         General Obligation bonds 54,540                       Total Direct Debt 56,225                       Less: Amount of Debt Not Subject to Limit 2 1,685                           Total Net Debt Applicable to Limit 54,540                        Legal Bonded Debt Margin 788,712$                     Ratio of Net Debt Total Bonded Total Net Debt Legal Total Net Debt to Assessed Value Fiscal Assessed Debt Limit Applicable to Bonded Debt Applicable to the of Taxable  Year Value (AV)(3.75% of AV)Limit Margin Debt as a %Property 2003 13,776,406$       516,615$              ‐$                         516,615$                  0.00%‐                        2004 14,974,966         561,561                ‐                          561,561                    0.00%‐                        2005 16,250,066         609,378                ‐                          609,378                    0.00%‐                        2006 16,250,066         609,377                ‐                          609,377                    0.00%‐                        2007 17,609,613         660,360                ‐                          660,360                    0.00%‐                        2008 18,922,488         709,593                ‐                          709,593                    0.00%‐                        2009 21,085,609         790,710                ‐                          790,710                    0.00%‐                        2010 21,880,359         820,513               55,305               765,208                    6.74% 0.0025                      2011 21,956,274         823,360               55,305               768,055                    6.72% 0.0025                      2012 22,486,708         843,252               54,540               788,712                    6.47% 0.0024                      Notes: Source:Annual Financial Statements, Assessed Value of Taxable Property and Note 7 General Long‐Term  Obligations CITY OF PALO ALTO Computation of Legal Bonded Debt Margin As of June 30, 2012 (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. 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. 149 Less: Net Revenue Fiscal Gross Direct Operating Available for Year Revenue Expenses2 Debt Service Principal Interest Total Coverage Ratio 2003 165,414$     116,268$              49,146$                1,255$          2,354$          3,609$          13.62                  2004 169,047       121,988                47,059                   1,310            2,307            3,617            13.01                  2005 171,493       147,123                24,370                   1,365            2,257            3,622            6.73                     2006 214,944       144,465                70,479                   1,410            2,203            3,613            19.51                  2007 205,258       164,340                40,918                   1,465            2,147            3,612            11.33                  2008 222,799       186,285                36,514                   1,525            2,088            3,613            10.11                  2009 246,028       195,489                50,539                   1,590            2,024            3,614            13.98                  2010 233,774       187,658                46,116                   1,755            1,954            3,709            12.43                  2011 237,600       168,328                69,272                   2,655            3,261            5,916            11.71                  2012 235,160       170,525                64,635                   2,945            2,959            5,904            10.95                  Notes:1Airport, Refuse and Fiber Optics funds have no debt and are therefore excluded from this schedule. 2Excludes depreciation and amortization expense. 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 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 $ Th o u s a n d s Net Revenue Available for Debt Service Total Debt Service 150 Fiscal Year 2003 2,316$           2,172$          2,094$      1,455$        1,114$     375$          388$          171$       2,811$       4,834$      17,730$     2004 2,425             2,168            1,958         1,479          1,186       351            437            168         3,698         3,997        17,867        2005 2,621             2,206            1,966         1,176          1,310       356            533            317         3,590         5,139        19,214        2006 2,664             2,306            2,062         1,168          1,346       370            595            392         4,244         5,042        20,189        2007 2,751             2,486            1,954         1,109          1,485       374            602            203         5,075         5,185        21,224        2008 2,685             2,566            1,731         1,685          1,497       349            622            405         4,682         5,066        21,288        2009 2,251             2,443            1,358         1,431          1,258       315            493            214         4,284         5,277        19,324        2010 2,215             2,418            1,288         1,402          1,254       343            549            219         4,458         4,268        18,414        2011 2,374             2,621            1,474         1,564          1,292       381            630            242         4,873         4,848        20,299        2012 2,445             2,937            1,758         1,590          1,492       387            722            257         5,049         5,276        21,913        Source: California State Board of Equalization, compiled by MuniServices LLC Sales Tax Rates for the Fiscal Year ended June 30, 2012 State Funds 6.00% Local (County/City): County Transportation Funds 0.25% City Operations (Palo Alto) 1.00% Special District Tax Rate: Santa Clara County Transit District (SCCT) 0.50% Santa Clara County Valley Transportation Authority (SCVT) 0.50% 8.25% Source: California State Board of Equalization Note: Effective July 1, 2012, the sales tax rate increased to 8.375% as a result of the Santa Clara VTA BART Operating and  Maintenance Transactions and Use Tax (.125%). Food  Markets Service  Stations Drug  Stores Other  Retail All Other Apparel  Stores Total CITY OF PALO ALTO Taxable Transactions by Type of Business Last Ten Fiscal Years (Amounts in thousands) ECONOMIC SEGMENT Department  Stores Restaurants Auto Sales Furniture/  Appliance Department Stores 11% Restaurants 14% Auto Sales 8% Furniture/Appliance 7% Apparel Stores 7% Food Markets 2% Service Stations 3% Drug Stores 1% Other Retail 23% All Other 24% Fiscal Year 2012 151 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) 2003 60,465                     4.1% 10,151                   1,729,917                  3.50% 77,900,000$         45,031$                     2004 60,246                     3.2% 10,341                   1,731,422                  3.48% 78,500,000            45,338                       2005 61,674                     2.8% 10,527                   1,759,585                  3.51% 82,300,000            46,772                       2006 62,148                     2.5% 10,607                   1,773,258                  3.50% 88,300,000            49,795                       2007 62,615                     2.6% 11,056                   1,808,056                  3.46% 96,100,000            53,151                       2008 63,367                     3.5% 11,329                   1,837,075                  3.45% 103,500,000         56,340                       2009 64,484                     6.5% 11,329                   1,857,621                  3.47% 103,700,000         55,824                       2010 65,408                     6.2% 11,565                   1,880,876                  3.48% 99,500,000            52,901                       2011 64,417                     5.3% 12,024                   1,781,427                  3.62% 105,000,000         58,942                       2012 65,544                     4.7% 12,286                   1,816,486                  3.61% 113,200,000         62,318                      * Note: Data on personal income and per capita personal income is only available for Santa Clara County. Source: California State Department of Finance (population) State Employment Development Office (unemployment rate) Palo Alto Unified School District (school enrollment) * California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income) CITY OF PALO ALTO Demographic and Economic Statistics Last Ten Fiscal Years  60,000  61,000  62,000  63,000  64,000  65,000  66,000 City Population  10,000  10,500  11,000  11,500  12,000  12,500 School Enrollment 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%City Unemployment Rate 152 Number of  Employees Rank Percentage of  Total City  Employment Number of  Employees Rank Percentage of  Total City  Employment Stanford University 10,680         1 9.7% 9,821           1 7.0% Stanford University Medical Center/Hospital 5,059           2 4.6% 5,025           2 3.6% Lucile Packard Children's Hospital 4,750           3 4.3% 3,326           4 2.4% Veteran's Affairs Palo Alto Health Care System 3,500           4 3.2% 3,500           3 2.5% Hewlett‐Packard Company 2,201           5 2.0% 2,001           5 1.4% Palo Alto Medical Foundation 2,200           6 2.0% 2,000           6 1.4% Space Systems/Loral 1,870           7 1.7% 1,700           7 1.2% Wilson Sonsini Goodrich & Rosati 1,650           8 1.5% 1,500           8 1.1% Palo Alto Unified School District 1,362           9 1.2% 1,304           9 0.9% City of Palo Alto 1,017           10 0.7% 1,074           10 0.8% Total 34,289         31.0% 31,251         22.3% Total City Day Population: FY 2012 110,000        FY 2008 140,000        Notes: Source:   While unable to confirm the number of Palo Alto‐based employees at SAP and VMware, Inc., Business Journal's Book of Lists dated  December 2011, reports 2,100 employees at SAP and 2,806 employees at VMware, Inc. in Silicon Valley. SAP North America's  headquarters is in Newton Square, PA while VMware's world headquarters is in Palo Alto. 1Comparable data was not available until FY 2008.  AtoZdatabases, http://facts.stanford.edu/governance.html, http://facts.stanford.edu/hospital.html, www.lpch.org/aboutus/, Palo Alto  Unified School District 2011‐12 Budget, The City of Palo Alto, A Report to Our Citizens, Business Journal Annual Book of Lists. CITY OF PALO ALTO Principal Employers Current Year and Four Years Ago FY 2012 FY 20081 Employer 153 2002 2003 2004 2005 Governmental activities Community Services Number of theater performances 187                         173                         175                         172                          Total hours of athletic field usage2 ‐                             ‐                              ‐                             65,748                  Number of rounds of golf 89,450                   87,892                   83,728                   78,410                    Enrollment in recreation classes2 ‐                            16,281                 16,435                   15,127                  Planning and Community Environment Planning applications completed 272                         324                         409                         327                          Building permits issued 3,241                     3,151                     3,236                     3,081                      Green Building permit applications processed3 ‐                             ‐                              ‐                              ‐                             Caltrain average weekday boarding 3,241                     2,906                     2,825                     3,264                      Police Calls for service 57,292                   53,143                   52,489                   52,233                    Total arrests 3,153                     2,851                     2,577                     2,134                      Parking citations issued 55,437                   52,422                   47,860                   52,235                    Animal Services Number of service calls 2,803                     3,545                     3,575                     4,994                      Number of sheltered animals 3,614                     3,849                     3,780                     3,514                      Fire Calls for service 7,071                     6,636                     6,675                     6,414                      Number of fire incidents 285                         260                         248                         224                          Number of fire inspections 1,465                     1,349                     793                         1,488                      Library  Total number of cardholders 45,112                   49,448                   50,171                   52,001                    Total number of items in collection 284,071                 267,356                 267,693                 264,511                  Total circulation 1,117,795              1,240,099              1,314,790              1,282,888               Public Works Street resurfacing (lane miles) 17                           17                           17                           20                            Number of potholes repaired 2,220                     2,943                     2,907                     3,221                      Sq. ft. of sidewalk replaced or permanently repaired 94,487                   101,410                 115,352                 132,430                  Number of trees planted 295                         322                         242                         164                          Total tons of waste landfilled 67,664                   65,170                   61,266                   60,777                    Tons of materials recycled 43,311                   48,062                   49,268                   50,311                    Business‐type activities Electric Number of customer accounts 28,348                   28,408                   28,482                   28,556                    Residential MWH consumed 150,525                 153,783                 158,099                 161,440                  Gas Number of customer accounts 23,116                   23,169                   23,216                   23,301                    Residential therms consumed 12,497,401            11,875,753            11,700,335            12,299,158             Water Number of customer accounts 19,437                   19,487                   19,557                   19,605                    Residential water consumption (CCF) 2,915,487              2,844,916              3,000,645              2,686,507               Wastewater collection Number of customer accounts 21,772                   21,819                   21,830                   21,763                    Millions of gallons processed 8,699                     8,704                     8,238                     8,497                      Notes: 2Some data not available. Source: City of Palo Alto Service Efforts and Accomplishments Report  FUNCTIONS/PROGRAMS CITY OF PALO ALTO Last Ten Fiscal Years1 Operating Indicators by Function/Program 1Ten most recent years available. 3In FY 2009, a new Green Building Program was established under the City's Green Building Ordinance to build a new generation of  efficient buildings in Palo Alto that are environmentally responsible and healthy places in which to live and work. Fiscal Year Ended June 30 154 2006 2007 2008 2009 2010 2011 183                         171                         166                         159                         174                         175                          65,791                   70,769                   63,212                   45,762                   41,705                   42,687                    76,000                   76,241                   74,630                   72,170                   69,791                   67,381                    14,768                   14,460                   13,851                   13,091                   12,880                   12,310                    390                         299                         257                         273                         226                         238                          3,081                     3,136                     3,046                     2,543                     2,847                     3,559                      ‐                               ‐                               ‐                              341                         556                         961                          3,882                     4,132                     4,589                     4,863                     4,796                     5,501                      57,017                   60,079                   58,742                   53,275                   55,860                   52,159                    2,530                     3,059                     3,253                     2,612                     2,451                     2,288                      56,502                   57,222                   50,706                   49,996                   42,591                   40,426                    2,861                     2,990                     3,059                     2,873                     2,692                     2,804                      3,839                     3,578                     3,532                     3,422                     3,147                     3,323                      6,897                     7,236                     7,723                     7,549                     7,468                     7,555                      211                         221                         192                         239                         182                         165                          899                         1,021                     1,277                     1,028                     1,526                     1,807                      55,909                   53,099                   53,740                   54,878                   51,969                   53,246                    260,468                 270,755                 279,403                 293,735                 298,667                 314,154                  1,280,547              1,414,509              1,542,116              1,633,955              1,624,785              1,476,648               20                           32                           27                           23                           32                           29                            2,311                     1,188                     1,977                     3,727                     3,149                     2,986                      126,574                 94,620                   83,827                   56,909                   54,602                   71,174                    263                         164                         188                         250                         201                         150                          59,276                   59,938                   61,866                   68,228                   48,955                   38,524                    56,013                   56,837                   52,196                   49,911                   48,811                   56,586                    28,653                   28,684                   29,024                   28,527                   29,430                   29,708                    161,202                 162,405                 162,680                 159,899                 163,098                 160,318                  23,353                   23,357                   23,502                   23,090                   23,724                   23,816                    11,745,883            11,759,842            11,969,151            11,003,088            11,394,712            11,476,609             19,645                   19,726                   19,942                   19,442                   20,134                   20,248                    2,647,758              2,807,477              2,746,980              2,566,962              2,415,467              2,442,415               21,784                   21,789                   21,970                   21,210                   22,231                   22,320                    8,972                     8,853                     8,510                     7,958                     8,184                     8,652                      Fiscal Year Ended June 30 155 2003 2004 2005 2006 FUNCTION/PROGRAM Public Safety Fire: Fire Stations 8              8              8               8                Fire Apparatus 22            23            25             25              Police: Police Stations 1              1              1               1                Police Patrol Vehicles 33            30            30             30              Community Services Acres ‐ Downtown/Urban Parks 170          170          170          170            Acres ‐ Open Space 3,731       3,731       3,731       3,731         Parks and Preserves 34            34            35             35              Golf Course 1              1              1               1                Tennis Courts 52            52            52             52              Athletic Center 1              1              1               1                Community Centers 4              4              4               4                Theaters 3              3              3               3                Cultural Center/Art Center 1              1              1               1                Junior Museum and Zoo 1              1              1               1                Swimming Pools 1              1              1               1                Nature Center 2              2              2               2                Libraries Libraries 6              5              5               5                Public Works: Number of Trees Maintained 34,939    35,440    35,096    34,841       Electric Utility1 Miles of Overhead Lines 227          227          225          217            Miles of Underground Lines 186          186          188          210            Water Utility Miles of Water Mains 226          226          226          217            Gas Utility Miles of Gas Mains 207          207          207          207            Waste Water Miles of Sanitary Sewer Lines 202          202          202          202            Note: Source: City of Palo Alto 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 in FY 11/12 are more accurate than  the distances reported in previous years. CITY OF PALO ALTO Capital Asset Statistics by Function/Program Last Ten Fiscal Years  Fiscal Year Ended June 30 156 2007 2008 2009 2010 2011 2012 8                8                8              8              8              7                25              23              28            28            27            29              1                1                1              1              1              1                30              30              30            30            30            30              157            157            157          157          157          157             3,744         3,744         3,744       3,744       3,744       3,744          36              36              36            36            36            36              1                1                1              1              1              1                51              51              51            51            51            51              4                4                4              4              4              4                4                4                4              4              4              4                3                3                3              3              3              3                1                1                1              1              1              1                1                1                1              1              1              1                1                1                1              1              1              1                3                3                3              3              3              3                5                5                5              5              5              5                34,556      35,322      35,255    35,289    35,241    35,138       194            193            193          193          193          223             252            253            253          253          253          245             217            217            214          214          214          234             207            207            207          205          205          210             202            202            207          207          207          217             Fiscal Year Ended June 30 157 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Governmental Funds       General Fund: Administrative 145     101     96        97       99        99        98        89        83        83         Community Services 153     145     98        99       97        96        97        94        75        74         Fire 133     129     126      127     127      127      127      123      121      122       Library1 ‐           ‐          44        44       44        44        44        42        41        41         Planning and Community Environment 59       55       53        53       53        53        53        49        45        43         Police 178     171     165      164     163      163      164      162      157      157       Public Works2 94       76       68        68       68        68        69        64        59        56         Subtotal General Fund 761     676     650      652     651      650      651      623      580      576       All Other Funds: Capital Projects Fund ‐          13       20        20       20        20        21        25        24        24         Special Revenue Fund ‐          1          1          1          1          1          1          1          2          2           Total Governmental Funds 761     690     672      674     672      671      673      648      605      603       Enterprise Funds Public Works3 110     111     113      113     113      113      114      115      115      115       Utilities4 230     234     234      236     235      235      238      242      251      251       External Services5 7          6          6          6          6          6          ‐           ‐           ‐           ‐            Total Enterprise Funds 347     351     353      355     353      353      352      356      366      366       Internal Service Funds Printing and Mailing 4          4          5          5          5          4          4          4          2          2           Technology ‐          33       30        30       30        30        31        31        30        30         Vehicle Replacement 15       16       16        16       16        16        16        16        16        16         Total Internal Service Funds 19       53       50        50       51        50        51        51        48        48         Total 1,127 1,094 1,074 1,079 1,076 1,074 1,076 1,055  1,019  1,017 Note:1Library became its own entity effective 2005. Prior to 2005, Library was part of Community Services. 2Fleet and Facilities Management 3Refuse, Storm Drainage, Wastewater Treatment Source: City of Palo Alto ‐ Fiscal Year 2012 Adopted Operating Budget 5 Effective in 2009, External Services was dissolved. 5 FTEs were eliminated and 1 FTE was transferred to the Technology  Fund. CITY OF PALO ALTO Full‐Time Equivalent City Government Employees by Function Last Ten Fiscal Years Full Time Equivalent Employees as of June 30 4Electric, Gas, Wastewater Collection, Water 0 200 400 600 800 1,000 1,200 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Fu l l  Ti m e  Eq u i v a l e n t s Governmental Funds Enterprise Funds Internal Service Funds 158 CITY OF PALO ALTO  Index to the Single Audit Report  For the Year Ended June 30, 2012  159   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 ....................................... 161    Independent Auditor’s Report on Compliance with Requirements that Could      Have a Direct and Material Effect on Each Major Program and on Internal Control      Over Compliance in Accordance with OMB Circular A‐133 ................................................................... 163    Schedule of Expenditures of Federal Awards ........................................................................................... 165    Notes to the Schedule of Expenditures of Federal Awards ...................................................................... 166    Schedule of Findings and Questioned Costs ............................................................................................. 167    Schedule of Prior Audit Findings and Questioned Costs ........................................................................... 170  160                                                  This page intentionally left blank.    161  Honorable Mayor and the Members Of the City Council of City of Palo Alto, California 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 We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of City of Palo Alto, California (City), as of and for the year ended June 30, 2012, which collectively comprise City’s basic financial statements and have issued our report thereon dated November 26, 2012. 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. Internal Control Over Financial Reporting Management of City is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the City’s internal control over financial reporting as a basis for designing our auditing procedures 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 over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over financial reporting. 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. Our consideration of internal control over financial reporting 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 financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined previously. Compliance and Other Matters As part of obtaining reasonable assurance about whether City’s financial statements are free of 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 162  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. This report is intended solely for the information and use of the Mayor and City Council, management, others within the entity, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Walnut Creek, California November 26, 2012   163  Honorable Mayor and the Members Of the City Council of City of Palo Alto, California INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Compliance We have audited the compliance of the City of Palo Alto, California (City) with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on the City’s major federal program for the year ended June 30, 2012. The City’s major federal program is identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to its major federal program is the responsibility of City’s management. Our responsibility is to express an opinion on City’s compliance based on our audit. 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 OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 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 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. Our audit does not provide a legal determination of City’s compliance with those requirements. In our opinion, the City complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended June 30, 2012. However, the results of our auditing procedures disclosed instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule of findings and questioned costs as item 2012-1. Internal Control Over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the City’s internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for thepurpose 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. 164  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 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. 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 deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, we identified a certain deficiency in internal control over compliance that we consider to be a significant deficiency as described in the accompanying schedule of findings and questioned costs as item 2012-1. 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. The City’s response to the finding identified in our audit is described in the accompanying schedule of findings and questioned costs. We did not audit the City’s response and, accordingly, we express no opinion on the response. This report is intended solely for the information and use of the Mayor and City Council, management, others within the entity, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Walnut Creek, California November 26, 2012 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‐10‐MC‐06‐0020 14.218 882,196$              748,885$               U.S. Department of Interior Direct ARRA ‐ Water Reclamation and Reuse Program R10AP20003 15.504 209,547                 ‐                          U.S. Department of Justice Direct ARRA ‐ Edward Bryne Memorial Justices Assistance Grant (JAG)  To Units of Local Government 2009‐FY118‐CA‐SB 16.804 6,807                      ‐                          U.S. Department of Transportation Pass‐through from State of California Department of Transportation ARRA ‐ Highway Planning and Construction HSIPL 5100015 20.205 138,033                 ‐                          ARRA ‐ Highway Planning and Construction 5100‐017 20.205 2,004                      ‐                          Total Highway Planning and Construction 140,037                 ‐                          Institute of Museum and Library Services Direct Conservation Project Support IC‐21‐11‐0124‐11 45.303 3,000                      ‐                          Pass‐through from California State Library  Grants to States LS‐00‐11‐0005‐11 45.310 1,000                      ‐                          Total Institute of Museum and Library Services 4,000                      ‐                          U.S. Department of Energy Direct ARRA ‐ Energy Efficiency and Conservation Block Grant DE‐SC0002146 81.128 35,644                    ‐                          U.S. Department of Homeland Security Pass‐through from City and County of San Francisco Homeland Security Grant Program None 97.067 13,500                    ‐                          Pass‐through from County of Santa Clara State Homeland Security Grant 2008‐0006 97.073 25,000                    ‐                          Total U.S. Department of Homeland Security 38,500                    ‐                          TOTAL FEDERAL FINANCIAL AWARDS 1,316,731$           748,885$               CITY OF PALO ALTO Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2012 See Notes to Schedule of Expenditures of Federal Awards 165 CITY OF PALO ALTO  Notes to the Schedule of Expenditures of Federal Awards  For the Year Ended June 30, 2012 166  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, and its component units 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 basis of accounting. Expenditures of federal awards reported on the  Schedule are recognized when incurred.         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, 2012  167  Section I ‐ Summary of Auditor’s Results    Financial Statements  Type of auditor’s report issued on the   basic financial statements of the City:    Unqualified  Internal control over financial reporting:    Material weakness(es) identified? No   Significant deficiency(ies) identified that are not  considered to be material weaknesses?    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 that are not  considered to be material weaknesses?    yes  Type of auditor’s report issued on compliance for  major programs:    Unqualified  Any audit findings disclosed that are required to be  reported in accordance with section 510(a) of OMB  Circular A‐133?    Yes  Identification of Major Program: 14.218 CDBG – Entitlement Grants Cluster    Dollar threshold used to distinguish between type A  and type B programs:      $300,000  Auditee qualified as a low‐risk auditee? No    Section II – Financial Statement Findings    None noted in current year.       CITY OF PALO ALTO  Schedule of Findings and Questioned Costs (Continued)  For the Year Ended June 30, 2012  168  Section III ‐ Federal Award Findings and Questioned Costs    Reference Number:      2012‐1  Federal Program Title:     CDBG – Entitlement Grants Cluster  Federal Catalog Number:  14.218  Federal Agency:     U.S. Department of Housing and Urban Development  Pass‐Through Entity:    N/A  Federal Award Number and Year: B‐11‐MC‐06‐0020 and 2011‐2012  Category of Finding:    Reporting    Criteria:  Under the Federal Funding Accountability and Transparency Act (FFATA), all prime grant recipients  awarded a new federal grant greater than or equal to $25,000 as of October 1, 2010, are subject to  FFATA sub‐award reporting requirements, as outlined in the Office of Management and Budget guidance  issued August 27, 2010.  The prime grant recipient is required to file a FFATA sub‐award report by the  end of the month following the month in which the prime grant recipient awards any sub‐grant greater  than or equal $25,000.  During the FY2012, the City, as prime grant recipient of the CDBG entitlement  grant from HUD, sub‐granted funding to various subrecipients with a total contract amount of $1.2  million.  Actual allowable costs reimbursed to subrecipients were $748,885 for eight sub‐grantees.  Out  of the eight sub‐awards with federal expenditures, six of them were in amounts individually greater than  $25,000 and, accordingly, subject to the reporting requirements under the FFATA.  The total  expenditures of the six sub‐awards not reported under the FFATA were in the amount of $733,885.    Condition:  The City did not report the sub‐award information related to the 6 sub‐grantees to the FFATA Sub‐award  Reporting System (FSRS) during FY2012.     Cause:  The City was unaware of the FFATA reporting requirement, which became applicable to the sub‐grants  awarded during FY2012.     Effect:  The City is not in compliance with the FFATA reporting requirements.     Questioned Costs:  N/A – although the sub‐grants were not reported, they are expenditures passed to the sub‐grants for  allowable activities.     CITY OF PALO ALTO  Schedule of Findings and Questioned Costs (Continued)  For the Year Ended June 30, 2012  169  Section III ‐ Federal Award Findings and Questioned Costs (Continued)    Recommendation:   We recommend the City to review the compliance supplements updates annually to ensure all new  compliance requirements are considered and performed. The information is available to the public on  the website of Office of Management and Budget, which is updated annually.  The supplements detail  the existing and new compliance requirements by federal grant program. The City should review the  supplements prior to the new fiscal year starts and discuss with HUD contact for any questions.     Management Response and Corrective Action Plan:   Due to Staff changes, the City was not aware that the FFATA reporting was required.  Staff has obtained  the necessary approvals for the FFATA Sub‐award Reporting System and will begin to enter information  for the applicable sub‐grants awarded.  In addition, City Staff will continue to closely monitor changes in  compliance requirements and review the supplements prior to the start of the new fiscal year. CITY OF PALO ALTO  Schedule of Prior Audit Findings and Questioned Costs  For the Year Ended June 30, 2012      170  Schedule of Prior Year Findings and Questioned Costs    Finding #SA 2011‐1    Reporting    Federal Program Title: ARRA – Energy Efficiency and Conservation Block Grant Program    Federal Catalog Number:  81.128    Condition: Under Appendix 6 of the grant agreement and per discussion  with the Contract Specialist from the Department of Energy, the  Itemized Cost Report is due quarterly along with the SF‐425  Reports. The City did not submit the required itemized costs  reports on a quarterly basis during the fiscal year.  As corrective action, City Staff has already emailed the quarterly  itemized cost reports dating back to Q1, 2010 to the EECBG  Contract Specialist at the DOE on November 17, 2011. In the  future, when staff submits the quarterly ARRA reports, staff will  continue to email the itemized cost reports to the EECBG  Contract Specialist.     Status of Corrective Action Plan: Corrected.    Finding #SA 2011‐2    Reporting    Federal Program Title: ARRA – Energy Efficiency and Conservation Block Grant Program    Federal Catalog Number:  81.128    Condition: There is no evidence that shows the management review and  approval on the required reports. The lack of documentation  prevents management from demonstrating that the internal  control is operating as designed to ensure the reports were  prepared accurately in accordance to the program  requirements. In addition, while the Utility Marketing Service  Manager is familiar with the Home Energy Program only, the  information related to LED Street Light program were not  adequately reviewed.  As part of the corrective action plan, the draft report will be  emailed to the Supervising Electric Engineer who oversees the  LED Streetlight project for approval; the email correspondence  with the Supervising Electric Engineer will be printed and filed  with the paper approval as back‐up documentation of  management review.     Status of Corrective Action Plan: Corrected.  CITY OF PALO ALTO  Schedule of Prior Audit Findings and Questioned Costs  For the Year Ended June 30, 2012      171  Finding #SA 2011‐3    Schedule of Expenditures of Federal Awards Reporting    Federal Program Title: ARRA – Energy Efficiency and Conservation Block Grant Program    Federal Catalog Number:  81.128    Condition: 2 invoices were not included in the preliminary SEFA provided  by the Administrative Services Department of the City due to a  coding error in the general ledger. The related expenditures  were for allowable costs under the program guidelines incurred  in the current fiscal year. Therefore, the expenditures should be  reported as part of the program expenditures on the SEFA for  the current fiscal year.    In the future, staff will keep a hard copy of the financial reports  reflecting both federal and city expenditures.     Status of Corrective Action Plan: Not applicable as the City did not have any expenditures  incurred in current year under this program.    Finding #SA 2011‐4    Subrecipient Monitoring    Federal Program Title: CDBG – Entitlement Grants Cluster    Federal Catalog Number:  14.218    Condition: The City did not communicate the CFDA and Federal Award  numbers to the subrecipients at the time of the sub‐awards. The  finding in the FY 2010 single audit occurred after the FY 2011  subrecipient awards and subsequent contracts had been issued.   As such, the information was not communicated to the  subrecipients nor was it included on the CDBG subrecipient  contracts.  For FY 2012, the CFDA title and number has been  provided on all CDBG subrecipients contracts.     Status of Corrective Action Plan: Corrected.    CITY OF PALO ALTO  Schedule of Prior Audit Findings and Questioned Costs  For the Year Ended June 30, 2012      172  Finding #SA 2011‐5    Suspension and Debarment    Federal Program Title: CDBG – Entitlement Grants Cluster    Federal Catalog Number:  14.218    Condition: The City did not perform a debarment and suspension check on  the sub‐grantees when awarding sub‐grants in FY 2011. Six sub‐ grantees were selected for testing, and all of them did not have  documentation that their status was verified in EPLS, although  based on our testing, none of them were noted as debarred or  suspended in the EPLS. In the future, prior to awarding a CDBG  Allocation, the City will perform a debarment and suspension  check for all subrecipients.    Status of Corrective Action Plan: Corrected.                  173  ……………………………………………………………………………… The City of Palo Alto is located in northern Santa Clara County, approximately 35 miles south of the City of San Francisco and 12 miles north of the City of San Jose. 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. …………………………………………………………………………… 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 250 Hamilton Avenue (650) 329-2550 ADA@cityofpaloalto.org 174  This page intentionally left blank.  ATTACHMENT B Page of 5 1 ORDINANCE NO. XXXXX ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AUTHORIZING CLOSING OF THE BUDGET FOR THE FISCAL YEAR ENDING JUNE 30, 2012 The Council of the City of Palo Alto does ordain as follows: SECTION 1. The Council of the City of Palo Alto finds and determines as follows: A. Pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto and as set forth in Section 2.28.070 of the Palo Alto Municipal Code, the Council on June 20, 2011 did adopt a budget for fiscal year 2012; and B. Fiscal year 2012 has ended and the financial results, although subject to post-audit adjustment, are now available and are herewith reported in summarized financial Exhibits “1”, “2”, “3”, “4”, “5”, and “6” prepared by the Director, Administrative Services, which are attached hereto, and by reference made a part hereof. SECTION 2. Pursuant to Section 2.28.080 of the Palo Alto Municipal Code, the City Manager during fiscal year 2012 did amend the budgetary accounts of the City of Palo Alto to reflect: A. Additional appropriations authorized by ordinance of the City Council. B. Amendments to employee compensation plans adopted by the City Council. C. Transfers of appropriations from the contingent account as authorized by the City Manager. D. Redistribution of appropriations between divisions, cost centers, and objects within various departments as authorized by the City Manager. E. Fiscal Year 2012 appropriations which on July 1, 2011 were encumbered by properly executed, but uncompleted, purchase orders or contracts. ATTACHMENT A Page of 5 2 SECTION 3. The Council hereby approves adjustments to the fiscal year 2012 budget for Fund Balancing Entries as shown on attached Exhibit 1. SECTION 4. The Council hereby re-appropriates fiscal year 2012 appropriations in certain departments and categories, as shown on the attached Exhibit 2, which were not encumbered by purchase order or contract, at year end into the fiscal year 2013 budget. SECTION 5. The fiscal year 2012 encumbered balances for the departments and categories shown on Exhibit 4 shall be carried forward and re-appropriated to those same departments and categories in the fiscal year 2013 budget. SECTION 6. The City Manager is authorized and directed: A. To close the fiscal year 2012 budget accounts in all funds and departments and, as required by the Charter of the City of Palo Alto, to make such interdepartmental transfers in the 2012 budget as adopted or amended by ordinance of the Council; and B. To close various completed Capital Improvement Projects (CIP) as shown in Exhibit 3 and move all completed CIP to their respective reserve funds indicated in Exhibit 1; and C. To establish reserves as shown in Exhibits 5 and 6 for all Funds as necessary to provide for: (1) A reserve for encumbrances and re- appropriations in the various funds, the purpose of which is to carry forward into the fiscal year 2013 budget and continue, in effect, the unexpended balance of appropriations for fiscal year 2012 departmental expenditures as shown in Exhibits 5 and 6; and (2) Reserves for Advances to Other Funds, Stores Inventory, and other reserves in accordance with ordinance and policy guidelines as shown in Exhibit 5; and ATTACHMENT A Page of 5 3 (3) A reserve for general contingencies of such amount that the City Council has approved; and (4) Reserves for utilities plant replacement, rate stabilization, and other reserves in accordance with Charter and policy guidelines as shown Exhibit 6. D. To fund the Budget Stabilization Reserve in accordance with the General Fund Reserves Policy adopted by the City Council. SECTION 7. The General Fund Budget Stabilization Reserve is hereby increased by the sum of One Hundred Ten Thousand One Hundred Seventy Six Dollars ($110,176) as described in Exhibit 1. This transaction will change the General Fund Reserve amount to $28,122,000. SECTION 8. The Electric Distribution Rate Stabilization Reserve is hereby increased by the sum of One Hundred Seven Thousand Nine Hundred Sixty Two Dollars ($107,962) as described in Exhibit 1. This transaction will change the Electric Distribution Rate Stabilization Reserve to $8,680,000. SECTION 9. The Gas Distribution Rate Stabilization Reserve is hereby increased by the sum of Ninety Seven Thousand Nine Hundred Twenty Two Dollars ($97,922) as described in Exhibit 1. This transaction will change the Gas Distribution Rate Stabilization Reserve to $8,374,000. SECTION 10. The Wastewater Collection Rate Stabilization Reserve is hereby increased by One Hundred Forty Four Thousand Nine Hundred Eighty Dollars ($144,980) as described in Exhibit 1. This transaction will change the Wastewater Collection Rate Stabilization Reserve to $4,751,000. SECTION 11. The Water Rate Stabilization Reserve is hereby increased by the sum of Four Hundred Eight Thousand One Hundred Dollars ($408,100) as described in Exhibit 1. This transaction will change the Water Rate Stabilization Reserve to $7,997,000. ATTACHMENT A Page of 5 4 SECTION 12. The Wastewater Treatment Rate Stabilization Reserve is hereby increased by the sum of Two Million Two Hundred Sixty One Thousand Six Hundred Sixty Six Dollars ($2,261,666) as described in Exhibit 1. This transaction will change the Wastewater Treatment Rate Stabilization Reserve to $7,461,000. SECTION 13. The University Avenue Parking Permit Fund is hereby increased by Five Hundred Ninety Six Thousand Dollars ($596,000) as described in Exhibit 1. This transaction will change the University Avenue Parking Permit Fund to $976,000. SECTION 14. The Stanford Development Fund Reserve is hereby decreased by Two Hundred Fifty Thousand Dollars ($250,000) as described in Exhibit 1. This transaction will change the Stanford Development Fund Balance to $21,865,000. SECTION 15. The Capital Projects Fund Reserve is hereby decreased by Four Million Fifty Two Thousand Seventy Five Dollars ($4,052,075) as described in Exhibit 1. This transaction will change the Capital Projects Fund Balance to $53,798,000. SECTION 16. The Golf Course Debt Service Fund Reserve is hereby decreased by Six Hundred Sixty Seven Thousand Two Hundred Sixty Two Dollars ($667,262) as described in Exhibit 1. This transaction will change the Golf Course Fund Reserve to $0. SECTION 17. The Library Project Debt Service Fund Reserve is hereby increased by Three Million Four Hundred Fifty Six Thousand Seventy Five Dollars ($3,456,075) as described in Exhibit 1. This transaction will change the Library Project Debt Service Fund Balance to $5,978,000. SECTION 18. The Technology Fund net assets are hereby decreased by Twenty Two Thousand Nine Hundred Twenty Nine Dollars ($22,929) as described in Exhibit 1. This transaction will change the Technology Fund Balance to $17,494,000. ATTACHMENT A Page of 5 5 SECTION 19. Upon completion of the independent audit, detailed financial statements reflecting the changes made by the Sections 7 through 18 of this ordinance shall be published as part of the annual financial report of the City as required by Article III, Section 16, of the Charter of the City of Palo Alto and in accordance with generally accepted accounting principles. SECTION 20. As specified in Section 2.28.080(a) of the Palo Alto Municipal Code, a two-thirds vote of the City Council is required to adopt this ordinance. SECTION 21. The Council of the City of Palo Alto hereby finds that the enactment of this ordinance is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. SECTION 22. As provided in Section 2.04.330 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST: ________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ________________________ ____________________________ City Attorney City Manager ____________________________ Director of Administrative Services EXHIBIT 1 CITY OF PALO ALTO FISCAL YEAR ENDING JUNE 30, 2012 BUDGET SUMMARY DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE GENERAL FUND Category Amount Description GENERAL FUND Other Financing Sources $3,221,782 Proceeds from lease‐purchase agreement. $3,221,782 ($22,929) Transfer to Information Technology Fund from City Manager Contingency for  internet consultant Peak Democracy Transfer Out $2,576,422 Transfer to Golf Course Debt Service Fund to defease 1998 Golf Course COPs Facilities/Equip $499,075 Lease‐purchase agreement payment (1st installment) Contract Services $59,038 Lease‐purchase agreement legal expense $3,111,606 $110,176 Sa Salaries & Benefits $120,000 Additional appropriations from other departments $120,000 ($120,000) CITY COUNCIL Contract Services $10,000 Additional appropriations from other departments $10,000 ($10,000) General Expenses $45,000 Additional appropriations from other departments $45,000 ($45,000) FIRE Sa Salaries and Benefits $150,000 Additional appropriations from other departments Source Changes $150,000 ($150,000) General Expenses ($10,000) Allocate savings to other departments Salaries and Benefits ($260,000) Allocate savings to other departments ($270,000) $270,000 HUMAN RESOURCES Use Changes Net Changes To (From) Reserves Use Changes NON‐DEPARTMENTAL CITY OF PALO ALTO FY 2012 YEAR‐END BUDGET AMENDMENT ORDINANCE DETAIL Source Changes Net Changes To (From) Reserves Net Changes To (From) Reserves COMMUNITY SERVICES ADMINISTRATIVE SERVICES Use Changes Net Changes To (From) Reserves Net Changes To (From) Reserves Use Changes Net Changes To (From) Reserves Use Changes Exhibit 1, Page 1 of 5 EXHIBIT 1 CITY OF PALO ALTO FISCAL YEAR ENDING JUNE 30, 2012 BUDGET SUMMARY DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE GENERAL FUND Category Amount Description CITY OF PALO ALTO FY 2012 YEAR‐END BUDGET AMENDMENT ORDINANCE DETAIL Salaries and Benefits ($460,000) Allocate savings to other departments Contract Services ($45,000) Allocate savings to other departments ($505,000)   $505,000 Salaries and Benefits $650,000 Additional appropriations from other departments Contract Services $150,000 Additional appropriations from other departments $800,000 ($800,000) Salaries and Benefits ($300,000)Allocate savings to other departments Contract Services ($50,000)Allocate savings to other departments ($350,000) $350,000 Total General Fund Changes to BSR $110,176 Transfer Out $3,456,075 Transfer to Library Project Debt Service Fund ‐ associated premium from  bond issuance; unspent issuance funds  Transfer Out $596,000 Transfer to University Avenue Parking Assessment District Agency Fund. related to surplus of Garage Project  Use Changes $4,052,075 ($4,052,075)Capital Fund Infrastructure Reserve PLANNING & COMMUNITY PUBLIC WORKS Use Changes Net Changes To (From) Reserves GENERAL FUND CIP  Net Changes To (From) Reserves POLICE Use Changes Net Changes To (From) Reserves Use Changes Net Changes To (From) Reserves Exhibit 1, Page 2 of 5 EXHIBIT 1 CITY OF PALO ALTO FISCAL YEAR ENDING JUNE 30, 2012 BUDGET SUMMARY DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE ENTERPRISE FUNDS Category Amount Description ENTERPRISE FUNDS ELECTRIC FUND CIP ($107,962) Completed and closed projects in FY 2012  Use Changes ($107,962)  Net Changes To (From) Reserves $107,962   Fund Balancing Entries  ($107,962) Change in Fund Balance  Total Electric Fund ($107,962)  GAS FUND  CIP ($97,922) Completed and closed projects in FY 2012  Use Changes ($97,922)  Net Changes To (From) Reserves $97,922   Fund Balancing Entries  $97,922 Change in Fund Balance  Total Gas Fund $97,922  CIP ($144,980) Completed and closed projects in FY 2012  Use Changes ($144,980)  Net Changes To (From) Reserves $144,980   Fund Balancing Entries  $144,980 Change in Fund Balance  Total Wastewater Collection Fund $144,980  WASTEWATER COLLECTION FUND CITY OF PALO ALTO FY 2012 YEAR‐END BUDGET AMENDMENT ORDINANCE DETAIL Exhibit 1, Page 3 of 5 EXHIBIT 1 CITY OF PALO ALTO FISCAL YEAR ENDING JUNE 30, 2012 BUDGET SUMMARY DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE ENTERPRISE FUNDS Category Amount Description CITY OF PALO ALTO FY 2012 YEAR‐END BUDGET AMENDMENT ORDINANCE DETAIL  WATER FUND  CIP ($408,100) Completed and closed projects in FY 2012  Use Changes ($408,100)  Net Changes To (From) Reserves $408,100   Fund Balancing Entries  $408,100 Change in Fund Balance  Total Water Fund $408,100  WASTEWATER TREATMENT FUND CIP ($2,261,666) Completed and closed projects in FY 2012  Use Changes ($2,261,666) Net Changes To (From) Reserves $2,261,666  Fund Balancing Entries $2,261,666 Change in Fund Balance Total Refuse Fund $2,261,666  Exhibit 1, Page 4 of 5 EXHIBIT 1 CITY OF PALO ALTO FISCAL YEAR ENDING JUNE 30, 2012 BUDGET SUMMARY DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE OTHER FUNDS FY 2013 Category Description Tranfers In $596,000 Transfer to University Avenue Parking Assessment District Agency Fund. Use Changes $596,000 related to surplus of Garage Project  $596,000 Contract Services $250,000 To cover additional expenses for FY2012 Use Changes $250,000 ($250,000) Interest Income ($30,000)Reduce interest income Transfer In $2,576,422 From General Fund to defease the 1998 Golf Course COPs Source Changes $2,546,422 Debt Service $3,213,684 Defease principal Use Changes $3,213,684 ($667,262) Transfer In $3,456,075 From General CIP Fund related to bond issuance premium  Source Changes $3,456,075 $3,456,075 $22,929 Transfer from City Manager Contingency for internet consultant Peak  Democracy Use Changes $22,929 ($22,929) Net Changes To (From) Reserves DEBT SERVICE FUNDS Net Changes To (From) Reserves INTERNAL SERVICE Net Changes To (From) Reserves CITY OF PALO ALTO FY 2012 YEAR‐END BUDGET AMENDMENT ORDINANCE DETAIL TRUST AND AGENCY FUNDS SPECIAL REVENUE FUNDS STANFORD DEVELOPMENT FUND UNIVERSITYAVE PARKING ASESS FUND Net Changes To (From) Reserves Amount GOLF COURSE INFORMATION TECHNOLOGY FUND LIBRARY PROJECT Net Changes To (From) Reserves Exhibit 1, Page 5 of 5 Page 1 of 7 FY 2012 REAPPROPRIATION REQUESTS SUMMARY OF REQUESTS Total Requests Total Recommended GENERAL FUND $1,017,394 $1,017,394 ENTERPRISE FUND $1,926,688 $1,926,688 INTERNAL SERVICE FUND $343,064 $343,064 CAPITAL IMPROVEMENT PROJECTS $5,649,066 $5,649,066 TOTAL $8,936,212 $8,936,212 $ AMOUNT INTENDED USE COMMENTS/REASONS FOR NOT COMPLETING IN FY 2012 STATUS City Manager’s Office $162,300 Office/space reconfigurations in City Hall This reappropriation is requested to carry over unused FY 2012 City Manager contingency to the City Manager’s Fiscal Year 2013 contingency. The request will be used to continue needed space/office planning and office reconfigurations to improve public counter, general operations and meeting spaces in City Hall. Recommended $162,300: This request is funded by unused Fiscal Year 2012 City Manager Contingency Funds and there is sufficient balance that can be reappropriated. Administrative Services $59,545 Cost of services study This reappropriation is being requested to continue the cost of services study initiated in Fiscal Year 2012. A consultant was hired to update the cost allocation plan, municipal fee schedule, and development impact fees. Part of that work is now complete, some still remains to be completed. Recommended $59,545. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Community Services $8,491 Children’s Theater This reappropriation is requested to carry forward the remaining, unused portion of a donation. Recommended $8,491. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Library $3,250 Parenting Program This reappropriation is requested to carry forward the remaining, unused portion of a federal grant. The grant funds the Parenting Program Series at the Palo Alto City Library. Funds will be spent on speaker fees and supplies for lectures and workshops given by parenting experts. Recommended $3,250. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated Exhibit 2 Page 2 of 7 $ AMOUNT INTENDED USE COMMENTS/REASONS FOR NOT COMPLETING IN FY 2012 STATUS $100,000 Mitchell Park This reappropriation is requested to carry forward the unused portion of a gift from the Palo Alto Library Foundation for the purchase of library collection materials (Staff Report 2258; BAO 5137). Materials will be purchased close to the time of the library opening, providing customers with the most current productions and publications. Recommended $100,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated Planning and Community Environment $105,373 Development Center Blueprint Process This reappropriation is being requested for furnishings for implementation of the Development Center Blueprint Process. In FY 2012, Staff Report 2364 and BAO 5134 increased the budget for the Blueprint Process by $155,639 for workstations, carpeting, and furniture moving. Shortly thereafter, the approval of Staff Report 2389 authorized the rent of the second floor of the Development Center. To maximize purchasing power and end up with more cohesive functionality, furnishing and carpeting was delayed until second floor plans could be made. Reappropriations of these funds will be combined with an expected request for funding to complete furnishing the second floor. Recommended $105,373. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Public Safety $88,435 Fire - Uniforms and protective gear This reappropriation is requested for uniforms and protective gear for the new staff hires. Upon review of the Fire budget, the Office of Management and Budget did not recommend Fire’s request for a midyear budget amendment in Fiscal Year 2012 and requested that Fire instead release budget from an over-budgeted contract. Because the contract budgeting was released too late in the Fiscal Year to encumber, this budget needs to be reappropriated. Recommended $88,435. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. $490,000 Office of Emergency Services This reappropriation is to reappropriate unused budget from Fiscal Year 2012 approved for the establishment of an Office of Emergency Services (OES). The Director of OES was hired halfway through Fiscal Year 2012, allowing only six months to staff the office and undertake program plans. Recruitment is currently underway to provide capacity for project management. Projects are expected to include: sustainable power for generator; backup data links; solar powered WiFi links; emergency management software and systems; voice and data systems in support of PAPD communications and regional projects; GIS entry of infrastructure and key resources; new computer systems; vulnerability assessment. Recommended $490,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated Public Works Department- Storm Drainage Fund Page 3 of 7 $ AMOUNT INTENDED USE COMMENTS/REASONS FOR NOT COMPLETING IN FY 2012 STATUS $40,631 Storm Drain Innovative Improvements This reappropriation is being requested for innovative storm drain improvements. These funds must be reappropriated because they were specifically earmarked for innovative storm drain improvements per the 2005 Storm Drainage ballot measure approved by Palo Alto property owners. These funds have been budgeted for a stormwater rebate program that offers incentives to residents and businesses to reduce stormwater runoff. Recommended $40,631. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Utilities Department- Electric Fund $1,886,057 Electric Efficiency loans Council approved a multi-year program to be funded from the Calaveras Reserve (CMR 430:09). Beginning in Fiscal Year 2011, this program was to be used for four years to provide no interest loans to Palo Alto businesses that are implementing electric energy efficiency projects. The program continues in Fiscal Year 2013. Recommended $1,886,057. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated Information Technology $140,879 Server replacement and network monitoring The reappropriation is being requested for server replacement and a network monitoring application. Due to some unanticipated problems, these funds did not get encumbered in a timely manner to be able to move forward into the next Fiscal Year. Recent server problems have caused significant delays to city operations underscoring the critical nature of this need. Recommended $140,879. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. $97,674 Wireless connectivity This is the remaining balance of the $104,000 amount granted midyear for wireless access points. Due to timing, this project was not completed in Fiscal Year 2012. Recommended $97,674. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. $104,511 Public Safety Mobile Systems This reappropriation is requested to cover: the costs of moving to a new wireless provider with a more secure platform in order to meet the requirements of the U.S. Department of Justice for public safety mobile systems; installing monitors for Councilmembers in Council Chambers; the purchase of a Project Management application for the reporting, diagnostics, and managing of various projects; and, 10 Track-It software licenses and Change Management module for the tracking of work orders and inventory. These activities were not completed in Fiscal Year 2012 due to workload issues. Recommended $104,511. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Page 4 of 7 CAPITAL IMPROVEMENT PROJECTS (CIP) CIP $ AMOUNT INTENDED USE COMMENTS /REASONS FOR NOT COMPLETING IN FY 2012 STATUS Police Department- Technology Fund TE-11002 $305,535 Police Mobile In-Car Video System Replacement This reappropriation is being requested for the replacement of the mobile in-car video system deployed in all of the police patrol cars. The current system is over five years old and is at the end of its lifecycle. Newer technology with better resolution and enhanced storage and retrieval capabilities is available. The system was not replaced during FY 2012 because staff was managing competing priorities and multiple projects. The initial product evaluation process has been started and several demonstrations have been evaluated in the vehicles. Recommended $305,535. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Public Works Department- Capital Projects Fund PF-09000 $100,000 Children’s Theater Improvements This reappropriation is being requested to replace or upgrade mechanical and electrical systems, and replace building finishes at the Children’s Theater. The project was not completed in FY 2012 due to staff workload constraints. A consultant will be hired to design the improvements in Summer 2012. Recommended $100,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Community Services Department- Capital Projects Fund OS-09002 $175,000 Baylands Emergency Access Levee Repair This reappropriation is being requested to restore the width and height of the earthen flood levee between Harbor Road near the Baylands Nature Center and the perimeter levee of the airport to 6 inches above its original height. This project was delayed to coincide with the San Francisquito Creek Joint Powers Authority’s flood control project. However, as the timing of the JPA’s project is still undetermined, staff will move forward with the Baylands levee repair in FY 2013 separately. Recommended $175,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. PG-11002 $250,000 Monroe Park Improvements This reappropriation is being requested to provide necessary upgrades to pathways, benches, trash and recycling receptacles and play equipment at Monroe Park. Due to various unforeseen emergency repair projects in FY 2012, this project was not completed. Improvements will include the renovation of existing playground to comply with ADA standards. Recommended $250,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Page 5 of 7 CAPITAL IMPROVEMENT PROJECTS (CIP) CIP $ AMOUNT INTENDED USE COMMENTS /REASONS FOR NOT COMPLETING IN FY 2012 STATUS AC- 09001 $100,000 Replacement of Children’s Theater Audio and Visual Monitoring Systems This reappropriation is being requested to replace the non-functioning Children Theater audio and visual monitoring systems, and expand the monitoring systems to the Wang Library/Rehearsal Hall and the Magic Castle Stage. The project will include an audio and video monitoring system, paging system, and intercom system. This project was not completed in FY 2012 due to staffing shortages. The project is now expected to be completed by January 2013. Recommended $100,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. AC- 09002 $200,000 New Sound System for Lucie Stern Community Theater This reappropriation is being requested to provide a new sound system that includes sound mixer, house speakers (including a new center luster), audio snake system to connect the booth and the right back-of-house, amplifiers, audio patch for microphones and speakers, hard drive audio editing/storage unit and CD recorder/player, and monitor speakers in the costume shop and rehearsal hall. This project was not completed in FY 2012 due to scheduling conflicts and staffing shortages. The project is now expected to be completed by November 2012. Recommended $200,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Information Technology Department- Technology Fund TE-07006 $95,694 SAP Continuous Improvement This reappropriation is being requested to support a comprehensive security assessment and to implement the City Auditor’s recommendations related to the security of the City’s information systems. Staff worked on security audit recommendations in FY 2012, and additional work to be performed in FY 2013 requires the attention of the newly hired Information Security Manager. Recommended $95,694. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. TE-01012 $578,337 IT Disaster Recovery Plan This reappropriation is being requested to provide the means to promptly resume mission critical and business operations should a natural disaster occur that renders the City’s primary computer system infrastructure inoperable. The project was not addressed in FY 2012 due to a lack of resources and other competing priorities. With the hiring of the Information Security Manager, the project will be initiated in FY 2013 and is expected to be a multi-year project. Recommended $578,337. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Page 6 of 7 CAPITAL IMPROVEMENT PROJECTS (CIP) CIP $ AMOUNT INTENDED USE COMMENTS /REASONS FOR NOT COMPLETING IN FY 2012 STATUS Administrative Services Department- Capital Projects Fund AS-10001 $100,000 Sustainability Contingency This reappropriation is being requested to provide funding for elements of General Fund CIP projects that meet the criteria for Sustainability. This project will be used for specific measures that are either cost-effective, resource- efficient projects or sustainability measures identified under nationally recognized standards. Funding will be transferred out from this project into the qualifying project. Recommended $100,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Utilities Department- Water Fund WS- 11001 $275,000 Vacuum Excavation Equipment This reappropriation is being requested for the purchase of a new vacuum excavation machine for new water service installations. This purchase will include all auxiliary equipment to provide keyhole excavation and minimize pavement disruption associated with service line installations. The equipment purchase requires specifications from Fleet staff acceptance by WGW Operations, and review by the Fleet Review Committee. These processes are expected to occur in FY 2013. Recommended $275,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Utilities Department- Wastewater Collection Fund WC- 11000 $3,119,500 Wastewater Collection Rehabilitation / Augmentation Project 24 This reappropriation is being requested to implement high priority rehabilitation, augmentation, and lateral replacement work, which reduces inflow of rainfall and ground water into the collection system. This project was delayed due to the cross-bore inspection project which took priority over wastewater CIP projects. Recommended $3,119,500. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Utilities Department- Technology Fund TE-11003 $150,000 Recurring Credit Card Payments This reappropriation is being requested to implement recurring credit card payments in the Utilities online customer service program. Resources were not available to implement the project in FY 2012. The recurring credit card feature will lower transaction fees for credit card processing. Recommended $150,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. Page 7 of 7 CAPITAL IMPROVEMENT PROJECTS (CIP) CIP $ AMOUNT INTENDED USE COMMENTS /REASONS FOR NOT COMPLETING IN FY 2012 STATUS TE-11005 $200,000 Implementation of New Utility Rate Structures This reappropriation is being requested to reconfigure Pitney Bowes bill print software to allow new rate structures and time differentiated pricing. The project also includes the development of a customized bill design for time-of-use customers. Resources were not available to implement the project in FY 2012. Recommended $200,000. There is sufficient balance in the Fiscal Year 2012 budget that can be reappropriated. PROJECT NUMBER PROJECT TITLE PROJECT BALANCE General Fund AS-09000 City of Palo Alto Municipal Airport Transition Project - AS-08000 Acquisition of Los Altos Treatment Plant - AS-10001 Sustainability Contingency - PL-05003 College Terrace Traffic Calming - PL-06005 Installation of Ticket Machines - PL-06002 Comprehensive Parking Signage Plan - PL-11004 Alma Street Traffic Signal Improvements - PL-98013 School Commute Safety Improvements (SIF) - PE-06005 University Avenue Gateway Landscaping Improvements - PE-07005 California Avenue Improvements - PE-06006 Alma Street Landscape Improvements - Total $0 Internal Service Fund TE-00021 New Phone System - TE-01006 Enterprise Backup System - TE-08000 Library Technology Plan - TE-08002 Electronic Patient Care Report - TE-08003 Fire Radio Communications Equipment - Total $0 Water Fund WS-06002 WMR - Project 20 10,780 WS-07003 WMR - Project 21 188,487 WS-07004 Water Sys Portable E 208,833 Total $408,100 Electric Fund EL-06000*Park Blvd. 4/12 kV C 9,973 EL-06003*Utility Control Center 7,989 EL-11000*Seale/Waverley 4/12k 40,000 EL-11002*St. Francis Oregon 4 50,000 Total $107,962 Gas Fund GS-10002 General Shop Equipment 3,219 GS-10003 Cathodic Current Interrupters 12,866 GS-10004 Automatic Test Station 81,837 Total $97,922 Wastewater Collection Fund WC-05003 WC Reh/Aug. Prj 18 52,344 WC-09002*Root, Sediment, Dew 59,636 WC-12002*Pipe Bursting Machine 33,000 Total $144,980 Wastewater Treatment Fund WQ-06014 Disinfection Facility Improvement Program 2,261,666 Total $2,261,666 * Projects are closed. No expenditures were incurred in the current fiscal year. Exhibit 3 CAPITAL IMPROVEMENT PROGRAM PROJECTS Completed and Closed in FY 2012 City of Palo Alto 1 EXHIBIT 4 11/26/12 FY 2012 FY 2012 FY 2012 FY 2012 FY 2012 FY 2012 FY 2012 Adopted Adjusted CAFR Basis Allocated Encum+Budgetary Variance Budget Budget Rev/Exp Charges Reapprop Rev/Exp Adj Budget Revenues Sales Taxes 20,246 21,594 22,132 n/a 22,132 538 Property Taxes 26,052 25,989 26,494 n/a 26,494 505 Transient Occupancy Tax 8,204 8,674 9,664 n/a 9,664 990 Documentary Tranfer Tax 4,269 4,769 4,821 n/a 4,821 52 Utility Users Tax 10,859 10,677 10,834 n/a 10,834 157 Other Taxes and Fines 2,330 2,156 2,033 n/a 2,033 (123) Charges for Services 21,841 22,566 25,143 n/a 25,143 2,577 Permits and Licenses 5,778 6,486 6,534 n/a 6,534 48 Return on Investment 1,318 974 1,055 n/a 1,055 81 Rental Income 13,914 13,914 14,294 n/a 14,294 380 From Other Agencies 155 174 81 n/a 81 (93) Charges to Other Funds 10,505 10,505 11,639 n/a 11,639 1,134 Other Revenues 1,428 5,428 5,824 - n/a 5,824 396 Total Revenues 126,899 133,906 128,909 11,639 n/a 140,548 6,643 Add: Operating Transfers In 19,606 19,651 19,459 n/a 19,459 (192) Prior Year Encum & Reapprop 3,887 3,888 n/a 3,888 1 Total Source of Funds 146,505 157,444 148,368 15,527 n/a 163,895 6,452 Expenditures City Attorney 2,355 3,141 2,632 121 353 3,106 36 City Auditor 1,006 1,109 868 50 43 961 149 City Clerk 1,479 1,542 1,386 115 25 1,526 17 City Council 319 463 401 - 35 436 28 City Manager 2,512 2,885 2,402 122 223 2,747 139 Administrative Services 6,514 7,207 6,258 722 223 7,203 5 Community Services 20,711 21,623 16,585 4,295 519 21,399 224 Fire 29,780 30,180 26,417 2,992 708 30,117 63 Human Resources 2,919 2,779 2,444 232 38 2,714 65 Library 6,944 7,814 6,063 1,012 639 7,714 100 Planning 10,021 12,075 8,786 1,532 868 11,186 889 Police 31,918 33,811 30,129 3,478 155 33,762 48 Public Works 13,007 13,970 9,843 3,379 567 13,789 181 Non-Departmental/School Site 5,038 7,412 7,742 20 468 8,230 (818) Total Expenditures 134,523 146,011 121,956 18,070 4,864 144,890 1,126 Add: Operating Trans Out 11,837 15,096 22,136 - 22,136 (7,040) - - - - Total Use of Funds 146,360 161,107 144,092 18,070 4,864 167,026 (5,914) Net Surplus/(Deficit)145 (3,663) 4,276 (2,543) (4,864) (3,131) 538 CAFR Reconciliation:Current year encumbrance/reappropriations 4,863 Prior Year encumbrances/reappropriations (3,888) CAFR Net Income (2,156) GENERAL FUND SUMMARY ($000s) FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Water sales 26,115 30,762 30,674 (88) Other revenues 2,831 2,434 3,266 832 Bond Proceeds - - - - Bonded Reappropriations/Enc 28,853 28,727 28,727 - Restricted Bond Proceeds 2,358 1,264 1,264 - Reappropriations / Enc 10,639 13,872 13,872 - TOTAL REVENUE 70,796 77,059 77,803 744 EXPENSES Purchases 10,678 15,774 14,889 885 Other Expenses 14,398 13,370 14,163 (793) TOTAL OPERATING EXPENSES 25,076 29,144 29,052 92 Capital Expenses 50,917 42,876 50,079 (7,203) Principal Payments 1,201 1,226 1,314 (88) TOTAL EXPENSES 77,194 73,246 80,445 (7,199) TO/(FROM) RESERVES (6,398) 3,813 (2,642) (6,455) FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Electric retail sales 109,950 110,614 107,343 (3,271) Electric wholesale sales - - - - Other revenues 15,915 17,726 15,736 (1,990) Bond Proceeds - - - - Reappropriations / Enc 13,393 15,584 15,584 - TOTAL REVENUE 139,258 143,924 138,663 (5,261) EXPENSES Purchases 61,247 63,754 58,724 5,030 NCPA & TANC Debt Svc 7,243 8,810 8,803 7 Other Expenses 42,570 48,818 47,428 1,390 TOTAL OPERATING EXPENSES 111,060 121,382 114,955 6,427 Capital Expenses 21,020 21,503 22,543 (1,040) Principal Payments 100 100 100 - TOTAL EXPENSES 132,180 142,985 137,598 5,387 TO/(FROM) RESERVES 7,078 939 1,065 126 FIBER OPTICS FUND EXHIBIT 5 ELECTRIC FUND WATER FUND ($000) EXHIBIT 5 FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Revenues 3,660 3,659 4,100 441 Reappropriations / Enc 921 810 810 - TOTAL REVENUE 4,581 4,469 4,910 441 EXPENSES Operating Expenses 1,575 1,645 1,416 229 TOTAL OPERATING EXPENSES 1,575 1,645 1,416 229 Capital Expenses 1,146 1,220 1,154 66 TOTAL EXPENSES 2,721 2,865 2,570 295 TO/(FROM) RESERVES 1,860 1,604 2,340 736 FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Gas retail sales 42,855 42,997 41,034 (1,963) Gas wholesale sales - - - - Other revenues 7,586 9,754 9,857 103 Reappropriations / Enc 10,042 16,910 16,910 - TOTAL REVENUE 60,483 69,661 67,801 (1,860) EXPENSES Purchases 21,464 18,416 16,235 2,181 Other Expenses 22,778 30,404 28,988 1,416 TOTAL OPERATING EXPENSES 44,242 48,820 45,223 3,597 Capital Expenses 18,142 22,534 22,188 346 Principal Payments 459 479 586 (107) TOTAL EXPENSES 62,843 71,833 67,997 3,836 TO/(FROM) RESERVES (2,360) (2,172) (196) 1,976 FIBER OPTICS FUND GAS FUND EXHIBIT 5 FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Revenues 16,129 15,868 15,841 (27) Reappropriations / Enc 8,789 10,250 10,250 - TOTAL REVENUE 24,918 26,118 26,091 (27) EXPENSES Sewer Treatment Exp.7,414 7,954 8,895 (941) Operating Expenses 4,898 4,959 4,909 50 TOTAL OPERATING EXPENSES 12,312 12,913 13,804 (891) Capital Expenses 13,417 12,416 13,364 (948) Principal Payments 65 68 68 - TOTAL EXPENSES 25,794 25,397 27,236 (1,839) TO/(FROM) RESERVES (876) 721 (1,145) (1,866) FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Operating Revenues 20,932 21,226 22,835 1,609 Restricted Bond Proceeds - - - - Loan Proceeds 3,972 - - - Reappropriations / Enc 22,043 10,499 10,499 - Bonded Reappro/Encum - - - - TOTAL REVENUE 46,947 31,725 33,334 1,609 EXPENSES Operating Expenses 18,385 19,194 20,595 (1,401) TOTAL OPERATING EXPENSES 18,385 19,194 20,595 (1,401) Capital Expenses 12,610 9,877 7,347 2,530 Principal Payments 400 769 769 - TOTAL EXPENSES 31,395 29,840 28,711 1,129 TO/(FROM) RESERVES 15,552 1,885 4,623 2,738 WASTEWATER TREATMENT FUND WASTEWATER COLLECTION FUND EXHIBIT 5 FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Revenues 31,605 31,770 31,560 (210) Reappropriations / Enc 2,836 3,656 3,656 - TOTAL REVENUE 34,441 35,426 35,216 (210) EXPENSES Payments to GreenWaste 12,529 12,807 12,882 (75) Other Expenses 18,940 19,817 19,657 160 TOTAL OPERATING EXPENSES 31,469 32,624 32,539 85 Capital Expenses 3,079 8,906 1,703 7,203 TOTAL EXPENSES 34,548 41,530 34,242 7,288 TO/(FROM) RESERVES (107) (6,104) 974 7,078 FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Revenues 6,286 5,815 6,130 315 Reappropriations / Enc 2,408 3,388 3,388 - TOTAL REVENUE 8,694 9,203 9,518 315 EXPENSES Operating Expenses 3,349 3,215 2,557 658 TOTAL OPERATING EXPENSES 3,349 3,215 2,557 658 Capital Expenses 3,561 5,515 5,420 95 Principal Payments 430 455 455 - TOTAL EXPENSES 7,340 9,185 8,432 753 TO/(FROM) RESERVES 1,354 18 1,086 1,068 STORM DRAINAGE FUND REFUSE FUND EXHIBIT 5 FY 2011 FY 2012 FY 2012 $ Variance Actual/Enc Adjusted Actual/Enc Favorable Reapprop Budget Reapprop (Unfavor.) REVENUE Revenues -- 5 5 Reappropriations / Enc -91 91 - TOTAL REVENUE - 91 96 5 EXPENSES Operating Expenses 118 269 201 68 TOTAL OPERATING EXPENSES 118 269 201 68 Capital Expenses -- - - Principal Payments -- - - TOTAL EXPENSES 118 269 201 68 TO/(FROM) RESERVES (118) (178) (105) 73 AIRPORT FUND FISCAL YEAR 2012 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total Beginning Reserves $11,639 $127,069 $11,130 $17,188 $6,896 $5,326 ($4,384)$1,640 ($118)$176,386 To (From) Reserves (2,642)1,065 2,340 (196)(1,145)4,623 974 1,086 (105)6,000 Ending Reserves 8,997 128,134 13,470 16,992 5,751 9,949 (3,410)2,726 (223)182,386 Adj Budgeted Reserves 17,099 133,141 10,141 19,644 8,882 4,489 (695)1,576 (296)193,981 % of Budgeted Reserves 53%96%133%86%65%222%491%173%75%94% FISCAL YEAR 2012 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total Rate Stabilization General RSR $7,997 $12,470 $4,751 $7,461 ($4,089)$2,726 ($223)$31,093 Supply RSR 65,929 7,618 $73,547 Distribution RSR 8,680 8,374 $17,054 Total RSR 7,997 74,609 12,470 15,992 4,751 7,461 (4,089) 2,726 (223) $121,694 Emergency Plant Replace 1,000 1,000 1,000 1,000 1,000 1,929 $6,929 Electric Special Projects 50,320 $50,320 Underground Loan 742 $742 Notes and Loans 559 $559 Landfill Corrective Action 679 $679 Shasta rewind Loan $0 Central Valley Project 314 $314 Public Benefit Program 1,149 $1,149 Ending Reserves 8,997 128,134 13,470 16,992 5,751 9,949 (3,410) 2,726 (223) 182,386 FISCAL YEAR 2012 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total Beginning RSR $10,639 $66,331 $10,130 $16,188 $5,896 $3,020 ($5,049)$1,640 ($118)$108,677 To(from) RSR (2,642) 8,278 2,340 (196) (1,145)4,441 960 1,086 (105) 13,017 Ending RSR 7,997 74,609 12,470 15,992 4,751 7,461 (4,089) 2,726 (223) 121,694 RSR Minimum 4,614 37,409 670 7,341 2,156 3,050 2,462 N/A N/A 57,702 RSR Maximum 9,229 74,817 1,675 14,683 4,311 6,100 4,924 N/A N/A 115,739 RSR % of Maximum 87%100%744%109%110%122%-83%N/A N/A 105% EXHIBIT 6 RATE STABILIZATION RESERVE RESERVE SUMMARY ($000) RESERVE DETAIL Page 1 of 1 11/26/2012 FINANCE COMMITTEE EXCERPT   Page 1 of 13  Special Meeting December 12, 2012 1. Recommendation Regarding Adoption of Ordinance Authorizing Closing of the Budget for the Fiscal Year Ending June 30, 2012, Including Re- appropriation Requests, Closing Completed Capital Improvement Projects, Authorizing Transfers to Reserves and Approval of Comprehensive Annual Financial Report (CAFR). David Bullock, Macias, Gini and O’Connell Certified Public Accountant said, beginning with the Management Letter, there was an Unqualified or Clean Opinion, implemented into the audit, meaning there were no qualifications made when financial statements were rendered. The Management Letter stated the findings, while the Required Communications Document outlined standards, like the responsibility of the auditor. Mr. Bullock expressed an opinion on the Fairness of Findings, according to generally accepted accounting principles and said his firm did not look at internal controls in general, but looked at internal controls to insure there were proper checks and balances. He communicated that any changes in consistency were made in fund balances but this year there were no changes or corrections. They looked at disagreements with management but there were none. Then they looked at the Current Year Recommendations and last year there were eight, five of which were still in progress. Two other recommendations dealt with Capital Assets Policy with regard to software updates and retention payable. They had a finding in the Federal Awards of Assistance single audit and said some reporting requirements made to past recipients went unnoticed. A major change dealt with Pension Reporting Requirements and he said this was going to impact the City significantly. Any time there was a new pronouncement, agencies were given time to implement them. Governmental Accounting Standards Board (GASB), an agency responsible for generally accepted accounting principles outlined how governments recorded their pensions going forward from now. In the past funding progress was reported in foot notes. He said GASB was moving from Measurement Based Accounting method to Economic Based Accounting. That changed the discount rate because currently there was leeway given to people who used the Long Term Rate of Return. This caused the interest rate to go down, which changed the calculation of the obligation. In addition, the Liability was becoming a Disclosure, but now it was recognized on the Financial Statements. This did not hit the General Fund Statements, EXCERPT     Page 2 of 13  Finance Committee Special Meeting  Excerpt 12/4/12  which dealt with current assets and liabilities, but it changed the big picture on the government wide financial statements. Council Member Price asked if entities were going to have to use the same accounting practices. Mr. Bullock said there was going to be consistency among governments and there were six different measurement methods that agencies could use. The Entry Age Norm was going to be used by all and a lot of the assumptions were going to have new parameters. An example of a parameter was having different amortizations schedules or adjusting interest rates based off the future outlook. These changes offered less leeway on those assumptions. Council Member Price commented that there was more standardization. Chair Shepherd said Council handled the decision there were eight different choices. Mr. Bullock said it showed the liability of decisions made. Vice Mayor Scharff asked what the practical effect was that worsened things. Mr. Bullock said it depended on the how conservative the calculations were over the years and he did not think bond ratings were going to go down. Mr. Perez explained the exit fee for California Public Employees Retirement System (CalPERS) and said it connected people to the 30 year United States Treasury bond. The standard operation for June 30, 2011 was at 4.82 percent, the current outstanding liability rate was 7.5 percent, and in an actuality basis it was $117 million for miscellaneous, 79 percent funded. Staff was trying to make more of an annual contribution and they had two tiers in place, with a third on its way. The pension cost went up, resembling a bell curve and it took time to see the effects of the downward bell curve. This change was going to hit salary and the numbers around the percentage of the workforce hard. Council Member Burt asked when Council would discuss the changes. Mr. Perez said CalPERS needed to present the projected cost for the third tier first. Staff had some data and made some assumptions for cost at age 60; the miscellaneous age was 46, so the turnover was likely going to be high. He said if Staff were not able to handle the situation, they would seek help from Bartel Associates. Council Member Burt asked about when Staff looked at the average age of EXCERPT     Page 3 of 13  Finance Committee Special Meeting  Excerpt 12/4/12  retirement, were they calculating at the average vesting age as well. Mr. Perez said yes, the average entry age was 36. Council Member Burt wanted to clarify with Staff on what he meant with the average entry age and the chronological age because the average year for a vested person was 10 years if the person had a 30 year career. If they entered the old formula, then they would be under the old system guidelines, whereas if a person entered the system later, they would be under a later formula and would be under the new contract. Mr. Perez said the average age a person entered the CalPERS system with another agency was not included in this data. Council Member Burt confirmed that the figures included only average entries into the Palo Alto system only. Mr. Perez said these figures reflected the Palo Alto system. He said they were going to meet with the Actuary next week and would ask those questions at that time. Chair Shepherd thought this discussion would be better continued next year. Mr. Perez said Staff would not be able to guarantee the all cost changes but would start the discussion. Chair Shepherd said the uniform reporting would help show the State what the problem was with the cities. She said a Burlingame Council Member said the Actuary was $80 million and their General Fund Budget was $40 million; she said that made Palo Alto look healthy. Mr. Bullock said in addition to the Comprehensive Annual Financial Report (CAFR) and the single audit, there was the Library Bond audit, the Cable Television audit, the Regional Water Control Plant audit, and Transportation Development Act (TDA) Funds audit. He said there were two components units: the Redevelopment Agency, which was dissolved, and the Public Improvement Corporation. Jim Pelletier, City Auditor said he was releasing an audit of Employee Health Benefits tomorrow and there was a finding in that audit. Last year’s CAFR had an error that was not fully corrected. Vice Mayor Scharff asked what the finding was. Yuki Matsuura, Senior Performance Auditor said the error included eligibility criteria for health benefits, criteria dealing with receipt of 100 percent EXCERPT     Page 4 of 13  Finance Committee Special Meeting  Excerpt 12/4/12  coverage for retiree health, and eligibility of partial benefits. Vice Mayor Scharff asked if that included people that retired after five years at age 50. Ms. Matsuura said it depended on which group the employee belonged to. For example management and union represented employees were in different categories. Vice Mayor Scharff said 100 percent health benefits were no longer offered and said the calculation was determined by the hire date with the City. Ms. Matsuura said there was detailed information available about which employee group people belonged to. Vice Mayor Scharff said if a person was to leave in five years, they would not get the pension from the City for the health benefits. He thought that in 10 years a person would get half and in 20 years a person would get full benefits. Ms. Matsuura said that was correct. Mr. Pelletier said it depended on the hire date. Mr. Perez said it was a date issue, not a number issue because it depended on the contract and resolution date submitted with CalPERS and Staff entered the date of the contract. Mr. Pelletier wanted to point out this was an issue in the audit. Council Member Burt wanted to address why retirees after five years were eligible for benefits, but a person was at the same time not eligible. Molly Stump, City Attorney said the City Auditor’s Staff was accurate because the issue referred to eligibility of some health benefits and the level of benefits was a secondary question. Vice Mayor Scharff asked how that applied if the number was zero. Mr. Perez said if a person did not make the five year vesting, the number was zero, or if a person left before the age of 50, even if a person had five years or if the person did not retire from Palo Alto, they would not get benefits. Council Member Burt asked if new employees received any benefit after five years. EXCERPT     Page 5 of 13  Finance Committee Special Meeting  Excerpt 12/4/12  Mr. Perez said a person had to be employed for 10 years. Council Member Burt said the discussion was based on all employees but there were also legacy employees. Mr. Perez said Staff could write a report stating exactly what a person would get on tier one, tier two, and so on and asked if there were any questions on the CAFR. Council Member Burt asked about the 2011 recommendations for water exposure for the Information Technology (IT) Department assets and wanted to know if there was an implementation date established. He did not know how many facility areas the recommendations referred to and Staff did not appear to have a plan with a defined completion date. Mr. Perez said, regarding the last discussion with Jonathan Reichental, Chief Information Officer, there were too many fiscal servers. He was in the process of reconfiguring the room and was working with Public Works on how to make changes. Mr. Reichental was definitely aware of this. Council Member Burt asked if the second floor was the most crucial. Mr. Perez said yes, it was one of them, but he could check and bring them up to date. Council Member Burt asked if it was all under the same circumstance as water-based fire suppression. Mr. Perez said he could not answer with certainty but said all floors had a sprinkler system. Council Member Burt said in terms of disaster resiliency, the City was in jeopardy. A plan was a reduction in servers but there was no plan on a location. Mr. Perez said he knew it was an area of concern. Council Member Burt said the rest was physical space. It was the responsibility of other departments to provide the space for IT and it was a collaborative effort. On the second floor he saw an effort to reduce and implement a suppression system. Mr. Perez requested to follow up because he did not know the answer at this time. Council Member Burt asked if there were any others that had appropriate EXCERPT     Page 6 of 13  Finance Committee Special Meeting  Excerpt 12/4/12  comments on status of implementation. Mr. Perez referred to Raj Patel, Information Technology Security Manager who was heavily involved in planning. Part of the problem was lack of resources. Mr. Reichental was hiring an IT Governance position to assist with the systems that were needed and looking at the businesses that were needed, and then accessing projects in the queue and in other systems. The best thing to do was to move it out of Administrative Services Department (ASD) and for it to have its own department. The resources were going to be provided as he needed them because it was critical. Vice Mayor Scharff was concerned because a lot of the discussion revolved around IT and projects that were not happening. He said he was also concerned that Mr. Reichental was not getting the support he needed. He requested a report stating items that were done by a certain date. Mr. Perez said he asked for a contract for temporary staffing to address these issues. Vice Mayor Scharff said topics like these tend to be forgotten and wanted a follow up in the form of an Informational Report. Chair Shepard asked if Mr. Reichental was connected to Finance or with Policy and Services. Mr. Perez said Mr. Reichental was connected with the Finance Committee. He said it might be a capital program to redo the rooms. Chair Shepherd asked what the routine was for updating Council. Mr. Perez said the Year-end Audit or the Budget Process would address this. Council Member Price asked if Mr. Reichental could be present to speak about these issues to the Finance Committee. She thought it was helpful to hear directly about the projects, the timing, and the resources. Mr. Pelletier added that since the contract was managed under the Auditor’s Office, one option was, in addition to follow up, that he could also follow up on open recommendations from this Audit and provide the Finance Committee with a status report. Chair Shepherd said the Finance Committee includes the City Auditor. Mr. Pelletier said the City Auditor’s Office could do a formal follow-up with IT, asking them questions about the status so it could be formally documented as part of the process. EXCERPT     Page 7 of 13  Finance Committee Special Meeting  Excerpt 12/4/12  Chair Shepherd asked about recommendations on the close of the Fiscal Year (FY) and authorization of the reapportionment. Laura Kuyrk, Accounting Manager discussed the overview for FY 2012 and discussed Economic Revenue Sources. On the expense side, the salary and benefits were taking effect in the budget. There were significant concession in the form of salary and benefit reductions that increased employee contribution to pensions and medical. With regard to the Financial Summary, there were Tax Revenue Sources in FY 2012 that were star performers: the Sales Tax and Transient Occupancy Tax (TOT). The year over year changes for the General Fund Tax Revenue Categories, in the category of the Sales Tax had a 6.7 percent increase from $20,746,000 million in FY 2011 to $22,132,000 in FY 2012. The TOT had a 19.8 percent increase year over year from $8,082,000 to $9.6 million. The Utility User Tax stayed flat, while the Documentary Transfer Tax showed a slight decrease. The Paramedic Fees and Plan and Zoning Fees increases were the primary drivers of the revenue increase that allowed the transfer of funds to the Infrastructure Fund. The combination of increased revenue and the expenses that were slightly lower resulted in a net surplus of $4.4 million for the FY 2012. Combing that figure with the Budget Stabilization Reserve (BSR) balance of $31.3 million created the opportunity of a transfer of $7.6 million out of BSR Fund and into the Infrastructure Reserve Fund. The remaining BSR balance of $28.1 million represented the 18.5 percent of FY 2013 budgeted expenses. The FY 2012 General Fund expenses were slightly less than the Mid-year Budgeted Amounts, which included increases for Retiree Medical Expenses, as well as an adjustment for Labor Concessions. The FY 2012 estimated Labor Concessions was $3.6 million for the General Fund. In the year over year deficit and surplus for the Enterprise Funds, all funds were at a net surplus position, except for the Refuse and Airport Funds. The Refuse Funds expenses exceeded revenues by $474,000 because there was an increased Contract Service Costs due more Smart Stations and a retirement of assets, like the closing of the landfill. The Refuse Rate Stabilization Reserve (RSR) balance improved from a $5 million negative position to a $4.1 negative position. The negative RSR was created to recognize landfill post-closure liability. The Airport Fund had expenses of $148,000 and no revenue; the expenses were funded by a General Fund loan. As of June 30, 2012, the amount of the loan was $300,000 with approximately $138,000 leftover to spend. There was an additional loan of $310,000 budgeted for FY 2013. The CalPERS Rates were submitted, which solidified the rates for the June 30th, FY 2014, which changed the projection for FY’s 2015 and 2016. Vice Mayor Scharff asked for clarification on what the rates meant. EXCERPT     Page 8 of 13  Finance Committee Special Meeting  Excerpt 12/4/12  Mr. Perez said the majority of employees were paying the employee share, which was used to calculate the Annual Required Contribution. Staff took the rate of 1.6 percent and embedded that into the Long-range Financial Forecast Report scheduled to be presented to Council on January 18, 2013 where they can explain the change in dollars. Vice Mayor Scharff asked what the number 30 referred to. Mr. Perez said for every dollar of wages, 30 cents went toward pension. Vice Mayor Scharff clarified that the 30 cents was what the City paid. He said the numbers would be higher if the employees did not pay their portion. Mr. Perez thought it was important to give credit to the employees to try to reduce the overall costs for the City. In the first year, Staff urged the City Council not to put funds into the Infrastructure Reserve because they were not sure where the Safety Labor Agreements were headed and because the budgets were unstable. The Sales Tax was just shy of the FY 2008 number. He said a future presentation by Staff will show a better picture of compensation, benefits, and returns on revenue. Staff expected to continue the returns and have a balanced budget. He thought it was good to transfer the remaining dollars to Infrastructure Reserve Fund now, which showed Staff was taking strides to get back on track. Council Member Burt asked about the timeline when employees paid their share because they did not all start paying at the same time. Mr. Perez answered that October was the time line for the majority of miscellaneous employees. Employees went from paying two percent to seven or eight percent and the Safety Managers paid nine percent. Council Member Burt asked if Staff was changing how the groups were defined. Mr. Perez asked if Council Member Burt was interested in what changed the number. Council Member Burt said there was a significant jump from 2013 to 2015. Mr. Perez said there were two contributions to the jump in numbers, one was the rate of return, and the other was the latest update in retirement, demographics, and life expectancy. Council Member Burt asked if that drove up the employer rates. Mr. Perez said the rate of return can drive the number up or down. EXCERPT     Page 9 of 13  Finance Committee Special Meeting  Excerpt 12/4/12  Council Member Burt recalled that CalPERS was moving toward the change, rather than leveling out and that there were year to year changes. Mr. Perez said yes, that was not imbedded in these amounts. Council Member Burt asked how the June 30, 2012 year affected these numbers and did the average level out the numbers. Mr. Perez needed to clarity with the Actuary on that question. He said it was a major component of the change and wanted to confirm the time period covered before answering. Council Member Burt looked at the 2012 Adjusted and Actual Budget and asked if the FY 2011 had one exceptional transaction that drove the number up. Mr. Perez said yes and Staff was not expecting to see those types of transactions. Staff was comparing FY 2012 with the FY 2013 and in 2013 the numbers were trending better than budgeted; they were probably going to adjust the budget at mid-year. Council Member Burt asked if considering the variables, if it was possible to extrapolate a year. Mr. Perez said the first quarter was tough because Staff did not have a full data set. He said he felt better looking at a mid-year trend. Council Member Burt said the percentages were more helpful and asked about FY 2013. Joe Saccio, Assistant Director of Administrative Services said Staff was trying to be more aggressive in the estimates with the revenue. Council Member Burt wanted clarification for the word “aggressive”. Mr. Saccio said aggressive meant less conservative. He attended a lot of conferences on forecasting and the data indicated that the growth, revenue, and job creation looked like it was growing. He thought there was going to be a number of adjustments at mid-year above the adopted budget. The TOT was taking a steep upward slope and there was only one item that was suffering. The Long Range Financial Forecast was delivered in December and will have numbers above the projected forecast. Council Member Burt asked if the TOT was at 85 percent and said it was an effective four day per week business week. EXCERPT     Page 10 of 13  Finance Committee Special Meeting  Excerpt 12/4/12  Mr. Perez said the major hotels said the weekends were big. Council Member Burt said there was a lot of work that drove up supply and demand and asked if Staff was aware when new hotels would open. Mr. Saccio thought there were at least two that were going to open in 2013 and 2014. Vice Mayor Scharff asked what the names of the hotels were. Mr. Saccio said he did not know. Council Member Burt appreciated that Staff did not include the projection of the hotels in the Financial Report Projections. Mr. Perez said it was not in the base but it was in the discussion and he offered to create scenarios for projection. Council Member Burt talked about a City Council discussion in 2008 on how to fund the police building and said they talked about using revenue from new hotels. He wanted to know when Staff could move forward with a discussion on revenue from new hotels. Chair Shepherd asked Council Member Burt if he wanted to put this up for discussion as an item on the Finance Committee or to be a contributor to retreat. Mr. Perez said there were certain pieces that connected with the Finance Committee and said it made sense for the discussion to go through them. Council Member Burt said the first step was to go to the retreat and possibly a have a discussion with the Finance Committee. He thought the Finance Committee could try to get this discussion to be part of the retreat agenda. Council Member Price asked when in the cycle of discussion on tax options and the increase to the TOT was going to be. Mr. Perez said the discussion would start once Staff identified the list of needs and what they planned on accomplishing. Chair Shepherd said they sent out to the Request for Proposal (RFP) to get polling done, which included what people would vote for and how to tax to pay for that vote. Mr. Perez said City Council poled before but it was better to have the discussion when they had more specific data. EXCERPT     Page 11 of 13  Finance Committee Special Meeting  Excerpt 12/4/12  Chair Shepherd wanted to know what percentage of the budget went to salary and benefits in order to help Council have the right discussions. The Cost of Service Study helped to analyze how to prioritize the services and she wanted to know if anything changed and can they reconfigure the salary and budget overall. Mr. Perez said this discussion had to do with framing the City structure because 63 percent went into salary and benefits and 8 to 10 percent went into Enterprise Funds. The typical view was to address services and needs. He thought Staff and Council needed to look at what services they supported and how they supported them. Chair Shepherd said she needed to have confidence that the incremental changes made that changed Palo Alto’s future. She wanted to understand, in historical proportion, how health care benefits jumped exponentially. She thought it was good for Staff to exercise care with how Staff decided to bring items before Council so there was not a transaction for everything discussed. Mr. Perez said Blue Shield Healthcare announced an 18 percent increase. Chair Shepherd said this was the problem with projection. She wanted Staff to look at the historic trends to try to proportion the thinking. She wanted bring Infrastructure back for discussion as well. Mr. Perez thought revisiting the policy for transfers was a good idea. Mr. Saccio related what the Santa Monica City Manager said at a conference about the cost of pensions and medical costs and how Cities like Palo Alto and Santa Monica were not away from risk, in terms of employee costs. The speaker said costs were a structural deficit because the trends go up and down. Chair Shepherd suspected there would be difficulties with investments. Vice Mayor Scharff asked in terms of the long-range forecast, if Palo Alto had enough revenue to stay out of debt. Mr. Perez projected that Palo Alto had a positive balance for the next year and but said CalPERS still needed to update their rates. Council Member Price said the other part of the discussion was educating the community, asking them if they wanted the same services that Palo Alto provides. Mr. Perez hoped that with all the tools that were available with social media, there were many options for communicating information. EXCERPT     Page 12 of 13  Finance Committee Special Meeting  Excerpt 12/4/12  Vice Mayor Scharff looked at the Paramedic Service Fees and the Planning and Zoning Fees and said it was not possible to make a profit. He asked when these fees went up and if it was necessary to lower the fees for next year. Mr. Perez said volume was driving some of the fees and they were allowing for more lending; volume drove the dollar figure up. Vice Mayor Scharff clarified that there was a certain number of people and a projected number for volume. Ms. Stump said budgeting was a matter of perspective and there was an ability to adjust because of rising and falling fees and costs. Vice Mayor Scharff said next year the fees needed to be lowered if the volume was expected to stay same. Mr. Perez said Staff removes positions to reduce the cost because the revenue was not coming in. It was not a year by year projection once Staff looked at the trend and then justified the costs. Council Member Burt asked about long-term pension and medical liability over the coming years and asked once the liabilities hit, if it was possible for Staff build-in long term liability into the costs. Mr. Perez said Staff knew they were only paying a portion of the unfunded fees. He talked about funding additional dollars to invest to pay above what the required contribution was. He knew Palo Alto was only 78 percent funded. He needed to check into it. Council Member Price remarked about the Planning and Zoning Fees and said if the fees were really accelerated then was it going to drive customers away. She said there was some sensitivity with regard to permits and where people would develop. Mr. Perez did not want to discourage the enhancement of property because it correlated with the Property Tax Revenues. Council Member Price said there was a connection between where people developed and the fees paid for developing. Mr. Perez said yes, especially when the Impact Fees were added. Council Member Burt said there was a limit and there were market forces in effect. He asked if Palo Alto might raise the property TOT and thought the market allowed for another raise. He thought Palo Alto needed to be EXCERPT     Page 13 of 13  Finance Committee Special Meeting  Excerpt 12/4/12  cognizant of market forces and to recognize its strengths. MOTION: Vice Mayor Scharff moved, seconded by Chair Shepherd to forward the ordinance and associated exhibits to the City Council for its approval to:  Close the Fiscal Year (FY) 2012 Budget;  Authorize re-appropriation of FY 2012 funds into the FY 2013 Budget;  Close completed capital improvement projects , and  Transfer remaining balances to the appropriate reserves (Table 1 for General Fund and Exhibits 5 and 6 for Enterprise Funds), including the transfer of the General Fund surplus of $7.6 million from the General Fund to the Infrastructure Reserve in the Capital Projects Fund. Staff recommends the Finance Committee review and forward to the City Council for its approval the City’s FY 2012 Comprehensive Annual Financial Report (CAFR). In addition, direct the City Manager and Mayor to bring to the annual Council retreat whether to refer to the Finance Committee consideration of dedicating certain revenue streams to certain infrastructure projects. MOTION PASSED: 4-0 CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR February 4, 2013 The Honorable City Council Palo Alto, California Finance Committee Recommendation to Accept Macias Gini & O'Connell's (LLP) Financial Statements and Management Letter The Office of the City Auditor recommends acceptance of Macias Gini & OConnell’s (LLP) Audit of the City of Palo Alto’s Financial Statements as of June 30, 2012 and Management Letter. At its meeting on December 4, 2012, the Finance Committee approved and unanimously recommended the City Council accept this report. The Finance Committee action minutes are included in this packet. Respectfully submitted, Jim Pelletier City Auditor ATTACHMENTS:  Attachment A: Macias Gini & O'Connell's (LLP) Financial Statements and Management Letter (PDF)  Attachment B - Finance Committee Meeting Minutes Excerpt (December 4, 2012) (PDF) Department Head: Jim Pelletier, City Auditor Page 2 TO: HONORABLE FINANCE COMMITTEE FROM: CITY AUDITOR’S OFFICE DATE: DECEMBER 4, 2012 STAFF REPORT: 3262 SUBJECT: AT-PLACES MEMO We are providing copies of the following items as prepared by Macias Gini & O’Connell LLP (MGO):  Required Communications  Independent Accountant’s Report on Applying Agreed-Upon Procedures Related to the Article XIII-B Appropriations Limit  Pedestrian/Bicycle Facilities Grant Metropolitan Transportation Commission Transportation Development Act Funds, Article III  City of Palo Alto Public Improvement Corporation  Redevelopment Agency of the City of Palo Alto  Cable TV Franchise Statement of Franchise Revenues and Expenditures  City of Palo Alto Regional Water Quality Control Plant  City of Palo Alto General Obligation Bonds Capital Projects Fund These attachments should have been included with item #1 on the agenda. ________________________________ JIM PELLETIER City Auditor 1 Attachment A   CITY OF PALO ALTO Required Communications For the Year Ended June 30, 2012 Attachment A   Attachment A CITY OF PALO ALTO Required Communications For the Year Ended June 30, 2012 Table of Contents Page(s) Transmittal Letter ........................................................................................................................................... i Required Communications ............................................................................................................................ 1 Current Year Recommendations ................................................................................................................... 5 Status of Prior Year Recommendations ........................................................................................................ 5 Attachment A   Attachment A i Honorable Mayor and the Members of the City Council of the City of Palo Alto, California In planning and performing our audit of the financial statements of the City of Palo Alto, California (City) as of and for the year ended June 30, 2012, in accordance with auditing standards generally accepted in the United States of America, we considered the City’s internal controls over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinions on the basic financial statements, but not for the purpose of expressing our 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 combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control was for the limited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses. Given these limitations during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses, as defined above. However, material weaknesses may exist that have not been identified. Following this letter, we have included a report on communications with the Finance Committee (Committee) as required by auditing standards generally accepted in the United States of America. This communication is intended solely for the information and use of the Mayor and City Council, the Committee, management and others within the organization, and is not intended to be and should not be used by anyone other than these specified parties. Walnut Creek, California November 26, 2012 Attachment A ii This page is intentionally left blank. Attachment A CITY OF PALO ALTO Required Communications For the Year Ended June 30, 2012 1 REQUIRED COMMUNICATIONS We have audited the financial statements of the City of Palo Alto (City) as of and for the year ended June 30, 2012 and have issued our report thereon dated November 26, 2012. Professional auditing standards require that we communicate to you the following information related to our audit. I. The Auditor’s Responsibility Under U.S. Generally Accepted Auditing Standards and OMB Circular A-133 As stated in our engagement letter dated July 30, 2012, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your responsibilities. In planning and performing our audit, we considered the City’s internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide assurance on the internal controls over financial reporting. We also considered internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133. As part of obtaining reasonable assurance about whether the City’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grants, 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 is not an objective of our audit. Also in accordance with OMB Circular A-133, we examined, on a test basis, evidence about the City’s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement applicable to each of its major programs for the purpose of expressing an opinion on the City’s compliance with those requirements. While our audit will provide a reasonable basis for our opinion, it will not provide a legal determination on the City’s compliance with those requirements. Attachment A CITY OF PALO ALTO Required Communications For the Year Ended June 30, 2012 2 REQUIRED COMMUNICATIONS (Continued) II. Other Information in Documents Containing Audited Financial Statements Our responsibility for other information in documents containing the City’s financial statements and our report thereon does not extend beyond financial information identified in our report, and we have no obligation to perform any procedures to corroborate other information contained in these documents. We, however, read the other information included in the City’s comprehensive annual financial report to determine whether any matters came to our attention that caused us to believe that such information, or its manner of presentation, is materially inconsistent with the information, or its manner of presentation, appearing in the basic financial statements. Nothing came to our attention that caused us to believe that such information, or its manner of presentation, is materially inconsistent with the information, or its manner of presentation, appearing in the basic financial statements. III. Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to you in our engagement letter dated July 30, 2012. IV. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the City’s basic financial statements. No significant changes were made to the basic financial statements during the year as a result of new accounting pronouncements. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. Attachment A CITY OF PALO ALTO Required Communications For the Year Ended June 30, 2012 3 REQUIRED COMMUNICATIONS (Continued) The most sensitive estimates affecting the financial statements were:  Fair value of investments. The City’s investments are generally carried at fair value, which is defined as the amount that the City could reasonably expect to receive for an investment in a current sale between a willing buyer and a willing seller and is generally measured by quoted market prices.  Estimated allowance for losses on notes and loans receivable. The allowance for losses on notes and loans receivable was based on management’s estimate regarding the likelihood of collectability.  Useful life estimates for capital assets. The estimated useful lives of capital assets were based on management’s estimate of the economic life of its capital assets.  Accrued landfill closure/post-closure costs. The City has estimated, based on a study conducted by consultants, the closure/post-closure costs of the Palo Alto Landfill based on what it would cost to perform all currently mandated closure and post-closure care. Actual closure and post-closure care costs may be higher due to inflation variances, changes in technology, or changes in State or federal regulations.  Valuation of the net other postemployment benefits (OPEB) asset. The net OPEB asset is the amount of cumulative City contributions that exceeded the actuarially determined annual required contributions, which is based upon certain approved actuarial assumptions.  Annual required contributions to pension and other postemployment benefit plans. The City is required to contribute to its pension and OPEB plans at an actuarially determined rate and to measure these benefit costs based upon certain approved actuarial assumptions.  Claims loss reserve. The City is exposed to a variety of risks of loss due to general liability, workers’ compensation and other claims and records an estimate of these losses based on actuarial studies performed by third party actuaries. These studies are prepared based on the City’s prior claims history, which is used as a basis for extrapolating losses for known and incurred but not reported claims. Actual loss experience may vary from these estimates. We evaluated the key factors and assumptions used to develop the accounting estimates described above in determining that they are reasonable in relation to the City’s basic financial statements taken as a whole. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. There were no misstatements, other than those that were trivial, detected as a result of audit procedures. Attachment A CITY OF PALO ALTO Required Communications For the Year Ended June 30, 2012 4 REQUIRED COMMUNICATIONS (Continued) Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated November 26, 2012. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters With respect to the supplementary information accompanying the financial statements, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. Attachment A CITY OF PALO ALTO Current Year Comment and Status of Prior Year Comments For the Year Ended June 30, 2012 5 CURRENT YEAR RECOMMENDATIONS None were reported. STATUS OF PRIOR YEAR RECOMMEDATIONS 2011-01 A Comprehensive Disaster Recovery Plan Has Not Been Fully Developed and Tested (Significant Deficiency) General computer controls should ensure that plans have been developed and documented to provide contingency for unforeseeable events, including the recovery of operational and financial data in the event of a disaster. The City, however, has not completed the development of a comprehensive disaster recovery plan. The current draft plan started development in 2008 and has yet to be completed. City’s IT management stated the prolonged plan development process was due to a lack of sufficient resources. The lack of a comprehensive plan that has been fully tested places the City at an increased risk of loss of financial data in the event of a disaster that affects the City’s server room. We recommend the City’s CIO (acting), working with the City Manager, should plan to budget for the resources necessary to complete the development of a comprehensive disaster recovery plan. Once the plan is completed, it should be fully tested to ensure the City’s financial data can be restored in a reasonable amount of time. Current Year Status: In Progress. The City’s Chief Information Officer (CIO) has hired an Information Security Manager (ISM). Presently, the new ISM is in the process of developing a comprehensive Disaster Recovery and Government Continuity Plan, which should tentatively be deployed by March 31, 2013. 2011-02 The City’s IT Assets Are Exposed to an Active Water-Based Fire Suppression System (Significant Deficiency) General computer controls should ensure that IT assets are adequately protected from physical and environmental hazards. The City’s server room, however, still has an active water-based fire suppression system. This places the City’s IT assets at increased risk of damage should the system be activated or should a pipe rupture. We recommend the City CIO (acting), working with the City Manager, should research the feasibility of implementing a dry fire suppression system in the City’s server room. Alternately, the active water-based system could be replaced by a dry-pipe system. If it is determined that the systems could be implemented, the City should budget for the replacement of the water-based system. Should the system replacement be deemed infeasible, alternative mitigating controls should be implemented, such as the installation of high temperature sprinkler heads and the development of a comprehensive disaster recovery plan. Current Year Status: In Progress. The City’s new ISM is researching the feasibility of implementing a gas-based fire suppression system in the City’s server room. The ISM plan is to replace the current “water- based fire suppression system” with a “gas-based fire suppression system” which will provide fast, safe and reliable fire suppression solution that extinguishes any fire in seconds and protect electronic equipment, media, and personnel within the server room. As this is in the research phase, no implementation date has been established. Attachment A CITY OF PALO ALTO Current Year Comment and Status of Prior Year Comments For the Year Ended June 30, 2012 6 2011-03 A Comprehensive IT Risk Assessment Has Not Been Performed (Significant Deficiency) General computer controls over the access to programs and data should require that a mechanism or procedures be in place to identify and react to risks arising from internal and external sources. A comprehensive means to identify IT risks is through the periodic performance of IT risk assessments. The City, however, has not performed a formal comprehensive and independent IT risk assessment to help identify the risks to the delivery of IT services and the accuracy and integrity of the City’s financial and personnel data. We recommend the City’s CIO (acting) should plan and budget for an independent IT risk assessment to be performed on the department’s functions. The risk assessment should focus on identifying all of the possible risks to the City’s IT department, the delivery of IT services and the accuracy and integrity of the City’s financial and personnel data. The risk assessment should quantify the likelihood of an event, the impact of the event and the mitigating controls that would address the possible risk. The risk assessment should also include network penetration testing to ascertain the vulnerabilities of the City’s computer network from hacking attempts. Current Year Status: In Progress. Presently, the City’s ISM is conducting a preliminary security assessment to identify areas of improvement. The ISM’s plan is to conduct a comprehensive IT risk assessment [per ISO 27001/2 Information Security Management Systems (ISMS) standards] by December 31, 2012 to identify all of the possible risks to the City’s IT department, the delivery of IT services and the accuracy and integrity of the City’s financial and personnel data. The risk assessment will also include network penetration testing to ascertain the vulnerabilities of the City’s computer network from hacking attempts. In addition, the plan is to conduct a technical impact assessment by March 31, 2013 to quantify the likelihood of an event, the impact of the event and the mitigating controls that would address the possible risk. 2011-04 City IT Department Does Not Have Oversight Over Non-Core Financial Applications (Significant Deficiency) The City has several applications that are used by the various departments. These include; Class, used by Parks and Recreation; Chameleon, used by Animal Services; Horizon, used by the Libraries; and Acella, used for Permitting. These applications are owned by the individual departments and not controlled nor managed by the City’s IT Department. Since management of the applications is decentralized, the individual applications may not adhere to best practices for application access (password configuration) or management of authorization profiles. This places the City’s network and financial data at increased risk of unauthorized access. Attachment A CITY OF PALO ALTO Current Year Comment and Status of Prior Year Comments For the Year Ended June 30, 2012 7 2011-04 City IT Department Does Not Have Oversight Over Non-Core Financial Applications (Significant Deficiency) We recommend the City’s Internal Auditor, working with the CIO (acting), should review the password configuration requirements being used in the City’s non-core financial applications. If it is found that the password requirements do not meet industry best practices shown in the table below, the password configuration settings within the applications should be updated, if possible. Account Setting Best Practices Password Length (Min.) 7-9 characters Expiration Period 30-60 days Account Lockout Threshold 3-5 invalid logon attempts will lock the account. Strong Passwords Required Yes Current Year Status: In Progress. Presently the City’s ISM is in the process of developing information security policies and standards which will be aligned with industry leading practices. The ISM’s plan is to enforce (through CIO communication to department directors) industry leading practices around application access control, authentication and authorization. The written and formal policy and standards are expected to be completed by March 2013. 2011-05 City Firewalls Are Managed by a Single Person (Significant Deficiency) General computer controls require that logical security management be properly administered. The City’s firewalls, however, are accessible and configurable by mainly only one person within the IT Department. Although the City has additional staff that can assist with firewall activities, it does not have a single staff person that is a dedicated back up. This places the City’s network, application and data at increased risk should this person be unavailable for an extended period, or if the one person decided to lock all others out of the network. We recommend the CIO (acting) should either have at least one other IT staff or manager trained in the management of firewalls or have an outside consultant retained for these services. An additional secured account should also be created for firewall administration that could be used in the event the primary firewall administrator is unavailable for an extended period of time. Current Year Status: Corrected. The City’s IT department has crossed trained another technical resource to provide technical services to maintain and support firewalls. This additional IT professional is accessing the firewalls from an account separate from the primary firewall administrator’s account. Attachment A CITY OF PALO ALTO Current Year Comment and Status of Prior Year Comments For the Year Ended June 30, 2012 8 2011-06 City Has Not Performed PCI Data Security Standards Compliance Assessment (Significant Deficiency) The Payment Card Industry Data Security Standard (PCI DSS) is a set of requirements designed to ensure that all entities that process, store or transmit credit card information maintain a secure environment. Entities that do not comply with PCI DSS may be subject to fines, card replacement costs, forensic audits, brand damage, etc., by the major credit card brands should a breach event occur. The City, however, has not performed a compliance assessment for PCI DSS. We recommend the City Manager, working with the CIO (acting) should have a PCI compliance audit conducted over the City’s payment card practices and security measures. Current Year Status: In Progress. The City’s IT manager has reported that the department has conducted preliminary PCI compliance audit on the City’s payment card practices and implemented following initial security measures on the City’s ERP systems: 1. Installed required firewall configuration to protect cardholder data; 2. Verified that all vendor-supplied defaults are changed as appropriate for system; 3. Implemented required controls to protect stored card data; 4. Implemented cardholder data encryption solution protocol during transmission of the date; across open, public networks; 5. Restricted access to cardholder data by business on need-to-know basis; 6. Assigned a unique ID to each person with computer access; and 7. Restricted physical access to cardholder data The City’s ISM is planning to conduct a more detail PCI compliance audit and will implement additional PCI compliance controls (on the City’s IT infrastructure) which are consistent with industry leading practices. This is planned to be completed by December 2012. 2011-07 City-wide Capital Asset Policies Are Outdated (Significant Deficiency) During the current year, the City purchased software in the amount of $232,696 and capitalized it as a nondepreciable asset under governmental-type activities. Given the constant evolution of technology, software typically has a useful life ranging from 5 to 20 years based on the expected duration and complexities of the system, rather than treating it as indefinite. Capitalizing software as nondepreciable seems to overstate the value of these intangible assets over time and would necessitate a large write-off when service utility is diminished or when it becomes obsolete. Attachment A CITY OF PALO ALTO Current Year Comment and Status of Prior Year Comments For the Year Ended June 30, 2012 9 2011-07 City-wide Capital Asset Policies Are Outdated (Continued) (Significant Deficiency) Furthermore, upon our review of capital assets, we observed that the City-wide capital asset policies currently in place have not been updated since 1996 for governmental funds and 2005 for enterprise funds. These policies should be updated to address current practices and the provisions of subsequently issued Governmental Accounting Standards Board (GASB) guidance that may not be properly reflected in these dated policies. For instance, GASB issued Statement No. 34 in December 1999 that made revolutionary changes over the accounting and reporting of capital assets, including new provisions for infrastructure, and issued Statement No. 51 in June 2007 that provided accounting and financial reporting guidance for intangible assets, including internally generated computer software. We recommend that the City review and update the current capital asset policies for both governmental and enterprise funds to ensure the City is properly accounting and reporting for its capital assets under U.S. generally accepted accounting principles. Once the updated policies are in place, we also recommend the City conduct a review of its existing capital assets to ensure compliance with these policies. Current Year Status: Corrected. The City performed a comprehensive review of their existing capital asset policy for both governmental activities and enterprise funds. As a result, the policy for governmental activities, which includes the City’s General Fund and Internal Service Funds, were revised in March 2012. 2011-08 Accounting for Retention Payable (Significant Deficiency) During our search for unrecorded liabilities, which included an examination of disbursements issued subsequent to year-end, we observed that the City does not accrue a liability for retention amounts withheld from its payments to vendors. In total, we identified 7 payments within our sample of disbursements that contained retention amounts withheld totaling $322,871, which were not accrued as fund liabilities. While retention amounts may not be due and payable until some future date when project milestones are met to the City’s satisfaction, they are customarily recognized as a liability since the goods and/or services have been received. We recommend that the City review its current practices over accounting for retention payable to determine whether or not its liabilities are understated for amounts owed to vendors. At a minimum, the City should accumulate a total of retention amounts withheld to determine the significance of these amounts by opinion unit and, for governmental funds, whether or not the timing of payments would necessitate the recording of a fund liability in the current period. Current Year Status: Corrected. Attachment A  CITY OF PALO ALTO Independent Accountant’s Report on Applying Agreed–Upon Procedures Related to the Article XIII-B Appropriations Limit For the Year Ended June 30, 2012 Attachment A   Attachment A 1 Honorable Mayor and the Members of the City Council, of City of Palo Alto, California Independent Accountant’s Report on Applying Agreed-Upon Procedures We have performed the procedures enumerated below to the accompanying Appropriations Limit Worksheet of the City of Palo Alto, California (City), for the year ended June 30, 2012. These procedures, which were agreed to by the City and the League of California Cities (as presented in the publication entitled Article XIIIB California Constitution Appropriations Limit Procedures Guidelines for California Counties), were performed solely to assist the City in meeting the requirements of Section 1.5 of Article XIIIB of the California Constitution. The City’s management is responsible for the Appropriations Limit Worksheet. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The procedures performed and our findings were as follows: 1. We obtained the completed worksheets setting forth the calculations necessary to establish the City’s appropriations limit and compared the limit and annual adjustment factors included in those worksheets to the limit and annual adjustment factors that were adopted by resolution of the City Council. We also compared the population and inflation options included in the aforementioned worksheets to those that were selected by a recorded vote of the City Council. Finding: No exceptions were noted as a result of our procedures. 2. For the accompanying Appropriations Limit Worksheet, we added last year’s limit to total adjustments, and compared the resulting amount to this year’s limit. Finding: No exceptions were noted as a result of our procedures. 3. We compared the current year information presented in the accompanying Appropriations Limit Worksheet to the worksheets described in No. 1 above. Finding: No exceptions were noted as a result of our procedures. 4. We compared the prior year appropriations limit presented in the accompanying Appropriations Limit Worksheet to the prior year appropriations limit adopted by the City Council. Finding: No exceptions were noted as a result of our procedures. Attachment A 2 We were not engaged to, and did not conduct an examination, the objective of which would be the expression of an opinion on the Appropriations Limit Worksheet. Accordingly, we do not express such an opinion. 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 XIIIB 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. Walnut Creek, California November 26, 2012 Attachment A CITY OF PALO ALTO, CALIFORNIA Appropriations Limit Worksheet For the Year Ended June 30, 2012 3 Appropriations limit, fiscal year 2010-2011 115,057,884$ Adjustment factors: Population growth 0.89+100 100 1.0089 Inflation 2.51+100 100 1.0251 Appropriations limit, fiscal year 2011-2012 118,995,555$ Attachment A   CITY OF PALO ALTO, CALIFORNIA Pedestrian/Bicycle Facilities Grant Metropolitan Transportation Commission Transportation Development Act Funds, Article III Independent Auditor’s Reports, Financial Statements and Supplementary Information For the Year Ended June 30, 2012 Attachment A   Attachment A CITY OF PALO ALTO, CALIFORNIA Pedestrian/Bicycle Facilities Grant Metropolitan Transportation Commission Transportation Development Act Funds, Article III For the Year Ended June 30, 2012 Table of Contents Page Financial Section Independent Auditor’s Report ....................................................................................................................... 1 Financial Statements: Balance Sheet ................................................................................................................................... 3 Statement of Revenues, Expenditures, and Changes in Fund Balance (Deficit) ............................. 4 Notes to the Financial Statements .................................................................................................... 5 Supplementary Information: Schedule of Construction Projects with Capital Outlay Expenditures............................................. 7 Internal Control and Compliance Section 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 and the Transportation Development Act............................................... 9 Attachment A   Attachment A 1 Honorable Mayor and the Members of the City Council, of City of Palo Alto, California Independent Auditor’s Report We have audited the accompanying balance sheet of the Pedestrian/Bicycle Facilities Grant (Grant) made to the City of Palo Alto, California (City), by the Metropolitan Transportation Commission, Transportation Development Act Funds, Article III as of June 30, 2012 and the related statement of revenues, expenditures and changes in fund balance (deficit) for the year then ended. These financial statements are the responsibility of the City’s management. Our responsibility is to express an opinion 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over the Grant’s financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note 1 to the financial statements, the financial statements of the Grant are intended to present the financial position and the changes in financial position of only that portion of the governmental activities and the major governmental fund of the City that is attributable to the activities of the Grant. They do not purport to, and do not, present fairly the financial position of the City as of June 30, 2012, and changes in its financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Grant made to the City by the Metropolitan Transportation Commission, Transportation Development Act Funds, Article III as of June 30, 2012, and the changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated November 26, 2012 on our consideration of the City’s internal control over the Grant’s financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters for the year ended June 30, 2012. The purpose of that report is 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Attachment A 2 Management has not presented the management’s discussion and analysis that governmental accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing 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. Our opinion on the financial statements is not affected by this missing information. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Walnut Creek, California November 26, 2012 Attachment A CITY OF PALO ALTO, CALIFORNIA Pedestrian/Bicycle Facilities Grant Metropolitan Transportation Commission Transportation Development Act Funds, Article III Balance Sheet June 30, 2012 Assets Due from Metropolitan Transportation Commission 87,408$ Liabilities and Fund Balance (Deficit) Liabilities Due to other funds of the City 87,408$ Fund Balance Unassigned - Total liabilities and fund balance 87,408$ See accompanying notes to the financial statements. 3 Attachment A CITY OF PALO ALTO, CALIFORNIA Pedestrian/Bicycle Facilities Grant Metropolitan Transportation Commission Transportation Development Act Funds, Article III Statement of Revenues, Expenditures, and Changes in Fund Balance (Deficit) For the Year Ended June 30, 2012 Revenues Grant 201,317$ Expenditures Capital outlay 192,656 Excess of revenues over expenditures 8,661 Fund Balance (deficit) - beginning of year (8,661) Fund Balance - end of year -$ See accompanying notes to the financial statements. 4 Attachment A CITY OF PALO ALTO, CALIFORNIA Pedestrian/Bicycle Facilities Grant Metropolitan Transportation Commission Transportation Development Act Funds, Article III Notes to the Financial Statements For the Year Ended June 30, 2012 5 NOTE 1 – DESCRIPTION OF REPORTING ENTITY The accompanying financial statements are prepared from the accounts and financial transactions of the City of Palo Alto, California (City) for the projects funded under the Transportation Development Act of 1971 (TDA) Article III of the State of California, which include the construction of pedestrian and bicycle paths. The financial statements do not purport to present the financial position or changes in financial position of the City. The projects represent a portion of the accounts of the City and, as such, are included in the City’s basic financial statements. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation The Pedestrian/Bicycle Facilities Grant (Grant) has been accounted for in the capital project fund, which is a major governmental fund type and is included in the City’s basic financial statements. The capital project fund accounts for resources used for acquisition and construction of capital facilities by the City, with the exception of those assets financed by proprietary funds. (b) Basis of Accounting The accompanying financial statements have been prepared on the modified accrual basis of accounting. Under the modified accrual basis of accounting, expenditures are recorded when the related governmental fund liabilities are incurred. Grant revenues, which are received as reimbursement for specific purposes or projects, are recognized when they become measurable and available (received within 90 days after year-end). (c) Fund Balance The City reports fund balance for governmental funds in specific classifications (nonspendable, restricted, committed, assigned and unassigned) based on the extent to which the City is bound to the constraints on the specific purposes for which funds can be spent. At June 30, 2012, the Grant did not report any fund balance and only receives restricted revenues. (d) Due to other funds of the City Cash has been advanced to the Pedestrian/Bicycle Facilities Grant projects for expenditures paid by the City’s major capital projects fund for the benefit of the TDA Article III projects. The projects are obligated to immediately repay these advances upon reimbursement. Attachment A CITY OF PALO ALTO, CALIFORNIA Pedestrian/Bicycle Facilities Grant Metropolitan Transportation Commission Transportation Development Act Funds, Article III Notes to the Financial Statements (Continued) For the Year Ended June 30, 2012 6 NOTE 3 – COMPLIANCE REQUIREMENTS The TDA is defined at Chapter 4 of the California Public Utilities Code commencing with Section 99200. Funds received pursuant to Section 99235 of the TDA (Article 3) may only be used for facilities provided for exclusive use by the project. NOTE 4 – SECTION 99301 – INTEREST EARNED ON ALLOCATED FUNDS The City incurred and paid expenditures prior to the receipt of the Grant reimbursements; as a result, no interest was earned on Grant funds. Attachment A Title of Project Project Number Awards Carried Over from Prior Year Current Year Allocation/ (Recission) Total Awards Cumulative Capital Outlay Expenditures as of June 30, 2011 Current Year Capital Outlay Expenditures Cumulative Capital Outlay Expenditures as of June 30, 2012 Status of Project TDA 09-10 Park Boulevard Bicycle Boulevard 10001048 60,000$ -$ 60,000$ -$ 60,000$ 60,000$ Completed TDA 09-10 Purchase and Installation of Bike Racks 10001049 50,000 (25,000) 25,000 7,861 17,139 25,000 Completed TDA 09-10 Upgrading Bicycle & Pedestrian Master Plan 10001050 55,000 - 55,000 55,000 - 55,000 Completed TDA 09-10 Installation of Directional Guide Signs 10001051 40,000 (15,000) 25,000 800 24,200 25,000 Completed TDA 09-10 Enhance Crosswalk at Various Locations 10001052 51,317 - 51,317 - 51,317 51,317 Completed TDA 11-12 Updating Bike/Pedestrian Master Plan 12001061 - 25,000 25,000 - 25,000 25,000 Completed TDA 11-12 Enhance Crosswalk at Various Locations 12001062 - 15,000 15,000 - 15,000 15,000 Completed TDA 11-12 Bicycle Detection at Traffic Signals 12001042 - 55,597 55,597 - - - On-going 256,317$ 55,597$ 311,914$ 63,661$ 192,656$ 256,317$ The following schedule identifies the projects with capital outlay expenditures during fiscal year 2012: Schedule of Construction Projects with Capital Outlay Expenditures For the Year Ended June 30, 2012 CITY OF PALO ALTO, CALIFORNIA Pedestrian/Bicycle Facilities Grant Metropolitan Transportation Commission Transportation Development Act Funds, Article III 7 Attachment A 8 This page left intentionally blank. Attachment A 9 Honorable Mayor and the Members of the City Council, of City of Palo Alto, California 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 Governmental Auditing Standards and the Transportation Development Act We have audited the accompanying balance sheet of the Pedestrian/Bicycle Facilities Grant (Grant) made to the City of Palo Alto, California (City), by the Metropolitan Transportation Commission, Transportation Development Act Funds, Article III as of June 30, 2012, and the related statement of revenues, expenditures, and changes in fund balance (deficit) for the year then ended, and have issued our report thereon dated November 26, 2012. Our report includes an explanatory paragraph describing that the financial statements of the Grant present only that portion of the governmental activities and the major governmental funds of the City that is attributable to the activities of the Grant and an explanatory paragraph describing management’s omission of the management’s discussion and analysis required by accounting principles generally accepted in the United States of America. 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. Internal Control Over Financial Reporting Management of the City is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the City’s internal control over the Grant’s financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over the Grant’s financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over the Grant’s financial reporting. 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 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. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Attachment A 10 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Grant’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, including the applicable statutes, rules and regulations of the Transportation Development Act, including Section 6666 of Title 21, of the California Code of Regulations, and the allocation instructions and resolutions of the Metropolitan Transportation Commission, 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 or the Transportation Development Act. This report is intended solely for the information and use of the Metropolitan Transportation Commission, the City Council, and City management and is not intended to be and should not be used by anyone other than these specified parties. Walnut Creek, California November 26, 2012 Attachment A   CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Annual Financial Report For the Year Ended June 30, 2012 Attachment A   Attachment A CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Table of Contents Page Independent Auditor’s Report ................................................................................................................... 1 Management’s Discussion and Analysis (Unaudited) .............................................................................. 3 Basic Financial Statements Government-wide Financial Statements: Statement of Net Assets ...................................................................................................................... 5 Statement of Activities ....................................................................................................................... 6 Fund Financial Statements: Balance Sheet ..................................................................................................................................... 7 Statement of Revenues, Expenditures, and Changes in Fund Balance ............................................... 8 Notes to Basic Financial Statements ........................................................................................................ 9 Attachment A   Attachment A 1 The Honorable Mayor and Members of the City Council of the City of Palo Alto, California Independent Auditor’s Report We have audited the accompanying basic financial statements of the governmental activities and the major fund of the Palo Alto Public Improvement Corporation (Corporation), a component unit of the City of Palo Alto, as of and for the year ended June 30, 2012, as listed in the table of contents. These financial statements are the responsibility of the City’s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities and the major fund of the Corporation as of June 30, 2012, and the results of its operations for the year then ended, in conformity with generally accepted accounting principles in the United States of America. Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis 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. Walnut Creek, California November 26, 2012 Attachment A 2 This page left intentionally blank. Attachment A CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Management’s Discussion & Analysis (Unaudited) 3 The Palo Alto Public Improvement Corporation (Corporation), a component unit of the City of Palo Alto (City), follows the provisions of Governmental Accounting Standards Board (GASB) Statement No. 34 (GASB 34), Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local Governments. The Corporation is controlled by the City of Palo Alto and was organized to assist the City in financing public improvements. The Corporation issues debt and turns the proceeds of the debt over to the City under lease agreements that provide a revenue source for the repayment of this debt. The Corporation has three debt issues and has turned the proceeds of these issues over to the City, which pledged certain lease payments as collateral for this debt as discussed in Note 4 to the financial statements. FISCAL 2012 FINANCIAL HIGHLIGHTS GASB 34 requires the issuance of government-wide financial statements as well as fund financial statements. The government-wide financial statements report the balance of the Corporation’s long-term debt issues while the individual fund statements do not. In fiscal year 2002, the Corporation issued its 2002A Civic Center Refinancing Certificates of Participation (COPs) in the amount of $3.5 million to refund its 1992 Civic Center Project COPs, reducing debt service requirements by $372 thousand and producing an accounting gain of $137 thousand. The Corporation also issued its 2002B Downtown Parking Improvements COPs in the amount of $3.6 million. In fiscal year 2005, a partial redemption was completed by placing excess construction and debt service reserve funds into an escrow account to defease $900 thousand of the 2002B Downtown Parking Improvements COPs. During the fiscal year 2012, the City entered into a master lease-purchase agreement with JP Morgan Chase Bank, N.A. and the proceeds, together with the reserve fund, were used to redeem the 1998 Golf Course Capital Improvements COPs. In addition, the 2002A Civic Center Refinancing COPs has been paid off. As of June 30, 2012, the 2002B Downtown Parking Improvements COPs comprise the Corporation’s outstanding debt. Interest expense and other fiscal agent charges on these COP issues were $146 thousand for fiscal year 2012, a decrease of $186 thousand over the prior year. The interest for leases on the assets securing these COP issues was $224 thousand, a decrease of $73 thousand from the prior year. The interest on leases from the City exceeded interest expense by $78 thousand, thereby resulting in an increase in net assets of $80 thousand over the prior year. The Corporation ended fiscal year 2012 with total assets of $1.9 million, a decrease of $4.2 million from the prior year. Total assets consist of $251 thousand in cash and $1.7 million of leases receivable from the City of Palo Alto. Total liabilities were $1.7 million, a decrease of $4.3 million from the prior year, and included $162 thousand of current liabilities as well as $1.6 million of long-term debt. At the fund level, the Corporation’s revenues exceed its expenditures by $2.1 million. As of June 30, 2012, the Corporation had one fund, the Debt Service Fund, which reported a $251 thousand fund balance, reflecting a $1.0 decrease over the prior year, due to the payment to the escrow account to redeem the 1998 Golf Course COPs. Attachment A CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Management’s Discussion & Analysis (Unaudited) 4 OVERVIEW OF THE CORPORATION’S BASIC FINANCIAL STATEMENTS The Basic Financial Statements are in two parts: 1) 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-term view of the Corporation’s activities as a whole, and comprise the statement of net assets and the statement of activities. The statement of net assets provides information about the financial position of the Corporation as a whole, including all its long-term 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 assets 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 are called the basic financial statements. DEBT ADMINISTRATION The Corporation issues debt in the form of Certificates of Participation (COPs) for future lease receipts from the City of Palo Alto. 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. The 1998 Golf Course COPs were redeemed and the 2002A Civic Center Refinancing COPs were paid off during the fiscal year 2012. As of June 30, 2012, the Corporation has one outstanding debt for 2002B Downtown Parking Improvement projects. ECONOMIC OUTLOOK AND MAJOR INITIATIVES The economy of the City of Palo Alto and its major initiatives for the coming year are discussed in detail in the City’s Comprehensive Annual Financial Report. CONTACTING THE AGENCY’S FINANCIAL MANAGEMENT These Basic Financial Statements are intended to provide citizens, taxpayers, investors, and creditors with a general overview of the Agency’s finances. Questions about these Statements should be directed to the Finance Department of the City of Palo Alto, 250 Hamilton Avenue, CA 94301. Attachment A Assets: Cash and investments held for operations 12,088$ Cash and investments held by trustee 238,745 Investment in leases to City of Palo Alto 1,685,000 Total assets 1,935,833 Liabilities: Interest payable 36,508 Long-term debt: Due in one year 125,000 Due in more than one year 1,560,000 Total liabilities 1,721,508 Net Assets: Restricted for debt service 214,325$ PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Statement of Net Assets June 30, 2012 See accompanying notes to financial statements. 5 Attachment A Expenses: Interest and fiscal agent charges 145,946$ Program revenues: Interest on leases from City of Palo Alto 224,249 Net program revenues 78,303 General Revenues: Investment income 1,867 Change in net assets 80,170 Net assets, beginning of the year 134,155 Net assets, end of the year 214,325$ PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Statement of Activities For the Year Ended June 30, 2012 See accompanying notes to financial statements. 6 Attachment A Assets: Cash and investments held for operations 12,088$ Cash and investments held by trustee 238,745 Investment in leases to City of Palo Alto 1,685,000 Total assets 1,935,833$ Liabilities and Fund Balance: Liabilities: Deferred revenue 1,685,000$ Fund balance restricted for debt service 250,833 Total liabilities and fund balance 1,935,833$ Reconciliation of fund balance to net assets: Fund balance restricted for debt service 250,833$ Accrual adjustment to remove deferred revenue from the balance sheet 1,685,000 Some liabilities, including bonds payable, are not due and payable in the the current period and therefore are not reported in the funds: Interest payable (36,508) Long-term debt due within one year (125,000) Long-term debt due in more than one year (1,560,000) Net assets of governmental activities 214,325$ PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Balance Sheet June 30, 2012 Debt Service Fund See accompanying notes to financial statements. 7 Attachment A Revenues: Lease receipts from City of Palo Alto: Principal 3,181,132$ Interest 224,249 Investment income from cash and investments 1,867 Total revenues 3,407,248 Expenditures: Debt service: Principal repayment 520,000 Interest and fiscal agent charges 214,243 Payment to bond refunding escrow 586,219 Total expenditures 1,320,462 Excess of Revenues over Expenditures 2,086,786 Other Financing (Uses): Payment to bond refunding escrow (3,103,781) Net change in fund balance (1,016,995) Fund balance, beginning of the year 1,267,828 Fund balance, end of the year 250,833$ Reconciliation of net change in fund balance to net change in net assets: Net change in fund balances-total governmental funds (1,016,995)$ Amounts reported for governmental activities in the statement of activities are different because: Repayment of bond principal is an expenditure in the governmental funds, but in the statement of net assets the repayment reduces long-term liabilities. 4,210,000 Some amounts reported in the statement of revenues, expenditures and changes in fund balances reflect the collection of an asset which are not includable as as revenues on the statement of activities. Change in deferred revenue (3,181,132) Change in interest payable 68,297 Change in net assets of governmental activities 80,170$ PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Statement of Revenues, Expenditures and Changes in Fund Balance For the Year Ended June 30, 2012 Debt Service Fund See accompanying notes to financial statements. 8 Attachment A CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to Basic Financial Statements For the Year Ended June 30, 2012 9 NOTE 1 – DESCRIPTION OF REPORTING ENTITY The Palo Alto Public Improvement Corporation (the Corporation) was incorporated in September 1983 under the General Nonprofit Corporation Law of the State of California to acquire, construct and lease capital improvement projects. The Corporation is exempt from federal income taxes under Section 501(c)(4) of the Internal Revenue Code. The Corporation provides financing of public capital improvements for the City through the issuance of Certificates of Participation (COPs), a form of debt which allows investors to participate in a stream of future lease payments. Proceeds from the COPs are used to construct projects which are leased to the City for lease payments which are sufficient in timing and amount to meet the debt service requirements of the COPs. The Corporation is an integral part of the City of Palo Alto. It primarily services the City and its governing body is composed of the City Council. Therefore, the financial data of the Corporation has also been included as a blended component unit within the City’s comprehensive annual financial report for the year ended June 30, 2012. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation Government-wide Statements: The statement of net assets and the statement of activities include the financial activities of the Corporation. Eliminations have been made to minimize the double counting of internal activities. The statement of activities presents a comparison between direct expenses and program revenues for each function of the Corporation’s 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 of goods or services offered by the programs, and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. 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 Corporation’s funds. Separate statements for each governmental fund are presented. The emphasis of fund financial statements is on major individual funds, each of which is displayed in a separate column. (b) Major Funds Major funds are defined as funds that have either assets, liabilities, revenues or expenditures equal to ten percent of their fund-type total and five percent of the grand total. The Corporation has one fund which is reported as a major governmental fund in the accompanying financial statements: Debt Service Fund – This fund accounts for debt service payments on the Corporation’s long-term debt issues. Attachment A CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to Basic Financial Statements For the Year Ended June 30, 2012 10 NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued) (c) Investment in Leases Improvements financed by the Corporation are leased to the City for their entire estimated useful life and will become the City property at the conclusion of the lease. The Corporation therefore records the present value of the lease and considers the leased improvement to have been sold for this amount when leased. (d) Net Assets The government-wide financial statements utilize a net assets presentation. Net assets are categorized as restricted and unrestricted. Restricted Net Assets – This category presents external restrictions imposed by creditors, grantors, contributors or laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation. (e) Fund Balances At June 30, 2012, the Corporation’s governmental funds’ fund balances include the following classification: Restricted Fund Balance – includes 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. (f) Estimates The preparation of basic financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Attachment A CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to Basic Financial Statements For the Year Ended June 30, 2012 11 NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE Under the provisions of the Corporation’s COP issues, a Trustee holds and invests the Corporation’s cash. (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 U.S. Agency obligations: Federal National Mortgage Association 237,670$ 122 days Money Market Mutual Funds 13,163 28 days Total Investments held by Trustee 250,833$ (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. The actual ratings as of June 30, 2012, for the investments in U.S. Agency Obligations and Money Market Mutual Funds are AAA and AAAm, respectively, as provided by Moody’s Investors Services. (c) Investment Policy The Corporation 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 Corporation fails to meet its obligation under these debt issues. The California Government Code requires these funds to be invested in accordance with bond indentures or State statue. All these funds have been invested as permitted under the Code. The Investment Policy is described in detail in the City of Palo Alto 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. The table addresses investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the City rather than by the general provisions of the City’s investment policy. Attachment A CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to Basic Financial Statements For the Year Ended June 30, 2012 12 NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE (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. Government 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 AAA 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 Deposit Accounts 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 10% No Limit (A) (B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution. Debt Agreements: (C) (D) (E) (F) Utility Revenue Bonds 2002 Series A, Golf PIC COP 1998, University Avenue Parking Bond 2001 and University Avenue Parking Bond 2002 are allowed to invest in the California Asset Management Program. Authorized Investment Type Bonds of State of California Municipal Agencies Callable and multi-step securities are limited to no more than 25% of the par value of the portfolio, provided that: 1) the potential call dates are known at the time of purchase, 2) the interest rates at which they "step-up" are known at the time of purchase, 3) the entire face value of the security is redeemed at the call date. Utility Revenue Bonds 2002 Series A and 1999 Series A allow general obligations of states with a minimum credit quality rating of A2/A by Moody's and Standard & Poor's. Utility Revenue Bonds 2002 Series A and 1999 Series A require a minimum credit quality rating of A-1/P-1 by Moody's and Standard & Poor's and maturing after no more than 360 days. Utility Revenue Bonds 1995 limit the maximum maturity to 365 days. Water Revenue Bonds 2009 Series A, Utility Revenue Bonds 2002 Series A and 1999 Series A require a minimum credit quality rating of AAAm or AAAm-G by Standard & Poor's. Attachment A CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to Basic Financial Statements For the Year Ended June 30, 2012 13 NOTE 4 – CERTIFICATES OF PARTICIPATION The Corporation’s changes in long-term debt are presented below: Balance June 30, 2011 Retirements Balance June 30, 2012 Current Portion Governmental Activity Debt: Certificates of Participation 1998 Golf Course 3,690,000$ 3,690,000$ -$ -$ 2002A Civic Center Refinancing 2.00 - 4.00%, due 03/01/2012 405,000 405,000 - - 2002B Downtown Parking Improvemnts 4.55 - 6.50%, due 03/01/2022 1,800,000 115,000 1,685,000 125,000 5,895,000$ 4,210,000$ 1,685,000$ 125,000$ In August 1998, the Corporation issued the Golf Course Capital Improvements and Refinancing Project Certificates of Participation, Series 1998, in the amount of $7.8 million to refund and subsequently retire the 1978 Golf Course Lease Revenue Bonds issued by the City through the Palo Alto Golf Course Corporation and to finance various improvements at the Palo Alto Public Golf Course, including upgrading five fairways and various traps, trees, and greens, constructing new storm drains facilities, replacing the existing irrigation system, upgrading the driving range, and installing new cart paths. Under the terms of the 1998 COPs, the Corporation transferred $473 thousand to an agent for the Golf Course Corporation which used the funds to retire the 1978 Bonds. The 1998 COPs were secured by lease revenues received by the Public Improvement Corporation from golf course revenues or other unrestricted revenues of the City. On August 2, 2011, the City entered into a master lease-purchase agreement with JP Morgan Chase Bank, N.A. Proceeds together with the COPs reserve fund were deposited into an escrow account to redeem all of the COPs in the aggregate amount of $3.7 million. At June 30, 2012, the 1998 COPs were fully redeemed. On January 16, 2002, the Corporation issued the 2002A Civic Center Refinancing Certificates of Participation in the amount of $3.5 million to refund the City’s 1992 Civic Center Project Certificates of Participation. Principal payments for the 2002A COPs are due annually on March 1 and interest payments semi-annually on March 1 and September 1 and are payable from lease revenues from the City from available funds. During the year ended June 30, 2002, the 1992 Civic Center COPs were retired. On January 16, 2002, the Corporation issued the 2002B Downtown Parking Improvements Certificates of Participation in the amount of $3.6 million to finance the construction of certain improvements to the non-parking area contained in the City’s Bryant/Florence Garage complex. Principal payments are due annually on March 1 and interest payments semi-annually on March 1 and September 1 and are payable from lease revenues received from the City from available funds. Attachment A CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION (A Component Unit of the City of Palo Alto) Notes to Basic Financial Statements For the Year Ended June 30, 2012 14 NOTE 4 – CERTIFICATES OF PARTICIPATION (continued) The COPs are payable and secured by lease revenues received by the Public Improvement Corporation from any City General Fund revenue source. Future annual debt service on the 2002B COPs is expected to be provided by the lease receipts discussed above, and is shown below: For the Year Ending June 30 Principal Interest Total 2013 125,000$ 109,525$ 234,525$ 2014 130,000 101,400 231,400 2015 145,000 92,950 237,950 2016 150,000 83,525 233,525 2017 160,000 73,775 233,775 2018-2022 975,000 197,925 1,172,925 Total 1,685,000$ 659,100$ 2,344,100$ Attachment A   REDEVELOPMENT AGENCY OF THE CITY OF PALO ALTO Independent Auditor’s Reports, Management’s Discussion and Analysis, and Basic Financial Statements For the Period from July 1, 2011 through October 7, 2011 Attachment A   Attachment A REDEVELOPMENT AGENCY OF THE CITY OF PALO ALTO For the Period from July 1, 2011 through October 7, 2011 Table of Contents Page Independent Auditor’s Report ................................................................................................................... 1 Management’s Discussion and Analysis (Unaudited) .............................................................................. 3 Basic Financial Statements: Statement of Net Assets and Governmental Fund Balance Sheet .......................................................... 4 Statement of Activities and Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balance ..................................................................... 5 Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual ..................................................................................................... 6 Notes to Basic Financial Statements ....................................................................................................... 7 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 ...................... 11 Attachment A   Attachment A 1 Board of Directors of the Redevelopment Agency of the City of Palo Alto Palo Alto, California Independent Auditor’s Report We have audited the accompanying financial statements of the governmental activities and major fund of the Redevelopment Agency of the City of Palo Alto (Agency), a component unit of the City of Palo Alto (City), as of October 7, 2011 and for the period from July 1, 2011 through October 7, 2011, which collectively comprise the Agency’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Agency’s management. Our responsibility is to express an opinion 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over the Agency’s financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and major fund of the Agency as of October 7, 2011, and the respective changes in financial position thereof, and the respective budgetary comparison for the period from July 1, 2011 through October 7, 2011, in conformity with generally accepted accounting principles in the United States of America. As discussed in Note 1(a) and Note 3 to the basic financial statements, the City Council of the City of Palo Alto passed Ordinance No. 5126 on September 6, 2011 dissolving the Agency effective October 7, 2011. In accordance with Government Auditing Standards, we have also issued our report dated November 26, 2012, on our consideration of the internal control over the Agency’s 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 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Attachment A 2 Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis 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 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. Walnut Creek, California November 26, 2012 Attachment A REDEVELOPMENT AGENCY OF THE CITY OF PALO ALTO Management’s Discussion and Analysis (Unaudited) For the Period from July 1, 2011 through October 7, 2011 3 The Redevelopment Agency of the City of Palo Alto (Agency), a component unit of the City of Palo Alto (City) was formed on July 9, 2001. As discussed in Note 3 to the basic financial statements, the City Council passed Ordinance No. 5126 on September 6, 2011, dissolving the Agency effective October 7, 2011. FISCAL 2012 FINANCIAL HIGHLIGHTS-AGENCY-WIDE BASIS AND FUND BASIS During the period from July 1, 2011 though October 7, 2011, the Agency incurred costs in the amount of $9 thousand. The Agency received a transfer from the City in the amount of $9 thousand to fund these costs. As of the day of dissolution, the Agency had not yet adopted a project area nor received any tax increment revenues. OVERVIEW OF THE AGENCY’S BASIC FINANCIAL STATEMENTS The Basic Financial statements are in two parts: 1) 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 The basic financial statements comprise the government-wide financial statements and the fund financial activities and financial position-long-term and short-term. The government-wide financial statements provide a longer-term view of the Agency’s activities as a whole, and comprise the statement of net assets and the statement of activities. The statement of net assets provides information about the financial position if the Agency as a whole, including all its long- term liabilities on the full accrual basis, similar to that used by corporations. The statement of activities provides information about all the Agency’s revenues and all its expenses, also on the full accrual basis, with the emphasis on measuring net revenues or expenses of the Agency’s program. The statement of activities explains in detail the change in net assets for the year. The fund financial statements report the Agency’s operations in more detail than the Agency-wide statements and focus primarily on the short-term activities. The fund financial statements measure only current assets, liabilities and fund balances. Together, all these statements are now called the basic financial statements. CONTACTING THE AGENCY’S FINANCIAL MANAGEMENT These Basic Financial Statements are intended to provide citizens, taxpayers, investors, and creditors with a general overview of the Agency’s finances. Questions about these Statements should be directed to the Administrative Services Department of the City of Palo Alto, 250 Hamilton Avenue, CA 94301. Attachment A Governmental Redevelopment Activities - General Statement of Fund Adjustments Net Assets Assets: Cash and investments -$ -$ -$ Liabilities: Accounts payable -$ - - Fund balance/net assets: Fund balance: Unassigned - - - Total liabilities and fund balance -$ Net Assets: Unrestricted - - Total net assets -$ -$ REDEVELOPMENT AGENCY OF THE CITY OF PALO ALTO Statement of Net Assets and Governmental Fund Balance Sheet October 7, 2011 See accompanying notes to the financial statements. 4 Attachment A Redevelopment General Statement of Fund Adjustments Activities Expenditures/expenses: Community development: Planning and community reimbursements to the City of Palo Alto 9,377$ -$ 9,377$ General revenues: Intergovernmental revenues from the City of Palo Alto 9,377 - 9,377 Change in fund balance/net assets - - - Fund balance/net assets, Beginning of period - - - End of period -$ -$ -$ REDEVELOPMENT AGENCY OF THE CITY OF PALO ALTO Statement of Activities and Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balance For the Period from July 1, 2011 through October 7, 2011 See accompanying notes to the financial statements. 5 Attachment A Variance with Budgeted Amounts Final Budget Actual Positive Original Final Amounts (Negative) Revenues: Intergovernmental revenues from the City of Palo Alto 8,500$ 8,500$ 9,377$ 877$ Expenditures: Community development: Planning and community reimbursements to the City of Palo Alto 8,500 8,500 9,377 (877) Net change in fund balance -$ -$ - -$ Fund balance, beginning of period - Fund balance, end of period -$ REDEVELOPMENT AGENCY OF THE CITY OF PALO ALTO Redevelopment General Fund Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Period from July 1, 2011 through October 7, 2011 See accompanying notes to the financial statements. 6 Attachment A REDEVELOPMENT AGENCY OF THE CITY OF PALO ALTO Notes to Basic Financial Statements For the Period from July 1, 2011 through October 7, 2011 7 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization and Purpose The Redevelopment Agency (Agency) of the City of Palo Alto was created on July 9, 2001, under the provisions of the Redevelopment Law (California Health and Safety Code). The City Council of the City of Palo Alto (City) serves as the governing body of the Agency and the City Manager serves as the Executive Director. On September 19, 2001, the Edgewood Redevelopment Project Area (Edgewood Plaza) was designated as a survey area and the process for the adoption of the redevelopment plan was initiated. The redevelopment plan for Edgewood Plaza was not ultimately adopted by the City Council. The City has not designated any other redevelopment project areas for revitalization. The Agency is an integral part of the City and, accordingly, the accompanying financial statements are included as a blended component unit of the basic financial statements prepared by the City. A component unit is a separate governmental unit, agency or nonprofit corporation which, when combined with all other component units, constitutes the reporting entity as defined in the City’s basic financial statements. On September 6, 2011, pursuant to Health & Safety Code Section 33140, the City Council of the City of Palo Alto passed Ordinance No. 5126 dissolving the Agency, effective October 7, 2011 (see Note 3). (b) Financial Statement Presentation The Agency’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 of America. These standards require that the financial statements described below be presented. Government-wide Statements: The statement of net assets and the statement of activities include the financial activities of the overall Agency government. Eliminations have been made to minimize the double counting of internal activities. The statement of activities presents a comparison between direct expenses and program revenues for each function of the Agency’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 of goods or 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 Agency. The Agency considers the Redevelopment Agency General Fund to be a major fund. Attachment A REDEVELOPMENT AGENCY OF THE CITY OF PALO ALTO Notes to Basic Financial Statements For the Period from July 1, 2011 through October 7, 2011 8 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (c) Major Funds Major funds are defined as funds that have either assets, liabilities, revenues or expenditures/expenses equal to ten percent of their fund-type total and five percent of the grand total. Major funds are identified and presented separately in the fund financial statements. The Agency reported the following major governmental fund in the accompanying financial statements: Redevelopment General Fund - This fund accounts for the activities of establishing and administering the Redevelopment Agency. (d) Basis of Accounting The Agency-wide financial statements are reported using the economic resources measurement focus and the full 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 flow takes 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 Agency considers all revenues reported in the governmental funds to be available if the revenues are 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 in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources. Non-exchange transactions, in which the Agency gives or receives value without directly receiving or giving equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Other revenues susceptible to accrual include taxes, intergovernmental revenues, interest and charges for services. (e) Budgets and Budgetary Accounting Budgets are adopted on a basis consistent with generally accepted accounting principles (GAAP). Budget amounts in the financial statements are as originally adopted, or as amended by the Board. Formal budgetary integration is employed as a management control device. Encumbrance accounting is employed as an extension of formal budgetary integration in all funds. Under encumbrance accounting, purchase orders, contracts and other commitments for the expenditure or monies are recorded in order to reserve that portion of the applicable appropriation. Encumbrances outstanding at year end are reported as reservations of fund balances since they do not constitute expenditures or liabilities and are reappropriated in the following year. Attachment A REDEVELOPMENT AGENCY OF THE CITY OF PALO ALTO Notes to Basic Financial Statements For the Period from July 1, 2011 through October 7, 2011 9 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (f) Net Assets Net assets are the excess of all the Agency’s assets over all its liabilities. Net assets, which are determined only at the Agency-wide level, were zero at October 7, 2011. NOTE 2 – TRANSACTIONS WITH THE CITY During fiscal year 2001-02, the City established the Redevelopment Agency. The Agency and the City have an agreement whereby the City will advance funds to the Agency in support of startup and formation costs. However, the interfund advances have no specific repayment date. Generally accepted accounting principles require that such amounts as well as the repayments be treated as transfers in the year made. NOTE 3 – DISSOLUTION OF THE REDEVELOPMENT AGENCY In June 2011, the California legislature adopted Assembly Bill x1 26 (“AB x1 26” or the “Dissolution Bill”). The Dissolution Bill immediately suspends all new redevelopment activities and incurrence of indebtedness, and dissolves redevelopment agencies. In response to the newly enacted legislation, the City concluded that the Agency has not identified a qualifying redevelopment project area and has not conducted any redevelopment activities, including redeveloping or acquiring land, entering into contracts, issuing bonds or incurring housing obligations, since its formation. As a result, pursuant to Health & Safety Code Section 33140, the City Council of the City of Palo Alto adopted Ordinance No. 5126 on September 6, 2011 to dissolve the Agency effective October 7, 2011. Attachment A 10 This Page Intentionally Left Blank. Attachment A 11 Board of Directors of the Redevelopment Agency of the City of Palo Alto Palo Alto, California 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 We have audited the financial statements of the governmental activities and major fund of the Redevelopment Agency of the City of Palo Alto (Agency), a component unit of the City of Palo Alto (City), California, as of October 7, 2011 and for the period from July 1, 2011 through October 7, 2011, which collectively comprise the Agency’s basic financial statements, and have issued our report thereon dated November 26, 2012. Our report includes an explanatory paragraph indicating that the Agency was dissolved, effective October 7, 2011. 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. Internal Control over Financial Reporting Management of the Agency is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the City’s internal control over financial reporting related to the Agency as a basis for designing our auditing procedures 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 over financial reporting related to the Agency. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over financial reporting related to the Agency. 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 misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the Agency’s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Attachment A 12 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Agency’s financial statements are free of 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. This report is intended solely for the information and use of the Governing Board of the Agency, management, pass-through entities, and the State Controller’s Office and is not intended to be and should not be used by anyone other than these specified parties. Walnut Creek, California November 26, 2012 Attachment A   CABLE TV FRANCHISE Statements of Franchise Revenues and Expenditures For the Years Ended December 31, 2011 and 2010 Attachment A   Attachment A CABLE TV FRANCHISE Table of Contents Page Independent Auditor’s Report ....................................................................................................................... 1 Financial Statements: Statements of Franchise Revenues and Expenditures ............................................................................. 2 Notes to the Financial Statements ........................................................................................................... 3 Attachment A   Attachment A 1 The Members of the Cable TV Franchise Independent Auditor’s Report We have audited the accompanying Statements of Franchise Revenues and Expenditures of the Cable TV Franchise (Franchise) for the years ended December 31, 2011 and 2010, as listed in the table of contents. These financial statements are the responsibility of the City’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis of designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Franchise’s internal control over the financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1 to the financial statements, the statements referred to above were prepared for the purpose of complying with the provisions of the Amended and Restated Joint Exercise of Powers Agreement signed on June 9, 2009, between the City of Palo Alto, the City of East Palo Alto, the City of Menlo Park, the County of San Mateo, the County of Santa Clara and the Town of Atherton, for the provision of cable television and video services, and are not intended to be a presentation in accordance with generally accepted accounting principles in the United States of America. In our opinion, the financial statements referred to above present fairly, in all material respects, the revenues and expenditures of the Franchise for the years ended December 31, 2011 and 2010, on the basis of accounting described in Note 1. This report is intended for the information of the members, management, and others within the City of Palo Alto, the City of East Palo Alto, the City of Menlo Park, the County of San Mateo, the County of Santa Clara and the Town of Atherton. However, this report is a matter of public record and its distribution is not limited. Walnut Creek, California November 26, 2012 Attachment A 2011 2010 Revenues: Franchise fees $ 1,594,217 $ 1,551,464 Expenditures: Franchise administration 74,147 61,418 Consulting fees 4,512 14,384 Total expenditures 78,659 75,802 Net receipts $ 1,515,558 $ 1,475,662 Amount Percent Amount Percent Allocation of Net Receipts: City of Palo Alto $ 750,929 49.5% $ 730,938 49.5% City of Menlo Park 401,155 26.5% 390,098 26.4% City of East Palo Alto 146,251 9.6% 141,683 9.6% Town of Atherton 107,056 7.1% 104,044 7.1% County of Santa Clara 78,879 5.2% 78,097 5.3% County of San Mateo 31,288 2.1% 30,802 2.1% Total $ 1,515,558 100.0% $ 1,475,662 100.0% CABLE TV FRANCHISE Statements of Franchise Revenues and Expenditures For the Years Ended December 31, 2011 and 2010 2011 2010 See accompanying notes to the financial statements. 2 Attachment A CABLE TV FRANCHISE Notes to Financial Statements For the Years Ended December 31, 2011 and 2010 3 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 (the “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 (the “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, 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 Broadband to Comcast Corporation. 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. The activities are administered by the City and are accounted for as part of the Administrative Services Department within the General Fund of the City’s basic financial statements. The program is accounted for using the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual (both measurable and available) and expenditures 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 expenditures 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 of Palo Alto 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. Attachment A CABLE TV FRANCHISE Notes to Financial Statements For the Years Ended December 31, 2011 and 2010 4 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 of Palo Alto 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. In addition, CCCOPA paid the City a $250,000 grant to use to acquire, install, and/or maintain equipment to be used in connection with an institutional network defined in the Franchise Agreement. These amounts have been deposited and are being held by the City and are earning interest. The City has since spend part of the settlements amount on various projects including installing and maintaining the institutional network equipment. As of December 31, 2011, remaining total amount on deposit, including $6,653 in interest receivable, was $922,879. Attachment A  CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Independent Auditor’s Report For the Year Ended June 30, 2012 Attachment A   Attachment A CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Table of Contents Page Independent Auditor’s Report ....................................................................................................................... 1 Statement of Net Expenditures and Net Changes in Commitments ............................................................. 3 Statement of Quarterly Billings .................................................................................................................... 4 Notes to the Financial Statements ................................................................................................................. 5 Attachment A   Attachment A 1 The Honorable Mayor and Members of City Council of the City of Palo Alto, California Independent Auditor’s Report We have audited the accompanying Statements of Net Expenditures and Net Changes in Commitments and Quarterly Billings (financial statements) of the City of Palo Alto Regional Water Quality Control Plant (Plant), an enterprise operation of the City of Palo Alto (City), for the year ended June 30, 2012. These financial statements are the responsibility of the City’s management. Our responsibility is to express an opinion 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over the Plant’s financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note 2, the financial statements referred to above were prepared for the purpose of complying with the provisions of the Basic Agreement between the City of Palo Alto, the City of Mountain View, and the City of Los Altos for the Acquisition, Construction and Maintenance of a Joint Sewer System dated October 10, 1968, and subsequent letters of agreement dated December 5, 1977, January 14, 1980, April 9, 1985, July 3, 1990, July 31, 1992, and March 16, 1998, and is not intended to be a presentation in accordance with generally accepted accounting principles in the United States. In our opinion, the financial statements referred to above present fairly, in all material respects, the net expenditures and net changes in commitments of the Regional Water Quality Control Plant, and its quarterly billings to the Cities of Mountain View and Los Altos for the year ended June 30, 2012, on the basis of accounting described in Note 2. This report is intended solely for the information and use of the Mayor, Members of the City Council, management, and others within the City of Palo Alto, and the Cities of Mountain View and Los Altos and is not intended to be and should not be used by anyone other than these specified parties. Walnut Creek, California November 26, 2012 Attachment A 2 This Page Intentionally Left Blank. Attachment A CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Statement of Net Expenditures and Net Changes in Commitments For the Year Ended June 30, 2012 City of City of City of Total Mountain View Los Altos Palo Alto Direct Expenditures: Source control program 1,217,444$ 447,897$ 114,561$ 654,986$ Public outreach 102,311 37,640 9,628 55,043 Permitting and enforcement 972,411 278,342 16,636 677,433 Operations and maintenance 11,873,838 4,368,384 1,117,327 6,388,127 System improvement CIP (Note 3) 1,172,550 431,381 110,337 630,832 Total Direct Expenditures 15,338,554 5,563,644 1,368,489 8,406,421 Indirect Administrative Expenditures: Source control program 1,122,271 412,884 105,606 603,781 Public outreach 529 195 50 284 Permitting and enforcement 452,307 256,932 15,357 180,018 Operations and maintenance 2,074,838 763,333 195,242 1,116,263 Total Indirect Expenditures 3,649,945 1,433,344 316,255 1,900,346 Debt Service Expenditures: Refunding 1990 Series A Bonds 284,847 145,272 22,218 117,357 1999 Wastewater Treatment New Project 540,557 204,817 51,191 284,549 2009 State Water Resource Loan 555,726 210,565 52,627 292,534 Total Debt Service Expenditures 1,381,130 560,654 126,036 694,440 Total Expenditures 20,369,629 7,557,642 1,810,780 11,001,207 Deduct Joint Systems Revenues (Note 6) (279,242) (102,733) (26,277) (150,232) Net Expenditures 20,090,387 7,454,909 1,784,503 10,850,975 Add Net Changes in Commitments 1,809,126 665,577 170,239 973,310 Net Expenditures and Net Changes in Commitments Due from Members 21,899,513$ 8,120,486$ 1,954,742$ 11,824,285$ See accompanying notes to the financial statements. 3 Attachment A CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Statement of Quarterly Billings For the Year Ended June 30, 2012 City of City of Mountain View Los Altos Billings by Quarter, Beginning: July 1, 2011 1,739,365$ 488,555$ October 1, 2011 2,032,474 558,498 January 1, 2012 1,739,365 488,555 April 1, 2012 2,006,622 544,546 Total quarterly billings 7,517,826 2,080,154 Net expenditures and net changes in commitments 8,120,486 1,954,742 Deficiency of total billings over (under) net expenditures and net changes in commitments (602,660)$ 125,412$ See accompanying notes to the financial statements. 4 Attachment A CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Notes to the Financial Statements For the Year Ended June 30, 2012 5 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 for a period of 50 years as set forth in the Basic Agreement between the City of Palo Alto, the City of Mountain View and the City of Los Altos for Acquisition, Construction and Maintenance of a Joint Sewer System dated October 10, 1968 and subsequent letters of agreement dated December 5, 1977, January 14, 1980, April 9, 1985, July 3, 1990, July 31, 1992 and March 16, 1998. The original agreement, as amended, may terminate any time after 50 years provided that written notice of withdrawal is tendered ten years preceding the date of withdrawal. 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 net changes in commitments 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, commitments and joint system revenues, debt service and industrial waste compliance expenditures are shared by the Members based on agreed upon allocation percentages. The expenditures and commitments, 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. Commitments represent operating encumbrances with suppliers for long-term projects, which have not yet been completed. Net changes in commitments represent commitments of $3,775,622 at June 30, 2012, less commitments of $1,966,496 at June 30, 2011. Revenues from services, fines and penalties are allocated to each of the Members in the same proportions as those of expenditures and commitments. 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 EPA regulations. Attachment A CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Notes to the Financial Statements (continued) For the Year Ended June 30, 2012 6 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The percentages used for the year ended June 30, 2012, to allocate expenditures, commitments and revenues were: City of City of City of Mountain View Los Altos Palo Alto Public outreach, source control program, operations and maintenance, system improvement CIP, commitments and joint system revenues 36.79%9.41%53.80% Debt Services Expenditures: Refunding 1990 Series A Bonds 51.00%7.80%41.20% 1999 Wastewater Treatment New Project 37.89%9.47%52.64% 2009 State Water Resources Loan 37.89%9.47%52.64% Permitting and enforcement 37.57%2.25%60.18% The City is allocated 53.80% 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 its excess to other entities. Fiscal year 2012 allocations are as follows: East Palo Alto Sanitary District 6.42% Stanford University 6.13% Town of Los Altos Hills 1.17% Remaining City Percentages 40.08% Total 53.80% 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 and net changes in commitments are offset against the subsequent year payments during the second quarter of the subsequent fiscal year. NOTE 3 – SYSTEM IMPROVEMENT CIP (MINOR CAPITAL) 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 futures 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-Oakland-San Jose area. Actual System Improvement CIP expenditures amounted to $1,172,550 for fiscal year 2012. Attachment A CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Notes to the Financial Statements (continued) For the Year Ended June 30, 2012 7 NOTE 4 – INDIRECT ADMINISTRATIVE EXPENDITURES Indirect expenditures include those costs allocated from the City’s General Fund administrative services, which supports all operating departments of the City. Other indirect expenses are administrative charges from the City’s Internal Services Funds. These allocations are applied on a uniform basis throughout the City. The allocations are in accordance with the subsequent letter of agreement dated April 9, 1985. NOTE 5 – DEBT SERVICE EXPENDITURES Debt service expenditures include principal repayments, interest expenses and amortization of bond discount reduced by any interest income earned from cash with fiscal agent, related to the 1999 Series A Bonds (split for the portions used for the “New Project” and refunding of the 1990 Series A Bonds) and the 2009 State Water Resources loan. In prior years, the City, City of Mountain View, City of Los Altos, Town of Los Altos Hills, East Palo Alto Sanitary District and Stanford University agreed to issue new bonds (1999 Series A Bonds) to finance the rehabilitation of the Wastewater Treatment System’s two sludge incinerators and to refund the existing 1990 Series A Bonds. In October 2009, the City approved the 2009 State Water Resources Loan to finance the Ultraviolet Disinfection Project. 1999 Wastewater Refunding of 2009 Treatment 1990 Series A State Water New Project Bonds Resources Loan Total City of Palo Alto 1,783,980$ 612,308$ 3,147,985$ 5,544,273$ City of Mountain View 1,771,358 1,249,108 3,125,712 6,146,178 City of Los Altos 442,722 191,040 781,222 1,414,984 East Palo Alto Sanitary District 357,170 291,459 630,257 1,278,886 Stanford University 245,905 100,419 433,920 780,244 Town of Los Altos Hills 73,865 4,898 130,341 209,104 Total 4,675,000$ 2,449,232$ 8,249,437$ 15,373,669$ 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 $1,647,300 issued by Ambac Indemnity Corporation (renamed to Ambac Assurance Corporation in 1997). On November 9, 2010, Ambac Financial Group Inc. (Ambac Financial) filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. Ambac Financial is a holding company whose affiliates provide financial guarantees and financial services to its customers. Ambac Indemnity Corporation, now known as Ambac Assurance Corporation, is a subsidiary of Ambac Financial. Ambac has issued a reserve fund surety bond of $1,647,300 that expires on June 1, 2024 and is on deposit in the Reserve Fund account securing the Bonds. Attachment A CITY OF PALO ALTO REGIONAL WATER QUALITY CONTROL PLANT Notes to the Financial Statements (continued) For the Year Ended June 30, 2012 8 NOTE 5 – DEBT SERVICE EXPENDITURES (Continued) According to the Trust Agreement for these bonds, in the event that such surety bond for any reason terminates or expires, and the remaining amount on deposit in the Reserve Fund account is less than the required reserve, the City is to address such shortfall by delivering to the trustee a surety bond or a letter of credit meeting the criteria of a Qualified Reserve Facility under the Trust Agreement, or depositing cash to the General Account in up to twelve equal monthly installments. Information about Ambac Financial is available on Form 10-K and Form 10-Q filed by Ambac Financial; the City refers to this information for reference only, and does not intend to incorporate any such information herein. The City is not certain about the effect of the bankruptcy proceedings, if any, on the Surety Bond. NOTE 6 – JOINT SYSTEM REVENUES The Plant’s joint system revenues for the year ended June 30, 2012 total $279,242, which consisted of the following: Salt water marsh services 7,500$ Laborartory services from the City's Water Fund 44,841 Septic hauling services 156,701 Other revenues 70,200 279,242$ NOTE 7 – RELATED PARTY TRANSACTIONS During fiscal year 2012, the Plant paid the City $2,056,838 for utility costs. Such costs are included in the Statement of Net Expenditures and Net Changes in Commitments as source control program, permitting and enforcement, and operations and maintenance expenditures. Vehicle replacement charges of $25,971 were paid to the City’s Equipment Replacement Fund, which is included in the Statement of Net Expenditures and Net Changes in Commitments as operations and maintenance expenditures. Attachment A   CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND (A Fund of the City of Palo Alto) Independent Auditor’s Reports, Financial Statements, and Independent Accountant’s Report For the Year Ended June 30, 2012 Attachment A   Attachment A CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND (A Fund of the City of Palo Alto) Table of Contents Page Independent Auditor’s Report ................................................................................................................... 1 Basic Financial Statements: Balance Sheet ......................................................................................................................................... 3 Statement of Revenues, Expenditures and Changes in Fund Balance .................................................... 4 Notes to the Financial Statements ........................................................................................................... 5 Other Reports: 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 .............................................................. 9 Independent Accountant’s Report on Compliance with Measure N ........................................................... 11 Status of Current Year and Prior Year Findings ......................................................................................... 13 Attachment A   Attachment A 1 The Honorable Mayor and Members of City Council of the City of Palo Alto, California Independent Auditor’s Report We have audited the accompanying financial statements of the City of Palo Alto General Obligation Bonds Capital Projects Fund (the Fund), a fund of the City of Palo Alto (City), as of and for the year ended June 30, 2012, as listed in the table of contents. These financial statements are the responsibility of the City’s management. Our responsibility is to express an opinion 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis of designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over the Fund’s financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 2(a) to the financial statements, the financial statements of the Fund are intended to present the financial position and the changes in financial position of only that portion of the governmental activities and the nonmajor governmental funds of the City that is attributable to the activities of the Fund. They do not purport to, and do not, present fairly the financial position of the City as of June 30, 2012 and the changes in its financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Fund as of June 30, 2012, and the changes in financial position thereof for the year then ended, in conformity with generally accepted accounting principles in the United States of America. Attachment A 2 In accordance with Government Auditing Standards, we have also issued our report dated November 26, 2012 on our consideration of the City’s internal control over the Fund’s 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 to describe the scope of our testing of the City’s internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Management has not presented the management’s discussion and analysis that governmental accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing 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. Our opinion on the financial statements is not affected by this missing information. Walnut Creek, California November 26, 2012 Attachment A Assets: Restricted cash and investments (Note 3) with the City Treasury - CAMP 21,968,232$ Liabilities and Fund Balance: Liabilities: Accounts payable and accrued liabilities 617,994$ Fund Balance: Restricted for capital projects 21,350,238 Total liabilities and fund balance 21,968,232$ CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND Balance Sheet June 30, 2012 (A Fund of the City of Palo Alto) See accompanying notes to financial statements. 3 Attachment A Revenues: Interest on cash and investments 54,961$ Expenditures: Capital outlay: Downtown Library 468,194 Mitchell Park Library and Community Center 9,704,597 Main Library New Construction and Improvements 935,379 Temporary Facility 96,304 Total capital outlay 11,204,474 Debt service - other fees 6,333 Intergovernmental expenditures 3,456,075 Total expenditures 14,666,882 Net change in fund balance (14,611,921) Fund balance, beginning of the year 35,962,159 Fund balance, end of year 21,350,238$ Changes in Fund Balance For the Year Ended June 30, 2012 CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND Statement of Revenues, Expenditures and (A Fund of the City of Palo Alto) See accompanying notes to financial statements. 4 Attachment A CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND (A Fund of the City of Palo Alto) Notes to the Financial Statements For the Year Ended June 30, 2012 5 NOTE 1 – BACKGROUND On November 4, 2008, more than two thirds of registered voters of the City of Palo Alto (City) approved Measure N and authorized the issuance and sale of general obligation bonds not to exceed $76,000,000 to be used to construct a new energy-efficient Mitchell Park Library and Community Center, expand and renovate the Main Library, and renovate the Downtown Library. Funds will also be used to provide additional space to expand library collections, add new children’s and group program areas, replace outdated lighting, provide modern ventilation and air conditioning systems and ensure seismic safety and enhance disabled access. On June 9, 2010, the City issued General Obligation Bonds, Election of 2008, Series 2010A (Library Bonds) to finance the costs of constructing a new energy efficient, environmentally friendly Mitchell Park Library and Community Center, renovating and expanding Main Library, and renovating the Downtown Library, including enhancements at all three facilities for seismic safety and disabled access, expanded space for library collections, meeting and study areas, and new air conditioning, ventilation and lighting systems (the “Project”). Proceeds from the Library Bonds included par of $55,305,000 and a premium on issue of $3,766,208 for a total of $59,071,208. The Bonds are the first of two series of bonds to be sold and issued under the Authorization to finance a portion of the Project. As of June 30, 2012, $20,695,000, of the Authorization remains unissued. Specific projects approved by Council to be funded by the Library Bonds are as follows: Amended Budget Expenditures Not Charged to Bond Proceeds Cumulative Bond Eligible Expenditures Encumbrances Outstanding Project Balance Remaining Downtown Library Improvements 5,559,772$ 350,934$ 4,147,555$ 60,671$ 1,351,546$ Mitchell Park Library 50,204,483 1,077,560 27,912,126 12,558,648 9,733,709 Library and Community Center Temporary Facility 794,976 155,116 504,597 25,772 264,607 Main Library New Construction and Improvements 2,103,825 255,460 1,677,257 426,568 - Temporary Facility 500,000 - 96,435 323,012 80,553 Total 59,163,056$ 1,839,070$ 34,337,970$ 13,394,671$ 11,430,415$ Project As of June 30, 2012 NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation The accompanying financial statements present only the financial position and the changes in financial position of the General Obligation Bonds Capital Projects Fund (Fund) and do not purport to, and do not, present fairly the City’s financial position as of June 30, 2012, and the changes in its financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. Attachment A CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND (A Fund of the City of Palo Alto) Notes to the Financial Statements For the Year Ended June 30, 2012 6 NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (b) Basis of Presentation A capital projects fund (governmental fund) is used to account for the City’s General Obligation Bond Projects activities. Capital projects funds are used to account for financial resources (e.g., bond proceeds and investment income) that are restricted, committed, or assigned to expenditures for capital outlays, including the acquisition of land or acquisition and construction of major governmental facilities. This fund is a set of self-balancing accounts which comprise its assets, liabilities, fund balance, revenues and expenditures. (c) Basis of Accounting Basis of accounting refers to when revenues and expenditures are recognized. The projects are accounted for in a governmental fund type, and the modified accrual basis of accounting is used. Under the modified accrual basis, revenues are recognized when they become measurable and available as net current assets. Expenditures are recognized when they are incurred. The City considers revenues susceptible to be available if the revenues are collected within ninety days after year-end, except for property taxes, which are collected within sixty days after year-end. (d) Fund Balance Fund balance is reported in specific classifications (nonspendable, restricted, committed, assigned and unassigned), which create a hierarchy primarily based on the extent to which the Fund is bound to the constraints of the specific purposes for which funds can be spent. The Fund only has restricted fund balance at June 30, 2012. Restricted fund balance includes amounts when constraints placed on use of resources are either: (1) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or (2) imposed by law through constitutional provisions or enabling legislation. The City will spend the most restricted dollars in accordance with restrictions imposed before less restricted resources in the following order: (a) committed; (b) assigned and (c) unassigned. (e) Intergovernmental Expenditures The Fund transferred $3.5 million to the City in order to allocate the bond premium of the 2010 General Obligation Bonds to the City’s debt service fund during the year ended June 30, 2012. (f) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts and disclosures. Accordingly, actual results may differ from those estimates. Attachment A CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND (A Fund of the City of Palo Alto) Notes to the Financial Statements For the Year Ended June 30, 2012 7 NOTE 3 – RESTRICTED CASH AND INVESTMENTS The Fund’s investments are carried at fair value, as required by generally accepted accounting principles. The Fund adjusts the carrying value of its investments to reflect their fair value at each fiscal year end, and it includes the effects of these adjustments in revenues for that fiscal year. (a) Project Funds Investment Policy Pursuant to terms of the Trust Agreement, bond proceeds to be used for project costs were remitted to and are maintained by the City as agent for the Bondholders. The City’s Investment Policy allows it to invest in a variety of types of investments subject to maturity maximums, concentration limitations, and minimum credit quality requirements. Allowed investment types are limited to investments permitted by subdivisions (a) to (n), inclusive, of Section 53601 of the California Government Code, which includes 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. CAMP’s investments are limited to investments permitted by subdivisions (a) to (n), inclusive, of Section 53601 of the California Government Code. The Fund reports its investments in CAMP at the fair value amounts provided by CAMP, which is the same as the value of the pool share. (b) Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Normally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. Information about the sensitivity of the fair values of the Fund’s investments to market interest rate fluctuations is provided by the following table that shows the distribution of the Fund’s investments by maturity: Investment Type Amount Maturity Date Credit Rating California Asset Management Program 21,968,232$ 53 days AAAm (c) 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 an external investment pool, the California Asset Management Program was rated AAAm as of June 30, 2012. Attachment A 8 This page left intentionally blank. Attachment A 9 The Honorable Mayor and Members of City Council of the City of Palo Alto, California 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 We have audited the financial statements of the City of Palo Alto General Obligation Bonds Capital Projects Fund (the Fund), a fund of the City of Palo Alto, as of and for the year ended June 30, 2012, and have issued our report thereon dated November 26, 2012. Our report includes an explanatory paragraph describing that the financial statements of the Fund present the financial position and changes in financial position of only that portion of the governmental activities and the nonmajor funds of the City that is attributable to the activities of the Fund and an explanatory paragraph describing management’s omission of the management’s discussion and analysis required by accounting principles generally accepted in the United States of America. We conducted our audit in accordance with generally accepted auditing standards 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. Internal Control over Financial Reporting Management of the City is responsible for establishing and maintaining effective internal control over the Fund’s financial reporting. In planning and performing our audit, we considered the City’s internal control over the Fund’s financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over the Fund’s financial reporting. 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 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. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Fund’s financial statements are free of 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 Attachment A 10 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 and other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the City Council, the Oversight Committee, the City Auditor and the City’s management and is not intended to be and should not be used by anyone other than these specified parties. Walnut Creek, California November 26, 2012 Attachment A 11 The Honorable Mayor and Members of City Council of the City of Palo Alto, California Independent Accountant’s Report on Compliance with Measure N We have examined the City of Palo Alto’s (City) compliance with certain provisions of Measure N for the year ended June 30, 2012, as follows: a) Proceeds from the sale of the Bonds were used only for the purposes specified in Measure N. b) Proceeds for the Bonds were deposited into a Library/Community Center Project Construction Fund held by the City; and c) The Administrative Services Director of the City filed an annual report with the City Council commencing not later than November 1, 2011, containing pertinent information regarding the amount of funds collected and expended, as well as the status of the Library/Community Center project listed in the Measure. Management is responsible for the City’s compliance with those requirements. Our responsibility is to express an opinion on the City’s compliance based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants and accordingly, included 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 examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the City’s compliance with specified requirements. In our opinion, the City complied, in all material respects, with the aforementioned requirements for the year ended June 30, 2012. This report is intended solely for the information and use of the City Council, the Oversight Committee, the City Auditor and the City’s management and is not intended to be and should not be used by anyone other than these specified parties. Walnut Creek, California November 26, 2012 Attachment A 12 This page left intentionally blank. Attachment A CITY OF PALO ALTO GENERAL OBLIGATION BONDS CAPITAL PROJECTS FUND (A Fund to the City of Palo Alto) Status of Current Year and Prior Year Findings For the Year Ended June 30, 2012 13 Current Year Findings: No matters were noted. Status of Prior Year Findings: No matters were noted. Attachment A FINANCE COMMITTEE DRAFT MINUTES Special Meeting December 4, 2012 Chairperson Shepherd called the meeting to order at 5:05 P.M. in the Council Conference Room, 250 Hamilton Avenue, Palo Alto, California. Present: Burt, Price, Scharff arrived at 5:07 P.M., Shepherd (Chair) Absent: Oral Communications None Agenda Items 1. Recommendation Regarding Adoption of Ordinance Authorizing Closing of the Budget for the Fiscal Year Ending June 30, 2012, Including Re-appropriation Requests, Closing Completed Capital Improvement Projects, Authorizing Transfers to Reserves and Approval of Comprehensive Annual Financial Report (CAFR). David Bullock, Macias, Gini and O’Connell Certified Public Accountant said, beginning with the Management Letter, there was an Unqualified or Clean Opinion, implemented into the audit, meaning there were no qualifications made when financial statements were rendered. The Management Letter stated the findings, while the Required Communications Document outlined standards, like the responsibility of the auditor. Mr. Bullock expressed an opinion on the Fairness of Findings, according to generally accepted accounting principles and said his firm did not look at internal controls in general, but looked at internal controls to insure there were proper checks and balances. He communicated that any changes in consistency were made in fund balances but this year there were no changes or corrections. They looked at disagreements with management but there were none. Then they looked at the Current Year Recommendations and last year there were eight, five of which were still in progress. Two other recommendations dealt with Capital Assets Policy with regard to software updates and retention payable. They had a finding in the Federal Awards of Assistance single audit and said some reporting requirements made to past recipients went unnoticed. A major change dealt with Pension Reporting Attachment B FINANCE COMMITTEE DRAFT MINUTES Requirements and he said this was going to impact the City significantly. Any time there was a new pronouncement, agencies were given time to implement them. Governmental Accounting Standards Board (GASB), an agency responsible for generally accepted accounting principles outlined how governments recorded their pensions going forward from now. In the past funding progress was reported in foot notes. He said GASB was moving from Measurement Based Accounting method to Economic Based Accounting. That changed the discount rate because currently there was leeway given to people who used the Long Term Rate of Return. This caused the interest rate to go down, which changed the calculation of the obligation. In addition, the Liability was becoming a Disclosure, but now it was recognized on the Financial Statements. This did not hit the General Fund Statements, which dealt with current assets and liabilities, but it changed the big picture on the government wide financial statements. Council Member Price asked if entities were going to have to use the same accounting practices. Mr. Bullock said there was going to be consistency among governments and there were six different measurement methods that agencies could use. The Entry Age Norm was going to be used by all and a lot of the assumptions were going to have new parameters. An example of a parameter was having different amortizations schedules or adjusting interest rates based off the future outlook. These changes offered less leeway on those assumptions. Council Member Price commented that there was more standardization. Chair Shepherd said Council handled the decision there were eight different choices. Mr. Bullock said it showed the liability of decisions made. Vice Mayor Scharff asked what the practical effect was that worsened things. Mr. Bullock said it depended on the how conservative the calculations were over the years and he did not think bond ratings were going to go down. Mr. Perez explained the exit fee for California Public Employees Retirement System (CalPERS) and said it connected people to the 30 year United States Treasury bond. The standard operation for June 30, 2011 was at 4.82 Attachment B FINANCE COMMITTEE DRAFT MINUTES percent, the current outstanding liability rate was 7.5 percent, and in an actuality basis it was $117 million for miscellaneous, 79 percent funded. Staff was trying to make more of an annual contribution and they had two tiers in place, with a third on its way. The pension cost went up, resembling a bell curve and it took time to see the effects of the downward bell curve. This change was going to hit salary and the numbers around the percentage of the workforce hard. Council Member Burt asked when Council would discuss the changes. Mr. Perez said CalPERS needed to present the projected cost for the third tier first. Staff had some data and made some assumptions for cost at age 60; the miscellaneous age was 46, so the turnover was likely going to be high. He said if Staff were not able to handle the situation, they would seek help from Bartel Associates. Council Member Burt asked about when Staff looked at the average age of retirement, were they calculating at the average vesting age as well. Mr. Perez said yes, the average entry age was 36. Council Member Burt wanted to clarify with Staff on what he meant with the average entry age and the chronological age because the average year for a vested person was 10 years if the person had a 30 year career. If they entered the old formula, then they would be under the old system guidelines, whereas if a person entered the system later, they would be under a later formula and would be under the new contract. Mr. Perez said the average age a person entered the CalPERS system with another agency was not included in this data. Council Member Burt confirmed that the figures included only average entries into the Palo Alto system only. Mr. Perez said these figures reflected the Palo Alto system. He said they were going to meet with the Actuary next week and would ask those questions at that time. Chair Shepherd thought this discussion would be better continued next year. Mr. Perez said Staff would not be able to guarantee the all cost changes but would start the discussion. Attachment B FINANCE COMMITTEE DRAFT MINUTES Chair Shepherd said the uniform reporting would help show the State what the problem was with the cities. She said a Burlingame Council Member said the Actuary was $80 million and their General Fund Budget was $40 million; she said that made Palo Alto look healthy. Mr. Bullock said in addition to the Comprehensive Annual Financial Report (CAFR) and the single audit, there was the Library Bond audit, the Cable Television audit, the Regional Water Control Plant audit, and Transportation Development Act (TDA) Funds audit. He said there were two components units: the Redevelopment Agency, which was dissolved, and the Public Improvement Corporation. Jim Pelletier, City Auditor said he was releasing an audit of Employee Health Benefits tomorrow and there was a finding in that audit. Last year’s CAFR had an error that was not fully corrected. Vice Mayor Scharff asked what the finding was. Yuki Matsuura, Senior Performance Auditor said the error included eligibility criteria for health benefits, criteria dealing with receipt of 100 percent coverage for retiree health, and eligibility of partial benefits. Vice Mayor Scharff asked if that included people that retired after five years at age 50. Ms. Matsuura said it depended on which group the employee belonged to. For example management and union represented employees were in different categories. Vice Mayor Scharff said 100 percent health benefits were no longer offered and said the calculation was determined by the hire date with the City. Ms. Matsuura said there was detailed information available about which employee group people belonged to. Vice Mayor Scharff said if a person was to leave in five years, they would not get the pension from the City for the health benefits. He thought that in 10 years a person would get half and in 20 years a person would get full benefits. Ms. Matsuura said that was correct. Attachment B FINANCE COMMITTEE DRAFT MINUTES Mr. Pelletier said it depended on the hire date. Mr. Perez said it was a date issue, not a number issue because it depended on the contract and resolution date submitted with CalPERS and Staff entered the date of the contract. Mr. Pelletier wanted to point out this was an issue in the audit. Council Member Burt wanted to address why retirees after five years were eligible for benefits, but a person was at the same time not eligible. Molly Stump, City Attorney said the City Auditor’s Staff was accurate because the issue referred to eligibility of some health benefits and the level of benefits was a secondary question. Vice Mayor Scharff asked how that applied if the number was zero. Mr. Perez said if a person did not make the five year vesting, the number was zero, or if a person left before the age of 50, even if a person had five years or if the person did not retire from Palo Alto, they would not get benefits. Council Member Burt asked if new employees received any benefit after five years. Mr. Perez said a person had to be employed for 10 years. Council Member Burt said the discussion was based on all employees but there were also legacy employees. Mr. Perez said Staff could write a report stating exactly what a person would get on tier one, tier two, and so on and asked if there were any questions on the CAFR. Council Member Burt asked about the 2011 recommendations for water exposure for the Information Technology (IT) Department assets and wanted to know if there was an implementation date established. He did not know how many facility areas the recommendations referred to and Staff did not appear to have a plan with a defined completion date. Mr. Perez said, regarding the last discussion with Jonathan Reichental, Chief Information Officer, there were too many fiscal servers. He was in the Attachment B FINANCE COMMITTEE DRAFT MINUTES process of reconfiguring the room and was working with Public Works on how to make changes. Mr. Reichental was definitely aware of this. Council Member Burt asked if the second floor was the most crucial. Mr. Perez said yes, it was one of them, but he could check and bring them up to date. Council Member Burt asked if it was all under the same circumstance as water-based fire suppression. Mr. Perez said he could not answer with certainty but said all floors had a sprinkler system. Council Member Burt said in terms of disaster resiliency, the City was in jeopardy. A plan was a reduction in servers but there was no plan on a location. Mr. Perez said he knew it was an area of concern. Council Member Burt said the rest was physical space. It was the responsibility of other departments to provide the space for IT and it was a collaborative effort. On the second floor he saw an effort to reduce and implement a suppression system. Mr. Perez requested to follow up because he did not know the answer at this time. Council Member Burt asked if there were any others that had appropriate comments on status of implementation. Mr. Perez referred to Raj Patel, Information Technology Security Manager who was heavily involved in planning. Part of the problem was lack of resources. Mr. Reichental was hiring an IT Governance position to assist with the systems that were needed and looking at the businesses that were needed, and then accessing projects in the queue and in other systems. The best thing to do was to move it out of Administrative Services Department (ASD) and for it to have its own department. The resources were going to be provided as he needed them because it was critical. Vice Mayor Scharff was concerned because a lot of the discussion revolved around IT and projects that were not happening. He said he was also Attachment B FINANCE COMMITTEE DRAFT MINUTES concerned that Mr. Reichental was not getting the support he needed. He requested a report stating items that were done by a certain date. Mr. Perez said he asked for a contract for temporary staffing to address these issues. Vice Mayor Scharff said topics like these tend to be forgotten and wanted a follow up in the form of an Informational Report. Chair Shepard asked if Mr. Reichental was connected to Finance or with Policy and Services. Mr. Perez said Mr. Reichental was connected with the Finance Committee. He said it might be a capital program to redo the rooms. Chair Shepherd asked what the routine was for updating Council. Mr. Perez said the Year-end Audit or the Budget Process would address this. Council Member Price asked if Mr. Reichental could be present to speak about these issues to the Finance Committee. She thought it was helpful to hear directly about the projects, the timing, and the resources. Mr. Pelletier added that since the contract was managed under the Auditor’s Office, one option was, in addition to follow up, that he could also follow up on open recommendations from this Audit and provide the Finance Committee with a status report. Chair Shepherd said the Finance Committee includes the City Auditor. Mr. Pelletier said the City Auditor’s Office could do a formal follow-up with IT, asking them questions about the status so it could be formally documented as part of the process. Chair Shepherd asked about recommendations on the close of the Fiscal Year (FY) and authorization of the reapportionment. Laura Kuyrk, Accounting Manager discussed the overview for FY 2012 and discussed Economic Revenue Sources. On the expense side, the salary and benefits were taking effect in the budget. There were significant concession in the form of salary and benefit reductions that increased employee contribution to pensions and medical. With regard to the Financial Attachment B FINANCE COMMITTEE DRAFT MINUTES Summary, there were Tax Revenue Sources in FY 2012 that were star performers: the Sales Tax and Transient Occupancy Tax (TOT). The year over year changes for the General Fund Tax Revenue Categories, in the category of the Sales Tax had a 6.7 percent increase from $20,746,000 million in FY 2011 to $22,132,000 in FY 2012. The TOT had a 19.8 percent increase year over year from $8,082,000 to $9.6 million. The Utility User Tax stayed flat, while the Documentary Transfer Tax showed a slight decrease. The Paramedic Fees and Plan and Zoning Fees increases were the primary drivers of the revenue increase that allowed the transfer of funds to the Infrastructure Fund. The combination of increased revenue and the expenses that were slightly lower resulted in a net surplus of $4.4 million for the FY 2012. Combing that figure with the Budget Stabilization Reserve (BSR) balance of $31.3 million created the opportunity of a transfer of $7.6 million out of BSR Fund and into the Infrastructure Reserve Fund. The remaining BSR balance of $28.1 million represented the 18.5 percent of FY 2013 budgeted expenses. The FY 2012 General Fund expenses were slightly less than the Mid-year Budgeted Amounts, which included increases for Retiree Medical Expenses, as well as an adjustment for Labor Concessions. The FY 2012 estimated Labor Concessions was $3.6 million for the General Fund. In the year over year deficit and surplus for the Enterprise Funds, all funds were at a net surplus position, except for the Refuse and Airport Funds. The Refuse Funds expenses exceeded revenues by $474,000 because there was an increased Contract Service Costs due more Smart Stations and a retirement of assets, like the closing of the landfill. The Refuse Rate Stabilization Reserve (RSR) balance improved from a $5 million negative position to a $4.1 negative position. The negative RSR was created to recognize landfill post-closure liability. The Airport Fund had expenses of $148,000 and no revenue; the expenses were funded by a General Fund loan. As of June 30, 2012, the amount of the loan was $300,000 with approximately $138,000 leftover to spend. There was an additional loan of $310,000 budgeted for FY 2013. The CalPERS Rates were submitted, which solidified the rates for the June 30th, FY 2014, which changed the projection for FY’s 2015 and 2016. Vice Mayor Scharff asked for clarification on what the rates meant. Mr. Perez said the majority of employees were paying the employee share, which was used to calculate the Annual Required Contribution. Staff took the rate of 1.6 percent and embedded that into the Long-range Financial Forecast Report scheduled to be presented to Council on January 18, 2013 Attachment B FINANCE COMMITTEE DRAFT MINUTES where they can explain the change in dollars. Vice Mayor Scharff asked what the number 30 referred to. Mr. Perez said for every dollar of wages, 30 cents went toward pension. Vice Mayor Scharff clarified that the 30 cents was what the City paid. He said the numbers would be higher if the employees did not pay their portion. Mr. Perez thought it was important to give credit to the employees to try to reduce the overall costs for the City. In the first year, Staff urged the City Council not to put funds into the Infrastructure Reserve because they were not sure where the Safety Labor Agreements were headed and because the budgets were unstable. The Sales Tax was just shy of the FY 2008 number. He said a future presentation by Staff will show a better picture of compensation, benefits, and returns on revenue. Staff expected to continue the returns and have a balanced budget. He thought it was good to transfer the remaining dollars to Infrastructure Reserve Fund now, which showed Staff was taking strides to get back on track. Council Member Burt asked about the timeline when employees paid their share because they did not all start paying at the same time. Mr. Perez answered that October was the time line for the majority of miscellaneous employees. Employees went from paying two percent to seven or eight percent and the Safety Managers paid nine percent. Council Member Burt asked if Staff was changing how the groups were defined. Mr. Perez asked if Council Member Burt was interested in what changed the number. Council Member Burt said there was a significant jump from 2013 to 2015. Mr. Perez said there were two contributions to the jump in numbers, one was the rate of return, and the other was the latest update in retirement, demographics, and life expectancy. Council Member Burt asked if that drove up the employer rates. Mr. Perez said the rate of return can drive the number up or down. Attachment B FINANCE COMMITTEE DRAFT MINUTES Council Member Burt recalled that CalPERS was moving toward the change, rather than leveling out and that there were year to year changes. Mr. Perez said yes, that was not imbedded in these amounts. Council Member Burt asked how the June 30, 2012 year affected these numbers and did the average level out the numbers. Mr. Perez needed to clarity with the Actuary on that question. He said it was a major component of the change and wanted to confirm the time period covered before answering. Council Member Burt looked at the 2012 Adjusted and Actual Budget and asked if the FY 2011 had one exceptional transaction that drove the number up. Mr. Perez said yes and Staff was not expecting to see those types of transactions. Staff was comparing FY 2012 with the FY 2013 and in 2013 the numbers were trending better than budgeted; they were probably going to adjust the budget at mid-year. Council Member Burt asked if considering the variables, if it was possible to extrapolate a year. Mr. Perez said the first quarter was tough because Staff did not have a full data set. He said he felt better looking at a mid-year trend. Council Member Burt said the percentages were more helpful and asked about FY 2013. Joe Saccio, Assistant Director of Administrative Services said Staff was trying to be more aggressive in the estimates with the revenue. Council Member Burt wanted clarification for the word “aggressive”. Mr. Saccio said aggressive meant less conservative. He attended a lot of conferences on forecasting and the data indicated that the growth, revenue, and job creation looked like it was growing. He thought there was going to be a number of adjustments at mid-year above the adopted budget. The TOT was taking a steep upward slope and there was only one item that was suffering. The Long Range Financial Forecast was delivered in December and will have numbers above the projected forecast. Attachment B FINANCE COMMITTEE DRAFT MINUTES Council Member Burt asked if the TOT was at 85 percent and said it was an effective four day per week business week. Mr. Perez said the major hotels said the weekends were big. Council Member Burt said there was a lot of work that drove up supply and demand and asked if Staff was aware when new hotels would open. Mr. Saccio thought there were at least two that were going to open in 2013 and 2014. Vice Mayor Scharff asked what the names of the hotels were. Mr. Saccio said he did not know. Council Member Burt appreciated that Staff did not include the projection of the hotels in the Financial Report Projections. Mr. Perez said it was not in the base but it was in the discussion and he offered to create scenarios for projection. Council Member Burt talked about a City Council discussion in 2008 on how to fund the police building and said they talked about using revenue from new hotels. He wanted to know when Staff could move forward with a discussion on revenue from new hotels. Chair Shepherd asked Council Member Burt if he wanted to put this up for discussion as an item on the Finance Committee or to be a contributor to retreat. Mr. Perez said there were certain pieces that connected with the Finance Committee and said it made sense for the discussion to go through them. Council Member Burt said the first step was to go to the retreat and possibly a have a discussion with the Finance Committee. He thought the Finance Committee could try to get this discussion to be part of the retreat agenda. Council Member Price asked when in the cycle of discussion on tax options and the increase to the TOT was going to be. Mr. Perez said the discussion would start once Staff identified the list of needs and what they planned on accomplishing. Attachment B FINANCE COMMITTEE DRAFT MINUTES Chair Shepherd said they sent out to the Request for Proposal (RFP) to get polling done, which included what people would vote for and how to tax to pay for that vote. Mr. Perez said City Council poled before but it was better to have the discussion when they had more specific data. Chair Shepherd wanted to know what percentage of the budget went to salary and benefits in order to help Council have the right discussions. The Cost of Service Study helped to analyze how to prioritize the services and she wanted to know if anything changed and can they reconfigure the salary and budget overall. Mr. Perez said this discussion had to do with framing the City structure because 63 percent went into salary and benefits and 8 to 10 percent went into Enterprise Funds. The typical view was to address services and needs. He thought Staff and Council needed to look at what services they supported and how they supported them. Chair Shepherd said she needed to have confidence that the incremental changes made that changed Palo Alto’s future. She wanted to understand, in historical proportion, how health care benefits jumped exponentially. She thought it was good for Staff to exercise care with how Staff decided to bring items before Council so there was not a transaction for everything discussed. Mr. Perez said Blue Shield Healthcare announced an 18 percent increase. Chair Shepherd said this was the problem with projection. She wanted Staff to look at the historic trends to try to proportion the thinking. She wanted bring Infrastructure back for discussion as well. Mr. Perez thought revisiting the policy for transfers was a good idea. Mr. Saccio related what the Santa Monica City Manager said at a conference about the cost of pensions and medical costs and how Cities like Palo Alto and Santa Monica were not away from risk, in terms of employee costs. The speaker said costs were a structural deficit because the trends go up and down. Chair Shepherd suspected there would be difficulties with investments. Vice Mayor Scharff asked in terms of the long-range forecast, if Palo Alto had Attachment B FINANCE COMMITTEE DRAFT MINUTES enough revenue to stay out of debt. Mr. Perez projected that Palo Alto had a positive balance for the next year and but said CalPERS still needed to update their rates. Council Member Price said the other part of the discussion was educating the community, asking them if they wanted the same services that Palo Alto provides. Mr. Perez hoped that with all the tools that were available with social media, there were many options for communicating information. Vice Mayor Scharff looked at the Paramedic Service Fees and the Planning and Zoning Fees and said it was not possible to make a profit. He asked when these fees went up and if it was necessary to lower the fees for next year. Mr. Perez said volume was driving some of the fees and they were allowing for more lending; volume drove the dollar figure up. Vice Mayor Scharff clarified that there was a certain number of people and a projected number for volume. Ms. Stump said budgeting was a matter of perspective and there was an ability to adjust because of rising and falling fees and costs. Vice Mayor Scharff said next year the fees needed to be lowered if the volume was expected to stay same. Mr. Perez said Staff removes positions to reduce the cost because the revenue was not coming in. It was not a year by year projection once Staff looked at the trend and then justified the costs. Council Member Burt asked about long-term pension and medical liability over the coming years and asked once the liabilities hit, if it was possible for Staff build-in long term liability into the costs. Mr. Perez said Staff knew they were only paying a portion of the unfunded fees. He talked about funding additional dollars to invest to pay above what the required contribution was. He knew Palo Alto was only 78 percent funded. He needed to check into it. Attachment B FINANCE COMMITTEE DRAFT MINUTES Council Member Price remarked about the Planning and Zoning Fees and said if the fees were really accelerated then was it going to drive customers away. She said there was some sensitivity with regard to permits and where people would develop. Mr. Perez did not want to discourage the enhancement of property because it correlated with the Property Tax Revenues. Council Member Price said there was a connection between where people developed and the fees paid for developing. Mr. Perez said yes, especially when the Impact Fees were added. Council Member Burt said there was a limit and there were market forces in effect. He asked if Palo Alto might raise the property TOT and thought the market allowed for another raise. He thought Palo Alto needed to be cognizant of market forces and to recognize its strengths. MOTION: Vice Mayor Scharff moved, seconded by Chair Shepherd to forward the ordinance and associated exhibits to the City Council for its approval to:  Close the Fiscal Year (FY) 2012 Budget;  Authorize re-appropriation of FY 2012 funds into the FY 2013 Budget;  Close completed capital improvement projects , and  Transfer remaining balances to the appropriate reserves (Table 1 for General Fund and Exhibits 5 and 6 for Enterprise Funds), including the transfer of the General Fund surplus of $7.6 million from the General Fund to the Infrastructure Reserve in the Capital Projects Fund. Staff recommends the Finance Committee review and forward to the City Council for its approval the City’s FY 2012 Comprehensive Annual Financial Report (CAFR). In addition, direct the City Manager and Mayor to bring to the annual Council retreat whether to refer to the Finance Committee consideration of dedicating certain revenue streams to certain infrastructure projects. MOTION PASSED: 4-0 Attachment B City of Palo Alto (ID # 3502) City Council Staff Report Report Type: Action Items Meeting Date: 2/4/2013 City of Palo Alto Page 1 Council Priority: City Finances Summary Title: Response to Colleague's Memo: Health Care Title: Response to Colleague's Memo: Health Care From: City Manager Lead Department: Human Resources Recommendation Staff recommends that Council receive input and provide guidance on issues related to the City’s strategy for options in employee health and related benefits. The Council’s direction for this session anticipated the following purposes: 1. Educate the public and employees about City employee and retiree health plans provided through CalPERS. 2. Explore benchmark alternatives that other California agencies are pursuing to provide flexible health plan offerings. 3. Inform the public and employees about the recently enacted Federal health care reform and how it affects the City of Palo Alto DRAFT MOTION: I move that City staff review and summarize options for health benefit plans that may be considered for negotiation with represented employees and discussion with management employees, including flexible benefit plans. City staff should also review the continuing viability of the California Government Code Section 22893 20-year graduated benefit retiree health plan that is currently in place for employees who began City employment as of 2004-2006, depending on bargaining unit, returning with a recommendation to continue in the plan, amend or eliminate the plan. I move that Council affirm that it has not intended to enact legislation creating vested contractual rights to health benefits, including any particular type or level of benefit. City of Palo Alto Page 2 I further move that City staff review City benefit plans, policies and procedures for compliance with the Patient Protection and Affordable Care Act (PPACA), bringing back recommendations to Council for required action. Finally, I move that staff identify best wellness practices, and health plan benefits that emphasize, teach and reward wellness. Executive Summary Health care costs will continue to rise at an estimated rate of 6 to 7% in 2013, for active employees, retirees and their dependents, consuming a greater portion of the general fund budget. Containing health care costs will be important for the financial health of the City and all employees. Providing employees with competitive benefit choices while stabilizing costs have been the City’s guiding principles. Options for active employees include flexible benefit plans to manage and share costs while providing greater employee choice in how to spend benefit dollars. Options for retirees include carefully reviewing the four retiree tiers and determining a path forward. Implementation of these options may be subject to State law, CalPERS regulations, and to collective bargaining with represented employee groups. Background This report is focused on employee health benefits and is the third and final report to address the Colleagues’ Memo dated July 2, 2012 in which Council proposed exploring a sustainable model of employee pension, health and other benefits. Descriptions of health and benefit offerings are for general information only. In the event of a conflict between this report and any ordinance, contract or other document establishing or governing benefit plans, the later shall govern. In addition, nothing in this report or its attachments is intended to create, extend or be evidence of a vested right to any type or level of benefit. It is the Council’s specific intention that health and benefit plans such as those discussed in this report do not vest. Rather, those benefits may be deleted or amended, from time to time, as the Council directs, subject to the meet and confer procedures established in state law. City was self-insured. For many years, Palo Alto provided its active employees and their eligible dependents with City- paid health care coverage through a self-funded health plan. The City also provided retirees with City-paid medical coverage, however retirees had to purchase dependent coverage on their own. In the late 1980s, the cost of providing coverage under this plan increased dramatically, about 50% over a three-year period, prompting staff to seek lower cost alternatives. During this same time frame, the health plans provided by CalPERS had only risen by 6.2% annually. The purchasing power of the CalPERS health plan offered stable pricing and the flexibility of 12 different plan offerings instead of just one option under the self-funded City of Palo Alto Page 3 plan. Providing employees with choice and stabilizing cost was the driving philosophy for choosing CalPERS in 1993. CalPERS Era It is important to note that CalPERS health care is governed by the Public Employees Medical and Hospital Care Act (PEMHCA), under which state employees and retirees (called “annuitants”) are provided access to group health insurance. The CalPERS Board administers the program and determines the benefits design, including any co-pays, deductibles, providers, premiums, and contracts with public agencies. The significance is that, in order to participate, public agencies must agree to the regulations that include providing contributions to both active employees and annuitants on an equal basis. This means that the employer is required to make specified and equal contributions towards premium costs for active employees and annuitants. At the time the City joined CalPERS health, it provided fully paid medical insurance for active employees and dependents, but fully paid retiree insurance only for the individual – not including dependents. PEMCHA required the City to gradually increase coverage so that retirees were covered along with dependents to be on an equal basis with active employees. The City has currently reached an equal contribution for active + dependents and retiree + dependents. However, as described further below, the City has been negotiating employee contributions toward medical premiums and no longer pays 100% coverage for employees and dependents. The retiree contribution currently varies slightly depending on bargaining unit and hire date. California Employers’ Retiree Benefit Trust (CERBT) The CERBT Fund is administered by CalPERS and managed by a separately appointed board for the purpose of receiving employer contributions that will prefund health and other post- employment benefit costs for retirees and their beneficiaries. The City elected to participate in this irrevocable trust by prefunding $29 million of the City’s future retiree health costs during FY 2008. Currently, the City deposits employee contributions toward medical premiums into the CERBT. This is currently at $54 million but it still leaves an unfunded liability of approximately $114 million based on the last actuarial report of June 30, 2011. CalPERS Health Benefit Program The CalPERS Health Benefits Program covers approximately 1.3 million lives, making it the largest employer purchaser of health benefits in California and the second largest employer purchaser in the nation after the Federal government. Unfortunately, the choice of plans is limited under PEMHCA. Offerings have shrunk from twelve to six plans since the City joined in 1993. It offers two Health Maintenance Organizations (HMOs), which are available to City City of Palo Alto Page 4 employees and retirees who live in the plan’s service areas: Blue Shield of California and Kaiser. CalPERS offers four Preferred Provider Organizations (PPO): PERSCare, PERS Choice, PERS Select and the Peace Officers Association of California (PORAC, only available to Public Safety dues- paying members). CalPERS lacks a very low cost or high-deductible plan for employees who are healthy and do not have the need for a full-service plan, or those who have limited means and wish to spend less on medical care. Another limitation under these plans is that the City is not able to collect or receive aggregate information about the City’s usage or health trends. In order to create a wellness program as described later in this report, there should be current data available to establish baselines and measure progress. Retirement and Medicare. Within 60 days of retirement, a retiree or their dependent who is 65 or older or who has a Social Security-qualified disability must contact the Social Security Administration to determine if they are Medicare eligible and then provide proof of Medicare status to CalPERS. If the retiree is Medicare-qualified and does not waive coverage, the retiree is responsible for enrolling in a CalPERS supplement to Medicare plan. The supplement plans are typically lower in cost because they are billed after Medicare coverage is used. If the retiree fails to complete this process, CalPERS will terminate coverage. The City did not participate in Medicare prior to 1986, which leaves a small number of employees who may not be eligible to participate in Medicare. Premiums for active and retiree medical are found in Attachment A. New Tiers created as Cost control measures In 2002, CalPERS rates increased by approximately 24%. During negotiations with various bargaining groups, the City sought to contain the cost of providing health care. First, the employee groups agreed to eliminate PERSCare – the most expensive plan - as a fully-paid option. The City’s contribution was then set at 100% of the medical premium up to the second highest CalPERS plan in the City’s portfolio for both actives and future retirees (employees who had five years CalPERS service credit were eligible for retiree health care). Then in 2004, the City began negotiating with employee groups to implement California Government Code Section 22893, a graduated 20-year benefit schedule. This move from a five-year eligibility period for fully paid retiree health care to a 20-year graduated eligibility period was designed to reduce health benefit costs over time by providing a lesser benefit. In order to receive retiree medical benefits from the City under the new 22893 plan, an employee must have at least five (5) years of service with City of Palo Alto and more than ten total years of CalPERS’ agency service credit. The City’s employer contribution for retirement medical coverage is 50% of the State-set schedule, increasing by 5% for each year of credit to a City of Palo Alto Page 5 maximum at 20 years of 100% of the weighted average of the four (4) PEMHCA plans with the highest State enrollment. As long as the City remains enrolled in the 22893 plan, the City does not have discretion to change this benefit level. Therefore, for employees who have five years’ service with the City and work for 20 years total in the CalPERS system, their retiree health care is funded at no less than 100% of the average of the four largest PEMCHA plans, and their dependents are funded at 90%. An example of the graduated eligibility benefit is shown in the table below: Credited Years of Service Under 22893, Percent contribution by City of the weighted average of the four (4) PEMHCA plans with the highest State enrollment 10 50% 15 75% 20 or more 100% Limited Alternatives Demographics of City of Palo Alto retirees, as reported in the actuarial report of June 30, 2011, show that there are 377 "early retirees", employees who retire before they reach Medicare eligibility, and 483 retirees over age 65. In all, there are 860 retirees and 844 active participants in CalPERS Health Care Plans. The City's ratio of early retirees to actives is so high that it is a barrier to obtaining coverage quotes from the open market, based on input from various insurance representatives. Early retirees incur higher healthcare costs compared to active employees, which insurers specify as a reason to charge higher insurance premiums. Medicare- eligible retirees cost less to insure since Medicare is considered the primary insurance and the City insurance is considered the secondary insurance coverage. The factor considered in group underwriting is to not have more than 25% “early retirees”. Once an agency exits PEMHCA, the agency cannot re-enter for at least five years. If the City were able to obtain competitive pricing on the open market, a guaranteed contract would be only one or two years. After that, renewals will be based on loss and claims experience of current employees and all covered retirees. Therefore, if the alternate insurance carrier raised rates and the City wished to switch back to CalPERS, it would need to wait for the balance of the five years, potentially incurring additional costs. Benchmarking health benefits City of Palo Alto Page 6 According to the Kaiser Family Foundation in a November 2012 National Employer Health Benefits Survey of premiums, cost-sharing and coverage at private, public and non-profit employers, there are important differences in the health plans being offered by employers. Covered workers at public employers have the smallest worker contributions, 12% for single coverage and 23% for family coverage, compared with 20% for single coverage and 30% for family coverage at private employers. The numbers of workers eligible and covered by health plans varies as well. Among public employers, 75% of workers are covered compared with 59% in private firms. The number of workers covered by health benefits is the product of how many are eligible to enroll and how many “take up” or participate in coverage. Public employers have both a higher eligibility rate (83% versus 75%) and 90% take up coverage (versus 78%). At the City, 1,041 employees are eligible to enroll in health benefits and of those, 945 take up coverage, or about 90%. The Kaiser Family Foundation report is at Attachment B. Fewer California companies offered their workers’ health insurance last year, and the ones that did charged employees more for their coverage. That's among the findings of an annual California Employer Health Benefits Survey released Jan. 4, 2012 by the California HealthCare Foundation, a research and grant-making nonprofit organization. According to the survey, premiums for employer health insurance plans have risen 153.5% since 2002, a rate that's more than five times the increase in California's inflation rate. Reflecting growing health care costs nationwide, in June, 2012 the CalPERS Pension and Health Benefits Committee (PHBC) recommended a 2013 health care package that would raise overall premiums by an average 9.6 percent for the Pension Fund’s nearly 1.3 million health program members. The rate is higher than the 2012 increase of 4.1 percent and translates, on average, to an additional $30 a month per CalPERS member. "We introduced a number of initiatives over the past three years to help stabilize rates, but today’s rates reflect the overall continuing upswing of healthcare costs," said Priya Mathur, Chair of the PHBC, as quoted on the CalPERS website. "We tried as much as possible to keep the overall increases close to the national health care cost inflation rate of more than 7 percent projected for next year." One of the factors affecting the 2013 rate increases was the end of the federal Early Retiree Reinsurance Program (ERRP) reimbursements under the Affordable Care Act. CalPERS has used more than $200 million in ERRP funds to offset increases in premiums in past years. Today, covered active employees in the City choose one of six different health plans available through PEMHCA, Bay Area Region, at a cost from $9,420 per year for single coverage to $24,480 per year for family coverage at the second highest plan. The chart below illustrates the increased costs to the City for health premiums. The compounded annual growth of healthcare costs from 2002-2013 is 9.6% per year. City of Palo Alto Page 7 Discussion 2010/2011 Health Committee In early 2009 City Council-established priorities included negotiating structural changes to control employee benefit costs by requiring employee contributions to medical premiums for both actives and retirees. In October 2009 the City and SEIU had reached Impasse in their bargaining and the City imposed language requiring an employee contribution to medical premiums as actives and future retirees. The employee contribution amount was phased in gradually so that ultimately employees pay 10% and the City 90% of the premium cost for the employee-selected plan amongst those offered by CalPERS, up to the second highest cost plan. In August 2010 SEIU ratified and City Council adopted a successor Memorandum of Agreement (MOA) including this language. The City subsequently implemented the same employee contribution plan for management and professional employees. After the initial agreement with SEIU to a 90/10 medical contribution by active employees and future retirees in 2010, labor and the City convened a Health Committee including all represented and unrepresented units, to further discuss healthcare costs, trends and possible alternatives to the 90/10 plan. To support this process, the City Council agreed to delay the implementation of the 90/10 employee contribution. The City Council established criteria for any alternative to the 90/10 plan, that it provide cost Savings at least as great as 90/10 plan, that it provide generational equity (all current employees – not just new hires - and future City of Palo Alto Page 8 retirees must participate in any cost-sharing), and that it reduce volatility in costs of the Annual Required Contribution. The Committee proposed to Council that active employees contribute 5% of the medical premium in the first year of the proposal, 10% thereafter; that employees contribute an additional percent of their salary into the CERBT but would not contribute to health care once retired, and that the City would provide 100% paid health care for retirees. Moreover, employees hired after implementation of Option 12 would participate in 22893 Plan, but be limited to a City contribution of 90% of second highest Plan. The Council decided against the Committee’s option and moved forward with the 90/10 plan as originally bargained to insure structural change consistent with all of their criteria, including a future retiree contribution. 90/10 Negotiation Following the conclusion of the Health Committee, the City negotiated and reached agreement to place the same 90/10 employee contribution plan in the firefighters’ union and the fire managers’ association MOAs. In early 2012 the City reached agreement with the Police Officers’ Association on most contract provisions, including a 10% medical contribution by active employees, but declared impasse regarding a contribution by future retirees. The parties are currently in the new Fact-finding process regarding a contribution for future retirees. Once the Fact-finder issues a non-binding decision, the City Council will consider the decision and make a final determination on the issue. In July 2012 the City reached Impasse with the Police Managers’ Association and imposed a 10% medical contribution by employees and future retirees (no fact-finding was requested). Currently the City has retirees in four benefit tiers: Tier I - City-paid 100% of all plans including PersCARE, Tier II - City-paid 100% of the second-highest plan (Blue shield HMO), Tier III - the 22893 plan, and Tier IV - the City paid 90% contribution of the second highest plan (Blue Shield HMO). Retiree Medical Tiers Number of Retirees Tier I 543 Tier II 274 Tier III 5 Tier IV 5 City of Palo Alto Page 9 Labor’s Concern about Inequity Adopting the 22893 20-year graduated schedule was designed to reduce health benefit costs over time by providing a lesser benefit and by requiring a longer tenure before employees are eligible for full retiree health benefit coverage. A few active employees under the 90/10 plan have expressed concern that in the future, the City benefit may be renegotiated to a lower employer contribution which would flow to retiree medical as well. The concern is that an employee who is not under the 22893 Plan could potentially, at some future point, receive a lower retiree medical contribution than one under the 22893 plan. The retiree medical contribution provided for under the Section 22893 Plan is set by the Statute which cannot be changed through collective bargaining at the City of Palo Alto as long as the City remains enrolled in the plan. However, historically the City’s contribution toward retiree medical has been higher than the highest benefit available through the 20-year graduated benefit schedule. Even after the City reduced the contribution from 100% to 90% of the second highest plan, the City’s contribution continues to be higher than the 20-year benefit in the graduated 22893 schedule. Comparison of City Contribution for Retirees under 90/10 VS. CalPERS 22893 Plan Calendar Year Monthly City Contribution to retirees under 90/10 Plan Monthly City Contribution to retirees under the 22893 Plan Single 2-Party Family Single 2-Party Family 2013 $706 $1,412 $1,836 $622 $1,183 $1,515 2012 $664 $1,329 $1,728 $566 $1,074 $1,382 2011* $647 $1,293 $1,681 $542 $1,030 $1,326 2010 $577 $1,155 $1,505 $493 $936 $1,202 2009 $561 $1,121 $1,457 $478 $909 $1,167 2008 $533 $1,066 $1,386 $471 $886 $1,129 City of Palo Alto Page 10 *Reflects reduced City contribution to non-sworn employees based on City 90/10 Plan Staff will explore alternatives to the 22893 Plan, returning to Council with a recommendation to stay in the plan, modify it or withdraw from the plan, subject to collective bargaining. Federal Health Care Reform The Patient Protection and Affordable Care Act (PPACA) provides for sweeping changes to health care in the United States. Among important features, the Act provides:  Coverage of dependents up to age 26  Access to insurance for individuals with pre-existing condition  No lifetime maximum limits  Enhanced annual dollar benefit limits until 2014 and none thereafter  Patient protections such as choice of health care professional and no cost-sharing for preventive services like immunizations and preventive care screenings  Claims appeals and external review process  Precludes executive-only cave out plans  Early retiree reinsurance program  Tax on excessively rich coverage beginning in 2018 (for coverage that exceeds a threshold amount) The individual and employer mandate starting in 2014 is a keystone of the new law. Individuals are required to maintain minimum coverage or face a tax penalty, coverage being supplied through insurance exchanges, government sponsored programs, grandfathered health plans or eligible employer sponsored plans. “Large” employers (defined as more than 50 full time employees) share accountability in that they must offer “affordable” health care coverage for 95% of full time employees or pay penalties to the IRS, which the City meets. Affordable plans are defined as coverage valued at less than 60% of plan costs or requires employee to contribute not more than 9.5% of their income. Applicability to City Employees The PPACA will apply to public employers and the City will be required to report health insurance coverage to the IRS beginning in 2014. Information must be provided regarding individuals covered, the amount of coverage and the cost-sharing amount. Full time employees are defined under the law as those working 30 hours or more over a defined period of time. Palo Alto employs full- and part-time regular employees who have coverage under the CalPERS health plans. The City also employs hourly workers who are not qualified to enroll in CalPERS medical, but earn a health care stipend in lieu of insurance coverage. This includes PERS exempt employees. The City also employs Limited Hourly workers who are typically not City of Palo Alto Page 11 covered by PERS or other benefits. Limited Hourly are on-call employees without regular schedules and who are hired to work occasionally for special projects or seasonal work. At present, the City has 173 Limited Hourly and 121 SEIU Hourly workers available in our system. Staff will engage in a detailed impact analysis to define the ways in which the City must comply with the law’s provisions and to ensure that requirements of the law are met. Regulations are expected concerning how to count the 30-hour employees. It is possible that the City may be required to offer affordable care to some workers who are not offered health benefits currently. Wellness Programs The City has a newly formed Wellness Committee to encourage health living, stress reduction and work-life balance. The Committee conducted a survey to define the interests of employees and their anticipated levels of participation. The survey was initiated at the October 2, 2012 Employee Health & Life Expo, generating over 200 responses, with 80% indicating a desire to participate in a wellness initiative. The topics which generated the most support are: weight management, stress reduction, starting physical activity, running and walking groups, healthy cooking and work/life balance. The committee will continue its work in mapping out best practices and gathering employee wellness program resources, some of which include Kaiser Permanente, Healthy Eating Active Living CITIES campaign (HEAL), League of California Cities, Wells Fargo Insurance Services, ICMA, Strategic Alliance and the American Institute for Preventive Medicine. Questions posed in the Colleagues Memo concerning health care I. Should any part of health benefits vest on retirement? Absent legislative action to create vested contractual rights, employee benefit programs, including health benefits for active employees and retirees, are subject to amendment and change. Under state law governing the CalPERS PEMHCA system, employers may make changes to benefits for both active employees and retirees, within statutory limits and subject to collective bargaining where required. Staff recommends that the Council affirm that it has not intended to enact legislation creating vested contractual rights to health benefits, including any particular type or level of benefit. Staff further recommends that the Council continue to structure its health benefits program for active employees and retirees in a manner that does not create vested contractual rights. This approach preserves the Council’s legislative discretion to make policy decisions about the type and level of benefits that the City provides to employees and retirees. City of Palo Alto Page 12 II. What retirement age would make for a proper transition to Medicare coverage for retiree healthcare? Should the City encourage changes in state law to give cities the option of setting a later retirement age? Generally, an employee is eligible for Medicare if the employee or spouse worked for at least 40 quarters in Medicare-covered employment and is 65 years or older and a citizen or permanent resident of the United States. Therefore, a retirement age of 65 would ensure that retirees are eligible for Medicare if they meet the criteria above. The current City pensions are provided through CalPERS and these schedules allow for retirement from age 50 to age 63 or later. The City is not able to unilaterally change the retirement ages of these plans to 65. III. How do we establish fair criteria for retirees’ contributions to health benefits? Factors that could be considered include benchmarking similarly situated public and private agencies, recruitment/retention needs, the City’s budget environment, potential tools to allow employees to plan and save funds for retiree medical costs during their working years, and consider a more flexible benefits plan that would allow an employee to opt out of retiree medical coverage and prioritize other benefit needs. IV. Should the city move toward fixed health benefit contributions? The City should consider alternatives such as a flexible health plan, that provide good value and choice to employees and that help to contain cost inflation. Staff has engaged its benefit broker, Wells Fargo Insurance Services, to assist in developing options for various flexible plans that may be discussed with employee groups in the collective bargaining process. V. Should the city provide greater employee choice in health benefits? Yes, greater employee choice may be provided by utilizing a flexible health benefit plan, which could include additional options for employees based on their own needs. As long as the City provides health benefits through PEMHCA, however, the City is limited to the health plans offered by CalPERS. VI. Can and should the city structure and finance an optional program to buy out existing post- employment obligations? City of Palo Alto Page 13 A small number of jurisdictions have adopted programs to “buy out” post-employment obligations. These programs are substantial undertakings involving complex financial and legal considerations, extensive negotiations with labor, individuals and other stakeholders, and significant financial investment. In the short and mid-term, staff recommends focusing on other cost-containment and modernization strategies discussed in this report. Staff can return to Council following these efforts for further direction whether to invest significant resources to explore options for a “buy out” program. VII. Are there alternative considerations that merit discussion on how to accomplish a healthy workplace and foster job satisfaction and cost savings through non-economic benefits? Establishing a healthy workplace is a viable program to explore through the new Wellness Committee. For example, through its Healthy Workforce initiative, Kaiser Permanente supports the health and well-being of employees by promoting healthy lifestyles with a focus on healthy eating and physical activity — especially walking. Resource Impact There is no immediate resource impact from this report. It is expected, however, that as the City explores the impacts from PPACA and flexible health plans, staff will have more concrete financial information to share with Council. Attachments:  Attachment A Health Premiums From CalPERS (PDF)  Attachment B Kaiser Family Foundation Article (PDF) 7/10/12 Monthly Premiums for Contracting Agencies Bay Area Region Alameda, Amadoft Contra Costa, Marin, Napa. Nevada, San FntDCisco, Sun Joaquin, San Mateo, Santa Clara, Santa Cruz, Solano, Sonoma, Sutter; Yolo,)'uba 3 Ifyclllmlq I(youam "*' Employee in SM Plan Employee In 8M Pian 1 e Code 2+ In e Code JfVOIl11M Q • < Back '0 8n"pollol Index premiums, Cost-Sharing and Coverage at Public, Private and Non .. Profit Employers: A View from the 2012 Emplover Health Benefit Survey November 2012 There are Important differences in the legal organization and mission of different employers in the United States. Tn addition to collectlng information about premiums and employee cOst Sharing, the 2012 Employer Health BerJefits Survey asked respondents to characterize their ownership structure. Respondents were asked to describe their organization as either a "private firm, Indudlng pubHcally traded compan.es and privately owned bUs;nesses," "a public firm, such as a state or local government agercy," or as a "non-profit, 5l:c.n as a 501(c)(3). "'[lJ Sixty-one perce:>t of workers covered by a health plan are employed by a private ((rm, 17% ar'e employed by a public employer, ana 22% are employed by a non-~rofjt employer.[2] Since public and non-proht employers tend to have more workers on average, a larger portion of the tOtal number of employers is comprisea of private firms. There are important differences in the heaith plans being offered by employers in each of the t,lJree ownership categories. On average, '1-lOrkers covered by health plars at privately owned firms are "equired to pay higher premium contributions for both single and family coverage. At the same time, these workers face higher cost-sharing requirements when they access services, Premiums and Worker Contributions For both sing'e a'1d family coverage, covered workers at private firms are enrolled Ip plans wi:h less expensive premiums ($5/297 and $15,199, annually) than covered workerS in the two other ownership categorle!L The average premium 15 made up of bott' a worker contribution and an employer contribution. While, on average, covered worl,(ers are covered by plans with less expensive premIums at private fi;'ms, they are responsib;e for a larger share of the total premium than their counterparts at pubUc and non-profit employers, On average, the emp!oyer con~rib:..ltlon for covered workers enro,led in family coverage at private emp!oyers is $10,704, less than the average public employer contribution ($12,381) a'lc non-profit emp!oyer contribution ($12,697). Covered workers at public empioyers have the smallest worker contribut:ons; $3,368 for family coverage and $698 for single coverage. http://www.kff.org/insurance/snapshotlchcm112012oth.cfm 1/24/2013 • Snapshots: Premiums, Cost-Sharing and Coverage at Public, Private and Non-Profit Firm ... Page 2 of II • Worker and Employer Premium Contributions for Family Coverage, by Firm Ownership .Category, 2012 $-IS,roo . S10,000 • .,000 PrivDte Employers • E"stJm3t~ is o;'Idti$balty dtfe~ent from r:rms not in the indiCated O\\'rJf!l'ihfp tMe;;)Ol"y (p<.05). SiOlJrte: ¥,aiser/HRET Surveyor Emp.\oyj;!f-Sponsored Health [Ielwrlt .. , 2012. All EtnptoVers • Work.er Contrfbution "Employer Contribullon Worker and Employer Premium Contributions for Single Coverage, by Firm OWnership Catego.ry, 2012 $7,UOO S5,9"!J1. $6~103" ;~(JOO -$5,615 $5,297"' SSJoJii $",,000 $),000 $4000 11.000 $0 Private I:'rnployers pubUc Employers Non-PtOfit EIn~IOYers AJI Employers _'t E"stmate,iS S.tati!.tl:.dUy dffE'rer.t fro!'fl firms: not in ttle indicated O\\'rH~r..hI? category (p<.05). Source: 1C;~rfl'lRET SOrveyofempbyef-Spor\soredHea~h 8eneilts, -2012, http://www.kff.org/insurance/snapshotlchcmI12012oth.cfm _Worker Conbibution 8En.ployerContributlDn 1124/2013 Snapshots: Premiums, Cost-Sharing and Coverage at Public. Private and Non-Profit Firm ... Page 3 of 11 . . There are important djfFerences In premium contributions when comparing types of employers within size categories. Covered workers at private employers are covered by less expensive family premiums both when the worker is at a small employer ($14,595) (3-199 workers) or a large employer ($15,544) (200 or more workers) when compared to employers in other ownership categories. In addition, covered workers at private employers receive smaller employer premium contributions then covered workers in the other ownership types at both small and large employers. Workers at public employers contribute the smallest amount to their premium at both small ($2,894) and large employers ($3,462). Worker and Employer Premium Contributions for Family Coverag.e, by Firm OWn.ership Category and Firm Size, 2012 Small Firms {3-199 Workers} Prlvirte Enlptoyers Pubf1c: EJnplovetS Noo:Profit EmployerB OJ: f51.11nOl'te IS rotatblxaty t1!fferei'lt trOln nrms not in the lflo[aC£d ownership category Ip<.05). . SoIJ~-E; ~r/HRET Survevof Errlpbyer·Sponsored Hel'It,,, ~oellts, 20l2. Large Firms (200 or More Workers) Private Employers Public Emptoyers NOn~Prant E"cnplOyets IIWQr1<er ConbibuHon 8 Employel"ContrlbuUolJ On average covered workers at public emplovers are responsible for a smaller portion of the premium than covered workers employed in the other ownership categories. Covered workers at public employers contribute 12% of the cost of single coverage and 23% of the cost of family coverage. Conversely, covered workers at private employers contribute a larger percentage of the premium than covered workers In the other ownerships types; workers at private em plovers contribute 20% of the premium for single coverage and 30% of the premium for family coverage. http://www.kff.org/insurance/snapshot/chcml12012oth.cfm 1124/2013 Snapshots: Premiums, Cost-Sharing and Coverage at Public, Private and Non-Profit Firm ... Page 4 of 11 Average Percentage of Premium Paid by Covered Workers for Single and Family Coverage by Firm Ownership Category, 2012 3SO{Q • I',i.$ Employe ... • PubUc Employers 250/0 20% 15% 10"10 SOlo 0% i [J Non-Profit I'n,ploye1'5 .1\11 Employers "[.$I]n'late is' statistr.ay different fr'Ofn firms not Ii"! theindl::ated Q\YT\e~hfJ ClltegOf'{{P<.OS) • .sotJ~; K<nsei/HRET SliNey of Empbyer-Sponsored He;t!(h Beneflt:s, 2012', FBf'nlly Covemge There is significant variation in workers' premium contributions within employer QWr'lershiD type. A majority of covered workers at private employers are responsible for more than a quarter of the Family premium (57%). Conversely, over half of covered workers at public and non~profit employers are enrolled in plans in which they contribute a quarter or less of the family premium. http://www.kff.org/insurance/snapshot/chcmI12012oth.cfm 1124/2013 ~nap5hots: Premiums, Cost-Sharing and Coverage at Public, Private and Non-Profit Firm ... Page 5 of II Distribution of Percentage of Premium Paid by Covered Workers for Familvand Single Coverage, bV Firm OWnership Category, 2012 iU 7& «""P!lllils empIOl"'" ·::0~S 1% , i. il 'r .••• J .... l!~tf~r-? , .. , 1 j An ~IS .~I! 1~,lj.~ •....•..•.• liIiAill., • .: .•.• ~.~ .•.. I!i.~~llI'\il'~'?3"·$r--!lI ... I ... Il .... i!Il .• ~!!!.~~~i~,: •.•.. I ....... ,:, 0% '0"" 10"'"' Employee Cost: Sharing _"rcatElrl'ban 1)OJb, k>~ ttl ~n or ell-U31 to ~% t3Greatertf\an 25Ofol less thi!lfl or equal to 50% I Grnahlr Ib ... 50% In addition to being respO;)sible for a targer proport,on of premium costs, workers at private employers face hlgner cost- sharing requirements when the" access services, A genera! annual deductible is an amount that must be pilla by the enrollee before all or most services are covered by their health plan. On average, workers at private employers face higher deductlbles before services are covered: 41% of covered workers at private employers face a deductIble of a $1 /000 or more compared to 15% at pubUc emplo'r'crs ard 26% at non- proflts, Seventeen percent of coverEd v.orkers at private employers are required to meet a deductible of $2,000 dollars or more. http://www.kff.org/insur31lce/snapshot/chcmI12012oth.cfin 112412013 ;;;napshot~: Premiums, Cost-Sharing and Coverage at Public, Private and Non-Profit Firm ... Page 6 of 11 Percentage of Covered Workers Enrolled in a Plan with a High General Annual Deductible for Single Coverbge, by Firm OWnership Category, !012 "p_ &""10,.",, ...... j 500/°1 40% . 41%- B""flIic 1:i.J>~ "'Noo'PmfltEmployers: _Ali Employq:rs 3fJ% -I 20% .. 11l% 6% Percentage·of COvered Workers with FI Deductible ot $1,000 or Moro P.,.",ntil!)O of C:01l1!1'ed Worlcers Willi • Deductible of p.OOO.r MO'E! :.;; E'-'S1I'r'I'wte is ~~ ::fIktent from ftrm .. y,. 3 tlirer'ertt oWn«'Si-~ ~ (.p<..05). flt\te: .1Oe3e'estmat-o..s iOCRJde ,;,.'Orb!rs'f.flroied in HDHPJ50 dnd otllef pi:m ~ 6ecau~ we. dOflot c~ 1nformatbn on ttle atlribubls of' l)J1l\leli~ pan$. to be conservative, Wi!' assumed thatv.'O~!i in cnnyt;nfnnaol p\lt~ 00 not havca dedu<~ ofUiJOO or morc. S«zluit,()f the bw ~f\fol'rneflt i¥ aJn'ltent:onat ~lS, :tp~ltTlp;;ct of~. ';fImlmf,lUO/"l1S Ji1/l1lma:. AV~ ger,eral eni]~ ~1U'l j:Mn d.ed~ for PPO$. PO$ ptmS, and HOHP'/SOs-:<ire for irt-fietwOfk ,~. source:,KM,;&r/HRtr survey-of Employer~s;pon:rored Health lkl1l'!HI>. 2012. In addition to the general annual deductible, workers are often required to pay a coinsurance or copay for visits with health care professionals. Covered workers at private employers are more likely to be required to pay a coinsurance rate and less likely to pay a copay for primary and specialist office visits than workers at other types of employers, Depending on the COinsurance rate and whether the cost~5haring formula includes minimums and maximums, coinsurance rates often place a greater financial burden on workers for high cost services than a capay, In Addition to Any General Annual Pfon Deductible, Percentage of Covered Workars with the Following Types. of Cost Sharing for Physician Office Visits am.I Emergency Room Visits, by Firm Ownership Cot.gory, 21)12 C::Jpay Coinsurance No Cost Olher Type of iPrimar'/ Carn Shs7'ing Coat Sharing Pr~ia~e Employers 69%"' 21%"' 9% 1% P .Jtdc Employers 79% 12%' 5% 4% Non-Profit Employers 8'0%11 10%' 5% 2% All Employers 7:1'li, 17% S% 2'11 Soecia/ist Ca ... Private Employers 69%' 22%" 9%' 1% P~lbljc Empoyers :"6% 15% 4% 4% Non-Profit Empl·oyers &i%A 13%' 5% 2% AI! Employers 13% !ll''> 711 1% IEmemonev Room Visi .. Private Empk.l}'Bfs 5,% 25%~ 9% 11% PublJc Employers 54% 21% 5% 19% Nor-Profit Employers 67"'" .~ 13%" 10% 10% All Employers 58% 22% 9% 12'11 I * Estimate is statistically different from firms not in the indicated owner1inip category (p<JJ5j Source: KaiseriHRET Surv?y of Emplo}'er~pansOl'~ Health Benefits. 2012 Among covered workers who face copays for office visits or emergency room VISIts In addItion to the genera! annual http://www.kff,org/insurance/snapshotichcm112012oth.cfm I!24/2013 ~napshots: Premiums, Cost-Sharing and Coverage at Public, Private and Non-Profit Firm ... Page 7 of 11 deductible, workers at private employers face higher average copays than their counterparts at non-profit and public employers. On average, covered workers at private employers have copays of $24 for primary care office visits, $35 for specialist visits, and $124 for emergency room visits. Among Cove-red Workers with Copayme-nts andJor CoinsUrHnce for In- Ne-twork Physician Office and Emergency Room Visits, Ave-rage Copoyments nnd Coinsurance, by Firm Ownership Cote-gory, 2012 Average Average Copay C-oinsurance Clfflce Visits Private Firms S24' 19% Public Firms 21-17 Non-Profit Firms 21' 18 All Firms $23 1B% Specialist Office Visits Private Firms $35* 19%* Public Firms 30 17 Non-Profit Firms 31' 17 All Firms $33 19% Emeraencv Room Vls/ts Private Firms $1.24' 18% Public Firms 108 1£ . Non-Profit Firms 108' 1a All Firms $118 11111 " Estimate is statistically different from firms not in the indicated ownership category (p<.05}. Source: KaiserJHRET Survey of Employer-Sponsored Health Benefits, 2012. Coverage and Enrollment The number of workers eligible and covered by an employer's health benefits varies by ownership category. Among public employers offering health benefits, 75% of workers are covered by their firm's health beneFits plan, more than the 59% at private employers and 63% at non-profit employers. The number of workers covered by health benefits is the product of how many workers are eligible to enroll and how many "take-up" or participate in that coverage. Public employers have both a higher eligibility rate and a higher take-up rate. Eighty-three percent of workers at public employers that offer coverage are eligible to enroll. Among workers eligible to participate in health benefits, 90% of cov~red workers at public employers take-up coverage, signiFicantly more than the 78% that take-up at private employers and the 83% that take-up at non-profit? http://www.kff.org/insurance/snapshotlchcmII20I2oth.cfm 1124/2013 Snapshots: Premiums, Cost-Sharing and Coverage at Public, Private and Non-Profit Firm ... Page 8 of II EligibiUlY, Take~UpRate, and Coverage in Firms Offering Health Benefits, bV Firm Ownership Category, 2012 QPrflJate Empbye'l''S 8J%* III P\lbllt-En\plf7YCr.i .Non~ltmfft -Empfoyen; Take-up Rale '0%' 0 .. 20% '0% 00% 1; E5t/male is st!ustc<Jly afferent from Inns '"' a dUe-rent OWl)er~l1'p CiltegOry (p<))5). HDte: The take'up rate is wi:1Jhtrd lyY thO' r.umber of workers-eiJib1e for the: r!fm'& heath Ix!neft3. The elQtMfV rate and ('O\'I'r,,!)e' rare ale ~ed by tl1e number or woiXers atthe,j?rm. SOurre: l(OOer{HRET ,SlJfVeyof Empbyer·Sponsorect Hf.alfth Benefil:s:, 2012 Covered workers at private employers are more likely to be enrolled in a high-deductible health plan with either a health reimbursement arrar.gement (HRA) or a health savings account (HSA) compared to covered workers in other ownership categories. Similarly, covered workers at public employers are more likely to be enrolled in a PPO plan. Distribution of Health Plan Enrollment for Covered Workers, by Firm Ownership Category, 2012 Publ1c EmploVl'.r,:I: I!I Coo\l~I\Uooal .IIMO Non·proflt-Bn}Jl~ers All Employers 0% 1(1% 20% 30% 40% 50% 60% 10% 90% 90% 100% iii E~te-if statl\ik.aiy dnelEnt tromJ!fl11$ tfl a afferent 1JW1leffll"p ,:a'te!iory(p.o;_O~).. "pro .P05 GHDHP/SO Note; HMO is-h&llh rriahtenllnce onja.t\iZ<'!lbn, pPQ'i<;j pre4eut\f ~r(J"ije[ or.g~lilialiorl. POS s pC>t'lt-()f-s.erlllc:r pl;Jn. HDHPfSO Is" h~­deductible hei!lh ptI!'l wlh a -5aVirlt!5 tJPC',On, Source: KalW"lHRE:r surveyor €mpbyer-Sponsor€o Heath ~oo:(s, Z012, http://www.kff.org/insurance/snapshot/chcmI12012oth.cfm 1124/2013 :;lnapshots: Premiums, Cost-Sharing and Coverage at Public, Private and Non-Profit Finn ... Page 9 of II Other Notes There are other Important differences In the health plan~ being offered at private, public and non-profit employers. Among large firms offering health benefits, a significantly greater percentage of public employers (63%) offer retiree benefits compared to private (18%) or non-profit employers (23%). Among All Large Firms (100 or More Workers) Offering Health Benefits to Active Workers, Percentage of Firms Offering Retiree Health Benefits, by Firm Ownership Category, 2012 700/0 63%* 50% 50% 4IJ% 300iIJ 10% .18%* 100..11 0% Prfvate Employers Public: fmploycrs Non~Proflt EmploY~15 .j Estimate i$ sta~[tqJy dtreW1{ from fu'ms in " ditfetent ownersf'fp ategO!y {p..-:.OS). Source: Kalser!HRET SUrvey of EmJ)loyer-Sponsored ~Iea!i:h 13ener.ts, 2012. All [,"ploye", In order to reduce health costs and improve employees' health, many employers offer wellness programs. The survey asks employers who offer health benefits if they offer one of eight specified health programs or another unspecified program. A significantly higher proportion of public employers offer at least one of the specified wellness programs or an unspecified program (96%). Public employers are more likely to offer weight loss programs (62%) or web~based resources for healthy living (72%) than employers in other ownership categories. http://www.kff.org/insurance/snapshot/chcmlI2012oth.cfm 1124/2013 Snapshots: Premiums, Cost-Sharing and Coverage at Public, Private and Non-Profit Fir... Page lO,of II Among Finns Offering Health Benefits, Percentage Offering a Palti~ular WeI/ness Progtam to Their Employees, by Finn Ownership Clltegory,lOi2 lltMtyre (I' Oeha'llOl'.ll (.ru(hlnlj' wel.I1II!6!o flewslcttllr w~·b~ R~IXU!!f for Hooltf:lylMlIg Sm<*lng ~<loon PrcorMl OfferaUilitSl: One $mc~dw~rn~ P10Q""'I1, tnckidlng cttt@F "EW'lut-e i:l $t.lt~i dffEI~nt from f(rrll '" li dft~e.,t QW~E';l\", (~~.~r; (c< .. O~i .Non-Profit t:mp,byen u:Public EmpIDYQ~ erepiiv",te Eillpklyen; "'1.~ . Now: 61% I}f:rwat~tiI/l'3$]$j ~hl!\' oifHl!cI;H iI:sIS'. ')I'e ~elifilod '..,~e,!lo!o~r"Qrl:!1 ~IOJl'I~r;lOU';~·. 9~ cfp\~lkfl~'S aMI 69% c! 1i(J!1.~I'CIiu;, i1\}~T~(\(!(fi1erf"1Jlj1! hll<lith Ifxa~~tlon tha;tmflASlJfi!!J ~Il emp~ ... ec·s rISk ~rtor! !;\.Ida <I~ (h~~~t,)rct b:Oed ~r~sw'c, ltrm, ~nd r.,"lJ~n. ,·"""er(eI'lt 0' rr'll~ -:,ojO;:;ri;.IO 'o)tooi" $<I'oj thil1:·ti!3)' bad ,m ~fIl'e as~"ti!tu:" Df')9!iim~EAr;iY1ti 5% sw tll~t t!t~~ cflB!"~Q fu W'!Crt~. 5001':~: 1(;a~f/HR:fT 5utw·ya(E"I"Pb~r-.iflMiO~d tI·~l)'-loj tI~ ... cf"~, ZOl2. Conclusion It is important to recognize that there Is significant variation in the types of health plans being offered by employers within each of the ownership categories, On average, workers at private employers face higher employee premium contributions and cost sharing than their counterparts at publiC and non-profit employers, Even when comparing employers within large and small size categories, covered workers at public employers are responsible for a smaller portion of their coverage than workers at private employers, Methods The Employer Health Benefits Survey is a national probability survey of over 2,100 private and non-federal public employers with three or more employees, Non-federal firms are sampled from the 2007 U,S, Census of Governments and private sector firms are sampled by Survey Sampling Incorporated (ssI) which obtains information from Dun and Bradstreet, Employer industry classifications used in sampling are based on a firm's primary SIC code. Employer ownership categories are defined by a survey question asking respondents to characterize their organization as a public, private, or non-profit employer, Weights are post stratified to industrYi Size and regional counts provided by the Census Bureau's Statistics of U,S, Businesses and the Census of Governments, Interviews are conducted with HR directors and office managers about the firm's HMO, PPO, POs, and HDHPjsO plan with the largest enrollment. For more information on the survey design and sampling methodology of the Employer Health Benefits Survey, see the Survey Design and Methods Section of the 2012 report [3] Statistical testing in thiS snapshot compares firms in one ownership category against all firms not in the indicated category at an alpha level of 0,05, http://www.kff.org/insurance/snapshot/chcml12012oth.cfm !l24/2013 J Snapshots: Premiums, Cost-Sharing and Coverage at Public, Private and Non-Profit Fir... Page II of II Distribution of Employers and Workers Covered by Health Benefits, by Firm Ownership Category, 2012 100% 80% 600/, 20% Co'ltered Workers EmpJol'Qr-5 Gl Nor>-Prolit Employ .... • Public Employern III Private, Employers N9te: Oat., 1I~ ba:sed 00 a ,S.peCla! rota request to the u.s. CenSlJ'5 8ure-_)u for their most recent (2009) Stllr~;t:'\':s or U.s., Bi.lsli1es~$ d<lta OIl prtYate ~ttor t~ S't:lte ;,hd btal -government data-are from the CenSUs 6Ur~au>s 2007 CenSlJS of' GO'/eIYl[J'!ellts. ThE ~1i\¢rt9 frame mdodes prrJ3(t> and non·rfodff.,1f f,rm~ Worn OlOl't-than t~ fmpby,~e.o;. ('".overed workers. rerNS to the proporton of'WOIkNS lit a I'm 'Hho,;.,re coWlred t)y mw frm~ Iw.a'th pia". SUur~:~/HRET .slJ(veyot'Employer·~~redHe-.C!fth 6enefrtl>, 2012, Notes: This sI"!apshot was prepared by Matthew Rae, Nirmita Panchal, a"d Gary Claxton of the Kaiser Family Foundation's Health Care Marketplace Project. 1. Less than 0,05% of respondents selected "don't kr'!Ow" and were imputed using a hotdeck approach. 2, Data are based on a special data request to the U.S. Census Bureau for their most recent (2009) StatistiCS of U.S. Businesses data on private sector firms. State and local government data are from the Census Bureau's 2007 Census of Governments. 3. The full report of the 2012 Kaiser/HRET Survey of Employer-Sponsored Health Benefits IS available at http://wwwkrf.orq/insurance/B345.am < aack 10 Snapshot Index Information provided by the Health Care Marketplace Project Publish Date: 2012-11-28 Keywolds ;;~m """"-,, http://www.kff.org/insurance/snapshot/chcmI12012oth.cfm 1124/2013 City of Palo Alto COLLEAGUES MEMO February 04, 2013 Page 1 of 1 (ID # 3513) DATE: February 4, 2013 TO: City Council Members FROM: Council Member Schmid, Council Member Klein SUBJECT: COLLEAGUES MEMO FROM COUNCIL MEMBERS KLEIN AND SCHMID REGARDING ANNUAL COUNCIL REORGANIZATION MEETING Problem: Our present practice of holding our annual Reorganization meeting on the first business Monday in January creates legal and practical problems. Proposed Solution: Council to direct staff to prepare the necessary Resolution or Ordinance to set the first business day of the calendar year as the date for the swearing in of new Council Members, the election of the Mayor and Vice Mayor and the recognition of departing Council Members/Mayor/Vice Mayor, with no other business to be transacted at such meeting. Discussion: Under our Charter terms of outgoing Council Members end at midnight on December 31. New Council Members cannot act until they are sworn in. By delaying the swearing in until as late as January 8 we run the risk of not having sufficient Council Members on hand to act if an emergency should arise. Further, when the Mayor is a departing Council Member, as was true in 2012, he/she cannot serve in that position past December 31. If both the Mayor and Vice Mayor were departing Council Members we would have no person in those positions until the Reorganization meeting. Our present schedule also creates an unnecessary delay in getting down to business in January. The newly elected Mayor cannot make appointments until she/he is in fact chosen. This delays such appointments until mid-month. Further, by using the first business Monday solely for swearing in and reorganization we leave ourselves with only two Mondays (three when January has five Mondays) in January for regular business meetings, since the Martin Luther King holiday falls on the third Monday each year. At the very time when enthusiasm is high- particularly in years when new people are joining the Council - we in effect are dawdling. Please join us in supporting this simple change in our schedule. CITY OF PALO ALTO OFFICE OF THE CITY CLERK February 4, 2013 The Honorable City Council Palo Alto, California Approval of Resolution Scheduling the City Council Vacation and Winter Closure for 2013 RECOMMENDATION Approval of Resolution Scheduling the City Council Vacation and Winter Closure in Calendar Year 2013. BACKGROUND Pursuant to the Municipal Code Section 2.04.010, the City Council must schedules its annual vacation for each calendar year no later than the third meeting in February. During said scheduled annual vacation, there shall be no regular meetings of the City Council nor of the Council standing committees. The Mayor or a majority of the Council may call a special meeting during the scheduled vacation if necessary. Please note that the Palo Alto Unified School District last day of school is May 30, 2013 and school resumes on August 15, 2013. The Council also needs to set the winter closure. I polled Council Members for their suggestions when the Council should take their breaks and received the following responses: • Three Council Members thought that the Council’s summer break should be the month of July. • One Council Member thought that the Council’s summer break should begin after the budget is approved. The budget is tentatively scheduled to be approved on June 17, 2013. • One Council Member thought that the Council’s summer break should be July 15, 2013 through August 15, 2013. • One Council Member thought that the Council’s summer break should be July 26, 2013 through August 23, 2013. • One Council Member had no preferences for the summer break but wanted to change the timing of the winter breaks. • The City Manager noted that there could be new fiscal year issues that make some July meetings important. Another concern is ballot measure approvals to meet the Election Code deadlines in early August. Staff respectfully requests Council's direction on the dates to be set for the Council breaks. ATTACHMENTS: • VacaRptReso2013 (DOC) Department Head: Donna Grider, City Clerk Page 2 Page 3 RESOLUTION NO. RESOLUTION OF THE CITY OF PALO ALTO SCHEDULING THE CITY COUNCIL VACATION AND WINTER CLOSURE FOR CALENDAR YEAR 2013 WHEREAS, pursuant to Section 2.04.010 of the Municipal Code, the City Council must schedule its annual vacation for each calendar year no later than the third meeting in February; and WHEREAS, the City Council desires to set its annual vacation for 2013. NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE as follows: The City Council sets their vacation for calendar year 2013, from XXXXl, 2013 through XXXX, 2013 and winter closure from XXXX, 2013 through XXXX, 2013. INTRODUCED AND PASSED: AYES: NOES: ABSENTIONS: ABSENT: ATTEST: APPROVED: City Clerk Mayor APPROVED AS TO FORM: City Attorney City Manager City of Palo Alto (ID # 3403) City Council Staff Report Report Type: Informational Report Meeting Date: 2/4/2013 City of Palo Alto Page 1 Summary Title: City of Palo Alto Energy Risk Management Report First Quarter, FY 2013 Title: City of Palo Alto Energy Risk Management Report for the First Quarter, Fiscal Year 2013 From: City Manager Lead Department: Administrative Services This is an informational report and no City Council action is required. Executive Summary Staff has continued to purchase electricity and gas in compliance with the City’s Energy Risk Management Policies and Procedures. This report is based on market prices and load and supply data as of September 30, 2012. The 36-month mark-to-market (MTM) value of the City’s fixed price electricity purchases is $1.1 million higher than current market prices (negative MTM). The MTM value represents the difference between the current market price and the contract price. The cost of the City’s gas fixed-price purchases was $1.5 million higher than the market value as of September 30, 2012. The cost of renewable power purchases is $7.1 million more than the cost of brown energy over the 12-month period ending September 2013, but $2.8 million less than the average price of the latest renewable RFP. The cost of Western’s hydroelectricity over the 12-month period ending September 2013 is less than its market value by a positive $4.8 million. This means the cost was less than its market value. Calaveras had a negative $7.3 million hydroelectricity cost which means the cost is much higher than its market value. There were no exceptions to Energy Risk Management Policies, Guidelines, or Procedures to report during this period. City of Palo Alto Page 2 Background The purpose of this report is to inform the City Council of the status of the City’s energy portfolio and transactions executed with energy suppliers as of the end of the first quarter of Fiscal Year 2013. The City’s Energy Risk Management Policy requires that staff report on a quarterly basis to Council on: 1) the City’s energy portfolio; 2) the City’s credit and market risk profile; 3) portfolio performance; and 4) other key market and risk information. Discussion To meet the expected load demands, the City obtains electricity from: hydroelectric resources (referred to as Western and Calaveras); renewable landfill gas converted to energy; wind generation contracts; and fixed priced forward market purchase contracts. Staff projects that carbon neutral resources, including hydroelectric, will be 88% of the load over the next 12 months. Figure 1 below illustrates the sources of electricity supplies by month for the next 36 months in terms of megawatt hours (MWh). Fixed Price Forward Electricity Purchases The City currently has purchased supplies of electricity totaling 269,920 MWh for delivery between October 1, 2012 and December, 2013. The average price for all of the fixed-price purchases is $37.43 per MWh. The City contracted with six approved counterparties: Shell Energy North America (SENA), Powerex, British Petroleum Energy (BP), JP Morgan Chase, Sumitomo, and ConocoPhillips. City of Palo Alto Page 3 The 12-month mark-to-market (MTM) value of the City’s forward transactions for wholesale power was a negative $1.1 million at the end of the quarter. In other words, the contract price was higher than the market price. Figures 2 and 3 represent the Electric forward volumes and MTM positions for each electric supplier by month of delivery for all forward fixed price electricity contracts. The data is shown by delivery month for all forward fixed price electricity contracts. Fixed Price Forward Natural Gas The City has purchased gas supplies totaling 795,798 MMBtu for delivery between October 1, 2012 and October 2013. The average price for these fixed-price purchases is $4.61 per MMBtu. The forward purchases have been transacted with three approved counterparties: SENA (Shell Energy), Powerex, and JP Morgan Chase. The gas forward volumes are shown in Figure 4 and the gas MTM values of all fixed price forward natural gas contracts by month and by counterparty are presented in Figure 5. The last fixed price contract expires in October 2013 and at that time the City’s MTM will approach zero. Charts City of Palo Alto Page 4 City of Palo Alto Page 5 Renewable Portfolio Standard The City of Palo Alto renewable portfolio currently consists of power purchase agreements for landfill gas, wind renewable, and solar photovoltaic resources to meet the City’s renewable portfolio standard of 33% by 2015. The 12-month MTM value of the City’s forward positions for existing, committed landfill gas and wind renewable power is positive $2.8 million when marked against staff estimates on a long-term forward price for renewables. The forward price is based on the most attractive proposals the Electric Fund receives when it issues a request for proposals (RFP). Trina Solar Last year, a Renewable RFP was issued and a solar project by Brannon Solar, LLC, was selected. The City negotiated a 25-year agreement with Brannon Solar that was executed in November 2012. This project is expected to generate 5% of the City’s electric needs. Trina Solar LTD (Trina) is the parent company of Brannon Solar. Recently (January 2013), an article was published on a financial website suggesting that Trina’s poor financial condition may cause it to file for bankruptcy protection within the next six months. (Trina strongly disputes the article’s claims.) Staff has been monitoring Trina’s financial status closely. Using a Moody’s credit evaluation tool, Trina Solar has a high Expected Default Frequency (EDF) of 21%. This translates to a below City of Palo Alto Page 6 investment grade credit rating of CC. In addition, the City’s outside credit consultant reports that Trina had operating losses of $30 million, $92 million, and $57 million in quarters 1, 2 and 3 of (CY or FY) 2012, respectively. In addition, Trina’s expense growth is outpacing revenue growth. It is critical to note that while the City has a Power Purchase Agreement (PPA) with Brannon Solar, the project is not expected to be online until late 2014. Under the contract, the City will not pay for energy until after it is delivered. Moreover, Brannon Solar has funded a $400,000 Letter of Credit in the City’s favor with Wells Fargo to cover any damages the City may suffer if the project is not built in accordance with the contract. In addition, the Letter of Credit is an irrevocable, stand-alone document that is not affected by the financial stability of either Trina or Brannon Solar. The major downside of a Trina bankruptcy is that the City would have to replace this source of renewable energy to meet its RPS goals, and by the time the City goes out to purchase the replacement energy market prices may be higher than they were when it signed the Brannon Solar contract. Given the newness of renewable energy firms and projects, it has been expected that situations like Trina’s would arise. In reviewing responses to several renewable RFPs, staff has noted the lack of financial track records and resources of these firms. Competition in the solar field, for example, is fierce and it is to be anticipated that firms will fail. The ride to meeting renewable goals will likely be bumpy, but the City has instituted contractual terms that will prevent direct financial loss and mitigate any adverse impacts incurred through projects that fail to come online. Hydroelectricity The 12-month MTM is positive at $4.8 million for Western and is negative $7.3 million for Calaveras. Note that the Calaveras project provides benefits not reflected in the MTM calculation. This includes, for example, the ancillary service of increasing energy output if the grid needs additional energy and additional revenue for the City when excess power is available. Credit Risk Staff monitors and reports on credit risk using the major credit rating agencies (S&P and Moody’s) scores. The “expected default frequency” (EDF) is an analytical tool from Moody’s and can be found in KMV CreditEdge Plus© or calculated in RiskCalc© using the counterparty’s audited financial statements. The EDF is an estimated probability established by combining information from the equity markets along with the company’s debt structure as reported on their financial statements. This provides information on the probability of a counterparty City of Palo Alto Page 7 defaulting in the next 12 months. CreditEdge Plus© also provides frequent updates along with early warnings of changes in credit quality. The City has Electric Master Agreements signed with six counterparties: Sumitomo, JP Morgan Chase, ConocoPhillips, SENA, Powerex, and BP. Of this group, the City currently has outstanding contracts with three counterparties, as listed in Table 1 below. In addition, the City has renewable electricity contracts with Iberdrola Renewables, LLC, Ameresco, and Trina Solar. Electricity and Gas City of Palo Alto Utilities’ electric and gas supplier counterparty credit exposure and supplier credit ratings are presented in Tables 1 and 2 on the next page. Table 1. Credit Exposure and Expected Default Frequency of Electric Suppliers as of 9/30/12 Table 2. Credit Exposure and Expected Default Frequency of Natural Gas Suppliers as of 9/30/12 Supply Rate Stabilization Reserve Adequacy The Electric and Gas Supply Rate Stabilization Reserves help to mitigate risks associated with serving the gas and electric customers. Table 3 below summarizes the current, unaudited supply rate stabilization reserve levels for electricity and gas as of September 30, 2012 based on the City’s SAP financial system. City of Palo Alto Page 8 Table 3. Supply Rate Stabilization Reserve Levels for Electric and Gas for FY 2013 (Preliminary unaudited figures from City’s Financial System) * The accounting activity to date reflects what has been booked into the City’s financial system. These figures are preliminary until outside auditors have completed their review and the Comprehensive Annual Financial Report is produced. There could be significant changes to the RSR balances based on year end adjustments that have not been booked yet. The Electric Supply Rate Stabilization reserve’s unaudited balance at 9/30/12 is $65.0 million, which is $2.0 million above the FY 2013 reserve maximum guideline level. The City Auditor’s recommendation regarding how the rate stabilization reserve balances are determined by the Utilities Department will be discussed by staff in future reports. The current estimated reserve balance is well above the immediate 12 month credit, hydro, and other risks that have been identified and which are estimated at $3.0 million. The unaudited Gas Supply Rate Stabilization reserve balance at 9/30/12 is $3.1 million which is $1.0 million below the FY 2013 reserve minimum guideline level. Exceptions There are no exceptions or violations to the Energy Risk Management Policies, Guidelines, or Procedures to report during this period.