HomeMy WebLinkAboutStaff Report 3262
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 Impro vement 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 ben efit 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 fr om 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 allev iate 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 t o 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 G eneral 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 redu ced 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 fo llowing
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 $8.3 million or 7.1 percent
higher than the prior year. The largest drivers of the increase were sales tax (up 6.7 percent)
and transient occupancy tax (up 19.8 percent), as well as increased permit and plan check fees
and new construction permits.
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Following is a chart which presents a five year history of each of the major tax revenue
categories:
Property Tax Sales Tax Utility User Tax Transient
Occupancy Tax
Documentary
Transfer Tax
FY 2008 23084 22623 10285 7976 5382
FY 2009 25432 20089 11030 7111 3092
FY 2010 25981 17991 11295 6858 3707
FY 2011 25688 20746 10851 8082 5167
FY 2012 26494 22132 10834 9664 4821
1000
6000
11000
16000
21000
26000
31000
Major General Fund Tax Revenues
Fiscal Years 2008-2012
($ 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 Plann ing expenses for technology
enhancements of $.6 million.
City of Palo Alto Page 8
Following is a graph which compares departmental costs over a five year period:
Administrative
Departments CSD Fire Library
Planning &
Community
Environment
Police Public Works
FY 2008 19098 21866 24279 7033 10145 29784 13243
FY 2009 17717 21677 23765 6502 10483 28464 13489
FY 2010 19219 20846 28180 6623 10058 29090 13405
FY 2011 16906 20518 29012 6722 10416 31286 13842
FY 2012 18693 21399 30117 7714 11186 33762 13789
5000
10000
15000
20000
25000
30000
35000
General Fund Department Expenditures
Fiscal Years 2008-2012
($ 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 fro m 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
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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
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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
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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
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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
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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 GreenW aste 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
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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 A 4.2$ 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 A 1.0 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 $17.2 million 2011 Series A Utility Revenue Bond to refund the
outstanding 2002 Series A Utility Revenue Bond. The 2002 Bond was issued to finance improvements to the
City’s municipal water utility system and the natural gas utility system. The pledge of future revenues ends
upon repayment of the remaining debt service on the bond in 2026.
SPECIAL ASSESSMENT DISTRICT DEBT
Special assessment districts throughout different parts of the City have also issued debt to finance
infrastructure and facilities construction exclusively in their districts. As of June 30, 2012, the City had no
special assessment district debt with City commitment outstanding.
ECONOMIC OUTLOOK
The economy of the City is discussed in the accompanying Transmittal Letter.
CONTACTING THE CITY’S FINANCIAL MANAGEMENT
The CAFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the
City’s finances. Questions about this report should be directed to the Administrative Services Department, at
250 Hamilton Avenue, 4th Floor, Palo Alto, California. This report and other financial reports can be viewed
on the City of Palo Alto website at: www.cityofpaloalto.org. On the home page, select Departments, select
Administrative Services, and select Financial Reporting. Within Financial Reporting, there are links to reports
by title and reporting date or use the following link: www.cityofpaloalto.org/gov/depts/asd/reporting.asp
28
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CITY OF PALO ALTO
Statement of Net Assets
June 30, 2012
(Amounts in thousands)
Governmental Business‐Type
Activities Activities Total
ASSETS:
Cash and investments available for operations (Note 3) 193,697$ 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.
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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
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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
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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
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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
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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
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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 A 06/01/21 (1)
(1) Callable in inverse numerical order of maturity at par plus a premium of 2 percent beginning on
the initial call date. The call price declines subsequent to the initial date.
(2) Callable in any order specified by the City at par 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
Coverage 1
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
Coverage 2
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
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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
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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
Tim
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
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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
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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.
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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
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