HomeMy WebLinkAboutStaff Report 4192
City of Palo Alto (ID # 4192)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 11/19/2013
City of Palo Alto Page 1
Summary Title: Close FY2013 Budget and Approve FY2013 CAFR
Title: Recommendation to Adopt Ordinance Authorizing Closing of FY2013
Budget, Including Reappropriation Requests, Closing Completed Capital
Projects and Authorizing Transfers to Reserves; Approval of FY2013
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) 2013 Budget;
Authorize re-appropriation of FY 2013 funds into the FY 2014 Budget (Exhibit 2);
Close completed capital improvement projects (Exhibit 3), and
Transfer remaining balances to or drawing from 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 $8.9 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 2013 Comprehensive Annual Financial Report (CAFR) (Attachment
B).
Financial Highlights for FY 2013 – General Fund
Fiscal Year 2013 ended on a positive note, with a net surplus position of $8.9 million for the
Budget Stabilization Reserve. The surplus was largely a result of a combination of revenue
increases in sales tax, transient occupancy tax, and documentary transfer tax, all of which
City of Palo Alto Page 2
exceeded mid-year budget expectations, as well as slight expenditure savings.
The FY 2013 surplus allowed staff to make a recommendation to transfer $8.9 million from
the General Fund to the Infrastructure Reserve in the Capital Projects Fund, in keeping with
the Council’s priority of funding the City’s infrastructure needs. This reduced the Budget
Stabilization Reserve to 19 percent of FY 2014 budgeted expenditures and operating
transfers, which is in accordance with the City’s General Fund Reserve Policy.
Labor negotiations of the past few years have resulted in significant compensation and
benefit changes, including an increase in employee contributions to the CalPERS retirement
plan and to health care premiums, as well as impl ementation of two-tier retirement plans.
The annual savings resulting from these changes is estimated at almost $9 million City -wide
on an annual basis, of which approximately $5.8 million is realized in the General Fund.
Financial Highlights for FY 2013 – Enterprise Funds
Water Fund implemented a rate increase of 15 percent effective July 1, 2012 which, in
combination with the previous rate increase that took effect in October, 2011, resulted in
increased revenues of $5.1 million over the prior year.
Gas Fund revenues declined $7.3 million from the prior year, a decrease of 18 percent, due
to rate decreases that were driven by a change in the gas procurement strategy. Gas supply
costs decreased by only $2.8 million due to contracts which were still under fixed price
purchase commitments.
It should also be noted that the City received a “clean” audit opinion for FY 2013 from the
external audit firm, Macias Gini & O’Connell LLP. Once again, the City was awarded the
prestigious GFOA award for Excellence in Financial Reporting for FY 2012 – the 19th consecutive
year.
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 finan cial 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.
The attachments to this Staff Report provide the necessary documents for closing the FY 2013
Budget and reauthorizing FY 2013 funds to FY 2014. In addition, they prov ide detailed
information on the City’s financial activities for FY 2013 and highlight key fiscal issues affecting
the City of Palo Alto. The Management’s Discussion and Analysis (MD&A) section of the CAFR
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(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 in a solid recovery mode. In the past year, there has been a rebound in economically
sensitive revenue sources such as sales tax, which was driven by department store, electronics
and auto sales. Increased business and real estate activities within the City resulted in higher
transient occupancy tax and documentary transfer tax revenues.
The City has been proactively taking steps the past few years to align expenses with revenues
through employee compensation savings, service and program cuts, and revenue
enhancements. The City Council adopted a General Fund budget of $160.6 million in revenue
funding sources (including operating transfers in) for FY 2014, an increase of 5.0 percent from
the prior year Adopted Budget. The primary drivers of increased expenditures for FY 2014 are
rising pension and health care costs. Beginning in FY 2010, the City negotiated significant
compensation and benefit changes with its labor units. These changes include an increase i n
employee contributions to the PERS retirement plan and to health care premiums, as well as
implementation of two-tier retirement plans. Negotiations with labor groups such as
management, SEIU, firefighters and police are expected to save the City almost $9 million City-
wide on an ongoing annual basis.
Despite these changes the City still faces a significant long -term liability for pension and retiree
medical. The combined liability amounts to $300 million as reported in the FY2013 CAFR.
Through the measures mentioned above the City is working to reduce the growth in this long -
term liability over time.
In addition to pension and medical liabilities, t he City is facing a significant backlog in
infrastructure investment. The Infrastructure Blue Ribbon co mmission (IBRC) has identified
approximately $42 million in ongoing infrastructure needs, and $210 million in new facility
needs such as a Public Safety building. Beginning in FY 2013, an additional $2.2 million has
been committed to help fund the annual infrastructure maintenance or “keep up” needs as
defined by the Infrastructure Blue Ribbon Commission (IBRC) report.
A detailed discussion of financial results for FY 2013 is included in the CAFR MD&A. In addition,
staff will present the 10 year Long Range Financial Forecast to the Finance Committee in
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December 2013.
Results by Fund:
General Fund Reserves
At the end of the current fiscal year, fund balance of the General Fund was $42.1 million, an
increase of $0.1 million from the prior year. The $42.0 m illion 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 FY2013, there was an excess reserve bal ance of $8.9 million. Staff
recommended the BSR be reduced to the target level of 18.5 percent of FY 2014 expenditures
and operating transfers, plus $0.8 million for election and park maintenance expenses that
were approved in July. The remaining $8.9 million was transferred to the Infrastructure
Reserve in the Capital Projects Fund at the conclusion of FY 2013. The ending Fund Balance for
FY 2013 is $42.1 million and the BSR portion of that Fund Balance is $30.4 million, which is 19.0
percent of FY 2014 budgeted expenditures and operating transfers.
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The year over year change in the General Fund reserve balances is summarized in the following
table:
Table 1
Balance Net From Transfer to Balance
06/30/12 Operations Infrastructure 06/30/13
Budget Stabilization Reserve 28,122$ 11,135$ (8,900)$ 30,357$
Other Reserves:
Encumbrances 3,369 1,660 5,029
Reappropriations 1,494 (938) 556
Notes and loans receivable 1,259 281 1,540
Prepaid items 932 (287)645
Inventories 3,816 (252)3,564
Unrealized gains on investments 3,031 (2,645)386
Total General Fund Reserves 42,023$ 8,954$ (8,900)$ 42,077$
GENERAL FUND RESERVE SUMMARY ($000s)
FISCAL YEAR 2013
•
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The following graph provides a snapshot of the General Fund BSR balance and percentage of
budgeted expenditures for the past ten years:
Infrastructure Reserve
Including the $8.9 million going toward infrastructure in FY2013, the City has transferred a total
of $16.5 million in year-end surplus funds from the General Fund to go towards infrastructure
since 2012. The Infrastructure Reserve (IR) balance fluctuates due to timing differences in the
receipt of grant funds and reimbursements and the timing of adjustments to close projects. As
of June 30, 2013 the IR balance was $17.5 million.
General Fund Revenues
General Fund revenues for FY 2013 were $132.6 million, which is $7.0 million or 5.6 percent
higher than the prior year. Year over year changes in each of the major tax revenue categories
can be summarized as follows:
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Category FY 2013 FY 2012 % Change
Property tax $ 28,742 $ 26,494 8.3%
Sales tax 25,606 22,132 15.8%
Utility user tax 10,861 10,834 0.3%
Transient occupancy tax 10,794 9,664 11.3%
Documentary transfer tax 6,810 4,821 41.25%
Property tax revenue increased by $2.2 million, or 8.3 percent. The City’s 2012/2013
assessment roll growth of 5.32 percent was supplemented by better than expected receipts
from unsecured property taxes and motor vehicle in-lieu fees, as well as reduced county
administrative fees. Sales tax revenue increased 15.8 percent over prior year, driven by strong
retail sales in apparel stores, restaurants, service stations, electronics and auto sales. Transient
occupancy tax increased $1.1 million, or 11.3 percent, due to increased business activity and
improving occupancy and room rates. Documentary transfer tax increased by $2.0 million, or
41.25 percent, as a result of high dollar commercial transactions.
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Following is a chart which presents a five year history of each of the major tax revenue
categories and clearly demonstrates the sharp uptick in revenues this fiscal year:
General Fund Tax Revenues
Fiscal Years 2009 – 2013
($ in thousands)
General Fund Expenditures
General Fund expenditures for FY 2013, including encumbrances, totaled $144.7 million, a
decrease of $0.2 million from the prior year. The Original Budget of $138.0 million was
increased to the Final Adopted Budget of $148.1 million , an increase of $10.1 million which was
driven by increased retiree medical costs ($2.2 million), Public Safety labor concessions not
achieved ($1.6 million), additional contract costs for Development Services due to increased
activity ($1.4 million), and carry-forward of encumbrances from the prior year ($4.9 million).
Actual expenditures were $3.4 million, or 2.3 percent less than the Adopted Budget primarily
due to non-salary budget savings across General Fund departments and higher than expected
vacancy savings. Notably, Fire and Police expenses combined were $2.7 million, or 4.2 percent,
lower than the prior year. This resulted from increased contributions to pension and medical,
and operational efficiencies which lowered overtime.
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Following is a chart which compares departmental costs over a five year period:
General Fund Department Expenditures
Fiscal Years 2009 – 2013
($ in thousands)
The FY 2013 year-end Budget Amendment Ordinance (BAO) includes General Fund revenue adjustments
of $3.3 million primarily due to higher than originally budgeted revenue for new construction building
permits, plan checking fees, paramedic service fees, and street cut fees. In addition, the BAO includes
General Fund expenditure adjustments of $3.8 million primarily due to higher than originally budgeted
salaries and benefits in Public Safety, and additional contract services related to higher activity levels in
Development Services.
Also contained in the BAO are reallocations which distribute non-departmental offsetting expense for
the achieved $1.5 million in salary and benefits savings as a result of concessions from the Palo Alto
Police Officers’ Association (PAPOA) and from miscellaneous groups. Finally, $1.3 million in attrition
savings are distributed from the non-departmental to General Fund departments. Details of year-end
budget adjustments are shown in Attachment A, Exhibit 1.
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The following table depicts a before and after view of these General Fund adjustments:
Year-end Changes to General Fund Appropriations
(in thousands)
Budget Remaining
Before Adj Change(1)After Adj Actual Budget
City Attorney 3,041$ (13)$ 3,028$ 2,916$ 112$
City Auditor 1,019 9 1,028 995 33
City Clerk 1,608 (24) 1,584 1,291 293
City Council 509 13 522 523 (1)
City Manager 3,073 (63) 3,010 2,666 344
Administrative Services 7,593 (68) 7,525 7,176 349
Community Services 22,569 (51) 22,518 22,279 239
Fire 28,332 552 28,884 28,754 130
Human Resources 3,085 (11) 3,074 2,977 97
Library 7,680 3 7,683 7,555 128
Planning 12,294 1,088 13,382 13,112 270
Police 32,428 186 32,614 32,468 146
Public Works 14,714 39 14,753 13,987 766
Non-Departmental 6,373 2,130 8,503 7,956 547
Transfers out 14,722 - 14,722 25,090 (10,368)
Total 159,040$ 3,790$ 162,830$ 169,745$ (6,915)$
(1)Adjustments to appropriations are offset by revenue adjustments of $3,335,000
Capital Projects Fund
For FY 2013, the Capital Projects Fund reported expenditures and transfers out of $30.0 million,
a decrease of $2.6 million from the prior year. The Capital Projects Fund ended the year with a
fund balance of $78.0 million, an increase of $24.2 million from the prior year. Th e increased
fund balance is primarily a result of the additional General Obligation bond proceeds of $20.7
million.
Enterprise Funds
At June 30, 2013 the City’s Enterprise Funds reported total net position of $718.0 million, an
increase of $20.5 million, or 2.9 percent compared with the prior year. The change in net
position for each of the Enterprise Funds is detailed in the following table:
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Enterprise Funds
Change in Net Position for the Year Ended June 30
(in Millions)
Increase/
Fund Name 2013 2012 (Decrease)
Water 6.9$ 4.5$ 2.4$
Electric 1.9 9.0 (7.1)
Fiber Optics 2.9 2.6 0.3
Gas 1.3 7.8 (6.5)
Wastewater Collection 2.5 0.9 1.6
Wastewater Treatment 0.8 2.1 (1.3)
Refuse 2.4 (0.5)2.9
Storm Drainage 2.3 3.0 (0.7)
Airport (0.2)(0.1)(0.2)
Total Change in Net Assets 20.8$ 29.3$ (8.6)$
The total Change in Net Assets of $20.8 million, a decrease of $8.6 million from the prior year,
was due to the Electric Fund decline of $7.1 million which was due primarily to a decrease in
investment earnings of $5.6 million, and the Gas Fund which declined $6.5 million due to lower
rates as a result of a change in gas procurement strategy and the continued decline of natural
gas prices. Other changes are discussed in the MD&A section of the CAFR.
Enterprise Fund rate stabilization 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 2013 Year-End (DOCX)
Attachment A, Exhibit 1: (PDF)
Attachment A, Exhibit 2: Reappropriations (PDF)
Attachment A, Exhibit 3: Year-end CIP Adjustments (PDF)
Attachment A, Exhibit 4: General Fund Budget to Actual (PDF)
City of Palo Alto Page 12
Attachment A, Exhibit 5: Enterprise Fund Activity (PDF)
Attachment A, Exhibit 6: Enterprise Reserve Summary (PDF)
Attachment B: The City’s FY 2013 Comprehensive Annual Financial Report (CAFR) (PDF)
ATTACHMENT A
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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, 2013
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 18, 2012 did adopt a budget for fiscal
year 2013; and
B. Fiscal year 2013 has ended and the financial
results 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
2013 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 2013 appropriations which on July 1,
2012 were encumbered by properly executed, but uncompleted,
purchase orders or contracts.
ATTACHMENT A
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SECTION 3. The Council hereby approves adjustments
to the fiscal year 2013 budget for Fund Balancing Entries
as shown on attached Exhibit 1.
SECTION 4. The Council hereby re-appropriates
fiscal year 2013 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 2014 budget.
SECTION 5. The fiscal year 2013 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
2014 budget.
SECTION 6. The City Manager is authorized and
directed:
A. To close the fiscal year 2013 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 2013 budget as adopted or amended by
ordinance of the Council; and
B. To close and adjust various 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 2014 budget and continue, in
effect, the unexpended balance of
appropriations for fiscal year 2013
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) 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 Reserve Policies adopted
by the City Council.
SECTION 7. The General Fund Budget Stabilization
Reserve is hereby decreased by the sum of Four Hundred
Fifty Four Thousand Four Hundred Thirty Four Dollars
($454,434) as described in Exhibit 1. This transaction will
change the General Fund Reserve amount to $30,355,000.
SECTION 8. The Water Rate Stabilization Reserve is
hereby decreased by the sum of Fifty Nine Thousand One
Hundred Dollars Fifty Four ($59,154) as described in
Exhibit 1. This transaction will change the Water Rate
Stabilization Reserve to $17,272,000.
SECTION 9. The Electric Distribution Rate
Stabilization Reserve is hereby decreased by the sum of One
Hundred Ninety One Thousand Eight Hundred Sixteen Dollars
($191,816) as described in Exhibit 1. This transaction will
change the Electric Distribution Rate Stabilization Reserve
to $3,705,000.
SECTION 10. The Electric Supply Rate Stabilization
Reserve is hereby decreased by the sum of Twenty Five
Thousand Four Hundred Fifty Five Dollars ($25,455) as
described in Exhibit 1. This transaction will change the
Electric Supply Rate Stabilization Reserve to $65,324,000.
SECTION 11. The Fiber Optics Rate Stabilization
Reserve is hereby decreased by the sum of Nine Thousand
Three Hundred Thirty Five Dollars ($9,335) as described in
Exhibit 1. This transaction will change the Fiber Optics
Rate Stabilization Reserve to $15,290,000.
SECTION 12. The Gas Distribution Rate Stabilization
Reserve is hereby decreased by the sum of Ninety Six
ATTACHMENT A
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Thousand One Hundred Thirty Seven Dollars ($96,137) as
described in Exhibit 1. This transaction will change the
Gas Distribution Rate Stabilization Reserve to $5,025,000.
SECTION 13. The Wastewater Collection Rate
Stabilization Reserve is hereby decreased by Fifty Seven
Thousand Three Hundred Fifty Three Dollars ($57,353) as
described in Exhibit 1. This transaction will change the
Wastewater Collection Rate Stabilization Reserve to
$5,443,000.
SECTION 14. The Wastewater Treatment Rate
Stabilization Reserve is hereby decreased by the sum of One
Hundred Twenty Nine Thousand Seven Hundred Eleven Dollars
($129,711) as described in Exhibit 1. This transaction will
change the Wastewater Treatment Rate Stabilization Reserve
to $6,622,000.
SECTION 15. The Refuse Rate Stabilization Reserve is
hereby decreased by the sum of Fifty One Thousand Six
Hundred Sixty Six Dollars ($51,666) as described in Exhibit
1. This transaction will change the Refuse Rate
Stabilization Reserve to ($2,766,000).
SECTION 16. The Storm Drainage Rate Stabilization
Reserve is hereby decreased by the sum of Twenty Thousand
Six Hundred Eighty Nine Dollars ($20,689) as described in
Exhibit 1. This transaction will change the Storm Drainage
Rate Stabilization Reserve to $1,958,000.
SECTION 17. The Community Development Block Grant
Fund is hereby decreased by Eight Hundred Twenty Seven
Dollars ($827) as described in Exhibit 1. This transaction
will change the Community Development Block Grant Fund
Balance to $3,371,000.
SECTION 18. The Vehicle Replacement and Maintenance
Fund is hereby decreased by Thirty Two Thousand Fifty Three
Dollars ($32,053) as described in Exhibit 1. This
transaction will change the Vehicle Replacement and
Maintenance Fund Balance to $11,251,000.
SECTION 19. The Technology Fund is hereby increased
by Three Hundred Eighty Three Thousand Eight Hundred Thirty
Nine Dollars ($383,839) as described in Exhibit 1. This
transaction will change the Technology Fund Balance to
$19,910,000.
ATTACHMENT A
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SECTION 20. The Printing and Mailing Services Fund is
hereby decreased by Four Thousand Eight Hundred Fifty Two
Dollars ($4,852) as described in Exhibit 1. This
transaction will change the Printing and Mailing Services
Fund Balance to $0.
SECTION 21. The Capital Projects Fund Reserve is
hereby increased by Seven Hundred Eighty Two Thousand Two
Hundred Ten Dollars ($782,210) as described in Exhibit 1.
This transaction will change the Capital Projects Fund
Balance to $77,954,000.
SECTION 22. 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 23. 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 24. 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 25. As provided in Section 2.04.330 of the
Palo Alto Municipal Code, this ordinance shall become
effective upon adoption.
INTRODUCED AND PASSED:
ATTACHMENT A
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AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:
________________________ ____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
________________________ ____________________________
City Attorney City Manager
____________________________
Director of Administrative
Services
ATTACHMENT A, EXHIBIT 1
Category Amount Description
GENERAL FUND
Permits and Licenses (489,000) Allocate assumed fee increases to PCE
Source Changes (489,000)
Salary and Benefits 1,300,000 Allocate attrition savings to General Fund Departments
Salary and Benefits 1,376,270 Allocate achieved PAPOA employee concessions to Police Department
Salary and Benefits 126,000 Allocate achieved employee concessions for miscellaneous groups
Salary and Benefits
(672,000) Additional active employee medical cost assumed in adopted budget,
allocate to General Fund Departments
2,130,270
(2,619,270)
Salary and Benefits 80,708
Additional active employee medical cost allocated to General Fund
Departments from Non-Departmental
Salary and Benefits (150,668) Allocate achieved attrition savings and miscellaneous employee concessions
from Non-Departmental
Liability Insurance
1,964
Reallocate Liability Insurance from CIP to General Fund; amount had been
incorrectly included in CIP
(67,996)
67,996
Salary and Benefits
23,490
Additional active employee medical cost allocated to General Fund
Departments from Non-Departmental
Salary and Benefits (38,203) Allocate achieved attrition savings and miscellaneous employee concessions
from Non-Departmental
Liability Insurance
1,622
Reallocate Liability Insurance from CIP to General Fund; amount had been
incorrectly included in CIP
(13,091)
13,091
Salary and Benefits 8,415
Allocate achieved attrition savings and miscellaneous employee concessions
from Non-Departmental
Liability Insurance
204
Reallocate Liability Insurance from CIP to General Fund; amount had been
incorrectly included in CIP
8,619
(8,619)
ADMINISTRATIVE SERVICES
Use Changes
Net Changes To (From) Reserves
CITY ATTORNEY
Use Changes
Net Changes To (From) Reserves
CITY AUDITOR
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE CITY MANAGER'S 2013 ADOPTED BUDGET
Net Changes To (From) Reserves
Use Changes
Net Changes To (From) Reserves
Use Changes
NON-DEPARTMENTAL
11/12/2013
General Fund 2013
ATTACHMENT A, EXHIBIT 1
Category Amount Description
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE CITY MANAGER'S 2013 ADOPTED BUDGET
Salary and Benefits 9,496 Additional active employee medical cost allocated to General Fund
Departments from Non-Departmental
Salary and Benefits (34,768) Allocate achieved attrition savings and miscellaneous employee concessions
from Non-Departmental
Liability Insurance
344
Reallocate Liability Insurance from CIP to General Fund; amount had been
incorrectly included in CIP
(24,928)
24,928
CITY COUNCIL
Salary and Benefits 13,350 Additional active employee medical cost allocated to General Fund
Departments from Non-Departmental
Liability Insurance 64
Reallocate Liability Insurance from CIP to General Fund; amount had been
incorrectly included in CIP
13,414
(13,414)
CITY MANAGER
Salary and Benefits 19,153 Additional active employee medical cost allocated to General Fund
Departments from Non-Departmental
Salary and Benefits (94,747) Allocate achieved attrition savings and miscellaneous employee concessions
from Non-Departmental
Retiree Medical 12,147 Increase Retiree Medical expense to match actuarial report
Liability Insurance 513
Reallocate Liability Insurance from CIP to General Fund; amount had been
incorrectly included in CIP
(62,934)
62,934
COMMUNITY SERVICES
Salary and Benefits 140,381 Additional active employee medical cost allocated to General Fund
Departments from Non-Departmental
Salary and Benefits (194,344) Allocate achieved attrition savings and miscellaneous employee concessions
from Non-Departmental
Liability Insurance 2,709
Reallocate Liability Insurance from CIP to General Fund; amount had been
incorrectly included in CIP
(51,254)
51,254 Net Changes To (From) Reserves
Use Changes
Net Changes To (From) Reserves
Use Changes
Net Changes To (From) Reserves
Use Changes
CITY CLERK
Use Changes
Net Changes To (From) Reserves
11/12/2013
General Fund 2013
ATTACHMENT A, EXHIBIT 1
Category Amount Description
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE CITY MANAGER'S 2013 ADOPTED BUDGET
FIRE
Parmedic Service Fee
535,000
To recognize higher than anticipated revenue collections for paramedic
service fees
Source Changes 535,000
Salary and Benefits 218,980 Additional active employee medical cost allocated to General Fund
Departments from Non-Departmental
Salaries and Benefits 435,000 Additional appropriation to cover higher than originally budgeted salaries
and benefits expense
Salary and Benefits (106,219) Allocate achieved attrition savings and miscellaneous employee concessions
from Non-Departmental
Liability Insurance 3,920
Reallocate Liability Insurance from CIP to General Fund; amount had been
incorrectly included in CIP
551,681
(16,681)
LIBRARY
Salary and Benefits 83,297 Additional active employee medical cost allocated to General Fund
Departments from Non-Departmental
Salary and Benefits (75,163) Allocate achieved attrition savings and miscellaneous employee concessions
from Non-Departmental
Retiree Medical (6,000) Reduce Retiree Medical expense to match actuarial report
Liability Insurance 1,056
Reallocate Liability Insurance from CIP to General Fund; amount had been
incorrectly included in CIP
3,190
(3,190)
OFFICE OF EMERGENCY SERVICES
Non-salary (42,122) Reallocation of non-salary expense to fund transfer to the Vehicle Fund
Operating Transfer 42,122
Transfer to the Vehicle Fund for the purchase of the vehicle for the Director
of the Office of Emergency Services (OES); the OES Director is required to
respond to scenes of emergencies or disasters, including directly from home
-
-
Salary and Benefits 22,959 Additional active employee medical cost allocated to General Fund
Departments from Non-Departmental
Salary and Benefits (34,831) Allocate achieved attrition savings and miscellaneous employee concessions
from Non-Departmental
Liability Insurance 856
Reallocate Liability Insurance from CIP to General Fund; amount had been
incorrectly included in CIP
(11,016)
11,016
Net Changes To (From) Reserves
PEOPLE STRATEGY AND OPERATIONS
Use Changes
Net Changes To (From) Reserves
Use Changes
Net Changes To (From) Reserves
Use Changes
Net Changes To (From) Reserves
Use Changes
11/12/2013
General Fund 2013
ATTACHMENT A, EXHIBIT 1
Category Amount Description
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE CITY MANAGER'S 2013 ADOPTED BUDGET
New Construction
Building Permits 1,305,000 Additional new construction building permits
Other Fees 135,000 Additional revenue from Other Fees
Plan Checking Fee 850,000 Additional revenue from plan checking fees
Permits and Licenses 489,000 Allocate assumed fee increases to PCE from Non-Departmental
2,779,000
Salary and Benefits 73,965 Additional active employee medical cost allocated to General Fund
Departments from Non-Departmental
Salary and Benefits (337,767) Allocate achieved attrition savings and miscellaneous employee concessions
from Non-Departmental
Contract Services 1,350,000 Additional expenses related to higher activity levels in Development Services
Liability Insurance 2,227
Reallocate Liability Insurance from CIP to General Fund; amount had been
incorrectly included in CIP
1,088,425
1,690,575
Salary and Benefits 299,878 Additional active employee medical cost allocated to General Fund
Departments from Non-Departmental
Salary and Benefits 1,550,000 Additional appropriation to cover higher than originally budgeted salaries
and benefits expenseSalary and Benefits (1,376,270) Allocate achieved PAPOA employee concessions to Police Department from
Non-Departmental
Salary and Benefits (292,728) Allocate achieved attrition savings and miscellaneous employee concessions
from Non-Departmental
Liability Insurance
5,637 Reallocate Liability Insurance from CIP to General Fund; amount had been
incorrectly included in CIP
186,517
(186,517)
Street Cut Fees 510,000 To recognize higher than originally budgeted revenue from street cut fees
510,000
Salary and Benefits 111,265 Additional active employee medical cost allocated to General Fund
Departments from Non-Departmental
Salary and Benefits (66,561) Allocate achieved attrition savings and miscellaneous employee concessions
from Non-Departmental
Retiree Medical (11,147) Reduce Retiree Medical expense to match actuarial report
Liability Insurance 4,982
Reallocate Liability Insurance from CIP to General Fund; amount had been
incorrectly included in CIP
38,539
471,461
Total General Fund Changes to BSR (454,434)
Net Changes To (From) Reserves
Use Changes
PLANNING & COMMUNITY
Source Changes
Net Changes To (From) Reserves
Use Changes
POLICE
PUBLIC WORKS
Use Changes
Net Changes To (From) Reserves
Source Changes
11/12/2013
General Fund 2013
ATTACHMENT A, EXHIBIT 1
Category Amount Description
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE CITY MANAGER'S 2013 ADOPTED BUDGET
Other revenue 77,850
To fund warranty costs for EKG monitors approved by Council on May 6, 2013
(staff report #3699); CIP FD-12000
Source Changes 77,850
Salary and Benefits 47,463 Additional active employee medical cost allocated to Other Funds
Salary and Benefits
442,026 Actual salaries and benefits costs were higher than orginally budgeted due to
the following reasons: 1) the actual allocation of benefits to the Capital Fund
was higher than originally budgeted; 2) staff efforts to more accurately track
actual time spent on capital projects resulted in higher actual amounts than
originally budgeted; 3)additional temporary staff was needed to assist with
supporting efforts to complete the Mitchell Park Library and Community
Center and to provide inspection oversight to the expanded Street
Improvement Program.
Liability Insurance (23,313) Reallocate Liability Insurance from CIP to General Fund
CIP 77,850 To fund warranty costs for EKG monitors approved by Council on May 6, 2013
(staff report #3699); CIP FD-12000
CIP (1,248,386) Completed and closed projects; see Attachment A, Exhibit 3 for details
Use Changes (704,360)
782,210 Capital Fund Infrastructure Reserve
GENERAL FUND CIP (CAPITAL PROJECTS FUND)
Net Changes To (From) Reserves
11/12/2013
General Fund 2013
ATTACHMENT A, EXHIBIT 1
Category Amount Description
ENTERPRISE FUNDS
UTILITIES ADMIN
Salary and Benefits 34,623
Additional active employee medical cost allocated to
Enterprise Funds
Use Changes 34,623
Net Changes To (From) Reserves (34,623)
Fund Balancing Entries
(34,623)Change in Fund Balance
Total Utilities Administration Fund (34,623)
WATER FUND 7
Salary and Benefits 59,154
Additional active employee medical cost allocated to
Enterprise Funds
Use Changes 59,154
Net Changes To (From) Reserves (59,154)
Fund Balancing Entries
(59,154)Change in Fund Balance
Total Water Fund (59,154)
ELECTRIC FUND
Salary and Benefits 217,272
Additional active employee medical cost allocated to
Enterprise Funds
Use Changes 217,272
Net Changes To (From) Reserves (217,272)
Fund Balancing Entries
(25,455)Change in Electric Supply RSR
(191,816)Change in Electric Distribtion RSR
Total Electric Fund (217,271)
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE CITY MANAGER'S 2013 ADOPTED BUDGET
11/9/2013
Enterprise Funds 2013
ATTACHMENT A, EXHIBIT 1
Category Amount Description
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE CITY MANAGER'S 2013 ADOPTED BUDGET
FIBER OPTICS FUND
Salary and Benefits 9,335
Additional active employee medical cost allocated to
Enterprise Funds
Use Changes 9,335
Net Changes To (From) Reserves (9,335)
Fund Balancing Entries
(9,335)Change in Fund Balance
Total Fiber Optics Fund (9,335)
GAS FUND 7
Salary and Benefits 96,137
Additional active employee medical cost allocated to
Enterprise Funds
Use Changes 96,137
Net Changes To (From) Reserves (96,137)
Fund Balancing Entries
(96,137)Change in Gas Distribution RSR
Total Gas Fund (96,137)
Salary and Benefits 57,353
Additional active employee medical cost allocated to
Enterprise Funds
Use Changes 57,353
Net Changes To (From) Reserves (57,353)
Fund Balancing Entries
(57,353)Change in Fund Balance
Total Wastewater Collection Fund (57,353)
Salary and Benefits 129,711
Additional active employee medical cost allocated to
Enterprise Funds
Use Changes 129,711
Net Changes To (From) Reserves (129,711)
Fund Balancing Entries
(129,711)Change in Fund Balance
Total Wastewater Treatment Fund (129,711)
WASTEWATER TREATMENT FUND
WASTEWATER COLLECTION FUND
11/9/2013
Enterprise Funds 2013
ATTACHMENT A, EXHIBIT 1
Category Amount Description
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE CITY MANAGER'S 2013 ADOPTED BUDGET
REFUSE FUND
Salary and Benefits 51,666
Additional active employee medical cost allocated to
Enterprise Funds
Use Changes 51,666
Net Changes To (From) Reserves (51,666)
Fund Balancing Entries
(51,666)Change in Fund Balance
Total Refuse Fund (51,666)
STORM DRAINAGE FUND
Salary and Benefits 20,689
Additional active employee medical cost allocated to
Enterprise Funds
Use Changes 20,689
Net Changes To (From) Reserves (20,689)
Fund Balancing Entries
(20,689)Change in Fund Balance
Total Storm Drainage Fund (20,689)
11/9/2013
Enterprise Funds 2013
ATTACHMENT A, EXHIBIT 1
Category Amount Description
Salary and Benefits 827 Additional active employee medical cost allocated to Other Funds
Use Changes 827
(827)
Operating Transfer
42,122 Transfer from OES operating budget in General Fund to fund the purchase of the
vehicle for the Director of the Office of Emergency Services (OES); the OES Director is
required to respond to scenes of emergencies or disasters, including directly from
home
Source Changes 42,122
Salary and Benefits 32,053 Additional active employee medical cost allocated to Other Funds
CIP 42,122
To fund the purchase of the vehicle for the Director of the Office of Emergency
Services (OES); the OES Director is required to respond to scenes of emergencies or
disasters, including directly from home
Use Changes 74,175
(32,053)
Technology Enhancement
Fee
(724,000) Eliminates the estimate for Technology Fee revenue (will be recognized as a transfer)
Operating Transfer
724,000 Increases the Transfer from the General Fund to account for capital projects
reimbursed by the General Fund
Operating Transfer
1,047,413 Increases the Transfer from the General Fund to account for Technology Fee proceeds
Source Changes 1,047,413
Operating Transfer
606,000 To reimburse the General Fund for past Technology Projects which benefited the
entire organization
Salary and Benefits 60,359 Additional active employee medical cost allocated to Other Funds
Liability Insurance (2,785) To correct allocation of liability insurance to the Technology Fund
Use Changes 663,574
383,839
Salary and Benefits 4,852 Additional active employee medical cost allocated to Other Funds
Use Changes 4,852
(4,852)
COMMUNITY DEVELOPMENT BLOCK GRANT
Net Changes To (From) Reserves
Net Changes To (From) Reserves
VEHICLE REPLACEMENT FUND
TECHNOLOGY FUND
Net Changes To (From) Reserves
INTERNAL SERVICE
Net Changes To (From) Reserves
PRINTING AND MAILING SERVICES FUND
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE CITY MANAGER'S 2013 ADOPTED BUDGET
SPECIAL REVENUE FUNDS
11/9/2013
Other Funds 2013
ATTACHMENT A, EXHIBIT 1
Category Amount Description
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE CITY MANAGER'S 2013 ADOPTED BUDGET
Departmental Charges 1,251,549 Additional active employee medical cost allocated out citywide
Source Changes 1,251,549
Salaries and Benefits 1,251,549 Additional active employee medical cost allocated out citywide
Use Changes 1,251,549
-
GENERAL BENEFITS FUND
Net Changes To (From) Reserves
11/9/2013
Other Funds 2013
2013 Reappropriations
General Fund
Department
Reappropriation
Amount Reappropriation Justification
Various 84,659 Unused Management and Professional Development funds
Non-Departmental 100,000 Innovation Contingency: The Innovation Contingency is set annually at $100,000 and is available
for unanticipated innovative, or technological enhancements which will enhance City operations.
The 2014 Adopted Operating Budget assumed that the entire 2014 allocation would be utilized fund
Library Virtual Branch project. This reappropriation of unused 2013 funds will allow for additional
innovation efforts in FY 2014.
Library 149,524 Mitchell Park Library collections: The City received a gift from the Palo Alto Library Foundation
for this purpose, however usage is being delayed in order to provide customers with the most
current publications and productions when the Library opens.
Office of Emergency Services 60,000 Critical Protected Assets Inventory & GIS (HAZUS):In accordance with federal guidelines, this
project will identify, catalogue, prioritize, and protect critical infrastructure and key resources to
support local readiness, prevention, mitigation, and response efforts. This project will integrate
infrastruture information and GIS technology in an accessible tool for emergency responders,
enhance incident command capabilities, support the development of site-specific protective
programs, and improve the ability to plan for and manage special events. The project was delayed
in Fiscal Year 2013 due to staffing constraints and workload prioritization, however it is anticipated
that it will completed in Fiscal Year 2014.
Office of Emergency Services 40,000 Emergency Management Training Support: This project will improve the training level of
employees designated as Emergency Operations Center staff necessary for compliance with the
National Incident Management System. It will also train city employees to respond to an all-
hazards threat matrix of risks that may occur within city facilities. Training efforts experienced
delays in Fiscal Year 2013 due to staffing constraints and workload prioritization, however the
training is now anticipated to be completed in Fiscal Year 2014.
Planning and Community Environment 43,000 Development Blueprint Process: $70,000 was originally allocated in FY 2013 for organizational
improvements, including coaching and training. Due to high level of change and workload, all of
the planned training was not able to be accomplished in FY 2013, and is now anticipated to be
completed in FY 2014.
Police 78,799 Police Utilization Study: In FY 2013, $80k was allocated for the department to hire a consultant
to conduct a utilization study of overall police operations, however the study was not completed due
to competing workload demands. Staff anticipates the Request for Proposals for this project will
be completed in FY 2014.
Total General Fund
Reappropriations 555,982$
Exhibit: 2
Exhibit 2, page 1 of 4
Attachment A, Exhibit 2
2013 Reappropriations
Fund
Reappropriation
Amount Reappropriation Justification
Capital Projects Fund 59,768 Security System Improvements CIP Project:This reappropriation is proposed to prevent a lapse
in funding. This project will upgrade the camera system and card access system located at the
Municipal Services Center. The project was delayed in Fiscal Year 2013 due to workload
constraints, and the anticipated workload for Fiscal Year 2014 should allow for the completion of
this project.
Capital Projects Fund 50,000 Wilkie Way Bridge Tile Deck Improvement:This reappropriation is proposed to prevent a lapse
in funding. The project will allow for the replacement of all the recycled plastic tiles in the Wilkie
Way Bicycle/Pedestrian Bridge, including any necessary repairs to the wood decking underneath
the tiles. The project was delayed due to difficulty in locating suitable replacement tiles, however
staff has recently selected an acceptable replacement product which should allow for the
completion of this project in Fiscal Year 2014.
Capital Projects Fund 257,985 Downtown Tree Gates CIP Project:This reappropriation is proposed to prevent a lapse in
funding. This ongoing project is used to purchase tree gates on an "as needed" basis when new or
replaced sidewalks are constructed. Numerous workload issues have resulted in the project being
placed on hold. The project is anticipated to commence again as needed and concurrent with
sidewalk work in Fiscal Year 2014.
Wastewater Treatment 161,673 System Flow Meters: This reappropriation is proposed to prevent a lapse in funding. This project
provides funding to replace plant flow meters which are used for regulatory reporting and billing
partner agencies. No plant flow meters were replaced in Fiscal Year 2013, and the reappropriation
is proposed to ensure funds are in place should a flow meter fail in Fiscal Year 2014.
Capital Projects Fund 364,472 Palo Alto Traffic Signal Central System: This reappropriation is proposed to prevent a lapse in
funding. This grant-funded project includes replacement of traffic signal controllers at signalized
intersections and upgrades to the City's traffic signal central system, and allows for controller
upgrades at 35 of the City's 99 signals. The project has been delayed as Caltrans has not released
an Authorization to Proceed for the project, which is necessary for the City to encumber the funds
into a contract. It is anticipated that this will occur in Fiscal Year 2014.
CIP Fund 100,000 Scott Park Improvements CIP Project: This reappropriation is proposed to prevent a lapse in
funding. The project will provide upgrades and renovations for safety and accessibility
improvements at Scott Park. The project was not completed in Fiscal Year 2013 due to public
outreach and additional requests for amenities outside the original project scope. Staff will be
taking a revised park design and Park Improvement Ordinance to the Parks and Recreation
Commission and City Council in Fiscal Year 2014.
Other Funds
Exhibit 2, page 2 of 4
Attachment A, Exhibit 2
2013 Reappropriations
Fund
Reappropriation
Amount Reappropriation Justification
Capital Projects Fund 50,000 Stanford/Palo Alto Playing Fields Netting CIP Project:This reappropriation is proposed to
prevent a lapse in funding. This project will install necessary netting to prevent soccer balls from
going over the fence and damaging vehicles in the adjacent parking lot at the Palo Alto Golf
Course. The project was deferred so that it could occur simultaneously with the upcoming
synthetic turf replacement at the course. Heavy trucks will be required to install the netting and
addressing both projects at once will avoid damage to the synthetic turf and reduce course
closures due to repair.
Capital Projects Fund 65,000 Sarah Wallis Park Improvements CIP Project:This reappropriation is proposed to prevent a
lapse in funding. This project will provide upgrades and renovations for safety and accessibility
improvements at Sarah W allis Park. The project was not completed in FY 2013 due to staffing
limitations, however a reduced number of projects planned in Fiscal Year 2014 will allow Parks
staff to complete this project in the upcoming year.
Gas Fund 520,764 Directional Boring Equipment CIP Project: This reappropriation is proposed to prevent a lapse
in funding. This reappropriation will allow for the purchase two new directional boring machines for
gas, water, and waste water crew to install services and mains. The project was not completed in
Fiscal Year 2013 due to staffing shortages in the Public W orks Department, and is anticipated to
be completed in Fiscal Year 2014.
Gas Fund 36,419 Polythylene Fusion Equipment CIP Project:This reappropriation is proposed to prevent a lapse
in funding. This project will allow for the purchase of a new polythylene (PE) fusion machine. The
new equipment will replace existing equipment that has reached the end of its useful life. The
replacement did not occur in Fiscal Year 2013 as staff worked to utilize existing equipment as long
as possible. Staff has determined that this replacement cannot be delayed again and must be
replaced in Fiscal Year 2014.
Electric Supply 300,000 Energy Efficiency Loan Program: The City Council previously approved a multi-year energy
efficiency loan program to be funded from the Electric Special Projects reserve. This program was
to be used for four years (2011 through 2014) to provide zero interest loans to commercial and
residential customers in Palo Alto.
Information Technology 100,000 Storage Area Network (SAN) Solution: The SAN solution will allow for future Cloud deployments,
disaster recovery, back-up, and failover. Server equipment replacement was put on hold in FY 13
in order to develop a data center strategy, and essential equipment is failing. This project is now
anticipated to be completed in Fiscal Year 2014.
Other Funds
Exhibit 2, page 3 of 4
Attachment A, Exhibit 2
2013 Reappropriations
Fund
Reappropriation
Amount Reappropriation Amount
Information Technology 95,694 SAP Continuous Improvement CIP Project: This reappropriation is proposed to prevent a lapse
in funding. Staff received a number of SAP recommendations from an internal audit in December
2011. While a number of the audit recommendations have been addressed and completed, two
remain. These remaining recommendations will be addressed in Fiscal Year 2014.
Information Technology 75,000 Fire Mobile Data Computers (MDCs):This project will replace 15 of 27 fire mobile data
computers in accordance with the City's replacement schedule and to ensure that up-to-date
equipment is available for emergency response activities. The project experienced delays in Fiscal
Year 2013 as the Fire Departement evaluated potential products. The project is anticipated to be
completed in Fiscal Year 2014.
Various 8,627 Unused Management and Professional Development funds:Utilities Administration: $5,000,
Information Technology, $3,627
Storm Drainage- Operating 38,869 Innovative Storm Drain Fund: Funds were originally earmarked in the approved 2005 Storm
Drainage Fee property owner ballot measure for Storm Drainage Improvements. The funds have
been utilized since 2008 to fund a rebate program offering financial incentives to
residents/businesses for the installation of measures that reduce stormwater runoff. As the
program has not yet generated sufficient demand to spend all of the funds, remaining funds will be
utilized for a storm drain improvement project in the Southgate neighborhood. Per the terms of the
2005 Storm Drainage Fee ballot measure approved by Palo Alto property owners, these funds must
be carried over to be utilized for Innovative Storm Drainage Improvements.
Total Other Funds
Reappropriations 2,284,271$
Total- All Reappropriations 2,840,252$
Other Funds
Exhibit 2, page 4 of 4
Attachment A, Exhibit 2
Attachment A, Exhibit 3
Project Funding
Title Number Revenue Expense Source Comments
ADDITIONAL APPROPRIATIONS
Charleston/Arastradero Corridor Project PE-13011 $ 210,505 Transfer from PL-05002 To consolidate funding related to the
Charleston/Arastradero Corridor into one project.
ALS EKG Monitor Replacement FD-12000 $ 77,850 $ 77,850 Other revenue (sale of older
monitors)
To fund warranty costs for EKG monitors approved
by Council on May 6, 2013 (staff report #3699)
Salaries and Benefits- General Fund CIP Projects AS-10000 $ 442,026 Infrastructure Reserve Actual salaries and benefits costs were higher than
orginally budgeted due to the following reasons: 1)
the actual allocation of benefits to the Capital Fund
was higher than originally budgeted; 2) staff efforts
to more accurately track actual time spent on
capital projects resulted in higher actual amounts
than originally budgeted; 3)additional temporary
staff was needed to assist with supporting efforts to
complete the Mitchell Park Library and Community
Center and to provide inspection oversight to the
expanded Street Improvement Program.
Salaries and Benefits- General Fund CIP Projects AS-10000 $ 47,463 Infrastructure Reserve Additional active employee medical cost allocated
to Capital Projects Fund
Salaries and Benefits- General Fund CIP Projects AS-10000 $ (23,313) Infrastructure Reserve Reallocate Liability Insurance from CIP to General
Fund
Total $ 77,850 $ 754,531
REDUCTION IN APPROPRIATIONS/TO
CLOSE PROJECTS
Charleston/Arastradero Corridor Plan PL-05002 $ (210,505) Transfer to PE-13011 To consolidate funding related to the
Charleston/Arastradero Corridor into one project.
Municipal Service Center Renovation PF-05002 $ (681,764) Infrastructure Reserve To return funding to reserves until a plan for the
future use of the Municipal Services Center has
been established
College Terrace Library Improvements PE-05010 $ (208,562) Infrastructure Reserve To close project and return funding to reserves;
project complete
Greer Park Irrigation System Replacement PE-09002 $ (5,223) Infrastructure Reserve To close project and return funding to reserves;
project complete
El Camino Real/Stanford Ave Streetscape and
Intersection Improvements
PL-07002 $ (352,837) Infrastructure Reserve To close project and return funding to reserves;
project complete
Subtotal- Closed Projects $ (1,248,386)
Total $ (1,458,891)
TOTAL GENERAL FUND CIP YEAR-END
ADJUSTMENTS
$ 77,850 $ (704,360)
FY 2013 CIP Year-end Adjustments
CAPITAL PROJECT FUND
1 of 2 11/12/2013
Attachment A, Exhibit 3
Project Funding
Title Number Revenue Expense Source Comments
FY 2013 CIP Year-end Adjustments
ADDITIONAL APPROPRIATIONS
Gas System Improvements GS-11002 $ 1,099 Transfer from GS-09002 To transfer funds from GS-09002 (GMR- Project
19) to cover expenditures at year end.
Total $ - $ 1,099
REDUCTION IN APPROPRIATIONS/TO
CLOSE PROJECTS
GMR - Project 19 GS-09002 $ (1,099) Transfer to GS-11002 To transfer funds to GS-11002 (Gas System
Improvements) to cover expenditures at year end.
Total $ - $ (1,099)
TOTAL GAS FUND CIP YEAR-END
ADJUSTMENTS
$ - $ -
ADDITIONAL APPROPRIATIONS
Scheduled Vehicle and Equipment Replacements VR-13000 $ 42,122 $ 42,122 Transfer from OES
operating budget in General
Fund
To fund the purchase of the vehicle for the Director
of the Office of Emergency Services (OES); the
OES Director is required to respond to scenes of
emergencies or disasters, including directly from
home
TOTAL VEHICLE REPLACEMENT FUND CIP
YEAR-END ADJUSTMENTS
42,122$ 42,122$
REDUCTION IN APPROPRIATIONS/TO
CLOSE PROJECTS
Citywide GIS Data, Infrastructure and
Applications
TE-02015 Technology Fund To close project; project complete
TOTAL TECHNOLOGY FUND CIP YEAR-END
ADJUSTMENTS
-$ -$
GAS FUND
VEHICLE REPLACEMENT FUND
TECHNOLOGY FUND
2 of 2 11/12/2013
EXHIBIT 4 11/12/13
GENERAL FUND SUMMARY ($000s)
FY 2013 FY 2013 FY 2013 FY 2013 FY 2013 FY 2013 FY 2013
Adopted Adjusted CAFR Basis Allocated Encum+Budgetary Variance
Budget Budget Rev/Exp Charges Reapprop Rev/Exp Adj Budget
Revenues
Sales Taxes 22,545 23,364 25,606 n/a 25,606 2,242
Property Taxes 27,306 27,912 28,742 n/a 28,742 830
Transient Occupancy Tax 9,591 10,439 10,794 n/a 10,794 355
Documentary Tranfer Tax 5,078 6,800 6,810 n/a 6,810 10
Utility Users Tax 10,731 10,825 10,861 n/a 10,861 36
Other Taxes and Fines 2,058 2,058 2,152 n/a 2,152 94
Charges for Services 23,682 25,646 26,726 n/a 26,726 1,080
Permits and Licenses 6,614 7,998 7,713 n/a 7,713 (285)
Return on Investment 959 774 (1,614) n/a (1,614) (2,388)
Rental Income 12,640 12,640 12,879 n/a 12,879 239
From Other Agencies 157 170 63 n/a 63 (107)
Charges to Other Funds 10,874 10,834 11,686 n/a 11,686 852
Other Revenues 1,188 1,489 2,038 - n/a 2,038 549
Total Revenues 133,423 140,949 132,770 11,686 n/a 144,456 3,508
Add: Operating Transfers In 18,995 19,187 19,758 n/a 19,758 571
Prior Year Encum & Reapprop 4,385 4,864 n/a 4,864 479
Total Source of Funds 152,418 164,521 152,528 16,550 n/a 169,078 4,558
Expenditures
City Attorney 2,436 3,028 2,241 172 503 2,916 113
City Auditor 965 1,028 901 83 11 995 34
City Clerk 1,558 1,584 1,158 120 13 1,291 294
City Council 465 522 391 3 129 523 -
City Manager 2,578 3,010 2,313 169 184 2,666 345
Administrative Services 7,156 7,525 6,426 617 133 7,176 350
Community Services 21,893 22,518 16,747 4,816 716 22,279 239
Fire 27,582 28,884 25,025 2,988 741 28,754 130
Human Resources 2,982 3,074 2,610 244 123 2,977 97
Library 6,996 7,683 6,064 838 653 7,555 128
Planning 11,111 13,382 10,882 1,159 1,071 13,112 270
Police 32,332 32,614 29,077 3,134 257 32,468 145
Public Works 13,947 14,753 9,921 3,189 877 13,987 766
Non-Departmental/School Site 6,025 8,503 7,770 12 174 7,956 547
Total Expenditures 138,026 148,108 121,526 17,544 5,585 144,655 3,458
Add: Operating Trans Out 14,782 14,722 25,090 - 25,090 (10,368)
- - - -
Total Use of Funds 152,808 162,830 146,616 17,544 5,585 169,745 (6,910)
Net Surplus/(Deficit)(390) 1,691 5,912 (994) (5,585) (667) (2,352)
CAFR Reconciliation:Current year encumbrance/reappropriations 5,585
Prior Year encumbrances/reappropriations (4,864)
CAFR Net Income 54
FY 2012 FY 2013 FY 2013 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Water sales 30,674 36,073 36,529 456
Other revenues 3,266 2,641 3,158 517
Bond Proceeds - - - -
Bonded Reappropriations/Enc 28,727 14,703 14,703 -
Restricted Bond Proceeds 1,264 - 8,565 8,565
Reappropriations / Enc 13,872 14,096 14,096 -
TOTAL REVENUE 77,803 67,513 77,051 9,538
EXPENSES
Purchases 14,889 15,940 16,605 (665)
Other Expenses 14,163 17,870 15,511 2,359
TOTAL OPERATING EXPENSES 29,052 33,810 32,116 1,694
Capital Expenses 50,079 27,540 34,341 (6,801)
Principal Payments 1,314 1,319 1,319 -
TOTAL EXPENSES 80,445 62,669 67,776 (5,107)
TO/(FROM) RESERVES (2,642) 4,844 9,275 4,431
FY 2012 FY 2013 FY 2013 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Electric retail sales 107,343 116,827 108,331 (8,496)
Electric wholesale sales - - - -
Other revenues 15,736 18,731 12,273 (6,458)
Bond Proceeds - - - -
Reappropriations / Enc 15,584 19,168 19,168 -
TOTAL REVENUE 138,663 154,726 139,772 (14,954)
EXPENSES
Purchases 58,724 66,308 61,314 4,994
NCPA & TANC Debt Svc 8,803 9,268 9,166 102
Other Expenses 47,428 50,807 47,735 3,072
TOTAL OPERATING EXPENSES 114,955 126,383 118,215 8,168
Capital Expenses 22,543 24,128 24,476 (348)
Principal Payments 100 100 100 -
TOTAL EXPENSES 137,598 150,611 142,791 7,820
TO/(FROM) RESERVES 1,065 4,115 (3,019) (7,134)
FIBER OPTICS FUND
EXHIBIT 5
ELECTRIC FUND
WATER FUND ($000)
EXHIBIT 5
WATER FUND ($000)
FY 2012 FY 2013 FY 2013 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues 4,100 3,879 4,293 414
Reappropriations / Enc 810 782 782 -
TOTAL REVENUE 4,910 4,661 5,075 414
EXPENSES
Operating Expenses 1,416 1,484 1,269 215
TOTAL OPERATING EXPENSES 1,416 1,484 1,269 215
Capital Expenses 1,154 1,097 986 111
TOTAL EXPENSES 2,570 2,581 2,255 326
TO/(FROM) RESERVES 2,340 2,080 2,820 740
FY 2012 FY 2013 FY 2013 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Gas retail sales 41,034 37,416 33,759 (3,657)
Gas wholesale sales - - - -
Other revenues 9,857 1,773 566 (1,207)
Reappropriations / Enc 16,910 19,211 19,211 -
TOTAL REVENUE 67,801 58,400 53,536 (4,864)
EXPENSES
Purchases 16,235 15,572 13,455 2,117
Other Expenses 28,988 21,297 20,760 537
TOTAL OPERATING EXPENSES 45,223 36,869 34,215 2,654
Capital Expenses 22,188 23,705 23,489 216
Principal Payments 586 512 506 6
TOTAL EXPENSES 67,997 61,086 58,210 2,876
TO/(FROM) RESERVES (196) (2,686) (4,674) (1,988)
FIBER OPTICS FUND
GAS FUND
EXHIBIT 5
WATER FUND ($000)
FY 2012 FY 2013 FY 2013 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues 15,841 16,498 16,998 500
Reappropriations / Enc 10,250 11,044 11,044 -
TOTAL REVENUE 26,091 27,542 28,042 500
EXPENSES
Sewer Treatment Exp.8,895 8,556 8,315 241
Operating Expenses 4,909 5,332 5,504 (172)
TOTAL OPERATING EXPENSES 13,804 13,888 13,819 69
Capital Expenses 13,364 14,789 14,799 (10)
Principal Payments 68 71 71 -
TOTAL EXPENSES 27,236 28,748 28,689 59
TO/(FROM) RESERVES (1,145) (1,206) (647) 559
FY 2012 FY 2013 FY 2013 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Operating Revenues 22,835 22,463 21,376 (1,087)
Restricted Bond Proceeds - - - -
Loan Proceeds - - - -
Reappropriations / Enc 10,499 8,042 8,042 -
Bonded Reappro/Encum - - - -
TOTAL REVENUE 33,334 30,505 29,418 (1,087)
EXPENSES
Operating Expenses 20,595 20,448 18,952 1,496
TOTAL OPERATING EXPENSES 20,595 20,448 18,952 1,496
Capital Expenses 7,347 8,972 8,725 247
Principal Payments 769 1,190 1,190 -
TOTAL EXPENSES 28,711 30,610 28,867 1,743
TO/(FROM) RESERVES 4,623 (105) 551 656
WASTEWATER TREATMENT FUND
WASTEWATER COLLECTION FUND
EXHIBIT 5
WATER FUND ($000)
FY 2012 FY 2013 FY 2013 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues 31,560 30,587 31,136 549
Reappropriations / Enc 3,656 1,804 1,804 -
TOTAL REVENUE 35,216 32,391 32,940 549
EXPENSES
Payments to GreenWaste 12,882 13,262 13,362 (100)
Other Expenses 19,657 16,864 16,545 319
TOTAL OPERATING EXPENSES 32,539 30,126 29,907 219
Capital Expenses 1,703 1,722 1,698 24
TOTAL EXPENSES 34,242 31,848 31,605 243
TO/(FROM) RESERVES 974 543 1,335 792
FY 2012 FY 2013 FY 2013 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues 6,130 5,905 5,998 93
Reappropriations / Enc 3,388 3,722 3,722 -
TOTAL REVENUE 9,518 9,627 9,720 93
EXPENSES
Operating Expenses 2,557 2,790 3,127 (337)
TOTAL OPERATING EXPENSES 2,557 2,790 3,127 (337)
Capital Expenses 5,420 7,326 6,881 445
Principal Payments 455 480 480 -
TOTAL EXPENSES 8,432 10,596 10,488 108
TO/(FROM) RESERVES 1,086 (969) (768) 201
STORM DRAINAGE FUND
REFUSE FUND
EXHIBIT 5
WATER FUND ($000)
FY 2012 FY 2013 FY 2013 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues 5 310 4 (306)
Reappropriations / Enc 91 48 48 -
TOTAL REVENUE 96 358 52 (306)
EXPENSES
Operating Expenses 201 349 349 -
TOTAL OPERATING EXPENSES 201 349 349 -
Capital Expenses -- - -
Principal Payments -- - -
TOTAL EXPENSES 201 349 349 -
TO/(FROM) RESERVES (105) 9 (297) (306)
AIRPORT FUND
FISCAL YEAR 2013 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total
Beginning Reserves $8,997 $128,134 $13,470 $16,992 $5,751 $9,949 ($3,410)$2,726 ($223)$182,386
To (From) Reserves 9,275 (3,019)2,820 (4,674)(647)551 1,335 (768)(297)4,576
Ending Reserves 18,272 125,115 16,290 12,318 5,104 10,500 (2,075)1,958 (520)186,962
Adj Budgeted Reserves 13,517 136,376 12,459 17,619 6,212 9,256 (3,834)2,715 (222)194,098
% of Budgeted Reserves 135%92%131%70%82%113%54%72%234%96%
FISCAL YEAR 2013 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total
Rate Stabilization
General RSR $17,272 $15,290 $4,104 $7,961 ($2,766)$1,958 ($520)$43,299
Supply RSR 65,324 6,293 $71,617
Distribution RSR 3,705 5,025 $8,730
Total RSR 17,272 69,029 15,290 11,318 4,104 7,961 (2,766) 1,958 (520) $123,646
Emergency Plant Replace 1,000 1,000 1,000 1,000 1,000 1,980 $6,980
Electric Special Projects 51,838 $51,838
Underground Loan 738 $738
Notes and Loans 559 $559
Landfill Corrective Action 691 $691
Shasta rewind Loan $0
Central Valley Project 313 $313
Public Benefit Program 2,197 $2,197
Ending Reserves 18,272 125,115 16,290 12,318 5,104 10,500 (2,075) 1,958 (520) 186,962
FISCAL YEAR 2013 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total
Beginning RSR $7,997 $74,609 $12,470 $15,992 $4,751 $7,461 ($4,089)$2,726 ($223)$121,694
To(from) RSR 9,275 (5,580) 2,820 (4,674) (647) 500 1,323 (768) (297) 1,952
Ending RSR 17,272 69,029 15,290 11,318 4,104 7,961 (2,766) 1,958 (520) 123,646
RSR Minimum 5,427 38,468 715 7,411 2,253 3,265 2,746 N/A N/A 60,285
RSR Maximum 10,854 76,936 1,788 14,821 4,506 6,531 5,491 N/A N/A 120,927
RSR % of Maximum 159%90%855%76%91%122%-50%N/A N/A 102%
EXHIBIT 6
RATE STABILIZATION RESERVE
RESERVE SUMMARY ($000)
RESERVE DETAIL
Page 1 of 1 11/9/2013
Fiscal Year Ended
June 30, 2013
2012-2013
Comprehensive Annual
Financial Report
City of Palo Alto, California
Fiscal Year Ended
June 30, 2013
2012-2013
Comprehensive Annual
Financial Report
Prepared by:
Administrative Services Department
City of Palo Alto, California
CITY OF PALO ALTO
For the Year Ended June 30, 2013
Table of Contents
Page
INTRODUCTORY SECTION:
Transmittal Letter .................................................................................................................................... i
City Officials ............................................................................................................................................ v
Organizational Structure ....................................................................................................................... vi
Administrative Services 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) ...................................................................... 5
Basic Financial Statements:
Government‐wide Financial Statements:
Statement of Net Position ....................................................................................................... 31
Statement of Activities ............................................................................................................ 33
Governmental Fund Financial Statements:
Balance Sheet .......................................................................................................................... 35
Reconciliation of the Balance Sheet of Governmental Funds to
the Statement of Net Position ‐ Governmental Activities ................................................. 36
Statement of Revenues, Expenditures and Changes in Fund Balances .................................. 37
Reconciliation of the Statement of Revenues, Expenditures and Changes
in Fund Balances of Governmental Funds to the Statement of Activities –
Governmental Activities ................................................................................................... 38
Statement of Revenues, Expenditures and Changes in Fund Balance –
Budget and Actual – General Fund ................................................................................... 39
Proprietary Fund Financial Statements:
Statement of Fund Net Position .............................................................................................. 40
Statement of Revenues, Expenses and Changes in Fund Net Position ................................... 42
Statement of Cash Flows ......................................................................................................... 44
Fiduciary Funds Financial Statement:
Statement of Fiduciary Net Position ....................................................................................... 46
Index to the Notes to the Basic Financial Statements ................................................................. 47
Notes to the Basic Financial Statements ...................................................................................... 49
CITY OF PALO ALTO
For the Year Ended June 30, 2013
Table of Contents (Continued)
Page
Supplementary Information:
Non‐Major Governmental Funds:
Combining Balance Sheet ...................................................................................................... 109
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 110
Non‐Major Special Revenue Funds:
Combining Balance Sheet ...................................................................................................... 112
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 114
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 116
Non‐Major Debt Service Funds:
Combining Balance Sheet ...................................................................................................... 122
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 123
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 124
Non‐Major Permanent Fund:
Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 126
Internal Service Funds:
Combining Statement of Fund Net Position .......................................................................... 128
Combining Statement of Revenues, Expenses and
Changes in Fund Net Position ......................................................................................... 129
Combining Statement of Cash Flows ..................................................................................... 130
Fiduciary Funds:
Statement of Changes in Assets and Liabilities– All Agency Funds ....................................... 132
STATISTICAL SECTION:
Financial Trends:
Net Position by Component ......................................................................................................... 135
Changes in Net Position ............................................................................................................... 136
Fund Balances of Governmental Funds ....................................................................................... 138
Changes in Fund Balances of Governmental Funds ..................................................................... 140
CITY OF PALO ALTO
For the Year Ended June 30, 2013
Table of Contents (Continued)
Page
Revenue Capacity:
Electric Operating Revenue by Source ......................................................................................... 141
Supplemental Disclosure for Water Utilities ............................................................................... 142
Assessed Value of Taxable Property ............................................................................................ 143
Property Tax Rates, All Overlapping Governments ..................................................................... 144
Property Tax Levies and Collections ............................................................................................ 145
Principal Property Taxpayers ....................................................................................................... 146
Assessed Valuation and Parcels by Land Use .............................................................................. 147
Per Parcel Assessed Valuation of Single Family Residential ........................................................ 148
Debt Capacity:
Ratio of Outstanding Debt by Type .............................................................................................. 149
Computation of Direct and Overlapping Debt ............................................................................. 150
Computation of Legal Bonded Debt Margin ................................................................................ 151
Revenue Bond Coverage .............................................................................................................. 152
Demographic and Economic Information:
Taxable Transactions by Type of Business ................................................................................... 153
Demographic and Economic Statistics ......................................................................................... 154
Principal Employers...................................................................................................................... 155
Operating Information:
Operating Indicators by Function/Program ................................................................................. 156
Capital Asset Statistics by Function/Program .............................................................................. 158
Full‐Time Equivalent City Government Employees by Function .................................................. 160
SINGLE AUDIT SECTION:
Index to the Single Audit Report .................................................................................................. 161
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 ......................................... 163
Independent Auditor’s Report on Compliance for Each Major Program and on
Internal Control over Compliance Required by OMB Circular A‐133 ................................... 165
Schedule of Expenditures of Federal Awards .............................................................................. 167
Notes to the Schedule of Expenditures of Federal Awards ......................................................... 168
Schedule of Findings and Questioned Costs ................................................................................ 169
Schedule of Prior Years Findings and Questioned Costs ............................................................. 172
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Introduction
………………………………………………………………………….
City of Palo Alto i
Transmittal Letter…………………………………………………...…
November 8, 2013
THE HONORABLE CITY COUNCIL
Palo Alto, California
Attention: Finance Committee
COMPREHENSIVE ANNUAL FINANCIAL REPORT
YEAR ENDED JUNE 30, 2013
Members of the Council and Citizens of Palo Alto:
The Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2013, 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, 2013. 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 66,368, 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 childrens’ theater, a junior museum and zoo, and a golf course. The City provides a diverse
array of human services for seniors and youth, an extensive continuing education program, concerts,
exhibits, team sports and special events. The independent Palo Alto Unified School District (PAUSD)
has achieved state and national recognition for the excellence of its programs.
City Council: 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) 2013, the City’s unemployment rate
had dropped to 3.6 percent from 4.7 percent the prior year, as compared to Santa Clara County’s
unemployment rate of 6.8 percent, and the state’s unemployment rate of 8.5 percent.
Real Estate Market: In its most recent annual report, the Santa Clara County Assessor’s Office noted
that Santa Clara County’s 2013/2014 assessment roll increased 8.35 percent, from $309 billion to
$335 billion ‐ “the highest roll growth since the record of 15.56 percent established in 2001.” The
assessment roll growth was balanced throughout the County, with the highest growth rate in
Campbell at 11.63 percent and the lowest in Morgan Hill at 6.40 percent. Palo Alto’s assessment roll
growth rate was 7.76 percent. Factors contributing to the robust growth include increases in
assessed value for properties that previously received a temporary reduction due to Proposition 8, an
increase in the number of changes in ownership and new construction, and a solid increase in the
assessed value of property owned by businesses.
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 5.36 percent growth in assessed value of taxable
property in 2013 compared to 2.42 percent growth in 2012.
Introduction
………………………………………………………………………….
City of Palo Alto iii
Local Trends: Like jurisdictions throughout the country, the City was impacted by the Great
Recession, but is now in a solid recovery phase as a result of an increasingly vigorous local and Bay
Area economy, a healthy property market, and rising consumer confidence. In the past year, we have
witnessed a steadily increasing trend in economically sensitive revenue sources such as sales tax and
documentary transfer taxes. Increased business activities within the City are resulting in higher
transient occupancy tax revenues and permit and license revenues.
On the flip side, while these revenue sources are showing solid gains, FY 2014 equity transfer revenue
will be declining by $0.73 million due to a decrease in the rate that is used to calculate the City’s
formula for equity transfers from the Electric and Gas Funds. Also, FY 2014 golf course revenue is
expected to decline by $1.3 million, or 45 percent, due to a major renovation of the golf course and
the San Francisquito Creek project. Once the project is complete, the City course will be much
improved and more attractive, and there will also be 10.5 acres dedicated to three new athletic
fields.
Overall, the anticipated increase in funding sources is expected to be sufficient to cover projected FY
2014 expenses, as forecasted in the City’s Adopted Budget. The City Council adopted a General Fund
budget with expenses of $159.7 million for FY 2014, an increase of 4.5 percent from the prior year
Adopted Budget. The primary drivers of the increase in budgeted expenses are rising pension and
health care costs. Employer rates will increase substantially beginning in FY 2016 as a result of
changes in the actuarial method for calculating pension rates that was recently adopted by the
CalPERS Board of Administration. Currently, unfunded liabilities for pension and health care are
approaching $300 million. The City has proactively taken steps over the past several years to
mitigate increased costs by negotiating increased 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 have resulted in
savings estimated at $9 million annually, $5.8 million of which was expected to be realized in the
General Fund.
The City’s infrastructure needs have been quantified as a result of a major effort this past year by the
Infrastructure Blue Ribbon Commission (IBRC). Currently the unfunded infrastructure backlog is
estimated at $42 million and an additional $210 million in new facility needs has been identified. The
City has taken steps to fund its infrastructure needs by increasing General Fund transfers by $2.2
million annually for “keep up” costs starting in FY 2013. In addition, General Fund surpluses of $7.6
million in FY 2012 and $8.9 million in FY 2013 were transferred to the Infrastructure Reserve. The
magnitude of infrastructure needs may require a larger infusion of funds than the City can generate,
and an Infrastructure Committee consisting of four Council members has been established to study
what infrastructure work can be funded from existing resources and what will require new revenues.
The City’s Enterprise Funds implemented modest rate changes in FY 2013. There were no changes in
Electric Fund rates. Gas Fund rates decreased by 10 percent effective July 1, 2012, with a further
decrease of 2 percent effective January 1, 2013. The decrease in rates was driven by a change in gas
procurement strategy. Water Fund implemented a 15 percent rate increase effective July 1, 2012
due to increased wholesale water prices. Refuse Fund implemented a residential rate increase
effective July 1, 2012 which generated $0.85 million of incremental revenue. Wastewater Collection
and Storm Drain rates were increased 5 percent and 2.9 percent respectively, effective July 1, 2012.
Introduction
………………………………………………………………………….
iv City of Palo Alto
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, potential new revenue opportunities, 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.
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 2013
CAFR will be submitted to the GFOA award program to be considered 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
Patrick Burt, Chair
Marc Berman
Nancy Shepherd
Greg Schmid
Policy and Services Committee
Liz Kniss, Chair
Karen Holman
Larry Klein
Gail A. Price
Council‐Appointed Officers
City Manager
James Keene
City Attorney
Molly Stump
City Clerk
Donna Grider
City Auditor
Jim Pelletier
Patrick Burt
Marc Berman
Karen Holman
Larry Klein
Gail A. Price
Greg Schmid
City Council
Gregory Scharff, Mayor
Nancy Shepherd, Vice‐Mayor
Liz Kniss
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
Eric Nickel, Chief
People Strategy & Operations Department
Kathryn Shen, Director
Police Department
Dennis Burns, Chief
Planning & Community Environment Department
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, Chief Information Officer
Development Services Department
Peter Pirnejad, Director
Chief Communications Officer
Claudia Keith
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
INDEPENDENT AUDITOR’S REPORT
Honorable Mayor and the Members
Of the City Council of
City of Palo Alto, California
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities, the business-type
activities, each major fund, and the aggregate remaining fund information of the City of Palo Alto,
California (City), as of and for the year ended June 30, 2013, and the related notes to the financial
statements, which collectively comprise the City’s basic financial statements as listed in the table of
contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America and
the standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinions.
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, 2013, and the respective changes
in financial position, the budgetary comparison for the General Fund, and, where applicable, cash flows
thereof for the year then ended in accordance with accounting principles generally accepted in the United
States of America.
2
Emphasis of Matter
Change in Accounting Principles
As discussed in Note 1(m) to the financial statements, as of July 1, 2012, the City adopted new
accounting guidance, Governmental Accounting Standards Board (GASB) Statement No. 60, Accounting
and Financial Reporting for Service Concession Arrangements; GASB Statement No. 61, The Financial
Reporting Entity: Omnibus; GASB Statement No. 62, Codification of Accounting and Financial
Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements; and
GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of
Resources and Net Position. Our opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s
discussion and analysis as listed in the table of contents be presented to supplement the basic financial
statements. Such information, although not a part of the basic financial statements, is required by the
GASB who considers it to be an essential part of financial reporting for placing the basic financial
statements in an appropriate operational, economic, or historical context. We have applied certain limited
procedures to the required supplementary information in accordance with auditing standards generally
accepted in the United States of America, which consisted of inquiries of management about the methods
of preparing the information and comparing the information for consistency with management’s
responses to our inquiries, the basic financial statements, and other knowledge we obtained during our
audit of the basic financial statements. We do not express an opinion or provide any assurance on the
information because the limited procedures do not provide us with sufficient evidence to express an
opinion or provide any assurance.
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
comprise the City’s basic financial statements and schedules. The introductory section, combining and
individual nonmajor fund financial statements, statistical section and the schedule of expenditures of
federal awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local
Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not
a required part of the basic financial statements.
The combining and individual nonmajor fund financial statements and schedules and the schedule of
expenditures of federal awards are the responsibility of management and were derived from and relate
directly to the underlying accounting and other records used to prepare the basic financial statements.
Such information has been subjected to the auditing procedures applied in the audit of the basic financial
statements and certain additional procedures, including comparing and reconciling such information
directly to the underlying accounting and other records used to prepare the basic financial statements or to
the basic financial statements themselves, and other additional procedures in accordance with auditing
standards generally accepted in the United States of America. In our opinion, the combining and
individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal
awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole.
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.
3
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated
November 8, 2013 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 in considering the City’s internal control
over financial reporting and compliance.
Walnut Creek, California
November 8, 2013
4
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Management’s Discussion and Analysis
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City of Palo Alto 5
Management’s Discussion and Analysis
Management’s Discussion and Analysis (MD&A) provides an overview of the City of Palo Alto’s financial
performance for the fiscal year ended June 30, 2013. 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) 2013 by $1,336.2
million. Of this amount, $435.7 million represents unrestricted net position, which may be used to
meet the government’s ongoing obligations to citizens and creditors.
The City’s total net position increased $71.3 million primarily due to increased capital assets and the
receipt of $17.1 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 2013, the City’s governmental funds reported combined fund balances of $210.9
million, an increase of $48.9 million from prior year. Approximately 14.7 percent of this amount, or
$30.9 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 $36.3 million, or 23.8
percent of total general fund expenditures, including transfers.
The City’s total outstanding long‐term debt increased by $16.4 million during the current fiscal year
due to the issuance of $20.7 million of 2013 Series A General Obligation Bonds to fund the Mitchell
Park and Community Center construction project as well as substantial improvements to the Main
and Downtown Libraries, partially offset by debt retirement of $5.3 million. The City has now issued
the entire $76 million of General Obligation Bonds that was authorized by Palo Alto residents via
Measure N, which was passed in 2008.
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
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6 City of Palo Alto
Basic Financial Statements
The Basic Financial Statements contain the Government‐wide Financial Statements, the Fund Financial
Statements and the Notes to these financial statements. This report also includes supplementary
information intended to furnish additional detail to support the Basic Financial Statements.
For certain entities and funds, the City acts solely as a depository agent. For example, the City has several
Assessment Districts for which it produces fiduciary statements detailing the cash balances and activities of
these districts. These entities are independent, and their balances are excluded from the City’s financial
statements.
Government‐wide Financial Statements
The Government‐wide Financial Statements provide a longer‐term view of the City’s activities as a whole.
They include the Statement of Net Position and the Statement of Activities.
The Statement of Net Position includes the City’s capital assets and long‐term liabilities on a full accrual
basis of accounting similar to that used by private sector companies. Over time, increases or decreases in
net position may serve as a useful indicator of whether the financial position of the City is improving or
deteriorating.
The Statement of Activities provides information about the City’s revenues and expenses on a full accrual
basis, with an emphasis on measuring net revenues or expenses for each of the City’s programs. The
Statement of Activities explains in detail the change in net position for the year. All changes in net position
are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of
related cash flows.
The amounts in the Statement of Net Position and the Statement of Activities are separated into
Governmental and Business‐type Activities in order to provide a summary of each type of activity.
Governmental Activities ‐ All of the City’s basic services are considered to be governmental activities.
Included in basic services are the City Council, City Manager, City Attorney, City Clerk, City Auditor,
Administrative Services, Human Resources, Public Works, Planning and Community Environment, Police,
Fire, Community Services, and Library. These services are supported by general City revenues such as taxes,
and by specific program revenues such as fees and grants.
The City’s governmental activities also include the activities of the Palo Alto Public Improvement
Corporation, which is a separate legal entity financially accountable to the City.
Business‐type Activities ‐ All of the City’s enterprise activities are reported as business‐type activities,
including Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse, Storm
Drainage and Airport. Unlike governmental services, these services are intended to recover all or a
significant portion of their costs through user fees and charges, except for the 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 31‐33 of this report.
Management’s Discussion and Analysis
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City of Palo Alto 7
Fund Financial Statements
The Fund Financial Statements provide detailed information about each of the City’s most significant funds,
called major funds. The concept of major funds, and the determination of which are major funds, was
established by Governmental Accounting Standards Board (GASB) Statement No. 34 and replaced the
concept of combining like funds and presenting them in total. Therefore, each major fund is presented
individually, with all non‐major funds combined in a single column on each fund statement. Subordinate
schedules display these non‐major funds in more detail. Major funds present the major activities of the City
for the year. The General Fund is always considered a major fund, but other funds may change from year to
year as a result of changes in the pattern of City activities.
The Fund Financial Statements display the City’s operations in more detail than the Government‐wide
Financial Statements. Their focus is primarily on the short‐term activities of the City’s General Fund and
other major funds 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
2013, 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 35‐39 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
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8 City of Palo Alto
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 40‐45 of this report.
Fiduciary Funds
The City is the fiduciary agent for certain assessment districts such as the University Avenue Area Off‐Street
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 46 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 49‐108 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 109‐132 of this
report.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 9
Financial Analysis of Government‐wide Financial Statements
This section focuses on the City’s net position and changes in net position of its governmental and business‐
type activities for the fiscal year ending June 30, 2013. As noted earlier, the City’s total assets exceed total
liabilities by $1,336.2 million at the end of the fiscal year, an improvement in net position of $71.3 million.
STATEMENT OF NET POSITION
As of June 30, 2013
(in millions)
2013 2012 2013 2012 2013 2012
Cash and investments 261.9$ 215.9$ 266.0$ 281.0$ 527.9$ 496.9$
Other assets 59.5 49.8 43.2 39.2 102.7 89.0
Capital assets 428.9 413.2 522.2 490.0 951.1 903.2
Total Assets 750.3 678.9 831.4 810.2 1,581.7 1,489.1
Long‐term debt 82.6 62.5 79.7 83.4 162.3 145.9
Other liabilities 52.1 51.3 31.1 27.0 83.2 78.3
Total Liabilities 134.7 113.8 110.8 110.4 245.5 224.2
Net Position
Investment in capital assets 378.1 370.1 446.6 437.2 824.7 807.3
Restricted 71.7 52.9 4.1 ‐75.8 52.9
Unrestricted 165.8 142.1 269.9 262.6 435.7 404.7
Total Net Position 615.6$ 565.1$ 720.6$ 699.8$ 1,336.2$ 1,264.9$
Governmental
Activities
Business‐type
Activities
Government‐wide
Totals
The largest portion of the City’s net position (61.7 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 position (5.7 percent) represents resources that are subject to
external restrictions on how they may be used. The remaining balance of $435.7 million, representing 32.6
percent of the City’s net position, is unrestricted and may be used to meet the government’s ongoing
obligations to its citizens and creditors.
Management’s Discussion and Analysis
……….…………………....…………………………………………………
10 City of Palo Alto
At the end of the current fiscal year, the City is able to report positive balances in all reported categories of
net position, 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 $71.3 million increase in total net position are discussed in the following sections for
governmental activities and business‐type activities.
Governmental Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Governmental
Activities, presented in the Government‐wide Statement of Net Position and Statement of Activities.
GOVERNMENTAL ACTIVITIES
Net Position at June 30
(in millions)
Increase/
2013 2012 (Decrease)
Cash and investments 261.9$ 215.9$ 46.0$
Other assets 59.5 49.8 9.7
Capital assets 428.9 413.2 15.7
Total Assets 750.3 678.9 71.4
Long‐term debt 82.6 62.5 20.1
Other liabilities 52.1 51.3 0.8
Total Liabilities 134.7 113.8 20.9
Net Position
Investment in capital assets 378.1 370.1 8.0
Restricted 71.7 31.0 40.7
Unrestricted 165.8 164.0 1.8
Total Net Position 615.6$ 565.1$ 50.5$
The City’s Governmental activities total net position increased $50.5 million to $615.6 million as of June 30,
2013. This increase was a result of the following:
Cash and investments increased $46.0 million primarily due to the receipt of $17.1 million for the
Development Agreement with SUMC Parties that was signed in June 2011 and $20.7 million in bond
proceeds from the 2013 General Obligation bond issuance.
Management’s Discussion and Analysis
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City of Palo Alto 11
Capital assets net of depreciation increased $15.7 million due to Art Center electrical and
mechanical upgrades, continued construction of the Mitchell Park Library and Community Center,
and additions to the City’s network of roadways and sidewalks.
Long‐term debt increased $20.1 million due to receipt of remaining bond proceeds from the General
Obligation bond which authorized a total of $76 million, and is now fully issued.
Investment in capital assets increased $8.0 million to $378.1 million. Restricted net assets increased
$40.7 million to $71.7 million. Unrestricted net assets increased $1.8 million to $165.8 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 $170.3 million in FY 2013, an increase
of $0.9 million over prior year revenues of $169.4 million.
GOVERNMENTAL ACTIVITIES
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2013 2012 (Decrease)
Program Revenues:
Charges for services 75.8$ 62.8$ 13.0$
Operating grants and contributions 5.0 3.4 1.6
Capital grants and contributions 0.5 1.1 (0.6)
Total Program Revenues 81.3 67.3 14.0
General Revenues:
Property tax 31.9 30.1 1.8
Sales tax 25.6 22.1 3.5
Utility user tax 10.9 10.8 0.1
Transient occupancy tax 10.8 9.7 1.1
Documentary transfer tax 6.8 4.8 2.0
Other tax 3.7 3.4 0.3
Investment earnings (1.2) 6.2 (7.4)
Rents and miscellaneous 0.5 15.0 (14.5)
Total General Revenues 89.0 102.1 (13.1)
Total Revenues 170.3$ 169.4$ 0.9$
Management’s Discussion and Analysis
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12 City of Palo Alto
Total Program Revenues increased $14.0 million from the prior year, primarily due to increased charges for
services. The majority of the increase is due to the following:
$12.2 million of rental revenue is now reported as Program Revenues per the recommendation of
Governmental Accounting, Auditing and Financial Reporting (GAAFR). FY 2012 rental revenue of
$13.7 million was included in General Revenues;
$5.9 million increase in developers’ impact fees;
$3.7 million decrease in receipts from SUMC Parties Development Agreement; and
$1.4 million decrease in donations from 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 Area Off‐Street Parking Assessment District as well as other recurring sources.
General revenues decreased $13.1 million, or 12.8 percent, over the prior year, mainly from the
reclassification of rental revenue to program revenue in FY 2013 as discussed previously. 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%
Property Tax
19%
Program Revenues
48%
Other
2%
Documentary
Transfer Tax
4%
Sales Tax
15%
Transient Occupancy
Tax
6%
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 13
Governmental Activities – Expenses
The table below presents a comparison of FY 2013 and FY 2012 expenses by function, and interest on long‐
term debt. Encumbrances and reappropriations are not included. Total Governmental Activities functional
expense was $139.2 million in FY 2013, an increase of $1.7 million, or 1.2 percent.
GOVERNMENTAL ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Activities 2013 2012 (Decrease)
City Council 0.1$ 0.3$ (0.2)$
City Manager 1.2 1.9 (0.7)
City Attorney 1.6 1.7 (0.1)
City Clerk 0.3 0.9 (0.6)
City Auditor 0.5 0.2 0.3
Administrative Services 7.6 10.1 (2.5)
Human Resources 1.4 1.1 0.3
Public Works 20.8 14.6 6.2
Planning and Community Environment 13.6 12.1 1.5
Police 31.9 33.5 (1.6)
Fire 27.6 29.3 (1.7)
Community Services 22.7 21.9 0.8
Library 7.3 7.3 0.0
Interest on long‐term debt 2.6 2.6 0.0
Total Functional Expense 139.2 137.5 1.7
Increase/(Decrease) in Net Position
before Transfers 31.2 31.8 (0.6)
Transfers in 19.3 17.4 1.9
Change in Net Position 50.5 49.2 1.3
Net Position, Beginning 565.1 515.9 49.2
Net Position, Ending 615.6$ 565.1$ 50.5$
Changes in year‐over‐year balances are described at the fund level in the Financial Analysis of Governmental
Funds section of the MD&A.
Management’s Discussion and Analysis
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14 City of Palo Alto
Governmental Activities – Functional Expenses
The functional expenses chart below includes only current year expenses. It does not include capital outlays,
as those are added to the City’s capital assets. Functions which comprise 1 percent or less of total expenses
are combined into the All Other category in the chart below. All Other includes City Council, City Manager,
City Attorney, City Clerk, City Auditor and Human Resources.
Interest on long‐term
debt
2%
Police
23%
Fire
20%
Library
5%
All Other
4%
Public Works
15%
Administrative Services
5%
Community Services
16%
Planning and Community
Environment
10%
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 15
Business‐type Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Business‐type
Activities presented in the Government‐wide Statement of Net Position and Statement of Activities.
Increase/
2013 2012 (Decrease)
Cash and investments 265.9$ 281.0$ (15.1)$
Other assets 43.2 39.2 4.0
Capital assets 522.3 490.0 32.3
Total Assets 831.4 810.2 21.2
Long‐term debt 79.7 83.4 (3.7)
Other liabilities 31.1 27.0 4.1
Total Liabilities 110.8 110.4 0.4
Net Position
Investment in capital assets 446.6 437.2 9.4
Restricted 4.1 ‐ 4.1
Unrestricted 269.9 262.6 7.3
Total Net Position 720.6$ 699.8$ 20.8$
BUSINESS‐TYPE ACTIVITIES
Net Position at June 30
(in millions)
The City’s Business‐type activities total net position increased $20.8 million to $720.6 million as of June 30,
2013.
Capital assets increased $32.3 million to $522.3 million in FY 2013 as a result of Water, Electric and Gas
infrastructure improvements. Additions include $15.3 million of capital improvements in Water, $10.4
million of capital improvements in Electric, and $5.0 million of capital improvements in Gas.
Other liabilities increased $4.1 million primarily due to Gas engineering and Wastewater Treatment services.
Net assets invested in capital assets, net of related debt, increased $9.4 million to $446.6 million.
Unrestricted net assets of $269.9 million, an increase of $7.3 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 (RSR) of $123.6 million,
the Electric special projects (Calaveras) reserve for stranded costs of $51.8 million, and the emergency plant
replacement reserve of $7.0 million.
Management’s Discussion and Analysis
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16 City of Palo Alto
Business‐type Activities – Revenues
The table below presents the revenues for each of the City’s Business‐type Activities or Enterprise Funds.
The City operates the Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment,
Refuse, Storm Drainage and Airport Funds, which are major funds and are presented in the Basic Financial
Statements.
BUSINESS‐TYPE ACTIVITIES
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2013 2012 (Decrease)
Program Revenues:
Charges for services 272.8$ 269.5$ 3.3$
Operating grants and contributions 0.6 0.6 0.0
Capital grants and contributions 2.2 1.5 0.7
Total Program Revenues 275.6 271.6 4.0
General Revenues:
Investment earnings (loss)(2.8) 7.6 (10.4)
Total General Revenues (2.8) 7.6 (10.4)
Total Revenues 272.8$ 279.2$ (6.4)$
Business‐type Activities revenues totaled $272.8 million, a decrease of $6.4 million, or 2.3 percent, from the
prior year. Revenues were affected by the following events:
Charges for services increased by $3.3 million from the prior year due to an increase in Water Fund
revenues of $6.3 million and Electric Fund of $2.9 million, offset by a decrease in Gas Fund revenues
of $7.1 million.
Capital grants and contributions increased by $.7 million from the prior year due to an increase in
new construction activities.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 17
Business‐type Activities – Expenses
The table below presents a comparison of the FY 2013 and FY 2012 expenses for the City’s Business‐type
Activities. Encumbrances and reappropriations are not included.
BUSINESS‐TYPE ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Business‐type Activities 2013 2012 (Decrease)
Water 30.7$ 29.1$ 1.6$
Electric 106.4 102.0 4.4
Fiber Optics 1.4 1.5 (0.1)
Gas 26.8 28.9 (2.1)
Wastewater Collection 14.3 14.8 (0.5)
Wastewater Treatment 20.6 20.7 (0.1)
Refuse 28.6 31.9 (3.3)
Storm Drainage 3.7 3.1 0.6
Airport 0.2 0.2 0.0
Total Functional Expense 232.7 232.2 0.5
Increase/(Decrease) in Net Position
before Transfers 40.0 47.0 (7.0)
Transfers out 19.2 17.4 1.8
Change in Net Position 20.8 29.6 (8.8)
Net Position, Beginning 699.8 670.2 29.6
Net Position, Ending 720.6$ 699.8$ 20.8$
Business‐type Activities expenses increased $0.5 million for a total of $232.7 million. Year over year
expenses were significantly affected by the following events:
Water Fund expenses increased $1.6 million from prior year primarily due to an increase in water
supply costs. Further detail can be found in Note 16 to the financial statements.
Electric Fund expenses increased $4.4 million primarily due to a $4.0 million increase in energy
purchase costs.
Gas Fund expenses decreased $2.1 million due to a decrease in the cost of gas supply purchases.
Further detail can be found in Note 16 to the financial statements.
Refuse Fund expenses decreased $3.3 million due to lower operations and maintenance expense as
a result of the landfill closure.
Management’s Discussion and Analysis
……….…………………....…………………………………………………
18 City of Palo Alto
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, 2013, the City’s Governmental Funds reported combined fund balances of $210.9 million, an
increase of $48.9 million from the prior year. Approximately 14.7 percent, or $30.9 million, constitutes
unassigned fund balance, which is available for spending at the government’s discretion. The remainder of
the fund balance is either non‐spendable, restricted, committed, or assigned to indicate that it is 1) not in
spendable form ($23.9 million), 2) restricted for particular purposes ($84.7 million), 3) committed for
particular purposes ($20.4 million), or 4) assigned for particular purposes ($50.9 million).
Governmental Fund revenues increased $3.4 million, or 2.0 percent, from prior year to $170.8 million.
Revenues in the General Fund increased $7.1 million and Capital Projects Fund revenue increased $1.8
million. Other Governmental Funds revenue decreased by $5.6 million primarily due to $9.1 million less in
receipts for Public Benefits and a $1.9 million decrease in investment earnings, offset by a $5.9 million
increase in developers’ impact fees.
Governmental Fund expenditures were $160.1 million, a decrease of $3.9 million from the prior year.
General Fund expenditures decreased $1.0 million, Capital Projects Fund expenditures increased by $0.9
million, and Non‐major Fund expenditures decreased by $3.9 million.
General Fund
Balance Sheet
The General Fund is the primary operating fund of the City. At the end of the current fiscal year, fund
balance of the General Fund was $42.1 million, compared to $42.0 million in the prior year. The fund
balance has been classified as $5.7 million nonspendable, $5.4 million assigned, and $30.9 million
unassigned. Of the unassigned amount, $30.4 million is designated by the Council for budget stabilization.
That amount represents 19.0 percent of the FY 2014 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 amounted to $8.9 million and were transferred to the Infrastructure Reserve in the Capital
Projects Fund, as allowed by the General Fund Reserve Policy.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 19
Statement of Revenues, Expenditures and Changes in Fund Balance
Revenues
The City’s General Fund revenues totaled $132.6 million in FY 2013. This represents an increase of $7.0
million, or 5.6 percent, compared to the prior year. The year over year change in significant revenue sources
is noted in the following table.
GENERAL FUND
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2013 2012 (Decrease)
Property tax 28.7$ 26.5$ 2.2$
Sales tax 25.6 22.1 3.5
Utility user tax 10.9 10.8 0.1
Transient occupancy tax 10.8 9.7 1.1
Documentary transfer tax 6.8 4.8 2.0
Charges for services 26.7 24.9 1.8
Permits and licences 7.6 6.6 1.0
Rental income 12.9 14.3 (1.4)
All other 2.6 5.9 (3.3)
Total Revenues 132.6$ 125.6$ 7.0$
Property tax revenue increased by $2.2 million, or 8.3 percent, over FY 2012 for a total of $28.7 million. The
City’s assessment roll growth of 5.32 percent was supplemented by better than expected receipts from
unsecured property taxes and motor vehicle in‐lieu fees, as well as reduced county administrative fees.
Sales tax revenue increased by $3.5 million, or 15.8 percent, over FY 2012 levels for a total of $25.6 million.
The increase was driven by strong retail activity in auto, apparel store, restaurant, and service station sales,
and county pool allocations.
Utility user tax remained flat year over year. Lower utility‐generated revenues were offset by higher
telephone‐generated revenues, which historically have been declining due to fewer land lines and changes
in the billing practices of the providers.
Transient occupancy tax continued to improve, and increased by $1.1 million, or 11.3 percent, due to
increased business activity and improving occupancy and room rates. Both occupancy and room rates
increased steadily through FY 2013.
Documentary transfer tax increased $2.0 million to $6.8 million primarily due to a small number of high
dollar commercial property transactions.
Management’s Discussion and Analysis
……….…………………....…………………………………………………
20 City of Palo Alto
Charges for services totaled $26.7 million in FY 2013, an increase of $1.8 million from the prior year. The
increase was primarily due to an increase in volume of plan checking fees as a result of increased building
activity within the City.
Permits and licenses revenue increased over prior year by $1.0 million, most of which is attributed to an
increase in new construction permits.
Rental income decreased from prior year by $1.4 million primarily from decreased landfill rent related to the
closure of the landfill.
All other revenue declined from prior year by $3.3 million to $2.6 million. The decrease is primarily
attributable to a $2.7 million decrease in unrealized gain in market value of investments. The change in
market value of investments was driven by a rise in interest rates toward the end of the fiscal year resulting
in a decrease in market value of the City’s bond portfolio from the prior year.
Expenditures
General Fund expenditures totaled $127.2 million for FY 2013 compared to $128.3 in the prior year. This
amount excludes encumbrances and reappropriations. The year over year change for major functions is
noted in the following table:
GENERAL FUND
Expenditures for the Year Ended June 30
(in millions)
Increase/
Expenditures by Function 2013 2012 (Decrease)
Administrative Services 3.1$ 3.3$ (0.2)$
Public Works 11.5 11.3 0.2
Planning and Community Environment 11.8 10.3 1.5
Police 31.8 33.2 (1.4)
Fire 27.7 29.1 (1.4)
Community Services 21.5 20.8 0.7
Library 6.9 7.1 (0.2)
Non‐Departmental 7.4 6.6 0.8
All other 5.5 6.6 (1.1)
Total Expenditures 127.2$ 128.3$ (1.1)$
The decrease from prior year of $1.1 million, or 0.9 percent, is a result of continued one‐time and ongoing
expense reductions that were enacted in order to control expenses. Police and Fire expenses have
decreased due to reduced overtime and increased employee contributions to pension and medical costs.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 21
Planning and Community Environment expenses for staffing and contract services have increased as a result
of increased building and development activity.
Transfers out for FY 2013 were $25.1 million compared to $22.1 million in the prior year. Of the $3.0 million
increase, $1.3 million was an increase in the amount of funds transferred from the General Fund Budget
Stabilization Reserve (BSR) to the Infrastructure Reserve in the Capital Projects Fund, and $1.8 million was
for the transfer of technology enhancement fees to the Technology Fund. Technology enhancement fees
were added to certain City fees effective for FY 2013.
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 $133.4 million and were revised upward by $11.9 million, which
included $4.4 million for the prior year encumbrance reserve. Significant items contributing to the
difference between original budget amounts and final budget amounts for revenue categories were as
follows:
GENERAL FUND
Budgeted Revenues for the Year Ended June 30
(in millions)
Original Final Increase/
Budgeted Revenues Budget Budget (Decrease)
Sales tax 22.5$ 23.4$ 0.9$
Transient occupancy tax 9.6 10.4 0.8
Documentary transfer tax 5.1 6.8 1.7
Charges for services 23.7 25.6 1.9
Permits and licences 6.6 8.0 1.4
All other 55.0 55.9 0.9
122.5 130.1 7.6
Charges to other funds 10.9 10.8 (0.1)
Prior year encumbrances and appropriations ‐ 4.4 4.4
Total Budgeted Revenues 133.4$ 145.3$ 11.9$
Adjustments to the original budget were based on the following:
Sales tax was increased by $0.9 million from the original budget due to robust performance,
particularly in the electronic equipment, apparel stores, restaurants, and service station sectors.
Transient occupancy tax budgeted amount of $9.6 million was increased by $0.8 million due to a
surge in average occupancy and daily rates, and increased business and visitor activity.
Documentary transfer tax budgeted amount was increased by $1.7 million based on increased
receipts resulting from high value commercial property sales.
Management’s Discussion and Analysis
……….…………………....…………………………………………………
22 City of Palo Alto
Charges for services budget was increased by $1.9 million to $25.6 million due to an additional $1.6
million in plan check fee revenue and higher than expected paramedic service fee revenue.
Permits and licenses budget was increased by $1.4 million due to increased development activity.
Significant differences between final budgeted revenues of $145.3 million and actual revenues of $149.3
million, a difference of $4.0 million, are explained by the following:
Sales and transient occupancy taxes were $2.6 million higher than the final budget due to strong
retail sales and improved occupancy and room rates.
Property tax revenue was higher due to a one‐time $0.7 million refund of prior year administrative
fees.
Charges for services actual revenue for the year was $26.7 million, or $1.1 million more than the
final budgeted amount, as a result of increased building and zone plan check fees.
Charges to other funds actual revenue was $11.7 million, or $0.9 million higher than the final budget
amount, due to the true‐up of cost plan charges at the end of the year.
Investment earnings were $2.4 million lower than the final budget due to an increase in interest
rates toward the end of the fiscal year which negatively impacted the market value of the City’s
bond portfolio.
Expenditures were originally budgeted at $138.0 million and were revised upward by $10.1 million for a final
budgeted amount of $148.1 million, as shown below.
GENERAL FUND
Budgeted Expenditures for the Year Ended June 30
(in millions)
Original Final Increase/ Actuals, plus
Budgeted Expenditures Budget Budget (Decrease) Encumbrances
Administrative Services 7.2$ 7.5$ 0.3$ 7.2$
Community Services 21.9 22.5 0.6 22.3
Fire 27.6 28.9 1.3 28.8
Library 7.0 7.7 0.7 7.6
Planning and Community Environment 11.1 13.4 2.3 13.1
Police 32.3 32.6 0.3 32.5
Public Works 13.9 14.8 0.9 14.0
Non‐Departmental 6.0 8.5 2.5 8.0
All other 11.0 12.2 1.2 11.2
Total Budgeted Expenditures 138.0$ 148.1$ 10.1$ 144.7
Less: Charges to Other Funds (11.9)
Less: Encumbrances (5.6)
Net General Fund Expenditures 127.2$
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 23
Adjustments of $10.1 million to the original budget were based on the following:
$2.2 million for increased retiree medical costs;
$1.6 million for Public Safety labor concessions which were not achieved;
$1.4 million for expenses for additional contract costs for Development Services due to increased
volume of development activity; and
$4.9 million for carry‐forward of encumbrances from prior year.
The final budgeted expenditure amount of $148.1 million compares to the actual expenditures plus
encumbrances of $144.7 million, a difference of $3.4 million. The lower than budgeted expenditures were
primarily due to non‐salary budget savings across General Fund departments and higher than expected
vacancy savings.
Transfers out were originally budgeted at $14.8 million, with the final budget number at $14.7 million, a
decrease of $0.1 million. The actual transfers out for the year were $25.1 million, or $10.4 million greater
than final budget due to the end of year transfer from the General Fund BSR to the Capital Projects
Infrastructure Reserve of $8.9 million and a $1.8 million transfer to the Technology Fund for technology
enhancement fees.
Capital Projects Fund
Capital Projects Fund expenditures and other uses were $30.5 million in FY 2013, which is a decrease of $2.1
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.
Management’s Discussion and Analysis
……….…………………....…………………………………………………
24 City of Palo Alto
Financial Analysis of Enterprise Funds
At June 30, 2013, the City’s Enterprise Funds reported total net position of $718.0 million, an increase of
$20.5 million or 2.9 percent over the prior year. The increase was primarily from the Water, Fiber Optics,
and Wastewater Collection Funds for $6.8 million, $2.8 million, and $2.5 million, respectively. Unrestricted
net position for the Enterprise Funds totaled $267.3 million, a 2.7 percent increase from FY 2012.
Following is a table which compares the year over year change in net position for each of the Enterprise
Funds:
ENTERPRISE FUNDS
Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Fund Name 2013 2012 (Decrease)
Water 6.8$ 4.5$ 2.3$
Electric 1.9 9.0 (7.1)
Fiber Optics 2.8 2.6 0.2
Gas 1.3 7.8 (6.5)
Wastewater Collection 2.5 0.9 1.6
Wastewater Treatment 0.8 2.1 (1.3)
Refuse 2.3 (0.5) 2.8
Storm Drainage 2.3 3.0 (0.7)
Airport (0.2) (0.1) (0.1)
Total Change in Net Position 20.5$ 29.3$ (8.8)$
The most significant factors in the year over year change in net position for Enterprise Funds are as follows:
Water change in net position for the year was $6.8 million, an increase of $2.3 million from the prior
year. The increase is primarily due to a $6.3 million increase in operating revenues resulting from a
15 percent rate increase. The ending RSR balance is $17.3 million, an increase of $9.3 million from
prior year. In addition to current year change in net position of $6.8 million, the RSR balance was
also increased by reimbursement from bond proceeds of prior years’ expenditures.
Electric change in net position for the year was $1.9 million, a decrease of $7.1 million from the prior
year. The decrease was a combination of a $5.6 million decrease in investment earnings resulting
from decreased market value of bond portfolio and a $3.9 million increase in operating expenses,
offset by a $2.9 million increase in operating revenues. The ending RSR balance is $69.0 million, a
decrease of $5.6 million from prior year.
Gas ended the year with change in net position of $1.3 million, compared to $7.8 million in the prior
year, a decrease of $6.5 million. The decrease is due to a $7.1 million decrease in operating
revenues resulting from lower rates which were driven by a change in gas procurement strategy,
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 25
offset by a $2.1 million decrease in operating expenses. The ending RSR balance is $11.3 million, a
decrease of $4.7 million from prior year.
Wastewater Collection ended the year with change in net position of $2.5 million compared to $0.9
million in the prior year. The increased change in net position is primarily due to a $1.1 million
increase in operating revenues resulting from a 5 percent rate increase. The ending RSR balance is
$4.1 million, a decrease of $0.6 million from prior year.
Refuse ended the year with a change in net position of $2.3 million, compared to a negative $0.5
million change in net position in FY 2012. The increase of $2.8 million is due to decreased
operations and maintenance expense resulting from closure of the landfill. The ending RSR balance
is negative $2.8 million, compared to a negative $4.1 million the prior year, an improvement of $1.3
million. Compliance requirements for the landfill closure and post‐closure maintenance plan are
discussed in detail in Note 9.
Management’s Discussion and Analysis
……….…………………....…………………………………………………
26 City of Palo Alto
CAPITAL ASSETS
GASB 34 requires that the City record all its capital assets, including infrastructure and intangible assets.
Infrastructure includes roads, bridges, signals and similar assets used by the entire population. The table
below shows capital assets and the amount of accumulated depreciation for these assets for Governmental
and Business‐type Activities. Further detail can be found in Note 6 to the financial statements.
Increase/
2013 2012 (Decrease)
Governmental Activities
Capital Assets
Land and improvements 79.0$ 78.6$ 0.4$
Street trees 15.4 15.4 ‐
Construction in progress 69.2 55.3 13.9
Buildings and improvements 133.7 132.9 0.8
Intangible assets ‐ Easement 3.8 3.8 ‐
Equipment 10.9 10.1 0.8
Roadway network 282.3 272.4 9.9
Recreation and open space network 24.9 23.1 1.8
Less accumulated depreciation (203.8) (194.2) (9.6)
Internal Service Fund Assets
Construction in progress 1.4 0.2 1.2
Equipment 50.9 51.5 (0.6)
Less accumulated depreciation (38.8) (35.9) (2.9)
Total Governmental 428.9$ 413.2$ 15.7$
Business‐type Activities
Land 5.0$ 5.0$ ‐$
Construction in progress 118.2 99.3 18.9
Buildings and improvements 33.4 32.7 0.7
Transmission, distribution and treatment systems 642.1 616.0 26.1
Less accumulated depreciation (276.4) (263.0) (13.4)
Total Business‐type 522.3$ 490.0$ 32.3$
CAPITAL ASSETS AT JUNE 30
(in millions)
Governmental Activities’ capital assets net of depreciation increased by $15.7 million from the prior year.
The increase was primarily due to improvements for the 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
……….……………………………………………………………………
City of Palo Alto 27
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. The City is funding “keep up” costs at the rate of $2.2 million per year, and excess reserves
are being transferred from the General Fund to the Infrastructure Reserve. The newly established Council
Infrastructure Committee will be making recommendations on what can be funded from existing resources
and what will require new revenues.
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 ‐ $12.6 million
Main Library ‐ $22.5 million
City Hall First Floor Renovations ‐ $1.3 million
Business‐type Activities’ capital assets net of depreciation increased by $32.3 million over FY 2012. 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 ‐ $7.1 million
Gas main replacement project for Gas Fund ‐ $12.4 million
Plant equipment replacement for Wastewater Treatment Fund ‐ $3.3 million
Wastewater Collection Fund rehabilitation/augmentation project ‐ $3.1 million
The City depreciates its capital assets over their estimated useful lives, as required by GASB 34. The purpose
of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable
portion of the cost of the asset is borne by all users. Additional information on capital assets and depreciable
lives are in Note 6.
Management’s Discussion and Analysis
……….…………………....…………………………………………………
28 City of Palo Alto
DEBT ADMINISTRATION
Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements. At June 30, 2013,
the City’s debt was comprised of the following:
LONG‐TERM DEBT AT JUNE 30
(in millions)
Increase/
2013 2012 (Decrease)
Governmental Activities
General Long‐Term Obligations
Certificates of Participation
2002B Downtown Parking Improvements 1.6$ 1.7$ (0.1)$
General Obligation Bonds
2010 Series A 53.5 54.5 (1.0)
2013 Series A 20.7 ‐ 20.7
2011 Lease Purchase Agreement 2.4 2.8 (0.4)
Add: unamortized premium 4.4 3.5 0.9
Total Governmental 82.6$ 62.5$ 20.1$
Business‐type Activities
Enterprise Long‐Term Obligations
Utility Revenue Bonds
1995 Series A 3.8$ 4.2$ (0.4)
1999 Refunding 11.6 12.2 (0.6)
2009 Series A 32.5 33.4 (0.9)
2011 Series A 15.2 16.2 (1.0)
Less: unamortized premium (discount)
and loss on refunding 0.6 0.6 0.0
Energy Tax Credit Bonds
2007 Series A 0.9 1.0 (0.1)
Less: unamortized premium (discount)(0.1) (0.1)‐
State Water Resources Loan
2007 7.2 7.7 (0.5)
2009 7.9 8.2 (0.3)
Total Business‐type 79.6$ 83.4$ (3.8)$
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 29
On June 30, 2013, the City issued an additional $20.7 million in General Obligation Bonds to finance costs for
construction of the new Mitchell Park Library and Community Center and to make substantial capital
improvements to the Main and Downtown Libraries. The entire $76 million authorized by Palo Alto
residents via Measure N has now been issued. The pledge of future net revenues ends upon repayment of
the remaining debt service on the bonds and is scheduled to occur in 2044.
As noted in the Statistical Section of the CAFR, the combined direct debt ratio to assessed valuation for the
General Fund is a low 0.31 percent compared to the allowable legal debt margin of 15 percent.
SPECIAL ASSESSMENT DISTRICT DEBT
Special assessment districts throughout different parts of the City have also issued debt to finance
infrastructure and facilities construction exclusively in their districts. As of June 30, 2013, the City had no
special assessment district debt with City commitment outstanding.
ECONOMIC OUTLOOK
The economy of the City is discussed in the accompanying Transmittal Letter.
CONTACTING THE CITY’S FINANCIAL MANAGEMENT
The CAFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the
City’s finances. Questions about this report should be directed to the Administrative Services Department, at
250 Hamilton Avenue, 4th Floor, Palo Alto, California. This report and other financial reports can be viewed
on the City of Palo Alto website at: www.cityofpaloalto.org. On the home page, select Departments, select
Administrative Services, and select Financial Reporting. Within Financial Reporting, there are links to reports
by title and reporting date.
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CITY OF PALO ALTO
Statement of Net Position
June 30, 2013
(Amounts in thousands)
Governmental Business‐Type
Activities Activities Total
ASSETS:
Cash and investments available for operations (Note 3)227,843$ 256,050$ 483,893$
Receivables, net:
Accounts and intergovernmental 10,436 33,617 44,053
Interest receivable 1,310 1,545 2,855
Notes and loans receivable (Note 5)21,898 ‐ 21,898
Internal balances (Note 4)(1,977) 1,977 ‐
Net OPEB asset (Note 12)21,851 ‐ 21,851
Due from other government agencies ‐ 4,000 4,000
Inventory of materials and supplies and prepaids 4,801 68 4,869
Unamortized bond issuance costs 1,054 1,993 3,047
Restricted cash and investments with fiscal agents (Note 3)34,137 4,060 38,197
Restricted cash for post‐closure landfill (Note 3)‐ 5,820 5,820
Capital assets (Note 6):
Nondepreciable 164,997 123,147 288,144
Depreciable, net of accumulated depreciation 263,945 399,106 663,051
Total assets 750,295 831,383 1,581,678
LIABILITIES:
Accounts payable and accruals 10,255 18,049 28,304
Accrued salaries and benefits 2,740 1,255 3,995
Unearned revenue 955 645 1,600
Accrued compensated absences (Note 1):
Due in one year 4,145 ‐ 4,145
Due in more than one year 6,286 ‐ 6,286
Claims payable (Note 14):
Due in one year 6,663 ‐ 6,663
Due in more than one year 21,082 ‐ 21,082
Accrued landfill closure liability and post‐closure care (Note 9):
Due in more than one year ‐ 11,195 11,195
Long‐term debt (Note 7):
Due in one year 1,682 3,780 5,462
Due in more than one year 80,913 75,876 156,789
Total liabilities 134,721 110,800 245,521
NET POSITION (Note 10):
Net Investment in capital assets 378,047 446,597 824,644
Restricted for:
Special revenue programs 62,699 ‐ 62,699
Capital projects 1,156 ‐ 1,156
Debt service 6,444 4,060 10,504
Nonexpendable ‐ Eyerly Family 1,418 ‐ 1,418
Total restricted net position 71,717 4,060 75,777
Unrestricted 165,810 269,926 435,736
Total net position $ 615,574 $ 720,583 $ 1,336,157
See accompanying notes to the basic financial statements.
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CITY OF PALO ALTO
Statement of Activities
For the Year Ended June 30, 2013
(Amounts in thousands)
Net (Expense) Revenue and
Program Revenues Changes in Net Position
Operating Capital
Charges for Grants and Grants and Governmental Business‐Type
Functions/Programs Expenses Services Contributions Contributions Activities Activities Total
Governmental Activities:
City Council 94$ ‐$ ‐$ ‐$ (94)$ ‐$ (94)$
City Manager 1,237 ‐ ‐ ‐ (1,237) ‐ (1,237)
City Attorney 1,642 ‐ ‐ ‐ (1,642) ‐ (1,642)
City Clerk 330 ‐ ‐ ‐ (330) ‐ (330)
City Auditor 464 ‐ ‐ ‐ (464) ‐ (464)
Administrative Services 7,614 4,637 ‐ 515 (2,462) ‐ (2,462)
Human Resources 1,420 ‐ ‐ ‐ (1,420) ‐ (1,420)
Public Works 20,816 1,314 1,817 ‐ (17,685) ‐ (17,685)
Planning and Community Environment 13,549 28,768 2,901 ‐ 18,120 ‐ 18,120
Police 31,865 4,062 282 ‐ (27,521) ‐ (27,521)
Fire 27,587 12,077 5 ‐ (15,505) ‐ (15,505)
Community Services 22,705 24,800 25 ‐ 2,120 ‐ 2,120
Library 7,319 187 8 ‐ (7,124) ‐ (7,124)
Interest on long‐term debt 2,562 ‐ ‐ ‐ (2,562) ‐ (2,562)
Total Governmental Activities 139,204 75,845 5,038 515 (57,806) ‐ (57,806)
Business‐Type Activities:
Water 30,707 37,746 572 1,162 ‐ 8,773 8,773
Electric 106,438 121,805 ‐ ‐ ‐ 15,367 15,367
Fiber Optics 1,437 4,382 ‐ ‐ ‐ 2,945 2,945
Gas 26,749 34,633 ‐ ‐ ‐ 7,884 7,884
Wastewater Collection 14,313 16,077 ‐ 1,062 ‐ 2,826 2,826
Wastewater Treatment 20,635 21,528 ‐ ‐ ‐ 893 893
Refuse 28,542 30,583 ‐ ‐ ‐ 2,041 2,041
Storm Drainage 3,703 6,053 ‐ ‐ ‐ 2,350 2,350
Airport 246 ‐ ‐ ‐ ‐ (246) (246)
Total Business‐Type Activities 232,770 272,807 572 2,224 ‐ 42,833 42,833
Total 371,974$ 348,652$ 5,610$ 2,739$ (57,806) 42,833 (14,973)
General Revenues:
Taxes:
Property tax 31,929 ‐ 31,929
Sales tax 25,606 ‐ 25,606
Utility user tax 10,861 ‐ 10,861
Transient occupancy tax 10,794 ‐ 10,794
Documentary transfer tax 6,810 ‐ 6,810
Other taxes 3,694 ‐ 3,694
Investment earnings (1,228) (2,754) (3,982)
Miscellaneous 518 ‐ 518
Transfers (Note 4)19,249 (19,249) ‐
Total general revenues and transfers 108,233 (22,003) 86,230
Change in net position 50,427 20,830 71,257
Net position, beginning of year 565,147 699,753 1,264,900
Net position, end of year 615,574$ 720,583$ 1,336,157$
See accompanying notes to the basic financial statements.
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CITY OF PALO ALTO
Governmental Funds
Balance Sheet
June 30, 2013
(Amounts in thousands)
Capital Other Total
General Projects Governmental Governmental
Fund Fund Funds Funds
ASSETS:
Cash and investments available for operations (Note 3)34,443$ 45,789$ 69,789$ 150,021$
Receivables, net:
Accounts and intergovernmental 8,055 859 581 9,495
Interest receivable 608 ‐ 315 923
Notes and loans receivable (Note 5)930 ‐ 20,968 21,898
Prepaid items 645 ‐ ‐ 645
Advance to other fund (Note 4)610 ‐ ‐ 610
Inventory of materials and supplies 3,564 ‐ ‐ 3,564
Restricted cash and investments with fiscal agents (Note 3)‐ 33,899 238 34,137
Total assets 48,855$ 80,547$ 91,891$ 221,293$
LIABILITIES AND FUND BALANCES:
Liabilities:
Accounts payable and accruals 3,333$ 2,501$ 1,051$ 6,885$
Accrued salaries and benefits 2,490 92 3 2,585
Unearned revenue 955 ‐ ‐ 955
Total liabilities 6,778 2,593 1,054 10,425
Fund balances (Note 10):
Nonspendable:
Notes and loans receivable 930 ‐ 16,771 17,701
Prepaid items 645 ‐ ‐ 645
Inventories 3,564 ‐ ‐ 3,564
Advance to other fund 610 ‐ ‐ 610
Eyerly family ‐ ‐ 1,418 1,418
Restricted for:
Transportation mitigation ‐ ‐ 9,262 9,262
Federal revenue ‐ ‐ 4,480 4,480
Street improvement ‐ ‐ 581 581
Local law enforcement ‐ ‐ 254 254
Library bond project ‐ 32,554 ‐ 32,554
Public benefits ‐ ‐ 31,351 31,351
Debt service ‐ ‐ 6,206 6,206
Committed for:
Developer's impact fees ‐ ‐ 9,726 9,726
Housing in‐lieu ‐ ‐ 9,455 9,455
Special districts ‐ ‐ 1,118 1,118
Downtown business ‐ ‐ 101 101
Assigned for:
Unrealized gains on investments 386 ‐ 114 500
Infrastructure ‐ 17,462 ‐ 17,462
Capital projects ‐ 27,938 ‐ 27,938
Other general government purposes 5,029 ‐ ‐ 5,029
Unassigned for:
Budget Stabilization 30,355 ‐ ‐ 30,355
Reappropriations 558 ‐ ‐ 558
Total fund balances 42,077 77,954 90,837 210,868
Total liabilities and fund balances 48,855$ 80,547$ 91,891$ 221,293$
See accompanying notes to the basic financial statements.
35
CITY OF PALO ALTO
Reconciliation of the Balance Sheet of Governmental Funds to
the Statement of Net Position ‐ Governmental Activities
June 30, 2013
Total fund balances reported on the governmental funds balance sheet 210,868$
Amounts reported for governmental activities in the statement of net position
are different from those reported in the governmental funds balance sheet because
of the following:
Costs of issuance related to the bonds are capitalized and amortized 1,054
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)428,942
Internal service funds are used by management to charge the costs of activities
such as insurance, equipment acquisition and maintenance, and certain
employee benefits to individual funds. The assets and liabilities of the
internal service funds are therefore included in governmental activities in
the statement of net position (excludes capital assets reported above)58,390
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 (1,085)
Long‐term debt (Note 7)(82,595)
Net position of governmental activities 615,574$
(Amounts in thousands)
See accompanying notes to the basic financial statements.
36
CITY OF PALO ALTO
Governmental Funds
Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2013
(Amounts in thousands)
Capital Other
General Projects Governmental
Fund Fund Funds Total
REVENUES:
Property tax 28,742$ ‐$ 3,188$ 31,930$
Special assessments ‐ ‐ 110 110
Sales tax 25,606 ‐ ‐ 25,606
Utility user tax 10,861 ‐ ‐ 10,861
Transient occupancy tax 10,794 ‐ ‐ 10,794
Documentary transfer tax 6,810 ‐ ‐ 6,810
Other taxes and fines 2,152 ‐ 1,524 3,676
Charges for services 26,727 ‐ 12,249 38,976
From other agencies 63 3,314 732 4,109
Permits and licenses 7,572 ‐ 646 8,218
Investment earnings (1,614) 1,115 (250) (749)
Rental income 12,879 ‐ 6 12,885
Other revenue 2,033 327 15,210 17,570
Total revenues 132,625 4,756 33,415 170,796
EXPENDITURES:
Current:
City Council 105 ‐ ‐ 105
City Manager 1,200 ‐ ‐ 1,200
City Attorney 1,654 ‐ ‐ 1,654
City Clerk 331 ‐ ‐ 331
City Auditor 460 ‐ ‐ 460
Administrative Services 3,114 ‐ ‐ 3,114
Human Resources 1,427 ‐ ‐ 1,427
Public Works 11,489 ‐ ‐ 11,489
Planning and Community Environment 11,810 ‐ 1,664 13,474
Police 31,784 ‐ 70 31,854
Fire 27,683 ‐ ‐ 27,683
Community Services 21,500 ‐ 161 21,661
Library 6,902 ‐ ‐ 6,902
Non‐Departmental 7,353 ‐ (2,786) 4,567
Capital outlay ‐ 29,542 ‐ 29,542
Debt service:
Principal 364 ‐ 1,125 1,489
Interest and fiscal charges 64 ‐ 2,595 2,659
Bond issuance costs ‐ 540 ‐ 540
Total expenditures 127,240 30,082 2,829 160,151
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 5,385 (25,326) 30,586 10,645
OTHER FINANCING SOURCES (USES):
Issuance of debt ‐ 20,322 373 20,695
Original debt premium ‐ 993 18 1,011
Transfers in (Note 4)19,759 28,629 1,955 50,343
Transfers out (Note 4)(25,090) (462) (8,281) (33,833)
Total other financing sources (uses)(5,331) 49,482 (5,935) 38,216
Change in fund balances 54 24,156 24,651 48,861
FUND BALANCES, BEGINNING OF YEAR 42,023 53,798 66,186 162,007
FUND BALANCES, END OF YEAR 42,077$ 77,954$ 90,837$ 210,868$
See accompanying notes to the basic financial statements.
37
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, 2013
Net change in fund balances ‐ total governmental funds 48,861$
Amounts reported for governmental activities in the statement of activities are different
from those reported in the governmental funds because of the following:
Governmental funds report capital outlays as expenditures. However, in the statement of
activities, the costs of these assets are capitalized and allocated over their estimated useful
lives and reported as depreciation expense. Therefore, the activities associated with
capital assets are as follows:
Capital outlay added back to fund balance for current year additions 30,413
Depreciation expense is deducted from fund balance (depreciation expense is net of
internal service fund depreciation of $4,695 (Note 6), which has already been allocated
through the internal service fund activities below (10,966)
Disposal of capital assets (1,427)
Principal payments on long‐term liabilities are reported as expenditures in governmental
funds when paid. The governmental activities, however, report principal payments as
a reduction of long‐term debt on the statement of net position. Interest accrued on
long‐term debt and amortization of bond issuance costs and premiums do not require
the use of current financial resources and therefore are not reported as expenditures
in governmental funds. Therefore, the activities associated with long‐term debt are
as follows:
Principal paid during the year 1,489
Proceeds from debt issuance (20,695)
Original debt premium (1,011)
Payment for bond issuance costs 540
Change in interest payable (9)
Amortization of unamortized bond issuance costs (19)
Amortization of bond premium 125
Internal service funds are used by management to charge the costs of activities, such
as insurance, equipment acquisition and maintenance, and employees benefits to
individual funds. The portion of the net revenue of these internal service
funds arising out of their transactions with governmental funds is reported with
governmental activities.3,126
Change in net position of governmental activities 50,427$
(Amounts in thousands)
See accompanying notes to the basic financial statements.
38
Variance with
Budgeted Amounts Final Budget
Actual, plus Positive
Original Final Encumbrances (Negative)
22,545$ 23,364$ 25,606$ 2,242$
27,306 27,912 28,742 830
9,591 10,439 10,794 355
Documentary transfer tax 5,078 6,800 6,810 10
10,731 10,825 10,861 36
2,058 2,058 2,152 94
23,682 25,646 26,726 1,080
6,614 7,998 7,713 (285)
959 774 (1,614) (2,388)
12,640 12,640 12,879 239
157 170 63 (107)
1,188 1,489 2,038 549
122,549 130,115 132,770 2,655
10,874 10,834 11,686 852
‐ 4,385 4,863 478
133,423 145,334 149,319 3,985
2,436 3,028 2,916 112
965 1,028 995 33
1,558 1,584 1,291 293
465 522 523 (1)
2,578 3,010 2,666 344
7,156 7,525 7,176 349
21,893 22,518 22,279 239
27,582 28,884 28,754 130
2,982 3,074 2,977 97
6,996 7,683 7,555 128
11,111 13,382 13,112 270
32,332 32,614 32,468 146
13,947 14,753 13,987 766
6,025 8,503 7,956 547
138,026 148,108 144,655 3,453
(4,603) (2,774) 4,664 7,438
18,995 19,187 19,759 572
(14,782) (14,722) (25,090) (10,368)
4,213 4,465 (5,331) (9,796)
(390)$ 1,691$ (667) (2,358)$
5,584
(4,863)
54
42,023
42,077$
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, 2013
(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
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES
OTHER FINANCING SOURCES (USES):
Transfers in
Transfers out
FUND BALANCE AT BEGINNING OF YEAR, GAAP BASIS
FUND BALANCE AT END OF YEAR, GAAP BASIS
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER)
EXPENDITURES, BUDGETARY BASIS
Adjustment to Budgetary Basis:
Current year encumbrances/reappropriations
Prior year encumbrances/reappropriations
CHANGE IN FUND BALANCE, GAAP BASIS
See accompanying notes to the basic financial statements.
39
Fiber
Water Electric Optics Gas
ASSETS:
Current assets:
Cash and investments available for operations (Note 3) 34,062$ 131,018$ 15,847$ 33,470$
Accounts receivable, net 5,582 13,867 1,353 2,431
Interest receivable 187 783 86 210
Due from other government agencies ‐ ‐ ‐ ‐
Inventory of materials and supplies ‐ ‐ ‐ ‐
Restricted cash and investments with fiscal agents (Note 3)3,246 ‐ ‐ 814
Restricted cash for landfill closure (Note 3)‐ ‐ ‐ ‐
Total current assets 43,077 145,668 17,286 36,925
Noncurrent assets:
Due from other government agencies ‐ ‐ ‐ ‐
Unamortized bond issuance costs 529 44 ‐ 105
Deposit ‐ 68 ‐ ‐
Capital assets (Note 6):
Nondepreciable 45,190 20,048 1,163 16,089
Depreciable, net 61,412 152,736 6,148 74,798
Net OPEB asset (Note 12)‐ ‐ ‐ ‐
Total noncurrent assets 107,131 172,896 7,311 90,992
Total assets 150,208 318,564 24,597 127,917
LIABILITIES:
Current liabilities:
Accounts payable and accruals 5,987 2,050 240 4,023
Accrued salaries and benefits 171 401 31 201
Unearned revenue ‐ ‐ ‐ ‐
Accrued compensated absences (Note 1)‐ ‐ ‐ ‐
Current portion of revenue bonds (Note 7)1,360 100 ‐ 520
Accrued claims payable (Note 14)‐ ‐ ‐ ‐
Total current liabilities 7,518 2,551 271 4,744
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)39,095 751 ‐ 8,272
Total noncurrent liabilities 39,095 751 ‐ 8,272
Total liabilities 46,613 3,302 271 13,016
NET POSITION (Note 10):
Net Investment in capital assets 66,147 171,933 7,311 82,095
Restricted for debt service 3,246 ‐ ‐ 814
Unrestricted (deficit)34,202 143,329 17,015 31,992
Total net position 103,595$ 315,262$ 24,326$ 114,901$
Some amounts reported for Business‐type Activities in the statement of net position are different because certain
Internal Service Fund net positions are included with Business‐type Activities
Net position reported in Business‐type Activities
Business‐Type Activities‐Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Net Position
June 30, 2013
(Amounts in thousands)
See accompanying notes to the basic financial statements.
40
Governmental
Activities ‐
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
14,936$ 16,186$ 3,794$ 6,512$ 225$ 256,050$ 77,822$
2,021 4,288 3,413 662 ‐ 33,617 941
89 98 52 39 1 1,545 387
‐ 250 ‐ ‐ ‐ 250 ‐
‐ ‐ ‐ ‐ ‐ ‐ 592
‐ ‐ ‐ ‐ ‐ 4,060 ‐
‐ ‐ 5,820 ‐ ‐ 5,820 ‐
17,046 20,822 13,079 7,213 226 301,342 79,742
‐ 3,750 ‐ ‐ ‐ 3,750 ‐
18 1,185 ‐ 112 ‐ 1,993 ‐
‐ ‐ ‐ ‐ ‐ 68 ‐
16,416 13,117 4,213 6,911 ‐ 123,147 1,413
55,257 25,860 257 22,638 ‐ 399,106 12,137
‐ ‐ ‐ ‐ ‐ ‐ 21,851
71,691 43,912 4,470 29,661 ‐ 528,064 35,401
88,737 64,734 17,549 36,874 226 829,406 115,143
606 2,640 2,019 456 28 18,049 2,285
108 232 72 34 5 1,255 155
‐ ‐ ‐ 645 ‐ 645 ‐
‐ ‐ ‐ ‐ ‐ ‐ 4,145
74 1,216 ‐ 510 ‐ 3,780 ‐
‐ ‐ ‐ ‐ ‐ ‐ 6,663
788 4,088 2,091 1,645 33 23,729 13,248
‐ ‐ ‐ ‐ ‐ ‐ 6,286
‐ ‐ ‐ ‐ ‐ ‐ 21,082
‐ ‐ ‐ ‐ 610 610 ‐
‐ ‐ 11,195 ‐ ‐ 11,195 ‐
977 19,740 ‐ 7,041 ‐ 75,876 ‐
977 19,740 11,195 7,041 610 87,681 27,368
1,765 23,828 13,286 8,686 643 111,410 40,616
70,622 22,021 4,470 21,998 ‐ 446,597 13,550
‐ ‐ ‐ ‐ ‐ 4,060 ‐
16,350 18,885 (207) 6,190 (417) 267,339 60,977
86,972$ 40,906$ 4,263$ 28,188$ (417)$ 717,996 74,527$
2,587
720,583$
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
41
Fiber
Water Electric Optics Gas
OPERATING REVENUES:
Sales of utilities:
Customers 34,179$ 106,091$ ‐$ 32,929$
City departments 1,883 3,265 841 830
Surplus energy ‐ 1,127 ‐ ‐
Service connection charges and miscellaneous 756 1,987 ‐ 731
Charges for services ‐ ‐ ‐ ‐
Other 928 9,335 3,541 143
Total operating revenues 37,746 121,805 4,382 34,633
OPERATING EXPENSES:
Purchase of utilities:
Retail 16,605 59,574 ‐ 13,455
Surplus energy ‐ 1,740 ‐ ‐
Administrative and general 4,008 6,406 354 4,198
Engineering (operating)339 1,278 ‐ 340
Resource management and energy efficiency 558 6,550 ‐ 1,136
Operations and maintenance 4,944 9,601 773 4,940
Rent 1,912 3,704 26 219
Depreciation and amortization 1,575 8,223 287 2,127
Claims payments and changes in
estimated self‐insurance liability ‐ ‐ ‐ ‐
Refund of charges for services ‐ ‐ ‐ ‐
Compensated absences and other benefits ‐ ‐ ‐ ‐
Total operating expenses 29,941 97,076 1,440 26,415
Operating income (loss)7,805 24,729 2,942 8,218
NONOPERATING REVENUES (EXPENSES):
Investment earnings (218) (1,497) (91) (426)
Interest expense (816) (9,169) ‐ (296)
Gain (loss) on disposal of capital assets (40) (395) ‐ (149)
Other nonoperating revenues 572 ‐ ‐ ‐
Total nonoperating revenues (expenses)(502) (11,061) (91) (871)
Income (loss) before transfers and capital contributions 7,303 13,668 2,851 7,347
Capital contributions 1,162 ‐ ‐ ‐
Transfers in (Note 4)412 296 1 117
Transfers out (Note 4)(2,055) (12,090) (2) (6,177)
Change in net position 6,822 1,874 2,850 1,287
NET POSITION (DEFICIT), BEGINNING OF YEAR 96,773 313,388 21,476 113,614
NET POSITION (DEFICIT), END OF YEAR 103,595$ 315,262$ 24,326$ 114,901$
Some amounts reported for Business‐type Activities in the Statement of Activities are different because certain
Internal Service Fund activities are included with Business‐type Activities
Change in net position reported in Business‐type Activities
Business‐Type Activities‐Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Revenues, Expenses and Changes in Fund Net Position
For the Year Ended June 30, 2013
(Amounts in thousands)
See accompanying notes to the basic financial statements.
42
Governmental
Activities‐
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
14,915$ 13,000$ 26,388$ 5,611$ ‐$ 233,113$ ‐$
104 8,366 821 338 ‐ 16,448 ‐
‐ ‐ ‐ ‐ ‐ 1,127 ‐
547 ‐ ‐ ‐ ‐ 4,021 ‐
‐ ‐ ‐ ‐ ‐ ‐ 80,365
511 162 3,374 104 ‐ 18,098 500
16,077 21,528 30,583 6,053 ‐ 272,807 80,865
8,314 ‐ 13,362 ‐ ‐ 111,310 ‐
‐ ‐ ‐ ‐ ‐ 1,740 ‐
1,098 ‐ 2,147 583 246 19,040 10,631
271 1,868 172 333 ‐ 4,601 ‐
‐ ‐ ‐ 290 ‐ 8,534 ‐
2,617 15,427 9,526 1,092 ‐ 48,920 9,549
110 ‐ 2,694 ‐ ‐ 8,665 ‐
1,882 2,650 4 914 ‐ 17,662 4,973
‐ ‐ ‐ ‐ ‐ ‐ 4,648
‐ ‐ ‐ ‐ ‐ ‐ 75
‐ ‐ ‐ ‐ ‐ ‐ 49,993
14,292 19,945 27,905 3,212 246 220,472 79,869
1,785 1,583 2,678 2,841 (246) 52,335 996
(211) (153) (93) (69) 4 (2,754) (480)
(58) (592) (607) (465) ‐ (12,003) ‐
‐ ‐ ‐ ‐ ‐ (584) 94
‐ ‐ ‐ ‐ ‐ 572 66
(269) (745) (700) (534) 4 (14,769) (320)
1,516 838 1,978 2,307 (242) 37,566 676
1,062 ‐ ‐ ‐ ‐ 2,224 ‐
69 ‐ 644 13 ‐ 1,552 3,896
(147) (11) (306) (13) ‐ (20,801) (1,157)
2,500 827 2,316 2,307 (242) 20,541 3,415
84,472 40,079 1,947 25,881 (175) 71,112
86,972$ 40,906$ 4,263$ 28,188$ (417)$ 74,527$
289
20,830$
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
43
Fiber
Water Electric Optics Gas
Cash flows from operating activities:
Cash received from customers 34,598$ 108,486$ (818)$ 33,775$
Cash refunds to customers ‐ ‐ ‐ ‐
Cash payments to suppliers for goods and services (24,236) (82,698) (609) (18,704)
Cash payments to employees (4,007) (6,434) (354) (4,193)
Internal activity‐ receipts (payment) from (to) other funds 1,883 3,265 841 830
Other receipts 928 9,335 3,541 143
Net cash provided by (used in)
operating activities 9,166 31,954 2,601 11,851
Cash flows from noncapital financing activities:
Receipt of loans from other funds ‐ ‐ ‐ ‐
Interest subsidy received from Build America Bond 572 ‐ ‐ ‐
Transfers in 412 296 1 117
Transfers out (2,055) (12,090) (2) (6,177)
Cash flows provided by (used in) noncapital financing activities (1,071) (11,794) (1) (6,060)
Cash flows from capital and related financing activities:
Acquisition and construction of capital assets (16,559) (14,438) (373) (7,376)
Proceeds from sale of capital assets ‐ 15 ‐ ‐
Capital grants and contributions 1,162 ‐ ‐ ‐
Principal paid on long‐term debt (1,349) (91) ‐ (514)
Interest paid on long‐term debt (787) (9,165) ‐ (288)
Cash flows used in capital and related
financing activities (17,533) (23,679) (373) (8,178)
Cash flows from investing activities:
Interest received (234) (1,409) (95) (409)
Cash flows from investing activities (234) (1,409) (95) (409)
Net change in cash and cash equivalents (9,672) (4,928) 2,132 (2,796)
Cash and cash equivalents, beginning of year 46,980 135,946 13,715 37,080
Cash and cash equivalents, end of year $ 37,308 $ 131,018 $ 15,847 $ 34,284
Financial statement presentation:
Cash and investments available for operations 34,062$ 131,018$ 15,847$ 33,470$
Cash and investments with fiscal agent 3,246 ‐ ‐ 814
Cash and cash equivalents, end of year 37,308$ 131,018$ 15,847$ 34,284$
Reconciliation of operating income (loss) to
net cash provided by (used in) operating activities:
Operating income (loss)7,805$ 24,729$ 2,942$ 8,218$
Adjustments to reconcile operating income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 1,575 8,223 287 2,127
Other ‐ ‐ ‐ ‐
Change in assets and liabilities:
Accounts receivable (337) (719) (818) 115
Inventory of materials and supplies ‐ ‐ ‐ ‐
Deposit ‐ (41) ‐ ‐
Net OPEB asset ‐ ‐ ‐ ‐
Accounts payable and accruals 122 (210) 190 1,386
Accrued salaries and benefits 1 (28) ‐ 5
Accrued compensated absences ‐ ‐ ‐ ‐
Unearned revenue ‐ ‐ ‐ ‐
Landfill closure and post‐closure care ‐ ‐ ‐ ‐
Accrued claims payable ‐ ‐ ‐ ‐
Net cash provided by (used in)
operating activities $ 9,166 $ 31,954 $ 2,601 $ 11,851
Business‐Type Activities‐Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Cash Flows
For the Year Ended June 30, 2013
(Amounts in thousands)
See accompanying notes to the basic financial statements.
44
Governmental
Activities‐
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
15,159$ 10,802$ 26,073$ 5,285$ ‐$ 233,360$ 80,178$
‐ ‐ ‐ ‐ ‐ ‐ (75)
(11,145) (15,322) (25,516) (1,354) ‐ (179,584) (10,187)
(1,093) ‐ (2,171) (581) (227) (19,060) (59,190)
104 8,366 821 338 ‐ 16,448 (4,369)
511 162 3,572 104 ‐ 18,296 66
3,536 4,008 2,779 3,792 (227) 69,460 6,423
‐ ‐ ‐ ‐ 310 310 ‐
‐ ‐ ‐ ‐ ‐ 572 ‐
69 ‐ 644 13 ‐ 1,552 3,896
(147) (11) (306) (13) ‐ (20,801) (1,157)
(78) (11) 338 ‐ 310 (18,367) 2,739
(4,774) (2,876) (922) (3,110) ‐ (50,428) (2,811)
‐ ‐ ‐ ‐ ‐ 15 248
1,062 250 ‐ ‐ ‐ 2,474 ‐
(71) (1,161) ‐ (480) ‐ (3,666) ‐
(58) (573) (607) (466) ‐ (11,944) ‐
(3,841) (4,360) (1,529) (4,056) ‐ (63,549) (2,563)
(194) (150) (89) (66) 4 (2,642) (498)
(194) (150) (89) (66) 4 (2,642) (498)
(577) (513) 1,499 (330) 87 (15,098) 6,101
15,513 16,699 8,115 6,842 138 281,028 71,721
$ 14,936 $ 16,186 $ 9,614 $ 6,512 $ 225 $ 265,930 $ 77,822
14,936$ 16,186$ 3,794$ 6,512$ 225$ 256,050$ 77,822$
‐ ‐ 5,820 ‐ ‐ 9,880 ‐
14,936$ 16,186$ 9,614$ 6,512$ 225$ 265,930$ 77,822$
1,785$ 1,583$ 2,678$ 2,841$ (246)$ 52,335$ 996$
1,882 2,650 4 914 ‐ 17,662 4,973
‐ ‐ ‐ ‐ ‐ ‐ 66
(303) (2,198) (315) (39) ‐ (4,614) (687)
‐ ‐ ‐ ‐ ‐ ‐ 76
‐ ‐ ‐ ‐ ‐ (41) ‐
‐ ‐ ‐ ‐ ‐ ‐ (580)
167 1,956 238 361 14 4,224 (141)
5 17 (24) 2 5 (17) (29)
‐ ‐ ‐ ‐ ‐ ‐ 1,470
‐ ‐ ‐ (287) ‐ (287) ‐
‐ ‐ 198 ‐ ‐ 198 ‐
‐ ‐ ‐ ‐ ‐ ‐ 279
$ 3,536 $ 4,008 $ 2,779 $ 3,792 $ (227) $ 69,460 $ 6,423
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
45
Agency
Funds
ASSETS:
Cash and investments available for operations (Note 3)3,073$
Restricted cash and investments with fiscal agents (Note 3)2,542
Account receivable 30
Interest receivable 16
Total assets 5,661$
LIABILITIES:
Due to bondholders 4,787$
Due to other governments 874
Total liabilities 5,661$
CITY OF PALO ALTO
Statement of Fiduciary Net Position
June 30, 2013
(Amounts in thousands)
See accompanying notes to the basic financial statements.
46
CITY OF PALO ALTO
Index to the Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
47
Page
1. Summary of Significant Accounting Policies ........................................................................... 49
2. Budgets and Budgetary Accounting ........................................................................................ 58
3. Cash and Investments ............................................................................................................. 59
4. Interfund Transactions ............................................................................................................ 63
5. Notes and Loans Receivable .................................................................................................... 65
6. Capital Assets .......................................................................................................................... 72
7. General Long‐Term Obligations .............................................................................................. 77
8. Special Assessment Debt ......................................................................................................... 84
9. Landfill Closure and Post‐Closure Care ................................................................................... 85
10. Net Position and Fund Balances .............................................................................................. 86
11. Pension Plans ........................................................................................................................... 88
12. Retiree Health Benefits ........................................................................................................... 92
13. Deferred Compensation Plan .................................................................................................. 95
14. Risk Management .................................................................................................................... 96
15. Joint Ventures .......................................................................................................................... 97
16. Commitments and Contingencies ......................................................................................... 100
Notes are essential to present fairly the information contained in the overview level of the basic
financial statements. Narrative explanations are intended to communicate information that is not
readily apparent or cannot be included in the statements and schedules themselves, and to provide
additional disclosures as required by the Governmental Accounting Standards Board.
48
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
49
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
Downtown Parking Improvement Debt Service Fund.
Financial statements for the Corporation may be obtained from the City of Palo Alto,
Administrative Services Department, 4th Floor, 250 Hamilton Avenue, Palo Alto, CA 94301.
(b) Basis of Presentation
The City’s basic financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America. The Governmental Accounting Standards
Board (GASB) is the acknowledged standard setting body for establishing accounting and
financial reporting standards followed by governmental entities in the United States.
These standards require that the financial statements described below be presented:
Government‐wide Statements: The Statement of Net Position and the Statement of Activities
display information about the primary government and its component unit. These statements
include the financial activities of the overall City government, except for fiduciary activities.
Eliminations have been made to minimize the double counting of internal activities. However,
interfund goods and services transactions have not been eliminated in the consolidation
process. These statements distinguish between the governmental and business‐type activities
of the City. Governmental activities generally are financed through taxes, intergovernmental
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
50
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) Basis of Presentation (Continued)
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 and internal service funds are
aggregated and reported as non‐major funds.
Proprietary fund operating revenues, such as utilities sales and charges for services, result from
exchange transactions associated with the principal activity of the fund. Exchange transactions
are those in which each party receives and gives up essentially equal values. Nonoperating
revenues, such as subsidies and investment earnings, result from non‐exchange transactions or
ancillary activities.
Operating expenses for enterprise funds and internal service funds include the cost of sales and
services, administrative expenses, and depreciation on capital assets. All expenses not meeting
this definition are reported as nonoperating expenses.
(c) Major Funds and Other Funds
The City’s major governmental and enterprise funds need to be identified and presented
separately in the fund financial statements. All other funds, called non‐major funds, are
combined and reported in a single column, regardless of their fund type.
Major funds are defined as funds that have 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:
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
51
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds (Continued)
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.
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
52
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds (Continued)
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.
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
53
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds (Continued)
Cable Joint Powers Authority – This fund accounts for the activities of the cable television system
on behalf of the members.
University Avenue Area Off‐Street Parking Assessment District – This fund accounts for the
receipts and disbursements associated with the 2012 Limited Obligation Refunding
Improvement Bonds.
(d) Basis of Accounting
The government‐wide and proprietary fund financial statements are reported using the
economic resources measurement focus and the full accrual basis of accounting. Revenues are
recorded when earned and expenses are recorded at the time liabilities are incurred, regardless
of when the related cash flows take place.
Governmental funds are reported using the current financial resources measurement focus and
the modified accrual basis of accounting. Under this method, revenues are recognized when
measurable and available. The City considers revenues susceptible to accrual reported in the
governmental funds to be available if the revenues are collected within ninety days after year‐
end, except for property taxes, which are available if collected within sixty days after year‐end.
Expenditures are recorded when the related fund liability is incurred, except for principal and
interest on general long‐term debt, claims and judgments, and compensated absences, which
are recognized as expenditures to the extent they have matured. General capital asset
acquisitions are reported as expenditures in governmental funds. Proceeds of general long‐term
debt and acquisitions under capital leases are reported as other financing sources.
Revenues susceptible to accrual include taxes, intergovernmental revenues, interest and
charges for services.
Grant revenues are recognized in the fiscal year in which all eligibility requirements are met.
Under the terms of grant agreements, the City may fund certain programs with a combination of
cost‐reimbursement grants, categorical block grants, and general revenues. Thus, both
restricted and unrestricted net position may be available to finance program expenditures. The
City’s policy is to first apply restricted grant resources to such programs, followed by general
revenues if necessary.
Certain indirect costs are included in program expenses reported for individual functions and
activities. Transactions representing the exchange of interfund goods and services have also
been included.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
54
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Cash and Cash Equivalents
Restricted and unrestricted pooled cash and investments held in the City Treasury, and other
unrestricted investments invested by the City Treasurer, are considered cash equivalents for
purposes of the statement of cash flows because the City’s cash management pool and funds
invested by the City Treasurer possess the characteristics of demand deposit accounts. Other
restricted and unrestricted investments with maturities of less than three months at the time of
purchase are considered cash equivalents for purposes of the statement of cash flows.
(f) 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 reports the effects of these adjustments in investment earnings 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.
(h) Prepaid items
Prepaid items are recorded at cost. Using the consumption method, prepaid items are recorded
as expenditures over the period that service is provided.
(i) Compensated Absences
The liability for compensated absences includes the vested portion of vacation, sick leave, and
overtime compensation pay. The City’s liability for accrued compensated absences is recorded
in the General Benefits Internal Service Fund. The fund is reimbursed through payroll charges to
all other funds. Earned but unpaid vacation and overtime compensation pay are recognized as
an expense or expenditure in the proprietary and governmental fund types when earned
because the City has provided financial resources for the full amount through its budgetary
process. Vested accumulated sick pay is paid in the event of termination due to disability and,
under certain conditions, specified in employment agreements.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
55
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Compensated Absences (Continued)
During the fiscal year ended June 30, 2013, changes to the compensated absences were as
follows (in thousands):
Beginning balance 8,962$
Additions 6,791
Payments (5,322)
Ending balance 10,431$
Current portion 4,145$
(j) Property Tax
Santa Clara County (the County) assesses properties and bills, collects, and distributes property
taxes to the City. The County remits the entire amount levied and handles all delinquencies,
retaining interest and penalties.
The County assesses property values, levies bills and collects taxes as follows:
Secured Unsecured
Lien Dates January 01 January 01
Levy Dates October 01 July 01
Due Dates 50% on November 01 Upon receipt of billing
50% on February 01
Delinquent after December 10 (for November)August 31
April 10 (for February)
The term “unsecured” refers to taxes on personal property other than real estate, land and
buildings. These taxes are secured by liens on the property being taxed. Property tax revenues
are recognized by the City in the fiscal year they are assessed, provided they become available
as defined previously within 60 days after year‐end.
(k) Deferred Outflows of Resources and Deferred Inflows of Resources
GASB Statement No. 63, 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. A deferred outflow of resources is the
consumption of net position that is applicable to a future reporting period. A deferred inflow of
resources is defined as an acquisition of net position applicable to a future reporting period. The
term “net assets” was replaced with the term “net position.” There were no balances reported
as deferred outflows of resources and deferred inflows of resources at June 30, 2013.
(l) Rounding
All amounts included in the basic financial statements and footnotes are presented to the
nearest thousand.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
56
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(m) Effects of New Pronouncements
As of July 1, 2012, the City implemented 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. The City does not have any agreements that meet
the definition of service concession arrangements.
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.
Governmental Accounting Standards Board (GASB) Statement No. 62, Codification of Accounting
and Financial Reporting Guidance Contained in Pre‐November 30, 1989 FASB and AICPA
Pronouncements, incorporates into the GASB’s authoritative literature certain accounting and
financial reporting guidance that is included in Financial Accounting Standards Board (FASB)
Statements and Interpretations, Accounting Principles Board Opinions, and Accounting Research
Bulletins of the AICPA Committee on Accounting Procedures which does not conflict with or
contradict other GASB pronouncements.
GASB Statement No. 63, 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. See discussion in Note 1(k).
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. 65 issued March 2012, Items 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. 4, Elements of Financial Statements. It also provides other financial reporting guidance
related to 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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
57
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(m) Effects of New Pronouncements (Continued)
GASB Statement No. 66 was issued in March 2012, Technical Corrections – 2012 – an
amendment to GASB Statement No. 10 and No. 62, to resolve conflicting accounting and
financial reporting guidance that could diminish the consistency of financial reporting. The
requirements of this Statement are effective from 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 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
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.
During January 2013, GASB issued Statement No. 69, Government Combinations and Disposals
of Government Operations. It establishes accounting related to government combinations and
disposals of government operations. Government combinations include mergers, acquisitions,
and transfers of operations. Statement No. 69 also establishes the required financial statement
disclosure for government combinations and disposals of government operations. The
requirements of this Statement are effective for financial statement periods beginning after
December 15, 2013.
During April 2013, GASB issued Statement No. 70, Accounting and Financial Reporting for
Nonexchange Financial Guarantees. Nonexchange financial guarantees are financial guarantees
from a government for obligations of another entity. Statement No. 70 requires a government
that extends a nonexchange financial guarantee to recognize a liability when qualitative factors
and historical data indicate that it is more likely than not that the government will be required
to make a payment on the guarantee. Statement No. 70 also specifies the information required
to be disclosed by governments that extend nonexchange financial guarantees and also new
disclosure requirements. The requirements of this Statement are effective for financial
statements for periods beginning after June 15, 2013.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
58
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) 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, Debt Service and
Permanent Funds.
6. Formal budgetary integration is employed as a management control device during the year in all
funds except Agency Funds.
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
59
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 227,843$ 256,050$ 3,073$ 486,966$
Restricted for post‐closure landfill ‐ 5,820 ‐ 5,820
Held with fiscal agents 34,137 4,060 2,542 40,739
Total cash and investments 261,980$ 265,930$ 5,615$ 533,525$
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, 2013
60
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 and the investment policy approved by the
City Council.
Maximum
Maturity
Minimum
Credit Quality
Maximum
Percentage
of Portfolio
Maximum
Investment in
One Issuer
U.S. Government Securities 10 years (*) N/A No Limit No Limit
U.S. Federal Agency Securities (C) 10 years (*) N/A No Limit (A) No Limit
Certificates of Deposit
10 years (*)
N/A 20%
10% of the par
value of
portfolio
Bankers Acceptances 180 days (D) N/A (D) 30% $5 million
Commercial Paper 270 days 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 Mutual Funds N/A N/A (E) No Limit No Limit
Mutual Funds (F)N/A N/A 20%10%
Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million
Medium‐Term Corporate Notes 5 years AA 10% $5 million
10 years (*)
AA/AA2 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)
(*) The maximum maturity is based on the Investment Policy that is approved by the City Council and is
less retrictive than the California Government Code.
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 val ue of the security is redeemable 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 mi nimum 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, 2013
61
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 its fair value
is 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 60,828$ 99,913$ 162,258$ 129,730$ 452,729$
U.S. Treasury Notes 2,014 ‐ 1,964 ‐ 3,978
Local Government Bonds ‐ 3,224 6,410 8,686 18,320
Money Market Mutual Funds 4,386 ‐ ‐ ‐ 4,386
Negotiable Certificates of Deposit ‐ ‐ 2,879 239 3,118
California Asset Management Program 36,344 ‐ ‐ ‐ 36,344
Local Agency Investment Fund 12,990 ‐ ‐ ‐ 12,990
Total Investments 116,562$ 103,137$ 173,511$ 138,655$ 531,865
Cash in bank and on hand 1,660
Total Cash and Investments 533,525$
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 fair value of the City’s position in the pool is the
same as the value of the pool share. The balance available for withdrawal on demand is based on
accounting records maintained by LAIF, which are recorded on an amortized cost basis. At June 30,
2013, LAIF had a weighted average maturity of 278 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, 2013, the fair value approximated the City’s cost. CAMP had a
weighted average maturity of 37 days.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
62
NOTE 3 – CASH AND INVESTMENTS (Continued)
Money market mutual funds are available for withdrawal on demand and at June 30, 2013, had a
weighted average maturity of 57 days.
Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations
At June 30, 2013, the City’s investments (including investments held by bond trustees) include U.S.
Federal Agency Callable Securities in the amount of $117.2 million that are highly sensitive to interest
rate fluctuations (to a greater degree than already indicated in the information provided in the previous
page). These securities are subject to early redemption at par in a period of declining interest rates.
Credit Risk
Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the
investment. This is measured by the assignment of a rating by a nationally recognized statistical rating
organization. Presented below is the actual rating as provided by Standard & Poor’s investment rating
system as of June 30, 2013, for each investment type (in thousands):
Type of Investment Rating Total
U.S. Federal Agency Securities AA+452,729$
Local Government Bonds AAA/AAAm 18,320
Money Market Mutual Funds AAA/AAAm 4,386
California Asset Management Program AAA/AAAm 36,344
Total Investments 511,779
Not Applicable:
U.S. Treasury Notes 3,978
Not Rated:
Local Agency Investment Fund 12,990
Negotiable Certificates of Deposit 3,118
Cash in bank and on hand 1,660
Total Cash and Investments 533,525$
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, 2013 (in thousands):
Investments Reporting Type Fair Value at Year‐End
Federal Home Loan Bank U.S. Federal Agency Securities 172,333$
Federal Farm Credit Bank U.S. Federal Agency Securities 84,291
Federal National Mortgage Corporation U.S. Federal Agency Securities 75,732
Federal Agricultural Mortgage Corporation U.S. Federal Agency Securities 67,211
Federal Home Loan Mortgage Corporation U.S. Federal Agency Securities 53,160
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
63
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 2013 were as follows (in thousands):
Fund Making Transfer
Amount
Transferred
General Fund Nonmajor Governmental Funds 1,251$ A
Electric Services Fund 11,768 A
Gas Services Fund 5,971 A
Capital Projects Fund 162 A
Internal Service Funds 607 A
Capital Projects Fund General Fund 22,258 B
Nonmajor Governmental Funds 4,729 B
Water Services Fund 1,642 B
Nonmajor Governmental Funds General Fund 235 A
Nonmajor Governmental Funds 1,720 A
Subtotal 50,343
Fund Receiving Transfer
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
64
NOTE 4 – INTERFUND TRANSACTIONS (Continued)
Fund Making Transfer
Amount
Transferred
Water Services Fund Gas Services Fund 108 B
Electric Services Fund 75 B
Wastewater Collection Fund 109 B
General Fund 56 B
Internal Service Funds 64 C
Electric Services Fund General Fund 33 D
Internal Service Funds 263 C
Refuse Services Fund Internal Service Funds 63 C
Nonmajor Governmental Funds 581 D
Wastewater Collection Fund General Fund 35 D
Internal Service Funds 34 C
Storm Drainage Services Fund Internal Service Funds 13 C
Gas Fund General Fund 5 D
Internal Service Funds 112 C
Fiber Optics Fund Internal Service Funds 1 C
Internal Service Funds General Fund 2,468 E
Capital Projects Fund 300 B
Water Services Fund 413 B
Electric Services Fund 247 B
Gas Services Fund 98 B
Wastewater Collection Fund 38 B
Wastewater Treatment Fund 11 B
Refuse Services Fund 306 B
Storm Drainage Services Fund 13 B
Fiber Optics Fund 2 B
Subtotal 5,448
Total 55,791$
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 refund replacement charges.
(D) Transfer to reimburse the Utility Funds for costs incurred for the benefit of funds making the transfer.
(E) Transfer to reimburse Internal Service Funds for costs incurred for the benefit of the fund making the
transfer.
Fund Receiving Transfer
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
65
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
Santa Clara County to the City. The Council approved the General Fund to loan the new Airport
Enterprise Fund $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, after 6 years. On July 1, 2012, the City Council
approved an additional short‐term loan in the amount of $310,000 from the General Fund for transition
costs. The interest and repayment terms remain the same. As of June 30, 2013, the total outstanding
amount is $610,000.
Internal Balances
Internal balances represent the net interfund receivables and payables remaining after the elimination
of all such balances within governmental and business‐type activities.
NOTE 5 – NOTES AND LOANS RECEIVABLE
At June 30, 2013, the City’s notes and loans receivable totaled (in thousands):
Palo Alto Housing Corporation:
Oak Manor Townhouse 462$
Tree House Apartments 5,343
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
Maybell Apartments 3,220
Mid‐Peninsula Housing Coalition:
Palo Alto Gardens Apartments 100
Community Working Group, Inc.1,280
Opportunity Center Associates, L.P.750
Home Rehabilitation Loans 66
Executive Relocation Assistance Loans 930
Below Market Rate Assessment Loans 53
Stevenson Housing Fire Alarm 48
Oak Manor Townhouse Water System 114
Lytton Gardens Assisted Living 101
Emergency Housing Consortium 75
Alma Gardens Apartments 1,150
2811‐2825 Alma Street Acquisition 1,290
Palo Alto Family Housing, 801 Alma Street 6,810
Total Notes and Loans 36,583
Less: Valuation Allowance (14,685)
Total Notes and Loans, Net 21,898$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
66
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 2017 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, 2013, the objective was met. The annual loan
payment was forgiven for the calendar year ended December 31, 2012.
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 Charleston 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, 2013, 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 interest at 3 percent after 2010.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
67
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Alma Single Room Occupancy Development
On December 13, 1996, the City loaned $2.2 million to the Alma Place Associates, L.P. for the
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 on the next
page, 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.
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
68
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
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.
Maybell Apartments
On November 28, 2012, the City agreed to loan to Palo Alto Housing Corporation $3.2 million for the
purpose of acquisition and development of an affordable rental housing project at 567‐595 Maybell
Ave, Palo Alto, California. The loan bears simple interest at the rate of 3 percent per annum commencing
with the date of the permanent closing. As of June 30, 2013, the outstanding amount for the Maybell
Apartments loan is $3.2 million.
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 of $100,000 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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
69
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
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, 2013, 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, 2013 was approximately $372,000. 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.
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, 2013 is approximately $439,000. 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, 2013 was approximately $120,000.
Below Market Rate Assessment Loans
In December 2002, the City loaned $53,000 to below market rate homeowners with low incomes and/or
very limited assets for capital repairs, special assessments and improvements of their properties. The
loans bear interest at 3 percent and are secured by a deed of trust on each property. Loan payments
are deferred until 2032. In 2013, 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, 2013, 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 dated January 7, 1991 for the acquisition of the project site, which is discussed earlier in this
section.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
70
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 Palo Alto Family, LP up to $9.3 million for the purposes of
predevelopment expenses and acquiring certain real property for the Alma Street Affordable Multi‐
Family Rental Housing Project. The loan bears simple interest of 3 percent. Principal and interest are due
and payable during the term of the agreement on a “residual receipt” basis as described in the
agreement. Except in the case of a default, all remaining principal and interest shall be payable on the
Restriction Termination Date as defined in the agreement. As of June 30, 2013, the outstanding amount
is $6.8 million.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
71
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
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. As of June 30, 2013, the loan has been
forgiven and written off.
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. As of June 30, 2013,
the loan has been forgiven and written off.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
72
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. Deprecia tion is not provided under this
approach, but all expenditures on these assets are expensed unless they are additions or improvements.
The City has elected to use the depreciation method for its capital assets. The purpose of depreciation is
to spread the cost of capital assets equitably among all users over the life of those assets. The amount
charged to depreciation expense each year represents that year’s pro rata share of the cost of capital
assets.
Depreciation of 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 position as a reduction in the book value of capital assets.
Depreciation is calculated using the straight line method, which means the cost of the asset is divided by
its expected useful life in years, and the result is charged to expense each year until the asset is fully
depreciated. The City has assigned the useful lives listed below to capital assets.
Governmental Activities Years
Buildings and structures 20 ‐ 30
Equipment:
Computer equipment 3 ‐ 5
Office machinery and equipment 5
Machinery and equipment 5 ‐ 30
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, 2013
73
NOTE 6 – CAPITAL ASSETS (Continued)
General Capital Assets
Changes in the City’s general capital assets during the year ended June 30, 2013 were (in thousands):
Balance Balance
July 1, 2012 Additions Retirements Transfers June 30, 2013
Governmental activities
Nondepreciable capital assets:
Land and improvements 78,647$ ‐$ ‐$ 400$ 79,047$
Street trees 15,405 ‐ (86) ‐ 15,319
Construction in progress 55,273 30,222 (1,293) (14,984) 69,218
Total nondepreciable capital assets 149,325 30,222 (1,379) (14,584) 163,584
Depreciable capital assets:
Buildings and structures 132,953 101 (1,084) 1,741 133,711
Intangible assets ‐ Easement 3,800 11 ‐ 35 3,846
Equipment 10,068 68 (333) 1,109 10,912
Roadway network 272,419 ‐ ‐ 9,879 282,298
Recreation and open space network 23,057 ‐ ‐ 1,831 24,888
Total depreciable capital assets 442,297 180 (1,417) 14,595 455,655
Less accumulated depreciation:
Buildings and structures (66,135) (3,140) 1,084 ‐ (68,191)
Intangible assets ‐ Easement (16) (60) ‐ ‐ (76)
Equipment (6,918) (475) 285 ‐ (7,108)
Roadway network (113,861) (6,522) ‐ ‐ (120,383)
Recreation and open space network (7,320) (769) ‐ ‐ (8,089)
Total accumulated depreciation (194,250) (10,966) 1,369 ‐ (203,847)
Depreciable capital assets, net 248,047 (10,786) (48) 14,595 251,808
Internal service fund capital assets
Construction in progress 204 2,665 ‐ (1,456) 1,413
Equipment 51,577 146 (2,260) 1,456 50,919
Less accumulated depreciation (35,915) (4,973) 2,106 ‐ (38,782)
Net internal service fund capital assets 15,866 (2,162) (154) ‐ 13,550
Governmental activities capital assets, net 413,238$ 17,274$ (1,581)$ 11$ 428,942$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
74
NOTE 6 – CAPITAL ASSETS (Continued)
Business‐type Capital Assets
Changes in the City’s enterprise fund capital assets during the year ended June 30, 2013 were
(in thousands):
Balance Balance
July 1, 2012 Additions Retirements Transfers June 30, 2013
Business‐type activities
Nondepreciable capital assets:
Land and improvements 4,971$ ‐$ ‐$ ‐$ 4,971$
Construction in progress 99,333 49,148 ‐ (30,305) 118,176
Total nondepreciable capital assets 104,304 49,148 ‐ (30,305) 123,147
Depreciable capital assets:
Buildings and structures 32,709 ‐ ‐ 671 33,380
Transmission, distribution and treatment systems 615,972 1,280 (4,726) 29,623 642,149
Total depreciable capital assets 648,681 1,280 (4,726) 30,294 675,529
Less accumulated depreciation:
Buildings and structures (8,576) (623) ‐ ‐ (9,199)
Transmission, distribution and treatment systems (254,365) (16,986) 4,127 ‐ (267,224)
Total accumulated depreciation (262,941) (17,609) 4,127 ‐ (276,423)
Depreciable capital assets, net 385,740 (16,329) (599) 30,294 399,106
Business‐type activities capital assets, net 490,044$ 32,819$ (599)$ (11)$ 522,253$
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 42$ Water 1,571$
Community Services 1,136 Electric 8,212
Fire 188 Fiber Optics 287
Police 191 Gas 2,151
Public Works 8,936 Wastewater Collection 1,881
Planning 92 Wastewater Treatment 2,620
Library 381 Refuse 4
Internal Service Funds 4,973 Storm Drainage 883
15,939$ 17,609$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
75
NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress
Construction in progress as of June 30, 2013 is comprised of the following (in thousands):
Governmental Activities
Expended to
June 30, 2013
Mitchell Park Library & Community Center 37,074$
Art Center Electrical & Mech Upgrades 8,010
Civic Center Infrastructure Improvements 6,178
Main Library Construction & Improvements 2,675
San Antonio Road Median Improvements 2,456
ECR/Stanford Intersection 1,557
Telephone Infrastructure and Network 1,234
Furniture/Technology for Library Bond Project 738
Library & Comm Center Temp Facilities 660
Traffic Signal Upgrades 630
Highway 101 Pedestrian/Bicycle Overpass 609
Temporary Main Library 526
Lot J Cowper/Webster Structural Repairs 520
Safe Routes To School 433
Golf Reconfig and Baylands Athletic Center 407
Park Restroom Installation 400
Transportation and Parking Improvements 384
Interior Finishes Construction 340
Ventura Community Center & Park 322
Park Trails 304
Newell Road Bridge/SFC Bridge Replacement 303
Curb & Gutter Repairs 289
Roofing Replacement 284
Benches/Signage/Fencing/Walkways 274
Bicycle Boulevards Implementation Project 272
Rinconada Park Master Plan and Design 240
Magical Bridge Playground 222
Public Safety Building Project 206
Dinah SummerHill Pedestrian/Bicycle Path 191
Tree Wells ‐ University Ave. Irrigation 182
University Ave Ped/Bicycle Underpass 179
Vehicle Replacement Fund 179
Roth Building Maintenance 166
Sign Reflectivity Upgrade 157
City Hall First Floor Renovation 155
Cogswell Plaza Improvements 146
Art In Public Places 142
Street Lights Improvements 142
Other Construction In Progress 1,445
Total Governmental Activities Construction In Progress 70,631$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
76
NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress
Business‐type Activites
Expended to
June 30, 2013
Water system extension replacements and improvements 35,257$
Water quality control plant equipment replacement and lab facilities 9,150
Sewer system rehabilitation and extensions 5,172
Electric distribution system improvements 2,917
Storm drainage structural and water quality improvements 2,141
Gas system extension replacements and improvements 1,529
Other electrical improvements projects 916
Other construction in progress 61,094
Total Business‐type Activities Construction In Progress 118,176$
Allocations of business‐type activity administration and general expenses of $11.6 million have been
capitalized and included in amounts expended through June 30, 2013.
Major governmental capital projects that are currently in progress, and the remaining capital
commitment of each, are as follows:
City Hall First Floor Renovations ‐ $1.3 million
Main Library ‐ $22.5 million
Mitchell Park Library and Community Center ‐ $12.6 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 ‐ $7.1 million
Gas main replacement project for Gas Fund ‐ $12.4 million
Plant equipment replacement for Wastewater Treatment Fund ‐ $3.3 million
Wastewater Collection Fund rehabilitation/augmentation project ‐ $3.1 million
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
77
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS
Long‐Term Obligations
Bond premiums and discounts of long‐term debt issues are amortized over the life of the related debt.
Gains or losses between the net book value of debt and funds placed in escrow to defease that debt are
amortized over the remaining life of either the refunded debt or the refunding debt, whichever is
shorter.
The City’s long‐term debt issues and transactions, other than special assessment debt discussed in
Note 8, were as follows (in thousands):
Original Balance Balance Current
Issue Amount July 1, 2012 Additions Retirements June 30, 2013 Portion
Governmental Activities Debt:
General Long‐Term Obligcations:
200B Downtown Parking Improvements,
Certificates of Participation,
2.00 ‐ 4.00%, due 03/01/2022
3,555$ 1,685$ ‐$ 125$ 1,560$ 130$
General Obligation Bonds 2010 Series A,
2.00 ‐ 5.00%, due 08/01/2040
55,305 54,540 ‐ 1,000 53,540 1,020
2011 Lease‐Purchase Agreement 3,222 2,764 ‐ 364 2,400 374
General Obligation Bonds 2013 Series A,
2.00 ‐ 5.00%, due 08/01/2043
20,695 ‐ 20,695 ‐ 20,695 ‐
Less: Unamortized Premium ‐ 3,514 1,011 125 4,400 158
Total Governmental Activities Debt 82,777$ 62,503$ 21,706$ 1,614$ 82,595$ 1,682$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
78
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
Original Balance Balance Current
Issue Amount July 1, 2012 Additions Retirements June 30, 2013 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$ 4,199$ ‐$ 420$ 3,779$ 445$
1999 Refunding,
3.25‐5.25%, due 06/01/2024
17,735 12,165 ‐ 580 11,585 605
2009 Series A,
1.80‐5.95%, due 06/01/2035
35,015 33,355 ‐ 855 32,500 885
2011 Series A,
1.80‐5.95%, due 06/01/2035
17,225 16,160 ‐ 920 15,240 945
Less: Unamortized Premium (Discount)1,050 ‐ 70 980 ‐
Less: Loss on refunding (417) ‐ (29) (388) ‐
Energy Tax Credit Bonds
2007 Series A, 0%, Due 12/15/2021 1,500 1,000 ‐ 100 900 100
Less: Unamortized Premium (Discount)(53) ‐ (4) (49) ‐
State Water Resources Loans
2007, 0%, due 06/30/2029 9,000 7,650 ‐ 450 7,200 450
2009, 2.6%, due 11/30/2030 8,500 8,250 ‐ 341 7,909 350
Total Business‐type Activities Debt 97,615$ 83,359$ ‐$ 3,703$ 79,656$ 3,780$
Description of Long‐Term Debt Issues
2002B Downtown Parking Improvement Project Certificates Of Participation (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 bonds) – 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 $53.5 million
principal and $43.0 million interest as the remaining debt service on the GO bonds, which is scheduled
to occur in FY 2041.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
79
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
2013 General Obligation Bonds – On June 30, 2013, the City issued $20.7 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 $20.7 million
principal and $15.7 million interest as the remaining debt service on the GO bonds, which is scheduled
to occur in FY 2044.
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 Assurance Corporation 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 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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
80
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
The pledge of future Net Revenues for the above funds ends upon repayment of the $3.8 million
principal and $1.0 million interest as the remaining debt service on the bonds, which is scheduled to
occur in FY 2020. For FY 2013, Net Revenues, including operating revenues and non‐operating interest
earnings, amounted to $237.8 million; operating costs, including operating expenses but not interest,
depreciation or amortization, amounted to $173.5 million. Net Revenues available for debt service
amounted to $64.3 million, which represented coverage of 94.2 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
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
81
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
The pledge of future Net Revenues for the above funds ends upon repayment of the $11.6 million
principal and $4.45 million interest as the remaining debt service on the bonds, which is scheduled to
occur in FY 2024. For FY 2013, Net Revenues, including operating revenues and non‐operating interest
earnings, amounted to $43.7 million; operating costs, including operating expenses but not interest,
depreciation or amortization, amounted to $32.0 million. Net Revenues available for debt service
amounted to $11.7 million, which represents coverage of 9.62 times over the $1.2 million in debt
service.
2007 Electric System Clean Renewable Energy Tax Credit Bonds, Series A – In October 2007, the City
issued $1.5 million of Electric Utility Clean Renewable Energy Tax Credit Bonds (CREBs), 2007 Series A, to
finance the City’s photovoltaic solar panel project. The 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 $0.9 million remaining
debt service on the bonds, which is scheduled to occur in FY 2022. For FY 2013, Net Revenues, including
operating revenues and non‐operating interest earnings, amounted to $121.8 million; operating costs,
including operating expenses but not interest, depreciation or amortization, amounted to $88.9 million.
Net Revenues available for debt service amounted to $32.9 million, which represented coverage of
329 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
the Water Services Fund. The 2009 Bonds were issued as bonds designated as “Direct Payment Build
America Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (“Build
America Bonds”). The City expects to receive a cash subsidy payment from the United States Treasury
equal to 35 percent of the interest payable on the 2009 Bonds. The lien of the 1995 Bonds on the Net
Revenues is senior to the lien on Net Revenues securing the 2009 Bonds and the 2011 Bonds. The City
received subsidy payments amounting to $572 thousand, which represents 33.5 percent of the two
interest payments due on December 1, 2012 and June 1, 2013.
The pledge of future Net Revenues for the above funds ends upon repayment of the $32.5 million
principal and $23.9 million interest as the remaining debt service on the bonds, which is scheduled to
occur in FY 2035. For FY 2013, Net Revenues, including operating revenues and non‐operating interest
earnings, amounted to $37.7 million; operating costs, including operating expenses but not interest,
depreciation or amortization, amounted to $28.4 million. Net Revenues available for debt service
amounted to $9.3 million, which represented coverage of 3.66 times over the $2.6 million in debt
service.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
82
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
2011 Utility Revenue Refunding Bonds – On September 8, 2011, the City issued $17.2 million in Lease
Revenue Bonds (2011 Bonds) to refund the outstanding 2002 Series A Utility Revenue Bonds (2002
Bonds) on a current basis. The 2002 Bonds were issued to finance improvement to the City’s municipal
water utility system and the natural gas utility system. Principal of the 2011 Bonds is payable annually
on June 1, and interest on the 2011 Bonds is payable semi‐annually on June 1 and December 1. The
2011 Bonds are secured by net revenues generated by the Water Services and Gas Services Funds.
The pledge of future Net Revenues of the above funds ends upon repayment of the $15.2 million
principal and $3.7 million interest as remaining debt service on the bonds, which is scheduled to occur in
FY 2035. For FY 2013, Net Revenues, including operating revenues and non‐operating interest earnings,
amounted to $72.4 million; operating costs, including operating expenses but not interest, depreciation
or amortization, amounted to $52.7 million. Net Revenues available for debt service amounted to $19.7
million, which represented coverage of 13.5 times over the $1.5 million in debt service.
2007 State Water Resources Loan – In October 2007, the City approved a $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 SWRCB to finance the City’s Ultraviolet Disinfection project. 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 $96,000
was accrued and added to the outstanding loan balance.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
83
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
Debt Service Requirements (in thousands):
Debt service requirements are shown below for all long‐term debt.
For the Year Ending
June 30 Principal Interest Total Principal Interest Total
2014 1,524$ 3,114$ 4,638$ 3,780$ 3,236$ 7,016$
2015 1,948 3,402 5,350 3,909 3,109 7,018
2016 1,995 3,337 5,332 4,049 2,972 7,021
2017 2,066 3,260 5,326 4,198 2,818 7,016
2018 2,156 3,170 5,326 4,363 2,656 7,019
2019‐2023 10,171 14,494 24,665 24,432 10,556 34,988
2024‐2028 11,085 12,161 23,246 17,994 6,117 24,111
2029‐2033 14,000 9,202 23,202 11,684 3,254 14,938
2034‐2038 17,365 5,759 23,124 4,704 424 5,128
2039‐2043 14,715 1,500 16,215 ‐ ‐ ‐
2044 1,170 23 1,193 ‐ ‐ ‐
Total 78,195$ 59,422$ 137,617$ 79,113$ 35,142$ 114,255$
Governmental Activities Business‐Type Activities
Debt Call Provisions
Long‐term debt as of June 30, 2013 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, 2013
84
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, 2013, the amount of bonds outstanding was $4.2 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, 2013, the District’s outstanding debt amounted to
$480 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, 2013, the District’s outstanding debt amounted to $30.69 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, 2013
85
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 2014. The 30 years of post‐closure maintenance costs will be paid after the
state certifies the Phase IIC closure.
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 2013 and FY 2012 were $11.2 million and $11.0 million,
respectively. Changes in the liability for landfill closure and post‐closure costs are the result of an annual
inflation factor that is applied to the estimated costs.
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 2013, for the $5.4 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 $5.8 million closure liability
remains under the enterprise fund mechanism. The City is in compliance with these requirements for
the year ended June 30, 2013.
The landfill closure balance as of June 30, 2013 comprised the following (in thousands):
Funding Mechanism
Closure 5,820$ Cash on hand
Post‐closure care 5,375 Future revenues
Balance 11,195$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
86
NOTE 10 – NET POSITION AND FUND BALANCES
Net Position
Net Position is the excess of all the City’s assets over all its liabilities. Net position is divided into three
categories that are described below:
Net Investment in Capital Assets describes the portion of net position, 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 position that is reduced by liabilities related to restricted assets.
Generally a liability relates to restricted assets if the asset results from a resource flow that also results
in the recognition of a liability or if the liability will be liquidated with the restricted assets reported.
Unrestricted describes the portion of net position which is not restricted as to use.
Fund Balances
As prescribed by GASB Statement No. 54, governmental funds report fund balances in classifications
based primarily on the extent to which the City is bound to honor constraints on the specific purposes
for which amounts in the funds can be spent. Fund balances for governmental funds are made up of the
following:
Nonspendable – This 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 – 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 – 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 – 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 the City Manager, to
whom the City Council has delegated the authority to assign amounts to be used for specific purposes.
Unassigned –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, 2013
87
NOTE 10 – NET POSITION 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, 2013 total outstanding encumbrances related to governmental activities were $5.0 million
for the General Fund, $36.7 million for the Capital Projects Fund, and $0.4 million for the Special
Revenue Funds. General Fund encumbrances are reserved for the following governmental activities:
Planning & Community Environment $1.0 million, Public Works $0.8 million, Community Services $0.7
million, Fire $0.6 million, Library $0.5 million, and Administrative Departments $1.4 million.
Enterprise Funds
At June 30, 2013, Enterprise Fund unrestricted net position (in thousands) were as follows:
Water Electric Fiber Optics Gas
Wastewater
Collection
Wastewater
Treatment Refuse
Storm
Drainage Airport Total
Unrestricted
Rate stabilization
Supply ‐$ 65,324$ ‐$ 6,293$ ‐$ ‐$ ‐$ ‐$ ‐$ 71,617$
Distribution ‐ 3,705 ‐ 5,025 ‐ ‐ ‐ ‐ ‐ 8,730
Operations 17,272 ‐ 15,290 ‐ 4,104 7,961 (2,766) 1,958 (520) 43,299
17,272 69,029 15,290 11,318 4,104 7,961 (2,766) 1,958 (520) 123,646
Emergency plant replacement 1,000 1,000 1,000 1,000 1,000 1,980 ‐ ‐ ‐ 6,980
Electric special projects ‐ 51,838 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 51,838
Reappropriations 10,423 12,541 663 4,981 8,443 3,693 125 3,852 ‐ 44,721
Commitments 4,978 5,629 62 14,588 2,785 3,507 1,475 268 103 33,395
Underground loan ‐ 738 ‐ ‐ ‐ ‐ 268 ‐ ‐ 1,006
Notes and loans ‐ ‐ ‐ ‐ ‐ 559 ‐ ‐ ‐ 559
Landfill corrective action ‐ ‐ ‐ ‐ ‐ ‐ 691 ‐ ‐ 691
Public benefit program ‐ 2,197 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2,197
Central Valley Project 313 313
Unamortized bond issuance cost 529 44 ‐ 105 18 1,185 ‐ 112 ‐ 1,993
Total 34,202$ 143,329$ 17,015$ 31,992$ 16,350$ 18,885$ (207)$ 6,190$ (417)$ 267,339$
The City Council has set aside unrestricted net position 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, 2013
88
NOTE 10 – NET POSITION AND FUND BALANCES (Continued)
Internal Service Funds
At June 30, 2013, Internal Service Funds unrestricted net position (in thousands):
Vehicle
Replacement
and
Maintenance Technology
Printing and
Mailing
Services
General
Benefits
Workers'
Compensation
Insurance
Program
General
Liabilities
Insurance
Program
Retiree Health
Benefits Total
Unrestricted net position:
Commitments 1,848$ 2,743$ 159$ 300$ 68$ ‐$ ‐$ 5,118$
Future catastrophic losses ‐ ‐ ‐ ‐ 133 871 ‐ 1,004
Retiree health care ‐ ‐ ‐ ‐ ‐ ‐ 27,233 27,233
Software and hardware replacement ‐ 184 ‐ ‐ ‐ ‐ ‐ 184
Capital Projects 2,728 8,973 ‐ ‐ ‐ ‐ ‐ 11,701
Available 6,675 8,010 (159) 1,211 ‐ ‐ ‐ 15,737
Total 11,251$ 19,910$ ‐$ 1,511$ 201$ 871$ 27,233$ 60,977$
Commitments represent the portion of net position set aside for open purchase orders.
Future catastrophic losses represent the portion of net position to be used for unforeseen future losses.
Retiree health care represents the portion of net position set aside to defer future costs of retiree
health care coverage.
Capital projects represent the portion of net position set aside for adopted capital projects.
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, 2013
89
NOTE 11 – PENSION PLANS (Continued)
The Plans’ provisions and benefits in effect at June 30, 2013, as determined by the valuation dated
June 30, 2010, 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 rates 9% 9%
Required employer contribution rates 31.05% 31.05%
1 Employees can retire at age 50 with reduced benefits of 2.4% ‐ 2.88%.
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 age2 55 60
Monthly benefits, as a % of annual salary2 2.7%2.0% ‐ 2.418%
Required employee contribution rates 8%7%
Required employer contribution rates 22.97%22.97%
2 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.
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 2013, 2012
and 2011 were $28.6, $27.7 and $24.0 million, respectively. The City made these contributions as
required, together with certain immaterial amounts required as the result of the payment of overtime
and other additional employee compensation.
The City uses the actuarially determined percentages of payroll to calculate and pay contributions to
CalPERS. This results in no net pension obligations or unpaid contributions.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
90
NOTE 11 – PENSION PLANS (Continued)
Annual Pension Costs representing the payment of annual required contributions determined by
CalPERS for the last three fiscal years were as follows (in thousands):
Fiscal Year Ended
Annual
Pension Cost
(APC)
Percent of
APC
Contributed
Net Pension
Obligation
Safety Plan
June 30, 2011 6,029$ 100%‐$
June 30, 2012 7,324 100%‐
June 30, 2013 7,871 100%‐
Miscellaneous Plan
June 30, 2011 12,354$ 100%‐
June 30, 2012 15,687 100%‐
June 30, 2013 15,801 100%‐
CalPERS uses the 15 year smoothed market method of valuing the Plan assets. An investment rate of
return of 7.50 percent is assumed, including inflation at 2.75 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
June 30,
Entry Age
Accrued
Liability
Value of
Assets
Unfunded
Liability
Funded
Ratio
Annual
Covered
Payroll
Unfunded
Liability as a
% of Payroll
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%
2011 313,184 254,305 58,879 81.2% 22,774 258.5%
Miscellaneous Plan:
Valuation Date
June 30,
Entry Age
Accrued
Liability
Value of
Assets
Unfunded
Liability
Funded
Ratio
Annual
Covered
Payroll
Unfunded
Liability as a
% of Payroll
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%
2011 552,716 434,985 117,731 78.7% 60,298 195.2%
Actuarial
Actuarial
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
91
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 6/30/2011* 6/30/2010**
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 30 Years as of the Valuation Date 29 Years as of the Valuation Date
Asset Valuation Method 15 Year Smoothed Market 15 Year Smoothed Market
Actuarial Assumptions:
Investment Rate of Return 7.50% (net of administrative
expenses)
7.75% (net of administrative
expenses)
Projected Salary Increases 3.30% to 14.20% depending on age,
service, and type of employment
3.55% to 13.15% depending on age,
service, and type of employment
Inflation 2.75%3.00%
Payroll Growth 3.00%3.25%
Individual Salary Growth A merit scale varying by duration of
employment coupled with an
assumed annual inflation growth of
2.75% 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 6/30/2011* 6/30/2010**
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 21 Years as of the Valuation Date 20 Years as of the Valuation Date
Asset Valuation Method 15 Year Smoothed Market 15 Year Smoothed Market
Actuarial Assumptions:
Investment Rate of Return 7.50% (net of administrative
expenses)
7.75% (net of administrative
expenses)
Projected Salary Increases 3.30% to 14.20% depending on age,
service, and type of employment
3.55% to 14.45% depending on age,
service, and type of employment
Inflation 2.75%3.00%
Payroll Growth 3.00%3.25%
Individual Salary Growth A merit scale varying by duration of
employment coupled with an
assumed annual inflation growth of
2.75% 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, 2011 valuations, which are the most rece nt valuations, were used to disclose the funded status.
** The June 30, 2010 valuations were used to determine the contribution requirements for FY 2013.
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, 2013
92
NOTE 12 – RETIREE HEALTH BENEFITS
In addition to providing pension benefits, the City participates in the California Public Employees’
Medical and Health Care Act program to provide certain health care benefits for retired employees.
Employees who retire directly from the City are eligible for retiree health benefits if they retire on or
after age 50 with 5 years of service and are receiving a monthly pension from CalPERS. Details of
benefits provided to retirees are noted in the following tables:
Unit
Hired
Before
Retiree
Coverage1
Dependent
Coverage
Retired on
or After
Retiree
Contribution
Management & Professional2 1/1/2004 100% 100% 5/1/2011 10%
Police Management2 1/1/2004 100% 100% 5/1/2011 10%
Fire Fighters2 1/1/2004 100% 100% 12/1/2011 10%
Fire Chiefs Association2 1/1/2004 100% 100% 1/1/2013 10%
SEIU3 1/1/2005 100% 100% 5/1/2011 10%
Police Officers4 1/1/2006 100% 100% N/A 0%
Utilities Managers & Professional2 1/1/2004 100% 100% 5/1/2011 10%
2 Effective 1/1/2004 plan capped at the second highest CalPERS Bay Area Basic plan premium.
3 Effective 1/1/2005 plan capped at the second highest CalPERS Bay Area Basic plan premium.
4 Effective 1/1/2006 plan capped at the second highest CalPERS Bay Area Basic plan premium.
Retiree contributions for units with the following hire dates are determined by Government Code
Section 22893, 20 year graduated schedule:
Unit
Hired on or
After
Retiree
Coverage1
Dependent
Coverage2
Management & Professional 1/1/2004 50%‐100% Max. 90%
Police Management 1/1/2004 50%‐100% Max. 90%
Fire Fighters 1/1/2004 50%‐100% Max. 90%
Fire Chiefs Association 1/1/2004 50%‐100% Max. 90%
SEIU 1/1/2005 50%‐100% Max. 90%
Police Officers 1/1/2006 50%‐100% Max. 90%
specified employer contribution, with the City portion increasing by 5% for each additional year of service credit.
2 Maximun of 90% once employee completes 20 years of service.
1 100% of benefits if the employee has five years CalPERS service credit and the employee retired from the City of
Palo Alto.
1 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, 2013
93
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
June 30, 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, 2013
94
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, 2013, 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 12,756$
Amortization on the Net OPEB Asset 2,057
Interest on the Net OPEB Asset (1,619)
Annual OPEB Cost 13,194
Contributions made:
Contributions to OPEB Trust 5,008
Contributions to Retirees 6,774
City portion of current year premiums paid*1,992
Total contributions made 13,774
Change in Net OPEB Asset 580
Net OPEB Asset, beginning of year 21,271
Net OPEB Asset, end of year 21,851$
* FY 2013 premiums for 904 retirees.
Shortly after year‐end, the City contributed an additional $3.95 million to the Trust, which included $1.3
million from prior years’ State reimbursements for Medicare.
The Plan’s annual OPEB cost and actual contributions for the past three years ended June 30 are set
forth below (in thousands):
Fiscal Year
Annual OPEB
Cost
Actual
Contribution
Percentage
of OPEB
Cost
Net OPEB
Obligation
(Asset)
June 30, 2011 10,265$ 10,029$ 98% (23,006)$
June 30, 2012 13,058 11,323 87% (21,271)
June 30, 2013 13,194 13,774 104% (21,851)
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
95
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 2013 2012
Net assets, beginning of year 26,265$ 26,285$
Interest earnings 78 81
Unrealized gain (loss) on investments (142) 74
Interdepartmental charges 12,986 12,238
Compensated benefits (11,954) (12,413)
Net assets, end of year 27,233$ 26,265$
NOTE 13 – DEFERRED COMPENSATION PLAN
City employees may defer a portion of their compensation under City sponsored Deferred
Compensation Plans created in accordance with Internal Revenue Code Section 457. Under these Plans,
participants are not taxed on the deferred portion of their compensation until distributed to them.
Distributions may be made only at termination, retirement, death or in an emergency as defined by the
Plans.
The laws governing deferred compensation plan assets require plan assets to be held by a Trust for the
exclusive benefit of plan participants and their beneficiaries. Since the assets held under these plans are
not the City’s property and are not subject to City control, they have been excluded from these financial
statements.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
96
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 $500,000 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, 2013, the City paid $0.9 million to ACCEL for current year coverage.
Audited financial statements are available from ACCEL at 100 Pine Street, 11th Floor, San Francisco,
California 94110.
Claims Liability
The City provides for the uninsured portion of claims and judgments in the General Benefits and
Insurance Internal Service Funds. Claims and judgments, including a provision for claims incurred but not
reported, and claim adjustment expenses are recorded when a loss is deemed probable of assertion and
the amount of the loss is reasonably determinable. As discussed above, the City has coverage for such
claims, but it has retained the risk for the deductible or uninsured portion of these claims.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
97
NOTE 14 – RISK MANAGEMENT (Continued)
The City’s liability for uninsured claims is limited to dental, general liability, and workers’ compensation
claims, as discussed above. Dental liability is based on a percentage of current year actual expense.
General and workers’ compensation liabilities are based on the results of actuarial studies, and include
amounts for claims incurred but not reported as follows as of June 30 (in thousands):
2013 2012
Beginning balance 27,466$ 23,903$
Liability for current and prior fiscal years claims
and claims incurred but not reported (IBNR) 3,531 7,603
Claims paid (3,252) (4,040)
Ending balance 27,745$ 27,466$
Current portion 6,663$ 7,043$
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, 2013
98
NOTE 15 – JOINT VENTURES (Continued)
During the year ended June 30, 2013, the City incurred expenses totaling $64.6 million for purchased
power and assessments earned by NCPA.
The City’s interest in NCPA projects and reserves, as computed by NCPA, was $7.9 million at
June 30, 2013. 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, 2013 is $94.2 million. The City’s participation in this project was 6.2 percent, or $5.8million.
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, 2013
99
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, 2013, the
book value of this Project’s plant, equipment and other assets was $412.8 million, while its long‐term
debt totaled $345.1 million and other liabilities totaled $60.3 million. The City’s share of the Project’s
long‐term debt amounted to $79.0 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, 2013, 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, 2013
100
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 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, 2013. 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, 2013 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. The rent may vary from year to year
depending on the actual number of days used. 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, 2013, amounted to $7.1 million.
Future minimum annual lease and covenant payments are as follows (in thousands):
Year ending June 30 Payments
2014 7,320$
2015 3,752
11,072$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
101
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 2013 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, 2013. 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, 2013, is $1.8 million. During the year ended June 30, 2013, the City paid
$0.4 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
$1.6 million as of June 30, 2013. During the year ended June 30, 2013, 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, 2013
102
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 2013 in conformance with the Council‐approved Long‐term Electric Acquisition Plan
(LEAP) established in 2001 and last modified in April 2012 and the 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
2013 compared to the average market price during the year. The City’s average natural gas commodity
cost for the gas pool customers was $4.04/MMBtu compared to a spot market price of $3.50/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 2013 was approximately 3.7¢/kWh
while the average spot market prices were approximately 3.6¢/kWh.
Hydroelectric supplies were below average in FY 2013, which resulted in more energy purchased from
the market. Hydroelectric production accounted for 44 percent of the City’s electric supply in FY 2013
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 19 percent of the
electric supply in FY 2013, 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 $1.1 million during the year. The expense
associated with the surplus energy sold from the overall electric supply portfolio was calculated at
$1.7 million for the year, and is shown separately on the Statement of Revenues, Expenses and Changes
in Fund Net Position.
During FY 2009, the City executed a 15‐year assignment of its full share of ownership and obligations in
the California Oregon Transmission Project (COTP). The assignment resulted in lower cost to serve the
City’s electric rate payers starting in FY 2010 and is projected to continue saving the City throughout the
term of the assignment.
The City has executed Electric and Gas Master Agreements with suppliers to procure wholesale
electricity and natural gas supplies. The table below outlines the electric and natural gas commodity
supply commitments made by the City with these suppliers as of June 30, 2013. Monthly payments are
made to suppliers upon delivery of supplies for the month. The City’s procurement plans conform to the
Council‐approved Energy Risk Management Policy. These include a formal oversight role (Middle Office)
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
103
NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)
within the Administrative Services Department. A quarterly energy risk management report is provided
to the Council as part of this oversight role.
Forward Electricity Commodity Supply Commitments as of June 30, 2013
Supplier FY 2014 FY 2015 Total
BP 351,000$ ‐$ 351,000$
Powerex 4,415,036 ‐ 4,415,036
SENA 2,518,236 5,202,770 7,721,006
7,284,272 5,202,770 12,487,042
Average Cost
($/MWh)40.97 45.96 42.92
Forward Natural Gas Commodity Supply Commitments as of June 30, 2013
Supplier FY 2014 FY 2015 Total
BP ‐$ ‐$ ‐$
Powerex 611,310 ‐ 611,310
SENA ‐ ‐ ‐
611,310 ‐ 611,310
Average Cost
($/MMBtu)4.97 ‐ 4.97
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 gas 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 5¢/kWh – but in the longer term it is expected to return to a higher level of 5 to 7¢/kWh. In the
short term, the price commanded by renewable energy projects remains somewhat 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, 2013
104
NOTE 16 – COMMITMENTS AND CONTINGENCIES (continued)
The Council‐approved Renewable Portfolio Standard (RPS), last updated in April 2012, is to meet at least
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 2012, renewable supplies
accounted for approximately 21.3 percent of retail sales. Going forward, the City continues to be on
track to meet the City’s RPS target 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 21.5 percent in calendar year 2013, 30.2 percent in
calendar year 2016, and 47.9 percent in calendar year 2020. In order to help procure the remaining
renewable energy to achieve RPS level of 33 percent of retail sales by 2015, 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 75,300 Yes 2006 California 2005 15
High Winds Wind 20 51,800 Yes 2004 California 2004 23.5
Santa Cruz Landfill LFG 1.6 9,900 Yes 2006 California 2004 20
Ox Mountain Landfill LFG 5.7 43,900 Yes 2009 California 2005 20
Keller Canyon Landfill LFG 2 14,900 Yes 2009 California 2005 20
Johnson Canyon Landfill LFG 1.4 10,400 Yes 2013 California 2009 20
San Joaquin Landfill LFG 4.1 30,300 No 2013 California 2010 20
Brannon Solar Solar 20 50,700 No 2014 California 2012 25
Elevation Solar C Solar 40 80,000 No 2016 California 2013 30
Western Antelope Blue Sky Ranch B Solar 20 50,000 No 2016 California 2013 30
Frontier Solar Solar 20 52,500 No 2016 California 2013 30
Carbon Neutral Electric Supply Portfolio
In March 2013, Council adopted a plan for all electric supply purchases to be carbon neutral starting in
calendar year 2013 at a cost not to exceed 0.15 cents per kilowatt‐hour. This plan will be accomplished
by relying on the City’s large hydroelectric resources and the energy from the long‐term renewable
contracts. In addition, Renewable Energy Certificates (RECs) will be purchased to neutralize the carbon
emissions from the market purchases made to meet the City’s load.
Energy Efficiency
Energy efficiency is the most cost‐effective electric resource available to the City. It is considered a
primary resource for both the electric and gas utility. Reducing the need for energy and renewable
energy supplies are two of the main methods the City employs to achieve the greenhouse gas reduction
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
105
NOTE 16 – COMMITMENTS AND CONTINGENCIES (continued)
targets established in the City’s Climate Protection Plan. The City’s 10‐year Electric and Gas Energy
Efficiency Plan, last updated by the Council at the end of 2012, has a goal of reducing the City’s electric
and gas needs by 4.8 percent and 2.9 percent between 2014 and 2023, respectively, by employing
energy efficiency measures. Electric efficiency savings achieved since 2006 reduced the FY 2012 electric
load by 4.4 percent, with avoided greenhouse gas emissions equivalent to taking 2,200 cars off the road.
Gas efficiency savings achieved since 2006 reduced the FY 2012 gas load by 2.1 percent, with avoided
greenhouse gas emissions equivalent to taking 650 cars off the road.
PaloAltoGreen, the City’s volunteer green power program, currently accounts for an additional 8 percent
of the City’s energy needs from renewable resources. As of January 2013, the program purchases all the
Renewable Energy Credits (RECs) for the program from solar energy projects. Prior to 2013, the
program was supplied with RECs from wind for 97.5 percent and solar for 2.5 percent of the needs.
Since the City has a carbon neutral electric supply starting in 2013, changes to the PaloAltoGreen
program are being developed. Council is scheduled to consider those changes in the Fall of 2014. 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 created an aggregate GHG emission limit on the sources
responsible for 85 percent of California’s GHG emissions. The GHG cap declines 2‐3 percent a year
resulting in a 15 percent reduction in 2020. CARB has distributed allowances (defined as the
authorization to emit up to one metric ton of carbon dioxide equivalent per allowance) equal to the
emissions allowed under the cap. Th ese allowances are tradable permits. The City’s electric utility
operations fell under the cap starting in 2013. As an electric distribution company, the City allocated
GHG emission allowances through 2020, with an estimated value of $4.5 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. The first auction of allowances
took place in November 2012 and the cap‐and‐trade system went into full effect in 2013.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
106
NOTE 16 – COMMITMENTS AND CONTINGENCIES (continued)
Natural Gas
Long‐term market prices for natural gas have remained relatively 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. Staff is currently examining the feasibility and acceptability of using
environmental offsets for a PaloAltoGreen Gas program, which could be introduced as early as July
2014.
Starting in 2015, the City’s natural gas utility will also fall under the mandate to participate in the AB 32
cap‐and‐trade program, but the impact of the program on the gas utility, including any CARB proposal
for allocation of GHG allowances to gas utilities, is not known at this time.
Water
The City’s water use during FY 2013 did not change 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. Water supply costs for FY 2013 increased by 11 percent from FY 2012,
primarily due to an 11 percent increase in the San Francisco Public Utilities Commission (SFPUC)
wholesale water rate in FY 2013. The increase was related to extensive capital improvements on the
Hetch Hetchy Water System.
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 Bay Area Water Supply & Conservation Agency (BAWSCA), which represents all
the agencies that buy water on a wholesale basis from the City and County of San Francisco (San
Francisco) pursuant to a Water Supply Agreement (WSA). The relationship between each of the BAWSCA
agencies and San Francisco is specified in a 25‐year water service contract, which expires on June 30,
2034. The contract contains the same mechanism for cost allocation as in the prior contract and the
contract has other improvements regarding water quality and fair treatment in water supply
emergencies.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
107
NOTE 16 – COMMITMENTS AND CONTINGENCIES (continued)
Pursuant to the WSA, the BAWSCA members agreed to pay SFPUC for capital improvements undertaken
by San Francisco prior to their entering into the current WSA (“the Capital Debt”). The Capital Debt was
to be repaid over a 25 year period at a fixed interest rate of 5.13 percent. Approximately $356.1 million
of the Capital Debt was outstanding. Each BAWSCA member pays for the Capital Debt in the form of a
capital cost recovery charge to San Francisco. With historically low interest rates, BAWSCA, on behalf of
its 26 members, issued a combination of taxable and tax‐exempt bonds to finance its members Capital
Debt in January 2013. Through aggressive marketing and favorable market conditions, the financing
savings was twice what was expected. BAWSCA members realized net present value (NPV) savings of
$62.3 million or 17.5 percent of outstanding debt with a blended interest rate of 3.14 percent (3.03
percent on tax‐exempt bonds and 3.46 percent on taxable bonds). The City’s average annual savings is
$289 thousand, and accumulates to a NPV savings of $4.9 million over 21.5 years.
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 2014.
Contingent Liabilities
Many of the uncertainties faced by the Utilities Department as an aftermath of the 2000‐2001 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.
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2013
108
NOTE 16 – COMMITMENTS AND CONTINGENCIES (continued)
Grant Programs
The City participates in Federal and State grant programs. These programs have been audited by the
City’s independent auditors in accordance with the provisions of the Federal Single Audit Act
amendments of 1996 and applicable State requirements. No costs were questioned as a result of these
audits; however, these programs are still subject to further examination by the grantors and the
amount, if any, of expenditures which may be disallowed by the granting agencies cannot be
determined at this time. The City expects such amounts, if any, to be immaterial.
Special Debt
Revenue Service Permanent
Funds Funds Fund Total
ASSETS:
Cash and investments:
Available for operations 62,408$ 5,968$ 1,413$ 69,789$
Cash and investments with fiscal agents ‐ 238 ‐ 238
Receivables, net:
Accounts 581 ‐ ‐ 581
Interest 307 ‐ 8 315
Notes 20,968 ‐ ‐ 20,968
Total assets 84,264$ 6,206$ 1,421$ 91,891$
Liabilities:
Accounts payable and accruals 1,048$ ‐$ 3$ 1,051$
Accrued salaries and benefits 3 ‐ ‐ 3
Total liabilities 1,051 ‐ 3 1,054
Fund balances:
Nonspendable
Notes and loans receivable 16,771 ‐ ‐ 16,771
Eyerly family ‐ ‐ 1,418 1,418
Restricted
Transportation mitigation 9,262 ‐ ‐ 9,262
Federal revenue 4,480 ‐ ‐ 4,480
Street improvement 581 ‐ ‐ 581
Local law enforcement 254 ‐ ‐ 254
Debt service ‐ 6,206 ‐ 6,206
Public benefits 31,351 ‐ ‐ 31,351
Committed
Developer's impact fee 9,726 ‐ ‐ 9,726
Housing In‐Lieu 9,455 ‐ ‐ 9,455
Special districts 1,118 ‐ ‐ 1,118
Downtown business 101 ‐ ‐ 101
Assigned
Unrealized gain on investment 114 ‐ ‐ 114
Total fund balances 83,213 6,206 1,418 90,837
Total liabilities and fund balances 84,264$ 6,206$ 1,421$ 91,891$
LIABILITIES AND FUND BALANCES:
CITY OF PALO ALTO
Non‐major Governmental Funds
Combining Balance Sheet
June 30, 2013
(Amounts in thousands)
109
Special Debt
Revenue Service Permanent
Funds Funds Fund Total
REVENUES:
Property tax ‐$ 3,188$ ‐$ 3,188$
Special assessments 110 ‐ ‐ 110
Other taxes and fines 1,524 ‐ ‐ 1,524
Charges for services 12,249 ‐ ‐ 12,249
From other agencies:
Community Development Block Grants 665 ‐ ‐ 665
State of California 67 ‐ ‐ 67
Permits and licenses 646 ‐ ‐ 646
Investment earnings (116) (117) (17) (250)
Rental income 6 ‐ ‐ 6
Other:
Housing In‐Lieu ‐ residential 4,023 ‐ ‐ 4,023
University Avenue Parking 1,109 ‐ ‐ 1,109
California Avenue Parking 102 ‐ ‐ 102
Other fees 9,976 ‐ ‐ 9,976
Total revenues 30,361 3,071 (17) 33,415
EXPENDITURES:
Current:
Planning and Community Environment 1,664 ‐ ‐ 1,664
Public safety ‐ Police 70 ‐ ‐ 70
Community Services 161 ‐ ‐ 161
Non‐Departmental (2,798) ‐ 12 (2,786)
Debt service:
Principal retirement ‐ 1,125 ‐ 1,125
Interest and fiscal charges ‐ 2,595 ‐ 2,595
Total expenditures (903) 3,720 12 2,829
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 31,264 (649) (29) 30,586
OTHER FINANCING SOURCES (USES):
Issuance of debt ‐ 373 ‐ 373
Original debt premium ‐ 18 ‐ 18
Transfers in 1,720 235 ‐ 1,955
Transfers out (8,281) ‐ ‐ (8,281)
Total other financing sources (uses)(6,561) 626 ‐ (5,935)
Change in fund balances 24,703 (23) (29) 24,651
FUND BALANCES, BEGINNING OF YEAR 58,510 6,229 1,447 66,186
FUND BALANCES, END OF YEAR 83,213$ 6,206$ 1,418$ 90,837$
CITY OF PALO ALTO
Non‐major Governmental Funds
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2013
(Amounts in thousands)
110
111
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.
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
Improvement Revenue In‐Lieu Districts
ASSETS:
Cash and investments:
Available for operations 450$ 277$ 10,283$ 1,116$
Receivables:
Accounts 130 187 29 ‐
Interest 4 ‐ 52 6
Notes ‐ 4,197 16,771 ‐
Total assets 584$ 4,661$ 27,135$ 1,122$
Liabilities:
Accounts payable and accruals ‐$ 178$ 870$ ‐$
Accrued salaries and benefits ‐ 3 ‐ ‐
Total liabilities ‐ 181 870 ‐
Fund balances:
Nonspendable
Notes and loans receivables ‐ ‐ 16,771 ‐
Restricted
Transportation mitigation ‐ ‐ ‐ ‐
Federal revenue ‐ 4,480 ‐ ‐
Street improvement 581 ‐ ‐ ‐
Local law enforcement ‐ ‐ ‐ ‐
Public benefits ‐ ‐ ‐ ‐
Committed
Developer's impact fee ‐ ‐ ‐ ‐
Housing In‐Lieu ‐ ‐ 9,455 ‐
Special districts ‐ ‐ ‐ 1,118
Downtown business ‐ ‐ ‐ ‐
Assigned
Unrealized gain on investment 3 ‐ 39 4
Total fund balances 584 4,480 26,265 1,122
Total liabilities and fund balances 584$ 4,661$ 27,135$ 1,122$
CITY OF PALO ALTO
LIABILITIES AND FUND BALANCES:
Non‐major Special Revenue Funds
Combining Balance Sheet
June 30, 2013
(Amounts in thousands)
112
Downtown
Business
Transportation Local Law Assets Developer's Development Public
Mitigation Enforcement Seizure Impact Fee District Benefits Total
9,174$ 252$ 2$ 9,559$ 97$ 31,198$ 62,408$
77 ‐ ‐ 155 3 ‐ 581
44 1 ‐ 46 1 153 307
‐ ‐ ‐ ‐ ‐ ‐ 20,968
9,295$ 253$ 2$ 9,760$ 101$ 31,351$ 84,264$
‐$ ‐$ ‐$ ‐$ ‐$ ‐$ 1,048$
‐ ‐ ‐ ‐ ‐ ‐ 3
‐ ‐ ‐ ‐ ‐ ‐ 1,051
‐ ‐ ‐ ‐ ‐ ‐ 16,771
9,262 ‐ ‐ ‐ ‐ ‐ 9,262
‐ ‐ ‐ ‐ ‐ ‐ 4,480
‐ ‐ ‐ ‐ ‐ ‐ 581
‐ 252 2 ‐ ‐ ‐ 254
‐ ‐ ‐ ‐ ‐ 31,351 31,351
‐ ‐ ‐ 9,726 ‐ ‐ 9,726
‐ ‐ ‐ ‐ ‐ ‐ 9,455
‐ ‐ ‐ ‐ ‐ ‐ 1,118
‐ ‐ ‐ ‐ 101 ‐ 101
33 1 ‐ 34 ‐ ‐ 114
9,295 253 2 9,760 101 31,351 83,213
9,295$ 253$ 2$ 9,760$ 101$ 31,351$ 84,264$
113
Street Federal Housing Special Transportation
Improvement Revenue In‐Lieu Districts Mitigation
REVENUES:
Special assessments ‐$ ‐$ ‐$ ‐$ ‐$
Other taxes and fines 1,494 ‐ ‐ 30 ‐
Charges for services ‐ ‐ ‐ ‐ 516
From other agencies:
Community Development Block Grants ‐ 665 ‐ ‐ ‐
State of California ‐ ‐ ‐ ‐ ‐
Permits and licenses ‐ ‐ ‐ 646 ‐
Investment earnings (29) (5) 21 (15) 46
Rental income ‐ ‐ 6 ‐ ‐
Other
Housing In‐Lieu ‐ residential ‐ ‐ 4,023 ‐ ‐
University Avenue Parking ‐ ‐ ‐ 1,109 ‐
California Avenue Parking ‐ ‐ ‐ 102 ‐
Other fees ‐ 223 706 ‐ 2,681
Total revenues 1,465 883 4,756 1,872 3,243
EXPENDITURES:
Current:
Planning and Community Environment ‐ 922 409 53 ‐
Public safety ‐ Police ‐ ‐ ‐ ‐ ‐
Community Services ‐ ‐ ‐ ‐ ‐
Non‐Departmental ‐ ‐ (2,931) 27 ‐
Total expenditures ‐ 922 (2,522) 80 ‐
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 1,465 (39) 7,278 1,792 3,243
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐ 1,720 ‐ ‐
Transfers out (1,942) ‐ ‐ (1,646) (250)
Total other financing sources (uses)(1,942) ‐ 1,720 (1,646) (250)
Change in fund balances (477) (39) 8,998 146 2,993
FUND BALANCES, BEGINNING OF YEAR 1,061 4,519 17,267 976 6,302
FUND BALANCES, END OF YEAR 584$ 4,480$ 26,265$ 1,122$ 9,295$
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, 2013
(Amounts in thousands)
114
Downtown
Business
Local Law Assets Developer's Development Public
Enforcement Seizure Impact Fee District Benefits Total
‐$ ‐$ ‐$ 110$ ‐$ 110$
‐ ‐ ‐ ‐ ‐ 1,524
‐ ‐ ‐ ‐ 11,733 12,249
‐ ‐ ‐ ‐ ‐ 665
67 ‐ ‐ ‐ ‐ 67
‐ ‐ ‐ ‐ ‐ 646
(1) ‐ (47) ‐ (86) (116)
‐ ‐ ‐ ‐ ‐ 6
‐ ‐ ‐ ‐ ‐ 4,023
‐ ‐ ‐ ‐ ‐ 1,109
‐ ‐ ‐ ‐ ‐ 102
‐ ‐ 6,366 ‐ ‐ 9,976
66 ‐ 6,319 110 11,647 30,361
‐ ‐ ‐ ‐ 280 1,664
70 ‐ ‐ ‐ ‐ 70
‐ ‐ ‐ ‐ 161 161
‐ ‐ ‐ 106 ‐ (2,798)
70 ‐ ‐ 106 441 (903)
(4) ‐ 6,319 4 11,206 31,264
‐ ‐ ‐ ‐ ‐ 1,720
‐ ‐ (2,723) ‐ (1,720) (8,281)
‐ ‐ (2,723) ‐ (1,720) (6,561)
(4) ‐ 3,596 4 9,486 24,703
257 2 6,164 97 21,865 58,510
253$ 2$ 9,760$ 101$ 31,351$ 83,213$
115
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 1,494 (270) ‐ ‐ ‐
Charges for services ‐ ‐ ‐ ‐ ‐ ‐
From other agencies:
Community Development Block Grants ‐ ‐ ‐ 512 665 153
State of California ‐ ‐ ‐ ‐ ‐ ‐
Other revenue from other agencies ‐ ‐ ‐ 208 ‐ (208)
Permits and licenses ‐ ‐ ‐ ‐ ‐ ‐
Investment earnings 28 (29) (57) ‐ (5) (5)
Rental income ‐ ‐ ‐ ‐ ‐ ‐
Other:
Housing In‐Lieu ‐ residential ‐ ‐ ‐ ‐ ‐ ‐
University Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
California Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
Other fees ‐ ‐ ‐ 7 223 216
Total revenues 1,792 1,465 (327) 727 883 156
EXPENDITURES:
Current:
Planning and Community Environment ‐ ‐ ‐ 1,228 922 306
Public safety ‐ Police ‐ ‐ ‐ ‐ ‐ ‐
Community Services ‐ ‐ ‐ ‐ ‐ ‐
Non‐Departmental ‐ ‐ ‐ ‐ ‐ ‐
Total expenditures ‐ ‐ ‐ 1,228 922 306
Excess (deficiency) of revenues
over (under) expenditures 1,792 1,465 (327) (501) (39) 462
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐ ‐ 5 ‐ (5)
Transfers out (1,942) (1,942) ‐ (5) ‐ 5
Total other financing sources (uses)(1,942) (1,942) ‐ ‐ ‐ ‐
Change in fund balances (150)$ (477) (327)$ (501)$ (39) 462$
FUND BALANCES, BEGINNING OF YEAR 1,061 4,519
FUND BALANCES, END OF YEAR 584$ 4,480$
(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, 2013
116
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 30 (13) ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ 282 516 234
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ 386 646 260 ‐ ‐ ‐
118 21 (97) 28 (15) (43) 113 46 (67)
9 6 (3) ‐ ‐ ‐ ‐ ‐ ‐
3,500 4,023 523 ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ 985 1,109 124 ‐ ‐ ‐
‐ ‐ ‐ 125 102 (23) ‐ ‐ ‐
222 706 484 ‐ ‐ ‐ 280 2,681 2,401
3,849 4,756 907 1,567 1,872 305 675 3,243 2,568
9,137 409 8,728 113 53 60 23 ‐ 23
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
2,061 (2,931) 4,992 55 27 28 ‐ ‐ ‐
11,198 (2,522) 13,720 168 80 88 23 ‐ 23
(7,349) 7,278 14,627 1,399 1,792 393 652 3,243 2,591
4,320 1,720 (2,600) ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ (1,643) (1,646) (3) (250) (250) ‐
4,320 1,720 (2,600) (1,643) (1,646) (3) (250) (250) ‐
(3,029)$ 8,998 12,027$ (244)$ 146 390$ 402$ 2,993 2,591$
17,267 976 6,302
26,265$ 1,122$ 9,295$
117
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 ‐ 67 67 ‐ ‐ ‐ ‐ ‐ ‐
Other revenue from other agencies ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Permits and licenses ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Return on investments 6 (1) (7) ‐ ‐ ‐ 145 (47) (192)
Rental income ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Other:
Housing In‐Lieu ‐ residential ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
University Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
California Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Other fees ‐ ‐ ‐ ‐ ‐ ‐ 553 6,366 5,813
Total revenues 6 66 60 ‐ ‐ ‐ 698 6,319 5,621
Expenditures:
Current:
Planning and Community Environment ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Public safety ‐ Police 14 70 (56) ‐ ‐ ‐ ‐ ‐ ‐
Community Services ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Non‐Departmental ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total expenditures 14 70 (56) ‐ ‐ ‐ ‐ ‐ ‐
Excess (deficiency) of revenues
over (under) expenditures (8) (4) 4 ‐ ‐ ‐ 698 6,319 5,621
Other financing sources (uses):
Transfers in ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Transfers out ‐ ‐ ‐ ‐ ‐ (2,723) (2,723) ‐
Total other financing sources (uses)‐ ‐ ‐ ‐ ‐ ‐ (2,723) (2,723) ‐
Change in fund balances (8)$ (4) 4$ ‐$ ‐ ‐$ (2,025)$ 3,596 5,621$
Fund balances, beginning of year 257 2 6,164
Fund balances, end of year 253$ 2$ 9,760$
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, 2013
(Amounts in Thousands)
118
Downtown Business Improvement District Public Benefits Total Non‐major Special Revenue Funds
Variance Variance Variance
Actual, plus Positive Actual, plus Positive Actual, plus Positive
Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative)
160$ 110$ (50)$ ‐$ ‐$ ‐$ 160$ 110$ (50)$
‐ ‐ ‐ ‐ ‐ ‐ 1,807 1,524 (283)
‐ ‐ ‐ ‐ 11,733 11,733 282 12,249 11,967
‐ ‐ ‐ ‐ ‐ ‐ 512 665 153
‐ ‐ ‐ ‐ ‐ ‐ ‐ 67 67
‐ ‐ ‐ ‐ ‐ ‐ 208 ‐ (208)
‐ ‐ ‐ ‐ ‐ ‐ 386 646 260
2 ‐ (2) ‐ (86) (86) 440 (116) (556)
‐ ‐ ‐ ‐ ‐ ‐ 9 6 (3)
‐ ‐ ‐ ‐ ‐ ‐ 3,500 4,023 523
‐ ‐ ‐ ‐ ‐ ‐ 985 1,109 124
‐ ‐ ‐ ‐ ‐ ‐ 125 102 (23)
‐ ‐ ‐ ‐ ‐ ‐ 1,062 9,976 8,914
162 110 (52) ‐ 11,647 11,647 9,476 30,361 20,885
‐ ‐ ‐ ‐ 280 (280) 10,501 1,664 8,837
‐ ‐ ‐ ‐ ‐ ‐ 14 70 (56)
‐ ‐ ‐ 602 161 441 602 161 441
227 106 121 ‐ ‐ ‐ 2,343 (2,798) 5,141
227 106 121 602 441 161 13,460 (903) 14,363
(65) 4 69 (602) 11,206 11,808 (3,984) 31,264 35,248
‐ ‐ ‐ ‐ ‐ ‐ 4,325 1,720 (2,605)
‐ ‐ ‐ (4,320) (1,720) 2,600 (10,883) (8,281) 2,602
‐ ‐ ‐ (4,320) (1,720) 2,600 (6,558) (6,561) (3)
(65)$ 4 69$ (4,922)$ 9,486 14,408$ (10,542)$ 24,703 35,245$
97 21,865 58,510
101$ 31,351$ 83,213$
119
120
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121
NON‐MAJOR GOVERNMENTAL FUNDS
DEBT SERVICE FUNDS
Downtown Parking Improvement
This fund accounts for revenues received from the General Fund to provide payment of principal and
interest associated with the 2002B Downtown Parking Improvement 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 and 2013 General Obligation Bonds as they become due.
CITY OF PALO ALTO
Non‐major Debt Service Funds
Combining Balance Sheet
June 30, 2013
(Amounts in thousands)
Downtown
Parking Library
Improvement Projects Total
ASSETS:
Cash and investments:
Available for operations 13$ 5,955$ 5,968$
Cash and investments with fiscal agents 238 ‐ 238
Total assets 251$ 5,955$ 6,206$
FUND BALANCES:
Restricted:
Debt service 251$ 5,955$ 6,206$
122
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, 2013
(Amounts in thousands)
Downtown
Parking Library
Improvement Project Total
REVENUES:
Property tax ‐$ 3,188$ 3,188$
Investment earnings ‐ (117) (117)
Total revenues ‐ 3,071 3,071
EXPENDITURES:
Debt service:
Principal retirement 125 1,000 1,125
Interest and fiscal charges 110 2,485 2,595
Total expenditures 235 3,485 3,720
(DEFICIENCY) OF REVENUES
(UNDER) EXPENDITURES (235) (414) (649)
OTHER FINANCING SOURCES (USES):
Issuance of debt ‐ 373 373
Original debt premium ‐ 18 18
Transfers in 235 ‐ 235
Total other financing sources (uses)235 391 626
Change in fund balances ‐ (23) (23)
FUND BALANCES, BEGINNING OF YEAR 251 5,978 6,229
FUND BALANCES, END OF YEAR 251$ 5,955$ 6,206$
123
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)
REVENUES:
Special assessments ‐$ ‐$ ‐$ 3,500$ 3,188$ (312)$ 3,500$ 3,188$ (312)$
Investment earnings ‐ ‐ ‐ ‐ (117) (117) ‐ (117) (117)
Total revenues ‐ ‐ ‐ 3,500 3,071 (429) 3,500 3,071 (429)
EXPENDITURES:
Debt service:
Principal retirement 125 125 ‐ 1,000 1,000 ‐ 1,125 1,125 ‐
Interest and fiscal charges 110 110 ‐ 2,485 2,485 ‐ 2,595 2,595 ‐
Total expenditures 235 235 ‐ 3,485 3,485 ‐ 3,720 3,720 ‐
Excess (deficiency) of revenues
over (under) expenditures (235) (235) ‐ 15 (414) (429) (220) (649) (429)
OTHER FINANCING SOURCES (USES):
Issuance of debt ‐ ‐ ‐ 15 373 358 15 373 358
Original debt premium ‐ ‐ ‐ ‐ 18 18 ‐ 18 18
Transfers in 235 235 ‐ ‐ ‐ ‐ 235 235 ‐
Total other financing sources (uses)235 235 ‐ 15 391 376 250 626 376
Change in fund balances ‐$ ‐ ‐$ 30$ (23) (53)$ 30$ (23) (53)$
FUND BALANCES, BEGINNING OF YEAR 251 5,978 6,229
FUND BALANCES, END OF YEAR 251$ 5,955$ 6,206$
(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, 2013
124
125
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 38$ (17)$ (55)$
EXPENDITURES:
Current:
Non‐Departmental ‐ 12 (12)
Excess (deficiency) of revenues
over (under) expenditures 38 (29) (67)
Change in fund balance 38$ (29) (67)$
FUND BALANCE, BEGINNING OF YEAR 1,447
FUND BALANCE, END OF YEAR 1,418$
(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, 2013
126
127
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 10,407$ 20,736$ 27$ 12,884$ 20,438$ 7,637$ 5,693$ 77,822$
Cash and investments with fiscal agents ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Accounts receivable, net 185 ‐ ‐ 26 ‐ 500 230 941
Interest receivable 56 109 ‐ 59 103 33 27 387
Inventory of materials and supplies 669 (77) ‐ ‐ ‐ ‐ ‐ 592
Total current assets 11,317 20,768 27 12,969 20,541 8,170 5,950 79,742
Noncurrent Assets:
Capital assets:
Nondepreciable 179 1,234 ‐ ‐ ‐ ‐ ‐ 1,413
Depreciable, net 11,836 295 6 ‐ ‐ ‐ ‐ 12,137
Net OPEB asset ‐ ‐ ‐ ‐ ‐ ‐ 21,851 21,851
Total noncurrent assets 12,015 1,529 6 ‐ ‐ ‐ 21,851 35,401
Total assets 23,332 22,297 33 12,969 20,541 8,170 27,801 115,143
LIABILITIES:
Current Liabilities:
Accounts payable and accruals 29 723 23 905 37 ‐ 568 2,285
Accrued salaries and benefits 34 117 4 ‐ ‐ ‐ ‐ 155
Accrued compensated absences 3 18 ‐ 4,124 ‐ ‐ ‐ 4,145
Accrued claims payable ‐ current ‐ ‐ ‐ 143 3,841 2,679 ‐ 6,663
Total current liabilities 66 858 27 5,172 3,878 2,679 568 13,248
Noncurrent liabilities:
Accrued compensated absences ‐ ‐ ‐ 6,286 ‐ ‐ ‐ 6,286
Accrued claims payable ‐ ‐ ‐ ‐ 16,462 4,620 ‐ 21,082
Total noncurrent liabilities ‐ ‐ ‐ 6,286 16,462 4,620 ‐ 27,368
Total liabilities 66 858 27 11,458 20,340 7,299 568 40,616
NET POSITION:
Net Investment in capital assets 12,015 1,529 6 ‐ ‐ ‐ ‐ 13,550
Unrestricted 11,251 19,910 ‐ 1,511 201 871 27,233 60,977
Total net position 23,266$ 21,439$ 6$ 1,511$ 201$ 871$ 27,233$ 74,527$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Fund Net Position
June 30, 2013
(Amounts in thousands)
128
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 7,059$ 13,558$ 1,069$ 40,433$ 2,838$ 2,422$ 12,986$ 80,365$
Other ‐ ‐ ‐ ‐ ‐ 500 ‐ 500
Total operating revenues 7,059 13,558 1,069 40,433 2,838 2,922 12,986 80,865
OPERATING EXPENSES:
Administrative and general 880 6,064 1,016 282 698 1,195 496 10,631
Operations and maintenance 3,502 5,930 52 65 ‐ ‐ ‐ 9,549
Depreciation and amortization 2,103 2,867 3 ‐ ‐ ‐ ‐ 4,973
Claim payments and change in estimated
self‐insured liability ‐ ‐ ‐ 1,414 2,028 1,206 ‐ 4,648
Refund of charges for services 64 11 ‐ ‐ ‐ ‐ ‐ 75
Compensated absences and other benefits ‐ ‐ ‐ 38,535 ‐ ‐ 11,458 49,993
Total operating expenses 6,549 14,872 1,071 40,296 2,726 2,401 11,954 79,869
Operating income (loss)510 (1,314) (2) 137 112 521 1,032 996
NONOPERATING REVENUES (EXPENSES):
Investment earnings (43) (108) 4 (138) (111) (20) (64) (480)
Gain on disposal of capital assets 94 ‐ ‐ ‐ ‐ ‐ ‐ 94
Other nonoperating revenues 56 10 ‐ ‐ ‐ ‐ ‐ 66
Total nonoperating revenues (expenses)107 (98) 4 (138) (111) (20) (64) (320)
Income (loss) before transfers 617 (1,412) 2 (1) 1 501 968 676
Transfers in 398 3,498 ‐ ‐ ‐ ‐ ‐ 3,896
Transfers out ‐ (1,157) ‐ ‐ ‐ ‐ ‐ (1,157)
Change in net position 1,015 929 2 (1) 1 501 968 3,415
NET POSITION, BEGINNING OF YEAR 22,251 20,510 4 1,512 200 370 26,265 71,112
NET POSITION, END OF YEAR 23,266$ 21,439$ 6$ 1,511$ 201$ 871$ 27,233$ 74,527$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Revenues, Expenses and Changes in Fund Net Position
For the Year Ended June 30, 2013
(Amounts in thousands)
129
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 7,104$ 13,558$ 1,069$ 40,431$ 2,838$ 2,422$ 12,756$ 80,178$
Cash refunds to customers (64) (11) ‐ ‐ ‐ ‐ ‐ (75)
Cash payments to suppliers for goods and services (3,500) (5,389) (33) (1,265) ‐ ‐ ‐ (10,187)
Cash payments to employees (887) (6,065) (1,013) (37,365) (691) (1,201) (11,968) (59,190)
Cash payments for judgments and claims ‐ ‐ ‐ (1,620) (1,469) (1,280) ‐ (4,369)
Other cash receipts 56 10 ‐ ‐ ‐ ‐ ‐ 66
Cash flows provided by (used in)
operating activities 2,709 2,103 23 181 678 (59) 788 6,423
Cash flows from noncapital financing activities:
Transfers in 398 3,498 ‐ ‐ ‐ ‐ ‐ 3,896
Transfers out ‐ (1,157) ‐ ‐ ‐ ‐ ‐ (1,157)
Cash flows provided by
noncapital financing activities 398 2,341 ‐ ‐ ‐ ‐ ‐ 2,739
Cash flows from capital and related financing activities:
Acquisition of capital assets (1,431) (1,380) ‐ ‐ ‐ ‐ ‐ (2,811)
Proceeds from sale of capital assets 248 ‐ ‐ ‐ ‐ ‐ ‐ 248
Cash flows (used in)
capital and related financing activities (1,183) (1,380) ‐ ‐ ‐ ‐ ‐ (2,563)
Cash flows from investing activities:
Interest received(paid)(47) (114) 4 (134) (117) (26) (64) (498)
Net change in cash and cash equivalents 1,877 2,950 27 47 561 (85) 724 6,101
Cash and cash equivalents, beginning of year 8,530 17,786 ‐ 12,837 19,877 7,722 4,969 71,721
Cash and cash equivalents, end of year $ 10,407 $ 20,736 $ 27 $ 12,884 $ 20,438 $ 7,637 $ 5,693 $ 77,822
Reconciliation of operating income (loss) to net cash
flows provided by (used in) operating activities:
Operating income (loss)510$ (1,314)$ (2)$ 137$ 112$ 521$ 1,032$ 996$
Adjustments to reconcile operating income (loss)
to net cash provided by (used in) operating activities:
Depreciation 2,103 2,867 3 ‐ ‐ ‐ ‐ 4,973
Other 56 10 ‐ ‐ ‐ ‐ ‐ 66
Change in assets and liabilities:
Accounts receivable 45 ‐ ‐ (2) ‐ (500) (230) (687)
Inventory of materials and supplies (1) 77 ‐ ‐ ‐ ‐ ‐ 76
Net OPEB asset ‐ ‐ ‐ ‐ ‐ ‐ (580) (580)
Accounts payable and accruals 3 464 19 (1,200) 7 ‐ 566 (141)
Accrued salaries and benefits (7) (14) 3 (5) ‐ (6) ‐ (29)
Accrued compensated absences ‐ 13 ‐ 1,457 ‐ ‐ ‐ 1,470
Accrued claims payable ‐ ‐ ‐ (206) 559 (74) ‐ 279
Cash flows provided by (used in)
operating activities 2,709$ 2,103$ 23$ 181$ 678$ (59)$ 788$ 6,423$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Cash Flows
For the Year Ended June 30, 2013
(Amounts in thousands)
130
131
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 2012 Limited
Obligation Refunding Improvement Bonds.
CITY OF PALO ALTO
All Agency Funds
Statement of Changes in Assets and Liabilities
For the Year Ended June 30, 2013
Balance Balance
California Avenue Parking Assessment District June 30, 2012 Additions Deletions June 30, 2013
ASSETS:
Cash and investments available for operations 198$ ‐$ 9$ 189$
LIABILITIES:
Due to bondholders 198$ ‐$ 9$ 189$
Cable Joint Powers Authority
ASSETS:
Cash and investments available for operations 910$ ‐$ 41$ 869$
Interest receivable 6 ‐ 1 5
Total assets 916$ ‐$ 42$ 874$
LIABILITIES:
Due to other governments 916$ ‐$ 42$ 874$
ASSETS:
Cash and investments available for operations 1,708$ 307$ ‐$ 2,015$
Cash and investments with fiscal agents 2,538 4 ‐ 2,542
Accounts receivable ‐ 30 ‐ 30
Interest receivable 12 ‐ 1 11
Total assets 4,258$ 341$ 1$ 4,598$
LIABILITIES:
Due to bondholders 4,258$ 340$ ‐$ 4,598$
Total Agency Funds
ASSETS:
Cash and investments available for operations 2,816$ 307$ 50$ 3,073$
Cash and investments with fiscal agents 2,538 4 ‐ 2,542
Accounts receivable ‐ 30 ‐ 30
Interest receivable 18 ‐ 2 16
Total assets 5,372$ 341$ 52$ 5,661$
LIABILITIES:
Due to bondholders 4,456$ 340$ 9$ 4,787$
Due to other governments 916 ‐ 42 874
Total liabilities 5,372$ 340$ 51$ 5,661$
(Amounts in thousands)
University Avenue Area
Off‐Street Parking Assessment District
132
133
STATISTICAL SECTION
The statistical section contains comprehensive statistical data, which relates to physical, economic,
social and political characteristics of the City. It is intended to provide users with a broader and more
complete understanding of the City and its financial affairs than is possible from the financial statements
and supporting schedules included in the financial section.
In this section, readers will find comparative information related to the City’s revenue sources,
expenditures, property tax valuations, levies and collections, general obligation bonded debt, utility
revenue debt service, and demographics. Where available, the comparative information is presented for
the last ten fiscal years.
In addition, this section presents information related to the City’s legal debt margin computation,
principal taxpayers, notary and security bond coverages, and other miscellaneous statistics pertaining to
services provided by the City.
In contrast to the financial section, the statistical section information is not usually subject to
independent audit.
Financial Trends
These schedules contain trend information to help the reader understand how the City’s financial
performance and well‐being have changed over time:
Net Position by Component
Changes in Net Position
Fund Balances of Governmental Funds
Changes in Fund Balances of Governmental Funds
Revenue Capacity
These schedules contain information to help the reader assess the City’s most significant local revenue
sources, property tax and electric charges:
Electric Operating Revenue by Source
Supplemental Disclosure for Water Utilities
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
134
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.
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Governmental Activities
Investment in capital assets 297,125$ 305,225$ 311,335$ 326,411$ 343,537$ 356,657$ 369,499$ 364,747$ 370,111$ 378,047$
Restricted 30,417 27,273 29,885 32,576 27,428 36,632 34,323 16,437 52,934 71,717
Unrestricted 123,762 117,301 123,823 127,190 130,460 118,133 102,199 134,722 142,102 165,810
Total Governmental Activities Net Position 451,304$ 449,799$ 465,043$ 486,177$ 501,425$ 511,422$ 506,021$ 515,906$ 565,147$ 615,574$
Business‐type Activities
Investment in capital assets 294,197$ 303,473$ 318,738$ 342,922$ 370,303$ 384,313$ 399,317$ 416,418$ 437,151$ 446,597$
Restricted 1,798 1,750 1,732 1,732 1,732 1,732 4,300 ‐ ‐ 4,060
Unrestricted 226,278 215,128 228,032 230,912 226,539 208,025 232,420 253,740 262,602 269,926
Total Business‐type Activities Net Position 522,273$ 520,351$ 548,502$ 575,566$ 598,574$ 594,070$ 636,037$ 670,158$ 699,753$ 720,583$
Primary Government
Investment in capital assets 591,322$ 608,698$ 630,073$ 669,333$ 713,840$ 740,970$ 768,816$ 781,165$ 807,262$ 824,644$
Restricted 32,215 29,023 31,617 34,308 29,160 38,364 38,623 16,437 52,934 75,777
Unrestricted 350,040 332,429 351,855 358,102 356,999 326,158 334,619 388,462 404,705 435,736
Total Primary Government Net Position 973,577$ 970,150$ 1,013,545$ 1,061,743$ 1,099,999$ 1,105,492$ 1,142,058$ 1,186,064$ 1,264,901$ 1,336,157$
Source: Annual Financial Statements, Statement of Net Position
Year Ended June 30
CITY OF PALO ALTO
Net Position 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
$900,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Primary Government
Investment in capital assets Restricted Unrestricted
135
PROGRAM REVENUES 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Governmental Activities
Charges for services
City Attorney 64$ 22$ 22$ 13$ 16$ 12$ 53$ ‐$ ‐$ ‐$
City Clerk 1 ‐ 2 ‐ ‐ ‐ ‐ ‐ ‐ ‐
City Auditor ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Administrative Services 815 480 627 835 870 726 984 2,889 1,647 15,629
Human Resources ‐ ‐ ‐ 11 ‐ ‐ ‐ ‐ ‐ ‐
Public Works 260 573 805 968 1,310 1,169 1,258 2,419 1,008 1,314
Planning & Community Environment 3,074 4,090 5,509 6,267 5,498 4,704 4,813 7,237 31,491 28,768
Police 4,415 3,801 4,178 4,179 4,274 3,947 4,093 3,237 2,160 4,062
Fire 7,565 8,555 9,078 9,610 9,418 10,723 10,244 12,037 13,498 12,077
Community Services 7,846 7,592 10,803 9,128 10,314 8,522 8,729 7,724 11,365 13,808
Library ‐ 133 129 146 176 177 199 480 1,600 187
Operating grants and contributions 4,213 3,677 3,976 5,642 4,029 3,599 4,829 2,884 3,441 5,038
Capital grants and contributions 1,990 804 3,156 1,756 1,930 3,810 1,280 1,903 1,064 515
Total Governmental Activities
Program Revenues 30,243 29,727 38,285 38,555 37,835 37,389 36,482 40,810 67,274 81,398
Business‐type Activities
Charges for services
Water 21,993 21,041 21,108 23,495 26,510 27,120 26,259 26,624 31,467 37,746
Electric 92,617 88,737 119,418 102,549 103,833 119,320 121,900 122,109 118,886 121,805
Fiber Optics1 ‐ ‐ ‐ ‐ ‐ 3,336 3,105 3,322 3,662 4,382
Gas 24,839 31,206 36,977 42,221 49,021 47,838 44,450 43,584 41,774 34,633
Wastewater Collection 12,647 12,041 13,801 14,848 15,102 14,486 15,136 15,094 14,942 16,077
Wastewater Treatment 14,744 15,982 18,778 16,957 22,889 28,425 16,915 18,830 22,200 21,528
Refuse 21,923 23,387 24,795 25,532 28,805 29,101 28,568 30,469 30,645 30,583
Storm Drainage 2,170 2,484 5,174 5,181 5,450 5,505 5,647 5,796 5,892 6,053
External Services 585 766 854 789 112 ‐ ‐ ‐ ‐ ‐
Operating grants and contributions ‐ ‐ ‐ ‐ ‐ ‐ 361 610 605 572
Capital grants and contributions ‐ ‐ ‐ 756 1,594 639 475 3,004 1,526 2,224
Total Business‐type Activities
Program Revenues 191,518 195,644 240,905 232,328 253,316 275,770 262,816 269,442 271,599 275,603
Total Primary Government
Program Revenues 221,761$ 225,371$ 279,190$ 270,883$ 291,151$ 313,159$ 299,298$ 310,252$ 338,873$ 357,001$
EXPENSES
Governmental Activities
City Council 269$ 130$ 141$ 180$ 323$ 394$ 455$ 15$ 345$ 94$
City Manager 1,663 1,725 1,563 1,760 2,273 2,085 2,399 1,842 1,960 1,237
City Attorney 2,300 2,653 2,598 2,390 2,653 2,575 2,621 953 1,656 1,642
City Clerk 808 770 945 900 1,241 1,098 1,369 803 908 330
City Auditor 668 764 843 838 1,379 2,053 2,601 138 235 464
Administrative Services2 6,271 6,982 6,972 6,419 15,477 17,784 17,893 9,888 10,100 7,614
Human Resources 2,078 2,410 2,546 2,472 2,806 3,448 3,707 1,346 1,071 1,420
Public Works 14,460 16,400 17,596 16,645 18,565 21,270 18,658 19,357 14,568 20,816
Planning & Community Environment 8,898 10,162 9,931 12,929 16,388 12,940 12,114 15,031 12,074 13,549
Police 20,414 22,416 23,411 23,861 27,740 29,288 29,351 30,465 33,533 31,865
Fire 17,308 18,127 18,747 19,530 22,386 23,199 26,448 28,531 29,284 27,587
Community Services 20,864 17,240 17,296 15,729 17,736 19,862 17,171 22,845 21,915 22,705
Library ‐ 4,835 5,323 5,347 6,321 6,244 6,143 6,920 7,323 7,319
Non‐departmental2 7,618 12,474 10,400 12,133 ‐ ‐ ‐ ‐ ‐ ‐
Interest on long term debt 635 693 512 477 438 404 370 2,742 2,575 2,562
Total Governmental
Activities Expenses 104,254 117,781 118,824 121,610 135,726 142,644 141,300 140,876 137,547 139,204
Business‐type Activities
Water 16,047 14,969 15,881 16,794 18,842 20,271 21,037 24,268 29,093 30,707
Electric 73,545 73,051 91,570 99,294 108,032 122,268 107,910 100,130 102,030 106,438
Fiber Optics1 ‐ ‐ ‐ ‐ ‐ 1,284 1,407 1,561 1,489 1,437
Gas 22,994 26,656 29,107 30,690 37,211 34,603 32,498 32,051 28,878 26,749
Wastewater Collection 9,203 8,907 11,005 10,085 12,023 14,875 10,696 12,275 14,825 14,313
Wastewater Treatment 14,868 17,457 16,747 15,901 18,902 36,896 13,466 19,731 20,712 20,635
Refuse 24,282 24,959 26,989 25,372 28,827 37,217 28,119 30,684 31,900 28,542
Storm Drainage 2,975 3,336 2,673 2,517 3,202 2,943 2,491 3,229 3,103 3,703
Airport ‐ ‐ ‐ ‐ ‐ ‐ ‐ 31 153 246
External Services 688 760 868 767 984 ‐ ‐ ‐ ‐ ‐
Total Business‐type
Activities Expenses 164,602 170,095 194,840 201,420 228,023 270,357 217,624 223,960 232,183 232,770
Total Primary
Government Expenses 268,856$ 287,876$ 313,664$ 323,030$ 363,749$ 413,001$ 358,924$ 364,836$ 369,730$ 371,974$
CITY OF PALO ALTO
Changes in Net Position
Last Ten Fiscal Years
(Accrual basis of accounting)
(Amounts in thousands)
Year Ended June 30
136
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
NET (EXPENSE)/REVENUE
Governmental Activities (74,011)$ (88,054)$ (80,539)$ (83,055)$ (97,891)$ (105,255)$ (104,818)$ (100,066)$ (70,273)$ (57,806)$
Business‐type Activities 26,916 25,549 46,065 30,908 25,293 5,413 45,192 45,482 39,416 42,833
Total Primary Government
Net (Expense)/Revenue (47,095)$ (62,505)$ (34,474)$ (52,147)$ (72,598)$ (99,842)$ (59,626)$ (54,584)$ (30,857)$ (14,973)$
GENERAL REVENUES AND OTHER CHANGES IN NET ASSETS
Governmental Activities
Taxes
Property tax 13,707$ 16,657$ 18,731$ 21,466$ 23,084$ 25,432$ 25,981$ 29,156$ 30,104$ 31,929$
Sales tax 18,151 19,308 20,315 22,194 22,623 20,089 17,991 20,746 22,132 25,606
Utility user tax 7,152 7,269 8,759 9,356 10,285 11,030 11,295 10,851 10,834 10,861
Transient occupancy tax 5,489 5,686 6,393 6,709 7,976 7,111 6,858 8,082 9,664 10,794
Other taxes 8,493 5,580 7,033 6,293 6,261 3,364 4,055 8,156 8,173 10,504
Investment earnings 326 4,988 2,567 8,747 12,313 8,525 6,514 3,500 6,238 (1,228)
Rents and miscellaneous 10,165 12,997 10,440 13,670 11,896 15,682 12,729 12,377 14,943 518
Transfers 14,951 14,064 21,545 15,754 18,701 24,020 13,994 17,083 17,426 19,249
Total Governmental Activities 78,434 86,549 95,783 104,189 113,139 115,253 99,417 109,951 119,514 108,233
Business‐type Activities
Investment earnings 387 8,093 3,631 11,910 16,416 14,103 10,769 5,722 7,605 (2,754)
Special item ‐ (21,500) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Transfers (14,951) (14,064) (21,545) (15,754) (18,701) (24,020) (13,994) (17,083) (17,426) (19,249)
Total Business‐type Activities (14,564) (27,471) (17,914) (3,844) (2,285) (9,917) (3,225) (11,361) (9,821) (22,003)
Total Primary Government 63,870$ 59,078$ 77,869$ 100,345$ 110,854$ 105,336$ 96,192$ 98,590$ 109,693$ 86,230$
CHANGE IN NET POSITION
Governmental Activities 4,423$ (1,505)$ 15,244$ 21,134$ 15,248$ 9,998$ (5,401)$ 9,885$ 49,241$ 50,427$
Business‐type Activities 12,352 (1,922) 28,151 27,064 23,008 (4,504) 41,967 34,121 29,595 20,830
Total Primary Government
Change in Net Position 16,775$ (3,427)$ 43,395$ 48,198$ 38,256$ 5,494$ 36,566$ 44,006$ 78,836$ 71,257$
Notes:1Prior to 2009, Fiber Optics was included in Electric.
2Beginning in 2008, includes Non‐departmental expenses.
Source: Annual Financial Statements, Statement of Activities
Year Ended June 30
137
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
General Fund
Nonspendable 3,762$ 3,931$ 4,052$ 5,002$ 7,286$ 6,476$ 6,581$ 6,085$ 6,007$ 5,749$
Assigned 2,973 3,401 3,914 6,855 4,851 6,100 7,295 6,235 6,400 5,415
Unassigned 60,087 24,498 26,251 27,551 30,278 30,648 27,581 31,859 29,616 30,913
Total General Fund 66,822$ 31,830$ 34,217$ 39,408$ 42,415$ 43,224$ 41,457$ 44,179$ 42,023$ 42,077$
Source: Annual Financial Statements, Balance Sheet
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
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$ Th
o
u
s
a
n
d
s
Nonspendable Assigned Unassigned
138
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
All Other Governmental Funds
Nonspendable ‐$ ‐$ ‐$ ‐$ 731$ 1,308$ 1,402$ 1,422$ 11,112$ 18,189$
Restricted 2,761 1,522 1,822 1,540 1,406 1,412 55,400 50,646 61,324 84,688
Committed 4,206 7,521 18,430 22,883 15,207 22,043 16,962 24,775 14,284 20,400
Assigned 36,117 57,336 46,723 41,684 44,116 36,629 38,538 20,114 33,264 45,514
Total All Other
Governmental Funds 43,084$ 66,379$ 66,975$ 66,107$ 61,460$ 61,392$ 112,302$ 96,957$ 119,984$ 168,791$
Source: Annual Financial Statements, Balance Sheet
Year Ended June 30
CITY OF PALO ALTO
Fund Balances of Governmental Funds (All Other Governmental Funds)
Last Ten Fiscal Years
(Modified accrual basis of accounting)
(Amounts in thousands)
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$ Th
o
u
s
a
n
d
s
Nonspendable Restricted Committed Assigned
139
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Revenues
Property tax 13,707$ 16,657$ 18,731$ 21,466$ 23,084$ 25,432$ 25,981$ 29,248$ 30,216$ 32,040$
Sales tax 18,151 19,308 20,315 22,194 22,623 20,089 17,991 20,746 22,132 25,606
Other taxes and fines 25,311 22,037 25,840 26,215 27,385 24,843 25,063 27,890 29,231 32,141
Charges for services 16,018 17,159 18,672 19,929 19,610 19,837 19,775 22,311 46,273 38,976
From other agencies 4,661 2,757 5,931 3,448 4,300 5,984 3,035 1,614 1,116 4,109
Permits and licenses 2,563 3,183 4,305 4,711 4,761 4,033 4,408 5,433 7,136 8,218
Interest and rentals 11,480 14,968 13,776 17,750 20,507 19,183 19,045 16,553 18,583 12,136
Other revenue 1,681 4,269 4,058 7,503 4,713 6,223 4,724 8,624 12,739 17,570
Total Revenues 93,572 100,338 111,628 123,216 126,983 125,624 120,022 132,419 167,426 170,796
Expenditures
Administration1 13,862 14,509 14,299 14,399 16,250 16,002 17,353 8,351 9,412 8,291
Public Works 8,031 9,060 9,036 9,256 10,072 10,064 9,787 11,317 11,304 11,489
Planning and Community Environment 8,793 9,692 9,292 11,874 9,861 10,462 9,480 10,309 11,966 13,474
Police 19,962 21,117 22,279 23,305 27,006 27,053 26,728 30,519 33,310 31,854
Fire 16,891 17,615 18,114 19,146 21,644 21,904 24,294 28,355 29,108 27,683
Community Services2 19,934 16,298 19,740 16,533 17,138 17,451 16,451 20,029 20,860 21,661
Library2 ‐ 4,800 5,170 5,260 6,219 5,985 5,900 6,509 7,072 6,902
Non‐departmental 7,598 9,028 10,389 12,122 14,089 10,765 10,149 7,352 6,819 4,567
Special revenue and capital projects 22,289 21,317 13,243 17,478 21,626 21,485 22,006 35,486 29,154 29,542
Debt service ‐ principal payments 780 785 810 850 885 800 840 870 1,743 1,489
Debt service ‐interest and fiscal fees 639 583 523 489 451 416 382 1,815 2,757 2,659
Payment to bond refunding escrow ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 586 540
Total Expenditures 118,779 124,804 122,895 130,712 145,241 142,387 143,370 160,912 164,091 160,151
Excess (Deficiency) of Revenues
Over (Under) Expenditures (25,207) (24,466) (11,267) (7,496) (18,258) (16,763) (23,348) (28,493) 3,335 10,645
Other Financing Sources (Uses)
Transfers in 28,632 60,429 26,640 27,701 33,437 39,903 34,835 30,323 47,200 50,343
Transfers out (19,133) (46,622) (12,390) (15,882) (16,819) (22,399) (21,415) (14,352) (29,782) (33,833)
Other ‐ ‐ ‐ ‐ ‐ ‐ ‐ (101) ‐ ‐
Proceeds from long term debt ‐ ‐ ‐ ‐ ‐ ‐ 59,071 ‐ 3,222 21,706
Payments to refund bond escrow ‐ (1,038) ‐ ‐ ‐ ‐ ‐ ‐ (3,104) ‐
Total Other Financing Sources (Uses)9,499 12,769 14,250 11,819 16,618 17,504 72,491 15,870 17,536 38,216
Net Change in Fund Balances (15,708)$ (11,697)$ 2,983$ 4,323$ (1,640)$ 741$ 49,143$ (12,623)$ 20,871$ 48,861$
Debt Service as a Percentage of
Non‐Capital Expenditures 1.5% 1.3% 1.2% 1.2% 1.1% 1.0% 1.0% 2.2% 3.5% 3.2%
Notes:
2Prior to 2005, Library was included in Community Services.
Debt Service as a Percentage of Non‐Capital Expenditures was restated due to correction of data.
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)
Year Ended June 30
140
Commercial and
Fiscal Year Residential Industrial City of Palo Alto Total
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
2013 19,951 86,998 3,265 110,214
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 26,642 186,997,194 19,951$
Commercial 2,482 448,922,276 62,671
Industrial 131 227,431,491 24,327
CPA/Other 219 83,490,472 3,265
Total 29,474 946,841,433 110,214$
City of Palo Alto Power Purchase
Western Area Power Administration 37%
Forward Market Purchases 34%
Wind Energy contracts with PPM Energy, Inc.12%
Landfill Gas Energy 7%
Northern California Power Agency 6%
Short‐Term Market 4%
Note:
Source: City of Palo Alto, Utilities and Accounting Departments
*The top ten customers accounted for approximately 39.38% of total kWh consumption (372,870,446 kWh)
and 35.37% of revenue ($40,571,890). The largest customer accounted for 8.2% of total kWh consumption and
7.23% of revenue. The smallest customer accounted for 1.81% of total kWh consumption and 1.55% 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
141
The top ten customers total consumption is 872,150 CCF with revenue of $6,173,072.
This amount accounts for approximately 17.11% of total consumption and 16.25% of
revenue. The largest customer (other than the City of Palo Alto) accounted for 2.43% of
consumption and 2.18% of revenue. The smallest customer accounted for 1% of
consumption and 1% of revenue.
Note:
Source: City of Palo Alto, Utilities Department
Hewlett‐Packard Company
VMware Inc.
This schedule is provided as required by the Continuing Disclosure Agreement for
the City's Utility Revenue Bond and is not required by Governmental Accounting
Standards Board (GASB).
Palo Alto Hills Golf & Country Club
Palo Alto Unified School District
Oak Creek Apartments
Stanford Hospital & Clinics
Stanford West Management
Veterans Admin Hospital
Space Systems/Loral, Inc.
CITY OF PALO ALTO
Supplemental Disclosure for Water Utilities
Fiscal Year 2013
Top Ten Largest Water Utility Customers (alphabetical order)
City of Palo Alto
142
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Net Local Secured Roll
Land 6,588,474$ 7,075,300$ 7,941,482$ 8,725,485$ 9,497,746$ 10,420,139$ 11,007,650$ 11,011,160$ 11,352,993$ 12,255,515$
Improvements 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 12,381,306
Personal property 195,859 220,585 174,666 213,154 228,875 303,688 288,148 241,280 257,436 287,296
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 24,924,117
Less:
Exemptions net of state aid (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) (2,589,653)
Total Net Local Secured Roll 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 22,334,464
Public utilities 3,956 4,150 4,084 3,923 3,174 2,573 2,573 2,573 2,573 2,573
Unsecured property 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 1,355,970
Total Assessed Value 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$ 23,693,007$
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)
Year Ended June 30
$13,000,000
$15,000,000
$17,000,000
$19,000,000
$21,000,000
$23,000,000
$25,000,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$ Th
o
u
s
a
n
d
s
Total Assessed Value
143
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
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
2013 1.00 0.0388 0.0051 0.0129 0.0069 0.0718 0.0287 1.16
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
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Rate per $100 of Assessed Value
144
Fiscal Year Total Tax Percentage Collections in Percentage of
Ended June 30 Levy1 for FY Amount of Levy Subsequent Years 2 Amount Levy
2004 13,707$ 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%
2013 28,742 28,742 100%‐ 28,742 100%
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
145
Taxable Assessed
Value Rank
Percentage of
Total Taxable
Assessed Value
Taxable
Assessed
Value Rank
Percentage of
Total Taxable
Assessed Value
Leland Stanford Jr. University 3,645,323$ 1 15.4%1,948,912$ 1 13.0%
Space Systems/Loral, Inc.250,324 2 1.1%178,725 2 1.2%
Arden Realty Limited Partnership 114,722 3 0.5%
Whisman Ventures, LLC 107,168 4 0.5%
SRP Valley LLC 60,872 5 0.3%
Ronald & Ann Williams Charitable Foundation 59,980 6 0.3%
PPC Forest Towers LLC 54,272 7 0.2%
Blackhawk Parent, LLC 51,200 8 0.2%
529 Bryant St. LLC 43,488 9 0.2%
Park Village Peninsula LLC 38,283 10 0.2%
Harbor Investment Partners 60,370 3 0.4%
Cowper‐Hamilton Associates 41,991 4 0.3%
Embarcadero Place Associates 36,000 5 0.2%
California Pacific Commercial Corp.33,926 6 0.2%
Campus for Jewish Life 32,640 7 0.2%
Thoits Bros Inc.27,515 8 0.2%
Hyatt Equities LLC 25,469 9 0.2%
Seabiscuit LLC 24,919 10 0.2%
Total 4,425,632$ 18.9%2,410,467$ 16.1%
Total City Taxable Assessed Value:
FY 2013 23,693,007$
FY 2004 14,974,966$
Source: California Municipal Statistics, Inc.
Fiscal Year 2013 Fiscal Year 2004
Taxpayer
CITY OF PALO ALTO
Principal Property Taxpayers
Current Year and Nine Years Ago
(Amounts in thousands)
146
2012‐2013 No. of
Assessed % of No. of % of Taxable % of
Valuation1 Total Parcels Total Parcels Total
Non‐Residential:
Agricultural/forest 34,814,558$ 0.16 % 48 0.24 % 32 0.16 %
Commercial 1,144,034,827 5.12 466 2.29 461 2.29
Professional/office 2,647,123,031 11.85 507 2.49 485 2.41
Industrial/research & development 1,954,049,136 8.75 5 0.02 189 0.94
Recreational 46,762,470 0.21 16 0.08 13 0.06
Government/social/institutional 62,606,092 0.28 105 0.52 40 0.20
Miscellaneous 9,846,862 0.04 18 0.09 17 0.08
Subtotal Non‐Residential 5,899,236,976$ 26.41 % 1,165 5.73 % 1,237 6.14 %
Residential:
Single family residence 12,974,042,711$ 58.09 % 14,918 73.38 % 14,870 73.84 %
Condominium/townhouse 1,716,046,590 7.68 2,995 14.73 2,989 14.84
2‐4 Residential units 345,642,993 1.55 513 2.52 513 2.55
5+ Residential units 1,264,534,176 5.66 333 1.64 308 1.53
Subtotal Residential 16,300,266,470$ 72.98 % 18,759 92.28 % 18,680 92.76 %
Vacant Parcels 134,960,699$ 0.60 % 405 1.99 % 221 1.10 %
Total 22,334,464,145$ 100 % 20,329 100 % 20,138 100 %
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, 2013
147
No. of
Taxable Average
Parcels1 Assessed Valuation
Single Family Residential 14,870 $872,498
No. of % of Cumulative % of Cumulative
Taxable Total % of Total Total Total % of Total
Parcels1 Parcels Parcels Valuation Valuation Valuation
1,719 11.56 11.56 133,245,071$ 1.03 1.03
1,952 13.13 24.69 267,951,878 2.07 3.09
951 6.40 31.08 237,455,035 1.83 4.92
788 5.30 36.38 274,869,785 2.12 7.04
805 5.41 41.80 363,316,163 2.80 9.84
815 5.48 47.28 447,604,628 3.45 13.29
710 4.77 52.05 461,026,908 3.55 16.84
650 4.37 56.42 486,717,325 3.75 20.60
739 4.97 61.39 629,372,213 4.85 25.45
706 4.75 66.14 670,819,782 5.17 30.62
648 4.36 70.50 679,741,352 5.24 35.86
544 3.66 74.16 624,153,570 4.81 40.67
569 3.83 77.98 709,285,340 5.47 46.13
498 3.35 81.33 670,599,984 5.17 51.30
424 2.85 84.18 614,353,307 4.74 56.04
293 1.97 86.15 453,227,422 3.49 59.53
250 1.68 87.83 412,235,173 3.18 62.71
217 1.46 89.29 379,788,024 2.93 65.64
165 1.11 90.40 304,876,011 2.35 67.99
180 1.21 91.61 350,451,706 2.70 70.69
1,247 8.39 100.00 3,802,952,034 29.31 100.00
14,870 100.00 12,974,042,711$ 100.00
Notes:
Source: California Municipal Statistics, Inc.
Assessed Valuation Assessed Valuation
CITY OF PALO ALTO
Per Parcel Assessed Valuation of Single Family Residential
As of June 30, 2013
2012‐2013 Median
$600,000‐699,999
$12,974,042,711 $654,003
2012‐2013
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
$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
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
$2,000,000 and greater
Total
148
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
12,215$ 10,625$ 9,915$ 9,175$ 8,405$ 7,605$ 6,765$ 5,895$ 1,685$ 1,560$
‐ ‐ ‐ ‐ ‐ ‐ 55,305 55,305 54,540 74,235
420 325 225 115 ‐ ‐ ‐ ‐ ‐ ‐
25 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
2011 Lease‐Purchase Agreement ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2,764 2,400
Add: unamortized premium ‐ ‐ ‐ ‐ 3,766 3,640 3,514 4,400
‐ ‐ ‐ ‐ ‐ ‐ (571) ‐ ‐ ‐
12,660 10,950 10,140 9,290 8,405 7,605 65,265 64,840 62,503 82,595
46,100 44,735 43,325 41,859 40,334 38,744 72,104 69,551 65,879 63,104
Energy Tax Credits 1,400 1,300 1,200 1,100 1,000 900
State Water Resources Loan 5,629 9,000 13,080 16,696 15,900 15,109
(1,238) (1,137) (1,037) (972) (1,053) (2,479) (2,737) (229) 580 543
44,862 43,598 42,288 40,887 46,310 46,565 83,647 87,118 83,359 79,656
Outstanding Debt 57,522$ 54,548$ 52,428$ 50,177$ 54,715$ 54,170$ 148,912$151,958$ 145,862$162,251$
2.11% 1.89% 1.69% 1.51% 1.53% 1.50% 4.30% 3.90% 3.37% 3.50%
Population 60,246 61,674 62,148 62,615 63,367 64,484 65,408 64,417 65,544 66,368
0.95$ 0.88$ 0.84$ 0.80$ 0.86$ 0.84$ 2.28$ 2.36$ 2.23$ 2.44$
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
Governmental Activities
CITY OF PALO ALTO
Ratio of Outstanding Debt by Type
Last Ten Fiscal Years
(Amounts in thousands)
Fiscal Year Ended June 30
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/premium
and loss on refunding
Total Business‐type Activities
Total Primary Government
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)
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$ Th
o
u
s
a
n
d
s
Total Governmental Activities Total Business‐type Activities
149
2012‐2013 Assessed Valuation 23,693,006,568$
Percentage Amount
Applicable Applicable
Total Debt to City of to City of
Outstanding Palo Alto1 Palo Alto
Santa Clara County 805,800,000$ 7.68%61,861,266$
Foothill‐DeAnza Community College District 621,564,288 22.68% 140,989,427
Palo Alto Unified School District 289,574,249 89.19% 258,285,751
Fremont Union High School District 299,550,108 0.02%68,897
Los Gatos Joint Union High School District 46,905,000 0.01%4,691
Mountain View‐Los Altos Union High School District 68,522,058 0.90%613,958
Cupertino Union School District 164,416,973 0.04%62,478
Los Altos School District 78,515,560 1.03%807,140
Mountain View‐Whisman School District 50,000,000 0.77%384,500
Saratoga Union School District 42,987,102 0.02%9,457
Whisman School District 16,788,710 1.91%320,832
City of Palo Alto 74,235,000 100% 74,235,000
El Camino Hospital District 141,310,000 0.09% 130,005
City of Palo Alto Special Assessment Bonds 31,170,000 100% 31,170,000
Santa Clara Valley Water District Benefit Assessment District 123,100,000 7.68% 9,450,387
Total Direct and Overlapping Tax and Assessment Debt 578,393,789
819,956,840 7.68% 62,948,087
378,994,822 7.68% 29,095,432
10,400,000 7.68% 798,408
17,225,000 22.68% 3,907,147
8,420,000 0.01% 842
4,605,000 0.90% 41,261
5,540,000 0.02% 1,219
City of Palo Alto Certificates of Participation 1,560,000 100% 1,560,000
City of Palo Alto 2011 Lease Purchase Agreement 2,400,000 100% 2,400,000
3,455,000 7.68% 265,240
Midpeninsula Regional Open Space Park District General Fund Obligations 135,649,717 13.24% 17,955,953
118,973,589
$ 697,367,378
Ratio to
Assessed Valuation
Total Direct Debt 0.33%78,195,000$
Total Overlapping Debt 2.61%619,172,378
Total Direct and Overlapping Debt 2.94%697,367,378$ 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.
Overlapping debt is the financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction. The amount of debt of
each unit applicable to the reporting unit is arrived at by 1) determining what percentage of the total assessed value of the overlapping
jurisdiction lies within the limits of the reporting unit, and 2) applying this percentage to the total debt of the overlapping jurisdiction.
Santa Clara County General Fund Obligations
CITY OF PALO ALTO
Computation of Direct and Overlapping Debt
As of June 30, 2013
Direct and Overlapping Tax and Assessment Debt
Direct and Overlapping General Fund Debt
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
150
Assessed Valuation:
Secured property assessed value,
net of exempt real property 23,693,007$
Bonded Debt Limit (3.75% of Assessed Value) 1 888,488
Direct Debt:
Certificates of Participation 1,560
Lease Purchase Agreement 2,400
General Obligation bonds 74,235
Total Direct Debt 78,195
Less: Amount of Debt Not Subject to Limit 2 3,960
Total Net Debt Applicable to Limit 74,235
Legal Bonded Debt Margin 814,253$
Total Bonded Total Net Debt Legal Total Net Debt Ratio of Net General
Fiscal Assessed Debt Limit Applicable to Bonded Debt Applicable to the Debt to Bonded Debt
Year Value (AV)(3.75% of AV)Limit Margin Population Debt as a %Assessed Value Per Capita
2004 14,170,218$ 531,383$ ‐$ 531,383$ 60,246 0.00%‐ 0.00
2005 14,974,966 561,561 ‐ 561,561 61,674 0.00%‐ 0.00
2006 16,250,144 609,380 ‐ 609,380 62,148 0.00%‐ 0.00
2007 17,609,613 660,360 ‐ 660,360 62,615 0.00%‐ 0.00
2008 18,922,488 709,593 ‐ 709,593 63,367 0.00%‐ 0.00
2009 21,085,609 790,710 ‐ 790,710 64,484 0.00%‐ 0.00
2010 21,880,359 820,513 55,305 765,208 65,408 6.74%0.0025 0.85
2011 21,956,274 823,360 55,305 768,055 64,417 6.72%0.0025 0.86
2012 22,486,708 843,252 54,540 788,712 65,544 6.47%0.0024 0.83
2013 23,693,007 888,488 74,235 814,253 66,368 8.36%0.0031 1.12
Notes:
Source:
CITY OF PALO ALTO
Computation of Legal Bonded Debt Margin
As of June 30, 2013
(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.
Annual Financial Statements, Assessed Value of Taxable Property and Note 7 General Long‐Term Obligations
Total Assessed Value for FY 2004 and 2005 was restated due to correction of data.
151
Less: Net Revenue
Fiscal Gross Direct Operating Available for
Year Revenue Expenses2 Debt Service Principal Interest3 Total Coverage Ratio
2004 169,045$ 121,988$ 47,057$ 1,310$ 2,307$ 3,617$ 13.01
2005 171,493 147,123 24,370 1,365 2,257 3,622 6.73
2006 213,337 143,703 69,634 1,410 2,203 3,613 19.27
2007 203,146 151,196 51,950 1,465 2,147 3,612 14.38
2008 219,801 173,620 46,181 1,525 2,088 3,613 12.78
2009 242,693 180,880 61,813 1,590 2,024 3,614 17.10
2010 230,308 171,320 58,988 1,755 1,954 3,709 15.90
2011 234,278 151,641 82,637 2,655 3,261 5,916 13.97
2012 235,160 169,777 65,383 2,945 2,959 5,904 11.07
2013 237,842 173,510 64,332 2,875 3,167 6,042 10.65
Notes:1Airport, Refuse and Fiber Optics funds have no debt and are therefore excluded from this schedule.
2Excludes depreciation and amortization expense.
3Excludes federal interest subsidy.
Source: City of Palo Alto, Accounting Department
Gross Revenue and Direct Operating Expenses were restated due to correction of data thereby changing the Net
Revenue Available for Debt Service and the Coverage Ratio.
Debt Service
CITY OF PALO ALTO
Revenue Bond Coverage
Business‐type Activities1
Last Ten Fiscal Years
(Amounts in thousands)
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$ Th
o
u
s
a
n
d
s
Net Revenue Available for Debt Service Total Debt Service
152
Fiscal
Year
2004 2,425$ 2,168$ 1,479$ 1,186$ 351$ 437$ 168$ 3,698$ 5,955$ 17,867$
2005 2,621 2,206 1,176 1,310 356 533 317 3,590 7,105 19,214
2006 2,664 2,306 1,168 1,346 370 595 392 4,244 7,104 20,189
2007 2,751 2,486 1,109 1,485 374 602 203 5,075 7,139 21,224
2008 2,685 2,566 1,685 1,497 349 622 405 4,682 6,797 21,288
2009 2,251 2,443 1,431 1,258 315 493 214 4,284 6,635 19,324
2010 2,215 2,418 1,402 1,254 343 549 219 4,458 5,556 18,414
2011 2,374 2,621 1,564 1,292 381 630 242 4,873 6,322 20,299
2012 2,445 2,937 1,590 1,492 387 722 257 5,049 7,034 21,913
2013 2,478 3,160 1,465 1,656 424 765 259 4,056 13,729 27,992
Source: California State Board of Equalization, compiled by MuniServices LLC
Sales Tax Rates for the Fiscal Year ended June 30, 2013
State Rate:6.00%
Local (County/City) Rates:
Palo Alto (State‐City or County Operations)0.75%
State/Palo Alto (Fiscal Recovery Fund to pay off Economic Recovery Bonds 2004)0.25%
Sate (Local Public Safety Fund to support local criminal justice activities 1993)0.50%
Special District Tax Rates:
Santa Clara County Transit District (SCCT)0.50%
Santa Clara County Valley Transportation Authority (SCVT)0.50%
Santa Clara VTA BART Operating and Maintenance Transactions and Use Tax (SVTB)0.125%
Santa Clara Retail Transactions and Use Tax (SCCR)0.125%
Total Sales and Use Tax Rate:8.750%
Source: California State Board of Equalization
CITY OF PALO ALTO
Taxable Transactions by Type of Business
Last Ten Fiscal Years
(Amounts in thousands)
Total
ECONOMIC SEGMENT
Department
Stores Restaurants
Furniture/
Appliance
Food
Markets
Service
Stations
Drug
Stores Other Retail All Other
Apparel
Stores
Department Stores
9%
Restaurants
11%
Furniture/ Appliance
5%
Apparel Stores
6%
Food Markets
2%
Service Stations
3%
Drug Stores
1%
Other Retail
14%
All Other
49%
Fiscal Year 2013
153
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)
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% 107,800,000 60,513
2012 65,544 4.7%12,286 1,816,486 3.61% 119,900,000 66,007
2013 66,368 3.6%12,396 1,842,254 3.60% 128,800,000 *69,914 *
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). Forecasts from prior years are updated annually.
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
67,000 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
154
Number of
Employees Rank
Percentage of
Total City
Employment
Number of
Employees Rank
Percentage of
Total City
Employment
Stanford University 10,979 1 8.9%9,821 1 7.0%
Stanford University Medical Center/Hospital 5,545 2 4.5%5,025 2 3.6%
Lucile Packard Children's Hospital 4,750 3 3.9%3,326 4 2.4%
Veteran's Affairs Palo Alto Health Care System 3,850 4 3.1%3,500 3 2.5%
VMware Inc.3,509 5 2.5%
Hewlett‐Packard Company 2,500 6 2.0%2,001 5 1.4%
Palo Alto Medical Foundation 2,200 7 1.8%2,000 6 1.4%
SAP 2,200 8 1.6%
Space Systems/Loral 3,020 9 2.5%1,700 7 1.2%
Wilson Sonsini Goodrich & Rosati 1,650 10 1.3%1,500 8 1.1%
Palo Alto Unified School District 1,304 9 0.9%
City of Palo Alto 1,074 10 0.8%
Total 40,203 32.1%31,251 22.3%
Estimated Total City Day Population:
FY 2013 123,000
FY 2008 140,000
Notes:
Source:
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 Five Years Ago
FY 2013 FY 20081
Employer
155
2003 2004 2005 2006
Governmental activities
Community Services
Number of theater performances 173 175 172 183
Total hours of athletic field usage2 ‐ ‐ 65,748 65,791
Number of rounds of golf 87,892 83,728 78,410 76,000
Enrollment in recreation classes (includes summer camps) 16,281 16,435 15,127 14,768
Planning and Community Environment
Planning applications completed 324 409 327 390
Building permits issued 3,151 3,236 3,081 3,081
Green Building permit applications processed3 ‐ ‐ ‐ ‐
Caltrain average weekday boarding 2,906 2,825 3,264 3,882
Police
Calls for service 53,143 52,489 52,233 57,017
Total arrests 2,851 2,577 2,134 2,530
Parking citations issued 52,422 47,860 52,235 56,502
Animal Services
Number of service calls 3,545 3,575 4,994 2,861
Number of sheltered animals 3,849 3,780 3,514 3,839
Fire
Calls for service 6,636 6,675 6,414 6,897
Number of fire incidents 260 248 224 211
Number of fire inspections 1,349 793 1,488 899
Library
Total number of cardholders 49,448 50,171 52,001 55,909
Total number of items in collection 267,356 267,693 264,511 260,468
Total checkouts 1,240,099 1,314,790 1,282,888 1,280,547
Public Works
Street resurfacing (lane miles)17 17 20 20
Number of potholes repaired 2,943 2,907 3,221 2,311
Sq. ft. of sidewalk replaced or permanently repaired 101,410 115,352 132,430 126,574
Number of trees planted 322 242 164 263
Total tons of waste landfilled 65,170 61,266 60,777 59,276
Tons of materials recycled 48,062 49,268 50,311 56,013
Business‐type activities
Electric
Number of customer accounts 28,408 28,482 28,556 28,653
Residential MWH consumed 153,783 158,099 161,440 161,202
Gas
Number of customer accounts 23,169 23,216 23,301 23,353
Residential therms consumed 11,875,753 11,700,335 12,299,158 11,745,883
Water
Number of customer accounts 19,487 19,557 19,605 19,645
Residential water consumption (CCF)2,844,916 3,000,645 2,686,507 2,647,758
Wastewater collection
Number of customer accounts 21,819 21,830 21,763 21,784
Millions of gallons processed 8,704 8,238 8,497 8,972
Notes:
2Some data not available.
Source: City of Palo Alto Service Efforts and Accomplishments Report
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. FY12 data
not available.
CITY OF PALO ALTO
Operating Indicators by Function/Program
Last Ten Fiscal Years1
Year Ended June 30
FUNCTIONS/PROGRAMS
156
2007 2008 2009 2010 2011 2012
171 166 159 174 175 175
70,769 63,212 45,762 41,705 42,687 44,226
76,241 74,630 72,170 69,791 67,381 65,653
14,460 13,851 13,091 12,880 12,310 11,703
299 257 273 226 238 204
3,136 3,046 2,543 2,847 3,559 3,320
‐ ‐ 341 556 961 ‐
4,132 4,589 4,863 4,796 5,501 5,730
60,079 58,742 53,275 55,860 52,159 51,086
3,059 3,253 2,612 2,451 2,288 2,212
57,222 50,706 49,996 42,591 40,426 41,875
2,990 3,059 2,873 2,692 2,804 3,051
3,578 3,532 3,422 3,147 3,323 3,379
7,236 7,723 7,549 7,468 7,555 7,796
221 192 239 182 165 186
1,021 1,277 1,028 1,526 1,807 1,654
53,099 53,740 54,878 51,969 53,246 60,283
270,755 279,403 293,735 298,667 314,154 306,361
1,414,509 1,542,116 1,633,955 1,624,785 1,476,648 1,559,932
32 27 23 32 29 40
1,188 1,977 3,727 3,149 2,986 3,047
94,620 83,827 56,909 54,602 71,174 72,787
164 188 250 201 150 143
59,938 61,866 68,228 48,955 38,524 43,947
56,837 52,196 49,911 48,811 56,586 51,725
28,684 29,024 28,527 29,430 29,708 29,545
162,405 162,680 159,899 163,098 160,318 160,604
23,357 23,502 23,090 23,724 23,816 23,915
11,759,842 11,969,151 11,003,088 11,394,712 11,476,609 11,522,999
19,726 19,942 19,442 20,134 20,248 20,317
2,807,477 2,746,980 2,566,962 2,415,467 2,442,415 2,513,595
21,789 21,970 21,210 22,231 22,320 22,421
8,853 8,510 7,958 8,184 8,652 8,130
Year Ended June 30
157
2004 2005 2006 2007
FUNCTION/PROGRAM
Public Safety
Fire:
Fire Stations 8 8 8 8
Fire Apparatus 23 25 25 25
Police:
Police Stations 1 1 1 1
Police Patrol Vehicles 30 30 30 30
Community Services
Acres ‐ Downtown/Urban Parks 170 170 170 157
Acres ‐ Open Space 3,731 3,731 3,731 3,744
Parks and Preserves 34 35 35 36
Golf Course 1 1 1 1
Tennis Courts 52 52 52 51
Athletic Center 1 1 1 4
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 3
Libraries
Libraries 5 5 5 5
Public Works:
Number of Trees Maintained 35,440 35,096 34,841 34,556
Electric Utility 1
Miles of Overhead Lines 227 225 217 194
Miles of Underground Lines 186 188 210 252
Water Utility
Miles of Water Mains 226 226 217 217
Gas Utility
Miles of Gas Mains 207 207 207 207
Waste Water
Miles of Sanitary Sewer Lines 202 202 202 202
Note: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 starting 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
Year Ended June 30
158
2008 2009 2010 2011 2012 2013
8 8 8 8 7 7
23 28 28 27 29 28
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 3744
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
35,058 34,991 35,025 34,977 34,874 34,907
193 193 193 193 223 222
253 253 253 253 245 246
217 214 214 214 234 233
207 207 205 205 210 210
202 207 207 207 217 217
Year Ended June 30
159
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Governmental Funds
General Fund:
Administrative 101 96 97 99 98 98 89 83 83 85
Community Services 145 98 99 97 96 97 94 74 74 74
Fire 129 126 127 127 127 127 123 121 122 119
Library1 ‐ 44 44 44 44 44 42 41 41 41
Planning and Community Environment 55 53 53 53 53 53 49 44 43 48
Police 171 165 164 163 163 164 161 157 157 154
Public Works2 76 68 68 68 68 69 64 59 56 57
Subtotal General Fund 676 650 652 651 649 652 622 579 576 578
All Other Funds:
Capital Projects Fund 13 20 20 20 20 21 24 24 24 26
Special Revenue Fund 1 1 1 1 1 1 1 2 2 2
Total Governmental Funds 690 671 673 672 670 674 647 605 602 606
Enterprise Funds
Public Works3 111 113 113 113 113 113 115 115 115 104
Utilities4 234 234 236 235 235 238 242 251 251 254
External Services5 6 6 6 6 6 ‐ ‐ ‐ ‐ ‐
Total Enterprise Funds 351 353 355 354 354 351 357 366 366 358
Internal Service Funds
Printing and Mailing 4 4 5 4 4 4 4 2 2 2
Technology 33 30 30 30 30 31 31 30 30 31
Vehicle Replacement 16 16 16 16 16 16 16 16 16 17
Total Internal Service Funds 53 50 51 50 50 51 51 48 48 50
Total 1,094 1,074 1,079 1,076 1,074 1,076 1,055 1,019 1,016 1,014
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
Numbers corrected for rounding purposes.
Source: City of Palo Alto ‐ Fiscal Year 2013 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
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Fu
l
l
Tim
e
Eq
u
i
v
a
l
e
n
t
s
Governmental Funds Enterprise Funds Internal Service Funds
160
CITY OF PALO ALTO
Index to the Single Audit Report
For the Year Ended June 30, 2013
161
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 ....................................... 163
Independent Auditor’s Report on Compliance for
Each Major Program and on Internal Control
over Compliance Required by OMB Circular A‐133 ............................................................................... 165
Schedule of Expenditures of Federal Awards ........................................................................................... 167
Notes to the Schedule of Expenditures of Federal Awards ...................................................................... 168
Schedule of Findings and Questioned Costs ............................................................................................. 169
Schedule of Prior Years Findings and Questioned Costs ........................................................................... 172
162
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163
Independent Auditor’s Report on Internal Control Over Financial Reporting
and on Compliance and Other Matters Based on an Audit of Financial
Statements Performed in Accordance with Government Auditing Standards
Honorable Mayor and the Members
of the City Council of the City of Palo Alto
Palo Alto, California
We have audited, in accordance with the auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States, the financial statements of the governmental
activities, the business-type activities, each major fund, and the aggregate remaining fund information of
the City of Palo Alto, California (City), as of and for the year ended June 30, 2013, and the related notes
to the financial statements, which collectively comprise the City’s basic financial statements, and have
issued our report thereon dated November 8, 2013.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal control
over financial reporting (internal control) to determine the audit procedures that are appropriate in the
circumstances for the purpose of expressing our opinions on the financial statements, but not for the
purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do
not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination
of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement
of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A
significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less
severe than a material weakness, yet important enough to merit attention by those charged with
governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. However, material weakness
may exist that have not been identified.
164
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s financial statements are free from
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on compliance with those
provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The
results of our tests disclosed no instances of noncompliance or other matters that are required to be
reported under Government Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance
and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal
control or on compliance. This report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly,
this communication is not suitable for any other purpose.
Walnut Creek, California
November 8, 2013
165
Independent Auditor’s Report on Compliance for Each Major Program and on
Internal Control over Compliance Required by OMB Circular A-133
Honorable Mayor and the Members
of the City Council of the City of Palo Alto
Palo Alto, California
Report on Compliance for Each Major Federal Program
We have audited the City of Palo Alto’s, California (City) compliance with the types of compliance
requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and
material effect on each of the City’s major federal programs for the year ended June 30, 2013. The City’s
major federal programs are identified in the summary of auditor’s results section of the accompanying
schedule of findings and questioned costs.
Management’s Responsibility
Management is responsible for compliance with the requirements of laws, regulations, contracts, and
grants applicable to its federal programs.
Auditor’s Responsibility
Our reasonability is to express an opinion on compliance for each of the City’s major federal programs
based on our audit of the types of compliance requirements referred to above. We conducted our audit of
compliance in accordance with auditing standards generally accepted in the United States of America; the
standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States; and 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 the City’s compliance
with those requirements and performing such other procedures as we considered necessary in the
circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each major
federal program. However, our audit does not provide a legal determination of the City’s compliance.
Opinion on Each Major Program
In our opinion, the City complied, in all material respects, with the types of compliance requirements
referred to above that could have a direct and material effect on each of its major federal programs for the
year ended June 30, 2013.
166
Report on Internal Control Over Compliance
Management of the City is responsible for establishing and maintaining effective internal control over
compliance with the types of compliance requirements referred to above. In planning and performing our
audit of compliance, we considered the City’s internal control over compliance with the types of
requirements that could have a direct and material effect on each major federal program to determine the
auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on
compliance for each major federal program and to test and report on internal control over compliance in
accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the
effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the
effectiveness of the City’s internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over
compliance does not allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a
federal program on a timely basis. A material weakness in internal control over compliance is a
deficiency, or combination of deficiencies, in internal control over compliance, such that there is a
reasonable possibility that material noncompliance with a type of compliance requirement of a federal
program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in
internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over
compliance with a type of compliance requirement of a federal program that is less severe than a material
weakness in internal control over compliance, yet important enough to merit attention by those charged
with governance.
Our consideration of internal control over compliance was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control over
compliance that might be material weaknesses or significant deficiencies and therefore, material
weaknesses or significant deficiencies may exist that were not identified. We did not identify any
deficiencies in internal control over compliance that we consider to be material weaknesses. However, we
identified a certain deficiency in internal control over compliance, as described in the accompanying
schedule of findings and questioned costs as item 2013-01, that we consider to be a significant deficiency.
The City’s response to the internal control over compliance finding identified in our audit is described in
the accompanying schedule of findings and questioned costs. The City’s response was not subjected to
the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the
response.
The purpose of this report on internal control over compliance is solely to describe the scope of our
testing of internal control over compliance and the results of that testing based on the requirements of
OMB Circular A-133. Accordingly, this report is not suitable for any other purpose.
Walnut Creek, California
November 8, 2013
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 14.218 870,477$ 790,224$
ARRA ‐ Community Development Block Grant ARRA Entitlement
Grants (CDBG‐R)14.253 17,718 ‐
CDBG ‐ Entitlement Grants Cluster 888,195 790,224
U.S. Department of Transportation
Pass‐through from State of California Department of Transportation
Highway Planning and Construction HSIPL‐5100(015)20.205 734,605 ‐
Highway Planning and Construction HSIPL‐5100(014)20.205 1,506 ‐
Highway Planning and Construction STPL‐5100(019)20.205 3,899 ‐
Highway Planning and Construction BRLS‐5100(017)20.205 216,044 ‐
Total Highway Planning and Construction 956,054 ‐
Highway Planning and Construction TRI32‐10‐33 20.205 206,675 ‐
Pass‐through from Santa Clara Valley Transportation Authority
Highway Planning and Construction CML‐5100(018)20.205 144,081 ‐
Highway Planning and Construction 1,306,810 ‐
Institute of Museum and Library Services
Pass‐through from California State Library
Grants to States LS‐00‐11‐0005‐11 45.310 7,524 ‐
U.S. Department of Homeland Security
Pass‐through from City and County of San Francisco
Homeland Security Grant Program None 97.067 68,800 ‐
Pass‐through from County of Santa Clara
Emergency Management Performance Grants None 97.042 18,935 ‐
Total U.S. Department of Homeland Security 87,735 ‐
TOTAL EXPENDITURES OF FEDERAL AWARDS 2,290,264$ 790,224$
CITY OF PALO ALTO
Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2013
Pass‐through from State of California Department of Resources Recycling and
Recovery
See Notes to the Schedule of Expenditures of Federal Awards
167
CITY OF PALO ALTO
Notes to the Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2013
168
NOTE 1 – REPORTING ENTITY
The schedule of expenditures of federal awards (the Schedule) includes expenditures of federal awards
for the City of Palo Alto, California (City), and its component 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 accrual basis of accounting. Expenditures of federal awards reported
in 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, 2013
169
Section I ‐ Summary of Auditor’s Results
Financial Statements
Type of auditor’s report issued on the
basic financial statements of the City:
Unmodified
Internal control over financial reporting:
Material weakness(es) identified? No
Significant deficiency(ies) identified 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:
Unmodified
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 Programs: 14.218 CDBG – Entitlement Grants Cluster
20.205 Highway Planning and Construction
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 Statements Findings
No findings reported.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2013
170
Section III ‐ Federal Award Findings and Questioned Costs
Reference Number: 2013‐01
Federal Program Title: Highway Planning and Construction
Federal Catalog Number: 20.205
Federal Agency: U.S. Department of Transportation
Pass‐Through Entity: Santa Clara Valley Transportation Authority
Federal Award Number and Year: CML‐5100(018)
Category of Finding: Procurement, Suspension and Debarment
Criteria:
The A‐102 Common Rule and OMB Circular A‐133 require that non‐Federal entities receiving federal
awards establish and maintain internal control designed to reasonably ensure compliance with federal
laws, regulations, and program compliance requirements.
The regulations state that, before entering into a covered transaction, the contracting entity must verify
the entity with whom it intends to do business is not suspended or debarred or otherwise excluded from
participating in the federal program. This may be accomplished by checking the Excluded Parties List
System (EPLS) maintained by the General Services Administration, obtaining vendor certifications, or
adding clauses or conditions to the contracts.
Condition:
During our review of the City’s compliance with the suspension and debarment requirements, we noted
that one new contract did not contain a certification within the contract showing that the contractor was
not suspended or debarred, nor was there any evidence that the City verified that the contractor was
not suspended or debarred by checking the Excluded Parties List System (EPLS) maintained by the
General Services Administration. The amount reimbursed by the federal grant for this contract was
$144,081.
Questioned Costs:
N/A‐ The contractor is not/has not been suspended or debarred. Therefore, the costs reimbursed for
payments made to this contractor were allowable under the grant.
Cause:
The City’s Public Works Department was not aware of the federal requirement at the time the contract
was awarded.
Effect:
Without internal controls in place to adequately review and monitor whether vendors are suspended or
debarred from participating in the federal program, the City runs the risk of noncompliance with the
requriements of federal awards.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2013
171
Section III ‐ Federal Award Findings and Questioned Costs (Continued)
Recommendation:
We recommend that the City establish internal control policies over performing the verification check
for covered transactions and maintaining documentation as evidence.
Management Response and Corrective Action Plan:
Prior to awarding future contracts, City staff will perform a debarment and suspension check by checking
the Excluded Parties List System or including a clause in the contract stating the recipient is eligible to
receive Federal funds.
CITY OF PALO ALTO
Schedule of Prior Years Findings and Questioned Costs
For the Year Ended June 30, 2013
172
Schedule of Prior Year Findings and Questioned Costs
Finding #SA 2012‐1 Reporting
Federal Program Title: CDBG – Entitlement Grants Cluster
Federal Catalog Number: 14.218
Condition: The City did not report the sub‐award information related to the
6 sub‐grantees to the Federal Funding Accountability and
Transparency Act (FFATA) Sub‐award Reporting System (FSRS)
during FY2012.
Status of Corrective Action Plan: Corrected.
Finding #SA 2012‐2 Completeness of Schedule of Expenditures of Federal Awards
Condition: The City inadvertently excluded federal program expenditures
of Highway Planning and Construction (CDFA 20.205) in the
Schedule of Federal Awards (SEFA) in the amount of $678,105.
The inclusion of this program resulted in an additional major
program in FY2012 and an reissuance of the City’s single audit
report for the year ended June 30, 2012.
Status of Corrective Action Plan: Corrected.
CITY OF PALO ALTO
Schedule of Prior Years Findings and Questioned Costs
For the Year Ended June 30, 2013
173
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: Two 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.
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City of Palo Alto 174
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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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