HomeMy WebLinkAboutStaff Report 4962
City of Palo Alto (ID # 4962)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/2/2014
City of Palo Alto Page 1
Summary Title: Close Fiscal Year 2014 Budget and Approve Fiscal Year 2014
CAFR
Title: Recommendation to Adopt an Ordinance Authorizing the Closing of the
Fiscal Year 2014 Budget, Including Reappropriation Requests, Closing
Completed Capital Projects and Au thorizing Transfers to Reserves, and
Approval of the Fiscal Year 2014 Comprehensive Annual Financial Report
(CAFR)
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee review and forward to the City Council for its
approval
1. The attached Budget Amendment Ordinance (Attachment A) and associated exhibits to:
a. Close the Fiscal Year (FY) 2014 Budget including the transfer of remaining
balances to or drawing from the appropriate reserves and the transfer of the
General Fund surplus of $4.0 million from the General Fund to the Infrastructure
Reserve in the Capital Projects Fund (Exhibit 1); and
b. Authorize re-appropriation of FY 2014 funds into the FY 2015 Budget (Exhibit 2);
and
c. Close completed capital improvement projects (Exhibit 3).
2. The City’s FY 2014 Comprehensive Annual Financial Report (CAFR) (Attachment B).
Financial Highlights for FY 2014 – General Fund
FY 2014 ended on a positive note with $8.7 million increase to the Budget Stabilization
Reserve (BSR) from June 30, 2013 to June 30, 2014 due to excess revenue and expenditure
savings.
In accordance with the City Council approved infrastructure Plan, the attached Budget
Amendment Ordinance includes a recommendation to transfer $4.0 million from the
General Fund to the Infrastructure Reserve in the Capital Projects Fund.
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As approved as part of the FY 2015 Adopted Budget, $1.7 million of one-time FY 2014
budget surplus funds are carried forward to FY 2015 for FY 2015 Operating Budget one-time
expenditures.
Financial Highlights for FY 2014 – Enterprise Funds
Water Fund implemented a rate increase of 7 percent effective July 1, 2013.
Enterprise Funds combined ended the year with an increase in net position of $4.6 million.
It should also be noted that the City received a “clean” audit opinion for FY 2014 from the
external audit firm, Macias Gini & O’Connell LLP (MGO), Certified Public Accountants, a firm
hired by the City Auditor. Once again, the City was awarded the prestigious GFOA award for
Excellence in Financial Reporting for FY 2013 – the 20th 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 financial data, are
audited by MGO. 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 attached Budget Amendment Ordinance (Attachment A) and related exhibits to this Staff
Report provide the necessary documents for closing the FY 2014 Budget and reauthorizing FY
2014 funds to FY 2015. In addition, they provide detailed inform ation on the City’s financial
activities for FY 2014 and highlight key fiscal issues affecting the City of Palo Alto. The
Management’s Discussion and Analysis (MD&A) section of the CAFR (Attachment B) also
provides a discussion and analysis of the City’s current fiscal health, and includes financial
statements and analysis that is compared to the prior year, along with capital asset and debt
administration data.
Discussion
Economic Environment
The City is now in a solid recovery mode from the impact of t he Great Recession. There has
been a rebound in economically sensitive revenue sources such as sales tax, which is being
driven by strong retail activity in auto, electronics, and department store sales. Increased
business traffic to the City and an active real estate market are resulting 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 p rogram realignments, and revenue
enhancements. The City Council adopted a General Fund expenditure budget of $171.1 million
for FY 2015, an increase of 7.1 percent from the prior year adopted budget. One of the primary
drivers of increased expenditures for FY 2015 are pension and retiree medical costs, which
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continue to trend upward. The City has been mitigating the upward trend by taking measures
such as negotiating increased employee contributions to the PERS retirement plan,
implementing a second tier retirement plan, and capping the City’s share of health care
premiums.
In spite of these measures, the City still faces a significant long-term liability for pension and
retiree medical costs. The combined unfunded liability reported in the June 30, 201 4 CAFR is
$439 million. Funded ratios based on Market Value of Assets for the Safety and Miscellaneous
plans based on June 2013 actuarial valuations are 68.9 percent and 68.4 percent respectively,
and 29.5 percent for the retiree medical plan based on the June 2013 actuarial valuation. The
City continues to fully fund its annual required contribution for these liabilities. An irrevocable
trust fund for retiree medical benefits was authorized by the City Council in May 2007 with
initial funding of $32.8 million in March 2008. Subsequent contributions of $21.6 million and
investment earnings of $21.5 million have increased the trust balance to almost $76 million as
of August 2014. The $76 million balance in the trust fund equates to an estimated 35 percen t
funded level for retiree medical as of August 2014.
The City is facing a significant backlog in infrastructure investment. A newly formed Council
Infrastructure Committee has taken up the Infrastructure Blue Ribbon commission (IBRC)
report, and has proposed a five year plan for infrastructure projects and funding sources. As
recommended by the IBRC, the General Fund has been contributing $2.2 million annually since
FY 2013 for “keep up” needs, and has also transferred a total of $20.5 million General Fund
surplus funds to the Infrastructure Reserve over the past three fiscal years. Further, in June
2014, the City Council approved an Infrastructure Plan in the amount of $126 million. The
funding plan for this infrastructure investment assumed voter approval of a Transient
Occupancy Tax increase from 12 percent to 14 percent, which the voters approved on Nov. 4,
2014 per the unofficial results from the Santa Clara County Registrar of Voters.
Reappropriations:
On October 20, 2014, the City Council preliminarily approved the FY 2014 reappropriation
requests as summarized in Exhibit 2. FY 2014 reappropriation requests total $2,127,430 and
are categorized as follows:
Timing and Workload Delays - Certain projects were delayed due to competing workload
demands, appropriation of funds late in the fiscal year, or other unanticipated delays. Examples
of projects in this category include the Police Utilization Study, Airport Legal Outside Counsel,
Comprehensive Plan, Business Registry Certificate Program, Ecological Footprint Analysis,
Virtual Private Network Upgrade, Virtual Private Clout, and Council Chambers Voting System
Replacement.
Capital Projects with no Expenditures in FY 2014 or FY 2013 - The Long Range CCTV Cameras
capital project has not had funds expended for two years; however, staff still intends to
complete the project.
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Library Materials - Savings were realized in the area of Library Materials in FY 2014 in
anticipation of the 2015 openings of Mitchell Park Library and the Rinconada Library. These
funds, from the Palo Alto Library Foundation, will allow for the library to purchase publications
and materials for library patrons.
Teen Programs - At the June 2, 2014 City Council meeting, the City Council approved a
recommendation from the Policy and Services Committee to use the net revenue collected
from 455 Bryant Street in Fiscal Years 2009 through 2013 ($213,834) to fund Teen Programs.
Per City Council action/direction, the net revenue from prior years in the amount of $213,834 in
addition to $84,000 for FY 2014 for a total of $297,834 for reappropriation. A long term
expenditure plan will be brought to the City Council in fall 2014, including the use of estimated
FY 2015 revenue of $84,000.
Management and Professional Development funds - A number of City employees, as part of
their compensation plan, are eligible for certain professional development and self-
improvement activities. These funds are available to certain employees for civic and
professional association memberships, conference participation and travel, educational
programs, certain tuition costs and professional and trade journal subscriptions, and are
recommended to be carried over to FY 2015 to improve and supplement the job and
professional skills of employees.
Results by Fund
General Fund Reserves
At the end of the current fiscal year, as outlined in the CAFR, the fund balance of the General
Fund was $48.3 million, an increase of $6.2 million from the prior year. The $48.3 million
balance is comprised of several reserves: the Budget Stabilization Reserve (BSR),
encumbrances, notes and loans, inventory, prepaid items, unrealized gain on investments, and
reappropriations.
At the close of FY 2014, there was a General Fund surplus of $10.2 million. After adjusting all
other non-BSR reserve balances, the remaining $8.7 million was added to the BSR balance.
Based on prior City Council direction, staff recommends a transfer of $4.0 million to the
Infrastructure Reserve in the Capital Projects Fund.
The year over year change in General Fund reserve balances on an accounting basis is
summarized in the following table.
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($ in millions)
Balance Net From Transfer to Balance
06/30/13 Operations Infrastructure 06/30/14
Budget Stabilization Reserve 30,357$ 8,726$ (4,000)$ 35,083$
Other Reserves:
Encumbrances 5,029 (269) 4,760
Reappropriations 556 1,051 1,607
Notes and loans receivable 1,540 295 1,835
Prepaid items 645 (293)352
Inventories 3,564 437 4,001
Unrealized gains on investments 386 286 672
Total General Fund Reserves 42,077$ 10,233$ (4,000)$ 48,310$
GENERAL FUND RESERVE SUMMARY
FISCAL YEAR 2014
Accounting Basis
The $35.1 million BSR balance on an accounting basis includes unrealized gain on investment in
the amount of $285,000. On a budgetary basis, the unrealized gain on investment is deducted,
which leaves a BSR balance of $34.8 million to be carried forward to FY 2015.
The approval of the FY 2015 Adopted General Fund Budget assumed a FY 2014 General Fund
surplus of $1.7 million to be carried forward to FY 2015 for one-time FY 2015 expenditures.
Therefore, $1.7 million of the BSR balance of $34.8 million carried forward will be used to pay
for FY 2015 Operating Budget one-time expenditures. This will leave an available BSR balance
of $33.1 million on a budgetary basis, or 19.33 percent of FY 2015 adopted budgeted
expenditures and operating transfers. This BSR level is within Council’s approved reserve
guidelines. During FY 2015, the City Council approved various net adjustments to the BSR in the
amount of $390,000 such as funding for the Climate Action Plan, increase to the loan to the
Airport Fund, and adjustments to the Golf Operating budget. After these adjustments, the
current BSR balance is $32.7 million or 19.10 percent of the FY 2015 adopted budget
expenditures.
The following graph provides a snapshot of the General Fund BSR balance and percentage of
budgeted expenditures for the past ten years. Additional information regarding the City’s
General Fund BSR reserve policy can be found in the FY 2015 Adopted Budget document.
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$21.1 $22.7
$27.5 $26.1 $24.7
$27.4 $26.5 $27.1
$30.4 $31.2
$0
$5
$10
$15
$20
$25
$30
$35
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Fiscal Year
General Fund BSR Balance FY 2005-2014
From the FY 2015 Adopted Operating Budget
($ in millions)
Infrastructure Reserve
As discussed, this report includes a recommendation to transfer $4.0 million from the FY 2014
budget surplus to the Infrastructure Reserve. With this recommended transfer of $4.0 million,
the City has transferred a total of $20.5 million in year-end surplus funds from the General Fund
to the Infrastructure Reserve 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. An example is the Golf Course renovation project which calls for
debt financing in addition to a San Francisquito Creek JPA contribution totaling over $9 million
which is expected to be received once the project goes forward. As of June 30, 2014 the IR
balance was $3.4 million.
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General Fund Revenues
Total General Fund revenues for FY 2014 were $152.3 million which represents an increase of
$7.8 million or 5.4 percent in comparison to FY 2013. The table below compares the year over
year changes in each of the major tax revenue categories . As shown, the receipts from major
tax increased by $8.2 million or 10 percent from FY 2013 to FY 2014.
Category FY 2013 FY 2014 % Change
Property tax $ 28,742 $30,587 6.4%
Sales tax 25,606 29,424 14.9%
Utility user tax 10,861 11,008 1.3%
Transient occupancy tax 10,794 12,255 13.5%
Documentary transfer tax 6,810 7,811 14.7%
Total $82,813 $91,085 10.0%
Sales, transient occupancy, and documentary transfer taxes are economically sensitive revenue
streams, and all of those categories experienced double digit growth over the prior year. The
following chart depicts the relative contribution of each tax category over the p ast six years
(2009 through 2014). Sales tax in FY 2009 made up 30.9 percent of the total tax revenues and in
FY 2014 has grown to 32.3 percent. Likewise, documentary transfer tax revenue is now 8.6
percent of tax revenue totals compared to 8.2 percent in FY 2009.
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General Fund Tax Revenues
Actual Fiscal Years 2009 – 2014
General Fund Expenditures
General Fund expenditures for FY 2014, including encumbrances and transfers, totaled $170.7
million, an increase of $1.0 million from the prior year. The FY 2014 Adopted Budget of $159.7
million was increased to the Final Adjusted Budget amount of $172.7 million. Actual
expenditures were $2.0 million, or 1.2 percent less than the Final Adjusted Budget.
The following chart compares actual departmental costs, including encumbrances, over the
past six years and budgeted cost for FY 2015. The chart does not include operating transfers out
to other funds.
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General Fund Departments
Actual Expenditures Fiscal Years 2009 – 2014 (including encumbrances)
($ in thousands)
Overall, the General Fund had approximately $79,000 in salary and benefits savings, which was
within 0.08 percent of the Adjusted Salary and Benefit budget of $98.1 million. Actions
recommended as part of this report reallocate funds from the salary reserve to several
departments; salary savings within departments; and salary savings to non -departmental. In FY
2014, assumed salary savings in the General Fund were budgeted in the non -departmental
section of the budget. The Fire and Police Departments exceeded their overtime budgets by
$812,000 (46 percent) and $212,000 (14 percent) respectively. Although there was sufficient
vacancy savings within departments, and elsewhere in the General Fund to absorb these
overages, overtime spending for public safety continues to exceed budget and will be
reexamined as part of the development of the FY 2016 Operating Budget.
Capital Projects Fund
The Capital Projects Fund ended the year with a fund balance of $69.8 million, which is
comprised of the following:
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Fund Balance Component Amount
($ in millions)
Restricted for Library projects $ 15,006
Assigned for all other Capital projects 51,398
Infrastructure Reserve 3,383
Total Capital Projects Fund Balance $ 69,787
Restricted for Library projects of $15.0 million is the portion of fund balance dedicated to
remaining Library expenditures as approved in the FY 2014 Adopted Capital Budget, and those
expenditures will be paid for with cash from bond proceeds. If expenditures for th e Library
projects exceed the Adopted Budget amounts, they will be funded from the Infrastructure
Reserve. Non-bondable expenditures such as salaries and benefits are already funded from the
Infrastructure Reserve, as established at the time of the bond i ssuance.
Assigned for all other Capital projects of $51.3 million represents the amount of unspent funds
associated with Adopted Capital projects other than Library projects. Outside funding sources
such as grants, donations, and future debt issues are not factored into this component of fund
balance until they are actually received. Thus, all capital projects are considered to be fully
funded from existing cash resources.
Infrastructure Reserve (IR) of $3.4 million is the balance remaining after all Adopted Capital
project expenditures have been satisfied, without regard to anticipated future funding sources
such as grants, donations, and debt issues for existing Adopted Capital projects. This presents
the most conservative and fiscally prudent view of the IR balance.
The IR balance will increase as a result of:
savings from completed or cancelled projects;
surplus funds transferred from the General Fund;
receipt of reimbursable grants, donations, or debt issuances related to existing adopted
projects.
Enterprise Funds
At June 30, 2014 the City’s Enterprise Funds reported total net position of $742.3 million, an
increase of $24.3 million, or 3.4 percent compared with the prior year. The change in net
position for each of the Enterprise Funds is deta iled in the following table.
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Enterprise Funds
Change in Net Position for the Year Ended June 30
(in Millions)
Increase/
Fund Name 2014 2013 (Decrease)
Water 11.0$ 6.8$ 4.2$
Electric 1.7 1.9 (0.2)
Fiber Optics 3.1 2.8 0.3
Gas 3.3 1.3 2.0
Wastewater Collection 3.5 2.5 1.0
Wastewater Treatment (1.9)0.8 (2.7)
Refuse 2.2 2.3 (0.1)
Storm Drainage 2.7 2.3 0.4
Airport (0.5)(0.2)(0.3)
Total Change in Net Assets 25.1$ 20.5$ 4.6$
The total Change in Net Assets of $25.1 million, an increase of $4.6 million from the prior year,
was primarily due to the Water Fund rate increase and increased investment earnings due to a
favorable cost to market adjustment at year-end. More detailed changes are discussed in the
MD&A section of the CAFR.
Residential Affordable Housing Fund – Return of Maybell Loan
The Palo Alto Housing Corporation returned $720,220, which staff deposited in the Residential
Housing Fund. This amount was for the Maybell project that was not approved. The funds
originally came from the Stanford University Medical Center Development Agreement fund ing
to be used for affordable housing. The $720,220 will remain in th e Residential Affordable
Housing Fund until an appropriate affordable housing project is identified and the funds are
approved by the City Council for use on the project. In 2013, Council also approved a $2.6
million short-term loan for Maybell out of the Stanford funds. This loan was not needed,
consequently the funds were not transferred to the housing fund and they remain part of the
Stanford funds.
Questica Budget System Update
In June 2014, the City Council approved a contract with Questica, Inc. to implement a best-in-
class budget system. This new system will be used to develop the City’s annual operating and
capital budgets, long-range financial forecast, labor cost modeling, and financial budget to
actual reports. In addition to these elements, s taff engaged with Questica to pioneer the
development of a fee module that will automatically calculate most of the City’s 1,000
municipal fees in accordance with state law and City policy. Prior to Questica, the City
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developed its annual operating and capital budgets, General Fund Long Range Financial
Forecast (LRFF), and labor negotiation costing analysis through email processes, spreadsheets,
an unsupported capital budget publication software, and SAP. Municipal Fees were
documented on individual spreadsheets. Budget data, including budget numbers and related
analysis, was kept in different systems and file types, increasing the risk of version control
issues and inconsistent data, and decreasing the ability to collaboratively develop the budget
with City departments.
In July 2014, Office of Management and Budget staff met with Questica representatives to kick -
off the budget system implementation and, to date, has reached the following milestones: (1)
importing of FY 2014 operating and budget data and five years of prior year actual data; (2)
configuration of the system; (3) import ing of capital data from SAP and the unsupported capital
budget publication software; and (4) preview of Questica to select departments to solicit
feedback regarding user needs and functionality. The results of the Questica preview were
positive and departments expressed excitement to collaboratively engage in future budget
processes, model data, and take advantage of the streamlined workflow processes. OMB staff
will incorporate department feedback into the department roll-out process scheduled for
December 2014.
The next major implementation step consists of developing and building the overnight interface
with SAP for budget to actual reporting. This feature which will be implemented by July 1, 2015
will allow departments to monitor actual to budgeted expenditures with an accessible interface
and to submit and approve administrative budget change requests with an online process.
Separately from acquiring and implementing the City’s new budget system, staff also evaluated
options for implementing a new Infrastructure Management System as outlined in
recommendations from the Infrastructure Blue Ribbon Committee. One of these
recommendations included the long-term budgeting (depending on the life cycle of various
types of infrastructure) of infrastructure maintenance and replacement. Staff evaluated
various potential systems and found that the new budget system can serve as this long-term
financial planning tool.
In August, Questica also released a separate performance measure and management module
which allows staff to link performance and financial data , enter or upload performance data
from other systems, and visualize the data via dash boards. The current system the City
acquired provides rudimentary performance measure input fields and a dashboard
functionality. However, it does not allow staff to link performance with financial data. As
discussed by the City Auditor with the Policy and Services Committee at the September 9, 2014
meeting, the Auditor’s Office and City departments spend an extraordinary amount of time on
data compiling and analysis using spreadsheets. Per the City Auditor, her office spends
approximately 1,600 staff hours to produce the annual performance report. Further, the
annual performance report includes many measures, which link performance and financial
data.
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Therefore, to allow for the implementation of the performance measure and management
module, streamline the annual Performance Report, and address the IBRC recommendation,
staff intends to bring forward an amendment to the Questica contract for City Council
consideration in December 2014, which will amend the license agreement for the system from
seat licenses to a site license. A site license allows unlimited access to as many employees as
necessary. With this change, many authorized department users versus one or two central
contacts in each department can enter, view, and analyze financial, budgetary, and
performance data and set up their own dashboards to more effectively manage the part of the
organization they are responsible for. Questica has identified the City of Palo Alto as one of
their clients with the most advanced use of performance measures and is offering the City a
substantive discount on the acquisition of the site license. With the acquisition of Questica, the
City paid $130,000 in seat license cost. The regular site license cost is $250,000. If the City
signs on to the performance measure and management model, Questica has offered the City to
reduce its one-time site license cost by $90,000 from $250,000 to $160,000. So, the additional
cost for the site license is $30,000. If the City were to purchase minimal additional seat licenses
to effectively implement the IBRC recommendation, streamline the annual performance report
process, and link financial and performance data, the cost over the life of the contract would be
greater as will be detailed in the forthcoming CMR regarding the Questica contract
amendment.
Environmental Review
This is not a project for purposes of the California Environmental Quality Act.
Attachments:
Attachment A: Fiscal Year 2014 Year End BAO (DOCX)
Exhibit 1 to BAO - Proposed Fiscal Year 2014 Year End Adjustments (PDF)
Exhibit 2 to BAO - Reappropriations (PDF)
Exhibit 3 to BAO - Year End CIP Adjustments (PDF)
Exhibit 4 to BAO - General Fund Budget to Actual (PDF)
Attachment B: FY2014 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, 2014
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 2.28.07 0 of the Palo
Alto Municipal Code, the Council on June 10, 2013 did adopt a budget for Fiscal Year
2014; and
B. Fiscal Year 2014 has ended and the financial results, although subject to post -
audit adjustment, are now available.
SECTION 2. Pursuant to Section 2.28.080 of the Palo Alto Municipal Code, the
City Manager during Fiscal Year 2014 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 2014 appropriations which on July 1, 2013 were encumbered by
properly executed, but uncompleted, purchase orders or contracts.
SECTION 3. The Council hereby approves adjustments to the Fiscal Year 2014
budget as shown on attached Exhibit 1.
SECTION 4. The Council hereby re-appropriates Fiscal Year 2014
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 2015 budget.
ATTACHMENT A
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SECTION 5. The Fiscal Year 2014 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 2015 budget.
SECTION 6. The City Manager is authorized and directed:
A. To close the Fiscal Year 2014 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 2014 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 fund the Budget Stabilization Reserve in accordance with the General Fund
Reserves Policy adopted by the City Council.
SECTION 7. The General Fund Budget Stabilization Reserve is hereby
decreased by the sum of Four Million One Hundred Twenty Seven Thousand Six
Hundred Eighty Two Dollars ($4,127,682) as described in Exhibit 1.
SECTION 8. The Water Rate Stabilization Reserve is hereby decreased by the
sum of Six Million Nine Hundred Seventy Nine Thousand Six Hundred Ninety Seven
Dollars ($6,979,697) as described in Exhibit 1.
SECTION 9. The Electric Distribution Rate Stabilization Reserve is hereby
decreased by the sum of Three Hundred Seventeen Thousand Five Hundred Six Dollars
($317,506) as described in Exhibit 1.
SECTION 10. The Fiber Optics Rate Stabilization Reserve is hereby decreased by
the sum of Five Hundred Nineteen Thousand Dollars ($519,000) as described in Exhibit
1.
SECTION 11. The Gas Distribution Rate Stabilization Reserve is hereby decreased
by the sum of Eight Hundred Forty One Thousand One Hundred Ninety Six ($841,196) as
described in Exhibit 1.
SECTION 12. The Gas Supply Rate Stabilization Reserve is hereby decreased by
the sum of One Hundred Seventy Four Thousand Dollars ($174,000) as described in
Exhibit 1.
SECTION 13. The Wastewater Treatment Rate Stabilization Reserve is hereby
increased by the sum of Four Thousand Six Hundred Sixty Dollars ($4,660) as described
in Exhibit 1.
ATTACHMENT A
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SECTION 14. The Refuse Rate Stabilization Reserve is hereby decreased by the
sum of Nine Hundred Seventy Seven Dollars ($977) as described in Exhibit 1.
SECTION 15. The Storm Drainage Rate Stabilization Reserve is hereby decreased
by the sum of One Thousand Five Hundred Thirty Four Dollars ($1,534) as described in
Exhibit 1.
SECTION 16. The University Avenue Parking Permit Fund is hereby increased by
Two Thousand Ten Dollars ($2,010) as described in Exhibit 1.
SECTION 17. The California Avenue Parking Permit Fund is hereby increased by
Three Hundred Dollars ($300) as described in Exhibit 1.
SECTION 18. The Federal Equitable Sharing Fund is hereby decreased by Two
Thousand Nine Hundred Sixty Dollars ($2,960) as described in Exhibit 1.
SECTION 19. The State Deferred Revenue Fund is hereby decreased by Two
Thousand One Hundred Ninety Eight ($2,198) as described in Exhibit 1.
SECTION 20. The Stanford/El Camino Fund is hereby decreased by Four Hundred
Ten Thousand Dollars ($410,000) as described in Exhibit 1.
SECTION 21. The Public Art Fund is hereby decreased by Four Thousand Six
Hundred Sixty One Dollars ($4,661) as described in Exhibit 1.
SECTION 20. The Law Enforcement Services Fund is hereby decreased by Two
Hundred Twenty Seven Thousand Seven Hundred Ten Dollars ($227,710) as described in
Exhibit 1.
SECTION 21. The Law Enforcement Block Grant Fund is hereby decreased by
Eight Hundred Twelve Dollars ($812) as described in Exhibit 1.
SECTION 22. The Technology Fund is hereby decreased by Eight Hundred
Nineteen Thousand Three Hundred Seventy Eight Dollars ($819,378) as described in
Exhibit 1.
SECTION 23. The Capital Projects Fund Reserve is hereby decreased by Three
Million, Eight Hundred Fourteen Thousand Four Hundred Dollars ($3,841,400) as
described in Exhibit 1.
SECTION 24. Upon completion of the independent audit, detailed financial
statements reflecting the changes made by the Sections 7 through 18 of this ordinance
shall be published as part of the annual financial report of the City as required by Article
ATTACHMENT A
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III, Section 16, of the Charter of the City of Palo Alto and in accordance with generally
accepted accounting principles.
SECTION 25. 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 26. 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 27. As provided in Section 2.04.330 of the Palo Alto Municipal Code,
this ordinance shall become effective upon adoption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:
________________________ ____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
________________________ ____________________________
City Attorney City Manager
____________________________
Director of Administrative Service
Category Amount Description
GENERAL FUND
Transfer to the
Technology Fund
63,000 Increase the Transfer to the Technology Fund by $63,000 to adjust for the
actual amount of the Technology Fee collected in the General Fund in Fiscal
Year 2014 ($1,163,000).
Transfer to IR
4,000,000
Transfer an additional $4 million to the Infrastructure Reserve in accordance
with the City Council approved Infrastructure Plan (June 9, 2014)
Salary and Benefits (1,106,000) Allocate funding for salary increases to General Fund Departments
Salary and Benefits 1,000,000 Allocate Departmental Salary Savings to Non-Departmental
Direct Charges 148,682 Increase costs for the sale of water to the City.
4,105,682
(4,105,682)
Salary and Benefits (149,000) Allocate Departmental Salary Savings to Non-Departmental
(149,000)
149,000
Salary and Benefits (52,000) Allocate Departmental Salary Savings to Non-Departmental
(52,000)
52,000
CITY MANAGER
Salary and Benefits 60,000 Allocate funding for salary increases from Non-Departmental
60,000
(60,000)
COMMUNITY SERVICES
Rents and Leases 84,000 To recognize revenue for the Byrant Street rent
84,000
Salary and Benefits (408,000) Allocate Departmental Salary Savings to Non-Departmental
(408,000)
492,000
FIRE
Salary and Benefits 453,000 Allocate funding for salary increases from Non-Departmental
453,000
ADMINISTRATIVE SERVICES
Use Changes
Net Changes To (From) Reserves
Net Changes To (From) Reserves
Use Changes
Net Changes To (From) Reserves
CITY AUDITOR
Source Changes
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET
Net Changes To (From) Reserves
Use Changes
Net Changes To (From) Reserves
Use Changes
NON-DEPARTMENTAL
Use Changes
Use Changes
Exhibit 1
Category Amount Description
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET
(453,000)
LIBRARY
Salary and Benefits (155,000) Allocate salary and benefits savings to the Police Department
Salary and Benefits (166,000) Allocate Departmental Salary Savings to Non-Departmental
(321,000)
166,000
Salary and Benefits 593,000 Allocate funding for salary increases from Non-Departmental
Salary and Benefits 155,000 Allocate salary and benefit savings from the Library Department
748,000
(593,000)
Salary and Benefits (225,000) Allocate Departmental Salary Savings to Non-Departmental
(225,000)
225,000
Total General Fund Changes to BSR (4,127,682)
Reimbursements 4,000,000 Increase transfer from the General Fund in accordance with the City Council
approved Infrastructure Plan (June 9, 2014)
Source Changes Changes 4,000,000
CIP 158,600 Combined impact from adjustments to projects as outlined in Attachment A,
Exhibit 3
Use Changes 158,600
3,841,400 Capital Fund Infrastructure Reserve
Net Changes To (From) Reserves
Net Changes To (From) Reserves
Use Changes
POLICE
PUBLIC WORKS
Use Changes
Net Changes To (From) Reserves
GENERAL FUND CIP (CAPITAL PROJECTS FUND)
Net Changes To (From) Reserves
Net Changes To (From) Reserves
Use Changes
Attachment B, Exhibit 1
Cost Center Cost
Element Category Amount Description
ENTERPRISE FUNDS
ELECTRIC FUND
Direct Charges (494) Decrease costs for the sale of water to the City.
CIP (1,817,000) Changes in CIP Projects (See Atttachment A, Exhibit 3 for
more detail)
Use Changes (1,817,494)
Net Changes To (From) Reserves 1,817,494
Fund Balancing Entries
20000020 38040 1,817,494 Change in Electric Operating Fund Balance
Total Electric Fund 1,817,494
FIBER OPTICS FUND
CIP 23,000 Changes in CIP Projects (See Atttachment A, Exhibit 3 for
more detail)
Use Changes 23,000
Net Changes To (From) Reserves (23,000)
Fund Balancing Entries
20000020 38040 (23,000)Change in Fund Balance
Total Fiber Optics Fund (23,000)
GAS FUND
Salary and Benefits 54,000 Increase costs to cover additional labor expenses related to
pension and medical
CIP 80,000 Changes in CIP Projects (See Atttachment A, Exhibit 3 for
more detail)
Utility Purchases 120,000
Increase costs to cover additional gas commodity purchases
Direct Charges 196 Increase costs for the sale of water to the City.
Use Changes 254,196
Net Changes To (From) Reserves (254,196)
Fund Balancing Entries
20000050 38170 (174,000)Change in Gas Supply Fund Balance
20000040 38040 (80,196)Change in Gas Operating Fund Balance
Total Gas Fund (254,196)
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET
Attachment B, Exhibit 1
Cost Center Cost
Element Category Amount Description
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET
WATER FUND 7
Reimbursements 200,508 Increase revenue for the sale of water to the City.
Source Changes Changes 200,508
CIP 81,000 Changes in CIP Projects (See Atttachment A, Exhibit 3 for
more detail)
Direct Charges 6,205 Increase costs for the sale of water to the City.
Use Changes 87,205
Net Changes To (From) Reserves 113,303
Fund Balancing Entries
20000060 38040 113,303 Change in Fund Balance
Total Water Fund 113,303
20021103 30010 Direct Charges (4,660) Decrease costs for the sale of water to the City.
Use Changes (4,660)
Net Changes To (From) Reserves 4,660
Fund Balancing Entries
20000070 38040 4,660 Change in Fund Balance
Total Wastewater Treatment Fund 4,660
REFUSE FUND
Direct Charges 977 Increase costs for the sale of water to the City.
Use Changes 977
Net Changes To (From) Reserves (977)
Fund Balancing Entries
50050001 38040 (977)Change in Fund Balance
Total Refuse Fund (977)
STORM DRAINAGE FUND
Direct Charges 1,534 Increase costs for the sale of water to the City.
Use Changes 1,534
Net Changes To (From) Reserves (1,534)
Fund Balancing Entries
50050001 38040 (1,534)Change in Fund Balance
Total Storm Drainage Fund (1,534)
WASTEWATER TREATMENT FUND
Attachment B, Exhibit 1
Category Amount Description
Direct Charges (2,010) Decrease costs for the sale of water to the City.
Use Changes (2,010)
2,010
Direct Charges (300) Decrease costs for the sale of water to the City.
Use Changes (300)
300
Non-Capital 2,960 Increase to cover additional non-capital p-card expenses for FY 2014
Use Changes 2,960
(2,960)
Operating Transfer 2,198 Transfer to General Fund
Use Changes 2,198
(2,198)
Interagency 410,000 Cost sharing expense between City of Palo Alto and County of Santa Clara for service
level improvements on Oregon Expressway
Use Changes 410,000
(410,000)
Salaries & Benefits 4,661 Increase costs to cover additional labor expenses
Use Changes 4,661
(4,661)
Facilities & Equipment 227,710 Citizen Options for Public Safety (COPS) Grant funding from the State of California
used to purchase front line law enforcement equipment
Use Changes 227,710
(227,710)
STANFORD/EL CAMINO FUND
Net Changes To (From) Reserves
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET
SPECIAL REVENUE FUNDS
CALIFORNIA AVENUE PARKING PERMIT FUND
Net Changes To (From) Reserves
UNIVERSITY AVENUE PARKING PERMIT FUND
Net Changes To (From) Reserves
STATE DEFERRED REVENUE
Net Changes To (From) Reserves
FED EQUITABLE SHARING
Net Changes To (From) Reserves
PUBLIC ART FUND
Net Changes To (From) Reserves
LAW ENFORCEMENT SERVICES FUND
Net Changes To (From) Reserves
Attachment B, Exhibit 1
Category Amount Description
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2014 ADOPTED BUDGET
Facilities & Equipment 812 Increase costs to cover additional non-capital p-card expenses
Use Changes 812
(812)
Transfer from the
General Fund
63,000 Increase the Transfer from the General Fund by $63,000 to adjust for the actual
amount of the Technology Fee collected in the General Fund in Fiscal Year 2014
($1,163,000).
Source Changes 63,000
Contract Services 710,000 Increase costs to cover technology related contractual services
Facilities & Equipment 172,000 Increase costs to cover radio and communication equipment purchases
Direct Charges 378 Increase costs for the sale of water to the City.
Use Changes 882,378
(819,378)
TECHNOLOGY FUND
Net Changes To (From) Reserves
INTERNAL SERVICE
Net Changes To (From) Reserves
LAW ENFORCEMENT BLOCK GRANT
Attachment B, Exhibit 1
Fiscal Year 2014 Preliminarily Approved Reappropriations (October 20, 2014)
General Fund
Department Fund
Amount
Preliminarily
Approved Reappropriation Justification Commitment Item
City Manager's Office General
Fund
35,000 Business Registry Certificate Program: At the April 29, 2014 City Council meeting, the Council
approved a recommendation to fund a Business Registry Certificate (BRC) Ordinance and Fee
Program as a full cost-recovery replacement/enhancement of the existing Use Certificate Process,
with funds from the City Council Contingency. Staff has not been able to work on this project due
to other competing priorities and the funding becoming available late in the fiscal year. Staff
committed to return to Council before December 30, 2014 for approval of the BRC ordinance and
program implementation and launch. CMR #4619
31070
City Manager's Office General
Fund
25,000 Electric Vehicle Consultant: At the May 13, 2014 Policy and Services Committee Meeting, an
ordinance was approved requiring all new multi-family residential and non-residential construction
to provide for current or future installation of electric vehicle (EV) chargers at the recommendation
of the Electric Vehicle Supply Equipment Task Force. Funding was appropriated from the City
Manager's Contingency to hire a consultant to implement this direction and guide developers in
technical equipment decision making as well as provide training to staff during the review process;
however, since this was not approved until the end of Fiscal Year 2014, staff could not complete
the contract before the end of the fiscal year. CMR #4719
31070
City Manager's Office General
Fund
25,000 Ecological Footprint Analysis: A study is needed to assess the demand and consumption of
resources by the City as a whole compared to the availability of resources in the ecosystem
surrounding and supporting the City. The results will provide a Palo Alto Consumption Land Use
Matrix (CLUM) and the data from the CLUM will be used for the subsequent Climate Action Plan,
that is scheduled to be presented to the Council in fall 2014. Funding was appropriated from the
City Manager's Contingency to conduct this study; however, the project was not able to be done in
Fiscal Year 2014.
31070
Community Services General
Fund
297,834 Teen Programs: At the June 2, 2014 City Council meeting, the Council approved a
recommendation from the Policy and Services Committee to use the net revenue collected from
455 Bryant Street in Fiscal Years 2009 through 2013 ($213,834) to fund Teen Programs for Fiscal
Year 2015. Per Council action, the fund balance of $213,834 is to be reappropriated in addition to
the $84,000 in Fiscal Year 2014 proceeds for a total of $297,834. A long-term expenditure plan will
be brought to Council in fall 2014, including use the estimated revenue for Fiscal Year 2015 of
$84,000. CMR #4776
33000
Development
Services/Fire
General
Fund
50,000 Digitize Fire Prevention Records: This funding will be used to digitize historical records in the
Fire Prevention Bureau (FPB), and implement an electronic records management system for
historical and future documents with collaboration from the Information Technology (IT)
Department. This funding was appropriated in the Fire Department as part of the Fiscal Year 2014
Operating Budget; however, the IT Department is still developing a citywide electronic records
management strategy. As part of the Fiscal Year 2015 Operating Budget, FPB was moved from
the Fire Department to the Development Services Department. Reappropriation of these funds will
allow FPB to digitize and move their records into an electronic records management system once
IT implements a citywide solution.
31990
Attachment A, Exhibit 2 - Reappropriations.xlsx 1 11/18/2014,4:28 PM
Attachment C, Exhibit 2xExhibit 2
Fiscal Year 2014 Preliminarily Approved Reappropriations (October 20, 2014)
Department Fund
Amount
Preliminarily
Approved Reappropriation Justification Commitment Item
Library General
Fund
600,000 Library Publications: In Fiscal Year 2012, the library received a donation of $1.9 million from the
Palo Alto Library Foundation of which $1.4 million was appropriated to the CIP and the balance of
$500,000 was appropriated to the General Fund for the purchase of library collection materials
(CMR #2258). The remaining General Fund balance of $100,000 has been reappropriated through
Fiscal Year 2014 in anticipation of completion of the new Mitchell Park library. In addition, a second
donation of $1.2 million was received from the Palo Alto Library Foundation in Fiscal Year 2014
(CMR #4092) of which $500,000 is requested for reappropriation in anticipation of completion of the
new Rinconada library in Fiscal Year 2015. The balance of $100,000 from #2258 and $500,000
from #4092, for a total of $600,000, will be used for the purchase of collection materials in Fiscal
Year 2015 in order to provide library patrons with the most current publications and productions.
32230
People Strategy and
Operations
General
Fund
50,000 Temporary Salaries: Two employees, one working as a Human Resources Assistant and one
working as a Labor Relations Manager will be out on maternity leave for approximately six months
in Fiscal Year 2015. The PSO Department will have no vacant positions to start Fiscal Year 2015
to generate savings to hire temporary positions. Reappropriating Fiscal Year 2014 vacancy
savings will allow PSO to hire temporary staff to backfill for the vacancies in Fiscal Year 2015.
30030
People Strategy and
Operations
General
Fund
165,000 Management Development: Savings from Fiscal Year 2013 was carried forward to Fiscal Year
2014 to develop a citywide management training program; however, staffing resources were not
available in Fiscal Year 2014 in PSO to implement the program. PSO is fully staffed going into
Fiscal Year 2015, so this funding will be used for training programs in the following areas: Civics
and Citizen Engagement, Leadership and Talent Exchange, Budget, Finance and Procurement,
Interpersonal communication, Ethics and legal awareness, Presentation Skills, Business Writing,
Time Management, Project management, Change Management, SkillSoft for Computer skills,
Safety & Security and Personal and Professional Development.
33140
People Strategy and
Operations
General
Fund
25,000 Wellness Program: Funding will be used to create a holistic, accessible and fun employee
wellness program that encourages and supports healthy eating, work life balance, and an active
lifestyle. The City launched an RFP several months ago, and the Department has received several
responses and is in the process of reviewing the proposals; however, a vendor was unable to be
selected in Fiscal Year 2014.
Planning & Community
Environment
General
Fund
256,596 Comprehensive Plan: The Comprehensive Plan update is a large project involving significant
community engagement. The Plan is scheduled for completion at the end of 2015. Funds were
budgeted in FY 2014 and $56,596 is available for reappropriation in addition to the Council
approved a BAO on March 17, 2014 for an additional $200,000. These expenses include meetings,
advertising, supplies, note taking, and additional professional services to address unanticipated
events CMR #4554
31020
Attachment A, Exhibit 2 - Reappropriations.xlsx 2 11/18/2014,4:28 PM
Attachment C, Exhibit 2
Fiscal Year 2014 Preliminarily Approved Reappropriations (October 20, 2014)
Department Fund
Amount
Preliminarily
Approved Reappropriation Justification Commitment Item
Police General
Fund
78,000 Police Utilization Study: In Fiscal Year 2013, funding was allocated for the department to hire a
consultant to conduct a utilization study of overall police operations; however the study was not
completed due to competing workload demands. The funds were reappropriated to Fiscal Year
2014 to conduct the study; however, the Technical Services Division had many other projects that
took precedence (Tri-City Computer Aided Dispatch, Records Management System, Patrol Vehicle
Mobile Audio Video, etc.) and were again unable to conduct the utilization study. Reappropriation
of these funds will allow Technical Services staff to determine the scope of the study, integrate it
into their workload, and hire a consultant to conduct the study in Fiscal Year 2015.
31990
1,607,430$ Total General Fund Reappropriations
Other Funds
Fund Fund Rec. Amount Reappropriation Justification
Airport 530 50,000 Airport Legal Outside Counsel: Council has directed staff to take over the Palo Alto Airport prior
to the end of the lease (2017) with the County of Santa Clara. The 2015 Adopted Operating
Budget has assumed a Fiscal Year 2015 takeover. There are numerous documents that need to
be written, negotiated, and approved by the City Council prior to the City taking back ownership of
the operations. This reappropriation will allow for outside legal counsel that is anticipated due to
the workload of the City Attorney's Office and specific expertise needed in this transaction.
31010
Capital Improvement
Fund
471 65,000 Long Range CCTV Cameras: Reappropriating these funds will allow the Fire Department to
purchase a fire weather camera to replace the current outdated camera that is mounted by Fire
Station 8 in Foothill Park. This funding was originally appropriated as part of the FD-13000 CIP to
replace the existing fire weather camera and add a second camera with thermal detection
capabilities to act as an early warning system for fires in the foothills south of Palo Alto. The
technology needs for the project were reevaluated in Fiscal Year 2014, and it was determined that
the current funding will only be able fund the replacement of the fire weather camera.
Reappropriation of these funds will allow for the purchase of the replacement camera in Fiscal Year
2015. The second thermal detection camera will be brought back for Council consideration in the
future as a separate CIP.
38790
Storm Drainage Fund 528 45,000 Storm Drainage Pump Station: This reappropriation will allow for a repair to one of the 24'
pumps at the Storm Pump Station located at the Airport. During a routine inspection, it was
recently discovered that water was leading from one of the pumps, which could lead to larger
damages. The repair was not completed in Fiscal Year 2014 as a portion of the funding was used
for design and configuration of storm software, a maintenance contract for storm software, and
debris disposal. Funding will be used, in conjunction with Fiscal Year 2015 approved funding, to
repair the pump in Fiscal Year 2015.
31990
Technology Fund 682 35,000 Council Chambers Voting System Replacement: Reappropriating these funds will allow for the
replacement of the existing analog voting system in the Council Chambers, which is over 20 years
old and no longer supported by the manufacturer. This project was unable to be completed in
Fiscal Year 2014 due to other infrastructure and technology related projects that took precedence.
This project needs to be done separately from the other technology upgrades to the Council
Chambers, scheduled for Fiscal Year 2016, because there will be no way to electronically record
the votes if the system fails.
31230
Attachment A, Exhibit 2 - Reappropriations.xlsx 3 11/18/2014,4:28 PM
Attachment C, Exhibit 2
Fiscal Year 2014 Preliminarily Approved Reappropriations (October 20, 2014)
Department Fund
Amount
Preliminarily
Approved Reappropriation Justification Commitment Item
Technology Fund 682 50,000 Virtual Private Network Upgrade: Reappropriating these funds will allow the IT Department to
complete upgrades to the Virtual Private Network (VPN) in order to enhance the security and
scalability of the computing network, create additional functionality and access of mobile devices to
the network, and ensure the City can upgrade to the most current operating system. This project
was approved as part of the application replacement funding in the Fiscal Year 2014 Budget;
however, it was unable to be completed due to other infrastructure and technology related projects
that took precedence.
31290
Technology Fund 682 275,000 Virtual Private Cloud: Reappropriating these funds will allow the IT Department to implement a
primary and redundant storage area network through the Virtual Private Cloud. This project was
approved as part of the infrastructure replacement funding in the Fiscal Year 2014 Budget, and the
Department was going to award the project prior to the end of Fiscal Year 2014; however, a vendor
could not be selected to meet that deadline. This funding will allow the project to be awarded at
one of the first Council Meetings of Fiscal Year 2015, and allow the Department time to select the
best vendor.
35600
Technology Fund 682 -Application Maintenance: Reappropriating these funds will allow the Information Technology (IT)
Department to fund maintenance and support costs, that are unbudgeted elsewhere in the City, for
various technology applications that are used by other City departments and need to be upgraded
to maintain functionality.
31290
520,000$ Total Other Funds Reappropriations
2,127,430$ Total- All Reappropriations
Attachment A, Exhibit 2 - Reappropriations.xlsx 4 11/18/2014,4:28 PM
Attachment C, Exhibit 2
Project Funding
Title Number Revenue Expense Source Comments
ADDITIONAL APPROPRIATIONS
Art Center Electrical and Mechanical Upgrades PF-07000 $13,000 Reduction to PF-93009 To transfer funds from PF-93009 (Americans
with Disabilities Act Compliance) to cover
expenditures at year end.
Transportation and Parking Improvements PL-12000 $46,000 Reduction to
Infrastructure Reserve
Increase to project due to higher than
anticipated expenditures.
Children's Theater Replacement & Expansion AC-09001 $7,600 Reduction to
Infrastructure Reserve
Increase to project due to higher than
anticipated expenditures.
Temporary Main Library PE-11012 $ 123,000 Reduction to
Infrastructure Reserve
To transfer funds from PE-11000 (Main Library
Construction) to cover expenditures at year
end.
Dimmer Replacement and Lighting System CC-09001 $6,000 Reduction to
Infrastructure Reserve
Increase to project due to higher than
anticipated expenditures.
Safe Routes to Schools PL-00026 $38,000 Reduction to
Infrastructure Reserve
Increase to project due to higher than
anticipated expenditures.
Curb and Gutter Repair PO-12001 $61,000 Reduction to
Infrastructure Reserve
Increase to project due to higher than
anticipated expenditures.
Total $- $ 294,600
REDUCTION IN APPROPRIATIONS
Americans With Disabilities Act Compliance PF-93009 $(13,000) Increase to PF-07000 To transfer funds to PF-07000 (Art Center
Electrical and Mechanical Upgrades) to cover
expenditures at year end.
Main Library Construction PE-11000 $ (123,000) Increase to PE-11012 To transfer funds to PE-11000 (Temporary
Main Library) to cover expenditures at year
end.
Total $ (136,000)
TOTAL GENERAL FUND CIP YEAR-END
ADJUSTMENTS
$- $ 158,600
FY 2014 CIP Year-end Adjustments
CAPITAL PROJECT FUND
Project Funding
Title Number Revenue Expense Source Comments
FY 2014 CIP Year-end Adjustments
ADDITIONAL APPROPRIATIONS
EL-89044 $ 18,000 Increase to project due to higher than
anticipated expenditures.
Total $ - $ 18,000
REDUCTION IN APPROPRIATIONS
EL-10008 $ (130,000) Reduction as project being placed on hold.
EL-10009 $ (300,000) Reduction as project being placed on hold.
EL-11014 $ (400,000) Reduction as project being placed on hold.
EL-89028 $ (700,000) Reduction as project being placed on hold.
EL-89038 $ (305,000) Reduction as project being placed on hold.
Total $ - $ (1,835,000)
TOTAL ELECTRIC FUND CIP MID-YEAR
ADJUSTMENTS
0 $ (1,817,000)
ELECTRIC FUND
Attachment D, Exhibit 3
Project Funding
Title Number Revenue Expense Source Comments
FY 2014 CIP Year-end Adjustments
ADDITIONAL APPROPRIATIONS
Directional Boring Machine GS-02013 $ 18,000 Gas Fund Reserves Increase to project due to higher than
anticipated expenditures.
Directional Boring Equipment GS-03007 $ 2,000 Gas Fund Reserves Increase to project due to higher than
anticipated expenditures.
Gas System, Customer Connections GS-80017 $ 60,000 Gas Fund Reserves Increase to project due to higher than
anticipated expenditures.
Total $ - $ 80,000
TOTAL GAS FUND CIP YEAR-END
ADJUSTMENTS
$ - $ 80,000
ADDITIONAL APPROPRIATIONS
Fiber Optics Customer Connections FO-10000 $ 23,000 Fiber Optics Fund
Reserves
Increase to project due to higher than
anticipated expenditures.
Total $ - $ 23,000
TOTAL FIBER OPTICS FUND CIP YEAR-END
ADJUSTMENTS
$ - $ 23,000
ADDITIONAL APPROPRIATIONS
Wastewater Collection
Rehabilitation/Augmentation Project 22
WC-09001 $ 140,000 Reduction to WC-10002 To transfer funds from WC-10002 (Wastewater
Collection Rehabilitation/Augmentation Project
23) to cover expenditures at year end.
Total -$ 140,000$
REDUCTION IN APPROPRIATIONS
Wastewater Collection
Rehabilitation/Augmentation Project 23
WC-10002 $ (140,000) Increase to WC-09001 To transfer funds to WC-09001 (Wastewater
Collection Rehabilitation/Augmentation Project
22) to cover expenditures at year end.
Total $ (140,000)
TOTAL WASTEWATER COLLECTION FUND CIP
YEAR-END ADJUSTMENTS
$ - $ -
FIBER OPTICS FUND
WASTEWATER COLLECTION FUND
GAS FUND
Attachment D, Exhibit 3
Project Funding
Title Number Revenue Expense Source Comments
FY 2014 CIP Year-end Adjustments
ADDITIONAL APPROPRIATIONS
Turnouts Regulator WS-07000 $ 74,000 Decrease to WS-08001 To transfer funds from WS-08001 (Wastewater
Reservoir Coating) to cover expenditures at
year end.
Emergency Water Supply WS-08002 $ 157,000 Decrease to WS-09000 To transfer funds from WS-09000 (Seismic
Water Tank) to cover expenditures at year end.
Water System, Customer Connections WS-80013 $ 81,000 Water Reserves Increase to project due to higher than
anticipated expenditures.
Total -$ 312,000$
REDUCTION IN APPROPRIATIONS
Water Reservoir Coating WS-08001 (74,000)$ Increase to WS-07000 To transfer funds to WS-07000 (Turnouts
Regulator) to cover expenditures at year end.
Seismic Water Tank WS-09000 (157,000)$ Increase to WS-08002 To transfer funds to WS-08002 (Emergency
Water Supply) to cover expenditures at year
end.
Total -$ (231,000)$
TOTAL WATER FUND CIP YEAR-END
ADJUSTMENTS
-$ 81,000$
WATER FUND
Attachment D, Exhibit 3
Exhibit 4
11/18/14
FY 2014 FY 2014 FY 2014 FY 2014 FY 2014 FY 2014 FY 2014
Adopted Adjusted CAFR Basis Allocated Encum+ Budgetary Variance
Budget Budget Rev/Exp Charges Reapprop Rev/Exp Adj Budget
Revenues
Sales Tax 23,846 27,352 29,424 n/a 29,424 2,072
Property Tax 29,613 30,251 30,587 n/a 30,587 336
Transient Occupancy Tax 11,545 12,318 12,255 n/a 12,255 (63)
Documentary Transfer Tax 5,699 7,395 7,811 n/a 7,811 416
Utility Users Tax 11,013 11,386 11,008 n/a 11,008 (378)
Other Taxes and Fines 2,107 2,107 2,136 n/a 2,136 29
Charges for Services 24,379 22,741 23,366 n/a 23,366 625
Permits and Licenses 8,346 7,952 7,546 n/a 7,546 (406)
Return on Investment 769 769 1,042 n/a 1,042 273
Rental Income 12,891 14,004 14,215 n/a 14,215 211
From Other Agencies 252 345 768 n/a 768 423
Charges to Other Funds 10,574 10,574 -10,947 n/a 10,947 373
Other Revenues 2,010 2,000 1,240 -n/a 1,240 (760)
Total Revenues 143,044 149,194 141,398 10,947 n/a 152,345 3,151
Add: Operating Transfers In 17,529 17,910 17,912 n/a 17,912 2
Prior Year Encum & Reapprop 5,571 5,585 n/a 5,585 14
Total Source of Funds 160,573 172,675 159,310 16,532 n/a 175,842 3,167
Expenditures
City Attorney 2,453 3,137 2,459 101 551 3,111 26
City Auditor 1,088 1,058 965 51 11 1,027 31
City Clerk 1,258 1,282 980 132 10 1,122 159
City Council 497 709 493 1 86 580 129
City Manager 2,499 3,092 2,754 108 216 3,078 13
Administrative Services 7,280 7,363 6,699 394 151 7,244 119
Community Services 22,700 23,888 17,868 4,699 835 23,402 487
Public Safety 60,962 63,628 57,111 5,350 942 63,403 225
People Strategy & Operations 3,265 3,761 2,962 167 493 3,622 139
Library 7,793 8,254 6,675 665 732 8,072 182
Planning & Community Environment 13,608 15,150 12,199 1,065 1,373 14,637 513
Public Works 13,751 14,380 10,557 2,626 955 14,138 242
Non-Departmental 1,228 639 1,142 -- 1,142 (503)
Cubberley Lease 7,268 7,268 7,271 --7,271 (3)
Total Expenditures 145,650 153,609 130,135 15,359 6,355 151,849 1,760
Add: Operating Trans Out 843 1,905 1,581 -1,581 324
Transfer to Infrastructure 13,226 17,234 17,234 -17,234 0
Total Use of Funds 159,719 172,748 148,950 15,359 6,355 170,664 2,085
Net Surplus/(Deficit)854 (73) 10,360 1,173 (6,355) 5,178 5,251
CAFR Reconciliation:Unrealized gain/loss on investments 285
Current year encumbrance/reappropriations 6,355
Prior Year encumbrances/reappropriations (5,585)
CAFR Net Income 6,233
GENERAL FUND SUMMARY ($000s)
2013-2014 Comprehensive Annual Financial Report
City of Palo Alto, California
FISCAL YEAR ENDED
June 30, 2014
Fiscal Year Ended
June 30, 2014
2013-2014
Comprehensive Annual
Financial Report
Prepared by:
Administrative Services Department
City of Palo Alto, California
CITY OF PALO ALTO
For the Year Ended June 30, 2014
Table of Contents
Page
INTRODUCTORY SECTION:
Transmittal Letter .................................................................................................................................... i
City Officials ........................................................................................................................................... vi
Organizational Structure ....................................................................................................................... vii
Administrative Services Organization .................................................................................................. viii
GFOA Certificate of Achievement for Excellence in Financial Reporting ............................................... ix
FINANCIAL SECTION:
Independent Auditor’s Report .............................................................................................................. 1
Management’s Discussion and Analysis
(Required Supplementary Information – Unaudited) ...................................................................... 5
Basic Financial Statements
Government‐wide Financial Statements:
Statement of Net Position ....................................................................................................... 29
Statement of Activities ............................................................................................................ 31
Governmental Fund Financial Statements:
Balance Sheet .......................................................................................................................... 33
Reconciliation of the Balance Sheet of Governmental Funds to
the Statement of Net Position ‐ Governmental Activities ................................................. 34
Statement of Revenues, Expenditures and Changes in Fund Balances .................................. 35
Reconciliation of the Statement of Revenues, Expenditures and Changes
in Fund Balances of Governmental Funds to the Statement of Activities –
Governmental Activities ................................................................................................... 36
Statement of Revenues, Expenditures and Changes in Fund Balance –
Budget and Actual – General Fund ................................................................................... 37
Proprietary Fund Financial Statements:
Statement of Net Position ....................................................................................................... 38
Statement of Revenues, Expenses and Changes in Fund Net Position ................................... 40
Statement of Cash Flows ......................................................................................................... 42
Fiduciary Fund Financial Statement:
Statement of Fiduciary Net Position ....................................................................................... 44
Index to the Notes to the Basic Financial Statements ................................................................. 45
Notes to the Basic Financial Statements ...................................................................................... 47
CITY OF PALO ALTO
For the Year Ended June 30, 2014
Table of Contents (Continued)
Page
Supplementary Information:
Non‐Major Governmental Funds:
Combining Balance Sheet ...................................................................................................... 101
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 102
Non‐Major Special Revenue Funds:
Combining Balance Sheet ...................................................................................................... 104
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 106
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 108
Non‐Major Debt Service Funds:
Combining Balance Sheet ...................................................................................................... 114
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 115
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 116
Non‐Major Permanent Fund:
Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 118
Internal Service Funds:
Combining Statement of Fund Net Position .......................................................................... 120
Combining Statement of Revenues, Expenses and
Changes in Fund Net Position ......................................................................................... 121
Combining Statement of Cash Flows ..................................................................................... 122
Fiduciary Funds:
Statement of Changes in Assets and Liabilities – All Agency Funds ...................................... 124
STATISTICAL SECTION:
Financial Trends:
Net Position by Component ......................................................................................................... 127
Changes in Net Position ............................................................................................................... 128
Fund Balances of Governmental Funds ....................................................................................... 130
Changes in Fund Balances of Governmental Funds ..................................................................... 132
CITY OF PALO ALTO
For the Year Ended June 30, 2014
Table of Contents (Continued)
Page
Revenue Capacity:
Electric Operating Revenue by Source ......................................................................................... 133
Supplemental Disclosure for Water Utilities ............................................................................... 134
Assessed Value of Taxable Property ............................................................................................ 135
Property Tax Rates, All Overlapping Governments ..................................................................... 136
Property Tax Levies and Collections ............................................................................................ 137
Principal Property Taxpayers ....................................................................................................... 138
Assessed Valuation and Parcels by Land Use .............................................................................. 139
Per Parcel Assessed Valuation of Single Family Residential ........................................................ 140
Debt Capacity:
Ratio of Outstanding Debt by Type .............................................................................................. 141
Computation of Direct and Overlapping Debt ............................................................................. 142
Computation of Legal Bonded Debt Margin ................................................................................ 143
Revenue Bond Coverage .............................................................................................................. 144
Demographic and Economic Information:
Taxable Transactions by Type of Business ................................................................................... 145
Demographic and Economic Statistics ......................................................................................... 146
Principal Employers...................................................................................................................... 147
Operating Information:
Operating Indicators by Function/Program ................................................................................. 148
Capital Asset Statistics by Function/Program .............................................................................. 150
Full‐Time Equivalent City Government Employees by Function .................................................. 152
SINGLE AUDIT SECTION:
Index to the Single Audit Report .................................................................................................. 153
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 ........................................ 155
Independent Auditor’s Report on Compliance for Each Major Program and
Report on Internal Control Over Compliance Required by OMB Circular A‐133 .................. 157
Schedule of Expenditures of Federal Awards .............................................................................. 159
Notes to the Schedule of Expenditures of Federal Awards ......................................................... 160
Schedule of Findings and Questioned Costs ................................................................................ 161
Schedule of Prior Years Findings and Questioned Costs ............................................................. 162
Introduction
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City of Palo Alto i
Transmittal Letter…………………………………………………...…
November 17, 2014
THE HONORABLE CITY COUNCIL
Palo Alto, California
Attention: Finance Committee
COMPREHENSIVE ANNUAL FINANCIAL REPORT
YEAR ENDED JUNE 30, 2014
Members of the Council and Citizens of Palo Alto:
I am pleased to present the Comprehensive Annual Financial Report (CAFR) for the fiscal year ended
June 30, 2014 in accordance with Article III, Section 16 and Article IV, Section 13 of the City of Palo
Alto Charter. The format and content of this CAFR comply with the principles and standards of
accounting and financial reporting adopted by the Governmental Accounting Standards Board (GASB)
and contains all information needed for readers to gain a reasonable understanding of City of Palo
Alto financial affairs. Management takes sole responsibility for the completeness and reliability of
the information contained in this report based upon a comprehensive framework of internal control
that it has established for this purpose. The objective of internal controls is to provide reasonable,
rather than absolute, assurance that the financial statements are free of any material misstatements.
The City 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 misstatements and are fairly presented in conformity with
generally accepted accounting principles (GAAP). Macias Gini & O’Connell issued an unmodified
opinion for the fiscal year ended June 30, 2014. 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
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ii City of Palo Alto
CITY OF PALO ALTO PROFILE
Palo Alto was incorporated in 1894 and named after a majestic coastal redwood tree which lives
along the San Francisquito Creek where early Spanish explorers settled. Located between the cities
of San Francisco and San Jose, Palo Alto is a largely built‐out community of approximately 67,000
residents. 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. It covers an
area of twenty‐six square miles and has dedicated almost one‐third of the area to open spaces of
parks and wildlife preserves. Public facilities include five libraries, four community centers, a cultural
arts center, an adult and children’s theater, a junior museum and zoo, and a golf course. The City
provides a diverse array of 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 consider and make recommendations on matters referred to it by the
Council relating to finance, budget, audits, capital planning and debt. 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 review of the City’s
financial position.
FISCAL/ECONOMIC CONDITIONS AND OUTLOOK
Employment Trends: The City of Palo Alto is located in the heart of Silicon Valley and is adjacent to
Stanford University, one of the premier institutions of higher education in the nation which has
produced much of the talent that founded many successful high‐tech companies in Palo Alto and
Silicon Valley. With varied and relatively stable employers such as Stanford University, Stanford
Medical Center, Palo Alto Medical Foundation, Palo Alto Unified School District, Stanford Shopping
Center and businesses such as Hewlett‐Packard, VMware, Tesla, Palantir and Space Systems Loral,
Palo Alto has enjoyed diverse employment and revenue bases. At the end of Fiscal Year (FY) 2014,
the City’s unemployment rate had dropped to 2.8 percent from 3.6 percent the prior year, as
compared to Santa Clara County’s unemployment rate of 5.4 percent, and the state’s unemployment
rate of 7.4 percent.
Real Estate Market: In its most recent annual report, the Santa Clara County Assessor’s Office noted
that Santa Clara County’s 2014/2015 assessment roll increased 6.8 percent, from $335 billion to $357
billion ‐ “the third highest roll growth in County history.” The assessment roll growth was balanced
throughout the County, with the highest growth rate in Milpitas at 9.7 percent and the lowest in
Monte Sereno at 5.3 percent. Palo Alto’s assessment roll growth rate was 6.5 percent. Property
sales and new construction were the primary factors contributing to the robust growth. With its
highly regarded school district, well‐educated and high‐income population, cultural amenities, and
Introduction
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City of Palo Alto iii
the presence of Stanford University, the City’s real estate values have typically been shielded from
major price swings.
Local Trends: The solid recovery from the Great Recession is anticipated to continue, as the majority
of national, state, regional and local economic indicators point toward continuously improving
economic growth. In the past two years, we have witnessed a continuing gradual increase in
economically sensitive revenue sources such as sales and documentary transfer taxes. The robust
local economy and job growth are also driving increases in other revenues, particularly transient
occupancy tax and permit and license revenues.
Overall, funding sources are expected to be sufficient to cover projected FY 2015 expenses, as
forecasted in the City’s Adopted Budget. The City Council adopted a General Fund budget with
expenses of $171.1 million for FY 2015, an increase of 7.1 percent from the prior year Adopted
Budget. Citywide, full‐time equivalent (FTE) benefited positions are increasing by 14.45 positions, or
1.4 percent, however the total budgeted position count for FY 2015 is still well below the number of
FTEs employed a decade ago. Pension and health care costs continue to rise. Employer pension
rates will increase substantially beginning in FY 2016 as a result of changes in the actuarial method
for calculating pension rates that were adopted by the CalPERS Board of Administration. The most
recent CalPERS valuations show unfunded liabilities for pension and retiree health benefits in the
range of $439 million, a significant increase from the prior valuation as a result of CalPERS changing
amortization and smoothing policies to use market value of assets instead of actuarial value. The
City has proactively taken steps over the past several years to mitigate increased costs by negotiating
increased employee contributions to the CalPERS retirement plan. Also, implementation of a second
tier retirement plan in 2011 and adoption of the state‐mandated third tier pension benefit plan in
2013 will help mitigate future pension cost increases. Similarly, the City is negotiating provisions
such as capping the City’s health care contributions as an additional measure to decrease the rate of
health care cost growth.
Economic growth has increased the demand for housing, parking, and other City services. These
issues were reflected in the setting of City Council priorities for 2014:
Comprehensive Planning and action on land use and transportation: the Built Environment,
Transportation, Mobility, Parking, and Livability
Infrastructure Strategy and Funding
Technology and the Connected City
In keeping with these priorities, City Council has approved funding for enhanced shuttle services and
establishment of a Transportation Management Authority. A newly formed Office of Sustainability
will oversee various sustainability initiatives, and the Public Art Program has been expanded to
facilitate oversight of the public art component of construction projects and manage the City’s
portable art collection. Major initiatives on the horizon include assuming management and control
of the Palo Alto Airport in August 2014 and a significant reconfiguration of the Palo Alto Municipal
Golf Course which will enhance playing conditions, improve wetland areas and achieve flood control.
The City’s infrastructure needs have been quantified as a result of a major effort by the Infrastructure
Blue Ribbon Commission (IBRC), and the recently formed Council Infrastructure Committee. The
Committee has proposed a five year plan to spend $126 million on infrastructure, which includes
projects such as a new Public Safety Building, a Bike and Pedestrian plan, and a downtown parking
garage. These projects will be funded partially by debt to be repaid with a proposed increase in the
Introduction
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iv City of Palo Alto
transient occupancy tax (TOT) rate and the TOT from newly opened hotels, and from other sources
such as impact fees and Stanford University Medical Center development agreement monies. The
City has taken steps to fund its infrastructure needs by increasing General Fund transfers by $2.2
million annually since 2013 for “keep up” costs. In addition, as a result of sound fiscal management
and reserve policies, General Fund surpluses of $7.6 million in FY 2012, $8.9 million in FY 2013, and
$4.0 million in FY 2014 were transferred to the Infrastructure Reserve.
The City’s Enterprise Funds implemented minimal rate changes in FY 2014. There were no changes in
electric, gas, wastewater and refuse rates. Water rates increased by 7 percent effective July 1, 2013.
The Fiber Optics and Storm Drainage Funds both implemented a 2.2 percent rate increase effective
July 1, 2013 for inflation based on the Consumer Price Index.
Long Range Financial Forecast: The City of Palo Alto produces a 10 year General Fund Long Range
Financial Forecast (LRFF) annually. This comprehensive report analyzes local, state, and federal
economic conditions, short and long‐term revenue and expense trends, and addresses challenges
such as funding retiree medical benefits 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 Council is conscientious and proactive in its financial planning. While the LRFF projects
General Fund surplus positions over the next ten years, the Council remains fiscally prudent in
approving new ongoing costs that will increase the City’s budget. Further, the City maintains a
General Fund Budget Stabilization Reserve (BSR) level of 15 to 20 percent of the General Fund
operating budget, with a targeted goal of 18.5 percent. City Council approval is required to set this
reserve balance lower than 15 percent. For FY 2014, after transferring $4.0 million to the
Infrastructure Reserve, the remaining BSR balance is $35.1 million, or 20.5 percent. $1.7 million was
set aside to balance the FY 2015 Operating Budget due to one‐time costs for expanded shuttle
service, establishing a Transportation Management Authority and the Our Palo Alto program, and
providing an additional loan to the Airport Fund. The remaining BSR balance of $33.4 million is
within reserve guidelines at 19.5 percent. 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.
SIGNIFICANT EVENTS AND ACCOMPLISHMENTS
The City of Palo Alto is a community dedicated to meeting the social, cultural, recreational,
educational, commercial and retail needs of its citizens and businesses. As such, open space,
education, recreational facilities, cultural events and safe streets and neighborhoods are important
aspects of the community, and the City has been recognized for its accomplishments with a variety of
awards and recognitions over the past year:
Named as #5 on the Top 100 Best Places to Live and #8 on the Top 10 Best Cities for Kids by
Livability.com, a website that ranks quality of life amenities of America’s small and mid‐sized
cities;
Awarded the Beacon Award for efforts and leadership in addressing climate change and
achieving greenhouse gas reductions and energy savings;
Introduction
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City of Palo Alto v
Named as a 2014 Top Innovator by the Urban Libraries Council for the Library’s makeX: Teen
Mobile Makerspace, a teen‐designed “third space” for middle and high school aged teens;
Named as the 2014 Most Electric Vehicle Ready Community;
Awarded the 2014 Best Solar Collaboration Award for streamlining the solar approval
process;
Awarded the MetLife Foundation Community‐Police Partnership Award for crafting an
extraordinary partnership with Downtown Streets Team, Business and Professional
Association, Parking Committee and the Police Department to improve community safety;
Named as the #1 digital city in America in its population size for its adoption of innovative
technologies such as Open Data, PaloAlto311, Nextdoor and Police ride‐a‐longs via Twitter,
all of which advance and facilitate interaction between City staff, the community, businesses
and visitors; and
Awarded the 2013 Dr. Teng‐chung Wu Pollution Prevention Award to the City’s Regional
Water Quality Control Plant for being a leader in emerging pollutants research, education
and programming.
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 2014
CAFR will be submitted to the GFOA award program to be considered for this distinguished financial
reporting award.
Acknowledgments: This CAFR reflects the hard work, talent and commitment of the staff members
of the Administrative Services Department. This document could not have been accomplished
without their efforts and each contributor deserves sincere appreciation. Management wishes to
acknowledge the support of 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 and Finance Committee for their
dedication to directing the financial affairs of the City in a responsible, professional and progressive
manner.
Respectfully submitted,
LALO PEREZ, JAMES KEENE,
Chief Financial Officer City Manager
Introduction
……….…………………………………………………………………
vi City of Palo Alto
City of Palo Alto City Officials ………………………….…………
Finance Committee
Marc Berman, Chair
Patrick Burt
Karen Holman
Liz Kniss
Policy and Services Committee
Gail A. Price, Chair
Larry Klein
Gregory Scharff
Greg Schmid
Council‐Appointed Officers
City Manager
James Keene
City Attorney
Molly Stump
City Clerk
Donna Grider
City Auditor
Harriet Richardson
City Council
Nancy Shepherd, Mayor
Liz Kniss, Vice‐Mayor
Marc Berman
Patrick Burt
Karen Holman
Larry Klein
Gail A. Price
Gregory Scharff
Greg Schmid
Introduction
……….…………………………………………………………………
City of Palo Alto vii
Assistant City Manager
(2) Vacant
City Attorney
Molly Stump
City Manager
James Keene
City Auditor
Harriet Richardson
City Clerk
Donna Grider
City of Palo Alto Organization ……………………………………
Palo Alto Residents
City Council
Community Services
Greg Betts, Director
Administrative Services
Lalo Perez, Chief Financial Officer
Fire
Eric Nickel, Chief
People Strategy and Operations
Kathryn Shen, Director
Police
Dennis Burns, Chief
Planning & Community Environment
Hillary Gitelman, Director
Utilities
Valerie Fong, Director
Public Works
Mike Sartor, Director
Library
Monique le Conge‐Ziesenhenne,
Director
Development Services
Peter Pirnejad, Director
Chief Communications Officer
Claudia Keith
Office of Emergency Services
Kenneth Dueker, Director
Office of Sustainability
Gil Friend, Chief Sustainability Officer
Information Technology
Jonathan Reichental,
Chief Information Officer
Introduction
……….…………………………………………………………………
viii City of Palo Alto
Administrative Services Organization …………………………
Administrative Division Treasury Division
Accounting Division Budget Division
Purchasing Division Real Estate Division
Mission Statement
To provide proactive administrative and technical support to
City departments and decision makers, and to safeguard and
facilitate the optimal use of City resources.
Administrative Services Department
Introduction
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City of Palo Alto ix
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, 2014, and the related notes to the financial
statements, which collectively comprise the City’s basic financial statements as listed in the table of
contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America and
the standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinions.
2
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the
respective financial position of the governmental activities, the business-type activities, each major fund,
and the aggregate remaining fund information of the City as of June 30, 2014, and the respective changes
in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison
for the General Fund for the year then ended in accordance with accounting principles generally accepted
in the United States of America.
Emphasis of Matter
Change in Accounting Principles
As discussed in Note 1(m) to the basic financial statements, effective July 1, 2013, the City adopted the
provisions of Governmental Accounting Standards Board (GASB) Statement No. 65, Items Previously
Reported as Assets and Liabilities. 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. The introductory section, combining and individual
nonmajor fund financial statements and schedules, statistical section and the schedule of expenditures of
federal awards, as required by 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 17, 2014 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 17, 2014
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, 2014. To obtain a complete understanding of the City’s financial
condition, this document should be read in conjunction with the accompanying Transmittal Letter and Basic
Financial Statements.
Financial Highlights
The assets and deferred outflows of resources of the City of Palo Alto (City) exceeded its liabilities at
the close of Fiscal Year (FY) 2014 by $1,387.1 million. Of this amount, $454.2 million represents
unrestricted net position, which may be used to meet the government’s ongoing obligations to
citizens and creditors.
At the close of FY 2014, the City’s governmental funds reported combined fund balances of $214.0
million, an increase of $3.1 million from prior year. Approximately 17.1 percent of this amount, or
$36.7 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 $42.1 million, or 27.5 percent
of total general fund expenditures, including transfers.
The City’s total outstanding long‐term debt decreased by $5.5 million during the current fiscal year
due primarily to scheduled debt retirement.
As of July 1, 2013, the City implemented GASB Statement No. 65, Items Previously Reported as Assets
and Liabilities. FY 2013 balances were restated to reflect the impact, as detailed in Note 1(m).
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
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.
Management’s Discussion and Analysis
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City of Palo Alto 6
For certain entities and funds, the City acts solely as a depository agent. For example, the City has several
Assessment Districts for which it produces fiduciary statements detailing the cash balances and activities of
these districts. These entities are independent, and their balances are excluded from the City’s government‐
wide financial statements.
Government‐wide Financial Statements
The Government‐wide Financial Statements provide a longer‐term view of the City’s activities as a whole.
They include the Statement of Net Position and the Statement of Activities.
The Statement of Net Position includes the City’s capital assets and long‐term liabilities on a full accrual basis
of accounting similar to that used by private sector companies. Over time, increases or decreases in net
position may serve as a useful indicator of whether the financial position of the City is improving or
deteriorating.
The Statement of Activities provides information about the City’s revenues and expenses on a full accrual
basis, with an emphasis on measuring net revenues or expenses for each of the City’s programs. The
Statement of Activities explains in detail the change in net position for the year. All changes in net position
are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of
related cash flows.
The amounts in the Statement of Net Position and the Statement of Activities are separated into
Governmental and Business‐type Activities in order to provide a summary of each type of activity.
Governmental Activities ‐ All of the City’s basic services are considered to be governmental activities. Included
in basic services are the City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative
Services, People Strategy and Operations, Public Works, Planning and Community Environment, Public Safety,
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 29‐31 of this report.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 7
Fund Financial Statements
The Fund Financial Statements provide detailed information about each of the City’s most significant funds
called major funds. The concept of major funds and the determination of which are major funds, was
established by Governmental Accounting Standards Board (GASB) Statement No. 34 and replaced the concept
of combining like funds and presenting them in total. Therefore, each major fund is presented individually,
with all non‐major funds combined in a single column on each fund statement. Subordinate schedules display
these non‐major funds in more detail. Major funds present the major activities of the City for the year. The
General Fund is always considered a major fund, but other funds may change from year to year as a result of
changes in the pattern of City activities.
The Fund Financial Statements display the City’s operations in more detail than the Government‐wide
Financial Statements. Their focus is primarily on the short‐term activities of the City’s General Fund and other
major funds 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.
Fund Financial Statements include Governmental, Enterprise, Internal Service and Agency 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 2014,
the City had two major governmental funds, the General Fund and the Capital Projects Fund. Data from the
other governmental funds are combined into a single aggregated presentation. Individual fund data for each
of these non‐major governmental funds is provided in the Supplemental section of this report.
Because the focus of governmental funds is narrower than that of the Government‐wide Financial Statements,
it is useful to compare the information presented for governmental funds with similar information presented
for governmental activities in the Government‐wide Financial Statements. By doing so, readers may better
understand the long‐term impact of the government’s near‐term financing decisions. Both the Governmental
Fund Balance Sheet and the Governmental Fund Statement of Revenues, Expenditures and Changes in Fund
Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental
activities.
The Governmental Fund Financial Statements can be found on pages 33‐37 of this report.
Proprietary Funds
Enterprise and Internal Service Fund Financial Statements are prepared on the full accrual basis of accounting,
similar to that used by private sector companies. These statements include all of their assets, deferred
outflows of resources and liabilities, both current and long‐term.
Since the City’s Internal Service Funds provide goods and services exclusively to the City’s governmental and
business‐type activities, their activities are only reported in total at the fund level. Internal Service Funds,
such as Technology and General Benefits, cannot be considered major funds because their revenues are
derived from other City funds. Revenues between funds are eliminated in the Government‐wide Financial
Statements, and any related profits or losses in Internal Service Funds are returned to the activities in which
they were created, along with any residual net assets of the Internal Service Funds.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 8
The Proprietary Fund Financial Statements can be found on pages 38‐43 of this report.
Fiduciary Funds
The City is the fiduciary agent for certain assessment districts such as the University Avenue Area Off‐Street
Parking Assessment District. In this role, the City holds money collected from property owners and awaiting
transfer to the districts’ bond trustees. The City’s fiduciary activities are reported in the separate Statement
of Fiduciary Net Position and the supplemental Agency Funds Statement of Changes in Assets and Liabilities.
These activities are excluded from the City’s other financial statements because the City cannot utilize these
assets to finance its own operations.
The Fiduciary Fund Financial Statements can be found on page 44 of this report.
Notes to the Financial Statements
The Notes provide additional information that is necessary to acquire a full understanding of the data provided
in the Government‐wide and Fund Financial Statements. The Notes to the financial statements can be found
on pages 47‐99 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 101‐124 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, 2014. As noted earlier, the City’s total assets exceed total
liabilities by $1,387.1 million at the end of the fiscal year, an improvement in net position of $52.8 million.
STATEMENT OF NET POSITION
As of June 30, 2014
(in millions)
2014 2013 * 2014 2013 * 2014 2013 *
Cash and investments 271.8$ 261.9$ 269.5$ 266.0$ 541.3$ 527.9$
Other assets 55.8 58.4 34.3 42.3 90.1 100.7
Capital assets 452.6 428.9 545.5 522.2 998.1 951.1
Total Assets 780.2 749.2 849.3 830.5 1,629.5 1,579.7
Unamortized loss from refunding ‐ ‐ 0.4 0.5 0.4 0.5
Total Deferred Outflows of Resources ‐ ‐ 0.4 0.5 0.4 0.5
Long‐term debt 80.9 82.6 76.2 80.0 157.1 162.6
Other liabilities 56.9 52.1 28.8 31.2 85.7 83.3
Total Liabilities 137.8 134.7 105.0 111.2 242.8 245.9
Net Position
Net investment in capital assets 386.7 378.1 473.8 446.1 860.5 824.2
Restricted 68.3 71.7 4.1 4.1 72.4 75.8
Unrestricted 187.4 164.7 266.8 269.6 454.2 434.3
Total Net Position 642.4$ 614.5$ 744.7$ 719.8$ 1,387.1$ 1,334.3$
* FY 2013 balances have been restated for GASB Statement No. 65 implementation.
Governmental
Activities
Business‐type
Activities
Government‐wide
Totals
The largest portion of the City’s net position (62.0 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 (5.2 percent) represents resources that are subject to external
restrictions on how they may be used. The remaining balance of $454.2 million, representing 32.8 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
……….……………………………………………………………………
City of Palo Alto 10
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.
Components of the $52.8 million increase in total net position are discussed in the following sections for
governmental activities and business‐type activities.
Governmental Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Governmental
Activities, presented in the Government‐wide Statement of Net Position and Statement of Activities.
GOVERNMENTAL ACTIVITIES
Net Position at June 30
(in millions)
Increase/
2014 2013 * (Decrease)
Cash and investments 271.8$ 261.9$ 9.9$
Other assets 55.8 58.4 (2.6)
Capital assets 452.6 428.9 23.7
Total Assets 780.2 749.2 31.0
Long‐term debt 80.9 82.6 (1.7)
Other liabilities 56.9 52.1 4.8
Total Liabilities 137.8 134.7 3.1
Net Position
Net investment in capital assets 386.7 378.1 8.6
Restricted 68.3 71.7 (3.4)
Unrestricted 187.4 164.7 22.7
Total Net Position 642.4$ 614.5$ 27.9$
* FY 2013 balances have been restated for GASB Statement No. 65 implementation.
The City’s Governmental Activities total net position increased $27.9 million to $642.4 million as of June 30,
2014. Changes in assets and liabilities were a result of the following:
Cash balance increased $9.9 million primarily due to collection of the $3.2 million Maybell loan and
an increase in accounts payable of $5.0 million for Library capital expenditures.
Other assets decreased $2.6 million primarily due to collection of the Maybell loan.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 11
Capital assets net of depreciation increased $23.7 million due to continued construction of the
Mitchell Park Library and Community Center ($4.2 million) and the Main Library ($11.7 million), and
net additions to the City’s network of roadways and sidewalks ($2.3 million).
Investment in capital assets increased $8.6 million to $386.7 million. Restricted net position
decreased $3.4 million to $68.3 million. Unrestricted net position increased $22.7 million to $187.4
million. Unrestricted net position represents 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 $166.4 million in FY 2014, a decrease
of $3.9 million from prior year revenues of $170.3 million.
GOVERNMENTAL ACTIVITIES
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2014 2013 (Decrease)
Program Revenues:
Charges for services 54.0$ 75.8$ (21.8)$
Operating grants and contributions 5.4 5.0 0.4
Capital grants and contributions 0.9 0.5 0.4
Total Program Revenues 60.3 81.3 (21.0)
General Revenues:
Property tax 35.3 31.9 3.4
Sales tax 29.4 25.6 3.8
Utility user tax 11.0 10.9 0.1
Transient occupancy tax 12.3 10.8 1.5
Documentary transfer tax 7.8 6.8 1.0
Other tax 1.8 3.7 (1.9)
Investment earnings 5.9 (1.2) 7.1
Rents and miscellaneous 2.6 0.5 2.1
Total General Revenues 106.1 89.0 17.1
Total Revenues 166.4$ 170.3$ (3.9)$
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 12
Total Program Revenues decreased $21.0 million from the prior year due to the following:
$8.6 million decrease in developer impact, housing in‐lieu, and transportation mitigation fees, all of
which vary depending on volume and magnitude of development projects.
$11.7 million decrease in receipts from a Development Agreement with Stanford Hospital Clinics,
Lucile Salter Packard Children’s Hospital at Stanford and the Board of Trustees of the Leland Stanford
Junior University (SUMC Parties). This was a one‐time payment received from SUMC in the prior fiscal
year.
Program Revenues such as charges for services, operating grants and contributions, and capital grants and
contributions are generated from or restricted to each activity.
General Revenues increased $17.1 million, or 19.2 percent, from the prior year, $7.1 million of which was due
to an increase in fair value of the investment portfolio at June 30. 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.
Program Revenues
36%
Property Tax
21%
Sales Tax
18%
Utility User Tax
7%
Transient Occupancy
Tax
7%
Documentary
Transfer Tax
5%
Other
6%
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 13
Governmental Activities – Expenses
The table below presents a comparison of FY 2014 and FY 2013 expenses by function, and interest and other
expense. Total Governmental Activities functional expense was $155.5 million in FY 2014, an increase of $15.8
million, or 11.3 percent. Of this increase, $7.3 million was a result of General Fund expenditures and the
variance drivers are explained in more detail in the Fund Financial Statements section of the MD&A. The
remaining $8.5 million variance is due primarily to fixed asset related activities such as depreciation and asset
retirements.
GOVERNMENTAL ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Activities 2014 2013 * (Decrease)
City Council 0.4$ 0.1$ 0.3$
City Manager 2.2 1.2 1.0
City Attorney 1.8 1.6 0.2
City Clerk 0.6 0.3 0.3
City Auditor 0.5 0.5 0.0
Administrative Services 11.3 7.6 3.7
People Strategy and Operations 1.3 1.4 (0.1)
Public Works 24.6 20.8 3.8
Planning and Community Environment 14.9 13.6 1.3
Public Safety 62.9 59.5 3.4
Community Services 23.8 22.7 1.1
Library 7.8 7.3 0.5
Interest and Other Expense 3.4 3.1 0.3
Total Functional Expense 155.5 139.7 15.8
Increase in Net Position
before Transfers 10.8 30.7 (19.9)
Transfers in 17.1 19.3 (2.2)
Change in Net Position 27.9 50.0 (22.1)
Net Position, Beginning,614.5 565.1 49.4
Restatement due to GASB 65 ‐ (0.6) 0.6
Net Position, Ending 642.4$ 614.5$ 27.9$
* FY 2013 balances have been restated for GASB Statement No. 65 implementation.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 14
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 People Strategy and Operations.
Administrative Services
7%
Public Works
16%
Interest and Other
Expense
2%
Planning and Community
Environment
10%
Public Safety
41%
Community Services
16%
Library
5%
All Other
3%
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/
2014 2013 * (Decrease)
Cash and investments 269.5$ 266.0$ 3.5$
Other assets 34.3 42.3 (8.0)
Capital assets 545.5 522.2 23.3
Total Assets 849.3 830.5 18.8
Unamortized loss from refunding 0.4 0.5 (0.1)
Total Deferred Outflows of Resources 0.4 0.5 (0.1)
Long‐term debt 76.2 80.0 (3.8)
Other liabilities 28.8 31.2 (2.4)
Total Liabilities 105.0 111.2 (6.2)
Net Position
Net investment in capital assets 473.8 446.1 27.7
Restricted 4.1 4.1 0.0
Unrestricted 266.8 269.6 (2.8)
Total Net Position 744.7$ 719.8$ 24.9$
* FY2013 balances have been restated for GASB Statement No. 65 implementation.
BUSINESS ‐TYPE ACTIVITIES
Net Position at June 30
(in millions)
The City’s Business‐type Activities total net position increased $24.9 million to $744.7 million as of
June 30, 2014.
Other assets decreased $8.0 million primarily as a result of lower accounts receivable balances of $5.7 million.
The lower accounts receivable balances are due primarily to:
$2.6 million in Electric Fund due to $0.9 million adjustment for a meter malfunction, with the
remainder due to a timing difference in billing of routes.
$2.1 million in Wastewater Treatment Fund due to the Regional Water Quality Control Plant (RWQCP)
discontinuing its practice of invoicing partners for encumbrances.
Capital assets increased $23.3 million to $545.5 million in FY 2014 as a result of Water, Electric and Gas
infrastructure improvements. Additions include $9.9 million of capital improvements in Water, $7.7 million of
capital improvements in Electric, and $5.7 million of capital improvements in Gas.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 16
Net investment in capital assets increased $27.7 million to $473.8 million.
Unrestricted net position of $266.8 million, a decrease of $2.8 million from the prior year, represents 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 $136.3 million,
the Electric special projects (Calaveras) reserve for stranded costs of $51.8 million, and the emergency plant
replacement reserve of $7.0 million.
Business‐type Activities – Revenues
The table below presents the revenues for each of the City’s Business‐type Activities or Enterprise Funds. The
City operates the Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse,
Storm Drainage and Airport Funds, which are major funds and are presented in the Basic Financial Statements.
BUSINESS‐TYPE ACTIVITIES
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2014 2013 (Decrease)
Program Revenues:
Charges for services 273.0$ 272.8$ 0.2$
Operating grants and contributions 0.5 0.6 (0.1)
Capital grants and contributions 2.0 2.2 (0.2)
Total Program Revenues 275.5 275.6 (0.1)
General Revenues:
Investment earnings (loss)6.4 (2.8) 9.2
Total General Revenues 6.4 (2.8) 9.2
Total Revenues 281.9$ 272.8$ 9.1$
Business‐type Activities revenues totaled $281.9 million, an increase of $9.1 million from the prior year.
Program revenues were flat year over year. Investment earnings increased $9.2 million from the prior year
due to an increase in fair value of the investment portfolio at June 30.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 17
Business‐type Activities – Expenses
The table below presents a comparison of the FY 2014 and FY 2013 expenses for the City’s Business‐type
Activities. Encumbrances and reappropriations are not included.
BUSINESS‐TYPE ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Business‐type Activities 2014 2013 * (Decrease)
Water 31.6$ 30.7$ 0.9$
Electric 113.0 106.5 6.5
Fiber Optics 1.7 1.4 0.3
Gas 26.9 26.8 0.1
Wastewater Collection 13.2 14.3 (1.1)
Wastewater Treatment 21.0 20.6 0.4
Refuse 28.4 28.6 (0.2)
Storm Drainage 3.6 3.7 (0.1)
Airport 0.5 0.2 0.3
Total Functional Expense 239.9 232.8 7.1
Increase in Net Position
before Transfers 42.0 40.0 2.0
Transfers out (17.1) (19.2) 2.1
Change in Net Position 24.9 20.8 4.1
Net Position, Beginning 719.8 699.8 20.0
Restatement due to GASB 65 ‐ (0.8) 0.8
Net Position, Ending 744.7$ 719.8$ 24.9$
* FY 2013 balances have been restated for GASB Statement No. 65 implementation.
Business‐type Activities expenses increased $7.1 million for a total of $239.9 million. Year over year expenses
were significantly affected by the following events:
Electric Fund expenses increased $6.5 million primarily due to increased energy purchase costs.
Wastewater Collection expenses decreased $1.1 million due to the RWQCP discontinuing its practice
of invoicing partners for encumbrances.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 18
FUND FINANCIAL STATEMENTS
Financial Analysis of Governmental Funds
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance‐related
legal requirements.
Governmental Funds
The focus of the City’s Governmental Funds is to provide information on near‐term inflows, outflows, and
balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In
particular, the unassigned fund balance may serve as a useful measure of a government’s net resources
available for discretionary use as it represents the portion of fund balance not yet limited to use for a particular
purpose by either an external party, the City itself, or an entity that has been delegated authority by the City
Council to assign resources for use.
As of June 30, 2014, the City’s Governmental Funds reported combined fund balances of $214.0 million, an
increase of $3.1 million from the prior year. Approximately 17.1 percent, or $36.7 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 ($21.1 million); 2) restricted for particular purposes ($68.5 million); 3) committed for
particular purposes ($27.1 million); or 4) assigned for particular purposes ($60.6 million).
Governmental Fund revenues decreased $6.1 million, or 3.6 percent, from prior year to $164.7 million.
Revenues in the General Fund increased $9.1 million and Capital Projects Fund revenue increased $1.4 million.
Other Governmental Funds revenue decreased by $16.5 million primarily due to $11.7 million less in receipts
from SUMC Parties Development Agreement, and a decrease in developer impact and other fees.
Governmental Fund expenditures were $179.1 million, an increase of $18.9 million from the prior year.
General Fund expenditures increased $7.3 million, Capital Projects Fund expenditures increased by $7.0
million, and Non‐major Fund expenditures increased by $4.6 million. Details of significant changes are
discussed in the following sections.
General Fund
Balance Sheet
The General Fund is the primary operating fund of the City. At the end of the current fiscal year, fund balance
of the General Fund was $48.3 million, compared to $42.1 million in the prior year. The fund balance has
been classified as $6.2 million non‐spendable, $5.4 million assigned, and $36.7 million unassigned. Of the
unassigned amount, $35.1 million is designated by the Council for budget stabilization. $1.7 million will be
used to fund one‐time expenses in the FY 2015 Operating Budget. The remaining balance of $33.4 million
represents 19.5 percent of FY 2015 expenditures and operating transfers which is within the reserve guidelines
set by City Council. Excess funds totaling $4.0 million 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 $141.7 million in FY 2014. This represents an increase of $9.1 million,
or 6.9 percent, compared to the prior year. The year over year change in significant revenue sources is noted
in the following table.
GENERAL FUND
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2014 2013 (Decrease)
Property tax 30.6$ 28.7$ 1.9$
Sales tax 29.4 25.6 3.8
Utility user tax 11.0 10.9 0.1
Transient occupancy tax 12.2 10.8 1.4
Documentary transfer tax 7.8 6.8 1.0
Charges for services 24.0 26.7 (2.7)
Permits and licenses 7.0 7.6 (0.6)
Rental income 14.2 12.9 1.3
All other 5.5 2.6 2.9
Total Revenues 141.7$ 132.6$ 9.1$
Property tax revenue increased by $1.9 million, or 6.6 percent, over FY 2013 for a total of $30.6 million. The
City’s property assessment roll growth of 6.5 percent was supplemented by better than expected receipts
from secured property taxes.
Sales tax revenue increased by $3.8 million, or 14.8 percent, over FY 2013 levels for a total of $29.4 million.
The increase was driven by strong retail activity in auto, electronic equipment, apparel store, restaurant, and
service station sales.
Transient occupancy tax continued to increase, and ended the year $1.4 million, or 13.0 percent, higher than
prior year due to strong business activity and increasing occupancy and room rates.
Documentary transfer tax increased $1.0 million to $7.8 million primarily due to a small number of high dollar
commercial property transactions.
Charges for services totaled $24.0 million in FY 2014, a decrease of $2.7 million from the prior year. The
decrease was primarily due to reduced golf course revenues of $0.8 million resulting from the course
reconfiguration project, reduced other fees of $0.6 million due to a one‐time adjustment to deposit accounts
in the prior year, and reduced net cable franchise fees of $0.7 million due to prior year under accrual of
expense.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 20
Rental income increased from prior year by $1.3 million due to increased revenue from Enterprise and Internal
Service Funds for renting space at City facilities.
All other revenue increased from prior year by $2.9 million to $5.5 million. The increase is due to an increase
in fair value of the investment portfolio at June 30.
Expenditures
General Fund expenditures totaled $134.5 million for FY 2014 compared to $127.2 in the prior year. This
amount excludes encumbrances and reappropriations. The year over year change for major functions is noted
in the following table:
GENERAL FUND
Expenditures for the Year Ended June 30
(in millions)
Increase/
Expenditures by Function 2014 2013 (Decrease)
Administrative Services 3.0$ 3.1$ (0.1)$
Public Works 11.5 11.5 ‐
Planning and Community Environment 13.2 11.8 1.4
Public Safety 61.7 59.5 2.2
Community Services 22.5 21.5 1.0
Library 7.3 6.9 0.4
Non‐Departmental 8.0 7.4 0.6
All other 7.3 5.5 1.8
Total Expenditures 134.5$ 127.2$ 7.3$
The increase from prior year of $7.3 million, or 5.7 percent, is comprised mainly of the following items:
Police salary expenditure has increased $0.7 million primarily due to fewer vacancies in the current
year.
Police disability expenditure has increased $0.6 million due to several significant long‐term cases.
Fire overtime expense has increased $0.7 million due to coverage for vacancies and long‐term injuries,
and support for succession planning and career development.
All other category has increased $1.8 million due to reduced cost plan revenue from other funds, and
increased Library expenditures for books of $0.4 million.
Planning and Community Environment expenditures have increased as a result of contract services
that were necessary due to increased development activity and the complexity of development
projects.
Transfers out for FY 2014 were $18.8 million compared to $25.1 million in the prior year. Of the $6.3 million
decrease, $4.9 million was a decrease in the amount of year‐end surplus funds transferred from the General
Fund to the Infrastructure Reserve in the Capital Projects Fund.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 21
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 $143.0 million and were revised upward by $11.7 million. Of this
increase, $5.6 million was to adjust for encumbrances. Revenue categories that were adjusted are shown in
the table below.
GENERAL FUND
Budgeted Revenues for the Year Ended June 30
(in millions)
Original Final Increase/
Budgeted Revenues Budget Budget (Decrease)
Sales tax 23.8$ 27.3$ 3.5$
Transient occupancy tax 11.5 12.3 0.8
Documentary transfer tax 5.7 7.4 1.7
Charges for services 24.3 22.7 (1.6)
Rental income 12.9 14.0 1.1
All other 54.3 54.9 0.6
132.5 138.6 6.1
Charges to other funds 10.5 10.5 ‐
Prior year encumbrances and appropriations 5.6 5.6
Total Budgeted Revenues 143.0$ 154.7$ 11.7$
Adjustments to the original budget were based on the following:
Sales tax was increased by $3.5 million primarily due to unexpected receipts from a single vendor in
the first two quarters of the year.
Transient occupancy tax was increased by $0.8 million due to higher occupancy rates, increased
average daily room rates, and increased business and visitor activity.
Documentary transfer tax was increased by $1.7 million based on increased real estate transactions
and higher transaction values.
Charges for services revenue was decreased by $1.6 million primarily due to reduced Stanford Fire
Services revenue of $0.8 million, reduced Development Services revenue of $0.4 million to provide
for unearned revenue at June 30, and reduced Golf Course revenue of $0.2 million due to the course
reconfiguration project.
Rental income was increased by $1.1 million due to additional rent from various Enterprise and
Internal Service Funds for space used at City facilities.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 22
Actual revenues of $141.4 million were $2.8 million higher than final budgeted revenues of $138.6 million due
primarily to sales tax revenue which was $2.1 million higher due to stronger than anticipated retail sales.
Expenditures were originally budgeted at $145.6 million and were revised upward by $8.0 million for a final
budgeted amount of $153.6 million, as shown in the table below.
GENERAL FUND
Budgeted Expenditures for the Year Ended June 30
(in millions)
Original Final Increase/ Actuals, plus
Budgeted Expenditures Budget Budget (Decrease) Encumbrances
City Attorney 2.5$ 3.1$ 0.6$ 3.1$
City Manager 2.5 3.1 0.6 3.1
Community Services 22.7 23.9 1.2 23.4
Public Safety 61.0 63.6 2.6 63.4
Planning and Community Enviornment 13.6 15.1 1.5 14.6
Public Works 13.8 14.4 0.6 14.1
All other 29.5 30.4 0.9 30.1
Total Budgeted Expenditures 145.6$ 153.6$ 8.0$ 151.8
Less: Charges to Other Funds (10.9)
Less: Encumbrances (6.4)
Net General Fund Expenditures 134.5$
Adjustments of $8.0 million to the original budget were primarily due to the following:
$5.6 million for carry‐forward of encumbrances from prior year.
$0.5 million adjustment for Measure D Ballot Measure in November 2014.
$0.2 million for Community Services park maintenance.
The final budgeted expenditure amount of $153.6 million compares to the actual expenditures plus
encumbrances of $151.8 million, a difference of $1.8 million. The lower than budgeted expenditures were
primarily due to non‐salary budget savings across General Fund departments.
Transfers out were originally budgeted at $14.1 million, with the final budget number at $19.1 million, an
increase of $5.0 million. The increase was due to an additional $4.0 million transfer to the Infrastructure
Reserve and $1.0 million transfer of collected Technology Enhancement Fees to the Information Technology
Fund. The actual transfers out for the year were $18.8 million, a difference of $0.3 million from final budget.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 23
Capital Projects Fund
Capital Projects Fund expenditures and other uses were $37.4 million in FY 2014, an increase of $6.8 million
from the prior year driven by construction and renovation of Mitchell Park Library and Community Center and
Main Library. This level of expenditure is consistent with the City’s effort to rehabilitate and maintain its
existing infrastructure.
Non‐major Funds
These funds are not presented separately in the Basic Financial Statements, but are individually presented as
Supplemental Information.
Financial Analysis of Enterprise Funds
At June 30, 2014, the City’s Enterprise Funds reported total net position of $742.4 million, an increase of $24.4
million or 3.4 percent over the prior year. The increase was primarily from the Water, Fiber Optics, Gas and
Wastewater Collection Funds for $11.0 million, $3.1 million, $3.3 million and $3.5 million, respectively.
Further analysis is noted in the following section. Unrestricted net position for the Enterprise Funds totaled
$264.4 million, a 1.1 percent decrease from FY 2013.
Following is a table which compares the year over year change in net position for each of the Enterprise Funds:
ENTERPRISE FUNDS
Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Fund Name 2014 2013 (Decrease)
Water 11.0$ 6.8$ 4.2$
Electric 1.7 1.9 (0.2)
Fiber Optics 3.1 2.8 0.3
Gas 3.3 1.3 2.0
Wastewater Collection 3.5 2.5 1.0
Wastewater Treatment (1.9) 0.8 (2.7)
Refuse 2.2 2.3 (0.1)
Storm Drainage 2.7 2.3 0.4
Airport (0.5) (0.2) (0.3)
Total Change in Net Position 25.1$ 20.5$ 4.6$
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 $11.0 million, an increase of $4.2 million from the prior
year. The increase is primarily due to a $2.5 million increase in operating revenues resulting from a 7
percent rate increase effective July 2013 and a $1.2 million increase in investment earnings. The
ending RSR balance is $20.1 million, an increase of $2.9 million from prior year.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 24
Gas ended the year with change in net position of $3.3 million, compared to $1.3 million in the prior
year, an increase of $2.0 million. The increase is due to a $0.8 million decrease in operating expenses
for the cross‐bore project and increased investment earnings of $1.1 million. The ending RSR balance
is $16.0 million, an increase of $4.7 million from prior year.
Wastewater Collection ended the year with change in net position of $3.5 million compared to $2.5
million in the prior year. The increased change in net position is primarily due to decreased operating
costs resulting from the RWQCP discontinuing its practice of invoicing partners for encumbrances.
The ending RSR balance is $7.3 million, an increase of $3.2 million from prior year.
Wastewater Treatment ended the year with a change in net position of negative $1.9 million,
compared to $0.8 million change in net position in FY 2013. The decrease of $2.7 million is due to the
RWQCP discontinuing its practice of invoicing partners for encumbrances.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 25
CAPITAL ASSETS
GASB 34 requires that the City record all its capital assets, including infrastructure and intangible assets.
Infrastructure includes roads, bridges, signals and similar assets used by the entire population. The table
below shows capital assets and the amount of accumulated depreciation for these assets for Governmental
and Business‐type Activities. Further detail can be found in Note 6 to the financial statements.
Increase/
2014 2013 (Decrease)
Governmental Activities
Capital Assets
Land and improvements 79.0$ 79.0$ ‐$
Street trees 15.2 15.4 (0.2)
Construction in progress 89.9 69.2 20.7
Buildings and improvements 134.6 133.7 0.9
Intangible assets 3.8 3.8 ‐
Equipment 11.9 10.9 1.0
Roadway network 291.3 282.3 9.0
Recreation and open space network 27.6 24.9 2.7
Less accumulated depreciation (215.1) (203.8) (11.3)
Internal Service Fund Assets
Construction in progress 3.1 1.4 1.7
Equipment 51.1 50.9 0.2
Less accumulated depreciation (39.8) (38.8) (1.0)
Total Governmental Activities 452.6$ 428.9$ 23.7$
Business‐type Activities
Land 5.0$ 5.0$ ‐$
Construction in progress 122.2 118.2 4.0
Buildings and improvements 34.1 33.3 0.8
Transmission, distribution and treatment systems 675.8 642.1 33.7
Less accumulated depreciation (291.6) (276.4) (15.2)
Total Business‐type Activities 545.5$ 522.2$ 23.3$
CAPITAL ASSETS AT JUNE 30
(in millions)
Governmental Activities’ capital assets net of depreciation increased by $23.7 million from the prior year. The
increase was primarily due to construction of Mitchell Park Library and Community Center, improvements to
the Main Library such as upgrades of structural, electrical and mechanical systems, and street and sidewalk
improvements throughout the City.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 26
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 funding mechanisms. The Commission issued
a report in December 2011 in which they identified “keep up” needs and capital expenditure “new and
replacement” needs. Subsequently, a Council Infrastructure Committee was formed, and they proposed a
five year spending plan of $126.0 million for infrastructure projects. In June 2014 City Council approved the
Committee’s project list and their funding plan which consists of projected increases in transient occupancy
tax revenues from opening of new hotels, a two percent increase in the tax, and other sources such as the
SUMC Development Agreement and the Infrastructure Reserve portion of the Capital Projects Fund. The City
is funding “keep up” costs from the General Fund at the rate of $2.2 million per year and, as a result of sound
fiscal management and reserve policies, General Fund surpluses totaling $20.5 million over the past three
years were transferred to the Infrastructure Reserve.
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 ‐ $5.6 million
Main Library ‐ $6.8 million
California Avenue Transit Hub Corridor ‐ $0.8 million
Business‐type Activities’ capital assets net of depreciation increased by $23.3 million over FY 2013. 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:
Seismic water system upgrade for Water Fund ‐ $2.4 million
Gas main replacement project for Gas Fund ‐ $6.3 million
Plant equipment replacement for Wastewater Treatment Fund ‐ $3.5 million
Wastewater Collection Fund rehabilitation/augmentation project ‐ $1.1 million
The City depreciates its capital assets over their estimated useful lives, as required by GASB 34. The purpose
of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable
portion of the cost of the asset is borne by all users. Additional information on capital assets and depreciable
lives are in Note 6.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 27
DEBT ADMINISTRATION
Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements. At June 30, 2014, the
City’s debt was comprised of the following:
LONG ‐TERM DEBT AT JUNE 30
(in millions)
Increase/
2014 2013 (Decrease)
Governmental Activities
General Long‐Term Obligations
Certificates of Participation
2002B Downtown Parking Improvements 1.5$ 1.6$ (0.1)$
General Obligation Bonds
2010 52.5 53.5 (1.0)
2013A 20.7 20.7 0.0
2011 Lease Purchase Agreement 2.0 2.4 (0.4)
Add: unamortized premium 4.2 4.4 (0.2)
Total Governmental 80.9$ 82.6$ (1.7)$
Business‐type Activities
Enterprise Long‐Term Obligations
Utility Revenue Bonds
1995 Series A 3.3$ 3.8$ (0.5)
1999 Refunding 11.0 11.6 (0.6)
2009 Se ries A 31.6 32.5 (0.9)
2011 Refunding 14.3 15.2 (0.9)
Add: unamortized premium 0.9 1.0 (0.1)
Energy Tax Credit Bonds
2007 Series A 0.8 0.9 (0.1)
Less: unamortized discount (0.1) (0.1)‐
State Water Resources Loan
2007 6.8 7.2 (0.4)
2009 7.6 7.9 (0.3)
Total Business‐type 76.2$ 80.0$ (3.8)$
Long‐term debt decreased $5.5 million, $5.1 million of which was due to debt retirements in accordance with
repayment schedules. The remaining $0.4 million was due to reclassification of unamortized loss on refunding
of debt to deferred outflow of resources.
As noted in the Statistical Section of the CAFR, the combined direct debt ratio to assessed valuation for the
General Fund is 0.32 percent compared to the allowable legal debt margin of 15 percent.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 28
SPECIAL ASSESSMENT DISTRICT DEBT
Special assessment districts throughout different parts of the City have also issued debt to finance
infrastructure and facilities construction exclusively in their districts. As of June 30, 2014, the City had no
special assessment district debt with City commitment outstanding.
ECONOMIC OUTLOOK
The economy of the City is discussed in the accompanying Transmittal Letter.
CONTACTING THE CITY’S FINANCIAL MANAGEMENT
The CAFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the
City’s finances. Questions about this report should be directed to the Administrative Services Department, at
250 Hamilton Avenue, 4th Floor, Palo Alto, California. The Department can also be contacted by email at:
adminsvcs@cityofpaloalto.org. This report and other financial reports can be viewed on the City of Palo Alto
website at: www.cityofpaloalto.org. On the home page, select Departments, select Administrative Services,
and select Financial Reporting. Within Financial Reporting, there are links to reports by title and reporting
date.
CITY OF PALO ALTO
Statement of Net Position
June 30, 2014
(Amounts in thousands)
Governmental Business‐Type
Activities Activities Total
ASSETS:
Cash and investments available for operations (Note 3)252,280$ 259,286$ 511,566$
Receivables, net:
Accounts and intergovernmental 9,985 26,640 36,625
Interest receivable 1,355 1,352 2,707
Notes and loans receivable (Note 5)18,520 ‐ 18,520
Internal balances (Note 4)(1,429) 1,429 ‐
Net OPEB asset (Note 12)22,610 ‐ 22,610
Due from other government agencies ‐ 4,500 4,500
Inventory of materials and supplies, prepaids and deposits 4,741 488 5,229
Restricted cash and investments with fiscal agents (Note 3)19,606 4,166 23,772
Restricted cash for post‐closure landfill (Note 3)‐ 5,907 5,907
Capital assets (Note 6):
Nondepreciable 190,691 127,152 317,843
Depreciable, net of accumulated depreciation 261,912 418,343 680,255
Total assets 780,271 849,263 1,629,534
DEFERRED OUTFLOWS OF RESOURCES:
Unamortized loss from refunding ‐ 412 412
LIABILITIES:
Accounts payable and accruals 14,456 15,540 29,996
Accrued salaries and benefits 3,154 1,465 4,619
Unearned revenue 2,384 352 2,736
Accrued compensated absences (Note 1):
Due in one year 3,912 ‐ 3,912
Due in more than one year 6,286 ‐ 6,286
Claims payable (Note 14):
Due in one year 5,665 ‐ 5,665
Due in more than one year 21,088 ‐ 21,088
Accrued landfill closure liability and post‐closure care (Note 9):
Due in more than one year ‐ 11,363 11,363
Long‐term debt (Note 7):
Due in one year 2,106 3,909 6,015
Due in more than one year 78,807 72,291 151,098
Total liabilities 137,858 104,920 242,778
NET POSITION (Note 10):
Net Investment in capital assets 386,696 473,795 860,491
Restricted for:
Special revenue programs 59,946 ‐ 59,946
Debt service 6,940 4,166 11,106
Nonexpendable ‐ Eyerly Family 1,445 ‐ 1,445
Total restricted net position 68,331 4,166 72,497
Unrestricted 187,386 266,794 454,180
Total net position $ 642,413 $ 744,755 $ 1,387,168
See accompanying notes to the basic financial statements.
29
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CITY OF PALO ALTO
Statement of Activities
For the Year Ended June 30, 2014
(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 387$ ‐$ ‐$ ‐$ (387)$ ‐$ (387)$
City Manager 2,180 ‐ ‐ ‐ (2,180) ‐ (2,180)
City Attorney 1,797 ‐ ‐ ‐ (1,797) ‐ (1,797)
City Clerk 641 ‐ ‐ ‐ (641) ‐ (641)
City Auditor 489 ‐ ‐ ‐ (489) ‐ (489)
Administrative Services 11,388 4,055 ‐ 917 (6,416) ‐ (6,416)
People Strategy and Operations 1,346 ‐ ‐ ‐ (1,346) ‐ (1,346)
Public Works 24,577 1,093 3,628 ‐ (19,856) ‐ (19,856)
Planning and Community Environment 14,926 12,896 1,289 ‐ (741) ‐ (741)
Public Safety 62,883 14,902 366 ‐ (47,615) ‐ (47,615)
Community Services 23,822 20,882 ‐ ‐ (2,940) ‐ (2,940)
Library 7,758 166 77 ‐ (7,515) ‐ (7,515)
Interest on long‐term debt 3,367 ‐ ‐ ‐ (3,367) ‐ (3,367)
Total Governmental Activities 155,561 53,994 5,360 917 (95,290) ‐ (95,290)
Business‐Type Activities:
Water 31,593 40,291 549 995 ‐ 10,242 10,242
Electric 113,004 121,916 ‐ ‐ ‐ 8,912 8,912
Fiber Optics 1,661 4,485 ‐ ‐ ‐ 2,824 2,824
Gas 26,869 35,737 ‐ ‐ ‐ 8,868 8,868
Wastewater Collection 13,235 15,599 ‐ 1,010 ‐ 3,374 3,374
Wastewater Treatment 21,018 18,460 ‐ ‐ ‐ (2,558) (2,558)
Refuse 28,413 30,297 ‐ ‐ ‐ 1,884 1,884
Storm Drainage 3,644 6,183 ‐ ‐ ‐ 2,539 2,539
Airport 466 ‐ ‐ ‐ ‐ (466) (466)
Total Business‐Type Activities 239,903 272,968 549 2,005 ‐ 35,619 35,619
Total 395,464$ 326,962$ 5,909$ 2,922$ (95,290) 35,619 (59,671)
General Revenues:
Taxes:
Property tax 35,299 ‐ 35,299
Sales tax 29,424 ‐ 29,424
Utility user tax 11,008 ‐ 11,008
Transient occupancy tax 12,255 ‐ 12,255
Documentary transfer tax 7,811 ‐ 7,811
Other taxes 1,849 ‐ 1,849
Investment earnings 5,859 6,379 12,238
Miscellaneous 2,575 ‐ 2,575
Transfers (Note 4)17,103 (17,103) ‐
Total general revenues and transfers 123,183 (10,724) 112,459
Change in net position 27,893 24,895 52,788
Net position, beginning of year, as previously reported 615,574 720,583 1,336,157
Restatement (Note 1(m))(1,054) (723) (1,777)
Net position, beginning of year, as restated 614,520 719,860 1,334,380
Net position, end of year 642,413$ 744,755$ 1,387,168$
See accompanying notes to the basic financial statements.
31
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CITY OF PALO ALTO
Governmental Funds
Balance Sheet
June 30, 2014
(Amounts in thousands)
Capital Other Total
General Projects Governmental Governmental
Fund Fund Funds Funds
ASSETS:
Cash and investments available for operations (Note 3)42,013$ 57,841$ 77,434$ 177,288$
Receivables, net:
Accounts and intergovernmental 8,761 177 412 9,350
Interest receivable 642 8 341 991
Notes and loans receivable (Note 5)900 ‐ 17,620 18,520
Prepaid items 352 ‐ ‐ 352
Advance to other fund (Note 4)935 ‐ ‐ 935
Inventory of materials and supplies 4,001 ‐ ‐ 4,001
Restricted cash and investments with fiscal agents (Note 3)‐ 19,368 238 19,606
Total assets 57,604$ 77,394$ 96,045$ 231,043$
LIABILITIES AND FUND BALANCES:
Liabilities:
Accounts payable and accruals 4,094$ 7,459$ 122$ 11,675$
Accrued salaries and benefits 2,852 112 17 2,981
Unearned revenue 2,348 36 ‐ 2,384
Total liabilities 9,294 7,607 139 17,040
Fund balances (Note 10):
Nonspendable:
Notes and loans receivable 900 ‐ 13,424 14,324
Prepaid items 352 ‐ ‐ 352
Inventories 4,001 ‐ ‐ 4,001
Advance to other fund 935 ‐ ‐ 935
Eyerly family ‐ ‐ 1,445 1,445
Restricted for:
Transportation mitigation ‐ ‐ 10,616 10,616
Federal revenue ‐ ‐ 4,457 4,457
Street improvement ‐ ‐ 758 758
Local law enforcement ‐ ‐ 113 113
Library bond project ‐ 15,006 ‐ 15,006
Public benefit ‐ ‐ 30,578 30,578
Debt service ‐ ‐ 6,940 6,940
Committed for:
Developer impact fees ‐ ‐ 11,085 11,085
Housing in‐lieu ‐ ‐ 14,491 14,491
Special districts ‐ ‐ 1,457 1,457
Downtown business ‐ ‐ 112 112
Assigned for:
Unrealized gains on investments 672 ‐ 430 1,102
Infrastructure ‐ 3,383 ‐ 3,383
Capital projects ‐ 51,398 ‐ 51,398
Other general government purposes 4,760 ‐ ‐ 4,760
Unassigned for:
Budget Stabilization 35,083 ‐ ‐ 35,083
Reappropriations 1,607 ‐ ‐ 1,607
Total fund balances 48,310 69,787 95,906 214,003
Total liabilities and fund balances 57,604$ 77,394$ 96,045$ 231,043$
See accompanying notes to the basic financial statements.
33
CITY OF PALO ALTO
Reconciliation of the Balance Sheet of Governmental Funds to
the Statement of Net Position ‐ Governmental Activities
June 30, 2014
Total fund balances reported on the governmental funds balance sheet 214,003$
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:
Capital assets used in governmental activities are not current assets or financial
resources and therefore are not reported in the governmental funds (Note 6)452,603
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)58,134
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 (1,414)
Long‐term debt (Note 7)(80,913)
Net position of governmental activities 642,413$
(Amounts in thousands)
See accompanying notes to the basic financial statements.
34
CITY OF PALO ALTO
Governmental Funds
Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2014
(Amounts in thousands)
Capital Other
General Projects Governmental
Fund Fund Funds Total
REVENUES:
Property tax 30,587$ ‐$ 4,712$ 35,299$
Special assessments ‐ ‐ 94 94
Sales tax 29,424 ‐ ‐ 29,424
Utility user tax 11,008 ‐ ‐ 11,008
Transient occupancy tax 12,255 ‐ ‐ 12,255
Documentary transfer tax 7,811 ‐ ‐ 7,811
Other taxes and fines 2,136 ‐ 2,095 4,231
Charges for services 23,962 ‐ ‐ 23,962
From other agencies 768 4,324 608 5,700
Permits and licenses 6,950 ‐ 2,040 8,990
Investment earnings 1,327 1,059 1,839 4,225
Rental income 14,215 ‐ 5 14,220
Other revenue 1,240 741 5,490 7,471
Total revenues 141,683 6,124 16,883 164,690
EXPENDITURES:
Current:
City Council 382 ‐ ‐ 382
City Manager 2,125 ‐ ‐ 2,125
City Attorney 1,793 ‐ ‐ 1,793
City Clerk 635 ‐ ‐ 635
City Auditor 487 ‐ ‐ 487
Administrative Services 3,033 ‐ 177 3,210
People Strategy and Operations 1,329 ‐ ‐ 1,329
Public Works 11,548 ‐ 891 12,439
Planning and Community Environment 13,209 ‐ 1,552 14,761
Public Safety 61,742 ‐ 286 62,028
Community Services 22,511 ‐ 133 22,644
Library 7,340 ‐ ‐ 7,340
Non‐Departmental 7,984 ‐ 151 8,135
Capital outlay ‐ 37,035 ‐ 37,035
Debt service:
Principal 374 ‐ 1,150 1,524
Interest and fiscal charges 55 82 3,059 3,196
Total expenditures 134,547 37,117 7,399 179,063
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 7,136 (30,993) 9,484 (14,373)
OTHER FINANCING SOURCES (USES):
Transfers in (Note 4)17,912 23,086 685 41,683
Transfers out (Note 4)(18,815) (260) (5,100) (24,175)
Total other financing sources (uses)(903) 22,826 (4,415) 17,508
Change in fund balances 6,233 (8,167) 5,069 3,135
FUND BALANCES, BEGINNING OF YEAR 42,077 77,954 90,837 210,868
FUND BALANCES, END OF YEAR 48,310$ 69,787$ 95,906$ 214,003$
See accompanying notes to the basic financial statements.
35
CITY OF PALO ALTO
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances
of Governmental Funds to the Statement of Activities ‐ Governmental Activities
For the Year Ended June 30, 2014
Net change in fund balances ‐ total governmental funds 3,135$
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 37,589
Depreciation expense is deducted from fund balance (depreciation expense is net of
internal service fund depreciation of $2,544 (Note 6), which has already been allocated
through the internal service fund activities below (11,229)
Disposal of capital assets (3,502)
Principal payments on long‐term liabilities are reported as expenditures in governmental
funds when paid. The governmental activities, however, report principal payments as
a reduction of long‐term debt on the statement of net position. Interest accrued on
long‐term debt and amortization of bond issuance costs and premiums do not require
the use of current financial resources and therefore are not reported as expenditures
in governmental funds. Therefore, the activities associated with long‐term debt are
as follows:
Principal paid during the year 1,524
Change in interest payable (329)
Amortization of bond premium 158
Internal service funds are used by management to charge the costs of activities, such
as insurance, equipment acquisition and maintenance, and employees benefits to
individual funds. The portion of the net revenue of these internal service
funds arising out of their transactions with governmental funds is reported with
governmental activities.547
Change in net position of governmental activities 27,893$
(Amounts in thousands)
See accompanying notes to the basic financial statements.
36
Variance with
Budgeted Amounts Final Budget
Actual, plus Positive
Original Final Encumbrances (Negative)
23,846$ 27,352$ 29,424$ 2,072$
29,613 30,251 30,587 336
11,545 12,318 12,255 (63)
Documentary transfer tax 5,699 7,395 7,811 416
11,013 11,386 11,008 (378)
2,107 2,107 2,136 29
24,379 22,741 23,962 1,221
8,346 7,952 6,950 (1,002)
769 769 1,042 273
12,891 14,004 14,215 211
252 345 768 423
2,010 2,000 1,240 (760)
132,470 138,620 141,398 2,778
10,574 10,574 10,947 373
‐ 5,571 5,584 13
143,044 154,765 157,929 3,164
2,453 3,137 3,111 26
1,088 1,058 1,027 31
1,258 1,282 1,122 160
497 709 580 129
2,499 3,092 3,078 14
7,280 7,363 7,244 119
22,700 23,888 23,402 486
60,962 63,628 63,403 225
3,265 3,761 3,622 139
7,793 8,254 8,072 182
13,608 15,150 14,637 513
13,751 14,380 14,138 242
8,496 7,907 8,413 (506)
145,650 153,609 151,849 1,760
(2,606) 1,156 6,080 4,924
17,529 17,910 17,912 2
(14,069) (19,139) (18,815) 324
3,460 (1,229) (903) 326
854$ (73)$ 5,177 5,250$
Unrealized gain/loss on investments 285
Current year encumbrances/reappropriations 6,355
Prior year encumbrances/reappropriations (5,584)
6,233
42,077
48,310$
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, 2014
(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
Public Safety
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)
People Strategy and Operations
Library
Planning and Community Environment
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:
CHANGE IN FUND BALANCE, GAAP BASIS
See accompanying notes to the basic financial statements.
37
Fiber
Water Electric Optics Gas
ASSETS:
Current assets:
Cash and investments available for operations (Note 3)35,770$ 133,501$ 19,616$ 28,113$
Accounts receivable, net 5,012 11,225 443 2,386
Interest receivable 180 677 91 158
Due from other government agencies ‐ ‐ ‐ ‐
Inventory of materials and supplies ‐ ‐ ‐ ‐
Restricted cash and investments with fiscal agents (Note 3)3,331 ‐ ‐ 835
Restricted cash for landfill closure (Note 3)‐ ‐ ‐ ‐
Total current assets 44,293 145,403 20,150 31,492
Noncurrent assets:
Due from other government agencies ‐ ‐ ‐ ‐
Deposit ‐ 113 ‐ ‐
Prepaid expense 125 ‐ ‐ ‐
Capital assets (Note 6):
Nondepreciable 51,100 18,562 1,256 13,523
Depreciable, net 61,826 158,603 6,259 83,902
Net OPEB asset (Note 12)‐ ‐ ‐ ‐
Total noncurrent assets 113,051 177,278 7,515 97,425
Total assets 157,344 322,681 27,665 128,917
DEFERRED OUTFLOWS OF RESOURCES:
Unamortized loss from refunding 155 ‐ ‐ 202
LIABILITIES:
Current liabilities:
Accounts payable and accruals 3,911 4,575 185 2,349
Accrued salaries and benefits 204 476 32 224
Unearned revenue ‐ ‐ ‐ ‐
Accrued compensated absences (Note 1)‐ ‐ ‐ ‐
Current portion of revenue bonds (Note 7)1,404 100 ‐ 536
Accrued claims payable (Note 14)‐ ‐ ‐ ‐
Total current liabilities 5,519 5,151 217 3,109
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)37,822 657 ‐ 7,906
Total noncurrent liabilities 37,822 657 ‐ 7,906
Total liabilities 43,341 5,808 217 11,015
NET POSITION (Note 10):
Net Investment in capital assets 73,700 176,408 7,515 88,983
Restricted for debt service 3,331 ‐ ‐ 835
Unrestricted (deficit)37,127 140,465 19,933 28,286
Total net position 114,158$ 316,873$ 27,448$ 118,104$
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, 2014
(Amounts in thousands)
See accompanying notes to the basic financial statements.
38
Governmental
Activities ‐
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
15,465$ 13,760$ 5,148$ 7,802$ 111$ 259,286$ 74,992$
1,798 2,100 3,035 641 ‐ 26,640 635
74 81 53 37 1 1,352 364
‐ 300 ‐ ‐ ‐ 300 ‐
‐ ‐ ‐ ‐ ‐ ‐ 388
‐ ‐ ‐ ‐ ‐ 4,166 ‐
‐ ‐ 5,907 ‐ ‐ 5,907 ‐
17,337 16,241 14,143 8,480 112 297,651 76,379
‐ 4,200 ‐ ‐ ‐ 4,200 ‐
‐ ‐ ‐ ‐ ‐ 113 ‐
‐ 250 ‐ ‐ ‐ 375 ‐
20,563 7,925 5,875 8,348 ‐ 127,152 3,094
54,278 31,449 244 21,782 ‐ 418,343 11,259
‐ ‐ ‐ ‐ ‐ ‐ 22,610
74,841 43,824 6,119 30,130 ‐ 550,183 36,963
92,178 60,065 20,262 38,610 112 847,834 113,342
‐ ‐ ‐ 55 ‐ 412 ‐
605 1,200 2,330 336 49 15,540 1,367
135 273 76 39 6 1,465 173
‐ ‐ ‐ 352 ‐ 352 ‐
‐ ‐ ‐ ‐ ‐ ‐ 3,912
77 1,252 ‐ 540 ‐ 3,909 ‐
‐ ‐ ‐ ‐ ‐ ‐ 5,665
817 2,725 2,406 1,267 55 21,266 11,117
‐ ‐ ‐ ‐ ‐ ‐ 6,286
‐ ‐ ‐ ‐ ‐ ‐ 21,088
‐ ‐ ‐ ‐ 935 935 ‐
‐ ‐ 11,363 ‐ ‐ 11,363 ‐
901 18,490 ‐ 6,515 ‐ 72,291 ‐
901 18,490 11,363 6,515 935 84,589 27,374
1,718 21,215 13,769 7,782 990 105,855 38,491
73,863 24,132 6,119 23,075 ‐ 473,795 14,353
‐ ‐ ‐ ‐ ‐ 4,166 ‐
16,597 14,718 374 7,808 (878) 264,430 60,498
90,460$ 38,850$ 6,493$ 30,883$ (878)$ 742,391 74,851$
2,364
744,755$
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
39
Fiber
Water Electric Optics Gas
OPERATING REVENUES:
Sales of utilities:
Customers 36,387$ 106,056$ 3,598$ 33,990$
City departments 2,061 3,225 749 852
Surplus energy ‐ 336 ‐ ‐
Service connection charges and miscellaneous 982 2,327 131 654
Charges for services ‐ ‐ ‐ ‐
Other 861 9,972 7 241
Total operating revenues 40,291 121,916 4,485 35,737
OPERATING EXPENSES:
Purchase of utilities:
Retail 15,705 68,089 ‐ 14,325
Surplus energy ‐ 697 ‐ ‐
Administrative and general 4,044 6,172 399 4,041
Engineering (operating)381 1,280 ‐ 352
Resource management and energy efficiency 570 6,726 ‐ 1,012
Operations and maintenance 4,986 9,489 909 4,119
Rent 2,192 3,860 51 429
Depreciation and amortization 1,734 7,504 303 2,282
Claims payments and changes in
estimated self‐insurance liability ‐ ‐ ‐ ‐
Refund of charges for services ‐ ‐ ‐ ‐
Compensated absences and other benefits ‐ ‐ ‐ ‐
Total operating expenses 29,612 103,817 1,662 26,560
Operating income (loss)10,679 18,099 2,823 9,177
NONOPERATING REVENUES (EXPENSES):
Investment earnings 975 3,122 433 706
Interest expense (1,915) (8,924) ‐ (282)
Loss on disposal of capital assets (66) (271) ‐ (27)
Other nonoperating revenues 549 ‐ ‐ ‐
Total nonoperating revenues (expenses)(457) (6,073) 433 397
Income (loss) before transfers and capital contributions 10,222 12,026 3,256 9,574
Capital contributions 995 ‐ ‐ ‐
Transfers in (Note 4)271 1,089 ‐ 151
Transfers out (Note 4)(530) (11,460) (134) (6,417)
Change in net position 10,958 1,655 3,122 3,308
NET POSITION (DEFICIT), BEGINNING OF YEAR, AS PREVIOUSLY REPORTED 103,595 315,262 24,326 114,901
RESTATEMENT (Note 1(m))(395) (44) ‐ (105)
NET POSITION (DEFICIT), BEGINNING OF YEAR, AS RESTATED 103,200 315,218 24,326 114,796
NET POSITION (DEFICIT), END OF YEAR 114,158$ 316,873$ 27,448$ 118,104$
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, 2014
(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
14,518$ 11,292$ 26,045$ 5,717$ ‐$ 237,603$ ‐$
69 6,915 790 346 ‐ 15,007 ‐
‐ ‐ ‐ ‐ ‐ 336 ‐
693 ‐ ‐ ‐ ‐ 4,787 ‐
‐ ‐ ‐ ‐ ‐ ‐ 77,167
319 253 3,462 120 ‐ 15,235 472
15,599 18,460 30,297 6,183 ‐ 272,968 77,639
6,863 ‐ 13,943 ‐ ‐ 118,925 ‐
‐ ‐ ‐ ‐ ‐ 697 ‐
1,322 ‐ 1,889 559 417 18,843 10,766
310 1,801 225 410 ‐ 4,759 ‐
‐ ‐ ‐ 305 ‐ 8,613 ‐
2,570 15,589 9,103 955 ‐ 47,720 21,481
217 ‐ 2,629 33 ‐ 9,411 ‐
1,907 2,858 13 897 ‐ 17,498 2,544
‐ ‐ ‐ ‐ ‐ ‐ 3,232
‐ ‐ ‐ ‐ ‐ ‐ 71
‐ ‐ ‐ ‐ ‐ ‐ 40,337
13,189 20,248 27,802 3,159 417 226,466 78,431
2,410 (1,788) 2,495 3,024 (417) 46,502 (792)
339 364 257 178 5 6,379 1,634
(54) (573) (617) (436) (49) (12,850) ‐
‐ ‐ ‐ ‐ ‐ (364) (155)
‐ ‐ ‐ ‐ ‐ 549 42
285 (209) (360) (258) (44) (6,286) 1,521
2,695 (1,997) 2,135 2,766 (461) 40,216 729
1,010 ‐ ‐ ‐ ‐ 2,005 ‐
42 59 124 14 ‐ 1,750 1,413
(241) ‐ (29) (42) ‐ (18,853) (1,818)
3,506 (1,938) 2,230 2,738 (461) 25,118 324
86,972 40,906 4,263 28,188 (417) 74,527
(18) (118) ‐ (43) ‐ ‐
86,954 40,788 4,263 28,145 (417) 74,527
90,460$ 38,850$ 6,493$ 30,883$ (878)$ 74,851$
(223)
24,895$
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
41
Fiber
Water Electric Optics Gas
Cash flows from operating activities:
Cash received from customers 37,939$ 111,361$ 4,639$ 34,689$
Cash refunds to customers ‐ ‐ ‐ ‐
Cash payments to suppliers for goods and services (25,910) (87,661) (1,015) (21,911)
Cash payments to employees (4,011) (6,097) (398) (4,018)
Internal activity‐ receipts (payment) from (to) other funds 2,061 3,225 749 852
Other receipts 861 9,972 7 241
Net cash provided by (used in)
operating activities 10,940 30,800 3,982 9,853
Cash flows from noncapital financing activities:
Receipt of loans from other funds ‐ ‐ ‐ ‐
Interest subsidy received from Build America Bond 549 ‐ ‐ ‐
Transfers in 271 1,089 ‐ 151
Transfers out (530) (11,460) (134) (6,417)
Cash flows provided by (used in) noncapital financing activities 290 (10,371) (134) (6,266)
Cash flows from capital and related financing activities:
Acquisition and construction of capital assets (8,149) (12,175) (507) (8,879)
Proceeds from sale of capital assets ‐ 24 ‐ ‐
Capital grants and contributions 995 ‐ ‐ ‐
Principal paid on long‐term debt (1,360) (100) ‐ (520)
Interest paid on long‐term debt (1,905) (8,923) ‐ (282)
Cash flows used in capital and related
financing activities (10,419) (21,174) (507) (9,681)
Cash flows from investing activities:
Interest received 982 3,228 428 758
Cash flows from investing activities 982 3,228 428 758
Net change in cash and cash equivalents 1,793 2,483 3,769 (5,336)
Cash and cash equivalents, beginning of year 37,308 131,018 15,847 34,284
Cash and cash equivalents, end of year $ 39,101 $ 133,501 $ 19,616 $ 28,948
Financial statement presentation:
Cash and investments available for operations 35,770$ 133,501$ 19,616$ 28,113$
Cash and investments with fiscal agent 3,331 ‐ ‐ 835
Cash and cash equivalents, end of year 39,101$ 133,501$ 19,616$ 28,948$
Reconciliation of operating income (loss) to
net cash provided by (used in) operating activities:
Operating income (loss)10,679$ 18,099$ 2,823$ 9,177$
Adjustments to reconcile operating income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 1,734 7,504 303 2,282
Other ‐ ‐ ‐ ‐
Change in assets and liabilities:
Accounts receivable 570 2,642 910 45
Inventory of materials and supplies ‐ ‐ ‐ ‐
Deposit ‐ (45) ‐ ‐
Net OPEB asset ‐ ‐ ‐ ‐
Accounts payable and accruals (2,076) 2,525 (55) (1,674)
Accrued salaries and benefits 33 75 1 23
Accrued compensated absences ‐ ‐ ‐ ‐
Unearned revenue ‐ ‐ ‐ ‐
Landfill closure and post‐closure care ‐ ‐ ‐ ‐
Accrued claims payable ‐ ‐ ‐ ‐
Net cash provided by (used in)
operating activities $ 10,940 $ 30,800 $ 3,982 $ 9,853
Business‐Type Activities‐Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Cash Flows
For the Year Ended June 30, 2014
(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
15,434$ 13,480$ 26,423$ 5,445$ ‐$ 249,410$ 77,945$
‐ ‐ ‐ ‐ ‐ ‐ (71)
(9,961) (18,789) (25,589) (1,823) ‐ (192,659) (21,697)
(1,295) ‐ (1,885) (554) (395) (18,653) (52,575)
69 6,915 790 346 ‐ 15,007 (4,224)
319 253 3,630 120 ‐ 15,403 42
4,566 1,859 3,369 3,534 (395) 68,508 (580)
‐ ‐ ‐ ‐ 325 325 ‐
‐ ‐ ‐ ‐ ‐ 549 ‐
42 59 124 14 ‐ 1,750 1,413
(241) ‐ (29) (42) ‐ (18,853) (1,818)
(199) 59 95 (28) 325 (16,229) (405)
(5,075) (3,253) (1,661) (1,451) ‐ (41,150) (3,652)
‐ ‐ ‐ ‐ ‐ 24 150
1,010 300 ‐ ‐ ‐ 2,305 ‐
(74) (1,216) ‐ (510) ‐ (3,780) ‐
(53) (556) (618) (435) (49) (12,821) ‐
(4,192) (4,725) (2,279) (2,396) (49) (55,422) (3,502)
354 381 256 180 5 6,572 1,657
354 381 256 180 5 6,572 1,657
529 (2,426) 1,441 1,290 (114) 3,429 (2,830)
14,936 16,186 9,614 6,512 225 265,930 77,822
$ 15,465 $ 13,760 $ 11,055 $ 7,802 $ 111 $ 269,359 $ 74,992
15,465$ 13,760$ 5,148$ 7,802$ 111$ 259,286$ 74,992$
‐ ‐ 5,907 ‐ ‐ 10,073 ‐
15,465$ 13,760$ 11,055$ 7,802$ 111$ 269,359$ 74,992$
2,410$ (1,788)$ 2,495$ 3,024$ (417)$ 46,502$ (792)$
1,907 2,858 13 897 ‐ 17,498 2,544
‐ ‐ ‐ ‐ ‐ ‐ 42
223 2,188 378 21 ‐ 6,977 306
‐ ‐ ‐ ‐ ‐ ‐ 204
‐ ‐ ‐ ‐ ‐ (45) ‐
‐ ‐ ‐ ‐ ‐ ‐ (759)
(1) (1,440) 311 (120) 21 (2,509) (918)
27 41 4 5 1 210 18
‐ ‐ ‐ ‐ ‐ ‐ (233)
‐ ‐ ‐ (293) ‐ (293) ‐
‐ ‐ 168 ‐ ‐ 168 ‐
‐ ‐ ‐ ‐ ‐ ‐ (992)
$ 4,566 $ 1,859 $ 3,369 $ 3,534 $ (395) $ 68,508 $ (580)
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
43
Agency
Funds
ASSETS:
Cash and investments available for operations (Note 3)2,919$
Restricted cash and investments with fiscal agents (Note 3)2,541
Account receivable 9
Interest receivable 14
Total assets 5,483$
LIABILITIES:
Due to bondholders 4,724$
Due to other governments 759
Total liabilities 5,483$
CITY OF PALO ALTO
Statement of Fiduciary Net Position
June 30, 2014
(Amounts in thousands)
See accompanying notes to the basic financial statements.
44
CITY OF PALO ALTO
Index to the Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
45
Page
1. Summary of Significant Accounting Policies ........................................................................... 47
2. Budgets and Budgetary Accounting ........................................................................................ 56
3. Cash and Investments ............................................................................................................. 57
4. Interfund Transactions ............................................................................................................ 61
5. Notes and Loans Receivable .................................................................................................... 63
6. Capital Assets .......................................................................................................................... 69
7. General Long‐Term Obligations .............................................................................................. 73
8. Special Assessment Debt ......................................................................................................... 80
9. Landfill Closure and Post‐Closure Care ................................................................................... 81
10. Net Position and Fund Balances .............................................................................................. 82
11. Pension Plans ........................................................................................................................... 84
12. Retiree Health Benefits ........................................................................................................... 88
13. Deferred Compensation Plan .................................................................................................. 91
14. Risk Management .................................................................................................................... 92
15. Joint Ventures .......................................................................................................................... 93
16. Commitments and Contingencies ........................................................................................... 96
17. Subsequent Event .................................................................................................................... 99
Notes are essential to present fairly the information contained in the overview level of the basic financial
statements. Narrative explanations are intended to communicate information that is not readily apparent
or cannot be included in the statements themselves, and to provide additional disclosures as required by
the Governmental Accounting Standards Board.
46
This page is left intentionally blank.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
47
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The City of Palo Alto (the City) was incorporated in 1894 and operates as a charter city, having had its first
charter granted by the State of California in 1909. The City operates under the Council‐Manager form of
government and provides the following services: public safety (police and fire), public works, electric, fiber
optics, water, gas, wastewater, storm drain, refuse, golf course, planning and zoning, general
administration services, library, open space and science, recreational and human services.
(a) Reporting Entity
The City is governed by a nine‐member council, elected by City residents. The City is legally
separate and fiscally independent, which means it can issue debt, set and modify budgets and
fees, and sue or be sued. The accompanying basic financial statements present the financial
activities of the City, which is the primary government presented, along with the financial
activities of its component unit, which is an entity for which the City is financially accountable.
Although a separate legal entity, a blended component unit is, in substance, part of the City’s
operations and is reported as an integral part of the City’s financial statements. The City’s
component unit described below is blended.
The Palo Alto Public Improvement Corporation (the Corporation) provides financing of public
capital improvements for the City through the issuance of Certificates of Participation (COPs), a
form of debt that allows investors to participate in a stream of future lease payments. Proceeds
from the COPs are used to construct projects that are leased to the City. The lease payments are
sufficient in timing and amount to meet the debt service requirements of the COPs. The Board of
Directors of the Corporation is composed of the same members as the City Council. The
Corporation is controlled by the City, which performs all accounting and administrative functions
for the Corporation. The financial activities of the Corporation are included in the Downtown
Parking Improvement Debt Service Fund.
Financial statements for the Corporation may be obtained from the City of Palo Alto,
Administrative Services Department, 4th Floor, 250 Hamilton Avenue, Palo Alto, CA 94301.
(b) Basis of Presentation
The City’s basic financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America. The Governmental Accounting Standards
Board (GASB) is the acknowledged standard setting body for establishing accounting and financial
reporting standards followed by governmental entities in the United States.
These standards require that the financial statements described below be presented:
Government‐wide Statements: The Statement of Net Position and the Statement of Activities
display information about the primary government and its component unit. These statements
include the financial activities of the overall City government, except for fiduciary activities.
Eliminations have been made to minimize the double counting of internal activities. However,
interfund goods and services transactions have not been eliminated in the consolidation process.
These statements distinguish between the governmental and business‐type activities of the City.
Governmental activities generally are financed through taxes, intergovernmental revenues, and
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
48
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) Basis of Presentation (Continued)
other non‐exchange transactions. Business‐type activities are financed in whole or in part by fees
charged to external parties.
The Statement of Activities presents a comparison between direct expenses and program
revenues for each segment of the business‐type activities of the City and for each function of the
City’s governmental activities. Direct expenses are those that are specifically associated with a
program or function and, therefore, are clearly identifiable to a particular function. Program
revenues include: (a) charges paid by the recipients for goods and services offered by the
programs, (b) grants and contributions that are restricted to meeting the operational needs of a
particular program, and (c) fees, grants and contributions that are restricted to financing the
acquisition or construction of capital assets. Revenues that are not classified as program
revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the City’s
funds, including fiduciary funds and its blended component unit. Separate statements for each
fund category – governmental, proprietary and fiduciary – are presented. The emphasis of fund
financial statements is on major individual governmental and enterprise funds, each of which is
displayed in a separate column. All remaining governmental and internal service funds are
aggregated and reported as non‐major funds.
Proprietary fund operating revenues, such as utilities sales and charges for services, result from
exchange transactions associated with the principal activity of the fund. Exchange transactions
are those in which each party receives and gives up essentially equal values. Nonoperating
revenues, such as subsidies and investment earnings, result from non‐exchange transactions or
ancillary activities.
Operating expenses for enterprise funds and internal service funds include the cost of sales and
services, administrative expenses, and depreciation on capital assets. All expenses not meeting
this definition are reported as nonoperating expenses.
(c) Major Funds and Other Funds
The City’s major governmental and enterprise funds need to be identified and presented
separately in the fund financial statements. All other funds, called non‐major funds, are combined
and reported in a single column, regardless of their fund type.
Major funds are defined as funds that have either assets and deferred outflows of resources,
liabilities and deferred inflows of resources, revenues or expenditures/expenses equal to at least
10 percent of their fund type total and at least 5 percent of the grand total. The General Fund is
always a major fund. The City may also select other funds it believes should be presented as major
funds on a qualitative basis.
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, 2014
49
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other 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 located in the City.
Wastewater Collection Services Fund – This fund accounts for all financial transactions relating
to the City’s wastewater collection service. Services are on a user‐charge basis to residents and
business owners located in the City.
Wastewater Treatment Services Fund – This fund accounts for all financial transactions relating
to the City’s wastewater treatment. Services are on a user‐charge basis to residents and business
owners located in the City.
Refuse Services Fund – This fund accounts for all financial transactions relating to the City’s refuse
service. Services are on a user‐charge basis to residents and business owners located in the City.
Storm Drainage Services Fund – This fund accounts for all financial transactions relating to the
City’s storm drainage service. Services are on a user‐charge basis to residents and business
owners located in the City.
Airport Fund – This fund accounts for all financial transactions relating to the Palo Alto Airport
(PAO). The City assumed control over operation of PAO from the County of Santa Clara, effective
August 11, 2014.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
50
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other 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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
51
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other Funds (Continued)
California Avenue Parking Assessment District – This fund accounts for the receipts and
disbursements associated with the 1993 Parking District No. 92‐13 Assessment Bonds.
Cable Joint Powers Authority – This fund accounts for the activities of the cable television system
on behalf of the members.
University Avenue Area Off‐Street Parking Assessment District – This fund accounts for the
receipts and disbursements associated with the 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, 2014
52
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Cash and Cash Equivalents
Restricted and unrestricted pooled cash and investments held in the City Treasury, and other
unrestricted investments invested by the City Treasurer, are considered cash equivalents for
purposes of the statement of cash flows because the City’s cash management pool and funds
invested by the City Treasurer possess the characteristics of demand deposit accounts. Other
restricted and unrestricted investments with maturities of less than three months at the time of
purchase are considered cash equivalents for purposes of the statement of cash flows.
(f) Investments
The City’s investments are carried at fair value, 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, is specified in employment agreements.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
53
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Compensated Absences (Continued)
During the fiscal year ended June 30, 2014, changes to the compensated absences were as follows
(in thousands):
Beginning balance 10,431$
Additions 6,484
Payments (6,717)
Ending balance 10,198$
Current portion 3,912$
(j) Property Tax
Santa Clara County (the County) assesses properties and bills, collects, and distributes property
taxes to the City. The County remits the entire amount levied and handles all delinquencies,
retaining interest and penalties.
The County assesses property values, levies bills and collects taxes as follows:
Secured Unsecured
Lien Dates January 01 January 01
Levy Dates October 01 July 01
Due Dates 50% on November 01 Upon receipt of billing
50% on February 01
Delinquent after December 10 (for November)August 31
April 10 (for February)
The term “unsecured” refers to taxes on personal property other than real estate, land and
buildings. These taxes are secured by liens on the property being taxed. Property tax revenues
are recognized by the City in the fiscal year they are assessed, provided they become available as
defined previously within sixty days after year‐end.
(k) Deferred Outflows of Resources and Deferred Inflows of Resources
A deferred outflow of resources is the consumption of net position that is applicable to a future
reporting period. A deferred inflow of resources is defined as an acquisition of net position
applicable to a future reporting period. Furthermore, GASB No. 65 reclassified certain items that
were previously reported as assets and liabilities to deferred outflows of resources and deferred
inflows of resources. Refer to Note 1(m) for the impact of this statement on the City’s financial
statements.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
54
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(l) Rounding
All amounts included in the basic financial statements and footnotes are presented to the nearest
thousand.
(m) Effects of New Pronouncements
As of July 1, 2013, the City implemented the following GASB Statements:
GASB Statement No. 65 issued March 2012, Items Previously Reported as Assets and Liabilities
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. Gains or losses between the net book value of debt and funds placed in escrow to
defease that debt are considered as deferred inflows or outflows of resources, respectively, and
are amortized over the remaining life of either the refunded debt or the refunding debt,
whichever is shorter.
As of July 1, 2013, the City implemented this Statement and restated beginning net position by
$1.1 million and $0.7 million to write off unamortized bond issuance costs that were previously
reported as assets in governmental activities and business‐type activities, respectively. Further,
unamortized loss on refunding of debts of $0.4 million was reclassified from contra liabilities to
deferred outflows of resources in three major enterprise funds – Water, Gas and Storm Drainage.
GASB Statement No. 66 was issued in March 2012, Technical Corrections – 2012 – an amendment
of GASB Statements No. 10 and No. 62, to resolve conflicting accounting and financial reporting
guidance that could diminish the consistency of financial reporting. As of July 1, 2013, the City
adopted this Statement, which does not have a significant impact on the City’s financial
statements.
GASB issued Statement No. 70 in April 2013, 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. As of July 1, 2013, the City adopted this Statement, which does not have a
significant impact on the City’s financial statements.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
55
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(m) Effects of New Pronouncements (Continued)
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. 68 issued June 2012, Accounting and Financial Reporting for Pensions – an
amendment of GASB Statement No. 27, establishes accounting and financial reporting
requirements for pension plans that are administered through trusts. Statement No. 68 requires
governments participating in single and agent multiple employer defined benefit plans to
recognize a liability equal to net pension liability. 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. 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 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 net pension liability be included in pension expense in the period of change.
The effects of certain other changes in the net pension liability are required to be included in
pension expense over current and future periods. It also requires that notes to financial
statements of single and agent employers include descriptive information, such as types of
benefits provided and number and classes of employees covered by the benefit terms, sources of
changes in net pension liability for the current year, significant assumptions and other inputs used
in 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. Requirements
of this Statement are effective for the City’s fiscal year ending June 30, 2015.
During January 2014, 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 the City’s fiscal year ending June 30, 2015.
During November 2013, GASB issued Statement No. 71, Pension Transition for Contributions Made
Subsequent to the Measurement Date – an amendment of GASB Statement No. 68. This Statement
improves the accounting and financial reporting by addressing an issue in Statement No. 68. The
issue relates to amounts associated with contributions, if any, made by a state or local
government employer or nonemployer contributing entity to a defined benefit pension plan after
the measurement date of the government’s beginning net pension liability. The requirements of
this Statement are effective for the City’s fiscal year ending June 30, 2015.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
56
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 proposed operating and capital budgets to the City Council for the fiscal
year commencing the following July 1. The operating budget includes proposed expenditures and the
means of financing them.
2. Public hearings are conducted to obtain comments on the proposed budgets.
3. The Budget is approved with the adoption of a budget ordinance for all funds except Agency Funds.
4. Per the Palo Alto Municipal Code, only the City Manager is authorized to reallocate funds from
contingency accounts maintained in the General Fund. Additional appropriations to departments in
the General Fund, or to total appropriations for all other budgeted funds, or transfers of
appropriations between funds, require approval by the City Council. Amendments to budgeted
revenue and expenditures are added to or subtracted from the Adopted Budget and the resulting
totals are reflected as Adjusted Budget amounts.
5. As defined in the Palo Alto Municipal Code, expenditures may not exceed budgeted appropriations at
the department level for the General Fund, and at the fund level for Enterprise, Special Revenue and
Debt Service Funds.
6. Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting
principles (GAAP), except that unrealized gains or losses are not recognized as investment earnings
on a budgetary basis and encumbrances are treated as budgetary expenditures when incurred.
7. Expenditures for the Capital Projects Fund are budgeted and maintained at a project level for the life
of the project. Budget to actual comparisons for these expenditures have been excluded from the
accompanying financial statements.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
57
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 252,280$ 259,286$ 2,919$ 514,485$
Restricted for post‐closure landfill ‐ 5,907 ‐ 5,907
Held with fiscal agents 19,606 4,166 2,541 26,313
Total cash and investments 271,886$ 269,359$ 5,460$ 546,705$
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, 2014
58
NOTE 3 – CASH AND INVESTMENTS (Continued)
The City must maintain required amounts of cash and investments with trustees under the terms of
certain debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if
the City fails to meet its obligations under these debt issues. The California Government Code requires
these funds to be invested in accordance with City ordinance, bond indentures or state statute. All of
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 A‐1 15% $3 million (B)
Local Agency Investment Fund N/A N/A No Limit
$50 million per
account
Short‐Term Repurchase Agreements 1 year N/A No Li mit 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
restrictive than the California Government Code.
Utility Revenue Bonds 2011 Refunding 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 fa ce value of the security is redeemable at the call date.
Utility Revenue Bonds 2011 Refunding and 1999 Refunding allow general obligations of states with a minimum
credit quality rating of A2/A by Moody's and Standard & Poor's.
Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a minimum credit quality ra ting of A‐1/P‐1 by
Moody's and Standard & Poor's and maturing after no more than 360 days. Utility Revenue Bonds 1995 Series A
limit the maximum maturity to 365 days.
Water Revenue Bonds 2009 Series A, Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a
minimum credit quality ra ting 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, 2014
59
NOTE 3 – CASH AND INVESTMENTS (Continued)
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates may adversely affect the fair value of an
investment. Normally, the longer the maturity of an investment, the greater the sensitivity 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 55,445$ 113,015$ 142,698$ 138,181$ 449,339$
U.S. Treasury Notes ‐ ‐ 6,891 4,345 11,236
Local Government Bonds ‐ ‐ ‐ 5,711 5,711
Money Market Mutual Funds 7,336 ‐ ‐ ‐ 7,336
Negotiable Certificates of Deposit ‐ 245 9,364 1,465 11,074
California Asset Management Program 21,885 ‐ ‐ ‐ 21,885
Local Agency Investment Fund 38,043 ‐ ‐ ‐ 38,043
Total Investments 122,709$ 113,260$ 158,953$ 149,702$ 544,624
Cash in bank and on hand 2,081
Total Cash and Investments 546,705$
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, 2014,
LAIF had a weighted average maturity of 232 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, 2014, the fair value approximated the City’s cost. CAMP had a weighted average
maturity of 41 days.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
60
NOTE 3 – CASH AND INVESTMENTS (Continued)
Money market mutual funds are available for withdrawal on demand and at June 30, 2014, had a weighted
average maturity of 34 days.
Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations
At June 30, 2014, the City’s investments (including investments held by bond trustees) include U.S. Federal
Agency Callable Securities in the amount of $121.1 million that are highly sensitive to interest rate
fluctuations (to a greater degree than already indicated in the information provided in the previous page).
These securities are subject to early redemption at par in a period of declining interest rates.
Credit Risk
Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the
investment. This is measured by the assignment of a rating by a nationally recognized statistical rating
organization. Presented below is the actual rating as provided by Standard & Poor’s investment rating
system as of June 30, 2014, for each investment type (in thousands):
Type of Investment Rating Total
U.S. Federal Agency Securities AA+ 449,339$
Local Government Bonds AAA 5,711
Money Market Mutual Funds AAAm 7,336
Total Investments 462,386
Not Applicable:
U.S. Treasury Notes 11,236
Not Rated:
California Asset Management Program 21,885
Local Agency Investment Fund 38,043
Negotiable Certificates of Deposit 11,074
Cash in bank and on hand 2,081
Total Cash and Investments 546,705$
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, 2014
(in thousands):
Investments Reporting Type Fair Value at Year‐End
Federal Home Loan Bank U.S. Federal Agency Securities 156,621$
Federal Agricultural Mortgage Corporation U.S. Federal Agency Securities 85,624
Federal National Mortgage Corporation U.S. Federal Agency Securities 73,129
Federal Farm Credit Bank U.S. Federal Agency Securities 54,575
Federal Home Loan Mortgage Corporation U.S. Federal Agency Securities 47,270
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
61
NOTE 3 – CASH AND INVESTMENTS (Continued)
Custodial Credit Risk
California law requires banks and savings and loan institutions to pledge government securities with a
market value of 110 percent of the City’s cash on deposit or first trust deed mortgage notes with a value
of 150 percent of the deposit as collateral for these deposits. Under California Law, this collateral is
considered held in the City’s name and places the City ahead of general creditors of the institution. The
City has waived collateral requirements for the portion of deposits covered by federal deposit insurance.
The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to
a transaction, the City will not be able to recover the value of its investment or collateral securities that
are in the possession of another party. The City’s Investment Policy limits its exposure to custodial credit
risk by requiring that all security transactions entered into by the City be conducted on a delivery‐versus‐
payment basis. Securities are to be held by a third‐party custodian.
NOTE 4 – INTERFUND TRANSACTIONS
Transfers Between Funds
With Council approval, resources may be transferred from one City fund to another. The purpose of the
majority of transfers is to subsidize a fund. Less often, a transfer may be made to open or close a fund.
Transfers between City funds during FY 2014 were as follows (in thousands):
Fund Making Transfer
Amount
Transferred
General Fund Nonmajor Governmental Funds 424$ A
Electric Services Fund 11,203 A
Gas Services Fund 5,811 A
Internal Service Funds 474 A
Capital Projects Fund General Fund 17,235 B
Nonmajor Governmental Funds 4,676 B
Water Services Fund 142 B
Electric Services Fund 134 B
Fiber Optics Fund 133 B
Gas Services Fund 134 B
Wastewater Collection Fund 133 B
Internal Service Funds 499 B
Nonmajor Governmental Funds General Fund 384 A
Capital Projects Fund 260 B
Water Services Fund 27 A
Internal Service Funds 14 A
Subtotal 41,683
Fund Receiving Transfer
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
62
NOTE 4 – INTERFUND TRANSACTIONS (Continued)
Fund Making Transfer
Amount
Transferred
Water Services Fund Gas Services Fund 92 B
Wastewater Collection Fund 92 B
Internal Service Funds 87 C
Electric Services Fund General Fund 33 D
Water Services Fund 333 B
Gas Services Fund 333 B
Internal Service Funds 390 C
Gas Services Fund Internal Service Funds 151 C
Refuse Services Fund Storm Drainage Services Fund 36 D
Internal Service Funds 88 C
Wastewater Collection Fund Internal Service Funds 42 C
Wastewater Treatment Fund Internal Service Funds 59 C
Storm Drainage Services Fund Internal Service Funds 14 C
Internal Service Funds General Fund 1,163 E
Water Services Fund 28 B
Electric Services Fund 123 B
Gas Services Fund 47 B
Wastewater Collection Fund 16 B
Refuse Services Fund 29 B
Storm Drainage Services Fund 6 B
Fiber Optics Fund 1 B
Subtotal 3,163
Total 44,846$
The reasons for these transfers are set forth below:
(A) Transfer to reimburse governmental funds 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, 2014
63
NOTE 4 – INTERFUND TRANSACTIONS (Continued)
Long‐Term Interfund Advance
On December 6, 2010, the City Council accepted an Airport Business Plan of the Palo Alto Airport (PAO)
and approved creation of the Airport Enterprise Fund to facilitate the transition of PAO control from
County of Santa Clara to the City. The Council approved a General Fund loan of $300,000 to the Airport
Enterprise Fund for environmental analysis, and 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 six years. On July 1, 2012, the City Council approved
an additional $310,000 short‐term loan from the General Fund with the same interest and repayment
terms for transition costs. A further $325,000 was loaned on July 1, 2013 with the same interest terms
and repayment terms of ten years. As of June 30, 2014, the total outstanding principal amount is
$935,000.
Internal Balances
Internal balances represent the net interfund receivables and payables remaining after the elimination of
all such balances within governmental and business‐type activities.
NOTE 5 – NOTES AND LOANS RECEIVABLE
At June 30, 2014, the City’s notes and loans receivable totaled (in thousands):
Palo Alto Housing Corporation:
Oak Manor Townhouse 334$
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
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 900
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 33,205
Less: Valuation Allowance (14,685)
Total Notes and Loans, Net 18,520$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
64
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Housing Loans
The City engages in programs designed to encourage construction or improvement in low‐to‐moderate
income housing or other projects. Under these programs, grants or loans are provided under favorable
terms to homeowners or developers who agree to spend these funds in accordance with the City’s terms.
These loans have been offset by nonspendable, restricted or committed fund balances, as they are not
expected to be repaid immediately.
Some of these loans contain forgiveness clauses that provide for the amount loaned to be forgiven if the
third party maintains compliance with the terms of the loan and associated regulatory agreements. Since
some of these loans are secured by trust deeds that are subordinated to other debt on the associated
projects or are only repayable from residual cash receipts on the projects, collectability of some of the
outstanding balances may not be realized. As a result of the forgiveness clauses and nature of these
housing projects and associated cash flows, a portion of the outstanding balances of the loans has been
offset by a valuation allowance.
Oak Manor Townhouse
On January 7, 1991, the City loaned $2.1 million to Palo Alto Housing Corporation Apartments, Inc.
(PAHCA, Inc.) 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,
annual loan payments are forgiven if the Corporation meets the objective of this project. During the year
ended June 30, 2014, the objective was met. The annual loan payment was forgiven for the calendar year
ended December 31, 2013.
Tree House Apartments
In March 2009, the City agreed to loan $2.8 million to Tree House Apartments, L.P. for the purchase of the
real property located at 488 West Charleston Road. The loan shall accrue simple interest at the rate of
three percent per annum. The loan consists of $1.8 million funded by Community Development Block
Grant funds and $1 million 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, 2014, the outstanding balance
for 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 it is acceptable to the other entities
providing final permanent sources of funds, payment of interest and principal based on the City’s
proportionate share of the project’s residual receipts from net operating income shall be made by the
borrower. In no event shall full payment be made by the borrower later than concurrently with the
expiration or earlier termination of the loan agreement, which is 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, 2014
65
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Alma Single Room Occupancy Development
On December 13, 1996, the City loaned $2.2 million to Alma Place Associates, L.P. for development of a
107‐unit single room occupancy development. This loan bears interest at 3 percent and is collateralized
by a subordinated deed of trust. Loan payments were deferred until May 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 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 will be forgiven if the borrower satisfactorily
complies with all terms and conditions of the loan agreement.
Sheridan Apartments
On December 8, 1998, the City loaned $2.5 million to 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 Palo Alto Housing Corporation. Annual loan payments were deferred until Palo
Alto Housing Corporation accumulated $1 million in the 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, L.P.
On August 18, 2003, in connection with the loan to Oak Court Apartments, L.P. discussed in the next
section, the City loaned $5.9 million to 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 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, 2014
66
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
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 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. The loan
bears simple interest at the rate of 3 percent per annum commencing with the date of the permanent
closing. On April 28, 2014, the City collected the outstanding amount of $3.2 million for the Maybell loan.
Palo Alto Gardens Apartments
On April 22, 1999, the City loaned $1 million to Mid‐Peninsula Housing Coalition (the Coalition) for the
purchase and rehabilitation of a 155‐unit complex for the continuation of low‐income housing. 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 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 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, 2014
67
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 invested funds of the City for the year ended June 30 plus one‐quarter of 1 percent. Principal
and interest payments are due bi‐weekly. Employees must pay any outstanding balance on their loans
within a certain period after ending employment with the City. As of June 30, 2014, 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, 2014 was approximately $356,000. The home
suffered substantial fire damage on May 3, 2014. The loss is covered by insurance and an assessment is
being made as to whether the home will be rebuilt.
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, 2014 is approximately $427,000. 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, 2014 was approximately $117,000.
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 2014, the City did not receive interest payments.
Stevenson Housing Fire Alarm
In December 2006, the City agreed to loan up to $48,000 to Palo Alto Senior Housing Project, Inc. to repair
and upgrade the existing fire alarm system at 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, 2014, 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
Apartments, Inc (PAHCA, Inc) to replace the water pipes. Repayment of the loan will not be required unless
the property is sold, the program is terminated or purpose of the program is changed without City’s
approval prior to July 1, 2033. The loan for this project is subordinated to the existing City loan with
PAHCA, Inc dated January 7, 1991 for the acquisition of the project site, which is discussed earlier in this
section.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
68
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Lytton Gardens Assisted Living
In June 2005, the City loaned $101,000 to Community Housing, Inc. to upgrade and modernize the existing
kitchens at the senior residential facility known as Lytton Gardens Assisted Living. The loan 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 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 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 complies with all terms and conditions of the agreement.
2811‐2825 Alma Street Acquisition
On October 9, 2011, the City agreed to loan $1.3 million to PAHC Properties Corporation (PAHC) to acquire
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 default, all remaining principal and interest shall be payable on the Restriction
Termination Date as defined in the agreement. As of June 30, 2014, the outstanding amount is $6.8
million.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
69
NOTE 6 – CAPITAL ASSETS
Valuation
Capital assets are valued at historical cost or estimated historical cost if actual historical cost is not
available. Contributed capital assets are valued at their estimated fair value on the date contributed. The
City’s policy is to capitalize all assets when costs are equal to or exceed $5,000 and the useful life exceeds
one year. Infrastructure assets are capitalized when costs are equal to or exceed $100,000.
Proprietary fund capital assets are recorded at cost including significant interest costs incurred under
restricted tax‐exempt borrowings, which finance the construction of capital assets. These interest costs,
net of interest earned on investment of proceeds of such borrowings, are capitalized and added to the
cost of capital assets during the construction period. Maintenance and repairs are expensed as incurred.
The City has recorded all its public domain capital assets, consisting of roadway and recreation and open
space, in its government‐wide financial statements. GASB Statement No. 34 requires that all capital assets
with limited useful lives be depreciated over their estimated useful lives. Alternatively, the “modified
approach” may be used for certain capital assets. Depreciation is not provided under this approach, but
all expenditures on these assets are expensed unless they are additions or improvements. The City has
elected to use the depreciation method for its capital assets. The purpose of depreciation is to spread the
cost of capital assets equitably among all users over the life of those assets. The amount charged to
depreciation expense each year represents that year’s pro rata share of the cost of capital assets.
Depreciation of capital assets is charged as an expense against operations each year and the total amount
of depreciation taken over the years, called accumulated depreciation, is reported on the statement of
net position as a reduction in the book value of capital assets.
Depreciation is calculated using the straight line method, which means the cost of the asset is divided by
its expected useful life in years, and the result is charged to expense each year until the asset is fully
depreciated. The City has assigned the useful lives listed below to capital assets.
Governmental Activities Years
Buildings and structures 20 ‐ 30
Equipment:
Computer equipment 3 ‐ 5
Office machinery and equipment 5
Machinery and equipment 5 ‐ 30
Intangible assets ‐ software 5‐20
Roadway network:
5 ‐ 40
Recreation and open space network:
25 ‐ 40
Business‐type Activities
Buildings and structures 25 ‐ 60
Vehicles and heavy equipment 3 ‐ 10
Machinery and equipment 10 ‐ 50
Transmission, distribution and treatment systems 10 ‐ 100
Includes pavement, striping and legends, curbs, gutters and sidewalks, parking lots,
traffic signage, and bridges
Includes major park facilities, park trails, bike paths and medians
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
70
NOTE 6 – CAPITAL ASSETS (Continued)
General Capital Assets
Changes in the City’s general capital assets during the year ended June 30, 2014 were (in thousands):
Balance Balance
July 1, 2013 Additions Retirements Transfers June 30, 2014
Governmental activities
Nondepreciable capital assets:
Land and improvements 79,047$ ‐$ ‐$ ‐$ 79,047$
Street trees 15,319 102 (244) ‐ 15,177
Intangible assets ‐ Easement 3,567 ‐ ‐ ‐ 3,567
Construction in progress 69,218 37,035 (3,258) (13,189) 89,806
Total nondepreciable capital assets 167,151 37,137 (3,502) (13,189) 187,597
Depreciable capital assets:
Buildings and structures 133,711 95 ‐ 794 134,600
Intangible assets ‐ Software 279 ‐ ‐ ‐ 279
Equipment 10,912 357 ‐ 649 11,918
Roadway network 282,298 ‐ ‐ 9,002 291,300
Recreation and open space network 24,888 ‐ ‐ 2,744 27,632
Total depreciable capital assets 452,088 452 ‐ 13,189 465,729
Less accumulated depreciation:
Buildings and structures (68,191) (3,171) ‐ ‐ (71,362)
Intangible assets ‐ Software (76) (65) ‐ ‐ (141)
Equipment (7,108) (386) ‐ ‐ (7,494)
Roadway network (120,383) (6,734) ‐ ‐ (127,117)
Recreation and open space network (8,089) (873) ‐ ‐ (8,962)
Total accumulated depreciation (203,847) (11,229) ‐ ‐ (215,076)
Depreciable capital assets, net 248,241 (10,777) ‐ 13,189 250,653
Internal service fund capital assets
Construction in progress 1,413 1,683 (2) ‐ 3,094
Equipment 50,919 1,975 (1,764) ‐ 51,130
Less accumulated depreciation (38,782) (2,544) 1,455 ‐ (39,871)
Net internal service fund capital assets 13,550 1,114 (311) ‐ 14,353
Governmental activities capital assets, net 428,942$ 27,474$ (3,813)$ ‐$ 452,603$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
71
NOTE 6 – CAPITAL ASSETS (Continued)
Business‐type Capital Assets
Changes in the City’s enterprise fund capital assets during the year ended June 30, 2014 were
(in thousands):
Balance Balance
July 1, 2013 Additions Retirements Transfers June 30, 2014
Business‐type activities
Nondepreciable capital assets:
Land and improvements 4,971$ ‐$ ‐$ ‐$ 4,971$
Construction in progress 118,176 41,058 ‐ (37,053) 122,181
Total nondepreciable capital assets 123,147 41,058 ‐ (37,053) 127,152
Depreciable capital assets:
Buildings and structures 33,380 ‐ ‐ 731 34,111
Transmission, distribution and treatment systems 642,149 63 (2,676) 36,322 675,858
Total depreciable capital assets 675,529 63 (2,676) 37,053 709,969
Less accumulated depreciation:
Buildings and structures (9,199) (649) ‐ ‐ (9,848)
Transmission, distribution and treatment systems (267,224) (16,869) 2,315 ‐ (281,778)
Total accumulated depreciation (276,423) (17,518) 2,315 ‐ (291,626)
Depreciable capital assets, net 399,106 (17,455) (361) 37,053 418,343
Business‐type activities capital assets, net 522,253$ 23,603$ (361)$ ‐$ 545,495$
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 amount allocated to each function or program is as follows (in thousands):
Governmental Activities Business‐type Activities
City Manager 42$ Water 1,759$
City Attorney 2 Electric 7,498
Administrative Services 1 Fiber Optics 303
Community Services 1,117 Gas 2,313
Public Safety 331 Wastewater Collection 1,907
Public Works 9,225 Wastewater Treatment 2,855
Planning and Community Environment 135 Refuse 13
Library 376 Storm Drainage 870
Internal Service Funds 2,544
13,773$ 17,518$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
72
NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress
Construction in progress as of June 30, 2014 is comprised of the following (in thousands):
Governmental Activities
Expended to
June 30, 2014
Mitchell Park Library & Community Center 40,218$
Main Library Construction & Improvements 18,366
Art Center Electrical & Mech Upgrades 8,015
Civic Center Infrastructure Improvements 6,528
Telephone Infrastructure and Network 1,698
California Avenue‐Transit Hub Corridor 1,471
VRF 1,396
Transportation and Parking Improvements 996
Furniture/Technology for Library Bond Prj 969
Street Maintenance 969
Highway 101 Pedestrian/Bicycle Overpass 961
Eleanor Pardee Park Improvement 738
Golf Reconfig and Baylands Athletic Center 737
Curb & Gutter Improvement 662
Library & Comm Center Temp Facilities 630
Magical Bridge Playground 613
Park Restroom Installation 569
City Hall First Floor Renovation 524
Other Construction In Progress 6,840
Total Governmental Activiites Construction In Progress 92,900$
Business‐type Activites
Expended to
June 30, 2014
Water system extension replacements and improvements 40,590$
Gas system extension replacements and improvements 7,306
Sewer system rehabilitation and extensions 5,256
Electric distribution system improvements 4,503
Water quality control plant equipment replacement and lab facilities 3,713
Storm drainage structural and water quality improvements 2,239
Other electrical improvements projects 821
Other construction in progress 57,753
Total Business‐type Activities Construction In Progress 122,181$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
73
NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress
Allocations of business‐type activity administration and general expenses of $11.4 million have been
capitalized and included in amounts expended to June 30, 2014.
Major governmental capital projects that are currently in progress, and the remaining capital commitment
of each, are as follows:
California Avenue Transit Hub Corridor ‐ $0.8 million
Main Library ‐ $6.8 million
Mitchell Park Library and Community Center ‐ $5.6 million
Major business‐type capital projects that are currently in progress, and the remaining capital commitment
of each, are as follows:
Seismic water system upgrade for Water Fund ‐ $2.4 million
Gas main replacement project for Gas Fund ‐ $6.3 million
Plant equipment replacement for Wastewater Treatment Fund ‐ $3.5 million
Wastewater Collection Fund rehabilitation/augmentation project ‐ $1.1 million
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS
Long‐Term Obligations
Bond premiums and discounts of long‐term debt issues are amortized over the life of the related debt.
The City’s long‐term debt issues and transactions, other than special assessment debt discussed in Note 8,
are as follows (in thousands):
Original Balance Balance Current
Issue Amount July 1, 2013 Additions Retirements June 30, 2014 Portion
Governmental Activities Debt:
General Long‐Term Obligations:
2002B Downtown Parking Improvements,
Certificates of Participation,
2 ‐ 4%, due 03/01/2022
3,555$ 1,560$ ‐$ 130$ 1,430$ 145$
General Obligation Bonds 2010,
2 ‐ 5%, due 08/01/2040
55,305 53,540 ‐ 1,020 52,520 1,050
2011 Lease‐Purchase Agreement 3,222 2,400 ‐ 374 2,026 383
General Obligation Bonds 2013A,
2 ‐ 5%, due 08/01/2043
20,695 20,695 ‐ ‐ 20,695 370
Add: Unamortized Premium ‐ 4,400 ‐ 158 4,242 158
Total Governmental Activities Debt 82,777$ 82,595$ ‐$ 1,682$ 80,913$ 2,106$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
74
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
Original Issue
Amount
Balanace
July 1, 2013, as
reclassed Additions Retirements
Balance,
June 30, 2014
Current
'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$ 3,779$ ‐$ 445$ 3,334$ 475$
1999 Refunding,
3.25‐5.25%, due 06/01/2024
17,735 11,585 ‐ 605 10,980 635
2009 Series A,
1.80‐5.95%, due 06/01/2035
35,015 32,500 ‐ 885 31,615 915
2011 Refunding,
1.80‐5.95%, due 06/01/2035
17,225 15,240 ‐ 945 14,295 975
Add: Unamortized Premium ‐ 980 ‐ 70 910 ‐
Energy Tax Credit Bonds
2007 Series A, 0%, Due 12/15/2021 1,500 900 ‐ 100 800 100
Less: Unamortized Discount (49) ‐ (6) (43) ‐
State Water Resources Loans
2007, 0%, due 06/30/2029 9,000 7,200 ‐ 450 6,750 450
2009, 2.6%, due 11/30/2030 8,500 7,909 ‐ 350 7,559 359
Total Business‐type Activities Debt 97,615$ 80,044$ ‐$ 3,844$ 76,200$ 3,909$
Description of Long‐Term Debt Issues
2002B Downtown Parking Improvements 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 making
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 bonds ends upon repayment of the $52.5 million
principal and $40.6 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, 2014
75
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
2013A 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 making 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 bonds ends upon repayment of the $20.7 million
principal and $15.2 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, Fiber Optics Fund and Airport Fund. Principal payments are payable
annually on June 1 and interest payments semi‐annually on June 1 and December 1. 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 May 1, 2013, Ambac Financial emerged from bankruptcy protection, which had been filed under
Chapter 11 of the Bankruptcy Code in November 2010. Ambac Assurance remains subject to rehabilitation
proceedings undertaken by the Wisconsin Office of the Commissioner of Insurance. No assurance can be
made regarding the claims paying ability of Ambac Assurance on the surety bonds described above.
The pledge of future Net Revenues for the above bonds ends upon repayment of the $3.3 million principal
and $0.8 million interest as the remaining debt service on the bonds, which is scheduled to occur in FY
2020. For FY 2014, Net Revenues, including operating revenues and non‐operating interest earnings,
amounted to $243.9 million; operating costs, including operating expenses but not interest, depreciation
or amortization, amounted to $179.4 million. Net Revenues available for debt service amounted to $64.5
million, which represented coverage of 94.7 times over the $0.7 million in debt service.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
76
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
1999 Utility Revenue and Refunding Bonds – The City issued $17.7 million of Utility Revenue Bonds on
June 1, 1999, to refund the 1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue
Bonds, Series A, and to finance rehabilitation of 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 May 1, 2013, Ambac Financial emerged from bankruptcy protection, which had been filed under
Chapter 11 of the Bankruptcy Code in November 2010. Ambac Assurance remains subject to rehabilitation
proceedings undertaken by the Wisconsin Office of the Commissioner of Insurance. No assurance can be
made regarding the claims paying ability of Ambac Assurance on the surety bonds described above.
The pledge of future Net Revenues for the above bonds ends upon repayment of the $11.0 million
principal and $3.8 million interest as the remaining debt service on the bonds, which is scheduled to occur
in FY 2024. For FY 2014, Net Revenues, including operating revenues and non‐operating interest earnings,
amounted to $41.1 million; operating costs, including operating expenses but not interest, depreciation
or amortization, amounted to $30.9 million. Net Revenues available for debt service amounted to $10.2
million, which represents coverage of 8.44 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 CREBs do not bear interest. In lieu of receiving
periodic interest payments, bondholders are allowed annual federal income tax credits in an amount
equal to a credit rate for such CREBs multiplied by the outstanding principal amount of the CREBs owned
by the bondholders. The CERBs are payable solely from and secured solely by a pledge of the Net Revenues
of the Electric system and the other funds pledged under the Indenture.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
77
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
The pledge of future Electric Fund Net Revenues ends upon repayment of the $0.8 million remaining debt
service on the bonds, which is scheduled to occur in FY 2022. For FY 2014, Net Revenues, including
operating revenues and non‐operating interest earnings, amounted to $125.0 million; operating costs,
including operating expenses but not interest, depreciation or amortization, amounted to $96.3 million.
Net Revenues available for debt service amounted to $28.7 million, which represented coverage of
287 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 $549 thousand, which represents 33.5 percent of the interest payments due on
December 1 and June 1.
The pledge of future Net Revenues for the above bonds ends upon repayment of the $31.6 million
principal and $22.2 million interest as the remaining debt service on the bonds, which is scheduled to
occur in FY 2035. For FY 2014, Net Revenues, including operating revenues and non‐operating interest
earnings, amounted to $41.3 million; operating costs, including operating expenses but not interest,
depreciation or amortization, amounted to $27.9 million. Net Revenues available for debt service
amounted to $13.4 million, which represented coverage of 5.22 times over the $2.6 million in debt service.
2011 Utility Revenue Refunding Bonds – On September 8, 2011, the City issued $17.2 million in Lease
Revenue Bonds (2011 Bonds) to refund the outstanding 2002 Series A Utility Revenue Bonds (2002 Bonds)
on a current basis. The 2002 Bonds were issued to finance improvement to the City’s municipal water
utility system and the natural gas utility system. Principal of the 2011 Bonds is payable annually on June
1, and interest on the 2011 Bonds is payable semi‐annually on June 1 and December 1. The 2011 Bonds
are secured by net revenues generated by the Water Services and Gas Services Funds.
The pledge of future Net Revenues of the above bonds ends upon repayment of the $14.3 million principal
and $3.2 million interest as remaining debt service on the bonds, which is scheduled to occur in FY 2035.
For FY 2014, Net Revenues, including operating revenues and non‐operating interest earnings, amounted
to $77.7 million; operating costs, including operating expenses but not interest, depreciation or
amortization, amounted to $52.2 million. Net Revenues available for debt service amounted to $25.5
million, which represented coverage of 17.6 times over the $1.5 million in debt service.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
78
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
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. Principal payments are payable annually on June 30.
Concurrently with the loan, the City entered into various other agreements including a cost sharing
arrangement with the City of Mountain View. Pursuant to that agreement, City of Mountain View agreed
to finance a portion of the project with a $6 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 $8.5 million loan agreement
with SWRCB to finance the City’s Ultraviolet Disinfection project. Principal and interest payments are
payable annually on November 30.
Debt Service Requirements (in thousands):
Debt service requirements are shown below for all long‐term debt.
For the Year Ending
June 30 Principal Interest Total Principal Interest Total
2015 1,948$ 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 2,251 3,073 5,324 4,533 2,445 6,978
2020‐2024 9,940 14,055 23,995 25,285 9,602 34,887
2025‐2029 11,620 11,616 23,236 15,291 5,471 20,762
2030‐2034 14,625 8,571 23,196 11,285 2,649 13,934
2035‐2039 18,160 4,938 23,098 2,420 144 2,564
2040‐2044 11,910 887 12,797 ‐ ‐ ‐
Total 76,671$ 56,309$ 132,980$ 75,333$ 31,866$ 107,199$
Governmental Activities Business‐Type Activities
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
79
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
Debt Call Provisions
Long‐term debt as of June 30, 2014 is callable on the following terms and conditions:
Initial Call Date
Governmental Activities Long‐Term Debt
2002B Certificates of Participation 03/01/11 (2)
2010 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 Refunding 06/01/21 (1)
(1) Callable in inverse numerical order of maturity at par plus a premium of 2 percent beginning on the
initial call date. The call price declines subsequent to the initial date.
(2) Callable in any order specified by the City at par 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.
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 made by the City. Because they are similar to debt, the present value of the total
payments to be made by the City is recorded as long‐term debt. The City’s leasing arrangements are
included in long‐term obligations discussed above.
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, 2014,
the amount of bonds outstanding was $3.2 million.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
80
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, 2014, the District’s outstanding debt amounted to
$330 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 properties in this District.
Therefore, this debt is not included in Governmental Activities long‐term debt of the City. At
June 30, 2014, the District’s outstanding debt amounted to $29.4 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, 2014
81
NOTE 9 – LANDFILL CLOSURE AND POST‐CLOSURE CARE
State and federal laws and regulations require the City to 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 closure is under way and is expected to be completed by
late summer 2015. 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 approved by
state and local regulatory agencies in 2014. 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 2014 and FY 2013 were $11.4 and $11.2 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. The City’s financial assurance for the $5.5 million post‐closure
maintenance is a pledge of revenue agreement with California Integrated Waste Management Board. The
$5.9 million closure liability is under the enterprise fund mechanism. The City is in compliance with these
requirements for the year ended June 30, 2014.
The landfill closure balance as of June 30, 2014 comprised the following (in thousands):
Funding Mechanism
Closure 5,907$ Cash on hand
Post‐closure care 5,456 Future revenues
Balance 11,363$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
82
NOTE 10 – NET POSITION AND FUND BALANCES
Net Position
Net Position is the excess of the City’s assets and deferred outflows of resources over its liabilities. 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 current net
book value of the City’s capital assets, less the outstanding balance of any debt issued to finance these
assets.
Restricted describes the portion of net position that is reduced by liabilities related to restricted assets.
Generally a liability relates to restricted assets if the asset results from a resource flow that also results in
the recognition of a liability or if the liability will be liquidated with the restricted assets reported.
Unrestricted describes the portion of net position which is not restricted as to use.
Fund Balances
As prescribed by GASB Statement No. 54, governmental funds report fund balances in classifications based
primarily on the extent to which the City is bound to honor constraints on the specific purposes for which
amounts in the funds can be spent. Fund balances for governmental funds are made up of the following:
Nonspendable – This category is comprised of amounts that are: (a) not in spendable form, or (b) legally
or contractually required to be maintained intact. The “not in spendable form” criterion includes items
that are not expected to be converted to cash, for example: prepaid items, and long‐term notes
receivable. The corpus of the permanent fund is contractually required to be maintained intact.
Restricted – This category is comprised of amounts that can be spent only for the specific purposes
stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions
may effectively be changed or lifted only with the consent of resource providers.
Committed – This category is comprised of amounts that can only be used for the specific purposes
determined by the action that constitutes the most binding constraint (i.e. ordinance) of the City’s highest
level of decision‐making authority, the City Council. Commitments may be changed or lifted only by the
City taking the same formal action that imposed the constraint originally.
Assigned – This category is comprised of amounts intended to be used by the City for specific purposes
that are neither restricted nor committed. Intent is expressed by the City Council or the City Manager, to
whom the City Council has delegated the authority to assign amounts to be used for specific purposes.
Unassigned –This category is the residual classification for the General Fund and includes all amounts not
contained in the other classifications. Unassigned amounts are technically available for any purpose.
Other governmental funds may report negative unassigned fund balance, which occurs when a fund has
a residual deficit after allocation of fund balance to the nonspendable, restricted or committed categories.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
83
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 expenditures and operating
transfers, with a target of 18.5 percent. Any reserve level below 15 percent requires City Council approval.
At the discretion of the City Manager, a reserve balance above 18.5 percent may be transferred to the
Infrastructure Reserve within the Capital Projects Fund. The purpose of the General Fund BSR is to fund
unbudgeted, unanticipated one‐time costs. The BSR is not meant to fund ongoing, recurring General Fund
expenditures.
The Capital Projects Fund Infrastructure Reserve (IR) is the portion of capital projects assigned fund
balance not yet adopted for a specific project. It does not include potential outside funding for adopted
projects.
As of June 30, 2014 total outstanding encumbrances related to governmental activities were $6.4 million
for the General Fund, $28.1 million for the Capital Projects Fund, and $0.7 million for the Special Revenue
Funds. General Fund encumbrances are reserved for the following governmental activities: Planning &
Community Environment $1.8 million, Public Works $1.1 million, Community Services $1.2 million, Public
Safety $1.0 million, Library $0.7 million, and administrative departments $1.7 million.
Enterprise Funds
At June 30, 2014, Enterprise Fund unrestricted net position (in thousands) were as follows:
Water Electric Fiber Optics Gas
Wastewater
Collection
Wastewater
Treatment Refuse
Storm
Drainage Airport Total
Unrestricted
Rate stabilization
Supply ‐$ 61,679$ ‐$ 5,924$ ‐$ ‐$ ‐$ ‐$ ‐$ 67,603$
Distribution ‐ 8,369 ‐ 10,057 ‐ ‐ ‐ ‐ ‐ 18,426
Operations 20,132 ‐ 18,415 ‐ 7,285 5,483 (1,640) 1,601 (1,039) 50,237
20,132 70,048 18,415 15,981 7,285 5,483 (1,640) 1,601 (1,039) 136,266
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 10,847 8,715 301 1,488 6,858 2,118 61 4,493 50 34,931
Commitments 5,148 5,737 217 9,817 1,454 4,578 985 1,714 111 29,761
Underground loan ‐ 734 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 734
Notes and loans ‐ ‐ ‐ ‐ ‐ 559 ‐ ‐ ‐ 559
Landfill corrective action ‐ ‐ ‐ ‐ ‐ ‐ 701 ‐ ‐ 701
Public benefit program ‐ 2,064 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2,064
Central Valley Project 329 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 329
Geng Road Reserve ‐ ‐ ‐ ‐ ‐ ‐ 267 ‐ ‐ 267
Total 37,127$ 140,465$ 19,933$ 28,286$ 16,597$ 14,718$ 374$ 7,808$ (878)$ 264,430$
The City Council has set aside unrestricted net position for general contingencies, and future capital and
debt service expenditures including operating and capital contingencies for unusual or emergency
expenditures.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
84
NOTE 10 – NET POSITION AND FUND BALANCES (Continued)
Internal Service Funds
At June 30, 2014, Internal Service Funds unrestricted net position (in thousands) were as follows:
Vehicle
Replacement
and
Maintenance Technology
Printing and
Mailing
Services
General
Benefits
Workers'
Compensation
Insurance
Program
General
Liabilities
Insurance
Program
Retiree Health
Benefits Total
Unrestricted net position:
Commitments 1,689$ 1,990$ 87$ 47$ 77$ 25$ ‐$ 3,915$
Future catastrophic losses ‐ ‐ ‐ ‐ 124 1,560 ‐ 1,684
Retiree health care ‐ ‐ ‐ ‐ ‐ ‐ 26,837 26,837
Capital projects 3,458 6,651 ‐ ‐ ‐ ‐ ‐ 10,109
Available 6,358 10,281 (83) 1,397 ‐ ‐ ‐ 17,953
Total 11,505$ 18,922$ 4$ 1,444$ 201$ 1,585$ 26,837$ 60,498$
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 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, age at retirement and final compensation
salary. 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, 2014
85
NOTE 11 – PENSION PLANS (Continued)
The Plans’ provisions and benefits in effect at June 30, 2014, as determined by the valuation dated June 30,
2011, are summarized as follows:
Safety Plan Safety Plan Safety Plan
Fire Fighters, Fire Chiefs Association, Fire Fighters,Police Officers,
Police Officers, Police Management Fire Chiefs Association Police Management
Hire Date Before 6/8/12 Hire Date on or After 6/8/12 Hire Date on or After 12/8/12
Benefit vesting schedule 5 years service 5 years service 5 years service
Benefit payments monthly for life monthly for life monthly for life
Full retirement age 50 551 551
Monthly benefits, as a % of annual salary 3%3%3%
Required employee contribution rates 9% 9% 9%
Required employer contribution rates 34.716% 34.716% 34.716%
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 25.536%25.536%
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 2014, 2013 and
2012 were $31.9, $28.6 and $27.7 million, respectively. The City made these contributions as required,
together with certain immaterial amounts required as the result of the payment of overtime and other
additional employee compensation.
The City uses the actuarially determined percentages of payroll to calculate and pay contributions to
CalPERS. This results in no net pension obligations or unpaid contributions.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
86
NOTE 11 – PENSION PLANS (Continued)
Annual Pension Costs representing the payment of annual required contributions determined by CalPERS
for the last three fiscal years were as follows (in thousands):
Fiscal Year Ended
Annual
Pension Cost
(APC)
Percent of
APC
Contributed
Net Pension
Obligation
Safety Plan
June 30, 2012 7,324$ 100%‐$
June 30, 2013 7,871 100%‐
June 30, 2014 8,323 100%‐
Miscellaneous Plan
June 30, 2012 15,687$ 100%‐$
June 30, 2013 15,801 100%‐
June 30, 2014 16,209 100%‐
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
2011 313,184$ 254,305$ 58,879$ 81.2% 22,774$ 258.5%
2012 327,608 258,661 68,947 79.0% 20,920 329.6%
2013 338,666 233,417 105,249 68.9% 21,258 495.1%
Miscellaneous Plan:
Valuation Date
June 30,
Entry Age
Accrued
Liability
Value of
Assets
Unfunded
Liability
Funde d
Ratio
Annual
Covered
Payroll
Unfunded
Liability as a
% of Payroll
2011 552,716$ 434,985$ 117,731$ 78.7% 60,298$ 195.2%
2012 576,182 447,819 128,363 77.7% 62,910 204.0%
2013 602,540 412,228 190,312 68.4% 64,440 295.3%
Actuarial
Actuarial
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
87
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 6/30/2013* 6/30/2011**
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 Not available 30 Years as of the Valuation Date
Asset Valuation Method Market Value 15 Year Smoothed Market
Actuarial Assumptions:
Investment Rate of Return 7.50% (net of administrative
expenses)
7.50% (net of administrative
expenses)
Projected Salary Increases 3.30% to 14.20% depending on age,
service, and type of employment
3.30% to 14.20% depending on age,
service, and type of employment
Inflation 2.75%2.75%
Payroll Growth 3.00%3.00%
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
2.75% and an annual production
growth of 0.25%.
Miscellaneous Plan
Valuation Date 6/30/2013* 6/30/2011**
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 Not available 21 Years as of the Valuation Date
Asset Valuation Method Market Value 15 Year Smoothed Market
Actuarial Assumptions:
Investment Rate of Return 7.50% (net of administrative
expenses)
7.50% (net of administrative
expenses)
Projected Salary Increases 3.30% to 14.20% depending on age,
service, and type of employment
3.30% to 14.20% depending on age,
service, and type of employment
Inflation 2.75% 2.75%
Payroll Growth 3.00% 3.00%
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
2.75% and an annual production
growth of 0.25%.
* The June 30, 2013 valuations, which are the most recent valuations, were used to disclose the funded status.
** The June 30, 2011 valuations were used to determine the contribution requirements for FY 2014.
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, 2014
88
NOTE 12 – RETIREE HEALTH BENEFITS
In addition to providing pension benefits, the City participates in the California Public Employees’ Medical
and Health Care Act program to provide certain health care benefits for retired employees. Employees
who retire directly from the City are eligible for retiree health benefits if they retire on or after age 50
with 5 years of service and are receiving a monthly pension from CalPERS. Details of benefits provided to
retirees are noted in the following tables:
Unit
Hired
Before
Retiree
Coverage 1
Dependent
Coverage
Retired on
or After
Retiree
Contribution
Management & Professional 2 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%
SEIU 1/1/2005 100% 100% 5/1/2011 Flat rate4
Police Officers3 1/1/2006 100% 100% N/A 0%
Utilities Managers & Professional2 1/1/2004 100% 100% 5/1/2011 10%
2 Effective 1/1/2007 plan capped at the second highest CalPERS Bay Area Basic plan premium.
3 Effective 3/1/2009 plan capped at the second highest CalPERS Bay Area Basic plan premium.
4 Effective 4/1/2014 City pays $688 for employee, $1,375 for employee +1, $1,788 for family.
Unit
Hired on or
After
Retiree
Coverage 1
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.
1 Employees with ten years of CalPERS service, at least five of which are at the City of Palo Alto, receive 50% of the
Retiree contributions for units with the following hire dates are determined by Government Code
Section 22893, 20 year graduated schedule:
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
89
NOTE 12 – RETIREE HEALTH BENEFITS (Continued)
During FY 2008, the City elected to participate in an irrevocable trust to provide a funding mechanism for
retiree health benefits. The Trust, California Employers’ Retirees Benefit Trust (CERBT), is administrated
by CalPERS and managed by a separately appointed board, which is not under control of the City Council.
This Trust is not considered a component unit of the City.
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) 7.61 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 most current funded status of the plan was determined as part of the June 30, 2013 actuarial
valuation. Actuarial assumptions used for the June 30, 2013 actuarial valuation were the same as those
used for the June 30, 2011 actuarial valuation.
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 unfunded actuarial accrued liability for retiree health
benefits is being amortized as a level percentage of projected payroll using a 30 year closed amortization
period.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
90
NOTE 12 – RETIREE HEALTH BENEFITS (Continued)
Generally accepted accounting principles permit assets to be treated as other post employment benefit
(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, 2014, 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 13,035$
Amortization on the Net OPEB Asset 1,989
Interest on the Net OPEB Asset (1,769)
Annual OPEB Cost 13,255
Contributions made:
Contributions to OPEB Trust 6,697
Contributions to Retirees 4,056
City portion of current year premiums paid*3,261
Total contributions made 14,014
Change in Net OPEB Asset 759
Net OPEB Asset, beginning of year 21,851
Net OPEB Asset, end of year 22,610$
* FY 2014 premiums for 905 retirees.
Shortly after year‐end, the City contributed an additional $2.8 million to the Trust.
The Plan’s annual OPEB cost and actual contributions for the past three years ended June 30 are set forth
below (in thousands):
Fiscal Year
Annual OPEB
Cost
Actual
Contribution
Percentage
of OPEB
Cost
Net OPEB
Obligation
(Asset)
June 30, 2012 13,058$ 11,323$ 87% (21,271)$
June 30, 2013 13,194 13,774 104% (21,851)
June 30, 2014 13,255 14,014 106% (22,610)
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
91
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, 2011 165,660$ 40,213$ 125,447$ 24.3% 80,664$ 155.5%
June 30, 2011 * 168,053 44,774 123,279 26.6% 81,785 150.7%
June 30, 2013 203,642 60,070 143,572 29.5% 81,785 175.5%
* 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.
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 2014 2013
Net Position, beginning of year 27,233$ 26,265$
Interest earnings 51 78
Unrealized gain/(loss) on investments 12 (142)
Interdepartmental charges 11,635 12,986
Retiree health benefits (12,094) (11,954)
Net Position, end of year 26,837$ 27,233$
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, 2014
92
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
$1.0 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 $1.0 million in losses for each occurrence under this policy.
ACCEL was established for the purpose of creating a risk management pool for central California
municipalities. ACCEL is governed by a Board of Directors consisting of representatives of its member
cities. The board controls the operations of ACCEL, including selection of claims management, general
administration and approval of the annual budget.
The City’s deposits with ACCEL equal the ratio of the City’s payroll to the total 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, 2014, the City paid $0.8 million to ACCEL for current year coverage.
Audited financial statements are available from ACCEL at 100 Pine Street, 11th Floor, San Francisco,
California 94110.
Claims Liability
The City provides for the uninsured portion of claims and judgments in the General Benefits and Insurance
Internal Service Funds. Claims and judgments, including a provision for claims incurred but not reported,
and claim adjustment expenses are recorded when a loss is deemed probable of assertion and the amount
of the loss is reasonably determinable. As discussed above, the City has coverage for such claims, but it
has retained the risk for the deductible or uninsured portion of these claims.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
93
NOTE 14 – RISK MANAGEMENT (Continued)
The City’s liability for uninsured claims is limited to dental, general liability, and workers’ compensation
claims, as discussed above. Dental liability is based on a percentage of current year actual expense.
General and workers’ compensation liabilities are based on the results of actuarial studies, and include
amounts for claims incurred but not reported as follows as of June 30 (in thousands):
2014 2013
Beginning balance 27,745$ 27,466$
Liability for current and prior fiscal years claims and
claims incurred but not reported (IBNR)3,232 3,531
Claims paid (4,224) (3,252)
Ending balance 26,753$ 27,745$
Current portion 5,665$ 6,663$
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, 2014
94
NOTE 15 – JOINT VENTURES (Continued)
During the year ended June 30, 2014, the City incurred expenses totaling $71.7 million for purchased
power and assessments earned by NCPA.
The City’s interest in NCPA projects and reserves, as computed by NCPA, was $7.5 million at June 30, 2014.
This amount represents the City’s portion of funds, which resulted from the settlement with third parties
of issues with financial consequences and reconciliations of several prior years’ budgets for programs. It
is recognized that all the funds credited to the City are linked to the collection of revenue from the City’s
ratepayers, or to the settlement of disputes relating to electric power supply and that the money was
collected from the City’s ratepayers to pay power bills. Additionally, the NCPA Commission identified and
approved the funding of specific reserves for working capital, accumulated employees’ post‐retirement
medical benefits, and billed property taxes for the geothermal project. The Commission also identified a
number of contingent liabilities that may or may not be realized, the cost of which in most cases is difficult
to estimate at this time. One such contingent liability is the steam field depletion, which will require
funding to cover debt service and operational costs in excess of the expected value of the electric power.
The General Operating Reserve (GOR) is intended to minimize the number and amount of individual
reserves needed for each project, protect NCPA’s financial condition and maintain its credit worthiness.
The GOR funds of $1.5 million are left on deposit with NCPA as a reserve against these contingencies
identified by NCPA.
Members of NCPA may participate in an individual project of NCPA without obligation for any other
project. Member assessments collected for one project may not be used to finance other projects of NCPA
without the member’s permission.
Geothermal Projects
A purchased power agreement with NCPA obligated the City for 6.2 percent and 6.2 percent, respectively,
of the operating costs and debt service of the two NCPA 110‐megawatt geothermal 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, 2014 is $85.6 million. The City’s participation in this project was 6.2 percent, or $5.3million.
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, 2014, the book value of this
Project’s plant, equipment and other assets was $465 million, while its long‐term debt totaled $398.6
million and other liabilities totaled $60.9 million. The City’s share of the Project’s long‐term debt
amounted to $91.2 million at that date.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
95
NOTE 15 – JOINT VENTURES (Continued)
Geothermal Public Power Line
In 1983, NCPA, the Sacramento Municipal Utility District, the City of Santa Clara and the Modesto Irrigation
District (Joint Owners) initiated studies for a Geothermal Public Power Line (GPPL), which would carry
power generated at several existing and planned geothermal plants in The Geysers area to a location
where the Joint Owners could receive it for transmission to their load centers. NCPA has an 18.5 percent
share of this Project and the City has an 11.1 percent participation in NCPA’s share. In 1989, the
development of the proposed Geothermal Public Power Line was discontinued because NCPA was able to
contract for sufficient transmission capacity to meet its needs in The Geysers.
However, because the project financing provided funding for an ownership interest in a Pacific Gas &
Electric (PG&E) transmission line, a central dispatch facility and a performance bond pursuant to the
Interconnection Agreement with PG&E, as well as an ownership interest in the proposed GPPL, NCPA
issued $16 million in long‐term, fixed‐rate revenue bonds in November 1989 to defease the remaining
variable rate refunding bonds used to refinance this project. The City is obligated to pay its 11.1 percent
share of the related debt service, but debt service costs are covered through NCPA billing mechanisms
that allocate the costs to members based on use of the facilities and services.
At June 30, 2014, the book value of this Project’s plant, equipment and other assets was zero, and its long‐
term debt totaled zero.
NCPA’s financial statements can be obtained from NCPA, 180 Cirby Way, Roseville, CA 95678.
Transmission Agency of Northern California (TANC)
The City is a member of a joint powers agreement with 14 other entities in Transmission Agency of
Northern California (TANC). TANC’s purpose is to provide electrical transmission or other facilities for the
use of its members. While governed by its members, none of TANC’s obligations are those of its members
unless expressly assumed by them. The City was obligated to pay 4 percent of TANC’s debt‐service and
operating costs. However, a Resolution was approved authorizing the execution of a Long‐Term Layoff
Agreement (LTLA) between the Cities of Palo Alto and Roseville. These two agencies desired to “layoff”
their entitlement rights to the California‐Oregon Transmission Project (COTP) (and Roseville’s South of
Tesla entitlement rights) for a period of 15 years to those acquiring Members (Sacramento Municipal
Utility District, Turlock Irrigation District, and Modesto Irrigation District). The effective date of this
Agreement was February 1, 2009. As a result, the City is not obligated to pay TANC’s debt‐service and
operating costs starting February 1, 2009, for a period of fifteen years.
TANC has issued four series of Revenue Bonds and Commercial Paper Notes totaling $421.4 million as of
June 30, 2014 and $93.8 million of Commercial Paper debt backed by a Letter of Credit. The City’s share
of these debts is zero due to the LTLA mentioned above.
TANC’s financial statements can be obtained from TANC, P.O. Box 15129, Sacramento, CA 95851.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
96
NOTE 15 – JOINT VENTURES (Continued)
Bay Area Water Supply and Conservation Agency (BAWSCA)
The City is a member of a regional water district with 26 other entities, the Bay Area Water Supply and
Conservation Agency (BAWSCA). BAWSCA was created on May 27, 2003 to represent the interests of 24
cities and water districts and two private utilities in Alameda, Santa Clara and San Mateo counties that
purchase water on a wholesale basis from the San Francisco regional water system. It has the power to
issue debt and plan, finance, construct, and operate water supply, transmission, reclamation, and
conservation projects on behalf of its members.
In 2013 the City participated in a debt issuance by BAWSCA. The debt was issued to repay certain long‐
term costs associated with the San Francisco Public Utilities Commission (SFPUC) water supply contract.
The City’s share of the annual debt service is approximately $1.9 million per year, but will vary based on
annual water purchases of the City compared to other BAWSCA agencies.
BAWSCA’s financial statements can be obtained from BAWSCA, 155 Bovet Road, Suite 650, San Mateo,
California 94402.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Palo Alto Unified School District – The City leases a portion of the former Cubberley School site and twelve
extended day care sites from 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 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, 2014,
amounted to $7.3 million. Future minimum annual lease and covenant payments for the year ending
June 30, 2015 is $3.6 million.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
97
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 2014 payments to GreenWaste
were $10.9 million.
City of Palo Alto Regional Water Quality Control Plant – The cities of Palo Alto, Mountain View and Los
Altos (the Partners) participate jointly in the cost of maintaining and operating the City of Palo Alto
Regional Water Quality Control Plant and related system (the Plant). The City is the owner and
administrator of the Plant, which provides the transmission, treatment and disposal of sewage for the
Partners. The cities of Mountain View and Los Altos are entitled to use a portion of the capacity of the
Plant for a specified period of time. Each partner has the right to rent unused capacity from/to the other
partners. The expenses of operations and maintenance are paid quarterly by each partner based on its
pro rata share of treatment costs. Additionally, joint system revenues are shared by the partners in the
same ratio as expenses are paid. The amended agreement has a term of fifty years beginning from the
original signing in October 1968, but may be terminated by any partner upon ten years’ notice to the other
partners. All sewage treatment property, plant and equipment are included in the Wastewater Treatment
Enterprise Fund’s capital assets balance at June 30, 2014. 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, 2014, is $1.5 million. During the year ended June 30, 2014, 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 $1.4 million as of
June 30, 2014. During the year ended June 30, 2014, the City paid $0.2 million as its portion of current
debt service.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
98
NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)
UTILITIES ENERGY RESOURCE MANAGEMENT
Electric Power Supply Purchase Agreements – The City has numerous power purchase agreements with
power producers to purchase capacity and energy to supply a portion of its load requirements. As of
June 30, 2014, the approximate minimum obligations for the contracts, assuming the energy or gas is
delivered over the next five years, are as follows:
Year Projected Obligation
2015 $71.3 million
2016 $61.3 million
2017 $62.1 million
2018 $62.5 million
2019 $62.9 million
Contractual Commitments beyond 2019 (Electricity) – Several of the City’s purchase power and
transmission contracts extend beyond the five‐year summary presented above. These contracts expire
between 2021 and 2046 and provide for power under various terms and conditions. The City estimates
that its annual minimum commitments under the contracts, assuming the energy is delivered, ranges
between $63.4 million in 2020 and $3.1 million in 2046. The City’s largest purchase power source is the
Western Base Resource contract, whereby the City receives 12.31 percent of the amount of energy made
available by Western, after meeting Central Valley Project use requirements. The Western contract
expires on December 31, 2024.
San Francisco Public Utilities Commission – The City purchases water for delivery to its customers from
San Francisco Public Utilities Commission (SFPUC) under a contract terminating in 2034. The City’s
wholesale water rate under this contract is determined by a ratemaking process under the authority of
SFPUC. The City is prohibited from purchasing from other water suppliers under this contract, though it
is not prohibited from using ground water. The City’s cost of water under this contract is projected to
increase from $2.93 per hundred cubic feet (CCF) in FY 2015 to $4.31 per CCF in FY 2021 as SFPUC
completes an upgrade to its regional water system facilities under its Water System Improvement
Program (WSIP).
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 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 Superior Court in
Los Angeles in April 2007. In March 2010, the issue was resolved in a settlement agreement and the City
made a payment to the California Parties and no further claims are expected.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2014
99
NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)
On April 29, 2010, FERC issued an order approving the settlement between NCPA and the California
Parties. Another dispute between the Western Area Power Administration and PG&E regarding PG&E’s
claim to recover certain CAISO related costs has not been resolved.
Litigation
The City is subject to litigation arising in the normal course of business. In the opinion of the City Attorney,
there is no pending litigation, claims or assessments that are likely to have a materially adverse effect on
the City’s financial condition.
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.
NOTE 17 – SUBSEQUENT EVENT
Assumption of Control of the Palo Alto Municipal Airport
On August 11, 2014, sponsorship, operation and management of the Palo Alto Airport was transferred to
the City from the County of Santa Clara. The Airport is situated on City land and the City is taking over
various agreements with airport tenants, licensees, permit holders and users, the Federal Aviation
Administration and the State Lands Commission.
100
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Special Debt
Revenue Service Permanent
Funds Funds Fund Total
ASSETS:
Cash and investments:
Available for operations 69,320$ 6,675$ 1,439$ 77,434$
Cash and investments with fiscal agents ‐ 238 ‐ 238
Receivables, net:
Accounts 385 27 ‐ 412
Interest 334 ‐ 7 341
Notes 17,620 ‐ ‐ 17,620
Total assets 87,659$ 6,940$ 1,446$ 96,045$
Liabilities:
Accounts payable and accruals 121$ ‐$ 1$ 122$
Accrued salaries and benefits 17 ‐ ‐ 17
Total liabilities 138 ‐ 1 139
Fund balances:
Nonspendable
Notes and loans receivable 13,424 ‐ ‐ 13,424
Eyerly family ‐ ‐ 1,445 1,445
Restricted
Transportation mitigation 10,616 ‐ ‐ 10,616
Federal revenue 4,457 ‐ ‐ 4,457
Street improvement 758 ‐ ‐ 758
Local law enforcement 113 ‐ ‐ 113
Debt service ‐ 6,940 ‐ 6,940
Public benefit 30,578 ‐ ‐ 30,578
Committed
Developer impact fee 11,085 ‐ ‐ 11,085
Housing In‐Lieu 14,491 ‐ ‐ 14,491
Special districts 1,457 ‐ ‐ 1,457
Downtown business 112 ‐ ‐ 112
Assigned
Unrealized gain on investment 430 ‐ ‐ 430
Total fund balances 87,521 6,940 1,445 95,906
Total liabilities and fund balances 87,659$ 6,940$ 1,446$ 96,045$
LIABILITIES AND FUND BALANCES:
CITY OF PALO ALTO
Non‐major Governmental Funds
Combining Balance Sheet
June 30, 2014
(Amounts in thousands)
101
Special Debt
Revenue Service Permanent
Funds Funds Fund Total
REVENUES:
Property tax ‐$ 4,712$ ‐$ 4,712$
Special assessments 94 ‐ ‐ 94
Other taxes and fines 2,095 ‐ ‐ 2,095
From other agencies:
Community Development Block Grants 468 ‐ ‐ 468
State of California 140 ‐ ‐ 140
Permits and licenses
University Avenue Parking 1,762 ‐ ‐ 1,762
California Avenue Parking 206 ‐ ‐ 206
Other permits and licenses 72 ‐ ‐ 72
Investment earnings 1,806 ‐ 33 1,839
Rental income 5 ‐ ‐ 5
Other:
Housing In‐Lieu ‐ residential 1,640 ‐ ‐ 1,640
Other fees 3,850 ‐ ‐ 3,850
Total revenues 12,138 4,712 33 16,883
EXPENDITURES:
Current:
Administrative Services 177 ‐ ‐ 177
Public Works 891 ‐ ‐ 891
Planning and Community Environment 1,552 ‐ ‐ 1,552
Public safety 286 ‐ ‐ 286
Community Services 133 ‐ ‐ 133
Non‐Departmental 145 ‐ 6 151
Debt service:
Principal retirement ‐ 1,150 ‐ 1,150
Interest and fiscal charges ‐ 3,059 ‐ 3,059
Total expenditures 3,184 4,209 6 7,399
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 8,954 503 27 9,484
OTHER FINANCING SOURCES (USES):
Transfers in 454 231 ‐ 685
Transfers out (5,100) ‐ ‐ (5,100)
Total other financing sources (uses)(4,646) 231 ‐ (4,415)
Change in fund balances 4,308 734 27 5,069
FUND BALANCES, BEGINNING OF YEAR 83,213 6,206 1,418 90,837
FUND BALANCES, END OF YEAR 87,521$ 6,940$ 1,445$ 95,906$
CITY OF PALO ALTO
Non‐major Governmental Funds
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2014
(Amounts in thousands)
102
103
NON‐MAJOR GOVERNMENTAL FUNDS
SPECIAL REVENUE FUNDS
Street Improvement
This fund accounts for revenues received from state gas tax. Allocations must be spent on the construction
and maintenance of the road network system of the City.
Federal Revenue
This fund accounts for grant funds received under the Community Development Act of 1974 and HOME
Investment Grant Programs, for activities approved and subject to federal regulations.
Housing In‐Lieu
This fund accounts for revenues from commercial and residential developers to provide housing under
the City’s Below Market Rate program.
Special Districts
This fund accounts for revenues from parking permits and for maintenance of various parking lots within
the City’s parking districts.
Transportation Mitigation
This fund accounts for revenues from fees or contributions required for transportation mitigation issues
encountered as a result of City development.
Local Law Enforcement
This fund accounts for revenues received in support of City’s law enforcement program.
Asset Seizure
This fund accounts for seized property and funds associated with drug trafficking. Under California
Assembly Bill No. 4162, the monies are released to the City for specific expenditures related to law
enforcement activities.
Developer Impact Fee
This fund accounts for fees imposed on new developments to be used for parks, community centers and
libraries.
Downtown Business Development District
The Downtown Business Development District Fund was established to account for the activities of the
Palo Alto Downtown Business Development District, which was established to enhance the viability of the
downtown business district.
Public Benefit
This fund accounts for the activities of the 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 559$ 162$ 14,561$ 1,478$
Receivables:
Accounts 199 158 ‐ ‐
Interest 3 ‐ 63 6
Notes ‐ 4,196 13,424 ‐
Total assets 761$ 4,516$ 28,048$ 1,484$
Liabilities:
Accounts payable and accruals ‐$ 59$ 47$ 10$
Accrued salaries and benefits ‐ ‐ ‐ 17
Total liabilities ‐ 59 47 27
Fund balances:
Nonspendable
Notes and loans receivables ‐ ‐ 13,424 ‐
Restricted
Transportation mitigation ‐ ‐ ‐ ‐
Federal revenue ‐ 4,457 ‐ ‐
Street improvement 758 ‐ ‐ ‐
Local law enforcement ‐ ‐ ‐ ‐
Public benefit ‐ ‐ ‐ ‐
Committed
Developer impact fee ‐ ‐ ‐ ‐
Housing In‐Lieu ‐ ‐ 14,491 ‐
Special districts ‐ ‐ ‐ 1,457
Downtown business ‐ ‐ ‐ ‐
Assigned
Unrealized gain on investment 3 ‐ 86 ‐
Total fund balances 761 4,457 28,001 1,457
Total liabilities and fund balances 761$ 4,516$ 28,048$ 1,484$
LIABILITIES AND FUND BALANCES:
CITY OF PALO ALTO
Non‐major Special Revenue Funds
Combining Balance Sheet
June 30, 2014
(Amounts in thousands)
104
Downtown
Business
Transportation Local Law Asset Developer Development Public
Mitigation Enforcement Seizure Impact Fee District Benefit Total
10,631$ 83$ 2$ 11,101$ 112$ 30,631$ 69,320$
‐ 28 ‐ ‐ ‐ ‐ 385
49 1 ‐ 53 1 158 334
‐ ‐ ‐ ‐ ‐ ‐ 17,620
10,680$ 112$ 2$ 11,154$ 113$ 30,789$ 87,659$
‐$ ‐$ ‐$ ‐$ ‐$ 5$ 121$
‐ ‐ ‐ ‐ ‐ ‐ 17
‐ ‐ ‐ ‐ ‐ 5 138
‐ ‐ ‐ ‐ ‐ ‐ 13,424
10,616 ‐ ‐ ‐ ‐ ‐ 10,616
‐ ‐ ‐ ‐ ‐ ‐ 4,457
‐ ‐ ‐ ‐ ‐ ‐ 758
‐ 111 2 ‐ ‐ ‐ 113
‐ ‐ ‐ ‐ ‐ 30,578 30,578
‐ ‐ ‐ 11,085 ‐ ‐ 11,085
‐ ‐ ‐ ‐ ‐ ‐ 14,491
‐ ‐ ‐ ‐ ‐ ‐ 1,457
‐ ‐ ‐ ‐ 112 ‐ 112
64 1 ‐ 69 1 206 430
10,680 112 2 11,154 113 30,784 87,521
10,680$ 112$ 2$ 11,154$ 113$ 30,789$ 87,659$
105
Street Federal Housing Special
Improvement Revenue In‐Lieu Districts
REVENUES:
Special assessments ‐$ ‐$ ‐$ ‐$
Other taxes and fines 2,083 ‐ ‐ 12
From other agencies:
Community Development Block Grants ‐ 468 ‐ ‐
State of California ‐ ‐ ‐ ‐
Permits and licenses
University Avenue Parking ‐ ‐ ‐ 1,762
California Avenue Parking ‐ ‐ ‐ 206
Other permits and licenses ‐ ‐ ‐ 72
Investment earnings 11 (5) 496 29
Rental income ‐ ‐ 5 ‐
Other
Housing In‐Lieu ‐ residential ‐ ‐ 1,640 ‐
Other fees ‐ 205 ‐ ‐
Total revenues 2,094 668 2,141 2,081
EXPENDITURES:
Current:
Administrative Services ‐ ‐ ‐ 177
Public Works ‐ ‐ ‐ 891
Planning and Community Environment ‐ 667 374 101
Public safety ‐ ‐ ‐ ‐
Community Services ‐ ‐ ‐ ‐
Non‐Departmental ‐ 22 31 7
Total expenditures ‐ 689 405 1,176
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 2,094 (21) 1,736 905
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐ ‐ 194
Transfers out (1,917) (2) ‐ (764)
Total other financing sources (uses)(1,917) (2) ‐ (570)
Change in fund balances 177 (23) 1,736 335
FUND BALANCES, BEGINNING OF YEAR 584 4,480 26,265 1,122
FUND BALANCES, END OF YEAR 761$ 4,457$ 28,001$ 1,457$
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, 2014
(Amounts in thousands)
106
Downtown
Business
Transportation Local Law Asset Developer Development Public
Mitigation Enforcement Seizure Impact Fee District Benefit Total
‐$ ‐$ ‐$ ‐$ 94$ ‐$ 94$
‐ ‐ ‐ ‐ ‐ ‐ 2,095
‐ ‐ ‐ ‐ ‐ ‐ 468
‐ 140 ‐ ‐ ‐ ‐ 140
‐ ‐ ‐ ‐ ‐ ‐ 1,762
‐ ‐ ‐ ‐ ‐ ‐ 206
‐ ‐ ‐ ‐ ‐ ‐ 72
222 5 ‐ 284 3 761 1,806
‐ ‐ ‐ ‐ ‐ ‐ 5
‐ ‐ ‐ ‐ ‐ ‐ 1,640
2,008 ‐ ‐ 1,637 ‐ ‐ 3,850
2,230 145 ‐ 1,921 97 761 12,138
‐ ‐ ‐ ‐ ‐ ‐ 177
‐ ‐ ‐ ‐ ‐ ‐ 891
410 ‐ ‐ ‐ ‐ ‐ 1,552
‐ 286 ‐ ‐ ‐ ‐ 286
‐ ‐ ‐ 5 ‐ 128 133
‐ ‐ ‐ ‐ 85 ‐ 145
410 286 ‐ 5 85 128 3,184
1,820 (141) ‐ 1,916 12 633 8,954
‐ ‐ ‐ 260 ‐ ‐ 454
(435) ‐ ‐ (782) ‐ (1,200) (5,100)
(435) ‐ ‐ (522) ‐ (1,200) (4,646)
1,385 (141) ‐ 1,394 12 (567) 4,308
9,295 253 2 9,760 101 31,351 83,213
10,680$ 112$ 2$ 11,154$ 113$ 30,784$ 87,521$
107
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 1,905 2,083 178 ‐ ‐ ‐
Charges for services ‐ ‐ ‐ ‐ ‐ ‐
From other agencies:
Community Development Block Grants ‐ ‐ ‐ 455 468 13
State of California ‐ ‐ ‐ ‐ ‐ ‐
Other revenue from other agencies ‐ ‐ ‐ 112 ‐ (112)
Permits and licenses
University Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
California Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
Other permits and licenses ‐ ‐ ‐ ‐ ‐ ‐
Investment earnings 23 11 (12) ‐ (5) (5)
Rental income ‐ ‐ ‐ ‐ ‐ ‐
Other:
Housing In‐Lieu ‐ residential ‐ ‐ ‐ ‐ ‐ ‐
Other fees ‐ ‐ ‐ ‐ 205 205
Total revenues 1,928 2,094 166 567 668 101
EXPENDITURES:
Current:
Administrative Services ‐ ‐ ‐ ‐ ‐ ‐
Public Works ‐ ‐ ‐ ‐ ‐ ‐
Planning and Community Environment ‐ ‐ ‐ 847 667 180
Public safety ‐ Police ‐ ‐ ‐ ‐ ‐ ‐
Community Services ‐ ‐ ‐ ‐ ‐ ‐
Non‐Departmental ‐ ‐ ‐ ‐ 22 (22)
Total expenditures ‐ ‐ ‐ 847 689 158
Excess (deficiency) of revenues
over (under) expenditures 1,928 2,094 166 (280) (21) 259
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐ ‐ ‐ ‐ ‐
Transfers out (1,917) (1,917) ‐ (2) (2) ‐
Total other financing sources (uses)(1,917) (1,917) ‐ (2) (2) ‐
Change in fund balances 11$ 177 166$ (282)$ (23) 259$
FUND BALANCES, BEGINNING OF YEAR 584 4,480
FUND BALANCES, END OF YEAR 761$ 4,457$
(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, 2014
108
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 12 (31) ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ 1,518 1,762 244 ‐ ‐ ‐
‐ ‐ ‐ 195 206 11 ‐ ‐ ‐
‐ ‐ ‐ 37 72 35 ‐ ‐ ‐
161 496 335 23 29 6 174 222 48
‐ 5 5 ‐ ‐ ‐ ‐ ‐ ‐
4,120 1,640 (2,480) ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ 625 2,008 1,383
4,281 2,141 (2,140) 1,816 2,081 265 799 2,230 1,431
‐ ‐ ‐ 204 177 27 ‐ ‐ ‐
‐ ‐ ‐ 1,138 891 247 ‐ ‐ ‐
725 374 351 175 101 74 410 410 ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ 26 ‐ 26 ‐ ‐ ‐
178 31 147 143 7 136 ‐ ‐ ‐
903 405 498 1,686 1,176 510 410 410 ‐
3,378 1,736 (1,642) 130 905 775 389 1,820 1,431
‐ ‐ ‐ 194 194 ‐ ‐ ‐ ‐
‐ ‐ ‐ (763) (764) (1) (435) (435) ‐
‐ ‐ ‐ (569) (570) (1) (435) (435) ‐
3,378$ 1,736 (1,642)$ (439)$ 335 774$ (46)$ 1,385 1,431$
26,265 1,122 9,295
28,001$ 1,457$ 10,680$
109
Local Law Enforcement Asset Seizure
Variance Variance
Actual, plus Positive Actual, plus Positive
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 ‐ 140 140 ‐ ‐ ‐
Other revenue from other agencies ‐ ‐ ‐ ‐ ‐ ‐
Permits and licenses
University Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
California Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
Other permits and licenses ‐ ‐ ‐ ‐ ‐ ‐
Return on investments 6 5 (1) ‐ ‐ ‐
Rental income ‐ ‐ ‐ ‐ ‐ ‐
Other:
Housing In‐Lieu ‐ residential ‐ ‐ ‐ ‐ ‐ ‐
Other fees ‐ ‐ ‐ ‐ ‐ ‐
Total revenues 6 145 139 ‐ ‐ ‐
Expenditures:
Current:
Administrative Services ‐ ‐ ‐ ‐ ‐ ‐
Public Works ‐ ‐ ‐ ‐ ‐ ‐
Planning and Community Environment ‐ ‐ ‐ ‐ ‐ ‐
Public safety ‐ Police 319 286 33 ‐ ‐ ‐
Community Services ‐ ‐ ‐ ‐ ‐ ‐
Non‐Departmental 3 ‐ 3 ‐ ‐ ‐
Total expenditures 322 286 36 ‐ ‐ ‐
Excess (deficiency) of revenues
over (under) expenditures (316) (141) 175 ‐ ‐ ‐
Other financing sources (uses):
Transfers in ‐ ‐ ‐ ‐ ‐ ‐
Transfers out ‐ ‐ ‐ ‐ ‐
Total other financing sources (uses)‐ ‐ ‐ ‐ ‐ ‐
Change in fund balances (316)$ (141) 175$ ‐$ ‐ ‐$
Fund balances, beginning of year 253 2
Fund balances, end of year 112$ 2$
(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, 2014
110
Developer Impact Fee Downtown Business Improvement District Public Benefit
Variance Variance Variance
Actual, plus Positive Actual, plus Positive Actual, plus Positive
Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative)
‐$ ‐$ ‐$ 154$ 94$ (60)$ ‐$ ‐$ ‐$
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
137 284 147 2 3 1 679 761 82
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
947 1,637 690 6 ‐ (6) ‐ ‐ ‐
1,084 1,921 837 162 97 (65) 679 761 82
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
5 5 ‐ ‐ ‐ ‐ 289 128 161
‐ ‐ ‐ 230 85 145 ‐ ‐ ‐
5 5 ‐ 230 85 145 289 128 161
1,079 1,916 837 (68) 12 80 390 633 243
260 260 ‐ ‐ ‐ ‐ ‐ ‐ ‐
(782) (782) ‐ ‐ ‐ ‐ (1,200) (1,200) ‐
(522) (522) ‐ ‐ ‐ ‐ (1,200) (1,200) ‐
557$ 1,394 837$ (68)$ 12 80$ (810)$ (567) 243$
9,760 101 31,351
11,154$ 113$ 30,784$
111
112
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113
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 Projects
This fund accounts for revenues received from property taxes to provide payment of principal and interest
associated with the 2010 and 2013A General Obligation Bonds as they become due.
CITY OF PALO ALTO
Non‐major Debt Service Funds
Combining Balance Sheet
June 30, 2014
(Amounts in thousands)
Downtown
Parking Library
Improvement Projects Total
ASSETS:
Cash and investments:
Available for operations 13$ 6,662$ 6,675$
Cash and investments with fiscal agents 238 ‐ 238
Receivables:
Accounts ‐ 27 27
Total assets 251$ 6,689$ 6,940$
FUND BALANCES:
Debt service 251$ 6,689$ 6,940$
114
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, 2014
(Amounts in thousands)
Downtown
Parking Library
Improvement Projects Total
REVENUES:
Property tax ‐$ 4,712$ 4,712$
EXPENDITURES:
Debt service:
Principal retirement 130 1,020 1,150
Interest and fiscal charges 101 2,958 3,059
Total expenditures 231 3,978 4,209
(DEFICIENCY) OF REVENUES
(UNDER) EXPENDITURES (231) 734 503
OTHER FINANCING SOURCES (USES):
Transfers in 231 ‐ 231
Change in fund balances ‐ 734 734
FUND BALANCES, BEGINNING OF YEAR 251 5,955 6,206
FUND BALANCES, END OF YEAR 251$ 6,689$ 6,940$
115
Downtown Parking Improvement Library Projects
Variance Variance
Actual, plus Positive Actual, plus Positive
Budget Encumbrances (Negative) Budget Encumbrances (Negative)
REVENUES:
Special assessments ‐$ ‐$ ‐$ 3,938$ 4,712$ 774$
Total revenues ‐ ‐ ‐ 3,938 4,712 774
EXPENDITURES:
Debt service:
Principal retirement 130 130 ‐ 1,020 1,020 ‐
Interest and fiscal charges 101 101 ‐ 3,023 2,958 65
Total expenditures 231 231 ‐ 4,043 3,978 65
Excess (deficiency) of revenues
over (under) expenditures (231) (231) ‐ (105) 734 839
OTHER FINANCING SOURCES (USES):
Transfers in 231 231 ‐ ‐ ‐ ‐
Total other financing sources (uses)231 231 ‐ ‐ ‐ ‐
Change in fund balances ‐$ ‐ ‐$ (105)$ 734 839$
FUND BALANCES, BEGINNING OF YEAR 251 5,955
FUND BALANCES, END OF YEAR 251$ 6,689$
(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, 2014
116
117
NON‐MAJOR GOVERNMENTAL FUNDS
PERMANENT FUND
Eyerly Family
This fund accounts for the revenues received from assets donated by Mr. and Mrs. Fred Eyerly for the City
and or its citizenry.
Eyerly Family Permanent Fund
Variance
Actual, plus Positive
Budget Encumbrances (Negative)
REVENUES:
Investment earnings 34$ 33$ (1)$
EXPENDITURES:
Current:
Non‐Departmental ‐ 6 (6)
Excess (deficiency) of revenues
over (under) expenditures 34 27 (7)
Change in fund balance 34$ 27 (7)$
FUND BALANCE, BEGINNING OF YEAR 1,418
FUND BALANCE, END OF YEAR 1,445$
(Amounts in thousands)
CITY OF PALO ALTO
Non‐major Permanent Fund
Schedule of Revenues, Expenditures and Changes in Fund Balance ‐
Budget and Actual
For the Year Ended June 30, 2014
118
119
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 11,078$ 19,229$ 12$ 12,665$ 20,964$ 6,899$ 4,145$ 74,992$
Accounts receivable, net 31 ‐ ‐ 35 ‐ 473 96 635
Interest receivable 55 102 ‐ 57 95 30 25 364
Inventory of materials and supplies 388 ‐ ‐ ‐ ‐ ‐ ‐ 388
Total current assets 11,552 19,331 12 12,757 21,059 7,402 4,266 76,379
Noncurrent Assets:
Capital assets:
Nondepreciable 1,396 1,698 ‐ ‐ ‐ ‐ ‐ 3,094
Depreciable, net 10,977 279 3 ‐ ‐ ‐ ‐ 11,259
Net OPEB asset ‐ ‐ ‐ ‐ ‐ ‐ 22,610 22,610
Total noncurrent assets 12,373 1,977 3 ‐ ‐ ‐ 22,610 36,963
Total assets 23,925 21,308 15 12,757 21,059 7,402 26,876 113,342
LIABILITIES:
Current Liabilities:
Accounts payable and accruals ‐ 263 8 989 68 ‐ 39 1,367
Accrued salaries and benefits 39 133 ‐ 1 ‐ ‐ ‐ 173
Accrued compensated absences 8 13 ‐ 3,891 ‐ ‐ ‐ 3,912
Accrued claims payable ‐ current ‐ ‐ ‐ 146 3,230 2,289 ‐ 5,665
Total current liabilities 47 409 8 5,027 3,298 2,289 39 11,117
Noncurrent liabilities:
Accrued compensated absences ‐ ‐ ‐ 6,286 ‐ ‐ ‐ 6,286
Accrued claims payable ‐ ‐ ‐ ‐ 17,560 3,528 ‐ 21,088
Total noncurrent liabilities ‐ ‐ ‐ 6,286 17,560 3,528 ‐ 27,374
Total liabilities 47 409 8 11,313 20,858 5,817 39 38,491
NET POSITION:
Net Investment in capital assets 12,373 1,977 3 ‐ ‐ ‐ ‐ 14,353
Unrestricted 11,505 18,922 4 1,444 201 1,585 26,837 60,498
Total net position 23,878$ 20,899$ 7$ 1,444$ 201$ 1,585$ 26,837$ 74,851$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Fund Net Position
June 30, 2014
(Amounts in thousands)
120
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 7,335$ 11,300$ 1,328$ 41,870$ 3,239$ 460$ 11,635$ 77,167$
Other ‐ ‐ ‐ ‐ ‐ 472 ‐ 472
Total operating revenues 7,335 11,300 1,328 41,870 3,239 932 11,635 77,639
OPERATING EXPENSES:
Administrative and general 1,157 6,207 848 249 737 1,051 517 10,766
Operations and maintenance 3,582 5,234 477 126 485 ‐ 11,577 21,481
Depreciation and amortization 2,116 425 3 ‐ ‐ ‐ ‐ 2,544
Claim payments and change in estimated
self‐insured liability ‐ ‐ ‐ 1,491 2,451 (710) ‐ 3,232
Refund of charges for services 62 9 ‐ ‐ ‐ ‐ ‐ 71
Compensated absences and other benefits ‐ ‐ ‐ 40,337 ‐ ‐ ‐ 40,337
Total operating expenses 6,917 11,875 1,328 42,203 3,673 341 12,094 78,431
Operating income (loss)418 (575) ‐ (333) (434) 591 (459) (792)
NONOPERATING REVENUES (EXPENSES):
Investment earnings 262 485 1 266 434 123 63 1,634
Loss on disposal of capital assets (110) (45) ‐ ‐ ‐ ‐ ‐ (155)
Other nonoperating revenues 42 ‐ ‐ ‐ ‐ ‐ ‐ 42
Total nonoperating revenues (expenses)194 440 1 266 434 123 63 1,521
Income (loss) before transfers 612 (135) 1 (67) ‐ 714 (396) 729
Transfers in ‐ 1,413 ‐ ‐ ‐ ‐ ‐ 1,413
Transfers out ‐ (1,818) ‐ ‐ ‐ ‐ ‐ (1,818)
Change in net position 612 (540) 1 (67) ‐ 714 (396) 324
NET POSITION, BEGINNING OF YEAR 23,266 21,439 6 1,511 201 871 27,233 74,527
NET POSITION, END OF YEAR 23,878$ 20,899$ 7$ 1,444$ 201$ 1,585$ 26,837$ 74,851$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Revenues, Expenses and Changes in Fund Net Position
For the Year Ended June 30, 2014
(Amounts in thousands)
121
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 7,489$ 11,300$ 1,328$ 41,861$ 3,239$ 959$ 11,769$ 77,945$
Cash refunds to customers (62) (9) ‐ ‐ ‐ ‐ ‐ (71)
Cash payments to suppliers for goods and services (3,330) (5,771) (492) (42) (485) ‐ (11,577) (21,697)
Cash payments to employees (1,147) (6,196) (852) (40,818) (706) (1,051) (1,805) (52,575)
Cash payments for judgments and claims ‐ ‐ ‐ (1,488) (1,964) (772) ‐ (4,224)
Other cash receipts 42 ‐ ‐ ‐ ‐ ‐ ‐ 42
Cash flows provided by (used in)
operating activities 2,992 (676) (16) (487) 84 (864) (1,613) (580)
Cash flows from noncapital financing activities:
Transfers in ‐ 1,413 ‐ ‐ ‐ ‐ ‐ 1,413
Transfers out ‐ (1,818) ‐ ‐ ‐ ‐ ‐ (1,818)
Cash flows provided by
noncapital financing activities ‐ (405) ‐ ‐ ‐ ‐ ‐ (405)
Cash flows from capital and related financing activities:
Acquisition of capital assets (2,734) (918) ‐ ‐ ‐ ‐ ‐ (3,652)
Proceeds from sale of capital assets 150 ‐ ‐ ‐ ‐ ‐ ‐ 150
Cash flows (used in)
capital and related financing activities (2,584) (918) ‐ ‐ ‐ ‐ ‐ (3,502)
Cash flows from investing activities:
Interest received 263 492 1 268 442 126 65 1,657
Net change in cash and cash equivalents 671 (1,507) (15) (219) 526 (738) (1,548) (2,830)
Cash and cash equivalents, beginning of year 10,407 20,736 27 12,884 20,438 7,637 5,693 77,822
Cash and cash equivalents, end of year $ 11,078 $ 19,229 $ 12 $ 12,665 $ 20,964 $ 6,899 $ 4,145 $ 74,992
Reconciliation of operating income (loss) to net cash
flows provided by (used in) operating activities:
Operating income (loss)418$ (575)$ ‐$ (333)$ (434)$ 591$ (459)$ (792)$
Adjustments to reconcile operating income (loss)
to net cash provided by (used in) operating activities:
Depreciation 2,116 425 3 ‐ ‐ ‐ ‐ 2,544
Other 42 ‐ ‐ ‐ ‐ ‐ ‐ 42
Change in assets and liabilities:
Accounts receivable 154 ‐ ‐ (9) ‐ 27 134 306
Inventory of materials and supplies 281 (77) ‐ ‐ ‐ ‐ ‐ 204
Net OPEB asset ‐ ‐ ‐ ‐ ‐ ‐ (759) (759)
Accounts payable and accruals (29) (460) (15) 84 31 ‐ (529) (918)
Accrued salaries and benefits 5 16 (4) 1 ‐ ‐ ‐ 18
Accrued compensated absences 5 (5) ‐ (233) ‐ ‐ ‐ (233)
Accrued claims payable ‐ ‐ ‐ 3 487 (1,482) ‐ (992)
Cash flows provided by (used in)
operating activities 2,992$ (676)$ (16)$ (487)$ 84$ (864)$ (1,613)$ (580)$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Cash Flows
For the Year Ended June 30, 2014
(Amounts in thousands)
122
123
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, 2014
Balance Balance
California Avenue Parking Assessment District June 30, 2013 Additions Deletions June 30, 2014
ASSETS:
Cash and investments available for operations 189$ ‐$ 9$ 180$
LIABILITIES:
Due to bondholders 189$ ‐$ 9$ 180$
Cable Joint Powers Authority
ASSETS:
Cash and investments available for operations 869$ ‐$ 114$ 755$
Interest receivable 5 ‐ 1 4
Total assets 874$ ‐$ 115$ 759$
LIABILITIES:
Due to other governments 874$ ‐$ 115$ 759$
ASSETS:
Cash and investments available for operations 2,015$ ‐$ 31$ 1,984$
Cash and investments with fiscal agents 2,542 ‐ 1 2,541
Accounts receivable 30 ‐ 21 9
Interest receivable 11 ‐ 1 10
Total assets 4,598$ ‐$ 54$ 4,544$
LIABILITIES:
Due to bondholders 4,598$ ‐$ 54$ 4,544$
Total Agency Funds
ASSETS:
Cash and investments available for operations 3,073$ ‐$ 154$ 2,919$
Cash and investments with fiscal agents 2,542 ‐ 1 2,541
Accounts receivable 30 ‐ 21 9
Interest receivable 16 ‐ 2 14
Total assets 5,661$ ‐$ 178$ 5,483$
LIABILITIES:
Due to bondholders 4,787$ ‐$ 63$ 4,724$
Due to other governments 874 ‐ 115 759
Total liabilities 5,661$ ‐$ 178$ 5,483$
(Amounts in thousands)
University Avenue Area
Off‐Street Parking Assessment District
124
125
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
126
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.
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Governmental Activities
Investment in capital assets 305,225$ 311,335$ 326,411$ 343,537$ 356,657$ 369,499$ 364,747$ 370,111$ 378,047$ 386,696$
Restricted 27,273 29,885 32,576 27,428 36,632 34,323 16,437 52,934 71,717 68,331
Unrestricted 117,301 123,823 127,190 130,460 118,133 102,199 134,722 142,102 165,810 187,386
Total Governmental Activities Net Position 449,799$ 465,043$ 486,177$ 501,425$ 511,422$ 506,021$ 515,906$ 565,147$ 615,574$ 642,413$
Business‐type Activities
Investment in capital assets 303,473$ 318,738$ 342,922$ 370,303$ 384,313$ 399,317$ 416,418$ 437,151$ 446,597$ 473,795$
Restricted 1,750 1,732 1,732 1,732 1,732 4,300 ‐ ‐ 4,060 4,166
Unrestricted 215,128 228,032 230,912 226,539 208,025 232,420 253,740 262,602 269,926 266,794
Total Business‐type Activities Net Position 520,351$ 548,502$ 575,566$ 598,574$ 594,070$ 636,037$ 670,158$ 699,753$ 720,583$ 744,755$
Primary Government
Investment in capital assets 608,698$ 630,073$ 669,333$ 713,840$ 740,970$ 768,816$ 781,165$ 807,262$ 824,644$ 860,491$
Restricted 29,023 31,617 34,308 29,160 38,364 38,623 16,437 52,934 75,777 72,497
Unrestricted 332,429 351,855 358,102 356,999 326,158 334,619 388,462 404,704 435,736 454,180
Total Primary Government Net Position 970,150$ 1,013,545$ 1,061,743$ 1,099,999$ 1,105,492$ 1,142,058$ 1,186,064$ 1,264,900$ 1,336,157$ 1,387,168$
Source: Annual Financial Statements, Statement of Net Position
Fiscal Year Ended June 30
CITY OF PALO ALTO
Net Position by Component
Last Ten Fiscal Years
(Amounts in thousands)
(Accrual basis of accounting)
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Primary Government
Investment in capital assets Restricted Unrestricted
127
PROGRAM REVENUES 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Governmental Activities
Charges for services
City Attorney 22$ 22$ 13$ 16$ 12$ 53$ ‐$ ‐$ ‐$ ‐$
City Clerk ‐ 2 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Administrative Services 480 627 835 870 726 984 2,889 1,647 15,629 4,055
People Strategy and Operations ‐ ‐ 11 ‐ ‐ ‐ ‐ ‐ ‐ ‐
Public Works 573 805 968 1,310 1,169 1,258 2,419 1,008 1,314 1,093
Planning & Community Environment 4,090 5,509 6,267 5,498 4,704 4,813 7,237 31,491 28,768 12,896
Public Safety 12,356 13,256 13,789 13,692 14,670 14,337 15,274 15,658 16,139 14,902
Community Services 7,592 10,803 9,128 10,314 8,522 8,729 7,724 11,365 13,808 20,882
Library 133 129 146 176 177 199 480 1,600 187 166
Operating grants and contributions 3,677 3,976 5,642 4,029 3,599 4,829 2,884 3,441 5,038 5,360
Capital grants and contributions 804 3,156 1,756 1,930 3,810 1,280 1,903 1,064 515 917
Total Governmental Activities
Program Revenues 29,727 38,285 38,555 37,835 37,389 36,482 40,810 67,274 81,398 60,271
Business‐type Activities
Charges for services
Water 21,041 21,108 23,495 26,510 27,120 26,259 26,624 31,467 37,746 40,291
Electric 88,737 119,418 102,549 103,833 119,320 121,900 122,109 118,886 121,805 121,916
Fiber Optics1 ‐ ‐ ‐ ‐ 3,336 3,105 3,322 3,662 4,382 4,485
Gas 31,206 36,977 42,221 49,021 47,838 44,450 43,584 41,774 34,633 35,737
Wastewater Collection 12,041 13,801 14,848 15,102 14,486 15,136 15,094 14,942 16,077 15,599
Wastewater Treatment 15,982 18,778 16,957 22,889 28,425 16,915 18,830 22,200 21,528 18,460
Refuse 23,387 24,795 25,532 28,805 29,101 28,568 30,469 30,645 30,583 30,297
Storm Drainage 2,484 5,174 5,181 5,450 5,505 5,647 5,796 5,892 6,053 6,183
External Services 766 854 789 112 ‐ ‐ ‐ ‐ ‐ ‐
Operating grants and contributions ‐ ‐ ‐ ‐ ‐ 361 610 605 572 549
Capital grants and contributions ‐ ‐ 756 1,594 639 475 3,004 1,526 2,224 2,005
Total Business‐type Activities
Program Revenues 195,644 240,905 232,328 253,316 275,770 262,816 269,442 271,599 275,603 275,522
Total Primary Government
Program Revenues 225,371$ 279,190$ 270,883$ 291,151$ 313,159$ 299,298$ 310,252$ 338,873$ 357,001$ 335,793$
EXPENSES
Governmental Activities
City Council 130$ 141$ 180$ 323$ 394$ 455$ 15$ 345$ 94$ 387$
City Manager 1,725 1,563 1,760 2,273 2,085 2,399 1,842 1,960 1,237 2,180
City Attorney 2,653 2,598 2,390 2,653 2,575 2,621 953 1,656 1,642 1,797
City Clerk 770 945 900 1,241 1,098 1,369 803 908 330 641
City Auditor 764 843 838 1,379 2,053 2,601 138 235 464 489
Administrative Services2 6,982 6,972 6,419 15,477 17,784 17,893 9,888 10,100 7,614 11,388
People Strategy and Operations 2,410 2,546 2,472 2,806 3,448 3,707 1,346 1,071 1,420 1,346
Public Works 16,400 17,596 16,645 18,565 21,270 18,658 19,357 14,568 20,816 24,577
Planning & Community Environment 10,162 9,931 12,929 16,388 12,940 12,114 15,031 12,074 13,549 14,926
Public Safety 40,543 42,158 43,391 50,126 52,487 55,799 58,996 62,817 59,452 62,883
Community Services 17,240 17,296 15,729 17,736 19,862 17,171 22,845 21,915 22,705 23,822
Library 4,835 5,323 5,347 6,321 6,244 6,143 6,920 7,323 7,319 7,758
Non‐departmental2 12,474 10,400 12,133 ‐ ‐ ‐ ‐ ‐ ‐ ‐
Interest on long term debt 693 512 477 438 404 370 2,742 2,575 2,562 3,367
Total Governmental
Activities Expenses 117,781 118,824 121,610 135,726 142,644 141,300 140,876 137,547 139,204 155,561
Business‐type Activities
Water 14,969 15,881 16,794 18,842 20,271 21,037 24,268 29,093 30,707 31,593
Electric 73,051 91,570 99,294 108,032 122,268 107,910 100,130 102,030 106,438 113,004
Fiber Optics1 ‐ ‐ ‐ ‐ 1,284 1,407 1,561 1,489 1,437 1,661
Gas 26,656 29,107 30,690 37,211 34,603 32,498 32,051 28,878 26,749 26,869
Wastewater Collection 8,907 11,005 10,085 12,023 14,875 10,696 12,275 14,825 14,313 13,235
Wastewater Treatment 17,457 16,747 15,901 18,902 36,896 13,466 19,731 20,712 20,635 21,018
Refuse 24,959 26,989 25,372 28,827 37,217 28,119 30,684 31,900 28,542 28,413
Storm Drainage 3,336 2,673 2,517 3,202 2,943 2,491 3,229 3,103 3,703 3,644
Airport ‐ ‐ ‐ ‐ ‐ ‐ 31 153 246 466
External Services 760 868 767 984 ‐ ‐ ‐ ‐ ‐ ‐
Total Business‐type
Activities Expenses 170,095 194,840 201,420 228,023 270,357 217,624 223,960 232,183 232,770 239,903
Total Primary
Government Expenses 287,876$ 313,664$ 323,030$ 363,749$ 413,001$ 358,924$ 364,836$ 369,730$ 371,974$ 395,464$
CITY OF PALO ALTO
Changes in Net Position
Last Ten Fiscal Years
(Accrual basis of accounting)
(Amounts in thousands)
Fiscal Year Ended June 30
128
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
NET (EXPENSE)/REVENUE
Governmental Activities (88,054)$ (80,539)$ (83,055)$ (97,891)$ (105,255)$ (104,818)$ (100,066)$ (70,273)$ (57,806)$ (95,290)$
Business‐type Activities 25,549 46,065 30,908 25,293 5,413 45,192 45,482 39,416 42,833 35,619
Total Primary Government
Net (Expense)/Revenue (62,505)$ (34,474)$ (52,147)$ (72,598)$ (99,842)$ (59,626)$ (54,584)$ (30,857)$ (14,973)$ (59,671)$
GENERAL REVENUES AND OTHER CHANGES IN NET POSITION
Governmental Activities
Taxes
Property tax 16,657$ 18,731$ 21,466$ 23,084$ 25,432$ 25,981$ 29,156$ 30,104$ 31,929$ 35,299$
Sales tax 19,308 20,315 22,194 22,623 20,089 17,991 20,746 22,132 25,606 29,424
Utility user tax 7,269 8,759 9,356 10,285 11,030 11,295 10,851 10,834 10,861 11,008
Transient occupancy tax 5,686 6,393 6,709 7,976 7,111 6,858 8,082 9,664 10,794 12,255
Other taxes 5,580 7,033 6,293 6,261 3,364 4,055 8,156 8,173 10,504 9,660
Investment earnings 4,988 2,567 8,747 12,313 8,525 6,514 3,500 6,238 (1,228) 5,859
Rents and miscellaneous 12,997 10,440 13,670 11,896 15,682 12,729 12,377 14,943 518 2,575
Transfers 14,064 21,545 15,754 18,701 24,020 13,994 17,083 17,426 19,249 17,103
Total Governmental Activities 86,549 95,783 104,189 113,139 115,253 99,417 109,951 119,514 108,233 123,183
Business‐type Activities
Investment earnings 8,093 3,631 11,910 16,416 14,103 10,769 5,722 7,605 (2,754) 6,379
Special item (21,500) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Transfers (14,064) (21,545) (15,754) (18,701) (24,020) (13,994) (17,083) (17,426) (19,249) (17,103)
Total Business‐type Activities (27,471) (17,914) (3,844) (2,285) (9,917) (3,225) (11,361) (9,821) (22,003) (10,724)
Total Primary Government 59,078$ 77,869$ 100,345$ 110,854$ 105,336$ 96,192$ 98,590$ 109,693$ 86,230$ 112,459$
CHANGE IN NET POSITION
Governmental Activities (1,505)$ 15,244$ 21,134$ 15,248$ 9,998$ (5,401)$ 9,885$ 49,241$ 50,427$ 27,893$
Business‐type Activities (1,922) 28,151 27,064 23,008 (4,504) 41,967 34,121 29,595 20,830 24,895
Total Primary Government
Change in Net Position (3,427)$ 43,395$ 48,198$ 38,256$ 5,494$ 36,566$ 44,006$ 78,836$ 71,257$ 52,788$
Notes:1Prior to 2009, Fiber Optics was included in Electric.
2Beginning in 2008, includes Non‐departmental expenses.
Source: Annual Financial Statements, Statement of Activities
Fiscal Year Ended June 30
129
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
General Fund
Nonspendable 3,931$ 4,052$ 5,002$ 7,286$ 6,476$ 6,581$ 6,085$ 6,007$ 5,749$ 6,188$
Assigned 3,401 3,914 6,855 4,851 6,100 7,295 6,235 6,400 5,415 5,432
Unassigned 24,498 26,251 27,551 30,278 30,648 27,581 31,859 29,616 30,913 36,690
Total General Fund 31,830$ 34,217$ 39,408$ 42,415$ 43,224$ 41,457$ 44,179$ 42,023$ 42,077$ 48,310$
Source: Annual Financial Statements, Balance Sheet
Fiscal Year Ended June 30
CITY OF PALO ALTO
Fund Balances of Governmental Funds (General Fund)
Last Ten Fiscal Years
(Modified accrual basis of accounting)
(Amounts in thousands)
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$ Th
o
u
s
a
n
d
s
Nonspendable Assigned Unassigned
130
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
All Other Governmental Funds
Nonspendable ‐$ ‐$ ‐$ 731$ 1,308$ 1,402$ 1,422$ 11,112$ 18,189$ 14,869$
Restricted 1,522 1,822 1,540 1,406 1,412 55,400 50,646 61,324 84,688 68,468
Committed 7,521 18,430 22,883 15,207 22,043 16,962 24,775 14,284 20,400 27,145
Assigned 57,336 46,723 41,684 44,116 36,629 38,538 20,114 33,264 45,514 55,211
Total All Other
Governmental Funds 66,379$ 66,975$ 66,107$ 61,460$ 61,392$ 112,302$ 96,957$ 119,984$ 168,791$ 165,693$
Source: Annual Financial Statements, Balance Sheet
Fiscal Year Ended June 30
CITY OF PALO ALTO
Fund Balances of Governmental Funds (All Other Governmental Funds)
Last Ten Fiscal Years
(Modified accrual basis of accounting)
(Amounts in thousands)
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$ Th
o
u
s
a
n
d
s
Nonspendable Restricted Committed Assigned
131
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Revenues
Property tax 16,657$ 18,731$ 21,466$ 23,084$ 25,432$ 25,981$ 29,248$ 30,216$ 32,040$ 35,393$
Sales tax 19,308 20,315 22,194 22,623 20,089 17,991 20,746 22,132 25,606 29,424
Other taxes and fines 22,037 25,840 26,215 27,385 24,843 25,063 27,890 29,231 32,141 35,305
Charges for services 17,159 18,672 19,929 19,610 19,837 19,775 22,311 46,273 38,976 23,962
From other agencies 2,757 5,931 3,448 4,300 5,984 3,035 1,614 1,116 4,109 5,700
Permits and licenses 3,183 4,305 4,711 4,761 4,033 4,408 5,433 7,136 8,218 8,990
Interest and rentals 14,968 13,776 17,750 20,507 19,183 19,045 16,553 18,583 12,136 18,445
Other revenue 4,269 4,058 7,503 4,713 6,223 4,724 8,624 12,739 17,570 7,471
Total Revenues 100,338 111,628 123,216 126,983 125,624 120,022 132,419 167,426 170,796 164,690
Expenditures
Administration1 14,509 14,299 14,399 16,250 16,002 17,353 8,351 9,412 8,291 9,961
Public Works 9,060 9,036 9,256 10,072 10,064 9,787 11,317 11,304 11,489 12,439
Planning and Community Environment 9,692 9,292 11,874 9,861 10,462 9,480 10,309 11,966 13,474 14,761
Public Safety 38,732 40,393 42,451 48,650 48,957 51,022 58,874 62,418 59,537 62,028
Community Services 16,298 19,740 16,533 17,138 17,451 16,451 20,029 20,860 21,661 22,644
Library 4,800 5,170 5,260 6,219 5,985 5,900 6,509 7,072 6,902 7,340
Non‐departmental 9,028 10,389 12,122 14,089 10,765 10,149 7,352 6,819 4,567 8,135
Special revenue and capital projects 21,317 13,243 17,478 21,626 21,485 22,006 35,486 29,154 29,542 37,035
Debt service ‐ principal payments 785 810 850 885 800 840 870 1,743 1,489 1,524
Debt service ‐interest and fiscal fees 583 523 489 451 416 382 1,815 2,757 2,659 3,196
Payment to bond refunding escrow ‐ ‐ ‐ ‐ ‐ ‐ ‐ 586 540 ‐
Total Expenditures 124,804 122,895 130,712 145,241 142,387 143,370 160,912 164,091 160,151 179,063
Excess (Deficiency) of Revenues
Over (Under) Expenditures (24,466) (11,267) (7,496) (18,258) (16,763) (23,348) (28,493) 3,335 10,645 (14,373)
Other Financing Sources (Uses)
Transfers in 60,429 26,640 27,701 33,437 39,903 34,835 30,323 47,200 50,343 41,683
Transfers out (46,622) (12,390) (15,882) (16,819) (22,399) (21,415) (14,352) (29,782) (33,833) (24,175)
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)12,769 14,250 11,819 16,618 17,504 72,491 15,870 17,536 38,216 17,508
Net Change in Fund Balances (11,697)$ 2,983$ 4,323$ (1,640)$ 741$ 49,143$ (12,623)$ 20,871$ 48,861$ 3,135$
Debt Service as a Percentage of
Non‐Capital Expenditures 1.3% 1.2% 1.2% 1.1% 1.0% 1.0% 2.2% 3.5% 3.2% 3.3%
Notes:
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 PS&O.
CITY OF PALO ALTO
Changes in Fund Balances of Governmental Funds
Last Ten Fiscal Years
(Modified accrual basis of accounting)
(Amounts in thousands)
Fiscal Year Ended June 30
132
Commercial and
Fiscal Year Residential Industrial City of Palo Alto Total
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
2014 18,744 88,419 3,225 110,388
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 University 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 26,439 182,227,583 18,744$
Commercial 2,556 470,229,174 65,244
Industrial 120 213,768,135 23,175
CPA/Other 224 84,559,258 3,225
Total 29,339 950,784,150 110,388$
City of Palo Alto Power Purchase
Western Area Power Administration 27%
Forward Market Purchases 43%
Wind Energy 11%
Landfill Gas Energy 8%
Northern California Power Agency Hydroelectric 5%
Short‐Term Market 6%
Note:
Source: City of Palo Alto, Utilities and Accounting Departments
*The top ten customers accounted for approximately 39.5% of total kWh consumption (375,172,708 kWh) and
35.7% of revenue ($40,928,901). The largest customer accounted for 8.3% of total kWh consumption and 7.4% of
revenue. The smallest customer accounted for 1.4% of total kWh consumption and 1.3% 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
133
The top ten customers total consumption is 846,932 CCF with revenue of $6,628,575.
This amount accounts for approximately 16.8% of total consumption and 16.3% of
revenue. The largest customer (other than the City of Palo Alto) accounted for 2.1% of
consumption and 2.1% of revenue. The smallest customer accounted for 0.8% of
consumption and 0.7% of revenue.
Note:
Source:City of Palo Alto, Utilities Department
CITY OF PALO ALTO
Supplemental Disclosure for Water Utilities
Fiscal Year 2014
Top Ten Largest Water Utility Customers (alphabetical order)
City of Palo Alto
Hewlett‐Packard Company
VMware Inc.
This schedule is provided as required by the Continuing Disclosure Agreement for
the City's Utility Revenue Bond and is not required by Governmental Accounting
Standards Board (GASB).
Palo Alto Hills Golf & Country Club
Palo Alto Unified School District
Oak Creek Apartments
Stanford Hospital & Clinics
Stanford West Management
Veterans Admin Hospital
Space Systems/Loral, Inc.
134
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Net Local Secured Roll
Land 7,075,300$ 7,941,482$ 8,725,485$ 9,497,746$ 10,420,139$ 11,007,650$ 11,011,160$ 11,352,993$ 12,255,515$ 13,357,851$
Improvements 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 12,984,735
Personal property 220,585 174,666 213,154 228,875 303,688 288,148 241,280 257,436 287,296 307,499
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 26,650,085
Less:
Exemptions net of state aid (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) (2,610,521)
Total Net Local Secured Roll 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 24,039,564
Public utilities 4,150 4,084 3,923 3,174 2,573 2,573 2,573 2,573 2,573 2,573
Unsecured property 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 1,493,922
Total Assessed Value 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$ 25,536,059$
Total Direct Tax Rate 1%1%1%1%1%1%1%1%1%1%
Note: The State Constitution requires property to be assessed at 100% of the most recent purchase price, plus an increment of no more than 2% annually, plus any local over‐rides.
These values are considered to be full market values.
Source: County of Santa Clara Assessor's Office
CITY OF PALO ALTO
Assessed Value of Taxable Property
Last Ten Fiscal Years
(Amounts in thousands)
Fiscal Year Ended June 30
$13,000,000
$15,000,000
$17,000,000
$19,000,000
$21,000,000
$23,000,000
$25,000,000
$27,000,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$ Th
o
u
s
a
n
d
s
Total Assessed Value
135
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
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
2014 1.00 0.0388 0.0035 0.0177 0.0070 0.0655 0.0290 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
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Rate per $100 of Assessed Value
136
Fiscal Year Total Tax Percentage Collections in Percentage of
Ended June 30 Levy1 for FY Amount of Levy Subsequent Years 2 Amount Levy
2005 16,657$ 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%
2014 30,587 30,587 100%‐ 30,587 100%
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
137
Taxable
Assessed
Value Rank
Percentage of
Total Taxable
Assessed Value
Taxable
Assessed
Value Rank
Percentage of
Total Taxable
Assessed Value
Leland Stanford Jr. University 3,689,653$ 1 14.4%2,508,150$ 1 16.7%
Loral Space & Communications 252,085 2 1.0%196,954 2 1.3%
EOSII Palo Alto Technology Center LLC 118,769 3 0.5%
Whisman Ventures, LLC 109,311 4 0.4%
Pacific Hotel Development Venture LP 81,729 5 0.3%
Ronald & Ann Williams Charitable Foundation 61,179 6 0.2%
PPC Forest Towers LLC 55,323 7 0.2%
Blackhawk Parent, LLC 52,224 8 0.2%
529 Bryant St. LLC 44,358 9 0.2%
Park Village Peninsula LLC 39,008 10 0.2%
Agilent Technologies 70,688 3 0.5%
Harbor Investment Partners 61,997 4 0.4%
Hamilton Associates 37,335 5 0.2%
505 Hamilton Avenue Partners 36,358 6 0.2%
California Pacific Commercial Corp.34,492 7 0.2%
Thoits Bros Inc.28,596 8 0.2%
Hyatt Equities LLC 25,944 9 0.2%
Inspire Real Estate Holdings 22,500 10 0.2%
Total 4,503,639$ 17.6%3,023,014$ 20.2%
Total City Taxable Assessed Value:
FY 2014 25,536,059$
FY 2005 14,974,966$
Source: California Municipal Statistics, Inc.
Fiscal Year 2014 Fiscal Year 2005
Taxpayer
CITY OF PALO ALTO
Principal Property Taxpayers
Current Year and Nine Years Ago
(Amounts in thousands)
138
2013‐2014 No. of
Assessed % of No. of % of Taxable % of
Valuation1 Total Parcels Total Parcels Total
Non‐Residential:
Agricultural/forest 34,972,534$ 0.15 % 48 0.23 % 32 0.16 %
Commercial 1,217,725,581 5.07 459 2.23 454 2.25
Professional/office 2,963,762,320 12.33 520 2.53 503 2.49
Industrial/research & development 1,759,861,882 7.32 189 0.92 182 0.90
Recreational 41,605,067 0.17 14 0.07 12 0.06
Government/social/institutional 35,141,795 0.15 113 0.55 45 0.22
Miscellaneous 6,840,061 0.03 18 0.09 17 0.08
Subtotal Non‐Residential 6,059,909,240$ 25.21 % 1,361 6.62 % 1,245 6.17 %
Residential:
Single family residence 14,208,622,113$ 59.11 % 14,926 72.60 % 14,879 73.72 %
Condominium/townhouse 1,911,246,785 7.95 3,006 14.62 3,000 14.86
Mobile Home 56,727 0.00 7 0.03 7 0.03
2‐4 Residential units 375,813,638 1.56 512 2.49 512 2.54
5+ Residential units 1,316,514,149 5.48 335 1.63 310 1.54
Subtotal Residential 17,812,253,412$ 74.10 % 18,786 91.38 % 18,708 92.70 %
Vacant Parcels 167,401,061$ 0.70 % 412 2.00 % 229 1.13 %
Total 24,039,563,713$ 100 % 20,559 100 % 20,182 100 %
Notes: This schedule is provided as required by the Continuing Disclosure Agreement for the City's General Obligation
2010 and 2013A Bonds and is not required by Governmental Accounting Standards Board (GASB). Therefore,
ten years of comparison data is not presented.
1Local secured assessed valuation, excluding tax‐exempt property.
Source: California Municipal Statistics, Inc.
CITY OF PALO ALTO
Assessed Valuation and Parcels by Land Use
As of June 30, 2014
139
No. of
Taxable Average
Parcels1 Assessed Valuation
Single Family Residential 14,879 $954,945
No. of % of Cumulative % of Cumulative
Taxable Total % of Total Total Total % of Total
Parcels1 Parcels Parcels Valuation Valuation Valuation
1,563 10.50 10.50 122,339,273$ 0.86 0.86
1,890 12.70 23.21 259,842,687 1.83 2.69
918 6.17 29.38 228,694,427 1.61 4.30
760 5.11 34.48 264,491,238 1.86 6.16
749 5.03 39.52 337,588,409 2.38 8.54
796 5.35 44.87 437,697,563 3.08 11.62
683 4.59 49.46 443,390,894 3.12 14.74
608 4.09 53.55 454,451,425 3.20 17.94
688 4.62 58.17 585,819,332 4.12 22.06
682 4.58 62.75 647,931,889 4.56 26.62
615 4.13 66.89 644,701,712 4.54 31.16
529 3.56 70.44 606,657,478 4.27 35.43
506 3.40 73.84 632,593,803 4.45 39.88
503 3.38 77.22 678,992,569 4.78 44.66
431 2.90 80.12 624,094,603 4.39 49.05
390 2.62 82.74 604,251,717 4.25 53.30
311 2.09 84.83 512,381,113 3.61 56.91
277 1.86 86.69 484,873,179 3.41 60.32
202 1.36 88.05 372,949,891 2.62 62.95
225 1.51 89.56 438,425,123 3.09 66.03
1,553 10.44 100.00 4,826,453,788 33.97 100.00
14,879 100.00 14,208,622,113$ 100.00
Notes:
Source: California Municipal Statistics, Inc.
This schedule is provided as required by the Continuing Disclosure Agreement for the City's General
Obligation 2010 and 2013A Bonds and is not required by Governmental Accounting Standards Board
(GASB). Therefore, ten years of comparison data is not presented.
1Improved single family residential parcels. Excludes condominiums and parcels with multiple family
units.
$1,900,000‐1,999,999
$2,000,000 and greater
Total
$1,800,000‐1,899,999
$700,000‐799,999
$800,000‐899,999
$900,000‐999,999
$1,000,000‐1,099,999
$1,100,000‐1,199,999
$1,200,000‐1,299,999
$1,300,000‐1,399,999
$1,400,000‐1,499,999
$1,500,000‐1,599,999
$1,600,000‐1,699,999
$1,700,000‐1,799,999
$600,000‐699,999
$14,208,622,113 $710,650
2013‐2014
Assessed Valuation
$0‐99,999
$100,000‐199,999
$200,000‐299,999
$300,000‐399,999
$400,000‐499,999
$500,000‐599,999
Assessed Valuation Assessed Valuation
CITY OF PALO ALTO
Per Parcel Assessed Valuation of Single Family Residential
As of June 30, 2014
2013‐2014 Median
140
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
10,625$ 9,915$ 9,175$ 8,405$ 7,605$ 6,765$ 5,895$ 1,685$ 1,560$ 1,430$
‐ ‐ ‐ ‐ ‐ 55,305 55,305 54,540 74,235 73,215
325 225 115 ‐ ‐ ‐ ‐ ‐ ‐ ‐
2011 Lease‐Purchase Agreement ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2,764 2,400 2,026
Add: unamortized premium ‐ ‐ ‐ ‐ ‐ 3,766 3,640 3,514 4,400 4,242
‐ ‐ ‐ ‐ ‐ (571) ‐ ‐ ‐ ‐
10,950 10,140 9,290 8,405 7,605 65,265 64,840 62,503 82,595 80,913
44,735 43,325 41,859 40,334 38,744 72,104 69,551 65,879 63,104 60,224
Energy Tax Credits ‐ ‐ ‐ 1,400 1,300 1,200 1,100 1,000 900 800
State Water Resources Loan ‐ ‐ ‐ 5,629 9,000 13,080 16,696 15,900 15,109 14,309
(1,137) (1,037) (972) (1,053) (2,479) (2,737) (229) 580 543 867
43,598 42,288 40,887 46,310 46,565 83,647 87,118 83,359 79,656 76,200
Outstanding Debt 54,548$ 52,428$ 50,177$ 54,715$ 54,170$ 148,912$ 151,958$ 145,862$ 162,251$ 157,113$
1.89% 1.69% 1.51% 1.53% 1.50% 4.48% 4.10% 3.61% 3.80% 3.39%
Population (actual)61,674 62,148 62,615 63,367 64,484 65,408 64,417 65,544 66,368 66,861
0.88$ 0.84$ 0.80$ 0.86$ 0.84$ 2.28$ 2.36$ 2.23$ 2.44$ 2.35$
Notes:
Sources:
State of California, Department of Finance (population)
California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income)
Annual Financial Statements, Note 7 General Long‐Term Obligations and Note 8 Special Assessment Debt
Debt Per Capita
1See the schedule of Demographic and Economic Statistics for personal income data. Per capita personal income is only available for Santa Clara
County, therefore personal income is the product of the countywide per capita amount and the City's population.
County of Santa Clara (assessed valuation)
2The City adopted GASB Statement No. 65 in FY 2014 and wrote off accumulated bond issuance costs. Prior years have not been restated.
Percentage of Personal Income1
Certificates of Participation
General Obligation Bonds
Special Assessment Debt
Less: unamortized discount/
issuance costs2
Total Governmental Activities
Business‐type Activities
Utility Revenue Bonds
Less: unamortized discount/
issuance costs2
Total Business‐type Activities
Total Primary Government
Governmental Activities
CITY OF PALO ALTO
Ratio of Outstanding Debt by Type
Last Ten Fiscal Years
(Amounts in thousands)
Fiscal Year Ended June 30
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$ Th
o
u
s
a
n
d
s
Total Governmental Activities Total Business‐type Activities
141
2013‐2014 Assessed Valuation 25,536,058,396$
Percentage Amount
Applicable Applicable
Total Debt to City of to City of
Outstanding Palo Alto1 Palo Alto
Santa Clara County 804,700,000$ 7.64%61,438,845$
Foothill‐DeAnza Community College District 613,179,288 22.53% 138,124,766
Palo Alto Unified School District 319,849,249 89.48% 286,197,910
Fremont Union High School District 290,570,108 0.02%63,925
Los Gatos Joint Union High School District 41,805,000 0.01%5,853
Mountain View‐Los Altos Union High School District 65,436,599 0.91%596,127
Cupertino Union School District 261,223,462 0.04%94,040
Los Altos School District 76,158,560 0.99%753,208
Mountain View‐Whisman School District 46,000,000 0.84%384,100
Saratoga Union School District 40,224,483 0.03%12,470
Whisman School District 23,045,269 2.14%493,399
City of Palo Alto 77,457,000 100%77,457,000
El Camino Hospital District 140,010,000 0.09% 126,009
City of Palo Alto Special Assessment Bonds 29,745,000 100% 29,745,000
Santa Clara Valley Water District Benefit Assessment District 115,045,000 7.64% 8,783,686
Total Direct and Overlapping Tax and Assessment Debt 604,276,338
757,814,320 7.63% 57,859,123
375,419,144 7.64% 28,663,252
9,730,000 7.64% 742,886
13,468,694 22.53% 3,033,958
7,925,000 0.01% 1,110
4,170,000 0.91% 37,989
5,240,000 0.03% 1,624
City of Palo Alto Certificates of Participation 1,430,000 100% 1,430,000
City of Palo Alto 2011 Lease Purchase Agreement 2,026,000 100% 2,026,000
3,275,000 7.63% 250,046
Midpeninsula Regional Open Space Park District General Fund Obligations 133,209,717 13.19% 17,574,358
$ 111,620,346
40,732,468
$ 70,887,878
$ 675,164,216
Ratio to
Assessed Valuation
Total Direct Debt 0.32%80,913,000$
Total Overlapping Debt 2.33%594,251,216
Total Direct and Overlapping Debt 2.64%675,164,216$
Notes:
1Percentage of overlapping agency's assessed valuation located within boundaries of the city
2Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and
non‐bonded capital lease obligations.
Source: California Municipal Statistics, Inc.
Santa Clara County 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
Santa Clara County General Fund Obligations
CITY OF PALO ALTO
Computation of Direct and Overlapping Debt
As of June 30, 2014
Direct and Overlapping Tax and Assessment Debt
Direct and Overlapping General Fund Debt
Mountain View‐Los Altos Union High School District Certificates of Participation
Saratoga Union High School District Certificates of Participation
Less: Santa Clara County supported obligations
Total Net Direct and Overlapping General Fund Debt
Overlapping debt is the financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction. The amount of debt of each
unit applicable to the reporting unit is arrived at by 1) determining what percentage of the total assessed value of the overlapping jurisdiction
lies within the limits of the reporting unit, and 2) applying this percentage to the total debt of the overlapping jurisdiction.
Santa Clara County Vector Control District Certificates of Participation
Total Gross Direct and Overlapping General Fund Debt
Total Combined Debt
142
Assessed Valuation:
Secured property assessed value,
net of exempt real property 25,536,059$
Bonded Debt Limit (3.75% of Assessed Value) 1 957,602
Direct Debt:
Certificates of Participation 1,430
Lease Purchase Agreement 2,026
General Obligation bonds 73,215
Total Direct Debt 76,671
Less: Amount of Debt Not Subject to Limit 2 3,456
Total Net Debt Applicable to Limit 73,215
Legal Bonded Debt Margin 884,387$
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
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
2014 25,536,059 957,602 73,215 884,387 66,861 7.65%0.0029 1.10
Notes:
Source:
CITY OF PALO ALTO
Computation of Legal Bonded Debt Margin
As of June 30, 2014
(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 2005 was restated due to correction of data.
143
Less: Net Revenue
Fiscal Gross Direct Operating Available for
Year Revenue Expenses2 Debt Service Principal Interest3 Total Coverage Ratio
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
2014 239,948 176,718 63,230 2,980 3,073 6,053 10.45
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
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
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$ Th
o
u
s
a
n
d
s
Net Revenue Available for Debt Service Total Debt Service
144
Fiscal
Year
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
2014 2,097 3,541 1,555 2,041 392 772 444 4,845 9,890 25,577
Source: California State Board of Equalization, compiled by MuniServices LLC
Sales Tax Rates for the Fiscal Year ended June 30, 2014
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
Food
Markets
Service
Stations
Drug
Stores
Other
Retail All Other
Apparel
Stores
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
Department Stores
8%
Restaurants
14%
Furniture/ Appliance
6%
Apparel Stores
8%
Food Markets
1%
Service Stations
3%
Drug Stores
2%
Other Retail
19%
All Other
39%
Fiscal Year 2014
145
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)
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% 104,300,000 *56,147 *
2010 65,408 6.2%11,565 1,880,876 3.48% 95,500,000 *50,774 *
2011 64,417 5.3%12,024 1,781,427 3.62% 102,600,000 *57,594 *
2012 65,544 4.7%12,286 1,816,486 3.61% 111,900,000 *61,602 *
2013 66,368 3.6%12,396 1,842,254 3.60% 118,600,000 *64,378 *
2014 66,861 2.8%12,483 1,868,558 3.58%129,600,000 *69,358 *
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
68,000 City Population
10,000
10,500
11,000
11,500
12,000
12,500
13,000 School Enrollment
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%City Unemployment Rate
146
Number of
Employees Rank
Percentage of
Total City
Employment
Number of
Employees Rank
Percentage of
Total City
Employment
Stanford University 11,128 1 8.9%9,821 1 7.0%
Stanford University Medical Center/Hospital 5,886 2 4.7%5,025 2 3.6%
Lucile Packard Children's Hospital 4,215 3 3.4%3,326 4 2.4%
VMware Inc.3,509 4 2.8%
SAP 3,500 5 2.8%
Veteran's Affairs Palo Alto Health Care System 3,000 6 2.4%3,500 3 2.5%
Space Systems/Loral 2,720 7 2.2%1,700 7 1.2%
Hewlett‐Packard Company 2,500 8 2.0%2,001 5 1.4%
Colubris Networks, Inc.2,201 9 1.8%
Palo Alto Medical Foundation 2,200 10 1.8%2,000 6 1.4%
Wilson Sonsini Goodrich & Rosati 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 40,859 32.8%31,251 22.3%
Estimated Total City Day Population:
FY 2014 125,000
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/, The City
of Palo Alto, A Report to Our Citizens.
CITY OF PALO ALTO
Principal Employers
Current Year and Six Years Ago
FY 2014 FY 20081
Employer
Available data sources have been shown to be unreliable in the past. These numbers will be refined with the creation of a City business
registry.
147
2004 2005 2006 2007 2008
Governmental activities
Community Services
Number of theater performances 175 172 183 171 166
Total hours of athletic field usage2 ‐ 65,748 65,791 70,769 63,212
Number of rounds of golf 83,728 78,410 76,000 76,241 74,630
Enrollment in recreation classes (includes summer camps 16,435 15,127 14,768 14,460 13,851
Planning and Community Environment
Planning applications completed 409 327 390 299 257
Building permits issued 3,236 3,081 3,081 3,136 3,046
Green Building permit applications processed 3 ‐ ‐ ‐ ‐ ‐
Caltrain average weekday boarding 2,825 3,264 3,882 4,132 4,589
Police
Calls for service 52,489 52,233 57,017 60,079 58,742
Total arrests 2,577 2,134 2,530 3,059 3,253
Parking citations issued 47,860 52,235 56,502 57,222 50,706
Animal Services
Number of service calls 3,575 4,994 2,861 2,990 3,059
Number of sheltered animals 3,780 3,514 3,839 3,578 3,532
Fire
Calls for service 6,675 6,414 6,897 7,236 7,723
Number of fire incidents 248 224 211 221 192
Number of fire inspections 793 1,488 899 1,021 1,277
Library
Total number of cardholders 50,171 52,001 55,909 53,099 53,740
Total number of items in collection 267,693 264,511 260,468 270,755 279,403
Total checkouts 1,314,790 1,282,888 1,280,547 1,414,509 1,542,116
Public Works
Street resurfacing (lane miles)17 20 20 32 27
Number of potholes repaired 2,907 3,221 2,311 1,188 1,977
Sq. ft. of sidewalk replaced or permanently repaired 115,352 132,430 126,574 94,620 83,827
Number of trees planted 242 164 263 164 188
Total tons of waste landfilled 61,266 60,777 59,276 59,938 61,866
Tons of materials recycled 49,268 50,311 56,013 56,837 52,196
Business‐type activities
Electric
Number of customer accounts 28,482 28,556 28,653 28,684 29,024
Residential MWH consumed 158,099 161,440 161,202 162,405 162,680
Gas
Number of customer accounts 23,216 23,301 23,353 23,357 23,502
Residential therms consumed 11,700,335 12,299,158 11,745,883 11,759,842 11,969,151
Water
Number of customer accounts 19,557 19,605 19,645 19,726 19,942
Residential water consumption (CCF)3,000,645 2,686,507 2,647,758 2,807,477 2,746,980
Wastewater collection
Number of customer accounts 21,830 21,763 21,784 21,789 21,970
Millions of gallons processed 8,238 8,497 8,972 8,853 8,510
Notes:
2Some data not available.
Source: City of Palo Alto Performance Report (formerly the 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.
CITY OF PALO ALTO
Operating Indicators by Function/Program
Last Ten Fiscal Years1
Fiscal Year Ended June 30
FUNCTIONS/PROGRAMS
148
2009 2010 2011 2012 2013
159 174 175 175 184
45,762 41,705 42,687 44,226 ‐
72,170 69,791 67,381 65,653 60,153
13,091 12,880 12,310 11,703 11,598
273 226 238 204 307
2,543 2,847 3,559 3,320 3,682
341 556 961 887 1,037
4,863 4,796 5,501 5,730 5,469
53,275 55,860 52,159 51,086 54,628
2,612 2,451 2,288 2,212 2,274
49,996 42,591 40,426 41,875 43,877
2,873 2,692 2,804 3,051 2,909
3,422 3,147 3,323 3,379 2,675
7,549 7,468 7,555 7,796 7,904
239 182 165 186 150
1,028 1,526 1,807 1,654 2,069
54,878 51,969 53,246 60,283 51,007
293,735 298,667 314,154 306,361 277,749
1,633,955 1,624,785 1,476,648 1,559,932 1,512,975
23 32 29 40 36
3,727 3,149 2,986 3,047 2,726
56,909 54,602 71,174 72,787 82,118
250 201 150 143 245
68,228 48,955 38,524 43,947 45,411
49,911 48,811 56,586 51,725 47,941
28,527 29,430 29,708 29,545 29,299
159,899 163,098 160,318 160,604 156,411
23,090 23,724 23,816 23,915 23,659
11,003,088 11,394,712 11,476,609 11,522,999 10,834,793
19,442 20,134 20,248 20,317 20,043
2,566,962 2,415,467 2,442,415 2,513,595 2,521,930
21,210 22,231 22,320 22,421 22,152
7,958 8,184 8,652 8,130 7,546
Fiscal Year Ended June 30
149
2005 2006 2007 2008
FUNCTION/PROGRAM
Public Safety
Fire:
Fire Stations 8 8 8 8
Fire Apparatus 25 25 25 23
Police:
Police Stations 1 1 1 1
Police Patrol Vehicles 30 30 30 30
Community Services
Acres ‐ Downtown/Urban Parks 170 170 157 157
Acres ‐ Open Space 3,731 3,731 3,744 3,744
Parks and Preserves 35 35 36 36
Golf Course 1 1 1 1
Tennis Courts 52 52 51 51
Athletic Center 1 1 4 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 3 3
Libraries
Libraries 5 5 5 5
Public Works:
Number of Trees Maintained 35,096 34,841 34,556 35,058
Electric Utility1
Miles of Overhead Lines 225 217 194 193
Miles of Underground Lines 188 210 252 253
Water Utility
Miles of Water Mains 226 217 217 217
Gas Utility
Miles of Gas Mains 207 207 207 207
Waste Water
Miles of Sanitary Sewer Lines 202 202 202 202
Note:
Source: City of Palo Alto
1The City of Palo Alto Utilities Department recently completed the conversion of its electric system maps
to a GIS mapping system database. Therefore, the distances reported for FY 11/12 and forward are more
accurate than the distances reported in previous years.
CITY OF PALO ALTO
Capital Asset Statistics by Function/Program
Last Ten Fiscal Years
Fiscal Year Ended June 30
150
2009 2010 2011 2012 2013 2014
8 8 8 7 7 7
28 28 27 29 28 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 3744 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
34,991 35,025 34,977 34,874 34,907 34,741
193 193 193 223 222 223
253 253 253 245 246 249
214 214 214 234 233 236
207 205 205 210 210 214
207 207 207 217 217 217
Fiscal Year Ended June 30
151
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Governmental Funds
General Fund:
Administrative 96 97 99 98 98 89 83 83 85 83
Community Services 98 99 97 96 97 94 74 74 74 74
Office of Emergency Services5 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 3
Fire 126 127 127 127 127 123 121 122 119 116
Library 44 44 44 44 44 42 41 41 41 42
Planning and Community Environment 53 53 53 53 53 49 44 43 48 49
Police 165 164 163 163 164 161 157 157 154 155
Public Works1 68 68 68 68 69 64 59 56 57 56
Subtotal General Fund 650 652 651 649 652 622 579 576 578 578
All Other Funds:
Capital Projects Fund 20 20 20 20 21 24 24 24 26 27
Special Revenue Fund 1 1 1 1 1 1 2 2 2 9
Total Governmental Funds 671 673 672 670 674 647 605 602 606 614
Enterprise Funds
Public Works2 113 113 113 113 113 115 115 115 104 99
Utilities3 234 236 235 235 238 242 251 251 254 255
External Services4 6 6 6 6 ‐ ‐ ‐ ‐ ‐ ‐
Total Enterprise Funds 353 355 354 354 351 357 366 366 358 354
Internal Service Funds
Printing and Mailing 4 5 4 4 4 4 2 2 2 2
Technology 30 30 30 30 31 31 30 30 31 32
Vehicle Replacement 16 16 16 16 16 16 16 16 17 17
Total Internal Service Funds 50 51 50 50 51 51 48 48 50 51
Total 1,074 1,079 1,076 1,074 1,076 1,055 1,019 1,016 1,014 1,019
1Fleet and Facilities Management
2Refuse, Storm Drainage, Wastewater Treatment
Numbers adjusted for rounding purposes.
Source: City of Palo Alto ‐ Fiscal Year 2014 Adopted Operating Budget
5Effective in 2014, emergency services and disaster preparation activities have been removed from the Fire Department and
are now shown in newly created Office of Emergency Services.
4Effective 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
3Electric, Gas, Wastewater Collection, Water
0
200
400
600
800
1,000
1,200
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Fu
l
l
Tim
e
Eq
u
i
v
a
l
e
n
t
s
Governmental Funds Enterprise Funds Internal Service Funds
152
CITY OF PALO ALTO
Index to the Single Audit Report
For the Year Ended June 30, 2014
153
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 ..................................... 155
Independent Auditor’s Report on Compliance for Each Major Federal Program and
Report on Internal Control Over Compliance Required by OMB Circular A‐133 ................................... 157
Schedule of Expenditures of Federal Awards ........................................................................................... 159
Notes to the Schedule of Expenditures of Federal Awards ...................................................................... 160
Schedule of Findings and Questioned Costs ............................................................................................. 161
Schedule of Prior Years Findings and Questioned Costs ........................................................................... 162
154
This page is intentionally left blank.
155
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, 2014, 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 17, 2014.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal control
over financial reporting (internal control) to determine the audit procedures that are appropriate in the
circumstances for the purpose of expressing our opinions on the financial statements, but not for the
purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do
not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination
of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement
of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A
significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less
severe than a material weakness, yet important enough to merit attention by those charged with
governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses
may exist that have not been identified.
156
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 17, 2014
157
Independent Auditor’s Report on Compliance for Each Major Program and Report 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, 2014. 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 responsibility is to express an opinion on compliance for each of the City’s major federal programs
based on our audit of the types of compliance requirements referred to above. We conducted our audit of
compliance in accordance with auditing standards generally accepted in the United States of America; the
standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States; and 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, 2014.
158
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. We did not identify any
deficiencies in internal control over compliance that we consider to be material weaknesses. However,
material weaknesses may exist that were not identified.
The purpose of this report on internal control over compliance is solely to describe the scope of our
testing of internal control over compliance and the results of that testing based on the requirements of
OMB Circular A-133. Accordingly, this report is not suitable for any other purpose.
Walnut Creek, California
November 17, 2014
Grantor Federal
Identifying CFDA Subrecipients
Grantor/Pass‐Through Grantor/Program Title Number Number Expenditures Expenditures
U.S. Department of Agriculture
Pass‐through from California Emergency Management Agency (CalEMA)
CA Fire Assitance Agreement 6022‐9 10.09‐FI‐11052012‐150 50,542$ ‐$
U.S Department of Housing and Urban Development
Direct
CDBG ‐ Entitlement Grants Cluster
Community Development Block Grants/Entitlement Grants B‐10‐MC‐06‐0020 14.218 672,923 574,221
U.S. Department of Interior
Direct
ARRA ‐ Water Reclamation and Reuse Program R10AP20003 15.504 5,599 ‐
U.S. Department of Justice
Direct
Equitable Sharing Program CA0431200 16.CA0431200 2,315 ‐
U.S. Department of Transportation
Pass‐through from State of California Department of Transportation
Highway Planning and Construction HSIPL‐5100(014)20.205 898,474 ‐
Highway Planning and Construction STPL‐5100(019)20.205 544,927 ‐
Highway Planning and Construction BRLS‐5100(017)20.205 117,770 ‐
Subtotal 1,561,171 ‐
Pass‐through from Santa Clara Valley Transportation Authority
Highway Planning and Construction CML‐5100(018)20.205 69,548 ‐
Total Highway Planning and Construction 1,630,719 ‐
National Endowment for the Arts
Direct
NEA Research: Art Works 197662 45.024 11,300 ‐
Institute of Museum and Library Services
Pass‐through from California State Library
Grants to States LS‐00‐11‐0005‐11 45.310 65,710 ‐
U.S. Department of Homeland Security
Direct
National Urban Search and Rescue Response System EMW‐2011‐CA‐K00047 97.025 16,705 ‐
Pass‐through from Santa Clara County Office of Emergency Services
Homeland Security Grant Program 13‐31307 97.067 14,900 ‐
Total U.S. Department of Homeland Security 31,605 ‐
TOTAL EXPENDITURES OF FEDERAL AWARDS 2,470,713$ 574,221$
CITY OF PALO ALTO
Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2014
See Notes to the Schedule of Expenditures of Federal Awards
159
CITY OF PALO ALTO
Notes to the Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2014
160
NOTE 1 – REPORTING ENTITY
The schedule of expenditures of federal awards (the Schedule) includes expenditures of federal awards
for the City of Palo Alto, California (City), and its component unit as disclosed in the notes to the basic
financial statements.
NOTE 2 – BASIS OF ACCOUNTING
Basis of accounting refers to when revenues and expenditures or expenses are recognized in the
accounts and reported in the financial statements, regardless of measurement focus applied. All
governmental funds are accounted for using the modified accrual basis of accounting. All proprietary
funds are accounted for using the accrual basis of accounting. Expenditures of federal awards reported
in the Schedule are recognized when incurred and all eligibility requirements have been met.
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, 2014
161
Section I ‐ Summary of Auditor’s Results
Financial Statements
Type of auditor’s report issued on the
basic financial statements of the City:
Unmodified
Internal control over financial reporting:
Material weakness(es) identified? No
Significant deficiency(ies) identified?
None reported
Noncompliance material to the financial statements
noted?
No
Federal Awards
Internal control over major programs:
Material weakness(es) identified? No
Significant deficiency(ies) identified?
None reported
Type of auditor’s report issued on compliance for
major programs:
Unmodified
Any audit findings disclosed that are required to be
reported in accordance with section 510(a) of OMB
Circular A‐133?
No
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? Yes
Section II – Financial Statements Findings
No findings reported.
Section III ‐ Federal Award Findings and Questioned Costs
No findings reported.
CITY OF PALO ALTO
Schedule of Prior Years Findings and Questioned Costs
For the Year Ended June 30, 2014
162
Schedule of Prior Year Findings and Questioned Costs
Finding #SA 2013‐01 Procurement, Suspension and Debarment
Federal Program Title: Highway Planning and Construction
Federal Catalog Number: 20.205
Condition: The City 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.
Status of Corrective Action Plan: In progress. Due to an unexpected staffing change, the City will
hire a new management analyst to draft the policy and
procedures to document the proper verification.
...……………………………………………………………………….
City of Palo Alto 163
AMERICANS WITH DISABILITIES ACT STATEMENT
In compliance with Americans with Disabilities Act (ADA) of 1990,
this document may be provided in other accessible formats.
For information contact:
ADA Coordinator
250 Hamilton Avenue
(650) 329-2550
ADA@cityofpaloalto.org
City of Palo Alto 250 Hamilton Avenue, Palo Alto, CA 94301 P 650.329.2100 W cityofpaloalto.org
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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