HomeMy WebLinkAboutStaff Report 10644
City of Palo Alto (ID # 10644)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 11/19/2019
City of Palo Alto Page 1
Council Priority: Fiscal Sustainability
Summary Title: Approval of FY 2019 Comprehensive Annual Financial Report
(CAFR) & Budget Amendments
Title: Recommendation to Approve the FY 2019 Comprehensive Annual
Financial Report (CAFR) and Approve FY 2019 Budget Amendments in Various
Funds
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee forward to the City Council for its approval:
1. Amend the Fiscal Year (FY) 2019 Budget Appropriation Ordinance for various funds as
identified in the attached Recommended Amendments to the City Manager’s FY 2019
Budget (Operating Budget: Attachment B – Exhibit 1; Capital Budget: Attachment B –
Exhibit 2); and
2. The City’s FY 2019 Comprehensive Annual Financial Report (CAFR) (Attachment C).
Executive Summary
At the close of FY 2019, the City’s overall Net Position remains positive. The Statement of
Activities (p. 31 of the attached CAFR), reports Governmental Activities Net Position at $450.0
million, a $22.6 million increase over prior year, and Business-Type Activities as $751.5 million,
a $53.4 million increase. Various factors contribute to these increases, including accounting
adjustments required by the Governmental Accounting Standards Board (GASB). Financial
highlights by fund category can be found in the Discussion section of this report.
Background
The City’s fiscal year ends on June 30, at which time its financial records are closed for the year
and financial reports are prepared. The reports, along with the City’s financial data, are audited
by Macias Gini & O’Connell LLP (MGO), Certified Public Accountants, a firm hired by the City
Auditor. MGO issues an audit opinion on the financial position of the City’s activities and,
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together with the City’s financial statements and other information; this comprises the City’s
Comprehensive Annual Financial Report (CAFR) that can be found at Attachment C.
Also attached to this staff report is Recommended Amendments to the City Manager’s FY 2019
Budget. These recommended actions close the fiscal year by reallocating and realigning budget
to reappropriate funds or adjust transfers between operating and capital funds. The General
Fund Summary found at Attachment A, provides detailed information of the fund’s activity this
year.
The CAFR includes fund level financial statements that provide a snapshot of fund balances and
activity for the year. An overview of financial results, information on how to navigate the CAFR
document, and highlights of key fiscal issues affecting the City can be found in the
Management’s Discussion and Analysis (MD&A) section (CAFR p. 5). The MD&A also provides a
discussion and analysis of the City’s current fiscal health and includes financial statements and
analysis that is compared to the prior year, along with capital asset and debt administration
data.
In addition, staff has prepared and attached a budgetary basis summary of General Fund
Revenues and Expenditures to provide a snapshot of the fund’s revenue and expenditures by
department (Attachment A). The Discussion section of this staff report includes Results by Fund
which discusses position of fund balances, major revenue sources, and expense highlights.
Discussion
Financial Highlights for FY 2019
General Fund
The General Fund ended FY 2019 with $13 million surplus, which includes adjustments for
assumptions used in the development of the FY 2020 Adopted Operating Budget when
compared to necessary funding to reach the Council approved Budget Stabilization (BSR) target
level of 18.5%. The primary driver of the surplus was revenue receipts being higher than the
Adjusted Budget by $8.4 million primarily due to increased Sales Tax, Property Tax, as well as
the proceeds from the disposition of the former City Manager’s house . Overall department
expense savings was $3.3 million and is attributed to position vacancy savings, particularly
positions at the executive and management level of the organization .
Enterprise Funds
The Enterprise Funds ended the year in surplus positions. The Electric Fund financial condition
improved notably ending with a surplus of $19.0 million due hydroelectric generation which
was 17 percent above average and approximately $7.4 million of the change in Net Position is
attributed to additional sales revenue from sale of excess hydroelectric generation. The Gas
Fund ended with a surplus of $5.3 million due to higher operating revenues as a result of a rate
increase and higher consumption.
City of Palo Alto Page 3
Internal Service Funds
Internal Service Funds ended the fiscal year with $57.8 million fund balance. All funds showed
positive balances except the Printing and Mailing which reported a $0.4 million negative
balance due to the pension liability per GASB 68 and OPEB liability per GASB 75.
Results by Fund:
General Fund Reserves
At the end of the current fiscal year, fund balance of the General Fund was $75.2 million. The
$75.2 million fund balance is comprised of several reserves: the Budget Stabilization Reserve
(BSR), encumbrances and reappropriations, notes and loans, inventory, prepaid items, and
other general government special purposes reserves (this includes reserve from donations,
trusts and store inventories). As described in the BSR reserve (City’s general reserve) policy
approved by Council, the reserve is to remain between 15 and 20 percent of the General Fund
operating budget, with a target goal of 18.5 percent. Any reserve balance in excess of 18.5
percent of expenditures and transfers may be transferred to the Infrastructure Reserve (IR) in
the Capital Projects Fund at the discretion of the City Manager.
The Fiscal Year 2020 Budget is projected to have a $41.4 million Budget Stabilization Reserve
Balance as of June 30, 2019, compared to the actual balance of $54.8 million (this is a
component of the General Fund, fund balance noted above). This is $13.4 million above
estimates.
The chart below outlines the recommended uses. Once all these adjustments are taken into
consideration, the remaining BSR would be at $44.4 million; approximately 19.2 percent of the
FY 2020 Adopted expenses of $230.8 million. This level is approximately $1.6 million above the
target level of 18.5 percent. Staff recommends leaving the BSR above the targeted level in
order to anticipate a higher reserve level to meet the Council target of 18.5 percent in FY 2021.
Year-End Budget Stabilization Reserve (BSR) Summary
(000’s)
General Fund BSR Balance, June 30 2019 54,811
Uses of the FY 2019 Surplus
FY 2020 Approved Adjustments to the BSR Balance
FY 2020 Adopted Budget 1,292
FY 2020 City Manager Reports Budget Amendments (450)
Recommended Budget Amendments
Reserve for proceeds from the sale of 335 Webster (2,900)
Additional funding for General Liability & Workers Compensation Reserves (1,400)
Transfer to the General Capital Improvement Fund (471) (3,500)
Transfer to the General Benefits Fund: 115 Pension Trust Fund Contribution (3,500)
Current Projected FY 2020 BSR Level (June 30, 2019) $44,352
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General Fund Revenues
General Fund revenues for FY 2019 were $197.1 million, which is $17.0 million or 9.4 percent
higher than the prior year. Year over year changes in each of the major tax revenue categories
are summarized in the following table.
Category FY 2019 FY 2018 % Change
Increase (Decrease)
Property tax $ 47,327 $ 42,839 10.5%
Sales tax 36,508 31,091 17.4%
Utility user tax 16,402 15,414 6.4%
Transient occupancy tax 25,649 24,937 2.9%
Documentary transfer tax 6,923 9,229 (25.0%)
Property tax revenue increased by $4.5 million or 10.5 percent due to higher assessed values
because of continued robust commercial and residential real estate markets. Fiscal years 2019
and 2018 included unusual receipts of $2.7 million and $1.4 million, respectively, for excess
Educational Revenue Augmentation Fund (ERAF) distributions from the County of Santa Clara.
ERAF is the fund used to collect and disburse property taxes that are shifted to/from cities, the
county, and special districts prior to their reallocation to K-14 school agencies. When the state
shifts more local property tax than required to support schools these funds are returned and
known as excess ERAF. After adjusting for the unusual excess ERAF receipts in this and the prior
fiscal year, the property tax growth for fiscal year 2019 is 7.7 percent.
Sales tax revenue substantially increased in FY 2019. This growth is primarily attributable to
combination of economic performance in sectors such as auto sales and leasing and restaurants
and one-time receipts totaling $2.7 million. In addition, in fiscal year 2018 the California
Department of Tax and Fee Administration (CDTFA) was established and introduced new
technology and collection process which had issues resulting to delays of distribution in sales
tax. This resulted in fiscal year 2018 being economically lower by $0.7 million and Fiscal Year
2019 being higher by the same amount. After adjusting for the one -time and delayed
payments, the base sales tax growth is 6.5 percent. In addition, there is continued erosion of
brick and mortar receipts caused by steady growth in on -line retail sales. However, increased
receipts from the county pool, which include a growing number of on -line retailers collecting
sales and use tax, has been offsetting these losses.
Utility user tax (UUT) revenues were $1.0 million or 6.5 percent, higher compared to the prior
year. Approximately, 45 percent of this growth is due to City provided utilities (electric, gas, and
water) rate increases and 55 percent due to local telecommunications ac tivity increasing.
Transient occupancy tax (TOT) revenues ended the year $0.7 million, or 2.9 percent higher
than prior year. The increase is attributable to the voter approval of 1.5 percent tax rate
increase from 14 percent to 15.5 percent effective April 1, 2019. The base TOT decreased by
5.4 percent with average occupancy declining by 1.8 percent but average room rates increasing
by 2.6 percent the 1.5 percent increase has been allocated to the Infrastructure Plan pursuant
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to prior City Council direction. Following is a comparative breakdown of the allocation of
transient occupancy tax receipts:
FY 2019 FY 2018 % Change
Increase (Decrease)
General Fund: $ 16,957 $ 16,697 1.6%
Infrastructure Plan:
New hotels – 12% 4,423 4,678 (5.5%)
All hotels – 2% 4,269 3,562 19.8%
Subtotal Infrastructure 8,692 8,240 5.5%
Total TOT Receipts $ 25,649 $ 24,937 2.9%
Documentary Transfer Tax (DTT) revenues decreased $2.3 million or 25 percent to $6.9 million.
This revenue source is volatile since it is highly dependent on sales volume and the mix of
commercial and residential sales so it can greatly fluctuate. The prior year’s receipts were
boosted by large commercial sales.
Other revenue increased $7.1 million from prior year levels mostly due to an increase in
investment earnings, rental income, and other revenues (disposition of 335 Webster).
Following is a chart which depicts the relative contribution of each tax category over the past
seven years (2013 through 2019), as well as the current budgeted year (2020).
City of Palo Alto Page 6
General Fund Tax Revenues
Actual Fiscal Years 2013 – 2019
Budget Fiscal Year 2020
($ in thousands)
0 25,000 50,000 75,000 100,000 125,000 150,000
FY 2020 Budget
FY 2019 Actual
FY 2018 Actual
FY 2017 Actual
FY 2016 Actual
FY 2015 Actual
FY 2014 Actual
FY 2013 Actual
FY 2020
Budget
FY 2019
Actual
FY 2018
Actual
FY 2017
Actual
FY 2016
Actual
FY 2015
Actual
FY 2014
Actual
FY 2013
Actual
Property Tax 48,634 47,327 42,839 39,381 36,607 34,117 30,587 28,742
Sales Tax 34,346 36,508 31,091 29,923 30,018 29,675 29,424 25,606
Utility User Tax 17,581 16,402 15,414 14,240 12,469 10,861 11,008 10,861
Trans Occ Tax 29,309 25,649 24,937 23,477 22,366 16,699 12,255 10,794
Doc Transfer Tax 8,369 6,923 9,229 7,491 6,266 10,384 7,811 6,810
General Fund Expenditures
General Fund expenditures for FY 2019, including encumbrances and reappropriations, totaled
$193.0 million; an increase of 4.3 percent from the prior year. The Original Budget of $183.6
million was increased to the Final Adjusted Budget amount of $196.3 million, primarily due to
the expenditure of prior year encumbered and reappropriated balances; increases for several
departments throughout the year also occurred based on City Council direction per
recommendations contained in City Manager Reports.
Following is a chart which compares actual departmental costs, including e ncumbrances and
reappropriations, over the past seven years and budgeted costs for FY 2019.
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General Fund Departments
Actual Expenditures Fiscal Years 2013– 2019 (including encumbrances)
Budgeted Expenditures Fiscal Year 2020
($ in thousands)
0 20 40 60 80 100 120 140 160 180 200
FY 2019 Budget
FY 2018 Actual
FY 2017 Actual
FY 2016 Actual
FY 2015 Actual
FY 2014 Actual
FY 2013 Actual
FY 2012 Actual
FY
2019
Budget
FY
2018
Actual
FY
2017
Actual
FY
2016
Actual
FY
2015
Actual
FY
2014
Actual
FY
2013
Actual
FY
2012
Actual
Public Safety 76,765 75,975 72,815 65,005 62,459 63,403 61,222 63,879
Community Services 30,096 28,395 26,573 25,262 23,902 23,402 22,279 21,399
Admin Depts 23,408 22,127 21,406 22,059 19,771 19,784 18,544 18,693
Public Works 19,004 18,908 17,475 15,084 14,210 14,138 13,987 13,789
Planning & Comm Env 11,009 10,446 10,732 10,912 9,026 14,637 13,112 11,186
Development Svcs 13,098 12,560 11,668 10,872 11,335 0 0 0
Library 9,900 9,357 9,266 8,217 8,144 8,072 7,555 7,714
Capital Projects Fund
The Capital Projects Fund ended the year with a fund balance of $109.5 million, which are
comprised of the following:
Fund Balance Component Amount
($ in millions)
Restricted for Library projects $ 588
Reserved for Roth Building rehabilitation 4,920
Reserved for Cubberley expenditures 5,422
Restricted for California Avenue Parking Garage 42,151
Assigned for all other Capital projects 56,439
Total Capital Projects Fund Balance 109,520
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Restricted for Library projects $0.6 million is the portion of fund balance dedicated to
remaining Library expenditures which, if considered bond expenses will be paid for with cash
from Bond proceeds. Non-bondable expenditures such as salaries and benefits are funded from
the Infrastructure Reserve, as established at the time of the bond issuance. Staff is reviewing
the need for this reserve due to completion of library projects and will make adjustments in
future as necessary.
Restricted for California Avenue Parking Garage $42.2 million represents the bond funding
dedicated to the construction of the new California Avenue parking garage.
Assigned for all other Capital projects of $56.4 million represents the amount of unspent funds
associated with Adopted Capital projects and other noted items. Outside funding sources such
as grants, donations and future debt issues are not factored into this component of the fund
balance until they are actually received.
Enterprise Funds
The City’s Enterprise Funds reported a total Net Position of $741.5 million, a $53.4 million
increase from the prior year. The overall change in Net Position is driven by the Electric Fund,
Water Fund, and Airport Fund. The table below summarizes the overall change in Net Position
for each Enterprise Fund. Compared to FY 2018, the Change in Net Position for Enterprise funds
increased $23.5 million and is driven primarily by the Water Fund, Electric Fund, Gas Fund and
Airport Fund – details of these funds summarized following this table.
Enterprise Funds
Change in Net Position for the Year Ended June 30
(in Millions)
Increase/
Fund Name 2019 2018 (Decrease)
Water 8.0$ 5.1$ 2.9$
Electric 19.0 (1.2)20.2
Fiber Optics 3.5 1.7 1.8
Gas 5.3 1.5 3.8
Wastewater Collection 3.3 1.0 2.3
Wastewater Treatment 1.5 4.8 (3.3)
Refuse 4.9 6.1 (1.2)
Storm Drainage 2.3 1.8 0.5
Airport 6.6 10.1 (3.5)
Total Change in Net Position 54.4$ 30.9$ 23.5$
The Water Fund had a change in Net Position totaling $8.0 million, a $2.9 million increase
City of Palo Alto Page 9
compared to the change in Net Position reported in prior year. Capital projects that were
planned in FY 2019 were deferred and to be completed in FY 2020. The savings as a result of
deferring these projects will be added to the fund’s capital reserves and used in future years.
In the Electric Fund, the change in Net Position is $19.0 million, a $20.2 million increase
compared to prior year. Hydroelectric generation was 17 percent above average and
approximately $7.4 million of the change in Net Position is attributed to additional sales
revenue from sale of excess hydroelectric generation. In addition, expenditures tracked 9
percent, approximately $13.0 million, below budget due to capital project deferrals, vacancy
savings, delays in energy and water efficiency contracts, and lower energy purchase due to
decreased load demand.
The Gas Fund had a Net Change in Position totaling $5.3 million, a $3.8 million increase
compared to prior year. Sales revenue was 6 percent higher than expected, accounting for
approximately $6.0 million of the increase, and was offset by higher commodity costs totaling
$3.0 million.
The Airport Fund Change in Net Position decreased by $3.5 million due to $9.3 million in grant
revenues received in FY 2018.
The table below details the Change in Unrestricted Reserves in the Enterprise Funds. Enterprise
Fund Rate Stabilization, Operations and other reserve balances are shown in detail in the CAFR
(CAFR p. 86, Footnote 10). Overall, except for the Wastewater Treatment Fund and the Airport
Fund, each Enterprise Funds maintained a positive unrestricted reserve balance as of June 30,
2019. Adjustments for the Pension Reserve (as required by GASB Pronouncement No. 68) and
OPEB Reserve (as required by GASB Pronouncement No. 75) total $136.0 million for all
Enterprise Funds and reduce each fund’s Unrestricted Reserves.
The Wastewater Treatment Fund reflects a $13.8 million Unrestricted Reserve deficit and is
driven by $27.0 million in Pension Reserves and OPEB Reserves negative adjustments.
The Airport Fund reports a $3.3 million Unrestricted Reserve deficit which is attributed to the
Pension Reserve and OPEB Reserve adjustments. Second, the fund deficit in the Airport Fund is
also a result of cumulative fund deficits over the life of the fund as fiscal operations at the
airport stabilize and capital projects near completion. The General Fund transferred a series of
advances totaling $3.1 million for “start-up” costs for the airport. It is expected that the Airport
Fund will be able to make its first payment to the General Fund in FY 2020.
City of Palo Alto Page 10
Enterprise Funds
Change in Reserves (Unrestricted) for the Year Ended June 30
(in Millions)
Increase/
Fund Name 2019 2018 (Decrease)
Water 25.5$ 22.2$ 3.3$
Electric 69.8 58.3 11.5
Fiber Optics 30.2 27.1 3.1
Gas 7.5 8.7 (1.2)
Wastewater Collection 2.2 0.1 2.1
Wastewater Treatment (13.8)(15.0)1.2
Refuse 15.1 10.2 4.9
Storm Drainage 1.9 1.1 0.8
Airport (3.3)(3.3)0.0
Total Change in Reserves (Unrestricted)135.3$ 109.4$ 25.9$
Resource Impact
Recommended actions in the report will align the FY 2019 appropriations with final financial
activities as outlined in Attachment B. The appropriation of funds in FY 2020 as recommended
in the BSR table would be brought forward as part of the FY 2020 Mid-Year Budget Report.
Overall, the City ended the 2019 fiscal year in a positive position and in certain areas where net
reserves are higher than estimated in the development of the FY 2020 Adopted budget, those
additional funds will be included as part of the FY 2021 budget balancing and rate setting
activities.
Environmental Review
This is not a project for purposes of the California Environmental Quality Act.
Attachments:
• Attachment A: FY 2019 General Fund Financial Summary (Budget to Actuals)
• Attachment B: Recommended FY 2019 Year-end Adjustments
• Attachment C: City of Palo Alto Fiscal Year 2019 Comprehensive Annual Financial Report
Attachment A
GENERAL FUND SUMMARY ($000s)
FY 2019 FY 2019 FY 2019 FY 2019 FY 2019 FY 2019 FY 2019
Adopted Adjusted CAFR Basis Allocated Encum /Actual Actual to
Budget Budget Rev/Exp Charges Reappropriation Rev/Exp Adj Budget
Variance
Revenues
Sales Tax 31,246 31,746 36,508 36,508 4,761
Property Tax 45,332 46,232 47,327 47,327 1,095
Transient Occupancy Tax 25,049 25,391 25,649 25,649 258
Documentary Transfer Tax 7,434 8,034 6,923 6,923 (1,111)
Utility User Tax 16,092 16,092 16,402 16,402 310
Other Taxes, Fines and penalties 2,032 2,032 1,888 1,888 (145)
Charges for Services 28,419 28,419 27,346 27,346 (1,073)
Permits and Licenses 8,545 8,545 8,410 8,410 (134)
Investment Earnings 1,194 1,194 2,167 2,167 974
Rental Income 15,734 15,734 16,338 16,338 604
From Other Agencies 2,943 3,229 2,480 79 2,942 (287)
Charges to Other Funds 10,093 10,147 - 10,685 10,685 538
Other Revenues 568 1,599 4,195 - 4,195 2,596
Total Revenues 194,681 198,394 195,633 10,685 79 206,780 8,387
Add: Operating Transfers In 19,772 20,154 20,154 20,154 -
Prior Year Encum / Reappropriation - 7,821 7,821 7,821 -
Total Source of Funds 214,453 226,369 223,608 10,685 79 234,755 8,387
Expenditures
3,263 3,783 2,649 1,002 132 3,783 (0)
City Auditor 1,258 1,238 865 318 55 1,238 (0)
City Clerk 1,282 1,267 805 291 97 1,193 73
City Council 488 501 265 103 42 411 90
City Manager 4,386 4,905 2,883 972 595 4,450 455
Administrative Services 7,963 7,834 5,512 2,076 206 7,794 40
Community Services 28,929 30,282 28,903 112 1,186 30,201 82
Fire 31,825 33,894 33,489 164 241 33,894 (0)
Police 43,460 43,912 42,854 577 266 43,698 215
Human Resources 3,591 3,796 2,567 976 154 3,697 98
Library 9,664 9,767 9,288 - 203 9,491 276
Planning and Community Environment 8,791 10,346 8,132 34 1,740 9,906 439
Development Services 12,561 13,103 11,549 727 424 12,700 403
Public Works 18,462 18,362 13,757 3,331 839 17,928 435
Non-Departmental 1,531 7,201 6,368 2 368 6,737 464
Cubberley Lease 6,101 6,101 5,830 - 5,830 271
Total Expenditures 183,555 196,291 175,719 10,685 6,548 192,952 3,339
Add: Operating Trans Out 5,726 9,574 9,574 - 9,574 -
Transfer to Infrastructure 25,172 27,514 27,514 - 27,514 -
Total Use of Funds 214,453 233,380 212,807 10,685 6,548 230,040 3,339
Net Surplus/(Deficit)0 (7,011) 10,801 0 6,548 4,716 11,726
CAFR Reconciliation:Unrealized gain/loss on investments 3,505
Current year encumbrance / reappropriations 6,469
Prior Year encumbrances / reappropriations (7,821)
CAFR Net Income 6,869
City Attorney
Department Adjustment Adjustment
GENERAL FUND (102)
Administrative
Services
Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2021.
-$ (16,000)$
City Attorney's
Office
Non Salary Contractual Expenses
This action reallocates funding as a result of higher than anticipated contract expenses for legal
services in FY 2019. These higher expenditures are due to more than anticipated time spent on
litigation for the City and a higher level of department support than originally estimated.
-$ 103,000$
City Auditor's
Office
Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2021.
-$ (4,000)$
City Auditor's
Office
Salaries & Benefits
This action reallocates funding as a result of higher than anticipated salary expenses in FY 2019.
These higher anticipated expenditures are due to a number of variables including a higher than
anticipated payout for paid leave as a result of the departure of the City Auditor. In addition, at
the City Council's direction, funding was used for a contract with an outside consultant to
manage the Auditor's Office after the departure of the City Auditor. The funding need for this
contract ended up being more than originally anticipated in order to maintain services
provided by the Auditor's Office while the search for a new City Auditor was conducted.
-$ 70,000$
City Clerk's Office Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2021.
-$ (2,000)$
City Manager's
Office
Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2021.
-$ (7,000)$
Community
Services
Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2021.
-$ (6,500)$
Development
Services
Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2021.
-$ (9,500)$
Fire Salaries & Benefits
This action reallocates funding as a result of higher than anticipated salary expenses in FY 2019.
These higher anticipated expenditures are due to a number of variables including the
Department being allowed to hire ahead for its recruit academy in an attempt to reduce the
number of vacancies across the department. In addition, the Department was over it's
budgeted overtime due to the need to backfill for the vacancies as well as employees out on
various types of leave.
-$ 690,000$
Human Resources Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2021.
-$ (1,000)$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Department Adjustment Adjustment
GENERAL FUND (102)
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Library Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2021.
-$ (5,000)$
Non-
Departmental
Management Development & Training (reallocation from various departments)
This action reallocates departmental management savings to Non-Departmental to
reappropriate funds for city-wide training needs in FY 2020.
-$ 80,000$
Office of
Emergency
Services
Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2021.
-$ (2,000)$
Office of
Sustainability
Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2021.
-$ (2,000)$
Non-
Departmental
Elections
This action appropriates funding to cover an invoice from Santa Clara County for elections costs
that were higher than originally anticipated due to the higher number of measures that ended
up on the ballot.
-$ 88,384$
Non-
Departmental
Transient Occupancy Tax/Transfer to Capital Improvement Fund
This action increases the transfer to the Capital Improvement Fund as it relates to Transient
Occupancy Tax (TOT) revenues earmarked for city-wide infrastructure improvements due to
higher than anticipated TOT collections.
341,300$ 341,300$
Non-
Departmental
Transfer to the 2002 Downtown Parking Improvement Fund
The 2002 Downtown Parking Improvement Fund (Fund 360) was established to pay the annual
debt service costs associated with the bond issued to construct downtown parking
improvements in 2002. The payments were funded through a transfer from the General Fund.
This action eliminates the transfer to Fund 360, because the debt service payments were
refinanced as part of the bond issuance for the Golf Course Reconfiguration capital project. As
a result, Fund 360 will be closed and the remaining debt service costs for the parking
improvements will be accounted for in the 2018 Golf Course COP Fund (Fund 361).
-$ (161,154)$
Non-
Departmental
Transfer to the 2018 Golf Course COP Fund
This action transfers funds to the 2018 Golf Course COP Fund (Fund 361) to pay the annual
debt service costs associated with the bond issued for the Golf Course Reconfiguration capital
project as well as the refinanced debt service costs associated with the bond issued to
construct a parking garage on Bryant Street in 2002. Costs for annual the debt service are
funded through a transfer from the General Fund.
-$ 339,010$
Non-
Departmental
Debt Service for Golf Course Reconfiguration
As part of the FY 2019 Adopted Budget, it was assumed that once the bond was issued, the
debt service payments for the Golf Course Reconfiguration capital project would be paid
directly from the General Fund. Once the bond was issued, it was determined that a separate
2018 Golf Course COP Fund (Fund 361) would be established to pay the debt service costs
associated with the bond. This action reduces the amount budgeted in the General Fund for
the debt service costs.
-$ (177,856)$
Planning &
Community
Environment
Departmental Expense Savings
This action reallocates departmental vacancy savings within the General Fund in order to offset
departments with higher than anticipated expenses in FY 2019.
-$ (163,000)$
Planning &
Community
Environment
Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2021.
-$ (9,000)$
Department Adjustment Adjustment
GENERAL FUND (102)
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Police Departmental Expense Savings
This action reallocates departmental vacancy savings within the General Fund in order to offset
departments with higher than anticipated expenses in FY 2019.
-$ (400,000)$
Police Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2021.
-$ (6,500)$
Public Works Departmental Expense Savings
This action reallocates departmental vacancy savings within the General Fund in order to offset
departments with higher than anticipated expenses in FY 2019.
-$ (300,000)$
Public Works Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2021.
-$ (9,500)$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (88,384)$
GENERAL FUND (102) SUBTOTAL 341,300$ 341,300$
Department Adjustment Adjustment
CAPITAL IMPROVEMENT FUNDS
GENERAL FUND CAPITAL IMPROVEMENT FUND (471)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
(23,157,000)$ (19,954,400)$
Capital Bond Proceeds
This action appropriates the full amount of the COP funding issued to fund the construction of
the New California Avenue Area Parking Garage (PE-18000) in the appropriate category, Bond
Proceeds.
41,995,000$ -$
Capital Miscellaneous Revenue
As part of the FY 2019 Adopted Budget, the budgeted Certificates of Participation (COP)
revenue ($39.5 million) related to the New California Avenue Area Parking Garage (PE-18000)
was categorized as Miscellaneous Revenue. After the final COP funding amount ($42.0 million)
was issued, the funding was recategorized as Bond Proceeds. This action reduces the funding
in Miscellaneous Revenue in order to properly record the full funding in the appropriate
category.
(39,487,000)$ -$
Capital Transfer from General Fund
This action increases the transfer from the General Fund related to TOT revenue Council
earmarked to use for city-wide infrastructure improvements due to actual revenue collected
being higher than budgeted in FY 2019.
341,300$ -$
Capital Transfer from Gas Tax Fund/ Street Maintenance (PE-86070)
This action increases the transfer from the Gas Tax Fund due to actual revenue collected being
higher than budgeted in FY 2019. A corresponding transfer is recommended from the Gas Tax
Fund to the Capital Improvement Fund to appropriate funding for this project.
30,000$ 30,000$
Capital Transfer to 2018 Golf Course COP Fund
This action transfers the remaining funding that was set aside in the Capital Improvement
Fund to pay for the 2018 Golf Course COP issuance. These will be used to pay for the annual
debt service costs in the 2018 Golf Course COP Fund.
-$ 17,507$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (370,807)$
GENERAL FUND CAPITAL IMPROVEMENT FUND (471) SUBTOTAL (20,277,700)$ (20,277,700)$
CUBBERLEY PROPERTY INFRASTRUCTURE FUND (472)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 3,500$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (3,500)$
CUBBERLEY PROPERTY INFRASTRUCTURE FUND (472) SUBTOTAL -$ -$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Department Adjustment Adjustment
ENTERPRISE FUNDS
ELECTRIC FUND (513 & 523)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 388,800$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (388,800)$
ELECTRIC FUND (513 & 523) SUBTOTAL -$ -$
GAS FUND (514 & 524)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 600$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (600)$
GAS FUND (514 & 524) SUBTOTAL -$ -$
STORM DRAINAGE FUND (528)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 22,800$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (22,800)$
STORM DRAINAGE FUND (528) SUBTOTAL -$ -$
WASTEWATER COLLECTION FUND (527)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 104,700$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (104,700)$
WASTEWATER COLLECTION FUND (527) SUBTOTAL -$ -$
WATER FUND (522)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 96,800$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (96,800)$
WATER FUND (522) SUBTOTAL -$ -$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Department Adjustment Adjustment
INTERNAL SERVICE FUNDS
PRINT AND MAILING FUND (683)
Administrative
Services
Charges to Other Funds
This action increases the estimate for revenue for printing services to align with year end
revenues collected.
18,000$ -$
Administrative
Services
Non Salary Expense (Rents and Leases)
This action increases the appropriation for non salary expenses related to the City's central
printing contract to align with year-end actuals.
-$ 155,000$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (137,000)$
PRINT AND MAILING FUND (683) SUBTOTAL 18,000$ 18,000$
WORKERS' COMPENSATION FUND (688)
Non-
Departmental
Excess Insurance Reimbursement/Insurance Claims Paid
This action increases the estimate for insurance reimbursements as well as the appropriation
for insurance claims paid. The City is self-insured for workers’ compensation up to a specified
dollar amount per claim and has a workers’ compensation insurance policy through California
State Association of Counties (CSAC) Excess Insurance Authority for excess coverage. This
recommendation reflects the reimbursements received and the corresponding costs incurred
by the City during the period as result of excess insurance claims.
100,000$ 100,000$
WORKERS' COMPENSATION FUND (688) SUBTOTAL 100,000$ 100,000$
GENERAL LIABILITIES INSURANCE FUND (689)
Non-
Departmental
Charges to Other Funds
This action increases the estimate for charges to other funds by $950,000 ($518,000 in the
General Fund) due to an updated actuarial analysis in August 2019 for general liabilities that
have been incurred but not reported (IBNR) being $3.0 million higher than budgeted.
Departments had sufficient savings at the end of FY 2019 to support the additional costs and
did not require budgetary adjustments. The remaining $2.1 million is anticipated to be
brought forward as a midyear adjustment in FY 2020 to fully adjust for the liability and ensure
appropriate distribution across the City.
950,000$ -$
Non-
Departmental
Excess Insurance Reimbursement
This action increases the estimate for insurance reimbursements as result of higher than
anticipated revenues in FY 2019. The City is self-insured for liability claims up to a specified
dollar amount per claim and has an insurance policy through California State Association of
Counties (CSAC) Excess Insurance Authority for excess coverage. This recommendation reflects
the reimbursements received by the City during the period as result of excess liability claims.
550,000$ -$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Department Adjustment Adjustment
INTERNAL SERVICE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Non-
Departmental
Liability Insurance
This action increases the appropriation for liability insurance costs due to an updated actuarial
analysis in August 2019 for general liabilities that have been incurred but not reported (IBNR)
being $3.0 million higher than budgeted. The additional liability expense has been fully
recognized in FY 2019 and has been partially recovered through additional allocations to
departments. Due to sufficient savings elsewhere in the General Liability Fund a reduced
adjustment of $1.5 million is recommended for the additional liability expense.
-$ 1,500,000$
GENERAL LIABILITIES INSURANCE FUND (689) SUBTOTAL 1,500,000$ 1,500,000$
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
PUBLIC ART FUND (207)
Community
Services
Public Art Fee Revenue
This action increases the estimate for Art Fees as result of higher than anticipated revenues in
FY 2019.
530,000$ -$
Community
Services
Salaries & Benefits
This action increases the salaries and benefits appropriation as result of slightly higher than
anticipated expenses in FY 2019.
-$ 2,100$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 527,900$
PUBLIC ART FUND (207) SUBTOTAL 530,000$ 530,000$
PUBLIC SERVICES DONATION FUND (191)
Various Donations Revenue/Non-Salary Expenses
This action increases the appropriation for expenses in the Public Services Donation Fund to
align with FY 2019 year end expense and encumbered funds. Donations in this fund are for
activities such as parks and open space activities, art center programs, and animal care
services. A corresponding adjustment to revenue reflecting higher than budgeted donations is
recommended to offset this increase.
60,000$ 16,000$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 44,000$
PUBLIC SERVICES DONATION FUND (191) SUBTOTAL 60,000$ 60,000$
GAS TAX FUND (231)
Non-
Departmental
State of California Revenue: SB1/Transfer to Capital Improvement Fund
This action increases the revenue estimate for State of California SB1 allocations to align with
higher than anticipated actuals during the period. In FY 2019, the total allocation to the City
was $1,170,000 which was $30,000 higher than preliminary estimates from the State
Department of Finance. Funding from SB1 is earmarked for transportation and traffic-related
capital projects and was used during the period to partially fund the Street Maintenance
Capital Improvement Project (PE-86070). The additional revenues are recommended to offset
an additional appropriation to this project through a corresponding transfer from the Gas Tax
Fund to the Capital Fund.
30,000$ 30,000$
GAS TAX FUND (231) SUBTOTAL 30,000$ 30,000$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) FUND (232)
Planning &
Community
Environment
Transfer from Housing Rehabilitation Fund
This action increases the transfer from the Housing Rehabilitation Fund to the CDBG Fund to
consolidate funding for the CDBG Program. Historically, three funds have been used to track
CDBG reimbursements: the Community Development Block Grant (CDBG) Fund (232); the
Housing Rehabilitation Fund (238); and the Non-profit Housing Rehabilitation Fund (241). The
latter two funds have been inactive for longer than five years and remaining cash balances are
recommended to be consolidated into the active CDBG Fund to centralize activity. A
corresponding transfer is recommended in the Non-Profit Rehabilitation Fund to the CDBG
Fund.
44,178$ -$
Planning &
Community
Environment
Transfer from Non-Profit Housing Rehabilitation Fund
This action increases the transfer from the Non-Profit Housing Rehabilitation Fund to the CDBG
Fund to consolidate funding for the CDBG Program. Historically, three funds have been used to
track CDBG reimbursements: the Community Development Block Grant (CDBG) Fund (232);
the Housing Rehabilitation Fund (238); and the Non-profit Housing Rehabilitation Fund (241).
The latter two funds have been inactive for longer than five years and remaining cash balances
are recommended to be consolidated into the active CDBG Fund to centralize activity. A
corresponding transfer is recommended in the Housing Rehabilitation Fund to the CDBG Fund.
22,625$ -$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 66,803$
COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) FUND (232) SUBTOTAL 66,803$ 66,803$
HOUSING REHABILIATION FUND (238)
Planning &
Community
Environment
Transfer to CDBG Fund
This action increases the transfer from the Housing Rehabilitation Fund to the CDBG Fund to
consolidate funding for the CDBG Program. Historically, three funds have been used to track
CDBG reimbursements: the Community Development Block Grant (CDBG) Fund (232); the
Housing Rehabilitation Fund (238); and the Non-profit Housing Rehabilitation Fund (241). The
latter two funds have been inactive for longer than five years and remaining cash balances are
recommended to be consolidated into the active CDBG Fund to centralize activity. A
corresponding transfer is recommended in the CDBG Fund from the Housing Rehabilitation
Fund.
-$ 44,178$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (44,178)$
HOUSING REHABILIATION FUND (238) SUBTOTAL -$ -$
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
NON-PROFIT HOUSING REHABILIATION FUND (241)
Planning &
Community
Environment
Transfer to CDBG Fund
This action increases the transfer from the Housing Rehabilitation Fund to the CDBG Fund to
consolidate available funding for the CDBG Program. Historically, three funds have been used
to track CDBG reimbursements: the Community Development Block Grant (CDBG) Fund (232);
the Housing Rehabilitation Fund (238); and the Non-profit Housing Rehabilitation Fund (241).
The latter two funds have been inactive for longer than five years and remaining cash balances
are recommended to be consolidated into the active CDBG Fund to centralize activity. A
corresponding transfer is recommended in the CDBG Fund from the Non-Profit Housing
Rehabilitation Fund.
-$ 22,625$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (22,625)$
NON-PROFIT HOUSING REHABILIATION FUND (241) SUBTOTAL -$ -$
Department Adjustment Adjustment
DEBT SERVICE & AGENCY TRUST FUNDS
2002 DOWNTOWN PARKING IMPROVEMENT FUND (360)
Administrative
Services
Transfer from General Fund/Debt Service Payments
The 2002 Downtown Parking Improvement Fund (Fund 360) was established to pay the annual
debt service costs associated with the bond issued to construct downtown parking
improvements in 2002. The payments were funded through a transfer from the General Fund.
This action eliminates the transfer to Fund 360, because the debt service payments were
refinanced as part of the bond issuance for the Golf Course Reconfiguration capital project. As
a result, Fund 360 will be closed and the remaining debt service costs for the parking
improvements will be accounted for in the 2018 Golf Course COP Fund (Fund 361).
(161,154)$ (161,154)$
Administrative
Services
Transfer to 2018 Golf Course COP Fund
This action appropriates the remaining amount in this fund to be transferred to the 2018 Golf
Course COP Fund in order to be used towards the remaining debt service for the 2002
downtown parking improvements that was refinanced as part of the 2018 Golf Course COP
issuance.
-$ 15,591$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report and
close this fund.
-$ (15,591)$
2002 DOWNTOWN PARKING IMPROVEMENT FUND (360) SUBTOTAL (161,154)$ (161,154)$
2018 GOLF COURSE COP FUND (361)
Administrative
Services
Transfer from General Fund
This action establishes the transfer from the General Fund to the 2018 Golf Course COP Fund
(Fund 361) to pay the annual debt service costs associated with the bond issued for the Golf
Course Reconfiguration capital project as well as the refinanced debt service costs associated
with the bond issued to construct downtown parking improvements in 2002. Ongoing costs for
annual the debt service will be funded through this transfer from the General Fund.
339,010$ -$
Administrative
Services
Transfer from 2002 Downtown Parking Improvement Fund
This action recognizes a transfer of the remaining funds from the 2002 Downtown Parking
Improvement Fund to be used towards the remaining debt service for the 2002 downtown
parking improvements that was refinanced as part of the 2018 Golf Course COP issuance.
15,591$ -$
Administrative
Services
Transfer from Capital Improvement Fund
This action recognizes a transfer of funding that was set aside in the Capital Improvement
Fund to pay for the 2018 Golf Course COP issuance. The remaining funds will be used to pay
for the annual debt service costs.
17,507$
Administrative
Services
Debt Service Payments
This action appropriates funding for the debt service payments associated with the 2018 Golf
Course COP issuance and the remaining refinanced 2002 Downtown Parking Improvement
debt.
-$ 354,602$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 17,506$
2018 GOLF COURSE COP FUND (361) SUBTOTAL 372,108$ 372,108$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Department Adjustment Adjustment
DEBT SERVICE & AGENCY TRUST FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
2019 CALIFORNIA AVENUE PARKING GARAGE COP FUND (362)
Administrative
Services
Bond Proceeds
This action appropriates revenue to fund the costs associated with the issuance of the New
California Avenue Area Parking Garage (PE-18000) COP funding.
301,606$ -$
Administrative
Services
Debt Service Payments
This action appropriates funding for the costs associated with the issuance of the 2019
California Avenue Parking Garage COP funding.
-$ 285,781$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report and
close this fund.
-$ 15,825$
2019 CALIFORNIA AVENUE PARKING GARAGE COP FUND (362) SUBTOTAL 301,606$ 301,606$
Project
Number Title Revenue Expense Comments
AS-10000 Capital Improvement Fund Administration $ (299,500) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
AC-18000 Performing Arts Venues Seat Replacement $ (3,800) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
AC-18001 JMZ Renovation $ (34,300) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
FD-18000 Self-Contained Breathing Apparatus
(SCBA) Replacement
$ (16,900) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
FD-19000 Fire and Utilities Trench Training Facility $ (55,000) $ (55,000) Adjustment to shift a Transfer from the Utility
Administration Fund to FY 2020 to align with
project expenditures.
OS-00001 Open Space Trails and Amenities $ 121,200 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
OS-00002 Open Space Lakes And Pond Maintenance $ (2,300) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
OS-09001 Off-Road Pathway Resurfacing And Repair $ (14,000) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-08001 Rinconada Park Improvements $ 54,900 Adjustment to increase project due to higher than
anticipated expenditures in FY 2019. Funding
budgeted for this project in FY 2020 is being used
to maintain the total project budget of $4.7
million.
PE-09003 City Facility Parking Lot Maintenance $ (10,800) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-12003 Rinconada Park Long Range Plan $ (3,500) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-13003 Parks, Trails, Open Space, & Recreation
Master Plan
$ 3,400 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-13011 Charleston/Arastradero Corridor Project $ 261,400 Adjustment to increase project due to higher than
anticipated expenditures in FY 2019. Funding
budgeted for this project in FY 2020 is being used
to maintain the total project budget of $19.6
million.
PE-13014 Street Lights Condition Assessment $ (8,600) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-14015 Lucie Stern Buildings Mechanical and
Electrical Upgrades
$ 172,400 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-15001 New Public Safety Building $ 151,200 Adjustment to increase project due to higher than
anticipated expenditures in FY 2019. Funding
budgeted for this project in FY 2020 is being used
to maintain the total project budget of $115.5
million.
ATTACHMENT B, EXHIBIT 2
CAPITAL IMPROVEMENT FUND
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 CAPITAL IMPROVEMENT PROGRAM
Project
Number Title Revenue Expense Comments
ATTACHMENT B, EXHIBIT 2
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 CAPITAL IMPROVEMENT PROGRAM
PE-15003 Fire Station 3 Replacement $ 212,900 Adjustment to increase project due to higher than
anticipated expenditures in FY 2019. Funding
budgeted for this project in FY 2020 is being used
to maintain the total project budget of $10.1
million.
PE-15007 New Downtown Parking Garage $ (14,613,000) $ (14,613,000) Adjustments to shift Transfers from the Stanford
University Medical Center (SUMC) Fund
($9,072,000) and University Avenue Parking In Lieu
Fund ($5,541,000) to FY 2022 to align with project
expenditures.
PE-15028 Baylands Levee Improvements Feasibility $ (500) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-17000 Michell Park Adobe Creek Bridge
Replacement
$ 125,800 Adjustments to allocate Salaries and Benefits
across capital projects based on actual
expenditures ($93,700) and to increase project
due to higher than anticipated expenditures
($32,100).
PE-17002 City Hall Floor 3 Remodel $ (9,300) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-17004 California Avenue District Gateway Signs $ 500 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-17005 Boulware Park Improvements $ 22,700 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-17006 Baylands Flood Protection Levee
Improvements
$ (39,100) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-17008 City Hall Floor 4 Remodel $ 46,400 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-17009 City Hall Floor 5 Remodel $ 45,100 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-18006 Byxbee Park Completion $ (2,400,000) $ - Adjustment to shift a Transfer from the Parks
Dedication Fee Fund to align with project
expenditures budgeted in FY 2021.
PE-18016 Civic Center Fire Life Safety Upgrades $ (8,400) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-19000 City Hall Space Planning $ (2,900) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-86070 Street Maintenance $ (900,000) $ (900,000) Adjustment to shift a Transfer from the San
Antonio/West Bayshore Fee Fund to the Traffic
Signal & Intelligent Transportation System
Upgrades project (PL-05030) in FY 2020 as
approved in the FY 2020 Adopted Capital Budget.
PF-01003 Building Systems Improvements $ 3,500 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PF-02022 Facility Interior Finishes Replacement $ (26,000) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
Project
Number Title Revenue Expense Comments
ATTACHMENT B, EXHIBIT 2
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 CAPITAL IMPROVEMENT PROGRAM
PF-07011 Roth Building Maintenance $ (1,100) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PF-14003 University Avenue Parking Improvements $ (13,300) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PF-16006 Municipal Service Center Lighting,
Mechanical, and Electrical Improvements
$ (456,000) $ (478,100) Adjustments to allocate Salaries and Benefits
across capital projects based on actual
expenditures ($22,100) and shift Transfers from
the Refuse Fund ($8,000), Utility Administration
Fund ($288,000), and Vehicle & Maintenance Fund
($160,000) to FY 2020 to align with
reappropriation actions approved in the FY 2020
Adopted Capital Budget.
PF-17000 Municipal Service Center A, B, & C Roof
Replacement
$ (1,083,000) $ (1,157,300) Adjustments to allocate Salaries and Benefits
across capital projects based on actual
expenditures ($74,300) and shift Transfers from
the Refuse Fund ($19,000), Utility Administration
Fund ($684,000), and Vehicle &
Maintenance Fund ($380,000) to FY 2020 to align
with reappropriation actions approved in the FY
2020 Adopted Capital Budget.
PF-18000 Parking Lot J Elevator Modernization $ (29,300) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PG-06003 Benches, Signage, Walkways, Perimeter
Landscaping, and Site Amenities
$ 28,200 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PG-09002 Park & Open Space Emergency Repairs $ 28,800 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PG-15000 Buckeye Creek Hydrology Study $ (17,300) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PG-17000 Baylands Comprehensive Conservation
Plan
$ (4,600) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PG-17001 Foothills Park, Pearson Arastradero
Preserve, and Esther Clark Park
Conservation Plan
$ (15,100) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PG-18001 Dog Park Installation and Renovation $ 1,800 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PG-18002 Turf Management Plan $ (5,000) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PG-19000 Park Restroom Installation $ (350,000) $ (367,600) Adjustments to allocate Salaries and Benefits
across capital projects based on actual
expenditures ($17,600) and shift a Transfer from
the Parks Development Impact Fee Fund
($350,000) to FY 2020 to align with
reappropriation actions approved in the FY 2020
Adopted Capital Budget.
Project
Number Title Revenue Expense Comments
ATTACHMENT B, EXHIBIT 2
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 CAPITAL IMPROVEMENT PROGRAM
PG-19001 Baylands Athletic Center 10.5 Acre
Expansion Plan
$ (5,100) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PL-00026 Safe Routes To School $ (13,400) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PL-04010 Bicycle and Pedestrian Transportation
Plan Implementation
$ (1,200,000) $ (1,200,000) Adjustment to shift a Transfer from the Stanford
University Medical Center (SUMC) Fund to FY 2020
to align with reappropriation actions approved in
the FY 2020 Adopted Capital Budget.
PL-05030 Traffic Signal and Intelligent
Transportation Systems
$ (103,000) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PL-11002 California Avenue - Transit Hub Corridor
Project
$ (15,000) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PL-12000 Transportation and Parking Improvements $ (25,000) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PL-15002 Downtown Automated Parking Guidance
Systems, Access Controls & Revenue
Collection Equip.
$ (1,100,000) $ (1,100,000) Adjustment to remove a Transfer from the
University Avenue Parking District Fund to this
project in order to preserve the funds for future
parking related capital needs.
PL-15003 Parking District Implementation $ (11,600) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PL-15004 Downtown Parking Wayfinding $ (31,900) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PL-16000 Quarry Road Improvements and Transit
Center Access
$ (17,300) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PL-16002 Parking Management and System
Implementation
$ (1,000,000) $ (1,115,900) Adjustments to allocate Salaries and Benefits
across capital projects based on actual
expenditures ($115,900) and shift Transfers from
the California Avenue Parking District Fund
($138,000), Residential Parking Permits Program
Fund ($255,000), and University Avenue Parking
District Fund ($607,000) to FY 2020 to align with
reappropriation actions approved in the FY 2020
Adopted Capital Budget.
PL-18000 El Camino Real Pedestrian Safety and
Streetscape Project
$ (17,900) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PL-19000 Emergency Vehicle Traffic Signal
Preemption System Pilot
$ 400 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PO-11000 Sign Reflectivity Upgrade $ (6,500) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PO-11001 Thermoplastic Lane Marking and Striping $ (15,800) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PO-12001 Curb and Gutter Repairs $ (16,500) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
Project
Number Title Revenue Expense Comments
ATTACHMENT B, EXHIBIT 2
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2019 CAPITAL IMPROVEMENT PROGRAM
PO-89003 Sidewalk Repairs $ 596,500 Adjustments to allocate Salaries and Benefits
across capital projects based on actual
expenditures ($506,400) and to increase project
due to higher than anticipated expenditures
($90,100).
Total $ (23,157,000) $ (19,954,400)
CB-19000 Cubberley Track and Field Replacement $ 3,500 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 3,500
ELECTRIC FUND
EL-89038 Substation Protection Improvements $ 127,600 Increase to project due to higher than anticipated
expenditures.
EL-98003 Electric System Improvements $ 261,200 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 388,800
GS-11002 Gas Distribution System Improvements $ 600 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 600
SD-13003 Matadero Creek Storm Water Pump
Station
$ 22,800 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 22,800
WC-80020 Sewer System, Customer Connections $ 29,700 Increase to project due to higher than anticipated
expenditures.
WC-99013 Sewer Lateral/Manhole Rehabilitation and
Replacement
$ 75,000 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 104,700
WS-80013 Water System, Customer Connections $ 96,800 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 96,800
$ (23,157,000) $ (19,337,200)TOTAL CIP ADJUSTMENTS
CUBBERLEY PROPERTY INFRASTRUCTURE FUND
GAS FUND
STORMWATER MANAGEMENT FUND
WASTEWATER COLLECTION FUND
WATER FUND
Comprehensive
Annual
Financial Report
CITY OF PALO ALTO, CALIFORNIA
FOR THE FISCAL YEAR ENDED: JUNE 30, 2019
Fiscal Year 2019
Comprehensive Annual
Financial Report
City of Palo Alto, CA
Fiscal Year Ended June 30, 2019
City Council
Eric Filseth, Mayor
Adrian Fine, Vice Mayor
Alison Cormack
Tom DuBois
Liz Kniss
Lydia Kou
Greg Tanaka
Edward K. Shikada, City Manager
Kiely Nose, Director of Administrative Services/Chief Financial Officer
Rima Lobo, Finance Manager
Prepared by: Administrative Services Department
CITY OF PALO ALTO
For the Year Ended June 30, 2019
Table of Contents
Page
INTRODUCTORY SECTION:
Transmittal Letter .................................................................................................................................... i
City Officials ........................................................................................................................................... vi
Organizational Structure……………………………………………………………… … .................................................. vii
Administrative Services Organization .................................................................................................. viii
GFOA Certificate of Achievement for Excellence in Financial Reporting ............................................... ix
FINANCIAL SECTION:
Independent Auditor’s Report .............................................................................................................. 1
Management’s Discussion and Analysis
(Required Supplementary Information – Unaudited) ...................................................................... 5
Basic Financial Statements
Government‐wide Financial Statements:
Statement of Net Position ....................................................................................................... 29
Statement of Activities ............................................................................................................ 31
Governmental Fund Financial Statements:
Balance Sheet .......................................................................................................................... 33
Reconciliation of the Balance Sheet of Governmental Funds to
the Statement of Net Position ‐ Governmental Activities ................................................. 34
Statement of Revenues, Expenditures and Changes in Fund Balances .................................. 35
Reconciliation of the Statement of Revenues, Expenditures and Changes
in Fund Balances of Governmental Funds to the Statement of Activities –
Governmental Activities ................................................................................................... 36
Statement of Revenues, Expenditures and Changes in Fund Balance –
Budget and Actual – General Fund ................................................................................... 37
Proprietary Fund Financial Statements:
Statement of Net Position ....................................................................................................... 38
Statement of Revenues, Expenses and Changes in Fund Net Position ................................... 40
Statement of Cash Flows ......................................................................................................... 42
Fiduciary Fund Financial Statement:
Statement of Assets and Liabilities ......................................................................................... 44
Index to the Notes to the Basic Financial Statements ................................................................. 45
Notes to the Basic Financial Statements ...................................................................................... 47
Required Supplementary Information:
Schedule of Changes in Net Pension Liability and related Ratios – Miscellaneous Plan ............. 109
Schedule of Pension Contributions – Miscellaneous Plan ........................................................... 110
CITY OF PALO ALTO
For the Year Ended June 30, 2019
Table of Contents (Continued)
Page
Required Supplementary Information:
Schedule of Changes in Net Pension Liability and Related Ratios – Safety Plan ......................... 111
Schedule of Pension Contributions – Safety Plan ........................................................................ 112
Schedule of Changes in Net OPEB Liability and Related Ratios ................................................... 113
Schedule of Employer OPEB Contributions ................................................................................. 114
Supplementary Information:
Non‐Major Governmental Funds:
Combining Balance Sheet ...................................................................................................... 115
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 117
Non‐Major Special Revenue Funds:
Combining Balance Sheet ...................................................................................................... 120
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 122
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 124
Non‐Major Debt Service Funds:
Combining Balance Sheet ...................................................................................................... 130
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 131
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 132
Non‐Major Permanent Fund:
Schedule of Revenues, Expenditures and
Changes in Fund Balance – Budget and Actual ............................................................... 134
Internal Service Funds:
Combining Statement of Fund Net Position .......................................................................... 136
Combining Statement of Revenues, Expenses and
Changes in Fund Net Position ......................................................................................... 137
Combining Statement of Cash Flows ..................................................................................... 138
Fiduciary Funds:
Statement of Changes in Assets and Liabilities – All Agency Funds ...................................... 140
CITY OF PALO ALTO
For the Year Ended June 30, 2019
Table of Contents (Continued)
Page
STATISTICAL SECTION:
Financial Trends:
Net Position by Component ......................................................................................................... 143
Changes in Net Position ............................................................................................................... 144
Fund Balances of Governmental Funds ....................................................................................... 146
Changes in Fund Balances of Governmental Funds ..................................................................... 148
Revenue Capacity:
Electric Operating Revenue by Source ......................................................................................... 149
Supplemental Disclosure for Water Utilities ............................................................................... 150
Supplemental Disclosure for Gas Utilities .................................................................................... 151
Assessed Value of Taxable Property ............................................................................................ 152
Property Tax Rates, All Overlapping Governments ..................................................................... 153
Property Tax Levies and Collections ............................................................................................ 154
Principal Property Taxpayers ....................................................................................................... 155
Assessed Valuation and Parcels by Land Use .............................................................................. 156
Per Parcel Assessed Valuation of Single Family Residential ........................................................ 157
Debt Capacity:
Ratio of Outstanding Debt by Type .............................................................................................. 158
Computation of Direct and Overlapping Debt ............................................................................. 159
Computation of Legal Bonded Debt Margin ................................................................................ 160
Revenue Bond Coverage .............................................................................................................. 161
Demographic and Economic Information:
Taxable Transactions by Type of Business ................................................................................... 162
Demographic and Economic Statistics ......................................................................................... 163
Principal Employers...................................................................................................................... 164
Operating Information:
Operating Indicators by Function/Program ................................................................................. 166
Capital Asset Statistics by Function/Program .............................................................................. 168
Full‐Time Equivalent City Government Employees by Function .................................................. 170
SINGLE AUDIT SECTION:
Index to the Single Audit Report .................................................................................................. 171
Independent Auditor’s Report on Internal Control Over Financial Reporting and
on Compliance and Other Matters Based on an Audit of Financial Statements
Performed in Accordance With Government Auditing Standards ........................................ 173
Independent Auditor’s Report on Compliance for Each Major Federal Program and
Report on Internal Control Over Compliance Required by Uniform Guidance .................... 175
Schedule of Expenditures of Federal Awards .............................................................................. 177
Notes to the Schedule of Expenditures of Federal Awards ......................................................... 179
Schedule of Findings and Questioned Costs ................................................................................ 180
Schedule of Prior Years Findings and Questioned Costs ............................................................. 182
Introduction
……….…………………………………………………………………………………………….
City of Palo Alto i
Transmittal Letter…………………………………………………...…
November 4, 2019
THE HONORABLE CITY COUNCIL
Palo Alto, California
Attention: Finance Committee
COMPREHENSIVE ANNUAL FINANCIAL REPORT
YEAR ENDED JUNE 30, 2019
Members of the Council and Citizens of Palo Alto:
I am pleased to present the Comprehensive Annual Financial Report (CAFR) for the fiscal year ended
June 30, 2019 in accordance with Article III, Section 16 and Article IV, Section 13 of the City of Palo Alto
Charter. The format and content of this CAFR complies with the principles and standards of accounting
and financial reporting adopted by the Governmental Accounting Standards Board (GASB), and
contains all information needed for readers to gain a reasonable understanding of City of Palo Alto
(City) financial affairs. Management takes sole responsibility for the completeness and reliability of
the information contained in this report, based upon a comprehensive framework of internal control
that it has established for this purpose. The objective of internal controls is to provide reasonable,
rather than absolute, assurance that the financial statements are free of any material misstatements.
The City’s financial statements have been audited by Macias Gini & O’Connell LLP, Certified Public
Accountants (MGO). The goal of the audit is to obtain reasonable assurance that the financial
statements are free of material misstatements and are fairly presented in conformity with generally
accepted accounting principles (GAAP). MGO issued an unmodified opinion for the fiscal year ended
June 30, 2019. Their report is presented as the first component of the financial section of this report.
In addition, MGO conducted the federally mandated “Single Audit” designed to meet the special needs
of federal grantor agencies. The standards governing the Single Audit require the independent auditor
to report on the fair presentation of the financial statements, government’s internal controls and
compliance with legal requirements. These reports are included in the Single Audit section of the
CAFR.
An overview of the City’s financial activities for the fiscal year is discussed in detail in the
Management’s Discussion and Analysis (MD&A) section of the CAFR. MD&A complements this
transmittal letter and should be read in conjunction with it.
City of Palo Alto
Office of the City Manager
Introduction
…….…………………………………………………………………………………………….
ii City of Palo Alto
CITY OF PALO ALTO PROFILE
The City was incorporated in 1894 and named after a majestic coastal redwood tree which lives along
the San Francisquito Creek where early Spanish explorers settled. Located between the cities of San
Francisco and San Jose, the City is a largely built-out community of approximately 67,000 residents.
The City delivers a full range of municipal services and public utilities under the Council-Manager form
of government, and offers an outstanding quality of life for its residents. It covers an area of twenty-
six square miles, and has dedicated almost one-half of the area to open spaces of parks and wildlife
preserves. Public facilities include five libraries, four community centers, a cultural arts center, an
adult and children’s theater, a junior museum and zoo, and a golf course. The City provides a diverse
array of services for seniors and youth, an extensive continuing education program, concerts, exhibits,
team sports and special events. The independent Palo Alto Unified School District (PAUSD) has
achieved state and national recognition for the excellence of its programs.
City Council: Effective January 1, 2019, Council was reduced from nine to seven members. The seven
members are elected at-large for four year staggered terms. At the first meeting of each calendar year,
Council elects a Mayor and Vice-Mayor from its membership, with the Mayor having the duty of
presiding over Council meetings. Council is the appointing authority for the positions of City Manager
and three other officials, the City Attorney, City Clerk, and City Auditor, all of whom report to Council.
Finance Committee and Policy and Services Committee: While retaining the authority to approve all
actions, Council has established two subcommittees to consider and make recommendations on
matters relating to finance, budget, audits, capital planning and debt. Each of the subcommittee is
comprised of three Council members. Staff provides the subcommittees and Council with reports
such as the CAFR, quarterly budget-versus-actual results, and investment and performance measure
reports, all of which are utilized in their review of the City’s financial position.
FISCAL/ECONOMIC CONDITIONS AND OUTLOOK
Employment Trends: The City is located in the heart of Silicon Valley and is adjacent to Stanford
University, one of the premier institutions of higher education in the nation which has produced much
of the talent that founded many successful high-tech companies in Palo Alto and Silicon Valley. With
varied and relatively stable employers such as Stanford University, Stanford Medical Center, Palo Alto
Medical Foundation, Palo Alto Unified School District, Stanford Shopping Center and businesses such
as Hewlett-Packard, VMware, Tesla, Palantir and Space Systems Loral, Palo Alto has enjoyed diverse
employment and revenue bases. The City’s unemployment rate ended the year at 2.2 percent. This
compares to Santa Clara County’s unemployment rate of 2.7 percent. The state’s unemployment rate
was 4.5 percent.
Real Estate Market: The 2018-19 Santa Clara County Assessor’s Annual Report noted that the county’s
annual assessment roll increased by $33 billion to $483.2 billion, a 7.34 percent increase over the prior
year. Palo Alto’s assessment roll represents 7.63 percent of the county roll and grew 6.88 percent over
the prior year to $36.86 billion. Home prices in Palo Alto are well above the county average at
$3,767,393 as of second quarter 2019, per Santa Clara County Association of Realtors statistics.
According to Cushman & Wakefield, Silicon Valley’s office/research and development markets
represent one of the strongest growth markets in the country driven by technology activity. As of
second quarter 2019, the overall average asking rent for Class A office space was reported at $8.62 per
square foot per month, while research and development space was noted at $6.78 per square foot per
month. Its outlook remains upbeat.
Introduction
……….…………………………………………………………………………………………….
City of Palo Alto iii
Local Trends: National, state, regional and local economic indicators are mixed. Unemployment
remains low, job growth is slowing down and the trade war is negatively showing up in the economic
data. Economically sensitive revenue sources such as transient occupancy tax and documentary
transfer tax are showing a decline while base sales tax is levelled off.
Looking forward, funding sources are sufficient to cover projected FY 2020 expenses, as written in the
City’s Adopted Budget. The Council adopted a General Fund budget with expenses of $230.8 million
for FY 2020 an increase of 9.5 percent from the prior year Adopted Budget. However, that increase is
not exclusively representative of increased costs. The General Fund had one-time savings included in
FY 2019 of almost $2.0 million for payments to the City’s self-insured workers’ compensation and
general liability insurance funds; it also had a $4.0 million reduction included in the Adopted Budge t
as a placeholder for future Council action. Once we adjust the FY 2019 Adopted Budget for these one-
time actions, the year-over-year growth would be 6.5%, from $216.7 million to $230.8 million. After
the adoption of the FY 2019 Operating Budget, City Council ratified new contracts with the safety labor
bargaining groups, with resultant increases. If these figures were restored to the FY 2019 budget
starting point, the year-over-year increase would be much less in the General Fund.
To accommodate the contribution toward the City’s long-term pension obligations, adjustments to
service delivery levels will be necessary. Reductions have been made across the organization over the
past several years with the goal of containing costs while minimizing impacts on services. This budget
makes progress towards ongoing cost containment, with specific resulting service impacts. The FY 2020
budget also includes a number of one-time actions that are designed to contain costs while
departments continue to evaluate service delivery options and redeployment of resources. In addition
to past practice - the agreed upon labor terms outlined in memorandums of agreement, CalPERS -
determined retirement contribution levels, and a vacancy factor in the General Fund - this year’s
budget includes a proactive pension funding contribution to the City’s irrevocable Section 115 Pension
Trust Fund. In the General Fund, this resulted in $3.8 million in additional contributions from various
departments and reflects what retirement costs would be if the “normal cost” of contributions was
budgeted at a 6.2 percent discount rate (CalPERS is currently at a 7.25 percent discount rate). The City’s
irrevocable pension trust fund, will have a total of $22.0 million by the end of FY 2020, of which $14.3
million will be from the General Fund.
As economic growth continues to flourish in this area of Silicon Valley, it also underscores the
challenges of increased traffic and congestion in conjunction with choosing a ”preferred alternative”
for grade separations at rail crossings. In addition, making sure the City remains focused on
implementing a Sustainability and Climate Action Plan while structurally balancing revenues and
expenses to maintain high quality services. These issues were reflected in the setting of Council
priorities for 2019:
• Climate/Sustainability and Climate Action Plan
• Grade Separations
• Transportation and Traffic
• Fiscal Sustainability
While each of these priorities require long-term strategies,
progress will be made on all through FY 2020 Budget. Staff presented a “Fiscal Sustainability” workplan
to the Finance Committee, articulating the ecosystem of available resources, desired outcomes, a nd
long-term solvency of the City. Proactively contributing to the City’s supplemental pension trust fund
will help ensure pension funding and minimize the need for future service reductions. It also means
Introduction
…….…………………………………………………………………………………………….
iv City of Palo Alto
including cost containment actions, such as the elimination of positions throughout the organization,
changes in Fire’s deployment model, and reductions in non-salary funding in several departments to
balance the FY 2020 budget and better position the City for FY 2021.
In addition the FY 2020 budget established an Office of Transportation in the City Manager’s Office to
address the growing complexity and demands associated with parking, traffic, and pending decisions
regarding grade separation. This new office will be better able to proactively engage the community
and address critical transportation needs.
In FY 2014, the City Council approved a $125.8 million Infrastructure Plan (IP), which includes projects
such as a new Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan and
two parking garages. Through the development of the 2020-2024 Capital Improvement Plan (CIP), a
tenth project was added to the IP, Downtown Automated Parking Guidance Systems, and the IP
projects were updated for scope increases and cost escalations, resulting in a revised Infrastructure
Plan of $280.6 million. These projects will be funded partially by debt to be repaid with voter approved
increases of 3.5 percent in the transient occupancy tax (TOT) rate and from other sources such as
impact fees and Stanford University Medical Center development agreement monies. The 2020-2024
CIP assumes the opening of new Marriott hotels in FY 2021, and the additional annual TOT funding is
estimated to cover the cost of the IP projects.
Rates increased in 2020 for electric, gas, storm drain, wastewater, and water services. In general, the
size and timing of rate adjustments take into account current and future revenue requirements and
reserve levels for needs such as increasing costs of commodity purchases, capital construction costs,
and contractually obligated increases to compensate for inflation, usually based on the annual change
to the Bay Area consumer price index (CPI).
Long Range Financial Forecast: The City produces a 10 year General Fund Long Range Financial
Forecast (LRFF) annually. This comprehensive report analyzes local, state, and federal economic
conditions, short and long-term revenue and expense trends, and addresses challenges such as funding
long-term pension and healthcare liabilities and infrastructure needs. The forecast is designed to
highlight finance issues which the City can address proactively. Moreover, it is a tool that allows
policymakers an opportunity to prioritize funding needs over time. It sets the tone for the annual
budget process and is one of the many tools and reports that Council uses for financial planning.
The FY 2020 – FY 2029 LRFF was presented to the Finance Committee in December 2018 and approved
by the City Council in March 2019. The forecast anticipated a near-term gap in the General Fund. Staff
identified and recommended a course of action that would structurally balance the General Fund in FY
2020 and largely balance the General Fund on an ongoing basis. As discussed above, this year’s budget
includes a proactive pension funding contribution to the City’s irrevocable Section 115 Pension Trust
Fund, and reflects what retirement costs would be if the “normal cost” of contributions was budgeted
at a 6.2 percent discount rate (CalPERS completed its ‘step-down’ to a 7.0 percent discount rate). This
resulted in the need to include cost containment actions with specific resulting service impacts such
as the elimination of positions and non-salary funding throughout the organization.
Both Moody’s and Standard and Poor’s (S&P) awarded their highest credit rating of Triple A to the
City’s general obligation debt. This rating has been awarded to only a few cities in California.
Introduction
……….…………………………………………………………………………………………….
City of Palo Alto v
SIGNIFICANT EVENTS AND ACCOMPLISHMENTS
The City is a community dedicated to meeting the social, cultural, recreational,
educational, commercial and retail needs of its citizens and businesses. As such,
open space, education, recreational facilities, cultural events and safe streets
and neighborhoods are important aspects of the community and the City has
been recognized for its accomplishments with a wide variety of awards and
recognitions over the past year. Following is a sampling of those awards:
• Santa Clara County Healthy City Awards named the City as the Best Overall, 2018;
• The International City/County Managers Association recognized Palo Alto with the Voice of the
People award for Excellence in the Natural Environment. The Voice of the People Awards is
the only award given in local government based on community opinion;
• Tree Line USA Award for the fifth year in a row by the National Arbor Day Foundation for
delivering safe and reliable electricity while maintaining healthy community trees; and
• Diamond Level Award as a Public Power Provider - the highest honor - for proficiency, sound
business practices, and a utility-wide commitment to safe and reliable delivery of electricity,
system improvement, energy efficiency and workforce development, from the American
Public Power Association.
Awards: During the past year, the City received an award for the prior fiscal year CAFR from the
Government Finance Officers Association (GFOA) for “excellence in financial reporting.” The 2019
CAFR will be submitted to the GFOA award program to be considered for this distinguished financial
reporting award.
Acknowledgments: This CAFR reflects the hard work, talent and commitment of the staff members of
the Administrative Services Department. This document could not have been accomplished without
their efforts and each contributor deserves sincere appreciation. Management wishes to acknowledge
the support of the entire accounting staff for their high level of professionalism and dedication.
Management would also like to express its appreciation to Macias Gini & O’Connell, the City’s
independent external auditors, who assisted and contributed to the preparation of this
Comprehensive Annual Financial Report.
Special acknowledgment must be given to City Council and the Finance and Policy and Services
Committees for their dedication to directing the financial affairs of the City in a responsible,
professional and progressive manner.
Respectfully submitted,
KIELY NOSE EDWARD SHIKADA
Chief Financial Officer City Manager
Introduction
…….…………………………………………………………………………………………….
vi City of Palo Alto
City of Palo Alto City Officials ………………………….…………
Finance Committee
Tom Dubois, Chair
Alison Cormack
Adrian Fine
Nancy Shepherd
Policy and Services Committee
Liz Kniss, Chair
Lydia Kou
Greg Tanaka
Council-Appointed Officers
City Manager
Ed Shikada
City Attorney
Molly Stump
City Clerk
Beth Minor
Interim City Auditor
Don Rhoads
City Council
Eric Filseth, Mayor
Adrian Fine, Vice-Mayor
Alison Cormack
Tom DuBois
Liz Kniss
Lydia Kou
Greg Tanaka
Introduction
……….…………………………………………………………………………………………….
City of Palo Alto vii
City Attorney
Molly Stump
City Manager
Edward K. Shikada
Interim City Auditor
Don Rhoads
City Clerk
Beth Minor
City of Palo Alto Organization ……………………………………
Palo Alto Residents
City Council
Community Services
Kristen O’Kane, Director
Administrative Services
Kiely Nose, Chief Financial Officer
Fire
Eric Nickel, Chief
Human Resources
Rumi Portillo, Director
Police
Robert Jonsen, Chief
Planning & Community Environment
Jonathan Lait, Director
Utilities
Dean Batchelor, Director
Public Works
Brad Eggleston, Director
Library
Monique le Conge, Director
Office of Emergency Services
Kenneth Dueker, Director
Information Technology
Darren Numoto,
Interim Chief Information Officer
Introduction
…….…………………………………………………………………………………………….
viii City of Palo Alto
Administrative Services Organization ………
Administrative Division Treasury Division
Accounting Division Budget Division
Purchasing Division Real Estate Division
Mission Statement
To provide proactive administrative and technical support to
City departments and decision makers, and to safeguard and
facilitate the optimal use of City resources.
Administrative Services Department
Introduction
……….…………………………………………………………………………………………….
City of Palo Alto ix
Government Finance Officers Association of
the United States and Canada – Award ……
x
This page is left intentionally blank.
www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1
Independent Auditor’s Report
Honorable Mayor and the Members
of the City Council of
City of Palo Alto, California
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities, the business-type
activities, each major fund, and the aggregate remaining fund information of the City of Palo Alto,
California (City), as of and for the year ended June 30, 2019, and the related notes to the financial
statements, which collectively comprise the City’s basic financial statements as listed in the table of
contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America and
the standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinions.
2
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the
respective financial position of the governmental activities, the business-type activities, each major fund,
and the aggregate remaining fund information of the City as of June 30, 2019, and the respective changes
in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison
for the General Fund for the year then ended in accordance with accounting principles generally accepted
in the United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s
discussion and analysis, the schedules of changes in net pension liability and related ratios, the schedules
of pension contributions, the schedule of changes in net OPEB liability and related ratios, and the
schedule of employer OPEB contributions, as listed in the table of contents, be presented to supplement
the basic financial statements. Such information, although not a part of the basic financial statements, is
required by the Governmental Accounting Standards Board who considers it to be an essential part of
financial reporting for placing the basic financial statements in an appropriate operational, economic, or
historical context. We have applied certain limited procedures to the required supplementary information
in accordance with auditing standards generally accepted in the United States of America, which
consisted of inquiries of management about the methods of preparing the information and comparing the
information for consistency with management’s responses to our inquiries, the basic financial statements,
and other knowledge we obtained during our audit of the basic financial statements. We do not express an
opinion or provide any assurance on the information because the limited procedures do not provide us
with sufficient evidence to express an opinion or provide any assurance.
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
comprise the City’s basic financial statements. The introductory section, combining and individual
nonmajor fund financial statements and schedules, statistical section and the schedule of expenditures of
federal awards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative
Requirements, Cost Principles, and Audit Requirements for Federal Awards, are presented for purposes
of additional analysis and are not a required part of the basic financial statements.
The combining and individual nonmajor fund financial statements and schedules and the schedule of
expenditures of federal awards are the responsibility of management and were derived from and relate
directly to the underlying accounting and other records used to prepare the basic financial statements.
Such information has been subjected to the auditing procedures applied in the audit of the basic financial
statements and certain additional procedures, including comparing and reconciling such information
directly to the underlying accounting and other records used to prepare the basic financial statements or to
the basic financial statements themselves, and other additional procedures in accordance with auditing
standards generally accepted in the United States of America. In our opinion, the combining and
individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal
awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole.
3
The introductory and statistical sections have not been subjected to the auditing procedures applied in the
audit of the basic financial statements, and accordingly, we do not express an opinion or provide any
assurance on them.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated November
4, 2019 on our consideration of the City’s internal control over financial reporting and on our tests of its
compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters.
The purpose of that report is solely to describe the scope of our testing of internal control over financial
reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness
of the City’s internal control over financial reporting or on compliance. That report is an integral part of
an audit performed in accordance with Government Auditing Standards in considering the City’s internal
control over financial reporting and compliance.
Walnut Creek, California
November 4, 2019
4
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Management’s Discussion and Analysis ◼
……….……………………………………………………………………
City of Palo Alto 5
Management’s Discussion and Analysis
Management’s Discussion and Analysis (MD&A) provides an overview of the City of Palo Alto’s financial
performance for the fiscal year ended June 30, 2019. To obtain a complete understanding of the City’s financial
condition, this document should be read in conjunction with the accompanying Transmittal Letter and Basic
Financial Statements.
Financial Highlights
▪ The assets and deferred outflows of resources of the City of Palo Alto (City) exceeded its liabilities and
deferred inflows of resources at the close of Fiscal Year (FY) 2019 by $1.2 billion. Of this amount,
$46.0 million represents unrestricted net position, which may be used to meet the government’s
ongoing obligations to citizens and creditors.
▪ At the close of FY 2019, the City’s governmental funds reported combined fund balances of $305.0
million, an increase of $53.8 million from prior year. Approximately 17.9 percent of this amount, or
$54.8 million, is unassigned fund balance and available for spending at the government’s discretion.
▪ At the end of the current fiscal year, unrestricted fund balance (the total of the committed, assigned
and unassigned components of fund balance) for the General Fund was $66.7 million, or 31.4 percent
of total general fund expenditures, including transfers.
▪ The City’s total outstanding long-term debt increased by $48.1 million during the current fiscal year.
This is due to the issuance of 2019 Certificates of Participation (COP’s) tax exempt Series A and taxable
Series B of $26.8 million plus $4.9 million premium and $10.6 million, respectively, receipt of $12.7
million in loan proceeds from the State Water Resource Control Board, and net of $6.9 million
scheduled debt retirements.
▪ The City implemented GASB Statement No.83, Certain Asset Retirement Obligations (AROs), effective
fiscal year ending June 30, 2019. An ARO is a legally enforceable liability associated with the
retirement of a tangible capital asset. A government that has legal obligations to perform future asset
retirement activities related to its tangible capital assets should recognize a liability. Implementation
of this statement did not have a significant impact on the City’s financial statements for the fiscal year
ended June 30, 2019.
▪ The City implemented GASB statement No 88, Certain Disclosures Related to Debt, including Direct
Borrowings and Direct Placements, effective fiscal year ending June 30, 2019. The objective of this
statement is to improve the information that is disclosed in the notes to governmental financial
statements related to debt, including direct borrowings and direct placements. It also clarifies which
liabilities governments should include when disclosing information related to debt. Implementation
of this statement is reflected in Note 7 of the City’s Notes to the Basic Financial Statements.
OVERVIEW OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR)
The CAFR is presented in six sections:
▪ An introductory section that includes the Transmittal Letter and general information
▪ Management’s Discussion and Analysis
▪ The Basic Financial Statements that include the Government-wide and Fund Financial
Statements, along with the Notes to these statements
▪ Required and Other Supplemental Information
▪ Statistical Information
▪ Single Audit
◼ Management’s Discussion and Analysis
……….……………………………………………………………………
6 City of Palo Alto
Basic Financial Statements
The Basic Financial Statements contain the Government-wide Financial Statements, the Fund Financial
Statements and the Notes to these financial statements. This report also includes supplementary information
intended to furnish additional detail to support the Basic Financial Statements.
For certain entities and funds, the City acts solely as a depository agent. For example, the City has several
Assessment Districts for which it produces fiduciary statements detailing the cash balances and activities of
these districts. These entities are independent, and their balances are excluded from the City’s government-
wide financial statements.
Government-wide Financial Statements
The Government-wide Financial Statements provide a longer-term view of the City’s activities as a whole.
They include the Statement of Net Position and the Statement of Activities.
The Statement of Net Position includes the City’s capital assets and long-term liabilities on a full accrual basis
of accounting similar to that used by private sector companies. Over time, increases or decreases in net
position may serve as a useful indicator of whether the financial position of the City is improving or
deteriorating.
The Statement of Activities provides information about the City’s revenues and expenses on a full accrual
basis, with an emphasis on measuring net revenues or expenses for each of the City’s programs. The
Statement of Activities explains in detail the change in net position for the year. All changes in net position
are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of
related cash flows.
The amounts in the Statement of Net Position and the Statement of Activities are separated into
Governmental and Business-type Activities in order to provide a summary of each type of activity.
Governmental Activities - All of the City’s basic services are considered to be governmental activities. Included
in basic services are the City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative
Services, Human Resources, Public Works, Planning and Community Environment, Development Services,
Police, Fire, Community Services, and Library. These services are supported by general City revenues such as
taxes, and by specific program revenues such as fees and grants.
The City’s governmental activities also include the activities of the Palo Alto Public Improvement Corporation,
which is a separate legal entity financially accountable to the City.
Business-type Activities - All of the City’s enterprise activities are reported as business-type activities,
including Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse, Storm
Drainage, and Airport. Unlike governmental services, these services are intended to recover all or a significant
portion of their costs through user fees and charges.
The Government-wide Financial Statements can be found on pages 29 and 31 of this report.
Management’s Discussion and Analysis ◼
……….……………………………………………………………………
City of Palo Alto 7
Fund Financial Statements
The Fund Financial Statements provide detailed information about each of the City’s most significant funds,
called major funds. The concept of major funds, and the determination of which are major funds, was
established by Governmental Accounting Standards Board (GASB) Statement No. 34 and replaced the concept
of combining like funds and presenting them in total. Therefore, each major fund is presented individually,
with all non-major funds combined in a single column on each fund statement. Subordinate schedules display
these non-major funds in more detail. Major funds present the major activities of the City for the year. The
General Fund is always considered a major fund, but other funds may change from year to year as a result of
changes in the pattern of City activities.
The Fund Financial Statements display the City’s operations in more detail than the Government-wide
Financial Statements. Their focus is primarily on the short-term activities of the City’s General Fund and other
major funds.
Budget and actual financial comparison information is presented only for the General Fund. Fund Financial
Statements include Governmental, Proprietary, and Fiduciary Funds.
Governmental Funds
Governmental Fund Financial Statements are prepared on the modified accrual basis of accounting, which
means they measure only current financial resources and uses. Capital assets and other long-lived assets,
along with long-term liabilities, are presented only in the Government-wide Financial Statements. In FY 2019,
the City had two major governmental funds, the General Fund and the Capital Projects Fund. Data from the
other governmental funds are combined into a single aggregated presentation. Individual fund data for each
of these non-major governmental funds is provided in the Supplemental section of this report.
Because the focus of governmental funds is narrower than that of the Government-wide Financial Statements,
it is useful to compare the information presented for governmental funds with similar information presented
for governmental activities in the Government-wide Financial Statements. By doing so, readers may better
understand the long-term impact of the government’s near-term financing decisions. Both the Governmental
Fund Balance Sheet and the Governmental Fund Statement of Revenues, Expenditures and Changes in Fund
Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental
activities.
The Governmental Fund Financial Statements can be found on pages 33-37 of this report.
Proprietary Funds
Enterprise and Internal Service Fund Financial Statements are prepared on the full accrual basis of accounting,
similar to that used by private sector companies. These statements include all of their assets, deferred
outflows and inflows of resources and liabilities, both current and long-term.
Since the City’s Internal Service Funds provide goods and services exclusively to the City’s governmental and
business-type activities, their activities are only reported in total at the fund level. Internal Service Funds,
such as Technology and General Benefits, cannot be considered major funds because their revenues are
derived from other City funds. Revenues between funds are eliminated in the Government-wide Financial
Statements, and any related profits or losses in Internal Service Funds are returned to the activities in which
they were created, along with any residual net assets of the Internal Service Funds.
The Proprietary Fund Financial Statements can be found on pages 38-43 of this report.
◼ Management’s Discussion and Analysis
……….……………………………………………………………………
8 City of Palo Alto
Fiduciary Funds
The City is the fiduciary agent for certain assessment districts such as the University Avenue Area Off-Street
Parking Assessment District. In this role, the City holds money collected from property owners and awaiting
transfer to the districts’ bond trustees. The City’s fiduciary activities are reported in the separate Statement
of Fiduciary Net Position and the supplemental Agency Funds Statement of Changes in Assets and Liabilities.
These activities are excluded from the City’s governmental-wide financial statements because the City cannot
utilize these assets to finance its own operations.
The Fiduciary Fund Financial Statement can be found on page 44 of this report.
Notes to the Financial Statements
The Notes provide additional information that is necessary to acquire a full understanding of the data provided
in the Government-wide and Fund Financial Statements. The Notes to the financial statements can be found
on pages 47-106 of this report.
Other Information
The Required Supplementary Information related to the City’s pension and OPEB plans is included after the
Notes to the Financial Statements on pages 107-112. The combining statements referred to earlier in
connection with non-major Governmental Funds and Internal Service Funds, are presented immediately
following the Required Supplementary Information. Combining statements and individual fund statements
and schedules can be found on pages 113-138 of this report.
Management’s Discussion and Analysis ◼
……….……………………………………………………………………
City of Palo Alto 9
Financial Analysis of Government-wide Financial Statements
This section focuses on the City’s net position and changes in net position of its governmental and business-
type activities for the fiscal year ending June 30, 2019. As noted earlier, the City’s total assets and deferred
outflows of resources exceeded total liabilities and deferred inflows of resources by $1.2 billion at the end of
the fiscal year, a change in net position of $76.0 million.
STATEMENT OF NET POSITION
As of June 30, 2019
(in millions)
2019 2018 2019 2018 2019 2018
Cash and investments 354.0$ 286.9$ 253.4$ 241.8$ 607.4$ 528.7$
Other assets 69.8 62.5 51.3 42.1 121.1 104.6
Capital assets 566.1 547.7 673.5 636.7 1,239.6 1,184.4
Total Assets 989.9 897.1 978.2 920.6 1,968.1 1,817.7
Unamortized loss from refunding - - 0.2 0.2 0.2 0.2
Pension and OPEB related 63.4 78.8 21.5 28.9 84.9 107.7
Total Deferred Outflows of Resources 63.4 78.8 21.7 29.1 85.1 107.9
Net pension and OPEB liabilities 417.3 411.4 154.4 157.1 571.7 568.5
Long-term debt 115.1 75.1 74.2 66.1 189.3 141.2
Other liabilities 63.8 54.5 26.6 36.0 90.4 90.5
Total Liabilities 596.3 541.0 255.2 259.2 851.5 800.2
Pension and OPEB related 7.1 7.4 3.2 2.4 10.3 9.8
Total Deferred Inflows of Resources 7.1 7.4 3.2 2.4 10.3 9.8
Net Position
Net investment in capital assets 493.7 473.2 602.1 573.7 1,095.8 1,046.9
Restricted 45.6 41.2 4.0 4.0 49.7 45.2
Unrestricted (89.4)(87.0)135.4 110.4 46.0 23.4
Total Net Position 449.9$ 427.4$ 741.5$ 688.1$ 1,191.5$ 1,115.5$
Governmental
Activities
Business-type
Activities
Government-wide
Totals
The largest portion of the City’s net position (92.0 percent) is its net investment in capital assets such as land,
buildings, infrastructure and vehicles, less any related outstanding debt that was used to acquire those assets.
The City uses these capital assets to provide a variety of services to its citizens. Accordingly, these assets are
not available for future spending. Although the City’s investment in capital assets is reported net of related
debt, it should be noted that the resources used to repay this debt must be provided from other sources, since
the capital assets themselves cannot be used to liquidate these liabilities.
◼ Management’s Discussion and Analysis
……….……………………………………………………………………
10 City of Palo Alto
The restricted portion of the City’s net position (4.2 percent) represents resources that are subject to external
restrictions on how they may be used. The remaining balance of $46.0 million, representing 3.9 percent of
the City’s net position, is unrestricted and may be used to meet the government’s ongoing obligations to its
citizens and creditors.
At the end of the current fiscal year, the City is able to report positive unrestricted net positions for the
government as a whole. The unrestricted net position for governmental activities is negative due to the
implementation of GASB Statement No. 68 and 75. The business-type activities has positive unrestricted net
position at the end of the current fiscal year.
Components of the $76.0 million increase in total net position are discussed in the following sections for
governmental activities and business-type activities.
Governmental Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Governmental
Activities, presented in the Government-wide Statement of Net Position and Statement of Activities.
Increase/
2019 2018 (Decrease)
Cash and investments 354.0$ 286.9$ 67.1$
Other assets 69.8 62.5 7.3
Capital assets 566.1 547.7 18.4
Total Assets 989.9 897.1 92.8
Pension and OPEB related 63.4 78.8 (15.4)
Total Deferred Outflows of Resources 63.4 78.8 (15.4)
Net pension and OPEB liabilities 417.3 411.4 5.9
Long-term debt 115.2 75.1 40.1
Other liabilities 63.8 54.5 9.3
Total Liabilities 596.3 541.0 55.3
Pension and OPEB related 7.1 7.4 (0.3)
Total Deferred Inflows of Resources 7.1 7.4 (0.3)
Net investment in capital assets 493.7 473.2 20.5
Restricted 45.6 41.2 4.4
Unrestricted (89.4) (87.0) (2.4)
Total Net Position 449.9$ 427.4$ 22.5$
GOVERNMENTAL ACTIVITIES
Net Position at June 30
(in millions)
Management’s Discussion and Analysis ◼
……….……………………………………………………………………
City of Palo Alto 11
The City’s Governmental Activities total net position increased $22.5 million to $449.9 million as of June 30,
2019. This increase resulted from the following:
▪ Cash and Investments increased $67.1 million primarily due to $42.0 million proceeds from issuance
of COPs restricted for construction of the California Avenue Parking Garage. The $25.1 million
remaining increase is from the results of operations.
▪ Capital assets net of depreciation increased $18.4 million due to continued construction of the Fire
Station #3, Charleston/Arastradero Corridor and the new Cal Avenue Area Parking Garage.
▪ Pension and OPEB related deferred outflows of resources decreased $15.4 million mainly due to
change of assumption because the inflation rate reduced from 2.75 percent to 2.50 percent and lower
OPEB contributions subsequent to measurement date.
▪ Long-term debt increased $40.1 million due to the issuance of 2019 COPs tax exempt Series A $26.8
million plus $4.9 million premium and taxable Series B of $10.6 million for the construction of the new
California Avenue Area Parking Garage, net of the $2.3 million scheduled debt retirements.
▪ Other liabilities increased $9.3 million primarily due to an increase in claims payable of $4.6 million
for workers’ compensation and general liabilities and higher accruals.
▪ Net investment in capital assets increased $20.5 million to $493.7 million due to the current year
capital additions noted above. Restricted net position increased $4.4 million to $45.6 million primarily
due to the increased fund balance in the Transportation infrastructure fund. Unrestricted net position
decreased $2.4 million from prior year. The unrestricted net position for governmental activities is
negative primarily due to the implementation of GASB Statement No 68 and 75. Unrestricted net
position for June 30, 2019 includes the City’s $265.1 million net pension liability and deferred
outflow/inflow and $95.9 million Net OPEB liability and deferred outflow/inflow.
Governmental Activities – Revenues
The table below shows that Governmental Activities revenues totaled $238.4 million in FY 2019, an increase
of $27.1 million from prior year revenues of $211.3 million.
◼ Management’s Discussion and Analysis
……….……………………………………………………………………
12 City of Palo Alto
Increase/
Revenues by Source 2019 2018 (Decrease)
Program Revenues:
Charges for services 70.9$ 63.4$ 7.5$
Operating grants and contributions 2.1 14.1 (12.0)
Capital grants and contributions 8.3 1.5 6.8
Total Program Revenues 81.3 79.0 2.3
General Revenues:
Property tax 51.7 47.2 4.5
Sales tax 36.5 31.1 5.4
Utility user tax 16.4 15.4 1.0
Transient occupancy tax 25.6 24.9 0.7
Documentary transfer tax 6.9 9.2 (2.3)
Other tax 2.6 2.1 0.5
Investment earnings 15.4 0.4 15.0
Rents and miscellaneous 1.9 2.0 (0.1)
Total General Revenues 157.1 132.3 24.8
Total Revenues 238.4$ 211.3$ 27.1$
GOVERNMENTAL ACTIVITIES
Revenues for the Year Ended June 30
(in millions)
Program Revenues such as charges for services, operating grants and contributions, and capital grants and
contributions are generated from or restricted to each activity.
General Revenues increased $24.8 million, or 18.75 percent, from the prior year primarily due to increases in
General fund tax revenues and investment earnings resulted from the recognition of unrealized gains. Further
analysis of general revenues can be found in the Financial Analysis of Governmental Funds section of the
MD&A.
Governmental Activities – Revenues by Source
The chart below presents revenues by source for Governmental Activities. General Revenues are composed
of taxes and other revenues not specifically generated by, or restricted to, individual activities. All tax revenues
and investment earnings are included in General Revenues.
Management’s Discussion and Analysis ◼
……….……………………………………………………………………
City of Palo Alto 13
Program Revenues
34%
Property Tax
22%
Sales Tax
15%
Other
8%
Transient Occupancy Tax
11%
Utility User Tax
7%
Documentary User Tax
3%
◼ Management’s Discussion and Analysis
……….……………………………………………………………………
14 City of Palo Alto
Governmental Activities – Expenses
The table below presents a comparison of FY 2019 and FY 2018 expenses by function, along with interest and
other expenses. Total Governmental Activities functional expense was $234.4 million in FY 2019, an increase
of $23.3 million.
Increase/
Activities 2019 2018 (Decrease)
City Council 0.3$ 0.3$ (0.0)$
City Manager 3.3 2.8 0.5
City Attorney 3.1 2.5 0.6
City Clerk 0.8 0.9 (0.1)
City Auditor 1.1 1.0 0.1
Administrative Services 19.2 13.9 5.3
Human Resources 3.0 2.7 0.3
Public Safety 89.2 83.9 5.3
Planning and Community Environment 12.2 11.4 0.8
Development Services 12.6 12.7 (0.1)
Public Works 36.6 30.3 6.3
Community Services 36.8 33.7 3.1
Library 12.6 12.2 0.4
Interest and Other Expense 3.7 2.8 0.9
Total Functional Expense 234.4 211.1 23.3
Increase in Net Position
before Transfers 3.8 0.2 3.6
Transfers in 18.7 19.1 (0.4)
Change in Net Position 22.5 19.3 3.2
Net Position, Beginning 427.4 527.3 (99.9)
Restatement for implemation of GASB 75 - (119.2) 119.2
Net Position, Ending 449.9$ 427.4$ 22.5$
GOVERNMENTAL ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 30
(in millions)
Management’s Discussion and Analysis ◼
……….……………………………………………………………………
City of Palo Alto 15
In addition to the variances at the fund level which are explained in the Financial Analysis of Governmental
Funds section of the MD&A, year over year variances in Functional expenses at the government-wide level
are due to the following:
▪ Change in pension related adjustments for GASB 68 of $3.5 million;
▪ Change in OPEB related adjustments for GASB 75 of ($3.5 million);
▪ Capital asset activities such as depreciation and asset retirements of ($1.3 million);
▪ Long –Term debt activities such as payments and premium amortization of ($1.3 million); and
▪ Internal service funds allocation and crossover (1.8 million).
Governmental Activities – Functional Expenses
The functional expenses chart below includes only current year expenses. It does not include capital outlays,
as those are added to the City’s capital assets. Functions which comprise 1 percent or less of total expenses
are combined into the All Other category in the chart below. All Other includes City Council, City Manager,
City Attorney, City Clerk, City Auditor and Human Resources.
Administrative
Services
8%
Public Works
16%
Interest and Other
2%
Planning and
Community
Environment
5%
Development Services
5%
Public Safety
38%
Community Services
16%
Library
5%
All Other
5%
◼ Management’s Discussion and Analysis
……….……………………………………………………………………
16 City of Palo Alto
Business-type Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Business-type
Activities presented in the Government-wide Statement of Net Position and Statement of Activities.
Increase/
2019 2018 (Decrease)
Cash and investments 253.4$ 241.8$ 11.6$
Other assets 51.3 42.1 9.2
Capital assets 673.5 636.7 36.8
Total Assets 978.2 920.6 57.6
Unamortized loss from refunding 0.2 0.2 -
Deferred pension contribution 21.5 28.9 (7.4)
Total Deferred Outflows of Resources 21.7 29.1 (7.4)
Net pension and OPEB liabilities 154.4 157.1 (2.7)
Long-term debt 74.2 66.1 8.1
Other liabilities 26.6 36.0 (9.4)
Total Liabilities 255.2 259.2 (4.0)
Difference between expected and actual
earnings on investments 3.2 2.4 0.8
Total Deferred Outflows of Resources 3.2 2.4 0.8
Net Position
Net investment in capital assets 602.1 573.7 28.4
Restricted 4.0 4.0 0.0
Unrestricted 135.4 110.4 25.0
Total Net Position 741.5$ 688.1$ 53.4$
BUSINESS-TYPE ACTIVITIES
Net Position at June 30
(in millions)
The City’s Business-type Activities total net position increased $53.4 million to $741.5 million as of
June 30, 2019.
Cash and investments increased $11.6 million primarily due to revenues exceeding expenses in the Electric,
Fiber Optics and Refuse Funds.
Other assets increased $9.2 million due to higher accounts receivable balances in the Electric and Wastewater
Treatment Funds.
Management’s Discussion and Analysis ◼
……….……………………………………………………………………
City of Palo Alto 17
Other liabilities decreased $9.4 million as a result of return of deposits in the Electronic Fund and a decrease
in liabilities in the Wastewater Treatment Fund and Water Fund.
Capital assets increased $36.8 million to $673.5 million in FY 2019 primarily due to capital improvements in
Electric, Gas, Water, Wastewater Treatment, and Airport Funds. These capital improvements contributed to
the $28.4 million increase in net investment in capital assets to $602.1 million in FY 2019.
Unrestricted net position of $135.4 million, an increase of $25.0 million from the prior year, represents assets
available to finance day-to-day operations and other expenditures approved by Council. This amount includes
rate stabilization reserves (RSR) of $51.0 million and operations reserves of $81.3 million, along with the
electric special projects (Calaveras) reserve of $41.7 million, and the hydro stabilization reserve of $11.4
million. The positive balances in these reserves are offset by the GASB 68 adjustment pension reserve of $97.3
million and GASB 75 OPEB reserve of $38.7 million. Additional details are included in Note 10.
Business-type Activities – Revenues
The table below presents the revenues for each of the City’s Business-type Activities or Enterprise Funds. The
City operates the Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse,
Storm Drainage and Airport Funds.
BUSINESS-TYPE ACTIVITIES
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2019 2018 (Decrease)
Program Revenues:
Charges for services 347.4$ 330.2$ 17.2$
Operating grants and contributions 0.4 0.5 (0.1)
Capital grants and contributions 6.7 14.2 (7.5)
Total Program Revenues 354.5 344.9 9.6
General Revenues:
Investment earnings 12.7 0.6 12.1
Total General Revenues 12.7 0.6 12.1
Total Revenues 367.2$ 345.5$ 21.7$
Business-type Activities revenues totaled $367.2 million, an increase of $21.7 million from the prior year.
Program revenues increased $9.6 million year over year. Charges for services increased $17.2 million from
the prior year due to the rate increase in the Electric, Water, Gas, Storm Water Management, and Wastewater
funds.
◼ Management’s Discussion and Analysis
……….……………………………………………………………………
18 City of Palo Alto
Capital grants and contributions decreased by $7.5 million from the prior year due to a decrease in grant
revenues for the Airport Fund and a decrease in capital contributions for the Wastewater Treatment Fund.
Business-type Activities – Expenses
The table below presents a comparison of the FY 2019 and FY 2018 expenses for the City’s Business-type
Activities. Encumbrances and reappropriations are not included.
BUSINESS-TYPE ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Business-type Activities 2019 2018 (Decrease)
Water 40.6$ 40.8$ (0.2)$
Electric 139.6 146.0 (6.4)
Fiber Optics 2.5 2.7 (0.2)
Gas 30.9 27.9 3.0
Wastewater Collection 17.3 16.8 0.5
Wastewater Treatment 27.1 27.5 (0.4)
Refuse 30.4 28.8 1.6
Storm Drainage 4.9 5.1 (0.2)
Airport 1.8 1.7 0.1
Total Functional Expense 295.1 297.3 (2.2)
Increase in Net Position
before Transfers 72.1 48.2 23.9
Transfers out (18.7)(19.1)0.4
Change in Net Position 53.4 29.1 24.3
Net Position, Beginning 688.1 699.3 (11.2)
Reinstatement for implementationfor GASB 75 0.0 (40.3)40.3
Net Position, Ending 741.5$ 688.1$ 53.4$
Business-type Activities expenses decreased $2.2 million for a total of $295.1 million. Year over year expenses
were affected by the following events:
▪ Electric Fund expenses decreased 6.4 million due to decreased energy purchase costs.
▪ Gas fund expenses increased $3.0 million due to increased commodity rate purchases as a result of
higher market gas prices and higher transportation costs.
▪ Refuse fund expenses increased $1.6 million due to increased processing costs for recycling and
compost material and higher operating costs.
Management’s Discussion and Analysis ◼
……….……………………………………………………………………
City of Palo Alto 19
FUND FINANCIAL STATEMENTS
Financial Analysis of Governmental Funds
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related
legal requirements.
Governmental Funds
The focus of the City’s Governmental Funds is to provide information on near-term inflows, outflows, and
balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In
particular, the unassigned fund balance may serve as a useful measure of a government’s net resources
available for discretionary use as it represents the portion of fund balance not yet limited to use for a particular
purpose by either an external party, the City itself, or an entity that has been delegated authority by the City
Council to assign resources for use.
As of June 30, 2019, the City’s Governmental Funds reported combined fund balances of $305.0 million, an
increase of $53.8 million from the prior year. Approximately 18.0 percent, or $54.8 million, constitutes
unassigned fund balance, which is available for spending at the government’s discretion and other purposes.
The remainder of the fund balance is either non-spendable, restricted, committed, or assigned to indicate that
it is: 1) not in spendable form ($10.1 million); 2) restricted for particular purposes ($85.9 million); 3) committed
for particular purposes ($89.7 million); or 4) assigned for particular purposes (64.5 million).
Governmental Fund revenues increased $21.2 million, or 10.0 percent, from the prior year to $232.5 million.
Revenues in the General Fund increased $17.0 million and Capital Projects Fund revenue increased $0.2
million. Other Governmental Funds revenue increased $3.9 million due to sale of Transfer Development Rights
(TDR) for the construction of the historic Avenida’s building.
Governmental Fund expenditures were $234.9 million, an increase of $15.4 million from the prior year.
General Fund expenditures increased $10.1 million, Capital Projects Fund expenditures increased by $5.9
million, and Non-major Fund expenditures decreased by $0.7 million. Details of significant changes are
discussed in the following sections.
General Fund
Balance Sheet
The General Fund is the primary operating fund of the City. At the end of the current fiscal year, fund balance
of the General Fund was $75.2 million, compared to $68.3 million in the prior year. The fund balance has
been classified as $7.6 million non-spendable, $5.0 million committed, $7.7 million assigned and $54.8 million
unassigned. The unassigned amount is designated by the Council for Budget Stabilization Reserve (BSR) and
other purposes.
◼ Management’s Discussion and Analysis
……….……………………………………………………………………
20 City of Palo Alto
Statement of Revenues, Expenditures and Changes in Fund Balance
Revenues
The City’s General Fund revenues totaled $197.1 million in FY 2019. This represents an increase of $17.1
million, or 9.5 percent, compared to the prior year. The year over year change in significant revenue sources
is noted in the following table.
Property tax revenue increased $4.5 million or 10.5 percent, due to increased property assessed value growth
and an increase of $1.3 million for a temporary Educational Revenue Augmentation Fund (ERAF) distribution
from the County of Santa Clara.
Sales tax receipts were $5.4 million or 17.4 percent higher compared to the prior fiscal year, due to a
combination of economic performance in sectors such as auto sales, leasing factors and restaurants. In
addition, in fiscal year 2018 the California Department of Tax and Fee Administration (CDTFA) was established
and introduced new technology and collection process which had issues resulting in delays of distribution of
sales tax. This resulted in lower sales tax by $0.7 million in fiscal year 2018 and higher sales tax in fiscal year
2019.
Utility user tax revenues were $1.0 million or 6.5 percent, higher compared to the prior year due to an
increased utility rate and local telecommunications activity.
Transient occupancy tax (TOT) ended the year $0.7 million, or 2.8 percent, higher than prior year. The increase
is due to the voter approval of a 1.5 percent tax rate increase effective April 1, 2019. After adjusting the 1.5
percent tax rate, the base TOT decreased by 5.4% with an average occupancy decline of 1.8 percent but with
an average room rate increase of 2.6 percent.
Documentary transfer tax decreased $2.3 million, or 25 percent to $6.9 million, due to larger commercial sales
in prior fiscal year.
Increase/
Revenues by Source 2019 2018 (Decrease)
Property tax 47.3$ 42.8$ 4.5$
Sales tax 36.5 31.1 5.4
Utility user tax 16.4 15.4 1.0
Transient occupancy tax 25.6 24.9 0.7
Documentary transfer tax 6.9 9.2 (2.3)
Charges for services 27.3 26.8 0.5
Permits and licence 8.4 8.6 (0.2)
Rental income 16.3 15.9 0.4
All other 12.4 5.3 7.1
Total Revenues 197.1$ 180.0$ 17.1$
GENERAL FUND
Revenues for the Year Ended June 30
(in millions)
Management’s Discussion and Analysis ◼
……….……………………………………………………………………
City of Palo Alto 21
All other revenues increased from prior year by $7.1 million primarily due to $6.5 million increase in
investment earnings which included $5.9 million in unrealized gains.
Expenditures
General Fund expenditures totaled $175.7 million for FY 2019 compared to $165.6 in the prior year. This
amount excludes encumbrances and reappropriations. The year over year change for major functions is noted
in the following table.
Increase/
Expenditures by Function 2019 2018 (Decrease)
Administrative Services 5.5$ 5.3$ 0.2$
Public Works 13.8 14.6 (0.8)
Planning and Community Environment 8.1 8.3 (0.2)
Development Services 11.5 11.7 (0.2)
Police 42.9 40.3 2.6
Fire 33.5 33.5 (0.0)
Community Services 28.9 27.1 1.8
Library 9.3 9.1 0.2
Non-Departmental 11.8 6.0 5.8
All other 10.5 9.6 0.9
Total Expenditures 175.7$ 165.5$ 10.2$
GENERAL FUND
Expenditures for the Year Ended June 30
(in millions)
Police department expenditures increased $2.6 million mainly due to salaries and benefits and overtime.
Community Services department expenditures increased $1.8 million, mainly due to golf course maintenance,
which operations resumed in May 2018.
Non-Departmental expenditures increased $5.8 million primarily due to a $5.5 million settlement agreement
for an overpayment claim by Stanford University regarding fire protection services.
◼ Management’s Discussion and Analysis
……….……………………………………………………………………
22 City of Palo Alto
Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual
Original budget compared to final budget
Revenues were originally budgeted at $194.7 million and were revised upward by $11.5 million. Revenue
categories that were adjusted are shown in the table below.
In FY 2019, the final budget increased $11.4 million from the Adopted Budget general fund revenues. There
were changes to the Property tax, Sales tax, Transient occupancy tax, Documentary transfer tax, all other
revenues, and prior year encumbrances and reappropriations.
Actual revenues of $212.2 million were $5.9 million higher than final budgeted revenues of $206.2 million due
to an unforeseen $5.9 million higher than anticipated sales and property tax revenues.
Adopted Final Increase/
Budgeted Revenues Budget Budget (Decrease)
Property tax 45.3$ 46.2$ 0.9$
Sales tax 31.2 31.7 0.5
Utility user tax 16.1 16.1 0.0
Transient occupancy tax 25.0 25.4 0.3
Documentary transfer tax 7.4 8.0 0.6
All other 59.6 60.8 1.2
184.6 188.2 3.6
Charges to other funds 10.1 10.1 -
Prior year encumbrances and reappropriations - 7.8 7.8
Total Budgeted Revenues 194.7$ 206.2$ 11.4$
GENERAL FUND
Budgeted Revenues for the Year Ended June 30
(in millions)
Management’s Discussion and Analysis ◼
……….……………………………………………………………………
City of Palo Alto 23
Expenditures were originally budgeted at $183.6 million and were revised upward by $12.7 million, for a final
budgeted amount of $196.3 million.
GENERAL FUND
Budgeted Expenditures for the Year Ended June 30
(in millions)
Adopted Final Increase/Actuals, plus
Budgeted Expenditures Budget Budget (Decrease)Encumbrances
Community Services 28.9$ 30.2$ 1.3$ 30.2$
Fire 43.5 43.9 0.4 43.7
Police 31.8 33.9 2.1 33.9
Library 9.7 9.8 0.1 9.5
Planning and Community Environment 8.8 10.3 1.6 9.9
Public Works 18.5 18.4 (0.1)17.9
Development Services 12.6 13.1 0.5 12.7
Non-departmental 7.6 13.3 5.7 12.6
All other 22.2 23.4 1.2 22.5
Total Budgeted Expenditures 183.6$ 196.3$ 12.7$ 192.9
Less: Charges to Other Funds (10.7)
Less: Encumbrances/reappropriations (6.5)
Net General Fund Expenditures 175.7$
Adjustments of $12.7 million to the original budget were primarily due to the following:
• $7.8 million carry-forward of encumbrances from prior year and reappropriations
• $5.5 million settlement agreement for an overpayment claim by Stanford University regarding fire
protection services
The final budgeted expenditure amount of $196.3 million compares to the actual expenditures plus
encumbrances/reappropriations of $193.0 million, a difference of $3.3 million, of which $6.5 million is
encumbrances and reappropriations carried forward to FY 2020.
Transfers out were originally budgeted at $30.9 million, with the final budget number at $37.1 million, an
increase of $6.2 million. The increase was due to an additional $4.0 million transfer to General Benefits
Internal Services Fund for Irrevocable Section 115 Pension Trust and $2.0 million transfer to the Infrastructure
Reserve.
Capital Projects Fund
Capital Projects Fund expenditures and other uses were $46.9 million in FY 2019, an increase of $5.9 million
from the prior year driven by construction of Fire Station #3, Charleston/Arastradero Corridor and the new
California Avenue parking garage. This level of expenditure is consistent with the City’s effort to rehabilitate
and maintain its existing infrastructure.
◼ Management’s Discussion and Analysis
……….……………………………………………………………………
24 City of Palo Alto
Non-major Funds
These funds are not presented separately in the Basic Financial Statements, but are individually presented as
Supplemental Information.
Financial Analysis of Enterprise Funds
At June 30, 2019, the City’s Enterprise Funds reported total net position of $741.5 million, an increase of $53.4
million or 7.8 percent from the prior year. The increase was primarily from the Electric Fund. Further analysis
is noted in the following section. Unrestricted net position for the Enterprise Funds totaled $135.3 million, a
23.7 percent increase from FY 2018.
The following is a table which compares the year over year change in net position for each of the Enterprise
Funds.
ENTERPRISE FUNDS
Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Fund Name 2019 2018 (Decrease)
Water 8.0$ 5.1$ 2.9$
Electric 19.0 (1.2)20.2
Fiber Optics 3.5 1.7 1.8
Gas 5.3 1.5 3.8
Wastewater Collection 3.3 1.0 2.3
Wastewater Treatment 1.5 4.8 (3.3)
Refuse 4.9 6.1 (1.2)
Storm Drainage 2.3 1.8 0.5
Airport 6.6 10.1 (3.5)
Total Change in Net Position 54.4$ 30.9$ 23.5$
The most significant factors in the year over year change in net position for Enterprise Funds are as follows:
▪ The net position for Electric Fund increased by $20.2 million due to higher operating revenues as a
result of a 6.0 percent rate increase effective July 2018, an increase in investment earnings and a
decrease in operating expenses.
▪ The net position for Gas Fund increased $3.8 million as a result of higher revenue due to higher
consumption and a rate increase.
▪ The net positon for Water increased $2.9 million as a result of an increase in operating revenues of
$0.5 million due to a three percent rate increase effective July 2018 and a $2.0 million increase in
investment earnings. The increase is also due to a decrease of $0.3 million in operating expenses.
▪ The net position for Wastewater Collection Fund increased $2.3 million due to 11.0 percent rate
increase effective July 1, 2018.
▪ Wastewater Treatment Fund decreased its net position by $3.3 million due to a decrease in federal
grant revenues of $4.0 million from prior year offset by the increase in investment earnings.
Management’s Discussion and Analysis ◼
……….……………………………………………………………………
City of Palo Alto 25
▪ The Airport Fund decreased in net position $3.5 million due to the decrease in federal grant revenues
for the Apron Reconstruction project.
CAPITAL ASSETS
GASB 34 requires that the City record all its capital assets, including infrastructure and intangible assets.
Infrastructure includes roads, bridges, signals and similar assets used by the entire population. The table
below shows capital assets and the amount of accumulated depreciation for these assets for Governmental
and Business-type Activities. Further detail can be found in Note 6 to the financial statements.
Increase/
2019 2018 (Decrease)
Governmental activites
Capital Assets
Land and improvements 77.6$ 78.5$ (0.9)
Street trees 14.7 14.8 (0.1)
Construction in progress 104.5 69.3 35.2
Building and improvements 247.3 246.5 0.8
Intangible assets 3.8 3.8 0.0
Equipment 12.6 12.6 -
Roadway network 334.3 334.3 -
Recreation and open space network 35.2 35.2 -
Less accumulated depreciation (285.7) (269.0) (16.7)
Internal Service funds -
Construction in progress 2.5 1.9 0.6
Equipment 62.3 61.6 0.7
Less accumulated depreciation (43.0) (41.7) (1.3)
Total Governmental Activities 566.1 547.8 18.3
Business-Type Activities
Land 5.0 5.0 (0.0)
Construction in progress 158.0 153.4 4.6
Buildings and improvements 68.3 59.9 8.4
Capital Leases 0.5 0.5 -
Infrastructure 0.6 0.6 -
Transmission, distribution and treatment systems 822.4 779.3 43.1
Less accumulated depreciation (381.3) (362.0) (19.3)
Total Business-type Activities 673.5$ 636.7$ 36.8$
CAPITAL ASSETS AT JUNE 30
(in millions)
Governmental Activities’ capital assets net of depreciation increased by $18.3 million from the prior year. The
increase was primarily due to various city projects such as the Fire Station #3, Charleston/Arastradero Corridor
and the new California Avenue Area Parking Garage.
◼ Management’s Discussion and Analysis
……….……………………………………………………………………
26 City of Palo Alto
Council approved a $125.8 million Infrastructure Plan (IP) in June 2014, which includes projects such as a new
Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan and two parking garages.
Through the development of the 2020-2024 Capital Improvement Plan (CIP), a tenth project was added to the
IP, Downtown Automated Parking Guidance Systems, and the IP projects were updated for scope increases
and cost escalations, resulting in a revised Infrastructure Plan of $280.6 million. These projects will be funded
partially by debt to be repaid with voter approved increases of 3.5 percent in the transient occupancy tax
(TOT) rate and from other sources such as impact fees and Stanford University Medical Center development
agreement monies. The 2020-2024 CIP assumes the opening of new Marriott hotels in FY 2021, and the
additional annual TOT funding is estimated to cover the cost of the IP projects.
Major Governmental Activities’ capital projects that are currently in progress, including the remaining capital
commitment of each, are as follows:
▪ New Cal Ave Area Parking Garage - $40.2 million
▪ New Downtown Parking Garage – $27.0 million
▪ Highway 101 Pedestrian/Bicycle Overcrossing - $13.3 million
▪ Bicycle Boulevards Implementation Project - $9.2 million
▪ Embarcadero Road Corridor Improvements - $6.3 million
Business-type Activities’ capital assets net of depreciation increased by $36.8 million over FY 2018. The
increase is primarily due to Water, Electric, Wastewater Treatment, Storm Drainage and Airport infrastructure
improvements.
Major Business-type Activities’ capital projects that are currently in progress, including the remaining capital
commitment of each, are as follows:
▪ Water Main Replacement for Water fund - $7.1 million
▪ Wastewater Collection Fund Rehabilitation/Augmentation – $4.6 million
▪ Airport Apron Reconstruction Project - $7.7 million
The City depreciates its capital assets over their estimated useful lives, as required by GASB 34. The purpose
of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable
portion of the cost of the asset is borne by all users. Additional information on capital assets and depreciable
lives are in Note 6.
Management’s Discussion and Analysis ◼
……….……………………………………………………………………
City of Palo Alto 27
DEBT ADMINISTRATION
Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements. The City’s debt as
of June 30, 2019 is shown in the following table.
Increase/
2019 2018 (Decrease)
Governmental Activities
General Long-Term Obligations
General Obligation Bonds
2010 44.6$ 45.8$ (1.2)$
2013A 15.9 16.3 (0.4)
2011 Lease Purchase Agreement 0.0 0.4 (0.4)
Add: unamortized premium 0.0 3.6 (3.6)
Certificates of Participation
2018 Capital Improvement Projects 8.9 9.0 (0.1)
2019 California Ave Parking Garage
Series A & B 37.4 0.0 37.4
Add: unamortized premium 8.3 0.0 8.3
Total Governmental Activities 115.1$ 75.1$ 40.0$
Business-type Activities
Enterprise Long-Term Obligations
Utility Revenue Bonds
1995 Series A 0.6$ 1.3$ (0.7)$
1999 Refunding 7.5 8.2 (0.7)
2009 Series A 26.6 27.7 (1.1)
2011 Refunding 9.1 10.2 (1.1)
Add: unamortized premium 0.6 0.6 (0.0)
Energy Tax Credit Bonds
2007 Series A 0.3 0.4 (0.1)
Less: unamortized discount (0.1)(0.1)-
State Water Resources Loan
2007 4.5 5.0 (0.5)
2009 5.7 6.1 (0.4)
2017 19.4 6.7 12.7
Total Business-type Activities 74.2$ 66.1$ 8.1$
LONG-TERM DEBT AT JUNE 30
(in millions)
City-wide long-term debt increased a total of $48.1 million due to the issuance of 2019 COPs tax exempt Series
A of $26.8 million plus $4.9 million premium and taxable Series B of $10.6 million, and receipt of $12.7
additional loan from the State Water Reserve Control Board (SWRCB), net of $6.9 million scheduled
retirements.
◼ Management’s Discussion and Analysis
……….……………………………………………………………………
28 City of Palo Alto
SPECIAL ASSESSMENT DISTRICT DEBT
Special assessment districts throughout different parts of the City have also issued debt to finance
infrastructure and facilities construction exclusively in their districts. As of June 30, 2019, the City had no
special assessment district debt with City commitment outstanding.
CONTACTING THE CITY’S FINANCIAL MANAGEMENT
The CAFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the
City’s finances. Questions about this report should be directed to the Administrative Services Department,
located at 250 Hamilton Avenue, 4th Floor, Palo Alto, California. The Department can also be contacted by
email at: adminsvcs@cityofpaloalto.org. This report and other financial reports can be viewed on the City of
Palo Alto website at: www.cityofpaloalto.org. On the home page, select Departments, select Administrative
Services, and select Financial Reporting. Within Financial Reporting, there are links to reports by title and
reporting date.
CITY OF PALO ALTO
Statement of Net Position
June 30, 2019
(Amounts in thousands)
Governmental Business‐Type
Activities Activities Total
ASSETS:
Cash and investments available for operations (Note 3) 297,243$ 249,368$ 546,611$
Receivables, net:
Accounts and intergovernmental 25,574 49,424 74,998
Interest receivable 2,248 1,626 3,874
Notes and loans receivable (Note 5) 34,099 ‐ 34,099
Internal balances (Note 4) 3,069 (3,069) ‐
Deposits 65 ‐ 65
Due from other government agencies ‐ 3,000 3,000
Inventory of materials and supplies, prepaids and deposits 4,765 291 5,056
Restricted cash and investments with fiscal agents and trustees (Note 3)56,803 4,016 60,819
Capital assets (Note 6):
Nondepreciable 202,857 162,959 365,816
Depreciable, net of accumulated depreciation 363,246 510,562 873,808
Total assets 989,969 978,177 1,968,146
DEFERRED OUTFLOWS OF RESOURCES:
Unamortized loss from refunding ‐ 209 209
Pension related (Note 11) 52,032 16,963 68,995
OPEB related (Note 12) 11,397 4,600 15,997
Total deferred outflows of resources 63,429 21,772 85,201
LIABILITIES:
Accounts payable and accruals 18,388 18,835 37,223
Accrued salaries and benefits 1,780 771 2,551
Unearned revenue 2,976 ‐ 2,976
Accrued compensated absences (Note 1):
Due in one year 6,273 ‐ 6,273
Due in more than one year 6,062 ‐ 6,062
Claims payable (Note 14):
Due in one year 6,171 ‐ 6,171
Due in more than one year 22,194 ‐ 22,194
Landfill post‐closure liability (Note 9):
Due in more than one year ‐ 6,975 6,975
Net pension liabilities (Note 11):
Due in more than one year 312,021 111,875 423,896
Net OPEB liabilities (Note 12):
Due in more than one year 105,322 42,498 147,820
Long‐term debt (Note 7):
Due in one year 2,631 5,291 7,922
Due in more than one year 112,505 68,957 181,462
Total liabilities 596,323 255,202 851,525
DEFERRED INFLOWS OF RESOURCES:
Pension related (Note 11) 5,142 2,417 7,559
OPEB related (Note 12) 1,950 787 2,737
Total deferred inflows of resources 7,092 3,204 10,296
NET POSITION (Note 10):
Net Investment in capital assets 493,706 602,136 1,095,842
Restricted for:
Transportation, infrastructure and other 39,507 ‐ 39,507
Debt service 3,694 4,016 7,710
Nonexpendable ‐ Eyerly Family 2,438 ‐ 2,438
Total restricted net position 45,639 4,016 49,655
Unrestricted (89,362) 135,391 46,029
Total net position $ 449,983 $ 741,543 $ 1,191,526
See accompanying notes to the basic financial statements.
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CITY OF PALO ALTO
Statement of Activities
For the Year Ended June 30, 2019
(Amounts in thousands)
Net (Expense) Revenue and
Program Revenues Changes in Net Position
Operating Capital
Charges for Grants and Grants and Governmental Business‐Type
Functions/Programs Expenses Services Contributions Contributions Activities Activities Total
Governmental Activities:
City Council 270$ ‐$ ‐$ ‐$ (270)$ ‐$ (270)$
City Manager 3,336 ‐ 341 ‐ (2,995) ‐ (2,995)
City Attorney 3,086 ‐ ‐ ‐ (3,086) ‐ (3,086)
City Clerk 822 ‐ ‐ ‐ (822) ‐ (822)
City Auditor 1,081 ‐ ‐ ‐ (1,081) ‐ (1,081)
Administrative Services 19,169 6,413 ‐ ‐ (12,756) ‐ (12,756)
Human Resources 3,021 ‐ ‐ ‐ (3,021) ‐ (3,021)
Public Works 36,617 1,478 ‐ 2,046 (33,093) ‐ (33,093)
Planning and Community Environment 12,169 11,997 1,041 ‐ 869 ‐ 869
Development Services 12,622 13,904 ‐ ‐ 1,282 ‐ 1,282
Police 49,816 4,180 418 ‐ (45,218) ‐ (45,218)
Fire 39,373 9,999 266 ‐ (29,108) ‐ (29,108)
Community Services 36,815 22,805 ‐ 6,201 (7,809) ‐ (7,809)
Library 12,557 134 34 ‐ (12,389) ‐ (12,389)
Interest on long‐term debt 3,653 ‐ ‐ ‐ (3,653) ‐ (3,653)
Total Governmental Activities 234,407 70,910 2,100 8,247 (153,150) ‐ (153,150)
Business‐Type Activities:
Water 40,606 45,571 488 524 ‐ 5,977 5,977
Electric 139,605 163,514 ‐ ‐ ‐ 23,909 23,909
Fiber Optics 2,476 4,657 ‐ ‐ ‐ 2,181 2,181
Gas 30,915 42,113 ‐ ‐ ‐ 11,198 11,198
Wastewater Collection 17,324 20,219 ‐ 283 ‐ 3,178 3,178
Wastewater Treatment 27,070 27,573 ‐ ‐ ‐ 503 503
Refuse 30,391 33,996 ‐ ‐ ‐ 3,605 3,605
Storm Drainage 4,951 7,249 ‐ ‐ ‐ 2,298 2,298
Airport 1,790 2,483 ‐ 5,870 ‐ 6,563 6,563
Total Business‐Type Activities 295,128 347,375 488 6,677 ‐ 59,412 59,412
Total 529,535$ 418,285$ 2,588$ 14,924$ (153,150) 59,412 (93,738)
General Revenues:
Taxes:
Property tax 51,718 ‐ 51,718
Sales tax 36,508 ‐ 36,508
Utility user tax 16,402 ‐ 16,402
Transient occupancy tax 25,649 ‐ 25,649
Documentary transfer tax 6,923 ‐ 6,923
Other taxes 2,602 ‐ 2,602
Investment earnings 15,375 12,680 28,055
Miscellaneous 1,906 ‐ 1,906
Transfers (Note 4)18,680 (18,680) ‐
Total general revenues and transfers 175,763 (6,000) 169,763
Change in net position 22,613 53,412 76,025
Net position, beginning of year 427,370 688,131 1,115,501
Net position, end of year 449,983$ 741,543$ 1,191,526$
See accompanying notes to the basic financial statements.
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CITY OF PALO ALTO
Governmental Funds
Balance Sheet
June 30, 2019
(Amounts in thousands)
Capital Other Total
General Projects Governmental Governmental
Fund Fund Funds Funds
ASSETS:
Cash and investments available for operations (Note 3) 55,139$ 74,689$ 85,722$ 215,550$
Receivables, net:
Accounts and intergovernmental 21,669 1,313 328 23,310
Interest receivable 1,167 32 523 1,722
Notes and loans receivable (Note 5) ‐ ‐ 34,099 34,099
Deposits 15 ‐ 50 65
Due from other fund (Note 4) 843 ‐ ‐ 843
Advances to other funds (Note 4) 3,115 ‐ ‐ 3,115
Inventory of materials and supplies 4,517 ‐ ‐ 4,517
Restricted cash and investments with fiscal agents (Note 3) ‐ 42,739 34 42,773
Total assets 86,465$ 118,773$ 120,756$ 325,994$
LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES
Liabilities:
Accounts payable and accruals 6,501$ 7,978$ 349$ 14,828$
Accrued salaries and benefits 1,562 80 17 1,659
Unearned revenue 2,976 ‐ ‐ 2,976
Due to other funds (Note 4) ‐ ‐ 106 106
Total liabilities 11,039 8,058 472 19,569
Deferred inflows of resources
Deferred inflows of resources ‐ Unavailable revenue 211 1,195 ‐ 1,406
11,250 9,253 472 20,975
Fund balances (Note 10):
Nonspendable:
Deposits 15 ‐ ‐ 15
Inventories 4,517 ‐ ‐ 4,517
Advance to other fund 3,115 ‐ ‐ 3,115
Eyerly family ‐ ‐ 2,438 2,438
Restricted for:
Transportation mitigation ‐ ‐ 13,091 13,091
Federal revenue ‐ ‐ 5,300 5,300
Street improvement ‐ ‐ 250 250
Local law enforcement ‐ ‐ 494 494
California Avenue parking garage ‐ 42,151 ‐ 42,151
Library bond project ‐ 588 ‐ 588
Public benefit ‐ ‐ 20,372 20,372
Debt service ‐ ‐ 3,694 3,694
Committed for:
Development services 4,399 ‐ ‐ 4,399
Roth building rehabilitation ‐ 4,920 ‐ 4,920
Cubberley improvements ‐ 5,422 ‐ 5,422
Developer impact fees ‐ ‐ 17,049 17,049
Housing in‐lieu ‐ ‐ 51,558 51,558
Special districts ‐ ‐ 5,667 5,667
Edgewood Plaza 701 ‐ ‐ 701
Assigned for:
Unrealized gains on investments 709 ‐ 403 1,112
Capital projects ‐ 56,439 ‐ 56,439
Other general government purposes 5,622 ‐ ‐ 5,622
Electric charger 17 ‐ ‐ 17
College Terrace fines 160 ‐ ‐ 160
Reappropriations 1,149 ‐ ‐ 1,149
Unassigned for:
Budget Stabilization 54,811 ‐ ‐ 54,811
Downtown business ‐ ‐ (32) (32)
Total fund balances 75,215 109,520 120,284 305,019
Total liabilities, deferred inflows of resources, and fund
balances 86,465$ 118,773$ 120,756$ 325,994$
Total liabilities and deferred inflows of resources
See accompanying notes to the basic financial statements.
33
CITY OF PALO ALTO
Reconciliation of the Balance Sheet of Governmental Funds to
the Statement of Net Position ‐ Governmental Activities
June 30, 2019
Total fund balances reported on the governmental funds balance sheet 305,019$
Amounts reported for governmental activities in the statement of net position
are different from those reported in the governmental funds balance sheet because
of the following:
Deferred outflows and inflows of resources in governmental activities are not
financial resources and, therefore, are not reported in the governmental funds.
Deferred outflows of resources 63,429
Deferred inflows of resources (7,092)
Certain receivables are not available to pay for current period expenditures
and therefore are deferred in the governmental funds. 1,406
Capital assets used in governmental activities are not current assets or financial
resources and therefore are not reported in the governmental funds (Note 6) 566,103
Internal service funds are used by management to charge the costs of activities
such as insurance, equipment acquisition and maintenance, and certain
employee benefits to individual funds. The assets and liabilities of the
internal service funds are therefore included in governmental activities in
the statement of net position (excludes capital assets, deferred outflows
of resources, deferred inflows of resources, net pension liabilities and
net OPEB liabilities reported herein) 55,263
Some liabilities, including bonds payable, are not due and payable in the
current period and therefore are not reported in the governmental funds:
Interest payable (1,666)
Net pension liabilities (Note 11) (312,021)
Net OPEB liabilities (Note 12) (105,322)
Long‐term debt (Note 7) (115,136)
Net position of governmental activities 449,983$
(Amounts in thousands)
See accompanying notes to the basic financial statements.
34
CITY OF PALO ALTO
Governmental Funds
Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2019
(Amounts in thousands)
Capital Other Total
General Projects Governmental Governmental
Fund Fund Funds Funds
REVENUES:
Property tax 47,327$ ‐$ 4,391$ 51,718$
Special assessments ‐ ‐ 58 58
Sales tax 36,508 ‐ ‐ 36,508
Utility user tax 16,402 ‐ ‐ 16,402
Transient occupancy tax 25,649 ‐ ‐ 25,649
Documentary transfer tax 6,923 ‐ ‐ 6,923
Other taxes and fines 1,888 ‐ 2,663 4,551
Charges for services 27,346 ‐ ‐ 27,346
Intergovernmental 2,863 903 923 4,689
Permits and licenses 8,410 ‐ 9,349 17,759
Investment earnings 5,672 1,449 3,827 10,948
Rental income 16,338 ‐ 6 16,344
Housing In‐Lieu ‐ residential ‐ ‐ 5,613 5,613
Other revenue 1,753 590 5,612 7,955
Total revenues 197,079 2,942 32,442 232,463
EXPENDITURES:
Current:
City Council 265 ‐ ‐ 265
City Manager 2,883 ‐ ‐ 2,883
City Attorney 2,649 ‐ ‐ 2,649
City Clerk 805 ‐ ‐ 805
City Auditor 865 ‐ ‐ 865
Administrative Services 5,512 ‐ 253 5,765
Human Resources 2,567 ‐ ‐ 2,567
Public Works 13,757 ‐ 1,007 14,764
Planning and Community Environment 8,132 ‐ 2,779 10,911
Development Services 11,549 ‐ ‐ 11,549
Police 42,854 ‐ 1 42,855
Fire 33,489 ‐ ‐ 33,489
Community Services 28,903 ‐ 2,716 31,619
Library 9,288 ‐ ‐ 9,288
Non‐Departmental 11,769 ‐ 462 12,231
Capital outlay ‐ 46,914 ‐ 46,914
Debt service:
Principal 426 ‐ 1,675 2,101
Interest and fiscal charges 5 ‐ 3,393 3,398
Total expenditures 175,718 46,914 12,286 234,918
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 21,361 (43,972) 20,156 (2,455)
OTHER FINANCING SOURCES (USES):
Issuance of debt ‐ 41,995 302 42,297
Proceeds from sale of capital assets 2,442 ‐ ‐ 2,442
Transfers in (Note 4) 20,154 33,661 896 54,711
Transfers out (Note 4) (37,088) (74) (5,985) (43,147)
Total other financing sources (uses) (14,492) 75,582 (4,787) 56,303
Change in fund balances 6,869 31,610 15,369 53,848
FUND BALANCES, BEGINNING OF YEAR 68,346 77,910 104,915 251,171
FUND BALANCES, END OF YEAR 75,215$ 109,520$ 120,284$ 305,019$
See accompanying notes to the basic financial statements.
35
CITY OF PALO ALTO
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances
of Governmental Funds to the Statement of Activities ‐ Governmental Activities
For the Year Ended June 30, 2019
Net change in fund balances ‐ total governmental funds 53,848$
Amounts reported for governmental activities in the statement of activities are different
from those reported in the governmental funds because of the following:
Governmental funds report capital outlays as expenditures. However, in the statement of
activities, the costs of these assets are capitalized and allocated over their estimated useful
lives and reported as depreciation expense. Therefore, the activities associated with
capital assets are as follows:
Capital outlay added back to fund balance for current year additions 39,100
Depreciation expense is deducted from fund balance (depreciation expense is net of
internal service fund depreciation of $3,500) (Note 6), which has already been allocated
through the internal service fund activities below (16,836)
Disposal of capital assets (3,935)
Pension and OPEB contribution made subsequent to the measurement date is an
expenditure in the governmental funds, but reported as a deferred outflows of
resources in the government‐wide financial statements 36,550
Pension and OPEB expenses reported in the statement of activities do not require the
use of current financial resources and, therefore, are not reported as expenditures in
governmental funds (56,544)
Principal payments on long‐term liabilities are reported as expenditures in governmental
funds when paid. The governmental activities, however, report principal payments as
a reduction of long‐term debt on the statement of net position. Interest accrued on
long‐term debt and amortization of premiums do not require the use of current financial
resources and therefore are not reported as expenditures in governmental funds. Therefore,
the activities associated with long‐term debt are as follows:
Principal paid during the year 2,101
Proceeds from debt issuance (42,297)
Change in interest payable (461)
Amortization of bond premium 206
Revenues earned but not available are deferred in the governmental funds but are recognized
in the government‐wide financial statements. Also, revenues recognized in the governmental
funds during the current year that were earned and recognized in previous years in the
government‐wide financial statements are reported as beginning net position in the
statement of activities 1,406
Internal service funds are used by management to charge the costs of activities, such
as insurance, equipment acquisition and maintenance, and employees benefits to
individual funds. The portion of the net expense of these internal service
funds arising out of their transactions with governmental funds is reported with
governmental activities. 9,475
Change in net position of governmental activities 22,613$
(Amounts in thousands)
See accompanying notes to the basic financial statements.
36
Variance with
Budgeted Amounts Final Budget
Actual, Budgetary Positive
Adopted Final Basis (Negative)
31,246$ 31,746$ 36,508$ 4,762$
45,332 46,232 47,327 1,095
25,049 25,391 25,649 258
Documentary transfer tax 7,434 8,034 6,923 (1,111)
16,092 16,092 16,402 310
2,032 2,032 1,888 (144)
28,419 28,419 27,346 (1,073)
8,545 8,545 8,410 (135)
1,194 1,194 2,167 973
15,734 15,734 16,338 604
2,943 3,229 2,942 (287)
568 1,599 1,753 154
184,588 188,247 193,653 5,406
10,093 10,147 10,685 538
‐ 7,821 7,821 ‐
194,681 206,215 212,159 5,944
3,263 3,783 3,783 ‐
1,258 1,238 1,238 ‐
1,282 1,267 1,193 74
488 501 411 90
4,386 4,905 4,450 455
7,963 7,834 7,794 40
28,929 30,282 30,201 81
Police 31,825 33,894 33,894 ‐
43,460 43,912 43,698 214
3,591 3,796 3,697 99
9,664 9,767 9,491 276
8,791 10,346 9,906 440
Development Services 12,561 13,103 12,700 403
18,462 18,362 17,928 434
7,632 13,302 12,567 735
183,555 196,292 192,951 3,341
11,126 9,923 19,208 9,285
‐ ‐ 2,442 2,442
19,772 20,154 20,154 ‐
(30,898) (37,088) (37,088) ‐
(11,126) (16,934) (14,492) 2,442
‐$ (7,011)$ 4,716 11,727$
Unrealized gain/loss on investments 3,505
Current year encumbrances and reappropriations 6,469
Prior year encumbrances and reappropriations (7,821)
6,869
68,346
75,215$
FUND BALANCE AT BEGINNING OF YEAR, GAAP BASIS
FUND BALANCE AT END OF YEAR, GAAP BASIS
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER)
EXPENDITURES, BUDGETARY BASIS
Adjustment to Budgetary Basis:
CHANGE IN FUND BALANCE, GAAP BASIS
Total other financing sources (uses)
Human Resources
Library
Planning and Community Environment
Total expenditures
EXCESS OF REVENUES OVER EXPENDITURES
OTHER FINANCING SOURCES (USES):
Transfers in
Transfers out
Public Works
Non‐Departmental
Proceeds from sale of capital assets
Fire
Prior year encumbrances
Total revenues
EXPENDITURES:
Current:
City Attorney
City Auditor
City Clerk
City Council
City Manager
Administrative Services
Community Services
Charges to other funds and departments
Sales tax
Property tax
Transient occupancy tax
Utility user tax
Other taxes, fines and penalties
Charges for services
Permits and licenses
Investment earnings
Rental income
Intergovernmental
Other revenues
REVENUES:
CITY OF PALO ALTO
General Fund
Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual
For the Year Ended June 30, 2019
(Amounts in thousands)
See accompanying notes to the basic financial statements.
37
Fiber
Water Electric Optics Gas
ASSETS:
Current assets:
Cash and investments available for operations (Note 3) 40,443$ 93,173$ 31,196$ 25,522$
Accounts receivable, net of allowance of $462 6,333 24,105 1,134 3,066
Interest receivable 265 615 200 182
Due from other government agencies ‐ ‐ ‐ ‐
Inventory of materials and supplies ‐ ‐ ‐ ‐
Restricted cash and investments with fiscal agents and trustees (Note 3) 3,221 ‐ ‐ 795
Total current assets 50,262 117,893 32,530 29,565
Noncurrent assets:
Due from other government agencies ‐ ‐ ‐ ‐
Deposit ‐ 41 ‐ ‐
Prepaid expense 83 ‐ ‐ ‐
Capital assets (Note 6):
Nondepreciable 30,464 23,618 1,611 14,262
Depreciable, net 99,153 177,761 7,554 95,635
Total noncurrent assets 129,700 201,420 9,165 109,897
Total assets 179,962 319,313 41,695 139,462
DEFERRED OUTFLOWS OF RESOURCES:
Unamortized loss from refunding 91 ‐ ‐ 118
Pension related (Note 11) 2,213 5,463 410 2,412
OPEB related (Note 12) 517 1,683 ‐ 741
Total deferred outflows of resources 2,821 7,146 410 3,271
LIABILITIES:
Current liabilities:
Accounts payable and accruals 4,084 2,725 302 1,090
Accrued salaries and benefits 106 260 20 110
Due to other funds ‐ ‐ ‐ ‐
Accrued compensated absences (Note 1) ‐ ‐ ‐ ‐
Current portion of long term debt (Note 7) 1,707 100 ‐ 644
Accrued claims payable (Note 14) ‐ ‐ ‐ ‐
Total current liabilities 5,897 3,085 322 1,844
Noncurrent liabilities:
Accrued compensated absences (Note 1) ‐ ‐ ‐ ‐
Accrued claims payable (Note 14) ‐ ‐ ‐ ‐
Advance from other fund (Note 4) ‐ ‐ ‐ ‐
Landfill post‐closure liability (Note 9) ‐ ‐ ‐ ‐
Net pension liabilities (Note 11) 14,999 36,044 2,351 15,939
Net OPEB liabilities (Note 12) 4,775 15,551 ‐ 6,844
Long term debt, net of
unamortized discounts/premiums (Note 7) 29,752 184 ‐ 4,678
Total noncurrent liabilities 49,526 51,779 2,351 27,461
Total liabilities 55,423 54,864 2,673 29,305
DEFERRED INFLOWS OF RESOURCES:
Pension related (Note 11) 290 743 61 297
OPEB related (Note 12) 88 288 ‐ 127
Total deferred inflows of resources 378 1,031 61 424
NET POSITION (Note 10):
Net Investment in capital assets 98,249 200,749 9,165 104,693
Restricted for debt service 3,221 ‐ ‐ 795
Unrestricted (deficit) 25,512 69,815 30,206 7,516
Total net position 126,982$ 270,564$ 39,371$ 113,004$
Some amounts reported for Business‐type Activities in the statement of net position are different because certain
Internal Service Fund net positions are included with Business‐type Activities
Net position reported in Business‐type Activities
Business‐Type Activities‐Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Net Position
June 30, 2019
(Amounts in thousands)
See accompanying notes to the basic financial statements.
38
Governmental
Non‐Major Activities ‐
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
10,242$ 12,792$ 28,883$ 6,201$ 916$ 249,368$ 81,693$
2,735 2,927 4,070 830 4,224 49,424 2,264
60 83 176 38 7 1,626 526
‐ 300 ‐ ‐ ‐ 300 ‐
‐ ‐ ‐ ‐ ‐ ‐ 248
‐ ‐ ‐ ‐ ‐ 4,016 14,030
13,037 16,102 33,129 7,069 5,147 304,734 98,761
‐ 2,700 ‐ ‐ ‐ 2,700 ‐
‐ ‐ ‐ ‐ ‐ 41 ‐
‐ 167 ‐ ‐ ‐ 250 ‐
28,102 31,182 1,952 11,683 20,085 162,959 2,530
60,785 36,164 3,243 29,678 589 510,562 19,281
88,887 70,213 5,195 41,361 20,674 676,512 21,811
101,924 86,315 38,324 48,430 25,821 981,246 120,572
‐ ‐ ‐ ‐ ‐ 209 ‐
1,312 3,450 756 687 260 16,963 2,914
283 872 315 138 51 4,600 617
1,595 4,322 1,071 825 311 21,772 3,531
537 2,530 2,954 445 4,168 18,835 1,894
58 149 27 30 11 771 121
‐ ‐ ‐ ‐ ‐ ‐ 737
‐ ‐ ‐ ‐ ‐ ‐ 6,273
99 2,011 ‐ 730 ‐ 5,291 ‐
‐ ‐ ‐ ‐ ‐ ‐ 6,171
694 4,690 2,981 1,205 4,179 24,897 15,196
‐ ‐ ‐ ‐ ‐ ‐ 6,062
‐ ‐ ‐ ‐ ‐ ‐ 22,194
‐ ‐ ‐ ‐ 3,115 3,115 ‐
‐ ‐ 6,975 ‐ ‐ 6,975 ‐
8,965 22,703 6,022 4,006 846 111,875 16,527
2,616 8,056 2,912 1,271 473 42,498 5,691
452 30,555 ‐ 3,336 ‐ 68,957 ‐
12,033 61,314 15,909 8,613 4,434 233,420 50,474
12,727 66,004 18,890 9,818 8,613 258,317 65,670
174 463 109 182 98 2,417 492
48 149 54 24 9 787 106
222 612 163 206 107 3,204 598
88,336 37,780 5,195 37,295 20,674 602,136 21,811
‐ ‐ ‐ ‐ ‐ 4,016 ‐
2,234 (13,759) 15,147 1,936 (3,262) 135,345 36,024
90,570$ 24,021$ 20,342$ 39,231$ 17,412$ 741,497 57,835$
46
741,543$
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
39
Fiber
Water Electric Optics Gas
OPERATING REVENUES:
Sales to:
Customers 41,275$ 126,370$ 3,470$ 38,456$
City departments 2,136 4,403 1,118 1,448
Surplus energy ‐ 13,752 ‐ ‐
Service connection charges and miscellaneous 1,193 3,255 42 1,000
Charges for services ‐ ‐ ‐ ‐
Other 967 15,734 27 1,209
Total operating revenues 45,571 163,514 4,657 42,113
OPERATING EXPENSES:
Purchase of utilities:
Retail purchase of utilities 21,210 76,659 ‐ 15,958
Surplus energy ‐ 13,022 ‐ ‐
Administrative and general 5,658 8,513 774 4,535
Engineering (operating) 382 1,835 ‐ 397
Resource management and energy efficiency 959 5,613 ‐ 931
Operations and maintenance 5,961 11,508 1,250 4,923
Rent 1,833 5,454 78 621
Depreciation and amortization 2,808 8,277 377 3,209
Claims payments and changes in
estimated self‐insurance liability ‐ ‐ ‐ ‐
Refund of charges for services ‐ ‐ ‐ ‐
Employment benefits ‐ ‐ ‐ ‐
Total operating expenses 38,811 130,881 2,479 30,574
Operating income (loss) 6,760 32,633 2,178 11,539
NONOPERATING REVENUES (EXPENSES):
Investment earnings 2,113 4,958 1,499 1,403
Interest expense (1,641) (8,388) ‐ (180)
Gain on disposal of capital assets ‐ ‐ ‐ ‐
Loss on disposal of capital assets (109) (103) ‐ (76)
Other nonoperating revenues 488 ‐ ‐ ‐
Total nonoperating revenues (expenses) 851 (3,533) 1,499 1,147
Income (loss) before transfers and capital contributions 7,611 29,100 3,677 12,686
Capital contributions 524 ‐ ‐ ‐
Transfers in (Note 4) 539 3,335 ‐ ‐
Transfers out (Note 4) (645) (13,470) (139) (7,400)
Change in net position 8,029 18,965 3,538 5,286
NET POSITION, BEGINNING OF YEAR 118,953 251,599 35,833 107,718
NET POSITION, END OF YEAR 126,982$ 270,564$ 39,371$ 113,004$
Some amounts reported for Business‐type Activities in the statement of activities are different because certain
Internal Service Fund activities are included with Business‐type Activities
Change in net position reported in Business‐type Activities
Business‐Type Activities‐Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Revenues, Expenses and Changes in Fund Net Position
For the Year Ended June 30, 2019
(Amounts in thousands)
See accompanying notes to the basic financial statements.
40
Governmental
Non‐Major Activities‐
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
19,209$ 16,907$ 30,242$ 6,787$ 1,753$ 284,469$ ‐$
133 9,887 823 405 ‐ 20,353 ‐
‐ ‐ ‐ ‐ ‐ 13,752 ‐
311 ‐ ‐ ‐ ‐ 5,801 ‐
‐ ‐ ‐ ‐ ‐ ‐ 103,010
566 779 2,931 57 730 23,000 796
20,219 27,573 33,996 7,249 2,483 347,375 103,806
9,843 ‐ 16,056 ‐ ‐ 139,726 ‐
‐ ‐ ‐ ‐ ‐ 13,022 ‐
1,719 ‐ 1,542 1,066 1,078 24,885 12,659
326 2,173 237 210 ‐ 5,560 ‐
‐ ‐ ‐ 971 ‐ 8,474 ‐
2,836 20,930 9,987 1,418 598 59,411 13,578
320 ‐ 2,182 43 ‐ 10,531 ‐
2,210 2,870 116 941 21 20,829 3,500
‐ ‐ ‐ ‐ ‐ ‐ 8,998
‐ ‐ ‐ ‐ ‐ ‐ 147
‐ ‐ ‐ ‐ ‐ ‐ 68,258
17,254 25,973 30,120 4,649 1,697 282,438 107,140
2,965 1,600 3,876 2,600 786 64,937 (3,334)
452 649 1,239 317 49 12,679 4,429
(34) (674) (196) (259) (72) (11,444) ‐
‐ ‐ ‐ ‐ ‐ ‐ 275
(10) ‐ ‐ ‐ ‐ (298) ‐
‐ ‐ ‐ ‐ ‐ 488 42
408 (25) 1,043 58 (23) 1,425 4,746
3,373 1,575 4,919 2,658 763 66,362 1,412
283 ‐ ‐ ‐ 5,870 6,677 ‐
‐ ‐ ‐ ‐ ‐ 3,874 9,560
(388) (107) (43) (355) (7) (22,554) (2,444)
3,268 1,468 4,876 2,303 6,626 54,359 8,528
87,302 22,553 15,466 36,928 10,786 49,307
90,570$ 24,021$ 20,342$ 39,231$ 17,412$ 57,835$
(947)
53,412$
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
41
Fiber
Water Electric Optics Gas
Cash flows from operating activities:
Cash received from customers 41,850$ 137,999$ 3,472$ 38,866$
Cash payments to suppliers for goods and services (31,869) (119,373) (1,981) (24,762)
Cash payments to employees (5,027) (6,694) (625) (3,983)
Internal activity‐ receipts (payments) from (to) other funds 2,136 4,403 1,118 1,448
Other receipts 967 15,734 27 1,209
Net cash provided by operating activities 8,057 32,069 2,011 12,778
Cash flows from noncapital financing activities:
Receipt of loans from other funds ‐ ‐ ‐ ‐
Interest subsidy received from Build America Bonds 488 ‐ ‐ ‐
Transfers in 539 3,335 ‐ ‐
Transfers out (645) (13,470) (139) (7,400)
Net cash provided by (used in)
noncapital financing activities 382 (10,135) (139) (7,400)
Cash flows from capital and related financing activities:
Acquisition and construction of capital assets (6,038) (15,617) (792) (9,146)
Proceeds from sale of capital assets ‐ ‐ ‐ ‐
Capital grants and contributions 524 ‐ ‐ ‐
Proceeds from debt issuance ‐ ‐ ‐ ‐
Principal paid on long‐term debt (1,636) (99) ‐ (619)
Interest paid on long‐term debt (1,642) (8,388) ‐ (180)
Net cash used in capital and related
financing activities (8,792) (24,104) (792) (9,945)
Cash flows from investing activities:
Interest received 2,072 4,873 1,460 1,384
Net cash provided by (used in) investing activities 2,072 4,873 1,460 1,384
Net change in cash and cash equivalents 1,719 2,703 2,540 (3,183)
Cash and cash equivalents, beginning of year 41,945 90,470 28,656 29,500
Cash and cash equivalents, end of year $ 43,664 $ 93,173 $ 31,196 $ 26,317
Financial statement presentation:
Cash and investments available for operations 40,443$ 93,173$ 31,196$ 25,522$
Restricted cash and investments with fiscal agent 3,221 ‐ ‐ 795
Cash and cash equivalents, end of year 43,664$ 93,173$ 31,196$ 26,317$
Reconciliation of operating income (loss) to
net cash provided by operating activities:
Operating income (loss) 6,760$ 32,633$ 2,178$ 11,539$
Adjustments to reconcile operating income (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,808 8,277 377 3,209
Other ‐ ‐ ‐ ‐
Change in assets and liabilities:
Accounts receivable (618) (5,378) (40) (590)
Inventory of materials and supplies ‐ ‐ ‐ ‐
Deposit 9 (6) ‐ ‐
Deferred outflow of resources ‐ pension plans 726 1,940 157 741
Deferred outflow of resources ‐ OPEB 173 563 ‐ 247
Accounts payable and accruals (1,533) (5,276) (653) (1,932)
Accrued salaries and benefits 12 19 2 10
Accrued compensated absences ‐ ‐ ‐ ‐
Landfill closure and post‐closure care ‐ ‐ ‐ ‐
Accrued claims payable ‐ ‐ ‐ ‐
Net Pension liability (181) (340) (30) (263)
Net OPEB liability (183) (598) ‐ (263)
Deferred inflow of resources ‐ pension plans 77 212 20 69
Deferred inflow of resources ‐ OPEB 7 23 ‐ 11
Net cash provided by operating activities $ 8,057 $ 32,069 $ 2,011 $ 12,778
Business‐Type Activities‐Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Cash Flows
For the Year Ended June 30, 2019
(Amounts in thousands)
See accompanying notes to the basic financial statements.
42
Governmental
Non‐Major Activities‐
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
18,950$ 16,484$ 29,720$ 6,711$ (217)$ 293,835$ 101,300$
(13,360) (24,034) (28,102) (2,754) 1,064 (245,171) (15,396)
(1,344) 8 (1,285) (752) (887) (20,589) (78,371)
133 9,887 823 405 ‐ 20,353 (4,611)
566 779 3,081 57 730 23,150 42
4,945 3,124 4,237 3,667 690 71,578 2,964
‐ ‐ ‐ ‐ ‐ ‐ 737
‐ ‐ ‐ ‐ ‐ 488 ‐
‐ ‐ ‐ ‐ ‐ 3,874 9,560
(388) (107) (43) (355) (7) (22,554) (2,444)
(388) (107) (43) (355) (7) (18,192) 7,853
(3,329) (14,724) ‐ (1,675) (6,647) (57,968) (3,637)
‐ ‐ ‐ ‐ ‐ ‐ 379
283 300 ‐ ‐ 5,870 6,977 ‐
‐ 12,725 ‐ ‐ ‐ 12,725 ‐
(94) (1,398) ‐ (685) ‐ (4,531) ‐
(34) (674) (196) (259) (72) (11,445) ‐
(3,174) (3,771) (196) (2,619) (849) (54,242) (3,258)
440 649 1,182 319 47 12,426 4,366
440 649 1,182 319 47 12,426 4,366
1,823 (105) 5,180 1,012 (119) 11,570 11,925
8,419 12,897 23,703 5,189 1,035 241,814 83,798
$ 10,242 $ 12,792 $ 28,883 $ 6,201 $ 916 $ 253,384 $ 95,723
10,242$ 12,792$ 28,883$ 6,201$ 916$ 249,368$ 81,693$
‐ ‐ ‐ ‐ ‐ 4,016 14,030
10,242$ 12,792$ 28,883$ 6,201$ 916$ 253,384$ 95,723$
2,965$ 1,600$ 3,876$ 2,600$ 786$ 64,937$ (3,334)$
2,210 2,870 116 941 21 20,829 3,500
‐ ‐ ‐ ‐ ‐ ‐ 42
(570) (423) (522) (76) (1,970) (10,187) (2,211)
‐ ‐ ‐ ‐ ‐ ‐ (34)
‐ 16 ‐ ‐ ‐ 19 ‐
442 1,289 210 185 45 5,735 881
95 292 106 46 17 1,539 205
(35) (2,072) 360 (112) 1,662 (9,591) (810)
‐ 8 (3) 3 ‐ 51 18
‐ ‐ ‐ ‐ ‐ ‐ 277
‐ ‐ 150 ‐ ‐ 150 ‐
‐ ‐ ‐ ‐ ‐ ‐ 4,617
(110) (281) 13 15 71 (1,106) (183)
(101) (310) (112) (49) (18) (1,634) (219)
46 123 39 112 75 773 206
3 12 4 2 1 63 9
$ 4,945 $ 3,124 $ 4,237 $ 3,667 $ 690 $ 71,578 $ 2,964
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
43
Agency
Funds
ASSETS:
Cash and investments available for operations (Note 3) 2,767$
Restricted cash and investments with fiscal agents (Note 3) 2,657
Account receivable 508
Interest receivable 17
Total assets 5,949$
LIABILITIES:
Due to bondholders 4,709$
Due to other governments 1,240
Total liabilities 5,949$
CITY OF PALO ALTO
Statement of Assets and Liabilities
June 30, 2019
(Amounts in thousands)
Agency Funds
See accompanying notes to the basic financial statements.
44
CITY OF PALO ALTO
Index to the Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
45
Page
1. Summary of Significant Accounting Policies ........................................................................... 47
2. Budgets and Budgetary Accounting ........................................................................................ 56
3. Cash and Investments ............................................................................................................. 56
4. Interfund Transactions ............................................................................................................ 62
5. Notes and Loans Receivable .................................................................................................... 65
6. Capital Assets .......................................................................................................................... 70
7. Long‐Term Debt ....................................................................................................................... 77
8. Special Assessment Debt ......................................................................................................... 84
9. Landfill Post‐Closure Maintenance ......................................................................................... 84
10. Net Position and Fund Balances .............................................................................................. 84
11. Pension Plans ........................................................................................................................... 88
12. Other Post‐Employment Benefits (OPEB) ............................................................................... 95
13. Deferred Compensation Plan .................................................................................................. 99
14. Risk Management .................................................................................................................. 100
15. Joint Ventures ........................................................................................................................ 101
16. Commitments and Contingencies ......................................................................................... 104
Notes are essential to present fairly the information contained in the overview level of the basic financial
statements. Narrative explanations are intended to communicate information that is not readily apparent
or cannot be included in the statements themselves, and to provide additional disclosures as required by
the Governmental Accounting Standards Board.
46
This page is left intentionally blank.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
47
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The City of Palo Alto (the City) was incorporated in 1894 and operates as a charter city, having had its first
charter granted by the State of California in 1909. The City operates under the Council‐Manager form of
government and provides the following services: public safety (police and fire), public works, electric, fiber
optics, water, gas, wastewater, storm drain, refuse, airport, golf course, planning and zoning, general
administration services, library, open space and science, recreational and human services.
(a) Reporting Entity
The City is governed by a seven‐member council, elected by City residents. The City is legally
separate and fiscally independent, which means it can issue debt, set and modify budgets and
fees, and sue or be sued. The accompanying basic financial statements present the financial
activities of the City, which is the primary government presented, along with the financial
activities of its component unit, which is an entity for which the City is financially accountable.
Although a separate legal entity, a blended component unit is, in substance, part of the City’s
operations and is reported as an integral part of the City’s financial statements. The City’s
component unit described below is blended.
The Palo Alto Public Improvement Corporation (the Corporation) provides financing of public
capital improvements for the City through the issuance of Certificates of Participation (COPs), a
form of debt that allows investors to participate in a stream of future lease payments. Proceeds
from the COPs are used to construct projects that are leased to the City. The lease payments are
sufficient in timing and amount to meet the debt service requirements of the COPs. The Board of
Directors of the Corporation is composed of the same members as the City Council. The
Corporation is controlled by the City, which performs all accounting and administrative functions
for the Corporation. The financial activities of the Corporation are included in the Downtown
Parking Improvement Debt Service Fund.
Financial statements for the Corporation may be obtained from the City of Palo Alto,
Administrative Services Department, 4th Floor, 250 Hamilton Avenue, Palo Alto, CA 94301.
(b) Basis of Presentation
The City’s basic financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America. The Governmental Accounting Standards
Board (GASB) is the acknowledged standard setting body for establishing accounting and financial
reporting standards followed by governmental entities in the United States.
These standards require that the financial statements described below be presented:
Government‐wide Statements: The Statement of Net Position and the Statement of Activities
display information about the primary government and its component unit. These statements
include the financial activities of the overall City government, except for fiduciary activities.
Eliminations have been made to minimize the double counting of internal activities. However,
interfund goods and services transactions have not been eliminated in the consolidation process.
These statements distinguish between the governmental and business‐type activities of the City.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
48
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) Basis of Presentation (Continued)
Governmental activities generally are financed through taxes, intergovernmental revenues, and
other non‐exchange transactions. Business‐type activities are financed in whole or in part by fees
charged to external parties.
The Statement of Activities presents a comparison between direct expenses and program
revenues for each segment of the business‐type activities of the City and for each function of the
City’s governmental activities. Direct expenses are those that are specifically associated with a
program or function and, therefore, are clearly identifiable to a particular function. Program
revenues include: (a) charges paid by the recipients for goods and services offered by the
programs, (b) grants and contributions that are restricted to meeting the operational needs of a
particular program, and (c) fees, grants and contributions that are restricted to financing the
acquisition or construction of capital assets. Revenues that are not classified as program
revenues, including all taxes, are presented as general revenues.
Fund Financial Statements: The fund financial statements provide information about the City’s
funds, including fiduciary funds and its blended component unit. Separate statements for each
fund category – governmental, proprietary and fiduciary – are presented. The emphasis of fund
financial statements is on major individual governmental and enterprise funds, each of which is
displayed in a separate column. All remaining governmental and internal service funds are
aggregated and reported as non‐major funds.
Proprietary fund operating revenues, such as utilities sales and charges for services, result from
exchange transactions associated with the principal activity of the fund. Exchange transactions
are those in which each party receives and gives up essentially equal values. Nonoperating
revenues, such as subsidies and investment earnings, result from non‐exchange transactions or
ancillary activities.
Operating expenses for enterprise funds and internal service funds include the cost of sales and
services, administrative expenses, and depreciation on capital assets. All expenses not meeting
this definition are reported as nonoperating expenses.
(c) Major Funds and Other Funds
The City’s major governmental and enterprise funds need to be identified and presented
separately in the fund financial statements. All other funds, called non‐major funds, are combined
and reported in a single column, regardless of their fund type.
Major funds are defined as funds that have assets and deferred outflows of resources, liabilities
and deferred inflows of resources, revenues or expenditures/expenses equal to at least 10
percent of their fund type total and at least 5 percent of the grand total. The General Fund is
always a major fund. The City may also select other funds it believes should be presented as major
funds on a qualitative basis.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
49
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other Funds (Continued)
The City reported the following major governmental funds in the accompanying financial
statements:
General Fund – This is the City’s primary operating fund. It accounts for all financial resources of
the general government, except those required to be accounted for in another fund.
Capital Projects Fund – This fund accounts for resources used for the acquisition and construction
of capital facilities by the City, with the exception of those assets financed by proprietary funds.
The City reported the following enterprise funds as major funds in the accompanying financial
statements:
Water Services Fund – This fund accounts for all financial transactions relating to the City’s water
service. Services are on a user‐charge basis to residents and business owners located in the City.
Electric Services Fund – This fund accounts for all financial transactions relating to the City’s
electric service. Services are on a user‐charge basis to residents and business owners located in
the City.
Fiber Optics Fund – This fund accounts for all financial transactions relating to the City’s fiber
optics service. Services are on a user‐charge basis to licensees located in the City.
Gas Services Fund – This fund accounts for all financial transactions relating to the City’s gas
service. Services are on a user‐charge basis to residents and business owners located in the City.
Wastewater Collection Services Fund – This fund accounts for all financial transactions relating
to the City’s wastewater collection service. Services are on a user‐charge basis to residents and
business owners located in the City.
Wastewater Treatment Services Fund – This fund accounts for all financial transactions relating
to the City’s wastewater treatment. Services are on a user‐charge basis to residents and business
owners located in the City.
Refuse Services Fund – This fund accounts for all financial transactions relating to the City’s refuse
service. Services are on a user‐charge basis to residents and business owners located in the City.
Storm Drainage Services Fund – This fund accounts for all financial transactions relating to the
City’s storm drainage service. Services are on a user‐charge basis to residents and business
owners located in the City.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
50
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other Funds (Continued)
The City also reports the following funds:
Airport Fund – This non‐major enterprise fund accounts for all financial transactions relating to
the Palo Alto Airport (PAO). The City assumed control over operation of PAO from the County of
Santa Clara, effective August 11, 2014.
Internal Service Funds – These funds account for fleet replacement and maintenance, technology,
central duplicating, printing and mailing services, administration of compensated absences and
health benefits, and the City’s self‐insured workers’ compensation and general liability programs,
all of which are provided to other departments on a cost‐reimbursement basis. Also included is
the Retiree Health Benefits Internal Service Fund, which accounts for benefits to retirees.
Vehicle Replacement and Maintenance – This fund accounts for the maintenance and
replacement of vehicles and equipment used by all City departments. The source of revenue is
from reimbursement of fleet replacement and maintenance costs allocated to each department
by usage of vehicle.
Technology – This fund accounts for replacement and upgrade of technology, and covers four
primary areas used by all City departments: desktop, infrastructure, applications, and technology
research and development. The source of revenue is from reimbursement of costs for support
provided to other departments.
Printing and Mailing Services – This fund accounts for central duplicating, printing and mailing
services provided to all City departments. The source of revenue for this fund is from
reimbursement of costs for services and supplies purchased by other departments.
General Benefits – This fund accounts for the administration of compensated absences and health
benefits.
Workers’ Compensation Insurance Program – This fund accounts for the administration of the
City’s self‐insured workers’ compensation program.
General Liability Insurance Program – This fund accounts for the administration of the City’s self‐
insured general liability program.
Retiree Health Benefits – This fund accounts for retiree health benefits.
Fiduciary Funds – These funds account for assets held by the City, an agent for assessment
districts, and members of the Cable Joint Powers Authority. These funds are custodial in nature
and do not involve measurement of results of operations. The City maintains two agency funds.
The financial activities of these funds are excluded from the government‐wide financial
statements, but are presented in separate fiduciary fund financial statements. Agency funds
apply the accrual basis of accounting but do not have a measurement focus.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
51
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other Funds (Continued)
Cable Joint Powers Authority – This fund accounts for the activities of the cable television system
on behalf of the members.
University Avenue Area Off‐Street Parking Assessment District – This fund accounts for the
receipts and disbursements associated with the 2012 Limited Obligation Refunding Improvement
Bonds.
(d) Basis of Accounting
The government‐wide and proprietary fund financial statements are reported using the economic
resources measurement focus and the full accrual basis of accounting. Agency funds do not have
a measurement focus but are reported using the accrual basis of accounting. Revenues are
recorded when earned and expenses are recorded at the time liabilities are incurred, regardless
of when the related cash flows take place.
Governmental funds are reported using the current financial resources measurement focus and
the modified accrual basis of accounting. Under this method, revenues are recognized when
measurable and available. The City considers revenues susceptible to accrual reported in the
governmental funds to be available if the revenues are collected within ninety days after year‐
end, except for property taxes, which are available if collected within sixty days after year‐end.
Expenditures are recorded when the related fund liability is incurred, except for principal and
interest on general long‐term debt, claims and judgments, and compensated absences, which are
recognized as expenditures to the extent they have matured. General capital asset acquisitions
are reported as expenditures in governmental funds. Proceeds of general long‐term debt and
acquisitions under capital leases are reported as other financing sources.
Revenues susceptible to accrual include taxes, intergovernmental revenues, interest and charges
for services.
Grant revenues are recognized in the fiscal year in which all eligibility requirements are met.
Under the terms of grant agreements, the City may fund certain programs with a combination of
cost‐reimbursement grants, categorical block grants, and general revenues. Thus, both restricted
and unrestricted net position may be available to finance program expenditures. The City’s policy
is to first apply restricted grant resources to such programs, followed by general revenues if
necessary.
Certain indirect costs are included in program expenses reported for individual functions and
activities. Transactions representing the exchange of interfund goods and services have also been
included.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
52
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Cash and Cash Equivalents
Restricted and unrestricted pooled cash and investments held in the City Treasury, and other
unrestricted investments invested by the City Treasurer, are considered cash equivalents for
purposes of the statement of cash flows because the City’s cash management pool and funds
invested by the City Treasurer possess the characteristics of demand deposit accounts. Other
restricted and unrestricted investments with maturities of less than three months at the time of
purchase are considered cash equivalents for purposes of the statement of cash flows.
(f) Investments
The City’s investments are carried at fair value, and its fair value measurements are categorized
within the fair value hierarchy established by generally accepted accounting principles. Fair value
is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date.
(g) Inventory of Materials and Supplies
Materials and supplies are held for consumption and are valued at average cost. The consumption
method is used to account for inventories. Under the consumption method, inventories are
recorded as expenditures at the time inventory items are used, rather than purchased.
(h) Prepaid items
Prepaid items are recorded at cost. Using the consumption method, prepaid items are recorded
as expenditures over the period that service is provided.
(i) Compensated Absences
The liability for compensated absences includes the vested portion of vacation, sick leave, and
overtime compensation pay. The City’s liability for accrued compensated absences is recorded in
the General Benefits Internal Service Fund. The fund is reimbursed through payroll charges to all
other funds. Earned but unpaid vacation and overtime compensation pay are recognized as an
expense or expenditure in the proprietary and governmental fund types when earned because
the City has provided financial resources for the full amount through its budgetary process.
Vested accumulated sick pay is paid in the event of termination due to disability and, under certain
conditions, is specified in employment agreements.
During the fiscal year ended June 30, 2019, changes to the compensated absences liabilities were
as follows (in thousands):
Beginning balance 12,058$
Additions 6,473
Payments (6,196)
Ending balance 12,335$
Current portion 6,273$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
53
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(j) Property Tax
Santa Clara County (the County) assesses properties and bills, collects, and distributes property
taxes to the City. The County remits the entire amount levied and handles all delinquencies,
retaining interest and penalties.
The County assesses property values, levies bills and collects taxes as follows:
Secured Unsecured
Lien Dates January 01 January 01
Levy Dates October 01 July 01
Due Dates 50% on November 01 Upon receipt of billing
50% on February 01
Delinquent after December 10 (for November) August 31
April 10 (for February)
The term “unsecured” refers to taxes on personal property other than real estate, land and
buildings. These taxes are secured by liens on the property being taxed. Property tax revenues
are recognized by the City in the fiscal year they are assessed, provided they become available as
defined previously within sixty days after year‐end.
(k) Deferred Outflows of Resources and Deferred Inflows of Resources
A deferred outflow of resources is the consumption of net position that is applicable to a future
reporting period. A deferred inflow of resources is defined as an acquisition of net position
applicable to a future reporting period.
(l) Pensions and OPEB
For purposes of measuring the net pension liability and net OPEB liability, deferred
outflows/inflows of resources related to pensions and OPEB, and pension and OPEB expense,
information about the fiduciary net position of the City’s pension and OPEB plans and additions
to/deductions from the plans’ fiduciary net positions have been determined on the same basis as
they are reported by the California Public Employees’ Retirement System (CalPERS) and the
California Employer’s Retiree Benefit Trust Fund Program (CERBT). For this purpose, benefit
payments (including refunds of employee contributions) are recognized when due and payable in
accordance with the benefit terms. Investments are reported at fair value.
(m) Rounding
All amounts included in the basic financial statements and footnotes are presented to the nearest
thousand.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
54
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements
As of July 1, 2018, the City implemented the following GASB Statements:
In November 2016, the GASB issued Statement No. 83, Certain Asset Retirement Obligations. The
statement addresses accounting and financial reporting for certain asset retirement obligations
(AROs). An ARO is a legally enforceable liability associated with the retirement of a tangible capital
asset. A government that has legal obligations to perform future asset retirement activities
related to its tangible capital assets should recognize a liability based on the guidance in this
statement. Implementation of this statement did not have a significant impact on the City’s
financial statements for the fiscal year ended June 30, 2019.
In March 2018, the GASB issued Statement No. 88, Certain Disclosures Related to Debt, including
Direct Borrowings and Direct Placements. The objective of this statement is to improve the
information that is disclosed in notes to government financial statements related to debt,
including direct borrowings and direct placements. It also clarities which liabilities governments
should include when disclosing information related to debt. Implementation of this statement is
reflected in Note 7 of the City’s Notes to the Basic Financial Statements.
The City is currently analyzing its accounting practices to determine the potential impact on the
financial statements for the following GASB Statements:
In January 2017, the GASB issued Statement No. 84, Fiduciary Activities. The statement establishes
criteria for identifying fiduciary activities of all state and local governments. The focus of the
criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity
and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included
to identify fiduciary component units and postemployment benefit arrangements that are
fiduciary activities. The statement also provides for recognition of a liability to the beneficiaries in
a fiduciary fund when an event has occurred that compels the government to disburse fiduciary
resources. The requirements of this statement are effective for the City’s fiscal year ending
June 30, 2020.
In June 2017, the GASB issued Statement No. 87, Leases. The objective of this statement is to
better meet the information needs of financial statement users by improving accounting and
financial reporting for leases by governments. This Statement increases the usefulness of
governments’ financial statements by requiring recognition of certain lease assets and liabilities
for leases that previously were classified as operating leases and recognized as inflows of
resources or outflows of resources based on the payment provisions of the contract. It establishes
a single model for lease accounting based on the foundational principle that leases are financings
of the right to use an underlying asset. Under this Statement, a lessee is required to recognize
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
55
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements (Continued)
a lease liability and an intangible right‐to‐use lease asset, and a lessor is required to recognize a
lease receivable and a deferred inflow of resources, thereby enhancing the relevance and
consistency of information about governments’ leasing activities. The requirements of this
statement are effective for the City’s fiscal year ending June 30, 2021.
In June 2018, the GASB issued Statement No. 89, Accounting for Interest Cost Incurred before the
End of a Construction Period. The objectives of this statement are 1) to enhance the relevance
and comparability of information about capital assets and the cost of borrowing for a reporting
period, and 2) to simplify accounting for interest cost incurred before the end of a construction
period. The requirements of this statement are effective for the City’s fiscal year ending
June 30, 2021.
In August 2018, the GASB issued Statement No. 90, Majority Equity Interests, an amendment of
GASB Statements No.14 and No.61. The objectives of this statement are to improve the
consistency and comparability of reporting a government’s majority equity interest in a legally
separate organization and to improve the relevance of financial statement information for certain
component units. The requirements of this statement are effective for the City’s fiscal year ending
June 30, 2020.
In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations. The objectives of this
statement are to provide a single method of reporting conduit debt obligations by issuers and
eliminate diversity in practice associated with 1) commitments extended by issuers, 2)
arrangements associated with conduit debt obligations, and 3) related note disclosure. The
requirements of this statement are effective for the City’s fiscal year ending June 30, 2022.
(o) Use of Estimates
The accompanying basic financial statements have been prepared on the modified accrual and
accrual basis of accounting in accordance with generally accepted accounting principles. This
requires management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ from those
estimates.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
56
NOTE 2 – BUDGETS AND BUDGETARY ACCOUNTING
1. The City Manager submits proposed operating and capital budgets to the City Council for the fiscal
year commencing the following July 1. The operating budget includes proposed expenditures and the
means of financing them.
2. Public hearings are conducted to obtain comments on the proposed budgets.
3. The Budget is approved with the adoption of a budget ordinance for all funds except Agency Funds.
4. Per the Palo Alto Municipal Code, only the City Manager is authorized to reallocate funds from
contingency accounts maintained in the General Fund. Additional appropriations to departments in
the General Fund, or to total appropriations for all other budgeted funds, or transfers of
appropriations between funds, require approval by the City Council. Amendments to budgeted
revenue and expenditures are added to or subtracted from the Adopted Budget and the resulting
totals are reflected as Final Budget amounts.
5. As defined in the Palo Alto Municipal Code, expenditures may not exceed budgeted appropriations at
the department level for the General Fund, and at the fund level for Enterprise, Special Revenue and
Debt Service Funds.
6. Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting
principles (GAAP), except that unrealized gains or losses on investments, changes in advances to other
funds and notes receivable are not recognized on a budgetary basis and encumbrances are treated as
budgetary expenditures when incurred.
7. Expenditures for the Capital Projects Fund are budgeted and maintained at a project level for the life
of the project. Budget to actual comparisons for these expenditures have been excluded from the
accompanying financial statements.
NOTE 3 – CASH AND INVESTMENTS
The City pools cash from all sources and all funds, except restricted bond proceeds with fiscal agents and
Public Agency Retirement Services, and invests its pooled idle cash according to State of California law
and the City’s Investment Policy. The basic principles underlying the City’s investment philosophy are to
ensure the safety of public funds, ensure that sufficient funds are available to meet current expenditures,
and achieve a reasonable rate of return on investments.
Policies
The City invests in individual investments and in investment pools. Individual investments are evidenced
by specific identifiable securities instruments, or by an electronic entry registering the owner in the
records of the institution issuing the security, called the book entry system. In order to increase security,
the City employs the trust department of a bank as the custodian of certain City managed investments.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
57
NOTE 3 – CASH AND INVESTMENTS (Continued)
Classification
Cash and investments are classified in the financial statements as shown below, based on whether or not
their use is restricted under the terms of City debt instruments or agreements (in thousands):
Governmental Business‐Type Fiduciary
Activities Activities Funds Total
Cash and investments:
Available for operations 297,243$ 249,368$ 2,767$ 549,378$
Held with fiscal agents and trustees 56,803 4,016 2,657 63,476
Total cash and investments 354,046$ 253,384$ 5,424$ 612,854$
Investments Authorized by the City’s Investment Policy, Debt Agreements and Trust Agreements
The table below summarizes the investment types that are authorized by the California Government Code
(Code) and the City’s Investment Policy, and includes the interest rate risk, credit risk and concentration
of credit risk as outlined in the Investment Policy. In addition, the table discloses investment of debt
proceeds held by bond trustees. These investments are governed by the provisions of each debt
agreement of the City, rather than the general provisions of the City’s Investment Policy.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
58
NOTE 3 – CASH AND INVESTMENTS (Continued)
Maximum
Maturity
Minimum
Credit Quality
Maximum
Percentage
of Portfolio
Maximum
Investment in
One Issuer
U.S. Government Securities 10 years (*) N/A No Limit No Limit
U.S. Federal Agency Securities (C) 10 years (*) N/A No Limit (A) No Limit
Certificates of Deposit 10 years (*) N/A 20% 10% of the par
value of
portfolio
Bankers Acceptances 180 days (D) N/A (D) 30% $5 million
Commercial Paper 270 days A‐1 15% $3 million (B)
Local Agency Investment Fund N/A N/A No Limit $50 million per
account
Short‐Term Repurchase Agreements 1 year N/A No Limit No Limit
City of Palo Alto Bonds N/A N/A No Limit No Limit
Money Market Mutual Funds N/A N/A (E) No Limit No Limit
Mutual Funds (F) N/A N/A 20% 10%
Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million
Medium‐Term Corporate Notes 5 years AA 10% $5 million
10 years (*) AA/AA2 30% No Limit
5 years AA/AA2 20% 10% of the par
value of
portfolio
(A)
(B) The lesser of $3 million or 10% of outstanding commercial pa per of any one institution.
Debt Agreements:
(C)
(D)
(E)
(F)
(*)The maximum maturity is based on the Investment Policy that is approved by the City Council and is less restrictive
than the California Government Code.
Utility Revenue Bonds 2011 Refunding, General Obligation Bonds 2010 and 2013A, and University Avenue Parking
Bond 2012 are allowed to invest in the California Asset Management Program.
Authorized Investment Type
Bonds of State of California Municipal
Agencies & Other U.S. States
Callable and multi‐step securities are limited to no more than 25% of the par value of the portfolio, provided that: 1)
the potential call dates are known at the time of purchase, 2) the interest rates at which they "step‐up" are known at
the time of purchase, 3) the entire face value of the security is redeemable at the call date.
Utility Revenue Bonds 2011 Refunding and 1999 Refunding allow general obligations of states with a minimum credit
quality rating of A2/A by Moody's and Standard & Poor's.
Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a minimum credit quality rating of A‐1/P‐1 by
Moody's and Standard & Poor's and maturing after no more than 360 days. Utility Revenue Bonds 1995 Series A limit
the maximum maturity to 365 days.
Water Revenue Bonds 2009 Series A, Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a minimum
credit quality rating of AAAm or AAAm‐G by Standard & Poor's.
Supranational
The City must maintain required amounts of cash and investments with trustees under the terms of
certain debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if
the City fails to meet its obligations under these debt issues. The Code requires these funds to be invested
in accordance with City ordinance, bond indentures or state statute. All of these funds have been invested
as permitted under the Code and the investment policy approved by the City Council.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
59
NOTE 3 – CASH AND INVESTMENTS (Continued)
The City has implemented investment guidelines for its Public Agencies Retirement Services (PARS) Trust
which authorizes the investments in U.S. Treasury securities, federal agencies and U.S. guaranteed
obligations, corporate notes, certificates of deposit, bankers’ acceptances, equities investments, and
mutual funds.
Fair Value Measurements
The City categorizes its fair value measurements within the fair value hierarchy established by generally
accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value
of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are
significant other observable inputs; and Level 3 inputs are significant unobservable inputs. All of the
investments are measured using level 2 inputs, except for investments in money market mutual funds,
California Asset Management Program and Local Agency Investment Fund, which are not subject to the
fair value hierarchy.
Investment securities classified in Level 2 of the fair value hierarchy are valued using prices determined
by the use of matrix pricing techniques maintained by the pricing vendors for these securities. Matrix
pricing is used to value securities based on the securities relationship to benchmark quoted prices.
The following is a summary of the fair value measurements of the City as of June 30, 2019 (in thousands):
Type of Investment June 30, 2019 Level 2
Investments by fair value hierarchy
U.S. Federal Agency Securities 286,885$ 286,885$
U.S. Treasury Notes 13,504 13,504
Local Government Bonds 128,734 128,734
Negotiable Certificates of Deposit 46,731 46,731
Corporate Bonds 20,308 20,308
Total investments by fair value hierarchy 496,162 496,162$
Investment not subject to fair value hierarchy
Bonds Fund:
Money Market Mutual Funds 3,069
U.S. Bank Trust Services 46,201
Equity Mutual Funds (Irrevocable for pension) 14,030
California Asset Management Program 3,245
Local Agency Investment Fund 45,901
Total investments not subject to fair value hierarchy 112,446
Total investments measured at fair value 608,608$
Local Agency Investment Fund
The City participates in the Local Agency Investment Fund (LAIF) which, under the oversight of the
Treasury of the State of California, is regulated by California Government Code Section 16429. LAIF
management calculates the fair value and cost of the entire LAIF pool. The City adjusts its cost basis
invested in LAIF to fair value based on this ratio. The fair value of the City’s position in the pool is the
same as the value of the pool share. The balance available for withdrawal on demand is based on
accounting records maintained by LAIF, which are recorded on an amortized cost basis. At June 30, 2019,
LAIF had a weighted average maturity of 173 days.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
60
NOTE 3 – CASH AND INVESTMENTS (Continued)
Fidelity Institutional Asset Management
Money market mutual funds are available for withdrawal on demand and at June 30, 2019, had a weighted
average maturity of 20 days.
California Asset Management Program
The City is a voluntary participant in the California Asset Management Program (CAMP). CAMP is an
investment pool offered by the California Asset Management Trust (the Trust). The Trust is a joint powers
authority and public agency created by the Declaration of Trust and established under the provisions of
the California Joint Exercise of Powers Act (California Government Code Sections 6500 et seq., or the
“Act”) for the purpose of exercising the common power of its participants to invest certain proceeds of
debt issues and surplus funds. The City’s investments are limited to investments permitted by
subdivisions (a) to (n), inclusive, of Section 53601 of the California Government Code. The City reports its
investments in CAMP at the fair value amounts provided by CAMP, which is the same as the value of the
pool share. At June 30, 2019, the fair value approximated the City’s cost. CAMP had a weighted average
maturity of 54 days at June 30, 2019.
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates may adversely affect the fair value of an
investment. Normally, the longer the maturity of an investment, the greater the sensitivity its fair value
is to changes in market interest rates. As of June 30, 2019, the City’s investments consisted of the
following (in thousands):
Type of Investment
Less Than
One Year
One to
Three Years
Three to
Five Years
Over
Five Years Total
U.S. Federal Agency Securities 36,512$ 68,126$ 72,781$ 109,466$ 286,885$
U.S. Treasury Notes 2,995 1,501 9,008 ‐ 13,504
Local Government Bonds 6,015 39,001 42,079 41,639 128,734
Corporate Bonds 7,739 10,137 2,432 ‐ 20,308
Bond Funds:
Money Market Mutual Funds 3,069 ‐ ‐ ‐ 3,069
U.S Bank Trust Services 46,201 ‐ ‐ ‐ 46,201
Equity Mutual Funds (pension trust) 14,030 ‐ ‐ ‐ 14,030
Negotiable Certificates of Deposit 9,044 22,316 14,879 492 46,731
California Asset Management Program 3,214 ‐ ‐ ‐ 3,245
Local Agency Investment Fund 45,901 ‐ ‐ ‐ 45,901
Total Investments 174,720$ 141,081$ 141,179$ 151,597$ 608,608
Cash in bank and on hand 4,246
Total Cash and Investments 612,854$
Maturities
Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations
At June 30, 2019, the City’s investments (including investments held by bond trustees) include U.S. Federal
Agency Callable Securities totaling $128 million. These investments are highly sensitive to interest rate
fluctuations (to a greater degree than already indicated in the information provided above) and are
subject to early redemption.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
61
NOTE 3 – CASH AND INVESTMENTS (Continued)
Credit Risk
Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the
investment. This is measured by the assignment of a rating by a nationally recognized statistical rating
organization.
Presented below is the actual rating as provided by Standard & Poor’s, Moody’s and/or Fitch’s investment
rating system as of June 30, 2019, for each investment type (in thousands):
Type of Investment Rating Total
U.S. Federal Agency Securities AAA 6,749$
AA+ 156,979$
N/A 123,157
Total U.S Federal Agency Securities 286,885
Corporate Bonds AAA 9,986
AA+ 6,916
AA 974
N/A 2,432
Total Corporate Bonds 20,308
Local Government Bonds AAA 56,934
AA+ 34,727
AA 23,941
N/A 13,132
Total Government Bonds 128,734
Money Market Mutual Funds AAAm 3,069
Total Money Market Mutual Funds 3,069
Total Investments 438,996
Not Applicable:
U.S. Treasury Notes 13,504
Not Rated:
Bond Fund: Union Bank Trust Services 46,201
California Asset Management Program 3,245
Local Agency Investment Fund 45,901
Negotiable Certificates of Deposit 46,731
Equity Mutual Funds 14,030
Cash in bank and on hand 4,246
Total Cash and Investments 612,854$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
62
NOTE 3 – CASH AND INVESTMENTS (Continued)
Concentration of Credit Risk
Investments in any one issuer, other than U.S. Treasury securities, mutual funds, and external investment
pools, that represent 5 percent or more of total City portfolio investments are as follows at June 30, 2019
(in thousands):
Investments Reporting Type Fair Value at Year‐End
Federal Home Loan Bank U.S. Federal Agency Securities 83,281$
Federal Agricultural Mortgage Corporation U.S. Federal Agency Securities 96,488
Federal Farm Credit Bank U.S. Federal Agency Securities 56,869
Custodial Credit Risk
California law requires banks and savings and loan institutions to pledge government securities with a
market value of 110 percent of the City’s cash on deposit or first trust deed mortgage notes with a value
of 150 percent of the deposit as collateral for these deposits. Under California Law, this collateral is
considered held in the City’s name and places the City ahead of general creditors of the institution. The
City has waived collateral requirements for the portion of deposits covered by federal deposit insurance.
The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to
a transaction, the City will not be able to recover the value of its investment or collateral securities that
are in the possession of another party. The City’s Investment Policy limits its exposure to custodial credit
risk by requiring that all security transactions entered into by the City be conducted on a delivery‐versus‐
payment basis. Securities are to be held by a third‐party custodian.
NOTE 4 – INTERFUND TRANSACTIONS
Transfers Between Funds
With Council approval, resources may be transferred from one City fund to another. The purpose of the
majority of transfers is to subsidize a fund. Less often, a transfer may be made to open or close a fund.
Transfers between City funds during FY 2019 were as follows on the following page (in thousands):
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
63
NOTE 4 – INTERFUND TRANSACTIONS (Continued)
Fund Making Transfer
Amount
Transferred
General Fund Nonmajor Governmental Funds 580$ A
Electric Services Fund 12,973 B
Gas Services Fund 6,601 B
Capital Projects Fund General Fund 27,514 C
Nonmajor Governmental Funds 5,377 C
Water Services Fund 93 C
Electric Services Fund 199 C
Fiber Optics Fund 15 C
Gas Services Fund 85 C
Storm Drainage 330 C
Wastewater Collection 47 C
Nonmajor Governmental Funds General Fund 792 A
Capital Projects Fund 18 F
Nonmajor Governmental Funds 17 A
Water Services Fund 10 A
Electric Services Fund 21 A
Fiber Optics Fund 2 A
Gas Services Fund 9 A
Wastewater Collection Fund 5 A
Internal Service Funds 24 A
Water Services Fund Gas Services Fund 270 C
Wastewater Collection Fund 270 C
Electric Services Fund General Fund 2,365 D
Water Services Fund 426 C
Gas Services Fund 316 C
Fiber Optics Fund 102 C
Internal Service Funds 125 C
Internal Service Funds General Fund 6,417 E/F
Capital Projects Fund 56 E/F
Nonmajor Governmental Funds 13 E/F
Water Services Fund 115 E/F
Electric Services Fund 277 E/F
Fiber Optics Fund 20 E/F
Gas Services Fund 119 E/F
Wastewater Collection Fund 66 E/F
Wastewater Treatment Fund 107 E/F
Refuse Services Fund 43 E/F
Storm Drainage Services Fund 25 E/F
Airport 7 E/F
Internal Service Funds 2,294 E/G
Total 68,145$
Fund Receiving Transfer
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
64
NOTE 4 – INTERFUND TRANSACTIONS (Continued)
The reasons for these transfers are set forth below:
(A) Transfer to fund street maintenance activities, to pay debt service, fund City employee parking,
and to return unspent project funds.
(B) Transfer to fund the return of initial investment made by general fund when utility department
was created.
(C) Transfers of funds to construct, purchase or maintain capital assets.
(D) Transfer to fund electricity costs associated with City streetlight and traffic signal costs.
(E) Transfer to fund supplemental pension trust fund.
(F) Transfer to fund replacement and maintenance of critical desktop, software, infrastructure,
vehicles and equipment.
(G) Transfer to fund an implied subsidy for retiree healthcare.
Current Interfund Balances
Current interfund balances arise in the normal course of business and are expected to be repaid shortly
after the end of the fiscal year. At June 30, 2019, the non‐major Downtown Business Development District
Special Revenue Fund, the non‐major Federal Revenue Special Revenue Fund, and the Retiree Health
Benefits Internal Service Fund owed the General Fund $13 thousand, $93 thousand, and $737 thousand,
respectively.
Long‐Term Interfund Advance
On December 6, 2010, the City Council accepted an Airport Business Plan of the Palo Alto Airport (PAO)
and approved creation of the Airport Enterprise Fund to facilitate the transition of PAO control from the
County of Santa Clara to the City. The City Council approved six separate general fund advances to the
non‐major Airport Fund totaling $3.1 million. All advances bear interest equal to the average return yield
on the City’s investment portfolio. The six separate advances have been consolidated and are scheduled
to be repaid by June 2034. At June 30, 2019, the outstanding advances was $3.1 million.
Internal Balances
Internal balances represent the net interfund receivables and payables remaining after the elimination of
all such balances within governmental and business‐type activities.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
65
NOTE 5 – NOTES AND LOANS RECEIVABLE
At June 30, 2019, the City’s notes and loans receivable totaled (in thousands):
Palo Alto Housing Corporation:
Tree House Apartments 5,344$
Emerson Street Project 375
Alma Single Room Occupancy Development 2,222
Barker Hotel 2,111
Sheridan Apartments 2,222
Oak Court Apartments, L.P. 7,834
El Dorado Palace LLC 150
Mid‐Peninsula Housing Coalition:
Palo Alto Gardens Apartments 100
Community Working Group, Inc.1,280
Opportunity Center Associates, L.P.945
Home Rehabilitation Loans 46
Below Market Rate Assessment Loans 53
Oak Manor Townhouse Water System 114
Lytton Gardens Assisted Living 101
Emergency Housing Consortium 75
Alma Gardens Apartments 1,150
2811‐2825 Alma Street Acquisition 1,890
Palo Alto Family Housing, 801 Alma Street 6,422
Palo Alto Senior Housing Project ‐ Stevenson House, LLC 901
MP Palo Alto Garden, LLC 672
Colorado Park Housing Corporation 204
Buena Vista ‐ County of Santa Clara 14,500
Total Notes and Loans 48,711
Less: Valuation Allowance (14,612)
Total Notes and Loans, Net 34,099$
Housing Loans
The City engages in programs designed to encourage construction or improvement in low‐to‐moderate
income housing or other projects. Under these programs, grants or loans are provided under favorable
terms to homeowners or developers who agree to spend these funds in accordance with the City’s terms.
These loans have been offset by restricted or committed fund balances, as they are not expected to be
repaid immediately.
Some of these loans contain forgiveness clauses that provide for the amount loaned to be forgiven if the
third party maintains compliance with the terms of the loan and associated regulatory agreements. Since
some of these loans are secured by trust deeds that are subordinated to other debt on the associated
projects or are only repayable from residual cash receipts on the projects, collectability of some of the
outstanding balances may not be realized. As a result of the forgiveness clauses and nature of these
housing projects and associated cash flows, a portion of the outstanding balances of the loans has been
offset by a valuation allowance.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
66
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Tree House Apartments
In March 2009, the City agreed to loan $2.8 million to Tree House Apartments, L.P. (THA) for the purchase
of the real property located at 488 West Charleston Road. The loan accrues simple interest at the rate of
3 percent per annum. The loan was funded with $1.8 million of Community Development Block Grant
(CDBG) funds and $1.0 million of residential housing funds. An additional development loan in the amount
of $2.5 million was approved by the City on October 18, 2010. As of June 30, 2019, the outstanding
balance for THA in aggregate is $5.3 million. Principal and interest payments will be deferred, however if
the borrower has earned extra income, and if it is acceptable to the other entities providing final
permanent sources of funds, payment of interest and principal based on the City’s proportionate share of
the project’s residual receipts from net operating income shall be made by the borrower. In no event
shall full payment be made by the borrower later than concurrently with the expiration or earlier
termination of the loan agreement, which is December 31, 2067.
Emerson Street Project
On November 8, 1994, the City loaned $375,000 to Palo Alto Housing Corporation (PAHC) for expenses
necessary to acquire an apartment complex for the preservation of rental housing for low and very low
income households in the City. This loan is collateralized by a second deed of trust. The loan bears interest
at 3 percent.
Alma Single Room Occupancy Development
On December 13, 1996, the City loaned $2.2 million to Alma Place Associates, L.P. for development of a
107‐unit single room occupancy development. This loan bears interest at 3 percent and is collateralized
by a subordinated deed of trust. The principal balance is due in 2041.
Barker Hotel
On April 12, 1994, the City loaned a total of $2.1 million for the preservation, rehabilitation and expansion
of a low‐income, single occupancy hotel. This loan was funded by three sources: $400,000 from the
Housing In‐Lieu Fund, $1.0 million from HOME Investment Partnership Program Funds, and $670,000 from
CDBG funds. All three notes bear no interest and are collateralized by a deed of trust, which is
subordinated to private financing. Loan repayments are deferred until 2035.
In July 2004, the City agreed to loan up to $41,000 to PAHC to rehabilitate the interior of the Barker Hotel.
The loan was funded with CDBG funds and is collateralized by a deed of trust on the property. Annual
loan payments are deferred until certain criteria defined in the loan agreement are reached. The loan will
be forgiven if the borrower satisfactorily complies with all terms and conditions of the loan agreement.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
67
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Sheridan Apartments
On December 8, 1998, the City loaned $2.2 million to PAHC for the purchase and rehabilitation of a 57‐
unit apartment complex to be used for senior and low‐income housing. The loan was funded with $1.6
million in CDBG funds, and $825,000 of Housing In‐Lieu funds. The note is collateralized by a second deed
of trust and an affordability reserve account held by PAHC. The loan was amended in June 2017. It will not
accrue interest between May 1, 2017 and March 1, 2030. The loan will be forgiven on June 30, 2030 if
PAHC uses the funds that would otherwise have been due to the City for another affordable housing
project.
Oak Court Apartments, L.P.
On August 18, 2003, the City loaned $5.9 million to PAHC for the purchase of land. The note bears interest
of 5 percent and is secured by a deed of trust. Note payments are due annually after 55 years, or beginning
in 2058, unless PAHC elects to extend the note until 2102, as defined in the regulatory agreement. The
City also loaned $1.9 million to Oak Court Apartments, L.P. for the construction of a 53‐unit rental
apartment complex for low and very low‐income households with children, which was completed in April
2005. The note bears no interest until certain criteria defined in the note are satisfied, at which time the
note will bear an interest rate not to exceed 3 percent. The note is secured by a subordinate deed of
trust. The principal balance is due in 2060.
El Dorado Palace, LLC
On June 22, 2015, the City approved a loan to PAHC in the amount of $375,000 to increase the supply of
affordable low income housing in the City. The City loaned $52,000 and $13,000 in June 2017 and March
2018, respectively. In February 2019, the City loaned an additional $85,000. The loan bears three percent
(3%) interest, however in the event of default will accrue at the lesser of 8% or the highest rate permitted
by law. The term of the loan shall expire 55 years unless the City agree to extend an additional 44 years.
As of June 30, 2019, the outstanding balance was $150,000.
Palo Alto Gardens Apartments
On April 22, 1999, the City loaned $1.0 million to Mid‐Peninsula Housing Coalition (the Coalition) for the
purchase and rehabilitation of a 155‐unit complex for the continuation of low‐income housing. The loan
was funded with $659,000 of CDBG funds and $341,000 of Housing In‐Lieu funds. The two notes bear
interest at 3 percent and are secured by second deeds of trust and a City Affordability Reserve Account
held by the Coalition. Principal and interest payments began in FY 2008. The principal balance of $100,000
is due in 2039.
Community Working Group, Inc.
On May 13, 2002, the City loaned $1.3 million to Community Working Group, Inc. for predevelopment,
relocation and acquisition of land for development of an 89‐unit complex and homeless service center for
very low income households. The loan was funded with $1.3 million of CDBG funds. The note bears no
interest and is secured by a first deed of trust. No repayment is required as long as the borrower complies
with all terms and conditions of the agreement. After 89 years of compliance with the regulatory
agreement, the City’s loan would convert to a grant and its deed of trust would be re‐conveyed.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
68
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Opportunity Center Associates, L.P.
On July 19, 2004, the City loaned $750,000 for a 55‐year term to Opportunity Center Associates, L.P. for
construction of 89 units of rental housing for extremely low‐income and very low‐income households.
The loan was funded with $750,000 of residential housing funds. The note bears 3 percent interest and
is secured by a deed of trust. The loan remains outstanding and becomes due at the end of the 55‐year
term. During fiscal year 2019, the City received $25,000 in principal payments. On April 17, 2019, the City
approved up to an additional $220,000 loan drawn from CDBG for the improvement of rental housing. In
February 2019 and April 2019, the City loaned $191,000 and $29,000, respectively. The note bears 3
percent interest, and all payments of interest and principal shall be deferred until July 19, 2103. The loan
balance owed as of June 30, 2019 was $945,000.
Home Rehabilitation Loans
The City administers a closed housing rehabilitation loan program initially funded with CDBG funds. Under
this program, individuals with incomes below a certain level are eligible to receive low interest loans for
rehabilitation work on their homes. These loans are secured by deeds of trust, which may be subordinated
to subsequent encumbrances upon said real property with the prior written consent of the City. The loan
repayments may be amortized over the life of the loans, deferred, or a combination of both.
Executive Relocation Assistance Loans
The City Council may authorize a mortgage loan as part of a relocation assistance package to executive
staff. The loans are secured by first deeds of trust, and interest is adjusted annually based on the rate of
return of invested funds of the City for the year ended June 30 plus one‐quarter of 1 percent. Principal
and interest payments are due bi‐weekly. Employees must pay any outstanding balance on their loans
within a certain period after ending employment with the City.
The original purchase cost for the City Manager’s home was $1.9 million and the City held a 75 percent
equity share. During FY 2011, the Council authorized a capital improvement loan of $125,000. Loans for
capital improvements are made on a dollar for dollar matching basis, with an equal equity contribution
made by the City Manager. In fiscal year 2019, the former City Manager sold the home and paid off the
loan balance.
Below Market Rate Assessment Loans
In December 2002, the City loaned $53,000 to below market rate homeowners with low incomes and/or
very limited assets for capital repairs, special assessments and improvements of their properties. The
loans bear interest at 3 percent and are secured by a deed of trust on each property. Loan payments are
deferred until 2032.
Oak Manor Townhouse Water System
On May 12, 2003, the City Council approved an allocation of $114,000 to Palo Alto Housing Corporation
Apartments, Inc (PAHCA, Inc) to replace the water pipes. Repayment of the loan will not be required unless
the property is sold, the program is terminated or purpose of the program is changed without City’s
approval prior to July 1, 2033. The loan for this project is subordinated to the existing City loan with
PAHCA, Inc dated January 7, 1991 for the acquisition of the project site, which is discussed earlier in this
section.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
69
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Lytton Gardens Assisted Living
In June 2005, the City loaned $101,000 to Community Housing, Inc. to upgrade and modernize the existing
kitchens at the senior residential facility known as Lytton Gardens Assisted Living. The loan was funded
with CDBG funds, and bears simple interest of 3 percent. Principal and interest payments are deferred
until July 1, 2035, as long as the borrower continues to comply with all terms and conditions of the
agreement.
Emergency Housing Consortium
In November 2005, the City agreed to loan up to $75,000 to Emergency Housing Consortium to cover
architectural expenses that will be incurred in rehabilitating and expanding the property. The loan was
funded with CDBG funds, and bears simple interest of 3 percent. Principal and interest payments are
deferred until July 1, 2035, as long as the borrower continues to comply with all terms and conditions of
the agreement.
Alma Garden Apartments
In March 2006, the City agreed to loan up to $1.2 million to Community Working Group, Inc. to acquire a
10‐unit multi‐family housing complex known as Alma Garden Apartments. The loan was funded with
CDBG funds. Principal and interest payments are deferred until July 1, 2061 as long as the borrower
complies with all terms and conditions of the agreement.
2811‐2825 Alma Street Acquisition
On October 9, 2011, the City agreed to loan $1.3 million to PAHC to acquire properties on Alma Street for
the purpose of developing an affordable rental housing project. On June 29, 2015, the City loaned PAHC
an additional $0.6 million, and entered into an Amended and Restated Acquisition and Development
Agreement which combined the two loans for a total loan of $1.9 million. The loan term expires on
December 8, 2066 with an option to extend the term for an additional 44 years. The loan bears simple
interest of 3 percent, however in the event of default interest will accrue at the lesser of 8 percent or the
highest rate permitted by law. Principal and interest payments are payable during the term of the
agreement on a “residual receipt” basis as described in the agreement. All principal and interest is due in
the event of an unauthorized transfer, a default or the expiration of the term. As of June 30, 2019, the
outstanding balance was $1.9 million.
Palo Alto Family Housing, 801 Alma Street
On February 14, 2011, the City agreed to loan Palo Alto Family, LP up to $9.3 million for the purposes of
predevelopment expenses and acquiring certain real property for the Alma Street Affordable Multi‐Family
Rental Housing Project. The loan bears simple interest of 3 percent. Principal and interest are due and
payable during the term of the agreement on a “residual receipt” basis as described in the agreement.
Except in the case of default, all remaining principal and interest shall be payable on the Restriction
Termination Date as defined in the agreement. As of June 30, 2019, the outstanding amount is $6.4
million.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
70
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Palo Alto Senior Housing Project
On October 1, 2015, the City entered into an affordable housing fund loan agreement with PASHPI
Stevenson House LP, a California limited partnership, in the principal amount of $1 million to assist in the
rehabilitation of the Stevenson House. The loan bears simple interest of 3 percent. As of June 30, 2019,
the loan outstanding balance is $901,000 and is due at the end of the 55‐year term.
MP Palo Alto Garden, LLC
The City loaned $619,000 and $53,000 in March 2017 and October 2017, respectively, in CDBG funds for
the rehabilitation of the property. The note bears 3% simple interest and shall be deferred until April 24,
2054. If there are no Events of Default prior to the end of the terms, the unpaid principal and interest will
be treated as a grant and no repayment will be due to the City.
Colorado Park Housing Corporation
On September 8, 2014, the City entered into an affordable housing fund loan agreement with Colorado
Park Housing Corporation (CPHC), a California nonprofit public benefit corporation, in the principal
amount of $204,000. The loan bears no interest except in the event of default. The principal and any
accrued interest is due and payable on the earlier of (a) expiration of the term, or (b) a default by CPHC
which has not been cured as provided for in the agreement.
Buena Vista Mobile Home Park – Santa Clara County
In September 2017, the City entered into an agreement with the Santa Clara County Housing Authority
(SCCHA) for the acquisition of Buena Vista Mobile Home Park. The City loaned SCCHA $14.5 million for
the acquisition. The City is entitled to twenty six percent of all residual receipts. Interest for the
promissory note is 3% simple interest. Principal and interest payments will commence on September 30,
2019 and the note and all interest is payable in full on September 29, 2092. As of June 30, 2019, the loan
balance is $14.5 million.
NOTE 6 – CAPITAL ASSETS
Valuation
Capital assets are valued at historical cost if purchased or constructed. Donated capital assets, donated
works of art and similar items, and capital assets received in a service concession arrangement are
recorded at acquisition value at the time received. The City’s policy is to capitalize all assets when costs
are equal to or exceed $5,000 and the useful life exceeds one year. Infrastructure assets are capitalized
when costs are equal to or exceed $100,000.
Proprietary fund capital assets are recorded at cost including significant interest costs incurred under
restricted tax‐exempt borrowings, which finance the construction of capital assets. These interest costs,
net of interest earned on investment of proceeds of such borrowings, are capitalized and added to the
cost of capital assets during the construction period. Maintenance and repairs are expensed as incurred.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
71
NOTE 6 – CAPITAL ASSETS (Continued)
The City has recorded all its public domain capital assets, consisting of roadway and recreation and open
space, in its government‐wide financial statements. GASB Statement No. 34 requires that all capital assets
with limited useful lives be depreciated over their estimated useful lives. Alternatively, the “modified
approach” may be used for certain capital assets. Depreciation is not provided under this approach, but
all expenditures on these assets are expensed unless they are additions or improvements. The City has
elected to use the depreciation method for its capital assets. The purpose of depreciation is to spread the
cost of capital assets equitably among all users over the life of those assets. The amount charged to
depreciation expense each year represents that year’s pro rata share of the cost of capital assets.
Depreciation of capital assets is charged as an expense against operations each year and the total amount
of depreciation taken over the years, called accumulated depreciation, is reported on the statement of
net position as a reduction in the book value of capital assets.
Depreciation is calculated using the straight line method, which means the cost of the asset is divided by
its expected useful life in years, and the result is charged to expense each year until the asset is fully
depreciated. The City has assigned the useful lives listed below to capital assets.
Governmental Activities Years
Buildings and structures 20 ‐ 30
Equipment:
Computer equipment 3 ‐ 5
Office machinery and equipment 5
Machinery and equipment 5 ‐ 30
Intangible assets ‐ software 5‐20
Roadway network:
5 ‐ 40
Recreation and open space network:
25 ‐ 40
Business‐type Activities
Buildings and structures 25 ‐ 60
Vehicles and heavy equipment 3 ‐ 10
Machinery and equipment 10 ‐ 50
Transmission, distribution and treatment systems 10 ‐ 100
Includes pavement, striping and legends, curbs, gutters and sidewalks, parking lots,
traffic signage, and bridges
Includes major park facilities, park trails, bike paths and medians
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
72
NOTE 6 – CAPITAL ASSETS (Continued)
General Capital Assets
Changes in the City’s general capital assets during the year ended June 30, 2019 were (in thousands):
Balance Balance
July 1, 2018 Additions Retirements Transfers June 30, 2019
Governmental activities
Nondepreciable capital assets:
Land and improvements 78,481$ ‐$ (906)$ ‐$ 77,575$
Street trees 14,762 82 (124) ‐ 14,720
Intangible assets ‐ Easement 3,567 ‐ ‐ ‐ 3,567
Construction in progress 69,343 39,018 (2,549) (1,347) 104,465
Total nondepreciable capital assets 166,153 39,100 (3,579) (1,347) 200,327
Depreciable capital assets:
Buildings and structures 246,466 ‐ (510) 1,318 247,274
Intangible assets ‐ Software 279 ‐ ‐ ‐ 279
Equipment 12,571 ‐ ‐ 29 12,600
Roadway network 334,330 ‐ ‐ ‐ 334,330
Recreation and open space network 35,186 ‐ ‐ ‐ 35,186
Total depreciable capital assets 628,832 ‐ (510) 1,347 629,669
Less accumulated depreciation:
Buildings and structures (91,534) (7,277) 154 ‐ (98,657)
Intangible assets ‐ Software (279) ‐ ‐ ‐ (279)
Equipment (7,860) (516) ‐ ‐ (8,376)
Roadway network (155,990) (7,789) ‐ ‐ (163,779)
Recreation and open space network (13,359) (1,254) ‐ ‐ (14,613)
Total accumulated depreciation (269,022) (16,836) 154 ‐ (285,704)
Depreciable capital assets, net 359,810 (16,836) (356) 1,347 343,965
Internal service fund capital assets
Construction in progress 1,873 3,620 ‐ (2,963) 2,530
Equipment 61,569 17 (2,242) 2,963 62,307
Less accumulated depreciation (41,664) (3,500) 2,138 ‐ (43,026)
Net internal service fund capital assets 21,778 137 (104) ‐ 21,811
Governmental activities capital assets, net 547,741$ 22,401$ (4,039)$ ‐$ 566,103$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
73
NOTE 6 – CAPITAL ASSETS (Continued)
Business‐type Capital Assets
Changes in the City’s enterprise fund capital assets during the year ended June 30, 2019 were
(in thousands):
Balance Balance
July 1, 2018 Additions Retirements Transfers June 30, 2019
Business‐type activities
Nondepreciable capital assets:
Land and improvements 4,973$ ‐$ ‐$ ‐$ 4,973$
Construction in progress 153,404 57,332 ‐ (52,750) 157,986
Total nondepreciable capital assets 158,377 57,332 ‐ (52,750) 162,959
Depreciable capital assets:
Buildings and structures 59,895 ‐ (9) 8,436 68,322
Capital Leases 531 ‐ ‐ ‐ 531
Infrastructure 633 ‐ ‐ ‐ 633
Transmission, distribution and treatment systems 779,286 636 (1,787) 44,314 822,449
Total depreciable capital assets 840,345 636 (1,796) 52,750 891,935
Less accumulated depreciation:
Buildings and structures (13,597) (1,215) ‐ ‐ (14,812)
Infrastructure (23) (21) ‐ ‐ (44)
Transmission, distribution and treatment systems (348,388) (19,627) 1,498 ‐ (366,517)
Total accumulated depreciation (362,008) (20,863) 1,498 ‐ (381,373)
Depreciable capital assets, net 478,337 (20,227) (298) 52,750 510,562
Business‐type activities capital assets, net 636,714$ 37,105$ (298)$ ‐$ 673,521$
Capital Asset Contributions
Some capital assets may be acquired using federal and state grant funds, or they may be contributed by
developers or other governments. Generally accepted accounting principles require that these
contributions be accounted for as revenues at the time the capital assets are contributed.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
74
NOTE 6 – CAPITAL ASSETS (Continued)
Depreciation Allocation
Depreciation expense was charged to functions and programs based on their usage of the related assets.
The amount allocated to each function or program is as follows (in thousands):
Governmental Activities Business‐type Activities
City Manager 19$ Water 2,832$
City Attorney 1 Electric 8,271
City Clerk 4 Fiber Optics 377
City Auditor 1 Gas 3,241
Administrative Services 4 Wastewater Collection 2,209
Community Services 3,202 Wastewater Treatment 2,868
Public Safety 346 Refuse 116
Public Works 10,557 Storm Drainage 928
Planning and Community Environment 331 Airport 21
Library 2,371 20,863$
Internal Service Funds 3,500
20,336$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
75
NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress
Construction in progress as of June 30, 2019 is comprised of the following (in thousands):
Governmental Activities
Expended to
June 30, 2019
Charleston/Arastradero Corridor 9,180$
Bicycle Boulevards Implementation Project 9,055
New California Ave Area Parking Garage 8,843
Fire Station No. 3 Replacement Design 8,365
Lucie Stern Buildings Mech/Electrical Improvements 6,354
Highway 101 Pedestrian/Bicycle Overpass 5,243
New Public Safety Building 5,241
Traffic Signal Upgrades 4,456
Transportation and Parking Improvements 2,662
Baylands Interpretive Center & Boardwalk Improvement 2,283
Rinconada Park Improvement 2,270
Railroad Grade Separation 2,132
Downtown Mobility & Safety Improvements 1,985
Safe Routes To School 1,736
Telephone Infrastructure and Network 1,617
Curb & Gutter Repairs 1,562
CalTrain Corridor Video Management System Installation 1,516
Cubberley Roof Replacement 1,481
New Downtown Parking Garage 1,434
Benches/Signage/Fencing/Walkways 1,340
Newell Road Bridge/SFC Bridge Replacement 1,286
Quarry Road 1,282
Parks Master Plan 1,254
Roofing Replacement 1,082
Baylands Interpretive Center Improvements 1,078
City Facility Parking Lot Maintenance 1,067
JMZ Renovation 1,060
VRF 913
Embarcadero Corridor Improvements 872
Residential Preferential Parking 838
Parks & Open Space Emergency Repairs 813
Street Lights Improvements 721
Other Construction In Progress 15,974
Total Governmental Activities Construction In Progress 106,995$
Business‐type Activities
Expended to
June 30, 2019
Water system extension replacements and improvements 20,551$
Sewer system rehabilitation and extensions 15,982
Gas system extension replacements and improvements 13,520
Storm drainage structural and water quality improvements 11,341
Electric distribution system improvements 11,153
Water quality control plant equipment replacement and lab facil ities 1,682
Fiber optic system improvements 1,592
Other construction in progress 82,165
Total Business‐type Activities Construction In Progress 157,986$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
76
NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress
Allocations of business‐type activity administration and general expenses of $12.0 million have been
capitalized and included in amounts expended to June 30, 2019.
Major governmental capital projects that are currently in progress, and the remaining capital commitment
of each, are as follows:
New Cal Ave Area Parking Garage ‐ $40.2 million
New Downtown Parking Garage – $27.0 million
Highway 101 Pedestrian/Bicycle Overcrossing ‐ $13.3 million
Bicycle Boulevards Implementation Project ‐ $9.2 million
Embarcadero Road Corridor Improvements ‐ $6.3 million
Major business‐type capital projects that are currently in progress, and the remaining capital commitment
of each, are as follows:
Water Main Replacement for Water fund ‐ $7.1 million
Wastewater Collection Fund Rehabilitation/Augmentation ‐ $4.6 million
Airport Apron Reconstruction Project ‐ $7.7 million
Vehicle Registration Fees (VRF)
In FY 2019, the City received VRF funds from the Santa Clara Valley Transportation Authority and
expended the full amount on capital expenditures for the Overlay Resurfacing Project (PE‐86070):
Starting VRF balance July 1, 2018 ‐$
VRF revenue 429,419
VRF interest 3,488
VRF expense (432,907)
Ending VRF balance June 30, 2019 ‐$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
77
NOTE 7 – LONG‐TERM DEBT
Bond premiums and discounts of long‐term debt issues are amortized over the life of the related debt.
The City’s long‐term debt issues and transactions, other than special assessment debt discussed in Note 8,
are as follows (in thousands):
Original Balance Balance Current
Issue Amount July 1, 2018 Additions Retirements June 30, 2019 Portion
Governmental Activities Debt:
2010 General Obligation Bonds,
3.25% ‐ 5%, due 08/01/2040 55,305$ 45,810$ ‐$ 1,225$ 44,585$ 1,290$
2013A General Obligation Bonds,
2 ‐ 5%, due 08/01/2041 20,695 16,330 ‐ 415 15,915 435
2018 Captial Improvement Project
and Refinancing Certficates of Participation, 2.2%‐
4.22%, due 11/1/2047 8,970 8,970 ‐ 35 8,935 180
2019 California Ave Parking Garage
Certficates of Participation, Series A & B 2.5%‐5%,
due 11/1/2048 37,370 ‐ 37,370 ‐ 37,370 375
Add: Unamortized Premium ‐ 3,610 4,927 206 8,331 351
Total Bonds and Certificates 122,340 74,720 42,297 1,881 115,136 2,631
Direct Borrowing: 2011 Lease‐Purchase Agreement 3,222 426 ‐ 426 ‐ ‐
Total Governmental Activities Debt 125,562$ 75,146$ 42,297$ 2,307$ 115,136$ 2,631$
Original Issue
Amount
Balance
July 1, 2018 Additions Retirements
Balance
June 30, 2019 Current Portion
Business‐type Activities Debt:
Utility Revenue Bonds
1995 Series A,
5.00‐6.25%, due 06/01/2020
8,640$ 1,250$ ‐$ 605$ 645$ 645$
1999 Refunding,
5.125‐5.25%, due 06/01/2024
17,735 8,245 ‐ 775 7,470 810
2009 Series A,
1.80‐5.95%, due 06/01/2035
35,015 27,720 ‐ 1,080 26,640 1,130
2011 Refunding,
3‐4%, due 06/01/2035
17,225 10,185 ‐ 1,125 9,060 1,170
Add: Unamortized Premium ‐ 630 ‐ 70 561 ‐
Energy Tax Credit Bonds
2007 Series A, 0%, Due 12/15/2021 1,500 400 ‐ 100 300 100
Less: Unamortized Discount ‐ (22) ‐ (6) (16) ‐
Total Bonds 80,115 48,408 ‐ 3,749 44,660 3,855
State Water Resources Loans
Direct Borrowings:
2007, 1.02%, due 06/30/2029 9,000 4,950 ‐ 450 4,500 450
2009, 2.6%, due 11/30/2030 8,500 6,064 ‐ 398 5,666 408
2017, 1.8%, due 3/30/2049 29,684 6,697 12,725 ‐ 19,422 578
Total Direct Borrowings 47,184 17,711 12,725 848 29,588 1,436
Total Business‐type Activities Debt 127,299$ 66,119$ 12,725$ 4,597$ 74,248$ 5,291$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
78
NOTE 7 – LONG‐TERM DEBT (Continued)
Description of Long‐Term Debt Issues
2010 General Obligation Bonds (2010 GO Bonds) – On June 30, 2010, the City issued $55.3 million of 2010
GO Bonds to finance costs for constructing a new Mitchell Park Library and Community Center, and to
fund substantial improvements to the Rinconada Library and the Downtown Library. Principal payments
are due annually on August 1 and interest payments semi‐annually on February 1 and August 1 and are
payable from property tax revenues. The true interest cost (TIC) is 4.21 percent.
On June 28, 2016, the City defeased $2.3 million of 2010 GO Bonds using funds from bond premiums
received at time of issue by depositing the amount in an irrevocable trust account. The trust account
assets and the liability for the defeased bonds are not included in the City’s financial statements. The City
legally remains the primary obligor on the $2.3 million of defeased bonds until they are paid on August 1,
2020.
2013A General Obligation Bonds (2013A GO Bonds) – On June 30, 2013, the City issued $20.7 million of
2013A GO Bonds to finance costs for constructing a new Mitchell Park Library and Community Center, as
well as making substantial improvements to the Rinconada Library and the Downtown Library. Principal
payments are due annually on August 1 and interest payments semi‐annually on February 1 and August 1
from 2 percent to 5 percent, and are payable from property tax revenues. The TIC is 3.85 percent.
On June 28, 2016, the City defeased $2.8 million of 2013A GO Bonds using funds remaining at completion
of the project by depositing the amount in an irrevocable trust account The trust account assets and the
liability for the defeased bonds are not included in the City’s financial statements. The City legally remains
the primary obligor on the $2.8 million of defeased bonds until they are paid on August 1, 2023.
The City’s 2010 and 2013A GO Bonds are general obligations of the City, secured and payable solely from
ad valorem property taxes levied by the City and collected by the County of Santa Clara. The City is
empowered and obligated to annually levy ad valorem taxes for the payment of the Bonds and the interest
thereon upon all property within the City subject to taxation by the City, without limitation of rate or
amount (except certain personal property which is taxable at limited rates) until the final maturity dates
of the bonds on August 1, 2040 and August 1, 2041 respectively. For the fiscal year ended June 30, 2019,
the City received $4.4 million in ad valorem property taxes for principal of $1.6 million and interest of $2.8
million for the 2010 and 2013A GO Bonds.
2018 Capital Improvement (“Golf Course”) Project and Refinancing Certificates of Participation (2018
COPs) – On June 1, 2018, the City issued taxable COPs of $9.0 million for the renovation of the Palo Alto
Municipal Golf Course ($8.4 million) and to fully refinance the 2002B COPs ($0.6 million). There are two
semi‐annual debt service payments, consisting of principal payments due annually on November 1 and
interest payments due on May 1 and November 1, which are payable solely from and secured by the lease
payments to be made by the City’s General Fund to the Public Improvement Corporation pursuant to the
Lease Agreement. The leased property is the Palo Alto University Fire Station 1. The 2018 COPs has a final
maturity date of November 1, 2047.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
79
NOTE 7 – LONG‐TERM DEBT (Continued)
2019 California Avenue Parking Garage Series A and B Certificates of Participation (2019A and 2009B
COPs) – On March 21, 2019, the City issued tax exempt 2019A COPs of $26.8 million and taxable 2019B
COPs of $10.6 million for the construction of the California Avenue Parking Garage. There are two semi‐
annual debt service payments, consisting of principal payments due annually on November 1 and interest
payments due on May 1 and November 1. The debt service is payable solely from and secured by the lease
payments to be made by the City’s General Fund to the Public Improvement Corporation pursuant to the
Lease Agreement. The leased property is the Rinconada Library and after construction and the substantial
readiness of the California Avenue Parking Garage project, the garage will become the leased property.
The maturity dates and TIC for 2019A COPs are November 2044 and 3.51 percent, respectively, and 2019B
COPs are November 2048 and 4.32 percent, respectively, with a combined rate of 3.75 percent. The
reserve account requirement was waived due to the City being a highly rated bond issuer.
Direct Borrowing ‐ 2011 Lease‐Purchase Agreement – On August 2, 2011, the City entered into a master
lease‐purchase direct private placement agreement with JP Morgan Chase Bank, N.A. to finance
redemption of the 1998 Golf Course COPs. The lease is secured by a first priority security interest in
twenty‐one Fire Department emergency vehicles. Lease proceeds were $3.2 million. Principal payments
are due annually on September 1 and interest payments are due semi‐annually on September 1 and March
1 at a rate of 2.49 percent, payable from General Fund revenues. As of June 30, 2019, all principal and
interest payments for the lease‐purchase agreement have been made by the City and the outstanding
balance is $0.
1995 Utility Revenue Bonds, Series A – The City issued $8.6 million of Utility Revenue Bonds on
February 1, 1995 to finance certain extensions and improvements to the City’s Storm Drainage and
Surface Water System. The Bonds are special obligations of the City payable solely from and secured by
a pledge of and lien upon the revenues derived by the City from the funds, services and facilities of all
Enterprise Funds except the Refuse Services Fund, Fiber Optics Fund and Airport Fund. Principal payments
are payable annually on June 1 and interest payments semi‐annually on June 1 and December 1.
As required by the Indenture, the City established a debt service reserve fund for the Bonds (the “Reserve
Account”), with a minimum funding level requirement in the Reserve Account (the “Reserve
Requirement”). At the time it issued the Bonds, the City satisfied the Reserve Requirement with a deposit
into the Reserve Account of a surety bond (the “Surety Bond”) in the amount of $685,340 issued by Ambac
Indemnity Corporation (renamed to Ambac Assurance Corporation in 1997).
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
80
NOTE 7 – LONG‐TERM DEBT (Continued)
The pledge of future Net Revenues for the above bonds ends upon repayment of the $0.6 million principal
and $0.1 million interest as the remaining debt service on the bonds, which is scheduled to occur in
FY 2020. For FY 2019, Net Revenues, including operating revenues and non‐operating interest earnings,
amounted to $316.1 million; operating costs, including operating expenses but not interest, depreciation
or amortization, amounted to $227.8 million. Net Revenues available for debt service amounted to $88.3
million, which represented coverage of 129.3 times over the $0.7 million in debt service.
1999 Utility Revenue and Refunding Bonds – The City issued $17.7 million of Utility Revenue Bonds on
June 1, 1999, to refund the 1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue
Bonds, Series A, and to finance rehabilitation of two Wastewater Treatment sludge incinerators. The 1990
Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue Bonds, Series A, were
subsequently retired.
The 1999 Bonds are special obligations of the City payable solely from and secured by a pledge of and lien
upon certain net revenues derived by the City’s sewer system and its storm and surface water system (the
“Storm Drain System”). As of June 30, 2001, the 1999 Bonds had been allocated to and were repayable
from net revenues of the following enterprise funds: Wastewater Collection (10.2 percent), Wastewater
Treatment (64.6 percent) and Storm Drainage (25.2 percent). Principal payments are payable annually on
June 1 and interest payments semi‐annually on June 1 and December 1. A $3.1 million 5.3 percent term
bond and a $5.1 million 5.3 percent term bond are due June 1, 2021 and 2024, respectively.
As required by the Indenture, the City established a Reserve Account with a Reserve Requirement. At the
time it issued the Bonds, the City satisfied the Reserve Requirement with a deposit into the Reserve
Account of a Surety Bond in the amount of $1,647,300 issued by Ambac Indemnity Corporation (renamed
to Ambac Assurance Corporation in 1997).
The pledge of future Net Revenues for the above bonds ends upon repayment of the $7.5 million principal
and $1.3 million interest as the remaining debt service on the bonds, which is scheduled to occur in
FY 2024. For FY 2019, Net Revenues, including operating revenues and non‐operating interest earnings,
amounted to $56.5 million; operating costs, including operating expenses but not interest, depreciation
or amortization, amounted to $41.9 million. Net Revenues available for debt service amounted to $14.6
million, which represents coverage of 12.1 times over the $1.2 million in debt service.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
81
NOTE 7 – LONG‐TERM DEBT (Continued)
2009 Water Revenue Bonds, Series A – On October 6, 2009, the City issued $35.0 million of Water
Revenue Bonds to finance certain improvements to the City’s water utility system. Principal payments are
due annually on June 1, and interest payments are due semi‐annually on June 1 and December 1 from
1.80 percent to 5.95 percent. The 2009 Revenue Bonds are secured by net revenues generated by the
Water Services Fund. The 2009 Bonds were issued as bonds designated as “Direct Payment Build America
Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (“Build America
Bonds”). The City expects to receive a cash subsidy payment from the United States Treasury equal to 35
percent of the interest payable on the 2009 Bonds. The lien of the 1995 Bonds on the Net Revenues is
senior to the lien on Net Revenues securing the 2009 Bonds and the 2011 Bonds. The City received subsidy
payments amounting to $488 thousand, which represents 32.8 percent of the interest payments due on
December 1 and June 1.
The pledge of future Net Revenues for the above bonds ends upon repayment of the $26.6 million
principal and $14.4 million interest as the remaining debt service on the bonds, which is scheduled to
occur in FY 2035. For FY 2019, Net Revenues, including operating revenues and non‐operating interest
earnings, amounted to $47.7 million; operating costs, including operating expenses but not interest,
depreciation or amortization, amounted to $36.0 million. Net Revenues available for debt service
amounted to $11.7 million, which represented coverage of 4.6 times over the $2.6 million in debt service.
2011 Utility Revenue Refunding Bonds – On September 8, 2011, the City issued $17.2 million in Lease
Revenue Bonds (2011 Bonds) to refund the outstanding 2002 Series A Utility Revenue Bonds (2002 Bonds)
on a current basis. The 2002 Bonds were issued to finance improvement to the City’s municipal water
utility system and the natural gas utility system. Principal of the 2011 Bonds is payable annually on June
1, and interest on the 2011 Bonds is payable semi‐annually on June 1 and December 1. The 2011 Bonds
are secured by net revenues generated by the Water Services and Gas Services Funds. The TIC is 2.28
percent.
The pledge of future Net Revenues of the above bonds ends upon repayment of the $9.0 million principal
and $1.1 million interest as remaining debt service on the bonds, which is scheduled to occur in FY 2026.
For FY 2019, Net Revenues, including operating revenues and non‐operating interest earnings, amounted
to $91.2 million; operating costs, including operating expenses but not interest, depreciation or
amortization, amounted to $63.4 million. Net Revenues available for debt service amounted to $27.8
million, which represented coverage of 19.2 times over the $1.5 million in debt service.
2007 Electric System Clean Renewable Energy Tax Credit Bonds, Series A – In October 2007, the City
issued $1.5 million of Electric Utility Clean Renewable Energy Tax Credit Bonds (CREBs), 2007 Series A, to
finance the City’s photovoltaic solar panel project. The CREBs do not bear interest. In lieu of receiving
periodic interest payments, bondholders are allowed annual federal income tax credits in an amount
equal to a credit rate for such CREBs multiplied by the outstanding principal amount of the CREBs owned
by the bondholders. The CREBs are payable solely from and secured solely by a pledge of the Net Revenues
of the Electric system and the other funds pledged under the Indenture.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
82
NOTE 7 –LONG‐TERM DEBT (Continued)
The pledge of future Electric Fund Net Revenues ends upon repayment of the $0.3 million remaining debt
service on the bonds, which is scheduled to occur in FY 2022. For FY 2019, Net Revenues, including
operating revenues and non‐operating interest earnings, amounted to $168.5 million; operating costs,
including operating expenses but not interest, depreciation or amortization, amounted to $122.6 million.
Net Revenues available for debt service amounted to $45.9 million, which represented coverage of
458.7 times over the $0.1 million in debt service.
Direct Borrowing ‐ 2007 State Water Resources Loan – In October 2007, the City approved a $9 million
direct loan agreement with State Water Resources Control Board (SWRCB) to finance the City’s Mountain
View/Moffett Area reclaimed water pipeline project. Under the terms of the contract, the City has agreed
to repay $9 million to the State in exchange for receiving $7.5 million in proceeds to be used to fund the
Project. The difference of $1.5 million between the repayment obligation and proceeds represents in‐
substance interest on the outstanding balance. Principal payments are payable annually on June 30.
Concurrently with the loan, the City entered into various other agreements including a cost sharing
arrangement with the City of Mountain View. Pursuant to that agreement, City of Mountain View agreed
to finance a portion of the project with a $6.0 million loan repayable to the City. This loan has been
recorded as “Due from other government agencies” in the accompanying financial statements. The
balance due to the City at June 30, 2019 was $3.0 million.
Direct Borrowing ‐ 2009 State Water Resources Loan – In October 2009, the City approved an $8.5 million
direct loan agreement with SWRCB to finance the City’s Ultraviolet Disinfection project. Principal and
interest payments are payable annually on November 30. The loan interest rate is 2.60 percent which
represents a combination of loan service charge and interest.
Direct Borrowing ‐ 2017 State Water Resources Loan ‐ In June 2017, the SWRCB and the City executed a
direct loan agreement for an award up to $30 million, payable over 30 years to finance the replacement
of sewage sludge “bio‐solids” incinerators at the City’s Regional Water Quality Control Plant (RWQCP). In
September 2017, due to the projected lower project costs, the agreement was amended to a lower loan
amount of $29.7 million. Under the terms of the contract, a portion of the loan amount, $4.0 million, is
federally funded and has been adjusted to reflect the correct long term obligation balance. The loan
interest rate is 1.80 percent.
The new facility will dewater the bio‐solids and allow the material to be loaded onto trucks and taken to
a separate facility for further treatment. The RWQCP provides treatment and disposal for wastewater for
Palo Alto, Mountain View, Los Altos, Los Altos Hills, East Palo Alto Sanitary District, and Stanford
University. Though Palo Alto is the recipient of the loan, the City’s agreement with the partner agencies
oblige them to pay their proportionate share of the principal and interest of this loan. Palo Alto’s share of
the loan payment is 38.2 percent with the partner agencies paying 61.8 percent.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
83
NOTE 7 – LONG‐TERM DEBT (Continued)
Debt Service Requirements (in thousands):
Debt service requirements are shown below for all long‐term debt.
For the Year Ending
June 30 Principal Interest Total Principal Interest Total Principal Interest Total
2020 2,280$ 5,026$ 7,306$ 3,855$ 2,153$ 6,008$ 1,436$ 498$ 1,934$
2021 2,595 4,740 7,335 4,030 1,982 6,012 1,532 541 2,073
2022 2,695 4,640 7,335 4,215 1,797 6,012 1,563 562 2,125
2023 2,795 4,535 7,330 4,300 1,616 5,916 1,582 542 2,124
2024 2,910 4,413 7,323 4,485 1,427 5,912 1,606 518 2,124
2025‐2029 16,720 19,874 36,594 10,595 5,137 15,732 8,408 2,215 10,623
2030‐2034 21,050 15,426 36,476 10,215 2,607 12,822 5,129 1,577 6,706
2035‐2039 26,285 10,053 36,338 2,420 144 2,564 4,438 1,157 5,595
2040‐2044 17,060 4,337 21,397 ‐ ‐ ‐ 3,894 743 4,637
2045‐2049 12,415 1,354 13,769 ‐ ‐ ‐ ‐ ‐ ‐
Total 106,805$ 74,398$ 181,203$ 44,115$ 16,863$ 60,978$ 29,588$ 8,353$ 37,941$
Governmental Activities
Bonds Direct Borrowings
Business‐Type Activities
Debt Call Provisions
Long‐term debt as of June 30, 2019 is callable on the following terms and conditions:
Initial Call Date
Governmental Activities Long‐Term Debt
2010 General Obligation Bonds
$6.595 million due 08/01/2032 08/01/31 (2)
$4.890 million due 08/01/2034 08/01/33 (2)
$17.725 million due 08/01/2040 08/01/35 (2)
Business‐Type Activities Long‐Term Debt
Utility Revenue Bonds
1999 Refunding 06/01/09 (1)
2011 Refunding 06/01/21 (1)
(1) Callable in inverse numerical order of maturity at par plus a premium of 2 percent beginning on the
initial call date. The call price declines subsequent to the initial date.
(2) Callable in any order specified by the City at par value plus any accrued interest beginning on the
initial call date.
Leasing Arrangements
COPs and Capital Leases are issued for the purpose of financing the construction or acquisition of projects
defined in each leasing arrangement. Projects are leased to the City for lease payments which, together
with unspent proceeds of the leasing arrangement, will be sufficient to meet the debt service obligations
of the leasing arrangement. At the termination of the leasing arrangement, title to the project will pass to
the City.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
84
NOTE 7 – LONG‐TERM DEBT (Continued)
Leasing arrangements are similar to debt in that they allow investors to participate in a share of
guaranteed payments made by the City. Because they are similar to debt, the present value of the total
payments to be made by the City is recorded as long‐term debt. The City’s leasing arrangements are
included in long‐term obligations discussed above.
Events of Default and Acceleration Clauses
Generally, the City is considered to be in default if the City fails to pay the principal of and interest on the
outstanding long‐term debt when become due and payable. If an event of default has occurred and is
continuing, the principal of the long‐term debt, together with the accrued interest, may be declared due
and payable immediately.
NOTE 8 – SPECIAL ASSESSMENT DEBT
Special Assessment Debt with no City Commitment
On February 29, 2012, the University Avenue Area Off‐Street Parking Assessment District issued Limited
Obligation Refunding Improvement Bonds (2012 Bonds), but the City has no legal or moral liability with
respect to the payment of this debt, which is secured only by assessments on properties in this District.
Therefore, this debt is not included in Governmental Activities long‐term debt of the City. At
June 30, 2019, the District’s outstanding debt amounted to $20.9 million. The proceeds from the 2012
Bonds, combined with available Assessment Funds, were used to redeem the outstanding University
Avenue Area Off‐Street Parking Assessment District Series 2001‐A and Series 2002‐A Bonds. On June 28,
2016, the District defeased $1.6 million of the 2012 Bonds using funds remaining from completion of the
project. The defeased debt will be paid on September 2, 2022. The TIC is 3.97 percent.
NOTE 9 – LANDFILL POST‐CLOSURE MAINTENANCE
The 126 acre Palo Alto Refuse Disposal Site (Palo Alto Landfill) was filled to capacity and stopped accepting
waste in July 2011. State and federal laws and regulations require the City to construct a final cover to
cap the waste, and to perform certain post‐closure maintenance and monitoring activities at the site for
a minimum of thirty years after closure. As of November 2015, the Palo Alto Landfill has been fully capped
and subsequently converted to a pastoral park (Byxbee Park) that is open to the public. A final post‐
closure maintenance plan and cost estimate for the thirty year post‐closure related activities was
approved by state and local regulatory agencies in 2014. This cost estimate is adjusted annually for
inflation at a percentage provided by the State. Landfill post‐closure liabilities as of June 30, 2019 are
$7.0 million, an increase of $0.2 million from the previous year. The City is required by state and federal
laws and regulations to fund post‐closure maintenance activities by pledging future revenue received
from Refuse customers through rate fees.
NOTE 10 – NET POSITION AND FUND BALANCES
Net Position
Net Position is the excess of the City’s assets and deferred outflows of resources over its liabilities and
deferred inflows of resources. Net position is divided into three categories that are described below:
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
85
NOTE 10 – NET POSITION AND FUND BALANCES (Continued)
Net Investment in Capital Assets describes the portion of net position, which is represented by current net
book value of the City’s capital assets, less the outstanding balance of any debt issued to finance these
assets.
Restricted describes the portion of net position that is reduced by liabilities related to restricted assets.
Generally a liability relates to restricted assets if the asset results from a resource flow that also results in
the recognition of a liability or if the liability will be liquidated with the restricted assets reported.
Unrestricted describes the portion of net position which is not restricted as to use.
Fund Balances
As prescribed by GASB Statement No. 54, governmental funds report fund balances in classifications based
primarily on the extent to which the City is bound to honor constraints on the specific purposes for which
amounts in the funds can be spent. Fund balances for governmental funds are made up of the following:
Nonspendable – This category is comprised of amounts that are: (a) not in spendable form, or (b) legally
or contractually required to be maintained intact. The “not in spendable form” criterion includes items
that are not expected to be converted to cash, for example: prepaid items. The corpus of the permanent
fund is contractually required to be maintained intact.
Restricted – This category is comprised of amounts that can be spent only for the specific purposes
stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions
may effectively be changed or lifted only with the consent of resource providers.
Committed – This category is comprised of amounts that can only be used for the specific purposes
determined by the action that constitutes the most binding constraint (i.e. ordinance) of the City’s highest
level of decision‐making authority, the City Council. Commitments may be changed or lifted only by the
City taking the same formal action that imposed the constraint originally.
Assigned – This category is comprised of amounts intended to be used by the City for specific purposes
that are neither restricted nor committed. Intent is expressed by the City Council or the City Manager, to
whom the City Council has delegated the authority to assign amounts to be used for specific purposes.
Unassigned –This category is the residual classification for the General Fund and includes all amounts not
contained in the other classifications. Unassigned amounts are technically available for any purpose.
Other governmental funds may report negative unassigned fund balance, which occurs when a fund has
a residual deficit after allocation of fund balance to the nonspendable, restricted or committed categories.
The fund balances of all governmental funds are presented by the above mentioned categories on the
face of the financial statements. In circumstances when an expenditure is made for a purpose for which
amounts are available in multiple fund balance categories, fund balance is depleted in the order of
restricted, committed, assigned, and unassigned.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
86
NOTE 10 – NET POSITION AND FUND BALANCES (Continued)
The General Fund Budget Stabilization Reserve (BSR) is established by authority of the General Fund
Reserve Policy, which is approved by the City Council and included in the City’s annual adopted budget.
The BSR is maintained in the range of 15 to 20 percent of General Fund expenditures and operating
transfers, with a target of 18.5 percent. Any reserve level below 15 percent requires City Council approval.
At the discretion of the City Manager, a reserve balance above 18.5 percent may be transferred to the
Infrastructure Reserve within the Capital Projects Fund. The purpose of the General Fund BSR is to fund
unbudgeted, unanticipated one‐time costs. The BSR is not meant to fund ongoing, recurring General Fund
expenditures.
As of June 30, 2019 total outstanding encumbrances and reappropriations related to governmental
activities were $6.5 million for the General Fund, $79.4 million for the Capital Projects Fund, and $13.6
million for the Special Revenue Funds. General Fund encumbrances and reappropriations are reserved
for the following governmental activities: Planning & Community Environment $1.7 million, City Manager
$0.6 million, Development Services $0.4 million, Public Works $0.8 million, Community Services $1.2
million, Police $0.3 million, Non‐Departmental $0.4 million and the remaining City departments $1.1
million.
Enterprise Funds
At June 30, 2019, Enterprise Fund unrestricted net position (in thousands) were as follows:
Water Electric Fiber Optics Gas
Wastewater
Collection
Wastewater
Treatment Refuse
Storm
Drainage Airport Total
Unrestricted
Rate stabilization
Supply ‐$ ‐$ ‐$ (3,829)$ ‐$ ‐$ ‐$ ‐$ ‐$ (3,829)$
Distribution 4,069 ‐ 30,358 6,363 342 856 20,737 2,061 (9,914) 54,872
4,069 ‐ 30,358 2,534 342 856 20,737 2,061 (9,914) 51,043
Operations
Supply ‐ 28,709 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 28,709
Distribution 20,652 16,536 ‐ 9,966 5,391 ‐ ‐ ‐ ‐ 52,545
20,652 45,245 ‐ 9,966 5,391 ‐ ‐ ‐ ‐ 81,254
Emergency plant replacement ‐ ‐ 1,000 ‐ ‐ 1,980 ‐ ‐ ‐ 2,980
Electric special projects ‐ 41,665 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 41,665
Reappropriations 13,977 7,375 475 1,217 2,636 1,973 ‐ 4,054 ‐ 31,707
Commitments 1,510 7,192 375 10,033 3,096 7,922 1,409 479 7,767 39,783
Underground loan ‐ 727 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 727
Notes and loans ‐ ‐ ‐ ‐ ‐ 559 ‐ ‐ ‐ 559
Landfill corrective action ‐ ‐ ‐ ‐ ‐ ‐ 758 ‐ ‐ 758
Hydro stabilization reserve ‐ 11,400 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 11,400
Public benefit program ‐ 810 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 810
CIP reserve 2,726 880 ‐ 3,820 978 ‐ ‐ ‐ ‐ 8,404
Geng Road reserve ‐ ‐ ‐ ‐ ‐ ‐ 268 ‐ ‐ 268
GASB 68 Pension reserve (13,076) (31,323) (2,002) (13,824) (7,827) (19,716) (5,374) (3,501) (684) (97,327)
GASB 75 OPEB reserve (4,346) (14,156) (6,230) (2,382) (7,333) (2,651) (1,157) (431) (38,686)
Total 25,512$ 69,815$ 30,206$ 7,516$ 2,234$ (13,759)$ 15,147$ 1,936$ (3,262)$ 135,345$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
87
NOTE 10 – NET POSITION AND FUND BALANCES (Continued)
The City Council has set aside unrestricted net position for general contingencies, and future capital and
debt service expenditures including operating and capital contingencies for unusual or emergency
expenditures.
Internal Service Funds
At June 30, 2019, Internal Service Funds unrestricted net position (in thousands) were as follows:
Vehicle
Replacement
and
Maintenance Technology
Printing and
Mailing Services
General
Benefits
Workers'
Compensation
Insurance
Program
General
Liabilities
Insurance
Program
Retiree Health
Benefits Total
Unrestricted net position:
Commitments 1,706$ 2,871$ 108$ 546$ 10$ 34$ ‐$ 5,275$
Future catastrophic losses ‐ ‐ ‐ ‐ 489 285 ‐ 774
Retiree health care ‐ ‐ ‐ ‐ ‐ ‐ 1,150 1,150
Capital projects 2,594 3,101 ‐ ‐ ‐ ‐ ‐ 5,695
GASB68 pension reserve (3,213) (10,578) (286) ‐ (28) ‐ ‐ (14,105)
PARS supplemental pension reserve ‐ ‐ ‐ 14,030 ‐ ‐ ‐ 14,030
GASB75 OPEB reserve (1,655) (3,377) (148) ‐ ‐ ‐ ‐ (5,180)
Available 6,233 19,725 (116) 2,543 ‐ ‐ ‐ 28,385
Total 5,665$ 11,742$ (442)$ 17,119$ 471$ 319$ 1,150$ 36,024$
Commitments represent the portion of net position set aside for open purchase orders.
Future catastrophic losses represent the portion of net position to be used for unforeseen future
losses.
Retiree health care represents the portion of net position set aside to defer future costs of retiree
health care coverage.
Capital projects represent the portion of net position set aside for adopted capital projects.
GASB68 pension reserve is the portion of net position required to be set aside to meet defined benefit
pension obligations.
PARS supplemental pension reserve represents Section 115 irrevocable trust with the PARS to prefund
pension obligations.
GASB75 OPEB reserve is the portion of net position required to be set aside to meet OPEB obligations.
Funds with deficits:
At June 30, 2019, the City’s Downtown Business Development District non‐major special revenue fund
had a deficit fund balance of $32,000. The fund balance will be cured through collection of future special
assessments.
At June 30, 2019, the City’s Printing and Mailing Services internal service revenue fund had a deficit net
position of $402,000. The deficit is due to the impact of Pension and OPEB items. The deficit is expected
to be funded by future internal service charges to other City funds.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
88
NOTE 11 – PENSION PLANS
(a) General Information about the Pension Plans
Plan Descriptions ‐ Substantially all permanent City employees are eligible to participate in the City’s
separate Safety (police and fire) and Miscellaneous (all other) Plans, agent multiple‐employer defined
benefit pension plans administered by California Public Employees’ Retirement System (CalPERS), which
acts as a common investment and administrative agent for its participating member employers. Benefits
provisions under the Plans are established by State statute and City resolution. CalPERS issues publicly
available reports that include a full description of the pension plans including benefits provisions,
assumptions and membership information. The reports can be found on the CalPERS website.
Benefits Provided ‐ CalPERS provides retirement and disability benefits, annual cost of living adjustments
and death benefits to Plan members, who must be public employees and beneficiaries. Benefits are based
on years of credited service (equal to one year of full‐time employment), age at retirement and final
compensation. The death benefit is one of the following: the 1959 Survivor Benefit, or the pre‐retirement
option 2W Death Benefit for local fire members only.
The Plans’ provisions and benefits in effect at June 30, 2019, are summarized in the following table.
Contribution rates are based on the Actuarial Valuation Report as of June 30, 2016.
Safety Plan
Fire Fighters,
Fire Chief
Association,
Police Officers,
Fire Fighters,
Fire Chief Association
Police Officers,
Police Management
Fire Fighters,
Fire Chief
Association,
Police Officers,
Hire Date Prior to June 8, 2012
On or after June 8,
2012
On or after Dec. 8,
2012
On or after Jan 1,
2013
Benefit formula1 3% at 55 3% at 55 3% at 50 2.7% at 57
Benefit vesting schedule 5 years service 5 years service 5 years service 5 years service
Benefit payment monthly for life monthly for life monthly for life monthly for life
Retirement age 50 551 551 571
Monthly benefit as % of eligible compensatio 3% 3% 3% 2.7%
Actuarially determined contribution rate ‐ EE 9% 9% 9% 11.25%
Actuarially determined contribution rate ‐ ER 55.633% 55.633% 55.633% 55.633%
Hire Date Prior to July 17, 2010
On or after July 17,
2010
On or after Jan 1,
2013
Benefit formula 2.7% at 552 2% at 602 2% at 623
Benefit vesting schedule 5 years service 5 years service 5 years service
Benefit payments monthly for life monthly for life monthly for life
Retirement age 552 602 623
Monthly benefit as % of eligible compensatio 2.70% 2.0% ‐ 2.418% 2%
Actuarially determined contribution rate ‐ EE 8% 7% 6.25%
Actuarially determined contribution rate ‐ ER 32.556% 32.556% 32.556%
1 Employees can retire at age 50 with reduced benefits of 2.4% ‐ 2.88% if hired before Jan 1, 2013, or 2.0% ‐ 2.6% if hired on or
after Jan 1, 2013.
2 Employees can retire at age 50 with reduced benefits of 2.0% ‐ 2.56% if hired before July 17, 2010, or 1.092% ‐ 1.874% if hired on or
after July 17, 2010.
3 Employees can retire at age 52 with reduced benefits of 1.0% ‐ 1.9%
Miscellaneous Plan
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
89
NOTE 11 – PENSION PLANS (Continued)
Employees Covered – Based on the Actuarial Valuation Report as of June 30, 2018, the most recent
information available, the following employees were covered by the benefits terms for each Plan:
Miscellaneous
Plan Safety Plan
Inactive employees or beneficiaries currently receiving benefits 1,129 430
Inactive employees entitled to but not yet receiving benefits 796 109
Active employees 808 167
Total 2,733 706
Contributions –Section 20814(c) of the California Public Employees’ Retirement Law requires that the
employer contribution rates for all public employers be determined on an annual basis by the actuary and
shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Plans
are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate
is the estimated amount necessary to finance the costs of benefits earned by employees during the year,
with an additional amount to finance any unfunded accrued liability. The City is required to contribute
the difference between the actuarially determined rate and the contribution rate of employees.
Further detail can be found in the Required Supplemental Information Schedule of Contributions.
In April 2017, the City established a Section 115 irrevocable trust with the Public Agency Retirement
Services (PARS). The Council approved an initial deposit of $2.1 million in General Fund proceeds into the
General Fund subaccount of the City’s PARS Trust Account. The Trust Account allows more control and
flexibility in investment allocations compared to City’s portfolio which is restricted by State regulations to
fixed income instruments. The City proactively contributes to the Section 115 irrevocable trust amounts
reflective of what retirement costs would be if the normal cost of contributions was budgeted at a 6.2%
discount rate. As of June 30, 2019, the City reported the account balance of $14.0 million as restricted
cash in the General Benefits, an Internal Service Fund.
(b) Net Pension Liability
The City’s net pension liability for both Plans is measured as the total pension liability, less the plan’s
fiduciary net position. Net pension liability is measured as of June 30, 2018 (measurement date), using
the Actuarial Valuation Report as of June 30, 2017 rolled forward to June 30, 2018 using standard update
procedures. At June 30, 2019, the City reported a net pension liability of $423.9 million for both plans. A
summary of principal assumptions and methods used to determine the net pension liability is as follows:
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
90
NOTE 11 – PENSION PLANS (Continued)
Actuarial Assumptions ‐ The total pension liabilities were determined using the following actuarial
assumptions in the Accounting Valuation Report:
Miscellaneous
Plan Safety Plan
Valuation Date June 30, 2017 June 30, 2017
Measurement Date June 30, 2018 June 30, 2018
Actuarial Cost Method Entry Age Normal Entry Age Normal
Actuarial Assumptions:
Discount Rate 7.15% 7.15%
Inflation 2.50% 2.50%
Salary Increases
Mortality1
Poste Retirement Benefit Increase
The table includes 15 years of mortality improvements using Society of
Actuaries Scale 90% of scale MP 2016. For more details on this table, please
refer to the CalPERS 2017 experience study report available on the CalPERS
website.
Further details of the Experience Study can be found on the CalPERS website.
Derived using CalPERS membership data
Contract COLA up to 2.0% until Purchasing
Power Protection Allowance Floor on
Purchasing Power applies, 2.50% thereafter
Varies by Entry Age and Service
1 The mortality table used was developed based on CalPERS' speci fic data.
Change in Assumptions – Demographic assumptions and inflation rate were changed in accordance to
the CalPERS Experience Study and Review of Actuarial Assumptions December 2017. The inflation rate
reduced from 2.75 percent to 2.50 percent for the June 30, 2017 actuarial valuations.
Discount Rate – The discount rate used to measure the total pension liability was 7.15 percent for each
Plan. The projection of cash flows used to determine the discount rate assumed that the contributions
from employers will be made at statutorily required rates, actuarially determined. Based on those
assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future
benefit payments of current plan members. Therefore, the long‐term expected rate of return on plan
investments was applied to all periods of projected benefit payments to determine the total pension
liability.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
91
NOTE 11 – PENSION PLANS (Continued)
The long‐term expected rate of return on pension plan investments was determined using a building‐
block method in which best estimate ranges of expected future real rates of return (expected returns, net
of pension plan investment expense and inflation) are developed for each major asset class.
In determining the long‐term expected rate of return, CalPERS took into account both short‐term
and long‐term market return expectations as well as the expected pension fund cash flows. Using
historical returns of all the funds’ asset classes, expected compound geometric returns were
calculated over the short‐term (first ten years) and the long‐term (11‐60 years) using a building‐block
approach. Using the expected nominal returns for both short‐term and long‐term, the present value of
benefits was calculated for each fund. The expected rate of return was set by calculating the single
equivalent expected return that arrived at the same present value of benefits for cash flows as the
one calculated using both short‐term and long‐term returns. The expected rate of return was then set
equal to the single equivalent rate calculated and adjusted to account for assumed administrative
expenses.
The rate of return was calculated using the capital market assumptions applied to determine the discount
rate and asset allocation. The long‐term expected real rate of return by asset class and the target
allocation adopted by the CalPERS Board effective on July 1, 2017, are as follows:
Asset Class
Current
Target
Allocation
Real Return
Years 1 ‐ 101
Real Return
Years 11+2
Global Equity 50.0% 4.80% 5.98%
Global Fixed Income 28.0 1.00 2.62
Inflation Assets ‐ 0.77 1.81
Private Equity 8.0 6.30 7.23
Real Asset 13.0 3.75 4.93
Liquidity 1.0 ‐ ‐0.92
1 An expected inflation of 2.00% used for this period.
2 An expected inflation of 2.92% used for this period.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
92
NOTE 11 – PENSION PLANS (Continued)
(c) Changes in the Net Pension Liability
The following table is based on the GASB 68 Accounting Valuation Report and shows the changes in the
net pension liability for the Miscellaneous and Safety Plans (in thousands):
Total Pension
Liability
Plan Net
Position
Net Pension
Liability
Miscellaenous Plan:
Balances calculated at July 1, 2018 780,729$ 512,924$ 267,805$
Changes for the year:
Service cost 14,724 ‐ 14,724
Interest on total pension liability 54,903 ‐ 54,903
Changes in benefit terms ‐ ‐ ‐
Differences between expected and actual experiences 4,271 ‐ 4,271
Changes in assumptions (5,673) ‐ (5,673)
Contributions from employer ‐ 23,342 (23,342)
Contributions from employees ‐ 6,654 (6,654)
Net investment income ‐ 43,690 (43,690)
Benefit payments, including refunds of employee contributions (37,624) (37,624) ‐
Administrative expense ‐ (799) 799
Other non‐investment expenses ‐ (1,518) 1,518
Net changes 30,601 33,745 (3,144)
Balances reported at June 30, 2019 811,330 546,669 264,661
Safety Plan:
Balances calculated at July 1, 2018 $415,775 $268,468 $147,307
Changes for the year:
Service cost 7,168 ‐ 7,168
Interest on total pension liability 29,871 ‐ 29,871
Change of assumption (1,374) ‐ (1,374)
Differences between expected and actual experiences 11,604 ‐ 11,604
Contributions from employer ‐ 11,030 (11,030)
Contributions from employees ‐ 2,799 (2,799)
Net investment income ‐ 22,724 (22,724)
Benefit payments, including refunds of employee contributions (23,636) (23,636) ‐
Administrative expense ‐ (418) 418
Other non‐investment expenses ‐ (794) 794
Net changes 23,633 11,705 11,928
Balances reported at June 30, 2019 439,408 280,173 159,235
Total for Miscellaneous & Safety Plans 1,250,738$ 826,842$ 423,896$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
93
NOTE 11 – PENSION PLANS (Continued)
Sensitivity of the Net Pension Liability to Changes in the Discount Rate ‐ The following table presents the
net pension liability of the Plans as of the measurement date, calculated using the discount rate of 7.15
percent, compared to a discount rate that is 1 percentage point lower (6.15 percent) or 1 percentage
point higher (8.15 percent). Amounts shown below are in thousands:
Discount Rate ‐ 1%
(6.15%)
Current Discount Rate
(7.15%)
Discount Rate + 1%
(8.15%)
Miscellaneous Plan:
Plan's Net Pension Liability/(Asset)368,520$ 264,661$ 178,315$
Safety Plan:
Plan's Net Pension Liability/(Asset)215,925$ 159,235$ 112,413$
Plan Fiduciary Net Position – Detailed information about the Plan’s fiduciary net position is available in
the separately issued CalPERS financial report: Schedule of Changes in Fiduciary Net Position by Rate Plan.
(d) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions
For the year ended June 30, 2019, the City recognized a pension expense of $39.2 million and $24.9 million
for the Miscellaneous and Safety Plan respectively, for a total of $57.6 million. At June 30, 2019, the City
reported pension related deferred outflows of resources and deferred inflows of resources for the
Miscellaneous and Safety Plans from the following sources (in thousands):
Miscellaneous Plan:
Deferred
Outflows
of Resources
Deferred
Inflows
of Resources
Pension contributions subsequent to
measurement date 25,359$ ‐$
Change of assumptions 13,109 3,782
Difference between expected and actual experience 2,847 1,979
Net difference between projected and actual earnings
on plan investments 332 ‐
Balance reported at June 30, 2019 41,647 5,761
Safety Plan:
Pension contributions subsequent to
measurement date 12,367 ‐
Change of assumptions 7,003 883
Difference between expected and actual experience 7,460 915
Net difference between projected and actual earnings
on plan investments 518 ‐
Balance reported at June 30, 2019 27,348 1,798$
Total, Miscellaneous & Safety Plans 68,995$ 7,559$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
94
NOTE 11 – PENSION PLANS (Continued)
The $37.7 million reported as deferred outflows of resources relates to contributions paid by the City from
July 1, 2018 through June 30, 2019 which is subsequent to the City’s measurement date of June 30, 2018
for both the Miscellaneous and Safety Plans. This amount will be recognized as a reduction of the net
pension liability in the year ended June 30, 2020.
The net differences reported as deferred outflows of resources and deferred inflows of resources related
to pensions will be recognized in future pension expense as follows (in thousands):
Year Ended June 30,
Miscellaneous
Plan
Safety
Plan Total
2020 16,875$ 13,253$ 30,128$
2021 692 3,637 4,329
2022 (5,539) (2,915) (8,454)
2023 (1,501) (792) (2,293)
10,527$ 13,183$ 23,710$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
95
NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB)
(a) General Information about the OPEB Plan
In addition to providing pension benefits, the City participates in the California Public Employees’ Medical
and Health Care Act program to provide certain health care benefits for retired employees. The City’s
Other Post‐Employment Benefit plan is an agent multiple‐employer defined benefit plan. Employees who
retire directly from the City are eligible for retiree health benefits if they retire on or after age 50 with 5
years of service and are receiving a monthly pension from CalPERS. Details of benefits to retirees are
noted in the following tables:
Unit
Hired
Before
Retiree
Coverage1
Dependent
Coverage
Retired on
or After
Retiree
Contribution
Management & Professional 2 1/1/2004 100% 100% 5/1/2011 Flat rate 4
Police Management2 1/1/2004 100% 100% 6/1/2012 Flat rate 4
Fire Fighters2 1/1/2004 100% 100% 12/1/2011 Flat rate 4
Fire Chiefs Association2 1/1/2004 100% 100% 1/1/2013 Flat rate 4
SEIU 1/1/2005 100% 100% 5/1/2011 Flat rate 4
Police Officers3 1/1/2006 100% 100% 4/1/2015 Flat rate 4
Utilities Managers & Professional 2 1/1/2004 100% 100% 5/1/2011 10%
2 Effective 1/1/2007 plan capped at the second highest CalPERS Bay Area Basic plan premium.
3 Effective 7/1/2014 plan capped at the second highest CalPERS Bay Area Basic plan premium.
4 Effective 1/1/2017 City pays $773 for employee, $1,544 for emp loyee +1, $2,008 for family. Effective 1/1/2018 City pays
$804 for employee, $1,606 for employee +1, $2,088 for fami ly.
Unit
Hired on or
After
Retiree
Coverage1
Dependent
Coverage2
Management & Professional 1/1/2004 50%‐100% Max. 90%
Police Management 1/1/2004 50%‐100% Max. 90%
Fire Fighters 1/1/2004 50%‐100% Max. 90%
Fire Chiefs Association 1/1/2004 50%‐100% Max. 90%
Utilities Managers & Professional 1/1/2004 50%‐100% Max. 90%
SEIU 1/1/2005 50%‐100% Max. 90%
Police Officers 1/1/2006 50%‐100% Max. 90%
specified employer contribution, with the City portion incre asing by 5% for each additional year of service credit.
2 The City will contribute an additional 90 percent of the weigh ted average of the additional premiums required for
enrollment of those family members, during the benefit year to which the forumla is applied.
1 100% of benefits if the employee has five years CalPERS service credit and the employee retired from the City.
1 Employees with ten years of CalPERS service, at least five of which are at the City of Palo Alto, receive 50% of the
Retiree contributions for units with the following hire dates are determined by Government Code
Section 22893, 20 year graduated schedule:
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
96
NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued)
In FY 2008, the City elected to participate in an irrevocable trust to provide a funding mechanism for
retiree health benefits. The Trust, California Employers’ Retirees Benefit Trust (CERBT), is administrated
by CalPERS and managed by a separately appointed board, which is not under control of the City Council.
This Trust is not considered a component unit of the City.
Employees Covered – Employees covered by the benefit terms as of June 30, 2017, the most recent
information available, are as follows:
Inactive employees or beneficiaries currently
receiving benefits 921
Inactive employees entitled to but not yet
receiving benefits 113
Active employees 967
Total 2,001
Contributions – The City’s OPEB funding policy is to prefund these benefits by accumulating assets in the
Trust Fund discussed above pursuant to City Council Resolution. For the year ended June 30, 2019, the
City’s contributions totaled $16.0 million.
(b) Net OPEB Liability
The City’s net OPEB liability is measured as the total OPEB liability, less the OPEB plan’s fiduciary net
position. The net OPEB liability is measured as of June 30, 2018, using an annual actuarial valuation as of
June 30, 2017. A summary of principal assumptions and methods used to determine the net OPEB liability
is shown below.
Valuation Date June 30, 2017
Measurement Date June 30, 2018
Actuarial Cost Method Entry‐Age, level percentage of payroll
Actuarial Assumptions:
Discount Rate 6.75%
Inflation 2.75%
Payroll Growth 3.00%
Projected Salary Increase CalPERS 1997‐2015 Experience Study
Investment Rate of Return 6.75% Net of OPEB Plan Investment Expenses,
includes Inflation.
Post Retirement Benefit Increase
For medical plan premiums: 6.50% for 2019,
decreasing to 4.00% for 2076 and later; For pre‐
Medicare premiums: 7.50% for 2019, decreasing to
4.00% for 2076 and later
Disability, Termination, Retirement CalPERS 1997‐2015 Experience Study
Mortality CalPERS 1997‐2011 Experience Study, and Society
of Actuaries mortality improvement scale MP‐17
Increase to Group 3 Flat Dollar Caps 1/2 of Medical Trend, not less than assumed
inflation (2.75%)
Healthcare Participation for Future Future retirees: 90%, Based on Plan experience
ACA Excise Tax Estimate by 2% load on cash subsidy
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
97
NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued)
Discount Rate – The discount rate used to measure the total OPEB liability was 6.75%. The projection of
cash flows used to determine the discount rate assumed that the City’s contribution will be made equal
to the actuarially determined contribution. Based on those assumptions, the OPEB plan’s fiduciary net
position was projected to be available to make all projected OPEB payments for current active and inactive
employees. Therefore, the long‐term expected rate of return on OPEB plan investments applied to all
periods of projected benefit payments to determine the total OPEB liability.
The long‐term expected rate of return for OPEB plan investments was 6.75%. The asset class target
allocation and geometric real rates of return for each major asset class are summarized in the following
table.
Asset Class
Current
Target
Allocation
Expected Real
Rate of Return
Global Equity 57.0% 4.82%
Fixed Income 27.0 1.47
TIPS 5.0 1.29
Commodities 3.0 0.84
REITS 8.0 3.76
(a) Assumed long‐term rate of inflation of 2.75%
(b) Expected long‐term net rate of return, rounded of 6.75%
(c) Changes in the Net OPEB Liability
The following table shows the changes in the net OPEB liability for the fiscal year ended June 30, 2019.
Total OPEB
Liability
Plan Fiduciary
Net Position
Net OPEB
Liability
Balance at June 30, 2018 244,759$ 91,250$ 153,509$
Changes during the measurement period:
Service cost 6,429 ‐ 6,429
Interest on the total OPEB liability 16,546 ‐ 16,546
Contributions ‐ employer ‐ 21,349 (21,349)
Investment income ‐ 7,519 (7,519)
Administrative expenses ‐ (204) 204
Benefit payments (12,104) (12,104) ‐
Net changes 10,871 16,560 (5,689)
Balance at June 30, 2019 255,630$ 107,810$ 147,820$
Increase (Decrease)
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
98
NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued)
Sensitivity of the Net OPEB Liability to Changes in the Discount Rate – The following presents the net
OPEB liability of the City as of the measurement date, calculated using the discount rate of 6.75 percent,
as well as what the City’s net OPEB liability would be if it were calculated using a discount rate that is 1
percentage‐point lower (5.75 percent) or 1 percentage‐point higher (7.75 percent) than the current
discount rate:
Discount Rate
‐1% (5.75%)
Current
Discount Rate
(6.75%)
Discount Rate
+1% (7.75%)
181,724$ 147,820$ 119,906$
Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rate – The following
presents the net OPEB liability of the City, as well as what the City’s net OPEB liability would be if it were
calculated using healthcare cost trends rates that are 1% lower or 1% higher than the current healthcare
cost trend rates.
Healthcare Trend
Rate ‐ 1%
Healthcare Trend
Current Rate
Healthcare Trend
Rate + 1%
115,526$ 147,820$ 187,522$
OPEB Plan Fiduciary Net Position – Detailed information about the OPEB plan’s fiduciary net position is
available in the separately issued CalPERS financial report.
(d) OPEB Expenses and Deferred Outflows/Inflows of Resources Related to OPEB
For the fiscal year ended June 30, 2019, the City recognized an OPEB expense of $15.8 million for the OPEB
plan. At June 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources
related to OPEB from the following sources (dollars in thousands):
Deferred
Outflows
of Resources
Deferred
Inflows
of Resources
OPEB contributions subsequent to
measurement date $ 15,997 $ ‐
Net differences between projected and actual
earnings on plan investments ‐ 2,737
Total $ 15,997 $ 2,737
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
99
NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued)
The $16.0 million reported as deferred outflows of resources relates to contributions made by the City
from July 1, 2018 through June 30, 2019, which is subsequent to the City’s measurement date of June 30,
2018. This amount will be recognized as a reduction of the net OPEB liability in the fiscal year ended June
30, 2020. The net difference between projected and actual earnings on plan investments will be
recognized in future OPEB expense as follows (dollars in thousands):
Fiscal Year Ending June 30,
2020 (841)$
2021 (841)
2022 (841)
2023 (214)
Total (2,737)$
NOTE 13 – DEFERRED COMPENSATION PLAN
City employees may defer a portion of their compensation under City sponsored Deferred Compensation
Plans created in accordance with Internal Revenue Code Section 457. Under these Plans, participants are
not taxed on the deferred portion of their compensation until distributed to them. Distributions may be
made only at termination, retirement, death or in an emergency as defined by the Plans.
The laws governing deferred compensation plan assets require plan assets to be held by a Trust for the
exclusive benefit of plan participants and their beneficiaries. Since the assets held under these plans are
not the City’s property and are not subject to City control, they have been excluded from these financial
statements.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
100
NOTE 14 – RISK MANAGEMENT
Coverage
The City provides dental coverage to employees through a City plan, which is administered by a third party
service agent. The City is self‐insured for dental claims.
The City has a workers’ compensation insurance policy with coverage up to the statutory limit set by the
State of California. The City retains the risk for the first $750,000 in losses for each accident and employee
under this policy.
The City also has public employee dishonesty insurance with a $5,000 deductible and coverage up to
$1.0 million per loss. The Director of Administrative Services/CFO and City Manager each have coverage
up to $4.0 million per loss.
The City’s property, boiler, and machinery insurance policy has various deductibles and coverage based
on the type of property.
The City is a member of the Authority for California Cities Excess Liability (ACCEL), which provides excess
general liability insurance coverage, including auto liability, up to $200 million per occurrence. The City
retains the risk for the first $1.0 million in losses for each occurrence under this policy.
ACCEL was established for the purpose of creating a risk management pool for central California
municipalities. ACCEL is governed by a Board of Directors consisting of representatives of its member
cities. The board controls the operations of ACCEL, including selection of claims management, general
administration and approval of the annual budget.
The City’s deposits with ACCEL equal the ratio of the City’s payroll to the total payroll of all entities. Actual
surpluses or losses are shared according to a formula developed from overall loss costs and spread to
member entities on a percentage basis after a retrospective rating.
During the year ended June 30, 2019, the City paid $1.2 million to ACCEL for current year coverage.
Audited financial statements are available from ACCEL at 100 Pine Street, 11th Floor, San Francisco,
California 94110.
Claims Liability
The City provides for the uninsured portion of claims and judgments in the General Liabilities insurance
program funds. Claims and judgments, including a provision for claims incurred but not reported, and
claim adjustment expenses are recorded when a loss is deemed probable of assertion and the amount of
the loss is reasonably determinable. As discussed above, the City has coverage for such claims, but it has
retained the risk for the deductible or uninsured portion of these claims.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
101
NOTE 14 – RISK MANAGEMENT (Continued)
The City’s liability for uninsured claims is limited to dental, general liability, and workers’ compensation
claims, as discussed above. Dental liability is based on a percentage of current year actual expense.
General and workers’ compensation liabilities are based on the results of actuarial studies, and include
amounts for claims incurred but not reported as follows as of June 30 (in thousands):
2019 2018
Beginning balance 23,748$ 22,470$
Claims expense, including claims incurred but not
reported (IBNR)8,998 4,705
Claims paid (4,381) (3,427)
Ending balance 28,365$ 23,748$
Current portion 6,171$ 5,835$
Year Ended June 30
The City has not incurred a claim that has exceeded its insurance coverage limits in any of the last three
years, nor have there been any significant reductions in insurance coverage.
NOTE 15 – JOINT VENTURES
General
The City participates in joint ventures through Joint Powers Authorities (JPAs) established under the Joint
Exercise of Powers Act of the State of California. As separate legal entities, these JPAs exercise full powers
and authorities within the scope of the related Joint Powers Agreement, including the preparation of
annual budgets, accountability for all funds, the power to make and execute contracts and the right to
sue and be sued. Obligations and liabilities of the JPAs, including the long‐term debt in which the City
participates in repayment, are not obligations and liabilities of the City, and are not reported on the City’s
financial statements.
Each JPA is governed by a board consisting of representatives from each member agency. Each board
controls the operations of its respective JPA, including selection of management and approval of operating
budgets, independent of any influence by member agencies beyond their representation on the Board.
Northern California Power Agency
The City is a member of Northern California Power Agency (NCPA), a joint powers agency which operates
under a joint powers agreement among fifteen public agencies. The purpose of NCPA is to use the
combined strength of its members to purchase, generate, sell and interchange electric energy and
capacity through the acquisition and use of electrical generation and transmission facilities. Each agency
member has agreed to fund a pro rata share of certain assessments by NCPA and enter into take‐or‐pay
power supply contracts with NCPA. While NCPA is governed by its members, none of its obligations are
those of its members unless expressly assumed by them.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
102
NOTE 15 – JOINT VENTURES (Continued)
During the year ended June 30, 2019, the City incurred expenses totaling $76.7 million for purchased
power and assessments earned by NCPA.
The City’s interest in NCPA projects and reserves, as computed by NCPA, was $10.4 million at
June 30, 2019. This amount represents the City’s portion of funds, which resulted from the settlement
with third parties of issues with financial consequences and reconciliations of several prior years’ budgets
for programs. It is recognized that all the funds credited to the City are linked to the collection of revenue
from the City’s ratepayers, or to the settlement of disputes relating to electric power supply and that the
money was collected from the City’s ratepayers to pay power bills. Additionally, the NCPA Commission
identified and approved the funding of specific reserves for working capital, accumulated employees’
post‐retirement medical benefits, and billed property taxes for the geothermal project. The Commission
also identified a number of contingent liabilities that may or may not be realized, the cost of which in most
cases is difficult to estimate at this time. One such contingent liability is the steam field depletion, which
will require funding to cover debt service and operational costs in excess of the expected value of the
electric power. The General Operating Reserve (GOR) is intended to minimize the number and amount of
individual reserves needed for each project, protect NCPA’s financial condition and maintain its credit
worthiness. There are no funds on deposit with NCPA as a reserve against these contingencies identified
by NCPA.
Members of NCPA may participate in an individual project of NCPA without obligation for any other
project. Member assessments collected for one project may not be used to finance other projects of NCPA
without the member’s permission.
Geothermal Projects
A purchased power agreement with NCPA obligated the City for 6.2 percent and 6.2 percent, respectively,
of the operating costs and debt service of the two NCPA 110‐megawatt geothermal steam‐powered
generating plants, Project Number 2 and Project Number 3.
The City’s participation in the Geothermal Project was sold to Turlock Irrigation District in October 1984.
Accordingly, the City is liable for payment of outstanding geothermal related debt only in the event that
Turlock fails to make specified payments. Total outstanding debt of the NCPA Geothermal Project at
June 30, 2019 is $133.5 million. The City’s participation in this project was 6.2 percent, or $8.3 million.
Calaveras Hydroelectric Project
In July 1981, NCPA agreed with Calaveras County Water District to purchase the output of the North Fork
Stanislaus River Hydroelectric Development Project and to finance its construction. Debt service payments
to NCPA began in February 1990 when the project was declared substantially complete and power was
delivered to the participants. Under its power purchase agreement with NCPA, the City is obligated to pay
22.9 percent of this Project’s debt service and operating costs. At June 30, 2019, the book value of this
Project’s plant, equipment and other assets was $349 million, while its long‐term debt totaled
$282 million and other liabilities totaled $52.9 million. The City’s share of the Project’s long‐term debt
amounted to $67.9 million at that date.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
103
NOTE 15 – JOINT VENTURES (Continued)
Geothermal Public Power Line
In 1983, NCPA, the Sacramento Municipal Utility District, the City of Santa Clara and the Modesto Irrigation
District (Joint Owners) initiated studies for a Geothermal Public Power Line (GPPL), which would carry
power generated at several existing and planned geothermal plants in The Geysers area to a location
where the Joint Owners could receive it for transmission to their load centers. NCPA has an 18.5 percent
share of this Project and the City has an 11.1 percent participation in NCPA’s share. In 1989, the
development of the proposed Geothermal Public Power Line was discontinued because NCPA was able to
contract for sufficient transmission capacity to meet its needs in The Geysers.
However, because the project financing provided funding for an ownership interest in a Pacific Gas &
Electric (PG&E) transmission line, a central dispatch facility and a performance bond pursuant to the
Interconnection Agreement with PG&E, as well as an ownership interest in the proposed GPPL, NCPA
issued $16 million in long‐term, fixed‐rate revenue bonds in November 1989 to defease the remaining
variable rate refunding bonds used to refinance this project. The City is obligated to pay its 11.1 percent
share of the related debt service, but debt service costs are covered through NCPA billing mechanisms
that allocate the costs to members based on use of the facilities and services.
At June 30, 2019, the book value of this Project’s plant, equipment and other assets was zero, and its long‐
term debt totaled zero.
NCPA’s financial statements can be obtained from NCPA, 180 Cirby Way, Roseville, CA 95678.
Transmission Agency of Northern California (TANC)
The City is a member of a joint powers agreement with 14 other entities in Transmission Agency of
Northern California (TANC). TANC’s purpose is to provide electrical transmission or other facilities for the
use of its members. While governed by its members, none of TANC’s obligations are those of its members
unless expressly assumed by them. The City was obligated to pay 4 percent of TANC’s debt‐service and
operating costs. However, a Resolution was approved authorizing the execution of a Long‐Term Layoff
Agreement (LTLA) between the Cities of Palo Alto and Roseville. These two agencies desired to “layoff”
their entitlement rights to the California‐Oregon Transmission Project (COTP) (and Roseville’s South of
Tesla entitlement rights) for a period of 15 years to those acquiring members (Sacramento Municipal
Utility District, Turlock Irrigation District, and Modesto Irrigation District). The effective date of this
Agreement was February 1, 2009. As a result, the City is not obligated to pay TANC’s debt‐service and
operating costs starting February 1, 2009, for a period of fifteen years.
TANC’s financial statements can be obtained from TANC, P.O. Box 15129, Sacramento, CA 95851.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
104
NOTE 15 – JOINT VENTURES (Continued)
Bay Area Water Supply and Conservation Agency (BAWSCA)
The City is a member of a regional water district with 26 other entities, the Bay Area Water Supply and
Conservation Agency (BAWSCA). BAWSCA was created on May 27, 2003 to represent the interests of 24
cities and water districts and two private utilities in Alameda, Santa Clara and San Mateo counties that
purchase water on a wholesale basis from the San Francisco regional water system. It has the power to
issue debt and plan, finance, construct, and operate water supply, transmission, reclamation, and
conservation projects on behalf of its members.
In 2013 the City participated in a debt issuance by BAWSCA. The debt was issued to repay certain long‐
term costs associated with the San Francisco Public Utilities Commission (SFPUC) water supply contract.
During the fiscal year, the City paid its share of the annual debt service of $1.9 million, which will vary
based on annual water purchases of the City compared to other BAWSCA agencies.
BAWSCA’s financial statements can be obtained from BAWSCA, 155 Bovet Road, Suite 650, San Mateo,
California 94402.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Palo Alto Unified School District – The City leases 27 acres of the former Cubberley School site and twelve
extended day care sites from Palo Alto Unified School District (PAUSD). The lease includes a mechanism
for a joint planning process between the City and PAUSD to develop a long‐term master plan for the
Cubberley site. The City will pay $1.86 million annually into a separate fund to be used for repairing,
renovating and/or improving the infrastructure at the Cubberley site. The previous lease term expired on
December 31, 2014, and the City and PAUSD reached an agreement to extend the lease agreement for an
additional five (5) years, with a new expiration date of December 31, 2019. The City and PAUSD also
agreed to distribute gains or losses of revenue that resulted from the Foothill College departure from
Cubberley. The City’s rent and infrastructure payment for the facilities is $7.3 million per year plus
insurance, repairs and maintenance. Lease expenditures for the year ended June 30, 2019 amounted to
$7.6 million. Future minimum annual lease and infrastructure payments are as follows (in thousands):
Year Ending
June 30 Payment
2020 3,845
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
105
NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)
GreenWaste of Palo Alto – GreenWaste of Palo Alto is the City’s contractor for waste collection,
transportation, and processing services. The agreement expires June 30, 2021. The base compensation
for GreenWaste is adjusted annually based on CPI indicators stipulated in the contract. In FY 2019
payments to GreenWaste were $9.9 million.
City of Palo Alto Regional Water Quality Control Plant – The cities of Palo Alto, Mountain View and Los
Altos (the Partners) participate jointly in the cost of maintaining and operating the City of Palo Alto
Regional Water Quality Control Plant and related system (the Plant). The City is the owner and
administrator of the Plant, which provides the transmission, treatment and disposal of sewage for the
Partners. The cities of Mountain View and Los Altos are entitled to use a portion of the capacity of the
Plant for a specified period of time. Each partner has the right to rent unused capacity from/to the other
partners. The expenses of operations and maintenance are paid quarterly by each partner based on its
pro rata share of treatment costs. Additionally, joint system revenues are shared by the partners in the
same ratio as expenses are paid. The amended agreement has a term of fifty years beginning from the
original signing in October 1968, but may be terminated by any partner upon ten years’ notice to the other
partners. All sewage treatment property, plant and equipment are included in the Wastewater Treatment
Enterprise Fund’s capital assets balance. If the City initiates the termination of the contracts, it is required
to pay the other partners their unamortized contribution towards the capital assets.
Solid Waste Materials Recovery and Transfer Station (SMaRT Station) – On June 9, 1992, the City, along
with the City of Mountain View, signed a Memorandum of Understanding (MOU) with the City of
Sunnyvale (Sunnyvale) to participate in the construction and operation of the SMaRT Station, which
recovers recyclable materials from the municipal solid waste delivered from participating cities. Per the
MOU, the City has a capacity share of 21.3 percent of this facility and reimburses its proportionate capacity
share of design, construction and operation costs to Sunnyvale.
In FY 2008, the members agreed to finance an Equipment Replacement Project from existing reserves and
proceeds from the Solid Waste Revenue Bond, Series 2007. The City has committed to repay 27.8 percent
of the remaining debt service on the Bonds. The City’s portion of the Bonds amounts to $0.4 million as of
June 30, 2019. During the year ended June 30, 2019, the City paid $0.2 million as its portion of current
debt service.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
106
NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)
UTILITIES ENERGY RESOURCE MANAGEMENT
Electric Power Supply Purchase Agreements – The City has numerous power purchase agreements with
power producers to purchase capacity and energy to supply a portion of its load requirements. As of
June 30, 2019, the approximate minimum obligations for the contracts, assuming the energy is delivered
over the next five years, are as follows:
Fiscal Year Projected Obligation
2020 $60.34 million
2021 $61.77 million
2022 $65.10 million
2023 $63.81 million
2024 $62.41 million
Contractual Commitments beyond 2022 (Electricity) – Several of the City’s purchase power and
transmission contracts extend beyond the five‐year summary presented above. These contracts expire
between 2026 and 2051 and provide for power under various terms and conditions. The City also has a
new solar power purchase agreement that is schedule to start in January 2023. The City estimates that
its annual minimum commitments under all of its contracts, assuming the energy is delivered, ranges
between $62.41 million in 2024 and $51.63 million in 2034. The City’s largest single purchase power
source is the Western Base Resource contract, whereby the City receives 12.31 percent of the amount of
energy made available by Western, after meeting Central Valley Project use requirements, in any given
year at a 12.31 percent share of their revenue requirement. The Western contract expires on December
31, 2024. The City expects to have the option to extend the Western contract for an additional 30‐year
period beyond 2024, although at a slightly lower share of the total energy output and revenue
requirement (12.06 percent instead of 12.31 percent).
Gas Transmission and Local Transportation Rates – The City relies on Pacific Gas and Electric Company’s
(PG&E) natural gas pipeline infrastructure, including both high‐pressured transmission and medium‐
pressure local transportation, to move gas from the California border to the City’s distribution system.
New rates are determined through proceedings at the California Public Utilities Commission. The rate
Palo Alto pays for gas transmission increased by 4.9% from FY18 to FY19; the rate Palo Alto pays for local
transportation increased by 6.8% from FY18 to FY19. A final decision on PG&E’s 2019 rate case has not
been issued, but the rate Palo Alto pays for gas transmission is expected to increase by about 90% in 2020,
and the rate Palo Alto pays for local transportation is expected to increase by 5% in 2020.
San Francisco Public Utilities Commission – The City purchases water to deliver to the customers of its
water utility from the San Francisco Public Utilities Commission (SFPUC) under a contract terminating in
2034. The City’s wholesale water rate under this contract is determined by a ratemaking process under
the authority of the SFPUC, with contractual limitations on the types of costs that may be allocated to
wholesale water purchasers like the City. The City is prohibited from purchasing from other water
suppliers under this contract, though it is not prohibited from using ground water or developing other
local water supplies such as recycled water. The City’s cost of water under this contract is projected to
remain flat through 2022.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2019
107
NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)
Litigation
The City is subject to litigation arising in the normal course of business. In the opinion of the City Attorney,
there is no pending litigation, claims or assessments that are likely to have a materially adverse effect on
the City’s financial condition.
A class action lawsuit for refund of telephone users tax was filed against the City in August 2015. The City
Attorney is of the opinion that a loss is reasonably possible but cannot be reasonably estimated at this
time.
A class action lawsuit for refund of allegedly illegal charges to gas and electrical customers was filed
against the City in October 2016. At this time, the City Attorney is of the opinion that the loss is not
probable and any potential loss cannot be reasonably estimated at this time.
Grant Programs
The City participates in Federal and State grant programs. These programs have been audited by the City’s
independent auditors in accordance with the provisions of the Federal Single Audit Act amendments of
1996 and applicable State requirements. No costs were questioned as a result of these audits; however,
these programs are still subject to further examination by the grantors and the amount, if any, of
expenditures which may be disallowed by the granting agencies cannot be determined at this time. The
City expects such amounts, if any, to be immaterial.
108
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CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 5 Fiscal Years*
109
I. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – MISCELLANEOUS PLAN
(In thousands)
Fiscal year 2018‐19 2017‐18 2016‐17 2015‐16 2014‐15
Measurement Period 2017‐18 2016‐17 2015‐16 2014‐15 2013‐14
Total pension liability
Service cost 14,724$ 14,423$ 12,582$ 12,183$ 12,442$
Interest 54,903 52,831 51,531 49,345 46,963
Changes of assumptions (5,673) 42,239 ‐ (11,552) ‐
Difference between expected and actual experience 4,271 (6,378) 757 3,507 ‐
Benefit payments, including refunds of employee contributions (37,624) (36,405) (34,825) (32,980) (31,781)
Net change in total pension liability 30,601 66,710 30,045 20,503 27,624
Total pension liability ‐ beginning 780,729 714,019 683,974 663,471 635,847
Total pension liability ‐ ending (a) 811,330$ 780,729$ 714,019$ 683,974$ 663,471$
Plan fiduciary net position
Contributions ‐ employer 23,342$ 20,638$ 18,840$ 18,610$ 17,400$
Contributions ‐ employee 6,654 6,314 5,812 5,730 6,345
Net investment income 43,690 53,259 2,464 10,597 70,989
Benefit payments, including refunds of employee contributions (37,624) (36,405) (34,825) (32,980) (31,781)
Administrative expense (799) (694) (291) (538) ‐
Other non‐investment expenses (1,518) 30 ‐ ‐ ‐
Net change in fiduciary net position 33,745 43,142 (8,000) 1,419 62,953
Plan fiduciary net position ‐ beginning 512,924 469,782 477,782 476,363 413,410
Plan fiduciary net position ‐ ending (b) 546,669$ 512,924$ 469,782$ 477,782$ 476,363$
Plan net pension liability/(asset) ‐ Ending (a) ‐ (b) 264,661$ 267,805$ 244,237$ 206,192$ 187,108$
Plan fiduciary net position as a percentage of total pension liability 67.38% 65.70% 65.79% 69.85% 71.80%
Covered payroll 80,634$ 77,606$ 73,722$ 69,837$ 66,373$
Plan net pension liability/(asset) as a percentage of covered employee payroll 328.23% 345.08% 331.29% 295.25% 281.90%
Notes to Schedule:
Changes in assumptions ‐ In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Actuarial
Assumptions December 2017. There were no changes in the discount rate. In 2017, the discount rate was reduced from 7.65 percent to 7.15 percent. In 2016, there were
no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction
for pension plan administrative expense.) In 2014, amounts reported were based on the 7.5 percent discount rate.
* Fiscal year ended June 30, 2015 was the first year of implementation of GASB Statement No. 68, therefore only five years of information is shown.
Benefit changes ‐ The figures above do not include any liability that may have resulted from plan changes which occurred after the June 30, 2017 valuation date. This
applies for voluntary benefit changes as well as any offers of two years additional service credit (Golden Handshake).
CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 6 Fiscal Years*
110
II. SCHEDULE OF PENSION CONTRIBUTIONS– MISCELLANEOUS PLAN
(In thousands)
Fiscal Year 2018‐19 2017‐18 2016‐17 2015‐16 2014‐15 2013‐14
Contractually required contribution (actuarially determined) 25,359$ 23,342$ 20,638$ 18,840$ 18,611$ 17,400$
Actual contribution (25,359) (23,342) (20,638) (18,840) (18,611) (17,400)
Contribution deficiency/(excess) ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Covered payroll 82,333$ 80,634$ 77,606$ 73,722$ 69,837$ 66,373$
Contributions as percentage of covered‐employee payroll 30.80% 28.95% 26.59% 25.56% 26.65% 26.22%
Notes to Schedule:
The actuarial methods and assumptions used to set the actuarial ly determined contributions for
fiscal year 2019 contribution rates are as follows:
ADC for fiscal year June 30, 2019
Actuarial valuation date June 30, 2016
Actuarial cost method Entry‐Age Normal Cost Method
Asset valuation method Actuarial value of assets
Inflation 2.75%
Salary increases Varies by entry age and services
Payroll growth 3.00%
Investment rate of return
Retirement age
Mortality
7.375%, net of pension plan investment and administrative expenses,
includes inflation.
The probabilities of retirement are based on the 2014 CalPERS
Experience Study for the period 1997 to 2011.
The probabilities of mortality are based on the 2014 CalPERS Ex perience
Study for the period from 1997 to 2011. Pre‐retirement and Post‐
retirement mortality rates include 20 years of projected mortal ity
improvement using Scale BB published by the Society of Actuarie s.
* Fiscal year ended June 30, 2015 was the first year of impleme ntation of GASB Statement No. 68, therefore only
six years of information is shown.
CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 5 Fiscal Years*
111
III. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – SAFETY PLAN
(In thousands)
Fiscal year 2018‐19 2017‐18 2016‐17 2015‐16 2014‐15
Measurement Period 2017‐18 2016‐17 2015‐16 2014‐15 2013‐14
Total pension liability
Service cost 7,168$ 6,584$ 5,916$ 5,959$ 6,221$
Interest 29,871 28,272 27,816 27,047 26,113
Changes of assumptions (1,374) 22,566 ‐ (6,327) ‐
Difference between expected and actual experience 11,604 (2,790) (1,516) 75 ‐
Benefit payments, including refunds of employee contributions (23,636) (22,413) (21,669) (21,148) (19,985)
Net change in total pension liability 23,633 32,219 10,547 5,606 12,349
Total pension liability ‐ beginning 415,775 383,556 373,009 367,403 355,054
Total pension liability ‐ ending (a) 439,408$ 415,775$ 383,556$ 373,009$ 367,403$
Plan fiduciary net position
Contributions ‐ employer 11,030$ 10,220$ 9,403$ 8,617$ 7,616$
Contributions ‐ employee 2,799 2,475 2,059 2,047 2,762
Net investment income 22,724 28,112 1,259 5,774 40,033
Benefit payments, including refunds of employee contributions (23,636) (22,413) (21,669) (21,148) (19,985)
Administrative expense (418) (370) (157) (290) ‐
Other non‐investment expenses (794) (30) ‐ ‐ ‐
Net change in fiduciary net position 11,705 17,994 (9,105) (5,000) 30,426
Plan fiduciary net position ‐ beginning 268,468 250,474 259,579 264,579 234,153
Plan fiduciary net position ‐ ending (b) 280,173$ 268,468$ 250,474$ 259,579$ 264,579$
Plan net pension liability/(asset) ‐ Ending (a) ‐ (b) 159,235$ 147,307$ 133,082$ 113,430$ 102,824$
Plan fiduciary net position as a percentage of total pension liability 63.76% 64.57% 65.30% 69.59% 72.01%
Covered payroll 24,131$ 21,906$ 21,822$ 21,912$ 21,896$
Plan net pension liability/(asset) as a percentage of covered employee payroll 659.88% 672.45% 609.85% 517.66% 469.60%
Notes to Schedule:
Changes in assumptions ‐ In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of
Actuarial Assumptions December 2017. There were no changes in the discount rate. In 2017, the discount rate was reduced from 7.65 percent to 7.15 percent. In
2016, there were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65
percent (without a reduction for pension plan administrative expense.) In 2014, amounts reported were based on the 7.5 percent discount rate.
* Fiscal year ended June 30, 2015 was the first year of implementation of GASB Statement No. 68, therefore only five years of information is shown.
Benefit changes ‐ The figures above do not include any liability that may have resulted from plan changes which occurred after the June 30, 2017 valuation date.
This applies for voluntary benefit changes as well as any offers of two years additional service credit (Golden Handshake).
CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 6 Fiscal Years*
112
IV. SCHEDULE OF PENSION CONTRIBUTIONS – SAFETY PLAN
(In thousands)
Fiscal Year 2018‐19 2017‐18 2016‐17 2015‐16 2014‐15 2013‐14
Contractually required contribution (actuarially determined) 12,368$ 11,031$ 10,220$ 9,403$ 8,617$ 7,616$
Actual contribution (12,368) (11,031) (10,220) (9,403) (8,617) (7,616)
Contribution deficiency/(excess) ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Covered payroll 23,240$ 24,131$ 21,906$ 21,822$ 21,912$ 21,896$
Contributions as percentage of covered‐employee payroll 53.22% 45.71% 46.65% 43.09% 39.33% 34.78%
Notes to Schedule:
The actuarial methods and assumptions used to set the actuarial ly determined contributions for
fiscal year 2019 contribution rates are as follows:
ADC for fiscal year June 30, 2019
Actuarial valuation date June 30, 2016
Actuarial cost method Entry‐Age Normal Cost Method
Asset valuation method Actuarial value of assets
Inflation 2.75%
Salary increases Varies by entry age and services
Payroll growth 3.00%
Investment rate of return
Retirement age
Mortality
7.375%, net of pension plan investment and administrative expenses,
includes inflation.
The probabilities of retirement are based on the 2014 CalPERS
Experience Study for the period 1997 to 2011.
The probabilities of mortality are based on the 2014 CalPERS Experience
Study for the period from 1997 to 2011. Pre‐retirement and Post‐
retirement mortality rates include 20 years of projected mortality
improvement using Scale BB published by the Society of Actuarie s.
* Fiscal year ended June 30, 2015 was the first year of implementation of GASB Statement No. 68, therefore only
six years of information is shown.
CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 2 Fiscal Years*
113
V. SCHEDULE OF CHANGES IN NET OPEB LIABILITY AND RELATED RATIOS
(In thousands)
Fiscal year 2018‐19 2017‐18
Measurement Period 2017‐18 2016‐17
Total OPEB liability
Service cost 6,429$ 6,242$
Interest 16,546 15,853
Benefit payments, including refunds of employee contributions (12,104) (11,916)
Net change in total OPEB liability 10,871 10,179
Total OPEB liability ‐ beginning 244,759 234,580
Total OPEB liability ‐ ending (a) 255,630$ 244,759$
Plan fiduciary net position
Contributions ‐ employer 21,349$ 14,739$
Net investment income 7,519 8,628
Benefit payments, including refunds of employee contributions (12,104) (11,916)
Administrative expense (204) (44)
Net change in fiduciary net position 16,560 11,407
Plan fiduciary net position ‐ beginning 91,250 79,843
Plan fiduciary net position ‐ ending (b) 107,810$ 91,250$
Plan net OPEB liability/(asset) ‐ Ending (a) ‐ (b) 147,820$ 153,509$
Plan fiduciary net position as a percentage of total OPEB liability 42.17% 37.28%
Covered payroll 119,090$ 118,774$
Plan net OPEB liability/(asset) as a percentage of covered employee payroll 124.12% 129.24%
Notes to Schedule:
Benefit changes ‐ The figures above do not include any liability that may have re sulted from plan changes
which occurred after the measurement dates.
Changes in assumptions ‐ There were no changes in assumptions
* Fiscal year ended June 30, 2018 was the first year of impleme ntation of GASB Statement No. 75, therefore
only two years of information is shown.
CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 3 Fiscal Years*
114
VI. SCHEDULE OF EMPLOYER OPEB CONTRIBUTIONS
(In thousands)
Fiscal Year 2018‐19 2017‐18 2016‐17
Contractually required contribution (actuarially determined) 15,997$ 16,938$ 16,365$
Actual contribution (15,997) (21,349) (14,739)
Contribution deficiency/(excess) ‐$ (4,411)$ 1,626$
Covered payroll 118,014$ 119,090$ 118,774$
Contributions as percentage of covered‐employee payroll 13.56% 17.93% 12.41%
Notes to Schedule:
The actuarial methods and assumptions used to set the actuarially determined contributions for
fiscal year 2019 contribution rates are as follows:
ADC for fiscal year June 30, 2019
Actuarial valuation date June 30, 2017
Actuarial cost method Entry‐Age, level percentage of payroll
Amortization method Level percent of pay
Amortization period 26‐year fixed period for 2018/19
Asset valuation method Market value, no smoothing
Inflation 2.75%
Payroll growth 3.00%
Investment rate of return
Medical trend
Mortality
Mortality Improvement
6.75%, net of pension plan investment and administrative expenses,
includes inflation.
* Fiscal year ended June 30, 2018 was the first year of implementation of GASB Statement No. 75, therefore only
three years of information is shown.
Non‐Medicare ‐ 7.5% for 2020, decreasing to an ultimate rate of 4.0% in 2076
Medicare ‐ 6.5% for 2020, decreasing to an ultimate rate of 4.0% in 2076
CalPERS 1997‐2011 experience study
Post‐retirement mortality projected fully generational with Society of Actuaries
Scale MP‐2017
Total
Special Debt Other
Revenue Service Permanent Governmental
Funds Funds Fund Funds
ASSETS:
Cash and investments:
Available for operations 79,677$ 3,620$ 2,425$ 85,722$
Cash and investments with fiscal agents ‐ 34 ‐ 34
Receivables, net:
Accounts 312 16 ‐ 328
Interest 486 24 13 523
Notes 34,099 ‐ ‐ 34,099
Deposits 50 ‐ ‐ 50
Total assets 114,624$ 3,694$ 2,438$ $120,756
Liabilities:
Accounts payable and accruals 349$ ‐$ ‐$ 349$
Accrued salaries and benefits 17 ‐ ‐ 17
Due to other funds 106 ‐ ‐ 106
Total liabilities 472 ‐ ‐ 472
Fund balances:
Nonspendable
Eyerly family ‐ ‐ 2,438 2,438
Restricted
Transportation mitigation 13,091 ‐ ‐ 13,091
Federal revenue 5,300 ‐ ‐ 5,300
Street improvement 250 ‐ ‐ 250
Local law enforcement 494 ‐ ‐ 494
Debt service ‐ 3,694 ‐ 3,694
Public benefit 20,372 ‐ ‐ 20,372
Committed
Developer impact fee 17,049 ‐ ‐ 17,049
Housing In‐Lieu 51,558 ‐ ‐ 51,558
Special districts 5,667 ‐ ‐ 5,667
Assigned
Unrealized gain on investment 403 ‐ ‐ 403
Unassigned
Downtown business (32) ‐ ‐ (32)
Total fund balances 114,152 3,694 2,438 120,284
Total liabilities and fund balances 114,624$ 3,694$ 2,438$ 120,756$
LIABILITIES AND FUND BALANCES:
CITY OF PALO ALTO
Non‐major Governmental Funds
Combining Balance Sheet
June 30, 2019
(Amounts in thousands)
115
116
This page is intentionally left blank.
Total
Special Debt Other
Revenue Service Permanent Governmental
Funds Funds Fund Funds
REVENUES:
Property tax ‐$ 4,391$ ‐$ 4,391$
Special assessments 58 ‐ ‐ 58
Other taxes and fines 2,663 ‐ ‐ 2,663
Contributions ‐ ‐ ‐ ‐
Charges for services ‐ ‐ ‐ ‐
Intergovernmental:
Community Development Block Grants 687 ‐ ‐ 687
State of California 236 ‐ ‐ 236
Licenses, permits and fees
University Avenue Parking 3,037 ‐ ‐ 3,037
California Avenue Parking 546 ‐ ‐ 546
Other licenses, permits and fees 5,766 ‐ ‐ 5,766
Investment earnings 3,593 141 93 3,827
Rental income 6 ‐ ‐ 6
Housing In‐Lieu ‐ residential 5,613 ‐ ‐ 5,613
Other revenue 4,765 ‐ 847 5,612
Total revenues 26,970 4,532 940 32,442
EXPENDITURES:
Current:
Administrative Services 253 ‐ ‐ 253
Public Works 1,007 ‐ ‐ 1,007
Planning and Community Environment 2,779 ‐ ‐ 2,779
Police 1 ‐ ‐ 1
Community Services 2,716 ‐ ‐ 2,716
Non‐Departmental 462 ‐ ‐ 462
Debt service:
Principal retirement ‐ 1,675 ‐ 1,675
Interest and fiscal charges ‐ 3,393 ‐ 3,393
Total expenditures 7,218 5,068 ‐ 12,286
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 19,752 (536) 940 20,156
OTHER FINANCING SOURCES (USES):
Issuance of debt ‐ 302 ‐ 302
Transfers in 524 372 ‐ 896
Transfers out (5,970) (15) ‐ (5,985)
Total other financing sources (uses) (5,446) 659 ‐ (4,787)
Change in fund balances 14,306 123 940 15,369
FUND BALANCES, BEGINNING OF YEAR 99,846 3,571 1,498 104,915
FUND BALANCES, END OF YEAR 114,152$ 3,694$ 2,438$ 120,284$
CITY OF PALO ALTO
Non‐major Governmental Funds
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2019
(Amounts in thousands)
117
118
This page is intentionally left blank.
119
NON‐MAJOR GOVERNMENTAL FUNDS
SPECIAL REVENUE FUNDS
Street Improvement
This fund accounts for revenues received from state gas tax. Allocations must be spent on the construction
and maintenance of the road network system of the City.
Federal Revenue
This fund accounts for grant funds received under the Community Development Act of 1974 and HOME
Investment Grant Programs, for activities approved and subject to federal regulations.
Housing In‐Lieu
This fund accounts for revenues from commercial and residential developers to provide housing under
the City’s Below Market Rate program.
Special Districts
This fund accounts for revenues from parking permits and for maintenance of various parking lots within
the City’s parking districts.
Transportation Mitigation
This fund accounts for revenues from fees or contributions required for transportation mitigation issues
encountered as a result of City development.
Local Law Enforcement
This fund accounts for revenues received in support of City’s law enforcement program.
Asset Seizure
This fund accounts for seized property and funds associated with drug trafficking. Under California
Assembly Bill No. 4162, the monies are released to the City for specific expenditures related to law
enforcement activities.
Developer Impact Fee
This fund accounts for fees imposed on new developments to be used for parks, community centers and
libraries.
Downtown Business Development District
The Downtown Business Development District Fund was established to account for the activities of the
Palo Alto Downtown Business Development District, which was established to enhance the viability of the
downtown business district.
Public Benefit
This fund accounts for the activities of the Stanford University Medical Center (SUMC) Development
Agreement (DA) whereby SUMC will enhance and expand their facilities and the City will grant SUMC the
right to develop the facilities in accordance with the DA.
Street Federal Housing Special
Improvement Revenue In‐Lieu Districts
ASSETS:
Cash and investments:
Available for operations 130$ ‐$ 22,801$ 5,841$
Receivables:
Accounts 120 192 ‐ ‐
Interest 2 ‐ 129 37
Notes ‐ 5,351 28,748 ‐
Deposit ‐ ‐ ‐ ‐
Total assets 252$ 5,543$ 51,678$ 5,878$
Liabilities:
Accounts payable and accruals ‐$ 149$ 12$ 167$
Accrued salaries and benefits ‐ 1 1 13
Due to other funds ‐ 93 ‐ ‐
Total liabilities ‐ 243 13 180
Fund balances:
Restricted
Transportation mitigation ‐ ‐ ‐ ‐
Federal revenue ‐ 5,300 ‐ ‐
Street improvement 250 ‐ ‐ ‐
Local law enforcement ‐ ‐ ‐ ‐
Public benefit ‐ ‐ ‐ ‐
Committed
Developer impact fee ‐ ‐ ‐ ‐
Housing In‐Lieu ‐ ‐ 51,558 ‐
Special districts ‐ ‐ ‐ 5,667
Assigned
Unrealized gain on investment 2 ‐ 107 31
Unassigned
Downtown business ‐ ‐ ‐ ‐
Total fund balances 252 5,300 51,665 5,698
Total liabilities and fund balances 252$ 5,543$ 51,678$ 5,878$
LIABILITIES AND FUND BALANCES:
CITY OF PALO ALTO
Non‐major Special Revenue Funds
Combining Balance Sheet
June 30, 2019
(Amounts in thousands)
120
Downtown Total
Business Special
Transportation Local Law Asset Developer Development Public Revenue
Mitigation Enforcement Seizure Impact Fee District Benefit Funds
13,077$ 490$ 3$ 16,984$ 2$ 20,349$ 79,677$
‐ ‐ ‐ ‐ ‐ ‐ 312
79 3 ‐ 102 ‐ 134 486
‐ ‐ ‐ ‐ ‐ ‐ 34,099
‐ ‐ ‐ 50 ‐ ‐ 50
13,156$ 493$ 3$ 17,136$ 2$ 20,483$ 114,624$
‐$ ‐$ ‐$ ‐$ 21$ ‐$ 349$
‐ ‐ ‐ 2 ‐ ‐ 17
‐ ‐ ‐ ‐ 13 ‐ 106
‐ ‐ ‐ 2 34 ‐ 472
13,091 ‐ ‐ ‐ ‐ ‐ 13,091
‐ ‐ ‐ ‐ ‐ ‐ 5,300
‐ ‐ ‐ ‐ ‐ ‐ 250
‐ 491 3 ‐ ‐ ‐ 494
‐ ‐ ‐ ‐ ‐ 20,372 20,372
‐ ‐ ‐ 17,049 ‐ ‐ 17,049
‐ ‐ ‐ ‐ ‐ ‐ 51,558
‐ ‐ ‐ ‐ ‐ ‐ 5,667
65 2 ‐ 85 ‐ 111 403
‐ ‐ ‐ ‐ (32) ‐ (32)
13,156 493 3 17,134 (32) 20,483 114,152
13,156$ 493$ 3$ 17,136$ 2$ 20,483$ 114,624$
121
Street Federal Housing Special
Improvement Revenue In‐Lieu Districts
REVENUES:
Property tax ‐ ‐ ‐ ‐
Special assessments ‐$ ‐$ ‐$ ‐$
Other taxes and fines 2,524 ‐ ‐ 139
Contributions ‐ ‐ ‐ ‐
Charges for services ‐ ‐ ‐ ‐
Intergovernmental:
Community Development Block Grants ‐ 687 ‐ ‐
State of California 79 ‐ ‐ ‐
Licenses, permits and fees
University Avenue Parking ‐ ‐ ‐ 3,037
California Avenue Parking ‐ ‐ ‐ 546
Other licenses, permits and fees ‐ ‐ ‐ 766
Investment earnings 21 ‐ 1,146 257
Rental income ‐ ‐ 6 ‐
Housing In‐Lieu ‐ ‐ 5,613 ‐
Other revenue ‐ 143 196 62
Total revenues 2,624 830 6,961 4,807
EXPENDITURES:
Current:
Administrative Services ‐ ‐ ‐ 253
Public Works ‐ ‐ ‐ 1,007
Planning and Community Environment ‐ 610 141 2,028
Police ‐ ‐ ‐ ‐
Community Services ‐ ‐ ‐ 26
Non‐Departmental ‐ ‐ 17 386
Total expenditures ‐ 610 158 3,700
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 2,624 220 6,803 1,107
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐ ‐ 354
Transfers out (2,934) ‐ (1) (906)
Total other financing sources (uses) (2,934) ‐ (1) (552)
Change in fund balances (310) 220 6,802 555
FUND BALANCES, BEGINNING OF YEAR 562 5,080 44,863 5,143
FUND BALANCES, END OF YEAR 252$ 5,300$ 51,665$ 5,698$
CITY OF PALO ALTO
Non‐major Special Revenue Funds
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2019
(Amounts in thousands)
122
Downtown Total
Business Special
Transportation Local Law Asset Developer Development Public Revenue
Mitigation Enforcement Seizure Impact Fee District Benefit Funds
‐ ‐ ‐ ‐ ‐ ‐ ‐
‐$ ‐$ ‐$ ‐$ 58$ ‐$ 58$
‐ ‐ ‐ ‐ ‐ ‐ 2,663
‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ 687
‐ 157 ‐ ‐ ‐ ‐ 236
‐ ‐ ‐ ‐ ‐ ‐ 3,037
‐ ‐ ‐ ‐ ‐ ‐ 546
2,217 ‐ ‐ 2,783 ‐ ‐ 5,766
513 18 ‐ 776 1 861 3,593
‐ ‐ ‐ ‐ ‐ ‐ 6
‐ ‐ ‐ ‐ ‐ ‐ 5,613
421 ‐ ‐ 3,943 ‐ ‐ 4,765
3,151 175 ‐ 7,502 59 861 26,970
‐ ‐ ‐ ‐ ‐ ‐ 253
‐ ‐ ‐ ‐ ‐ ‐ 1,007
‐ ‐ ‐ ‐ ‐ ‐ 2,779
‐ 1 ‐ ‐ ‐ ‐ 1
‐ ‐ ‐ 2,690 ‐ ‐ 2,716
‐ ‐ ‐ ‐ 59 ‐ 462
‐ 1 ‐ 2,690 59 ‐ 7,218
3,151 174 ‐ 4,812 ‐ 861 19,752
‐ ‐ ‐ 170 ‐ ‐ 524
(506) ‐ ‐ (1,612) ‐ (11) (5,970)
(506) ‐ ‐ (1,442) ‐ (11) (5,446)
2,645 174 ‐ 3,370 ‐ 850 14,306
10,511 319 3 13,764 (32) 19,633 99,846
13,156$ 493$ 3$ 17,134$ (32)$ 20,483$ 114,152$
123
Street Improvement Federal Revenue
Variance Variance
Actual, Positive Actual, Positive
Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative)
REVENUES:
Special assessments ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Other taxes and fines 2,813 2,523 (290) ‐ ‐ ‐
Contributions ‐ ‐ ‐ ‐ ‐ ‐
Charges for services ‐ ‐ ‐ ‐ ‐ ‐
Intergovernmental:
Community Development Block Grants ‐ ‐ ‐ 485 687 202
State of California 78 79 1 ‐ ‐ ‐
Licenses, permits and fees
University Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
California Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
Other licenses, permits and fees ‐ ‐ ‐ ‐ ‐ ‐
Investment earnings 13 6 (7) ‐ ‐ ‐
Rental income ‐ ‐ ‐ ‐ ‐ ‐
Other:
Housing In‐Lieu ‐ residential ‐ ‐ ‐ ‐ ‐ ‐
Loan payoffs ‐ ‐ ‐ ‐ ‐ ‐
Other revenue ‐ ‐ ‐ 136 143 7
Total revenues 2,904 2,608 (296) 621 830 209
EXPENDITURES:
Current:
Administrative Services ‐ ‐ ‐ ‐ ‐ ‐
Public Works ‐ ‐ ‐ ‐ ‐ ‐
Planning and Community Environment ‐ ‐ ‐ 1,049 1,041 8
Police ‐ ‐ ‐ ‐ ‐ ‐
Community Services ‐ ‐ ‐ ‐ ‐ ‐
Non‐Departmental ‐ ‐ ‐ ‐ ‐ ‐
Total expenditures ‐ ‐ ‐ 1,049 1,041 8
Excess (deficiency) of revenues
over (under) expenditures 2,904 2,608 (296) (428) (211) 217
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐ ‐ ‐ ‐ ‐
Transfers out (2,934) (2,934) ‐ ‐ ‐ ‐
Total other financing sources (uses) (2,934) (2,934) ‐ ‐ ‐ ‐
Change in fund balances, budgetary basis (30)$ (326) (296)$ (428)$ (211) 217$
Adjustment to Budgetary Basis:
Unrealized gain/loss on investments 16 ‐
Changes in notes receivable ‐ 220
Current year encumbrances/reappropriations ‐ 211
(310) 220
FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 562 5,080
FUND BALANCES, END OF YEAR, GAAP BASIS 252$ 5,300$
CHANGE IN FUND BALANCE, GAAP BASIS
(Amounts in thousands)
CITY OF PALO ALTO
Non‐major Special Revenue Funds
Combining Schedule of Revenues, Expenditures and Changes in Fund Balances ‐
Budget and Actual
For the Year Ended June 30, 2019
124
Housing In‐Lieu Special Districts Transportation Mitigation
Variance Variance Variance
Actual, Positive Actual, Positive Actual, Positive
Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative)
‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
‐ ‐ ‐ 333 139 (194) ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ 3,107 3,037 (70) ‐ ‐ ‐
‐ ‐ ‐ 501 546 45 ‐ ‐ ‐
‐ ‐ ‐ 787 766 (21) 276 2,217 1,941
428 527 99 27 114 87 203 208 5
9 6 (3) ‐ ‐ ‐ ‐ ‐ ‐
2,150 5,613 3,463 ‐ ‐ ‐ ‐ ‐ ‐
25 47 22 ‐ ‐ ‐ ‐ ‐ ‐
170 196 26 ‐ 62 62 ‐ 421 421
2,782 6,389 3,607 4,755 4,664 (91) 479 2,846 2,367
‐ ‐ ‐ 283 253 30 ‐ ‐ ‐
‐ ‐ ‐ 1,374 1,167 207 ‐ ‐ ‐
10,539 10,437 102 3,589 2,659 930 2,200 2,200 ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ 26 26 ‐ ‐ ‐ ‐
190 127 63 449 386 63 ‐ ‐ ‐
10,729 10,564 165 5,721 4,491 1,230 2,200 2,200 ‐
(7,947) (4,175) 3,772 (966) 173 1,139 (1,721) 646 2,367
‐ ‐ ‐ 354 354 ‐ ‐ ‐ ‐
‐ ‐ ‐ (906) (906) ‐ (506) (506) ‐
‐ ‐ ‐ (552) (552) ‐ (506) (506) ‐
(7,947)$ (4,175) 3,772$ (1,518)$ (379) 1,139$ (2,227)$ 140 2,367$
617 143 305
63 ‐ ‐
10,297 791 2,200
6,802 555 2,645
44,863 5,143 10,511
51,665$ 5,698$ 13,156$
125
Local Law Enforcement Asset Seizure
Variance Variance
Actual, Positive Actual, Positive
Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative)
REVENUES:
Special assessments ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Other taxes and fines ‐ ‐ ‐ ‐ ‐ ‐
Contributions ‐ ‐ ‐ ‐ ‐ ‐
Charges for services ‐ ‐ ‐ ‐ ‐ ‐
Intergovernmental:
Community Development Block Grants ‐ ‐ ‐ ‐ ‐ ‐
State of California 106 157 51 ‐ ‐ ‐
Licenses, permits and fees
University Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
California Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
Other licenses, permits and fees ‐ ‐ ‐ ‐ ‐ ‐
Investment earnings 2 9 7 ‐ ‐ ‐
Rental income ‐ ‐ ‐ ‐ ‐ ‐
Other:
Housing In‐Lieu ‐ residential ‐ ‐ ‐ ‐ ‐ ‐
Loan payoffs ‐ ‐ ‐ ‐ ‐ ‐
Other revenue ‐ ‐ ‐ ‐ ‐ ‐
Total revenues 108 166 58 ‐ ‐ ‐
EXPENDITURES:
Current:
Administrative Services ‐ ‐ ‐ ‐ ‐ ‐
Public Works ‐ ‐ ‐ ‐ ‐ ‐
Planning and Community Environment ‐ ‐ ‐ ‐ ‐ ‐
Police 133 51 82 ‐ ‐ ‐
Community Services ‐ ‐ ‐ ‐ ‐ ‐
Non‐Departmental ‐ ‐ ‐ ‐ ‐ ‐
Total expenditures 133 51 82 ‐ ‐ ‐
Excess (deficiency) of revenues
over (under) expenditures (25) 115 140 ‐ ‐ ‐
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐ ‐ ‐ ‐ ‐
Transfers out ‐ ‐ ‐ ‐ ‐ ‐
Total other financing sources (uses) ‐ ‐ ‐ ‐ ‐ ‐
Change in fund balances, Budgetary basis (25)$ 115 140$ ‐$ ‐ ‐$
Adjustment to Budgetary Basis:
Unrealized gain/loss on investments 9 ‐
Changes in notes receivable ‐ ‐
Current year encumbrances/reappropriations 50 ‐
174 ‐
FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 319 3
FUND BALANCES, END OF YEAR, GAAP BASIS 493$ 3$
CHANGE IN FUND BALANCE, GAAP BASIS
(Amounts in Thousands)
CITY OF PALO ALTO
Non‐major Special Revenue Funds
Combining Schedule of Revenues, Expenditures and Changes in Fund Balances ‐
Budget and Actual
For the Year Ended June 30, 2019
126
Developer Impact Fee Downtown Business Improvement District Public Benefit
Variance Variance Variance
Actual, Positive Actual, Positive Actual, Positive
Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative)
‐$ ‐$ ‐$ 140$ 58$ (82)$ ‐$ ‐$ ‐$
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
708 2,783 2,075 ‐ ‐ ‐ ‐ ‐ ‐
‐ 571 571 ‐ ‐ ‐ ‐ ‐ ‐
215 362 147 2 (1) (3) 296 374 78
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
3,983 3,943 (40) ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ (571) (571) ‐ ‐ ‐ ‐ ‐ ‐
4,906 7,088 2,182 142 57 (85) 296 374 78
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
2,738 2,690 48 ‐ ‐ ‐ 45 ‐ 45
‐ ‐ ‐ 170 79 91 ‐ ‐ ‐
2,738 2,690 48 170 79 91 45 ‐ 45
2,168 4,398 2,230 (28) (22) 6 251 374 123
170 170 ‐ ‐ ‐ ‐ ‐ ‐ ‐
(1,612) (1,612) ‐ ‐ ‐ ‐ (11) (11) ‐
(1,442) (1,442) ‐ ‐ ‐ ‐ (11) (11) ‐
726$ 2,956 2,230$ (28)$ (22) 6$ 240$ 363 123$
414 1 487
‐ ‐ ‐
‐ 21 ‐
3,370 ‐ 850
13,764 (32) 19,633
17,134$ (32)$ 20,483$
127
128
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129
NON‐MAJOR GOVERNMENTAL FUNDS
DEBT SERVICE FUNDS
Downtown Parking Improvement
This fund accounts for revenues received from the General Fund to provide payment of principal and
interest associated with the 2002B Downtown Parking Improvement Certificates of Participation as they
become due.
2018 Golf Course Capital Improvement
This fund accounts for revenues received from the General Fund to provide payment of principal and
interest associated with the 2018 Golf Course Capital Improvement Certificates of Participation as they
become due.
2019 California Avenue Parking Garage COPs
This fund accounts for revenues received from the General Fund to provide payment of principal and
interest associated with the 2019 California Avenue Parking Garage Certificates of Participation as they
become due.
Library Projects
This fund accounts for revenues received from property taxes to provide payment of principal and interest
associated with the 2010 and 2013A General Obligation Bonds as they become due.
CITY OF PALO ALTO
Non‐major Debt Service Funds
Combining Balance Sheet
June 30, 2019
(Amounts in thousands)
Downtown 2018 Golf Course 2019 California Total
Parking Capital Avenue Parking Library Debt Service
Improvement Improvement Garage COPs Projects Funds
ASSETS:
Cash and investments:
Available for operations ‐$ ‐$ ‐$ 3,620$ $3,620
Cash and investments with fiscal agents ‐ 18 16 ‐ 34
Receivables:
Accounts ‐ ‐ ‐ 16 16
Interest ‐ ‐ ‐ 24 24
Total assets ‐$ 18$ 16$ 3,660$ 3,694$
FUND BALANCES:
Debt service ‐$ 18$ 16$ 3,660$ 3,694$
130
CITY OF PALO ALTO
Non‐major Debt Service Funds
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2019
(Amounts in thousands)
Downtown 2018 Golf Course 2019 California Total
Parking Capital Avenue Parking Library Debt Service
Improvement Improvement Garage COPs Projects Funds
REVENUES:
Property tax ‐$ ‐$ ‐$ 4,391$ 4,391$
Investment earnings ‐ 1 ‐ 140 141
Total revenues ‐ 1 ‐ 4,531 4,532
EXPENDITURES:
Current:
Debt service:
Principal retirement ‐ 35 ‐ 1,640 1,675
Interest and fiscal charges ‐ 320 286 2,787 3,393
Total expenditures ‐ 355 286 4,427 5,068
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES ‐ (354) (286) 104 (536)
OTHER FINANCING SOURCES (USES):
Issuance of debt ‐ ‐ 302 ‐ 302
Transfers in ‐ 372 ‐ ‐ 372
Transfers out (15) ‐ ‐ ‐ (15)
Total other financing sources (uses) (15) 372 302 ‐ 659
Change in fund balances (15) 18 16 104 123
FUND BALANCES, BEGINNING OF YEAR 15 ‐ ‐ 3,556 3,571
FUND BALANCES, END OF YEAR ‐$ 18$ 16$ 3,660$ 3,694$
131
Variance Variance Variance
Actual, Positive Actual Positive Actual Positive
Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative)
REVENUES:
Property tax ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ 4,427$ 4,391$ (36)$
Investment earnings ‐ ‐ ‐ ‐ ‐ ‐ ‐ 40 40
Total revenues ‐ ‐ ‐ ‐ ‐ ‐ 4,427 4,431 4
EXPENDITURES:
Debt service:
Principal retirement 35 35 ‐ ‐ ‐ ‐ 1,640 1,640 ‐
Interest and fiscal charges 320 320 ‐ 286 286 ‐ 2,787 2,787 ‐
Total expenditures 355 355 ‐ 286 286 ‐ 4,427 4,427 ‐
Excess (deficiency) of revenues
over (under) expenditures (355) (355) ‐ (286) (286) ‐ ‐ 4 4
OTHER FINANCING SOURCES (USES):
Issuance of debt ‐ ‐ ‐ 302 302 ‐ ‐ ‐ ‐
Transfers in 372 372 ‐ ‐ ‐ ‐ ‐ ‐ ‐
Transfers out ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total other financing sources (uses) 372 372 ‐ 302 302 ‐ ‐ ‐ ‐
Change in fund balances, Budgetary basis 17$ 17 ‐$ 16$ 16 ‐$ ‐$ 4 4$
Adjustment to Budgetary Basis:
Unrealized gain/loss on investments 1 ‐ 100
18 16 104
FUND BALANCES, BEGINNING OF YEAR ‐ ‐ 3,556
FUND BALANCES, END OF YEAR 18$ 16$ 3,660$
CHANGE IN FUND BALANCE, GAAP BASIS
(Amounts in thousands)
CITY OF PALO ALTO
Non‐major Debt Service Funds
Combining Schedule of Revenues, Expenditures and Changes in Fund Balances ‐
Budget and Actual
For the Year Ended June 30, 2019
2018 Golf Course Capital Improvement 2019 California Avenue Parking Garage COPs Library Projects
132
133
NON‐MAJOR GOVERNMENTAL FUNDS
PERMANENT FUND
Eyerly Family
This fund accounts for the revenues received from assets donated by Mr. and Mrs. Fred Eyerly for the City
and or its citizenry.
Eyerly Family Permanent Fund
Variance
Actual, Positive
Budget Budgetary Basis (Negative)
REVENUES:
Investment earnings 30$ 49$ 19$
Other fees ‐ 847 847
Total revenues 30 896 866
Change in fund balance 30$ 896 866$
Adjustment to Budgetary Basis:
Unrealized gain/loss on investments 44
940
FUND BALANCE, BEGINNING OF YEAR 1,498
FUND BALANCE, END OF YEAR 2,438$
CHANGE IN FUND BALANCE, GAAP BASIS
(Amounts in thousands)
CITY OF PALO ALTO
Non‐major Permanent Fund
Schedule of Revenues, Expenditures and Changes in Fund Balance ‐
Budget and Actual
For the Year Ended June 30, 2019
134
135
INTERNAL SERVICE FUNDS
INTRODUCTION
Internal Service Funds are used to finance and account for special activities and services performed by a
designated department for other departments in the City on a cost reimbursement basis.
Vehicle Replacement and Maintenance
This fund accounts for the maintenance and replacement of vehicles and equipment used by all City
departments. The source of revenue is from reimbursement of fleet replacement and maintenance costs
allocated to each department by usage of vehicle.
Technology
This fund accounts for replacement and upgrade of technology, and covers four primary areas used by all
City departments: desktop, infrastructure, applications, and technology research and development. The
source of revenue is from reimbursement of costs for support provided to other departments.
Printing and Mailing Services
This fund accounts for central duplicating, printing and mailing services provided to all City departments.
Source of revenue for this fund is from reimbursement of costs for services and supplies purchased by
other departments.
General Benefits
This fund accounts for the administration of compensated absences and health benefits.
Workers’ Compensation Insurance Program
This fund accounts for the administration of the City’s self‐insured workers’ compensation programs.
General Liabilities Insurance Program
This fund accounts for the administration of the City’s self‐insured general liability programs.
Retiree Health Benefits
This fund accounts for the retiree health benefits contributions.
Vehicle Printing Workers' General Total
Replacement and Compensation Liabilities Retiree Internal
and Mailing General Insurance Insurance Health Services
Maintenance Technology Services Benefits Program Program Benefits Funds
ASSETS:
Current Assets:
Cash and investments:
Available for operations 10,387$ 25,644$ 149$ 16,557$ 20,964$ 7,991$ 1$ 81,693$
Restricted investments with trustees ‐ ‐ ‐ 14,030 ‐ ‐ ‐ 14,030
Accounts receivable, net 40 319 ‐ 22 ‐ ‐ 1,883 2,264
Interest receivable 67 164 1 110 136 45 3 526
Inventory of materials and supplies 248 ‐ ‐ ‐ ‐ ‐ ‐ 248
Total current assets 10,742 26,127 150 30,719 21,100 8,036 1,887 98,761
Noncurrent Assets:
Capital assets:
Nondepreciable 913 1,617 ‐ ‐ ‐ ‐ ‐ 2,530
Depreciable, net 17,461 1,780 40 ‐ ‐ ‐ ‐ 19,281
Total noncurrent assets 18,374 3,397 40 ‐ ‐ ‐ ‐ 21,811
Total assets 29,116 29,524 190 30,719 21,100 8,036 1,887 120,572
DEFERRED OUTFLOWS OF RESOURCES:
Pension related 671 2,132 54 ‐ 57 ‐ ‐ 2,914
OPEB related 197 402 18 ‐ ‐ ‐ ‐ 617
Total deferred outflows of resources 868 2,534 72 ‐ 57 ‐ ‐ 3,531
LIABILITIES:
Current Liabilities:
Accounts payable and accruals 180 340 155 1,123 76 20 ‐ 1,894
Accrued salaries and benefits 24 78 3 ‐ 16 ‐ ‐ 121
Due to other funds ‐ ‐ ‐ ‐ ‐ ‐ 737 737
Accrued compensated absences 5 12 ‐ 6,255 1 ‐ ‐ 6,273
Accrued claims payable ‐ current ‐ ‐ ‐ 160 3,442 2,569 ‐ 6,171
Total current liabilities 209 430 158 7,538 3,535 2,589 737 15,196
Noncurrent liabilities:
Accrued compensated absences ‐ ‐ ‐ 6,062 ‐ ‐ ‐ 6,062
Accrued claims payable ‐ ‐ ‐ ‐ 17,066 5,128 ‐ 22,194
Net pension liabilities 3,753 12,354 338 ‐ 82 ‐ ‐ 16,527
Net OPEB liabilities 1,818 3,710 163 ‐ ‐ ‐ ‐ 5,691
Total noncurrent liabilities 5,571 16,064 501 6,062 17,148 5,128 ‐ 50,474
Total liabilities 5,780 16,494 659 13,600 20,683 7,717 737 65,670
DEFERRED INFLOWS OF RESOURCES:
Pension related 131 356 2 ‐ 3 ‐ ‐ 492
OPEB related 34 69 3 ‐ ‐ ‐ ‐ 106
Total deferred inflows of resources 165 425 5 ‐ 3 ‐ ‐ 598
NET POSITION:
Net Investment in capital assets 18,374 3,397 40 ‐ ‐ ‐ ‐ 21,811
Unrestricted 5,665 11,742 (442) 17,119 471 319 1,150 36,024
Total net position 24,039$ 15,139$ (402)$ 17,119$ 471$ 319$ 1,150$ 57,835$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Fund Net Position
June 30, 2019
(Amounts in thousands)
136
Vehicle Printing Workers' General Total
Replacement and Compensation Liabilities Retiree Internal
and Mailing General Insurance Insurance Health Services
Maintenance Technology Services Benefits Program Program Benefits Funds
OPERATING REVENUES:
Charges for services 8,915$ 14,905$ 1,604$ 57,060$ 3,764$ 2,962$ 13,800$ 103,010$
Other ‐ ‐ ‐ ‐ 295 501 ‐ 796
Total operating revenues 8,915 14,905 1,604 57,060 4,059 3,463 13,800 103,806
OPERATING EXPENSES:
Administrative and general 1,615 6,465 1,199 307 944 2,105 24 12,659
Operations and maintenance 4,084 8,395 367 567 165 ‐ ‐ 13,578
Depreciation and amortization 3,007 486 7 ‐ ‐ ‐ ‐ 3,500
Claim payments and change in estimated
self‐insured liability ‐ ‐ ‐ 1,514 5,108 2,376 ‐ 8,998
Refund of charges for services 123 24 ‐ ‐ ‐ ‐ ‐ 147
Employment benefits ‐ ‐ ‐ 52,261 ‐ ‐ 15,997 68,258
Total operating expenses 8,829 15,370 1,573 54,649 6,217 4,481 16,021 107,140
Operating income (loss) 86 (465) 31 2,411 (2,158) (1,018) (2,221) (3,334)
NONOPERATING REVENUES (EXPENSES):
Investment earnings 507 1,244 2 1,134 1,039 328 175 4,429
Gain on disposal of capital assets 275 ‐ ‐ ‐ ‐ ‐ ‐ 275
Other nonoperating revenues 42 ‐ ‐ ‐ ‐ ‐ ‐ 42
Total nonoperating revenues (expenses) 824 1,244 2 1,134 1,039 328 175 4,746
Income (loss) before transfers 910 779 33 3,545 (1,119) (690) (2,046) 1,412
Transfers in ‐ 1,366 ‐ 5,992 ‐ 5 2,197 9,560
Transfers out (143) (100) (2) (2,197) (2) ‐ ‐ (2,444)
Change in net position 767 2,045 31 7,340 (1,121) (685) 151 8,528
NET POSITION (DEFICIT), BEGINNING OF YEAR 23,272 13,094 (433) 9,779 1,592 1,004 999 49,307
NET POSITION, END OF YEAR 24,039$ 15,139$ (402)$ 17,119$ 471$ 319$ 1,150$ 57,835$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Revenues, Expenses and Changes in Fund Net Position
For the Year Ended June 30, 2019
(Amounts in thousands)
137
Vehicle Printing Workers' General Total
Replacement and Compensation Liabilities Retiree Internal
and Mailing General Insurance Insurance Health Services
Maintenance Technology Services Benefits Program Program Benefits Funds
Cash flows from operating activities:
Cash received from customers 8,879$ 14,586$ 1,604$ 57,070$ 3,781$ 3,463$ 11,917$ 101,300$
Cash refunds to customers ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Cash payments to suppliers for goods and services (3,373) (6,974) (1,404) (1,308) (124) (1,560) (653) (15,396)
Cash payments to employees (2,365) (7,393) (221) (51,427) (944) ‐ (16,021) (78,371)
Cash payments for judgments and claims ‐ ‐ ‐ (1,514) (2,571) (526) ‐ (4,611)
Other cash receipts 42 ‐ ‐ ‐ ‐ ‐ ‐ 42
Net cash flows provided by (used in)
operating activities 3,183 219 (21) 2,821 142 1,377 (4,757) 2,964
Cash flows from noncapital financing activities:
Receipt of loans from other funds ‐ ‐ ‐ ‐ ‐ ‐ 737 737
Transfers in ‐ 1,366 ‐ 5,992 ‐ 5 2,197 9,560
Transfers out (143) (100) (2) (2,197) (2) ‐ ‐ (2,444)
Net cash flows provided by (used in)
noncapital financing activities (143) 1,266 (2) 3,795 (2) 5 2,934 7,853
Cash flows from capital and related financing activities:
Acquisition of capital assets (3,113) (506) (18) ‐ ‐ ‐ ‐ (3,637)
Proceeds from sale of capital assets 349 30 ‐ ‐ ‐ ‐ ‐ 379
Net cash flows (used in)
capital and related financing activities (2,764) (476) (18) ‐ ‐ ‐ ‐ (3,258)
Cash flows from investing activities:
Interest received (charged) 497 1,216 2 1,120 1,019 320 192 4,366
Net change in cash and cash equivalents 773 2,225 (39) 7,736 1,159 1,702 (1,631) 11,925
Cash and cash equivalents, beginning of year 9,614 23,419 188 22,851 19,805 6,289 1,632 83,798
Cash and cash equivalents, end of year $ 10,387 $ 25,644 $ 149 $ 30,587 $ 20,964 $ 7,991 $ 1 $ 95,723
Reconciliation of operating income (loss) to net cash
flows provided by (used in) operating activities:
Operating income (loss) 86$ (465)$ 31$ 2,411$ (2,158)$ (1,018)$ (2,221)$ (3,334)$
Adjustments to reconcile operating income (loss)
to net cash provided by (used in) operating activities:
Depreciation 3,007 486 7 ‐ ‐ ‐ ‐ 3,500
Other 42 ‐ ‐ ‐ ‐ ‐ ‐ 42
Change in assets and liabilities:
Accounts receivable (36) (319) ‐ 10 17 ‐ (1,883) (2,211)
Inventory of materials and supplies (34) ‐ ‐ ‐ ‐ ‐ ‐ (34)
Net OPEB asset ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Deferred outflows of resources ‐ pension plan 207 644 10 ‐ 20 ‐ ‐ 881
Deferred outflows of resources ‐ OPEB 66 134 5 ‐ ‐ ‐ ‐ 205
Accounts payable and accruals (206) (95) (38) 121 41 20 (653) (810)
Accrued salaries and benefits 1 2 1 ‐ 14 ‐ ‐ 18
Accrued compensated absences 1 (4) ‐ 279 1 ‐ ‐ 277
Accrued claims payable ‐ ‐ ‐ ‐ 2,242 2,375 ‐ 4,617
Net pension liability 49 (172) (28) ‐ (32) ‐ ‐ (183)
Net OPEB liability (70) (143) (6) ‐ ‐ ‐ ‐ (219)
Deferred inflows of resources ‐ pension plans 67 145 (3) ‐ (3) ‐ ‐ 206
Deferred inflows of resouces ‐ OPEB 3 6 ‐ ‐ ‐ ‐ ‐ 9
Net cash flows provided by (used in)
operating activities 3,183$ 219$ (21)$ 2,821$ 142$ 1,377$ (4,757)$ 2,964$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Cash Flows
For the Year Ended June 30, 2019
(Amounts in thousands)
138
139
FIDUCIARY FUNDS
INTRODUCTION
Fiduciary Funds are used to account for assets held by the City acting in a fiduciary capacity for other
entities and individuals. The funds are operated to carry out the specific actions required by the trust
agreements, ordinances and other governing regulations.
Fiduciary Funds are presented separately from the Citywide and Fund financial statements.
Agency Funds are custodial in nature and do not involve measurement of results of operations. The City
maintains two agency funds, as follows:
Cable Joint Powers Authority
The fund was established to account for the activities of the cable television system on behalf of the
members.
University Avenue Area Off‐Street Parking Assessment District
The fund accounts for the receipts and disbursements associated with the Series 2012 Limited Obligation
Refunding Improvement Bonds.
CITY OF PALO ALTO
All Agency Funds
Statement of Changes in Assets and Liabilities
For the Year Ended June 30, 2019
Balance Balance
June 30, 2018 Additions Deletions June 30, 2019
Cable Joint Powers Authority
ASSETS:
Cash and investments available for operations 549$ 190$ ‐$ 739$
Accounts receivable 515 ‐ 18 497
Interest receivable 3 1 ‐ 4
Total assets 1,067$ 191$ 18$ 1,240$
LIABILITIES:
Due to other governments 1,067$ 173$ ‐$ 1,240$
ASSETS:
Cash and investments available for operations 1,973$ 55$ ‐$ 2,028$
Cash and investments with fiscal agents 2,594 63 ‐ 2,657
Accounts receivable 17 ‐ 6 11
Interest receivable 11 2 ‐ 13
Total assets 4,595$ 120$ 6$ 4,709$
LIABILITIES:
Due to bondholders 4,595$ 114$ ‐$ 4,709$
Total Agency Funds
ASSETS:
Cash and investments available for operations 2,522$ 245$ ‐$ 2,767$
Cash and investments with fiscal agents 2,594 63 ‐ 2,657
Accounts receivable 532 ‐ 24 508
Interest receivable 14 3 ‐ 17
Total assets 5,662$ 311$ 24$ 5,949$
LIABILITIES:
Due to bondholders 4,595$ 114$ ‐$ 4,709$
Due to other governments 1,067 173 ‐ 1,240
Total liabilities 5,662$ 287$ ‐$ 5,949$
(Amounts in thousands)
University Avenue Area
Off‐Street Parking Assessment District
140
141
STATISTICAL SECTION
The statistical section contains comprehensive statistical data, which relates to physical, economic, social
and political characteristics of the City. It is intended to provide users with a broader and more complete
understanding of the City and its financial affairs than is possible from the financial statements and
supporting schedules included in the financial section.
In this section, readers will find comparative information related to the City’s revenue sources,
expenditures, property tax valuations, levies and collections, general obligation bonded debt, utility
revenue debt service, and demographics. Where available, the comparative information is presented for
the last ten fiscal years.
In addition, this section presents information related to the City’s legal debt margin computation, principal
taxpayers, notary and security bond coverages, and other miscellaneous statistics pertaining to services
provided by the City.
In contrast to the financial section, the statistical section information is not usually subject to independent
audit.
Financial Trends
These schedules contain trend information to help the reader understand how the City’s financial
performance and well‐being have changed over time:
Net Position by Component
Changes in Net Position
Fund Balances of Governmental Funds
Changes in Fund Balances of Governmental Funds
Revenue Capacity
These schedules contain information to help the reader assess the City’s most significant local revenue
sources, property tax and electric charges:
Electric Operating Revenue by Source
Supplemental Disclosure for Water Utilities
Supplemental Disclosure for Gas Utilities
Assessed Value of Taxable Property
Property Tax Rates, All Overlapping Governments
Property Tax Levies and Collections
Principal Property Taxpayers
Assessed Valuation and Parcels by Land Use
Per Parcel Assessed Valuation of Single Family Residential
Debt Capacity
These schedules present information to help the reader assess the affordability of the City’s current levels
of outstanding debt and the City’s ability to issue additional debt in the future:
Ratio of Outstanding Debt by Type
Computation of Direct and Overlapping Debt
Computation of Legal Bonded Debt Margin
Revenue Bond Coverage
142
STATISTICAL SECTION
Demographic and Economic Information
These schedules offer demographic and economic indicators to help the reader understand the
environment within which the City’s financial activities take place:
Taxable Transactions by Type of Business
Demographic and Economic Statistics
Principal Employers
Operating Information
These schedules contain service and infrastructure data to help the reader understand how the
information in the City’s financial report relates to the services the City provides and the activities it
performs:
Operating Indicators by Function/Program
Capital Asset Statistics by Function/Program
Full‐Time Equivalent City Government Employees by Function
Sources
Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual
Financial Reports for the relevant year.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Governmental Activities
Investment in capital assets 369,499$ 364,747$ 370,111$ 378,047$ 386,696$ 405,921$ 425,179$ 453,878$ 473,233$ 493,706$
Restricted 34,323 16,437 52,934 71,717 68,331 55,963 47,907 36,081 41,177 45,639
Unrestricted 102,199 134,722 142,102 165,810 187,386 1,972 37,905 37,330 (87,040) (89,362)
Total Governmental Activities Net Position 506,021$ 515,906$ 565,147$ 615,574$ 642,413$ 463,856$ 510,991$ 527,289$ 427,370$ 449,983$
Business‐type Activities
Investment in capital assets 399,317$ 416,418$ 437,151$ 446,597$ 473,795$ 490,874$ 512,918$ 532,063$ 573,688$ 602,136$
Restricted 4,300 ‐ ‐ 4,060 4,166 4,142 4,115 4,073 4,014 4,016
Unrestricted 232,420 253,740 262,602 269,926 266,794 172,802 162,806 163,158 110,429 135,391
Total Business‐type Activities Net Position 636,037$ 670,158$ 699,753$ 720,583$ 744,755$ 667,818$ 679,839$ 699,294$ 688,131$ 741,543$
Primary Government
Investment in capital assets 768,816$ 781,165$ 807,262$ 824,644$ 860,491$ 896,795$ 938,097$ 985,941$ 1,046,921$ 1,095,842$
Restricted 38,623 16,437 52,934 75,777 72,497 60,105 52,022 40,154 45,191 49,655
Unrestricted 334,619 388,462 404,704 435,736 454,180 174,774 200,711 200,488 23,389 46,029
Total Primary Government Net Position 1,142,058$ 1,186,064$ 1,264,900$ 1,336,157$ 1,387,168$ 1,131,674$ 1,190,830$ 1,226,583$ 1,115,501$ 1,191,526$
Notes:
Source: Annual Financial Statements, Statement of Net Position
The City implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions, effective July 1, 2014, and GASB Statement No. 75,
Accounting and Financial Reporting for Postemployment Benefits Other Than Pension , effective July 1, 2017. The City's unrestricted net position decreased in FY
2015 and again in FY 2018 as a result.
Fiscal Year Ended June 30
CITY OF PALO ALTO
Net Position by Component
Last Ten Fiscal Years
(Amounts in thousands)
(Accrual basis of accounting)
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$ T
h
o
u
s
a
n
d
s
Primary Government
Investment in capital assets Restricted Unrestricted
143
PROGRAM REVENUES 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Governmental Activities
Charges for services
City Attorney 53$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Administrative Services 984 2,889 1,647 15,629 4,055 5,460 9,444 5,242 6,536 6,413
Public Works 1,258 2,419 1,008 1,314 1,093 1,209 599 878 781 1,478
Planning & Community Environment 4,813 7,237 31,491 28,768 12,896 8,090 9,071 6,067 5,119 11,997
Development Services1 ‐ ‐ ‐ ‐ ‐ 12,019 12,570 11,768 16,000 13,904
Public Safety 14,337 15,274 15,658 16,139 14,902 15,726 13,945 12,670 13,507 14,179
Community Services 8,729 7,724 11,365 13,808 20,882 20,912 21,551 20,472 21,285 22,805
Library 199 480 1,600 187 166 137 198 139 145 134
Operating grants and contributions 4,829 2,884 3,441 5,038 5,360 5,300 2,164 1,990 14,054 2,100
Capital grants and contributions 1,280 1,903 1,064 515 917 619 344 1,929 1,534 8,247
Total Governmental Activities
Program Revenues 36,482 40,810 67,274 81,398 60,271 69,472 69,886 61,155 78,961 81,257
Business‐type Activities
Charges for services
Water 26,259 26,624 31,467 37,746 40,291 35,847 37,588 42,678 45,087 45,571
Electric 121,900 122,109 118,886 121,805 121,916 120,842 120,743 137,543 154,142 163,514
Fiber Optics 3,105 3,322 3,662 4,382 4,485 4,627 4,505 4,553 4,529 4,657
Gas 44,450 43,584 41,774 34,633 35,737 30,751 30,212 36,431 37,044 42,113
Wastewater Collection 15,136 15,094 14,942 16,077 15,599 16,182 16,496 17,748 17,990 20,219
Wastewater Treatment 16,915 18,830 22,200 21,528 18,460 24,120 23,825 23,649 27,382 27,573
Refuse 28,568 30,469 30,645 30,583 30,297 31,576 32,169 33,918 34,647 33,996
Storm Drainage 5,647 5,796 5,892 6,053 6,183 6,281 6,520 6,693 6,964 7,249
Airport ‐ ‐ ‐ ‐ ‐ 683 826 1,286 2,382 2,483
Operating grants and contributions 361 610 605 572 549 534 744 512 501 488
Capital grants and contributions 475 3,004 1,526 2,224 2,005 2,080 1,061 4,265 14,194 6,677
Total Business‐type Activities
Program Revenues 262,816 269,442 271,599 275,603 275,522 273,523 274,689 309,276 344,862 354,540
Total Primary Government
Program Revenues 299,298$ 310,252$ 338,873$ 357,001$ 335,793$ 342,995$ 344,575$ 370,431$ 423,823$ 435,797$
EXPENSES
Governmental Activities
City Council 455$ 15$ 345$ 94$ 387$ 271$ 352$ 329$ 345$ 270$
City Manager 2,399 1,842 1,960 1,237 2,180 2,155 2,662 1,975 2,757 3,336
City Attorney 2,621 953 1,656 1,642 1,797 1,759 2,472 2,140 2,511 3,086
City Clerk 1,369 803 908 330 641 680 582 762 931 822
City Auditor 2,601 138 235 464 489 362 414 847 994 1,081
Administrative Services 17,893 9,888 10,100 7,614 11,388 9,980 10,637 11,887 13,949 19,169
Human Resources 3,707 1,346 1,071 1,420 1,346 1,464 2,224 2,272 2,674 3,021
Public Works 18,658 19,357 14,568 20,816 24,577 21,075 24,613 25,539 30,349 36,617
Planning & Community Environment 12,114 15,031 12,074 13,549 14,926 8,423 10,208 10,918 11,357 12,169
Development Services1 ‐ ‐ ‐ ‐ ‐ 10,449 11,158 11,102 12,664 12,622
Public Safety 55,799 58,996 62,817 59,452 62,883 58,660 56,653 73,320 83,923 89,189
Community Services 17,171 22,845 21,915 22,705 23,822 24,688 28,547 27,866 33,709 36,815
Library 6,143 6,920 7,323 7,319 7,758 7,721 10,825 11,437 12,208 12,557
Interest on long term debt 370 2,742 2,575 2,562 3,367 3,658 3,552 2,846 2,761 3,653
Total Governmental
Activities Expenses 141,300 140,876 137,547 139,204 155,561 151,345 164,899 183,240 211,132 234,407
Business‐type Activities
Water 21,037 24,268 29,093 30,707 31,593 33,205 35,120 37,535 40,836 40,606
Electric 107,910 100,130 102,030 106,438 113,004 122,499 120,319 128,603 146,033 139,605
Fiber Optics 1,407 1,561 1,489 1,437 1,661 1,891 2,107 2,159 2,653 2,476
Gas 32,498 32,051 28,878 26,749 26,869 23,525 20,879 26,783 27,930 30,915
Wastewater Collection 10,696 12,275 14,825 14,313 13,235 14,595 15,199 16,405 16,801 17,324
Wastewater Treatment 13,466 19,731 20,712 20,635 21,018 21,553 22,546 23,498 27,518 27,070
Refuse 28,119 30,684 31,900 28,542 28,413 27,974 30,370 30,665 28,808 30,391
Storm Drainage 2,491 3,229 3,103 3,703 3,644 3,721 3,735 4,106 5,059 4,951
Airport ‐ 31 153 246 466 1,004 970 1,274 1,656 1,790
Total Business‐type
Activities Expenses 217,624 223,960 232,183 232,770 239,903 249,967 251,245 271,028 297,294 295,128
Total Primary
Government Expenses 358,924$ 364,836$ 369,730$ 371,974$ 395,464$ 401,312$ 416,144$ 454,268$ 508,426$ 529,535$
CITY OF PALO ALTO
Changes in Net Position
Last Ten Fiscal Years
(Accrual basis of accounting)
(Amounts in thousands)
Fiscal Year Ended June 30
144
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
NET (EXPENSE)/REVENUE
Governmental Activities (104,818)$ (100,066)$ (70,273)$ (57,806)$ (95,290)$ (81,873)$ (95,013)$ (122,085)$ (132,171)$ (153,150)$
Business‐type Activities 45,192 45,482 39,416 42,833 35,619 23,556 23,444 38,248 47,568 59,412
Total Primary Government
Net (Expense)/Revenue (59,626)$ (54,584)$ (30,857)$ (14,973)$ (59,671)$ (58,317)$ (71,569)$ (83,837)$ (84,603)$ (93,738)$
GENERAL REVENUES AND OTHER CHANGES IN NET POSITION
Governmental Activities
Taxes
Property tax 25,981$ 29,156$ 30,104$ 31,929$ 35,299$ 38,750$ 41,189$ 43,953$ 47,170$ 51,718$
Sales tax 17,991 20,746 22,132 25,606 29,424 29,675 30,018 29,923 31,091 36,508
Utility user tax 11,295 10,851 10,834 10,861 11,008 10,861 12,469 14,240 15,414 16,402
Transient occupancy tax 6,858 8,082 9,664 10,794 12,255 16,699 22,366 23,477 24,937 25,649
Other taxes 4,055 8,156 8,173 10,504 9,660 11,867 7,868 8,989 11,337 9,525
Investment earnings 6,514 3,500 6,238 (1,228) 5,859 5,010 8,639 (711) 420 15,375
Miscellaneous 12,729 12,377 14,943 518 2,575 3,428 894 168 1,973 1,906
Transfers 13,994 17,083 17,426 19,249 17,103 16,405 18,705 18,344 19,077 18,680
Total Governmental Activities 99,417 109,951 119,514 108,233 123,183 132,695 142,148 138,383 151,419 175,763
Business‐type Activities
Investment earnings 10,769 5,722 7,605 (2,754) 6,379 4,857 7,282 (449) 596 12,680
Transfers (13,994) (17,083) (17,426) (19,249) (17,103) (16,405) (18,705) (18,344) (19,077) (18,680)
Total Business‐type Activities (3,225) (11,361) (9,821) (22,003) (10,724) (11,548) (11,423) (18,793) (18,481) (6,000)
Total Primary Government 96,192$ 98,590$ 109,693$ 86,230$ 112,459$ 121,147$ 130,725$ 119,590$ 132,938$ 169,763$
CHANGE IN NET POSITION
Governmental Activities (5,401)$ 9,885$ 49,241$ 50,427$ 27,893$ 50,822$ 47,135$ 16,298$ 19,248$ 22,613$
Business‐type Activities 41,967 34,121 29,595 20,830 24,895 12,008 12,021 19,455 29,087 53,412
Total Primary Government
Change in Net Position 36,566$ 44,006$ 78,836$ 71,257$ 52,788$ 62,830$ 59,156$ 35,753$ 48,335$ 76,025$
Notes:1The Development Services Department was formed in FY15.
Source: Annual Financial Statements, Statement of Activities
Fiscal Year Ended June 30
145
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
General Fund
Nonspendable 6,581$ 6,085$ 6,007$ 5,749$ 6,188$ 6,296$ 7,088$ 7,709$ 8,049$ 7,647$
Committed ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 373 5,100
Assigned 7,295 6,235 6,400 5,415 5,432 7,976 8,261 7,280 7,098 7,657
Unassigned 27,581 31,859 29,616 30,913 36,690 48,198 51,582 48,118 52,826 54,811
Total General Fund 41,457$ 44,179$ 42,023$ 42,077$ 48,310$ 62,470$ 66,931$ 63,107$ 68,346$ 75,215$
Source: Annual Financial Statements, Balance Sheet
Fiscal Year Ended June 30
CITY OF PALO ALTO
Fund Balances of Governmental Funds (General Fund)
Last Ten Fiscal Years
(Modified accrual basis of accounting)
(Amounts in thousands)
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$ T
h
o
u
s
a
n
d
s
Nonspendable Committed Assigned Unassigned
146
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
All Other Governmental Funds
Nonspendable 1,402$ 1,422$ 11,112$ 18,189$ 14,869$ 1,468$ 1,505$ 1,499$ 1,498$ 2,438$
Restricted 55,400 50,646 61,324 84,688 68,468 59,650 47,113 35,298 40,317 85,940
Committed 16,962 24,775 14,284 20,400 27,145 48,434 65,745 71,566 72,781 84,616
Assigned 38,538 20,114 33,264 45,514 55,211 52,627 64,411 63,225 68,261 56,842
Unassigned ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ (32) (32)
Total All Other
Governmental Funds 112,302$ 96,957$ 119,984$ 168,791$ 165,693$ 162,179$ 178,774$ 171,588$ 182,825$ 229,804$
Source: Annual Financial Statements, Balance Sheet
Fiscal Year Ended June 30
CITY OF PALO ALTO
Fund Balances of Governmental Funds (All Other Governmental Funds)
Last Ten Fiscal Years
(Modified accrual basis of accounting)
(Amounts in thousands)
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$ T
h
o
u
s
a
n
d
s
Nonspendable Restricted Committed Unassigned
($50,000)
$0
$50,000
$100,000
$150,000
$200,000
$250,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$ T
h
o
u
s
a
n
d
s
Nonspendable Restricted Committed Assigned Unassigned
147
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Revenues
Property tax 25,981$ 29,248$ 30,216$ 32,040$ 35,393$ 38,836$ 41,289$ 44,050$ 47,242$ 51,776$
Sales tax 17,991 20,746 22,132 25,606 29,424 29,675 30,018 29,923 31,091 36,508
Other taxes and fines 25,063 27,890 29,231 32,141 35,305 41,576 44,909 48,875 53,837 53,525
Contributions3 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 11,733 ‐
Charges for services 19,775 22,311 46,273 38,976 23,962 25,973 23,910 22,267 26,835 27,346
From other agencies 3,035 1,614 1,116 4,109 5,700 7,727 4,417 5,443 5,392 4,689
Permits and licenses 4,408 5,433 7,136 8,218 8,990 9,179 11,228 10,523 12,786 17,759
Interest and rentals 19,045 16,553 18,583 12,136 18,445 18,658 22,269 15,348 16,288 32,905
Other revenue 4,724 8,624 12,739 17,570 7,471 12,837 13,827 4,985 6,067 7,955
Total Revenues 120,022 132,419 167,426 170,796 164,690 184,461 191,867 181,414 211,271 232,463
Expenditures
Administration1 17,353 8,351 9,412 8,291 9,961 10,806 11,501 13,192 14,721 15,799
Public Works 9,787 11,317 11,304 11,489 12,439 12,276 13,112 14,485 15,426 14,764
Planning and Community Environment 9,480 10,309 11,966 13,474 14,761 8,628 9,722 10,568 10,332 10,911
Development Services2 ‐ ‐ ‐ ‐ ‐ 11,152 10,643 10,908 11,749 11,549
Public Safety 51,022 58,874 62,418 59,537 62,028 61,447 63,784 71,164 73,916 76,344
Community Services 16,451 20,029 20,860 21,661 22,644 23,553 25,511 25,408 29,831 31,619
Library 5,900 6,509 7,072 6,902 7,340 7,980 7,960 8,953 9,120 9,288
Non‐departmental 10,149 7,352 6,819 4,567 8,135 6,180 8,068 6,566 7,579 12,231
Special revenue and capital projects 22,006 35,486 29,154 29,542 37,035 41,754 24,457 39,643 40,971 46,914
Debt service ‐ principal payments 840 870 1,743 1,489 1,524 1,948 7,130 2,066 2,961 2,101
Debt service ‐interest and fiscal fees 382 1,815 2,757 2,659 3,196 3,404 4,266 3,032 2,956 3,398
Payment to bond refunding escrow ‐ ‐ 586 540 ‐ ‐ ‐ ‐ ‐ ‐
Total Expenditures 143,370 160,912 164,091 160,151 179,063 189,128 186,154 205,985 219,562 234,918
Excess (Deficiency) of Revenues
Over (Under) Expenditures (23,348) (28,493) 3,335 10,645 (14,373) (4,667) 5,713 (24,571) (8,291) (2,455)
Other Financing Sources (Uses)
Issuance of Debt ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 8,970 42,297
Proceeds from sale of capital assets ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2,442
Transfers in 34,835 30,323 47,200 50,343 41,683 45,137 61,835 58,331 56,882 54,711
Transfers out (21,415) (14,352) (29,782) (33,833) (24,175) (29,824) (46,492) (44,770) (41,085) (43,147)
Other ‐ (101) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Proceeds from long term debt 59,071 ‐ 3,222 21,706 ‐ ‐ ‐ ‐ ‐ ‐
Payments to refund bond escrow ‐ ‐ (3,104) ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total Other Financing Sources (Uses)72,491 15,870 17,536 38,216 17,508 15,313 15,343 13,561 24,767 56,303
Net Change in Fund Balances 49,143$ (12,623)$ 20,871$ 48,861$ 3,135$ 10,646$ 21,056$ (11,010)$ 16,476$ 53,848$
Debt Service as a Percentage of
Non‐Capital Expenditures 1.0% 2.2% 3.5% 3.2% 3.3% 3.7% 7.1% 3.1% 3.3% 2.8%
Notes:
2The Development Services Department was formed in FY15.
3Contributions from the Stanford University Medical Center.
Source: Annual Financial Statements, Governmental Funds, Statement of Revenues, Expenditures and Changes in Fund Balances
1Comprised of the following departments: City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative Services and Human Resources.
Fiscal Year Ended June 30
CITY OF PALO ALTO
Changes in Fund Balances of Governmental Funds
Last Ten Fiscal Years
(Modified accrual basis of accounting)
(Amounts in thousands)
148
Fiscal Commercial & City of
Year Residential Industrial Palo Alto Total
2010 19,898$ 89,315$ 2,890$ 112,103$
2011 19,848 88,076 2,991 110,915
2012 20,328 85,895 3,352 109,575
2013 19,951 86,998 3,265 110,214
2014 18,744 88,419 3,225 110,388
2015 17,404 88,257 3,234 108,895
2016 18,191 86,715 3,127 108,033
2017 20,269 90,635 3,780 114,684
2018 22,764 100,200 4,264 127,228
2019 23,613 103,509 4,404 131,526
* The electric operating revenues include sales to customers and city departments, and
excludes the sale of surplus energy, utility billing discounts, and bad debt expense.
529 Bryant Street LLC Technology
City of Palo Alto Municipal
Communications & Power Industries (CPI) Research
Lucille Packard Children's Hospital Hospital
Space Systems/Loral, LLC Satellite & Satellite Systems
Stanford Hospital & Clinics Hospital
Tesla, Inc. Manufacturing
Varian Medical Systems, Inc. Manufacturing
Veterans Administration Hospital Hospital
VMware, Inc. Computer
Number Kilowatt‐hour
of Customers Sales (kWh)Revenue2
Residential 25,675 150,602,255 23,613$
Commercial 3,703 568,750,819 85,332
Industrial 72 133,791,543 18,177
CPA 141 29,258,401 4,404
Total 29,591 882,403,018 131,526$
City of Palo Alto Power Purchase
Western Area Power Administration Hydroelectric 42.2%
Forward Market Purchases ‐3.1%
Wind Energy 11.3%
Landfill Gas Energy 11.0%
Solar Energy 37.3%
Northern California Power Agency Hydroelectric 21.5%
Short‐Term Market ‐20.3%
Source: City of Palo Alto, Utilities and Accounting Departments
Customer (alphabetical order)Type of Business
1The top ten customers accounted for approximately 35.3% of total kWh consumption (311,586,525 kWh)
and 31.2% of revenue ($42,456,824). The largest customer accounted for 9.1% of total kWh consumption
and 7.8% of revenue. The smallest customer accounted for 1.9% of total kWh consumption and 1.6% of
revenue. Revenue used to determine top ten electric customers includes metered and non‐metered
charges, adjustments, surcharges and discounts. Revenue does not include Utility Users Tax (UUT) and
deposits.
2Revenue includes metered and non‐metered charges and revenue adjustments. Revenue does not
include California Energy Commission (CEC) surcharges, Utility Users Tax (UUT), Primary Voltage and Rate
Assistance (RAP) discounts and deposits. Parts of this schedule are provided as required by the Continuing
Disclosure Agreement for the City's Utility Revenue Bond and are not required by Governmental
Accounting Standards Board (GASB).
CITY OF PALO ALTO
Electric Operating Revenue by Source *
Last Ten Fiscal Years
(Amounts in thousands)
Top Ten Electric Customers by Revenue1
149
Top Ten Largest Water Utility Customers (alphabetical order)
City of Palo Alto
Oak Creek Apartments
Palo Alto Hills Golf & Country Club
Palo Alto Unified School District
Simon Property Group
Stanford Hospital & Clinics
Stanford West Management
Veterans Administration Hospital
Vi at Palo Alto
VMware Inc.
The top ten customers total consumption is 817,423 CCF with revenue of $7,752,774.
This amount accounts for approximately 18.5% of total consumption and 16.9% of total
revenue. The largest customer (other than the City of Palo Alto) accounted for 2.7% of
consumption and 2.4% of revenue. The smallest customer accounted for 0.7% of
consumption and 0.7% of revenue. Revenue used to determine top ten water utility
customers includes metered and non‐metered charges, adjustments, surcharges
and discounts. Revenue does not include Utility Users Tax (UUT) and deposits.
Note:
Source: City of Palo Alto, Utilities Department
CITY OF PALO ALTO
Supplemental Disclosure for Water Utilities
Fiscal Year 2019
This schedule is provided as required by the Continuing Disclosure Agreement for the City's Utility Revenue
Bond and is not required by Governmental Accounting Standards Board (GASB).
150
Top Ten Largest Gas Utility Customers (alphabetical order)
City of Palo Alto
Communications & Power Industries (CPI)
Genencor International
Hewlett Packard
Palo Alto Unified School District
Space Systems/Loral, LLC
Stanford Hospital & Clinics
Stanford University
Veterans Administration Hospital
VMware Inc.
The top ten customers total consumption is 7,172,798 THM with revenue of $8,791,874.
This amount accounts for approximately 24.7% of total consumption and 21.1% of total
revenue. The largest customer (other than the City of Palo Alto) accounted for 6.1% of
consumption and 5.1% of revenue. The smallest customer accounted for 1.1% of
consumption and 1% of revenue.
Note:
Source: City of Palo Alto, Utilities Department
CITY OF PALO ALTO
Supplemental Disclosure for Gas Utilities
Fiscal Year 2019
This schedule is provided as required by the Continuing Disclosure Agreement for the City's Utility Revenue
Bond and is not required by Governmental Accounting Standards Board (GASB).
151
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Net Local Secured Roll
Land 11,007,650$ 11,011,160$ 11,352,993$ 12,255,515$ 13,357,851$ 14,409,837$ 15,718,665$ 17,333,969$ 18,770,642$ 20,386,904$
Improvements 10,752,671 10,962,928 11,703,597 12,381,306 12,984,735 13,633,986 14,998,502 16,752,295 18,642,970 19,845,666
Personal property 288,148 241,280 257,436 287,296 307,499 290,590 310,929 306,576 300,352 181,381
22,048,469 22,215,368 23,314,026 24,924,117 26,650,085 28,334,413 31,028,096 34,392,840 37,713,964 40,413,951
Less:
Exemptions net of state aid (1,809,119) (1,757,241) (2,346,728) (2,589,653) (2,610,521) (2,761,495) (3,409,836) (4,244,500) (5,203,968) (5,522,323)
Total Net Local Secured Roll 20,239,350 20,458,127 20,967,298 22,334,464 24,039,564 25,572,918 27,618,260 30,148,340 32,509,996 34,891,628
Public utilities 2,573 2,573 2,573 2,573 2,573 2,573 2,573 2,573 2,573 7,004
Unsecured property 1,638,436 1,495,574 1,516,837 1,355,970 1,493,922 1,622,636 1,794,921 1,803,468 1,922,170 1,902,781
Total Assessed Value 21,880,359$ 21,956,274$ 22,486,708$ 23,693,007$ 25,536,059$ 27,198,127$ 29,415,754$ 31,954,381$ 34,434,739$ 36,801,413$
Total Direct Tax Rate 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%
Note: The State Constitution requires property to be assessed at 100% of the most recent purchase price, plus an increment of no more than 2% annually,
plus any local over‐rides. These values are considered to be full market values.
Source: County of Santa Clara Assessor's Office
CITY OF PALO ALTO
Assessed Value of Taxable Property
Last Ten Fiscal Years
(Amounts in thousands)
Fiscal Year Ended June 30
$13,000,000
$15,000,000
$17,000,000
$19,000,000
$21,000,000
$23,000,000
$25,000,000
$27,000,000
$29,000,000
$31,000,000
$33,000,000
$35,000,000
$37,000,000
$39,000,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$ T
h
o
u
s
a
n
d
s
Total Assessed Value
152
Basic County County Total
County County Hospital City Library Santa Clara Affordable Direct and
Fiscal Wide Retirement G.O. Bond G.O. Bond Valley Water School Community Midpeninsula Housing Bond Overlapping
Year Levy Levy (Measure A)1 (Measure N)2 District District College Open Space3 (Measure A)4 Rates
2010 1.00 0.0388 0.0122 ‐ 0.0074 0.0686 0.0322 1.16
2011 1.00 0.0388 0.0095 0.0171 0.0072 0.0751 0.0326 1.18
2012 1.00 0.0388 0.0047 0.0155 0.0064 0.0742 0.0297 1.17
2013 1.00 0.0388 0.0051 0.0129 0.0069 0.0718 0.0287 1.16
2014 1.00 0.0388 0.0035 0.0177 0.0070 0.0655 0.0290 1.16
2015 1.00 0.0388 0.0091 0.0159 0.0065 0.0657 0.0276 1.16
2016 1.00 0.0388 0.0088 0.0148 0.0057 0.0604 0.0240 0.0008 1.15
2017 1.00 0.0388 0.0086 0.0129 0.0086 0.0591 0.0234 0.0006 1.15
2018 1.00 0.0388 0.0082 0.0118 0.0062 0.0570 0.0220 0.0009 0.0127 1.16
2019 1.00 0.0388 0.0072 0.0111 0.0042 0.0858 0.0217 0.0018 0.0105 1.18
Notes:1The County General Obligation Bond (Measure A) was passed in 2008 to fund the seismic upgrade of the
Santa Clara Valley Medical Center. Rates were first levied for the 2009‐10 fiscal year.
2The City of Palo Alto General Obligation Bond (Measure N) was passed in 2008 to fund the construction and
renovation of three of the City's libraries. Rates were first levied for the 2010‐11 fiscal year.
3The Midpeninsula Regional Open Space District Bond Issue and Property Tax, Measure AA, passed in 2014.
4The Santa Clara County Affordable Housing Bond ‐ Measure A 2016 passed on November 8, 2016.
Source: County of Santa Clara, Tax Rates and Information
CITY OF PALO ALTO
Property Tax Rates
All Overlapping Governments
Last Ten Fiscal Years
$1.10
$1.12
$1.14
$1.16
$1.18
$1.20
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Rate per $100 of Assessed Value
153
Fiscal Year Total Tax Percentage Collections in Percentage of
Ended June 30 Levy1 for FY Amount of Levy Subsequent Years 2 Amount Levy
2010 25,981$ 25,981$ 100% ‐ 25,981$ 100%
2011 25,688 25,688 100% ‐ 25,688 100%
2012 26,494 26,494 100% ‐ 26,494 100%
2013 28,742 28,742 100% ‐ 28,742 100%
2014 30,587 30,587 100% ‐ 30,587 100%
2015 34,117 34,117 100% ‐ 34,117 100%
2016 36,607 36,607 100% ‐ 36,607 100%
2017 39,381 39,381 100% ‐ 39,381 100%
2018 42,839 42,839 100% ‐ 42,839 100%
2019 47,327 47,327 100% ‐ 47,327 100%
Notes:
Source:Annual Financial Statements, Government Funds, Statement of Revenues, Expenditures and
Changes in Fund Balances.
1During fiscal year 1995, the County of Santa Clara began providing the City 100% of its tax levy
under an agreement which allows the county to keep all interest and delinquency charges
collected.
2Effective fiscal year 1994, the City is on the Teeter Plan, under which the County of Santa Clara
pays the full tax levy due.
CITY OF PALO ALTO
Property Tax Levies and Collections
Last Ten Fiscal Years
(Amounts in thousands)
Collected within the
Fiscal Year of the Levy Total Collections to Date
154
Taxable Assessed
Value Rank
Percentage of
Total Taxable
Assessed Value
Taxable
Assessed
Value Rank
Percentage of
Total Taxable
Assessed Value
Leland Stanford Jr. University 5,446,309$ 1 14.8% 3,339,922$ 1 15.3%
Loral Space & Communications 248,247 2 0.7% 210,132 2 1.0%
Google Inc. 213,982 3 0.6%
395 Page Mill LLC 118,303 4 0.3%
ARE‐San Francisco 69 LLC 114,575 5 0.3%
SVF Sherman Palo Alto Corporation 97,856 6 0.3%
Hohbach Realty Co. LP 94,642 7 0.3%
SI 45 LLC 81,145 8 0.2%
Gwin Property Inc. 78,540 9 0.2%
BVK Hamilton Ave LLC 73,189 10 0.2%
Arden Realty Limited Partnership 111,897 3 0.5%
Whisman Ventures, LLC 104,529 4 0.5%
ECI 2 Bayshore LLC/ECI Hamilton LLC 73,523 5 0.3%
Blackhawk Parent LLC 49,939 6 0.2%
Pacific Hotel Dev Venture LP 43,686 7 0.2%
300 / 400 Hamilton Associates 41,221 8 0.2%
Ronald & Ann Williams Charitable Foundation 40,346 9 0.2%
505 Hamilton Avenue Partners LLC 40,142 10 0.2%
Total 6,566,788$ 17.8% 4,055,337$ 18.5%
Total City Taxable Assessed Value:
FY 2019 36,801,413$
FY 2010 21,880,359$
Source: California Municipal Statistics, Inc.
Fiscal Year 2019 Fiscal Year 2010
Taxpayer
CITY OF PALO ALTO
Principal Property Taxpayers
Current Year and Nine Years Ago
(Amounts in thousands)
155
2018‐2019 No. of
Assessed % of No. of % of Taxable % of
Valuation1 Total Parcels Total Parcels Total
Non‐Residential:
Agricultural/forest 33,351,880$ 0.10 % 49 0.24 % 31 0.15 %
Commercial 1,957,286,113 5.61 459 2.20 456 2.23
Professional/office 5,325,032,104 15.26 551 2.64 531 2.60
Industrial/research & development 1,995,220,030 5.72 232 1.11 231 1.13
Recreational 46,286,052 0.13 15 0.07 13 0.06
Government/social/institutional 115,102,472 0.33 115 0.55 51 0.25
Miscellaneous 7,825,940 0.02 18 0.09 17 0.08
Subtotal Non‐Residential 9,480,104,591$ 27.17 % 1,439 6.90 % 1,330 6.50 %
Residential:
Single family residence 20,621,273,432$ 59.10 % 15,094 72.42 % 15,046 73.54 %
Condominium/townhouse 2,590,656,482 7.42 3,091 14.83 3,087 15.09
Mobile Home 73,254 0.00 7 0.03 7 0.03
2‐4 Residential units 494,582,920 1.42 497 2.38 497 2.43
5+ Residential units 1,523,956,988 4.37 341 1.64 326 1.59
Subtotal Residential 25,230,543,076$ 72.31 % 19,030 91.31 % 18,963 92.68 %
Vacant Parcels 180,979,844$ 0.52 % 373 1.79 % 168 0.82 %
Total 34,891,627,511$ 100 % 20,842 100 % 20,461 100 %
Notes: This schedule is provided as required by the Continuing Disclosure Agreement for the City's General Obligation
2010 and 2013A Bonds and is not required by Governmental Accounting Standards Board (GASB). Therefore,
ten years of comparison data is not presented.
1Local secured assessed valuation, excluding tax‐exempt property.
Source: California Municipal Statistics, Inc.
CITY OF PALO ALTO
Assessed Valuation and Parcels by Land Use
As of June 30, 2019
156
No. of
Taxable Average
Parcels1 Assessed Valuation
Single Family Residential 15,046 $1,370,549
No. of % of Cumulative % of Cumulative
Taxable Total % of Total Total Total % of Total
Parcels1 Parcels Parcels Valuation Valuation Valuation
989 6.57 6.57 79,633,247$ 0.39 0.39
1,694 11.26 17.83 235,648,435 1.14 1.53
763 5.07 22.90 189,109,555 0.92 2.45
685 4.55 27.46 237,520,031 1.15 3.60
582 3.87 31.32 261,675,882 1.27 4.87
637 4.23 35.56 350,220,578 1.70 6.57
657 4.37 39.92 425,039,262 2.06 8.63
570 3.79 43.71 427,135,161 2.07 10.70
478 3.18 46.89 407,331,229 1.98 12.67
584 3.88 50.77 554,955,818 2.69 15.36
531 3.53 54.30 557,321,101 2.70 18.07
516 3.43 57.73 592,667,085 2.87 20.94
413 2.74 60.47 515,011,442 2.50 23.44
434 2.88 63.36 585,810,095 2.84 26.28
388 2.58 65.94 563,108,182 2.73 29.01
386 2.57 68.50 597,626,574 2.90 31.91
378 2.51 71.02 623,525,260 3.02 34.93
331 2.20 73.22 578,946,367 2.81 37.74
298 1.98 75.20 551,743,555 2.68 40.41
284 1.89 77.08 553,327,425 2.68 43.10
3,448 22.92 100.00 11,733,917,348 56.90 100.00
15,046 100.00 20,621,273,632$ 100.00
Notes:
Source: California Municipal Statistics, Inc.
This schedule is provided as required by the Continuing Disclosure Agreement for the City's General
Obligation 2010 and 2013A Bonds and is not required by Governmental Accounting Standards Board
(GASB). Therefore, ten years of comparison data is not presented.
1Improved single family residential parcels. Excludes condominiums and parcels with multiple family
units.
$1,900,000‐1,999,999
$2,000,000 and greater
Total
$1,800,000‐1,899,999
$700,000‐799,999
$800,000‐899,999
$900,000‐999,999
$1,000,000‐1,099,999
$1,100,000‐1,199,999
$1,200,000‐1,299,999
$1,300,000‐1,399,999
$1,400,000‐1,499,999
$1,500,000‐1,599,999
$1,600,000‐1,699,999
$1,700,000‐1,799,999
$600,000‐699,999
$20,621,273,432 $981,333
2018‐2019
Assessed Valuation
$0‐99,999
$100,000‐199,999
$200,000‐299,999
$300,000‐399,999
$400,000‐499,999
$500,000‐599,999
Assessed Valuation Assessed Valuation
CITY OF PALO ALTO
Per Parcel Assessed Valuation of Single Family Residential
As of June 30, 2019
2018‐2019 Median
157
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
6,765$ 5,895$ 1,685$ 1,560$ 1,430$ 1,285$ 1,135$ 975$ 8,970$ 46,305$
55,305 55,305 54,540 74,235 73,215 71,795 65,210 63,710 62,140 60,500
2011 Lease‐Purchase Agreement ‐ ‐ 2,764 2,400 2,026 1,643 1,248 842 426 ‐
Add: unamortized premium 3,766 3,640 3,514 4,400 4,242 4,084 3,926 3,768 3,610 8,331
(571) ‐ ‐ ‐ ‐ ‐ ‐ ‐
65,265 64,840 62,503 82,595 80,913 78,807 71,519 69,295 75,146 115,136
72,104 69,551 65,879 63,104 60,224 57,224 54,095 50,825 47,400 43,815
Energy Tax Credits 1,200 1,100 1,000 900 800 700 600 500 400 300
State Water Resources Loan 13,080 16,696 15,900 15,109 14,309 13,500 12,681 15,034 17,711 29,589
(2,737) (229) 580 543 867 803 737 673 608 544
83,647 87,118 83,359 79,656 76,200 72,227 68,113 67,032 66,119 74,248
Outstanding Debt 148,912$ 151,958$ 145,862$ 162,251$ 157,113$ 151,034$ 139,632$ 136,327$ 141,265$ 189,384$
4.51% 3.86% 3.36% 3.36% 3.24% 2.94% 2.52% 2.38% 2.33% 2.88%
Population 65,408 64,417 65,544 66,368 66,861 66,029 66,968 66,478 66,649 67,082
2.28$ 2.36$ 2.23$ 2.44$ 2.35$ 2.29$ 2.09$ 2.05$ 2.12$ 2.82$
Notes:
Sources:
2019 Official City Data Set (population)
California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income)
Annual Financial Statements and Note 7 General Long‐Term Obligations
Debt Per Capita
1See the schedule of Demographic and Economic Statistics for personal income data. Per capita personal income is only available for Santa Clara
County, therefore personal income is the product of the countywide per capita amount and the City's population.
County of Santa Clara (assessed valuation)
Percentage of Personal Income1
Certificates of Participation
General Obligation Bonds
Less: unamortized discount/
issuance costs
Total Governmental Activities
Business‐type Activities
Utility Revenue Bonds
Less: unamortized discount/
issuance costs
Total Business‐type Activities
Total Primary Government
Governmental Activities
CITY OF PALO ALTO
Ratio of Outstanding Debt by Type
Last Ten Fiscal Years
(Amounts in thousands)
Fiscal Year Ended June 30
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$ T
h
o
u
s
a
n
d
s
Total Governmental Activities Total Business‐type Activities
158
2018‐2019 Assessed Valuation 36,801,413,139$
Percentage Amount
Applicable Applicable
Total Debt to City of to City of
Outstanding Palo Alto1 Palo Alto
Santa Clara County 947,220,000$ 7.62% 72,197,108$
Foothill‐DeAnza Community College District 620,143,886 21.99% 136,344,835
Palo Alto Unified School District 269,174,345 90.02% 242,321,512
Fremont Union High School District 562,210,088 0.01% 50,599
Los Gatos‐Saratoga Joint Union High School District 95,760,000 0.01% 11,491
Mountain View‐Los Altos Union High School District 148,973,967 0.94% 1,403,335
Cupertino Union School District 274,238,303 0.02% 46,621
Los Altos School District 50,665,000 1.19% 601,900
Mountain View‐Whisman School District 180,470,000 0.72% 1,304,798
Saratoga Union School District 23,580,378 0.03% 6,131
Whisman School District 13,105,005 1.94% 254,892
City of Palo Alto 60,500,000 100% 60,500,000
El Camino Hospital District 124,490,000 0.08% 99,592
Midpeninsula Regional Open Space District 92,460,000 12.86% 11,885,733
City of Palo Alto Special Assessment Bonds 20,935,000 100% 20,935,000
Santa Clara Valley Water District Benefit Assessment District 73,570,000 7.62% 5,607,505
Total Direct and Overlapping Tax and Assessment Debt 553,571,052
710,539,120 7.62% 54,157,292
352,378,882 7.62% 26,858,318
4,255,000 7.62% 324,316
26,723,002 21.99% 5,875,319
3,538,000 0.01% 425
1,745,000 0.94% 16,438
Mountain View‐Whisman School District Certificates of Participation 31,645,000 0.72% 228,793
3,535,000 0.03% 919
Los Altos School District Certificates of Participation 2,405,945 1.19% 28,583
City of Palo Alto General Fund Obligations 46,305,000 100% 46,305,000
2,245,000 7.62% 171,114
Midpeninsula Regional Open Space Park District General Fund Obligations 117,450,600 12.86% 15,098,275
$ 149,064,792
24,532,813
$ 124,531,979
$ 678,103,031
Ratio to
Assessed Valuation
Total Direct Debt 0.29% 106,805,000$ 3
Total Overlapping Debt 1.55% 571,298,031
Total Direct and Overlapping Debt 1.84% 678,103,031$ 2
Notes:
1Percentage of overlapping agency's assessed valuation located within boundaries of the city.
2Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and
non‐bonded capital lease obligations.
Source: California Municipal Statistics, Inc.
3Total direct debt excludes any premiums, discounts or other amortization amounts.
Santa Clara County Pension Obligations
Santa Clara County Board of Education Certificates of Participation
Foothill‐DeAnza Community College District Certificates of Participation
Los Gatos‐Saratoga Joint Union High School District Certificates of Participation
Mountain View‐Los Altos Union High School District Certificates of Participation
Saratoga Union High School District Certificates of Participation
Less: Santa Clara County supported obligations
Total Net Direct and Overlapping General Fund Debt
Overlapping debt is the financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction. The amount of debt of each
unit applicable to the reporting unit is arrived at by 1) determining what percentage of the total assessed value of the overlapping jurisdiction
lies within the limits of the reporting unit, and 2) applying this percentage to the total debt of the overlapping jurisdiction.
Santa Clara County Vector Control District Certificates of Participation
Total Gross Direct and Overlapping General Fund Debt
Total Combined Debt
Santa Clara County General Fund Obligations
CITY OF PALO ALTO
Computation of Direct and Overlapping Debt
As of June 30, 2019
Direct and Overlapping Tax and Assessment Debt
Direct and Overlapping General Fund Debt
159
Assessed Valuation:
Secured property assessed value,
net of exempt real property 36,801,413$
Bonded Debt Limit (3.75% of Assessed Value) 1 1,380,053
Direct Debt:
Certificates of Participation 46,305
General Obligation bonds 60,500
Total Direct Debt3 106,805
Less: Amount of Debt Not Subject to Limit 2 46,305
Total Net Debt Applicable to Limit 60,500
Legal Bonded Debt Margin 1,319,553$
Total Bonded Total Net Debt Legal Total Net Debt Ratio of Net General
Fiscal Assessed Debt Limit Applicable to Bonded Debt Applicable to the Debt to Bonded Debt
Year Value (AV)(3.75% of AV)Limit Margin Population Debt as a %Assessed Value Per Capita
2010 21,085,609$ 790,710$ 55,305$ 735,405$ 65,408 6.99% 0.0026 0.85
2011 21,880,359 820,513 55,305 765,208 64,417 6.74% 0.0025 0.86
2012 21,956,274 823,360 54,540 768,820 65,544 6.62% 0.0025 0.83
2013 22,486,708 843,252 74,235 769,017 66,368 8.80% 0.0033 1.12
2014 23,693,007 888,488 73,215 815,273 66,861 8.24% 0.0031 1.10
2015 27,198,127 1,019,930 71,795 948,135 66,029 7.04% 0.0026 1.09
2016 29,415,754 1,103,091 65,210 1,037,881 66,968 5.91% 0.0022 0.97
2017 31,954,381 1,198,289 63,710 1,134,579 66,478 5.32% 0.0020 0.96
2018 34,434,739 1,291,303 62,140 1,229,163 66,649 4.81% 0.0018 0.93
2019 36,801,413 1,380,053 60,500 1,319,553 67,082 4.38% 0.0016 0.90
Notes:
Source: Annual Financial Statements, Assessed Value of Taxable Property and Note 7 General Long‐Term Obligations
2In accordance with California Government Code Section 43605, only the City's General Obligation bonds are subject to the legal debt limit of 15%.
Enterprise Fund debt is not subject to legal debt margin.
CITY OF PALO ALTO
Computation of Legal Bonded Debt Margin
As of June 30, 2019
(Amounts in thousands)
1California Government Code, Section 43605 sets the debt limit at 15% of the assessed value of all real and personal property of the City. Because this
Code section was enacted when assessed value was 25% of market value, the limit is calculated at one‐fourth, or 3.75%. This legal debt margin applies
to General Obligation debt. Prior year limits have been adjusted to conform to the current year methodology.
3Total direct debt excludes any premiums, discounts or other amortization amounts.
160
Less: Net Revenue
Fiscal Gross Direct Operating Available for
Year Revenue Expenses2 Debt Service Principal Interest3 Total Coverage Ratio
2010 230,308$ 171,320$ 58,988$ 1,755$ 1,954$ 3,709$ 15.90
2011 234,278 151,641 82,637 2,655 3,261 5,916 13.97
2012 235,160 169,777 65,383 2,945 2,959 5,904 11.07
2013 237,842 173,510 64,332 2,875 3,167 6,042 10.65
2014 239,948 176,718 63,230 2,980 3,073 6,053 10.45
2015 234,025 188,276 45,749 3,100 2,954 6,054 7.56
2016 235,386 186,793 48,593 3,230 2,823 6,053 8.03
2017 264,734 205,102 59,632 3,370 2,678 6,048 9.86
2018 288,610 231,255 57,355 3,525 2,524 6,049 9.48
2019 306,237 227,824 78,413 3,685 2,359 6,044 12.97
Notes:1Airport, Refuse and Fiber Optics funds have no debt and are therefore excluded from this schedule.
2Excludes depreciation and amortization expense.
3Excludes joint venture debt service and federal interest subsidy.
Source: City of Palo Alto, Accounting Department
Debt Service
CITY OF PALO ALTO
Revenue Bond Coverage
Business‐type Activities1
Last Ten Fiscal Years
(Amounts in thousands)
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$ T
h
o
u
s
a
n
d
s
Net Revenue Available for Debt Service Total Debt Service
161
Fiscal
Year
2010 2,215$ 2,418$ 1,402$ 1,254$ 343$ 549$ 219$ 4,458$ 5,556$ 18,414$
2011 2,374 2,621 1,564 1,292 381 630 242 4,873 6,322 20,299
2012 2,445 2,937 1,590 1,492 387 722 257 5,049 7,034 21,913
2013 2,478 3,160 1,465 1,656 424 765 259 4,056 13,729 27,992
2014 2,097 3,541 1,555 2,041 392 772 444 4,845 9,890 25,577
2015 2,398 3,894 1,672 1,708 435 699 265 3,674 11,253 25,998
2016 2,250 4,134 1,410 1,694 448 582 257 4,949 12,423 28,147
2017 2,036 4,079 1,513 1,794 542 502 259 3,810 14,325 28,860
2018 2,001 4,224 1,716 1,647 428 614 243 3,184 15,663 29,720
2019 1,934 4,299 1,795 1,994 409 706 810 2,245 22,254 36,446
Source: California State Board of Equalization, compiled by MuniServices LLC
Sales Tax Rates for the Fiscal Year ended June 30, 2019
State Rate:7.25%
Special District Tax Rates:
Santa Clara County Transit District (SCCT) 0.50%
Santa Clara County Valley Transportation Authority (SCVT) 0.50%
Santa Clara VTA BART Operating and Maintenance Transactions and Use Tax (SVTB) 0.125%
Santa Clara Retail Transactions and Use Tax (SCCR) 0.125%
Santa Clara County Valley Transportation Authority (SCVT) 0.50%
Total Sales and Use Tax Rate:9.000%
Source: California State Board of Equalization
CITY OF PALO ALTO
Taxable Transactions by Type of Business
Last Ten Fiscal Years
(Amounts in thousands)
Total
ECONOMIC SEGMENT
Department
Stores Restaurants
Furniture/
Appliance
Food
Markets
Service
Stations
Drug
Stores Other Retail All Other
Apparel
Stores
Department Stores
5%
Restaurants
12%
Furniture/ Appliance
5%
Apparel Stores
6%
Food Markets
1%
Service Stations
2%
Drugs Stores 2%
Other Retail
6%
All Other
61%
Fiscal Year 2019
162
Santa Clara Santa Clara
City of Palo Alto City of Palo Alto Santa Clara City Population County Total County Per Capita
Fiscal City of Palo Alto Unemployment School County as a Percentage of Personal Income Personal Income
Year Population Rate Enrollment Population County Population (in thousands)(in thousands)
2010 65,408 6.2% 11,565 1,880,876 3.48% 95,000,000 50,508
2011 64,417 5.3% 12,024 1,786,443 3.61% 109,300,000 * 61,183 *
2012 65,544 4.7% 12,286 1,813,860 3.61% 120,100,000 * 66,212 *
2013 66,368 3.6% 12,396 1,840,218 3.61% 134,000,000 * 72,817 *
2014 66,861 2.8% 12,483 1,866,208 3.58% 135,200,000 * 72,446 *
2015 66,029 2.7% 12,532 1,890,929 3.49% 147,300,000 * 77,898 *
2016 66,968 2.9% 12,488 1,915,102 3.50% 158,700,000 * 82,868 *
2017 66,478 2.4% 12,261 1,930,215 3.44% 166,600,000 86,312
2018 66,649 2.5% 12,230 1,948,176 3.42% 177,600,000 91,162
2019 67,082 2.1% 11,938 1,965,597 3.41% 192,600,000 97,985
Note: Data on personal income and per capita personal income is only available for Santa Clara County.
Source: Beginning in 2015 population is sourced from the US Census Bureau Community Survey (via the City of Palo Alto's Official City Data Set).
State of California Employment Development Office (unemployment rate)
Palo Alto Unified School District (school enrollment)
* California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income). Forecasts from prior years are updated annually.
CITY OF PALO ALTO
Demographic and Economic Statistics
Last Ten Fiscal Years
63,000
64,000
65,000
66,000
67,000
68,000 City Population
10,000
10,500
11,000
11,500
12,000
12,500
13,000 School Enrollment
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%City Unemployment Rate
163
Number of
Employees Rank
Percentage of Total
City Employment
Number of
Employees Rank
Percentage of Total
City Employment
Stanford Health Care 5,500 1 4.2% 5,569 2 5.1%
Lucile Packard Children's Hospital 5,700 2 4.3% 3,549 3 3.2%
Stanford University2 4,500 3 3.4% 10,101 1 9.2%
Veteran's Affairs Palo Alto Health Care System 3,900 4 3.0% 3,500 4 3.2%
VMware Inc. 3,500 5 2.6%
SAP Labs Inc. 3,500 6 2.6%
Space Systems/Loral 2,800 7 2.1% 1,700 7 1.5%
Hewlett‐Packard Company 2,500 8 1.9% 2,001 5 1.8%
Palo Alto Medical Foundation 2,200 9 1.7% 2,000 6 1.8%
Varian Medical Systems 1,400 10 1.1%
Wilson Sonsini Goodrich & Rosati 1,500 8 1.4%
Palo Alto Unified School District 1,336 9 1.2%
City of Palo Alto 1,100 10 1.0%
Total 35,500 26.9% 32,356 29.3%
Estimated Total City Day Population:
FY 2019 132,112
FY 2010 110,246
Notes:
Source: 2019 Official City Data Set (total City day population); AtoZ databases; Stanford website, Stanford Planning Office.
CITY OF PALO ALTO
Principal Employers
Current Year and Nine Years Ago
FY 20191 FY 2010
Employer
1Available data sources are limited and may be unreliable. The City does not affirm the validity of this data. 2019 numbers are
rounded. Figures may include employees not located within City limits.
2FY19 data was not available for Stanford Health Care and Stanford University. Prior year's data was used.
164
165
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2009 2010 2011 2012
Governmental activities
Community Services
Number of theater performances 159 174 175 175
Total hours of athletic field usage 2 45,762 41,705 42,687 44,226
Number of rounds of golf 72,170 69,791 67,381 65,653
Enrollment in recreation classes (includes summer camps) 13,091 12,880 12,310 11,703
Planning and Community Environment
Planning applications completed 273 226 238 204
Building permits issued 2,543 2,847 3,559 3,320
Caltrain average weekday boarding 3 4,407 4,359 4,923 5,730
Police
Calls for service 53,275 55,860 52,159 51,086
Total arrests 2,612 2,451 2,288 2,212
Parking citations issued 49,996 42,591 40,426 41,875
Animal Services
Number of service calls 2,873 2,692 2,804 3,051
Number of animals handled 3,422 3,147 3,323 3,379
Fire
Calls for service 7,549 7,468 7,555 7,796
Number of fire incidents 239 182 165 186
Number of fire inspections 4 1,028 1,526 1,807 1,654
Library
Total number of cardholders 54,878 51,969 53,246 60,283
Total number of items in collection 293,735 298,667 314,101 306,160
Total checkouts 1,633,955 1,624,785 1,476,648 1,559,932
Public Works
Street resurfacing (lane miles) 23 32 29 40
Number of potholes repaired 3,727 3,149 2,986 3,047
Sq. ft. of sidewalk replaced or permanently repaired 56,909 54,602 71,174 72,787
Number of trees planted 250 201 150 143
Tons of materials recycled or composted 49,911 48,811 56,586 51,725
Business‐type activities
Electric
Number of customer accounts 28,527 29,430 29,708 29,545
Residential MWH consumed 159,899 163,098 160,318 160,604
Gas
Number of customer accounts 23,090 23,724 23,816 23,915
Residential therms consumed 11,003,088 11,394,712 11,476,609 11,522,999
Water
Number of customer accounts 19,422 20,134 20,248 20,317
Residential water consumption (CCF) 2,566,962 2,415,467 2,442,415 2,513,595
Wastewater collection
Number of customer accounts 22,210 22,231 22,320 22,421
Millions of gallons processed 7,958 8,184 8,652 8,130
Notes:
2According to the department, this measure was not accurately tracked during FY13 or FY14.
Source:
FUNCTIONS/PROGRAMS
4The method for calculating the number of fire inspections changed in FY17. The department now uses a more detailed feature
which categorizes inspections by type and location.
CITY OF PALO ALTO
Operating Indicators by Function/Program
Last Ten Fiscal Years1
City of Palo Alto Performance Report (formerly the Service Efforts and Accomplishments Report); 2018 Official City Data Set
(Caltrain)
3Prior‐year data has been updated based on annual counts revised by Caltrain. Beginning 2015, data source is Official City Data
Set.
1Ten most recent years available.
Fiscal Year Ended June 30
166
2013 2014 2015 2016 2017 2018
184 108 172 161 171 160
‐ ‐ 47,504 65,723 71,431 65,443
60,153 46,527 42,048 42,573 ‐ 6,790
11,598 11,997 12,586 12,974 11,649 10,652
307 310 335 383 365 376
3,682 3,624 3,844 3,492 2,970 3,105
6,763 7,564 8,294 9,622 9,994 9,977
54,628 58,559 59,795 53,870 53,901 55,480
2,274 2,589 3,273 2,988 2,745 2,678
43,877 36,551 41,412 37,624 33,661 37,441
2,909 2,398 2,013 2,421 1,674 1,737
2,675 2,480 2,143 2,184 2,211 2,077
7,904 7,829 8,548 8,882 9,153 8,981
150 150 135 150 155 189
2,069 1,741 1,964 2,806 5,476 9,581
51,007 46,950 51,792 57,307 54,676 56,159
277,749 361,103 429,460 461,292 427,548 472,895
1,512,975 1,364,872 1,499,406 1,400,926 1,524,614 1,538,118
36 36 31 39 39 31
2,726 3,418 2,487 3,435 3,449 2,835
82,118 74,051 120,776 115,293 17,275 38,557
245 148 305 387 319 411
47,941 49,594 50,546 56,438 60,582 57,744
29,299 29,338 29,065 29,304 29,616 29,475
156,411 153,190 145,284 150,112 148,986 149,526
23,659 23,592 23,461 23,467 23,637 23,395
10,834,793 10,253,776 8,537,754 9,535,377 10,233,669 10,261,276
20,043 20,037 20,061 19,994 20,213 20,000
2,521,930 2,496,549 2,052,176 1,696,383 1,856,879 2,120,588
22,152 22,105 21,990 22,016 22,216 21,979
7,546 7,186 6,512 6,387 7,176 6,464
Fiscal Year Ended June 30
167
2010 2011 2012 2013 2014
FUNCTION/PROGRAM
Public Safety
Fire:
Fire Stations Operated 8 8 7 7 7
Police:
Police Stations 1 1 1 1 1
Police Patrol Vehicles 30 30 30 30 30
Community Services
Acres ‐ Downtown/Urban Parks2 157 157 157 157 157
Acres ‐ Open Space2 3,744 3,744 3,744 3,744 3,744
Acres ‐ Parks and Preserves2 ‐ ‐ ‐ ‐ ‐
Acres ‐ Open Space2 ‐ ‐ ‐ ‐ ‐
Acres ‐ Municipal Golf Course2 ‐ ‐ ‐ ‐ ‐
Parks and Preserves 36 36 36 36 36
Golf Course (see above for acreage) 1 1 1 1 1
Tennis Courts 51 51 51 51 51
Athletic Center 4 4 4 4 4
Community Centers 4 4 4 4 4
Theaters 3 3 3 3 3
Cultural Center/Art Center 1 1 1 1 1
Junior Museum and Zoo 1 1 1 1 1
Swimming Pools 1 1 1 1 1
Nature Center 3 3 3 3 3
Libraries
Libraries 5 5 5 5 5
Public Works:
Number of Trees Maintained3 32,007 31,993 31,890 31,923 31,757
Electric Utility1
Miles of Overhead Lines 193 193 223 222 223
Miles of Underground Lines 253 253 245 246 249
Water Utility
Miles of Water Mains 214 214 234 233 236
Gas Utility
Miles of Gas Mains 205 205 210 210 214
Waste Water
Miles of Sanitary Sewer Lines 207 207 217 217 217
Note:
Source: City of Palo Alto
3Due to an error in the beginning balance, the number of trees maintained was adjusted for all prior years in FY18.
1The City of Palo Alto Utilities Department recently completed the conversion of its electric system maps to a GIS
mapping system database. Therefore, the distances reported for FY 11/12 and forward are more accurate than the
distances reported in previous years.
2Beginning in 2016 park acreage is sourced from the Official City Data Set. The discrepancy between FY16 and FY17
is because FY16 numbers were derived off GIS parcels identified as parks or zoned in the Open Space Zoning District.
For FY17, Council approved Parks Master Plan numbers were used.
CITY OF PALO ALTO
Capital Asset Statistics by Function/Program
Last Ten Fiscal Years
Fiscal Year Ended June 30
168
2015 2016 2017 2018 2019
7 7 7 7 7
1 1 1 1 1
30 30 30 30 30
157 ‐ ‐ ‐ ‐
3,752 ‐ ‐ ‐ ‐
‐ 3,921 174 174 174
‐ 4,489 4,030 4,030 4,030
‐ ‐ 181 181 181
36 36 36 36 36
1 1 1 1 1
51 51 51 51 51
4 4 4 4 4
4 4 4 4 4
3 3 3 3 3
1 1 1 1 1
1 1 1 1 1
1 1 1 1 1
3 3 3 3 3
5 5 5 5 5
31,652 31,699 31,712 31,849 31,815
223 222 223 222 220
262 268 264 272 274
236 235 236 236 236
211 209 210 210 210
217 216 216 216 216
Fiscal Year Ended June 30
169
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Governmental Funds
General Fund:
Administrative 89 83 83 85 83 84 86 87 89 87
Community Services 94 74 74 74 74 76 77 78 79 78
Development Services5 ‐ ‐ ‐ ‐ ‐ 38 38 36 36 36
Fire 123 121 122 119 116 107 107 109 109 98
Library 42 41 41 41 42 44 48 48 48 48
Office of Emergency Services4 ‐ ‐ ‐ ‐ 3 3 3 3 3 3
Planning and Community Environment5 49 44 43 48 49 28 31 32 30 30
Police 161 157 157 154 155 155 155 155 155 155
Public Works1 64 59 56 57 56 53 54 56 55 51
Subtotal General Fund 622 579 576 578 578 588 599 604 604 586
All Other Funds:
Capital Projects Fund 24 24 24 26 27 27 28 31 34 33
Special Revenue Fund 1 2 2 2 9 10 9 10 9 10
Total Governmental Funds 647 605 602 606 614 625 636 645 647 629
Enterprise Funds
Public Works2 115 115 115 104 99 100 95 99 101 101
Utilities3 242 251 251 254 255 258 256 255 257 257
External Services4 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total Enterprise Funds 357 366 366 358 354 358 351 354 358 358
Internal Service Funds
Printing and Mailing 4 2 2 2 2 2 2 2 2 2
Technology 31 30 30 31 32 32 34 35 36 36
Vehicle Replacement 16 16 16 17 17 17 17 16 16 16
Total Internal Service Funds 51 48 48 50 51 51 53 53 54 54
Total 1,055 1,019 1,016 1,014 1,019 1,034 1,040 1,052 1,059 1,041
Notes: 1Fleet and Facilities Management
2Refuse, Storm Drainage, Wastewater Treatment
Numbers adjusted for rounding purposes.
Source: City of Palo Alto ‐ Fiscal Year 2019 Adopted Operating Budget
5ln FY15, staff was moved from Planning and Community Environment (PC&E), Public Works and Fire to create
Development Services.
4In 2014, emergency services and disaster preparation activities have been removed from the Fire Department and are
now shown in newly created Office of Emergency Services.
CITY OF PALO ALTO
Full‐Time Equivalent City Government Employees by Function
Last Ten Fiscal Years
Full Time Equivalent Employees as of June 30
3Electric, Gas, Wastewater Collection, Water
0
200
400
600
800
1,000
1,200
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Fu
l
l
T
i
m
e
E
q
u
i
v
a
l
e
n
t
s
Governmental Funds Enterprise Funds Internal Service Funds
170
CITY OF PALO ALTO
Index to the Single Audit Report
For the Year Ended June 30, 2019
171
Page
Independent Auditor’s Report on Internal Control Over Financial Reporting
and on Compliance and Other Matters Based on an Audit of Financial
Statements Performed in Accordance With Government Auditing Standards ..................................... 173
Independent Auditor’s Report on Compliance for Each Major Federal Program and
on Internal Control Over Compliance Required by the Uniform Guidance ........................................... 175
Schedule of Expenditures of Federal Awards ........................................................................................... 177
Notes to the Schedule of Expenditures of Federal Awards ...................................................................... 179
Schedule of Findings and Questioned Costs ............................................................................................. 180
Schedule of Prior Year Findings and Questioned Costs ............................................................................ 182
172
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www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
173
Independent Auditor’s Report on Internal Control Over Financial Reporting
and on Compliance and Other Matters Based on an Audit of Financial
Statements Performed in Accordance With Government Auditing Standards
Honorable Mayor and the Members
of the City Council of the City of Palo Alto
Palo Alto, California
We have audited, in accordance with the auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States, the financial statements of the governmental
activities, the business-type activities, each major fund, and the aggregate remaining fund information of
the City of Palo Alto, California (City), as of and for the year ended June 30, 2019, and the related notes
to the financial statements, which collectively comprise the City’s basic financial statements and have
issued our report thereon dated November 4, 2019.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal control
over financial reporting (internal control) to determine the audit procedures that are appropriate in the
circumstances for the purpose of expressing our opinions on the financial statements, but not for the
purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do
not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination
of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement
of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A
significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less
severe than a material weakness, yet important enough to merit attention by those charged with
governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses
may exist that have not been identified.
174
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s financial statements are free from
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on compliance with those
provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The
results of our tests disclosed no instances of noncompliance or other matters that are required to be
reported under Government Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance
and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal
control or on compliance. This report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly,
this communication is not suitable for any other purpose.
Walnut Creek, California
November 4, 2019
www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
175
Independent Auditor’s Report on Compliance for Each Major Federal Program and on Internal
Control Over Compliance Required by the Uniform Guidance
Honorable Mayor and the Members
of the City Council of the City of Palo Alto
Palo Alto, California
Report on Compliance for Each Major Federal Program
We have audited the City of Palo Alto’s, California (City) compliance with the types of compliance
requirements described in the OMB Compliance Supplement that could have a direct and material effect
on each of the City’s major federal programs for the year ended June 30, 2019. The City’s major federal
programs are identified in the summary of auditor’s results section of the accompanying schedule of
findings and questioned costs.
Management’s Responsibility
Management is responsible for compliance with federal statutes, regulations, and the terms and conditions
of its federal awards applicable to its federal programs.
Auditor’s Responsibility
Our responsibility is to express an opinion on compliance for each of the City’s major federal programs
based on our audit of the types of compliance requirements referred to above. We conducted our audit of
compliance in accordance with auditing standards generally accepted in the United States of America; the
standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal
Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for
Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan
and perform the audit to obtain reasonable assurance about whether noncompliance with the types of
compliance requirements referred to above that could have a direct and material effect on a major federal
program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance
with those requirements and performing such other procedures as we considered necessary in the
circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each major
federal program. However, our audit does not provide a legal determination of the City’s compliance.
Opinion on Each Major Federal Program
In our opinion, the City of Palo Alto, complied, in all material respects, with the types of compliance
requirements referred to above that could have a direct and material effect on each of its major federal
programs for the year ended June 30, 2019.
176
Report on Internal Control Over Compliance
Management of the City is responsible for establishing and maintaining effective internal control over
compliance with the types of compliance requirements referred to above. In planning and performing our
audit of compliance, we considered the City’s internal control over compliance with the types of
requirements that could have a direct and material effect on each major federal program to determine the
auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on
compliance for each major federal program and to test and report on internal control over compliance in
accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the
effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the
effectiveness of the City’s internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over
compliance does not allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a
federal program on a timely basis. A material weakness in internal control over compliance is a
deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a
reasonable possibility that material noncompliance with a type of compliance requirement of a federal
program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in
internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over
compliance with a type of compliance requirement of a federal program that is less severe than a material
weakness in internal control over compliance, yet important enough to merit attention by those charged
with governance.
Our consideration of internal control over compliance was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control over
compliance that might be material weaknesses or significant deficiencies. We did not identify any
deficiencies in internal control over compliance that we consider to be material weaknesses. However,
material weaknesses may exist that have not been identified.
The purpose of this report on internal control over compliance is solely to describe the scope of our
testing of internal control over compliance and the results of that testing based on the requirements of the
Uniform Guidance. Accordingly, this report is not suitable for any other purpose.
Walnut Creek, California
November 4, 2019
Grantor Federal
Identifying CFDA Subrecipients
Grantor/Pass‐Through Grantor/Program Title Number Number Expenditures Expenditures
U.S Department of Housing and Urban Development
Direct
CDBG ‐ Entitlement Grants Cluster
Community Development Block Grants/Entitlement Grants B‐16‐MC‐06‐0020
B‐17‐MC‐06‐0020
B‐18‐MC‐06‐0020 14.218 830,121$ 747,128$
U.S. Department of Justice
Direct
Bulletproof Vest Partnership n/a 16.607 8,529 ‐
U.S. Department of Transportation
Direct
Public Transportation Research, Technical Assistance
and Training CA‐2017‐020‐00 20.514 317,278 ‐
Airport Improvement Program 3‐06‐0182‐011‐2016,
3‐06‐0182‐013‐2017,
3‐06‐0182‐014‐2018 20.106 5,876,389 ‐
Subtotal ‐ Direct Awards 6,193,667 ‐
Pass‐through from State of California Department of Transportation
Highway Planning and Construction BRLS‐5100(017) 20.205 78,137 ‐
Highway Planning and Construction CMAQ‐T4 20.205 1,000,000 ‐
Highway Planning and Construction SR2SL 5100(020) 20.205 450,000 ‐
Highway Planning and Construction SCL 170021 20.205 211,236 ‐
Subtotal ‐ Highway Planning and Construction 1,739,373 ‐
Total U.S. Department of Transportation 7,933,040 ‐
National Endowment for the Humanities
Pass‐through from California State Library
Museums for America MA‐10‐17‐0327‐17 45.301 56,893 ‐
MA‐11‐15‐0104‐15 45.301 9,364 ‐
Total National Endownment for the Humanities 66,257 ‐
U.S. Department of Homeland Security
Pass‐through from County of Santa Clara Office of Emergency Management
Emergency Management Performance Grants 2018‐0008 97.042 3,900 ‐
TOTAL FEDERAL FINANCIAL AWARDS 8,841,847$ 747,128$
CITY OF PALO ALTO
Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2019
See accompanying notes to the Schedule of Expenditures of Federal Awards
177
178
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CITY OF PALO ALTO
Notes to the Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2019
179
NOTE 1 – REPORTING ENTITY
The schedule of expenditures of federal awards (the Schedule) includes expenditures of federal awards
for the City of Palo Alto, California (City), and its component unit as disclosed in the notes to the basic
financial statements.
NOTE 2 – BASIS OF ACCOUNTING
Basis of accounting refers to when revenues and expenditures or expenses are recognized in the
accounts and reported in the financial statements, regardless of measurement focus applied. All
governmental funds are accounted for using the modified accrual basis of accounting. All proprietary
funds are accounted for using the accrual basis of accounting. Expenditures of federal awards reported
in the Schedule are recognized when incurred and all eligibility requirements have been met. Such
expenditures are recognized following the cost principles contained in 2 CFR 200, Subpart E (Cost
Principles), wherein certain types of expenditures are not allowable or are limited as to reimbursement.
The City did not elect to use the 10% de minimis cost rate as covered in 2 CFR 200.414(F&A) costs.
NOTE 3 – DIRECT AND INDIRECT (PASS‐THROUGH) FEDERAL AWARDS
Federal awards may be granted directly to the City by a federal granting agency or may be granted to
other government agencies which pass‐through federal awards to the City. The Schedule includes both
of these types of federal award programs when they occur.
NOTE 4 – RELATIONSHIP TO FEDERAL FINANCIAL REPORTS
Amounts reported in the Schedule agree to or can be reconciled with the amounts reported in the
related federal financial reports.
NOTE 5 – RELATIONSHIP TO BASIC FINANCIAL STATEMENTS
Federal awards and expenditures agree to or can be reconciled with the amounts reported in the City’s
basic financial statements.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2019
180
Section I ‐ Summary of Auditor’s Results
Financial Statements
Type of auditor’s report issued on the
basic financial statements of the City:
Unmodified
Internal control over financial reporting:
Material weakness(es) identified? No
Significant deficiency(ies) identified? None reported
Noncompliance material to the financial statements
noted?
No
Federal Awards
Internal control over major programs:
Material weakness(es) identified? No
Significant deficiency(ies) identified? None reported
Type of auditor’s report issued on compliance for
major programs:
Unmodified
Any audit findings disclosed that are required to be
reported in accordance with Uniform Guidance?
No
Identification of Major Programs: CFDA No. 14.218 – CDBG Entitlement Grants
Cluster
CFDA No. 20.106 ‐ Airport Improvement
Program
CFDA No. 20.205 – Highway Planning and
Construction
Dollar threshold used to distinguish between type A
and type B programs:
$750,000
Auditee qualified as a low‐risk auditee? No
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2019
181
Section II – Financial Statements Findings
No current year findings are reported.
Section III ‐ Federal Award Findings and Questioned Costs
No current year findings are reported.
ADMINISTRATIVE SERVICES
CITY OF 250 Hamilton Avenue,4th Floor
PALO Palo Alto,CA 94301
ALTO 6503292692 CITYOFPALOALTO
Schedule of Prior Year Finding and Questioned Costs
For the Year Ended June 30,2019
Reference Number:2018-001 —Significant Deficiency -Internal Controls over Financial Reporting
Condition:Effective March 20,2017,the City and the State Water Resources Control Board (SWRCB)
entered into an agreement to award the City up to $30 million from its Clean Water State
Revolving Fund for the Sludge Dewatering and Loadout Facility project.The SWRCB loan is
to be repaid over 30 years at a rate of 1.8%,with the first annual installment due on
May 31,2020.In September 2017,due to the projected lower project costs,the agreement
was amended to reduce the SWRCB loan amount to $29.7 million.Under the terms of the
agreement,$4 million of the SWRCB loan is a federal pass through grant from the U.S.
Environmental Protection Agency under its Capitalization Grants for Clean Water Tate
Revolving Funds program.
On August 4,2018,the City received a letter from the SWRCB explaining the status of the
SWRCB loan and the federal pass through grant.The letter clarified the funding sources and
summarized the project draws through the date of the letter.Based on the information
provided in the SWRCB letter,we observed the following two issues:
1.The SWRCB letter on August 4,2018 clarified that the project costs included in the
first two draws submitted to SWRCB were applied to the federal awards first,
before applying them to State funding sources.Therefore,an adjustment of
$4,000,000 was necessary to reduce the SWRCB loan balance and recognize grant
revenue for the year ended June 30,2018.
2.The City incurred eligible project costs of $4,964,775 during the year ended June
30,2018 and submitted the loan draws subsequent to year end.Accordingly,
the City accrued draws made in July and August as a receivable from the SWRCB
and as an obligation for SWRCB loan payable.The draws for the $4,964,775
were not made by June 30,2018,therefore City does not owe that amount to
SWRCB as of year-end and overstated its obligation for the SWRCB loan.An audit
adjustment of $4,964,775 was necessary to reduce the SWRCB loan balance at
June 30,2018 and reduce receivables from the SWRCB to properly account for the
loan.
Recommendation:It was recommended that the City document the important terms and conditions of the
SWRCB loan to ensure proper internal controls over the financial reporting and compliance.
It was recommended that the City’s Finance department collaborate with other
departments that have material or complex transactions to strengthen internal controls over
financial reporting and compliance.
Status:Corrective action plan has been implemented.
CityOfPaloAlto.org
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Americans with Disabilities Act Statement
IN COMPLIANCE WITH
AMERICANS WITH DISABILITIES ACT (ADA) OF 1990,
THIS DOCUMENT MAY BE PROVIDED
IN OTHER ACCESSIBLE FORMATS.
For information contact:
ADA Coordinator
City of Palo Alto
250 Hamilton Ave
(650) 329-2550
ADA@cityofpaloalto.org
City of Palo Alto 250 Hamilton Avenue, Palo Alto, CA 94301 P 650.329.2100 W cityofpaloalto.org
Spanish explorers named the area for the tall, twin-trunked redwood tree
they camped beneath in 1769. Palo Alto incorporated in 1894 and the State
of California granted its first charter in 1909. The City has long been known
for its innovative people and its exploration of ideas that have changed the
world. In Palo Alto, our history has always been about the future.
Palo Alto