HomeMy WebLinkAbout2015-11-17 Finance Committee Agenda Packet Finance Committee
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MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA
PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE.
DURING NORMAL BUSINESS HOURS.
Tuesday, November 17, 2015
Special Meeting
Community Meeting Room
6:00 PM
Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in
the Council Chambers on the Thursday 10 days preceding the meeting.
PUBLIC COMMENT Members of the public may speak to agendized items. If you wish to address the Committee on any issue that is on this agenda, please complete a speaker request card
located on the table at the entrance to the Council Chambers/Council Conference Room, and
deliver it to the Clerk prior to discussion of the item. You are not required to give your name
on the speaker card in order to speak to the Committee, but it is very helpful.
Call to Order
Oral Communications
Members of the public may speak to any item NOT on the agenda
Action Items
1. Macias Gini & O'Connell's Audit of the City of Palo Alto's Financial
Statements as of June 30, 2015 and Management Letter
2. Recommendation to Adopt a Budget Amendment Ordinance Closing
the Fiscal Year 2015 Budget, Including Authorizing Transfers to
Reserves, and Approval of the Fiscal Year 2015 Comprehensive Annual
Financial Report (CAFR)
Future Meetings and Agendas
Adjournment
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2 November 17, 2015
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER
DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY
CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS.
Status of Items Requested by the Finance Committee
Referral
Date Item Title Status
2013 Police Services Utilization and Resources Study (Police) Pending
2015
Review and Discussion of the Public Art Ordinance (Community
Services) Pending
Discussion of Usage and Replacement of Pool Vehicles (Public
Works)
Consideration of stronger encroachment fees for construction that
impact portions or all of a city street or sidewalk (Public Works) Pending
Regular updates to the Finance Committee reg. the Animal Shelter
and direction to staff and the Finance Committee to return in six
months to the City Council with an update on the Animal Shelter
(City Manager's)
Pending
Discussion of changes to the Public Art Ordinance to simplify the
calculation of the Public Art Fee (Community Services Pending
Discussion of usage and replacement of pool vehicles (Public Works) Pending
Cubberley Center Master Plan: additional information and a timeline
for the site (requested by the FC) (Public Works) Pending
Finance Committee Items Tentatively Scheduled
Meeting
Date Item Title
12/1/2015
Library Bond Oversight Committee Quarterly Reports Transmittal, Discussion and
Recommendation Regarding Excess Library Bond Funds, and Discussion and
Recommendation on the Dissolution of the Library Bond Oversight Committee
Update to the Utilities Department Organization Assessment (Utilities)
Net Energy Metering (NEM) Successor Program Design Guidelines (Utilities)
Local Solar Plan Update and Recommendation to End the PV Partners Program
When Legislative Mandates are Met (Utilities)
12/15/2015
2017-2026 General Fund Long Range Financial Forecast (ASD)
1st Quarter FY 2016 Financial Results (ASD)
Adoption of an Ordinance Amending Title 5 (Health and Sanitation) and Title 18
(Zoning) of the Palo Alto Municipal Code to Require All Businesses to Subscribe to
Recycling and Compost Services and Comply with Refuse Sorting Requirements
(PW)
City of Palo Alto (ID # 6251)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 11/17/2015
City of Palo Alto Page 1
Summary Title: Close Fiscal Year 2015 Budget and Approve 2015 CAFR
Title: Recommendation to Adopt a Budget Amendment Ordinance Closing
the Fiscal Year 2015 Budget, Including Authorizing Transfers to Reserves, and
Approval of the Fiscal Year 2015 Comprehensive Annual Financial Report
(CAFR)
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee forward to the City Council for its approval:
1. The attached Budget Amendment Ordinance and associated exhibits which close the
Fiscal Year (FY) 2015 Budget, including recommended appropriation adjustments due to
higher than anticipated expenditures, and the transfer of General Fund surplus of $5.1
million from the General Fund to the Infrastructure Reserve in the Capital Projects Fund
(Attachment A); and
2. The City’s FY 2015 Comprehensive Annual Financial Report (CAFR) (Attachment B).
Financial Highlights for FY 2015
General Fund ended FY 2015 with a surplus position of $18.7 million and, after transferring
$5.1 million to the Infrastructure Reserve, the remaining surplus balance of $13.6 million
increases the Budget Stabilization Reserve (BSR). The surplus was largely a result of
revenue increases in property, transient occupancy, and documentary transfer taxes, as
well as expenditure savings. This surplus is recommended to be utilized for the following
purposes:
o Transfer to the Capital Improvement Fund ($5.1 million);
o Pending transfer to the Roth Building Historical Rehabilitation Reserve in the Capital
Improvement Fund as approved in CMR #5879 ($1.0 million);
o FY 2016 one-time expenditures approved in Adopted Budget ($2.1 million);
o FY 2016 Budget Amendment Ordinances approved to date or scheduled to be
approved ($2.1 million);
City of Palo Alto Page 2
o Highway 101 Pedestrian/Bicycle Overpass ($6.0 million);
o Potential funding for a pension trust fund ($1.3 million); and
o Unfunded General Fund portion of the Silicon Valley Regional Interoperability
Authority’s (SVRIA) project to move towards a county-wide 700 Mhz radio
communication system ($1.0 million).
Funding for the Highway 101 Pedestrian/Bicycle Overpass, pension trust fund, Roth Building
Historical Rehabilitation Reserve, and SVRIA is recommended to be retained in the BSR at
this time. It should be noted that $3.3 million of the $6.0 million reserved for the Highway
101 Pedestrian/Bicycle Overpass project is supported by TOT receipts earmarked for the
City Council approved Infrastructure Plan. Including the funds recommended to be
retained in the BSR for specific purposes, and after deducting amounts already approved for
expenditure in FY 2016, the FY 2015 ending BSR balance of $43.0 million is 23.1 percent of
FY 2016 General Fund budgeted expenditures and operating transfers ($8.3 million over the
FY 2016 Adopted Budget BSR balance of $34.6 million).
Enterprise Funds ended the year in surplus positions, however the ongoing drought is
negatively impacting results, most notably affecting the Water and Electric Funds.
Government Accounting Standards Board Statement No. 68 (GASB 68) was implemented
effective for FY 2015. Net pension liabilities of $208.7 million in Governmental Activities
and $81.1 million in Enterprise and Internal Service Funds were recorded in the Statement
of Net Position, which directly reduces the unrestricted net position of those Funds. (Staff
report ID #6144 was presented to the Finance Committee on October 20 and discussed
GASB 68 in detail.)
The City received a “clean” audit opinion for FY 2015 from the external audit firm, Macias
Gini & O’Connell LLP. Once again, the City was awarded the prestigious GFOA award for
Excellence in Financial Reporting for FY 2014 – the 21st consecutive year.
Background
The City’s fiscal year closes on June 30, at which time its financial records are closed for the
year and financial reports are prepared. The reports, along with the City’s financial data, are
audited by Macias Gini & O’Connell LLP (MGO), Certified Public Accountants, a firm hired by the
City Auditor. MGO issues an audit opinion on the financial position of the City’s activities and,
together with the City’s financial statements and other information, this comprises the City’s
Comprehensive Annual Financial Report.
The attachments to this Staff Report provide the necessary documents for closing the FY 2015
Budget. In addition, they provide detailed information on the City’s financial activities for FY
2015 and highlight key fiscal issues affecting the City of Palo Alto. The Management’s
Discussion and Analysis (MD&A) section of the CAFR (Attachment B) also provides a discussion
City of Palo Alto Page 3
and analysis of the City’s current fiscal health, and includes financial statements and analysis
that is compared to the prior year, along with capital asset and debt administration data.
Discussion
Economic Environment:
The City’s economically sensitive revenue sources have continued on a positive trend. The
robust real estate market is driving higher documentary transfer taxes, while newly opened
hotels and a rate increase are driving higher transient occupancy taxes. Sales tax revenue has
levelled off in FY 2015, but is still expected to increase slightly in FY 2016 exclusive of the one-
time adjustment included in FY 2015 revenue.
The City has been proactively taking steps the past few years to align expenses with revenues
through employee compensation savings, service and program cuts, and revenue
enhancements. The City Council adopted a General Fund budget of $185.7 million (including
operating transfers) for FY 2016, an increase of 8.5 percent from the prior year Adopted
Budget. The primary drivers of increased expenditures for FY 2016 are pension and health care
costs, increased investment in the City’s infrastructure, and targeted position additions in
response to Community demands and Council priorities. The City is continuing to mitigate the
upward trend in pension and health care costs by seeking to increase employee contributions
to the PERS retirement plan and capping the City’s share of health care premiums.
In spite of these measures, the City still faces a significant long-term liability for pension and
retiree medical costs. The combined unfunded liability according to the most recent actuarial
valuations is $439 million. Funded ratios for the Safety and Miscellaneous plans based on June
2013 actuarial valuations are 68.9 percent and 68.4 percent respectively, and 29.5 percent for
the retiree medical plan. The City continues to fully fund its annual required contribution for
these liabilities. An irrevocable trust fund for retiree medical benefits was authorized by the
City Council in May 2007 with initial funding of $32.8 million in March 2008. Subsequent
contributions and investment earnings have increased the trust balance to $78.6 million as of
June 30, 2015. The irrevocable trust fund balance reduces the City’s unfunded liability for
retiree medical.
In June 2014 Council approved a $125.8 million Infrastructure Plan, which includes projects
such as a new Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian
plan, and two parking garages. Funding for these projects will come from a variety of sources,
including TOT revenues, Stanford University Medical Center development agreement, and
developer impact fees. This plan was included in the 2016-2020 Adopted Capital Improvement
Program and is fully funded, however the plan as adopted did not allow for increases
attributable to scope increases, cost escalation, etc. As part of this report, an increase to the
transfer from the General Fund to the Capital Improvement Fund in the amount of $5.1 million
is recommended. This transfer will provide funding for the Baylands Boardwalk, Building
Systems Improvements, and Embarcadero Road Corridor Improvements Projects, as well as
$2.0 million for potential cost increases or unanticipated projects. Including the $5.1 million
City of Palo Alto Page 4
recommended to be transferred from the General Fund to the Capital Improvement Fund as
part of this report, the General Fund will have contributed $25.6 million in surplus funds over
the past four years. Additionally, staff is recommending the retention of $6 million in the
Budget Stabilization Reserve to potentially fund increased construction costs related to the
Highway 101 Pedestrian/Bicycle Overpass project.
A detailed discussion of financial results for FY 2015 is included in the CAFR MD&A. In addition,
staff will present the 10 year Long Range Financial Forecast to the Finance Committee in early
2016.
Results by Fund:
General Fund Reserves
At the end of the current fiscal year, fund balance of the General Fund was $62.5 million, an
increase of $14.2 million from the prior year. The $62.5 million balance is comprised of several
reserves: the Budget Stabilization Reserve (BSR), encumbrances, notes and loans, inventory,
prepaid items, unrealized gain on investments, and reappropriations. As described in the BSR
reserve policy approved by Council, any reserve balance in excess of 18.5 percent of
expenditures and transfers may be transferred to the Infrastructure Reserve in the Capital
Projects Fund at the discretion of the City Manager.
At the close of FY 2015, after accounting for higher than budgeted revenue levels and
expenditure savings, the preliminary BSR balance was $53.3 million. The FY 2016 Adopted
Budget targeted a BSR level of $34.6 million at the end of FY 2015, leaving a surplus balance of
$18.7 million. After transferring $5.1 million of surplus to the Infrastructure Reserve at the
fiscal year-end, the remaining $13.6 million surplus is recommended to be used for the
purposes outlined in the table below. It should be noted that $3.3 million of the $6.0 million
associated with the Highway 101 Pedestrian/Bicycle Overpass project is supported by Transient
Occupancy Tax (TOT) receipts generated from newly opened hotels and the January 2015 two
percentage point TOT increase.
Over the past four fiscal years, a total of $25.6 million in surplus funds has been transferred to
the Infrastructure Reserve as follows:
2012 $ 7,600
2013 8,900
2014 4,000
2015 5,087
Total transfers 25,587
2015 proposed additional 7,000
Total actual and proposed $ 32,587
City of Palo Alto Page 5
2015 Year-End Budget Stabilization Reserve (BSR) Summary
(000’s)
General Fund BSR Balance $53,285
Transfer surplus to Infrastructure Reserve
Unanticipated needs $2,000
Baylands Boardwalk $2,100
Embarcadero Road traffic signal design
Phase II $237 approved by Council 10/5/2015
Building space improvements to City Hall $750
(5,087)
BSR Balance, June 30 2015 48,198
FY 2015 BSR - Adopted Budget 34,640
Remaining FY 2015 Surplus 13,558
Recommendations for disposition of surplus funding:
Pending transfer to the Capital Improvement Fund for
the Roth Building Historical Rehabilitation Reserve as
approved in CMR #5879 dated June, 2015*
(1,000)
FY 2016 one-time expenditures (2,123)
FY 2016 Budget Amendment Ordinances approved and
scheduled for approval
(2,130)
Capital: Potentially higher than estimated costs for
Highway 101 Pedestrian/Bicycle Overpass Project
(retained in BSR)
(6,000)
Capital: Radio Replacements (retained in BSR) (1,000)
Establishment of a Pension Trust Fund (retained in BSR) (1,305)
Balance of FY 2015 Surplus $0
* Inadvertently, staff omitted to process the transfer from the BSR to the Capital Improvement Fund for
the Roth Building Historical Rehabilitation Reserve in FY 2015 as approved by the City Council. Therefore,
as part of the FY 2016 Midyear Budget Review, $1 million will be recommended to be transferred from
the BSR to the Capital Improvement Fund to establish the reserve.
General Fund Revenues
General Fund revenues for FY 2015 were $157.5 million, which is $16.1 million or 11.3 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 2015 FY 2014 % Change
Property tax $ 34,117 $ 30,587 11.5%
Sales tax 29,675 29,424 0.0%
Utility user tax 10,861 11,008 (1.3)%
Transient occupancy tax 16,699 12,255 36.3%
Documentary transfer tax 10,384 7,811 32.9%
Property tax revenues increased due to higher assessed values as a result of continued robust
City of Palo Alto Page 6
commercial and residential real estate markets.
Transient occupancy (TOT) and documentary transfer (DTT) taxes are economically sensitive
revenue streams, and both those categories experienced double digit growth over the prior
year. The TOT revenue increase was driven by:
2 percent rate increase from 12 percent to 14 percent effective January 1, 2015 $1.4
million;
Newly opened hotels $1.8 million, and
Increased occupancy and room rates $1.2 million.
Several new hotels were opened in late FY 2015 and into FY 2016, which will result in a higher
trajectory for that revenue stream into the next fiscal year.
Documentary Transfer Tax (DTT) increase of $2.6 million was driven by a one-time $3.5 billion
commercial transaction which generated DTT revenue of $3.2 million and resulted in a record
year for DTT receipts. Without this one-time receipt, DTT would have performed below the
budgeted amount.
Sales tax revenue increased $0.3 million year over year in total. However, in FY 2015 there was
a planned accounting adjustment to align the sales tax accrual with the fiscal year which
resulted in a one-time $2.6 million revenue increase. FY 2015 sales tax revenue without this
adjustment would have been $27.1 million, which is a decrease of $2.3 million from the prior
year. FY 2014 revenue was abnormally high because the City had significant receipts from a
single vendor.
Following is a chart which depicts the relative contribution of each tax category over the past
six years (2010 through 2015), as well as the current budgeted year (2016).
City of Palo Alto Page 7
General Fund Tax Revenues
Actual Fiscal Years 2010 – 2015
Budget Fiscal Year 2016
In percentage terms, the revenue category with the largest increase from six years ago is DTT,
which has increased 171 percent. DTT comprised 5.6 percent of tax revenues in 2010,
compared to 10.0 percent in 2015. Excluding the $3.2 million one-time receipt in FY 2015, DTT
has increased 85 percent from six years ago and comprises 7.0 percent of 2015 tax revenue. In
absolute dollars, sales tax category has increased the most, with $11.7 million dollars more in
revenue than six years ago.
General Fund Expenditures
General Fund expenditures for FY 2015, including encumbrances, totaled $154.8 million, an
increase of $3.0 million from the prior year. The Original Budget of $155.3 million was
increased to the Final Adjusted Budget amount of $163.6 million, primarily due to the
expenditure of prior year encumbered and reappropriated balances ($5.6 million) and mid-year
increases for several departments, primarily Public Safety ($0.5 million).
Following is a chart which compares actual departmental costs, including encumbrances, over
the past six years and budgeted costs for FY 2016.
City of Palo Alto Page 8
General Fund Departments
Actual Expenditures Fiscal Years 2010 – 2015 (including encumbrances)
Budgeted Expenditures Fiscal Year 2016
($ in thousands)
Capital Projects Fund
The Capital Projects Fund ended the year with a fund balance of $57.3 million, which is
comprised of the following:
Fund Balance Component Amount
($ in millions)
Restricted for Library projects $ 5,155
Assigned for all other Capital projects 42,724
Infrastructure Reserve 9,475
Total Capital Projects Fund Balance $ 57,354
Restricted for Library projects of $5.1 million is the portion of fund balance dedicated to
remaining Library expenditures which, if considered bondable expenses, will be paid for with
cash from bond proceeds. Non-bondable expenditures such as salaries and benefits are funded
City of Palo Alto Page 9
from the Infrastructure Reserve, as established at the time of the bond issuance.
Assigned for all other Capital projects of $42.7 million represents the amount of unspent funds
associated with Adopted Capital projects other than Library projects. Outside funding sources
such as grants, donations and future debt issues are not factored into this component of the
fund balance until they are actually received. Thus, all capital projects are considered to be
fully funded from existing cash resources.
Infrastructure Reserve (IR) of $9.5 million is the balance remaining after all expenditures as
defined up through the 2016 Capital Budget process have been satisfied, without regard to
anticipated future funding sources such as grants, donations and debt issues for existing
Adopted Capital projects. This presents the most conservative and fiscally prudent view of the
IR balance.
The IR balance will increase as a result of:
savings from completed or cancelled projects;
surplus funds transferred from the General Fund;
receipt of grants, donations or debt issues related to existing adopted projects.
Enterprise Funds
At June 30, 2015 the City’s Enterprise Funds reported total net position of $667.8 million, a
decrease of $76.9 million from the prior year. Excluding the adjustment for items related to
recording GASB 68 net pension liabilities of negative $87.1 million, total net position increased
from prior year by $10.2 million, or 1.4 percent. The change in net position for each of the
Enterprise Funds is detailed in the following
table.
City of Palo Alto Page 10
Enterprise Funds
Change in Net Position for the Year Ended June 30
(in Millions)
Increase/
Fund Name 2015 2014 (Decrease)
Water 5.1$ 11.0$ (5.9)$
Electric (11.2)1.7 (12.9)
Fiber Optics 3.1 3.1 -
Gas 1.7 3.3 (1.6)
Wastewater Collection 2.4 3.5 (1.1)
Wastewater Treatment 2.9 (1.9)4.8
Refuse 4.8 2.2 2.6
Storm Drainage 2.7 2.7 -
Airport (0.1)(0.5)0.4
Total Change in Net Assets 11.4$ 25.1$ (13.7)$
The total Change in Net Assets of $11.4 million is a decrease of $13.7 million from the prior
year, primarily due to Water and Electric Funds. Water Fund revenue decreased as a result of
customers using less water due to state mandated drought conservation measures. Electric
Fund experienced relatively flat revenue and, combined with increased costs for electricity
purchases due to lower availability of hydroelectric energy because of the ongoing drought,
ended the fiscal year in a loss position of $11.2 million.
Wastewater Treatment net position increased $4.8 million over prior year due to increased
billings for CIP costs in FY 2015 and the FY 2014 impact of RWQCP not invoicing partners for
encumbrances.
Effective July 1, 2015, following a Council approved resolution, Reserves Management Practices
for the Electric, Gas, Wastewater Collection and Water Utilities were updated. Restructuring of
the reserve balances was designed to increase transparency, to make contingency reserves
easier to manage from year to year, and to eliminate reserves that are no longer necessary.
Guidelines for managing the reserves are contained in the Reserves Management Practices,
including actions to be taken when reserve balances are not within the guidelines.
Enterprise Fund Rate Stabilization, Operations and other reserve balances are shown in detail in
Note 10 of the CAFR. The implementation of GASB 68 in FY 2015 to record net pension
liabilities had a negative impact of $87.1 million on the Enterprise Funds in total. All Enterprise
Funds maintained a positive unrestricted reserve balance, except for Wastewater Treatment
which is in a deficit position of $2.8 million due to pension related items of $17.5 million.
City of Palo Alto Page 11
Airport Fund is also in a deficit position of $1.7 million due to life to date operating losses which
are currently being funded by advances from the General Fund, as well as $0.4 million in
pension related items.
Refuse Fund ended the year in a net positive reserve position of $1.4 million. The reserve for
landfill closure costs was re-evaluated by Department of Resources Recycling and Recovery, and
the requirement for funding was reduced by $4.7 million. This was offset by the negative
impact of the pension liability of $5.0 million.
Implementation of GASB 68 – Accounting for Pensions
CalPERS Actuarial Valuation:
Prior to GASB 68, the City’s unfunded pension liabilities for the Safety and Miscellaneous Plans
were disclosed in Note 11 of the CAFR. The liability was based on the annual CalPERS Actuarial
Valuation, which is 1 year in arrears and projects the Annual Required Contribution (ARC) for
the following 2 years. The ARC was the basis both for expense in the financial statements
(accounting) and for funding (budget).
Post GASB 68, the City’s net pension liabilities are disclosed as a liability in the Statement of Net
Position (balance sheet) for the government-wide financial statements, the Enterprise Funds,
and the Internal Service Funds. The balance sheets of individual governmental funds, ie.
General Fund, do not show pension liabilities because their focus is current resources, not
economic resources.
Going forward, the Actuarial Valuation will still be issued in October. The ARC will still be used
for funding purposes (budget) and will be the basis of contributions to the Plans.
CalPERS Accounting Valuation:
CalPERS will issue an additional annual report in July for each of the Safety and Miscellaneous
Plans called the GASB 68 Accounting Valuation Report. This report is also prepared by the
actuary, however there are differences in valuation and amortization methods for some items.
The actuarial assumptions are included in Note 11 of the CAFR. The new pension expense
calculated in the Accounting Valuation report will be the basis for expense in the financial
statements and will generally be more volatile than the ARC calculated in the Actuarial
Valuation report due to shorter deferral and recognition periods.
The Accounting Valuation net pension liability is the number that will be reported in the CAFR
for FY15 and forward. For comparison purposes, the Accounting Valuation report shows the
Safety Plan net pension liability as of June 30 2013 was $120.9 million, compared to the
Actuarial Valuation report which shows an unfunded liability of $105.2 million at the same date.
For the Miscellaneous Plan, the comparable amounts were $222.4 million and 190.3 million.
The net pension liability for the Miscellaneous Plan of $187.1 million as of June 30 2014 has
City of Palo Alto Page 12
been allocated between funds based on their pro-rata share of FY 2014 employer contributions.
When added to the Safety Plan liability of $102.8 million, the total net pension liability of
$289.9 is the amount reported on the Government-Wide financial statement.
There are 3 major components of GASB 68 that affect the balance sheet for government-wide
and for each of the Enterprise and ISF Funds. These are:
1. Deferred pension contribution – The pension liability balance for each fund is one year
in arrears, so the liability on the June 30 2015 financial statements is actually the liability
from June 30 2014 (this is because CalPERS is not able to provide the data in time for
inclusion in the current fiscal year). As a result, pension contributions made in the
current fiscal year will be applied to the following year’s liability, and therefore have to
reside on the balance sheet as a “deferred outflow of resources” (the equivalent of a
prepaid expense).
2. Net pension liabilities – CalPERS actuaries calculate the City’s pension liability based on
census data for every City employee: active, inactive and retired. The net pension
liabilities are one year in arrears.
3. Differences between expected and actual earnings on investments – GASB 68 requires
that these differences be amortized on a straight-line basis over five years.
Further details on the GASB 68 net pension liabilities can be found in Note 11 of the CAFR.
Retiree Healthcare Implied Subsidy
On June 9, 2014, City Council accepted the Retiree Healthcare Plan GASB 45 Actuarial Valuation
as of June 30, 2013 and approved full funding of the Annual Required Contribution (ARC) for
Retiree Healthcare for FY 2015 and FY 2016. As documented in the report (CMR #4891) which
recommended approval of full payment of the ARC, the primary reason for the increased ARC
for Retiree Healthcare was the inclusion of a new actuarial standard regarding the implied
subsidy of healthcare premiums of active employees in relationship to healthcare premiums for
retirees. CalPERS blends active employees with pre-Medicare retirees and charges them the
same medical premium. However, younger employees on average consume less healthcare
services and therefore are subsidizing older employees and retirees. The implied subsidy is the
difference between average retiree claims and retiree premiums charged by CalPERS.
Consistent with Council direction, as recommended by staff, the City budgeted for payment of
the ARC for FY 2015 and FY 2016, including the implied subsidy. The implied subsidy for FY
2015 was $1.9 million for all funds. As part of preparing for the FY 2015 CAFR, staff worked
closely with the City’s actuary, the managers of the City’s trust fund for Retiree Healthcare, and
the City’s external auditor. After many discussions, staff realized that the implied subsidy
budgeted in the Retiree Healthcare Fund should have been budgeted as a contribution from the
City’s healthcare premiums for active employees. However, the FY 2015 budget had fully
funded the City’s healthcare premiums of approximately $17.4 million for active employees.
Therefore, the cost of healthcare premiums related to the implied subsidy in the amount of
$1.9 million was budgeted twice. For FY 2015, the savings of healthcare premiums related to
City of Palo Alto Page 13
the implicit subsidy will remain in the General Benefits Fund for future use. For FY 2016, staff
will bring forward recommendations as part of the FY 2016 Midyear Budget Review report to
correct departmental budgets regarding the implied subsidy. Starting with the FY 2017
Proposed Budget, staff will budget correctly for the implied subsidy for active employees
healthcare premiums.
Environmental Review
This is not a project for purposes of the California Environmental Quality Act.
Attachments:
Attachment A: Budget Amendment Ordinance Closing the Fiscal Year 2015 Budget
(DOCX)
Attachment A: Exhibit 1-4 Proposed Fiscal Year 2015 Year End Adjustments (PDF)
Attachment A: Exhibit 5 Gen Fund Budget vs Actuals (XLSX)
Attachment B: 2014 - 2015 Comprehensive Annual Financial Report (CAFR) (PDF)
ATTACHMENT A
Page of 4
1
ORDINANCE NO. XXXXX
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AUTHORIZING CLOSING OF THE BUDGET FOR THE
FISCAL YEAR ENDING JUNE 30, 2015
The Council of the City of Palo Alto does ordain as follows:
SECTION 1. The Council of the City of Palo Alto finds and determines as follows:
A. Pursuant to the provisions of Section 12 of Article III of the Charter of the City
of Palo Alto and as set forth in Section 2.28.070 of the Palo Alto Municipal Code, the
Council on June 16, 2014 did adopt a budget for Fiscal Year 2015; and
B. Fiscal Year 2015 has ended and the financial results, although subject to post-
audit adjustment, are now available.
SECTION 2. Pursuant to Section 2.28.080 of the Palo Alto Municipal Code, the
City Manager during Fiscal Year 2015 did amend the budgetary accounts of the City of
Palo Alto to reflect:
A. Additional appropriations authorized by ordinance of the City Council.
B. Amendments to employee compensation plans adopted by the City Council.
C. Transfers of appropriations from the contingent accounts as authorized by
the City Manager.
D. Redistribution of appropriations between divisions, cost centers, and
objects within various departments as authorized in accordance with Policy 1-31 Budget
Change Requests.
E. Fiscal Year 2015 appropriations which on July 1, 2014 were encumbered by
properly executed, but uncompleted, purchase orders or contracts.
SECTION 3. The Council hereby approves adjustments to the Fiscal Year 2015
budget as shown on attached Exhibit 1.
SECTION 4. The City Manager is authorized and directed:
A. To close the Fiscal Year 2015 budget accounts in all funds and departments
and, as required by the Charter of the City of Palo Alto, to make such interdepartmental
and inter-fund transfers in the 2015 budget as outlined in this ordinance; and
ATTACHMENT A
Page of 4
2
B. To fund the Budget Stabilization Reserve in accordance with the General Fund
Reserves Policy adopted by the City Council.
SECTION 5. The General Fund Budget Stabilization Reserve is hereby
increased by the sum of Eighteen Million Six Hundred and Forty Five Thousand Dollars
($18,645,000), attributable to a combination of higher than anticipated revenues and
expenditure savings realized during Fiscal Year 2015.
SECTION 6. The General Fund Budget Stabilization Reserve is hereby
decreased by the sum of Five Million One Hundred and Thirty Three Thousand One
Hundred and Thirty Dollars ($5,133,130) due to increased transfers to the Technology
Fund of Forty Six Thousand One Hundred and Thirty Dollars ($46,130) and the Capital
Improvement Fund of Five Million and Eighty Seven Thousand Dollars ($5,087,000), as
described in Exhibit 1.
SECTION 7. The Airport Fund Ending Fund Balance is hereby decreased by the
sum of Five Thousand Dollars ($5,000) as described in Exhibit 1.
SECTION 8. The Federal Equitable Sharing Fund Ending Fund Balance is hereby
decreased by the sum of Six Thousand Dollars ($6,000) as described in Exhibit 1.
SECTION 9. The Technology Fund Reserve is hereby increased by the sum of
Forty Six Thousand One Hundred and Thirty Dollars ($46,130) as described in Exhibit 1.
SECTION 10. The Gas Distribution Rate Stabilization Reserve is hereby decreased
by the sum of Two Hundred Fifty Six Thousand Five Hundred and Forty Two Dollars
($256,542) as described in Exhibit 1.
SECTION 11. The Wastewater Collection Rate Stabilization Reserve is hereby
decreased by the sum of Forty Two Thousand Nine Hundred and Twelve Dollars
($42,912) as described in Exhibit 1.
SECTION 12. The Water Rate Stabilization Reserve is hereby decreased by the
sum of Two Hundred Seventeen Thousand Three Hundred and Nineteen Dollars
($217,319) as described in Exhibit 1.
SECTION 13. The Wastewater Treatment Rate Stabilization Reserve is hereby
decreased by the sum of Fourteen Thousand Eight Hundred and Ninety Nine Dollars
($14,899) as described in Exhibit 1.
SECTION 14. The Refuse Fund is hereby decreased by Forty One Thousand One
Hundred and Six Dollars ($41,106) as described in Exhibit 1.
ATTACHMENT A
Page of 4
3
SECTION 15. The Electric Fund Rate Stabilization Reserve is hereby decreased by
Six Thousand Eight Hundred and Forty Four Dollars ($6,844) as described in Exhibit 1.
SECTION 16. The Vehicle Replacement Fund is hereby decreased by Four
Thousand Four Hundred and Forty Two Dollars ($4,442) as described in Exhibit 1.
SECTION 17. The Capital Improvement Fund Infrastructure Reserve is hereby
increased by Five Million, Twenty Nine Thousand Two Hundred and Seventy Six Dollars
($5,029,276) as described in Exhibit 1.
SECTION 18. Upon completion of the independent audit, detailed financial
statements reflecting the changes made by the Sections 7 through 18 of this ordinance
shall be published as part of the annual financial report of the City as required by Article
III, Section 16, of the Charter of the City of Palo Alto and in accordance with generally
accepted accounting principles.
SECTION 19. As specified in Section 2.28.080(a) of the Palo Alto Municipal Code,
a two-thirds vote of the City Council is required to adopt this ordinance.
SECTION 20. The Council of the City of Palo Alto hereby finds that the enactment
of this ordinance is not a project under the California Environmental Quality Act and,
therefore, no environmental impact assessment is necessary.
SECTION 21. As provided in Section 2.04.330 of the Palo Alto Municipal Code,
this ordinance shall become effective upon adoption.
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ATTACHMENT A
Page of 4
4
INTRODUCED AND PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:
________________________ ____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
________________________ ____________________________
City Attorney City Manager
____________________________
Director of Administrative Service
ATTACHMENT A, EXHIBIT 1
Pages 1 of 4 11/5/2015General Fund 2014
Category Amount Description
GENERAL FUND
Transfer to Technology Fund 46,130 Increase the Transfer to the Technology Fund by $46,130 to adjust for the
actual amount of the Technology Surcharge Fee collected in the General Fund
in Fiscal Year 2015 ($1,060,925).
46,130
(46,130)
General Expense (17,800) Reallocate departmental management development savings to the Human
Resources Department to reappropriate funds for city-wide training needs in
Fiscal Year 2017.
(17,800)
17,800
General Expense (3,500) Reallocate departmental management development savings to the Human
Resources Department to reappropriate funds for city-wide training needs in
Fiscal Year 2017.
(3,500)
3,500
Non Salary and benefits 25,000 Allocate savings from the Community Services Department to offset higher
than anticipated contractual services costs associated with the annual audit of
the City's finances. Funding for this annual need will be reviewed, and a
recommendation to increase the allocation may be included in future budget
cycles. General Expense (1,000) Reallocate departmental management development savings to the Human
Resources Department to reappropriate funds for city-wide training needs in
Fiscal Year 2017.
24,000
(24,000)
General Expense (3,400) Reallocate departmental management development savings to the Human
Resources Department to reappropriate funds for city-wide training needs in
Fiscal Year 2017.
(3,400)
3,400
CITY MANAGER
General Expense (2,700) Reallocate departmental management development savings to the Human
Resources Department to reappropriate funds for city-wide training needs in
Fiscal Year 2017.(2,700)
2,700
Net Changes To (From) Reserves
CITY AUDITOR
Use Changes
Net Changes To (From) Reserves
CITY CLERK
Use Changes
Net Changes To (From) Reserves
Use Changes
Net Changes To (From) Reserves
Use Changes
Attachment A, Exhibit 1
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2015 ADOPTED BUDGET
NON-DEPARTMENTAL
Use Changes
Net Changes To (From) Reserves
ADMINISTRATIVE SERVICES
Use Changes
Net Changes To (From) Reserves
CITY ATTORNEY
ATTACHMENT A, EXHIBIT 1
Pages 2 of 4 11/5/2015General Fund 2014
Category Amount Description
Attachment A, Exhibit 1
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2015 ADOPTED BUDGET
COMMUNITY SERVICES
(125,000) Allocate Departmental non-salary savings to the City Auditor's Office and
Planning and Community Environment Department to fund various
unanticipated expenses.
General Expense (4,700) Reallocate departmental management development savings to the Human
Resources Department to reappropriate funds for city-wide training needs in
Fiscal Year 2017.
(129,700)
129,700
DEVELOPMENT SERVICES
General Expense (5,000) Reallocate departmental management development savings to the Human
Resources Department to reappropriate funds for city-wide training needs in
Fiscal Year 2017.(5,000)
5,000
General Expense 60,600 Reallocate management development savings from various general fund
departments to the Human Resources Department to reappropriate funds for
city-wide training needs in Fiscal Year 2017.
60,600
(60,600)
Use Changes
Net Changes To (From) Reserves
Use Changes
Net Changes To (From) Reserves
HUMAN RESOURCES
Use Changes
Net Changes To (From) Reserves
ATTACHMENT A, EXHIBIT 1
Pages 3 of 4 11/5/2015General Fund 2014
Category Amount Description
Attachment A, Exhibit 1
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2015 ADOPTED BUDGET
LIBRARY
339,985 Recognizes donation ($320,000) and grant ($19,485) funds received by the
Library Department during Fiscal Year 2015 as detailed in the Fiscal Year 2015
Reappropriations CMR approved by Council on Nov. 2, 2015.
339,985
339,985 Increases the non-salary allocation for the Library Department due to
donation and grant funds received during Fiscal Year 2015.
339,985
-
OFFICE OF EMERGENCY SERVICES
General Expense (800) Reallocate departmental management development savings to the Human
Resources Department to reappropriate funds for city-wide training needs in
Fiscal Year 2017.
(800)
800
Non Salary and benefits 100,000 Allocate savings from the Community Services Department to offset higher
than anticipated Printing and Mailing charges, attributable to high level of
project notification cards mailed to residents.
General Expense (600) Reallocate departmental management development savings to the Human
Resources Department to reappropriate funds for city-wide training needs in
Fiscal Year 2017.
99,400
(99,400)
General Expense (3,900) Reallocate departmental management development savings to the Human
Resources Department to reappropriate funds for city-wide training needs in
Fiscal Year 2017.
(3,900)
3,900
General Expense (17,200) Reallocate departmental management development savings to the Human
Resources Department to reappropriate funds for city-wide training needs in
Fiscal Year 2017.
(17,200)
17,200
Total General Fund Changes to BSR (46,130)
Use Changes
Net Changes To (From) Reserves
POLICE
Use Changes
Net Changes To (From) Reserves
PUBLIC WORKS
Use Changes
Net Changes To (From) Reserves
PLANNING AND COMMUNITY ENVIRONMENT
Use Changes
Net Changes To (From) Reserves
Use Changes
Net Changes To (From) Reserves
Source Changes
ATTACHMENT A, EXHIBIT 1
Pages 4 of 4 11/5/2015General Fund 2014
Category Amount Description
Attachment A, Exhibit 1
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2015 ADOPTED BUDGET
Transfer from the General Fund 5,087,000 Increases the transfer from the General Fund for capital infrastructure
projects, resulting from the Fiscal Year 2015 surplus. Funds will be held in the
Infrastructure Reserve, but are intended to be used for the Building Systems
Improvements ($750,000), Baylands Boardwalk ($2.1 million), Embarcadero
Traffic Signal Design Phase II ($237,000), and yet to be identified needs ($2.0
million). Source Changes 5,087,000
57,724 Combined impact from adjustments to projects as outlined in Attachment A,
Exhibit 4
Use Changes 57,724
5,029,276 Capital Fund Infrastructure ReserveNet Changes To (From) Reserves
GENERAL FUND CIP (CAPITAL PROJECTS FUND)
ATTACHMENT A, EXHIBIT 2
11/5/2015
Enterprise Funds 2014
Category Amount Description
ENTERPRISE FUNDS
ELECTRIC FUND-Operating
CIP 6,844 Changes in CIP Projects (See Attachment A, Exhibit 4 for more
detail).
Use Changes 6,844
Net Changes To (From) Reserves (6,844)
AIRPORT ENTERPRISE FUND
5,000
Increases funding for contractual services due to higher than
anticipated expenditures during Fiscal Year 2015
Use Changes 5,000
Net Changes To (From) Reserves (5,000)
GAS FUND
-
CIP 256,542 Changes in CIP Projects (See Attachment A, Exhibit 4 for more
detail).
Use Changes 256,542
-
Net Changes To (From) Reserves 256,542
Attachment A, Exhibit 2
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2015 ADOPTED BUDGET
ATTACHMENT A, EXHIBIT 2
11/5/2015
Enterprise Funds 2014
Category Amount Description
Attachment A, Exhibit 2
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2015 ADOPTED BUDGET
42,912
Changes in CIP Projects (See Attachment A, Exhibit 4 for more
detail).
Use Changes 42,912
Net Changes To (From) Reserves (42,912)
WATER FUND 7
217,319 Changes in CIP Projects (See Attachment A, Exhibit 4 for more
detail).
Use Changes 217,319
Net Changes To (From) Reserves (217,319)
14,899
Changes in CIP Projects (See Attachment A, Exhibit 4 for more
detail).
Use Changes 14,899
Net Changes To (From) Reserves (14,899)
REFUSE FUND
41,106 Changes in CIP Projects (See Attachment A, Exhibit 4 for more
detail).
Use Changes 41,106
Net Changes To (From) Reserves (41,106)
WASTEWATER TREATMENT FUND
WASTEWATER COLLECTION FUND
ATTACHMENT A, EXHIBIT 3
11/5/2015
Other Funds 2014
Category Amount Description
Facilities and Equipment 6,000
Increases funding for Facilities and Equipment due to higher than anticipated
expenditures during Fiscal Year 2015.
Use Changes 6,000
(6,000)
Transfer from General
Fund
46,130 Increase the Transfer from the General Fund by $46,130 to adjust for the actual
amount of the Technology Surcharge Fee collected in the General Fund in Fiscal Year
2015 ($1,060,925).
Source Changes 46,130
46,130
4,442 Changes in CIP Projects (See Attachment A, Exhibit 4 for more detail).
Use Changes 4,442
(4,442) Net Changes To (From) Reserves
Attachment A, Exhibit 3
CITY OF PALO ALTO
YEAR END ADJUSTMENTS TO THE FISCAL YEAR 2015 ADOPTED BUDGET
SPECIAL REVENUE FUNDS
FED EQUITABLE SHARING
Net Changes To (From) Reserves
TECHNOLOGY FUND
Net Changes To (From) Reserves
VEHICLE REPLACEMENT FUND
Attachment A, Exhibit 4
1 of 3 11/5/2015
Project Funding
Title Number Revenue Expense Source Comments
ADDITIONAL APPROPRIATIONS
Thermoplastic Lane Marking PO-11001 $ 44,349 Infrastructure Reserve Increase to project due to higher than
anticipated expenditures
Furniture and Technology for Library Projects LB-11000 $ 5,711 Infrastructure Reserve Increase to project due to higher than
anticipated expenditures
Open Space Lakes and Ponds OS-00002 $ 2,664 Infrastructure Reserve Increase to project due to higher than
anticipated expenditures
Total $ - $ 52,724
TOTAL GENERAL FUND CIP YEAR-END
ADJUSTMENTS
$ - $ 52,724
ADDITIONAL APPROPRIATIONS
Substation Facility EL-89044 $ 6,844 Increase to project due to higher than
anticipated expenditures
West Charleston/Wilkie Way EL-09004 $ 701 Increase to project due to higher than
anticipated expenditures
Total $ - $ 6,844
TOTAL ELECTRIC FUND CIP MID-YEAR
ADJUSTMENTS
0 $ 6,844
Attachment A, Exhibit 4
FY 2015 CIP Year-end Adjustments
CAPITAL PROJECT FUND
ELECTRIC FUND
Attachment A, Exhibit 4
2 of 3 11/5/2015
Project Funding
Title Number Revenue Expense Source Comments
FY 2015 CIP Year-end Adjustments
ADDITIONAL APPROPRIATIONS
Gas System, Customer Connections GS-80017 $ 255,428 $ 255,428 Increase to project due to higher than
anticipated expenditures. This project is offset
by additional revenue from customers.
Gas Station Improvements GS-11002 $ - $ 1,114 Increase to project due to higher than
anticipated expenditures
Total $ 255,428 $ 256,542
TOTAL GAS FUND CIP YEAR-END
ADJUSTMENTS
$ 255,428 $ 256,542
ADDITIONAL APPROPRIATIONS
Landfill Closure RF-11001 $ 41,106 Increase to project due to higher than
anticipated expenditures
Total $ - $ 41,106
TOTAL FIBER OPTICS FUND CIP YEAR-END
ADJUSTMENTS
$ - $ 41,106
ADDITIONAL APPROPRIATIONS
Municipal Services Center Fuel Station
Demolition
VR-14002 $ 2,903 Increase to project due to higher than
anticipated expenditures
Municipal Services Center Fuel Storage/Service
Island Replacement
VR-01001 $ 1,539 Increase to project due to higher than
anticipated expenditures
Total $ - $ 4,442
TOTAL GAS FUND CIP YEAR-END
ADJUSTMENTS
$ - $ 4,442
ADDITIONAL APPROPRIATIONS
Wastewater Collection System
Rehabilitation/Augmentation Project 22
WC-09001 $ 42,912 Increase to project due to higher than
anticipated expenditures
Total -$ 42,912$
TOTAL WASTEWATER COLLECTION FUND CIP
YEAR-END ADJUSTMENTS
$ - $ 42,912
GAS FUND
REFUSE FUND
WASTEWATER COLLECTION FUND
VEHICLE FUND
Attachment A, Exhibit 4
3 of 3 11/5/2015
Project Funding
Title Number Revenue Expense Source Comments
FY 2015 CIP Year-end Adjustments
ADDITIONAL APPROPRIATIONS
Plant Master Plan WQ-10001 $ 14,899 Increase to project due to higher than
anticipated expenditures
Total -$ 14,899$
TOTAL WATER FUND CIP YEAR-END
ADJUSTMENTS
-$ 14,899$
ADDITIONAL APPROPRIATIONS
Water System, Customer Connections WS-80013 $ 217,319 Increase to project due to higher than
anticipated expenditures. These expenditures
are offset with additional revenues from
customers.
Total -$ 217,319$
TOTAL WATER FUND CIP YEAR-END
ADJUSTMENTS
-$ 217,319$
WASTEWATER TREATMENT FUND
WATER FUND
ATTACHMENT A, EXHIBIT 5 11/05/15
GENERAL FUND SUMMARY ($000s)
FY 2015 FY 2015 FY 2015 FY 2015 FY 2015 FY 2015 FY 2015
Adopted Adjusted CAFR Basis Allocated Encum Actual Actual to
Budget Budget Rev/Exp Charges Rev/Exp Adj BudgetVariance
Revenues
Sales Tax 25,957 29,238 29,675 29,675 437
Property Tax 31,927 32,556 34,117 34,117 1,561
Transient OccupancyTax 14,156 15,901 16,699 16,699 798
DocumentaryTransfer Tax 7,514 6,500 10,384 10,384 3,884
UtilityUsers Tax 11,285 10,895 10,861 10,861 (34)
Other Taxes and Fines 2,164 2,168 1,899 1,899 (269)
Charges for Services 23,013 24,863 25,409 25,409 546
Permits and Licenses 7,804 7,738 7,621 7,621 (117)
Return on Investment 685 685 1,177 1,177 492
Rental Income 14,254 14,207 14,911 14,911 704
From Other Agencies 453 472 3,712 3,712 3,240
Charges to Other Funds 10,647 10,647 - 10,416 10,416 (231)
Other Revenues 1,060 1,878 1,016 - 1,016 (862)
Contribution from BSR 1,732
Total Revenues 152,651 157,748 157,481 10,416 167,897 10,149
Add: Operating Transfers In 18,433 18,620 17,797 17,797 (823)
Prior Year Encum 5,579 4,760 4,760 (819)
Total Source of Funds 171,084 181,947 175,278 10,416 4,760 190,454 8,507
Expenditures
City Attorney 2,578 3,330 2,469 117 551 3,137 193
City Auditor 1,065 1,122 1,045 55 21 1,121 1
City Clerk 1,276 1,282 918 161 59 1,138 143
City Council 432 517 359 1 41 401 116
City Manager 3,000 3,544 2,742 120 209 3,071 472
Administrative Services 7,175 7,399 6,740 393 93 7,226 173
CommunityServices 22,764 24,274 18,717 4,383 801 23,901 374
Public Safety 62,054 63,456 56,550 5,381 550 62,481 975
People Strategy & Operations 3,264 3,818 3,087 176 414 3,677 141
Library 7,521 8,641 7,239 741 164 8,144 497
Planning & Community Environment 7,016 9,039 6,764 612 1,650 9,026 13
Development Services 10,535 10,895 9,043 850 117 10,010 885
Public Works 13,397 14,458 10,735 2,539 936 14,210 248
Non-Departmental 6,495 5,080 887 - 887 4,193
Cubberley Lease 6,777 6,777 6,426 - - 6,426 351
Total Expenditures 155,349 163,631 133,721 15,529 5,606 154,856 8,775
Add: Operating Trans Out 2,076 4,298 3,537 - 3,537 761
Transfer to Infrastructure 13,659 18,746 18,747 - 18,747 (1)
Total Use of Funds 171,084 186,674 156,005 15,529 5,606 177,140 9,535
Net Surplus/(Deficit)- (4,727)*19,273 (5,113) (846) 13,314 18,041
CAFR Reconciliation:Current year encumbrance 5,606
Prior Year encumbrances (4,760)
CAFR Net Income 14,160
* The FY 2015 Adjusted Budget does not account for expenditure savings realized and additional revenues received as shown in the FY 2015
Actual Revenue/Expenses column.
2014-2015
Comprehensive Annual
Financial Report
City of Palo Alto, California
FISCAL YEAR ENDED: June 30, 2015
City of Palo Alto, California
2014-2015
Comprehensive
Annual
Financial Report
Fiscal Year Ended
June 30, 2015
Prepared by:
Administrative Services Department
CITY OF PALO ALTO
For the Year Ended June 30, 2015
Table of Contents
Page
INTRODUCTORY SECTION:
Transmittal Letter .................................................................................................................................... i
City Officials ........................................................................................................................................... vii
Organizational Structure ...................................................................................................................... viii
Administrative Services Organization .................................................................................................... ix
GFOA Certificate of Achievement for Excellence in Financial Reporting ............................................... x
FINANCIAL SECTION:
Independent Auditor’s Report .............................................................................................................. 1
Management’s Discussion and Analysis
(Required Supplementary Information – Unaudited) ...................................................................... 5
Basic Financial Statements
Government‐wide Financial Statements:
Statement of Net Position ....................................................................................................... 29
Statement of Activities ............................................................................................................ 31
Governmental Fund Financial Statements:
Balance Sheet .......................................................................................................................... 33
Reconciliation of the Balance Sheet of Governmental Funds to
the Statement of Net Position ‐ Governmental Activities ................................................. 34
Statement of Revenues, Expenditures and Changes in Fund Balances .................................. 35
Reconciliation of the Statement of Revenues, Expenditures and Changes
in Fund Balances of Governmental Funds to the Statement of Activities –
Governmental Activities ................................................................................................... 36
Statement of Revenues, Expenditures and Changes in Fund Balance –
Budget and Actual – General Fund ................................................................................... 37
Proprietary Fund Financial Statements:
Statement of Net Position ....................................................................................................... 38
Statement of Revenues, Expenses and Changes in Fund Net Position ................................... 40
Statement of Cash Flows ......................................................................................................... 42
Fiduciary Fund Financial Statement:
Statement of Fiduciary Net Position ....................................................................................... 44
Index to the Notes to the Basic Financial Statements ................................................................. 45
Notes to the Basic Financial Statements ...................................................................................... 47
Required Supplementary Information:
Schedule of Changes in Net Pension Liability and related Ratios – Miscellaneous Plan ............. 103
Schedule of Contributions – Miscellaneous Plan ......................................................................... 104
CITY OF PALO ALTO
For the Year Ended June 30, 2015
Table of Contents (Continued)
Page
Required Supplementary Information:
Schedule of Changes in Net Pension Liability and related Ratios – Safety Plan .......................... 105
Schedule of Contributions – Safety Plan ...................................................................................... 106
Supplementary Information:
Non‐Major Governmental Funds:
Combining Balance Sheet ...................................................................................................... 107
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 109
Non‐Major Special Revenue Funds:
Combining Balance Sheet ...................................................................................................... 112
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 114
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 116
Non‐Major Debt Service Funds:
Combining Balance Sheet ...................................................................................................... 122
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 123
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 124
Non‐Major Permanent Fund:
Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 126
Internal Service Funds:
Combining Statement of Fund Net Position .......................................................................... 128
Combining Statement of Revenues, Expenses and
Changes in Fund Net Position ......................................................................................... 129
Combining Statement of Cash Flows ..................................................................................... 130
Fiduciary Funds:
Statement of Changes in Assets and Liabilities – All Agency Funds ...................................... 132
STATISTICAL SECTION:
Financial Trends:
Net Position by Component ......................................................................................................... 135
Changes in Net Position ............................................................................................................... 136
CITY OF PALO ALTO
For the Year Ended June 30, 2015
Table of Contents (Continued)
Page
STATISTICAL SECTION:
Financial Trends:
Fund Balances of Governmental Funds ....................................................................................... 138
Changes in Fund Balances of Governmental Funds ..................................................................... 140
Revenue Capacity:
Electric Operating Revenue by Source ......................................................................................... 141
Supplemental Disclosure for Water Utilities ............................................................................... 142
Assessed Value of Taxable Property ............................................................................................ 143
Property Tax Rates, All Overlapping Governments ..................................................................... 144
Property Tax Levies and Collections ............................................................................................ 145
Principal Property Taxpayers ....................................................................................................... 146
Assessed Valuation and Parcels by Land Use .............................................................................. 147
Per Parcel Assessed Valuation of Single Family Residential ........................................................ 148
Debt Capacity:
Ratio of Outstanding Debt by Type .............................................................................................. 149
Computation of Direct and Overlapping Debt ............................................................................. 150
Computation of Legal Bonded Debt Margin ................................................................................ 151
Revenue Bond Coverage .............................................................................................................. 152
Demographic and Economic Information:
Taxable Transactions by Type of Business ................................................................................... 153
Demographic and Economic Statistics ......................................................................................... 154
Principal Employers...................................................................................................................... 155
Operating Information:
Operating Indicators by Function/Program ................................................................................. 156
Capital Asset Statistics by Function/Program .............................................................................. 158
Full‐Time Equivalent City Government Employees by Function .................................................. 160
SINGLE AUDIT SECTION:
Index to the Single Audit Report .................................................................................................. 161
Independent Auditor’s Report on Internal Control Over Financial Reporting and
on Compliance and Other Matters Based on an Audit of Financial Statements
Performed in Accordance With Government Auditing Standards ........................................ 163
Independent Auditor’s Report on Compliance for Each Major Program and
Report on Internal Control Over Compliance Required by OMB Circular A‐133 .................. 165
Schedule of Expenditures of Federal Awards .............................................................................. 167
Notes to the Schedule of Expenditures of Federal Awards ......................................................... 168
Schedule of Findings and Questioned Costs ................................................................................ 169
Schedule of Prior Years Findings and Questioned Costs ............................................................. 170
Introduction
………………………………………………………………………….
City of Palo Alto i
Transmittal Letter…………………………………………………...…
November 3, 2015
THE HONORABLE CITY COUNCIL
Palo Alto, California
Attention: Finance Committee
COMPREHENSIVE ANNUAL FINANCIAL REPORT
YEAR ENDED JUNE 30, 2015
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, 2015 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 financial affairs. Management takes sole responsibility for the completeness and reliability of
the information contained in this report, based upon a comprehensive framework of internal control
that it has established for this purpose. The objective of internal controls is to provide reasonable,
rather than absolute, assurance that the financial statements are free of any material misstatements.
The City of Palo Alto’s financial statements have been audited by Macias Gini & O’Connell LLP,
Certified Public Accountants. The goal of the audit is to obtain reasonable assurance that the
financial statements are free of material misstatements and are fairly presented in conformity with
generally accepted accounting principles (GAAP). Macias Gini & O’Connell issued an unqualified
opinion for the fiscal year ended June 30, 2015. Their report is presented as the first component of
the financial section of this report.
In addition, Macias Gini & O’Connell conducted the federally mandated “Single Audit” designed to
meet the special needs of federal grantor agencies. The standards governing the Single Audit require
the independent auditor to report on the fair presentation of the financial statements, government’s
internal controls and compliance with legal requirements. These reports are included in the Single
Audit section of the CAFR.
City of Palo Alto
Office of the City Manager
Introduction
………………………………………………………………………….
ii City of Palo Alto
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 PROFILE
Palo Alto was incorporated in 1894 and named after a majestic coastal redwood
tree which lives along the San Francisquito Creek where early Spanish explorers
settled. Located between the cities of San Francisco and San Jose, Palo Alto is a
largely built‐out community of approximately 66,000 residents. Palo Alto
delivers a full range of municipal services and public utilities under the Council‐
Manager form of government, and offers an outstanding quality of life for its
residents. It covers an area of twenty‐six square miles, and has dedicated almost
one‐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: Council consists of nine members 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. Effective January 1, 2019, Council will be reduced from
nine to seven members.
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 subcommittees are
comprised of four 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, which are utilized in their review of the City’s financial position.
FISCAL/ECONOMIC CONDITIONS AND OUTLOOK
Employment Trends: The City of Palo Alto is located in the heart of Silicon Valley and is adjacent to
Stanford University, one of the premier institutions of higher education in the nation which has
produced much of the talent that founded many successful high‐tech companies in Palo Alto and
Silicon Valley. With varied and relatively stable employers such as Stanford University, Stanford
Medical Center, Palo Alto Medical Foundation, Palo Alto Unified School District, Stanford Shopping
Center and businesses such as Hewlett‐Packard, VMware, Tesla, Palantir and Space Systems Loral,
Palo Alto has enjoyed diverse employment and revenue bases. The City’s unemployment rate
continued to decline, albeit at a slower pace, and ended the year at 2.7 percent, 0.1 percent lower
than the prior year. This compares to Santa Clara County’s unemployment rate of 3.9 percent, and
the state’s unemployment rate of 6.2 percent.
Introduction
………………………………………………………………………….
City of Palo Alto iii
Real Estate Market: In its most recent annual report, the Santa Clara County Assessor’s Office noted
that Santa Clara County’s 2015/2016 assessment roll increased 8.7 percent, from $357 billion to $388
billion ‐ “a new milestone…the third straight year of Silicon Valley’s incredible economic recovery.”
The assessment roll growth was balanced throughout the County, with the highest growth rate in
Santa Clara at 14.5 percent and the lowest in Gilroy at 6.1 percent. Palo Alto’s assessment roll
growth rate was 8.1 percent, compared to 6.5 percent in the prior report. Property sales and new
construction were the primary factors contributing to the robust growth. With its highly regarded
school district, well‐educated and high‐income population, cultural amenities, and the presence of
Stanford University, the City’s real estate activity continues to experience a pattern of high demand
and short supply. The result of this continued pattern is reflected in the substantial increase in FY
2015 property tax revenue.
Local Trends: National, state, regional and local economic indicators point toward continuously
improving economic growth. Economically sensitive revenue sources such as transient occupancy tax
and documentary transfer tax continue to grow, while sales tax revenue has levelled off. The robust
local economy and job growth are also driving increases in other revenues, such as permit and
license fees.
Overall, funding sources are sufficient to cover projected FY 2016 expenses, as forecasted in the
City’s Adopted Budget. Council adopted a General Fund budget with expenses of $185.7 million for
FY 2016, an increase of $14.6 million, or 8.5 percent, from the prior year Adopted Budget. The
increase is driven by increased investment in infrastructure, pension and healthcare costs, and the
addition of staff positions in response to community initiatives and Council priorities.
Pension and healthcare costs continue to dominate the conversation about future costs. Employer
pension rates will increase substantially beginning in FY 2016 as a result of changes in the actuarial
assumptions for calculating pension rates, as adopted by the CalPERS Board of Administration. The
most recent CalPERS valuations show unfunded liabilities for pension and healthcare in the range of
$439 million. The City has proactively taken steps over the past several years to mitigate increased
costs by increasing employee contributions to the CalPERS retirement plan and capping the City’s
share of healthcare premiums. Implementation of a second tier retirement plan in 2011 and
adoption of the state‐mandated third tier pension benefit plan in 2013 will also help mitigate future
pension cost increases. Council and staff are currently studying various strategies for reducing the
long‐term unfunded pension and retiree healthcare liabilities.
Economic growth has increased the demand for housing, parking, and other City services. These
issues were reflected in the setting of Council priorities
for 2015:
The Built Environment: multi‐modal
transportation, parking, and livability
Infrastructure Strategy and Implementation
Healthy City, Healthy Community
Completion of the Comprehensive Plan update
In keeping with these priorities, Council has approved
implementation of several strategies that will address
traffic congestion in the City: parking management strategies (Residential Preferential Parking
Introduction
………………………………………………………………………….
iv City of Palo Alto
program, parking technology enhancements, garage wayfinding signage), transportation demand
management strategies (Transportation Management Association, enhanced shuttle services,
CalTrain GoPass program for employees), and short and long‐term parking supply strategies (valet
parking, construction of new garages). Major initiatives on the horizon include negotiations with
public safety unions and the Service Employees International Union (SEIU), continued planning for
reconfiguration of the Palo Alto Municipal Golf Course, and resolution of fire and rescue services to
be provided to Stanford University.
Council approved a $125.8 million Infrastructure Plan, which includes projects such as a new Public
Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan, and two parking
garages. These projects will be funded partially by debt to be repaid with an increase in the transient
occupancy tax (TOT) rate which went into effect in January 2015, TOT from newly opened hotels, and
from other sources such as impact fees and Stanford University Medical Center development
agreement monies. As a result of sound fiscal management and reserve policies, General Fund
surpluses from FY 2012 through FY 2014 totaling $20.5 million were transferred to the Infrastructure
Reserve, and $5.1 million of General Fund surplus has been transferred in FY 2015.
No rate changes were implemented in FY 2015 for any of the City’s Enterprise Funds, except for
Consumer Price Index increases of 2.6 percent for the Fiber Optics and Storm Drainage Funds. Rate
increases will take effect in FY 2016 for water, wastewater, storm drain, refuse and fiber optics
services. Electric rates are projected to increase in FY 2017.
The City implemented Government Accounting Standards Board (GASB) Statement No. 68,
Accounting and Financial Reporting for Pensions, effective in FY 2015. Net pension liabilities of
$289.9 million were allocated based on employer contributions for each fund, and unrestricted net
positions were reduced accordingly.
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. Delivered to Council
in January, this forecast sets the tone and themes for the annual budget process. The forecast is one
of the many tools and reports that Council uses for financial planning.
Council is conscientious and proactive in its financial planning. While the LRFF projects General Fund
surplus positions over the next ten years, Council remains fiscally prudent in approving new ongoing
costs that will increase the City’s budget. Further, the City maintains a General Fund Budget
Stabilization Reserve (BSR) level of 15 to 20 percent of the General Fund operating budget, with a
targeted goal of 18.5 percent. Council approval is required to set this reserve balance lower than 15
percent. For FY 2015, after transferring $5.1 million to the Infrastructure Reserve, the remaining BSR
balance is $48.2 million. $2.1 million is set aside for carry‐forward to FY 2016 for one‐time
expenditures, and an additional $2.1 million will be used for FY 2016 Budget Amendment Ordinances
approved to date. The remaining BSR balance of $44.0 million represents 23.7 percent of FY 2016
expenditures, which is $9.7 million more than the 18.5 percent target balance for the BSR. Staff will
bring forward recommendations for the remaining FY 2015 surplus as part of the year‐end close
process.
Introduction
………………………………………………………………………….
City of Palo Alto v
Both Moody’s and Standard and Poor’s (S&P) awarded their highest credit rating of Triple A to the
City’s general obligation debt. This rating has been awarded to only a few cities in California.
SIGNIFICANT EVENTS AND ACCOMPLISHMENTS
The City of Palo Alto is a community dedicated to meeting the social, cultural, recreational,
educational, commercial and retail needs of its citizens and businesses. As such, open space,
education, recreational facilities, cultural events and safe streets and neighborhoods are important
aspects of the community and the City has been recognized for its accomplishments with a variety of
awards and recognitions over the past year:
Launched the State’s first curbside Electric Vehicle Quick Charger, which allows vehicles to
charge more quickly than other chargers;
Named as a finalist in the Center for Digital Government’s 2014 Best of the Web and Digital
Government Achievement Awards in the City Portal category for outstanding portals and
websites based on innovation, functionality, productivity and performance, making
government more open, responsive and mobile‐friendly;
Highlighted in the California Statewide Local Streets & Roads Needs Assessment 2014 report
for proactively managing and investing in its streets maintenance program with an overall
Pavement Condition Index score of 78 (good), compared to a statewide average of 66 (at
risk);
Named by the Center for Digital Government as a leading digital city in the less than 75,000
population category for the second year in a row for its adoption of cloud‐first and mobile‐
first approaches to deploying new technology, as well as other innovative advances;
Awarded Palo Alto Art Center the 2015 Superintendent’s Award for Excellence in Museum
Education for its Cultural Kaleidoscope program which fosters connections between students
from cross‐cultural backgrounds;
Awarded Development Services Department the Insurance Services Office (ISO) Class 1 rating
which indicates the highest standards for structural safety and reduces the cost of insurance
for the community, with only 3 cities in the State awarded the rating; and
Awarded the Acterra Award for Sustainability for a large organization in recognition of the
City adopting a Climate Action Plan and implementing energy efficiency and conservation
programs that achieve significant benefits and advance the state of sustainability.
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 2015
CAFR will be submitted to the GFOA award program to be considered for this distinguished financial
reporting award.
Acknowledgments: This CAFR reflects the hard work, talent and commitment of the staff members
of the Administrative Services Department. This document could not have been accomplished
without their efforts and each contributor deserves sincere appreciation. Management wishes to
acknowledge the support of Laura Kuryk, Accounting Manager, and the 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.
Introduction
………………………………………………………………………….
vi City of Palo Alto
Special acknowledgment must be given to City Council, Finance Committee and Policy and Services
Committee for their dedication to directing the financial affairs of the City in a responsible,
professional and progressive manner.
Respectfully submitted,
LALO PEREZ, JAMES KEENE,
Chief Financial Officer City Manager
Introduction
………………………………………………………………………….
City of Palo Alto vii
City of Palo Alto City Officials ………………………….…………
Finance Committee
Greg Schmid, Chair
Eric Filseth
Liz Kniss
Greg Scharff
Policy and Services Committee
Pat Burt, Chair
Marc Berman
Tom DuBois
Cory Wolbach
Council‐Appointed Officers
City Manager
James Keene
City Attorney
Molly Stump
City Clerk
Beth Minor
City Auditor
Harriet Richardson
City Council
Karen Holman, Mayor
Greg Schmid, Vice‐Mayor
Marc Berman
Patrick Burt
Tom DuBois
Eric Filseth
Liz Kniss
Gregory Scharff
Cory Wolbach
Introduction
………………………………………………………………………….
viii City of Palo Alto
Assistant City Managers
Suzanne Mason
Edward K. Shikada
City Attorney
Molly Stump
City Manager
James Keene
City Auditor
Harriet Richardson
City Clerk
Beth Minor
City of Palo Alto Organization ……………………………………
Palo Alto Residents
City Council
Community Services
Rob DeGeus, Director
Administrative Services
Lalo Perez, Chief Financial Officer
Fire
Eric Nickel, Chief
People Strategy and Operations
Kathryn Shen, Chief People Officer
Police
Dennis Burns, Chief Planning & Community Environment
Hillary Gitelman, Director
Utilities
Valerie Fong, Director
Public Works
Mike Sartor, Director
Library
Monique le Conge‐Ziesenhenne,
Director
Development Services
Peter Pirnejad, Director
Chief Communications Officer
Claudia Keith
Office of Emergency Services
Kenneth Dueker, Director
Office of Sustainability
Gil Friend, Chief Sustainability Officer
Information Technology
Jonathan Reichental,
Chief Information Officer
Introduction
………………………………………………………………………….
City of Palo Alto ix
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
………………………………………………………………………….
x City of Palo Alto
Government Finance Officers Association of
the United States and Canada – Award ……
www.mgocpa.com
Certified Public Accountants
Sacramento
Walnut Creek
Oakland
Los Angeles
Century City
Newport Beach
San Diego
Macias Gini & O’Connell LLP2121 N. California Blvd., Suite 750Walnut 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, 2015, 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, 2015, and the respective changes in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison
for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
Change in Accounting Principles
As discussed in Note 1(n) to the basic financial statements, effective July 1, 2014, the City adopted the
provisions of Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and
Financial Reporting for Pensions – an amendment to GASB No. 27, and GASB Statement No. 71,
Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of
GASB Statement No. 68. Our opinion is not modified with respect to these matters.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s
discussion and analysis and the schedule of changes in the net pension liability and related ratios and the
schedule of 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
GASB who considers it to be an essential part of financial reporting for placing the basic financial
statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally
accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s
responses to our inquiries, the basic financial statements, and other knowledge we obtained during our
audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an
opinion or provide any assurance.
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
comprise the City’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and schedules, statistical section and the schedule of expenditures of
federal awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local
Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a required part of the basic financial statements.
The combining and individual nonmajor fund financial statements and schedules and the schedule of
expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements.
Such information has been subjected to the auditing procedures applied in the audit of the basic financial
statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to
the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and
3
individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole.
The introductory and statistical sections have not been subjected to the auditing procedures applied in the
audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated November 3, 2015 on our consideration of the City’s internal control over financial reporting and on our
tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over
financial reporting and compliance and the results of that testing, and not to provide an opinion on
internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control
over financial reporting and compliance.
Walnut Creek, California
November 3, 2015
4
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Management’s Discussion and Analysis
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City of Palo Alto 5
Management’s Discussion and Analysis
Management’s Discussion and Analysis (MD&A) provides an overview of the City of Palo Alto’s financial
performance for the fiscal year ended June 30, 2015. 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) 2015 by $1,131.7 million. Of this
amount, $174.8 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 2015, the City’s governmental funds reported combined fund balances of $224.6
million, an increase of $10.6 million from prior year. Approximately 21.5 percent of this amount, or
$48.2 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 $56.2 million, or 34.9
percent of total general fund expenditures, including transfers.
The City’s total outstanding long‐term debt decreased by $6.1 million during the current fiscal year
due to scheduled debt retirement.
The City implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions
effective July 1, 2014, and beginning FY 2015 balances were restated to reflect the impact. The
City’s net pension liability of $289.9 million was allocated to Governmental Activities ($208.8 million,
or 72.0 percent) and Business‐Type Activities ($81.1 million, or 28.0 percent) and reduced their
unrestricted net positions by a like amount.
OVERVIEW OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR)
The CAFR is presented in six sections:
An introductory section that includes the Transmittal Letter and general information
Management’s Discussion and Analysis
The Basic Financial Statements that include the Government‐wide and Fund Financial
Statements, along with the Notes to these statements
Supplemental Information
Statistical Information
Single Audit
Management’s Discussion and Analysis
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City of Palo Alto 6
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, People Strategy and Operations, Public Works, Planning and Community
Environment, Development Services, Public Safety, Community Services, and Library. These services are
supported by general City revenues such as taxes, and by specific program revenues such as fees and grants.
The City’s governmental activities also include the activities of the Palo Alto Public Improvement
Corporation, which is a separate legal entity financially accountable to the City.
Business‐type Activities ‐ All of the City’s enterprise activities are reported as business‐type activities,
including Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse, Storm
Drainage and Airport. Unlike governmental services, these services are intended to recover all or a
significant portion of their costs through user fees and charges, except for the Airport which is currently
supported by a long‐term advance from the General Fund, as discussed in Note 4.
The Government‐wide Financial Statements can be found on pages 29‐31 of this report.
Management’s Discussion and Analysis
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City of Palo Alto 7
Fund Financial Statements
The Fund Financial Statements provide detailed information about each of the City’s most significant funds,
called major funds. The concept of major funds, and the determination of which are major funds, was
established by Governmental Accounting Standards Board (GASB) Statement No. 34 and replaced the
concept of combining like funds and presenting them in total. Therefore, each major fund is presented
individually, with all non‐major funds combined in a single column on each fund statement. Subordinate
schedules display these non‐major funds in more detail. Major funds present the major activities of the City
for the year. The General Fund is always considered a major fund, but other funds may change from year to
year as a result of changes in the pattern of City activities.
The Fund Financial Statements display the City’s operations in more detail than the Government‐wide
Financial Statements. Their focus is primarily on the short‐term activities of the City’s General Fund and
other major funds such as Capital Projects, Water Services, Electric Services, Fiber Optics, Gas Services,
Wastewater Collection Services, Wastewater Treatment Services, Refuse Services, Storm Drainage Services
and Airport.
Budget and actual financial comparison information is presented only for the General Fund.
Fund Financial Statements include Governmental, Enterprise, Internal Service and Agency Funds.
Governmental Funds
Governmental Fund Financial Statements are prepared on the modified accrual basis of accounting, which
means they measure only current financial resources and uses. Capital assets and other long‐lived assets,
along with long‐term liabilities, are presented only in the Government‐wide Financial Statements. In FY
2015, 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
Management’s Discussion and Analysis
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City of Palo Alto 8
Statements, and any related profits or losses in Internal Service Funds are returned to the activities in which
they were created, along with any residual net assets of the Internal Service Funds.
The Proprietary Fund Financial Statements can be found on pages 38‐43 of this report.
Fiduciary Funds
The City is the fiduciary agent for certain assessment districts such as the University Avenue Area Off‐Street
Parking Assessment District. In this role, the City holds money collected from property owners and awaiting
transfer to the districts’ bond trustees. The City’s fiduciary activities are reported in the separate Statement
of Fiduciary Net Position and the supplemental Agency Funds Statement of Changes in Assets and Liabilities.
These activities are excluded from the City’s other financial statements because the City cannot utilize these
assets to finance its own operations.
The Fiduciary Fund Financial Statements can be found on page 44 of this report.
Notes to the Financial Statements
The Notes provide additional information that is necessary to acquire a full understanding of the data
provided in the Government‐wide and Fund Financial Statements. The Notes to the financial statements can
be found on pages 47‐102 of this report.
Other Information
The Required Supplementary Information related to the City’s pension plans are included after the Notes to
the Financial Statements on pages 103‐106. 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 107‐132 of this report.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 9
Financial Analysis of Government‐wide Financial Statements
This section focuses on the City’s net position and changes in net position of its governmental and business‐
type activities for the fiscal year ending June 30, 2015. As noted earlier, the City’s total assets and deferred
outflows of resources exceed total liabilities and deferred inflows of resources by $1,131.7 million at the end
of the fiscal year, an improvement in net position of $255.4 million.
STATEMENT OF NET POSITION
As of June 30, 2015
(in millions)
2015 2014 2015 2014 2015 2014
Cash and investments 280.9$ 271.8$ 253.7$ 269.5$ 534.6$ 541.3$
Other assets 57.2 55.8 39.2 34.3 96.4 90.1
Capital assets 485.2 452.6 558.5 545.5 1,043.7 998.1
Total Assets 823.3 780.2 851.4 849.3 1,674.7 1,629.5
Unamortized loss from refunding ‐ ‐ 0.4 0.4 0.4 0.4
Deferred pension contribution 19.2 ‐ 8.1 ‐ 27.3 ‐
Total Deferred Outflows of Resources 19.2 ‐ 8.5 0.4 27.7 0.4
Net pension liabilities 208.8 ‐ 81.1 ‐ 289.9 ‐
Long‐term debt 78.8 80.9 72.2 76.2 151.0 157.1
Other liabilities 54.3 56.9 24.7 28.8 79.0 85.7
Total Liabilities 341.9 137.8 178.0 105.0 519.9 242.8
Difference between expected and
actual earnings on investments 36.7 ‐ 14.1 ‐ 50.8 ‐
Total Deferred Inflows of Resources 36.7 ‐ 14.1 ‐ 50.8 ‐
Net Position
Net investment in capital assets 405.9 386.7 490.9 473.8 896.8 860.5
Restricted 56.0 68.3 4.1 4.1 60.1 72.4
Unrestricted 2.0 187.4 172.8 266.8 174.8 454.2
Total Net Position 463.9$ 642.4$ 667.8$ 744.7$ 1,131.7$ 1,387.1$
Governmental
Activities
Business‐type
Activities
Government‐wide
Totals
The largest portion of the City’s net position (79.2 percent) is its investment in capital assets such as land,
buildings, infrastructure and vehicles, less any related outstanding debt that was used to acquire those
assets. The City uses these capital assets to provide a variety of services to its citizens. Accordingly, these
assets are not available for future spending. Although the City’s investment in capital assets is reported net
of related debt, it should be noted that the resources used to repay this debt must be provided from other
sources, since the capital assets themselves cannot be used to liquidate these liabilities.
Management’s Discussion and Analysis
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City of Palo Alto 10
The restricted portion of the City’s net position (5.3 percent) represents resources that are subject to
external restrictions on how they may be used. The remaining balance of $174.8 million, representing 15.4
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.
The City implemented GASB 68 effective July 1, 2014. The beginning balance of the FY 2015 net position
was restated to reflect the impact of the implementation.
There are 3 major components of GASB 68 that affect the Statements of Net Position for the Government‐
wide and each of the Proprietary Funds:
Deferred pension contribution is the total amount of FY 2015 contributions. The contributions are
deferred to FY 2016 because the net pension liability balance is one year in arrears.
Net pension liabilities represent the actuarially valued liabilities for the Safety and Miscellaneous
Pension Plans as of June 30, 2014.
Difference between expected and actual earnings on investments is the portion of investment gains
that is deferred. The new accounting standard requires that differences between projected and
actual investment returns be amortized on a straight‐line basis over five years.
The City’s unfunded pension liability was disclosed in Note 11 in prior years, along with the actuarial
assumptions used in calculating the liability. Compliance with GASB 68 requires that the City’s net pension
liability be recorded on the Statement of Net Position, which reduces unrestricted net position and, in some
cases, creates a negative unrestricted net position or deficit.
At the end of the current fiscal year, even after the impact of GASB 68, the City is able to report positive
unrestricted net positions both for the government as a whole and for its separate governmental and
business‐type activities, except for the following three funds:
Wastewater Treatment Fund $2.8 million deficit as a result of $17.5 million of pension related items;
Airport Fund $1.7 million deficit, $0.4 million of which is a result of pension related items; and
Printing and Mailing Services Fund $0.3 million deficit due to pension related items.
Components of the $255.4 million increase in total net position are discussed in the following sections for
governmental activities and business‐type activities.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 11
Governmental Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Governmental
Activities, presented in the Government‐wide Statement of Net Position and Statement of Activities.
GOVERNMENTAL ACTIVITIES
Net Position at June 30
(in millions)
Increase/
2015 2014 (Decrease)
Cash and investments 280.9$ 271.8$ 9.1$
Other assets 57.2 55.8 1.4
Capital assets 485.2 452.6 32.6
Total Assets 823.3 780.2 43.1
Deferred pension contribution 19.2 ‐ 19.2
Total Deferred Outflows of Resources 19.2 ‐ 19.2
Net pension liabilities 208.8 ‐ 208.8
Long‐term debt 78.8 80.9 (2.1)
Other liabilities 54.3 56.9 (2.6)
Total Liabilities 341.9 137.8 204.1
Difference between expected and
actual earnings on investments 36.7 ‐ 36.7
Total Deferred Inflows of Resources 36.7 ‐ 36.7
Net Position
Net investment in capital assets 405.9 386.7 19.2
Restricted 56.0 68.3 (12.3)
Unrestricted 2.0 187.4 (185.4)
Total Net Position 463.9$ 642.4$ (178.5)$
The City’s Governmental Activities total net position decreased $178.5 million to $463.9 million as of June
30, 2015. This decrease was a result of the following:
Capital assets net of depreciation increased $32.6 million due to major capital projects such as
California Avenue‐Transit Hub Corridor ($6.6 million), City Hall renovations ($3.5 million), and the
Magical Bridge playground ($3.6 million).
Net investment in capital assets increased $19.2 million to $405.9 million. Restricted net position
decreased $12.3 million to $56.0 million due to drawdowns of Library restricted cash for
expenditures, and the reclassification of notes and loans receivable from restricted to unrestricted.
Unrestricted net position decreased by $185.4 million to $2.0 million as a result of recording net
pension liabilities and other items related to the GASB 68 implementation. Unrestricted net
position represents current net assets available to finance subsequent year operations and other
expenditures approved by City Council.
Management’s Discussion and Analysis
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City of Palo Alto 12
Governmental Activities – Revenues
The table below shows that Governmental Activities revenues totaled $185.8 million in FY 2015, an increase
of $19.4 million from prior year revenues of $166.4 million.
GOVERNMENTAL ACTIVITIES
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2015 2014 (Decrease)
Program Revenues:
Charges for services 63.5$ 54.0$ 9.5$
Operating grants and contributions 5.3 5.4 (0.1)
Capital grants and contributions 0.6 0.9 (0.3)
Total Program Revenues 69.4 60.3 9.1
General Revenues:
Property tax 38.8 35.3 3.5
Sales tax 29.7 29.4 0.3
Utility user tax 10.9 11.0 (0.1)
Transient occupancy tax 16.7 12.3 4.4
Documentary transfer tax 10.4 7.8 2.6
Other tax 1.5 1.8 (0.3)
Investment earnings 5.0 5.9 (0.9)
Rents and miscellaneous 3.4 2.6 0.8
Total General Revenues 116.4 106.1 10.3
Total Revenues 185.8$ 166.4$ 19.4$
Total Program Revenues increased $9.1 million from the prior year due to increased developer impact,
housing in‐lieu, and transportation mitigation fees, all of which vary depending on volume and magnitude of
development projects, and receipt of a $3.9 million litigation settlement.
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 $10.3 million, or 9.7 percent, from the prior year due to increased General Fund
tax revenues. Further analysis of general revenues can be found in the Financial Analysis of Governmental
Funds section of the MD&A.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 13
Governmental Activities – Revenues by Source
The chart below presents revenues by source for Governmental Activities. General Revenues are composed
of taxes and other revenues not specifically generated by, or restricted to, individual activities. All tax
revenues and investment earnings are included in General Revenues.
Program Revenues
37%
Property Tax
21%
Sales Tax
16%
Utility User Tax
6%
Transient Occupancy
Tax
9%
Documentary
Transfer Tax
6%
Other
5%
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 14
Governmental Activities – Expenses
The table below presents a comparison of FY 2015 and FY 2014 expenses by function, and interest and other
expense. Total Governmental Activities functional expense was $151.3 million in FY 2015, a decrease of $4.2
million.
GOVERNMENTAL ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Activities 2015 2014 (Decrease)
City Council 0.3$ 0.4$ (0.1)$
City Manager 2.2 2.2 0.0
City Attorney 1.8 1.8 0.0
City Clerk 0.6 0.6 0.0
City Auditor 0.4 0.5 (0.1)
Administrative Services 10.0 11.3 (1.3)
People Strategy and Operations 1.4 1.3 0.1
Public Works 21.1 24.6 (3.5)
Planning and Community Environment 8.4 14.9 (6.5)
Development Services 10.4 ‐ 10.4
Public Safety 58.7 62.9 (4.2)
Community Services 24.7 23.8 0.9
Library 7.7 7.8 (0.1)
Interest and Other Expense 3.6 3.4 0.2
Total Functional Expense 151.3 155.5 (4.2)
Increase in Net Position
before Transfers 34.4 10.8 23.6
Transfers in 16.4 17.1 (0.7)
Change in Net Position 50.8 27.9 22.9
Net Position, Beginning,642.4 614.5 27.9
Restatement due to GASB 68 (229.3) ‐ (229.3)
Net Position, Ending 463.9$ 642.4$ (178.5)$
Administrative Services non‐departmental expense is less due to reduced lease payments for the Cubberley
facility.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 15
Development Services was separated from Planning and Community Environment at the beginning of the
fiscal year. Salary and non‐salary expenses were identified and transferred out of the Planning, Public Safety
and Public Works departments.
Public Safety expenses at the government‐wide level have decreased $4.2 million due to a $1.9 million
reduction of expense due to GASB 68 pension expense less than actual contributions, and $1.7 million due
to allocation of the Internal Service Funds net position. The remaining $0.6 million decrease is due to
consolidation of all related expenses into the newly created Development Services department.
Remaining variances are due to fixed asset activities such as depreciation and asset retirements.
Governmental Activities – Functional Expenses
The functional expenses chart below includes only current year expenses. It does not include capital outlays,
as those are added to the City’s capital assets. Functions which comprise 1 percent or less of total expenses
are combined into the All Other category in the chart below. All Other includes City Council, City Manager,
City Attorney, City Clerk, City Auditor and People Strategy and Operations.
Administrative
Services
7%
Public Works
14%
Interest and Other
2%
Planning and
Community
Environment
6%
Development Svcs
7%
Public Safety
39%
Community Services
16%
Library
5%
All Other
4%
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 16
Business‐type Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Business‐type
Activities presented in the Government‐wide Statement of Net Position and Statement of Activities.
Increase/
2015 2014 (Decrease)
Cash and investments 253.7$ 269.5$ (15.8)$
Other assets 39.2 34.3 4.9
Capital assets 558.5 545.5 13.0
Total Assets 851.4 849.3 2.1
Unamortized loss from refunding 0.4 0.4 ‐
Deferred pension contribution 8.1 ‐ 8.1
Total Deferred Outflows of Resources 8.5 0.4 8.1
Net pension liabilities 81.1 ‐ 81.1
Long‐term debt 72.2 76.2 (4.0)
Other liabilities 24.7 28.8 (4.1)
Total Liabilities 178.0 105.0 73.0
Difference between expected and actual
earnings on investments 14.1 ‐ 14.1
Total Deferred Outflows of Resources 14.1 ‐ 14.1
Net Position
Net investment in capital assets 490.9 473.8 17.1
Restricted 4.1 4.1 ‐
Unrestricted 172.8 266.8 (94.0)
Total Net Position 667.8$ 744.7$ (76.9)$
BUSINESS‐TYPE ACTIVITIES
Net Position at June 30
(in millions)
The City’s Business‐type Activities total net position decreased $76.9 million to $667.8 million as of
June 30, 2015.
Cash and investments decreased $15.8 million primarily due to Electric Fund decrease in change in net
position of $11.2 million.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 17
Other assets increased $4.9 million due to higher accounts receivable balances in the Electric, Fiber Optics,
Wastewater Collection and Treatment Funds.
Capital assets increased $13.0 million to $558.5 million in FY 2015 as a result of Electric and Gas
infrastructure improvements. Additions include $7.2 million of capital improvements in Electric and $7.5
million of capital improvements in Gas. This also contributed to the increase of $17.1 million in the net
investment in capital assets to $490.9 million.
Unrestricted net position of $172.8 million, a decrease of $94.0 million from the prior year, represents liquid
assets available to finance day‐to‐day operations and other expenditures approved by Council. The amount
includes rate stabilization reserves (RSR) of $63.5 million and operations reserves of $47.3 million, along
with the Electric special projects (Calaveras) reserve of $51.8 million, and the hydro stabilization reserve of
$17.0 million. The positive balances in these reserves are offset by the GASB 68 adjustment for pension
liabilities of $87.1 million. Additional detail is included in Note 10.
Business‐type Activities – Revenues
The table below presents the revenues for each of the City’s Business‐type Activities or Enterprise Funds.
The City operates the Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment,
Refuse, Storm Drainage and Airport Funds, which are major funds and are presented in the Basic Financial
Statements.
BUSINESS‐TYPE ACTIVITIES
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2015 2014 (Decrease)
Program Revenues:
Charges for services 270.9$ 273.0$ (2.1)$
Operating grants and contributions 0.5 0.5 ‐
Capital grants and contributions 2.1 2.0 0.1
Total Program Revenues 273.5 275.5 (2.0)
General Revenues:
Investment earnings (loss)4.9 6.4 (1.5)
Total General Revenues 4.9 6.4 (1.5)
Total Revenues 278.4$ 281.9$ (3.5)$
Business‐type Activities revenues totaled $278.4 million, a decrease of $3.5 million from the prior year.
Program revenues decreased $2.0 million year over year – Water and Gas revenues declined $4.3 million
and $5.0 million respectively due to drought conservation measures and continued lower gas consumption,
offset by a $5.7 million increase in Wastewater Treatment (WWT) revenue. WWT revenue increased as a
result of increased billings for capital costs ($2.0 million) in the current year and $3.7 million due to reduced
billings for encumbrances in the prior year.
Management’s Discussion and Analysis
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City of Palo Alto 18
Investment earnings decreased due to lower cash balances and a slightly lower rate of return on
investments
Business‐type Activities – Expenses
The table below presents a comparison of the FY 2015 and FY 2014 expenses for the City’s Business‐type
Activities. Encumbrances and reappropriations are not included.
BUSINESS‐TYPE ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Business‐type Activities 2015 2014 (Decrease)
Water 33.2$ 31.6$ 1.6$
Electric 122.4 113.0 9.4
Fiber Optics 1.9 1.7 0.2
Gas 23.5 26.9 (3.4)
Wastewater Collection 14.6 13.2 1.4
Wastewater Treatment 21.6 21.0 0.6
Refuse 28.0 28.4 (0.4)
Storm Drainage 3.7 3.6 0.1
Airport 1.0 0.5 0.5
Total Functional Expense 249.9 239.9 10.0
Increase in Net Position
before Transfers 28.4 42.0 (13.6)
Transfers out (16.4) (17.1) 0.7
Change in Net Position 12.0 24.9 (12.9)
Net Position, Beginning 744.7 719.8 24.9
Restatement due to GASB 68 (88.9) ‐ (88.9)
Net Position, Ending 667.8$ 744.7$ (76.9)$
Business‐type Activities expenses increased $10.0 million for a total of $249.9 million. Year over year
expenses were significantly affected by the following events:
Electric Fund expenses increased $9.4 million primarily due to increased energy purchase costs. The
availability of hydroelectric energy resources is lower than average due to the ongoing drought,
which necessitates higher than average electricity purchases at market rates.
Gas Fund expenses decreased $3.4 million due to lower consumption which resulted in a lower
volume of commodity purchases.
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, 2015, the City’s Governmental Funds reported combined fund balances of $224.6 million, an
increase of $10.6 million from the prior year. Approximately 21.5 percent, or $48.2 million, constitutes
unassigned fund balance, which is available for spending at the government’s discretion. The remainder of
the fund balance is either non‐spendable, restricted, committed, or assigned to indicate that it is: 1) not in
spendable form ($7.8 million); 2) restricted for particular purposes ($59.6 million); 3) committed for
particular purposes ($48.4 million); or 4) assigned for particular purposes ($60.6 million).
Governmental Fund revenues increased $19.8 million, or 12.0 percent, from prior year to $184.5 million.
Revenues in the General Fund increased $15.8 million and Capital Projects Fund revenue decreased $1.4
million. Other Governmental Funds revenue increased by $5.4 million due to increased developer impact
fees and a $3.9 million litigation settlement.
Governmental Fund expenditures were $189.1 million, an increase of $10.1 million from the prior year.
General Fund expenditures increased $4.3 million, Capital Projects Fund expenditures increased by $4.9
million, and Non‐major Fund expenditures increased by $0.9 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 $62.5 million, compared to $48.3 million in the prior year. The fund
balance has been classified as $6.3 million non‐spendable, $8.0 million assigned, and $48.2 million
unassigned. The unassigned amount of $48.2 million is designated by the Council for budget stabilization.
$2.1 million will be used to fund one‐time expenses in the FY 2016 Operating Budget and an additional $2.1
million will be used for FY 2016 budget Amendment Ordinances approved to date. A further $3.3 million of
transient occupancy tax (TOT) from newly opened hotels and the 2 percent TOT increase is earmarked for
transfer to the Infrastructure Reserve. The remaining balance of $40.7 million represents 21.9 percent of FY
2016 expenditures and operating transfers, which is $6.3 million above the target reserve guideline of 18.5
percent set by Council. Staff will bring forward further recommendations as part of the year‐end close
process. Surplus funds of $5.1 million were transferred to the Infrastructure Reserve in the Capital Projects
Fund in FY 2015, as allowed by the General Fund Reserve Policy, for a total of $25.6 million over the last four
fiscal years.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 20
Statement of Revenues, Expenditures and Changes in Fund Balance
Revenues
The City’s General Fund revenues totaled $157.5 million in FY 2015. This represents an increase of $15.8
million, or 11.1 percent, compared to the prior year. The year over year change in significant revenue
sources is noted in the following table.
GENERAL FUND
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2015 2014 (Decrease)
Property tax 34.1$ 30.6$ 3.5$
Sales tax 29.7 29.4 0.3
Utility user tax 10.9 11.0 (0.1)
Transient occupancy tax 16.7 12.2 4.5
Documentary transfer tax 10.4 7.8 2.6
Charges for services 25.9 24.0 1.9
Permits and licence 7.1 7.0 0.1
Rental income 14.9 14.2 0.7
All other 7.8 5.5 2.3
Total Revenues 157.5$ 141.7$ 15.8$
Property tax revenue increased by $3.5 million, or 11.4 percent, due to increased property assessment roll
growth and a $0.9 million Educational Revenue Augmentation Fund (ERAF) distribution from the County of
Santa Clara.
Sales tax revenue increased $0.3 million from prior year. FY 2015 revenue includes a $2.6 million planned
one‐time accounting adjustment to align the sales tax accrual period with the fiscal year. Excluding this one‐
time adjustment, revenue declined $2.3 million from prior year due to a large one‐time receipt from a single
vendor in the prior year.
Transient occupancy tax (TOT) ended the year $4.5 million, or 36.9 percent, higher than prior year due to
newly opened hotels, continued strong business activity and increasing occupancy and room rates. A
significant portion of the increase ($1.4 million) is due to a Council approved two percent increase in the
TOT rate from 12 percent to 14 percent which took effect January 1, 2015.
Documentary transfer tax increased $2.6 million to $10.4 million, primarily due to one unusually high dollar
commercial property transaction. Revenue of $10.4 million is the highest on record for the City.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 21
All other revenue increased from prior year by $2.3 million primarily due to a $0.1 million receipt from the
state for reimbursement of costs incurred in complying with past state unfunded mandates.
Expenditures
General Fund expenditures totaled $138.8 million for FY 2015 compared to $134.5 in the prior year. This
amount excludes encumbrances and reappropriations. The year over year change for major functions is
noted in the following table:
GENERAL FUND
Expenditures for the Year Ended June 30
(in millions)
Increase/
Expenditures by Function 2015 2014 (Decrease)
Administrative Services 3.7$ 3.0$ 0.7$
Public Works 11.4 11.5 (0.1)
Planning and Community Environment 7.4 13.2 (5.8)
Development Services 11.1 ‐ 11.1
Public Safety 61.2 61.7 (0.5)
Community Services 23.0 22.5 0.5
Library 8.0 7.3 0.7
Non‐Departmental 5.6 8.0 (2.4)
All other 7.4 7.3 0.1
Total Expenditures 138.8$ 134.5$ 4.3$
Administrative Services expenses increased due to a reduction in the amount of cost plan recoveries from
other City departments.
Effective July 2014, as approved in the FY 2015 Adopted Budget, Development Services was separated from
Planning and Community Environment. Salary and non‐salary expenses were identified and transferred
primarily out of the Planning department. Lesser amounts were taken out of Public Safety and Public Works
departments and the Technology Fund.
Non‐Departmental expenditures decreased $2.4 million primarily due to $0.9 million less paid to Palo Alto
Unified School District (PAUSD) for lease of the Cubberley facility and $0.2 million less in election expenses.
As explained further in Note 16, under the terms of the lease with PAUSD, $1.8 million per calendar year is
being paid into a Cubberley infrastructure fund rather than to PAUSD.
Transfers out for FY 2015 increased $3.5 million due to $1.5 million more to the Infrastructure Reserve, $0.9
million to the Cubberley infrastructure fund, and $0.9 million to the Technology Fund.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 22
Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual
Original budget compared to final budget
Revenues were originally budgeted at $140.3 million and were revised upward by $6.8 million. Revenue
categories that were adjusted are shown in the table below.
GENERAL FUND
Budgeted Revenues for the Year Ended June 30
(in millions)
Original Final Increase/
Budgeted Revenues Budget Budget (Decrease)
Sales tax 25.9$ 29.2$ 3.3$
Property tax 31.9 32.6 0.7
Transient occupancy tax 14.2 15.9 1.7
Documentary transfer tax 7.5 6.5 (1.0)
All other 60.8 62.9 2.1
140.3 147.1 6.8
Charges to other funds 10.6 10.6 ‐
Prior year encumbrances and appropriations 5.6 5.6
Total Budgeted Revenues 150.9$ 163.3$ 12.4$
Adjustments to the original budget were based on the following:
Sales tax was increased by $3.3 million due to higher than expected receipts. In addition, $1.7
million was added for an accounting adjustment to align the sales tax accrual with the fiscal year.
Property tax was increased by $0.7 million due to updated estimates from the County.
Transient occupancy tax was increased by $1.7 million primarily due to the voter approved TOT rate
increase from 12 to 14 percent that took effect on January 1, 2015.
Documentary transfer tax was decreased by $1.0 million based on year‐to‐date receipts tracking
lower than the same period prior year.
Actual revenues of $157.5 million were $10.4 million higher than final budgeted revenues of $147.1 million
due primarily to one‐time items, including the following:
$0.9 million from the County of Santa Clara for excess Educational Revenue Augmentation Funds;
$1.0 million receipt for reimbursement of prior years’ state unfunded mandates;
$3.2 documentary transfer tax receipt due to an unusually large commercial real estate transaction;
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 23
Expenditures were originally budgeted at $155.3 million and were revised upward by $8.3 million for a final
budgeted amount of $163.6 million, as shown in the table below.
GENERAL FUND
Budgeted Expenditures for the Year Ended June 30
(in millions)
Original Final Increase/ Actuals, plus
Budgeted Expenditures Budget Budget (Decrease) Encumbrances
Community Services 22.8 24.3 1.5 23.9
Public Safety 62.1 63.4 1.3 62.5
Library 7.5 8.6 1.1 8.1
Planning and Community Environment 7.0 9.0 2.0 9.0
Public Works 13.4 14.4 1.0 14.2
Development Services 10.5 10.9 0.4 11.3
Non‐departmental 13.3 11.9 (1.4)6.0
All other 18.7 21.1 2.4 19.8
Total Budgeted Expenditures 155.3$ 163.6$ 8.3$ 154.8
Less: Charges to Other Funds (10.4)
Less: Encumbrances (5.6)
Net General Fund Expenditures 138.8$
The final budgeted expenditure amount of $163.6 million compares to the actual expenditures plus
encumbrances of $154.8 million, a difference of $8.8 million. The lower than budgeted expenditures were
primarily due to non‐departmental expenditures lower than expected.
Transfers out were originally budgeted at $15.7 million, with the final budget number at $23.0 million, an
increase of $7.3 million. The increase was due primarily to an additional $5.1 million transfer of FY 2015
surplus to the Infrastructure Reserve. Actual transfers out for the year were $22.3 million, a difference of
$0.8 million from final budget due to reclass of the Airport Fund transfer to interfund advance at year‐end.
Capital Projects Fund
Capital Projects Fund expenditures and other uses were $42.0 million in FY 2015, an increase of $4.9 million
from the prior year driven by construction and renovation of Mitchell Park Library and Community Center
and Rinconada Library. This level of expenditure is consistent with the City’s effort to rehabilitate and
maintain its existing infrastructure.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 24
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, 2015, the City’s Enterprise Funds reported total net position of $664.8 million, a decrease of
$77.5 million or 10.4 percent from the prior year. The decrease was primarily from the Water, Electric, Gas
and Wastewater Treatment Funds for $7.0 million, $39.8 million, $11.2 million and $15.0 million,
respectively. Further analysis is noted in the following section. Unrestricted net position for the Enterprise
Funds totaled $169.8 million, a 35.8 percent decrease from FY 2014. Of this $94.6 million decrease, $88.9
million is a result of the adjustment for GASB 68 pension liability.
Following is a table which compares the year over year change in net position for each of the Enterprise
Funds:
ENTERPRISE FUNDS
Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Fund Name 2015 2014 (Decrease)
Water 5.1$ 11.0$ (5.9)$
Electric (11.2) 1.7 (12.9)
Fiber Optics 3.1 3.1 ‐
Gas 1.7 3.3 (1.6)
Wastewater Collection 2.4 3.5 (1.1)
Wastewater Treatment 2.9 (1.9) 4.8
Refuse 4.8 2.2 2.6
Storm Drainage 2.7 2.7 ‐
Airport (0.1) (0.5) 0.4
Total Change in Net Position 11.4$ 25.1$ (13.7)$
The most significant factors in the year over year change in net position for Enterprise Funds are as follows:
Water change in net position decreased $5.9 million due to reduced water consumption by
customers as a result of state mandated drought conservation measures.
Electric change in net position decreased $12.9 million from the prior year due to increased
purchase of electricity as a result of lower hydroelectric generation due to the drought.
Wastewater Treatment increased its change in net position by $4.8 million due to higher billings for
capital costs and the prior year impact of RWQCP discontinuing invoicing for encumbrances.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 25
CAPITAL ASSETS
GASB 34 requires that the City record all its capital assets, including infrastructure and intangible assets.
Infrastructure includes roads, bridges, signals and similar assets used by the entire population. The table
below shows capital assets and the amount of accumulated depreciation for these assets for Governmental
and Business‐type Activities. Further detail can be found in Note 6 to the financial statements.
Increase/
2015 2014 (Decrease)
Governmental Activities
Capital Assets
Land and improvements 79.0$ 79.0$ ‐$
Street trees 15.1 15.2 (0.1)
Construction in progress 39.3 89.9 (50.6)
Buildings and improvements 221.7 134.6 87.1
Intangible assets 3.8 3.8 ‐
Equipment 12.3 11.9 0.4
Roadway network 299.2 291.3 7.9
Recreation and open space network 27.6 27.6 0.0
Less accumulated depreciation (228.2) (215.1) (13.1)
Internal Service Fund Assets
Construction in progress 1.4 3.1 (1.7)
Equipment 53.5 51.1 2.4
Less accumulated depreciation (39.5) (39.8) 0.3
Total Governmental Activities 485.2$ 452.6$ 32.6$
Business‐type Activities
Land 5.0$ 5.0$ ‐$
Construction in progress 89.9 122.2 (32.3)
Buildings and improvements 53.5 34.1 19.4
Transmission, distribution and treatment systems 717.6 675.8 41.8
Less accumulated depreciation (307.5) (291.6) (15.9)
Total Business‐type Activities 558.5$ 545.5$ 13.0$
CAPITAL ASSETS AT JUNE 30
(in millions)
Governmental Activities’ capital assets net of depreciation increased by $32.6 million from the prior year.
The increase was primarily due to construction of Mitchell Park Library and Community Center,
improvements to the Rinconada Library, California Avenue – Transit Hub Corridor improvements and street
and sidewalk improvements throughout the City.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 26
In June 2014 Council approved a $125.8 million Infrastructure Plan, which includes projects such as a new
Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan, and two parking
garages. Funding for these projects will come from a variety of sources, including TOT revenues, Stanford
University Medical Center development agreement, and developer impact fees. In the past four years,
General Fund surpluses totaling $25.6 million have been transferred to the Capital Projects Infrastructure
Reserve.
Major Governmental Activities’ capital projects that are currently in progress, including the remaining
capital commitment of each, are as follows:
Golf Course reconfiguration and Baylands Athletic Center ‐ $10.4 million
El Camino Park expansion ‐ $3.6 million
Newell Road bridge/San Francisquito bridge replacement ‐ $3.5 million
Business‐type Activities’ capital assets net of depreciation increased by $13.0 million over FY 2014. The
increase is due to Electric and Gas 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 ‐ $4.7 million
Gas main replacement for Gas Fund ‐ $2.1 million
Wastewater Collection Fund rehabilitation/augmentation project ‐ $8.7 million
The City depreciates its capital assets over their estimated useful lives, as required by GASB 34. The purpose
of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable
portion of the cost of the asset is borne by all users. Additional information on capital assets and depreciable
lives are in Note 6.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 27
DEBT ADMINISTRATION
Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements. At June 30, 2015,
the City’s debt was comprised of the following:
LONG‐TERM DEBT AT JUNE 30
(in millions)
Increase/
2015 2014 (Decrease)
Governmental Activities
General Long‐Term Obligations
Certificates of Participation
2002B Downtown Parking Improvements 1.3$ 1.5$ (0.2)$
General Obligation Bonds
2010 51.5 52.5 (1.0)
2013A 20.3 20.7 (0.4)
2011 Lease Purchase Agreement 1.6 2.0 (0.4)
Add: unamortized premium 4.1 4.2 (0.1)
Total Governmental 78.8$ 80.9$ (2.1)$
Business‐type Activities
Enterprise Long‐Term Obligations
Utility Revenue Bonds
1995 Series A2.9$ 3.3$ (0.4)
1999 Refunding 10.3 11.0 (0.7)
2009 Series A30.7 31.6 (0.9)
2011 Refunding 13.3 14.3 (1.0)
Add: unamortized premium 0.9 0.9 0.0
Energy Tax Credit Bonds
2007 Series A0.7 0.8 (0.1)
Less: unamortized discount (0.1) (0.1)‐
State Water Resources Loan
2007 6.3 6.8 (0.5)
2009 7.2 7.6 (0.4)
Total Business‐type 72.2$ 76.2$ (4.0)$
Long‐term debt decreased $6.1 million due to debt retirements in accordance with repayment schedules.
As noted in the Statistical Section of the CAFR, the combined direct debt ratio to assessed valuation for the
General Fund is 0.27 percent compared to the allowable legal debt margin of 15 percent.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 28
SPECIAL ASSESSMENT DISTRICT DEBT
Special assessment districts throughout different parts of the City have also issued debt to finance
infrastructure and facilities construction exclusively in their districts. As of June 30, 2015, the City had no
special assessment district debt with City commitment outstanding.
ECONOMIC OUTLOOK
The economy of the City is discussed in the accompanying Transmittal Letter.
CONTACTING THE CITY’S FINANCIAL MANAGEMENT
The CAFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the
City’s finances. Questions about this report should be directed to the Administrative Services Department, at
250 Hamilton Avenue, 4th Floor, Palo Alto, California. The Department can also be contacted by email at:
adminsvcs@cityofpaloalto.org. This report and other financial reports can be viewed on the City of Palo Alto
website at: www.cityofpaloalto.org. On the home page, select Departments, select Administrative Services,
and select Financial Reporting. Within Financial Reporting, there are links to reports by title and reporting
date.
CITY OF PALO ALTO
Statement of Net Position
June 30, 2015
(Amounts in thousands)
Governmental Business‐Type
Activities Activities Total
ASSETS:
Cash and investments available for operations (Note 3) 275,316$ 248,259$ 523,575$
Receivables, net:
Accounts and intergovernmental 12,496 32,109 44,605
Interest receivable 1,169 1,123 2,292
Notes and loans receivable (Note 5) 17,852 ‐ 17,852
Internal balances (Note 4) (1,277) 1,277 ‐
Net OPEB asset (Note 12) 22,871 ‐ 22,871
Due from other government agencies ‐ 4,200 4,200
Inventory of materials and supplies, prepaids and deposits 4,103 464 4,567
Restricted cash and investments with fiscal agents (Note 3) 5,587 4,142 9,729
Restricted cash for post‐closure landfill (Note 3)‐ 1,281 1,281
Capital assets (Note 6):
Nondepreciable 138,374 94,882 233,256
Depreciable, net of accumulated depreciation 346,815 463,651 810,466
Total assets 823,306 851,388 1,674,694
DEFERRED OUTFLOWS OF RESOURCES:
Unamortized loss from refunding ‐ 368 368
Deferred pension contribution 19,175 8,110 27,285
Total deferred outflows of resources 19,175 8,478 27,653
LIABILITIES:
Accounts payable and accruals 13,548 15,026 28,574
Accrued salaries and benefits 3,439 1,667 5,106
Unearned revenue 2,517 66 2,583
Accrued compensated absences (Note 1):
Due in one year 4,470 ‐ 4,470
Due in more than one year 6,286 ‐ 6,286
Claims payable (Note 14):
Due in one year 5,317 ‐ 5,317
Due in more than one year 18,801 ‐ 18,801
Accrued landfill closure liability and post‐closure care (Note 9):
Due in more than one year ‐ 7,833 7,833
Net pension liabilities (Note 11): 208,765 81,167 289,932
Long‐term debt (Note 7):
Due in one year 2,153 4,049 6,202
Due in more than one year 76,654 68,178 144,832
Total liabilities 341,950 177,986 519,936
DEFERRED INFLOWS OF RESOURCES:
Differences between expected and actual earnings on investments 36,675 14,062 50,737
NET POSITION (Note 10):
Net Investment in capital assets 405,921 490,874 896,795
Restricted for:
Special revenue programs 47,604 ‐ 47,604
Debt service 6,891 4,142 11,033
Nonexpendable ‐ Eyerly Family 1,468 ‐ 1,468
Total restricted net position 55,963 4,142 60,105
Unrestricted 1,972 172,802 174,774
Total net position $ 463,856 $ 667,818 $ 1,131,674
See accompanying notes to the basic financial statements.
29
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CITY OF PALO ALTO
Statement of Activities
For the Year Ended June 30, 2015
(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 271$ ‐$ ‐$ ‐$ (271)$ ‐$ (271)$
City Manager 2,155 ‐ ‐ ‐ (2,155) ‐ (2,155)
City Attorney 1,759 ‐ ‐ ‐ (1,759) ‐ (1,759)
City Clerk 680 ‐ ‐ ‐ (680) ‐ (680)
City Auditor 362 ‐ ‐ ‐ (362) ‐ (362)
Administrative Services 9,980 5,460 ‐ 619 (3,901) ‐ (3,901)
People Strategy and Operations 1,464 ‐ ‐ ‐ (1,464) ‐ (1,464)
Public Works 21,075 1,209 3,436 ‐ (16,430) ‐ (16,430)
Planning and Community Environment 8,423 8,090 1,190 ‐ 857 ‐ 857
Development Services 10,449 12,019 ‐ ‐ 1,570 ‐ 1,570
Public Safety 58,660 15,726 671 ‐ (42,263) ‐ (42,263)
Community Services 24,688 20,912 ‐ ‐ (3,776) ‐ (3,776)
Library 7,721 137 3 ‐ (7,581) ‐ (7,581)
Interest on long‐term debt 3,658 ‐ ‐ ‐ (3,658) ‐ (3,658)
Total Governmental Activities 151,345 63,553 5,300 619 (81,873) ‐ (81,873)
Business‐Type Activities:
Water 33,205 35,847 534 1,132 ‐ 4,308 4,308
Electric 122,499 120,842 ‐ ‐ ‐ (1,657) (1,657)
Fiber Optics 1,891 4,627 ‐ ‐ ‐ 2,736 2,736
Gas 23,525 30,751 ‐ ‐ ‐ 7,226 7,226
Wastewater Collection 14,595 16,182 ‐ 648 ‐ 2,235 2,235
Wastewater Treatment 21,553 24,120 ‐ ‐ ‐ 2,567 2,567
Refuse 27,974 31,576 ‐ ‐ ‐ 3,602 3,602
Storm Drainage 3,721 6,281 ‐ ‐ ‐ 2,560 2,560
Airport 1,004 683 ‐ 300 ‐ (21) (21)
Total Business‐Type Activities 249,967 270,909 534 2,080 ‐ 23,556 23,556
Total 401,312$ 334,462$ 5,834$ 2,699$ (81,873) 23,556 (58,317)
General Revenues:
Taxes:
Property tax 38,750 ‐ 38,750
Sales tax 29,675 ‐ 29,675
Utility user tax 10,861 ‐ 10,861
Transient occupancy tax 16,699 ‐ 16,699
Documentary transfer tax 10,384 ‐ 10,384
Other taxes 1,483 ‐ 1,483
Investment earnings 5,010 4,857 9,867
Miscellaneous 3,428 ‐ 3,428
Transfers (Note 4)16,405 (16,405) ‐
Total general revenues and transfers 132,695 (11,548) 121,147
Change in net position 50,822 12,008 62,830
Net position, beginning of year, as previously reported 642,413 744,755 1,387,168
Restatement for implementation of GASB Statement No. 68 (Note 1(n)) (229,379) (88,945) (318,324)
Net position, beginning of year, as restated 413,034 655,810 1,068,844
Net position, end of year 463,856$ 667,818$ 1,131,674$
See accompanying notes to the basic financial statements.
31
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CITY OF PALO ALTO
Governmental Funds
Balance Sheet
June 30, 2015
(Amounts in thousands)
Capital Other Total
General Projects Governmental Governmental
Fund Fund Funds Funds
ASSETS:
Cash and investments available for operations (Note 3) 54,730$ 56,469$ 87,864$ 199,063$
Receivables, net:
Accounts and intergovernmental 10,197 1,456 63 11,716
Interest receivable 525 ‐ 327 852
Notes and loans receivable (Note 5) 868 ‐ 16,984 17,852
Prepaid items 66 ‐ ‐ 66
Advance to other fund (Note 4) 1,695 ‐ ‐ 1,695
Inventory of materials and supplies 3,667 ‐ ‐ 3,667
Restricted cash and investments with fiscal agents (Note 3)‐ 5,349 238 5,587
Total assets 71,748$ 63,274$ 105,476$ 240,498$
LIABILITIES AND FUND BALANCES:
Liabilities:
Accounts payable and accruals 3,647$ 5,799$ 635$ 10,081$
Accrued salaries and benefits 3,114 121 16 3,251
Unearned revenue 2,517 ‐ ‐ 2,517
Total liabilities 9,278 5,920 651 15,849
Fund balances (Note 10):
Nonspendable:
Notes and loans receivable 868 ‐ ‐ 868
Prepaid items 66 ‐ ‐ 66
Inventories 3,667 ‐ ‐ 3,667
Advance to other fund 1,695 ‐ ‐ 1,695
Eyerly family ‐ ‐ 1,468 1,468
Restricted for:
Transportation mitigation ‐ ‐ 11,898 11,898
Federal revenue ‐ ‐ 4,442 4,442
Street improvement ‐ ‐ 1,544 1,544
Local law enforcement ‐ ‐ 140 140
Library bond project ‐ 5,155 ‐ 5,155
Public benefit ‐ ‐ 29,580 29,580
Debt service ‐ ‐ 6,891 6,891
Committed for:
Developer impact fees ‐ ‐ 12,497 12,497
Housing in‐lieu ‐ ‐ 33,881 33,881
Special districts ‐ ‐ 2,013 2,013
Downtown business ‐ ‐ 43 43
Assigned for:
Unrealized gains on investments 671 ‐ 428 1,099
Infrastructure ‐ 9,475 ‐ 9,475
Capital projects ‐ 42,724 ‐ 42,724
Other general government purposes 5,605 ‐ ‐ 5,605
Reappropriations 1,700 ‐ ‐ 1,700
Unassigned for:
Budget Stabilization 48,198 ‐ ‐ 48,198
Total fund balances 62,470 57,354 104,825 224,649
Total liabilities and fund balances 71,748$ 63,274$ 105,476$ 240,498$
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, 2015
Total fund balances reported on the governmental funds balance sheet 224,649$
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 19,175
Deferred inflows of resources (36,675)
Capital assets used in governmental activities are not current assets or financial
resources and therefore are not reported in the governmental funds (Note 6) 485,189
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 and net pension liabilities reported above) 60,916
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 (1,826)
Net pension liabilities (Note 11) (208,765)
Long‐term debt (Note 7) (78,807)
Net position of governmental activities 463,856$
(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, 2015
(Amounts in thousands)
Capital Other
General Projects Governmental
Fund Fund Funds Total
REVENUES:
Property tax 34,117$ ‐$ 4,633$ 38,750$
Special assessments ‐ ‐ 86 86
Sales tax 29,675 ‐ ‐ 29,675
Utility user tax 10,861 ‐ ‐ 10,861
Transient occupancy tax 16,699 ‐ ‐ 16,699
Documentary transfer tax 10,384 ‐ ‐ 10,384
Other taxes and fines 1,900 ‐ 1,732 3,632
Charges for services 25,973 ‐ ‐ 25,973
From other agencies 3,712 3,527 488 7,727
Permits and licenses 7,056 ‐ 2,123 9,179
Investment earnings 1,177 1,004 1,561 3,742
Rental income 14,911 ‐ 5 14,916
Other revenue 1,018 209 11,610 12,837
Total revenues 157,483 4,740 22,238 184,461
EXPENDITURES:
Current:
City Council 270 ‐ ‐ 270
City Manager 2,112 ‐ ‐ 2,112
City Attorney 1,830 ‐ ‐ 1,830
City Clerk 679 ‐ ‐ 679
City Auditor 409 ‐ ‐ 409
Administrative Services 3,746 ‐ 190 3,936
People Strategy and Operations 1,570 ‐ ‐ 1,570
Public Works 11,440 ‐ 836 12,276
Planning and Community Environment 7,369 ‐ 1,259 8,628
Development Services 11,152 ‐ ‐ 11,152
Public Safety 61,226 ‐ 221 61,447
Community Services 23,045 ‐ 508 23,553
Library 7,980 ‐ ‐ 7,980
Non‐Departmental 5,578 240 362 6,180
Capital outlay ‐ 41,754 ‐ 41,754
Debt service:
Principal 383 ‐ 1,565 1,948
Interest and fiscal charges 46 3 3,355 3,404
Total expenditures 138,835 41,997 8,296 189,128
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 18,648 (37,257) 13,942 (4,667)
OTHER FINANCING SOURCES (USES):
Transfers in (Note 4) 17,796 25,124 2,217 45,137
Transfers out (Note 4) (22,284) (300) (7,240) (29,824)
Total other financing sources (uses) (4,488) 24,824 (5,023) 15,313
Change in fund balances 14,160 (12,433) 8,919 10,646
FUND BALANCES, BEGINNING OF YEAR 48,310 69,787 95,906 214,003
FUND BALANCES, END OF YEAR 62,470$ 57,354$ 104,825$ 224,649$
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, 2015
Net change in fund balances ‐ total governmental funds 10,646$
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 45,420
Depreciation expense is deducted from fund balance (depreciation expense is net of
internal service fund depreciation of $2,392 (Note 6), which has already been allocated
through the internal service fund activities below (13,188)
Disposal of capital assets (608)
Pension contribution made subsequent to the measurement date is an expenditure in the
governmental funds, but reported as a deferred outflows of resources in the
government‐wide financial statements 18,033
Pension expenses reported in the statement of activities do not require the use of current
financial resources and, therefore, are not reported as expenditures in governmental funds (15,172)
Principal payments on long‐term liabilities are reported as expenditures in governmental
funds when paid. The governmental activities, however, report principal payments as
a reduction of long‐term debt on the statement of net position. Interest accrued on
long‐term debt and amortization of premiums do not require the use of current financial
resources and therefore are not reported as expenditures in governmental funds. Therefore,
the activities associated with long‐term debt are as follows:
Principal paid during the year 1,948
Change in interest payable (412)
Amortization of bond premium 158
Internal service funds are used by management to charge the costs of activities, such
as insurance, equipment acquisition and maintenance, and employees benefits to
individual funds. The portion of the net revenue of these internal service
funds arising out of their transactions with governmental funds is reported with
governmental activities. 3,997
Change in net position of governmental activities 50,822$
(Amounts in thousands)
See accompanying notes to the basic financial statements.
36
Variance with
Budgeted Amounts Final Budget
Actual, plus Positive
Original Final Encumbrances (Negative)
25,957$ 29,238$ 29,675$ 437$
31,927 32,556 34,117 1,561
14,156 15,901 16,699 798
Documentary transfer tax 7,514 6,500 10,384 3,884
11,285 10,895 10,861 (34)
2,164 2,168 1,900 (268)
23,080 24,863 25,973 1,110
7,738 7,738 7,056 (682)
685 685 1,177 492
14,254 14,207 14,911 704
453 472 3,712 3,240
1,060 1,878 1,018 (860)
140,273 147,101 157,483 10,382
10,647 10,647 10,416 (231)
‐ 5,579 4,760 (819)
150,920 163,327 172,659 9,332
2,578 3,330 3,137 193
1,065 1,122 1,121 1
1,276 1,282 1,138 144
432 517 402 115
3,003 3,544 3,070 474
7,175 7,399 7,226 173
22,764 24,274 23,902 372
62,054 63,456 62,459 997
3,264 3,818 3,677 141
7,521 8,641 8,144 497
7,016 9,039 9,026 13
Development Services 10,535 10,895 11,335 (440)
13,397 14,458 14,210 248
13,274 11,857 6,010 5,847
155,354 163,632 154,857 8,775
(4,434) (305) 17,802 18,107
18,433 18,620 17,796 (824)
(15,735) (23,044) (22,284) 760
2,698 (4,424) (4,488) (64)
(1,736)$ (4,729)$ 13,314 18,043$
Current year encumbrances/reappropriations 5,606
Prior year encumbrances/reappropriations (4,760)
14,160
48,310
62,470$
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)
People Strategy and Operations
Library
Planning and Community Environment
Public Works
Non‐Departmental
Total expenditures
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES
OTHER FINANCING SOURCES (USES):
Transfers in
Transfers out
Public Safety
Prior year encumbrances and reappropriations
Total revenues
EXPENDITURES:
Current:
City Attorney
City Auditor
City Clerk
City Council
City Manager
Administrative Services
Community Services
Charges to other funds
Sales tax
Property tax
Transient occupancy tax
Utility user tax
Other taxes, fines and penalties
Charges for services
Permits and licenses
Investment earnings
Rental income
From other agencies
Other revenues
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, 2015
(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) 37,505$ 117,187$ 22,023$ 23,323$
Accounts receivable, net of allowance of $978 5,020 13,761 1,237 2,323
Interest receivable 161 547 91 112
Due from other government agencies ‐ ‐ ‐ ‐
Inventory of materials and supplies ‐ ‐ ‐ ‐
Restricted cash and investments with fiscal agents (Note 3) 3,316 ‐ ‐ 826
Restricted cash for landfill closure (Note 3)‐ ‐ ‐ ‐
Total current assets 46,002 131,495 23,351 26,584
Noncurrent assets:
Due from other government agencies ‐ ‐ ‐ ‐
Deposit ‐ 114 ‐ ‐
Prepaid expense 117 ‐ ‐ ‐
Capital assets (Note 6):
Nondepreciable 11,344 15,196 1,118 17,804
Depreciable, net 102,615 166,012 6,490 84,447
Net OPEB asset (Note 12)‐ ‐ ‐ ‐
Total noncurrent assets 114,076 181,322 7,608 102,251
Total assets 160,078 312,817 30,959 128,835
DEFERRED OUTFLOWS OF RESOURCES:
Unamortized loss from refunding 142 ‐ ‐ 185
Deferred pension contribution 1,047 2,714 181 1,151
Total deferred outflows of resources 1,189 2,714 181 1,336
LIABILITIES:
Current liabilities:
Accounts payable and accruals 3,124 6,588 395 1,382
Accrued salaries and benefits 274 594 35 232
Unearned revenue ‐ ‐ ‐ ‐
Accrued compensated absences (Note 1)‐ ‐ ‐ ‐
Current portion of revenue bonds (Note 7) 1,457 100 ‐ 553
Accrued claims payable (Note 14)‐ ‐ ‐ ‐
Total current liabilities 4,855 7,282 430 2,167
Noncurrent liabilities:
Accrued compensated absences (Note 1)‐ ‐ ‐ ‐
Accrued claims payable (Note 14)‐ ‐ ‐ ‐
Advance from other fund (Note 4)‐ ‐ ‐ ‐
Landfill closure and post‐closure care (Note 9)‐ ‐ ‐ ‐
Net pension liabilities (Note 11) 11,024 26,104 1,592 11,758
Utility revenue bonds, net of
unamortized discounts/premiums (Note 7) 36,328 562 ‐ 7,305
Total noncurrent liabilities 47,352 26,666 1,592 19,063
Total liabilities 52,207 33,948 2,022 21,230
DEFERRED INFLOWS OF RESOURCES:
Differences between expected and actual earnings on investments 1,910 4,522 276 2,037
Total deferred inflows of resources 1,910 4,522 276 2,037
NET POSITION (Note 10):
Net Investment in capital assets 76,316 180,546 7,608 94,578
Restricted for debt service 3,316 ‐ ‐ 826
Unrestricted (deficit) 27,518 96,515 21,234 11,500
Total net position 107,150$ 277,061$ 28,842$ 106,904$
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, 2015
(Amounts in thousands)
See accompanying notes to the basic financial statements.
38
Governmental
Activities ‐
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
15,720$ 12,430$ 11,697$ 8,305$ 69$ 248,259$ 76,253$
2,366 2,981 3,333 662 426 32,109 780
65 60 52 35 ‐ 1,123 317
‐ 300 ‐ ‐ ‐ 300 ‐
‐ ‐ ‐ ‐ ‐ ‐ 370
‐ ‐ ‐ ‐ ‐ 4,142 ‐
‐ ‐ 1,281 ‐ ‐ 1,281 ‐
18,151 15,771 16,363 9,002 495 287,214 77,720
‐ 3,900 ‐ ‐ ‐ 3,900 ‐
‐ ‐ ‐ ‐ ‐ 114 ‐
‐ 233 ‐ ‐ ‐ 350 ‐
23,121 11,156 4,417 10,344 382 94,882 1,350
52,903 29,720 380 21,084 ‐ 463,651 13,965
‐ ‐ ‐ ‐ ‐ ‐ 22,871
76,024 45,009 4,797 31,428 382 562,897 38,186
94,175 60,780 21,160 40,430 877 850,111 115,906
‐ ‐ ‐ 41 ‐ 368 ‐
650 1,650 389 266 62 8,110 1,142
650 1,650 389 307 62 8,478 1,142
514 640 2,038 251 94 15,026 1,641
72 313 73 52 22 1,667 188
‐ ‐ ‐ 66 ‐ 66 ‐
‐ ‐ ‐ ‐ ‐ ‐ 4,470
82 1,282 ‐ 575 ‐ 4,049 ‐
‐ ‐ ‐ ‐ ‐ ‐ 5,317
668 2,235 2,111 944 116 20,808 11,616
‐ ‐ ‐ ‐ ‐ ‐ 6,286
‐ ‐ ‐ ‐ ‐ ‐ 18,801
‐ ‐ ‐ ‐ 1,695 1,695 ‐
‐ ‐ 7,833 ‐ ‐ 7,833 ‐
6,587 16,347 4,587 2,777 391 81,167 11,501
819 17,211 ‐ 5,953 ‐ 68,178 ‐
7,406 33,558 12,420 8,730 2,086 158,873 36,588
8,074 35,793 14,531 9,674 2,202 179,681 48,204
1,141 2,832 795 481 68 14,062 1,992
1,141 2,832 795 481 68 14,062 1,992
75,123 26,583 4,797 24,941 382 490,874 15,315
‐ ‐ ‐ ‐ ‐ 4,142 ‐
10,487 (2,778) 1,426 5,641 (1,713) 169,830 51,537
85,610$ 23,805$ 6,223$ 30,582$ (1,331)$ 664,846 66,852$
2,972
667,818$
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
39
Fiber
Water Electric Optics Gas
OPERATING REVENUES:
Sales to:
Customers 31,323$ 104,964$ 3,591$ 28,677$
City departments 1,759 3,234 853 924
Service connection charges and miscellaneous 1,011 1,386 162 748
Charges for services ‐ ‐ ‐ ‐
Other 1,754 11,258 21 402
Total operating revenues 35,847 120,842 4,627 30,751
OPERATING EXPENSES:
Retail purchase of utilities 15,670 78,380 ‐ 10,519
Administrative and general 4,164 5,991 421 3,855
Engineering (operating) 358 1,406 ‐ 369
Resource management and energy efficiency 488 5,696 ‐ 1,187
Operations and maintenance 5,283 10,717 1,104 4,403
Rent 2,249 3,961 53 440
Depreciation and amortization 2,463 7,383 319 2,523
Claims payments and changes in
estimated self‐insurance liability ‐ ‐ ‐ ‐
Refund of charges for services ‐ ‐ ‐ ‐
Compensated absences and other benefits ‐ ‐ ‐ ‐
Total operating expenses 30,675 113,534 1,897 23,296
Operating income (loss) 5,172 7,308 2,730 7,455
NONOPERATING REVENUES (EXPENSES):
Investment earnings 787 2,264 417 450
Interest expense (1,872) (8,940) ‐ (266)
Gain on disposal of capital assets ‐ ‐ ‐ ‐
Loss on disposal of capital assets (809) (312) ‐ (81)
Other nonoperating revenues 534 ‐ ‐ ‐
Total nonoperating revenues (expenses) (1,360) (6,988) 417 103
Income (loss) before transfers and capital contributions 3,812 320 3,147 7,558
Capital contributions 1,132 ‐ ‐ ‐
Transfers in (Note 4) 192 54 ‐ 8
Transfers out (Note 4) (64) (11,580) (9) (5,881)
Change in net position 5,072 (11,206) 3,138 1,685
NET POSITION (DEFICIT), BEGINNING OF YEAR, AS PREVIOUSLY REPORTED 114,158 316,873 27,448 118,104
Restatement for implementation of GASB Statement No. 68 (Note 1(n)) (12,080) (28,606) (1,744) (12,885)
NET POSITION (DEFICIT), BEGINNING OF YEAR, AS RESTATED 102,078 288,267 25,704 105,219
NET POSITION (DEFICIT), END OF YEAR 107,150$ 277,061$ 28,842$ 106,904$
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, 2015
(Amounts in thousands)
See accompanying notes to the basic financial statements.
40
Governmental
Activities‐
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
14,579$ 14,949$ 26,706$ 5,858$ 683$ 231,330$ ‐$
80 8,836 822 355 ‐ 16,863 ‐
744 ‐ ‐ ‐ ‐ 4,051 ‐
‐ ‐ ‐ ‐ ‐ ‐ 81,534
779 335 4,048 68 ‐ 18,665 937
16,182 24,120 31,576 6,281 683 270,909 82,471
8,777 ‐ 14,381 ‐ ‐ 127,727 ‐
738 ‐ 1,593 609 757 18,128 11,399
319 1,699 200 365 ‐ 4,716 ‐
‐ ‐ ‐ 296 ‐ 7,667 ‐
2,646 16,198 8,742 1,235 218 50,546 24,037
223 ‐ 2,539 34 ‐ 9,499 ‐
1,908 3,047 42 740 ‐ 18,425 2,392
‐ ‐ ‐ ‐ ‐ ‐ 1,320
‐ ‐ ‐ ‐ ‐ ‐ 61
‐ ‐ ‐ ‐ ‐ ‐ 41,120
14,611 20,944 27,497 3,279 975 236,708 80,329
1,571 3,176 4,079 3,002 (292) 34,201 2,142
315 228 237 159 ‐ 4,857 1,268
(51) (522) (578) (404) (32) (12,665) ‐
‐ ‐ ‐ ‐ ‐ ‐ 70
‐ ‐ ‐ ‐ ‐ (1,202) ‐
‐ ‐ ‐ ‐ ‐ 534 33
264 (294) (341) (245) (32) (8,476) 1,371
1,835 2,882 3,738 2,757 (324) 25,725 3,513
648 ‐ ‐ ‐ 300 2,080 ‐
4 ‐ 1,061 ‐ ‐ 1,319 2,349
(119) (14) (42) (15) ‐ (17,724) (1,257)
2,368 2,868 4,757 2,742 (24) 11,400 4,605
90,460 38,850 6,493 30,883 (878) 74,851
(7,218) (17,913) (5,027) (3,043) (429) (12,604)
83,242 20,937 1,466 27,840 (1,307) 62,247
85,610$ 23,805$ 6,223$ 30,582$ (1,331)$ 66,852$
608
12,008$
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 32,326$ 103,814$ 2,959$ 29,488$
Cash refunds to customers ‐ ‐ ‐ ‐
Cash payments to suppliers for goods and services (24,827) (98,148) (947) (17,885)
Cash payments to employees (4,287) (6,567) (475) (4,088)
Internal activity‐ receipts (payment) from (to) other funds 1,759 3,234 853 924
Other receipts 1,754 11,258 21 402
Net cash provided by (used in)
operating activities 6,725 13,591 2,411 8,841
Cash flows from noncapital financing activities:
Receipt of loans from other funds ‐ ‐ ‐ ‐
Interest subsidy received from Build America Bonds 534 ‐ ‐ ‐
Transfers in 192 54 ‐ 8
Transfers out (64) (11,580) (9) (5,881)
Cash flows provided by (used in) noncapital financing activities 662 (11,526) (9) (5,873)
Cash flows from capital and related financing activities:
Acquisition and construction of capital assets (4,330) (11,733) (412) (7,462)
Proceeds from sale of capital assets ‐ ‐ ‐ ‐
Capital grants and contributions 1,132 ‐ ‐ ‐
Principal paid on long‐term debt (1,404) (100) ‐ (536)
Interest paid on long‐term debt (1,871) (8,940) ‐ (265)
Cash flows used in capital and related
financing activities (6,473) (20,773) (412) (8,263)
Cash flows from investing activities:
Interest received 806 2,394 417 496
Cash flows provided by investing activities 806 2,394 417 496
Net change in cash and cash equivalents 1,720 (16,314) 2,407 (4,799)
Cash and cash equivalents, beginning of year 39,101 133,501 19,616 28,948
Cash and cash equivalents, end of year $ 40,821 $ 117,187 $ 22,023 $ 24,149
Financial statement presentation:
Cash and investments available for operations 37,505$ 117,187$ 22,023$ 23,323$
Cash and investments with fiscal agent 3,316 ‐ ‐ 826
Cash and cash equivalents, end of year 40,821$ 117,187$ 22,023$ 24,149$
Reconciliation of operating income (loss) to
net cash provided by (used in) operating activities:
Operating income (loss) 5,172$ 7,308$ 2,730$ 7,455$
Adjustments to reconcile operating income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 2,463 7,383 319 2,523
Other ‐ ‐ ‐ ‐
Change in assets and liabilities:
Accounts receivable (8) (2,536) (794) 63
Inventory of materials and supplies ‐ ‐ ‐ ‐
Deposit 8 (1) ‐ ‐
Net OPEB asset ‐ ‐ ‐ ‐
Deferred outflow of resources ‐ pension plans (22) (287) (33) (58)
Accounts payable and accruals (787) 2,013 210 (967)
Accrued salaries and benefits 70 118 3 8
Accrued compensated absences ‐ ‐ ‐ ‐
Unearned revenue ‐ ‐ ‐ ‐
Accrued claims payable ‐ ‐ ‐ ‐
Net Pension liabilitty (2,081) (4,929) (300) (2,220)
Deferred inflow of resources ‐ pension plans 1,910 4,522 276 2,037
Net cash provided by (used in)
operating activities $ 6,725 $ 13,591 $ 2,411 $ 8,841
Business‐Type Activities‐Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Cash Flows
For the Year Ended June 30, 2015
(Amounts in thousands)
See accompanying notes to the basic financial statements.
42
Governmental
Activities‐
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
14,755$ 14,068$ 26,408$ 5,551$ 257$ 229,626$ 81,871$
‐ ‐ ‐ ‐ ‐ ‐ (61)
(12,056) (18,440) (26,154) (2,015) (173) (200,645) (23,720)
(941) (344) (1,630) (647) (773) (19,752) (52,485)
80 8,836 822 355 ‐ 16,863 (3,196)
779 335 4,049 68 ‐ 18,666 33
2,617 4,455 3,495 3,312 (689) 44,758 2,442
‐ ‐ ‐ ‐ 760 760 ‐
‐ ‐ ‐ ‐ ‐ 534 ‐
4 ‐ 1,061 ‐ ‐ 1,319 2,349
(119) (14) (42) (15) ‐ (17,724) (1,257)
(115) (14) 1,019 (15) 760 (15,111) 1,092
(3,094) (4,547) (2,251) (2,011) (382) (36,222) (3,760)
‐ ‐ ‐ ‐ ‐ ‐ 172
648 300 ‐ ‐ 300 2,380 ‐
(77) (1,252) ‐ (540) ‐ (3,909) ‐
(48) (521) (578) (404) (32) (12,659) ‐
(2,571) (6,020) (2,829) (2,955) (114) (50,410) (3,588)
324 249 238 161 1 5,086 1,315
324 249 238 161 1 5,086 1,315
255 (1,330) 1,923 503 (42) (15,677) 1,261
15,465 13,760 11,055 7,802 111 269,359 74,992
$ 15,720 $ 12,430 $ 12,978 $ 8,305 $ 69 $ 253,682 $ 76,253
15,720$ 12,430$ 11,697$ 8,305$ 69$ 248,259$ 76,253$
‐ ‐ 1,281 ‐ ‐ 5,423 ‐
15,720$ 12,430$ 12,978$ 8,305$ 69$ 253,682$ 76,253$
1,571$ 3,176$ 4,079$ 3,002$ (292)$ 34,201$ 2,142$
1,908 3,047 42 740 ‐ 18,425 2,392
‐ ‐ ‐ ‐ ‐ ‐ 33
(568) (881) (298) (21) (426) (5,469) 159
‐ ‐ ‐ ‐ ‐ ‐ 18
‐ 17 ‐ ‐ ‐ 24 ‐
‐ ‐ ‐ ‐ ‐ ‐ (261)
(38) (130) 37 (8) (26) (565) (72)
(91) (560) (291) (85) 45 (513) 274
(63) 40 (3) 13 16 202 15
‐ ‐ ‐ ‐ ‐ ‐ 558
‐ ‐ ‐ (286) ‐ (286) ‐
‐ ‐ ‐ ‐ ‐ ‐ (2,635)
(1,243) (3,086) (866) (524) (74) (15,323) (2,173)
1,141 2,832 795 481 68 14,062 1,992
$ 2,617 $ 4,455 $ 3,495 $ 3,312 $ (689)$ 44,758 $ 2,442
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) 3,027$
Restricted cash and investments with fiscal agents (Note 3) 2,543
Account receivable 512
Interest receivable 12
Total assets 6,094$
LIABILITIES:
Due to bondholders 4,928$
Due to other governments 1,166
Total liabilities 6,094$
CITY OF PALO ALTO
Statement of Fiduciary Net Position
June 30, 2015
(Amounts in thousands)
See accompanying notes to the basic financial statements.
44
CITY OF PALO ALTO
Index to the Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
45
Page
1. Summary of Significant Accounting Policies ........................................................................... 47
2. Budgets and Budgetary Accounting ........................................................................................ 56
3. Cash and Investments ............................................................................................................. 57
4. Interfund Transactions ............................................................................................................ 61
5. Notes and Loans Receivable .................................................................................................... 63
6. Capital Assets .......................................................................................................................... 69
7. General Long‐Term Obligations .............................................................................................. 73
8. Special Assessment Debt ......................................................................................................... 80
9. Landfill Closure and Post‐Closure Care ................................................................................... 80
10. Net Position and Fund Balances .............................................................................................. 81
11. Pension Plans ........................................................................................................................... 84
12. Retiree Health Benefits ........................................................................................................... 91
13. Deferred Compensation Plan .................................................................................................. 94
14. Risk Management .................................................................................................................... 95
15. Joint Ventures .......................................................................................................................... 96
16. Commitments and Contingencies ........................................................................................... 99
Notes are essential to present fairly the information contained in the overview level of the basic financial
statements. Narrative explanations are intended to communicate information that is not readily apparent
or cannot be included in the statements themselves, and to provide additional disclosures as required by
the Governmental Accounting Standards Board.
46
This page is left intentionally blank.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
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 nine‐member council, elected by City residents. The City is legally
separate and fiscally independent, which means it can issue debt, set and modify budgets and
fees, and sue or be sued. The accompanying basic financial statements present the financial
activities of the City, which is the primary government presented, along with the financial
activities of its component unit, which is an entity for which the City is financially accountable.
Although a separate legal entity, a blended component unit is, in substance, part of the City’s
operations and is reported as an integral part of the City’s financial statements. The City’s
component unit described below is blended.
The Palo Alto Public Improvement Corporation (the Corporation) provides financing of public
capital improvements for the City through the issuance of Certificates of Participation (COPs), a
form of debt that allows investors to participate in a stream of future lease payments. Proceeds
from the COPs are used to construct projects that are leased to the City. The lease payments are
sufficient in timing and amount to meet the debt service requirements of the COPs. The Board of
Directors of the Corporation is composed of the same members as the City Council. The
Corporation is controlled by the City, which performs all accounting and administrative functions
for the Corporation. The financial activities of the Corporation are included in the Downtown
Parking Improvement Debt Service Fund.
Financial statements for the Corporation may be obtained from the City of Palo Alto,
Administrative Services Department, 4th Floor, 250 Hamilton Avenue, Palo Alto, CA 94301.
(b) Basis of Presentation
The City’s basic financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America. The Governmental Accounting Standards
Board (GASB) is the acknowledged standard setting body for establishing accounting and financial
reporting standards followed by governmental entities in the United States.
These standards require that the financial statements described below be presented:
Government‐wide Statements: The Statement of Net Position and the Statement of Activities
display information about the primary government and its component unit. These statements
include the financial activities of the overall City government, except for fiduciary activities.
Eliminations have been made to minimize the double counting of internal activities. However,
interfund goods and services transactions have not been eliminated in the consolidation process.
These statements distinguish between the governmental and business‐type activities of the City.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
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 either assets and deferred outflows of resources,
liabilities and deferred inflows of resources, revenues or expenditures/expenses equal to at least
10 percent of their fund type total and at least 5 percent of the grand total. The General Fund is
always a major fund. The City may also select other funds it believes should be presented as major
funds on a qualitative basis.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
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 all of its enterprise funds as major funds in the accompanying financial
statements. These funds are:
Water Services Fund – This fund accounts for all financial transactions relating to the City’s water
service. Services are on a user‐charge basis to residents and business owners located in the City.
Electric Services Fund – This fund accounts for all financial transactions relating to the City’s
electric service. Services are on a user‐charge basis to residents and business owners located in
the City.
Fiber Optics Fund – This fund accounts for all financial transactions relating to the City’s fiber
optics service. Services are on a user‐charge basis to licensees located in the City.
Gas Services Fund – This fund accounts for all financial transactions relating to the City’s gas
service. Services are on a user‐charge basis to residents and business owners located in the City.
Wastewater Collection Services Fund – This fund accounts for all financial transactions relating
to the City’s wastewater collection service. Services are on a user‐charge basis to residents and
business owners located in the City.
Wastewater Treatment Services Fund – This fund accounts for all financial transactions relating
to the City’s wastewater treatment. Services are on a user‐charge basis to residents and business
owners located in the City.
Refuse Services Fund – This fund accounts for all financial transactions relating to the City’s refuse
service. Services are on a user‐charge basis to residents and business owners located in the City.
Storm Drainage Services Fund – This fund accounts for all financial transactions relating to the
City’s storm drainage service. Services are on a user‐charge basis to residents and business
owners located in the City.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
50
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other Funds (Continued)
Airport Fund – This fund accounts for all financial transactions relating to the Palo Alto Airport
(PAO). The City assumed control over operation of PAO from the County of Santa Clara, effective
August 11, 2014.
The City also reports the following funds:
Internal Service Funds – These funds account for fleet replacement and maintenance, technology,
central duplicating, printing and mailing services, administration of compensated absences and
health benefits, and the City’s self‐insured workers’ compensation and general liability programs,
all of which are provided to other departments on a cost‐reimbursement basis. Also included is
the Retiree Health Benefits Internal Service Fund, which accounts for benefits to retirees.
Vehicle Replacement and Maintenance – This fund accounts for the maintenance and
replacement of vehicles and equipment used by all City departments. The source of revenue is
from reimbursement of fleet replacement and maintenance costs allocated to each department
by usage of vehicle.
Technology – This fund accounts for replacement and upgrade of technology, and covers four
primary areas used by all City departments: desktop, infrastructure, applications, and technology
research and development. The source of revenue is from reimbursement of costs for support
provided to other departments.
Printing and Mailing Services – This fund accounts for central duplicating, printing and mailing
services provided to all City departments. The source of revenue for this fund is from
reimbursement of costs for services and supplies purchased by other departments.
General Benefits – This fund accounts for the administration of compensated absences and health
benefits.
Workers’ Compensation Insurance Program – This fund accounts for the administration of the
City’s self‐insured workers’ compensation program.
General Liability Insurance Program – This fund accounts for the administration of the City’s self‐
insured general liability program.
Retiree Health Benefits – This fund accounts for retiree health benefits.
Fiduciary Funds – These funds account for assets held by the City, an agent for assessment
districts, and members of the Cable Joint Powers Authority. These funds are custodial in nature
and do not involve measurement of results of operations. The City maintains three agency funds.
The financial activities of these funds are excluded from the government‐wide financial
statements, but are presented in separate fiduciary fund financial statements. Agency funds
apply the accrual basis of accounting but do not have a measurement focus.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
51
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other Funds (Continued)
California Avenue Parking Assessment District – This fund accounts for the receipts and
disbursements associated with the 1993 Parking District No. 92‐13 Assessment Bonds.
Cable Joint Powers Authority – This fund accounts for the activities of the cable television system
on behalf of the members.
University Avenue Area Off‐Street Parking Assessment District – This fund accounts for the
receipts and disbursements associated with the 2012 Limited Obligation Refunding Improvement
Bonds.
(d) Basis of Accounting
The government‐wide and proprietary fund financial statements are reported using the economic
resources measurement focus and the full accrual basis of accounting. Revenues are recorded
when earned and expenses are recorded at the time liabilities are incurred, regardless of when
the related cash flows take place.
Governmental funds are reported using the current financial resources measurement focus and
the modified accrual basis of accounting. Under this method, revenues are recognized when
measurable and available. The City considers revenues susceptible to accrual reported in the
governmental funds to be available if the revenues are collected within ninety days after year‐
end, except for property taxes, which are available if collected within sixty days after year‐end.
Expenditures are recorded when the related fund liability is incurred, except for principal and
interest on general long‐term debt, claims and judgments, and compensated absences, which are
recognized as expenditures to the extent they have matured. General capital asset acquisitions
are reported as expenditures in governmental funds. Proceeds of general long‐term debt and
acquisitions under capital leases are reported as other financing sources.
Revenues susceptible to accrual include taxes, intergovernmental revenues, interest and charges
for services.
Grant revenues are recognized in the fiscal year in which all eligibility requirements are met.
Under the terms of grant agreements, the City may fund certain programs with a combination of
cost‐reimbursement grants, categorical block grants, and general revenues. Thus, both restricted
and unrestricted net position may be available to finance program expenditures. The City’s policy
is to first apply restricted grant resources to such programs, followed by general revenues if
necessary.
Certain indirect costs are included in program expenses reported for individual functions and
activities. Transactions representing the exchange of interfund goods and services have also been
included.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
52
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Cash and Cash Equivalents
Restricted and unrestricted pooled cash and investments held in the City Treasury, and other
unrestricted investments invested by the City Treasurer, are considered cash equivalents for
purposes of the statement of cash flows because the City’s cash management pool and funds
invested by the City Treasurer possess the characteristics of demand deposit accounts. Other
restricted and unrestricted investments with maturities of less than three months at the time of
purchase are considered cash equivalents for purposes of the statement of cash flows.
(f) Investments
The City’s investments are carried at fair value, as required by GASB Statement No. 31, Accounting
and Financial Reporting for Certain Investments and for External Investment Pools. The City
adjusts the carrying value of its investments to reflect their fair value at each fiscal year‐end, and
reports the effects of these adjustments in investment earnings for that fiscal year.
(g) Inventory of Materials and Supplies
Materials and supplies are held for consumption and are valued at average cost. The consumption
method is used to account for inventories. Under the consumption method, inventories are
recorded as expenditures at the time inventory items are used, rather than purchased.
(h) Prepaid items
Prepaid items are recorded at cost. Using the consumption method, prepaid items are recorded
as expenditures over the period that service is provided.
(i) Compensated Absences
The liability for compensated absences includes the vested portion of vacation, sick leave, and
overtime compensation pay. The City’s liability for accrued compensated absences is recorded in
the General Benefits Internal Service Fund. The fund is reimbursed through payroll charges to all
other funds. Earned but unpaid vacation and overtime compensation pay are recognized as an
expense or expenditure in the proprietary and governmental fund types when earned because
the City has provided financial resources for the full amount through its budgetary process.
Vested accumulated sick pay is paid in the event of termination due to disability and, under certain
conditions, is specified in employment agreements.
During the fiscal year ended June 30, 2015, changes to the compensated absences liabilities were
as follows (in thousands):
Beginning balance 10,198$
Additions 6,978
Payments (6,420)
Ending balance 10,756$
Current portion 4,470$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
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
For purposes of measuring the net pension liability and deferred outflows/inflows of resources
related to pensions and pension expense, information about the fiduciary net position of the City’s
California Public Employees’ Retirement System (CalPERS) Plans and additions to/deductions from
the Plans’ fiduciary net position have been determined on the same basis as they are reported by
CalPERS. 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, 2015
54
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements
As of July 1, 2014, the City implemented the following GASB Statements:
GASB Statement No. 68 issued June 2012, Accounting and Financial Reporting for Pensions – an
amendment of GASB Statement No. 27, establishes accounting and financial reporting
requirements for pension plans that are administered through trusts. Statement No. 68 requires
governments participating in single and agent multiple employer defined benefit plans to
recognize a liability equal to net pension liability. Net pension liability is required to be measured
as of a date no later than the end of the employer’s prior fiscal year (the measurement date),
consistently applied from period to period. Pension expense and deferred outflows of resources
and deferred inflows of resources related to pensions that are required to be recognized by an
employer primarily result from changes in the components of net pension liability—that is,
changes in the total pension liability and in the pension plan’s fiduciary net position. It requires
that most changes in net pension liability be included in pension expense in the period of change.
The effects of certain other changes in the net pension liability are required to be included in
pension expense over current and future periods. It also requires that notes to financial
statements of single and agent employers include descriptive information, such as types of
benefits provided and number and classes of employees covered by the benefit terms, sources of
changes in net pension liability for the current year, significant assumptions and other inputs used
in valuations and the valuation date. The Statement also requires the government to present
required supplementary information for each of the ten most recent fiscal years.
As of July 1, 2014, the City adopted the provision of GASB Statement No.68 and 71 and restated
the beginning net position in the amount of $318.3 million to record the beginning deferred
pension contributions and net pension liability. Refer to Note 11 for the impact of implementing
this Statement.
In January 2014 GASB issued Statement No. 69, Government Combinations and Disposals of
Government Operations. It establishes accounting related to government combinations and
disposals of government operations. Government combinations include mergers, acquisitions,
and transfers of operations. Statement No. 69 also establishes the required financial statement
disclosure for government combinations and disposals of government operations. The
implementation of this Statement did not have a significant impact on the City’s financial
statements.
In November 2013 GASB issued Statement No. 71, Pension Transition for Contributions Made
Subsequent to the Measurement Date – an amendment of GASB Statement No. 68. This Statement
improves the accounting and financial reporting by addressing an issue in Statement No. 68. The
issue relates to amounts associated with contributions, if any, made by a state or local
government employer or nonemployer contributing entity to a defined benefit pension plan after
the measurement date of the government’s beginning net pension liability. Refer to Note 11 for
the impact of implementing this Statement.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
55
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements (Continued)
The City is currently analyzing its accounting practices to determine the potential impact on the
financial statements for the following GASB Statements:
In February 2015 GASB issued Statement No. 72, Fair Value Measurement and Application. This
Statement provides guidance for determining fair value measurement for financial reporting
purposes and for applying fair value to certain investments, and requires disclosures to be made
about fair value measurements, the level of fair value hierarchy, and valuation techniques.
Governments should organize these disclosures by type of asset or liability reported at fair value.
It also requires additional disclosures regarding investments in certain entities that calculate net
asset value per share (or its equivalent). The requirements of this Statement are effective for the
City’s fiscal year ending June 30, 2016.
In June 2015 GASB issued Statement No. 73, Accounting and Financial Reporting for Pensions and
Related Assets that are not within the Scope of GASB Statement No. 68 and amendments to certain
provisions of GASB Statements No. 67 and 68. This Statement establishes requirements for
defined benefit pensions that are not within the scope of Statement No. 68 as well as for the
assets accumulated for purposes of providing those pensions. It amends certain provisions of
Statement No. 68 for pension plans and pensions that are within its scope. The Statement also
clarifies the application of certain provisions of Statement No. 68. This Statement is effective for
the City’s fiscal year ending June 30, 2016, except for those provisions that address employers
and government nonemployer contribution entities for pensions that are not within the scope of
Statement No. 68, which are effective for the City’s fiscal year ending June 30, 2017.
In June 2015 GASB issued Statement No. 74, Financial Reporting for Postemployment Benefits
Plans other than Pension Plans, and Statement No. 75, Accounting and Financial Reporting for
Postemployment Benefits other than Pensions. Both statements replace the requirements of
GASB Statements related to postemployment benefits other than pensions (OPEB). Statement
No. 74 is intended to make the OPEB accounting and financial reporting consistent with the
pension standards outlined in Statement No. 67. It applies to OPEB plans, and parallels Statement
No. 67 and replaces Statement No. 43. This statement is effective for the City’s fiscal year ending
June 30, 2017.
Statement No. 75 is intended to make OPEB accounting and financial reporting consistent with
the pension standards outlined in Statement No. 68. This will include recognizing a net OPEB
liability in accrual basis financial statements. It applies to government employers who provide
OPEB plans to their employees. It parallels Statement No. 68 and replaces Statement No. 45. This
statement is effective for the City’s fiscal year ending June 30, 2018.
GASB issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for
State and Local Governments, which supersedes Statement No. 55. This statement is effective for
the City’s fiscal year ending June 30, 2016.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
56
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements (Continued)
In August 2015 GASB issued Statement No. 77, Tax Abatement Disclosures. The Statement defines
tax abatement agreement and requires certain disclosures regarding the tax abatement in its
financial statements. This statement is effective for the City’s fiscal year ending June 30, 2017.
(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.
NOTE 2 – BUDGETS AND BUDGETARY ACCOUNTING
1. The City Manager submits proposed operating and capital budgets to the City Council for the fiscal
year commencing the following July 1. The operating budget includes proposed expenditures and the
means of financing them.
2. Public hearings are conducted to obtain comments on the proposed budgets.
3. The Budget is approved with the adoption of a budget ordinance for all funds except Agency Funds.
4. Per the Palo Alto Municipal Code, only the City Manager is authorized to reallocate funds from
contingency accounts maintained in the General Fund. Additional appropriations to departments in
the General Fund, or to total appropriations for all other budgeted funds, or transfers of
appropriations between funds, require approval by the City Council. Amendments to budgeted
revenue and expenditures are added to or subtracted from the Adopted Budget and the resulting
totals are reflected as Adjusted Budget amounts.
5. As defined in the Palo Alto Municipal Code, expenditures may not exceed budgeted appropriations at
the department level for the General Fund, and at the fund level for Enterprise, Special Revenue and
Debt Service Funds.
6. Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting
principles (GAAP), except that unrealized gains or losses are not recognized as investment earnings
on a budgetary basis and encumbrances are treated as budgetary expenditures when incurred.
7. Expenditures for the Capital Projects Fund are budgeted and maintained at a project level for the life
of the project. Budget to actual comparisons for these expenditures have been excluded from the
accompanying financial statements.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
57
NOTE 3 – CASH AND INVESTMENTS
The City pools cash from all sources and all funds, except restricted bond proceeds with fiscal agents, and
invests its pooled idle cash according to State of California law and the City’s Investment Policy. The basic
principles underlying the City’s investment philosophy are to ensure the safety of public funds, ensure
that sufficient funds are available to meet current expenditures, and achieve a reasonable rate of return
on investments.
Policies
The City invests in individual investments and in investment pools. Individual investments are evidenced
by specific identifiable securities instruments, or by an electronic entry registering the owner in the
records of the institution issuing the security, called the book entry system. In order to increase security,
the City employs the trust department of a bank as the custodian of certain City managed investments.
Classification
Cash and investments are classified in the financial statements as shown below, based on whether or not
their use is restricted under the terms of City debt instruments or agency agreements (in thousands):
Governmental Business‐Type Fiduciary
Activities Activities Funds Total
Cash and investments:
Available for operations 275,316$ 248,259$ 3,027$ 526,602$
Restricted for post‐closure landfill ‐ 1,281 ‐ 1,281
Held with fiscal agents 5,587 4,142 2,543 12,272
Total cash and investments 280,903$ 253,682$ 5,570$ 540,155$
Investments Authorized by the City’s Investment Policy and Debt Agreements
The table below identifies the investment types that are authorized by the City’s Investment Policy. The
table also identifies certain provisions of the City’s Investment Policy that address interest rate risk, credit
risk and concentration of credit risk. The table addresses investments of debt proceeds held by bond
trustees that are governed by the provisions of debt agreements of the City, rather than the general
provisions of the City’s Investment Policy.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
58
NOTE 3 – CASH AND INVESTMENTS (Continued)
The City must maintain required amounts of cash and investments with trustees under the terms of
certain debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if
the City fails to meet its obligations under these debt issues. The California Government Code requires
these funds to be invested in accordance with City ordinance, bond indentures or state statute. All of
these funds have been invested as permitted under the Code and the investment policy approved by the
City Council.
Maximum
Maturity
Minimum
Credit Quality
Maximum
Percentage
of Portfolio
Maximum
Investment in
One Issuer
U.S. Government Securities 10 years (*) N/A No Limit No Limit
U.S. Federal Agency Securities (C) 10 years (*) N/A No Limit (A) No Limit
Certificates of Deposit 10 years (*) N/A 20%
10% of the par
value of
portfolio
Bankers Acceptances 180 days (D) N/A (D) 30% $5 million
Commercial Paper 270 days A‐1 15% $3 million (B)
Local Agency Investment Fund N/A N/A No Limit
$50 million per
account
Short‐Term Repurchase Agreements 1 year N/A No Limit No Limit
City of Palo Alto Bonds N/A N/A No Limit No Limit
Money Market Mutual Funds N/A N/A (E) No Limit No Limit
Mutual Funds (F) N/A N/A 20% 10%
Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million
Medium‐Term Corporate Notes 5 years AA 10% $5 million
10 years (*) AA/AA2 10% No Limit
(A)
(B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution.
Debt Agreements:
(C)
(D)
(E)
(F)
(*)The maximum maturity is based on the Investment Policy that is approved by the City Council and is less
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
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
59
NOTE 3 – CASH AND INVESTMENTS (Continued)
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates may adversely affect the fair value of an
investment. Normally, the longer the maturity of an investment, the greater the sensitivity its fair value
is to changes in market interest rates.
Information about the sensitivity of the fair values of the City’s investments (including investments held
by bond trustees) to market rate fluctuations is provided by the following table that shows the distribution
of the City’s investments by maturity or earliest call date (in thousands):
Type of Investment
Less Than
One Year
One to
Three Years
Three to
Five Years
Over
Five Years Total
U.S. Federal Agency Securities 44,908$ 150,272$ 81,996$ 125,027$ 402,203$
U.S. Treasury Notes ‐ 2,000 9,398 ‐ 11,398
Local Government Bonds ‐ ‐ 5,726 7,448 13,174
Corporate Bonds ‐ ‐ 8,397 ‐ 8,397
Money Market Mutual Funds 16,963 ‐ ‐ ‐ 16,963
Negotiable Certificates of Deposit ‐ 2,933 18,694 4,271 25,898
California Asset Management Program 7,866 ‐ ‐ ‐ 7,866
Local Agency Investment Fund 49,953 ‐ ‐ ‐ 49,953
Total Investments 119,690$ 155,205$ 124,211$ 136,746$ 535,852
Cash in bank and on hand 4,303
Total Cash and Investments 540,155$
Maturities
Local Agency Investment Fund
The City is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California
Government Code Section 16429 under the oversight of the Treasurer of the State of California. LAIF
management calculates the fair value and cost of the entire LAIF pool. The City adjusts its cost basis
invested in LAIF to fair value based on this ratio. The fair value of the City’s position in the pool is the
same as the value of the pool share. The balance available for withdrawal on demand is based on
accounting records maintained by LAIF, which are recorded on an amortized cost basis. At June 30, 2015,
LAIF had a weighted average maturity of 239 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, 2015, the fair value approximated the City’s cost. CAMP had a weighted average
maturity of 32 days at June 30, 2015.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
60
NOTE 3 – CASH AND INVESTMENTS (Continued)
Money market mutual funds are available for withdrawal on demand and at June 30, 2015, had a weighted
average maturity of 35 days.
Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations
At June 30, 2015, the City’s investments (including investments held by bond trustees) include U.S. Federal
Agency Callable Securities in the amount of $108.5 million that are highly sensitive to interest rate
fluctuations (to a greater degree than already indicated in the information provided in the previous page).
These securities are subject to early redemption at par in a period of declining interest rates.
Credit Risk
Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the
investment. This is measured by the assignment of a rating by a nationally recognized statistical rating
organization. Presented below is the actual rating as provided by Standard & Poor’s investment rating
system as of June 30, 2015, for each investment type (in thousands):
Type of Investment Rating Total
U.S. Federal Agency Securities AA+ 402,203$
Corporate Bonds AA+ 8,397
Local Government Bonds AAA 13,174
Money Market Mutual Funds AAAm 16,963
Total Investments 440,737
Not Applicable:
U.S. Treasury Notes 11,398
Not Rated:
California Asset Management Program 7,866
Local Agency Investment Fund 49,953
Negotiable Certificates of Deposit 25,898
Cash in bank and on hand 4,303
Total Cash and Investments 540,155$
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, 2015
(in thousands):
Investments Reporting Type Fair Value at Year‐End
Federal Home Loan Bank U.S. Federal Agency Securities 133,662$
Federal Agricultural Mortgage Corporation U.S. Federal Agency Securities 95,573
Federal National Mortgage Corporation U.S. Federal Agency Securities 75,379
Federal Farm Credit Bank U.S. Federal Agency Securities 49,826
Federal Home Loan Mortgage Corporation U.S. Federal Agency Securities 37,234
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
61
NOTE 3 – CASH AND INVESTMENTS (Continued)
Custodial Credit Risk
California law requires banks and savings and loan institutions to pledge government securities with a
market value of 110 percent of the City’s cash on deposit or first trust deed mortgage notes with a value
of 150 percent of the deposit as collateral for these deposits. Under California Law, this collateral is
considered held in the City’s name and places the City ahead of general creditors of the institution. The
City has waived collateral requirements for the portion of deposits covered by federal deposit insurance.
The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to
a transaction, the City will not be able to recover the value of its investment or collateral securities that
are in the possession of another party. The City’s Investment Policy limits its exposure to custodial credit
risk by requiring that all security transactions entered into by the City be conducted on a delivery‐versus‐
payment basis. Securities are to be held by a third‐party custodian.
NOTE 4 – INTERFUND TRANSACTIONS
Transfers Between Funds
With Council approval, resources may be transferred from one City fund to another. The purpose of the
majority of transfers is to subsidize a fund. Less often, a transfer may be made to open or close a fund.
Transfers between City funds during FY 2015 were as follows (in thousands):
Fund Making Transfer
Amount
Transferred
General Fund Nonmajor Governmental Funds 425$ A
Water Services Fund 12 A
Electric Services Fund 11,435 A
Gas Services Fund 5,742 A
Wastewater Collection Fund 12 A
Wastewater Treatment Fund 9 A
Refuse Services Fund 9 A
Storm Drainage Services Fund 9 A
Internal Service Funds 143 A
Capital Projects Fund General Fund 19,678 B
Nonmajor Governmental Funds 5,446 B
Nonmajor Governmental Funds General Fund 512 A
Capital Projects Fund 300 B
Nonmajor Governmental Funds 1,369 A
Water Services Fund 24 A
Internal Service Funds 12 A
Subtotal 45,137
Fund Receiving Transfer
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
62
NOTE 4 – INTERFUND TRANSACTIONS (Continued)
Fund Making Transfer
Amount
Transferred
Water Services Fund Electric Services Fund 1$ B
Gas Services Fund 92 B
Wastewater Collection Fund 91 B
Internal Service Funds 8 C
Electric Services Fund General Fund 33 D
Internal Service Funds 21 C
Gas Services Fund Internal Service Funds 8 C
Wastewater Collection Fund Internal Service Funds 4 C
Refuse Services Fund Internal Service Funds 1,061 C
Internal Service Funds General Fund 2,061 E
Water Services Fund 28 B
Electric Services Fund 144 B
Fiber Optics Fund 9 B
Gas Services Fund 47 B
Wastewater Collection Fund 16 B
Wastewater Treatment Fund 5 B
Refuse Services Fund 33 B
Storm Drainage Services Fund 6 B
Subtotal 3,668
Total 48,805$
The reasons for these transfers are set forth below:
(A) Transfer to fund governmental funds for services provided.
(B) Allocation of funds to construct, purchase or maintain capital assets.
(C) Transfer to refund replacement charges.
(D) Transfer to fund Utility funds for services provided.
(E) Transfer to fund Internal Service funds for services provided.
Fund Receiving Transfer
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
63
NOTE 4 – INTERFUND TRANSACTIONS (Continued)
Long‐Term Interfund Advance
On December 6, 2010, the City Council accepted an Airport Business Plan of the Palo Alto Airport (PAO)
and approved creation of the Airport Enterprise Fund to facilitate the transition of PAO control from
County of Santa Clara to the City. Council approved the following General Fund advances to the Airport
Fund:
$ 300,000 Due December 2016
310,000 Due July 2018
325,000 Due July 2023
200,000 Due July 2024
560,000 Due July 2024
All advances bear interest equal to the average return yield on the City’s investment portfolio. As of June
30, 2015, the total outstanding principal amount is $1,695,000.
Internal Balances
Internal balances represent the net interfund receivables and payables remaining after the elimination of
all such balances within governmental and business‐type activities.
NOTE 5 – NOTES AND LOANS RECEIVABLE
At June 30, 2015, the City’s notes and loans receivable totaled (in thousands):
Palo Alto Housing Corporation:
Oak Manor Townhouse 203$
Tree House Apartments 5,343
Emerson Street Project 375
Alma Single Room Occupancy Development 2,222
Barker Hotel 2,111
Sheridan Apartments 2,248
Oak Court Apartments, L.P. 7,834
Mid‐Peninsula Housing Coalition:
Palo Alto Gardens Apartments 100
Community Working Group, Inc.1,280
Opportunity Center Associates, L.P.750
Home Rehabilitation Loans 51
Executive Relocation Assistance Loans 868
Below Market Rate Assessment Loans 53
Stevenson Housing Fire Alarm 48
Oak Manor Townhouse Water System 114
Lytton Gardens Assisted Living 101
Emergency Housing Consortium 75
Alma Gardens Apartments 1,150
2811‐2825 Alma Street Acquisition 1,290
Palo Alto Family Housing, 801 Alma Street 6,320
Total Notes and Loans 32,536
Less: Valuation Allowance (14,684)
Total Notes and Loans, Net 17,852$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
64
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Housing Loans
The City engages in programs designed to encourage construction or improvement in low‐to‐moderate
income housing or other projects. Under these programs, grants or loans are provided under favorable
terms to homeowners or developers who agree to spend these funds in accordance with the City’s terms.
These loans have been offset by restricted or committed fund balances, as they are not expected to be
repaid immediately.
Some of these loans contain forgiveness clauses that provide for the amount loaned to be forgiven if the
third party maintains compliance with the terms of the loan and associated regulatory agreements. Since
some of these loans are secured by trust deeds that are subordinated to other debt on the associated
projects or are only repayable from residual cash receipts on the projects, collectability of some of the
outstanding balances may not be realized. As a result of the forgiveness clauses and nature of these
housing projects and associated cash flows, a portion of the outstanding balances of the loans has been
offset by a valuation allowance.
Oak Manor Townhouse
On January 7, 1991, the City loaned $2.1 million to Palo Alto Housing Corporation Apartments, Inc.
(PAHCA, Inc.) to assist in the acquisition of an apartment complex to be used to provide rental housing for
low and very low income households. This loan bears interest at 3 percent, is due in annual installments
until 2017 and is collateralized by a subordinated deed of trust. Under the terms of the loan agreement,
annual loan payments are forgiven if the Corporation meets the objective of this project. During the year
ended June 30, 2015, the objective was met. The annual loan payment was forgiven for the calendar year
ended December 31, 2014.
Tree House Apartments
In March 2009, the City agreed to loan $2.8 million to Tree House Apartments, L.P. for the purchase of the
real property located at 488 West Charleston Road. The loan shall accrue simple interest at the rate of
three percent per annum. The loan consists of $1.8 million funded by Community Development Block
Grant funds and $1 million funded by residential funds. An additional development loan in the amount of
$2.5 million was approved by the City on October 18, 2010. As of June 30, 2015, the outstanding balance
for Tree House Apartments 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 for expenses necessary to acquire an apartment complex
for the preservation of rental housing for low and very low income households in the City. This loan is
collateralized by a second deed of trust. The loan bears interest at 3 percent after 2010.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
65
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Alma Single Room Occupancy Development
On December 13, 1996, the City loaned $2.2 million to Alma Place Associates, L.P. for development of a
107‐unit single room occupancy development. This loan bears interest at 3 percent and is collateralized
by a subordinated deed of trust. The principal balance is due in 2041.
Barker Hotel
On April 12, 1994, the City loaned a total of $2.1 million for the preservation, rehabilitation and expansion
of a low‐income, single occupancy hotel. This loan was funded by three sources: $400,000 from the
Housing In‐Lieu Fund, $1 million from HOME Investment Partnership Program Funds, and $670,000 from
Community Development Block Grant funds. All three notes bear no interest and are collateralized by a
deed of trust, which is subordinated to private financing. Loan repayments are deferred until 2035.
In July 2004, the City agreed to loan up to $41,000 to Palo Alto Housing Corporation to rehabilitate the
interior of the Barker Hotel. The loan is funded entirely by Community Development Block Grant funds
and is collateralized by a deed of trust on the property. Annual loan payments are deferred until certain
criteria defined in the loan agreement are reached. The loan will be forgiven if the borrower satisfactorily
complies with all terms and conditions of the loan agreement.
Sheridan Apartments
On December 8, 1998, the City loaned $2.5 million to Palo Alto Housing Corporation for the purchase and
rehabilitation of a 57‐unit apartment complex to be used for senior and low‐income housing. The loan is
funded by $1.6 million in Community Development Block Grant funds, and $825,000 in Housing In‐Lieu
funds. The note bears interest at 9 percent when available surplus cash from the project equals or exceeds
25 percent of interest calculated using 9 percent. When available surplus cash falls below this level, the
note bears interest at 3 percent. The note is collateralized by a second deed of trust and an affordability
reserve account held by Palo Alto Housing Corporation. Annual loan payments were deferred until Palo
Alto Housing Corporation accumulated $1 million in the affordability reserve account. Two principal
payments totaling $202,438 have been made, and interest has also been paid. The remaining principal
balance is due in 2033.
Oak Court Apartments, L.P.
On August 18, 2003, in connection with the loan to Oak Court Apartments, L.P. discussed in the next
section, the City loaned $5.9 million to Palo Alto Housing Corporation for the purchase of land on which
Oak Court Apartments, L.P. constructed a 53‐unit rental apartment complex for low and very low income
households with children. The note bears interest of 5 percent and is secured by a deed of trust. Note
payments are due annually after 55 years, or beginning in 2058, unless Palo Alto Housing Corporation
elects to extend the note until 2102, as defined in the regulatory agreement.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
66
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
On August 18, 2003, the City loaned $1.9 million to Oak Court Apartments, L.P. for the construction of a
53‐unit rental apartment complex for low and very low‐income households with children, which was
completed in April 2005. The note bears no interest until certain criteria defined in the note are satisfied,
at which time the note will bear an interest rate not to exceed 3 percent. The note is secured by a
subordinate deed of trust. The principal balance is due in 2060.
Palo Alto Gardens Apartments
On April 22, 1999, the City loaned $1 million to Mid‐Peninsula Housing Coalition (the Coalition) for the
purchase and rehabilitation of a 155‐unit complex for the continuation of low‐income housing. This loan
is funded by $659,000 in Community Development Block Grant funds and $341,000 in Housing In‐Lieu
funds. The two notes bear interest at 3 percent and are secured by second deeds of trust and a City
Affordability Reserve Account held by the Coalition. Annual loan payments are deferred until certain
criteria defined in the notes are reached. Principal and interest payments began in FY 2008. The principal
balance of $100,000 is due in 2039.
Community Working Group, Inc.
On May 13, 2002, the City loaned $1.3 million to Community Working Group, Inc. for predevelopment,
relocation and acquisition of land for development of an 89‐unit complex and homeless service center for
very low income households. The loan is funded by $1.3 million of Community Development Block Grant
funds. The note bears no interest and is secured by a first deed of trust. No repayment of the $1.3 million
will be required, provided that compliance with the City’s agreement is maintained. After 89 years of
compliance with the regulatory agreement, the City’s loan would convert to a grant and its deed of trust
would be re‐conveyed.
Opportunity Center Associates, L.P.
On July 19, 2004, the City loaned $750,000 for a 55‐year term to Opportunity Center Associates, L.P. for
construction of 89 units of rental housing for extremely low‐income and very low‐income households.
The loan is funded by $750,000 of residential housing funds. The note bears 3 percent interest and is
secured by a deed of trust. The loan remains outstanding and becomes due at the end of the 55‐year
term.
Home Rehabilitation Loans
The City administers a closed housing rehabilitation loan program initially funded with Community
Development Block Grant funds. Under this program, individuals with incomes below a certain level are
eligible to receive low interest loans for rehabilitation work on their homes. These loans are secured by
deeds of trust, which may be subordinated to subsequent encumbrances upon said real property with the
prior written consent of the City. The loan repayments may be amortized over the life of the loans,
deferred, or a combination of both.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
67
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Executive Relocation Assistance Loans
The City Council may authorize a mortgage loan as part of a relocation assistance package to executive
staff. The loans are secured by first deeds of trust, and interest is adjusted annually based on the rate of
return of invested funds of the City for the year ended June 30 plus one‐quarter of 1 percent. Principal
and interest payments are due bi‐weekly. Employees must pay any outstanding balance on their loans
within a certain period after ending employment with the City. As of June 30, 2015, the City had two
outstanding home loans, one from the previous City Manager and one from the current City Manager.
The original purchase cost for the previous City Manager’s home was $1.4 million and the City holds a 60
percent equity share. The loan balance owed as of June 30, 2015 was approximately $339,000. The home
suffered substantial fire damage on May 3, 2014. The loss is covered by insurance and an assessment is
being made as to whether the home will be rebuilt.
The original purchase cost for the current City Manager’s home was $1.9 million and the City holds a 75
percent equity share. The loan balance owed as of June 30, 2015 is approximately $415,000. During FY
2011, the Council authorized a capital improvement loan of $125,000. Loans for capital improvements
are made on a dollar for dollar matching basis, with an equal equity contribution made by the City
Manager. The loan balance owed as of June 30, 2015 was approximately $114,000.
Below Market Rate Assessment Loans
In December 2002, the City loaned $53,000 to below market rate homeowners with low incomes and/or
very limited assets for capital repairs, special assessments and improvements of their properties. The
loans bear interest at 3 percent and are secured by a deed of trust on each property. Loan payments are
deferred until 2032. In 2015, the City did not receive interest payments.
Stevenson Housing Fire Alarm
In December 2006, the City agreed to loan up to $48,000 to Palo Alto Senior Housing Project, Inc. to repair
and upgrade the existing fire alarm system at Stevenson House Senior Housing facility. The loan is funded
entirely by Community Development Block Grant funds and bears simple interest of 6 percent.
Oak Manor Townhouse Water System
On May 12, 2003, the City Council approved an allocation of $113,672 to Palo Alto Housing Corporation
Apartments, Inc (PAHCA, Inc) to replace the water pipes. Repayment of the loan will not be required unless
the property is sold, the program is terminated or purpose of the program is changed without City’s
approval prior to July 1, 2033. The loan for this project is subordinated to the existing City loan with
PAHCA, Inc dated January 7, 1991 for the acquisition of the project site, which is discussed earlier in this
section.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
68
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Lytton Gardens Assisted Living
In June 2005, the City loaned $101,000 to Community Housing, Inc. to upgrade and modernize the existing
kitchens at the senior residential facility known as Lytton Gardens Assisted Living. The loan is funded
entirely by Community Development Block Grant funds, and bears simple interest of 3 percent. Principal
and interest payments are deferred until July 1, 2035, as long as the borrower continues to comply with
all terms and conditions of the agreement.
Emergency Housing Consortium
In November 2005, the City agreed to loan up to $75,000 to Emergency Housing Consortium to cover
architectural expenses that will be incurred in rehabilitating and expanding the property. The loan is
funded entirely by Community Development Block Grant funds, and bears simple interest of 3 percent.
Principal and interest payments are deferred until July 1, 2035, as long as the borrower continues to
comply with all terms and conditions of the agreement.
Alma Garden Apartments
In March 2006, the City agreed to loan up to $1.2 million to Community Working Group, Inc. to acquire a
10‐unit multi‐family housing complex known as Alma Garden Apartments. The loan is funded entirely by
Community Development Block Grant funds. Principal and interest payments are deferred until July 1,
2061, as long as the borrower complies with all terms and conditions of the agreement.
2811‐2825 Alma Street Acquisition
On October 9, 2011, the City agreed to loan $1.3 million to PAHC Properties Corporation (PAHC) to acquire
properties on Alma Street for the purpose of developing an affordable rental housing project. The loan
bears simple interest of 3 percent, with an option to forgive the loan at maturity as long as PAHC maintains
the affordability restrictions. Provided PAHC is not in default of the agreement, no principal payments
shall be due and interest shall not begin to accrue until the closing of the project’s permanent funding.
Principal and interest payments are payable during the term of the agreement on a “residual receipt”
basis as described in the agreement.
Palo Alto Family Housing, 801 Alma Street
On February 14, 2011, the City agreed to loan Palo Alto Family, LP up to $9.3 million for the purposes of
predevelopment expenses and acquiring certain real property for the Alma Street Affordable Multi‐Family
Rental Housing Project. The loan bears simple interest of 3 percent. Principal and interest are due and
payable during the term of the agreement on a “residual receipt” basis as described in the agreement.
Except in the case of default, all remaining principal and interest shall be payable on the Restriction
Termination Date as defined in the agreement. As of June 30, 2015, the outstanding amount is $6.3
million.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
69
NOTE 6 – CAPITAL ASSETS
Valuation
Capital assets are valued at historical cost or estimated historical cost if actual historical cost is not
available. Contributed capital assets are valued at their estimated fair value on the date contributed. The
City’s policy is to capitalize all assets when costs are equal to or exceed $5,000 and the useful life exceeds
one year. Infrastructure assets are capitalized when costs are equal to or exceed $100,000.
Proprietary fund capital assets are recorded at cost including significant interest costs incurred under
restricted tax‐exempt borrowings, which finance the construction of capital assets. These interest costs,
net of interest earned on investment of proceeds of such borrowings, are capitalized and added to the
cost of capital assets during the construction period. Maintenance and repairs are expensed as incurred.
The City has recorded all its public domain capital assets, consisting of roadway and recreation and open
space, in its government‐wide financial statements. GASB Statement No. 34 requires that all capital assets
with limited useful lives be depreciated over their estimated useful lives. Alternatively, the “modified
approach” may be used for certain capital assets. Depreciation is not provided under this approach, but
all expenditures on these assets are expensed unless they are additions or improvements. The City has
elected to use the depreciation method for its capital assets. The purpose of depreciation is to spread the
cost of capital assets equitably among all users over the life of those assets. The amount charged to
depreciation expense each year represents that year’s pro rata share of the cost of capital assets.
Depreciation of capital assets is charged as an expense against operations each year and the total amount
of depreciation taken over the years, called accumulated depreciation, is reported on the statement of
net position as a reduction in the book value of capital assets.
Depreciation is calculated using the straight line method, which means the cost of the asset is divided by
its expected useful life in years, and the result is charged to expense each year until the asset is fully
depreciated. The City has assigned the useful lives listed below to capital assets.
Governmental Activities Years
Buildings and structures 20 ‐ 30
Equipment:
Computer equipment 3 ‐ 5
Office machinery and equipment 5
Machinery and equipment 5 ‐ 30
Intangible assets ‐ software 5‐20
Roadway network:
5 ‐ 40
Recreation and open space network:
25 ‐ 40
Business‐type Activities
Buildings and structures 25 ‐ 60
Vehicles and heavy equipment 3 ‐ 10
Machinery and equipment 10 ‐ 50
Transmission, distribution and treatment systems 10 ‐ 100
Includes pavement, striping and legends, curbs, gutters and sidewalks, parking lots,
traffic signage, and bridges
Includes major park facilities, park trails, bike paths and medians
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
70
NOTE 6 – CAPITAL ASSETS (Continued)
General Capital Assets
Changes in the City’s general capital assets during the year ended June 30, 2015 were (in thousands):
Balance Balance
July 1, 2014 Additions Retirements Transfers June 30, 2015
Governmental activities
Nondepreciable capital assets:
Land and improvements 79,047$ ‐$ ‐$ ‐$ 79,047$
Street trees 15,177 103 (203) ‐ 15,077
Intangible assets ‐ Easement 3,567 ‐ ‐ ‐ 3,567
Construction in progress 89,806 45,251 (405) (95,319) 39,333
Total nondepreciable capital assets 187,597 45,354 (608) (95,319) 137,024
Depreciable capital assets:
Buildings and structures 134,600 ‐ ‐ 87,096 221,696
Intangible assets ‐ Software 279 ‐ ‐ ‐ 279
Equipment 11,918 66 ‐ 281 12,265
Roadway network 291,300 ‐ ‐ 7,942 299,242
Recreation and open space network 27,632 ‐ ‐ ‐ 27,632
Total depreciable capital assets 465,729 66 ‐ 95,319 561,114
Less accumulated depreciation:
Buildings and structures (71,362) (4,817) ‐ ‐ (76,179)
Intangible assets ‐ Software (141) (65) ‐ ‐ (206)
Equipment (7,494) (450) ‐ ‐ (7,944)
Roadway network (127,117) (6,910) ‐ ‐ (134,027)
Recreation and open space network (8,962) (946) ‐ ‐ (9,908)
Total accumulated depreciation (215,076) (13,188) ‐ ‐ (228,264)
Depreciable capital assets, net 250,653 (13,122) ‐ 95,319 332,850
Internal service fund capital assets
Construction in progress 3,094 3,225 ‐ (4,969) 1,350
Equipment 51,130 282 (2,909) 4,969 53,472
Less accumulated depreciation (39,871) (2,392) 2,756 ‐ (39,507)
Net internal service fund capital assets 14,353 1,115 (153) ‐ 15,315
Governmental activities capital assets, net 452,603$ 33,347$ (761)$ ‐$ 485,189$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
71
NOTE 6 – CAPITAL ASSETS (Continued)
Business‐type Capital Assets
Changes in the City’s enterprise fund capital assets during the year ended June 30, 2015 were
(in thousands):
Balance Balance
July 1, 2014 Additions Retirements Transfers June 30, 2015
Business‐type activities
Nondepreciable capital assets:
Land and improvements 4,971$ ‐$ ‐$ 2$ 4,973$
Construction in progress 122,181 35,579 (3,530) (64,321) 89,909
Total nondepreciable capital assets 127,152 35,579 (3,530) (64,319) 94,882
Depreciable capital assets:
Buildings and structures 34,111 ‐ (505) 19,899 53,505
Transmission, distribution and treatment systems 675,858 640 (3,249) 44,420 717,669
Total depreciable capital assets 709,969 640 (3,754) 64,319 771,174
Less accumulated depreciation:
Buildings and structures (9,848) (854) 96 ‐ (10,606)
Transmission, distribution and treatment systems (281,778) (17,593) 2,454 ‐ (296,917)
Total accumulated depreciation (291,626) (18,447) 2,550 ‐ (307,523)
Depreciable capital assets, net 418,343 (17,807) (1,204) 64,319 463,651
Business‐type activities capital assets, net 545,495$ 17,772$ (4,734)$ ‐$ 558,533$
Capital Asset Contributions
Some capital assets may be acquired using federal and state grant funds, or they may be contributed by
developers or other governments. Generally accepted accounting principles require that these
contributions be accounted for as revenues at the time the capital assets are contributed.
Depreciation Allocation
Depreciation expense was charged to functions and programs based on their usage of the related assets.
The amount allocated to each function or program is as follows (in thousands):
Governmental Activities Business‐type Activities
City Manager 42$ Water 2,488$
City Attorney 2 Electric 7,377
Administrative Services 2 Fiber Optics 319
Community Services 1,521 Gas 2,555
Public Safety 342 Wastewater Collection 1,908
Public Works 9,609 Wastewater Treatment 3,045
Planning and Community Environment 166 Refuse 42
Library 1,504 Storm Drainage 713
Internal Service Funds 2,392 18,447$
15,580$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
72
NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress
Construction in progress as of June 30, 2015 is comprised of the following (in thousands):
Governmental Activities
Expended to
June 30, 2015
California Avenue‐Transit Hub Corridor 6,571$
Magical Bridge Playground 3,610
City Hall First Floor Renovation 3,460
El Camino Park Exp Parking Lot 2,563
Furniture/Technology for Library Bond Prj 2,315
Highway 101 Pedestrian/Bicycle Overpass 1,601
Traffic Signal Upgrades 1,446
Transportation and Parking Improvements 1,332
Curb & Gutter Improvement 1,026
Safe Routes to School 914
Golf Reconfig and Baylands Athletic Center 879
Bicycle Boulevards Implementation 759
Eleanor Pardee Park Improvement 739
Vehicle Replacement Fund 725
Charleston/Arastradero Corridor 665
Street Maintenance 664
Library & Comm Center Temp Facilities 646
Telephone Infrastructure and Network 625
Other Construction In Progress 10,143
Total Governmental Activities Construction In Progress 40,683$
Business‐type Activities
Expended to June
30, 2015
Water system extension replacements and improvements 4,578$
Gas system extension replacements and improvements 11,637
Sewer system rehabilitation and extensions 6,231
Electric distribution system improvements 4,173
Water quality control plant equipment replacement and lab facilities 5,543
Storm drainage structural and water quality improvements 2,262
Other electrical improvements projects 989
Other construction in progress 54,496
Total Business‐type Activities Construction In Progress 89,909$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
73
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, 2015.
Major governmental capital projects that are currently in progress, and the remaining capital commitment
of each, are as follows:
Golf Course reconfiguration and Baylands Athletic Center ‐ $0.4 million
El Camino Park expansion ‐ $3.5 million
Newell Road bridge/SFC bridge replacement ‐ $1.0 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 ‐ $4.2 million
Gas main replacement for Gas Fund ‐ $2.1 million
Wastewater Collection Fund rehabilitation/augmentation ‐ $7.4 million
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS
Long‐Term Obligations
Bond premiums and discounts of long‐term debt issues are amortized over the life of the related debt.
The City’s long‐term debt issues and transactions, other than special assessment debt discussed in Note 8,
are as follows (in thousands):
Original Balance Balance Current
Issue Amount July 1, 2014 Additions Retirements June 30, 2015 Portion
Governmental Activities Debt:
General Long‐Term Obligations:
2002B Downtown Parking Improvements,
Certificates of Participation,
6.50%, due 03/01/2022
3,555$ 1,430$ ‐$ 145$ 1,285$ 150$
General Obligation Bonds 2010,
2 ‐ 5%, due 08/01/2040
55,305 52,520 ‐ 1,050 51,470 1,070
2011 Lease‐Purchase Agreement 3,222 2,026 ‐ 383 1,643 395
General Obligation Bonds 2013A,
2 ‐ 5%, due 08/01/2043
20,695 20,695 ‐ 370 20,325 380
Add: Unamortized Premium ‐ 4,242 ‐ 158 4,084 158
Total Governmental Activities Debt 82,777$ 80,913$ ‐$ 2,106$ 78,807$ 2,153$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
74
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
Original Issue
Amount
Balance
July 1, 2014 Additions Retirements
Balance
June 30, 2015 Current Portion
Business‐type Activities Debt:
Enterprise Long‐Term Obligations:
Utility Revenue Bonds
1995 Series A,
5.00‐6.25%, due 06/01/2020
8,640$ 3,334$ ‐$ 475$ 2,859$ 505$
1999 Refunding,
3.25‐5.25%, due 06/01/2024
17,735 10,980 ‐ 635 10,345 665
2009 Series A,
1.80‐5.95%, due 06/01/2035
35,015 31,615 ‐ 915 30,700 955
2011 Refunding,
1.80‐5.95%, due 06/01/2035
17,225 14,295 ‐ 975 13,320 1,005
Add: Unamortized Premium ‐ 910 ‐ 69 841 ‐
Energy Tax Credit Bonds
2007 Series A, 0%, Due 12/15/2021 1,500 800 ‐ 100 700 100
Less: Unamortized Discount ‐ (43) ‐ (5) (38) ‐
State Water Resources Loans
2007, 1.02%, due 06/30/2029 9,000 6,750 ‐ 450 6,300 450
2009, 2.6%, due 11/30/2030 8,500 7,559 ‐ 359 7,200 369
Total Business‐type Activities Debt 97,615$ 76,200$ ‐$ 3,973$ 72,227$ 4,049$
Description of Long‐Term Debt Issues
2002B Downtown Parking Improvements Project Certificates of Participation (COPs) – On January 16,
2002, the City issued $3.6 million of COPs to finance the construction of certain improvements to the non‐
parking area contained in the City’s Bryant/Florence Garage complex. Principal payments are due
annually on March 1 and interest payments semi‐annually at 6.5% on March 1 and September 1, and are
payable from lease revenues received by the Corporation from the City’s available funds.
2010 General Obligation Bonds (GO bonds) – On June 30, 2010, the City issued $55.3 million of GO bonds
to finance costs for constructing a new Mitchell Park Library and Community Center, as well as making
substantial improvements to the 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.
2013A General Obligation Bonds – On June 30, 2013, the City issued $20.7 million of GO bonds to finance
costs for constructing a new Mitchell Park Library and Community Center, as well as making substantial
improvements to the 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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
75
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
The City’s 2010 and 2013A GO bonds are payable from pledged ad valorem property taxes until the final
maturity dates of the bonds in August 1, 2040 and August 1, 2043 respectively. For the fiscal year ended
June 30, 2015, the City received $4.6 million in ad valorem property taxes and made total debt service
payments in the amount of $1.4 million principal and $3.2 million interest for both 2010 and 2013A GO
bonds.
2011 Lease‐Purchase Agreement – On August 2, 2011, the City entered into a master lease‐purchase
agreement with JP Morgan Chase Bank, N.A. to finance redemption of the 1998 Golf Course COPs. The
lease is secured by a first priority security interest in twenty‐one Fire Department emergency vehicles.
Lease proceeds were $3.2 million. Principal payments are due annually on September 1 and interest
payments are due semi‐annually on September 1 and March 1 at a rate of 2.49 percent, payable from
General Fund revenues.
1995 Utility Revenue Bonds, Series A – The City issued $8.6 million of Utility Revenue Bonds on February
1, 1995 to finance certain extensions and improvements to the City’s Storm Drainage and Surface Water
System. The Bonds are special obligations of the City payable solely from and secured by a pledge of and
lien upon the revenues derived by the City from the funds, services and facilities of all Enterprise Funds
except the Refuse Services Fund, Fiber Optics Fund and Airport Fund. Principal payments are payable
annually on June 1 and interest payments semi‐annually on June 1 and December 1. A $2.9 million 6.3
percent term bond is due June 1, 2020.
As required by the Indenture, the City established a debt service reserve fund for the Bonds (the “Reserve
Account”), with a minimum funding level requirement in the Reserve Account (the “Reserve
Requirement”). At the time it issued the Bonds, the City satisfied the Reserve Requirement with a deposit
into the Reserve Account of a surety bond (the “Surety Bond”) in the amount of $685,340 issued by Ambac
Indemnity Corporation (renamed to Ambac Assurance Corporation in 1997).
On May 1, 2013, Ambac Financial emerged from bankruptcy protection, which had been filed under
Chapter 11 of the Bankruptcy Code in November 2010. Ambac Assurance remains subject to rehabilitation
proceedings undertaken by the Wisconsin Office of the Commissioner of Insurance. No assurance can be
made regarding the claims paying ability of Ambac Assurance on the surety bonds described above.
The pledge of future Net Revenues for the above bonds ends upon repayment of the $2.9 million principal
and $0.6 million interest as the remaining debt service on the bonds, which is scheduled to occur in FY
2020. For FY 2015, Net Revenues, including operating revenues and non‐operating interest earnings,
amounted to $238.2 million; operating costs, including operating expenses but not interest, depreciation
or amortization, amounted to $188.3 million. Net Revenues available for debt service amounted to $50.0
million, which represented coverage of 73.1 times over the $0.7 million in debt service.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
76
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
1999 Utility Revenue and Refunding Bonds – The City issued $17.7 million of Utility Revenue Bonds on
June 1, 1999, to refund the 1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue
Bonds, Series A, and to finance rehabilitation of the two Wastewater Treatment sludge incinerators. The
1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue Bonds, Series A, were
subsequently retired.
The 1999 Bonds are special obligations of the City payable solely from and secured by a pledge of and lien
upon certain net revenues derived by the City’s sewer system and its storm and surface water system (the
“Storm Drain System”). As of June 30, 2001, the 1999 Bonds had been allocated to and were repayable
from net revenues of the following enterprise funds: Wastewater Collection (10.2 percent), Wastewater
Treatment (64.6 percent) and Storm Drainage (25.2 percent). Principal payments are payable annually on
June 1 and interest payments semi‐annually on June 1 and December 1. A $3.1 million 5.3 percent term
bond, and a $5.1 million 5.3 percent term bond are due June 1, 2021 and 2024, respectively.
As required by the Indenture, the City established a debt service reserve fund for the Bonds (the “Reserve
Account”), with a minimum funding level requirement in the Reserve Account (the “Reserve
Requirement”). At the time it issued the Bonds, the City satisfied the Reserve Requirement with a deposit
into the Reserve Account of a surety bond (the “Surety Bond”) in the amount of $1,647,300 issued by
Ambac Indemnity Corporation (renamed to Ambac Assurance Corporation in 1997).
On May 1, 2013, Ambac Financial emerged from bankruptcy protection, which had been filed under
Chapter 11 of the Bankruptcy Code in November 2010. Ambac Assurance remains subject to rehabilitation
proceedings undertaken by the Wisconsin Office of the Commissioner of Insurance. No assurance can be
made regarding the claims paying ability of Ambac Assurance on the surety bonds described above.
The pledge of future Net Revenues for the above bonds ends upon repayment of the $10.4 million
principal and $3.2 million interest as the remaining debt service on the bonds, which is scheduled to occur
in FY 2024. For FY 2015, Net Revenues, including operating revenues and non‐operating interest earnings,
amounted to $47.3 million; operating costs, including operating expenses but not interest, depreciation
or amortization, amounted to $33.1 million. Net Revenues available for debt service amounted to $14.1
million, which represents coverage of 11.7 times over the $1.2 million in debt service.
2007 Electric System Clean Renewable Energy Tax Credit Bonds, Series A – In October 2007, the City
issued $1.5 million of Electric Utility Clean Renewable Energy Tax Credit Bonds (CREBs), 2007 Series A, to
finance the City’s photovoltaic solar panel project. The CREBs do not bear interest. In lieu of receiving
periodic interest payments, bondholders are allowed annual federal income tax credits in an amount
equal to a credit rate for such CREBs multiplied by the outstanding principal amount of the CREBs owned
by the bondholders. The 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, 2015
77
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
The pledge of future Electric Fund Net Revenues ends upon repayment of the $0.7 million remaining debt
service on the bonds, which is scheduled to occur in FY 2022. For FY 2015, Net Revenues, including
operating revenues and non‐operating interest earnings, amounted to $123.1 million; operating costs,
including operating expenses but not interest, depreciation or amortization, amounted to $106.2 million.
Net Revenues available for debt service amounted to $17.0 million, which represented coverage of
170 times over the $0.1 million in debt service.
2009 Water Revenue Bonds, Series A – On October 6, 2009, the City issued $35.0 million of Water
Revenue Bonds to finance certain improvements to the City’s water utility system. Principal payments are
due annually on June 1, and interest payments are due semi‐annually on June 1 and December 1 from
1.80 percent to 5.95 percent. The 2009 Revenue Bonds are secured by net revenues generated by the
Water Services Fund. The 2009 Bonds were issued as bonds designated as “Direct Payment Build America
Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (“Build America
Bonds”). The City expects to receive a cash subsidy payment from the United States Treasury equal to 35
percent of the interest payable on the 2009 Bonds. The lien of the 1995 Bonds on the Net Revenues is
senior to the lien on Net Revenues securing the 2009 Bonds and the 2011 Bonds. The City received subsidy
payments amounting to $534 thousand, which represents 32.4 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 $30.7 million
principal and $20.6 million interest as the remaining debt service on the bonds, which is scheduled to
occur in FY 2035. For FY 2015, Net Revenues, including operating revenues and non‐operating interest
earnings, amounted to $36.6 million; operating costs, including operating expenses but not interest,
depreciation or amortization, amounted to $28.2 million. Net Revenues available for debt service
amounted to $8.4 million, which represented coverage of 3.29 times over the $2.6 million in debt service.
2011 Utility Revenue Refunding Bonds – On September 8, 2011, the City issued $17.2 million in Lease
Revenue Bonds (2011 Bonds) to refund the outstanding 2002 Series A Utility Revenue Bonds (2002 Bonds)
on a current basis. The 2002 Bonds were issued to finance improvement to the City’s municipal water
utility system and the natural gas utility system. Principal of the 2011 Bonds is payable annually on June
1, and interest on the 2011 Bonds is payable semi‐annually on June 1 and December 1. The 2011 Bonds
are secured by net revenues generated by the Water Services and Gas Services Funds.
The pledge of future Net Revenues of the above bonds ends upon repayment of the $13.3 million principal
and $2.7 million interest as remaining debt service on the bonds, which is scheduled to occur in FY 2035.
For FY 2015, Net Revenues, including operating revenues and non‐operating interest earnings, amounted
to $67.8 million; operating costs, including operating expenses but not interest, depreciation or
amortization, amounted to $49.0 million. Net Revenues available for debt service amounted to $18.9
million, which represented coverage of 12.9 times over the $1.5 million in debt service.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
78
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
2007 State Water Resources Loan – In October 2007, the City approved a $9 million loan agreement with
State Water Resources Control Board (SWRCB) to finance the City’s Mountain View/Moffett Area
reclaimed water pipeline project. Under the terms of the contract, the City has agreed to repay $9 million
to the State in exchange for receiving $7.5 million in proceeds to be used to fund the Project. The
difference 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 million loan repayable to the City. This loan has been recorded
as “Due from other government agencies” in the accompanying financial statements.
2009 State Water Resources Loan – In October 2009, the City approved an $8.5 million loan agreement
with SWRCB to finance the City’s Ultraviolet Disinfection project. Principal and interest payments are
payable annually on November 30.
Debt Service Requirements (in thousands):
Debt service requirements are shown below for all long‐term debt.
For the Year Ending
June 30 Principal Interest Total Principal Interest Total
2016 1,995$ 3,338$ 5,333$ 4,049$ 2,972$ 7,021$
2017 2,066 3,260 5,326 4,198 2,818 7,016
2018 2,156 3,170 5,326 4,363 2,656 7,019
2019 2,251 3,073 5,324 4,533 2,484 7,017
2020 1,920 2,987 4,907 4,713 2,300 7,013
2021‐2025 10,130 12,691 22,821 24,277 8,622 32,899
2026‐2030 12,185 10,343 22,528 13,934 4,925 18,859
2031‐2035 15,265 7,927 23,192 11,357 2,019 13,376
2036‐2040 19,015 4,061 23,076 ‐ ‐ ‐
2041‐2045 7,740 445 8,185 ‐ ‐ ‐
Total 74,723$ 51,295$ 126,018$ 71,424$ 28,796$ 100,220$
Governmental Activities Business‐Type Activities
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
79
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
Debt Call Provisions
Long‐term debt as of June 30, 2015 is callable on the following terms and conditions:
Initial Call Date
Governmental Activities Long‐Term Debt
2002B Certificates of Participation 03/01/11 (2)
2010 General Obligation Bonds
$6.595 million due 08/01/2032 08/01/31 (3)
$4.890 million due 08/01/2034 08/01/33 (3)
$17.725 million due 08/01/2040 08/01/35 (3)
Business‐Type Activities Long‐Term Debt
Utility Revenue Bonds
1999 Refunding 06/01/09 (1)
2011 Refunding 06/01/21 (1)
(1) Callable in inverse numerical order of maturity at par plus a premium of 2 percent beginning on the
initial call date. The call price declines subsequent to the initial date.
(2) Callable in any order specified by the City at par plus a premium of 1 percent beginning on the initial
call date. The call price declines subsequent to the initial date.
(3) Callable in any order specified by the City at par value plus any accrued interest beginning on the
initial call date.
Leasing Arrangements
COPs and Capital Leases are issued for the purpose of financing the construction or acquisition of projects
defined in each leasing arrangement. Projects are leased to the City for lease payments which, together
with unspent proceeds of the leasing arrangement, will be sufficient to meet the debt service obligations
of the leasing arrangement. At the termination of the leasing arrangement, title to the project will pass to
the City.
Leasing arrangements are similar to debt in that they allow investors to participate in a share of
guaranteed payments made by the City. Because they are similar to debt, the present value of the total
payments to be made by the City is recorded as long‐term debt. The City’s leasing arrangements are
included in long‐term obligations discussed above.
Conduit Financing
On December 15, 1996, the City acted as a financial intermediary in order to assist Lytton Gardens Health
Care Center in issuing Insured Revenue Refunding Bonds. The Bonds are payable solely from revenues
collected by Lytton Gardens Health Care Center. The City has not included these bonds in its basic financial
statements since it is not legally or morally obligated for the repayment of the bonds. At June 30, 2015,
the amount of bonds outstanding was $2.2 million.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
80
NOTE 8 – SPECIAL ASSESSMENT DEBT
Special Assessment Debt with no City Commitment
The California Avenue Parking Assessment District No. 92‐13 issued Assessment Bonds of 1993, but the
City has no legal or moral liability with respect to the payment of this debt, which is secured only by
assessments on the properties in this District. Therefore, this debt is not included in Governmental
Activities long‐term debt of the City. At June 30, 2015, the District’s outstanding debt amounted to
$170 thousand.
On February 29, 2012, the University Avenue Area Off‐Street Parking Assessment District issued Limited
Obligation Refunding Improvement Bonds (2012 Bonds), but the City has no legal or moral liability with
respect to the payment of this debt, which is secured only by assessments on properties in this District.
Therefore, this debt is not included in Governmental Activities long‐term debt of the City. At June 30,
2015, the District’s outstanding debt amounted to $28.1 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.
NOTE 9 – LANDFILL CLOSURE AND POST‐CLOSURE CARE
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 maintenance and monitoring activities at the site for a minimum of
thirty years after closure. Phase I, a 29 acre area, was closed in 1991 at a cost of $1.6 million, and
subsequently converted to a pastoral park (Byxbee Park) open to the public. Phase IIA, 22.5 acres, closed
in 1992 at a cost of $0.9 million and Phase IIB, 23.2 acres, closed in 2000 at a cost of $1.2 million. The
closure of Phase IIC, a 51.2 acre area that ceased accepting waste in July 2011, is under way and is
expected to be completed by December 2015.
An updated final closure and post‐closure maintenance plan was approved by state and local regulatory
agencies in 2014. The City’s consultant updated the forecast for remaining Phase IIC closure cap
construction costs and 30 year post‐closure maintenance and monitoring costs. These cost estimates are
adjusted annually for inflation. The 30 years of post‐closure maintenance costs will be paid on an annual
basis after the state certifies the Phase IIC closure.
Landfill closure and post‐closure liabilities for FY 2015 and FY 2014 were $7.8 and $11.4 million,
respectively. The City is required by state and federal laws and regulations to fund closure and post‐
closure care. The $1.3 million closure liability is secured by cash. The $6.5 million post‐closure liability is
secured by a pledge of revenue agreement with California Integrated Waste Management Board. The City
is in compliance with funding requirements for the year ended June 30, 2015.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
81
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:
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
82
NOTE 10 – NET POSITION AND FUND BALANCES (Continued)
The fund balances of all governmental funds are presented by the above mentioned categories on the
face of the financial statements. In circumstances when an expenditure is made for a purpose for which
amounts are available in multiple fund balance categories, fund balance is depleted in the order of
restricted, committed, assigned, and unassigned.
The General Fund Budget Stabilization Reserve (BSR) is established by authority of the General Fund
Reserve Policy, which is approved by the City Council and included in the City’s annual adopted budget.
The BSR is maintained in the range of 15 to 20 percent of General Fund expenditures and operating
transfers, with a target of 18.5 percent. Any reserve level below 15 percent requires City Council approval.
At the discretion of the City Manager, a reserve balance above 18.5 percent may be transferred to the
Infrastructure Reserve within the Capital Projects Fund. The purpose of the General Fund BSR is to fund
unbudgeted, unanticipated one‐time costs. The BSR is not meant to fund ongoing, recurring General Fund
expenditures.
The Capital Projects Fund Infrastructure Reserve (IR) is the portion of capital projects assigned fund
balance not yet adopted for a specific project. It does not include potential outside funding for adopted
projects.
As of June 30, 2015 total outstanding encumbrances related to governmental activities were $5.6 million
for the General Fund, $16.6 million for the Capital Projects Fund, and $0.6 million for the Special Revenue
Funds. General Fund encumbrances are reserved for the following governmental activities: Planning &
Community Environment $1.6 million, Development Services $0.1 million, Public Works $0.9 million,
Community Services $0.8 million, Public Safety $0.6 million, Library $0.2 million, and the remaining City’s
departments $1.4 million.
Enterprise Funds
At June 30, 2015, Enterprise Fund unrestricted net position (in thousands) were as follows:
Water Electric Fiber Optics Gas
Wastewater
Collection
Wastewater
Treatment Refuse
Storm
Drainage Airport Total
Unrestricted
Rate stabilization
Supply ‐$ 14,411$ ‐$ (304)$ ‐$ ‐$ ‐$ ‐$ ‐$ 14,107$
Distribution 6,579 ‐ 21,361 7,109 4,292 5,819 4,250 1,659 (1,643) 49,426
6,579 14,411 21,361 6,805 4,292 5,819 4,250 1,659 (1,643) 63,533
Operations
Supply ‐ 16,012 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 16,012
Distribution 11,537 6,486 ‐ 10,847 2,431 ‐ ‐ ‐ ‐ 31,301
11,537 22,498 ‐ 10,847 2,431 ‐ ‐ ‐ ‐ 47,313
Emergency plant replacement ‐ ‐ 1,000 ‐ ‐ 1,980 ‐ ‐ ‐ 2,980
Electric special projects ‐ 51,838 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 51,838
Reappropriations 9,656 8,464 385 1,591 2,551 1,691 61 6,075 75 30,549
Commitments 7,633 6,912 175 4,900 8,291 4,702 1,128 899 252 34,892
Underground loan ‐ 730 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 730
Notes and loans ‐ ‐ ‐ ‐ ‐ 559 ‐ ‐ ‐ 559
Landfill corrective action ‐ ‐ ‐ ‐ ‐ ‐ 712 ‐ ‐ 712
Hydro stabilization reserve ‐ 17,000 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 17,000
Public benefit program ‐ 2,574 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2,574
Central Valley Project ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
CIP reserve 4,000 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 4,000
Geng Road Reserve ‐ ‐ ‐ ‐ ‐ ‐ 268 ‐ ‐ 268
GASB 68 Pension reserve (11,887) (27,912) (1,687) (12,643) (7,078) (17,529) (4,993) (2,992) (397) (87,118)
Total 27,518$ 96,515$ 21,234$ 11,500$ 10,487$ (2,778)$ 1,426$ 5,641$ (1,713)$ 169,830$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
83
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.
In June 2014, the City Council approved a resolution which updated the Reserves Management Practices
for the Electric, Gas, Wastewater Collection and Water Utilities. Restructuring of the reserve balances
was designed to increase transparency, to make contingency reserves easier to manage from year to year,
and to eliminate reserves that are no longer necessary. Guidelines for managing the reserves are
contained in the Reserves Management Practices, including actions to be taken when reserve balances
are not within the guidelines. These changes were implemented July 1, 2014.
Internal Service Funds
At June 30, 2015, 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 1,639$ 2,081$ 47$ 215$ 43$ 33$ ‐$ 4,058$
Future catastrophic losses ‐ ‐ ‐ ‐ 1,948 2,729 ‐ 4,677
Retiree health care ‐ ‐ ‐ ‐ ‐ ‐ 26,170 26,170
Capital projects 3,641 6,893 ‐ ‐ ‐ ‐ ‐ 10,534
GASB68 pension reserve (2,675) (9,378) (298) ‐ ‐ ‐ ‐ (12,351)
Available 5,606 10,551 (32) 2,324 ‐ ‐ ‐ 18,449
Total 8,211$ 10,147$ (283)$ 2,539$ 1,991$ 2,762$ 26,170$ 51,537$
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
84
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 at:
<http://www.calpers.ca.gov/index.jsp?bc=/about/forms‐pubs/calpers‐reports/actuarial‐
reports/home.xml>
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, 2015, are summarized in the following table.
Contribution rates are based on the Actuarial Valuation Report as of June 30, 2012.
Safety Plan
Fire Fighters,
Fire Chief Association,
Police Officers, Police
Management
Fire Fighters,
Fire Chief Association
Police Officers,
Police Management
Hire Date Prior to June 8, 2012 On or After June 8, 2012 On or After Dec. 8, 2012
Benefit formula1 3% at 55 3% at 55 3% at 50
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 50 55
1 551
Monthly benefits, as a % of eligible compensation 3% 3% 3%
Actuarially determined contribution rates ‐ employee 9% 9% 9%
Actuarially determined contribution rates ‐ employer 39.528% 39.528% 39.528%
Miscellaneous Plan
Hire Date Prior to July 17, 2010 On or After July 17, 2010
Benefit formula2 2.7% at 55 2% at 60
Benefit vesting schedule 5 years service 5 years service
Benefit payments monthly for life monthly for life
Retirement age2 55 60
Monthly benefits, as a % of eligible compensation2 2.70% 2.0% ‐ 2.418%
Actuarially determined contribution rates ‐ employee 8% 7%
Actuarially determined contribution rates ‐ employer 26.122% 26.122%
1 Employees can retire at age 50 with reduced benefits of 2.40% ‐ 2.88%
2 Employees can retire at age 50 with reduced benefits of 2.00% ‐ 2.56% if hired before July 17, 2010, or 1.092% ‐ 1.874% if hired on or
after July 17, 2010
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
85
NOTE 11 – PENSION PLANS (Continued)
Employees Covered – Based on the Actuarial Valuation Report as of June 30, 2013,, the following
employees were covered by the benefits terms for each Plan:
Miscellaneous
Plan Safety Plan
Inactive employees or beneficiaries currently receiving benefits 989 404
Inactive employees entitled to but not yet receiving benefits 629 88
Active employees 789 184
Total 2,407 676
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.
For the Miscellaneous Plan, active plan members are required by state statute to contribute 8% of their
annual covered salary. For FY2015, the City was required to contribute at an actuarially determined rate
of 26.122% of annual covered payroll for the City’s employees, which amounted to $18.6 million.
For the Safety Plan, active plan members are required by state statute to contribute 9% of their annual
covered salary. For FY2015, the City was required to contribute at an actuarially determined rate of
39.528% of annual covered payroll for the City’s employees, which amounted to $8.7 million.
(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, 2014 (measurement date), using
the actuarial valuation report as of June 30, 2013 rolled forward to June 30, 2014 using standard update
procedures. At June 30, 2015, the City reported net pension liability of $289.9 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, 2015
86
NOTE 11 – PENSION PLANS (Continued)
Actuarial Assumptions ‐ The total pension liabilities were determined using the following actuarial
assumptions:
Miscellaneous
Plan Safety Plan
Valuation Date June 30, 2013 June 30, 2013
Measurement Date June 30, 2014 June 30, 2014
Actuarial Cost Method Entry Age Normal
Cost Method
Entry Age Normal
Cost Method
Actuarial Assumptions:
Discount Rate 7.50% 7.50%
Inflation 2.75% 2.75%
Payroll Growth 3.00% 3.00%
Projected Salary Increase 3.30% to 14.20%
depends on age,
service, and type
of employment
3.30% to 14.20%
depends on age,
service, and type
of employment
Investment Rate of Return1 7.50% 7.50%
Mortality2
1 Net of pension plan investment and administrative expenses, including
inflation.
2 The mortality table used was developed based on CalPERS' specific data.
The table includes 20 years of mortality improvements using Society of
Actuaries Scal BB. For more details on this table, please refer to the 2014
experience study report.
Derived using CALPERS' Membership
Data for all Funds
All other actuarial assumptions used in the June 30, 2013 Actuarial Valuation Report were based on the
results of an actuarial experience study for the period from 1997 to 2011. Further details of the
experience study can be found on the CalPERS website.
Discount Rate – The discount rate used to measure the total pension liability was 7.50 percent. To
determine whether the municipal bond rate should be used in the calculation of a discount rate for each
plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different
from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of
assets. Therefore, the current 7.50 percent discount rate is adequate and the use of the municipal bond
rate calculation is not necessary. The long‐term expected discount rate of 7.50 percent is applied to all
plans in the Public Employees Retirement Fund. The stress test results are presented in a detailed report
named “GASB Crossover Testing Report” that can be obtained from the CalPERS website under the GASB
Statement No. 68 section.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
87
NOTE 11 – PENSION PLANS (Continued)
According to Paragraph 30 of Statement 68, the long‐term discount rate should be determined without
reduction for pension plan administrative expense. The 7.50 percent investment return assumption used
in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to
be 15 basis points. An investment return excluding administrative expenses would have been 7.65
percent. Using this lower discount rate has resulted in a slightly higher total pension liability and net
pension liability. CalPERS checked the materiality threshold for the difference in calculation and did not
find it to be a material difference to the Plans.
CalPERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management
review cycle that is scheduled to be completed in February 2018. Any changes to the discount rate will
require CalPERS Board action and proper stakeholder outreach. For these reasons, CalPERS expects to
continue using a discount rate net of administrative expenses for GASB Statement Nos. 67 and 68
calculations through at least the 2017‐18 fiscal year. CalPERS will continue to check the materiality of the
difference in calculation until such time as it changes its methodology.
The long‐term expected rate of return on pension plan investments of 7.50% 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. Such cash flows
were developed assuming that both members and employers will make their required contributions on
time and as scheduled in all future years. Using historical returns of all the funds’ asset classes, expected
compound returns were calculated over the short‐term (first 10 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 equivalent to the single equivalent rate calculated above and rounded down to the nearest
one quarter of one percent.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
88
NOTE 11 – PENSION PLANS (Continued)
The table below reflects the long‐term expected real rate of return by asset class for both Miscellaneous
and Safety Plans. The rate of return was calculated using the capital market assumptions applied to
determine the discount rate and asset allocation. These rates of return are net of administrative
expenses.
Asset Class
New
Strategic
Allocation
Real Return
Years 1 - 101
Real Return
Years 11+2
Global Equity 47.0% 5.25% 5.71%
Global Fixed Income 19.0 0.99 2.43
Inflation Sensitive 6.0 0.45 3.36
Private Equity 12.0 6.83 6.95
Real Estate 11.0 4.50 5.13
Infrastructure and Forestland 3.0 4.50 5.09
Liquidity 2.0 (0.55) (1.05)
1 An expected inflation of 2.5% used for this period.
2 An expected inflation of 3.0% used for this period.
(c) Changes in the Net Pension Liability
The following is based on the GASB 68 Accounting Valuation Report and table shows the changes in the
net pension liability for the Miscellaneous Plan (in thousands):
Total Pension
Liability
Plan Net
Position
Net Pension
Liability
Balances calculated at July 1, 2014 $ 635,847 $ 413,410 $ 222,437
Changes for the year:
Service cost 12,442 ‐ 12,442
Interest on total pension liability 46,963 ‐ 46,963
Contributions from employer ‐ 17,400 (17,400)
Contributions from employees ‐ 6,345 (6,345)
Net investment income ‐ 70,989 (70,989)
Benefit payments, including refunds of
employee contributions (31,781) (31,781)‐
Net changes 27,624 62,953 (35,328)
Balances reported at June 30, 2015 $ 663,471 $ 476,363 $ 187,108
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
89
NOTE 11 – PENSION PLANS (Continued)
The following table is based on the GASB 68 Accounting Valuation Report and shows the changes in the
net pension liability for the Safety Plan (in thousands):
Total Pension
Liability
Plan Net
Position
Net Pension
Liability
Balances calculated at July 1, 2014 $ 355,054 $ 234,153 $ 120,901
Changes for the year:
Service cost 6,221 ‐ 6,221
Interest on total pension liability 26,113 ‐ 26,113
Contributions from employer ‐ 7,616 (7,616)
Contributions from employees ‐ 2,762 (2,762)
Net investment income ‐ 40,033 (40,033)
Benefit payments, including refunds of
employee contributions (19,985) (19,985)‐
Net changes 12,349 30,426 (18,078)
Balances reported at June 30, 2015 $ 367,403 $ 264,579 $ 102,824
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 7.50
percent, compared to a discount rate that is 1 percentage point lower (6.50 percent) or 1 percentage
point higher (8.50 percent). Amounts shown below are in thousands:
Discount Rate ‐ 1%
(6.50%)
Current Discount
Rate (7.50%)
Discount Rate + 1%
(8.50%)
Miscellaneous Plan:
Plan's Net Pension Liability/(Asset) 269,623$ 187,108$ 118,203$
Safety Plan:
Plan's Net Pension Liability/(Asset) 148,420$ 102,824$ 64,947$
Plan Fiduciary Net Position – Detailed information about the Plan’s fiduciary net position is available in
the separately issued CalPERS financial report.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
90
NOTE 11 – PENSION PLANS (Continued)
(d) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions
For the year ended June 30, 2015, the City recognized a pension expense of $14.5 million and $7.9 million
for the Miscellaneous and Safety Plan respectively. At June 30, 2015, the City reported pension related
deferred outflows of resources and deferred inflows of resources from the following sources (in
thousands):
Deferred Outflows
of Resources
Deferred Inflows
of Resources
Pension contributions subsequent to
measurement date 27,284$ ‐$
Net difference between projected and
actual earnings on plan investments ‐ 50,736
Total 27,284$ 50,736$
The $27.3 million reported as deferred outflows of resources relates to contributions made by the City
from July 1, 2014 through June 30, 2015 which is subsequent to the City’s measurement date of
June 30, 2014 for both the Miscellaneous and Safety Plans. This amount will be recognized as a reduction
of the net pension liability in the year ended June 30, 2016.
The net differences between projected and actual earnings on plan investments will be recognized in
future pension expense as follows (in thousands):
Year Ended
June 30,
2016 12,684$
2017 12,684
2018 12,684
2019 12,684
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
91
NOTE 12 – RETIREE HEALTH BENEFITS
In addition to providing pension benefits, the City participates in the California Public Employees’ Medical
and Health Care Act program to provide certain health care benefits for retired employees. Employees
who retire directly from the City are eligible for retiree health benefits if they retire on or after age 50
with 5 years of service and are receiving a monthly pension from CalPERS. Details of benefits provided to
retirees are noted in the following tables:
Unit
Hired
Before
Retiree
Coverage1
Dependent
Coverage
Retired on
or After
Retiree
Contribution
Management & Professional2 1/1/2004 100% 100% 5/1/2011 Flat rate4
Police Management2 1/1/2004 100% 100% 5/1/2011 10%
Fire Fighters2 1/1/2004 100% 100% 12/1/2011 10%
Fire Chiefs Association2 1/1/2004 100% 100% 1/1/2013 10%
SEIU 1/1/2005 100% 100% 5/1/2011 Flat rate4
Police Officers3 1/1/2006 100% 100% N/A 0%
Utilities Managers & Professional2 1/1/2004 100% 100% 5/1/2011 10%
2 Effective 1/1/2007 plan capped at the second highest CalPERS Bay Area Basic plan premium.
3 Effective 3/1/2009 plan capped at the second highest CalPERS Bay Area Basic plan premium.
4 Effective 4/1/2014 City pays $688 for employee, $1,375 for employee +1, $1,788 for family. Effective 1/1/2015 City pays
$708 for employee, $1,415 for employee +1, $1,840 for family.
Unit
Hired on or
After
Retiree
Coverage1
Dependent
Coverage2
Management & Professional 1/1/2004 50%‐100% Max. 90%
Police Management 1/1/2004 50%‐100% Max. 90%
Fire Fighters 1/1/2004 50%‐100% Max. 90%
Fire Chiefs Association 1/1/2004 50%‐100% Max. 90%
SEIU 1/1/2005 50%‐100% Max. 90%
Police Officers 1/1/2006 50%‐100% Max. 90%
specified employer contribution, with the City portion increasing by 5% for each additional year of service credit.
2 Maximum of 90% once employee completes 20 years of service.
1 100% of benefits if the employee has five years CalPERS service credit and the employee retired from the City.
1 Employees with ten years of CalPERS service, at least five of which are at the City of Palo Alto, receive 50% of the
Retiree contributions for units with the following hire dates are determined by Government Code
Section 22893, 20 year graduated schedule:
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
92
NOTE 12 – RETIREE HEALTH BENEFITS (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.
Funding Policy and Actuarial Assumptions
The City’s policy is to prefund these benefits by accumulating assets in the Trust Fund discussed above
pursuant to City Council Resolution. The annual required contribution (ARC) was determined as part of a
June 30, 2013 actuarial valuation using the entry age normal actuarial cost method. This is a projected
benefit cost method, which takes into account those benefits that are expected to be earned in the future
as well as those already accrued. The actuarial assumptions include: (a) 7.6125 percent investment rate
of return, (b) 3.25 percent projected annual salary increase, (c) actuarial value of assets, (d) inflation rate
of 3 percent, and (e) health care cost trend data as noted in the following table:
Year Non‐Medicare Medicare
2015 8.0% 8.3%
2016 7.5% 7.8%
2017 7.0% 7.2%
2018 6.5% 6.7%
2019 6.0% 6.1%
2020 5.5% 5.6%
2021+ 5.0% 5.0%
The most current funded status of the plan was determined as part of the June 30, 2013 actuarial
valuation.
The actuarial methods and assumptions used include techniques that smooth the effects of short‐term
volatility in actuarial accrued liabilities and the actuarial value of assets. Actuarial calculations reflect a
long‐term perspective and actuarial valuations involve estimates of the value of reported amounts and
assumptions about the probability of events far into the future. The calculations are based on the types
of benefits provided under the terms of the substantive plan at the time of each valuation and on the
pattern of sharing costs between the City and Plan members to that point. Actuarially determined
amounts are subject to revision at least biannually as results are compared to past expectations and new
estimates are made about the future. The City’s unfunded actuarial accrued liability for retiree health
benefits is being amortized as a level percentage of projected payroll using a 30 year closed amortization
period.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
93
NOTE 12 – RETIREE HEALTH BENEFITS (Continued)
Generally accepted accounting principles permit assets to be treated as other post employment benefit
(OPEB) assets and deducted from the Actuarial Accrued Liability when such assets are placed in an
irrevocable trust or equivalent arrangement. During the year ended June 30, 2015, the City made
contributions and amortized the Net OPEB asset to fund the current year annual required contribution
(ARC). As a result, the City has calculated and recorded the Net OPEB Asset, representing the difference
between the ARC, amortization and contributions, as presented below (in thousands):
Annual required contribution 14,282$
Amortization on the Net OPEB Asset 2,212
Interest on the Net OPEB Asset (1,721)
Annual OPEB Cost 14,773
Contributions made:
Contributions to OPEB Trust 4,123
Contributions to Retirees 6,809
Implicit rate subsidy 1,916
City portion of current year premiums paid* 2,186
Total contributions made 15,034
Change in Net OPEB Asset 261
Net OPEB Asset, beginning of year 22,610
Net OPEB Asset, end of year 22,871$
* FY 2015 premiums for 924 retirees.
Shortly after year‐end, the City contributed an additional $2.1 million to the Trust.
The Plan’s annual OPEB cost and actual contributions for the past three years ended June 30 are set forth
below (in thousands):
Fiscal Year
Annual OPEB
Cost
Actual
Contribution
Percentage
of OPEB
Cost
Net OPEB
Obligation
(Asset)
June 30, 2013 13,194$ 13,774$ 104% (21,851)$
June 30, 2014 13,255 14,014 106% (22,610)
June 30, 2015 14,773 15,034 102% (22,871)
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
94
NOTE 12 – RETIREE HEALTH BENEFITS (Continued)
The Schedule of Funding Progress presents multi‐year trend information about whether the actuarial
value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for
benefits. Trend data from the actuarial studies is presented below (in thousands):
Valuation Date
Entry Age
Accrued
Liability
Value of
Assets
Unfunded
Liability
Funded
Ratio
Annual
Covered
Payroll
Unfunded
Liability as a
% of Payroll
January 1, 2011 165,660$ 40,213$ 125,447$ 24.3% 98,940$ 126.8%
June 30, 2011 * 168,053 44,774 123,279 26.6% 80,664 152.8%
June 30, 2013 203,642 60,070 143,572 29.5% 81,785 175.5%
* In accordance with GASB Statement No. 57, the CERBT required all trust participants to use a common valuation date.
Therefore, the City is required to conduct its biennial valuation on June 30, rather than January 1, effective for 2011.
Retiree activities in the City’s Retiree Health Benefit Internal Service Fund consist of the following for the
year ended June 30 (in thousands):
Retiree Health Benefits 2015 2014
Net Position, beginning of year 26,837$ 27,233$
Interest earnings 71 51
Unrealized gain/(loss) on investments (3) 12
Interdepartmental charges 13,471 11,635
Retiree health benefits (14,206) (12,094)
Net Position, end of year 26,170$ 26,837$
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, 2015
95
NOTE 14 – RISK MANAGEMENT
Coverage
The City provides dental coverage to employees through a City plan, which is administered by a third party
service agent. The City is self‐insured for the dental claims.
The City has a workers’ compensation insurance policy with coverage up to the statutory limit set by the
State of California. The City retains the risk for the first $500,000 in losses for each accident and employee
under this policy.
The City also has public employee dishonesty insurance with a $5,000 deductible and coverage up to
$1.0 million per loss. The Chief Financial Officer 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 various coverage
based on the type of property.
The City is a member of the Authority for California Cities Excess Liability (ACCEL), which provides excess
general liability, including auto liability, insurance coverage up to $100 million per occurrence. The City
retains the risk for the first $1.0 million in losses for each occurrence under this policy.
ACCEL was established for the purpose of creating a risk management pool for central California
municipalities. ACCEL is governed by a Board of Directors consisting of representatives of its member
cities. The board controls the operations of ACCEL, including selection of claims management, general
administration and approval of the annual budget.
The City’s deposits with ACCEL equal the ratio of the City’s payroll to the total payrolls of all entities. Actual
surpluses or losses are shared according to a formula developed from overall loss costs and spread to
member entities on a percentage basis after a retrospective rating.
During the year ended June 30, 2015, the City paid $0.8 million to ACCEL for current year coverage.
Audited financial statements are available from ACCEL at 100 Pine Street, 11th Floor, San Francisco,
California 94110.
Claims Liability
The City provides for the uninsured portion of claims and judgments in the General Benefits and Insurance
Internal Service Funds. Claims and judgments, including a provision for claims incurred but not reported,
and claim adjustment expenses are recorded when a loss is deemed probable of assertion and the amount
of the loss is reasonably determinable. As discussed above, the City has coverage for such claims, but it
has retained the risk for the deductible or uninsured portion of these claims.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
96
NOTE 14 – RISK MANAGEMENT (Continued)
The City’s liability for uninsured claims is limited to dental, general liability, and workers’ compensation
claims, as discussed above. Dental liability is based on a percentage of current year actual expense.
General and workers’ compensation liabilities are based on the results of actuarial studies, and include
amounts for claims incurred but not reported as follows as of June 30 (in thousands):
2015 2014
Beginning balance 26,753$ 27,745$
Liability for current and prior fiscal years claims
and claims incurred but not reported (IBNR)574 3,232
Claims paid (3,209) (4,224)
Ending balance 24,118$ 26,753$
Current portion 5,317$ 5,665$
Year Ended June 30
The City has not incurred a claim that has exceeded its insurance coverage limits in any of the last three
years, nor have there been any significant reductions in insurance coverage.
NOTE 15 – JOINT VENTURES
General
The City participates in joint ventures through Joint Powers Authorities (JPAs) established under the Joint
Exercise of Powers Act of the State of California. As separate legal entities, these JPAs exercise full powers
and authorities within the scope of the related Joint Powers Agreement, including the preparation of
annual budgets, accountability for all funds, the power to make and execute contracts and the right to
sue and be sued. Obligations and liabilities of the JPAs are, including the long‐term debt of which the City
participates in repayment, are not obligations and liabilities of the City, and accordingly, 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, 2015
97
NOTE 15 – JOINT VENTURES (Continued)
During the year ended June 30, 2015, the City incurred expenses totaling $78.3 million for purchased
power and assessments earned by NCPA.
The City’s interest in NCPA projects and reserves, as computed by NCPA, was $8.6 million at June 30, 2015.
This amount represents the City’s portion of funds, which resulted from the settlement with third parties
of issues with financial consequences and reconciliations of several prior years’ budgets for programs. It
is recognized that all the funds credited to the City are linked to the collection of revenue from the City’s
ratepayers, or to the settlement of disputes relating to electric power supply and that the money was
collected from the City’s ratepayers to pay power bills. Additionally, the NCPA Commission identified and
approved the funding of specific reserves for working capital, accumulated employees’ post‐retirement
medical benefits, and billed property taxes for the geothermal project. The Commission also identified a
number of contingent liabilities that may or may not be realized, the cost of which in most cases is difficult
to estimate at this time. One such contingent liability is the steam field depletion, which will require
funding to cover debt service and operational costs in excess of the expected value of the electric power.
The General Operating Reserve (GOR) is intended to minimize the number and amount of individual
reserves needed for each project, protect NCPA’s financial condition and maintain its credit worthiness.
The GOR funds of $1.5 million are left on deposit with NCPA as a reserve against these contingencies
identified by NCPA.
Members of NCPA may participate in an individual project of NCPA without obligation for any other
project. Member assessments collected for one project may not be used to finance other projects of NCPA
without the member’s permission.
Geothermal Projects
A purchased power agreement with NCPA obligated the City for 6.2 percent and 6.2 percent, respectively,
of the operating costs and debt service of the two NCPA 110‐megawatt geothermal 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, 2015 is $82.5 million. The City’s participation in this project was 6.2 percent, or $5.1million.
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, 2015, the book value of this
Project’s plant, equipment and other assets was $448 million, while its long‐term debt totaled $377.6
million and other liabilities totaled $62.8 million. The City’s share of the Project’s long‐term debt
amounted to $86.5 million at that date.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
98
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, 2015, 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, 2015
99
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 a portion of the former Cubberley School site and twelve
extended day care sites from Palo Alto Unified School District (PAUSD). The lease is part of a larger
agreement, which includes a 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 lease term expired on December 31, 2014, and the City exercised its option to extend for 5 years,
with a new expiration date of 12/31/2019. The lease provides for one more five‐year option to extend
from 1/1/2020 to 12/31/2024. The City’s rent and infrastructure payment for the facilities is $7.3 million
per year plus insurance, repairs and maintenance. The rent may vary from year to year depending on the
actual number of days used. Should any new law or regulation require the expenditure of work in excess
of $250,000, per the terms of the lease, the City and PAUSD may renegotiate the lease. This lease is
cancelable upon 90 days’ written notice in the event funds are not appropriated by the City. In addition,
the lease is contingent upon authorization by the Palo Alto electorate if it exceeds the City’s Proposition
4 (GANN) appropriations limitation in any fiscal year. Lease expenditures for the year ended June 30, 2015,
amounted to $7.3 million. Future minimum annual lease and infrastructure payments are as follows (in
thousands):
Year Ending
June 30, Payment
2016 7,399$
2017 7,505
2018 7,736
2019 7,912
2020 4,001
34,553$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
100
NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)
GreenWaste of Palo Alto – GreenWaste of Palo Alto continues as the City’s contractor for waste
collection, transportation, and processing services. The agreement expires in June 30, 2021. The base
compensation for GreenWaste is adjusted annually based on CPI indicators stipulated in the contract. In
FY 2015 payments to GreenWaste were $10.9 million.
City of Palo Alto Regional Water Quality Control Plant – The cities of Palo Alto, Mountain View and Los
Altos (the Partners) participate jointly in the cost of maintaining and operating the City of Palo Alto
Regional Water Quality Control Plant and related system (the Plant). The City is the owner and
administrator of the Plant, which provides the transmission, treatment and disposal of sewage for the
Partners. The cities of Mountain View and Los Altos are entitled to use a portion of the capacity of the
Plant for a specified period of time. Each partner has the right to rent unused capacity from/to the other
partners. The expenses of operations and maintenance are paid quarterly by each partner based on its
pro rata share of treatment costs. Additionally, joint system revenues are shared by the partners in the
same ratio as expenses are paid. The amended agreement has a term of fifty years beginning from the
original signing in October 1968, but may be terminated by any partner upon ten years’ notice to the other
partners. All sewage treatment property, plant and equipment are included in the Wastewater Treatment
Enterprise Fund’s capital assets balance at June 30, 2015. If the City initiates the termination of the
contracts, it is required to pay the other partners their unamortized contribution towards the capital
assets.
Solid Waste Materials Recovery and Transfer Station (SMaRT Station) – On June 9, 1992, the City, along
with the City of Mountain View, signed a Memorandum of Understanding (MOU) with the City of
Sunnyvale (Sunnyvale) to participate in the construction and operation of the SMaRT station, which
recovers recyclable materials from the municipal solid waste delivered from participating cities. Per the
MOU, the City has a capacity share of 21.3 percent of this facility and reimburses its proportionate capacity
share of design, construction and operation costs to Sunnyvale.
On December 1, 1992, the Sunnyvale Financing Authority issued $24.6 million in revenue bonds to finance
the design and construction costs of the SMaRT Station. During the fiscal year ended June 30, 2003, the
1992 bonds were refunded by issuing the 2003 Solid Waste Revenue Bonds in the amount of $20.6 million.
Even though these bonds are payable from and secured by the net revenues of Sunnyvale’s Utilities
Enterprise, the City is obligated to reimburse Sunnyvale 21.27 percent of total debt service payments
related to these bonds. The City’s portion of remaining principal balance for SMaRT revenue bonds as of
June 30, 2015, is $0.7 million. During the year ended June 30, 2015, the City paid $0.4 million as its portion
of current debt service.
In FY 2008, the members agreed to finance an Equipment Replacement Project from existing reserves and
proceeds from the Solid Waste Revenue Bond, Series 2007. The City has committed to repay 27.8 percent
of the remaining debt service on the Bonds. The City’s portion of the Bonds amounts to $1.1 million as of
June 30, 2015. During the year ended June 30, 2015, 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, 2015
101
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, 2015, the approximate minimum obligations for the contracts, assuming the energy or gas is
delivered over the next five years, are as follows:
Year Projected Obligation
2016 $48.2 million
2017 $61.7 million
2018 $62.6 million
2019 $63.0 million
2020 $63.5 million
Contractual Commitments beyond 2019 (Electricity) – Several of the City’s purchase power and
transmission contracts extend beyond the five‐year summary presented above. These contracts expire
between 2021 and 2046 and provide for power under various terms and conditions. The City estimates
that its annual minimum commitments under the contracts, assuming the energy is delivered, ranges
between $63.4 million in 2021 and $8.9 million in 2046. The City’s largest purchase power source is the
Western Base Resource contract, whereby the City receives 12.31 percent of the amount of energy made
available by Western, after meeting Central Valley Project use requirements, in any given year after 2014
at a 12.31 percent share of their revenue requirement. The Western contract expires on
December 31, 2024.
Gas Accord V – The City is a party to the Gas Accord V, a natural gas transportation contract between
Pacific Gas and Electric Company (PG&E) and its gas transportation customers. Gas Accord V ended as of
December 2014. The City’s minimum commitment under this contract is $319,000/year. New rates will
be determined through a proceeding at the California Public Utilities Commission and the revenue
requirement will be retroactive to January 1, 2015
San Francisco Public Utilities Commission – The City purchases water for delivery to its customers from
San Francisco Public Utilities Commission (SFPUC) under a contract terminating in 2034. The City’s
wholesale water rate under this contract is determined by a ratemaking process under the authority of
SFPUC. The City is prohibited from purchasing from other water suppliers under this contract, though it
is not prohibited from using ground water. The City’s cost of water under this contract is projected to
increase by 74% by 2021 as SFPUC completes an upgrade to its regional water system facilities under its
Water System Improvement Program (WSIP).
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2015
102
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.
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.
CITY OF PALO ALTO
Required Supplemental Information (Unaudited)
For the Year Ended June 30, 2015
103
I. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – MISCELLANEOUS PLAN
(Calculated as of June 30, 2014 and reported as of June 30, 2015, in thousands)
2015
Total pension liability
Service cost $ 12,442
Interest 46,963
Benefit payments, including refunds of employee contributions (31,781)
Net change in total pension liability 27,624
Total pension liability ‐ beginning 635,847
Total pension liability ‐ ending (a) $ 663,471
Plan fiduciary net position
Contributions ‐ employer $ 17,400
Contributions ‐ employee 6,345
Net investment income 70,989
Benefit payments, including refunds of employee contributions (31,781)
Net change in fiduciary net position 62,953
Plan fiduciary net position ‐ beginning 413,410
Plan fiduciary net position ‐ ending (b) $ 476,363
Plan net pension liability/(asset) ‐ Ending (a) ‐ (b) $ 187,108
Plan fiduciary net position as a percentage of total pension liability 71.8%
Covered employee payroll $ 66,373
Plan net pension liability/(asset) as a percentage of covered employee payroll 281.9%
Notes to Schedule:
Benefit changes ‐ The figures above do not include any liability impact that may have resulted
from plan changes which occurred after June 30, 2013. This applies for voluntary benefit
changes as well as any offers of Two Years Additional Service Credit.
Covered employee payroll ‐ assumed to increase by the 3.00% payroll growth assumption.
Changes in assumptions ‐ There were no changes in assumptions.
* Fiscal year 2015 was the first year of implementation of GASB Statement No. 68, therefore only
one year of information is shown.
CITY OF PALO ALTO
Required Supplemental Information (Unaudited)
For the Year Ended June 30, 2015
104
II. SCHEDULE OF CONTRIBUTIONS– MISCELLANEOUS PLAN (in thousands)
2014 2015
Contractually required contribution (actuarially determined) 17,400$ 18,573$
Actual contribution (17,400) (18,573)
Contribution deficiency/(excess)‐$ ‐$
Covered‐employee payroll 66,373$ 62,911$
Contributions as percentage of covered‐employee payroll 26.22% 29.52%
Notes to Schedule:
The actuarial methods and assumptions used to set the actuarially determined contributions for
fiscal year 2015 contribution rates are as follows:
Valuation date June 30, 2012
Actuarial cost method Entry age normal
Amortization method/period Level percent of payroll
Asset valuation method 15 year smoothed market
Inflation 2.75%
Salary increases 3.30% ‐ 14.20% depending on age, service and type of
employment
Payroll growth 3.00%
Investment rate of return 7.50%
Retirement age The probabilities of retirement are based on the 2010
CalPERS experience study of the period from 1997 to
2007
Mortality The probabilities of mortality are based on the 2010
CalPERS experience study of the period from 1997 to
2007. Pre‐retirement and post‐retirement mortality
rates include 5 years of projected mortality
improvement using Scale AA published by the Society of
Actuaries.
CITY OF PALO ALTO
Required Supplemental Information (Unaudited)
For the Year Ended June 30, 2015
105
III. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – SAFETY PLAN
(Calculated as of June 30, 2014 and reported as of June 30, 2015, in thousands)
2015
Total pension liability
Service cost $ 6,221
Interest 26,113
Benefit payments, including refunds of employee contributions (19,985)
Net change in total pension liability 12,349
Total pension liability ‐ beginning 355,054
Total pension liability ‐ ending (a) $ 367,403
Plan fiduciary net position
Contributions ‐ employer $ 7,616
Contributions ‐ employee 2,762
Net investment income 40,033
Benefit payments, including refunds of employee contributions (19,985)
Net change in fiduciary net position 30,426
Plan fiduciary net position ‐ beginning 234,153
Plan fiduciary net position ‐ ending (b) $ 264,579
Plan net pension liability/(asset) ‐ Ending (a) ‐ (b) $ 102,824
Plan fiduciary net position as a percentage of total pension liability 72.0%
Covered‐employee payroll $ 21,896
Plan net pension liability/(asset) as a percentage of covered employee payroll 469.6%
Notes to Schedule:
Benefit changes ‐ The figures above do not include any liability impact that may have resulted
from plan changes which occurred after June 30, 2013. This applies for voluntary benefit
changes as well as any offers of Two Years Additional Service Credit.
Covered employee payroll ‐ assumed to increase by the 3.00% payroll growth assumption.
Changes in assumptions ‐ There were no changes in assumptions.
* Fiscal year 2015 was the first year of implementation of GASB Statement No. 68, therefore only
one year of information is shown.
CITY OF PALO ALTO
Required Supplemental Information (Unaudited)
For the Year Ended June 30, 2015
106
IV. SCHEDULE OF CONTRIBUTIONS – SAFETY PLAN (in thousands)
2014 2015
Contractually required contribution (Actuarially determined) 7,616$ 8,711$
Actual contribution (7,616) (8,711)
Contribution deficiency/(excess)‐$ ‐$
Covered‐employee payroll 21,896$ 20,920$
Contributions as percentage of covered‐employee payroll 34.78% 41.64%
Notes to Schedule:
The actuarial methods and assumptions used to set the actuarially determined contributions for
fiscal year 2015 contribution rates are as follows:
Valuation Date June 30, 2012
Actuarial cost method Entry age normal
Amortization method/period Level percent of payroll
Asset valuation method 15 year smoothed market
Inflation 2.75%
Salary increases 3.30% ‐ 14.20% depending on age, service and type of
employment
Payroll growth 3.00%
Investment rate of return 7.50%
Retirement age The probabilities of retirement are based on the 2010
CalPERS experience study of the period from 1997 to
2007
Mortality The probabilities of mortality are based on the 2010
CalPERS experience study of the period from 1997 to
2007. Pre‐retirement and post‐retirement mortality
rates include 5 years of projected mortality
improvement using Scale AA published by the Society of
Actuaries.
Special Debt
Revenue Service Permanent
Funds Funds Fund Total
ASSETS:
Cash and investments:
Available for operations 79,749$ 6,653$ 1,462$ 87,864$
Cash and investments with fiscal agents ‐ 238 ‐ 238
Receivables, net:
Accounts 63 ‐ ‐ 63
Interest 321 ‐ 6 327
Notes 16,984 ‐ ‐ 16,984
Total assets 97,117 6,891 1,468 105,476
Liabilities:
Accounts payable and accruals 635 ‐ ‐ 635
Accrued salaries and benefits 16 ‐ ‐ 16
Total liabilities 651 ‐ ‐ 651
Fund balances:
Nonspendable
Eyerly family ‐ ‐ 1,468 1,468
Restricted
Transportation mitigation 11,898 ‐ ‐ 11,898
Federal revenue 4,442 ‐ ‐ 4,442
Street improvement 1,544 ‐ ‐ 1,544
Local law enforcement 140 ‐ ‐ 140
Debt service ‐ 6,891 ‐ 6,891
Public benefit 29,580 ‐ ‐ 29,580
Committed
Developer impact fee 12,497 ‐ ‐ 12,497
Housing In‐Lieu 33,881 ‐ ‐ 33,881
Special districts 2,013 ‐ ‐ 2,013
Downtown business 43 ‐ ‐ 43
Assigned
Unrealized gain on investment 428 ‐ ‐ 428
Total fund balances 96,466 6,891 1,468 104,825
Total liabilities and fund balances 97,117 6,891 1,468 105,476
LIABILITIES AND FUND BALANCES:
CITY OF PALO ALTO
Non‐major Governmental Funds
Combining Balance Sheet
June 30, 2015
(Amounts in thousands)
107
108
This page is left intentionally blank.
Special Debt
Revenue Service Permanent
Funds Funds Fund Total
REVENUES:
Property tax ‐$ 4,633$ ‐$ 4,633$
Special assessments 86 ‐ ‐ 86
Other taxes and fines 1,732 ‐ ‐ 1,732
From other agencies:
Community Development Block Grants 372 ‐ ‐ 372
State of California 116 ‐ ‐ 116
Permits and licenses
University Avenue Parking 1,856 ‐ ‐ 1,856
California Avenue Parking 194 ‐ ‐ 194
Other permits and licenses 73 ‐ ‐ 73
Investment earnings 1,533 ‐ 28 1,561
Rental income 5 ‐ ‐ 5
Other:
Housing In‐Lieu ‐ residential 6,329 ‐ ‐ 6,329
Other fees 5,281 ‐ ‐ 5,281
Total revenues 17,577 4,633 28 22,238
EXPENDITURES:
Current:
Administrative Services 190 ‐ ‐ 190
Public Works 836 ‐ ‐ 836
Planning and Community Environment 1,259 ‐ ‐ 1,259
Development Services
Public safety 221 ‐ ‐ 221
Community Services 508 ‐ ‐ 508
Non‐Departmental 357 ‐ 5 362
Debt service:
Principal retirement ‐ 1,565 ‐ 1,565
Interest and fiscal charges ‐ 3,355 ‐ 3,355
Total expenditures 3,371 4,920 5 8,296
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 14,206 (287) 23 13,942
OTHER FINANCING SOURCES (USES):
Transfers in 1,979 238 ‐ 2,217
Transfers out (7,240) ‐ ‐ (7,240)
Total other financing sources (uses) (5,261) 238 ‐ (5,023)
Change in fund balances 8,945 (49) 23 8,919
FUND BALANCES, BEGINNING OF YEAR 87,521 6,940 1,445 95,906
FUND BALANCES, END OF YEAR 96,466$ 6,891$ 1,468$ 104,825$
CITY OF PALO ALTO
Non‐major Governmental Funds
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2015
(Amounts in thousands)
109
110
This page is left intentionally blank.
111
NON‐MAJOR GOVERNMENTAL FUNDS
SPECIAL REVENUE FUNDS
Street Improvement
This fund accounts for revenues received from state gas tax. Allocations must be spent on the construction
and maintenance of the road network system of the City.
Federal Revenue
This fund accounts for grant funds received under the Community Development Act of 1974 and HOME
Investment Grant Programs, for activities approved and subject to federal regulations.
Housing In‐Lieu
This fund accounts for revenues from commercial and residential developers to provide housing under
the City’s Below Market Rate program.
Special Districts
This fund accounts for revenues from parking permits and for maintenance of various parking lots within
the City’s parking districts.
Transportation Mitigation
This fund accounts for revenues from fees or contributions required for transportation mitigation issues
encountered as a result of City development.
Local Law Enforcement
This fund accounts for revenues received in support of City’s law enforcement program.
Asset Seizure
This fund accounts for seized property and funds associated with drug trafficking. Under California
Assembly Bill No. 4162, the monies are released to the City for specific expenditures related to law
enforcement activities.
Developer Impact Fee
This fund accounts for fees imposed on new developments to be used for parks, community centers and
libraries.
Downtown Business Development District
The Downtown Business Development District Fund was established to account for the activities of the
Palo Alto Downtown Business Development District, which was established to enhance the viability of the
downtown business district.
Public Benefit
This fund accounts for the activities of the SUMC Parties Development Agreement (DA) whereby SUMC
will enhance and expand their facilities and the City will grant SUMC the right to develop the facilities in
accordance with the DA.
Street Federal Housing Special
Improvement Revenue In‐Lieu Districts
ASSETS:
Cash and investments:
Available for operations 1,545$ 304$ 21,169$ 2,043$
Receivables:
Accounts ‐ 53 ‐ ‐
Interest 5 ‐ 78 7
Notes ‐ 4,181 12,803 ‐
Total assets 1,550 4,538 34,050 2,050
Liabilities:
Accounts payable and accruals ‐ 93 63 25
Accrued salaries and benefits ‐ 3 ‐ 12
Total liabilities ‐ 96 63 37
Fund balances:
Restricted
Transportation mitigation ‐ ‐ ‐ ‐
Federal revenue ‐ 4,442 ‐ ‐
Street improvement 1,544 ‐ ‐ ‐
Local law enforcement ‐ ‐ ‐ ‐
Public benefit ‐ ‐ ‐ ‐
Committed
Developer impact fee ‐ ‐ ‐ ‐
Housing In‐Lieu ‐ ‐ 33,881 ‐
Special districts ‐ ‐ ‐ 2,013
Downtown business ‐ ‐ ‐ ‐
Assigned
Unrealized gain on investment 6 ‐ 106 ‐
Total fund balances 1,550 4,442 33,987 2,013
Total liabilities and fund balances 1,550 4,538 34,050 2,050
LIABILITIES AND FUND BALANCES:
CITY OF PALO ALTO
Non‐major Special Revenue Funds
Combining Balance Sheet
June 30, 2015
(Amounts in thousands)
112
Downtown
Business
Transportation Local Law Asset Developer Development Public
Mitigation Enforcement Seizure Impact Fee District Benefit Total
11,915$ 140$ 2$ 12,863$ 102$ 29,666$ 79,749$
‐ 10 ‐ ‐ ‐ ‐ 63
48 ‐ ‐ 52 ‐ 131 321
‐ ‐ ‐ ‐ ‐ ‐ 16,984
11,963 150 2 12,915 102 29,797 97,117
‐ 11 ‐ 346 58 39 635
‐ ‐ ‐ 1 ‐ ‐ 16
‐ 11 ‐ 347 58 39 651
11,898 ‐ ‐ ‐ ‐ ‐ 11,898
‐ ‐ ‐ ‐ ‐ ‐ 4,442
‐ ‐ ‐ ‐ ‐ ‐ 1,544
‐ 138 2 ‐ ‐ ‐ 140
‐ ‐ ‐ ‐ ‐ 29,580 29,580
‐ ‐ ‐ 12,497 ‐ ‐ 12,497
‐ ‐ ‐ ‐ ‐ ‐ 33,881
‐ ‐ ‐ ‐ ‐ ‐ 2,013
‐ ‐ ‐ ‐ 43 ‐ 43
65 1 ‐ 71 1 178 428
11,963 139 2 12,568 44 29,758 96,466
11,963 150 2 12,915 102 29,797 97,117
113
Street Federal Housing Special
Improvement Revenue In‐Lieu Districts
REVENUES:
Special assessments ‐$ ‐$ ‐$ ‐$
Other taxes and fines 1,696 ‐ ‐ 36
From other agencies:
Community Development Block Grants ‐ 372 ‐ ‐
State of California ‐ ‐ ‐ ‐
Permits and licenses
University Avenue Parking ‐ ‐ ‐ 1,856
California Avenue Parking ‐ ‐ ‐ 194
Other permits and licenses ‐ ‐ ‐ 73
Investment earnings 16 ‐ 428 34
Rental income ‐ ‐ 5 ‐
Other:
Housing In‐Lieu ‐ residential ‐ ‐ 6,329 ‐
Other fees ‐ 170 ‐ ‐
Total revenues 1,712 542 6,762 2,193
EXPENDITURES:
Current:
Administrative Services ‐ ‐ ‐ 190
Public Works ‐ ‐ ‐ 836
Planning and Community Environment ‐ 533 625 101
Public safety ‐ ‐ 131 ‐
Community Services ‐ ‐ ‐ ‐
Non‐Departmental ‐ 24 20 155
Total expenditures ‐ 557 776 1,282
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 1,712 (15) 5,986 911
OTHER FINANCING SOURCES (USES):
Transfers in 994 ‐ 375 514
Transfers out (1,917) ‐ (375) (869)
Total other financing sources (uses) (923) ‐ ‐ (355)
Change in fund balances 789 (15) 5,986 556
FUND BALANCES, BEGINNING OF YEAR 761 4,457 28,001 1,457
FUND BALANCES, END OF YEAR 1,550$ 4,442$ 33,987$ 2,013$
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, 2015
(Amounts in thousands)
114
Downtown
Business
Transportation Local Law Asset Developer Development Public
Mitigation Enforcement Seizure Impact Fee District Benefit Total
‐$ ‐$ ‐$ ‐$ 86$ ‐$ 86$
‐ ‐ ‐ ‐ ‐ ‐ 1,732
‐ ‐ ‐ ‐ ‐ ‐ 372
‐ 116 ‐ ‐ ‐ ‐ 116
‐ ‐ ‐ ‐ ‐ ‐ 1,856
‐ ‐ ‐ ‐ ‐ ‐ 194
‐ ‐ ‐ ‐ ‐ ‐ 73
249 1 ‐ 235 3 567 1,533
‐ ‐ ‐ ‐ ‐ ‐ 5
‐ ‐ ‐ ‐ ‐ ‐ 6,329
3,913 ‐ ‐ 1,198 ‐ ‐ 5,281
4,162 117 ‐ 1,433 89 567 17,577
‐ ‐ ‐ ‐ ‐ ‐ 190
‐ ‐ ‐ ‐ ‐ ‐ 836
‐ ‐ ‐ ‐ ‐ ‐ 1,259
‐ 90 ‐ ‐ ‐ ‐ 221
‐ ‐ ‐ 115 ‐ 393 508
‐ ‐ ‐ ‐ 158 ‐ 357
‐ 90 ‐ 115 158 393 3,371
4,162 27 ‐ 1,318 (69) 174 14,206
‐ ‐ ‐ 96 ‐ ‐ 1,979
(2,879) ‐ ‐ ‐ ‐ (1,200) (7,240)
(2,879) ‐ ‐ 96 ‐ (1,200) (5,261)
1,283 27 ‐ 1,414 (69) (1,026) 8,945
10,680 112 2 11,154 113 30,784 87,521
11,963$ 139$ 2$ 12,568$ 44$ 29,758$ 96,466$
115
Street Improvement Federal Revenue
Variance Variance
Actual, plus Positive Actual, plus Positive
Budget Encumbrances (Negative) Budget Encumbrances (Negative)
REVENUES:
Special assessments ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Other taxes and fines 1,644 1,696 52 ‐ ‐ ‐
From other agencies:
Community Development Block Grants ‐ ‐ ‐ 507 372 (135)
State of California ‐ ‐ ‐ ‐ ‐ ‐
Permits and licenses
University Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
California Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
Other permits and licenses ‐ ‐ ‐ ‐ ‐ ‐
Investment earnings 8 16 8 ‐ ‐ ‐
Rental income ‐ ‐ ‐ ‐ ‐ ‐
Other:
Housing In‐Lieu ‐ residential ‐ ‐ ‐ ‐ ‐ ‐
Other fees ‐ ‐ ‐ 277 170 (107)
Total revenues 1,652 1,712 60 784 542 (242)
EXPENDITURES:
Current:
Administrative Services ‐ ‐ ‐ ‐ ‐ ‐
Public Works ‐ ‐ ‐ ‐ ‐ ‐
Planning and Community Environment ‐ ‐ ‐ 763 571 192
Development Services
Public safety ‐ ‐ ‐ ‐ ‐ ‐
Community Services ‐ ‐ ‐ ‐ ‐ ‐
Non‐Departmental ‐ ‐ ‐ ‐ 24 (24)
Total expenditures ‐ ‐ ‐ 763 595 168
Excess (deficiency) of revenues
over (under) expenditures 1,652 1,712 60 21 (53) (74)
OTHER FINANCING SOURCES (USES):
Transfers in 994 994 ‐ ‐ ‐ ‐
Transfers out (1,917) (1,917) ‐ ‐ ‐ ‐
Total other financing sources (uses) (923) (923) ‐ ‐ ‐ ‐
Change in fund balances, budgetary basis 729$ 789 60$ 21$ (53) (74)$
Adjustment to Budgetary Basis:
Current year encumbrances/reappropriations ‐ 38
789 (15)
FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 761 4,457
FUND BALANCES, END OF YEAR, GAAP BASIS 1,550$ 4,442$
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, 2015
116
Housing In‐Lieu Special Districts Transportation Mitigation
Variance Variance Variance
Actual, plus Positive Actual, plus Positive Actual, plus Positive
Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative)
‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
‐ ‐ ‐ 15 36 21 ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ 1,712 1,856 144 ‐ ‐ ‐
‐ ‐ ‐ 195 194 (1) ‐ ‐ ‐
‐ ‐ ‐ 71 73 2 ‐ ‐ ‐
130 428 298 20 34 14 113 249 136
9 5 (4) ‐ ‐ ‐ ‐ ‐ ‐
2,530 6,329 3,799 ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ 535 3,913 3,378
2,669 6,762 4,093 2,013 2,193 180 648 4,162 3,514
‐ ‐ ‐ 206 190 16 ‐ ‐ ‐
‐ ‐ ‐ 1,154 927 227 ‐ ‐ ‐
3,264 789 2,475 167 146 21 ‐ ‐ ‐
‐ 131 (131) ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ 15 ‐ 15 ‐ ‐ ‐
179 220 (41) 344 174 170 ‐ ‐ ‐
3,443 1,140 2,303 1,886 1,437 449 ‐ ‐ ‐
(774) 5,622 6,396 127 756 629 648 4,162 3,514
375 375 ‐ 514 514 ‐ ‐ ‐ ‐
(375) (375) ‐ (869) (869) ‐ (2,879) (2,879) ‐
‐ ‐ ‐ (355) (355) ‐ (2,879) (2,879) ‐
(774)$ 5,622 6,396$ (228)$ 401 629$ (2,231)$ 1,283 3,514$
364 155 ‐
5,986 556 1,283
28,001 1,457 10,680
33,987$ 2,013$ 11,963$
117
Local Law Enforcement Asset Seizure
Variance Variance
Actual, plus Positive Actual, plus Positive
Budget Encumbrances (Negative) Budget Encumbrances (Negative)
REVENUES:
Special assessments ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Other taxes and fines ‐ ‐ ‐ ‐ ‐ ‐
From other agencies:
Community Development Block Grants ‐ ‐ ‐ ‐ ‐ ‐
State of California 106 116 10 ‐ ‐ ‐
Permits and licenses
University Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
California Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
Other permits and licenses ‐ ‐ ‐ ‐ ‐ ‐
Investment earnings 5 1 (4) ‐ ‐ ‐
Rental income ‐ ‐ ‐ ‐ ‐ ‐
Other:
Housing In‐Lieu ‐ residential ‐ ‐ ‐ ‐ ‐ ‐
Other fees ‐ ‐ ‐ ‐ ‐ ‐
Total revenues 111 117 6 ‐ ‐ ‐
EXPENDITURES:
Current:
Administrative Services ‐ ‐ ‐ ‐ ‐ ‐
Public Works ‐ ‐ ‐ ‐ ‐ ‐
Planning and Community Environment ‐ ‐ ‐ ‐ ‐ ‐
Development Services
Public safety 142 129 13 ‐ ‐ ‐
Community Services ‐ ‐ ‐ ‐ ‐ ‐
Non‐Departmental ‐ ‐ ‐ ‐ ‐ ‐
Total expenditures 142 129 13 ‐ ‐ ‐
Excess (deficiency) of revenues
over (under) expenditures (31) (12) 19 ‐ ‐ ‐
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐ ‐ ‐ ‐ ‐
Transfers out ‐ ‐ ‐ ‐ ‐ ‐
Total other financing sources (uses)‐ ‐ ‐ ‐ ‐ ‐
Change in fund balances, Budgetary basis (31)$ (12) 19$ ‐$ ‐ ‐$
Adjustment to Budgetary Basis:
Current year encumbrances/reappropriations 39 ‐
27 ‐
FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 112 2
FUND BALANCES, END OF YEAR, GAAP BASIS 139$ 2$
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, 2015
118
Developer Impact Fee Downtown Business Improvement District Public Benefit
Variance Variance Variance
Actual, plus Positive Actual, plus Positive Actual, plus Positive
Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative)
‐$ ‐$ ‐$ 153$ 86$ (67)$ ‐$ ‐$ ‐$
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
209 235 26 2 3 1 646 567 (79)
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
1,001 1,198 197 ‐ ‐ ‐ ‐ ‐ ‐
1,210 1,433 223 155 89 (66) 646 567 (79)
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
150 115 35 ‐ ‐ ‐ 437 424 13
‐ ‐ ‐ 232 158 74 ‐ ‐ ‐
150 115 35 232 158 74 437 424 13
1,060 1,318 258 (77) (69) 8 209 143 (66)
96 96 ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ (1,200) (1,200) ‐
96 96 ‐ ‐ ‐ ‐ (1,200) (1,200) ‐
1,156$ 1,414 258$ (77)$ (69) 8$ (991)$ (1,057) (66)$
‐ ‐ 31
1,414 (69) (1,026)
11,154 113 30,784
12,568$ 44$ 29,758$
119
120
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121
NON‐MAJOR GOVERNMENTAL FUNDS
DEBT SERVICE FUNDS
Downtown Parking Improvement
This fund accounts for revenues received from the General Fund to provide payment of principal and
interest associated with the 2002B Downtown Parking Improvement Certificate of Participation as they
become due.
Library 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, 2015
(Amounts in thousands)
Downtown
Parking Library
Improvement Projects Total
ASSETS:
Cash and investments:
Available for operations 13$ 6,640$ 6,653$
Cash and investments with fiscal agents 238 ‐ 238
Total assets 251 6,640 6,891
FUND BALANCES:
Restricted:
Debt service 251$ 6,640$ 6,891$
122
CITY OF PALO ALTO
Non‐major Debt Service Funds
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2015
(Amounts in thousands)
Downtown
Parking Library
Improvement Projects Total
REVENUES:
Property tax ‐$ 4,633$ 4,633$
Total revenues ‐ 4,633 4,633
EXPENDITURES:
Debt service:
Principal retirement 145 1,420 1,565
Interest and fiscal charges 93 3,262 3,355
Total expenditures 238 4,682 4,920
(DEFICIENCY) OF REVENUES
(UNDER) EXPENDITURES (238) (49) (287)
OTHER FINANCING SOURCES (USES):
Transfers in 238 ‐ 238
Total other financing sources (uses) 238 ‐ 238
Change in fund balances ‐ (49) (49)
FUND BALANCES, BEGINNING OF YEAR 251 6,689 6,940
FUND BALANCES, END OF YEAR 251$ 6,640$ 6,891$
123
Downtown Parking Improvement Library Projects
Variance Variance
Actual, plus Positive Actual, plus Positive
Budget Encumbrances (Negative) Budget Encumbrances (Negative)
REVENUES:
Special assessments ‐$ ‐$ ‐$ 4,682$ 4,633$ (49)$
Total revenues ‐ ‐ ‐ 4,682 4,633 (49)
EXPENDITURES:
Debt service:
Principal retirement 145 145 ‐ 1,420 1,420 ‐
Interest and fiscal charges 93 93 ‐ 3,262 3,262 ‐
Total expenditures 238 238 ‐ 4,682 4,682 ‐
Excess (deficiency) of revenues
over (under) expenditures (238) (238) ‐ ‐ (49) (49)
OTHER FINANCING SOURCES (USES):
Transfers in 238 238 ‐ ‐ ‐ ‐
Total other financing sources (uses) 238 238 ‐ ‐ ‐ ‐
Change in fund balances, Budgetary basis ‐$ ‐ ‐$ ‐$ (49) (49)$
Adjustment to Budgetary Basis:
Unrealized gain/loss on investments
Current year encumbrances/reappropriations ‐ ‐
Prior year encumbrances/reappropriations ‐ ‐
‐ (49)
FUND BALANCES, BEGINNING OF YEAR 251 6,689
FUND BALANCES, END OF YEAR 251$ 6,640$
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, 2015
124
125
NON‐MAJOR GOVERNMENTAL FUNDS
PERMANENT FUND
Eyerly Family
This fund accounts for the revenues received from assets donated by Mr. and Mrs. Fred Eyerly for the City
and or its citizenry.
Eyerly Family Permanent Fund
Variance
Actual, plus Positive
Budget Encumbrances (Negative)
REVENUES:
Investment earnings 29$ 28$ (1)$
Total revenues 29 28 (1)
EXPENDITURES:
Current:
Non‐Departmental ‐ 5 (5)
Total expenditures ‐ 5 (5)
Excess (deficiency) of revenues
over (under) expenditures 29 23 (6)
Change in fund balance 29$ 23 (6)$
Adjustment to Budgetary Basis:
Unrealized gain/loss on investments
Current year encumbrances/reappropriations ‐
Prior year encumbrances/reappropriations ‐
23
FUND BALANCE, BEGINNING OF YEAR 1,445
FUND BALANCE, END OF YEAR 1,468$
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, 2015
126
127
INTERNAL SERVICE FUNDS
INTRODUCTION
Internal Service Funds are used to finance and account for special activities and services performed by a
designated department for other departments in the City on a cost reimbursement basis.
Vehicle Replacement and Maintenance
This fund accounts for the maintenance and replacement of vehicles and equipment used by all City
departments. The source of revenue is on reimbursement of fleet replacement and maintenance costs
allocated to each department by usage of vehicle.
Technology
This fund accounts for replacement and upgrade of technology, and covers four primary areas used by all
City departments: desktop, infrastructure, applications, and technology research and development. The
source of revenue is on reimbursement of costs for support provided to other departments.
Printing and Mailing Services
This fund accounts for central duplicating, printing and mailing services provided to all City departments.
Source of revenue for this fund is on reimbursement of costs for services and supplies purchased by other
departments.
General Benefits
This fund accounts for the administration of compensated absences and health benefits.
Workers’ Compensation Insurance Program
This fund accounts for the administration of the City’s self‐insured workers’ compensation programs.
General Liabilities Insurance Program
This fund accounts for the administration of the City’s self‐insured general liability programs.
Retiree Health Benefits
This fund accounts for the retiree health benefits.
Vehicle Printing Workers' General
Replacement and Compensation Liabilities Retiree
and Mailing General Insurance Insurance Health
Maintenance Technology Services Benefits Program Program Benefits Total
ASSETS:
Current Assets:
Cash and investments:
Available for operations 10,183$ 19,785$ 21$ 14,690$ 20,975$ 7,322$ 3,277$ 76,253$
Accounts receivable, net 338 ‐ ‐ 45 147 250 ‐ 780
Interest receivable 48 84 ‐ 50 84 29 22 317
Inventory of materials and supplies 370 ‐ ‐ ‐ ‐ ‐ ‐ 370
Total current assets 10,939 19,869 21 14,785 21,206 7,601 3,299 77,720
Noncurrent Assets:
Capital assets:
Nondepreciable 725 625 ‐ ‐ ‐ ‐ ‐ 1,350
Depreciable, net 11,901 2,064 ‐ ‐ ‐ ‐ ‐ 13,965
Net OPEB asset ‐ ‐ ‐ ‐ ‐ ‐ 22,871 22,871
Total noncurrent assets 12,626 2,689 ‐ ‐ ‐ ‐ 22,871 38,186
Total assets 23,565 22,558 21 14,785 21,206 7,601 26,170 115,906
DEFERRED OUTFLOWS OF RESOURCES:
Deferred pension contribution 280 836 26 ‐ ‐ ‐ ‐ 1,142
Total deferred outflows of resources 280 836 26 ‐ ‐ ‐ ‐ 1,142
LIABILITIES:
Current Liabilities:
Accounts payable and accruals ‐ 196 ‐ 1,363 82 ‐ ‐ 1,641
Accrued salaries and benefits 45 127 5 11 ‐ ‐ ‐ 188
Accrued compensated absences 8 21 1 4,440 ‐ ‐ ‐ 4,470
Accrued claims payable ‐ current ‐ ‐ ‐ 146 3,271 1,900 ‐ 5,317
Total current liabilities 53 344 6 5,960 3,353 1,900 ‐ 11,616
Noncurrent liabilities:
Accrued compensated absences ‐ ‐ ‐ 6,286 ‐ ‐ ‐ 6,286
Accrued claims payable ‐ ‐ ‐ ‐ 15,862 2,939 ‐ 18,801
Net pension liabilities 2,519 8,706 276 ‐ ‐ ‐ ‐ 11,501
Total noncurrent liabilities 2,519 8,706 276 6,286 15,862 2,939 ‐ 36,588
Total liabilities 2,572 9,050 282 12,246 19,215 4,839 ‐ 48,204
DEFERRED INFLOWS OF RESOURCES:
Differences between expected and actual earnings on investments 436 1,508 48 ‐ ‐ ‐ ‐ 1,992
Total deferred inflows of resources 436 1,508 48 ‐ ‐ ‐ ‐ 1,992
NET POSITION:
Net Investment in capital assets 12,626 2,689 ‐ ‐ ‐ ‐ ‐ 15,315
Unrestricted 8,211 10,147 (283) 2,539 1,991 2,762 26,170 51,537
Total net position 20,837$ 12,836$ (283)$ 2,539$ 1,991$ 2,762$ 26,170$ 66,852$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Fund Net Position
June 30, 2015
(Amounts in thousands)
128
Vehicle Printing Workers' General
Replacement and Compensation Liabilities Retiree
and Mailing General Insurance Insurance Health
Maintenance Technology Services Benefits Program Program Benefits Total
OPERATING REVENUES:
Charges for services 7,277$ 11,774$ 1,263$ 44,462$ 1,994$ 1,293$ 13,471$ 81,534$
Other 13 ‐ ‐ ‐ 746 178 ‐ 937
Total operating revenues 7,290 11,774 1,263 44,462 2,740 1,471 13,471 82,471
OPERATING EXPENSES:
Administrative and general 1,195 6,660 822 276 787 1,096 563 11,399
Operations and maintenance 3,535 5,765 425 669 ‐ ‐ 13,643 24,037
Depreciation and amortization 2,030 359 3 ‐ ‐ ‐ ‐ 2,392
Claim payments and change in estimated
self‐insured liability ‐ ‐ ‐ 1,499 528 (707) ‐ 1,320
Refund of charges for services 52 9 ‐ ‐ ‐ ‐ ‐ 61
Compensated absences and other benefits ‐ ‐ ‐ 41,120 ‐ ‐ ‐ 41,120
Total operating expenses 6,812 12,793 1,250 43,564 1,315 389 14,206 80,329
Operating income (loss)478 (1,019) 13 898 1,425 1,082 (735) 2,142
NONOPERATING REVENUES (EXPENSES):
Investment earnings 209 334 ‐ 197 365 95 68 1,268
Gain on disposal of capital assets 70 ‐ ‐ ‐ ‐ ‐ ‐ 70
Other nonoperating revenues 33 ‐ ‐ ‐ ‐ ‐ ‐ 33
Total nonoperating revenues (expenses)312 334 ‐ 197 365 95 68 1,371
Income (loss) before transfers 790 (685) 13 1,095 1,790 1,177 (667) 3,513
Transfers in ‐ 2,349 ‐ ‐ ‐ ‐ ‐ 2,349
Transfers out (1,070) (187) ‐ ‐ ‐ ‐ ‐ (1,257)
Change in net position (280) 1,477 13 1,095 1,790 1,177 (667) 4,605
NET POSITION, BEGINNING OF YEAR 23,878 20,899 7 1,444 201 1,585 26,837 74,851
Restatement for implementation of GASB Statement No. 68 (2,761) (9,540) (303) ‐ ‐ ‐ ‐ (12,604)
NET POSITION (DEFICIT), BEGINNING OF YEAR, AS RESTATED 21,117 11,359 (296) 1,444 201 1,585 26,837 62,247
NET POSITION, END OF YEAR 20,837$ 12,836$ (283)$ 2,539$ 1,991$ 2,762$ 26,170$ 66,852$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Revenues, Expenses and Changes in Fund Net Position
For the Year Ended June 30, 2015
(Amounts in thousands)
129
Vehicle Printing Workers' General
Replacement and Compensation Liabilities Retiree
and Mailing General Insurance Insurance Health
Maintenance Technology Services Benefits Program Program Benefits Total
Cash flows from operating activities:
Cash received from customers 7,274$ 11,774$ 1,263$ 44,452$ 1,847$ 1,694$ 13,567$ 81,871$
Cash refunds to customers (52) (9) ‐ ‐ ‐ ‐ ‐ (61)
Cash payments to suppliers for goods and services (3,517) (5,832) (433) (295) ‐ ‐ (13,643) (23,720)
Cash payments to employees (1,275) (6,820) (821) (40,837) (773) (1,096) (863) (52,485)
Cash payments for judgments and claims 13 ‐ ‐ (1,499) (1,439) (271) ‐ (3,196)
Other cash receipts 33 ‐ ‐ ‐ ‐ ‐ ‐ 33
Cash flows provided by (used in)
operating activities 2,476 (887) 9 1,821 (365) 327 (939) 2,442
Cash flows from noncapital financing activities:
Transfers in ‐ 2,349 ‐ ‐ ‐ ‐ ‐ 2,349
Transfers out (1,070) (187) ‐ ‐ ‐ ‐ ‐ (1,257)
Cash flows provided by
noncapital financing activities (1,070) 2,162 ‐ ‐ ‐ ‐ ‐ 1,092
Cash flows from capital and related financing activities:
Acquisition of capital assets (2,689) (1,071) ‐ ‐ ‐ ‐ ‐ (3,760)
Proceeds from sale of capital assets 172 ‐ ‐ ‐ ‐ ‐ ‐ 172
Cash flows (used in)
capital and related financing activities (2,517) (1,071) ‐ ‐ ‐ ‐ ‐ (3,588)
Cash flows from investing activities:
Interest received 216 352 ‐ 204 376 96 71 1,315
Cash flows from investing activities 216 352 ‐ 204 376 96 71 1,315
Net change in cash and cash equivalents (895) 556 9 2,025 11 423 (868) 1,261
Cash and cash equivalents, beginning of year 11,078 19,229 12 12,665 20,964 6,899 4,145 74,992
Cash and cash equivalents, end of year $ 10,183 $ 19,785 $ 21 $ 14,690 $ 20,975 $ 7,322 $ 3,277 $ 76,253
Reconciliation of operating income (loss) to net cash
flows provided by (used in) operating activities:
Operating income (loss) 478$ (1,019)$ 13$ 898$ 1,425$ 1,082$ (735)$ 2,142$
Adjustments to reconcile operating income (loss)
to net cash provided by (used in) operating activities:
Depreciation 2,030 359 3 ‐ ‐ ‐ ‐ 2,392
Other 33 ‐ ‐ ‐ ‐ ‐ ‐ 33
Change in assets and liabilities:
Accounts receivable (3) ‐ ‐ (10) (147) 223 96 159
Inventory of materials and supplies 18 ‐ ‐ ‐ ‐ ‐ ‐ 18
Net OPEB asset ‐ ‐ ‐ ‐ ‐ ‐ (261) (261)
Deferred outflows of resources ‐ pension plans (46) (26) ‐ ‐ ‐ ‐ ‐ (72)
Accounts payable and accruals ‐ (67) (8) 374 14 ‐ (39) 274
Accrued salaries and benefits 6 (6) 5 10 ‐ ‐ ‐ 15
Accrued compensated absences ‐ 8 1 549 ‐ ‐ ‐ 558
Accrued claims payable ‐ ‐ ‐ ‐ (1,657) (978) ‐ (2,635)
Net pension liability (476) (1,644) (53) ‐ ‐ ‐ ‐ (2,173)
Deferred inflows of resources ‐ pension plans 436 1,508 48 ‐ ‐ ‐ ‐ 1,992
Cash flows provided by (used in)
operating activities 2,476$ (887)$ 9$ 1,821$ (365)$ 327$ (939)$ 2,442$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Cash Flows
For the Year Ended June 30, 2015
(Amounts in thousands)
130
131
FIDUCIARY FUNDS
INTRODUCTION
Fiduciary Funds are used to account for assets held by the City acting in a fiduciary capacity for other
entities and individuals. The funds are operated to carry out the specific actions required by the trust
agreements, ordinances and other governing regulations.
Fiduciary Funds are presented separately from the Citywide and Fund financial statements.
Agency Funds are custodial in nature and do not involve measurement of results of operations. The City
maintains three agency funds, as follows:
California Avenue Parking Assessment District
This fund accounts for receipts and disbursements associated with the 1993 Parking District No. 92‐13
Assessment Bonds.
Cable Joint Powers Authority
The fund was established to account for the activities of the cable television system on behalf of the
members.
University Avenue Area Off‐Street Parking Assessment District
The fund accounts for the receipts and disbursements associated with the Series 2012 Limited Obligation
Refunding Improvement Bonds.
CITY OF PALO ALTO
All Agency Funds
Statement of Changes in Assets and Liabilities
For the Year Ended June 30, 2015
Balance Balance
California Avenue Parking Assessment District June 30, 2014 Additions Deletions June 30, 2015
ASSETS:
Cash and investments available for operations 180 ‐ 5 175
LIABILITIES:
Due to bondholders 180 ‐ 5 175
Cable Joint Powers Authority
ASSETS:
Cash and investments available for operations 755 ‐ 95 660
Accounts receivable ‐ 503 ‐ 503
Interest receivable 4 ‐ 1 3
Total assets 759 503 96 1,166
LIABILITIES:
Due to other governments 759 407 ‐ 1,166
ASSETS:
Cash and investments available for operations 1,984 208 ‐ 2,192
Cash and investments with fiscal agents 2,541 2 ‐ 2,543
Accounts receivable 9 ‐ ‐ 9
Interest receivable 10 ‐ 1 9
Total assets 4,544 210 1 4,753
LIABILITIES:
Due to bondholders 4,544 209 ‐ 4,753
Total Agency Funds
ASSETS:
Cash and investments available for operations 2,919 208 100 3,027
Cash and investments with fiscal agents 2,541 2 ‐ 2,543
Accounts receivable 9 503 ‐ 512
Interest receivable 14 ‐ 2 12
Total assets 5,483 713 102 6,094
LIABILITIES:
Due to bondholders 4,724 209 5 4,928
Due to other governments 759 407 ‐ 1,166
Total liabilities 5,483 616 5 6,094
(Amounts in thousands)
University Avenue Area
Off‐Street Parking Assessment District
132
133
STATISTICAL SECTION
The statistical section contains comprehensive statistical data, which relates to physical, economic, social
and political characteristics of the City. It is intended to provide users with a broader and more complete
understanding of the City and its financial affairs than is possible from the financial statements and
supporting schedules included in the financial section.
In this section, readers will find comparative information related to the City’s revenue sources,
expenditures, property tax valuations, levies and collections, general obligation bonded debt, utility
revenue debt service, and demographics. Where available, the comparative information is presented for
the last ten fiscal years.
In addition, this section presents information related to the City’s legal debt margin computation, principal
taxpayers, notary and security bond coverages, and other miscellaneous statistics pertaining to services
provided by the City.
In contrast to the financial section, the statistical section information is not usually subject to independent
audit.
Financial Trends
These schedules contain trend information to help the reader understand how the City’s financial
performance and well‐being have changed over time:
Net Position by Component
Changes in Net Position
Fund Balances of Governmental Funds
Changes in Fund Balances of Governmental Funds
Revenue Capacity
These schedules contain information to help the reader assess the City’s most significant local revenue
sources, property tax and electric charges:
Electric Operating Revenue by Source
Supplemental Disclosure for Water Utilities
Assessed Value of Taxable Property
Property Tax Rates, All Overlapping Governments
Property Tax Levies and Collections
Principal Property Taxpayers
Assessed Valuation and Parcels by Land Use
Per Parcel Assessed Valuation of Single Family Residential
Debt Capacity
These schedules present information to help the reader assess the affordability of the City’s current levels
of outstanding debt and the City’s ability to issue additional debt in the future:
Ratio of Outstanding Debt by Type
Computation of Direct and Overlapping Debt
Computation of Legal Bonded Debt Margin
Revenue Bond Coverage
134
STATISTICAL SECTION
Demographic and Economic Information
These schedules offer demographic and economic indicators to help the reader understand the
environment within which the City’s financial activities take place:
Taxable Transactions by Type of Business
Demographic and Economic Statistics
Principal Employers
Operating Information
These schedules contain service and infrastructure data to help the reader understand how the
information in the City’s financial report relates to the services the City provides and the activities it
performs:
Operating Indicators by Function/Program
Capital Asset Statistics by Function/Program
Full‐Time Equivalent City Government Employees by Function
Sources
Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual
Financial Reports for the relevant year.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Governmental Activities
Investment in capital assets 311,335$ 326,411$ 343,537$ 356,657$ 369,499$ 364,747$ 370,111$ 378,047$ 386,696$ 405,921$
Restricted 29,885 32,576 27,428 36,632 34,323 16,437 52,934 71,717 68,331 55,963
Unrestricted 123,823 127,190 130,460 118,133 102,199 134,722 142,102 165,810 187,386 1,972
Total Governmental Activities Net Position 465,043$ 486,177$ 501,425$ 511,422$ 506,021$ 515,906$ 565,147$ 615,574$ 642,413$ 463,856$
Business‐type Activities
Investment in capital assets 318,738$ 342,922$ 370,303$ 384,313$ 399,317$ 416,418$ 437,151$ 446,597$ 473,795$ 490,874$
Restricted 1,732 1,732 1,732 1,732 4,300 ‐ ‐ 4,060 4,166 4,142
Unrestricted 228,032 230,912 226,539 208,025 232,420 253,740 262,602 269,926 266,794 172,802
Total Business‐type Activities Net Position 548,502$ 575,566$ 598,574$ 594,070$ 636,037$ 670,158$ 699,753$ 720,583$ 744,755$ 667,818$
Primary Government
Investment in capital assets 630,073$ 669,333$ 713,840$ 740,970$ 768,816$ 781,165$ 807,262$ 824,644$ 860,491$ 896,795$
Restricted 31,617 34,308 29,160 38,364 38,623 16,437 52,934 75,777 72,497 60,105
Unrestricted 351,855 358,102 356,999 326,158 334,619 388,462 404,704 435,736 454,180 174,774
Total Primary Government Net Position 1,013,545$ 1,061,743$ 1,099,999$ 1,105,492$ 1,142,058$ 1,186,064$ 1,264,900$ 1,336,157$ 1,387,168$ 1,131,674$
Source: Annual Financial Statements, Statement of Net Position
Fiscal Year Ended June 30
CITY OF PALO ALTO
Net Position by Component
Last Ten Fiscal Years
(Amounts in thousands)
(Accrual basis of accounting)
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$ Th
o
u
s
a
n
d
s
Primary Government
Investment in capital assets Restricted Unrestricted
135
PROGRAM REVENUES 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Governmental Activities
Charges for services
City Attorney 22$ 13$ 16$ 12$ 53$ ‐$ ‐$ ‐$ ‐$ ‐$
City Clerk 2 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
City Auditor ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Administrative Services 627 835 870 726 984 2,889 1,647 15,629 4,055 5,460
People Strategy and Operations ‐ 11 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Public Works 805 968 1,310 1,169 1,258 2,419 1,008 1,314 1,093 1,209
Planning & Community Environment 5,509 6,267 5,498 4,704 4,813 7,237 31,491 28,768 12,896 8,090
Development Services3 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 12,019
Public Safety 13,256 13,789 13,692 14,670 14,337 15,274 15,658 16,139 14,902 15,726
Community Services 10,803 9,128 10,314 8,522 8,729 7,724 11,365 13,808 20,882 20,912
Library 129 146 176 177 199 480 1,600 187 166 137
Operating grants and contributions 3,976 5,642 4,029 3,599 4,829 2,884 3,441 5,038 5,360 5,300
Capital grants and contributions 3,156 1,756 1,930 3,810 1,280 1,903 1,064 515 917 619
Total Governmental Activities
Program Revenues 38,285 38,555 37,835 37,389 36,482 40,810 67,274 81,398 60,271 69,472
Business‐type Activities
Charges for services
Water 21,108 23,495 26,510 27,120 26,259 26,624 31,467 37,746 40,291 35,847
Electric 119,418 102,549 103,833 119,320 121,900 122,109 118,886 121,805 121,916 120,842
Fiber Optics1 ‐ ‐ ‐ 3,336 3,105 3,322 3,662 4,382 4,485 4,627
Gas 36,977 42,221 49,021 47,838 44,450 43,584 41,774 34,633 35,737 30,751
Wastewater Collection 13,801 14,848 15,102 14,486 15,136 15,094 14,942 16,077 15,599 16,182
Wastewater Treatment 18,778 16,957 22,889 28,425 16,915 18,830 22,200 21,528 18,460 24,120
Refuse 24,795 25,532 28,805 29,101 28,568 30,469 30,645 30,583 30,297 31,576
Storm Drainage 5,174 5,181 5,450 5,505 5,647 5,796 5,892 6,053 6,183 6,281
Airport ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 683
External Services 854 789 112 ‐ ‐ ‐ ‐ ‐ ‐ ‐
Operating grants and contributions ‐ ‐ ‐ ‐ 361 610 605 572 549 534
Capital grants and contributions ‐ 756 1,594 639 475 3,004 1,526 2,224 2,005 2,080
Total Business‐type Activities
Program Revenues 240,905 232,328 253,316 275,770 262,816 269,442 271,599 275,603 275,522 273,523
Total Primary Government
Program Revenues 279,190$ 270,883$ 291,151$ 313,159$ 299,298$ 310,252$ 338,873$ 357,001$ 335,793$ 342,995$
EXPENSES
Governmental Activities
City Council 141$ 180$ 323$ 394$ 455$ 15$ 345$ 94$ 387$ 271$
City Manager 1,563 1,760 2,273 2,085 2,399 1,842 1,960 1,237 2,180 2,155
City Attorney 2,598 2,390 2,653 2,575 2,621 953 1,656 1,642 1,797 1,759
City Clerk 945 900 1,241 1,098 1,369 803 908 330 641 680
City Auditor 843 838 1,379 2,053 2,601 138 235 464 489 362
Administrative Services2 6,972 6,419 15,477 17,784 17,893 9,888 10,100 7,614 11,388 9,980
People Strategy and Operations 2,546 2,472 2,806 3,448 3,707 1,346 1,071 1,420 1,346 1,464
Public Works 17,596 16,645 18,565 21,270 18,658 19,357 14,568 20,816 24,577 21,075
Planning & Community Environment 9,931 12,929 16,388 12,940 12,114 15,031 12,074 13,549 14,926 8,423
Development Services3 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 10,449
Public Safety 42,158 43,391 50,126 52,487 55,799 58,996 62,817 59,452 62,883 58,660
Community Services 17,296 15,729 17,736 19,862 17,171 22,845 21,915 22,705 23,822 24,688
Library 5,323 5,347 6,321 6,244 6,143 6,920 7,323 7,319 7,758 7,721
Non‐departmental2 10,400 12,133 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Interest on long term debt 512 477 438 404 370 2,742 2,575 2,562 3,367 3,658
Total Governmental
Activities Expenses 118,824 121,610 135,726 142,644 141,300 140,876 137,547 139,204 155,561 151,345
Business‐type Activities
Water 15,881 16,794 18,842 20,271 21,037 24,268 29,093 30,707 31,593 33,205
Electric 91,570 99,294 108,032 122,268 107,910 100,130 102,030 106,438 113,004 122,499
Fiber Optics1 ‐ ‐ ‐ 1,284 1,407 1,561 1,489 1,437 1,661 1,891
Gas 29,107 30,690 37,211 34,603 32,498 32,051 28,878 26,749 26,869 23,525
Wastewater Collection 11,005 10,085 12,023 14,875 10,696 12,275 14,825 14,313 13,235 14,595
Wastewater Treatment 16,747 15,901 18,902 36,896 13,466 19,731 20,712 20,635 21,018 21,553
Refuse 26,989 25,372 28,827 37,217 28,119 30,684 31,900 28,542 28,413 27,974
Storm Drainage 2,673 2,517 3,202 2,943 2,491 3,229 3,103 3,703 3,644 3,721
Airport ‐ ‐ ‐ ‐ ‐ 31 153 246 466 1,004
External Services 868 767 984 ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total Business‐type
Activities Expenses 194,840 201,420 228,023 270,357 217,624 223,960 232,183 232,770 239,903 249,967
Total Primary
Government Expenses 313,664$ 323,030$ 363,749$ 413,001$ 358,924$ 364,836$ 369,730$ 371,974$ 395,464$ 401,312$
CITY OF PALO ALTO
Changes in Net Position
Last Ten Fiscal Years
(Accrual basis of accounting)
(Amounts in thousands)
Fiscal Year Ended June 30
136
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
NET (EXPENSE)/REVENUE
Governmental Activities (80,539)$ (83,055)$ (97,891)$ (105,255)$ (104,818)$ (100,066)$ (70,273)$ (57,806)$ (95,290)$ (81,873)$
Business‐type Activities 46,065 30,908 25,293 5,413 45,192 45,482 39,416 42,833 35,619 23,556
Total Primary Government
Net (Expense)/Revenue (34,474)$ (52,147)$ (72,598)$ (99,842)$ (59,626)$ (54,584)$ (30,857)$ (14,973)$ (59,671)$ (58,317)$
GENERAL REVENUES AND OTHER CHANGES IN NET ASSETS
Governmental Activities
Taxes
Property tax 18,731$ 21,466$ 23,084$ 25,432$ 25,981$ 29,156$ 30,104$ 31,929$ 35,299$ 38,750$
Sales tax 20,315 22,194 22,623 20,089 17,991 20,746 22,132 25,606 29,424 29,675
Utility user tax 8,759 9,356 10,285 11,030 11,295 10,851 10,834 10,861 11,008 10,861
Transient occupancy tax 6,393 6,709 7,976 7,111 6,858 8,082 9,664 10,794 12,255 16,699
Other taxes 7,033 6,293 6,261 3,364 4,055 8,156 8,173 10,504 9,660 11,867
Investment earnings 2,567 8,747 12,313 8,525 6,514 3,500 6,238 (1,228) 5,859 5,010
Rents and miscellaneous 10,440 13,670 11,896 15,682 12,729 12,377 14,943 518 2,575 3,428
Transfers 21,545 15,754 18,701 24,020 13,994 17,083 17,426 19,249 17,103 16,405
Total Governmental Activities 95,783 104,189 113,139 115,253 99,417 109,951 119,514 108,233 123,183 132,695
Business‐type Activities
Investment earnings 3,631 11,910 16,416 14,103 10,769 5,722 7,605 (2,754) 6,379 4,857
Transfers (21,545) (15,754) (18,701) (24,020) (13,994) (17,083) (17,426) (19,249) (17,103) (16,405)
Total Business‐type Activities (17,914) (3,844) (2,285) (9,917) (3,225) (11,361) (9,821) (22,003) (10,724) (11,548)
Total Primary Government 77,869$ 100,345$ 110,854$ 105,336$ 96,192$ 98,590$ 109,693$ 86,230$ 112,459$ 121,147$
CHANGE IN NET POSITION
Governmental Activities 15,244$ 21,134$ 15,248$ 9,998$ (5,401)$ 9,885$ 49,241$ 50,427$ 27,893$ 50,822$
Business‐type Activities 28,151 27,064 23,008 (4,504) 41,967 34,121 29,595 20,830 24,895 12,008
Total Primary Government
Change in Net Position 43,395$ 48,198$ 38,256$ 5,494$ 36,566$ 44,006$ 78,836$ 71,257$ 52,788$ 62,830$
Notes:1Prior to 2009, Fiber Optics was included in Electric.
2Beginning in 2008, includes Non‐departmental expenses.
3The Development Services Department was formed in FY15.
Source: Annual Financial Statements, Statement of Activities
Fiscal Year Ended June 30
137
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
General Fund
Nonspendable 4,052$ 5,002$ 7,286$ 6,476$ 6,581$ 6,085$ 6,007$ 5,749$ 6,188$ 6,296$
Assigned 3,914 6,855 4,851 6,100 7,295 6,235 6,400 5,415 5,432 7,976
Unassigned 26,251 27,551 30,278 30,648 27,581 31,859 29,616 30,913 36,690 48,198
Total General Fund 34,217$ 39,408$ 42,415$ 43,224$ 41,457$ 44,179$ 42,023$ 42,077$ 48,310$ 62,470$
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
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$ Th
o
u
s
a
n
d
s
Nonspendable Assigned Unassigned
138
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
All Other Governmental Funds
Nonspendable ‐$ ‐$ 731$ 1,308$ 1,402$ 1,422$ 11,112$ 18,189$ 14,869$ 1,468$
Restricted 1,822 1,540 1,406 1,412 55,400 50,646 61,324 84,688 68,468 59,650
Committed 18,430 22,883 15,207 22,043 16,962 24,775 14,284 20,400 27,145 48,434
Assigned 46,723 41,684 44,116 36,629 38,538 20,114 33,264 45,514 55,211 52,627
Total All Other
Governmental Funds 66,975$ 66,107$ 61,460$ 61,392$ 112,302$ 96,957$ 119,984$ 168,791$ 165,693$ 162,179$
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
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$ Th
o
u
s
a
n
d
s
Nonspendable Restricted Committed Assigned
139
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Revenues
Property tax 18,731$ 21,466$ 23,084$ 25,432$ 25,981$ 29,248$ 30,216$ 32,040$ 35,393$ 38,836$
Sales tax 20,315 22,194 22,623 20,089 17,991 20,746 22,132 25,606 29,424 29,675
Other taxes and fines 25,840 26,215 27,385 24,843 25,063 27,890 29,231 32,141 35,305 41,576
Charges for services 18,672 19,929 19,610 19,837 19,775 22,311 46,273 38,976 23,962 25,973
From other agencies 5,931 3,448 4,300 5,984 3,035 1,614 1,116 4,109 5,700 7,727
Permits and licenses 4,305 4,711 4,761 4,033 4,408 5,433 7,136 8,218 8,990 9,179
Interest and rentals 13,776 17,750 20,507 19,183 19,045 16,553 18,583 12,136 18,445 18,658
Other revenue 4,058 7,503 4,713 6,223 4,724 8,624 12,739 17,570 7,471 12,837
Total Revenues 111,628 123,216 126,983 125,624 120,022 132,419 167,426 170,796 164,690 184,461
Expenditures
Administration1 14,299 14,399 16,250 16,002 17,353 8,351 9,412 8,291 9,961 10,806
Public Works 9,036 9,256 10,072 10,064 9,787 11,317 11,304 11,489 12,439 12,276
Planning and Community Environment 9,292 11,874 9,861 10,462 9,480 10,309 11,966 13,474 14,761 8,628
Development Services3 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 11,152
Public Safety 40,393 42,451 48,650 48,957 51,022 58,874 62,418 59,537 62,028 61,447
Community Services2 19,740 16,533 17,138 17,451 16,451 20,029 20,860 21,661 22,644 23,553
Library2 5,170 5,260 6,219 5,985 5,900 6,509 7,072 6,902 7,340 7,980
Non‐departmental 10,389 12,122 14,089 10,765 10,149 7,352 6,819 4,567 8,135 6,180
Special revenue and capital projects 13,243 17,478 21,626 21,485 22,006 35,486 29,154 29,542 37,035 41,754
Debt service ‐ principal payments 810 850 885 800 840 870 1,743 1,489 1,524 1,948
Debt service ‐interest and fiscal fees 523 489 451 416 382 1,815 2,757 2,659 3,196 3,404
Payment to bond refunding escrow ‐ ‐ ‐ ‐ ‐ ‐ 586 540 ‐ ‐
Total Expenditures 122,895 130,712 145,241 142,387 143,370 160,912 164,091 160,151 179,063 189,128
Excess (Deficiency) of Revenues
Over (Under) Expenditures (11,267) (7,496) (18,258) (16,763) (23,348) (28,493) 3,335 10,645 (14,373) (4,667)
Other Financing Sources (Uses)
Transfers in 26,640 27,701 33,437 39,903 34,835 30,323 47,200 50,343 41,683 45,137
Transfers out (12,390) (15,882) (16,819) (22,399) (21,415) (14,352) (29,782) (33,833) (24,175) (29,824)
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)14,250 11,819 16,618 17,504 72,491 15,870 17,536 38,216 17,508 15,313
Net Change in Fund Balances 2,983$ 4,323$ (1,640)$ 741$ 49,143$ (12,623)$ 20,871$ 48,861$ 3,135$ 10,646$
Debt Service as a Percentage of
Non‐Capital Expenditures 1.2% 1.2% 1.1% 1.0% 1.0% 2.2% 3.5% 3.2% 3.3% 3.7%
Notes:
2Prior to 2005, Library was included in Community Services.
3The Development Services Department was formed in FY15.
Source: Annual Financial Statements, Governmental Funds, Statement of Revenues, Expenditures and Changes in Fund Balances
1Comprised of the following departments: City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative Services and PS&O.
CITY OF PALO ALTO
Changes in Fund Balances of Governmental Funds
Last Ten Fiscal Years
(Modified accrual basis of accounting)
(Amounts in thousands)
Fiscal Year Ended June 30
140
Commercial and
Fiscal Year Residential Industrial City of Palo Alto Total
2006 14,973 67,389 2,492 84,854
2007 15,150 68,214 2,466 85,830
2008 16,109 72,632 2,571 91,312
2009 17,939 83,710 2,823 104,472
2010 19,898 89,315 2,890 112,103
2011 19,848 88,076 2,991 110,915
2012 20,328 85,895 3,352 109,575
2013 19,951 86,998 3,265 110,214
2014 18,744 88,419 3,225 110,388
2015 17,404 88,257 3,234 108,895
529 Bryant Street LLC Technology
City of Palo Alto Municipal
Communications & Power Industries (CPI) Research
Hewlett‐Packard Company Computer
Space Systems/Loral Satellite & Satellite Systems
Stanford Hospital & Clinics Hospital
Tesla Motors, Inc. Manufacturing
Varian Medical Systems, Inc. Manufacturing
Veterans Admin Hospital Hospital
VMware, Inc. Computer
Number Kilowatt‐hour
of Customers Sales (kWh)Revenue2
Residential 25,226 145,447,087 17,404$
Commercial 3,682 558,601,438 66,457
Industrial 106 202,838,666 21,800
CPA 122 29,935,877 3,234
Total 29,136 936,823,068 108,895$
City of Palo Alto Power Purchase Western Area Power Administration 22%
Forward Market Purchases 41%
Wind Energy 10%
Landfill Gas Energy 10%
Northern California Power Agency Hydroelectric 4%
Short‐Term Market 13%
Source: City of Palo Alto, Utilities and Accounting Departments
1The top ten customers accounted for approximately 39.4% of total kWh consumption (369,555,836 kWh) and
35.7% of revenue ($40,203,443). The largest customer accounted for 8.2% of total kWh consumption and 7.4% of
revenue. The smallest customer accounted for 1.3% of total kWh consumption and 1.2% 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
Customer (alphabetical order)Type of Business
141
The top ten customers total consumption is 781,735 CCF with revenue of $6,840,781.
This amount accounts for approximately 17.6% of total consumption and 19% of total
revenue. The largest customer (other than the City of Palo Alto) accounted for 2% of
consumption and 1.5% of revenue. The smallest customer accounted for 0.8% of
consumption and 0.7% of revenue. Revenue used to determine top ten water utility
customers includes metered and non‐metered charges, adjustments, surcharges
and discounts. Revenue does not include Utility Users Tax (UUT) and deposits.
Note:
Source: City of Palo Alto, Utilities Department
CITY OF PALO ALTO
Supplemental Disclosure for Water Utilities
Fiscal Year 2015
Top Ten Largest Water Utility Customers (alphabetical order)
City of Palo Alto
Hewlett‐Packard Company
VMware Inc.
This schedule is provided as required by the Continuing Disclosure Agreement for
the City's Utility Revenue Bond and is not required by Governmental Accounting
Standards Board (GASB).
Palo Alto Hills Golf & Country Club
Palo Alto Unified School District
Oak Creek Apartments
Stanford Hospital & Clinics
Stanford West Management
Veterans Admin Hospital
Space Systems/Loral, Inc.
142
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Net Local Secured Roll
Land 7,941,482$ 8,725,485$ 9,497,746$ 10,420,139$ 11,007,650$ 11,011,160$ 11,352,993$ 12,255,515$ 13,357,851$ 14,409,837$
Improvements 8,364,668 8,915,623 9,453,436 10,527,617 10,752,671 10,962,928 11,703,597 12,381,306 12,984,735 13,633,986
Personal property 174,666 213,154 228,875 303,688 288,148 241,280 257,436 287,296 307,499 290,590
16,480,816 17,854,262 19,180,057 21,251,444 22,048,469 22,215,368 23,314,026 24,924,117 26,650,085 28,334,413
Less:
Exemptions net of state aid (1,595,871) (1,639,856) (1,797,327) (1,871,292) (1,809,119) (1,757,241) (2,346,728) (2,589,653) (2,610,521) (2,761,495)
Total Net Local Secured Roll 14,884,945 16,214,406 17,382,730 19,380,152 20,239,350 20,458,127 20,967,298 22,334,464 24,039,564 25,572,918
Public utilities 4,084 3,923 3,174 2,573 2,573 2,573 2,573 2,573 2,573 2,573
Unsecured property 1,361,117 1,391,284 1,536,584 1,702,884 1,638,436 1,495,574 1,516,837 1,355,970 1,493,922 1,622,636
Total Assessed Value 16,250,146$ 17,609,613$ 18,922,488$ 21,085,609$ 21,880,359$ 21,956,274$ 22,486,708$ 23,693,007$ 25,536,059$ 27,198,127$
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
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$ Th
o
u
s
a
n
d
s
Total Assessed Value
143
Basic County Total
County County Hospital City Library Santa Clara Direct and
Fiscal Wide Retirement G.O. Bond G.O. Bond Valley Water School Community Overlapping
Year Levy Levy (Measure A)1 (Measure N)2 District District College Rates
2006 1.00 0.0388 ‐ ‐ 0.0078 0.0526 0.0119 1.11
2007 1.00 0.0388 ‐ ‐ 0.0072 0.0720 0.0346 1.15
2008 1.00 0.0388 ‐ ‐ 0.0071 0.0702 0.0113 1.13
2009 1.00 0.0388 ‐ ‐ 0.0061 0.0674 0.0123 1.12
2010 1.00 0.0388 0.0122 ‐ 0.0074 0.0686 0.0322 1.16
2011 1.00 0.0388 0.0095 0.0171 0.0072 0.0751 0.0326 1.18
2012 1.00 0.0388 0.0047 0.0155 0.0064 0.0742 0.0297 1.17
2013 1.00 0.0388 0.0051 0.0129 0.0069 0.0718 0.0287 1.16
2014 1.00 0.0388 0.0035 0.0177 0.0070 0.0655 0.0290 1.16
2015 1.00 0.0388 0.0091 0.0159 0.0065 0.0657 0.0276 1.16
Notes:1The County General Obligation Bond (Measure A) was passed in 2008 to fund the seismic upgrade of the
Santa Clara Valley Medical Center. Rates were first levied for the 2009‐10 fiscal year.
2The City of Palo Alto General Obligation Bond (Measure N) was passed in 2008 to fund the construction and
renovation of three of the City's libraries. Rates were first levied for the 2010‐11 fiscal year.
Source: County of Santa Clara, Tax Rates and Information
CITY OF PALO ALTO
Property Tax Rates
All Overlapping Governments
Last Ten Fiscal Years
$1.10
$1.12
$1.14
$1.16
$1.18
$1.20
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Rate per $100 of Assessed Value
144
Fiscal Year Total Tax Percentage Collections in Percentage of
Ended June 30 Levy1 for FY Amount of Levy Subsequent Years2 Amount Levy
2006 18,731$ 18,731$ 100%‐$ 18,731$ 100%
2007 21,466 21,466 100%‐ 21,466 100%
2008 23,084 23,084 100%‐ 23,084 100%
2009 25,432 25,432 100%‐ 25,432 100%
2010 25,981 25,981 100%‐ 25,981 100%
2011 25,688 25,688 100%‐ 25,688 100%
2012 26,494 26,494 100%‐ 26,494 100%
2013 28,742 28,742 100%‐ 28,742 100%
2014 30,587 30,587 100%‐ 30,587 100%
2015 34,117 34,117 100%‐ 34,117 100%
Notes:
Source: Annual Financial Statements, Government Funds, Statement of Revenues, Expenditures
and Changes in Fund Balances.
1During fiscal year 1995, the County of Santa Clara began providing the City 100% of its tax levy
under an agreement which allows the county to keep all interest and delinquency charges
collected.
2Effective fiscal year 1994, the City is on the Teeter Plan, under which the County of Santa Clara
pays the full tax levy due. All prior delinquent taxes were also received in that fiscal year.
CITY OF PALO ALTO
Property Tax Levies and Collections
Last Ten Fiscal Years
(Amounts in thousands)
Collected within the
Fiscal Year of the Levy Total Collections to Date
145
Taxable Assessed
Value Rank
Percentage of
Total Taxable
Assessed Value
Taxable
Assessed
Value Rank
Percentage of
Total Taxable
Assessed Value
Leland Stanford Jr. University 3,783,665$ 1 13.9% 2,518,267$ 1 15.5%
Loral Space & Communications 214,151 2 0.8% 179,249 2 1.1%
EOSII Palo Alto Technology Center LLC 119,308 3 0.4%
Whisman Ventures, LLC 109,807 4 0.4%
Google Inc. 103,834 5 0.4%
SI 43 LLC 75,318 6 0.3%
BVK Hamilton Ave LLC 67,933 7 0.2%
Ronald & Ann Williams Charitable Foundation 61,457 8 0.2%
PPC Forest Towers LLC 55,558 9 0.2%
Blackhawk Parent, LLC 52,461 10 0.2%
Agilent Technologies 72,852 3 0.4%
CEP Town & Country Investors, LLC 49,858 4 0.3%
Harbor Investment Partners 47,150 5 0.3%
Hamilton Associates 38,082 6 0.2%
505 Hamilton Avenue Partners 37,085 7 0.2%
California Pacific Commercial Corp. 34,232 8 0.2%
EOP‐Embarcadero Place, LLC 30,500 9 0.2%
Thoits Bros Inc.29,168 10 0.2%
Total 4,643,492$ 17.0% 3,036,443$ 18.6%
Total City Taxable Assessed Value:
FY 2015 27,198,127$
FY 2006 16,250,144$
Source: California Municipal Statistics, Inc.
Fiscal Year 2015 Fiscal Year 2006
Taxpayer
CITY OF PALO ALTO
Principal Property Taxpayers
Current Year and Nine Years Ago
(Amounts in thousands)
146
2014‐15 No. of
Assessed % of No. of % of Taxable % of
Valuation1 Total Parcels Total Parcels Total
Non‐Residential:
Agricultural/forest 32,067,390$ 0.13 % 49 0.24 % 31 0.15 %
Commercial 1,413,002,575 5.53 456 2.21 452 2.24
Professional/office 3,200,308,520 12.51 524 2.54 507 2.51
Industrial/research & development 1,734,139,074 6.78 180 0.87 175 0.87
Recreational 42,838,953 0.17 15 0.07 13 0.06
Government/social/institutional 41,282,153 0.16 115 0.56 46 0.23
Miscellaneous 6,914,500 0.03 18 0.09 17 0.08
Subtotal Non‐Residential 6,470,553,165$ 25.30 % 1,357 6.59 % 1,241 6.14 %
Residential:
Single family residence 15,153,425,336$ 59.26 % 14,957 72.61 % 14,910 73.75 %
Condominium/townhouse 2,000,938,397 7.82 3,033 14.72 3,027 14.97
Mobile Home 64,334 0.00 7 0.03 7 0.03
2‐4 Residential units 386,303,941 1.51 509 2.47 509 2.52
5+ Residential units 1,398,921,694 5.47 336 1.63 321 1.59
Subtotal Residential 18,939,653,702$ 74.06 % 18,842 91.47 % 18,774 92.87 %
Vacant Parcels 162,711,081$ 0.64 % 400 1.94 % 201 0.99 %
Total 25,572,917,948$ 100 % 20,599 100 % 20,216 100 %
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, 2015
147
No. of
Taxable Average
Parcels1 Assessed Valuation
Single Family Residential 14,910 $1,016,326
No. of % of Cumulative % of Cumulative
Taxable Total % of Total Total Total % of Total
Parcels1 Parcels Parcels Valuation Valuation Valuation
1,465 9.83 9.83 114,731,680$ 0.76 0.76
1,858 12.46 22.29 255,942,040 1.69 2.45
888 5.96 28.24 221,391,874 1.46 3.91
757 5.08 33.32 263,766,428 1.74 5.65
700 4.69 38.01 315,421,421 2.08 7.73
791 5.31 43.32 434,646,695 2.87 10.60
670 4.49 47.81 435,176,578 2.87 13.47
576 3.86 51.68 430,228,563 2.84 16.31
658 4.41 56.09 559,887,672 3.69 20.00
654 4.39 60.48 620,644,574 4.10 24.10
617 4.14 64.61 646,624,664 4.27 28.37
493 3.31 67.92 564,912,023 3.73 32.09
503 3.37 71.29 629,028,933 4.15 36.25
467 3.13 74.43 631,020,323 4.16 40.41
432 2.90 77.32 625,636,280 4.13 44.54
426 2.86 80.18 659,486,816 4.35 48.89
340 2.28 82.46 560,438,912 3.70 52.59
316 2.12 84.58 552,894,621 3.65 56.24
254 1.70 86.28 468,837,341 3.09 59.33
233 1.56 87.85 454,063,084 3.00 62.33
1,812 12.15 100.00 5,708,644,814 37.67 100.00
14,910 100.00 15,153,425,336$ 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
$15,153,425,336 $750,567
2014‐2015
Assessed Valuation
$0‐99,999
$100,000‐199,999
$200,000‐299,999
$300,000‐399,999
$400,000‐499,999
$500,000‐599,999
Assessed Valuation Assessed Valuation
CITY OF PALO ALTO
Per Parcel Assessed Valuation of Single Family Residential
As of June 30, 2015
2014‐2015 Median
148
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
9,915$ 9,175$ 8,405$ 7,605$ 6,765$ 5,895$ 1,685$ 1,560$ 1,430$ 1,285$
‐ ‐ ‐ ‐ 55,305 55,305 54,540 74,235 73,215 71,795
225 115 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
2011 Lease‐Purchase Agreement ‐ ‐ ‐ ‐ ‐ ‐ 2,764 2,400 2,026 1,643
Add: unamortized premium ‐ ‐ ‐ ‐ 3,766 3,640 3,514 4,400 4,242 4,084
‐ ‐ ‐ ‐ (571) ‐ ‐ ‐ ‐ ‐
10,140 9,290 8,405 7,605 65,265 64,840 62,503 82,595 80,913 78,807
43,325 41,859 40,334 38,744 72,104 69,551 65,879 63,104 60,224 57,224
Energy Tax Credits ‐ ‐ 1,400 1,300 1,200 1,100 1,000 900 800 700
State Water Resources Loan ‐ ‐ 5,629 9,000 13,080 16,696 15,900 15,109 14,309 13,500
(1,037) (972) (1,053) (2,479) (2,737) (229) 580 543 867 803
42,288 40,887 46,310 46,565 83,647 87,118 83,359 79,656 76,200 72,227
Outstanding Debt 52,428$ 50,177$ 54,715$ 54,170$ 148,912$151,958$145,862$162,251$ 157,113$151,034$
1.69% 1.51% 1.53% 1.50% 4.48% 4.10% 3.61% 3.80% 3.39% 3.09%
Population 62,148 62,615 63,367 64,484 65,408 64,417 65,544 66,368 66,861 66,029
0.84$ 0.80$ 0.86$ 0.84$ 2.28$ 2.36$ 2.23$ 2.44$ 2.35$ 2.29$
Notes:
Sources:
2015 Official City Data Set (population)
California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income)
Annual Financial Statements, Note 7 General Long‐Term Obligations and Note 8 Special Assessment Debt
Debt Per Capita
1See the schedule of Demographic and Economic Statistics for personal income data. Per capita personal income is only available for Santa Clara
County, therefore personal income is the product of the countywide per capita amount and the City's population.
County of Santa Clara (assessed valuation)
Percentage of Personal Income1
Certificates of Participation
General Obligation Bonds
Special Assessment Debt
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
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$ Th
o
u
s
a
n
d
s
Total Governmental Activities Total Business‐type Activities
149
2014‐2015 Assessed Valuation 27,198,127,032$
Percentage Amount
Applicable Applicable
Total Debt to City of to City of
Outstanding Palo Alto1 Palo Alto
Santa Clara County 799,180,000$ 7.62% 60,865,549$
Foothill‐DeAnza Community College District 635,069,288 22.51% 142,928,694
Palo Alto Unified School District 293,929,249 89.62% 263,416,454
Fremont Union High School District 378,045,088 0.01% 49,145
Los Gatos‐Saratoga Joint Union High School District 79,245,000 0.01% 11,094
Mountain View‐Los Altos Union High School District 62,407,734 0.95% 595,370
Cupertino Union School District 249,418,462 0.02% 52,378
Los Altos School District 72,518,760 1.07% 773,050
Mountain View‐Whisman School District 41,800,000 0.85% 353,628
Saratoga Union School District 37,170,075 0.03% 11,151
Whisman School District 21,244,500 2.18% 462,493
City of Palo Alto 71,795,000 100% 71,795,000
El Camino Hospital District 138,345,000 0.08% 117,593
City of Palo Alto Special Assessment Bonds 28,280,000 100% 28,280,000
Santa Clara Valley Water District Benefit Assessment District 106,690,000 7.62% 8,125,510
Total Direct and Overlapping Tax and Assessment Debt 577,837,109
707,613,810 7.62% 53,891,868
371,443,651 7.62% 28,289,148
9,030,000 7.62% 687,725
11,617,623 22.51% 2,614,662
6,995,000 0.01% 979
2,940,000 0.95% 28,048
4,925,000 0.03% 1,478
City of Palo Alto General Fund Obligations 2,928,242 100% 2,928,242
3,085,000 7.62% 234,954
Midpeninsula Regional Open Space Park District General Fund Obligations 127,086,851 13.25% 16,835,195
$ 105,512,299
38,453,079
$ 67,059,220
$ 644,896,329
Ratio to
Assessed Valuation
Total Direct Debt 0.27% 74,723,242$
Total Overlapping Debt 2.10% 570,173,087
Total Direct and Overlapping Debt 2.37% 644,896,329$ 2
Notes:
1Percentage of overlapping agency's assessed valuation located within boundaries of the city.
2Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and
non‐bonded capital lease obligations.
Source: California Municipal Statistics, Inc.
Santa Clara County Pension Obligations
Santa Clara County Board of Education Certificates of Participation
Foothill‐DeAnza Community College District Certificates of Participation
Los Gatos‐Saratoga Joint Union High School District Certificates of Participation
Santa Clara County General Fund Obligations
CITY OF PALO ALTO
Computation of Direct and Overlapping Debt
As of June 30, 2015
Direct and Overlapping Tax and Assessment Debt
Direct and Overlapping General Fund Debt
Mountain View‐Los Altos Union High School District Certificates of Participation
Saratoga Union High School District Certificates of Participation
Less: Santa Clara County supported obligations
Total Net Direct and Overlapping General Fund Debt
Overlapping debt is the financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction. The amount of debt of
each unit applicable to the reporting unit is arrived at by 1) determining what percentage of the total assessed value of the overlapping
jurisdiction lies within the limits of the reporting unit, and 2) applying this percentage to the total debt of the overlapping jurisdiction.
Santa Clara County Vector Control District Certificates of Participation
Total Gross Direct and Overlapping General Fund Debt
Total Combined Debt
150
Assessed Valuation:
Secured property assessed value,
net of exempt real property 27,198,127$
Bonded Debt Limit (3.75% of Assessed Value) 1 1,019,930
Direct Debt:
Certificates of Participation 1,285
Lease Purchase Agreement 1,643
General Obligation bonds 71,795
Total Direct Debt 74,723
Less: Amount of Debt Not Subject to Limit 2 2,928
Total Net Debt Applicable to Limit 71,795
Legal Bonded Debt Margin 948,135$
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
2006 16,250,144 609,380 ‐ 609,380 62,148 0.00%‐ 0.00
2007 17,609,613 660,360 ‐ 660,360 62,615 0.00%‐ 0.00
2008 18,922,488 709,593 ‐ 709,593 63,367 0.00%‐ 0.00
2009 21,085,609 790,710 ‐ 790,710 64,484 0.00%‐ 0.00
2010 21,880,359 820,513 55,305 765,208 65,408 6.74% 0.0025 0.85
2011 21,956,274 823,360 55,305 768,055 64,417 6.72% 0.0025 0.86
2012 22,486,708 843,252 54,540 788,712 65,544 6.47% 0.0024 0.83
2013 23,693,007 888,488 74,235 814,253 66,368 8.36% 0.0031 1.12
2014 25,536,058 957,602 73,215 884,387 66,861 7.65% 0.0029 1.10
2015 27,198,127 1,019,930 71,795 948,135 66,029 7.04% 0.0026 1.09
Notes:
Source:
CITY OF PALO ALTO
Computation of Legal Bonded Debt Margin
As of June 30, 2015
(Amounts in thousands)
1California Government Code, Section 43605 sets the debt limit at 15% of the assessed value of all real and personal property of the City. Because
this Code section was enacted when assessed value was 25% of market value, the limit is calculated at one‐fourth, or 3.75%. This legal debt margin
applies to General Obligation debt. Prior year limits have been adjusted to conform to the current year methodology.
2In accordance with California Government Code Section 43605, only the City's General Obligation bonds are subject to the legal debt limit of 15%.
Annual Financial Statements, Assessed Value of Taxable Property and Note 7 General Long‐Term Obligations
151
Less: Net Revenue
Fiscal Gross Direct Operating Available for
Year Revenue Expenses2 Debt Service Principal Interest3 Total Coverage Ratio
2006 213,337 143,703 69,634 1,410 2,203 3,613 19.27
2007 203,146 151,196 51,950 1,465 2,147 3,612 14.38
2008 219,801 173,620 46,181 1,525 2,088 3,613 12.78
2009 242,693 180,880 61,813 1,590 2,024 3,614 17.10
2010 230,308 171,320 58,988 1,755 1,954 3,709 15.90
2011 234,278 151,641 82,637 2,655 3,261 5,916 13.97
2012 235,160 169,777 65,383 2,945 2,959 5,904 11.07
2013 237,842 173,510 64,332 2,875 3,167 6,042 10.65
2014 239,948 176,718 63,230 2,980 3,073 6,053 10.45
2015 234,025 188,276 45,749 3,100 2,954 6,054 7.56
Notes:1Airport, Refuse and Fiber Optics funds have no debt and are therefore excluded from this schedule.
2Excludes depreciation and amortization expense.
3Excludes federal interest subsidy.
Source: City of Palo Alto, Accounting Department
Debt Service
CITY OF PALO ALTO
Revenue Bond Coverage
Business‐type Activities1
Last Ten Fiscal Years
(Amounts in thousands)
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$ Th
o
u
s
a
n
d
s
Net Revenue Available for Debt Service Total Debt Service
152
Fiscal
Year
2006 2,664 2,306 1,168 1,346 370 595 392 4,244 7,104 20,189
2007 2,751 2,486 1,109 1,485 374 602 203 5,075 7,139 21,224
2008 2,685 2,566 1,685 1,497 349 622 405 4,682 6,797 21,288
2009 2,251 2,443 1,431 1,258 315 493 214 4,284 6,635 19,324
2010 2,215 2,418 1,402 1,254 343 549 219 4,458 5,556 18,414
2011 2,374 2,621 1,564 1,292 381 630 242 4,873 6,322 20,299
2012 2,445 2,937 1,590 1,492 387 722 257 5,049 7,034 21,913
2013 2,478 3,160 1,465 1,656 424 765 259 4,056 13,729 27,992
2014 2,097 3,541 1,555 2,041 392 772 444 4,845 9,890 25,577
2015 2,398 3,894 1,672 1,708 435 699 265 3,674 11,253 25,998
Source: California State Board of Equalization, compiled by MuniServices LLC
Sales Tax Rates for the Fiscal Year ended June 30, 2015
State Rate:7.50%
Special District Tax Rates:
Santa Clara County Transit District (SCCT) 0.50%
Santa Clara County Valley Transportation Authority (SCVT) 0.50%
Santa Clara VTA BART Operating and Maintenance Transactions and Use Tax (SVTB) 0.125%
Santa Clara Retail Transactions and Use Tax (SCCR) 0.125%
Total Sales and Use Tax Rate: 8.750%
Source: California State Board of Equalization
Food
Markets
Service
Stations
Drug
Stores
Other
Retail All Other
Apparel
Stores
CITY OF PALO ALTO
Taxable Transactions by Type of Business
Last Ten Fiscal Years
(Amounts in thousands)
Total
ECONOMIC SEGMENT
Department
Stores Restaurants
Furniture/
Appliance
Department Stores
9%
Restaurants
15%
Furniture/ Appliance
6%
Apparel Stores
7%
Food Markets
2%
Service Stations
3%Drug Stores
1%
Other Retail
14%
All Other
43%
Fiscal Year 2015
153
Santa Clara Santa Clara
City of Palo Alto City of Palo Alto Santa Clara City Population County Total County Per Capita
Fiscal City of Palo Alto Unemployment School County as a Percentage of Personal Income Personal Income
Year Population Rate Enrollment Population County Population (in thousands)(in thousands)
2006 62,148 2.5% 10,607 1,773,258 3.50% 88,300,000$ 49,795$
2007 62,615 2.6% 11,056 1,808,056 3.46% 95,200,000 * 52,653 *
2008 63,367 3.5% 11,329 1,837,075 3.45% 102,300,000 * 55,686 *
2009 64,484 6.5% 11,329 1,857,621 3.47% 101,800,000 * 54,801 *
2010 65,408 6.2% 11,565 1,880,876 3.48% 95,000,000 * 50,508 *
2011 64,417 5.3% 12,024 1,781,427 3.62% 101,700,000 * 57,089 *
2012 65,544 4.7% 12,286 1,816,486 3.61% 112,800,000 * 62,098 *
2013 66,368 3.6% 12,396 1,842,254 3.60% 124,800,000 * 67,743 *
2014 66,861 2.8% 12,483 1,868,558 3.58% 130,600,000 * 69,893 *
2015 66,029 2.7% 12,532 1,889,638 3.49% 139,800,000 * 73,982 *
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 Employment Development Office (unemployment rate)
Palo Alto Unified School District (school enrollment)
* California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income). Forecasts from prior years are updated annually.
CITY OF PALO ALTO
Demographic and Economic Statistics
Last Ten Fiscal Years
60,000
61,000
62,000
63,000
64,000
65,000
66,000
67,000
68,000 City Population
10,000
10,500
11,000
11,500
12,000
12,500
13,000 School Enrollment
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%City Unemployment Rate
154
Number of
Employees Rank
Percentage of
Total City
Employment
Number of
Employees Rank
Percentage of
Total City
Employment
Stanford University 11,300 1 9.2% 9,821 1 7.0%
Stanford Health Care 5,900 2 4.8% 5,025 2 3.6%
Lucile Packard Children's Hospital 4,200 3 3.4% 3,326 4 2.4%
Veteran's Affairs Palo Alto Health Care System 3,900 4 3.2% 3,500 3 2.5%
VMware Inc. 3,500 5 2.8%
SAP 3,500 6 2.8%
Space Systems/Loral 2,800 7 2.3% 1,700 7 1.2%
Hewlett‐Packard Company 2,500 8 2.0% 2,001 5 1.4%
Palo Alto Medical Foundation 2,200 9 1.8% 2,000 6 1.4%
Varian Medical Systems 1,400 10 1.1%
Wilson Sonsini Goodrich & Rosati 1,500 8 1.1%
Palo Alto Unified School District 1,304 9 0.9%
City of Palo Alto 1,074 10 0.8%
Total 41,200 33.4% 31,251 22.3%
Estimated Total City Day Population:
FY 2015 123,403
FY 2008 140,000
Notes:
Source:
1Comparable data was not available until FY 2008.
2015 Official City Data Set (total City day population); AtoZdatabases; Stanford website.
CITY OF PALO ALTO
Principal Employers
Current Year and Seven Years Ago
FY 20152 FY 20081
Employer
2Available data sources are limited and may be unreliable. 2015 numbers are rounded.
155
2005 2006 2007 2008 2009
Governmental activities
Community Services
Number of theater performances 172 183 171 166 159
Total hours of athletic field usage2 65,748 65,791 70,769 63,212 45,762
Number of rounds of golf 78,410 76,000 76,241 74,630 72,170
Enrollment in recreation classes (includes summer camps)15,127 14,768 14,460 13,851 13,091
Planning and Community Environment
Planning applications completed 327 390 299 257 273
Building permits issued 3,081 3,081 3,136 3,046 2,543
Caltrain average weekday boarding3 3,264 3,882 4,132 4,589 4,407
Police
Calls for service 52,233 57,017 60,079 58,742 53,275
Total arrests 2,134 2,530 3,059 3,253 2,612
Parking citations issued 52,235 56,502 57,222 50,706 49,996
Animal Services
Number of service calls 4,994 2,861 2,990 3,059 2,873
Number of animals handled 3,514 3,839 3,578 3,532 3,422
Fire
Calls for service 6,414 6,897 7,236 7,723 7,549
Number of fire incidents 224 211 221 192 239
Number of fire inspections 1,488 899 1,021 1,277 1,028
Library
Total number of cardholders 52,001 55,909 53,099 53,740 54,878
Total number of items in collection 264,511 260,468 270,755 279,403 293,735
Total checkouts 1,282,888 1,280,547 1,414,509 1,542,116 1,633,955
Public Works
Street resurfacing (lane miles) 20 20 32 27 23
Number of potholes repaired 3,221 2,311 1,188 1,977 3,727
Sq. ft. of sidewalk replaced or permanently repaired 132,430 126,574 94,620 83,827 56,909
Number of trees planted 164 263 164 188 250
Total tons of waste landfilled 60,777 59,276 59,938 61,866 68,228
Tons of materials recycled 50,311 56,013 56,837 52,196 49,911
Business‐type activities
Electric
Number of customer accounts 28,556 28,653 28,684 29,024 28,527
Residential MWH consumed 161,440 161,202 162,405 162,680 159,899
Gas
Number of customer accounts 23,301 23,353 23,357 23,502 23,090
Residential therms consumed 12,299,158 11,745,883 11,759,842 11,969,151 11,003,088
Water
Number of customer accounts 19,605 19,645 19,726 19,942 19,442
Residential water consumption (CCF) 2,686,507 2,647,758 2,807,477 2,746,980 2,566,962
Wastewater collection
Number of customer accounts 21,763 21,784 21,789 21,970 21,210
Millions of gallons processed 8,497 8,972 8,853 8,510 7,958
Notes:
2According to the department, this measure was not accurately tracked during FY13 or FY14.
Source: City of Palo Alto Performance Report (formerly the Service Efforts and Accomplishments Report)
3Prior‐year data has been updated based on annual counts revised by Caltrain.
1Ten most recent years available.
CITY OF PALO ALTO
Operating Indicators by Function/Program
Last Ten Fiscal Years1
Fiscal Year Ended June 30
FUNCTIONS/PROGRAMS
156
2010 2011 2012 2013 2014
174 175 175 184 108
41,705 42,687 44,226 ‐ ‐
69,791 67,381 65,653 60,153 46,527
12,880 12,310 11,703 11,598 11,997
226 238 204 307 310
2,847 3,559 3,320 3,682 3,624
4,359 4,923 5,730 6,763 7,564
55,860 52,159 51,086 54,628 58,559
2,451 2,288 2,212 2,274 2,589
42,591 40,426 41,875 43,877 36,551
2,692 2,804 3,051 2,909 3,093
3,147 3,323 3,379 2,675 2,480
7,468 7,555 7,796 7,904 7,829
182 165 186 150 150
1,526 1,807 1,654 2,069 1,741
51,969 53,246 60,283 51,007 46,950
298,667 314,154 306,361 277,749 309,150
1,624,785 1,476,648 1,559,932 1,512,975 1,364,872
32 29 40 36 36
3,149 2,986 3,047 2,726 3,418
54,602 71,174 72,787 82,118 74,051
201 150 143 245 148
48,955 38,524 43,947 45,411 47,088
48,811 56,586 51,725 47,941 49,594
29,430 29,708 29,545 29,299 29,338
163,098 160,318 160,604 156,411 153,190
23,724 23,816 23,915 23,659 23,592
11,394,712 11,476,609 11,522,999 10,834,793 10,253,776
20,134 20,248 20,317 20,043 20,037
2,415,467 2,442,415 2,513,595 2,521,930 2,496,549
22,231 22,320 22,421 22,152 22,105
8,184 8,652 8,130 7,546 7,186
Fiscal Year Ended June 30
157
2006 2007 2008 2009 2010
FUNCTION/PROGRAM
Public Safety
Fire:
Fire Stations 8 8 8 8 8
Fire Apparatus 25 25 23 28 28
Police:
Police Stations 1 1 1 1 1
Police Patrol Vehicles 30 30 30 30 30
Community Services
Acres ‐ Downtown/Urban Parks 170 157 157 157 157
Acres ‐ Open Space 3,731 3,744 3,744 3,744 3,744
Parks and Preserves 35 36 36 36 36
Golf Course 1 1 1 1 1
Tennis Courts 52 51 51 51 51
Athletic Center 1 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 2 3 3 3 3
Libraries
Libraries 5 5 5 5 5
Public Works:
Number of Trees Maintained 34,841 34,556 35,058 34,991 35,025
Electric Utility1
Miles of Overhead Lines 217 194 193 193 193
Miles of Underground Lines 210 252 253 253 253
Water Utility
Miles of Water Mains 217 217 217 214 214
Gas Utility
Miles of Gas Mains 207 207 207 207 205
Waste Water
Miles of Sanitary Sewer Lines 202 202 202 207 207
Note:
Source: City of Palo Alto
1The City of Palo Alto Utilities Department recently completed the conversion of its electric system maps
to a GIS mapping system database. Therefore, the distances reported for FY 11/12 and forward are more
accurate than the distances reported in previous years.
CITY OF PALO ALTO
Capital Asset Statistics by Function/Program
Last Ten Fiscal Years
Fiscal Year Ended June 30
158
2011 2012 2013 2014 2015
8 7 777
27 29 28 28 29
1 1 111
30 30 30 30 30
157 157 157 157 157
3,744 3,744 3744 3744 3752
36 36 36 36 36
1 1 111
51 51 51 51 51
4 4 444
4 4 444
3 3 333
1 1 111
1 1 111
1 1 111
3 3 333
5 5 555
34,977 34,874 34,907 34,741 34,636
193 223 222 223 223
253 245 246 249 262
214 234 233 236 236
205 210 210 214 211
207 217 217 217 217
Fiscal Year Ended June 30
159
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Governmental Funds
General Fund:
Administrative 97 99 98 98 89 83 83 85 83 84
Community Services 99 97 96 97 94 74 74 74 74 76
Development Services6 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 38
Fire 127 127 127 127 123 121 122 119 116 107
Library 44 44 44 44 42 41 41 41 42 44
Office of Emergency Services5 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 3 3
Planning and Community Environment6 53 53 53 53 49 44 43 48 49 28
Police 164 163 163 164 161 157 157 154 155 155
Public Works1 68 68 68 69 64 59 56 57 56 53
Subtotal General Fund 652 651 649 652 622 579 576 578 578 588
All Other Funds:
Capital Projects Fund 20 20 20 21 24 24 24 26 27 27
Special Revenue Fund 1 1 1 1 1 2 2 2 9 10
Total Governmental Funds 673 672 670 674 647 605 602 606 614 625
Enterprise Funds
Public Works2 113 113 113 113 115 115 115 104 99 100
Utilities3 236 235 235 238 242 251 251 254 255 258
External Services4 6 6 6 ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total Enterprise Funds 355 354 354 351 357 366 366 358 354 358
Internal Service Funds
Printing and Mailing 5 4 4 4 4 2 2 2 2 2
Technology 30 30 30 31 31 30 30 31 32 32
Vehicle Replacement 16 16 16 16 16 16 16 17 17 17
Total Internal Service Funds 51 50 50 51 51 48 48 50 51 51
Total 1,079 1,076 1,074 1,076 1,055 1,019 1,016 1,014 1,019 1,034
1Fleet and Facilities Management
2Refuse, Storm Drainage, Wastewater Treatment
Numbers adjusted for rounding purposes.
Source: City of Palo Alto ‐ Fiscal Year 2015 Adopted Operating Budget
6ln FY15, staff was moved from Planning and Community Environment (PC&E), Public Works and Fire to create
Development Services.
5Effective in 2014, emergency services and disaster preparation activities have been removed from the Fire Department
and are now shown in newly created Office of Emergency Services.
4Effective in 2009, External Services was dissolved. 5 FTEs were eliminated and 1 FTE was transferred to the Technology
Fund.
CITY OF PALO ALTO
Full‐Time Equivalent City Government Employees by Function
Last Ten Fiscal Years
Full Time Equivalent Employees as of June 30
3Electric, Gas, Wastewater Collection, Water
0
200
400
600
800
1,000
1,200
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Fu
l
l
Ti
m
e
Eq
u
i
v
a
l
e
n
t
s
Governmental Funds Enterprise Funds Internal Service Funds
160
CITY OF PALO ALTO
Index to the Single Audit Report
For the Year Ended June 30, 2015
161
Page
Independent Auditor’s Report on Internal Control Over Financial Reporting
and on Compliance and Other Matters Based on an Audit of Financial
Statements Performed in Accordance With Government Auditing Standards ..................................... 163
Independent Auditor’s Report on Compliance for Each Major Federal Program and
Report on Internal Control Over Compliance Required by OMB Circular A‐133 ................................... 165
Schedule of Expenditures of Federal Awards ........................................................................................... 167
Notes to the Schedule of Expenditures of Federal Awards ...................................................................... 168
Schedule of Findings and Questioned Costs ............................................................................................. 169
Schedule of Prior Years Findings and Questioned Costs ........................................................................... 170
162
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163
Independent Auditor’s Report on Internal Control Over Financial Reporting
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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, 2015, 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 3, 2015.
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.
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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 3, 2015
www.mgocpa.com
Certified Public Accountants
Sacramento
Walnut Creek
Oakland
Los Angeles
Century City
Newport Beach
San Diego
Macias Gini & O’Connell LLP2121 N. California Blvd., Suite 750Walnut Creek, CA 94596
165
Independent Auditor’s Report on Compliance for Each Major Program and Report on
Internal Control Over Compliance Required by OMB Circular A-133
Honorable Mayor and the Members of the City Council of the City of Palo Alto
Palo Alto, California
Report on Compliance for Each Major Federal Program
We have audited the City of Palo Alto’s, California (City) compliance with the types of compliance requirements described in the OMB 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, 2015. The City’s major federal
programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs.
Management’s Responsibility
Management is responsible for compliance with the requirements of laws, regulations, contracts, and
grants applicable to its federal programs.
Auditor’s Responsibility
Our responsibility is to express an opinion on compliance for each of the City’s major federal programs
based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the
standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local
Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of
compliance requirements referred to above that could have a direct and material effect on a major federal
program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the
circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each major
federal program. However, our audit does not provide a legal determination of the City’s compliance.
Opinion on Each Major Program
In our opinion, the City complied, in all material respects, with the types of compliance requirements
referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2015.
166
Report on Internal Control Over Compliance
Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our
audit of compliance, we considered the City’s internal control over compliance with the types of
requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on compliance for each major federal program and to test and report on internal control over compliance in
accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the
effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over
compliance does not allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a
deficiency, or combination of deficiencies, in internal control over compliance, such that there is a
reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in
internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over
compliance with a type of compliance requirement of a federal program that is less severe than a material
weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.
Our consideration of internal control over compliance was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any
deficiencies in internal control over compliance that we consider to be material weaknesses. However,
material weaknesses may exist that were not identified.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of
OMB Circular A-133. Accordingly, this report is not suitable for any other purpose.
Walnut Creek, California
November 3, 2015
Grantor Federal
Identifying CFDA Subrecipients
Grantor/Pass‐Through Grantor/Program Title Number Number Expenditures Expenditures
U.S. Department of Housing and Urban Development
Direct
CDBG ‐ Entitlement Grants Cluster
Community Development Block Grants/Entitlement Grants B‐10‐MC‐06‐0020 14.218 556,227$ 481,976$
U.S. Department of Justice
Direct
Equitable Sharing Program CA0431200 16.CA0431200 5,754 ‐
U.S. Department of Transportation
Direct
Airport Improvement Program 3‐06‐0182‐009‐2014 20.106 299,664 ‐
Pass‐through from State of California Department of Transportation
Highway Planning and Construction BRLS‐5100(017) 20.205 20,360 ‐
Pass‐through from Santa Clara Valley Transportation Authority
Highway Planning and Construction CML‐5100(018) 20.205 15,649 ‐
Total Highway Planning and Construction 36,009 ‐
Total U.S. Department of Transportation 335,673 ‐
TOTAL EXPENDITURES OF FEDERAL AWARDS 897,654$ 481,976$
CITY OF PALO ALTO
Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2015
See Notes to the Schedule of Expenditures of Federal Awards
167
CITY OF PALO ALTO
Notes to the Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2015
168
NOTE 1 – REPORTING ENTITY
The schedule of expenditures of federal awards (the Schedule) includes expenditures of federal awards
for the City of Palo Alto, California (City), and its component unit as disclosed in the notes to the basic
financial statements.
NOTE 2 – BASIS OF ACCOUNTING
Basis of accounting refers to when revenues and expenditures or expenses are recognized in the
accounts and reported in the financial statements, regardless of measurement focus applied. All
governmental funds are accounted for using the modified accrual basis of accounting. All proprietary
funds are accounted for using the accrual basis of accounting. Expenditures of federal awards reported
in the Schedule are recognized when incurred and all eligibility requirements have been met.
NOTE 3 – DIRECT AND INDIRECT (PASS‐THROUGH) FEDERAL AWARDS
Federal awards may be granted directly to the City by a federal granting agency or may be granted to
other government agencies which pass‐through federal awards to the City. The Schedule includes both
of these types of federal award programs when they occur.
NOTE 4 – RELATIONSHIP TO FEDERAL FINANCIAL REPORTS
Amounts reported in the Schedule agree to or can be reconciled with the amounts reported in the
related federal financial reports.
NOTE 5 – RELATIONSHIP TO BASIC FINANCIAL STATEMENTS
Federal awards and expenditures agree to or can be reconciled with the amounts reported in the City’s
basic financial statements.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2015
169
Section I ‐ Summary of Auditor’s Results
Financial Statements
Type of auditor’s report issued on the
basic financial statements of the City:
Unmodified
Internal control over financial reporting:
Material weakness(es) identified? No
Significant deficiency(ies) identified? None reported
Noncompliance material to the financial statements
noted?
No
Federal Awards
Internal control over major programs:
Material weakness(es) identified? No
Significant deficiency(ies) identified? None reported
Type of auditor’s report issued on compliance for
major programs:
Unmodified
Any audit findings disclosed that are required to be
reported in accordance with section 510(a) of OMB
Circular A‐133?
No
Identification of Major Programs: 20.106 Airport Improvement Program
Dollar threshold used to distinguish between type A
and type B programs:
$300,000
Auditee qualified as a low‐risk auditee? Yes
Section II – Financial Statements Findings
No findings reported.
Section III ‐ Federal Award Findings and Questioned Costs
No findings reported.
CITY OF PALO ALTO
Schedule of Prior Years Findings and Questioned Costs
For the Year Ended June 30, 2015
170
Schedule of Prior Year Findings and Questioned Costs
Finding #SA 2013‐01 Procurement, Suspension and Debarment
Federal Program Title: Highway Planning and Construction
Federal Catalog Number: 20.205
Condition: The City did not contain a certification within the contract
showing that the contractor was not suspended or debarred,
nor was there any evidence that the City verified that the
contractor was not suspended or debarred by checking the
Excluded Parties List System (EPLS) maintained by the General
Services Administration. The amount reimbursed by the federal
grant for this contract was $144,081.
Status of Corrective Action Plan: Corrected
……….……………………………………………………………
City of Palo Alto 171
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For information contact: ADA Coordinator
250 Hamilton Avenue (650) 329-2550 ADA@cityofpaloalto.org
City of Palo Alto 250 Hamilton Avenue, Palo Alto, CA 94301 P 650.329.2100 W cityofpaloalto.org
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.
Capital Budget
Fiscal Year 2015