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HomeMy WebLinkAbout2016-11-15 Finance Committee Agenda Packet Finance Committee 1 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. November 15, 2016 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, 2016 and Management Letter 2. Recommendation to Approve the FY 2016 Comprehensive Annual Financial Report (CAFR) and Approve Budget Amendments in Various Funds 3. Development Services Cost of Services Study Including Fiscal Year 2017 Fee Proposals Future Meetings and Agendas Adjournment AMERICANS WITH DISABILITY ACT (ADA) Persons with disabilities who require auxiliary aids or services in using City facilities, services or programs or who would like information on the City’s compliance with the Americans with Disabilities Act (ADA) of 1990, may contact (650) 329-2550 (Voice) 24 hours in advance. 2 November 15, 2016 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. Finance Committee Items Tentatively Scheduled Meeting Date Line No. Item Title Referral Date 12/6/2016 1 FY18 General Fund Budget - Preliminary Budget Balancing Outline (ASD) 2 Review of Fees for Private Use of Public Streets and Sidewalks (Right of Way) (Public Works) 3 Palo Alto CLEAN Update (Utilities) City of Palo Alto (ID # 7383) Finance Committee Staff Report Report Type: Action Items Meeting Date: 11/15/2016 City of Palo Alto Page 1 Summary Title: Approve FY 2016 CAFR and Approve FY 2016 Budget Amendments in Various Funds Title: Recommendation to Approve the FY 2016 Comprehensive Annual Financial Report (CAFR) and Approve Budget Amendments in Various Funds From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that the Finance Committee forward to the City Council with a recommendation : 1. That the City Council amend the Fiscal Year 2016 Budget Appropriation Ordinance for various funds as identified in Attachment B – Exhibit 1 and various capital projects as identified in Attachment B – Exhibit 2; and 2. Approve the City’s FY 2016 Comprehensive Annual Financial Report (CAFR) (Attachment C). Financial Highlights for FY 2016  General Fund ended FY 2016 with a surplus of $7.7 million when compared to the assumptions used in the development of the FY 2017 Adopted Operating Budget. However, once adjusted for City Council approved uses and current pending staff recommended uses of the Budget Stabilization Reserve (BSR), the remaining surplus balance is $429,000 when compared to the level assumed in the FY 2017 Adopted Budget. The surplus was largely a result of higher than estimated expense savings, as well as slight revenue increases in sales and use taxes (approximately $1 million) when compared to the estimated activity levels assumed in the development of the FY 2017 Adopted Budget. This surplus is recommended to be utilized for the following purposes: o Amendments to the FY 2017 budget appropriation ordinance as approved by or scheduled for Council consideration ($1.3 million); o Recommended FY 2016 Reappropriations to continue FY 2016 activities that were not completed in time for the fiscal year end close ($1.3 million) as reviewed by the City of Palo Alto Page 2 Finance Committee on October 18, 2016; o Recommended transfer to the Infrastructure Reserve ($5.0 million) for  FY 2017 recommended project deferrals and the corresponding deferral of General Fund transfer to the General Capital Fund ($4.3 million)  Recommended transfer of investment returns from the sale of former City Manager property ($651,000); and o Recommended reserve of revenues as a result of the fees received from the Edgewood Plaza development ($365,000). After adjusting for both the funds retained in the BSR for specific purposes ($2.1 million for potential use in a pension trust fund) and deducting amounts summarized above, the ending BSR balance of $41.6 million is 21.4 percent of FY 2017 General Fund budgeted expenditures and operating transfers ($429,000 over the FY 2017 Adopted Budget BSR balance of $41.1 million).  Enterprise Funds, except for the Electric Fund, ended the year in surplus positions, with the ongoing drought continuing to negatively impact results, most notably affecting the Water and Electric Funds.  The City received a “clean” audit opinion for FY 2016 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 2015 – the 22nd consecutive year. Background The City’s fiscal year ends on June 30, at which time its financial records are closed for the year and financial reports are prepared. The reports, along with the City’s financial data, are audited by Macias Gini & O’Connell LLP (MGO), Certified Public Accountants, a firm hired by the City Auditor. MGO issues an audit opinion on the financial position of the City’s activities and, 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 2016 Budget. In addition, they provide detailed information on the City’s financial activities for FY 2016 and highlight key fiscal issues affecting the City of Palo Alto. The Management’s Discussion and Analysis (MD&A) section of the CAFR (Attachment C) also provides a discussion and analysis of the City’s current fiscal health, and includes financial statements and analysis that is compared to the prior year, along with capital asset and debt administration data. Discussion Economic Environment: Solid tax revenues and a strong local economy show a rebounding from the Great Recession. A continuously improving economic climate is noted by the majority of national, state, regional, and local economic indicators. Therefore, the City’s most recent forecast and actual collections City of Palo Alto Page 3 reflect the continued gradual growth in economically sensitive revenues such as Property Tax and Transient Occupancy Tax collections. While these results are welcome, rising benefit and other operating costs diminish this more positive outlook over the next ten or so years. 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. Since the Great Recession, the City Council has approved various strategies to reduce the costs of salaries and benefits. These strategies include: (1) employees paying their own CalPERS contribution except for members of the Fire Chiefs’ Association (currently in negotiations); (2) sharing the cost of health plan costs by shifting to a flat rate contribution instead of a 90/10 split for the majority of the employee groups; (3) creating a second pension tier (and the state implemented a third tier effective January 1, 2013); (4) reducing professional development expenses; (5) cost of living freezes for four years; and (6) terminating the Variable Management Compensation Plan. The City Council adopted a FY 2017 General Fund budget of $194.2 million (including operating transfers), an increase of 4.9 percent from the prior year Adopted Budget. The primary drivers of increased expenditures for FY 2017 are salaries and benefits including pension and health care costs, continued 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 (Safety and Miscellaneous Plan employees will pay an additional 1 percent) and capping the City’s share of health care premiums through a number of the recently approved labor agreements. 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 $495 million. Funded ratios for the Safety and Miscellaneous plans based on June 2015 actuarial valuations are 68.6 percent and 68.5 percent respectively, and 33.5 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 $85.4 million as of September 30, 2016. 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 2017-2021 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 the FY 2017-2021 Adopted Capital Improvement Plan, a reserve of $30 million was included as well as nominal changes in eminent project costs resulting in a revised plan upwards of $160 million over the five-year City of Palo Alto Page 4 period. As part of the FY 2017 Budget Process, the deferral of three capital improvement projects was recommended and approved by the City Council, resulting in a one-time reduction in the transfer from the General Fund to the general Capital Improvement Fund in the amount of $4.3 million. After reviewing the status of current projects and the upcoming pipeline in the context of resource capacity, three projects including the Municipal Services Center A, B, & C Roof Replacement (PF-17000), Ramos Park Improvements (PG-14000); and Rinconada Park Improvements (PE-08001) were deferred for one year, from FY 2017 to FY 2018. However, in anticipation of the FY 2018 General Fund balancing needs, a transfer of $4.3 million from the FY 2016 surplus in the General Fund Budget Stabilization Reserve to the general Capital Improvement Fund is recommended to ensure these three project deferrals are fully funded over the course of the five-year capital improvement plan. A detailed discussion of financial results for FY 2016 is included in the CAFR MD&A. In addition, staff will return to the Finance Committee with further discussions on the financial outlook of FY 2018 and potential strategies to employ during the FY 2018 budget development to address the anticipated gap between revenue and expenses. Results by Fund: General Fund Reserves At the end of the current fiscal year, fund balance of the General Fund was $51.6 million, an increase of $3.4 million from the prior year. The $51.6 million fund 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 (IR) in the Capital Projects Fund at the discretion of the City Manager. A summary of the General Fund is outlined in Attachment A reflecting budget versus actuals for FY 2016. Over the past five fiscal years, a total of $32.6 million in surplus funds has been transferred to the IR, as shown in the following table. In addition, $4.3 million of FY 2016 surplus has been committed for transfer to the IR in FY 2017. 2012 $ 7,600 2013 8,900 2014 4,000 2015 5,087 2016 (FY2015 surplus) 7,000 32,587 2017 (FY2016 surplus) 4,327 City of Palo Alto Page 5 Total transfers $ 36,914 As part of the development of the FY 2017 Adopted Budget, within the BSR staff assumed a level of excess revenues and additional expenses savings as well as the reserve of funds for potentially establishing a pension trust fund ($2.1 million). Once adjusting for these, the BSR balance was $48.9 million compared to the FY 2017 Adopted Budget targeted level of $41.1 million, a $7.7 million surplus. The chart below outlines the previously approved uses of this surplus, as well as recommended uses. Once all these adjustments are taken into consideration, the remaining BSR would be at $41.6 million, approximately 21.4 percent of the FY 2017 Adopted Expenses of $194.2 million. This level is approximately $5.7 million above the target level of 18.5% or $38.8 million. However, this projected BSR level of $41.6 million is only $429,000 above levels assumed in the FY 2017 Adopted Budget which were assumed at this higher level in order to proactively prepare for the anticipated needs of balancing the FY 2018 budget. 2016 Year-End Budget Stabilization Reserve (BSR) Summary (000’s) General Fund BSR Balance $51,582 Reserve: Potentially establish a pension trust fund (FY 2015 year end close $1.3 million; FY 2017 Adopted Budget $750,000) (2,055) BSR Balance, June 30 2016 $49,527 Uses of the FY 2016 Surplus FY 2017 Approved and/or Recommended use of BSR FY 2017 City Manager Reports Budget Amendment - Approved (CMR’s #7065 & #7030) (567) FY 2017 City Manager Reports Budget Amendments - Scheduled (as of October 11, 2016) (735) FY 2016 Recommended Reappropriations (approved by Finance Committee October 18, 2016) (1,309) Recommended use of Surplus Funds* Transfer to Capital Improvement Fund: FY 2017 Deferred CIP projects (4,327) Transfer to Capital Improvement Fund: Investment Return former City Manager Real Estate Sale (651) Reserve: Edgewood Plaza development fees (365) Current Projected FY 2017 BSR Level (June 30, 2017) $41,573 * If approved, these transfers would be completed as part of the FY 2017 Mid-Year Budget Report. General Fund Revenues General Fund revenues for FY 2016 were $164.4 million, which is $6.8 million or 4.3 percent higher than the prior year. Year over year changes in each of the major tax revenue categories are summarized in the following table. City of Palo Alto Page 6 Category FY 2016 FY 2015 % Change Increase (Decrease) Property tax $ 36,607 $ 34,117 7.3% Sales tax 30,018 29,675 1.1% Utility user tax 12,469 10,861 14.8% Transient occupancy tax 22,366 16,699 33.9% Documentary transfer tax 6,266 10,384 (39.6%) Property tax revenue increased due to higher assessed values as a result of continued robust commercial and residential real estate markets. Each of the fiscal years 2016 and 2015 included one-time receipts of $0.9 million for excess Educational Revenue Augmentation Fund (ERAF) distributions from the County of Santa Clara. Sales tax revenue in total is relatively flat year over year. 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. The City expected to receive $0.2 million in past due sales tax as a result of a sales tax audit conducted by the City Auditor’s Office, however this amount did arrive in time to be included in FY 2016. We expect to receive and report it in FY 2017. Utility user tax (UUT) revenue increased 14.8 percent from the prior year, almost $2.0 million higher than mid-year projections. The increase is driven by telephone user services due in part to new UUT revenue on prepaid wireless cards and phone plans. Transient occupancy tax (TOT) revenue experienced double digit growth over the prior year as a result of the 2 percent rate increase from 12 percent to 14 percent that became effective January 1, 2015, and the opening of several new hotels. The entire 14 percent TOT rate from new hotels, plus the 2 percent increase from existing hotels, has been allocated to the Infrastructure Plan pursuant to prior City Council direction. Following is a comparative breakdown of the allocation of transient occupancy tax receipts: FY 2016 FY 2015 General Fund: $ 15,187 $ 13,441 Infrastructure Plan: (12 months of receipts) (6 months of receipts) New hotels – 12% 3,982 1,849 All hotels – 2% 3,197 1,409 7,179 3,258 Total TOT Receipts $ 22,366 $ 16,699 Documentary Transfer Tax (DTT) revenues decreased $4.1 million, or 39.6 percent, from prior City of Palo Alto Page 7 year. FY 2015 revenue was extraordinarily high due to two commercial transactions which generated DTT receipts of $3.6 million and $1.4 million, respectively. Other revenues with significant year-over-year changes were as follows:  Charges for services decreased $1.8 million from the prior year due primarily to reduced revenue for Stanford University fire services, and  Other revenue increased $1.7 million due to net sale proceeds from the former City Manager’s house at 2257 Bryant Street. Following is a chart which depicts the relative contribution of each tax category over the past seven years (2010 through 2016), as well as the current budgeted year (2017). General Fund Tax Revenues Actual Fiscal Years 2010 – 2016 Budget Fiscal Year 2017 FY 2017 Budget FY 2016 Actual FY 2015 Actual FY 2014 Actual FY 2013 Actual FY 2012 Actual FY 2011 Actual FY 2010 Actual FY 2017 Budget FY 2016 Actual FY 2015 Actual FY 2014 Actual FY 2013 Actual FY 2012 Actual FY 2011 Actual FY 2010 Actual Property Tax 37,853 36,607 34,117 30,587 28,742 26,494 25,688 25,981 Sales Tax 28,668 29,613 29,675 29,424 25,606 22,132 20,746 17,991 Utility User Tax 11,209 12,469 10,861 11,008 10,861 10,834 10,851 11,295 Trans Occ Tax 23,134 22,366 16,699 12,255 10,794 9,664 8,082 6,858 Doc Transfer Tax 7,532 6,266 10,051 7,811 6,810 4,821 5,167 3,707 City of Palo Alto Page 8 General Fund Expenditures General Fund expenditures for FY 2016, including encumbrances, totaled $163.0 million, an increase of $8.1 million from the prior year. The Original Budget of $163.0 million was increased to the Final Adjusted Budget amount of $170.8 million, primarily due to the expenditure of prior year encumbered and reappropriated balances, increases for several departments throughout the year through various City Manager Reports ($3.6 million), and mid-year increases in department expenses ($1.4 million). Following is a chart which compares actual departmental costs, including encumbrances, over the past seven years and budgeted costs for FY 2017. General Fund Departments Actual Expenditures Fiscal Years 2010 – 2016 (including encumbrances) Budgeted Expenditures Fiscal Year 2017 ($ in thousands) 0 20 40 60 80 100 120 140 160 FY 2017 Budget FY 2016 Actual FY 2015 Actual FY 2014 Actual FY 2013 Actual FY 2012 Actual FY 2011 Actual FY 2010 Actual FY 2017 Budget FY 2016 Actual FY 2015 Actual FY 2014 Actual FY 2013 Actual FY 2012 Actual FY 2011 Actual FY 2010 Actual Public Safety 68,509 65,005 62,459 63,403 61,222 63,879 60,298 57,270 Community Services 25,390 25,262 23,902 23,402 22,279 21,399 20,518 20,846 Admin Depts 20,807 22,059 19,771 19,784 18,544 18,693 16,906 19,219 Public Works 16,054 15,084 14,210 14,138 13,987 13,789 13,842 13,405 Planning & Comm Env 8,843 10,912 9,026 14,637 13,112 11,186 10,416 10,058 Development Svcs 12,169 10,872 11,335 0 0 0 0 0 Library 8,992 8,217 8,144 8,072 7,555 7,714 6,722 6,623 Capital Projects Fund The Capital Projects Fund ended the year with a fund balance of $70.3 million, which is comprised of the following: City of Palo Alto Page 9 Fund Balance Component Amount ($ in millions) Restricted for Library projects $ 711 Reserved for Roth Building rehabilitation 3,954 Reserved for TDR qualified expenditures 656 Reserved for Cubberley expenditures 2,634 Assigned for all other Capital projects 62,395 Total Capital Projects Fund Balance $ 70,350 Restricted for Library projects of $0.7 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 from the Infrastructure Reserve, as established at the time of the bond issuance. Assigned for all other Capital projects of $62.4 million represents the amount of unspent funds associated with Adopted Capital projects other than Library projects and other noted items. Outside funding sources such as grants, donations and future debt issues are not factored into this component of the fund balance until they are actually received. A significant portion of these funds ($29.5 million) were reappropriated from FY 2016 to FY 2017 as part of the FY 2017 Adopted Capital Budget. These reflect projects that have yet to be completed and funds were anticipated to be carried forward to FY 2017 based on estimates of anticipated spending in Fiscal Year 2016. Enterprise Funds At June 30, 2016 the City’s Enterprise Funds reported total net position of $676.9 million, an increase of $12.1 million from the prior year. The change in net position for each of the Enterprise Funds is detailed in the following table. City of Palo Alto Page 10 Enterprise Funds Change in Net Position for the Year Ended June 30 (in Millions) Increase/ Fund Name 2016 2015 (Decrease) Water 4.7$ 5.1$ (0.4)$ Electric (8.3)(11.2)2.9 Fiber Optics 3.0 3.1 (0.1) Gas 3.4 1.7 1.7 Wastewater Collection 1.6 2.4 (0.8) Wastewater Treatment 1.7 2.9 (1.2) Refuse 2.6 4.8 (2.2) Storm Drainage 3.3 2.7 0.6 Airport 0.1 (0.1)0.2 Total Change in Net Position 12.1$ 11.4$ 0.7$ The total Change in Net Assets of $12.1 million is an increase of $0.7 million from the prior year, primarily due to improvement in Electric and Gas Funds. 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 $8.3 million. This is an improvement of $2.9 million from the prior year. Gas Fund improved by $1.7 million due to lower commodity prices. The corresponding reduction in customer revenue (also commodity rate driven) was offset by increased consumption. Refuse Fund net position decreased $2.2 million from prior year. FY 2015 included a one-time increase in operating transfers in of $0.7 due to changes in street sweeping services. The Greenwaste contract cost increased as a result of expanded services, partially offset by a 9 percent increase in residential rates. 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. All Enterprise Funds maintained a positive unrestricted reserve balance as of June 30, 2016 except for Wastewater Treatment which is in a deficit position of $2.1 million City of Palo Alto Page 11 due to pension related items and Airport Fund which is in a deficit position of $2.3 million due to life to date operating losses which are currently being funded by advances from the General Fund. Environmental Review This is not a project for purposes of the California Environmental Quality Act. Attachments:  Attachment A: FY16 General Fund (XLSX)  Attachment B: FY 2016 Year End Clean-up Budget Adjustments (PDF)  Attachment C: City of Palo Alto FY2016 - CAFR (PDF) 11/3/20169:23 AM Final Draft Attachment A Exhibit 2 GENERAL FUND SUMMARY ($000s) FY 2016 FY 2016 FY 2016 FY 2016 FY 2016 FY 2016 FY 2016 Adopted Adjusted CAFR Basis Allocated Encum Actual Actual to Budget Budget Rev/Exp Charges Rev/Exp Adj BudgetVariance Revenues Sales Tax 27,630 28,430 30,018 n/a 30,018 1,588 Property Tax 35,067 35,967 36,607 n/a 36,607 640 Transient Occupancy Tax 18,791 21,991 22,366 n/a 22,366 375 Documentary Transfer Tax 6,852 7,052 6,266 n/a 6,266 (786) Utility Users Tax 11,189 10,489 12,469 n/a 12,469 1,980 Other Taxes and Fines 2,180 2,180 2,238 n/a 2,238 58 Charges for Services 25,399 24,768 23,910 n/a 23,910 (858) Permits and Licenses 8,211 8,211 7,912 n/a 7,912 (299) Return on Investment 824 824 1,104 n/a 1,104 280 Rental Income 15,296 15,299 15,769 n/a 15,769 470 From Other Agencies 1,659 659 3,190 n/a 3,190 2,531 Charges to Other Funds 11,930 11,929 - 11,576 n/a 11,576 (353) Other Revenues 323 1,801 2,591 - n/a 2,591 790 Total Revenues 165,351 169,600 164,440 11,576 n/a 176,016 6,416 Add: Operating Transfers In 18,589 19,141 18,317 n/a 18,317 (824) Prior Year Encum 5,573 5,606 n/a 5,606 33 Contribution from BSR 1,732 11,551 Total Source of Funds 185,672 205,865 182,757 17,182 n/a 199,939 5,625 Expenditures City Attorney 3,101 3,719 2,634 162 390 3,186 533 City Auditor 1,175 1,261 1,057 55 47 1,159 102 City Clerk 1,328 1,373 871 130 57 1,058 314 City Council 455 502 428 2 21 451 51 City Manager 3,431 4,121 3,420 173 499 4,092 28 Administrative Services 7,635 7,957 7,045 452 118 7,615 342 Community Services 24,804 26,517 19,883 4,452 927 25,262 1,256 Fire 27,583 29,223 25,421 3,175 565 29,161 62 Police 36,859 36,924 32,703 2,970 171 35,844 1,080 Human Resources 3,555 4,029 3,324 192 333 3,849 180 Library 8,555 8,971 7,295 665 257 8,217 754 Planning & Community Environment 8,900 11,146 8,371 727 1,814 10,912 234 Development Services 11,901 12,281 9,851 814 207 10,872 1,409 Public Works 15,017 15,828 11,508 2,787 789 15,084 744 Non-Departmental 3,078 1,372 650 - 650 722 Cubberley Lease 5,584 5,584 5,584 - 5,584 (0) Total Expenditures 162,961 170,808 140,045 16,756 6,195 162,996 7,812 Add: Operating Trans Out 1,834 5,548 5,096 - 5,096 452 Transfer to Infrastructure 20,877 29,509 29,365 - 29,365 144 Total Use of Funds 185,672 205,865 174,506 16,756 6,195 197,457 8,408 Net Surplus/(Deficit)- (0) 8,251 426 6,195 2,482 14,032 CAFR Reconciliation:Unrealized gain/loss on investments 1,390 Current year encumbrance 6,195 Prior Year encumbrances (5,606) CAFR Net Income 4,461 C:\Users\jpollar\appdata\local\temp\minutetraq\paloaltocityca@paloaltocityca.iqm2.com\work\attachments\18737 ATTACHMENT B, EXHIBIT 1 Department Category Adjustment Category Adjustment GENERAL FUND (102) Administrative Services Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2018. General Expense (30,000)$ City Attorney's Office Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2018. General Expense (11,000)$ City Clerk's Office Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2018. General Expense (1,000)$ City Manager's Office Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2018. General Expense (7,500)$ Community & Development Services Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2018. General Expense (11,000)$ Community & Development Services Salaries & Benefits This action reallocates departmental salary and benefits savings to Non-Departmental to offset an increase in the transfer from the General Fund to the Public Art Fund in order to fully fund administrative costs in excess of 20% of art fee revenue as required by Ordinance #5226 in FY 2016. Salaries & Benefits (38,500)$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2016 BUDGET Revenues Expenses Attachment B - 1 ATTACHMENT B, EXHIBIT 1 Department Category Adjustment Category Adjustment GENERAL FUND (102) CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2016 BUDGET Revenues Expenses Development Services Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2018. General Expense (1,000)$ Fire Salary & Benefits (reallocation from Non-Departmental reserve): This action reallocates funding reserved for salary and benefit increases due to pending labor negotiations to the Fire Department for higher than anticipated salary and benefit expenses in FY 2016. These higher than anticipated expenses are due to a number of variables though the primary causes of this reflects higher than budgeted overtime expenses and higher salary and benefit increases as approved by the City Council in April 2016 that were budgeted in the aforementioned reserve. Salaries & Benefits 1,265,000$ Human Resources Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2018. General Expense (104,000)$ Library Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2018. General Expense (3,000)$ Non- Departmental Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2018. General Expense 202,000$ Non- Departmental Salary & Benefits Reserve (reallocation to Fire Department) This action reallocates the reserve for Salaries and Benefits to the Fire Department to provide sufficient funding for final FY2016 Fire Department salary and benefits expenses. Fund Balance/ Reserves (1,265,000)$ Attachment B - 2 ATTACHMENT B, EXHIBIT 1 Department Category Adjustment Category Adjustment GENERAL FUND (102) CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2016 BUDGET Revenues Expenses Non- Departmental Transfer to the Public Art Fund This action increases the transfer to the Public Art Fund (from $68,500 to $107,000) to provide sufficient funding for administrative costs associated with the Public Art Program in FY 2016. Per Ordinance #5226, administrative costs in excess of 20% of art fee revenue require General Fund support. Operating Transfers 38,500$ Police Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2018. General Expense (8,000)$ Public Works Management Development & Training (reallocation to Non-Departmental) This action reallocates departmental management development savings to Non-Departmental to reappropriate funds for city-wide training needs in FY 2018. General Expense (25,500)$ GENERAL FUND (102) SUBTOTAL -$ -$ Attachment B - 3 ATTACHMENT B, EXHIBIT 1 Department Category Adjustment Category Adjustment GENERAL FUND CAPITAL IMPROVEMENT FUND (471) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 4. Other Revenues 45,000$ Capital Improvement 929,823$ Capital Transfer to the Library Debt Service Fund This action establishes a transfer from the General Fund Capital Improvement Fund to the Library Debt Service Fund for defeasance of Library bonds. This is due to project savings of $3,007,702 which was approved in CMR #6993 and $10,784 to transfer the remaining balance in the bond issue bank account to the Debt Service Fund. A corresponding decrease in the fund balance, specifically the Reserve: Library Bond Proceeds is recommended to offset this adjustment. Operating Transfer - Out 3,018,486$ Capital Reserve: Capital Fund Library Bond Proceeds This action decreases the reserve for Library Bond Proceeds to offset actions recommended in this report. Fund Balance/ Reserves (3,018,486)$ Capital Reserve: Capital Fund Infrastructure Reserve This action decreases the fund balance to offset the net changes resulting from the actions recommended in this report. Fund Balance/ Reserves (884,823)$ GENERAL FUND CAPITAL IMPROVEMENT FUND (471) SUBTOTAL 45,000$ 45,000$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2016 BUDGET Revenues Expenses Attachment B - 4 ATTACHMENT B, EXHIBIT 1 Department Category Adjustment Category Adjustment ENTERPRISE FUNDS AIRPORT ENTERPRISE FUND (530) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 4. Capital Improvement 25,799$ Public Works Public Work's Salaries & Benefits This action reallocates departmental salaries and benefit savings to Capital Improvement Projects to provide sufficient funding for final FY2016 capital project expenses. Salaries & Benefits (25,799)$ AIRPORT ENTERPRISE FUND (530) SUBTOTAL -$ -$ ELECTRIC FUND (523) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 4. Capital Improvement 278$ Capital Adjustment to Reserve for Capital Improvement Projects This action decreases the Capital Improvement Projects Reserve to offset slightly higher capital improvement expenses in FY 2016. Fund Balance/ Reserves (278)$ ELECTRIC FUND (523) SUBTOTAL -$ -$ GAS FUND (524) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 4. Other Revenues 70,528$ Capital Improvement 70,528$ GAS FUND (524) SUBTOTAL 70,528$ 70,528$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2016 BUDGET Revenues Expenses Attachment B - 5 ATTACHMENT B, EXHIBIT 1 Department Category Adjustment Category Adjustment ENTERPRISE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2016 BUDGET Revenues Expenses REFUSE FUND (525) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 4. Capital Improvement 74,192$ Public Works Refuse Utility Purchases This action increases the utility purchases expenses to align with FY2016 year end expenses and encumbrances. A corresponding increase in revenues from customer sales offsets these increases expenses. Customer Sales 528,072$ Utility Purchases 528,072$ Capital Adjustment to Rate Stabilization Reserve This action decreases the Rate Stabilization Reserve to offset slightly higher capital improvement expenses in FY 2016. Fund Balance/ Reserves (74,192)$ REFUSE FUND (525) SUBTOTAL 528,072$ 528,072$ WASTEWATER COLLECTION FUND (527) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 4. Capital Improvement 105,511$ Adjustment to Reserve for Operations This action decreases the Reserve for Operations to offset slightly higher capital improvement expenses in FY 2016. Fund Balance/ Reserves (105,511)$ WASTEWATER COLLECTION FUND (527) SUBTOTAL -$ -$ WATER FUND (522) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 4. Capital Improvement 783,717$ Adjustment to Reserve for Operations This action decreases the Reserve for Operations to offset slightly higher capital improvement expenses in FY 2016. Fund Balance/ Reserves (783,717)$ WATER FUND (522) SUBTOTAL -$ -$ Attachment B - 6 ATTACHMENT B, EXHIBIT 1 Department Category Adjustment Category Adjustment INTERNAL SERVICE FUNDS VEHICLE REPLACEMENT & MAINTENANCE FUND (681) Capital Capital Improvement Project Adjustments This action reflects the combined impact from adjustments to projects as outlined in Attachment A, Exhibit 4. Capital Improvement 24,289$ Adjustment to Fund Balance This action decreases the fund balance to offset slightly higher capital improvement expenses in FY 2016. Fund Balance/ Reserves (24,289)$ VEHICLE REPLACEMENT & MAINTENANCE FUND (681) SUBTOTAL -$ -$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2016 BUDGET Revenues Expenses Attachment B - 7 ATTACHMENT B, EXHIBIT 1 Department Category Adjustment Category Adjustment SPECIAL REVENUE FUNDS HOUSING IN-LIEU/COMMERICAL FUND (234) Transfer from Stanford Medical Development Fund/Ending Fund Balance This action recognizes a transfer from the Stanford Medical Development Fund to the Housing In- Lieu/Commercial Fund for developer impact fees embedded in the SUMC Development Agreement. This is in compliance with the City Attorney's interpretation of the SUMC agreement. A corresponding increase in the fund balance is recommended to offset this adjustment. Operating Transfers-In 1,720,488$ Fund Balance/ Reserves 1,720,488$ HOUSING IN-LIEU/COMMERICAL FUND (234) SUBTOTAL 1,720,488$ 1,720,488$ HOUSING IN-LIEU/RESIDENTIAL FUND (233) Non- Departmental Transfer to Stanford Medical Center Development Fund This action established a transfer from the Housing In- Lieu Residential Fund to the Stanford Medical Center Development Fund for repayment of funds previously transferred in FY 2013. The funds were not needed and have been returned. A corresponding decrease in the fund balance is recommended to offset this adjustment. Operating Transfers 720,220$ Ending Fund Balance This action decreases the fund balance to offset the actions recommended in this report. Fund Balance/ Reserves (720,220)$ HOUSING IN-LIEU/RESIDENTIAL FUND (233) SUBTOTAL -$ -$ LAW ENFORCEMENT SERVICES FUND (248) Police COPS Grant Expenses/State Revenues This action recognizes additional grant revenues and corresponding expense in order to align budget levels with actual FY2016 revenue, expense, and encumbrance levels. State Revenues 12,695$ Contract Services 12,695$ LAW ENFORCEMENT SERVICES FUND (248) SUBTOTAL 12,695$ 12,695$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2016 BUDGET Revenues Expenses Attachment B - 8 ATTACHMENT B, EXHIBIT 1 Department Category Adjustment Category Adjustment SPECIAL REVENUE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2016 BUDGET Revenues Expenses LIBRARY PROJECTS FUND (370) Non- Departmental Transfer from the General Fund Capital Improvement Fund This action recognizes a transfer from the General Fund Capital Improvement Fund to the Library Debt Service Fund for defeasance of Library bonds. This is due to project savings of $3,007,702 which was approved in CMR#6993 and $10,784 to transfer the remaining balance in the bond issue bank account to the Debt Service Fund. Operating Transfer-In 3,018,486$ Non- Departmental General Expenses This action recognizes additional expenses related to defeasement of bonds resulting in higher than budgeted expenses of $6.1 million. As outlined in CMR #6993, the City opted to use project savings and bond premium to defease $5.1 million in principal payments and $0.9 million in interest payments. General Expenses 6,108,892$ Ending Fund Balance This action decreases the fund balance to offset the actions recommended in this report. Fund Balance/ Reserves (3,090,406)$ LIBRARY PROJECTS FUND (370) SUBTOTAL 3,018,486$ 3,018,486$ PUBLIC ART FUND (207) Community Services Department Transfer from the General Fund/Fund Balance Adjustment This action increases the estimated transfer from the General Fund to account for full funding of administrative costs in excess of 20% of art fee revenue as required by Ordinance #5226. A corresponding increase in expenses is recommended to offset this action. Operating Transfers-In 38,500$ Supplies & Materials; Contract Services 38,500$ PUBLIC ART FUND (207) SUBTOTAL 38,500$ 38,500$ Attachment B - 9 ATTACHMENT B, EXHIBIT 1 Department Category Adjustment Category Adjustment SPECIAL REVENUE FUNDS CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2016 BUDGET Revenues Expenses PUBLIC SERVICES DONATION FUND (191) Various Expense/Miscellaneous Revenue (donations) This action increases the appropriation for expenses in the Public Services Donation Fund to align with FY2016 year end expense and encumbered funds. Donations were for activities such as animal care services and parks and open space activities. A corresponding increase in the estimate for miscellaneous revenue is recommended to offset this increase and reflects higher than budgeted donations. Miscellaneous Revenue 46,637$ Supplies & Materials; Contract Services 46,637$ PUBLIC SERVICES DONATION FUND (191) SUBTOTAL 46,637$ 46,637$ STANFORD MEDICAL CENTER DEVELOPMENT FUND (260) Non- Departmental Transfer from Housing In-Lieu/Residential Fund/Fund Balance This action recognizes a transfer from the Housing In- Lieu Residential Fund to the Stanford Medical Center Development Fund for repayment of funds previously transferred in FY 2013. The funds were not needed and have been returned. A corresponding increase in the fund balance is recommended to offset this adjustment. Operating Transfer-In 720,220$ Fund Balance/ Reserves 720,220$ Non- Departmental Transfer to Housing In-Lieu/Commercial Fund This action established a transfer from the Stanford Medical Center Development Fund to the Housing In- Lieu Commercial Fund for developer impact fees embedded in the SUMC Development Agreement. This is in compliance with the City Attorney's interpretation of the SUMC agreement. A corresponding decrease in the fund balance is recommended to offset this adjustment. Operating Transfer 1,720,488$ Ending Fund Balance This action decreases the fund balance to offset the actions recommended in this report. Fund Balance/ Reserves (1,720,488)$ STANFORD MEDICAL CENTER DEVELOPMENT FUND (260) SUBTOTAL 720,220$ 720,220$ Attachment B - 10 ATTACHMENT B, EXHIBIT 1 Department Category Adjustment Category Adjustment AGENCY TRUST FUNDS CABLE - JPA FUND (779) Administrative Services General Expenses This action increases the general expense due to higher than budgeted inter agency expenses at the end of FY 2016. A corresponding decrease in transfers to correctly align the budget category and fund balance are recommended to offset this action. -$ General Expense 1,290,571$ Administrative Services Transfer to General Fund This action decreases the appropriation for transfer to the General Fund and re-categorizes it as an interagency expense to accurately align with the appropriate treatment of expenses in this funds as an agency fund. -$ Operating Transfers (824,000)$ Ending Fund Balance This action decreases the fund balance to offset the actions recommended in this report. -$ Fund Balance/ Reserves (466,571)$ CABLE - JPA FUND (779) SUBTOTAL -$ -$ EYERLY TRUST FUND (774) Utilities General Expenses This action increases the general expense due to higher than budgeted expenses specifically for special events in FY 2016. This action aligns the budget with actuals. A corresponding decrease in fund balance is recommended to offset this action. -$ General Expense 6,887$ Ending Fund Balance This action decreases the fund balance to offset the actions recommended in this report. -$ Fund Balance/ Reserves (6,887)$ EYERLY TRUST FUND (774) SUBTOTAL -$ -$ CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2016 BUDGET Revenues Expenses Attachment B - 11 ATTACHMENT B, EXHIBIT 2 Project Funding Title Number Revenue Expense Source Comments ADDITIONAL APPROPRIATIONS Art Center Auditorium Audio, Visual, and Furnishings AC-14000 $ 365 Infrastructure Reserve Increase to project due to higher than anticipated expenditures Furniture and Technology for Library Projects LB-11000 $ 45,000 $ 45,000 Miscellaneous Revenue Increase revenue and project due to a donation. Highway 101 Pedestrian/Bicycle Overcrossing PE-11011 $ 130,367 Infrastructure Reserve Increase to project due to higher than anticipated expenditures Newell Road Bridge / SFC Bridge Replacement PE-12011 $ 2,569 Infrastructure Reserve Increase to project due to higher than anticipated expenditures Charleston Arastradero Corridor Project PE-13011 $ 288,196 Infrastructure Reserve Increase to project due to higher than anticipated expenditures El Camino Park Restoration PE-13016 $ 76,174 Infrastructure Reserve Increase to project due to higher than anticipated expenditures Fire Station 3 Replacement PE-15003 $ 84,584 Infrastructure Reserve Increase to project due to higher than anticipated expenditures Street Maintenance PE-86070 $ 242,778 Infrastructure Reserve Increase to project due to higher than anticipated expenditures California Avenue Parking District Parking Improvements PF-14004 $ 31,317 Infrastructure Reserve Increase to project due to higher than anticipated expenditures Transportation and Parking Improvements PL-12000 $ 6,765 Infrastructure Reserve Increase to project due to higher than anticipated expenditures El Camino/ Churchill Intersection Improvements PL-14000 $ 21,633 Infrastructure Reserve Increase to project due to higher than anticipated expenditures Embarcadero Road Corridor Improvements PL-15001 $ 75 Infrastructure Reserve Increase to project due to higher than anticipated expenditures $ 45,000 $ 929,823 ADDITIONAL APPROPRIATIONS Runway & Taxiway Rehabilitation AP-15003 $ 10,206 Increase to project due to higher than anticipated expenditures Airport Perimeter Fencing AP-16003 $ 15,593 Increase to project due to higher than anticipated expenditures $ - $ 25,799 ADDITIONAL APPROPRIATIONS AMR/AMI-Feasibility EL-10008 $ 278 Increase to project due to higher than anticipated expenditures $ - $ 278 CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2016 CAPITAL IMPROVEMENT PROGRAM CAPITAL PROJECT FUND AIRPORT ENTERPRISE FUND ELECTRIC FUND TOTAL ELECTRIC FUND CIP YEAR-END ADJUSTMENTS TOTAL AIRPORT ENTERPRISE FUND CIP YEAR-END ADJUSTMENTS TOTAL GENERAL FUND CIP YEAR-END ADJUSTMENTS Attachment B - 12 ATTACHMENT B, EXHIBIT 2 Project Funding Title Number Revenue Expense Source Comments CITY OF PALO ALTO RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2016 CAPITAL IMPROVEMENT PROGRAM ADDITIONAL APPROPRIATIONS Gas System, Customer Connections GS-80017 $ 70,528 $ 70,528 Increase to project due to higher than anticipated expenditures. This project is offset by additional revenue from customers. $ 70,528 $ 70,528 ADDITIONAL APPROPRIATIONS Landfill Closure RF-11001 $ 74,192 Increase to project due to higher than anticipated expenditures $ - $ 74,192 ADDITIONAL APPROPRIATIONS Vehicle Maintenance Facility Upgrade VR-04010 $ 24,289 Increase to project due to higher than anticipated expenditures $ - $ 24,289 ADDITIONAL APPROPRIATIONS Wastewater Collection System Rehabilitation/Augmentation Project 22 WC-09001 $ 176 Increase to project due to higher than anticipated expenditures Wastewater Collection System Rehabilitation/Augmentation Project 24 WC-11000 $ 11,788 Increase to project due to higher than anticipated expenditures Sewer System, Customer Connections WC-80020 $ 93,547 Increase to project due to higher than anticipated expenditures $ - $ 105,511 ADDITIONAL APPROPRIATIONS Water Regulation Station Improvements WS-07000 $ 159,544 Increase to project due to higher than anticipated expenditures Water Main Replacement-Project 25 WS-11000 $ 356,042 Increase to project due to higher than anticipated expenditures Water System, Customer Connections WS-80013 $ 157,955 Increase to project due to higher than anticipated expenditures Water Service Hydrant Replacement WS-80014 $ 110,176 Increase to project due to higher than anticipated expenditures -$ 783,717$ GAS FUND TOTAL WATER FUND CIP YEAR-END ADJUSTMENTS TOTAL WASTEWATER COLLECTION FUND CIP YEAR- END ADJUSTMENTS TOTAL VEHICLE REPLACEMENT & MAINTENANCE FUND CIP YEAR-END ADJUSTMENTS TOTAL REFUSE FUND CIP YEAR-END ADJUSTMENTS TOTAL GAS FUND CIP YEAR-END ADJUSTMENTS WASTEWATER COLLECTION FUND WATER FUND REFUSE FUND VEHICLE REPLACEMENT & MAINTENANCE FUND Attachment B - 13 2015-2016 Comprehensive Annual Financial Report City of Palo Alto, California FISCAL YEAR ENDED: June 30, 2016 CITY OF PALO ALTO, CALIFORNIA 2015-2016 Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2016 Prepared by: Administrative Services Department CITY OF PALO ALTO  For the Year Ended June 30, 2016  Table of Contents   Page  INTRODUCTORY SECTION:   Transmittal Letter .................................................................................................................................... i   City Officials ........................................................................................................................................... vi   Organizational Structure ....................................................................................................................... vii   Administrative Services Organization .................................................................................................. viii   GFOA Certificate of Achievement for Excellence in Financial Reporting ............................................... ix    FINANCIAL SECTION:   Independent Auditor’s Report .............................................................................................................. 1   Management’s Discussion and Analysis    (Required Supplementary Information – Unaudited) ...................................................................... 5   Basic Financial Statements   Government‐wide Financial Statements:   Statement of Net Position ....................................................................................................... 29   Statement of Activities ............................................................................................................ 31   Governmental Fund Financial Statements:   Balance Sheet .......................................................................................................................... 33  Reconciliation of the Balance Sheet of Governmental Funds to         the Statement of Net Position ‐ Governmental Activities ................................................. 34   Statement of Revenues, Expenditures and Changes in Fund Balances .................................. 35   Reconciliation of the Statement of Revenues, Expenditures and Changes   in Fund Balances of Governmental Funds to the Statement of Activities –          Governmental Activities ................................................................................................... 36   Statement of Revenues, Expenditures and Changes in Fund Balance –    Budget and Actual – General Fund ................................................................................... 37   Proprietary Fund Financial Statements:   Statement of Net Position ....................................................................................................... 38   Statement of Revenues, Expenses and Changes in Fund Net Position ................................... 40   Statement of Cash Flows ......................................................................................................... 42   Fiduciary Fund Financial Statement:   Statement of Fiduciary Net Position ....................................................................................... 44   Index to the Notes to the Basic Financial Statements ................................................................. 45   Notes to the Basic Financial Statements ...................................................................................... 47   Required Supplementary Information:   Schedule of Changes in Net Pension Liability and related Ratios – Miscellaneous Plan ............. 105   Schedule of Contributions – Miscellaneous Plan ......................................................................... 106     CITY OF PALO ALTO  For the Year Ended June 30, 2016  Table of Contents (Continued)   Page  Required Supplementary Information:   Schedule of Changes in Net Pension Liability and Related Ratios – Safety Plan ......................... 107   Schedule of Contributions – Safety Plan ...................................................................................... 108  Supplementary Information:   Non‐Major Governmental Funds:   Combining Balance Sheet ...................................................................................................... 109   Combining Statement of Revenues, Expenditures and    Changes in Fund Balances ............................................................................................... 111   Non‐Major Special Revenue Funds:   Combining Balance Sheet ...................................................................................................... 114   Combining Statement of Revenues, Expenditures and    Changes in Fund Balances ............................................................................................... 116   Combining Schedule of Revenues, Expenditures and    Changes in Fund Balances – Budget and Actual ............................................................. 118   Non‐Major Debt Service Funds:   Combining Balance Sheet ...................................................................................................... 124   Combining Statement of Revenues, Expenditures and    Changes in Fund Balances ............................................................................................... 125   Combining Schedule of Revenues, Expenditures and    Changes in Fund Balances – Budget and Actual ............................................................. 126   Non‐Major Permanent Fund:   Schedule of Revenues, Expenditures and    Changes in Fund Balances – Budget and Actual ............................................................. 128   Internal Service Funds:   Combining Statement of Fund Net Position .......................................................................... 130   Combining Statement of Revenues, Expenses and    Changes in Fund Net Position ......................................................................................... 131   Combining Statement of Cash Flows ..................................................................................... 132   Fiduciary Funds:   Statement of Changes in Assets and Liabilities – All Agency Funds ...................................... 134  STATISTICAL SECTION:   Financial Trends:   Net Position by Component ......................................................................................................... 137   Changes in Net Position ............................................................................................................... 138     CITY OF PALO ALTO  For the Year Ended June 30, 2016  Table of Contents (Continued)   Page  STATISTICAL SECTION:   Financial Trends:   Fund Balances of Governmental Funds ....................................................................................... 140   Changes in Fund Balances of Governmental Funds ..................................................................... 142  Revenue Capacity:   Electric Operating Revenue by Source ......................................................................................... 143   Supplemental Disclosure for Water Utilities ............................................................................... 144   Assessed Value of Taxable Property ............................................................................................ 145   Property Tax Rates, All Overlapping Governments ..................................................................... 146   Property Tax Levies and Collections ............................................................................................ 147   Principal Property Taxpayers ....................................................................................................... 148   Assessed Valuation and Parcels by Land Use .............................................................................. 149   Per Parcel Assessed Valuation of Single Family Residential ........................................................ 150   Debt Capacity:   Ratio of Outstanding Debt by Type .............................................................................................. 151   Computation of Direct and Overlapping Debt ............................................................................. 152   Computation of Legal Bonded Debt Margin ................................................................................ 153   Revenue Bond Coverage .............................................................................................................. 154   Demographic and Economic Information:    Taxable Transactions by Type of Business ................................................................................... 155   Demographic and Economic Statistics ......................................................................................... 156   Principal Employers...................................................................................................................... 157   Operating Information:   Operating Indicators by Function/Program ................................................................................. 158   Capital Asset Statistics by Function/Program .............................................................................. 160   Full‐Time Equivalent City Government Employees by Function .................................................. 162  SINGLE AUDIT SECTION:   Index to the Single Audit Report .................................................................................................. 163  Independent Auditor’s Report on Internal Control Over Financial Reporting and           on Compliance and Other Matters Based on an Audit of Financial Statements            Performed in Accordance With Government Auditing Standards ........................................ 165   Independent Auditor’s Report on Compliance for Each Major Program and                         Report on Internal Control Over Compliance Required by Uniform Guidance .................... 167   Schedule of Expenditures of Federal Awards .............................................................................. 169   Notes to the Schedule of Expenditures of Federal Awards ......................................................... 170   Schedule of Findings and Questioned Costs ................................................................................ 171   Schedule of Prior Years Findings and Questioned Costs ............................................................. 172 Introduction   ………………………………………………….……………………… City of Palo Alto   i   Transmittal Letter…………………………………………………...…  November 2, 2016  THE HONORABLE CITY COUNCIL  Palo Alto, California    Attention:  Finance Committee  COMPREHENSIVE ANNUAL FINANCIAL REPORT  YEAR ENDED JUNE 30, 2016      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, 2016 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 unmodified  opinion for the fiscal year ended June 30, 2016 audit.  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 67,000 residents.  Palo Alto  delivers a full range of municipal services and public utilities under the Council‐ Manager form of government, and offers an outstanding quality of life for its  residents.  It covers an area of twenty‐six square miles, and has dedicated almost  one‐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, all of 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 ended  the year at 2.8 percent, 0.1 percent higher than the prior year.  This compares to Santa Clara  County’s unemployment rate of 4.0 percent, and the state’s unemployment rate of 5.7 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 2016/2017 assessment roll increased 7.9 percent, from $388 billion to $419  billion ‐ “assessment roll growth during the past four years has exceeded the growth for the  preceding ten years.”   The assessment roll growth was balanced throughout the County, with the  highest growth rates in Santa Clara and Mountain View.  Palo Alto’s assessment roll growth rate was  8.6 percent, compared to 8.1 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 2016 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 remain strong, 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.    Looking forward, funding sources are sufficient to cover projected FY 2017 expenses, as written in  the City’s Adopted Budget.  The FY 2017 budget was balanced by utilizing several one‐time solutions,  with the goal of implementing long‐term structural solutions as part of the FY 2018 budgeting  process.   Council adopted a General Fund budget with expenses of $194.2 million for FY 2017, an  increase of $8.5 million, or 4.9 percent, from the prior year Adopted Budget.  The increase is driven  by increased investment in infrastructure, increased salary and benefits, and the addition of staff  positions in response to community initiatives and Council priorities.  In addition, a $2.3 million cost  for streetlight and traffic signal electricity has been shifted to the General Fund to increase alignment  with fund purpose, and a Budget Uncertainty Reserve of $2.0 million was created to provide  flexibility for several capital and operating items that may require additional funding, such as the Golf  Course renovation and rebuild of the Junior Museum and Zoo.      Pension and healthcare costs continue to dominate the conversation about long‐term future costs.   The most recent actuarial valuations show unfunded liabilities for pension and healthcare of $495  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 also helps mitigate future pension cost  increases.  New labor agreements include a provision for employees to start paying part of the City’s  share of pension contributions in addition to the employee’s share.  Further pension cost sharing  with employees will be necessary to fund future cost increases.   Council has approved the concept of funding a Section 115 Trust  that is separate from CalPERS and would act as a mitigation  reserve if the City were unable to meet its annual required  contribution due to budget constraints in a given year.   As economic growth continues to flourish in this area of Silicon  Valley, it also exacerbates the challenges of increased traffic and congestion, affordable housing, and  demand for services.  These issues were reflected in the setting of Council priorities for 2016:     Built Environment: Housing, Parking, Livability, Mobility     Introduction  …………………………………….…………………………………. iv    City of Palo Alto   Infrastructure   Healthy City, Healthy Community   Completion of the Comprehensive Plan update    In keeping with these priorities, Council has approved implementation of strategies to address traffic  congestion in the City:  parking management (Residential Preferential Parking program, parking  technology enhancements, garage wayfinding signage), transportation demand management  (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).    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. The Plan was recently updated for scope increases and cost escalations, and a  reserve of $30 million for unanticipated costs and contingencies was added, resulting in a revised  Infrastructure Plan of $160 million.  As a result of sound fiscal management and reserve policies,  General Fund surpluses from FY 2012 through FY 2016 totaling $32.6 million were transferred to the  Infrastructure Reserve.  An additional $4.3 million from the FY 2016 surplus is proposed for transfer  to the Infrastructure Reserve in FY 2017, for a total contribution of surplus funds of $36.9 million  over six years.    Rate increases will take effect in FY 2017 for electric, gas, water, wastewater, storm drain, and refuse  services.  Increases are necessary due to increased costs resulting from the prolonged drought and  water conservation measures, treatment plant rehabilitation costs, and expanded recycling services.    Long Range Financial Forecast:  The City produces a 10 year General Fund Long Range Financial  Forecast (LRFF) annually.  This comprehensive report analyzes local, state, and federal economic  conditions, short and long‐term revenue and expense trends, and addresses challenges such as  funding long‐term pension and healthcare liabilities and infrastructure needs.  The forecast is  designed to highlight finance issues which the City can address proactively.  Moreover, it is a tool  that allows policymakers an opportunity to prioritize funding needs over time.  It sets the tone for  the annual budget process and is one of the many tools and reports that Council uses for financial  planning.    The most recent LRFF indicates a financial shift downward for FY 2017 and out years due to rising  pension and healthcare costs and increasing costs for Infrastructure Plan projects. 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.  As of June 30, 2016 the BSR balance is $51.6 million, of  which $2.1 million has been approved by Council to set aside for establishment of a pension trust  fund.  Staff will bring forward recommendations for a further $7.9 million of proposed BSR uses as  part of the FY 2016 year‐end close process.  The remaining balance of $41.6 million represents 21.4  percent of FY 2017 expenditures, and is $5.7 million more than the 18.5 percent target balance for  the BSR.      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  wide variety of awards and recognitions over the past year.  Following is a  sampling of those awards:     Awarded gold level status as a Bicycle Friendly Community by the League of American  Bicyclists based on a strong commitment to bicycling evidenced by major streets with bike  lanes, high ratio of bike network mileage to road network mileage,  and Bike to Work events;   Earned a spot on the national Top 10 utility solar list compiled by the Smart Electric Power  Alliance in recognition of third place for “Watts per Customer” installed in 2015; and   Awarded Tree Line USA award by the National Arbor Day Foundation in recognition of the  Utilities exceeding the standard criteria for quality tree care, annual worker training, tree  planting and public education, a tree‐based energy conservation program, and an Arbor Day  celebration.    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 2016  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 entire accounting staff for  their high level of professionalism and dedication.  Management would also like to express its  appreciation to Macias Gini & O’Connell, the City’s independent external auditors, who assisted and  contributed to the preparation of this Comprehensive Annual Financial Report.    Special acknowledgment must be given to City Council and the Finance and Policy and Services  Committees for their dedication to directing the financial affairs of the City in a responsible,  professional and progressive manner.   Respectfully submitted,  LALO PEREZ, JAMES KEENE,  Chief Financial Officer                                                                                     City Manager     Introduction  …………………………………….…………………………………. vi    City of Palo Alto  City of Palo Alto City Officials ………………………….…………                                                                                Finance Committee  Eric Filseth, Chair  Karen Holman  Greg Schmid  Cory Wolbach Policy and Services Committee    Tom DuBois, Chair  Marc Berman  Liz Kniss  Gregory Scharff  Council‐Appointed Officers    City Manager  James Keene    City Attorney  Molly Stump    City Clerk  Beth Minor    City Auditor  Harriet Richardson  City Council    Patrick Burt, Mayor  Gregory Scharff, Vice‐Mayor  Marc Berman  Tom DuBois  Eric Filseth  Karen Holman  Liz Kniss  Greg Schmid  Cory Wolbach    Introduction   ………………………………………………….……………………… City of Palo Alto   vii   Assistant City Managers (2)   Edward K. Shikada  Vacant (1) 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  Human Resources   Rumi Portillo, Director  Police  Dennis Burns, Chief Planning & Community Environment   Hillary Gitelman, Director  Utilities   Edward K. Shikada, Acting Director  Public Works   Mike Sartor, Director  Library  Monique le Conge‐Ziesenhenne,  Director  Development Services   Peter Pirnejad, Director  Chief Communications Officer  Claudia Keith  Office of Emergency Services Kenneth Dueker, Director  Office of Sustainability  Gil Friend, Chief Sustainability Officer  Information Technology   Jonathan Reichental,   Chief Information Officer     Introduction  …………………………………….…………………………………. viii    City of Palo Alto  Administrative Services Organization ……… Administrative Division Treasury Division  Accounting Division Budget Division  Purchasing Division Real Estate Division  Mission Statement    To provide proactive administrative and technical support to  City departments and decision makers, and to safeguard and  facilitate the optimal use of City resources.  Administrative Services Department  Introduction   ………………………………………………….……………………… City of Palo Alto   ix   Government Finance Officers Association of the United States and Canada – Award …… Century City Los Angeles Newport Beach Oakland Sacramento San Diego San Francisco Walnut Creek Woodland Hills www.mgocpa.com Macias Gini & O’Connell LLP 2121 N. California Boulevard, Suite 750 Walnut Creek, CA 94596 1  Independent Auditor’s Report Honorable Mayor and the Members of the City Council of City of Palo Alto, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Palo Alto, California (City), as of and for the year ended June 30, 2016, 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, 2016, and the respective changes in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, the schedules of changes in the net pension liability and related ratios and the schedules 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 Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and schedules, statistical section and the schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. 3  Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 2, 2016 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 2, 2016 4  This page is left intentionally blank.                                        Management’s Discussion and Analysis  ………………………………………………………..……….……………………………………… City of Palo Alto 5 Management’s Discussion and Analysis  Management’s Discussion and Analysis (MD&A) provides an overview of the City of Palo Alto’s financial  performance for the fiscal year ended June 30, 2016. 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) 2016 by $1,190.8 million.  Of this amount, $200.7 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 2016, the City’s governmental funds reported combined fund balances of $245.7 million, an increase of $21.1 million from prior year.  Approximately 21.0 percent of this amount, or $51.6 million, is unassigned fund balance and available for spending at the government’s discretion. At the end of the current fiscal year, unrestricted fund balance (the total of the committed, assigned and unassigned components of fund balance) for the General Fund was $59.8 million, or 33.3 percent of total general fund expenditures, including transfers. The City’s total outstanding long‐term debt decreased by $11.4 million during the current fiscal year due to scheduled debt retirement in the amount of $6.3 million and defeased debt of $5.1 million. 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  ……….…………………………………………………………………..…………………………… 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, Human Resources, 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  ……………………………….…………..…………………………………………………………… 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 and Storm Drainage Services.    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 2016,  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  …………………………..……….…………………………………………………………………… 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 47‐103 of this report.  Other Information  The Required Supplementary Information related to the City’s pension plans is included after the Notes to the  Financial Statements on pages 105‐108. 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 109‐134 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, 2016.  As noted earlier, the City’s total assets and deferred  outflows of resources exceed total liabilities and deferred inflows of resources by $1,190.8 million at the end  of the fiscal year, an improvement in net position of $59.1 million.   STATEMENT OF NET POSITION As of June 30, 2016 (in millions)  2016 2015 2016 2015 2016 2015 Cash and investments 295.0$   280.9$    244.7$    253.7$    539.7$        534.6$        Other assets 62.3 57.2 35.3 39.2 97.6            96.4            Capital assets 496.0 485.2 576.8 558.5 1,072.8 1,043.7  Total Assets 853.3      823.3      856.8      851.4      1,710.1       1,674.7       Unamortized loss from refunding ‐             ‐             0.3           0.4           0.3               0.4               Pension related 21.2        19.2        9.4           8.1           30.6            27.3            Total Deferred Outflows of Resources 21.2        19.2        9.7           8.5           30.9            27.7            Net pension liabilities 230.1      208.8      89.5         81.1         319.6          289.9          Long‐term debt 71.5 78.8 68.1 72.2 139.6 151.0 Other liabilities 48.1 54.3 24.0 24.7 72.1 79.0 Total Liabilities 349.7      341.9      181.6      178.0      531.3          519.9          Pension related 13.7        36.7        5.1           14.1         18.8            50.8            Total Deferred Inflows of Resources 13.7        36.7        5.1           14.1         18.8            50.8                      Net Position           Net investment in capital assets 425.2 405.9 512.9 490.9 938.1 896.8 Restricted 47.9 56.0 4.1 4.1 52.0 60.1 Unrestricted 37.9 2.0 162.8 172.8 200.7 174.8 Total Net Position 511.0$   463.9$    679.8$    667.8$    1,190.8$    1,131.7$    Governmental Activities Business‐type Activities Government‐wide Totals   The largest portion of the City’s net position (78.8 percent) is its investment in capital assets such as land,  buildings, infrastructure and vehicles, less any related outstanding debt that was used to acquire those assets.   The City uses these capital assets to provide a variety of services to its citizens.  Accordingly, these assets are  not available for future spending.  Although the City’s investment in capital assets is reported net of related  debt, it should be noted that the resources used to repay this debt must be provided from other sources, since  the capital assets themselves cannot be used to liquidate these liabilities.  Management’s Discussion and Analysis  ……….…………………………………………………………………………………..…………… City of Palo Alto 10 The restricted portion of the City’s net position (4.4 percent) represents resources that are subject to external  restrictions on how they may be used.  The remaining balance of $200.7 million, representing 16.8 percent of  the City’s net position, is unrestricted and may be used to meet the government’s ongoing obligations to its  citizens and creditors.    At the end of the current fiscal year, 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 $2.1 million deficit due to pension related items;   Airport Fund $2.3 million deficit due to cumulative operating losses; and   Printing and Mailing Services Fund $0.3 million deficit due to pension related items.     Components of the $59.1 million increase in total net position are discussed in the following sections for  governmental activities and business‐type activities.    Governmental Activities – Net Position  The following analysis focuses on the net position and changes in net position of the City’s Governmental  Activities, presented in the Government‐wide Statement of Net Position and Statement of Activities.      GOVERNMENTAL ACTIVITIES Net Position at June 30 (in millions) Increase/  2016 2015 (Decrease) Cash and investments 295.0$    280.9$    14.1$       Other assets 62.3        57.2        5.1            Capital assets 496.0      485.2      10.8          Total Assets 853.3      823.3      30.0         Pension related 21.2        19.2        2.0            Total Deferred Outflows of Resources 21.2        19.2        2.0           Net pension liabilities 230.1      208.8      21.3         Long‐term debt 71.5        78.8        (7.3)          Other liabilities 48.1        54.3        (6.2)          Total Liabilities 349.7      341.9      7.8           Pension related 13.7        36.7        (23.0)        Total Deferred Inflows of Resources 13.7        36.7        (23.0)             Net Position     Net investment in capital assets 425.2      405.9      19.3         Restricted 47.9        56.0        (8.1)          Unrestricted 37.9        2.0           35.9         Total Net Position 511.0$   463.9$   47.1$       Management’s Discussion and Analysis  ………………………………….…………………………………………………………………… City of Palo Alto 11 The City’s Governmental Activities total net position increased $47.1 million to $511.0 million as of June 30,  2016. This increase was a result of the following:   Cash increased $14.1 million due to a higher cash position in the Capital Projects Fund as a result of  higher operating transfers in and lower capital expenditures due to completion of major Library  projects in the prior year.   Capital assets net of depreciation increased $10.8 million due to major capital projects such as El  Camino Park improvements, and street and sidewalk improvements throughout the City.   Long‐term debt decreased $7.3 million due to scheduled debt repayments of $2.2 million, and  defeased payments of $5.1 million on the General Obligation Bonds using funds from bond premium  and project savings.   Other liabilities decreased $6.2 million due to lower accounts payable balances because of completion  of Library projects, and to current year reduction of deposits held for Transfer Development Rights.   Net investment in capital assets increased $19.3 million to $425.2 million.  Restricted net position  decreased $8.1 million to $47.9 million due primarily to expenditure of remaining bond proceeds for  Library project expenses and defeasance of bonds. Unrestricted net position increased by $35.9  million to $37.9 million as a result of lower capital expenditures in the Capital Projects Fund and  increased fund balance of $7.7 million in the Housing‐in‐Lieu Funds.   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  ………………………………………………………………………………………………………… City of Palo Alto 12 Governmental Activities – Revenues  The table below shows that Governmental Activities revenues totaled $193.3 million in FY 2016, an increase  of $7.5 million from prior year revenues of $185.8 million.   GOVERNMENTAL ACTIVITIES Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2016 2015 (Decrease) Program Revenues: Charges for services 67.4$      63.5$      3.9$         Operating grants and contributions 2.2 5.3 (3.1) Capital grants and contributions 0.3 0.6 (0.3) Total Program Revenues 69.9        69.4        0.5           General Revenues: Property tax 41.2 38.8 2.4 Sales tax 30.0 29.7 0.3 Utility user tax 12.4 10.9 1.5           Transient occupancy tax 22.4 16.7 5.7 Documentary transfer tax 6.3 10.4 (4.1) Other tax 1.6 1.5 0.1 Investment earnings 8.6 5.0 3.6 Rents and miscellaneous 0.9 3.4 (2.5) Total General Revenues 123.4 116.4 7.0 Total Revenues 193.3$   185.8$   7.5$             Program Revenues such as charges for services, operating grants and contributions, and capital grants and  contributions are generated from or restricted to each activity.  Total Program Revenues increased $0.5  million from the prior year.    General Revenues increased $7.0 million, or 6.0 percent, from the prior year primarily 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 36% Property Tax 21% Sales Tax 16% Utility User Tax 6% Transient Occupancy Tax 12% Documentary Transfer Tax 3% Other 6% Management’s Discussion and Analysis  …………………………….………………………………………………………..………………… City of Palo Alto 14 Governmental Activities – Expenses  The table below presents a comparison of FY 2016 and FY 2015 expenses by function, along with interest and  other expense.  Total Governmental Activities functional expense was $164.9 million in FY 2016, an increase  of $13.5 million.    GOVERNMENTAL ACTIVITIES Expenses and Change in Net Position for the Year Ended June 30 (in millions) Increase/ Activities 2016 2015 (Decrease) City Council 0.4$        0.3$        0.1$         City Manager 2.7 2.2 0.5 City Attorney 2.5 1.8 0.7 City Clerk 0.6 0.7 (0.1) City Auditor 0.4 0.4 0.0 Administrative Services 10.6 10.0 0.6 Human Resources 2.2 1.4 0.8 Public Safety 56.6 58.7 (2.1) Planning and Community Environment 10.2 8.4 1.8 Development Services 11.2 10.4 0.8 Public Works 24.6 21.1 3.5 Community Services 28.5 24.7 3.8 Library 10.8 7.7 3.1 Interest and Other Expense 3.6 3.6 0.0 Total Functional Expense 164.9 151.4 13.5 Increase in Net Position    before Transfers 28.4 34.4 (6.0) Transfers in 18.7 16.4 2.3 Change in Net Position 47.1 50.8 (3.7) Net Position, Beginning 463.9  413.1   50.8   Net Position, Ending 511.0$   463.9$   47.1$       Management’s Discussion and Analysis  ……………………………………………………………………..………………………………… City of Palo Alto 15 In addition to the variances at the fund level which are explained in the Financial Analysis of Governmental  Funds section of the MD&A, year over year variances in Functional expenses at the government‐wide level  are due to the following:   Change in pension related adjustments to defer current year contributions and expense prior year  contributions as required by GASB 68 ($0.4 million);   Allocation of the Internal Service Funds net position ($1.8 million);   Capital asset activities such as depreciation and asset retirements ($0.5 million); and   Repayment of excess bond funds to University Avenue Area Off‐Street Parking Assessment District  ($1.8 million).      Governmental Activities – Functional Expenses  The functional expenses chart below includes only current year expenses. It does not include capital outlays,  as those are added to the City’s capital assets.  Functions which comprise 1 percent or less of total expenses  are combined into the All Other category in the chart below.  All Other includes City Council, City Manager,  City Attorney, City Clerk, City Auditor and Human Resources.      Administrative  Services 7% Public Works 15% Interest and Other 2% Planning and  Community  Environment 6% Development Svcs 7% Public Safety 34% Community Services 17% Library 7% All Other 5% Management’s Discussion and Analysis  ………………………………………………………………………………………………………… City of Palo Alto 16 Business‐type Activities – Net Position  The following analysis focuses on the net position and changes in net position of the City’s Business‐type  Activities presented in the Government‐wide Statement of Net Position and Statement of Activities.  Increase/ 2016 2015 (Decrease) Cash and investments 244.7$    253.7$    (9.0)$        Other assets 35.3 39.2 (3.9) Capital assets 576.8 558.5 18.3 Total Assets 856.8   851.4      5.4     Unamortized loss from refunding 0.3           0.4       (0.1)          Deferred pension contribution 9.4           8.1       1.3            Total Deferred Outflows of Resources 9.7       8.5          1.3     Net pension liabilities 89.5 81.1 8.4 Long‐term debt 68.1 72.2 (4.1) Other liabilities 24.0 24.7 (0.7) Total Liabilities 181.6   178.0      3.6     Difference between expected and actual earnings on investments 5.1           14.1    (9.0)          Total Deferred Outflows of Resources 5.1       14.1        (9.0)    Net Position Net investment in capital assets 512.9 490.9 22.0 Restricted 4.1 4.1 0.0 Unrestricted 162.8 172.8 (10.0) Total Net Position 679.8$   667.8$   12.0$       BUSINESS‐TYPE ACTIVITIES Net Position at June 30 (in millions) The City’s Business‐type Activities total net position increased $12.0 million to $679.8 million as of  June 30, 2016.   Cash and investments decreased $9.0 million primarily due to Electric Fund decrease in net position of $8.3  million.  Management’s Discussion and Analysis  ………………………………………………………………………………………………………… City of Palo Alto 17 Capital assets increased $18.3 million to $576.8 million in FY 2016 primarily due to capital improvements in  the Gas Fund. This infrastructure improvement, in addition to the $4.1 million reduction in long‐term debt by  Enterprise Funds, created the increase of $22.0 million in the net investment in capital assets to $512.9 million.     Unrestricted net position of $162.8 million, a decrease of $10.0 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 $44.7 million and operations reserves of $49.9 million, along with  the Electric special projects (Calaveras) reserve of $51.8 million, and the hydro stabilization reserve of $11.4  million.  The positive balances in these reserves are offset by the GASB 68 adjustment pension reserve of $85.1  million.  Additional detail is included in Note 10.  Business‐type Activities – Revenues  The table below presents the revenues for each of the City’s Business‐type Activities or Enterprise Funds. The  City operates the Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse,  Storm Drainage and Airport Funds.    BUSINESS‐TYPE ACTIVITIES Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2016 2015 (Decrease) Program Revenues: Charges for services 272.9$    270.9$    2.0$          Operating grants and contributions 0.7           0.5           0.2 Capital grants and contributions 1.1 2.1 (1.0) Total Program Revenues 274.7      273.5      1.2            General Revenues: Investment earnings 7.3 4.9 2.4 Total General Revenues 7.3 4.9 2.4 Total Revenues 282.0$    278.4$    3.6$          Business‐type Activities revenues totaled $282.0 million, an increase of $3.6 million from the prior year.   Program revenues increased $1.2 million year over year.  Revenues for all funds were relatively flat year over  year with the exception of Water Fund which had increased revenue of $1.7 million due to rate increases in  July and September.     Investment earnings increased due to the unrealized gain which resulted from adjusting investments to  market value at year‐end, as required by GASB 31.    Management’s Discussion and Analysis  ……….……………………………………………………………………………………………..… City of Palo Alto 18 Business‐type Activities – Expenses  The table below presents a comparison of the FY 2016 and FY 2015 expenses for the City’s Business‐type  Activities. Encumbrances and reappropriations are not included.  BUSINESS‐TYPE ACTIVITIES Expenses and Change in Net Position for the Year Ended June 30 (in millions) Increase/ Business‐type Activities 2016 2015 (Decrease) Water 35.1$      33.2$      1.9$          Electric 120.3 122.4 (2.1) Fiber Optics 2.1 1.9 0.2 Gas 20.9 23.5 (2.6) Wastewater Collection 15.2 14.6 0.6 Wastewater Treatment 22.5 21.6 0.9 Refuse 30.4 28.0 2.4 Storm Drainage 3.7 3.7 0.0 Airport 1.0 1.0 0.0 Total Functional Expense 251.2 249.9 1.3 Increase in Net Position    before Transfers 30.7 28.4 2.3 Transfers out (18.7) (16.4) (2.3)     Change in Net Position 12.0 12.0 0.0 Net Position, Beginning 667.8      655.8      12.0 Net Position, Ending 679.8$    667.8$    12.0$       Business‐type Activities expenses increased $1.3 million for a total of $251.2 million. Year over year expenses  were significantly affected by the following events:   Water Fund expenses increased $1.9 million due to increased wholesale water rates to cover the cost  of upgrades and improvements to the water supply distribution system.   Electric Fund expenses decreased $2.1 million due to decreased 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, but lower than expected  market rates drove total purchase costs lower.   Gas Fund expenses decreased $2.6 million due to lower commodity prices.  Refuse Fund expenses increased $2.4 million due to the cost of providing expanded services for  recycling and composting as a means to accomplish zero waste and reduced greenhouse gas emissions  goals. 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, 2016, the City’s Governmental Funds reported combined fund balances of $245.7 million, an  increase of $21.1 million from the prior year.  Approximately 21.0 percent, or $51.6 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 ($8.6 million); 2) restricted for particular purposes ($47.1 million); 3) committed for particular  purposes ($65.7 million); or 4) assigned for particular purposes ($72.7 million).    Governmental Fund revenues increased $7.4 million, or 4.0 percent, from prior year to $191.9 million.   Revenues in the General Fund increased $8.3 million and Capital Projects Fund revenue increased $0.8 million.   Other Governmental Funds revenue decreased by $1.8 million due to reduced developer impact and housing‐ in‐lieu fees.    Governmental Fund expenditures were $186.2 million, a decrease of $2.9 million from the prior year. General  Fund expenditures increased $6.4 million, Capital Projects Fund expenditures decreased by $15.7 million, and  Non‐major Fund expenditures increased by $6.4 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 $66.9 million, compared to $62.5 million in the prior year.  The fund balance has  been classified as $7.1 million non‐spendable, $8.3 million assigned, and $51.6 million unassigned.  The  unassigned amount of $51.6 million is designated by the Council for budget stabilization.  Proposed uses are  as follows:   $1.3 million for FY 2017 Budget Amendment Ordinances approved to date;   $1.3 million for Council approved reappropriations for various City departments;   $2.1 million to fund a Council approved pension trust fund; and   $5.3 million for transfer to Capital Projects Fund for deferred projects and reserved uses.    The remaining balance of $41.6 million represents 21.4 percent of FY 2017 expenditures and operating  transfers, which is $5.7 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.        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 $165.8 million in FY 2016. This represents an increase of $8.3 million,  or 5.3 percent, compared to the prior year.  The year over year change in significant revenue sources is noted  in the following table.        GENERAL FUND Revenues for the Year Ended June 30 (in millions) Increase/ Revenues by Source 2016 2015 (Decrease) Property tax 36.6$      34.1$      2.5$          Sales tax 30.0 29.7 0.3 Utility user tax 12.5 10.9 1.6 Transient occupancy tax 22.4 16.7 5.7 Documentary transfer tax 6.3 10.4 (4.1) Charges for services 23.9 25.9 (2.0) Permits and licence 7.9 7.1 0.8 Rental income 15.8 14.9 0.9 All other 10.4 7.8 2.6 Total Revenues 165.8$    157.5$    8.3$              Property tax revenue increased by $2.5 million, or 7.3 percent, due to increased property assessment roll  growth.    Utility user tax revenue increased $1.6 million from prior year due to increased telephone utility user receipts.      Transient occupancy tax (TOT) ended the year $5.7 million, or 34.1 percent, higher than prior year due to  higher room rates, newly opened hotels that performed better than expected, and a new revenue stream  from Airbnb rentals.  Also, FY 2016 reflects a full year of the Council approved two percent increase in the TOT  rate from 12 percent to 14 percent, compared to FY 2015 which only included six months of the increase that  took effect January 1, 2015.      Documentary transfer tax decreased $4.1 million to $6.3 million due to the unusually high dollar commercial  property transactions that occurred in FY 2015.     All other revenue increased from prior year by $2.6 million primarily due to $1.7 million in net proceeds from  the sale of the former City Manager’s house.         Management’s Discussion and Analysis  ……….……………………………………………………………………………………………… City of Palo Alto 21 Expenditures  General Fund expenditures totaled $145.2 million for FY 2016 compared to $138.8 in the prior year.  This  amount excludes encumbrances and reappropriations.  The year over year change for major functions is noted  in the following table:      GENERAL FUND Expenditures for the Year Ended June 30 (in millions) Increase/ Expenditures by Function 2016 2015 (Decrease) Administrative Services 3.5$        3.7$        (0.2)$        Public Works 12.3 11.4 0.9            Planning and Community Environment 9.1 7.4 1.7 Development Services 10.6 11.1 (0.5) Police 35.2 34.1 1.1 Fire 28.3 27.1 1.2 Community Services 24.3 23.0 1.3 Library 8.0 8.0 0.0 Non‐Departmental 5.7 5.6 0.1 All other 8.2 7.4 0.8 Total Expenditures 145.2$   138.8$   6.4$             Planning and Community Environment expenses increased $1.7 million due to the addition of three full‐time  equivalent positions ($0.5 million) and increased contract services expense  related to initiatives such as  Shuttle Service program enhancements, parking management, and Transportation Management Association  initialization.     Police expenses increased $1.1 million due to $0.4 million increased salaries and benefits, and increased  expenditures for training, travel and equipment.    Fire expenses increased $1.2 million due to $0.7 million overtime and $0.4 million in allocated charges.     Community Services expenses increased $1.3 million due to increased salaries and benefits of $0.4 million,  increased expenses for class activities, and increased allocated charges.    Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual    Original budget compared to final budget  Revenues were originally budgeted at $153.4 million and were revised upward by $4.3 million.  Revenue  categories that were adjusted are shown in the table below.  Management’s Discussion and Analysis  ……………………………………………….……………………………………………………..… City of Palo Alto 22 GENERAL FUND Budgeted Revenues for the Year Ended June 30 (in millions) Adopted Final Increase/ Budgeted Revenues Budget Budget (Decrease) Property tax 35.1$        36.0$      0.9$        Sales tax 27.6 28.4 0.8 Utility user tax 11.2 10.5 (0.7) Transient occupancy tax 18.8 22.0 3.2 Documentary transfer tax 6.8 7.0 0.2 All other 53.9 53.8 (0.1) 153.4 157.7 4.3 Charges to other funds 11.9 11.9 ‐    Prior year encumbrances and appropriations ‐  5.6 5.6 Total Budgeted Revenues 165.3$      175.2$   9.9$         Adjustments to the Adopted Budget were based on the following:  Sales tax was increased by $0.8 million due to higher than expected receipts. Property tax was increased by $0.9 million due to receipt of excess funds from the Educational Revenue Augmentation Fund (ERAF). Transient occupancy tax was increased by $3.2 million due to higher than expected receipts driven by higher room rates, newly opened hotels performing above expectations, and a new revenue stream from Airbnb rentals. Documentary transfer tax was increased by $0.2 million based on year‐to‐date receipts tracking slightly higher than anticipated. Actual revenues of $164.4 million were $6.8 million higher than final budgeted revenues of $157.7 million due  to the following:  $1.7 million net proceeds from the sale of former City Manager’s house; $0.9 million revenue from Cable Joint Powers Authority budgeted in operating transfers in; $2.0 million higher than expected utility user tax; and $1.6 million higher than anticipated sales tax revenue. Expenditures were originally budgeted at $162.9 million and were revised upward by $7.9 million, including  prior year encumbrances of $5.6 million, for a final budgeted amount of $170.8 million.  Current year budgeted expenditures and operating transfers include a draw of $11.5 million from FY 2015  surplus that was approved in November 2015 as part of the FY 2015 year‐end close City Manager Report  #6251, and was incorporated into the FY 2016 mid‐year budget changes.   Management’s Discussion and Analysis  ……………………………………………………………………………………………………..… City of Palo Alto 23 The approved items are:   $1.0 million transfer to Technology Fund for the Radio Infrastructure Replacement Fund;   $6.0 million transfer to Capital Improvement Fund;   $1.0 million transfer to Capital Improvement Fund for Roth Building rehabilitation reserve;   $2.6 million to fund FY 2016 expenditures.  GENERAL FUND Budgeted Expenditures for the Year Ended June 30 (in millions) Adopted Final Increase/ Actuals, plus Budgeted Expenditures Budget Budget (Decrease) Encumbrances Community Services 24.8$         26.5$      1.7$         25.3$                  Police 36.8  36.9 0.1 36.1 Fire 27.6  29.1 1.5 28.9 Library 8.6  9.0 0.4 8.2 Planning and Community Environment 8.9 11.1 2.2 10.9 Public Works 15.0 15.9 0.9 15.1 Development Services 11.9 12.3 0.4 10.9 Non‐departmental 8.7 7.0           (1.7) 6.2 All other 20.6 23.0 2.4 21.4 Total Budgeted Expenditures 162.9$      170.8$    7.9$         163.0                  Less: Charges to Other Funds (11.6)                   Less: Encumbrances (6.2) Net General Fund Expenditures 145.2$                    The final budgeted expenditure amount of $170.8 million compares to the actual expenditures plus  encumbrances of $163.0 million, a difference of $7.9 million, of which $6.2 million is encumbrances carried  forward to FY 2017.  The lower than budgeted expenditures were primarily due to vacancy and benefits  savings higher than expected.    Transfers out were originally budgeted at $22.7 million, with the final budget number at $35.0 million, an  increase of $12.3 million.  The increase was due primarily to the additional $8.0 million transferred to the  Capital Improvement and Technology Funds as noted above, $2.3 million additional TOT transferred to the  Capital Improvement Fund, $0.5 million additional to Residential Parking Fund, and $0.5 million to the Vehicle  Maintenance Fund.  Actual transfers out for the year were $34.5 million, a difference of $0.5 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 $26.2 million in FY 2016, a decrease of $15.8 million  from the prior year driven by reduced construction and renovation costs for Library projects that were  completed in FY 2015. 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, 2016, the City’s Enterprise Funds reported total net position of $676.9 million, an increase of $12.1  million or 1.8 percent from the prior year. The increase was primarily from the Electric and Gas Funds.  Further  analysis is noted in the following section.  Unrestricted net position for the Enterprise Funds totaled $159.9  million, a 5.8 percent decrease from FY 2015. Following is a table which compares the year over year change  in net position for each of the Enterprise Funds:  ENTERPRISE FUNDS Change in Net Position for the Year Ended June 30 (in millions) Increase/ Fund Name 2016 2015 (Decrease) Water 4.7$           5.1$        (0.4)$        Electric (8.3) (11.2) 2.9 Fiber Optics 3.0 3.1 (0.1) Gas 3.4 1.7 1.7 Wastewater Collection 1.6 2.4 (0.8) Wastewater Treatment 1.7 2.9 (1.2) Refuse 2.6 4.8 (2.2) Storm Drainage 3.3 2.7 0.6 Airport 0.1 (0.1) 0.2 Total Change in Net Position 12.1$        11.4$      0.7$         The most significant factors in the year over year change in net position for Enterprise Funds are as follows:  Electric change in net position increased $2.9 million.  Revenue was flat and the continued drought necessitated the purchase of electricity due to lower hydroelectric generation, but on peak energy prices were lower than prior year, resulting in lower overall costs. Gas change in net position increased $1.7 million from the prior year due to lower commodity prices. The corresponding reduction in customer revenue (also commodity rate driven) was offset by increased consumption. Wastewater Collection decreased its change in net position by $0.8 million.  A rate increase to customers was offset by reduced revenue from service connections and increased administrative expenses. Wastewater Treatment decreased its change in net position by $1.2 million due to significant operating expenses for bypass and emergency work, as well as engineering costs and chemical supplies. Management’s Discussion and Analysis  …………………………………………..…………………………………………………………… City of Palo Alto 25  Refuse Fund change in net position decreased $2.2 million from prior year.  A residential rate increase  was offset by reduced miscellaneous revenues and increased expense for expanded contract services  for yard trimmings and food scraps.    CAPITAL ASSETS  GASB 34 requires that the City record all its capital assets, including infrastructure and intangible assets.   Infrastructure includes roads, bridges, signals and similar assets used by the entire population.  The table  below shows capital assets and the amount of accumulated depreciation for these assets for Governmental  and Business‐type Activities.  Further detail can be found in Note 6 to the financial statements.    Increase/  2016 2015 (Decrease) Governmental Activities Capital Assets Land and improvements 78.5$      79.0$      (0.5)$        Street trees 15.1 15.1 0.0 Construction in progress 46.5 39.3 7.2 Buildings and improvements 220.9 221.7 (0.8) Intangible assets 3.8 3.8 0.0 Equipment 12.9 12.3 0.6 Roadway network 308.6 299.2 9.4 Recreation and open space network 33.1 27.6 5.5 Less accumulated depreciation (239.8) (228.2) (11.6) Internal Service Fund Assets   Construction in progress 1.8 1.4 0.4 Equipment 55.4 53.5 1.9 Less accumulated depreciation (40.8) (39.5) (1.3) Total Governmental Activities 496.0$   485.2$   10.8$       Business‐type Activities Land 5.0$        5.0$         ‐$           Construction in progress 93.9 89.9 4.0 Buildings and improvements 56.9 53.5 3.4 Transmission, distribution and treatment systems 746.7 717.6 29.1 Less accumulated depreciation (325.7) (307.5) (18.2) Total Business‐type Activities 576.8$   558.5$   18.3$       CAPITAL ASSETS AT JUNE 30 (in millions) Governmental Activities’ capital assets net of depreciation increased by $10.8 million from the prior year.  The  increase was primarily due to El Camino Park improvements, and street and sidewalk improvements  throughout the City.  Management’s Discussion and Analysis  …………………………………………………………….………………………………………… City of Palo Alto 26 Council approved a $125.8 million Infrastructure Plan in June 2014, which includes projects such as a new  Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan, and two parking garages.   Funding for these projects will come from a variety of sources, including TOT revenues, Stanford University  Medical Center development agreement, and developer impact fees.  The Plan was recently updated for cost  escalations, scope increases and a $30 million contingency reserve, resulting in a revised Infrastructure Plan  of $160 million.  In the past five years, General Fund surpluses totaling $32.6 million have been transferred to  the Capital Projects Infrastructure Reserve, with an additional $4.3 million committed from FY 2016 surplus  funds.    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 ‐ $10.2 million   Lucie Stern Buildings mechanical and electrical upgrades ‐ $2.8 million   Bicycle and pedestrian transportation plan ‐ $2.6 million  Business‐type Activities’ capital assets net of depreciation increased by $18.3 million over FY 2015.  The  increase is due primarily to Gas infrastructure improvements.    Major Business‐type Activities’ capital projects that are currently in progress, including the remaining capital  commitment of each, are as follows:   Seismic water system upgrades for Water Fund ‐ $4.4 million   Channing Avenue/Lincoln Avenue storm drain improvement ‐ $3.6 million   Wastewater Collection Fund rehabilitation/augmentation project ‐ $9.2 million    The City depreciates its capital assets over their estimated useful lives, as required by GASB 34.  The purpose  of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable  portion of the cost of the asset is borne by all users. Additional information on capital assets and depreciable  lives are in Note 6.    Management’s Discussion and Analysis  ………………………………………………………………………………………………………… City of Palo Alto 27 DEBT ADMINISTRATION  Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements.  At June 30, 2016, the  City’s debt was comprised of the following:  LONG‐TERM DEBT AT JUNE 30 (in millions) Increase/  2016 2015 (Decrease) Governmental Activities General Long‐Term Obligations Certificates of Participation  2002B Downtown Parking Improvements 1.1$         1.3$         (0.2)$        General Obligation Bonds      2010 48.1 51.5 (3.4) 2013A 17.1 20.3 (3.2) 2011 Lease Purchase Agreement 1.3 1.6 (0.3)  Add: unamortized premium 3.9 4.1 (0.2) Total Governmental 71.5$      78.8$      (7.3)$        Business‐type Activities Enterprise Long‐Term Obligations Utility Revenue Bonds       1995 Series A2.4$         2.9$         (0.5)  1999 Refunding 9.7 10.3 (0.6) 2009 Series A29.7         30.7         (1.0) 2011 Refunding 12.3         13.3         (1.0) Add: unamortized premium 0.8           0.9           (0.1) Energy Tax Credit Bonds 2007 Series A0.6           0.7           (0.1) Less: unamortized discount (0.1) (0.1)‐              State Water Resources Loan 2007 5.9           6.3           (0.4) 2009 6.8           7.2           (0.4) Total Business‐type 68.1$      72.2$      (4.1)$        Long‐term debt decreased a total of $11.4 million due to scheduled debt repayments of $6.3 million, and  defeasance payments of $5.1 million on the General Obligation Bonds.  As noted in the Statistical Section of  the CAFR, the combined direct debt ratio to assessed valuation for the General Fund is 0.25 percent compared  to the allowable legal debt margin of 15 percent. Management’s Discussion and Analysis  ………………………………………………………………………………………………………… City of Palo Alto 28 SPECIAL ASSESSMENT DISTRICT DEBT  Special assessment districts throughout different parts of the City have also issued debt to finance  infrastructure and facilities construction exclusively in their districts. As of June 30, 2016, the City had no  special assessment district debt with City commitment outstanding.    ECONOMIC OUTLOOK  The economy of the City is discussed in the accompanying Transmittal Letter.  CONTACTING THE CITY’S FINANCIAL MANAGEMENT  The CAFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the  City’s finances. Questions about this report should be directed to the Administrative Services Department, at  250 Hamilton Avenue, 4th Floor, Palo Alto, California. The Department can also be contacted by email at:  adminsvcs@cityofpaloalto.org.  This report and other financial reports can be viewed on the City of Palo Alto  website at: www.cityofpaloalto.org. On the home page, select Departments, select Administrative Services,  and select Financial Reporting. Within Financial Reporting, there are links to reports by title and reporting  date.   CITY OF PALO ALTO Statement of Net Position June 30, 2016 (Amounts in thousands) Governmental Business‐Type  Activities Activities Total ASSETS: Cash and investments available for operations (Note 3)294,051$           240,570$           534,621$             Receivables, net: Accounts and intergovernmental 15,985              29,251              45,236                 Interest receivable 1,363 1,053 2,416  Notes and loans receivable (Note 5)19,243              ‐ 19,243                 Internal balances (Note 4)(680)680 ‐ Net OPEB asset (Note 12)21,662              ‐ 21,662                 Due from other government agencies ‐3,900 3,900  Inventory of materials and supplies, prepaids and deposits 4,732 374 5,106  Restricted cash and investments with fiscal agents (Note 3)959 4,115 5,074  Capital assets (Note 6): Nondepreciable 145,481            98,943              244,424               Depreciable, net of accumulated depreciation 350,506            477,864            828,370               Total assets 853,302            856,750            1,710,052            DEFERRED OUTFLOWS OF RESOURCES: Unamortized loss from refunding ‐324 324 Pension related 21,181              9,414 30,595                 Total deferred outflows of resources 21,181              9,738 30,919                 LIABILITIES: Accounts payable and accruals 7,272 15,348              22,620                 Accrued salaries and benefits 4,346 1,986 6,332  Unearned revenue 1,895 ‐ 1,895  Accrued compensated absences (Note 1): Due in one year 4,936 ‐ 4,936  Due in more than one year 6,286 ‐ 6,286  Claims payable (Note 14): Due in one year 5,237 ‐ 5,237  Due in more than one year 18,142              ‐ 18,142                 Landfill post‐closure liability (Note 9): Due in more than one year ‐6,618 6,618  Net pension liabilities (Note 11):230,122            89,500              319,622               Long‐term debt (Note 7): Due in one year 2,224 4,198 6,422  Due in more than one year 69,295              63,915              133,210               Total liabilities 349,755            181,565            531,320               DEFERRED INFLOWS OF RESOURCES: Pension related 13,737              5,084 18,821                 NET POSITION (Note 10): Net Investment in capital assets 425,179            512,918            938,097               Restricted for: Transportation, infrastructure and other 42,547              ‐ 42,547                 Debt service 3,855 4,115 7,970  Nonexpendable ‐ Eyerly Family 1,505 ‐ 1,505  Total restricted net position 47,907              4,115 52,022                 Unrestricted 37,905              162,806            200,711               Total net position $           510,991 $           679,839  $        1,190,830  See accompanying notes to the basic financial statements. 29 30  This page is left intentionally blank.    CITY OF PALO ALTO Statement of Activities For the Year Ended June 30, 2016 (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 352$                   ‐$                   ‐$                   ‐$                   (352)$                  ‐$                   (352)$            City Manager 2,662                  ‐                     ‐                    ‐                    (2,662)                ‐                     (2,662)         City Attorney 2,472                  ‐                     ‐                    ‐                    (2,472)                ‐                     (2,472)         City Clerk 582                     ‐                     ‐                    ‐                    (582)                   ‐                     (582)             City Auditor 414                     ‐                     ‐                    ‐                    (414)                   ‐                     (414)             Administrative Services 10,637                9,444                 ‐                    344                   (849)                   ‐                     (849)             Human Resources 2,224                  ‐                     ‐                    ‐                    (2,224)                ‐                     (2,224)         Public Works 24,613                599                    733                   ‐                    (23,281)              ‐                     (23,281)       Planning and Community Environment 10,208                9,071                 605                   ‐                    (532)                   ‐                     (532)             Development Services 11,158                12,570               ‐                    ‐                    1,412                 ‐                     1,412           Public Safety 56,653                13,945               765                   ‐                    (41,943)              ‐                     (41,943)       Community Services 28,547                21,551               43                     ‐                    (6,953)                ‐                     (6,953)         Library 10,825                198                    18                     ‐                    (10,609)              ‐                     (10,609)       Interest on long‐term debt 3,552                  ‐                     ‐                    ‐                    (3,552)                ‐                     (3,552)         Total Governmental Activities 164,899              67,378               2,164                344                   (95,013)              ‐                     (95,013)       Business‐Type Activities: Water 35,120                37,588               637                   641                   ‐                     3,746                 3,746           Electric 120,319              120,743             ‐                    ‐                    ‐                     424                    424              Fiber Optics 2,107                  4,505                 ‐                    ‐                    ‐                     2,398                 2,398           Gas 20,879                30,212               ‐                    ‐                    ‐                     9,333                 9,333           Wastewater Collection 15,199                16,496               ‐                    288                   ‐                     1,585                 1,585           Wastewater Treatment 22,546                23,825               ‐                    ‐                    ‐                     1,279                 1,279           Refuse 30,370                32,169               12                     ‐                    ‐                     1,811                 1,811           Storm Drainage 3,735                  6,520                 ‐                    ‐                    ‐                     2,785                 2,785           Airport 970                     826                    95                     132                   ‐                     83                      83                Total Business‐Type Activities 251,245              272,884             744                   1,061                 ‐                     23,444                23,444         Total 416,144$            340,262$           2,908$               1,405$               (95,013)              23,444                (71,569)       General Revenues: Taxes: Property tax 41,189               ‐                     41,189         Sales tax 30,018               ‐                     30,018         Utility user tax 12,469               ‐                     12,469         Transient occupancy tax 22,366               ‐                     22,366         Documentary transfer tax 6,266                 ‐                     6,266           Other taxes 1,602                 ‐                     1,602           Investment earnings 8,639                 7,282                 15,921         Miscellaneous 894                    ‐                     894              Transfers (Note 4)18,705               (18,705)               ‐               Total general revenues and transfers              142,148 (11,423)               130,725      Change in net position 47,135               12,021                59,156         Net position, beginning of year 463,856             667,818              1,131,674   Net position, end of year 510,991$            679,839$            1,190,830$  See accompanying notes to the basic financial statements. 31 32  This page is left intentionally blank.    CITY OF PALO ALTO Governmental Funds Balance Sheet June 30, 2016 (Amounts in thousands) Capital Other Total General Projects Governmental Governmental Fund Fund Funds Funds ASSETS: Cash and investments available for operations (Note 3)53,113$          71,461$          89,433$           214,007$         Receivables, net: Accounts and intergovernmental 15,676           163                31                   15,870             Interest receivable 640                ‐                 382                 1,022               Notes and loans receivable (Note 5)513                ‐                 18,730            19,243             Advance to other fund (Note 4) 2,211              ‐                 ‐                  2,211               Inventory of materials and supplies 4,364             ‐                 ‐                  4,364               Restricted cash and investments with fiscal agents (Note 3)‐                 711                248                 959                  Total assets 76,517$          72,335$          108,824$         257,676$         LIABILITIES AND FUND BALANCES: Liabilities: Accounts payable and accruals 3,832$            1,809$            354$                5,995$             Accrued salaries and benefits 3,859             176                46                   4,081               Unearned revenue 1,895             ‐                 ‐                  1,895               Total liabilities 9,586             1,985             400                 11,971             Fund balances (Note 10): Nonspendable: Notes and loans receivable 513                ‐                 ‐                  513                  Inventories 4,364             ‐                 ‐                  4,364               Advance to other fund 2,211             ‐                 ‐                  2,211               Eyerly family ‐                 ‐                 1,505              1,505               Restricted for:  Transportation mitigation ‐                 ‐                 10,841            10,841             Federal revenue ‐                 ‐                 4,569              4,569               Street improvement ‐                 ‐                 1,308              1,308               Local law enforcement ‐                 ‐                 180                 180                  Library bond project ‐                 711                ‐                  711                  Public benefit ‐                 ‐                 25,649            25,649             Debt service ‐                 ‐                 3,855              3,855               Committed for: Roth Building Rehabilitation ‐                 3,953             ‐                  3,953               Cubberley Improvements ‐                 2,634             ‐                  2,634               Developer impact fees ‐                 ‐                 14,169            14,169             Housing in‐lieu ‐                 ‐                 41,251            41,251             Special districts ‐                 ‐                 3,704              3,704               Downtown business ‐                 ‐                 34                   34                    Assigned for: Unrealized gains on investments 2,066             ‐                 1,358              3,424               Capital projects ‐                 63,052           ‐                  63,052             Other general government purposes 6,195             ‐                 1                      6,196               Unassigned for: Budget Stabilization 51,582           ‐                 ‐                  51,582             Total fund balances 66,931           70,350           108,424          245,705           Total liabilities and fund balances 76,517$          72,335$          108,824$         257,676$         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, 2016 Total fund balances reported on the governmental funds balance sheet 245,705$      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 21,181           Deferred inflows of resources (13,737)         Capital assets used in governmental activities are not current assets or financial  resources and therefore are not reported in the governmental funds (Note 6)495,987        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 herein)64,766           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 (1,270) Net pension liabilities (Note 11)(230,122)       Long‐term debt (Note 7)(71,519)         Net position of governmental activities 510,991$      (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, 2016 (Amounts in thousands) Capital Other General Projects Governmental Fund Fund Funds Total REVENUES: Property tax 36,607$          ‐$                4,582$             41,189$           Special assessments ‐                 ‐                 100                   100                  Sales tax 30,018           ‐                 ‐                   30,018            Utility user tax 12,469           ‐                 ‐                   12,469            Transient occupancy tax 22,366           ‐                 ‐                   22,366            Documentary transfer tax 6,266             ‐                 ‐                   6,266              Other taxes and fines 2,238             ‐                 1,570               3,808              Charges for services 23,910           ‐                 ‐                   23,910            From other agencies 3,190             861                 366                   4,417              Permits and licenses 7,912             ‐                 3,316               11,228            Investment earnings 2,494             1,102             2,898               6,494              Rental income 15,769           ‐                 6                      15,775            Other revenue 2,591             3,596             7,640               13,827            Total revenues 165,830         5,559             20,478             191,867          EXPENDITURES: Current: City Council 330                 ‐                 ‐                   330                  City Manager 2,567             ‐                 ‐                   2,567              City Attorney 2,212             ‐                 ‐                   2,212              City Clerk 488                 ‐                 ‐                   488                  City Auditor 313                 ‐                 ‐                   313                  Administrative Services 3,545             ‐                 203                   3,748              Human Resources 1,843             ‐                 ‐                   1,843              Public Works 12,315           ‐                 797                   13,112            Planning and Community Environment 9,059             ‐                 663                   9,722              Development Services 10,643           ‐                 ‐                   10,643            Police 35,247           ‐                 225                   35,472            Fire 28,312           ‐                 ‐                   28,312            Community Services 24,280           ‐                 1,231               25,511            Library 7,960             ‐                 ‐                   7,960              Non‐Departmental 5,680             1,790             598                   8,068              Capital outlay ‐                 24,457           ‐                   24,457            Debt service: Principal 395                 ‐                 6,735               7,130              Interest and fiscal charges 36                   ‐                 4,230               4,266              Total expenditures 145,225         26,247           14,682             186,154          EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 20,605           (20,688)          5,796               5,713              OTHER FINANCING SOURCES (USES): Transfers in (Note 4)18,317           36,702           6,816               61,835            Transfers out (Note 4)(34,461)          (3,018)            (9,013)              (46,492)           Total other financing sources (uses) (16,144)          33,684           (2,197)              15,343            Change in fund balances 4,461             12,996           3,599               21,056            FUND BALANCES, BEGINNING OF YEAR 62,470           57,354           104,825           224,649          FUND BALANCES, END OF YEAR 66,931$          70,350$          108,424$         245,705$         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, 2016 Net change in fund balances ‐ total governmental funds 21,056$        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 24,694          Depreciation expense is deducted from fund balance (depreciation expense is net of  internal service fund depreciation of $2,525 (Note 6), which has already been allocated through the internal service fund activities below (14,539)        Disposal of capital assets (508)              Pension contribution made subsequent to the measurement date is an expenditure in the  governmental funds, but reported as a deferred outflows of resources in the  government‐wide financial statements 18,516          Pension expenses reported in the statement of activities do not require the use of current  financial resources and, therefore, are not reported as expenditures in governmental funds (15,320)        Principal payments on long‐term liabilities are reported as expenditures in governmental funds when paid.  The governmental activities, however, report principal payments as  a reduction of long‐term debt on the statement of net position.  Interest accrued on  long‐term debt and amortization of premiums do not require the use of current financial  resources and therefore are not reported as expenditures in governmental funds.  Therefore,  the activities associated with long‐term debt are as follows: Principal paid during the year 7,130            Change in interest payable 556               Amortization of bond premium 158               Internal service funds are used by management to charge the costs of activities, such  as insurance, equipment acquisition and maintenance, and employees benefits to  individual funds.  The portion of the net revenue of these internal service  funds arising out of their transactions with governmental funds is reported with  governmental activities.5,392            Change in net position of governmental activities 47,135$        (Amounts in thousands) See accompanying notes to the basic financial statements. 36 Variance with Budgeted Amounts Final Budget Actual, plus Positive Adopted Final Encumbrances (Negative) 27,630$      28,430$      30,018$       1,588$          35,067        35,967        36,607         640               18,791        21,991        22,366         375               Documentary transfer tax 6,852          7,052          6,266           (786)              11,189        10,489        12,469         1,980            2,180          2,180          2,238           58                 25,399        24,768        23,910         (858)              8,211          8,211          7,912           (299)              824             824             1,104           280               15,296        15,299        15,769         470               1,659          659             3,190           2,531            323             1,801          2,591           790               153,421     157,671     164,440      6,769            11,930        11,929        11,576         (353)              ‐              5,573          5,606           33                 165,351     175,173     181,622      6,449            3,101          3,719          3,186           533               1,175          1,261          1,159           102               1,328          1,373          1,058           315               455             502             451              51                 3,431          4,121          4,092           29                 7,635          7,957          7,615           342               24,804        26,517        25,262         1,255            Police 36,859        36,924        36,096         828               27,583        29,223        28,909         314               3,555          4,029          3,849           180               8,555          8,971          8,217           754               8,900          11,146        10,912         234               Development Services 11,901        12,281        10,872         1,409            15,017        15,828        15,084         744               8,662          6,955          6,234           721               162,961     170,807     162,996      7,811            2,390          4,366          18,626         14,260          18,589        19,141        18,317         (824)              (22,711)      (35,057)      (34,461)       596               (4,122)         (15,916)      (16,144)       (228)              (1,732)$       (11,550)$     2,482           14,032$       Unrealized gain/loss on investments 1,390            Current year encumbrances 6,195            Prior year encumbrances (5,606)           4,461            62,470          66,931$        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, 2016 (Amounts in thousands) Charges to other funds Sales tax Property tax Transient occupancy tax Utility user tax Other taxes, fines and penalties Charges for services Permits and licenses Investment earnings Rental income From other agencies Other revenues Fire Prior year encumbrances Total revenues EXPENDITURES: Current: City Attorney City Auditor City Clerk City Council City Manager Administrative Services Community Services Total other financing sources (uses) Human Resources Library Planning and Community Environment Total expenditures EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES):  Transfers in Transfers out Public Works Non‐Departmental FUND BALANCE AT BEGINNING OF YEAR, GAAP BASIS FUND BALANCE AT END OF YEAR, GAAP BASIS EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES, BUDGETARY BASIS Adjustment to Budgetary Basis: CHANGE IN FUND BALANCE, GAAP BASIS See accompanying notes to the basic financial statements. 37 Fiber Water Electric Optics Gas ASSETS: Current assets: Cash and investments available for operations (Note 3)35,832$          100,414$       25,069$          25,289$            Accounts receivable, net of allowance of $478 5,337             13,008           864                  2,105                Interest receivable 159                 462                 102                  105   Due from other government agencies ‐ ‐ ‐  ‐   Inventory of materials and supplies ‐ ‐ ‐  ‐   Restricted cash and investments with fiscal agents (Note 3)3,299             ‐ ‐  816   Total current assets 44,627           113,884         26,035           28,315              Noncurrent assets: Due from other government agencies ‐ ‐ ‐  ‐   Deposit ‐ 49 ‐  ‐   Prepaid expense 108                 ‐ ‐  ‐   Capital assets (Note 6): Nondepreciable 18,832           24,244           1,719             3,066                Depreciable, net 101,398         163,415         6,195             99,469              Net OPEB asset (Note 12)‐ ‐ ‐  ‐   Total noncurrent assets 120,338         187,708         7,914             102,535            Total assets 164,965         301,592         33,949           130,850            DEFERRED OUTFLOWS OF RESOURCES: Unamortized loss from refunding 129                 ‐ ‐  168  Pension related 1,218             3,173             201                  1,327                Total deferred outflows of resources 1,347             3,173             201                  1,495                LIABILITIES: Current liabilities: Accounts payable and accruals 5,082             4,242             418                  829  Accrued salaries and benefits 265                 696                 40 279  Accrued compensated absences (Note 1)‐ ‐ ‐  ‐   Current portion of long term debt (Note 7)1,510             100                 ‐  575  Accrued claims payable (Note 14)‐ ‐ ‐  ‐   Total current liabilities 6,857             5,038             458                  1,683                Noncurrent liabilities: Accrued compensated absences (Note 1)‐ ‐ ‐  ‐   Accrued claims payable (Note 14)‐ ‐ ‐  ‐   Advance from other fund (Note 4)‐ ‐ ‐  ‐   Landfill post‐closure liability (Note 9)‐ ‐ ‐  ‐   Net pension liabilities (Note 11)12,100           28,893           1,777             12,941              Long term debt, net of  unamortized discounts/premiums (Note 7)34,780           468                 ‐  6,682                Total noncurrent liabilities 46,880           29,361           1,777             19,623              Total liabilities 53,737           34,399           2,235             21,306              DEFERRED INFLOWS OF RESOURCES: Pension related 727                 1,564             85 752  Total deferred inflows of resources 727                 1,564             85 752  NET POSITION (Note 10): Net Investment in capital assets 84,069           187,091         7,914             95,446              Restricted for debt service 3,299              ‐ ‐  816  Unrestricted (deficit)24,480           81,711           23,916           14,025              Total net position 111,848$       268,802$       31,830$          110,287$         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, 2016 (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 14,718$           13,757$           14,511$          10,562$          418$                240,570$       80,044$            1,922               2,021               3,273              674                 47                   29,251           115                   66                     57                     60                    41                   1                      1,053             341                   ‐                         300                   ‐                        ‐                       ‐                       300                 ‐                         ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       368                   ‐                         ‐                         ‐                        ‐                       ‐                       4,115             ‐                         16,706             16,135             17,844            11,277           466                 275,289         80,868             ‐                         3,600               ‐                        ‐                       ‐                       3,600             ‐                         ‐                         ‐                         ‐                        ‐                       ‐                       49                   ‐                         ‐                         217                   ‐                        ‐                       ‐                       325                 ‐                         26,002             10,978             2,524              10,526           1,052             98,943           1,829               53,386             29,962             2,768              21,271           ‐                       477,864         14,637             ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       21,662             79,388             44,757             5,292              31,797           1,052             580,781         38,128             96,094             60,892             23,136            43,074           1,518             856,070         118,996           ‐                         ‐                         ‐                        27                   ‐                       324                 ‐                         723                   1,930               429                  309                 104                 9,414             1,440               723                   1,930               429                  336                 104                 9,738             1,440               938                   654                   2,759              264                 162                 15,348           7                        149                   385                   87                    58                   27                   1,986             265                   ‐                          ‐                          ‐                         ‐                        ‐                        ‐                       4,936               85                     1,318                ‐                        610                 ‐                       4,198             ‐                         ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       5,237               1,172               2,357               2,846              932                 189                 21,532           10,445             ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       6,286               ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       18,142             ‐                         ‐                         ‐                        ‐                       2,211             2,211             ‐                         ‐                         ‐                         6,618              ‐                       ‐                       6,618             ‐                         7,255               18,042             4,987              3,050             455                 89,500           12,675             734                   15,895             ‐                        5,356             ‐                       63,915           ‐                         7,989               33,937             11,605            8,406             2,666             162,244         37,103             9,161               36,294             14,451            9,338             2,855             183,776         47,548             418                   1,013               334                  182                 9                      5,084             725                   418                   1,013               334                  182                 9                      5,084             725                   78,569             27,627             5,292              25,858           1,052             512,918         16,466             ‐                         ‐                         ‐                        ‐                       ‐                       4,115             ‐                         8,669               (2,112)              3,488              8,032             (2,294)            159,915         55,697             87,238$           25,515$           8,780$            33,890$          (1,242)$           676,948         72,163$            2,891              679,839$        Business‐Type Activities‐Enterprise Funds See accompanying notes to the basic financial statements. 39 Fiber Water Electric Optics Gas OPERATING REVENUES: Sales to:  Customers 33,967$     104,458$    3,532$       27,555$      City departments 1,602        3,127         855            1,110         Service connection charges and miscellaneous 903            2,756         86               961             Charges for services ‐                 ‐                   ‐                  ‐                  Other 1,116        10,402       32               586             Total operating revenues 37,588      120,743     4,505         30,212       OPERATING EXPENSES: Retail purchase of utilities 17,626      73,440       ‐                  8,127         Administrative and general 4,813        6,395         363            3,329         Engineering (operating)409            1,592         ‐                  426             Resource management and energy efficiency 594            5,765         ‐                  1,037         Operations and maintenance 5,440        11,524       1,360         4,153         Rent 1,677        4,991         71               568             Depreciation and amortization 2,719        7,607         328            2,795         Claims payments and changes in estimated self‐insurance liability ‐                 ‐                   ‐                  ‐                  Refund of charges for services ‐                 ‐                   ‐                  ‐                  Compensated absences and other benefits ‐                 ‐                   ‐                  ‐                  Total operating expenses 33,278      111,314     2,122         20,435       Operating income (loss)4,310        9,429         2,383         9,777         NONOPERATING REVENUES (EXPENSES): Investment earnings 1,144        3,126         726            712             Interest expense (1,822)       (8,889)        ‐                  (249)           Gain on disposal of capital assets ‐                 ‐                   ‐                  ‐                  Loss on disposal of capital assets (70)             (74)              ‐                  (187)           Other nonoperating revenues 637            ‐                   ‐                  ‐                  Total nonoperating revenues (expenses)(111)          (5,837)        726            276             Income (loss) before transfers and capital contributions 4,199        3,592         3,109         10,053       Capital contributions 641            ‐                   ‐                  ‐                  Transfers in (Note 4)222            259             ‐                  ‐                  Transfers out (Note 4)(364)          (12,110)      (121)           (6,670)        Change in net position 4,698        (8,259)        2,988         3,383         NET POSITION (DEFICIT), BEGINNING OF YEAR 107,150    277,061     28,842       106,904     NET POSITION (DEFICIT), END OF YEAR 111,848$   268,802$    31,830$     110,287$    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, 2016 (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 15,572$     14,759$      27,763$     5,961$      459$         234,026$    ‐$  76               8,818          787           364          ‐                16,739       ‐  506            ‐ ‐‐                ‐                5,212         ‐  ‐ ‐ ‐‐                ‐                ‐85,810            342            248              3,619        195          367          16,907       37  16,496       23,825        32,169       6,520       826          272,884     85,847            8,770         ‐ 16,251       ‐                ‐                124,214     ‐  1,205         ‐ 1,794        669          705          19,273       12,743            347            2,056          208           407          ‐                5,445         ‐  ‐ ‐ ‐290          ‐                7,686         ‐  2,635         16,962        8,962        1,212       231          52,479       25,287            293            ‐ 2,452        39             ‐                10,091       ‐  1,933         2,958          77              743          ‐                19,160       2,525              ‐ ‐ ‐‐                ‐                ‐3,132              ‐ ‐ ‐‐                ‐                ‐54  ‐ ‐ ‐‐                ‐                ‐42,538            15,183       21,976        29,744       3,360       936          238,348     86,279            1,313         1,849          2,425        3,160       (110)         34,536       (432)                475            370              426           293          10             7,282         2,156              (47)             (497)            (565)          (373)         (38)           (12,480)      ‐  ‐ ‐ ‐‐                ‐                ‐185                  (5)               ‐ ‐‐                ‐                (336)           ‐  ‐ ‐ 12              ‐                95             744             40  423            (127)            (127)          (80)           67             (4,790)        2,381              1,736         1,722          2,298        3,080       (43)           29,746       1,949              288            ‐ ‐‐                132          1,061         ‐  ‐ ‐ 356           234          ‐                1,071         5,888              (396)           (12)               (97)            (6)             ‐                (19,776)      (2,526)             1,628         1,710          2,557        3,308       89             12,102       5,311              85,610       23,805        6,223        30,582     (1,331)      66,852                                  87,238$     25,515$      8,780$      33,890$    (1,242)$    72,163$          (81)               12,021$       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 34,553$     107,967$   3,991$        28,734$      Cash refunds to customers ‐              ‐             ‐               ‐               Cash payments to suppliers for goods and services (23,779)     (99,593)     (1,408)         (14,864)       Cash payments to employees (5,100)       (6,921)       (384)             (3,560)         Internal activity‐ receipts (payments) from (to) other funds 1,602         3,127         855              1,110           Other receipts 1,116         10,402      32                586              Net cash provided by operating activities 8,392         14,982      3,086           12,006        Cash flows from noncapital financing activities: Receipt of loans from other funds ‐             ‐             ‐               ‐               Operating grants and contributions 111            ‐             ‐               ‐               Interest subsidy received from Build America Bonds 526            ‐             ‐               ‐               Transfers in 222            259            ‐               ‐               Transfers out (364)           (12,110)     (121)             (6,670)         Net cash flows provided by  (used in) noncapital financing activities 495            (11,851)     (121)             (6,670)         Cash flows from capital and related financing activities: Acquisition and construction of capital assets (9,085)       (14,127)     (634)             (3,298)         Proceeds from sale of capital assets ‐             ‐             ‐               ‐               Capital grants and contributions 641            ‐             ‐               ‐               Principal paid on long‐term debt (1,457)       (100)           ‐               (553)             Interest paid on long‐term debt (1,822)       (8,888)       ‐               (248)             Net cash flows used in capital and related financing activities (11,723)     (23,115)     (634)             (4,099)         Cash flows from investing activities: Interest received 1,146         3,211         715              719              Net cash flows provided by investing activities 1,146         3,211         715              719              Net change in cash and cash equivalents (1,690)       (16,773)     3,046           1,956           Cash and cash equivalents, beginning of year 40,821      117,187    22,023        24,149        Cash and cash equivalents, end of year $      39,131 $    100,414  $      25,069  $      26,105  Financial statement presentation: Cash and investments available for operations 35,832$     100,414$   25,069$      25,289$      Restricted cash and investments with fiscal agent 3,299         ‐             ‐               816              Cash and cash equivalents, end of year 39,131$     100,414$   25,069$      26,105$      Reconciliation of operating income (loss) to  net cash provided by operating activities: Operating income (loss)4,310$       9,429$       2,383$        9,777$        Adjustments to reconcile operating income (loss) to  net cash provided by operating activities: Depreciation and amortization 2,719         7,607         328              2,795           Other ‐             ‐             ‐               ‐               Change in assets and liabilities: Accounts receivable (317)           753            373              218              Inventory of materials and supplies ‐             ‐             ‐               ‐               Deposit 9                 65              ‐               ‐               Net OPEB asset ‐             ‐             ‐               ‐               Deferred outflow of resources ‐ pension plans (171)           (459)           (20)               (176)             Accounts payable and accruals 1,958         (2,346)       23                (553)             Accrued salaries and benefits (9)               102            5                   47                Accrued compensated absences ‐             ‐             ‐               ‐               Unearned revenue ‐             ‐             ‐               ‐               Accrued claims payable ‐             ‐             ‐               ‐               Net Pension liabilitty 1,076         2,789         185              1,183           Deferred inflow of resources ‐ pension plans (1,183)       (2,958)       (191)             (1,285)         Net cash provided by operating activities $        8,392 $      14,982  $        3,086  $      12,006  Business‐Type Activities‐Enterprise Funds CITY OF PALO ALTO Proprietary Funds Statement of Cash Flows For the Year Ended June 30, 2016 (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 16,522$      15,719$      27,823$     5,883$       838$           242,030$   86,230$                ‐                ‐               ‐             ‐             ‐             ‐             (54)                         (11,621)       (18,988)       (27,152)     (1,935)       (163)           (199,503)   (25,986)                 (1,256)         (332)             (1,881)       (732)           (737)           (20,903)     (54,853)                 76                8,818           787            364            ‐             16,739      (3,589)                   342              248              3,971         195            462            17,354      40                           4,063          5,465           3,548         3,775         400            55,717      1,788                     ‐               ‐               ‐             ‐             516            516            ‐                         ‐               ‐               ‐             ‐             ‐             111            ‐                         ‐               ‐               ‐             ‐             ‐             526            ‐                         ‐               ‐               356            234            ‐             1,071         5,888                     (396)             (12)               (97)             (6)               ‐             (19,776)     (2,526)                   (396)             (12)               259            228            516            (17,552)     3,362                     (5,305)         (3,020)         (2,139)       (1,086)       (670)           (39,364)     (3,713)                   ‐               ‐               ‐             ‐             ‐             ‐             221                        288              300              12              ‐             132            1,373         ‐                         (82)               (1,283)         ‐             (575)           ‐             (4,050)       ‐                         (44)               (496)             (565)           (372)           (38)             (12,473)     ‐                         (5,143)         (4,499)         (2,692)       (2,033)       (576)           (54,514)     (3,492)                   474              373              418            287            9                 7,352         2,133                     474              373              418            287            9                 7,352         2,133                     (1,002)         1,327           1,533         2,257         349            (8,997)       3,791                                  15,720        12,430        12,978      8,305         69              253,682    76,253                    $      14,718  $      13,757 $      14,511 $      10,562 $            418 $    244,685  $               80,044  14,718$      13,757$      14,511$     10,562$     418$           240,570$   80,044$                ‐               ‐               ‐             ‐             ‐             4,115         ‐                         14,718$      13,757$      14,511$     10,562$     418$           244,685$   80,044$                1,313$        1,849$        2,425$       3,160$       (110)$         34,536$     (432)$                     1,933          2,958           77              743            ‐             19,160      2,525                     ‐               ‐               ‐             ‐             95              95              40                           444              960              60              (12)             379            2,858         665                        ‐               ‐               ‐             ‐             ‐             ‐             2                             ‐               16                ‐             ‐             ‐             90              ‐                         ‐               ‐               ‐             ‐             ‐             ‐             1,209                     (73)               (280)             (40)             (43)             (42)             (1,304)       (298)                       424              14                1,073         13              68              674            (1,634)                   77                72                14              6                 5                 319            77                           ‐               ‐               ‐             ‐             ‐             ‐             466                        ‐               ‐               ‐             (66)             ‐             (66)             ‐                         ‐               ‐               ‐             ‐             ‐             ‐             (739)                       668              1,695           400            273            64              8,333         1,174                     (723)             (1,819)         (461)           (299)           (59)             (8,978)       (1,267)                    $        4,063  $        5,465 $        3,548 $        3,775 $            400 $      55,717  $                 1,788  Business‐Type Activities‐Enterprise Funds See accompanying notes to the basic financial statements. 43 Agency Funds ASSETS: Cash and investments available for operations (Note 3)2,647$          Restricted cash and investments with fiscal agents (Note 3)2,550            Account receivable 505                Interest receivable 12 Total assets 5,714$          LIABILITIES: Due to bondholders 4,565$          Due to other governments 1,149            Total liabilities 5,714$          CITY OF PALO ALTO Statement of Fiduciary Net Position June 30, 2016 (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, 2016    45   Page  1.Summary of Significant Accounting Policies ........................................................................... 47 2.Budgets and Budgetary Accounting ........................................................................................ 56 3.Cash and Investments ............................................................................................................. 56 4.Interfund Transactions ............................................................................................................ 62 5.Notes and Loans Receivable .................................................................................................... 64 6.Capital Assets .......................................................................................................................... 70 7.General Long‐Term Obligations .............................................................................................. 75 8.Special Assessment Debt ......................................................................................................... 81 9.Landfill Post‐Closure Maintenance ......................................................................................... 81 10.Net Position and Fund Balances .............................................................................................. 82 11.Pension Plans ........................................................................................................................... 85 12.Retiree Health Benefits ........................................................................................................... 92 13.Deferred Compensation Plan .................................................................................................. 95 14.Risk Management .................................................................................................................... 96 15.Joint Ventures .......................................................................................................................... 97 16.Commitments and Contingencies ......................................................................................... 100 Notes are essential to present fairly the information contained in the overview level of the basic financial  statements.  Narrative explanations are intended to communicate information that is not readily apparent  or cannot be included in the statements 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, 2016    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, 2016    48   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)  (b) Basis of Presentation (Continued)  Governmental activities generally are financed through taxes, intergovernmental revenues, and  other non‐exchange transactions.  Business‐type activities are financed in whole or in part by fees  charged to external parties.  The Statement of Activities presents a comparison between direct expenses and program  revenues for each segment of the business‐type activities of the City and for each function of the  City’s governmental activities.  Direct expenses are those that are specifically associated with a  program or function and, therefore, are clearly identifiable to a particular function.  Program  revenues include: (a) charges paid by the recipients for goods and services offered by the  programs, (b) grants and contributions that are restricted to meeting the operational needs of a  particular program, and (c) fees, grants and contributions that are restricted to financing the  acquisition or construction of capital assets.  Revenues that are not classified as program  revenues, including all taxes, are presented as general revenues.  Fund Financial Statements: The fund financial statements provide information about the City’s  funds, including fiduciary funds and its blended component unit.  Separate statements for each  fund category – governmental, proprietary and fiduciary – are presented.  The emphasis of fund  financial statements is on major individual governmental and enterprise funds, each of which is  displayed in a separate column.  All remaining governmental and internal service funds are  aggregated and reported as non‐major funds.  Proprietary fund operating revenues, such as utilities sales and charges for services, result from  exchange transactions associated with the principal activity of the fund.  Exchange transactions  are those in which each party receives and gives up essentially equal values.  Nonoperating  revenues, such as subsidies and investment earnings, result from non‐exchange transactions or  ancillary activities.  Operating expenses for enterprise funds and internal service funds include the cost of sales and  services, administrative expenses, and depreciation on capital assets.  All expenses not meeting  this definition are reported as nonoperating expenses.  (c) Major Funds and Other Funds  The City’s major governmental and enterprise funds need to be identified and presented  separately in the fund financial statements.  All other funds, called non‐major funds, are combined  and reported in a single column, regardless of their fund type.  Major funds are defined as funds that have assets and deferred outflows of resources, liabilities  and deferred inflows of resources, revenues or expenditures/expenses equal to at least 10  percent of their fund type total and at least 5 percent of the grand total.  The General Fund is  always a major fund.  The City may also select other funds it believes should be presented as major  funds on a qualitative basis.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    49   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)  (c) Major Funds and Other Funds (Continued)  The City reported the following major governmental funds in the accompanying financial  statements:  General Fund – This is the City’s primary operating fund.  It accounts for all financial resources of  the general government, except those required to be accounted for in another fund.  Capital Projects Fund – This fund accounts for resources used for the acquisition and construction  of capital facilities by the City, with the exception of those assets financed by proprietary funds.  The City reported the following enterprise funds as major funds in the accompanying financial  statements:  Water Services Fund – This fund accounts for all financial transactions relating to the City’s water  service.  Services are on a user‐charge basis to residents and business owners located in the City.  Electric Services Fund – This fund accounts for all financial transactions relating to the City’s  electric service.  Services are on a user‐charge basis to residents and business owners located in  the City.  Fiber Optics Fund – This fund accounts for all financial transactions relating to the City’s fiber  optics service.  Services are on a user‐charge basis to licensees located in the City.  Gas Services Fund – This fund accounts for all financial transactions relating to the City’s gas  service.  Services are on a user‐charge basis to residents and business owners located in the City.  Wastewater Collection Services Fund – This fund accounts for all financial transactions relating  to the City’s wastewater collection service.  Services are on a user‐charge basis to residents and  business owners located in the City.  Wastewater Treatment Services Fund – This fund accounts for all financial transactions relating  to the City’s wastewater treatment.  Services are on a user‐charge basis to residents and business  owners located in the City.  Refuse Services Fund – This fund accounts for all financial transactions relating to the City’s refuse  service.  Services are on a user‐charge basis to residents and business owners located in the City.  Storm Drainage Services Fund – This fund accounts for all financial transactions relating to the  City’s storm drainage service.  Services are on a user‐charge basis to residents and business  owners located in the City.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    50   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)    (c) Major Funds and Other Funds (Continued)    The City also reports the following funds:    Airport Fund – This non‐major enterprise fund accounts for all financial transactions relating to  the Palo Alto Airport (PAO).  The City assumed control over operation of PAO from the County of  Santa Clara, effective August 11, 2014.    Internal Service Funds – These funds account for fleet replacement and maintenance, technology,  central duplicating, printing and mailing services, administration of compensated absences and  health benefits, and the City’s self‐insured workers’ compensation and general liability programs,  all of which are provided to other departments on a cost‐reimbursement basis.  Also included is  the Retiree Health Benefits Internal Service Fund, which accounts for benefits to retirees.    Vehicle Replacement and Maintenance – This fund accounts for the maintenance and  replacement of vehicles and equipment used by all City departments.  The source of revenue is  from reimbursement of fleet replacement and maintenance costs allocated to each department  by usage of vehicle.    Technology – This fund accounts for replacement and upgrade of technology, and covers four  primary areas used by all City departments: desktop, infrastructure, applications, and technology  research and development.  The source of revenue is from reimbursement of costs for support  provided to other departments.    Printing and Mailing Services – This fund accounts for central duplicating, printing and mailing  services provided to all City departments.  The source of revenue for this fund is from  reimbursement of costs for services and supplies purchased by other departments.    General Benefits – This fund accounts for the administration of compensated absences and health  benefits.    Workers’ Compensation Insurance Program – This fund accounts for the administration of the  City’s self‐insured workers’ compensation program.    General Liability Insurance Program – This fund accounts for the administration of the City’s self‐ insured general liability program.    Retiree Health Benefits – This fund accounts for retiree health benefits.    Fiduciary Funds – These funds account for assets held by the City, an agent for assessment  districts, and members of the Cable Joint Powers Authority.  These funds are custodial in nature  and do not involve measurement of results of operations.  The City maintains 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, 2016    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, 2016    52   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)  (e)  Cash and Cash Equivalents  Restricted and unrestricted pooled cash and investments held in the City Treasury, and other  unrestricted investments invested by the City Treasurer, are considered cash equivalents for  purposes of the statement of cash flows because the City’s cash management pool and funds  invested by the City Treasurer possess the characteristics of demand deposit accounts. Other  restricted and unrestricted investments with maturities of less than three months at the time of  purchase are considered cash equivalents for purposes of the statement of cash flows.  (f)  Investments  The City’s investments are carried at fair value, and its fair value measurements are categorized  within the fair value hierarchy established by generally accepted accounting principles.  (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, 2016, changes to the compensated absences liabilities were  as follows (in thousands):  Beginning balance 10,756$       Additions 6,133            Payments (5,667)          Ending balance 11,222$       Current portion 4,936$         CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    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, 2016    54   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)  (n) Effects of New Pronouncements     As of July 1, 2015, the City implemented 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. It also  requires additional disclosures regarding investments in certain entities that calculate net asset  value per share (or its equivalent). See Note 3 for more information.     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. The  Statement did not have a significant impact on the City’s financial statements.    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. The Statement did not have a significant impact on the  City’s financial statements.    In December 2015, the GASB issued Statement No. 79, Certain External Investment Pools and Pool  Participants. The statement addresses accounting and financial reporting for certain external  investment pools and pool participants. This statement is effective for the City’s fiscal year ending  June 30, 2016. The Statement did not have a significant impact on the City’s financial statements.    The City is currently analyzing its accounting practices to determine the potential impact on the  financial statements for the following GASB Statements:    In June 2015, GASB issued Statement No. 74, Financial Reporting for Postemployment Benefit  Plans Other Than Pension Plans. This statement addresses reporting by OPEB plans that  administer benefits on behalf of governments. This statement is effective for the City’s fiscal year  ending June 30, 2017.        CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    55   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)  (n) Effects of New Pronouncements (Continued)     In June 2015, GASB issued Statement No. 75, Accounting and Financial Reporting for  Postemployment Benefits Other Than Pensions. This statement addresses reporting by  governments that provide OPEB to their employees and for governments that finance OPEB for  employees of other governments. This statement is effective for the City’s fiscal year ending  June 30, 2018.    In August 2015 GASB issued Statement No. 77, Tax Abatement Disclosures. The Statement defines  tax abatement agreements 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.    In December 2015, the GASB issued Statement No. 78, Pensions Provided through Certain  Multiple‐Employer Defined Benefit Pension Plans. The objective of this statement is to address a  practice issue regarding the scope and applicability of Statement No. 68 associated with pensions  provided through certain cost‐sharing multiple‐employer defined benefit pension plans and to  state or local governmental employers whose employees are provided with such pensions.  Such  plans are not considered a state or local government pension plan and are used to provide  benefits to both employees of state and local governments and employees of employers that are  not state or local governments. This statement is effective for the City’s fiscal year ending  June 30, 2017.    In January 2016, the GASB issued Statement No. 80, Blending Requirements for Certain  Component Units—an amendment of GASB Statement No. 14. The objective of this statement is  to improve financial reporting by clarifying the financial statement presentation requirements for  certain component units. This statement amends the blending requirements established in GASB  Statement No. 14, The Financial Reporting Entity, as amended. This statement is effective for the  City’s fiscal year ending June 30, 2017.    In March 2016, the GASB issued Statement No. 81, Irrevocable Split‐Interest Agreements. The  statement provides recognition and measurement guidance for situations in which a government  is a beneficiary of these agreements. This statement is effective for the City’s fiscal year ending  June 30, 2018.    In March 2016, the GASB issued Statement No. 82, Pension Issues – An Amendment of GASB  Statements No. 67, No. 68 and No. 73. The Statement addresses issues raised with respect to  GASB Statements No. 67, 68 and 73, regarding: (1) the presentation of payroll‐related measures  in required supplementary information; (2) the selection of assumptions and the treatment of  deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes;  and (3) the classification of payments made by employers to satisfy employee (plan member)  contribution requirements. This is effective for the City’s fiscal year ending June 30, 2017, except  for the requirements for selection of assumptions which will be effective during the City’s fiscal  year ending June 30, 2018.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    56   NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)   (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 Final Budget amounts. 5.As defined in the Palo Alto Municipal Code, expenditures may not exceed budgeted appropriations at the department level for the General Fund, and at the fund level for Enterprise, Special Revenue and Debt Service Funds. 6.Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting principles (GAAP), except that unrealized gains or losses 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. 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.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    57   NOTE 3 – CASH AND INVESTMENTS (Continued)    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 294,051$         240,570$         2,647$              537,268$          Held with fiscal agents 959                    4,115                2,550                7,624                 Total cash and investments 295,010$         244,685$         5,197$              544,892$              Investments Authorized by the City’s Investment Policy and Debt Agreements  The table below identifies the investment types that are authorized by the California Government Code  (Code) and 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 investment 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.    The City must maintain required amounts of cash and investments with trustees under the terms of  certain debt issues.  These funds are unexpended bond proceeds or are pledged as reserves to be used if  the City fails to meet its obligations under these debt issues.  The Code requires these funds to be invested  in accordance with City ordinance, bond indentures or state statute.  All of these funds have been invested  as permitted under the Code and the investment policy approved by the City Council.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    58   NOTE 3 – CASH AND INVESTMENTS (Continued)    Maximum  Maturity  Minimum  Credit Quality  Maximum  Percentage  of Portfolio Maximum  Investment in  One Issuer U.S. Government Securities 10 years (*) N/A No Limit No Limit U.S. Federal Agency Securities (C) 10 years (*) N/A No Limit (A) No Limit Certificates of Deposit 10 years (*) N/A 20% 10% of the par  value of  portfolio Bankers Acceptances 180 days (D) N/A (D) 30% $5 million Commercial Paper 270 days A‐1 15% $3 million (B) Local Agency Investment Fund N/A N/A No Limit $50 million per  account Short‐Term Repurchase Agreements 1 year N/A No Limit No Limit City of Palo Alto Bonds N/A N/A No Limit No Limit Money Market Mutual Funds N/A N/A (E) No Limit No Limit Mutual Funds (F) N/A N/A 20% 10% Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million Medium‐Term Corporate Notes 5 years AA 10% $5 million 10 years (*) AA/AA2 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, 2016    59   NOTE 3 – CASH AND INVESTMENTS (Continued)  Fair Value Measurements  The City categorizes its fair value measurements within the fair value hierarchy established by generally  accepted accounting principles.  The hierarchy is based on the valuation inputs used to measure fair value  of the assets.  Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are  significant other observable inputs; and Level 3 inputs are significant unobservable inputs.  All of the  investments are measured using level 2 inputs, except for investments in money market mutual funds,  California Asset Management Program and Local Agency Investment Fund, which are not subject to the  fair value hierarchy.   Investment securities classified in Level 2 of the fair value hierarchy are valued using prices determined  by the use of matrix pricing techniques maintained by the pricing vendors for these securities.  Matrix  pricing is used to value securities based on the securities relationship to benchmark quoted prices.  The following is a summary of the fair value measurements of the City as of June 30, 2016:  Type of Investment June 30, 2016 Level 2 Investments by fair value hierarchy U.S. Federal Agency Securities 382,730$    382,730$      U.S. Treasury Notes 11,607       11,607         Local Government Bonds 32,408      32,408         Negotiable Certificates of Deposit 34,273      34,273         Corporate Bonds 15,571      15,571         Total investments by fair value hierarchy 476,589     476,589$      Investment not subject to fair value hierarchy Money Market Mutual Funds 6,754         California Asset Management Program 3,247         Local Agency Investment Fund 57,487       Total investments not subject to fair value hierarchy 67,488        Total investments measured at fair value 544,077$      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, 2016,  LAIF had a weighted average maturity of 167 days.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    60   NOTE 3 – CASH AND INVESTMENTS (Continued)  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, 2016, the fair value approximated the City’s cost. CAMP had a weighted average  maturity of 45 days at June 30, 2016.  Fidelity Institutional Asset Management  Money market mutual funds are available for withdrawal on demand and at June 30, 2016, had a weighted  average maturity of 34 days.  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.  Type of Investment Less Than  One Year  One to  Three Years  Three to  Five Years Over  Five Years Total U.S. Federal Agency Securities 66,280$       116,905$    77,049$       122,496$    382,730$      U.S. Treasury Notes ‐  8,589     3,018  ‐  11,607     Local Government Bonds ‐ 263   9,025 23,120 32,408     Corporate Bonds ‐ 2,915    12,656     ‐ 15,571     Money Market Mutual Funds 6,754   ‐   ‐     ‐ 6,754       Negotiable Certificates of Deposit 246 9,751    15,262     9,014   34,273     California Asset Management Program 3,247   ‐   ‐     ‐ 3,247       Local Agency Investment Fund 57,487 ‐   ‐     ‐ 57,487     Total Investments 134,014$     138,423$     117,010$     154,630$     544,077        Cash in bank and on hand 815     Total Cash and Investments 544,892$      Maturities CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    61   NOTE 3 – CASH AND INVESTMENTS (Continued)  Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations  At June 30, 2016, the City’s investments (including investments held by bond trustees) include U.S. Federal  Agency Callable Securities in the amount of $107.4 million that are highly sensitive to interest rate  fluctuations (to a greater degree than already indicated in the information provided in the previous page).   These securities are subject to early redemption at par in a period of declining interest rates.    Credit Risk  Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the  investment.  This is measured by the assignment of a rating by a nationally recognized statistical rating  organization.  Presented below is the actual rating as provided by Standard & Poor’s investment rating  system as of June 30, 2016, for each investment type (in thousands):  Type of Investment Rating Total U.S. Federal Agency Securities AA+ 382,730$          Corporate Bonds AAA 15,571      Local Government Bonds AAA 32,408      Money Market Mutual Funds AAAm 6,754     Total Investments 437,463   Not Applicable:  U.S. Treasury Notes 11,607      Not Rated: California Asset Management Program 3,247     Local Agency Investment Fund 57,487      Negotiable Certificates of Deposit 34,273      Cash in bank and on hand 815     Total Cash and Investments 544,892$          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, 2016  (in thousands):   Investments Reporting Type  Fair Value at Year‐End  Federal Home Loan Bank U.S. Federal Agency Securities 120,065$       Federal Agricultural Mortgage Corporation U.S. Federal Agency Securities 104,357   Federal National Mortgage Corporation U.S. Federal Agency Securities 44,843     Federal Farm Credit Bank U.S. Federal Agency Securities 72,407     Federal Home Loan Mortgage Corporation U.S. Federal Agency Securities 27,354     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    62   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 2016 were as follows (in thousands):   Fund Making Transfer Amount  Transferred General Fund Nonmajor Governmental Funds 422$                  A Electric Services Fund 11,659               A Gas Services Fund 6,194                 A Internal Service Funds 42 A Capital Projects Fund General Fund 30,367               B Nonmajor Governmental Funds 5,674                 B Water Services Fund 113       B Electric Services Fund 273       B Fiber Optics Fund 17 B Gas Services Fund 101       B Wastewater Collection Fund 58 B Refuse Services Fund 69 B Internal Service Funds 30 B Nonmajor Governmental Funds General Fund 946       A Capital Projects Fund 3,018                 F Nonmajor Governmental Funds 2,816                 A Water Services Fund 5            A Electric Services Fund 12                       A Fiber Optics Fund 1            A Gas Services Fund 4            A Wastewater Collection Fund 2            A Internal Service Funds 12                       A Subtotal 61,835   Fund Receiving Transfer CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    63   NOTE 4 – INTERFUND TRANSACTIONS (Continued)  Fund Making Transfer Amount  Transferred Water Services Fund Gas Services Fund 111$     B Wastewater Collection Fund 111    B Electric Services Fund General Fund 33   D Fiber Optics Fund 102    D Internal Service Funds 124    C Refuse Services Fund General Fund 40   D Nonmajor Governmental Funds 101    D Internal Service Funds 215    C Storm Drainage Services Fund General Fund 234    C Internal Service Funds General Fund 2,841   E Water Services Fund 247    B Electric Services Fund 166    B Fiber Optics Fund 1   B Gas Services Fund 260    B Wastewater Collection Fund 224    B Wastewater Treatment Fund 12   B Refuse Services Fund 28   B Storm Drainage Services Fund 6   B Internal Service Funds 2,103   E Subtotal 6,959    Total 68,794$       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. (F) Transfer remaining bond proceeds to debt service. Fund Receiving Transfer 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:  $ 610,000 Due June 2019  325,000 Due July 2023  760,000 Due July 2024  516,000 Due July 2025  All advances bear interest equal to the average return yield on the City’s investment portfolio.  As of  June 30, 2016, the total outstanding principal amount is $2.2 million.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    64   NOTE 4 – INTERFUND TRANSACTIONS (Continued)    Internal Balances  Internal balances represent the net interfund receivables and payables remaining after the elimination of  all such balances within governmental and business‐type activities.        NOTE 5 – NOTES AND LOANS RECEIVABLE     At June 30, 2016, the City’s notes and loans receivable totaled (in thousands):    Palo Alto Housing Corporation: Oak Manor Townhouse 68$                   Tree House Apartments 5,343              Emerson Street Project 375                  Alma Single Room Occupancy Development 2,222              Barker Hotel 2,111              Sheridan Apartments 2,222              Oak Court Apartments, L.P. 7,834              Mid‐Peninsula Housing Coalition: Palo Alto Gardens Apartments 100                  Community Working Group, Inc.1,280              Opportunity Center Associates, L.P.750                  Home Rehabilitation Loans 52                    Executive Relocation Assistance Loans 513                  Below Market Rate Assessment Loans 54                    Oak Manor Townhouse Water System 114                  Lytton Gardens Assisted Living 101                  Emergency Housing Consortium 75                    Alma Gardens Apartments 1,150              2811‐2825 Alma Street Acquisition 1,890              Palo Alto Family Housing, 801 Alma Street 6,422              Palo Alto Senior Housing Project ‐ Stevenson House, LLC 1,000              Colorado Park Housing Corporation 204                  Total Notes and Loans 33,880            Less: Valuation Allowance (14,637)          Total Notes and Loans, Net 19,243$            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.      CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    65   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    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. 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, 2016, the objective was met and the annual loan payment was forgiven.     Tree House Apartments  In March 2009, the City agreed to loan $2.8 million to Tree House Apartments, L.P. (THA) for the purchase  of the real property located at 488 West Charleston Road. The loan accrues simple interest at the rate of  3 percent per annum. The loan was funded with $1.8 million of Community Development Block Grant  (CDBG) funds and $1.0 million of residential housing funds. An additional development loan in the amount  of $2.5 million was approved by the City on October 18, 2010.  As of June 30, 2016, the outstanding  balance for THA in aggregate is $5.3 million. Principal and interest payments will be deferred, however if  the borrower has earned extra income, and if it is acceptable to the other entities providing final  permanent sources of funds, payment of interest and principal based on the City’s proportionate share of  the project’s residual receipts from net operating income shall be made by the borrower.  In no event  shall full payment be made by the borrower later than concurrently with the expiration or earlier  termination of the loan agreement, which is December 31, 2067.    Emerson Street Project  On November 8, 1994, the City loaned $375,000 to Palo Alto Housing Corporation (PAHC) for expenses  necessary to acquire an apartment complex for the preservation of rental housing for low and very low  income households in the City.  This loan is collateralized by a second deed of trust.  The loan bears interest  at 3 percent.    Alma Single Room Occupancy Development  On December 13, 1996, the City loaned $2.2 million to Alma Place Associates, L.P. for development of a  107‐unit single room occupancy development.  This loan bears interest at 3 percent and is collateralized  by a subordinated deed of trust.  The principal balance is due in 2041.         CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    66   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    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  CDBG funds.  All three notes bear no interest and are collateralized by a deed of trust, which is  subordinated to private financing.  Loan repayments are deferred until 2035.    In July 2004, the City agreed to loan up to $41,000 to PAHC to rehabilitate the interior of the Barker Hotel.   The loan was funded with CDBG funds and is collateralized by a deed of trust on the property.  Annual  loan payments are deferred until certain criteria defined in the loan agreement are reached.  The loan will  be forgiven if the borrower satisfactorily complies with all terms and conditions of the loan agreement.    Sheridan Apartments  On December 8, 1998, the City loaned $2.5 million to PAHC for the purchase and rehabilitation of a 57‐ unit apartment complex to be used for senior and low‐income housing.  The loan was funded with $1.6  million in CDBG funds, and $825,000 of Housing In‐Lieu funds.  The note 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 PAHC. As of June 30,  2016, principal payments totaling $228,000 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 PAHC 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 PAHC elects to extend the note until 2102, as defined  in the regulatory agreement.    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.  The loan  was funded with $659,000 of CDBG funds and $341,000 of Housing In‐Lieu funds. The two notes bear  interest at 3 percent and are secured by second deeds of trust and a City Affordability Reserve Account  held by the Coalition. Principal and interest payments began in FY 2008.  The principal balance of $100,000  is due in 2039.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    67   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)    Community Working Group, Inc.  On May 13, 2002, the City loaned $1.3 million to Community Working Group, Inc. for predevelopment,  relocation and acquisition of land for development of an 89‐unit complex and homeless service center for  very low income households.  The loan was funded with $1.3 million of CDBG funds.  The note bears no  interest and is secured by a first deed of trust.  No repayment 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 was funded with $750,000 of residential housing funds.  The note bears 3 percent interest and  is secured by a deed of trust. The loan remains outstanding and becomes due at the end of the 55‐year  term.     Home Rehabilitation Loans  The City administers a closed housing rehabilitation loan program initially funded with CDBG funds.  Under  this program, individuals with incomes below a certain level are eligible to receive low interest loans for  rehabilitation work on their homes.  These loans are secured by deeds of trust, which may be subordinated  to subsequent encumbrances upon said real property with the prior written consent of the City.  The loan  repayments may be amortized over the life of the loans, deferred, or a combination of both.     Executive Relocation Assistance Loans  The City Council may authorize a mortgage loan as part of a relocation assistance package to executive  staff.  The loans are secured by first deeds of trust, and interest is adjusted annually based on the rate of  return of invested funds of the City for the year ended June 30 plus one‐quarter of 1 percent.  Principal  and interest payments are due bi‐weekly.  Employees must pay any outstanding balance on their loans  within a certain period after ending employment with the City.  As of June 30, 2016, the City had one  outstanding home loan from the current City Manager.      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, 2016 is $403,000.  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, 2016 was $110,000.    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 2016, the City did not receive interest payments.       CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    68   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)  Oak Manor Townhouse Water System  On May 12, 2003, the City Council approved an allocation of $114,000 to Palo Alto Housing Corporation  Apartments, Inc (PAHCA, Inc) to replace the water pipes. Repayment of the loan will not be required unless  the property is sold, the program is terminated or purpose of the program is changed without City’s  approval prior to July 1, 2033. The loan for this project is subordinated to the existing City loan with  PAHCA, Inc dated January 7, 1991 for the acquisition of the project site, which is discussed earlier in this  section.   Lytton Gardens Assisted Living  In June 2005, the City loaned $101,000 to Community Housing, Inc. to upgrade and modernize the existing  kitchens at the senior residential facility known as Lytton Gardens Assisted Living.  The loan was funded  with CDBG funds, and bears simple interest of 3 percent.  Principal and interest payments are deferred  until July 1, 2035, as long as the borrower continues to comply with all terms and conditions of the  agreement.  Emergency Housing Consortium  In November 2005, the City agreed to loan up to $75,000 to Emergency Housing Consortium to cover  architectural expenses that will be incurred in rehabilitating and expanding the property.  The loan was  funded with CDBG funds, and bears simple interest of 3 percent.  Principal and interest payments are  deferred until July 1, 2035, as long as the borrower continues to comply with all terms and conditions of  the agreement.  Alma Garden Apartments  In March 2006, the City agreed to loan up to $1.2 million to Community Working Group, Inc. to acquire a  10‐unit multi‐family housing complex known as Alma Garden Apartments.  The loan was funded with  CDBG funds.  Principal and interest payments are deferred until July 1, 2061 as long as the borrower  complies with all terms and conditions of the agreement.  2811‐2825 Alma Street Acquisition  On October 9, 2011, the City agreed to loan $1.3 million to PAHC Properties Corporation (PAHC) to acquire  properties on Alma Street for the purpose of developing an affordable rental housing project.  On June  29, 2015, the City loaned PAHC an additional $0.6 million, and entered into an Amended and Restated  Acquisition and Development Agreement which combined the two loans for a total loan of $1.9 million.  The loan term expires on December 8, 2066 with an option to extend the term for an additional 44 years.  The loan bears simple interest of 3 percent, however in the event of default interest will accrue at the  lesser of 8 percent or the highest rate permitted by law. Principal and interest payments are payable  during the term of the agreement on a “residual receipt” basis as described in the agreement. All principal  and interest is due in the event of an unauthorized transfer, a default or the expiration of the term. As of  June 30, 2016, the outstanding balance was $1.9 million.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    69   NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)  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, 2016, the outstanding amount is $6.4  million.  Palo Alto Senior Housing Project  On October 1, 2015, the City entered into an affordable housing fund loan agreement with PASHPI  Stevenson House LP, a California limited partnership, in the principal amount of $1 million to assist in the  rehabilitation of the Stevenson House. The loan bears simple interest of 3 percent. The loan remains  outstanding and is due at the end of the 55‐year term.  Colorado Park Housing Corporation  On September 8, 2014, the City entered into an affordable housing fund loan agreement with Colorado  Park Housing Corporation (CPHC), a California nonprofit public benefit corporation, in the principal  amount of $204,000. The loan bears no interest except in the event of default. The principal and any  accrued interest is due and payable on the earlier of (a) expiration of the term, or (b) a default by CPHC  which has not been cured as provided for in the agreement.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    70   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, 2016    71   NOTE 6 – CAPITAL ASSETS (Continued)    General Capital Assets  Changes in the City’s general capital assets during the year ended June 30, 2016 were (in thousands):     Balance Balance July 1, 2015 Additions Retirements Transfers June 30, 2016 Governmental activities Nondepreciable capital assets: Land and improvements 79,047$          ‐$                      (566)$              ‐$                     78,481$               Street trees 15,077             ‐                        ‐                       ‐                       15,077                 Intangible assets ‐ Easement 3,567               ‐                        ‐                       ‐                       3,567                   Construction in progress 39,333             24,361             (349)                (16,818)           46,527                 Total nondepreciable capital assets 137,024          24,361             (915)                (16,818)           143,652               Depreciable capital assets: Buildings and structures 221,696          25                     (1,898)             1,087              220,910               Intangible assets ‐ Software 279                   ‐                         ‐                        ‐                       279                      Equipment 12,265             308                    ‐                       286                  12,859                 Roadway network 299,242           ‐                         ‐                       9,330              308,572               Recreation and open space network 27,632              ‐                        (669)                6,115              33,078                 Total depreciable capital assets 561,114          333                   (2,567)             16,818            575,698               Less accumulated depreciation: Buildings and structures (76,179)           (6,020)              2,974               ‐                       (79,225)               Intangible assets ‐ Software (206)                 (59)                    ‐                        ‐                       (265)                     Equipment (7,944)              (426)                 ‐                       ‐                       (8,370)                  Roadway network (134,027)         (7,069)              ‐                       ‐                       (141,096)             Recreation and open space network (9,908)              (965)                 ‐                       ‐                       (10,873)               Total accumulated depreciation (228,264)         (14,539)            2,974              ‐                       (239,829)             Depreciable capital assets, net 332,850          (14,206)            407                  16,818            335,869               Internal service fund capital assets Construction in progress 1,350               3,704               ‐                       (3,225)             1,829                   Equipment 53,419             9                       (1,241)             3,225              55,412                 Less accumulated depreciation (39,454)           (2,525)              1,204               ‐                       (40,775)               Net internal service fund capital assets 15,315             1,188               (37)                   ‐                       16,466                 Governmental activities capital assets, net 485,189$       11,343$          (545)$             ‐$                     495,987$               CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    72   NOTE 6 – CAPITAL ASSETS (Continued)    Business‐type Capital Assets  Changes in the City’s enterprise fund capital assets during the year ended June 30, 2016 were  (in thousands):    Balance Balance July 1, 2015 Additions Retirements Transfers June 30, 2016 Business‐type activities Nondepreciable capital assets: Land and improvements 4,973$             ‐$                     ‐$                            ‐$                       4,973$                 Construction in progress 89,909             39,088            (1,566)                    (33,461)             93,970                 Total nondepreciable capital assets 94,882             39,088            (1,566)                    (33,461)             98,943                 Depreciable capital assets: Buildings and structures 53,505             ‐                       ‐                              3,424                56,929                 Transmission, distribution and treatment systems 717,669          269                  (1,323)                    30,037              746,652               Total depreciable capital assets 771,174          269                  (1,323)                    33,461              803,581               Less accumulated depreciation: Buildings and structures (10,606)           (970)                 ‐                              ‐                         (11,576)               Transmission, distribution and treatment systems (296,917)         (18,210)           986                         ‐                         (314,141)             Total accumulated depreciation (307,523)         (19,180)           986                         ‐                         (325,717)             Depreciable capital assets, net 463,651          (18,911)           (337)                       33,461              477,864               Business‐type activities capital assets, net 558,533$       20,177$         (1,903)$                 ‐$                       576,807$           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 37$                  Water 2,743$             City Attorney 3                      Electric 7,601               Administrative Services 2                      Fiber Optics 328                   Community Services 1,814              Gas 2,827               Public Safety 334                  Wastewater Collection 1,932               Public Works 9,863            Wastewater Treatment 2,956              Planning and Community Environment 166                  Refuse 77                     Library 2,320              Storm Drainage 716                   Internal Service Funds 2,525              19,180$           17,064$             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    73   NOTE 6 – CAPITAL ASSETS (Continued)    Construction In Progress  Construction in progress as of June 30, 2016 is comprised of the following (in thousands):  Governmental Activities  Expended to June 30, 2016  California Avenue‐Transit Hub Corridor 6,703$                           City Hall First Floor Renovation 4,307                             Magical Bridge Playground 3,554                             Traffic Signal Upgrades 2,529                             Furniture/Technology for Library Bond Project 2,324                             Highway 101 Pedestrian/Bicycle Overpass 1,918                             Telephone Infrastructure and Network 1,582                             Transportation and Parking Improvements 1,413                             Safe Routes To School 1,148                             Bicycle Boulevards Implementation Project 1,127                             Golf Reconfig and Baylands Athletic Center 1,119                             Curb & Gutter Repairs 1,104                             Charleston/Arastradero Corridor 1,023                             Park Trails 960                                 Parks Master Plan 852                                 Eleanor Pardee Park Imp 739                                 Newell Road Bridge/SFC Bridge Replacemen 719                                 Library & Comm Center Temp Facilities 657                                 Benches/Signage/Fencing/Walkways 596                                 Interior Finishes Construction 584                                 Temporary Main Library 536                                 Other Construction In Progress 12,862                           Total Governmental Activities Construction In Progress 48,356$                        Business‐type Activities Expended to         June 30, 2016 Water system extension replacements and improvements 10,928$                        Gas system extension replacements and improvements 2,184                             Sewer system rehabilitation and extensions 6,765                             Electric distribution system improvements 7,753                             Water quality control plant equipment replacement and lab facilities 3,612                             Storm drainage structural and water quality improvements 3,097                             Other electrical improvements projects 1,430                             Other construction in progress 58,201                           Total Business‐type Activities Construction In Progress 93,970$                             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    74   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, 2016.    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 ‐ $10.2 million   Lucie Stern Buildings mechanical and electrical upgrades ‐ $2.8 million   Bicycle and pedestrian transportation plan ‐ $2.6 million    Major business‐type capital projects that are currently in progress, and the remaining capital commitment  of each, are as follows:   Seismic water system upgrades for Water fund ‐ $4.4 million   Channing Avenue/Lincoln Avenue storm drain improvement ‐ $3.6 million   Wastewater Collection Fund rehabilitation/augmentation ‐ $9.2 million    Vehicle Registration Fees (VRF)  In FY 2016, the City received VRF funds from the Santa Clara Valley Transportation Authority and  expended the full amount on capital expenditures for Alma/Middlefield Resurfacing Project (Project PE‐ 86070).:    Starting VRF balance July 1, 2015 ‐$                          VRF revenue 406,022             VRF interest 4,300                  VRF expense (410,322)            Ending VRF balance June 30, 2016 ‐$                                     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    75   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, 2015 Additions Retirements June 30, 2016 Portion Governmental Activities Debt: General Long‐Term Obligations:  2002B Downtown Parking Improvements, Certificates of Participation, 6.50%, due 03/01/2022 3,555$         1,285$        ‐$         150$      1,135$           160$         2010 General Obligation Bonds, 3.25% ‐ 5%, due 08/01/2040 55,305   51,470     ‐    3,380    48,090   1,110    2011 Lease‐Purchase Agreement 3,222    1,643    ‐    395      1,248     406     2013A General Obligation Bonds, 2 ‐ 5%, due 08/01/2041 20,695   20,325     ‐     3,205  17,120   390      Add: Unamortized Premium ‐   4,084    ‐    158      3,926     158   Total Governmental Activities Debt 82,777$        78,807$        ‐$       7,288$      71,519$        2,224$     Original Issue  Amount  Balance  July 1, 2015 Additions Retirements Balance  June 30, 2016 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$           2,860$           ‐$            505$               2,355$                 535$             1999 Refunding,  3.25‐5.25%, due 06/01/2024 17,735   10,345        ‐         665         9,680   700          2009 Series A,  1.80‐5.95%, due 06/01/2035 35,015     30,700        ‐    955    29,745        990          2011 Refunding,  3‐4%, due 06/01/2035 17,225     13,320        ‐    1,005       12,315        1,045         Add: Unamortized Premium ‐        840      ‐       70      770       ‐    Energy Tax Credit Bonds 2007 Series A, 0%, Due 12/15/2021 1,500     700     ‐        100        600       100         Less: Unamortized Discount ‐        (38)         ‐       (5)       (33)   ‐    State Water Resources Loans 2007, 1.02%, due 06/30/2029 9,000     6,300         ‐        450        5,850   450         2009, 2.6%, due 11/30/2030 8,500       7,200          ‐    369    6,831   378     Total Business‐type Activities Debt 97,615$         72,227$               ‐$            4,114$           68,113$               4,198$               CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    76   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    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 percent 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 3.25  percent to 5 percent, and are payable from property tax revenues.    On June 28, 2016, the City defeased $2.3 million of 2010 GO bonds using funds from bond premiums  received at time of issue by depositing the amount in an irrevocable trust account.  The trust account  assets and the liability for the defeased bonds are not included in the City’s financial statements. The  economic gain associated with interest savings is estimated at $0.9 million.  The City legally remains the  primary obligor on the $2.3 million of defeased bonds until they are paid on August 1, 2020.      2013A General Obligation Bonds (GO 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.    On June 28, 2016, the City defeased $2.8 million of 2013A GO bonds using funds remaining at completion  of the project by depositing the amount in an irrevocable trust account  The trust account assets and the  liability for the defeased bonds are not included in the City’s financial statements.  The economic gain  associated with interest savings is estimated at $0.7 million.  The City legally remains the primary obligor  on the $2.8 million of defeased bonds until they are paid on August 1, 2023.      The City’s 2010 and 2013A GO bonds are payable from pledged ad valorem property taxes until the final  maturity dates of the bonds on August 1, 2040 and August 1, 2041 respectively. For the fiscal year ended  June 30, 2016, the City received $4.6 million in ad valorem property taxes for principal of $1.4 million and  interest of $3.2 million 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.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    77   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    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).    The pledge of future Net Revenues for the above bonds ends upon repayment of the $2.4 million principal  and $0.4 million interest as the remaining debt service on the bonds, which is scheduled to occur in FY  2020. For FY 2016, Net Revenues, including operating revenues and non‐operating interest earnings,  amounted to $241.5 million; operating costs, including operating expenses but not interest, depreciation  or amortization, amounted to $186.8 million. Net Revenues available for debt service amounted to $54.7  million, which represented coverage of 80 times over the $0.7 million in debt service.     1999 Utility Revenue and Refunding Bonds – The City issued $17.7 million of Utility Revenue Bonds on  June 1, 1999, to refund the 1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue  Bonds, Series A, and to finance rehabilitation of two Wastewater Treatment sludge incinerators.  The 1990  Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue Bonds, Series A, were  subsequently retired.    The 1999 Bonds are special obligations of the City payable solely from and secured by a pledge of and lien  upon certain net revenues derived by the City’s sewer system and its storm and surface water system (the  “Storm Drain System”). As of June 30, 2001, the 1999 Bonds had been allocated to and were repayable  from net revenues of the following enterprise funds: Wastewater Collection (10.2 percent), Wastewater  Treatment (64.6 percent) and Storm Drainage (25.2 percent). Principal payments are payable annually on  June 1 and interest payments semi‐annually on June 1 and December 1. A $3.1 million 5.3 percent term  bond and a $5.1 million 5.3 percent term bond are due June 1, 2021 and 2024, respectively.     As required by the Indenture, the City established a 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).  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    78   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    The pledge of future Net Revenues for the above bonds ends upon repayment of the $9.7 million principal  and $2.7 million interest as the remaining debt service on the bonds, which is scheduled to occur in FY  2024. For FY 2016, Net Revenues, including operating revenues and non‐operating interest earnings,  amounted to $48.0 million; operating costs, including operating expenses but not interest, depreciation  or amortization, amounted to $34.9 million. Net Revenues available for debt service amounted to $13.1  million, which represents coverage of 10.8 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.    The pledge of future Electric Fund Net Revenues ends upon repayment of the $0.6 million remaining debt  service on the bonds, which is scheduled to occur in FY 2022. For FY 2016, Net Revenues, including  operating revenues and non‐operating interest earnings, amounted to $123.9 million; operating costs,  including operating expenses but not interest, depreciation or amortization, amounted to $103.7 million.  Net Revenues available for debt service amounted to $20.2 million, which represented coverage of  202 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 $526 thousand, which represents 32.6 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 $29.7 million  principal and $19.0 million interest as the remaining debt service on the bonds, which is scheduled to  occur in FY 2035. For FY 2016, Net Revenues, including operating revenues and non‐operating interest  earnings, amounted to $38.7 million; operating costs, including operating expenses but not interest,  depreciation or amortization, amounted to $30.6 million. Net Revenues available for debt service  amounted to $8.1 million, which represented coverage of 3.19 times over the $2.6 million in debt service.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    79   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    2011 Utility Revenue Refunding Bonds – On September 8, 2011, the City issued $17.2 million in Lease  Revenue Bonds (2011 Bonds) to refund the outstanding 2002 Series A Utility Revenue Bonds (2002 Bonds)  on a current basis. The 2002 Bonds were issued to finance improvement to the City’s municipal water  utility system and the natural gas utility system. Principal of the 2011 Bonds is payable annually on June  1, and interest on the 2011 Bonds is payable semi‐annually on June 1 and December 1. The 2011 Bonds  are secured by net revenues generated by the Water Services and Gas Services Funds.     The pledge of future Net Revenues of the above bonds ends upon repayment of the $12.3 million principal  and $2.3 million interest as remaining debt service on the bonds, which is scheduled to occur in FY 2035.  For FY 2016, Net Revenues, including operating revenues and non‐operating interest earnings, amounted  to $69.7 million; operating costs, including operating expenses but not interest, depreciation or  amortization, amounted to $48.2 million. Net Revenues available for debt service amounted to $21.5  million, which represented coverage of 14.7 times over the $1.5 million in debt service.    2007 State Water Resources Loan – In October 2007, the City approved a $9 million loan agreement with  State Water Resources Control Board (SWRCB) to finance the City’s Mountain View/Moffett Area  reclaimed water pipeline project. Under the terms of the contract, the City has agreed to repay $9 million  to the State in exchange for receiving $7.5 million in proceeds to be used to fund the Project. The  difference 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 $8.5 million loan agreement  with SWRCB to finance the City’s Ultraviolet Disinfection project. Principal and interest payments are  payable annually on November 30.    Debt Service Requirements (in thousands):  Debt service requirements are shown below for all long‐term debt.    For the Year Ending  June 30 Principal Interest Total Principal Interest Total 2017 2,066$             3,032$           5,098$            4,198$           2,818$               7,016$             2018 2,156               2,942             5,098              4,363            2,656                7,019               2019 2,251               2,844             5,095              4,533            2,484                7,017               2020 1,920               2,758             4,678              4,713            2,300                7,013               2021 1,985               2,674             4,659              4,899            2,118                7,017               2022‐2026 10,355             12,045           22,400            23,204          7,704                30,908             2027‐2031 12,775             9,296             22,071            12,569          4,382                16,951             2032‐2036 15,920             6,108             22,028            8,895            1,361                10,256             2037‐2041 17,615             2,050             19,665            ‐                ‐                    ‐                        2042‐2046 550                  11                   561                  ‐                  ‐                      ‐                        Total 67,593$          43,760$         111,353$       67,374$         25,823$             93,197$           Governmental Activities Business‐Type Activities   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    80   NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)    Debt Call Provisions  Long‐term debt as of June 30, 2016 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, 2016,  the amount of bonds outstanding was $1.2 million.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    81   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, 2016, the debt has been fully paid off.  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, 2016, the District’s outstanding debt amounted to $25.1 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. On June 28,  2016, the District defeased $1.6 million of the 2012 Bonds using funds remaining from completion of the  project.  The defeased debt will be paid on September 2, 2022.    NOTE 9 – LANDFILL POST‐CLOSURE MAINTENANCE  The 126 acre Palo Alto Refuse Disposal Site (Palo Alto Landfill) was filled to capacity and stopped accepting  waste in July 2011.  State and federal laws and regulations require the City to construct a final cover to  cap the waste, and to perform certain post‐closure maintenance and monitoring activities at the site for  a minimum of thirty years after closure. As of November 2015, the Palo Alto Landfill has been fully capped  and subsequently converted to a pastoral park (Byxbee Park) that is open to the public.  A final post‐ closure maintenance plan and cost estimate for the thirty year post‐closure related activities was  approved by state and local regulatory agencies in 2014. This cost estimate is adjusted annually for  inflation at a percentage provided by the State. Landfill post‐closure liabilities as of June 30, 2016 are $6.6  million. The City is required by state and federal laws and regulations to fund post‐closure maintenance  activities by pledging future revenue received from Refuse customers through rate fees.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    82   NOTE 10 – NET POSITION AND FUND BALANCES    Net Position  Net Position is the excess of the City’s assets and deferred outflows of resources over its liabilities 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, 2016    83   NOTE 10 – NET POSITION AND FUND BALANCES (Continued)    The fund balances of all governmental funds are presented by the above mentioned categories on the  face of the financial statements.  In circumstances when an expenditure is made for a purpose for which  amounts are available in multiple fund balance categories, fund balance is depleted in the order of  restricted, committed, assigned, and unassigned.    The General Fund Budget Stabilization Reserve (BSR) is established by authority of the General Fund  Reserve Policy, which is approved by the City Council and included in the City’s annual adopted budget.  The BSR is maintained in the range of 15 to 20 percent of General Fund expenditures and operating  transfers, with a target of 18.5 percent.  Any reserve level below 15 percent requires City Council approval.   At the discretion of the City Manager, a reserve balance above 18.5 percent may be transferred to the  Infrastructure Reserve within the Capital Projects Fund.  The purpose of the General Fund BSR is to fund  unbudgeted, unanticipated one‐time costs.  The BSR is not meant to fund ongoing, recurring General Fund  expenditures.    As of June 30, 2016 total outstanding encumbrances related to governmental activities were $6.2 million  for the General Fund, $30.6 million for the Capital Projects Fund, and $0.5 million for the Special Revenue  Funds.  General Fund encumbrances are reserved for the following governmental activities:  Planning &  Community Environment $1.8 million, Development Services $0.1 million, Public Works $0.8 million,  Community Services $0.9 million, Fire $0.6 million, Library $0.3 million, and the remaining City  departments $1.7 million.    Enterprise Funds  At June 30, 2016, Enterprise Fund unrestricted net position (in thousands) were as follows:    Water Electric Fiber Optics Gas Wastewater  Collection Wastewater  Treatment Refuse Storm  Drainage Airport Total Unrestricted Rate stabilization Supply ‐$                      9,011$            ‐$                     409$            ‐$                   ‐$                  ‐$               ‐$              ‐$             9,420$             Distribution 1,877                ‐                        24,329            5,610          342                (2,365)          6,147         1,760       (2,393)     35,307             1,877                9,011               24,329            6,019          342                (2,365)          6,147         1,760       (2,393)     44,727             Operations Supply ‐                         15,642            ‐                        ‐                   ‐                      ‐                     ‐                   ‐                 ‐                15,642             Distribution 14,607             6,208               ‐                        10,296        3,211             ‐                     ‐                   ‐                 ‐                34,322             14,607             21,850            ‐                        10,296        3,211             ‐                     ‐                   ‐                 ‐                49,964             Emergency plant replacement ‐                         ‐                        1,000               ‐                   ‐                      1,980            ‐                   ‐                 ‐                2,980                Electric special projects ‐                         51,838            ‐                        ‐                   ‐                      ‐                     ‐                   ‐                 ‐                51,838             Reappropriations 10,530             6,239               158                  5,346          1,842             12,225         43               5,210       18             41,611             Commitments 6,349                5,209               91                     909              9,246             2,614            1,203         3,985       442          30,048             Underground loan ‐                         729                  ‐                        ‐                   ‐                      ‐                     ‐                   ‐                 ‐                729                   Notes and loans ‐                         ‐                        ‐                        ‐                   ‐                      559               ‐                   ‐                 ‐                559                   Landfill corrective action ‐                         ‐                        ‐                        ‐                   ‐                      ‐                     719            ‐                 ‐                719                   Hydro stabilization reserve ‐                         11,400            ‐                        ‐                   ‐                      ‐                     ‐                   ‐                 ‐                11,400             Public benefit program ‐                         1,839               ‐                        ‐                   ‐                      ‐                     ‐                   ‐                 ‐                1,839                Central Valley Project ‐                        ‐                        ‐                   ‐                      ‐                     ‐                   ‐                 ‐                ‐                         CIP reserve 2,726                880                  ‐                        3,820          978                ‐                     ‐                   ‐                 ‐                8,404                Geng Road Reserve ‐                         ‐                        ‐                        ‐                   ‐                      ‐                     268            ‐                 ‐                268                   GASB 68 Pension reserve (11,609)            (27,284)           (1,662)             (12,365)      (6,950)           (17,125)        (4,892)       (2,923)     (361)         (85,171)            Total 24,480$           81,711$          23,916$          14,025$      8,669$          (2,112)$        3,488$      8,032$    (2,294)$   159,915$              CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    84   NOTE 10 – NET POSITION AND FUND BALANCES (Continued)  The City Council has set aside unrestricted net position for general contingencies, and future capital and  debt service expenditures including operating and capital contingencies for unusual or emergency  expenditures.  Internal Service Funds  At June 30, 2016, 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 3,088$              2,317$              13$             239$           7$        37$             ‐$           5,701$               Future catastrophic losses ‐      ‐   ‐       ‐    2,913  3,263      ‐       6,176       Retiree health care ‐      ‐   ‐       ‐    ‐       ‐    25,750        25,750     Capital projects 4,849         3,774      ‐       ‐    ‐       ‐    ‐       8,623       GASB68 pension reserve (2,589)        (9,080)     (292)    ‐    ‐       ‐    ‐       (11,961)    Available 3,573         15,537    9  2,289       ‐       ‐    ‐       21,408     Total 8,921$              12,548$           (270)$        2,528$             2,920$       3,300$              25,750$            55,697$            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, 2016    85    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, 2016, are summarized in the following table.   Contribution rates are based on the Actuarial Valuation Report as of June 30, 2013.    Safety Plan Fire Fighters,  Fire Chief  Association,  Police Officers,  Fire Fighters,  Fire Chief Association Police Officers, Police Management Fire Fighters,  Fire Chief  Association,  Police Officers,  Hire Date Prior to June 8, 2012 On or after June 8,  2012 On or after Dec. 8,  2012 On or after Jan 1,  2013 Benefit formula1 3% at 55 3% at 55 3% at 50 2.7% at 57 Benefit vesting schedule 5 years service 5 years service 5 years service 5 years service Benefit payment monthly for life monthly for life monthly for life monthly for life Retirement age 50 551 551 571 Monthly benefit as % of eligible compensatio 3%3%3%2.7% Actuarially determined contribution rate ‐ EE 9%9%9%11.25% Actuarially determined contribution rate ‐ ER 41.932%41.932%41.932%41.932% Hire Date Prior to July 17, 2010 On or after July 17,  2010 On or after Jan 1,  2013 Benefit formula 2.7% at 552 2% at 602 2% at 623 Benefit vesting schedule 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life Retirement age 552 602 623 Monthly benefit as % of eligible compensatio 2.70%2.0% ‐ 2.418%2% Actuarially determined contribution rate ‐ EE 8%7%6.25% Actuarially determined contribution rate ‐ ER 27.694%27.694%27.694% 1 Employees can retire at age 50 with reduced benefits of 2.4% ‐ 2.88% if hired before Jan 1, 2013, or 2.0% ‐ 2.6% if hired on or    after Jan 1, 2013. 2 Employees can retire at age 50 with reduced benefits of 2.0% ‐ 2.56% if hired before July 17, 2010, or 1.092% ‐ 1.874% if hired on or    after July 17, 2010. 3 Employees can retire at age 52 with reduced benefits of 1.0% ‐ 1.9% Miscellaneous Plan   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    86   NOTE 11 – PENSION PLANS (Continued)    Employees Covered – Based on the Actuarial Valuation Report as of June 30, 2015, the following  employees were covered by the benefits terms for each Plan:   Miscellaneous Plan Safety Plan Inactive employees or beneficiaries currently receiving benefits 1,027                        414                            Inactive employees entitled to but not yet receiving benefits 714                           98                              Active employees 796                           179                            Total 2,537                        691                            Contributions –Section 20814(c) of the California Public Employees’ Retirement Law requires that the  employer contribution rates for all public employers be determined on an annual basis by the actuary and  shall be effective on the July 1 following notice of a change in the rate.  Funding contributions for the Plans  are determined annually on an actuarial basis as of June 30 by CalPERS.  The actuarially determined rate  is the estimated amount necessary to finance the costs of benefits earned by employees during the year,  with an additional amount to finance any unfunded accrued liability.  The City is required to contribute  the difference between the actuarially determined rate and the contribution rate of employees.    Further detail can be found in the Required Supplemental Information Schedule of Contributions.  (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, 2015 (measurement date), using  the Actuarial Valuation Report as of June 30, 2014 rolled forward to June 30, 2015 using standard update  procedures. At June 30, 2016, the City reported a net pension liability of $319.6 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, 2016    87   NOTE 11 – PENSION PLANS (Continued)    Actuarial Assumptions ‐ The total pension liabilities were determined using the following actuarial  assumptions in the Accounting Valuation Report:  Miscellaneous Plan Safety Plan Valuation Date June 30, 2014 June 30, 2014 Measurement Date June 30, 2015 June 30, 2015 Actuarial Cost Method Entry Age Normal Entry Age Normal Actuarial Assumptions: Discount Rate 7.65% 7.65% Inflation 2.75% 2.75% Payroll Growth 3.00% 3.00% Investment Rate of Return1 7.50%7.50% Retirement Age Mortality2 1 Net of pension plan investment and administrative expenses, including inflation. 2 Mortality table used was developed based on CalPERS Experience Study for period   1997 to 2007. Pre‐ and post‐retirement mortality rates include 5 years of projected   mortality improvement using Scale AA published by the Society of Actuaries. Further details of the Experience Study can be found on the CalPERS website. Derived using CalPERS membership data  for all funds. Probabilities of retirement are based on  the 2010 CalPERS Experience Study for  the period 1997 to 2007.     Change in Assumptions ‐ GASB 68, paragraph 68 states that the long‐term expected rate of return should  be determined net of pension plan investment expense but without reduction for pension plan  administrative expense. The discount rate of 7.50 percent used for the June 30, 2014 measurement date  was net of administrative expenses. The discount rate of 7.65 percent used for the June 30, 2015  measurement date is without reduction of pension plan administrative expense.   Discount Rate – The discount rate used to measure the total pension liability was 7.65 percent for each  Plan. 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 ran  out of assets. Therefore, the current 7.65 percent discount rate is appropriate and the use of the  municipal bond rate calculation is not deemed necessary. The long term expected discount rate of 7.65  percent is applied to all plans in the Public Employees Retirement Fund for the June 30, 2015  measurement date.  The stress test results are presented in a detailed report that can be obtained from  the CalPERS website under GASB Statement No. 68 section.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    88   NOTE 11 – PENSION PLANS (Continued)    The long‐term expected rate of return on pension plan investments was determined using a building‐ block method in which best estimate ranges of expected future real rates of return (expected returns, net  of pension plan investment expense and inflation) are developed for each major asset class.    In determining the long‐term expected rate of return, CalPERS took into account both short‐term  and long‐term market return expectations as well as the expected pension fund cash flows. 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 geometric returns were calculated over the short‐term (first ten years) and the  long‐term (11‐60 years) using a building‐block approach. Using the expected nominal returns for both  short‐term and long‐term, the present value of benefits was calculated for each fund. The expected rate  of return was set by calculating the single equivalent expected return that arrived at the same present  value of benefits for cash flows as the one calculated using both short‐term and long‐term returns.  The expected rate of return was then set equivalent to the single equivalent rate calculated above  and rounded down to the nearest one quarter of one percent.    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 51.0% 5.25% 5.71% Global Fixed Income 19.0 0.99 2.43 Inflation Sensitive 6.0 0.45 3.36 Private Equity 10.0 6.83 6.95 Real Estate 10.0 4.50 5.13 Infrastructure and Forestland 2.0 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.        CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    89   NOTE 11 – PENSION PLANS (Continued)   (c)  Changes in the Net Pension Liability  The following table is based on the GASB 68 Accounting Valuation Report and shows the changes in the  net pension liability for the Miscellaneous Plan (in thousands):  Total Pension  Liability Plan Net  Position Net Pension  Liability Balances calculated at July 1, 2015 663,471$     476,363$     187,108$      Changes for the year: Service cost 12,183   ‐  12,183    Interest on total pension liability 49,345   ‐  49,345    Differences between expected and actual  experiences 3,507   ‐  3,507    Changes in assumptions (11,552)   ‐  (11,552)    Contributions from employer ‐  18,610   (18,610)    Contributions from employees ‐  5,730   (5,730)    Net investment income ‐  10,597   (10,597)    Benefit payments, including refunds of  employee contributions (32,980)   (32,980)   ‐   Administrative expense ‐  (538)   538   Net changes 20,503   1,419   19,084    Balances reported at June 30, 2016  $     683,974  $     477,782  $     206,192  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, 2015 367,403$          264,579$      102,824$      Changes for the year: Service cost 5,959   ‐   5,959   Interest on total pension liability 27,047   ‐   27,047    Differences between expected and actual  experiences 75   ‐   75   Changes in assumptions (6,327)   ‐   (6,327)    Contributions from employer ‐  8,617  (8,617)    Contributions from employees ‐  2,047  (2,047)    Net investment income ‐  5,774  (5,774)    Benefit payments, including refunds of  employee contributions (21,148)   (21,148)  ‐    Administrative expense ‐  (290)  290    Net changes 5,606   (5,000)  10,606    Balances reported at June 30, 2016  $     373,009  $      259,579  $     113,430  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    90   NOTE 11 – PENSION PLANS (Continued)   Sensitivity of the Net Pension Liability to Changes in the Discount Rate ‐ The following table presents the  net pension liability of the Plans as of the measurement date, calculated using the discount rate of 7.65  percent, compared to a discount rate that is 1 percentage point lower (6.65 percent) or 1 percentage  point higher (8.65 percent). Amounts shown below are in thousands:   Discount Rate ‐ 1% (6.65%) Current Discount Rate  (7.65%) Discount Rate + 1% (8.65%) Miscellaneous Plan: Plan's Net Pension Liability/(Asset) 293,361$         206,192$       133,730$         Safety Plan: Plan's Net Pension Liability/(Asset)160,809$         113,430$       74,244$           Plan Fiduciary Net Position – Detailed information about the Plan’s fiduciary net position is available in  the separately issued CalPERS financial report: Schedule of Changes in Fiduciary Net Position by Rate Plan.   (d)       Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions  For the year ended June 30, 2016, the City recognized a pension expense of $14.7 million and $7.9 million  for the Miscellaneous and Safety Plan respectively.  At June 30, 2016, the City reported pension related  deferred outflows of resources and deferred inflows of resources from the following sources (in  thousands):  Deferred  Outflows of Resources Deferred  Inflows of Resources Pension contributions subsequent to     measurement date 28,203$       ‐$        Change of assumptions ‐   12,168   Difference between expected and actual experience 2,392   ‐   Net difference between projected and actual earnings  on plan investments ‐6,653     Total 30,595$       18,821$       The $28.2 million reported as deferred outflows of resources relates to contributions paid by the City from  July 1, 2015 through June 30, 2016 which is subsequent to the City’s measurement date of June 30, 2015  for both the Miscellaneous and Safety Plans.  This amount will be recognized as a reduction of the net  pension liability in the year ended June 30, 2017.   CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    91   NOTE 11 – PENSION PLANS (Continued)     The net differences reported as deferred outflows of resources and deferred inflows of resources related  to pensions will be recognized in future pension expense as follows (in thousands):       Year Ended June 30,  Miscellaneous  Plan Safety Plan Total 2017 (5,732)$               (3,623)$               (9,355)$                2018 (5,732) (3,623) (9,355) 2019 (3,050) (2,519) (5,569) 2020 5,053 2,797 7,850                    (9,461)$               (6,968)$               (16,429)$                         CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    92    NOTE 12 – RETIREE HEALTH BENEFITS    In addition to providing pension benefits, the City participates in the California Public Employees’ Medical  and Health Care Act program to provide certain health care benefits for retired employees. Employees  who retire directly from the City are eligible for retiree health benefits if they retire on or after age 50  with 5 years of service and are receiving a monthly pension from CalPERS. Details of benefits provided to  retirees are noted in the following tables:       Unit Hired  Before Retiree  Coverage1 Dependent  Coverage Retired on  or After Retiree  Contribution Management & Professional2 1/1/2004 100% 100% 5/1/2011 Flat rate4 Police Management2 1/1/2004 100% 100% 6/1/2012 Flat rate5 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% 4/1/2015 10% 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 7/1/2014 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. 5 Effective 1/1/2015 City pays $708 for employee, $1,415 for employee +1, $1,840 for family.  Effective 1/1/2016 City pays      $743 for employee, $1,485 for employee +1, $1,931 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% Utilities Managers & Professional 1/1/2004 50%‐100% Max. 90% SEIU 1/1/2005 50%‐100% Max. 90% Police Officers 1/1/2006 50%‐100% Max. 90%    specified employer contribution, with the City portion 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, 2016    93   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) market 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 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 biennially 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, 2016    94   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, 2016, 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 14,767$            Amortization of the Net OPEB Asset 2,183                Interest on the Net OPEB Asset (1,658)               Annual OPEB Cost 15,292              Contributions made: Contributions to OPEB Trust 2,442                Contributions to Retirees 7,921                Implicit rate subsidy 2,102                City portion of current year premiums paid*1,618                Total contributions made 14,083              Change in Net OPEB Asset (1,209)               Net OPEB Asset, beginning of year 22,871              Net OPEB Asset, end of year 21,662$              * FY 2016 premiums for 920 retirees.    Shortly after year‐end, the City contributed an additional $2.8 million to the Trust.    The Plan’s annual OPEB cost and actual contributions for the past three years ended June 30 are set forth  below (in thousands):  Fiscal Year Annual OPEB  Cost Actual  Contribution Percentage  of OPEB Cost Net OPEB  Obligation  (Asset) June 30, 2014 13,255$         14,014$         106% (22,610)$         June 30, 2015 14,773            15,034          102% (22,871)          June 30, 2016 15,292            14,083          92% (21,662)             CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    95   NOTE 12 – RETIREE HEALTH BENEFITS (Continued)  The Schedule of Funding Progress presents multi‐year trend information about whether the actuarial  value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for  benefits. Trend data from the actuarial studies is presented below (in thousands):  Valuation Date Entry Age  Accrued  Liability Value of  Assets Unfunded  Liability Funded  Ratio Annual  Covered  Payroll Unfunded  Liability as a  % of Payroll 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% June 30, 2015 234,795    78,578    156,217  33.5% 87,586  178.4% 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, 2016    96   NOTE 14 – RISK MANAGEMENT    Coverage  The City provides dental coverage to employees through a City plan, which is administered by a third party  service agent. The City is self‐insured for 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 coverage based  on the type of property.    The City is a member of the Authority for California Cities Excess Liability (ACCEL), which provides excess  general liability insurance coverage, including auto liability, up to $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 payroll of all entities. Actual  surpluses or losses are shared according to a formula developed from overall loss costs and spread to  member entities on a percentage basis after a retrospective rating.    During the year ended June 30, 2016, the City paid $0.9 million to ACCEL for current year coverage.    Audited financial statements are available from ACCEL at 100 Pine Street, 11th Floor, San Francisco,  California 94110.    Claims Liability  The City provides for the uninsured portion of claims and judgments in the General Liabilities insurance  program funds. Claims and judgments, including a provision for claims incurred but not reported, and  claim adjustment expenses are recorded when a loss is deemed probable of assertion and the amount of  the loss is reasonably determinable. As discussed above, the City has coverage for such claims, but it has  retained the risk for the deductible or uninsured portion of these claims.    CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    97   NOTE 14 – RISK MANAGEMENT (Continued)  The City’s liability for uninsured claims is limited to dental, general liability, and workers’ compensation  claims, as discussed above. Dental liability is based on a percentage of current year actual expense.   General and workers’ compensation liabilities are based on the results of actuarial studies, and include  amounts for claims incurred but not reported as follows as of June 30 (in thousands):  2016 2015 Beginning balance 24,118$           26,753$            Liability for current and prior fiscal years claims  and claims incurred but not reported (IBNR)2,850    574     Claims paid (3,589)     (3,209)      Ending balance 23,379$           24,118$            Current portion 5,237$             5,317$        Year Ended June 30 The City has not incurred a claim that has exceeded its insurance coverage limits in any of the last three  years, nor have there been any significant reductions in insurance coverage. NOTE 15 – JOINT VENTURES  General  The City participates in joint ventures through Joint Powers Authorities (JPAs) established under the Joint  Exercise of Powers Act of the State of California. As separate legal entities, these JPAs exercise full powers  and authorities within the scope of the related Joint Powers Agreement, including the preparation of  annual budgets, accountability for all funds, the power to make and execute contracts and the right to  sue and be sued. Obligations and liabilities of the JPAs, including the long‐term debt in which the City  participates in repayment, are not obligations and liabilities of the City, and are not reported on the City’s  financial statements.  Each JPA is governed by a board consisting of representatives from each member agency. Each board  controls the operations of its respective JPA, including selection of management and approval of operating  budgets, independent of any influence by member agencies beyond their representation on the Board.  Northern California Power Agency  The City is a member of Northern California Power Agency (NCPA), a joint powers agency which operates  under a joint powers agreement among fifteen public agencies. The purpose of NCPA is to use the  combined strength of its members to purchase, generate, sell and interchange electric energy and  capacity through the acquisition and use of electrical generation and transmission facilities. Each agency  member has agreed to fund a pro rata share of certain assessments by NCPA and enter into take‐or‐pay  power supply contracts with NCPA. While NCPA is governed by its members, none of its obligations are  those of its members unless expressly assumed by them.  CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    98   NOTE 15 – JOINT VENTURES (Continued)    During the year ended June 30, 2016, the City incurred expenses totaling $73.4 million for purchased  power and assessments earned by NCPA.    The City’s interest in NCPA projects and reserves, as computed by NCPA, was $7.8 million at June 30, 2016.  This amount represents the City’s portion of funds, which resulted from the settlement with third parties  of issues with financial consequences and reconciliations of several prior years’ budgets for programs. It  is recognized that all the funds credited to the City are linked to the collection of revenue from the City’s  ratepayers, or to the settlement of disputes relating to electric power supply and that the money was  collected from the City’s ratepayers to pay power bills. Additionally, the NCPA Commission identified and  approved the funding of specific reserves for working capital, accumulated employees’ post‐retirement  medical benefits, and billed property taxes for the geothermal project. The Commission also identified a  number of contingent liabilities that may or may not be realized, the cost of which in most cases is difficult  to estimate at this time. One such contingent liability is the steam field depletion, which will require  funding to cover debt service and operational costs in excess of the expected value of the electric power.  The General Operating Reserve (GOR) is intended to minimize the number and amount of individual  reserves needed for each project, protect NCPA’s financial condition and maintain its credit worthiness.  There are no funds on deposit with NCPA as a reserve against these contingencies identified by NCPA.    Members of NCPA may participate in an individual project of NCPA without obligation for any other  project. Member assessments collected for one project may not be used to finance other projects of NCPA  without the member’s permission.    Geothermal Projects  A purchased power agreement with NCPA obligated the City for 6.2 percent and 6.2 percent, respectively,  of the operating costs and debt service of the two NCPA 110‐megawatt geothermal steam‐powered  generating plants, Project Number 2 and Project Number 3.    The City’s participation in the Geothermal Project was sold to Turlock Irrigation District in October 1984.  Accordingly, the City is liable for payment of outstanding geothermal related debt only in the event that  Turlock fails to make specified payments. Total outstanding debt of the NCPA Geothermal Project at  June 30, 2016 is $78.9 million. The City’s participation in this project was 6.2 percent, or $4.9 million.    Calaveras Hydroelectric Project  In July 1981, NCPA agreed with Calaveras County Water District to purchase the output of the North Fork  Stanislaus River Hydroelectric Development Project and to finance its construction. Debt service payments  to NCPA began in February 1990 when the project was declared substantially complete and power was  delivered to the participants. Under its power purchase agreement with NCPA, the City is obligated to pay  22.9 percent of this Project’s debt service and operating costs. At June 30, 2016, the book value of this  Project’s plant, equipment and other assets was $435 million, while its long‐term debt totaled  $356 million and other liabilities totaled $70 million. The City’s share of the Project’s long‐term debt  amounted to $81.5 million at that date.     CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    99   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, 2016, 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, 2016    100   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,  2016amounted to $7.4 million. Future minimum annual lease and infrastructure payments are as follows  (in thousands):  Year Ending June 30 Payment 2017 7,565$             2018 7,736              2019 7,912              2020 4,001              27,214$               CITY OF PALO ALTO  Notes to the Basic Financial Statements  For the Year Ended June 30, 2016    101   NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)    GreenWaste of Palo Alto – GreenWaste of Palo Alto is the City’s contractor for waste collection,  transportation, and processing services. The agreement expires June 30, 2021. The base compensation  for GreenWaste is adjusted annually based on CPI indicators stipulated in the contract. In FY 2016  payments to GreenWaste were $10.5 million.    City of Palo Alto Regional Water Quality Control Plant – The cities of Palo Alto, Mountain View and Los  Altos (the Partners) participate jointly in the cost of maintaining and operating the City of Palo Alto  Regional Water Quality Control Plant and related system (the Plant). The City is the owner and  administrator of the Plant, which provides the transmission, treatment and disposal of sewage for the  Partners. The cities of Mountain View and Los Altos are entitled to use a portion of the capacity of the  Plant for a specified period of time. Each partner has the right to rent unused capacity from/to the other  partners. The expenses of operations and maintenance are paid quarterly by each partner based on its  pro rata share of treatment costs. Additionally, joint system revenues are shared by the partners in the  same ratio as expenses are paid. The amended agreement has a term of fifty years beginning from the  original signing in October 1968, but may be terminated by any partner upon ten years’ notice to the other  partners. All sewage treatment property, plant and equipment are included in the Wastewater Treatment  Enterprise Fund’s capital assets balance. If the City initiates the termination of the contracts, it is required  to pay the other partners their unamortized contribution towards the capital assets.    Solid Waste Materials Recovery and Transfer Station (SMaRT Station) – On June 9, 1992, the City, along  with the City of Mountain View, signed a Memorandum of Understanding (MOU) with the City of  Sunnyvale (Sunnyvale) to participate in the construction and operation of the SMaRT station, which  recovers recyclable materials from the municipal solid waste delivered from participating cities. Per the  MOU, the City has a capacity share of 21.3 percent of this facility and reimburses its proportionate capacity  share of design, construction and operation costs to Sunnyvale.    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. In the fiscal year ended June 30, 2003, the 1992  bonds were refunded by issuing the 2003 Solid Waste Revenue Bonds in the amount of $20.6 million. Even  though these bonds are payable from and secured by the net revenues of Sunnyvale’s Utilities Enterprise,  the City is obligated to reimburse Sunnyvale 21.3 percent of total debt service payments related to these  bonds. The City’s portion of remaining principal balance for SMaRT revenue bonds as of June 30, 2016, is  $0.4 million. During the year ended June 30, 2016, 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 $0.9 million as of  June 30, 2016. During the year ended June 30, 2016, 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, 2016    102   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, 2016, the approximate minimum obligations for the contracts, assuming the energy is delivered  over the next five years, are as follows:    Fiscal Year Projected Obligation  2017 $64.7 million  2018 $64.2 million  2019 $64.7 million  2020 $65.3 million  2021 $66.1 million    Contractual Commitments beyond 2021 (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 2051 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 $67.3 million in 2022 and $48.9 million in 2043.  The City’s largest single purchase power source  is the Western Base Resource contract, whereby the City receives 12.31 percent of the amount of energy  made available by Western, after meeting Central Valley Project use requirements, in any given year after  2014 at a 12.31 percent share of their revenue requirement.  The Western contract expires on December  31, 2024.  The City expects the Western contract to be extended for another 20 years beyond 2024,  although likely at a slightly lower percent share of the total energy output.    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.  New rates are determined  through a proceeding at the California Public Utilities Commission.  A final CPUC decision on Pacific Gas  and Electric Company’s (PG&E) Gas Transmission and Storage Case was issued June 2016.  Although  several appeals are underway, Palo Alto’s gas transmission rates increased by 230% and Palo Alto’s local  transmission rates increased by $2 million on August 1, 2016.      San Francisco Public Utilities Commission – The City purchases water to deliver to the customers of its  water utility from the San Francisco Public Utilities Commission (SFPUC) under a contract terminating in  2034.  The City’s wholesale water rate under this contract is determined by a ratemaking process under  the authority of the SFPUC, with contractual limitations on the types of costs that may be allocated to  wholesale water purchasers like the City.  The City is prohibited from purchasing from other water  suppliers under this contract, though it is not prohibited from using ground water.  The City’s cost of water  under this contract is projected to increase by 74% by 2021 as the 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, 2016    103   NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)  Litigation   The City is subject to litigation arising in the normal course of business. In the opinion of the City Attorney,  there is no pending litigation, claims or assessments that are likely to have a materially adverse effect on  the City’s financial condition.  A class action lawsuit for refund of telephone users tax was filed against the City in August 2015.  At this  time, the City Attorney is of the opinion that a potential loss is neither probable nor can it be reasonably  estimated.   A class action lawsuit for refund of allegedly illegal charges to gas and electrical customers was filed  against the City in October 2016.  At this time, the City Attorney is of the opinion that a potential loss is  neither probable nor can it be reasonably estimated.  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.      104   This page is intentionally left blank.    CITY OF PALO ALTO  Required Supplemental Information (Unaudited)  For the Year Ended June 30, 2016    105   I. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – MISCELLANEOUS PLAN  (Calculated as of June 30, 2015 and reported as of June 30, 2016, in thousands)  Fiscal year 2015‐16 2014‐15 Measurement Period 2014‐15 2013‐14 Total pension liability Service cost 12,183$     12,442$      Interest 49,345   46,963    Changes of assumptions (11,552)   ‐   Difference between expected and actual experience 3,507   ‐   Benefit payments, including refunds of employee contributions (32,980)   (31,781)   Net change in total pension liability 20,503   27,624    Total pension liability ‐ beginning 663,471  635,847   Total pension liability ‐ ending (a)683,974$     663,471$      Plan fiduciary net position Contributions ‐ employer 18,610$     17,400$      Contributions ‐ employee 5,730   6,345    Net investment income 10,597   70,989    Benefit payments, including refunds of employee contributions (32,980)   (31,781)   Administrative expense (538)   ‐   Net change in fiduciary net position 1,419   62,953    Plan fiduciary net position ‐ beginning 476,363  413,410   Plan fiduciary net position ‐ ending (b)477,782$     476,363$      Plan net pension liability/(asset) ‐ Ending (a) ‐ (b) 206,192$     187,108$      Plan fiduciary net position as a percentage of total pension liability 69.9% 71.8% Covered‐employee payroll 69,837$     66,373$      Plan net pension liability/(asset) as a percentage of covered employee payroll 295.2% 281.9% Notes to Schedule: Benefit changes ‐ The figures above do not include any liability that may have resulted from plan changes  which occurred after the June 30, 2013 valuation date. This applies for voluntary benefit changes as well as any offers of two years additional service credit (Golden Handshake). Changes in assumptions ‐ The discount rate was changed from 7.5 percent (net of administrative expense) to  7.65 percent CITY OF PALO ALTO  Required Supplemental Information (Unaudited)  For the Year Ended June 30, 2016    106   II. SCHEDULE OF CONTRIBUTIONS– MISCELLANEOUS PLAN  (Paid as of June 30, 2016 and deferred to June 30, 2017, in thousands)    Fiscal Year 2015‐16 2014‐15 2013‐14 Contractually required contribution (actuarially determined)18,808$               17,958$               16,209$                Actual contribution (18,808)                (17,958)                (16,209)                 Contribution deficiency/(excess)‐$                          ‐$                          ‐$                           Covered‐employee payroll 70,415$               68,744$               65,889$                Contributions as percentage of covered‐employee payroll 26.71%26.12%24.60%   Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for fiscal year 2016 contribution rates are as follows:  Valuation date June 30, 2013 Actuarial cost method Entry age normal Amortization method/period For details, see June 30, 2013 Actuarial Valuation Report Asset valuation method Actuarial Value of Assets. For details, see June 30, 2013 Actuarial Valuation Report Inflation 2.75% Salary increases Varies by entry age and service Payroll growth 3.00% Investment rate of return 7.50% net of pension plan investment and administrative expense, includes inflation Retirement age Probabilities of retirement are based on the 2010  CalPERS experience study of the period 1997 to 2007 Mortality Probabilities of mortality are based on the 2010 CalPERS  experience study of the period 1997 to 2007. Pre‐ 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, 2016    107   III. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – SAFETY PLAN   (Calculated as of June 30, 2015 and reported as of June 30, 2016, in thousands)    Fiscal Year 2015‐16 2014‐15 Measurement Period 2014‐15 2013‐14 Total pension liability Service cost 5,959$          6,221$           Interest 27,047          26,113           Changes of assumptions (6,327)            ‐                      Difference between expected and actual experience 75                   ‐                      Benefit payments, including refunds of employee contributions (21,148)        (19,985)         Net change in total pension liability 5,606            12,349           Total pension liability ‐ beginning 367,403        355,054         Total pension liability ‐ ending (a)373,009$     367,403$      Plan fiduciary net position Contributions ‐ employer 8,617$          7,616$           Contributions ‐ employee 2,047            2,762             Net investment income 5,774            40,033           Benefit payments, including refunds of employee contributions (21,148)        (19,985)         Administrative expense (290)              ‐                      Net change in fiduciary net position (5,000)           30,426           Plan fiduciary net position ‐ beginning 264,579        234,153         Plan fiduciary net position ‐ ending (b)259,579$     264,579$      Plan net pension liability/(asset) ‐ Ending (a) ‐ (b) 113,430$     102,824$      Plan fiduciary net position as a percentage of total pension liability 69.59% 72.01% Covered‐employee payroll 21,912$        21,896$         Plan net pension liability/(asset) as a percentage of covered employee payroll 517.66% 469.60% Notes to Schedule: Benefit changes ‐ The figures above do not include any liability that may have resulted from plan changes which occurred after the June 30, 2013 valuation date. This applies for voluntary benefit changes as well as any offers of two years additional service credit (Golden Handshake). Changes in assumptions ‐ the discount rate was changed from 7.5 percent (net of administrative expense) to  7.65 percent.               CITY OF PALO ALTO  Required Supplemental Information (Unaudited)  For the Year Ended June 30, 2016    108   IV.SCHEDULE OF CONTRIBUTIONS – SAFETY PLAN (Paid as of June 30, 2016 and deferred to June 30, 2017, in thousands) Fiscal Year 2015‐16 2014‐15 2013‐14 Contractually required contribution (actuarially determined)9,395$      9,036$     8,323$       Actual contribution (9,395)   (9,036)  (8,323)   Contribution deficiency/(excess)‐$     ‐$      ‐$       Covered‐employee payroll 23,229$      22,860$     24,886$       Contributions as percentage of covered‐employee payroll 40.45%39.53%33.44% Notes to Schedule: The actuarial methods and assumptions used to set the actuarially determined contributions for fiscal year 2016 contribution rates are as follows:  Valuation Date June 30, 2013 Actuarial cost method Entry age normal Amortization method/period For details, see June 30, 2013 Actuarial Valuation Report Asset valuation method Actuarial Value of Assets.  For details, see June 30, 2013 Actuarial Valuation Report Inflation 2.75% Salary increases Varies by entry age and service Payroll growth 3.00% Investment rate of return 7.50% net of pension plan investment and administrative expense, includes inflation Retirement age Probabilities of retirement are based on the 2010  CalPERS experience study of the period 1997 to 2007 Mortality Probabilities of mortality are based on the 2010 CalPERS  experience study of the period 1997 to 2007. Pre‐ 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 84,373$       3,561$         1,499$          89,433$        Cash and investments with fiscal agents ‐                   248              ‐                    248               Receivables, net: Accounts 7                  24                ‐                    31                 Interest 354              22                6                   382               Notes 18,730        ‐                   ‐                    18,730         Total assets 103,464$    3,855$         1,505$          108,824$     Liabilities: Accounts payable and accruals 354$            ‐$                  ‐$                   354$             Accrued salaries and benefits 46                ‐                   ‐                    46                 Total liabilities 400              ‐                   ‐                    400               Fund balances: Nonspendable Eyerly family ‐                   ‐                   1,505           1,505           Restricted Transportation mitigation 10,841        ‐                   ‐                    10,841         Federal revenue 4,569          ‐                   ‐                    4,569           Street improvement 1,308          ‐                   ‐                    1,308           Local law enforcement 180              ‐                   ‐                    180               Debt service ‐                   3,855          ‐                    3,855           Public benefit 25,649        ‐                   ‐                    25,649         Committed Developer impact fee 14,169        ‐                   ‐                    14,169         Housing In‐Lieu 41,251        ‐                   ‐                    41,251         Special districts 3,704          ‐                   ‐                    3,704           Downtown business 34                ‐                   ‐                    34                 Assigned Unrealized gain on investment 1,358          ‐                   ‐                    1,358           Other general government 1                  ‐                   ‐                    1                   Total fund balances 103,064      3,855          1,505           108,424       Total liabilities and fund balances 103,464$    3,855$         1,505$          108,824$     LIABILITIES AND FUND BALANCES: CITY OF PALO ALTO Non‐major Governmental Funds Combining Balance Sheet June 30, 2016 (Amounts in thousands) 109   110   This page is intentionally left blank.  Special Debt Revenue Service Permanent Funds Funds Fund Total REVENUES: Property tax ‐$                  4,582$         ‐$                   4,582$          Special assessments 100              ‐                   ‐                     100               Other taxes and fines 1,570          ‐                   ‐                     1,570           From other agencies: Community Development Block Grants 240              ‐                   ‐                     240               State of California 126              ‐                   ‐                     126               Permits and licenses University Avenue Parking 2,309          ‐                   ‐                     2,309           California Avenue Parking 214              ‐                   ‐                     214               Other permits and licenses 793              ‐                   ‐                     793               Investment earnings 2,727          127              44                  2,898           Rental income 6                  ‐                   ‐                     6                   Other: Housing In‐Lieu ‐ residential 5,554          ‐                   ‐                     5,554           Other fees 2,086          ‐                   ‐                     2,086           Total revenues 15,725        4,709          44                  20,478         EXPENDITURES: Current: Administrative Services 203              ‐                   ‐                     203               Public Works 797              ‐                   ‐                     797               Planning and Community Environment 663              ‐                   ‐                     663               Police 225              ‐                   ‐                     225               Community Services 1,231          ‐                   ‐                     1,231           Non‐Departmental 559              32                7                    598               Debt service: Principal retirement ‐                   6,735          ‐                     6,735           Interest and fiscal charges ‐                   4,230          ‐                     4,230           Total expenditures 3,678          10,997        7                    14,682         EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 12,047        (6,288)         37                  5,796           OTHER FINANCING SOURCES (USES): Transfers in 3,564          3,252          ‐                     6,816           Transfers out (9,013)         ‐                   ‐                     (9,013)          Total other financing sources (uses)(5,449)         3,252          ‐                     (2,197)          Change in fund balances 6,598          (3,036)         37                  3,599           FUND BALANCES, BEGINNING OF YEAR 96,466        6,891          1,468            104,825       FUND BALANCES, END OF YEAR 103,064$    3,855$         1,505$          108,424$     CITY OF PALO ALTO Non‐major Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended June 30, 2016 (Amounts in thousands) 111     112   This page is intentionally left blank.      113   NON‐MAJOR GOVERNMENTAL FUNDS  SPECIAL REVENUE FUNDS   Street Improvement   This fund accounts for revenues received from state gas tax. Allocations must be spent on the construction  and maintenance of the road network system of the City.  Federal Revenue  This fund accounts for grant funds received under the Community Development Act of 1974 and HOME  Investment Grant Programs, for activities approved and subject to federal regulations.  Housing In‐Lieu  This fund accounts for revenues from commercial and residential developers to provide housing under  the City’s Below Market Rate program.  Special Districts  This fund accounts for revenues from parking permits and for maintenance of various parking lots within  the City’s parking districts.  Transportation Mitigation  This fund accounts for revenues from fees or contributions required for transportation mitigation issues  encountered as a result of City development.  Local Law Enforcement  This fund accounts for revenues received in support of City’s law enforcement program.  Asset Seizure  This fund accounts for seized property and funds associated with drug trafficking. Under California  Assembly Bill No. 4162, the monies are released to the City for specific expenditures related to law  enforcement activities.  Developer Impact Fee  This fund accounts for fees imposed on new developments to be used for parks, community centers and  libraries.  Downtown Business Development District  The Downtown Business Development District Fund was established to account for the activities of the  Palo Alto Downtown Business Development District, which was established to enhance the viability of the  downtown business district.  Public Benefit  This fund accounts for the activities of the Stanford University Medical Center (SUMC) Development  Agreement (DA) whereby SUMC will enhance and expand their facilities and the City will grant SUMC the  right to develop the facilities in accordance with the DA.  Street Federal Housing Special Improvement Revenue In‐Lieu Districts ASSETS: Cash and investments: Available for operations 1,327$           455$               27,021$          3,796$            Receivables: Accounts ‐                     ‐                     ‐                      ‐                       Interest 6                    ‐                     101                 12                    Notes ‐                     4,165             14,565           ‐                       Total assets 1,333$           4,620$           41,687$          3,808$            Liabilities: Accounts payable and accruals ‐$                    47$                 35$                  76$                  Accrued salaries and benefits ‐                     4                    ‐                      28                    Total liabilities ‐                     51                  35                   104                  Fund balances: Restricted Transportation mitigation ‐                     ‐                     ‐                      ‐                       Federal revenue ‐                     4,569             ‐                      ‐                       Street improvement 1,308             ‐                     ‐                      ‐                       Local law enforcement ‐                     ‐                     ‐                      ‐                       Public benefit ‐                     ‐                     ‐                      ‐                       Committed Developer impact fee ‐                     ‐                     ‐                      ‐                       Housing In‐Lieu ‐                     ‐                     41,251           ‐                       Special districts ‐                     ‐                     ‐                      3,704               Downtown business ‐                     ‐                     ‐                      ‐                       Assigned Unrealized gain on investment 25                  ‐                     401                 ‐                       Other general government ‐                     ‐                     ‐                      ‐                       Total fund balances 1,333             4,569             41,652           3,704               Total liabilities and fund balances 1,333$           4,620$           41,687$          3,808$            LIABILITIES AND FUND BALANCES: CITY OF PALO ALTO Non‐major Special Revenue Funds Combining Balance Sheet June 30, 2016 (Amounts in thousands) 114 Downtown Business Transportation Local Law Asset Developer Development Public  Mitigation Enforcement Seizure Impact Fee District Benefit Total 11,136$          173$                3$14,349$       86$26,027$          84,373$       ‐ 7 ‐‐‐‐ 7 50 1 ‐59                ‐125                 354              ‐ ‐ ‐‐‐‐ 18,730        11,186$          181$                3$14,408$       86$26,152$          103,464$     146$                ‐$ ‐$‐$50$‐$ 354$             ‐ ‐ ‐6 ‐8 46                146 ‐ ‐6 50 8 400              10,841 ‐ ‐‐‐‐ 10,841        ‐ ‐ ‐‐‐‐ 4,569           ‐ ‐ ‐‐‐‐ 1,308           ‐ 178 2 ‐‐‐ 180              ‐ ‐ ‐‐‐25,649 25,649        ‐ ‐ ‐14,169        ‐‐ 14,169        ‐ ‐ ‐‐‐‐ 41,251        ‐ ‐ ‐‐‐‐ 3,704           ‐ ‐ ‐‐34 ‐ 34                199 3 ‐233              2 495 1,358           ‐ ‐ 1 ‐‐‐ 1 11,040 181 3 14,402        36 26,144 103,064      11,186$          181$                3$14,408$       86$26,152$          103,464$     115 Street Federal Housing Special Improvement Revenue In‐Lieu Districts REVENUES: Special assessments ‐$                      ‐$                      ‐$                      ‐$                      Other taxes and fines 1,461              ‐                       ‐                       109                  From other agencies: Community Development Block Grants ‐                      240                  ‐                        ‐                       State of California ‐                       ‐                       ‐                        ‐                       Permits and licenses University Avenue Parking ‐                       ‐                       ‐                       2,309              California Avenue Parking ‐                       ‐                       ‐                       214                  Other permits and licenses ‐                       ‐                       ‐                       793                  Investment earnings 46                    ‐                      956                   91                    Rental income ‐                      ‐                      6                      ‐                       Other: Housing In‐Lieu ‐                      ‐                      5,554               ‐                       Other fees ‐                      365                 ‐                       4                      Total revenues 1,507             605                 6,516               3,520              EXPENDITURES: Current: Administrative Services ‐                      ‐                      ‐                       203                  Public Works ‐                      ‐                      ‐                       797                  Planning and Community Environment ‐                      444                 (449)                 668                  Police ‐                      ‐                      135                   ‐                       Community Services ‐                      ‐                      ‐                       22                    Non‐Departmental ‐                      34                   165                   249                  Total expenditures ‐                      478                 (149)                 1,939              EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 1,507             127                 6,665               1,581              OTHER FINANCING SOURCES (USES): Transfers in ‐                      ‐                      2,095               642                  Transfers out (1,724)            ‐                      (1,095)              (532)                Total other financing sources (uses)(1,724)            ‐                      1,000               110                  Change in fund balances (217)               127                 7,665               1,691              FUND BALANCES, BEGINNING OF YEAR 1,550             4,442             33,987             2,013              FUND BALANCES, END OF YEAR 1,333$            4,569$            41,652$           3,704$             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, 2016 (Amounts in thousands) 116 Downtown Business Transportation Local Law Asset Developer Development Public Mitigation Enforcement Seizure Impact Fee District Benefit Total ‐$                       ‐$                       ‐$                      ‐$                     100$                 ‐$                      100$             ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       1,570            ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       240                ‐                        126                    ‐                        ‐                       ‐                       ‐                       126                ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       2,309            ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       214                ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       793                353                   6                       1                      419                 3                     852                  2,727            ‐                         ‐                         ‐                        ‐                       ‐                       ‐                       6                    ‐                        ‐                        ‐                       ‐                      ‐                      ‐                       5,554            274                   ‐                        ‐                       1,443             ‐                      ‐                       2,086            627                   132                   1                      1,862             103                 852                  15,725          ‐                        ‐                        ‐                       ‐                      ‐                      ‐                       203                ‐                        ‐                        ‐                       ‐                      ‐                      ‐                       797                ‐                        ‐                        ‐                       ‐                      ‐                      ‐                       663                ‐                        90                     ‐                       ‐                      ‐                      ‐                       225                ‐                        ‐                        ‐                       135                 ‐                      1,074              1,231            ‐                        ‐                        ‐                       ‐                      111                 ‐                       559                ‐                        90                     ‐                       135                 111                 1,074              3,678            627                   42                     1                      1,727             (8)                    (222)                12,047          ‐                        ‐                        ‐                       107                 ‐                      720                  3,564            (1,550)              ‐                        ‐                       ‐                      ‐                      (4,112)             (9,013)           (1,550)              ‐                        ‐                       107                 ‐                      (3,392)             (5,449)           (923)                 42                     1                      1,834             (8)                    (3,614)             6,598            11,963             139                   2                      12,568           44                   29,758            96,466          11,040$           181$                 3$                    14,402$          36$                  26,144$           103,064$     117 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 1,416       1,461           45             ‐                ‐                    ‐                From other agencies: Community Development Block Grants ‐               ‐                   ‐               442           240               (202)          State of California ‐               ‐                   ‐               ‐                ‐                    ‐                Permits and licenses University Avenue Parking ‐               ‐                   ‐               ‐                ‐                    ‐                California Avenue Parking ‐               ‐                   ‐               ‐                ‐                    ‐                Other permits and licenses ‐               ‐                   ‐               ‐                ‐                    ‐                Investment earnings 13            46                33            ‐                ‐                    ‐                Rental income ‐               ‐                   ‐               ‐                ‐                    ‐                Other: Housing In‐Lieu ‐ residential ‐               ‐                   ‐               ‐                ‐                    ‐                Other fees ‐               ‐                   ‐               136           365               229           Total revenues 1,429       1,507           78            578           605               27             EXPENDITURES: Current: Administrative Services ‐               ‐                   ‐               ‐                ‐                    ‐                Public Works ‐               ‐                   ‐               ‐                ‐                    ‐                Planning and Community Environment ‐               ‐                   ‐               625           483               142           Police ‐               ‐                   ‐               ‐                ‐                    ‐                Community Services ‐               ‐                   ‐               ‐                ‐                    ‐                Non‐Departmental ‐               ‐                   ‐               ‐                34                 (34)            Total expenditures ‐               ‐                   ‐               625           517               108           Excess (deficiency) of revenues  over (under) expenditures 1,429       1,507           78            (47)            88                 135           OTHER FINANCING SOURCES (USES): Transfers in ‐               ‐                   ‐               ‐                ‐                    ‐                Transfers out (1,724)     (1,724)         ‐               ‐                ‐                    ‐                Total other financing sources (uses)(1,724)     (1,724)         ‐               ‐                ‐                    ‐                Change in fund balances, budgetary basis (295)$        (217)             78$           (47)$           88                 135$          Adjustment to Budgetary Basis: Current year encumbrances/reappropriations ‐                   39                  (217)             127                FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 1,550           4,442             FUND BALANCES, END OF YEAR, GAAP BASIS 1,333$         4,569$           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, 2016 118 Housing In‐Lieu Special Districts Transportation Mitigation Variance Variance Variance Actual, plus Positive Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative) ‐$                ‐$ ‐$               ‐$              ‐$‐$              ‐$               ‐$‐$               ‐‐‐43             109              66            ‐                ‐‐ ‐‐‐‐‐‐‐                ‐‐ ‐‐‐‐‐‐‐                ‐‐ ‐‐‐1,695        2,309           614          ‐                ‐‐ ‐‐‐195           214              19            ‐                ‐‐ ‐‐‐508           793              285          ‐                ‐‐ 274            956                682            27             91 64            172          353                181           9                 6 (3)               ‐‐‐‐                ‐‐ 5,085         5,554             469            ‐‐‐‐                ‐‐ ‐‐‐‐4 4               1,717       274                (1,443)      5,368         6,516             1,148         2,468        3,520           1,052       1,889       627                (1,262)      ‐‐‐205           203              2               ‐                ‐‐ ‐‐‐998           896              102          ‐                ‐‐ 2,592         (371)               2,963         1,456        878              578          ‐                ‐‐ ‐135                (135)           ‐‐‐‐                ‐‐ ‐‐‐26             22 4               ‐                ‐‐ 378            165                213            166           249              (83)           ‐                ‐‐ 2,970         (71)                 3,041         2,851        2,248           603          ‐                ‐‐ 2,398         6,587             4,189         (383)          1,272           1,655       1,889       627                (1,262)      ‐2,095             2,095         642           642              ‐‐                ‐‐ ‐(1,095)           (1,095)       (532)          (532)             ‐(1,550)     (1,550)           ‐ ‐1,000             1,000         110           110              ‐(1,550)     (1,550)           ‐ 2,398$       7,587             5,189$       (273)$        1,382           1,655$      339$         (923)               (1,262)$     78 309              ‐ 7,665             1,691           (923)                33,987          2,013           11,963           41,652$        3,704$         11,040$         119 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          126              20            ‐                ‐                    ‐                Permits and licenses University Avenue Parking ‐               ‐                   ‐               ‐                ‐                    ‐                California Avenue Parking ‐               ‐                   ‐               ‐                ‐                    ‐                Other permits and licenses ‐               ‐                   ‐               ‐                ‐                    ‐                Investment earnings ‐               6                  6               ‐                1                   1                Rental income ‐               ‐                   ‐               ‐                ‐                    ‐                Other: Housing In‐Lieu ‐ residential ‐               ‐                   ‐               ‐                ‐                    ‐                Other fees ‐               ‐                   ‐               ‐                ‐                    ‐                Total revenues 106          132              26            ‐                1                   1                EXPENDITURES: Current: Administrative Services ‐               ‐                   ‐               ‐                ‐                    ‐                Public Works ‐               ‐                   ‐               ‐                ‐                    ‐                Planning and Community Environment ‐               ‐                   ‐               ‐                ‐                    ‐                Police 143          156              (13)           ‐                ‐                    ‐                Community Services ‐               ‐                   ‐               ‐                ‐                    ‐                Non‐Departmental ‐               ‐                   ‐               ‐                ‐                    ‐                Total expenditures 143          156              (13)           ‐                ‐                    ‐                Excess (deficiency) of revenues  over (under) expenditures (37)           (24)               13            ‐                1                   1                OTHER FINANCING SOURCES (USES): Transfers in ‐               ‐                   ‐               ‐                ‐                    ‐                Transfers out ‐               ‐                   ‐               ‐                ‐                    ‐                Total other financing sources (uses)‐               ‐                   ‐               ‐                ‐                    ‐                Change in fund balances, Budgetary basis (37)$          (24)               13$           ‐$               1                   1$              Adjustment to Budgetary Basis: Current year encumbrances/reappropriations 66                ‐                     42                1                    FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 139              2                    FUND BALANCES, END OF YEAR, GAAP BASIS 181$             3$                  CHANGE IN FUND BALANCE, GAAP BASIS (Amounts in Thousands) CITY OF PALO ALTO Non‐major Special Revenue Funds Combining Schedule of Revenues, Expenditures and Changes in Fund Balances ‐  Budget and Actual For the Year Ended June 30, 2016 120 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) ‐$               ‐$ ‐$               100$         100$             ‐$              ‐$               ‐$‐$               ‐‐‐‐‐‐‐                ‐‐ ‐‐‐‐‐‐‐                ‐‐ ‐‐‐‐‐‐‐                ‐‐ ‐‐‐‐‐‐‐                ‐‐ ‐‐‐‐‐‐‐                ‐‐ ‐‐‐‐‐‐‐                ‐‐ 215            419                204            2                3 1               663          852                189           ‐‐‐‐‐‐‐                ‐‐ ‐‐‐‐‐‐‐                ‐‐ 1,569         1,443             (126)           ‐‐‐‐                ‐‐ 1,784         1,862             78              102           103              1               663          852                189           ‐‐‐‐‐‐‐                ‐‐ ‐‐‐‐‐‐‐                ‐‐ ‐‐‐‐‐‐‐                ‐‐ ‐‐‐‐‐‐‐                ‐‐ 136            135                1                 ‐‐‐1,318       1,075             243           ‐‐‐136           124              12            ‐                ‐‐ 136            135                1                 136           124              12            1,318       1,075             243           1,648         1,727             79              (34)            (21)               13            (655)         (223)               432           69              107                38              ‐‐‐‐                720                720           ‐‐‐‐‐‐(2,392)     (4,112)           (1,720)      69              107                38              ‐‐‐(2,392)     (3,392)           (1,000)      1,717$       1,834             117$          (34)$          (21)               13$           (3,047)$    (3,615)           (568)$         ‐13 1 1,834             (8)(3,614)            12,568          44 29,758           14,402$        36$               26,144$         121   122   This page is left intentionally blank.      123   NON‐MAJOR GOVERNMENTAL FUNDS  DEBT SERVICE FUNDS   Downtown Parking Improvement  This fund accounts for revenues received from the General Fund to provide payment of principal and  interest associated with the 2002B Downtown Parking Improvement Certificates of Participation as they  become due.  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, 2016 (Amounts in thousands) Downtown Parking Library Improvement Projects Total ASSETS: Cash and investments: Available for operations 14$                  3,547$            3,561$             Cash and investments with fiscal agents 237                 11                    248                   Receivables: Accounts ‐                      24                    24                     Interest ‐                      22                    22                     Total assets 251$               3,604$            3,855$             FUND BALANCES: Debt service 251$               3,604$            3,855$             124 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, 2016 (Amounts in thousands) Downtown Parking Library Improvement Projects Total REVENUES: Property tax ‐$4,582$            4,582$             Investment earnings ‐127 127 Total revenues ‐4,709             4,709               EXPENDITURES: Current: Non‐Departmental ‐32 32 Debt service: Principal retirement 150 6,585             6,735               Interest and fiscal charges 84 4,146             4,230               Total expenditures 234 10,763           10,997             (DEFICIENCY) OF REVENUES (UNDER) EXPENDITURES (234)               (6,054)            (6,288)              OTHER FINANCING SOURCES (USES): Transfers in 234 3,018             3,252               Total other financing sources (uses)234 3,018             3,252               Change in fund balances ‐(3,036)            (3,036)              FUND BALANCES, BEGINNING OF YEAR 251 6,640             6,891               FUND BALANCES, END OF YEAR 251$               3,604$            3,855$             125 Downtown Parking Improvement Library Projects Variance Variance Actual, plus Positive Actual, plus Positive Budget Encumbrances (Negative) Budget Encumbrances (Negative) REVENUES: Special assessments ‐$              ‐$                 ‐$              4,655$      4,582$         (73)$          Investment earnings ‐               ‐                   ‐               ‐                127              127           Total revenues ‐               ‐                   ‐               4,655       4,709           54             EXPENDITURES: Current: Non‐Departmental ‐               ‐                   ‐               ‐                32                 (32)            Debt service: Principal retirement 150          150             ‐               1,445       6,585           (5,140)      Interest and fiscal charges 93            84                9              3,210       4,146           (936)         Total expenditures 243          234             9              4,655       10,763         (6,108)      Excess (deficiency) of revenues  over (under) expenditures (243)        (234)            9              ‐                (6,054)          (6,054)      OTHER FINANCING SOURCES (USES): Transfers in 243          234             (9)             ‐                3,018           3,018       Total other financing sources (uses)243          234             (9)             ‐                3,018           3,018       Change in fund balances, Budgetary basis ‐$              ‐                   ‐$              ‐$               (3,036)          (3,036)$     ‐                   (3,036)           FUND BALANCES, BEGINNING OF YEAR 251             6,640            FUND BALANCES, END OF YEAR 251$            3,604$          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, 2016 126   127   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 27$              44$               17$               Total revenues 27                44                 17                  EXPENDITURES: Current: Non‐Departmental ‐                   7                   (7)                  Total expenditures ‐                   7                   (7)                  Excess (deficiency) of revenues  over (under) expenditures 27                37                 10                  Change in fund balance 27$              37                 10$               37                  FUND BALANCE, BEGINNING OF YEAR 1,468           FUND BALANCE, END OF YEAR 1,505$          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, 2016 128   129   INTERNAL SERVICE FUNDS  INTRODUCTION  Internal Service Funds are used to finance and account for special activities and services performed by a  designated department for other departments in the City on a cost reimbursement basis.  Vehicle Replacement and Maintenance  This fund accounts for the maintenance and replacement of vehicles and equipment used by all City  departments. The source of revenue is from reimbursement of fleet replacement and maintenance costs  allocated to each department by usage of vehicle.  Technology  This fund accounts for replacement and upgrade of technology, and covers four primary areas used by all  City departments: desktop, infrastructure, applications, and technology research and development. The  source of revenue is from reimbursement of costs for support provided to other departments.  Printing and Mailing Services  This fund accounts for central duplicating, printing and mailing services provided to all City departments.  Source of revenue for this fund is from reimbursement of costs for services and supplies purchased by  other departments.  General Benefits  This fund accounts for the administration of compensated absences and health benefits.  Workers’ Compensation Insurance Program  This fund accounts for the administration of the City’s self‐insured workers’ compensation programs.  General Liabilities Insurance Program  This fund accounts for the administration of the City’s self‐insured general liability programs.  Retiree Health Benefits  This fund accounts for the retiree health benefits.  Vehicle Printing Workers' General Replacement and Compensation Liabilities Retiree and Mailing General Insurance Insurance Health Maintenance Technology Services Benefits Program Program Benefits Total ASSETS: Current Assets: Cash and investments: Available for operations 11,134$      22,403$      24$             12,977$      21,231$      8,203$         4,072$         80,044$       Accounts receivable, net 34               ‐‐33              48              ‐ ‐115             Interest receivable 46              91              ‐62              92              34 16 341             Inventory of materials and supplies 368             ‐‐‐‐‐ ‐368             Total current assets 11,582       22,494       24              13,072       21,371       8,237           4,088           80,868        Noncurrent Assets: Capital assets: Nondepreciable 247            1,582         ‐‐‐‐ ‐1,829          Depreciable, net 13,006       1,631         ‐‐‐‐ ‐14,637        Net OPEB asset ‐‐‐‐‐‐ 21,662         21,662        Total noncurrent assets 13,253       3,213          ‐‐‐‐ 21,662         38,128        Total assets 24,835       25,707       24              13,072       21,371       8,237           25,750         118,996      DEFERRED OUTFLOWS OF RESOURCES: Deferred pension contribution 357            1,053         30               ‐‐‐ ‐1,440          Total deferred outflows of resources 357            1,053         30               ‐‐‐ ‐1,440          LIABILITIES: Current Liabilities: Accounts payable and accruals ‐644            ‐(792)           155            ‐ ‐7 Accrued salaries and benefits 64              196            3 2 ‐‐ ‐265             Accrued compensated absences 8 26              ‐4,902         ‐‐ ‐4,936          Accrued claims payable ‐ current ‐‐‐146            3,181         1,910           ‐5,237          Total current liabilities 72              866            3 4,258         3,336         1,910            ‐10,445        Noncurrent liabilities: Accrued compensated absences ‐‐‐6,286         ‐‐ ‐6,286          Accrued claims payable ‐‐‐‐15,115       3,027           ‐18,142        Net pension liabilities 2,807         9,565         303            ‐‐‐ ‐12,675        Total noncurrent liabilities 2,807         9,565         303            6,286         15,115       3,027            ‐37,103        Total liabilities 2,879         10,431       306            10,544       18,451       4,937            ‐47,548        DEFERRED INFLOWS OF RESOURCES: Pension Related 139            568            18              ‐‐‐ ‐725             Total deferred inflows of resources 139            568            18               ‐‐‐ ‐725             NET POSITION: Net Investment in capital assets 13,253       3,213          ‐‐‐‐ ‐16,466        Unrestricted 8,921         12,548       (270)           2,528         2,920         3,300           25,750         55,697        Total net position 22,174$      15,761$      (270)$          2,528$        2,920$        3,300$         25,750$       72,163$       CITY OF PALO ALTO Internal Service Funds Combining Statement of Fund Net Position June 30, 2016 (Amounts in thousands) 130 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 7,325$         13,334$      1,296$         46,925$      2,189$         2,398$          12,343$      85,810$       Other ‐                   ‐                   ‐                   ‐                   282             (245)              ‐                    37                Total operating revenues 7,325          13,334        1,296          46,925        2,471          2,153            12,343         85,847         OPERATING EXPENSES: Administrative and general 1,777          6,820          905             176             831             1,638            596              12,743         Operations and maintenance 3,594          6,155          377             789              ‐                    ‐                     14,372         25,287         Depreciation and amortization 2,046          479             ‐                   ‐                   ‐                    ‐                     ‐                    2,525           Claim payments and change in estimated self‐insured liability ‐                   ‐                   ‐                   1,572          1,349          211                ‐                    3,132           Refund of charges for services 46               8                   ‐                   ‐                   ‐                    ‐                     ‐                    54                Compensated absences and other benefits ‐                   ‐                   ‐                   42,538        ‐                    ‐                     ‐                    42,538         Total operating expenses 7,463          13,462        1,282          45,075        2,180          1,849            14,968         86,279         Operating income (loss)(138)            (128)            14               1,850          291             304               (2,625)          (432)             NONOPERATING REVENUES (EXPENSES): Investment earnings 311             630             (1)                241             638             234               103              2,156           Gain on disposal of capital assets 185              ‐                   ‐                   ‐                   ‐                    ‐                     ‐                    185              Other nonoperating revenues 40                ‐                   ‐                   ‐                   ‐                    ‐                     ‐                    40                Total nonoperating revenues (expenses)536             630             (1)                241             638             234               103              2,381           Income (loss) before transfers 398             502             13               2,091          929             538               (2,522)          1,949           Transfers in 1,306          2,480          ‐                   ‐                   ‐                    ‐                     2,102           5,888           Transfers out (367)            (57)               ‐                   (2,102)         ‐                    ‐                     ‐                    (2,526)          Change in net position 1,337          2,925          13               (11)              929             538               (420)             5,311           NET POSITION, BEGINNING OF YEAR 20,837        12,836        (283)            2,539          1,991          2,762            26,170         66,852         NET POSITION, END OF YEAR 22,174$      15,761$      (270)$           2,528$         2,920$         3,300$          25,750$      72,163$       CITY OF PALO ALTO Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Position For the Year Ended June 30, 2016 (Amounts in thousands) 131 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 7,629$         13,334$      1,296$        46,937$      2,288$        2,403$         12,343$       86,230$       Cash refunds to customers (46)              (8)               ‐‐‐‐ ‐(54)              Cash payments to suppliers for goods and services (3,304)          (7,049)        (142)           (2,328)         ‐‐ (13,163)       (25,986)      Cash payments to employees (2,132)          (5,702)        (1,150)        (42,877)     (758)           (1,638)          (596)            (54,853)      Cash payments for judgments and claims ‐‐‐(1,572)        (1,904)        (113)              ‐(3,589)         Other cash receipts 40                ‐‐‐‐‐ ‐40                Net cash flows provided by (used in)  operating activities 2,187           575            4 160            (374)           652              (1,416)          1,788          Cash flows from noncapital financing activities: Transfers in 1,306           2,480         ‐‐‐‐ 2,102           5,888          Transfers out (367)            (57)             ‐(2,102)        ‐‐ ‐(2,526)         Net cash flows provided by (used in) noncapital financing activities 939             2,423          ‐(2,102)         ‐‐ 2,102           3,362          Cash flows from capital and related financing activities: Acquisition of capital assets (2,709)          (1,004)        ‐‐‐‐ ‐(3,713)         Proceeds from sale of capital assets 221             ‐‐‐‐‐ ‐221             Net cash flows (used in)  capital and related financing activities (2,488)          (1,004)         ‐‐‐‐ ‐(3,492)         Cash flows from investing activities: Interest received 313             624            (1)               229            630            229              109             2,133          Net cash flows provided by investing activities 313             624            (1)               229            630            229              109             2,133          Net change in cash and cash equivalents 951             2,618         3 (1,713)        256            881              795             3,791          Cash and cash equivalents, beginning of year 10,183         19,785       21               14,690       20,975       7,322           3,277           76,253        Cash and cash equivalents, end of year  $      11,134 $      22,403 $              24 $      12,977 $      21,231  $         8,203  $         4,072 $      80,044  Reconciliation of operating income (loss) to net cash flows provided by (used in) operating activities: Operating income (loss)(138)$          (128)$          14$             1,850$        291$           304$            (2,625)$       (432)$           Adjustments to reconcile operating income (loss)  to net cash provided by (used in) operating activities: Depreciation 2,046           479            ‐‐‐‐ ‐2,525          Other 40                 ‐‐‐‐‐ ‐40                Change in assets and liabilities: Accounts receivable 304             ‐‐12               99               250              ‐665             Inventory of materials and supplies 2 ‐‐‐‐‐ ‐2 Net OPEB asset ‐‐‐‐‐‐ 1,209           1,209          Deferred outflows of resources ‐ pension plans (77)              (217)           (4)               ‐‐‐ ‐(298)            Accounts payable and accruals ‐448            ‐(2,155)        73               ‐ ‐(1,634)         Accrued salaries and benefits 19                69               (2)               (9)               ‐‐ ‐77                Accrued compensated absences ‐5 (1)               462            ‐‐ ‐466             Accrued claims payable ‐‐‐‐(837)           98                 ‐(739)            Net pension liability 288             859            27                ‐‐‐ ‐1,174          Deferred inflows of resources ‐ pension plans (297)            (940)           (30)             ‐‐‐ ‐(1,267)         Net cash flows provided by (used in)  operating activities 2,187$         575$           4$                160$           (374)$          652$            (1,416)$       1,788$         CITY OF PALO ALTO Internal Service Funds Combining Statement of Cash Flows For the Year Ended June 30, 2016 (Amounts in thousands) 132   133   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, 2016 Balance Balance California Avenue Parking Assessment District June 30, 2015 Additions Deletions June 30, 2016 ASSETS: Cash and investments available for operations 175$                  ‐$                        175$                   ‐$                         LIABILITIES: Due to bondholders 175$                  ‐$                        175$                   ‐$                         Cable Joint Powers Authority ASSETS: Cash and investments available for operations 660$                  ‐$                        9$                        651$                   Accounts receivable 503                   ‐                         8                         495                     Interest receivable 3                        ‐                         ‐                          3                          Total assets 1,166$               ‐$                        17$                     1,149$                LIABILITIES: Due to other governments 1,166$               ‐$                        17$                     1,149$                ASSETS: Cash and investments available for operations 2,192$               ‐$                        196$                   1,996$                Cash and investments with fiscal agents 2,543                7                        ‐                          2,550                  Accounts receivable 9                        1                        ‐                          10                        Interest receivable 9                        ‐                         ‐                          9                          Total assets 4,753$               8$                       196$                   4,565$                LIABILITIES: Due to bondholders 4,753$               ‐$                        188$                   4,565$                Total Agency Funds ASSETS: Cash and investments available for operations 3,027$               ‐$                        380$                   2,647$                Cash and investments with fiscal agents 2,543                7                        ‐                          2,550                  Accounts receivable 512                   1                        8                         505                     Interest receivable 12                      ‐                         ‐                          12                        Total assets 6,094$               8$                       388$                   5,714$                LIABILITIES: Due to bondholders 4,928$               ‐$                        363$                   4,565$                Due to other governments 1,166                ‐                         17                       1,149                  Total liabilities 6,094$               ‐$                        380$                   5,714$                (Amounts in thousands) University Avenue Area  Off‐Street Parking Assessment District 134   135   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   136   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.    2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Governmental Activities Investment in capital assets 326,411$        343,537$         356,657$        369,499$        364,747$        370,111$         378,047$        386,696$        405,921$        425,179$         Restricted 32,576             27,428             36,632             34,323             16,437             52,934             71,717             68,331             55,963            47,907              Unrestricted 127,190          130,460           118,133          102,199          134,722          142,102           165,810          187,386          1,972              37,905              Total Governmental Activities Net Position 486,177$        501,425$         511,422$        506,021$        515,906$        565,147$         615,574$        642,413$        463,856$        510,991$         Business‐type Activities Investment in capital assets 342,922$        370,303$         384,313$        399,317$        416,418$        437,151$         446,597$        473,795$        490,874$        512,918$         Restricted 1,732               1,732                1,732               4,300                ‐                         ‐                        4,060               4,166               4,142              4,115                Unrestricted 230,912          226,539           208,025          232,420          253,740          262,602           269,926          266,794          172,802          162,806           Total Business‐type Activities Net Position 575,566$        598,574$         594,070$        636,037$        670,158$        699,753$         720,583$        744,755$        667,818$        679,839$         Primary Government Investment in capital assets 669,333$        713,840$         740,970$        768,816$        781,165$        807,262$         824,644$        860,491$        896,795$        938,097$         Restricted 34,308             29,160             38,364             38,623             16,437             52,934             75,777             72,497             60,105            52,022              Unrestricted 358,102          356,999           326,158          334,619          388,462          404,704           435,736          454,180          174,774          200,711           Total Primary Government Net Position 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$    1,190,830$      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 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $ Th o u s a n d s Primary Government Investment in capital assets Restricted Unrestricted 137 PROGRAM REVENUES 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Governmental Activities Charges for services City Attorney 13$ 16$               12$               53$               ‐$ ‐$ ‐$ ‐$ ‐$ ‐$  City Clerk ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐  City Auditor ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐  Administrative Services 835 870               726               984               2,889            1,647            15,629            4,055              5,460              9,444             Human Resources 11 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐  Public Works 968 1,310            1,169            1,258            2,419            1,008            1,314              1,093              1,209              599                Planning & Community Environment 6,267               5,498            4,704            4,813            7,237            31,491          28,768            12,896            8,090              9,071             Development Services3 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 12,019            12,570           Public Safety 13,789             13,692          14,670          14,337          15,274          15,658          16,139            14,902            15,726            13,945           Community Services 9,128               10,314          8,522            8,729            7,724            11,365          13,808            20,882            20,912            21,551           Library 146 176               177               199               480               1,600            187                 166                 137                 198                Operating grants and contributions 5,642               4,029            3,599            4,829            2,884            3,441            5,038              5,360              5,300              2,164             Capital grants and contributions 1,756               1,930           3,810          1,280          1,903          1,064          515               917                 619                344              Total Governmental Activities Program Revenues 38,555             37,835          37,389          36,482          40,810          67,274          81,398            60,271            69,472            69,886           Business‐type Activities Charges for services Water 23,495             26,510          27,120          26,259          26,624          31,467          37,746            40,291            35,847            37,588           Electric 102,549           103,833       119,320       121,900       122,109       118,886       121,805          121,916          120,842          120,743        Fiber Optics1 ‐ ‐ 3,336            3,105            3,322            3,662            4,382              4,485              4,627              4,505             Gas 42,221             49,021          47,838          44,450          43,584          41,774          34,633            35,737            30,751            30,212           Wastewater Collection 14,848             15,102          14,486          15,136          15,094          14,942          16,077            15,599            16,182            16,496           Wastewater Treatment 16,957             22,889          28,425          16,915          18,830          22,200          21,528            18,460            24,120            23,825           Refuse 25,532             28,805          29,101          28,568          30,469          30,645          30,583            30,297            31,576            32,169           Storm Drainage 5,181               5,450            5,505            5,647            5,796            5,892            6,053              6,183              6,281              6,520             Airport ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 683                 826                External Services 789 112               ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐  Operating grants and contributions ‐ ‐ ‐ 361               610               605               572                 549                 534                 744                Capital grants and contributions 756 1,594           639             475             3,004          1,526          2,224            2,005              2,080             1,061           Total Business‐type Activities  Program Revenues 232,328           253,316       275,770       262,816       269,442       271,599       275,603          275,522          273,523          274,689        Total Primary Government  Program Revenues 270,883$         291,151$     313,159$     299,298$     310,252$     338,873$     357,001$       335,793$       342,995$       344,575$      EXPENSES Governmental Activities City Council 180$                323$             394$             455$             15$               345$             94$                 387$               271$               352$              City Manager 1,760               2,273            2,085            2,399            1,842            1,960            1,237              2,180              2,155              2,662             City Attorney 2,390               2,653            2,575            2,621            953               1,656            1,642              1,797              1,759              2,472             City Clerk 900 1,241            1,098            1,369            803               908               330                 641                 680                 582                City Auditor 838 1,379            2,053            2,601            138               235               464                 489                 362                 414                Administrative Services2 6,419               15,477          17,784          17,893          9,888            10,100          7,614              11,388            9,980              10,637           Human Resources 2,472               2,806            3,448            3,707            1,346            1,071            1,420              1,346              1,464              2,224             Public Works 16,645             18,565          21,270          18,658          19,357          14,568          20,816            24,577            21,075            24,613           Planning & Community Environment 12,929             16,388          12,940          12,114          15,031          12,074          13,549            14,926            8,423              10,208           Development Services3 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 10,449            11,158           Public Safety 43,391             50,126          52,487          55,799          58,996          62,817          59,452            62,883            58,660            56,653           Community Services 15,729             17,736          19,862          17,171          22,845          21,915          22,705            23,822            24,688            28,547           Library 5,347               6,321            6,244            6,143            6,920            7,323            7,319              7,758              7,721              10,825           Non‐departmental2 12,133              ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐  Interest on long term debt 477 438              404             370             2,742          2,575          2,562            3,367              3,658             3,552           Total Governmental Activities Expenses 121,610           135,726       142,644       141,300       140,876       137,547       139,204          155,561          151,345          164,899        Business‐type Activities Water 16,794             18,842          20,271          21,037          24,268          29,093          30,707            31,593            33,205            35,120           Electric 99,294             108,032       122,268       107,910       100,130       102,030       106,438          113,004          122,499          120,319        Fiber Optics1 ‐ ‐ 1,284            1,407            1,561            1,489            1,437              1,661              1,891              2,107             Gas 30,690             37,211          34,603          32,498          32,051          28,878          26,749            26,869            23,525            20,879           Wastewater Collection 10,085             12,023          14,875          10,696          12,275          14,825          14,313            13,235            14,595            15,199           Wastewater Treatment 15,901             18,902          36,896          13,466          19,731          20,712          20,635            21,018            21,553            22,546           Refuse 25,372             28,827          37,217          28,119          30,684          31,900          28,542            28,413            27,974            30,370           Storm Drainage 2,517               3,202            2,943            2,491            3,229            3,103            3,703              3,644              3,721              3,735             Airport ‐ ‐ ‐ ‐ 31                 153               246                 466                 1,004              970                External Services 767 984              ‐‐‐‐‐ ‐ ‐‐ Total Business‐type Activities Expenses 201,420           228,023       270,357       217,624       223,960       232,183       232,770          239,903          249,967          251,245        Total Primary Government Expenses 323,030$         363,749$     413,001$     358,924$     364,836$     369,730$     371,974$       395,464$       401,312$       416,144$      CITY OF PALO ALTO Changes in Net Position Last Ten Fiscal Years (Accrual basis of accounting) (Amounts in thousands) Fiscal Year Ended June 30 138 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 NET (EXPENSE)/REVENUE Governmental Activities (83,055)$         (97,891)$      (105,255)$    (104,818)$    (100,066)$    (70,273)$      (57,806)$        (95,290)$        (81,873)$        (95,013)$       Business‐type Activities 30,908             25,293         5,413          45,192        45,482        39,416        42,833          35,619            23,556           23,444         Total Primary Government Net (Expense)/Revenue (52,147)$         (72,598)$      (99,842)$      (59,626)$      (54,584)$      (30,857)$      (14,973)$        (59,671)$        (58,317)$        (71,569)$       GENERAL REVENUES AND OTHER CHANGES IN NET ASSETS Governmental Activities Taxes Property tax 21,466$           23,084$       25,432$       25,981$       29,156$       30,104$       31,929$          35,299$          38,750$          41,189$        Sales tax 22,194             22,623          20,089          17,991          20,746          22,132          25,606            29,424            29,675            30,018           Utility user tax 9,356               10,285          11,030          11,295          10,851          10,834          10,861            11,008            10,861            12,469           Transient occupancy tax 6,709               7,976            7,111            6,858            8,082            9,664            10,794            12,255            16,699            22,366           Other taxes 6,293               6,261            3,364            4,055            8,156            8,173            10,504            9,660              11,867            7,868             Investment earnings 8,747               12,313          8,525            6,514            3,500            6,238            (1,228)             5,859              5,010              8,639             Rents and miscellaneous 13,670             11,896          15,682          12,729          12,377          14,943          518                 2,575              3,428              894                Transfers 15,754             18,701         24,020        13,994        17,083        17,426        19,249          17,103            16,405           18,705         Total Governmental Activities 104,189           113,139       115,253       99,417          109,951       119,514       108,233          123,183          132,695          142,148        Business‐type Activities Investment earnings 11,910             16,416          14,103          10,769          5,722            7,605            (2,754)             6,379              4,857              7,282             Transfers (15,754)            (18,701)       (24,020)      (13,994)      (17,083)      (17,426)      (19,249)        (17,103)          (16,405)          (18,705)       Total Business‐type Activities (3,844)              (2,285)          (9,917)          (3,225)          (11,361)        (9,821)          (22,003)          (10,724)          (11,548)          (11,423)         Total Primary Government 100,345$         110,854$     105,336$     96,192$       98,590$       109,693$     86,230$          112,459$       121,147$       130,725$      CHANGE IN NET POSITION Governmental Activities 21,134$           15,248$       9,998$          (5,401)$        9,885$          49,241$       50,427$          27,893$          50,822$          47,135$        Business‐type Activities 27,064             23,008         (4,504)        41,967        34,121        29,595        20,830          24,895            12,008           12,021         Total Primary Government Change in Net Position 48,198$           38,256$       5,494$          36,566$       44,006$       78,836$       71,257$          52,788$          62,830$          59,156$        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 30 139 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 General Fund Nonspendable 5,002$       7,286$       6,476$       6,581$       6,085$       6,007$       5,749$       6,188$       6,296$       7,088$        Assigned 6,855         4,851         6,100         7,295         6,235         6,400         5,415         5,432         7,976         8,261          Unassigned 27,551       30,278       30,648       27,581       31,859       29,616       30,913       36,690       48,198       51,582        Total General Fund 39,408$     42,415$     43,224$     41,457$     44,179$     42,023$     42,077$     48,310$     62,470$     66,931$      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 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $ Th o u s a n d s Nonspendable Assigned Unassigned 140 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 All Other Governmental Funds Nonspendable ‐$                731$          1,308$       1,402$        1,422$        11,112$     18,189$     14,869$     1,468$        1,505$         Restricted 1,540         1,406         1,412         55,400        50,646        61,324        84,688        68,468        59,650        47,113         Committed 22,883       15,207       22,043       16,962        24,775        14,284        20,400        27,145        48,434        65,745         Assigned 41,684       44,116       36,629       38,538        20,114        33,264        45,514        55,211        52,627        64,411         Total All Other Governmental Funds 66,107$    61,460$    61,392$    112,302$   96,957$     119,984$   168,791$   165,693$   162,179$   178,774$    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 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $ Th o u s a n d s Nonspendable Restricted Committed Assigned 141 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Revenues Property tax 21,466$      23,084$      25,432$      25,981$      29,248$      30,216$      32,040$      35,393$      38,836$      41,289$       Sales tax 22,194        22,623        20,089        17,991        20,746        22,132        25,606        29,424        29,675        30,018         Other taxes and fines 26,215        27,385        24,843        25,063        27,890        29,231        32,141        35,305        41,576        44,909         Charges for services 19,929        19,610        19,837        19,775        22,311        46,273        38,976        23,962        25,973        23,910         From other agencies 3,448          4,300          5,984          3,035          1,614          1,116          4,109          5,700          7,727          4,417           Permits and licenses 4,711          4,761          4,033          4,408          5,433          7,136          8,218          8,990          9,179          11,228         Interest and rentals 17,750        20,507        19,183        19,045        16,553        18,583        12,136        18,445        18,658        22,269         Other revenue 7,503          4,713          6,223          4,724          8,624          12,739        17,570        7,471          12,837        13,827         Total Revenues 123,216      126,983      125,624      120,022      132,419      167,426      170,796      164,690      184,461      191,867       Expenditures Administration1 14,399        16,250       16,002      17,353      8,351        9,412        8,291         9,961          10,806       11,501       Public Works 9,256          10,072        10,064        9,787          11,317        11,304        11,489        12,439        12,276        13,112         Planning and Community Environment 11,874        9,861          10,462        9,480          10,309        11,966        13,474        14,761        8,628          9,722           Development Services3 ‐ ‐‐                 ‐                 ‐                 ‐                 ‐                  ‐ 11,152       10,643       Public Safety 42,451        48,650        48,957        51,022        58,874        62,418        59,537        62,028        61,447        63,784         Community Services2 16,533        17,138       17,451      16,451      20,029      20,860      21,661       22,644        23,553       25,511       Library2 5,260          6,219         5,985        5,900        6,509        7,072        6,902         7,340          7,980         7,960         Non‐departmental 12,122        14,089        10,765        10,149        7,352          6,819          4,567          8,135          6,180          8,068           Special revenue and capital projects 17,478        21,626        21,485        22,006        35,486        29,154        29,542        37,035        41,754        24,457         Debt service ‐ principal payments 850              885              800              840              870              1,743          1,489          1,524          1,948          7,130           Debt service ‐interest and fiscal fees 489              451              416              382              1,815          2,757          2,659          3,196          3,404          4,266           Payment to bond refunding escrow ‐ ‐ ‐ ‐ ‐ 586              540              ‐ ‐ ‐  Total Expenditures 130,712      145,241      142,387      143,370      160,912      164,091      160,151      179,063      189,128      186,154       Excess (Deficiency) of Revenues Over (Under) Expenditures (7,496)         (18,258)       (16,763)       (23,348)       (28,493)       3,335          10,645        (14,373)       (4,667)         5,713           Other Financing Sources (Uses) Transfers in 27,701        33,437        39,903        34,835        30,323        47,200        50,343        41,683        45,137        61,835         Transfers out (15,882)       (16,819)       (22,399)       (21,415)       (14,352)       (29,782)       (33,833)       (24,175)       (29,824)       (46,492)        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)11,819        16,618        17,504        72,491        15,870        17,536        38,216        17,508        15,313        15,343         Net Change in Fund Balances 4,323$        (1,640)$       741$           49,143$      (12,623)$    20,871$      48,861$      3,135$        10,646$      21,056$       Debt Service as a Percentage of Non‐Capital Expenditures 1.2% 1.1% 1.0% 1.0% 2.2% 3.5% 3.2% 3.3% 3.7% 7.1% 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 Human Resources. Fiscal Year Ended June 30 CITY OF PALO ALTO Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified accrual basis of accounting) (Amounts in thousands) 142 Fiscal Commercial & City of Year Residential Industrial Palo Alto Total 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                  2016 18,191                           86,715                     3,127                 108,033                  529 Bryant Street LLC Technology City of Palo Alto Municipal Communications & Power Industries (CPI)Research Hewlett‐Packard Company Computer Hewlett‐Packard Enterprise Computer Space Systems/Loral Satellite & Satellite Systems Stanford Hospital & Clinics Hospital Varian Medical Systems, Inc.Manufacturing Veterans Admin Hospital Hospital   VMware, Inc.Computer Number Kilowatt‐hour of Customers Sales (kWh)Revenue2 Residential 25,372                           150,111,759           18,191$              Commercial 3,715                             589,091,303           68,953                Industrial 91                                   168,141,493           17,762                CPA 126                                29,812,407             3,127                  Total 29,304                          937,156,962         108,033$          City of Palo Alto Power Purchase  Western Area Power Administration Hydroelectric 27% Forward Market Purchases 29% Wind Energy 11% Landfill Gas Energy 10% Solar Energy 9% Northern California Power Agency Hydroelectric 11% Short‐Term Market 3% Source: City of Palo Alto, Utilities and Accounting Departments Customer (alphabetical order)Type of Business 1The top ten customers accounted for approximately 37.5% of total kWh consumption (351,514,504 kWh)  and 33.7% of revenue ($38,108,715). The largest customer accounted for 8.7% of total kWh consumption  and 7.7% of revenue. The smallest customer accounted for 1.8% of total kWh consumption and 1.5% 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 143 The top ten customers total consumption is 747,045 CCF with revenue of $6,347,933. This amount accounts for approximately 19.6% of total consumption and 17.2% of total revenue. The largest customer (other than the City of Palo Alto) accounted for 4.5% of  consumption and 3.3% of revenue. The smallest customer accounted for 0.7% of consumption and 0.7% of revenue. Revenue used to determine top ten water utility  customers includes metered and non‐metered charges, adjustments, surcharges  and discounts. Revenue does not include Utility Users Tax (UUT) and deposits. Note: Source:City of Palo Alto, Utilities Department CITY OF PALO ALTO Supplemental Disclosure for Water Utilities Fiscal Year 2016 Top Ten Largest Water Utility Customers (alphabetical order) City of Palo Alto Hewlett‐Packard Company VMware Inc. This schedule is provided as required by the Continuing Disclosure Agreement for the City's Utility Revenue  Bond and is not required by Governmental Accounting Standards Board (GASB).  Palo Alto Hills Golf & Country Club Palo Alto Unified School District Oak Creek Apartments Stanford Hospital & Clinics Stanford West Management Veterans Admin Hospital Space Systems/Loral, Inc. 144 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Net Local Secured Roll Land 8,725,485$         9,497,746$         10,420,139$       11,007,650$       11,011,160$       11,352,993$       12,255,515$       13,357,851$       14,409,837$       15,718,665$        Improvements 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         14,998,502          Personal property 213,154              228,875              303,688              288,148              241,280              257,436              287,296              307,499              290,590              310,929               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         31,028,096          Less: Exemptions net of state aid (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)          (3,409,836)           Total Net Local Secured Roll 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         27,618,260          Public utilities 3,923 3,174 2,573 2,573 2,573 2,573 2,573 2,573 2,573 2,573  Unsecured property 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           1,794,921            Total Assessed Value 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$       29,415,754$        Total Direct Tax Rate 1%1%1%1%1%1%1%1%1%1% Note: The State Constitution requires property to be assessed at 100% of the most recent purchase price, plus an increment of no more than 2% annually,  plus any local over‐rides. These values are considered to be full market values. Source:  County of Santa Clara Assessor's Office CITY OF PALO ALTO Assessed Value of Taxable Property Last Ten Fiscal Years (Amounts in thousands) Fiscal Year Ended June 30 $13,000,000 $15,000,000 $17,000,000 $19,000,000 $21,000,000 $23,000,000 $25,000,000 $27,000,000 $29,000,000 $31,000,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $ Th o u s a n d s Total Assessed Value 145 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 Midpeninsula Overlapping Year Levy Levy (Measure A)1 (Measure N)2 District District College Open Space3 Rates 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              2016 1.00       0.0388          0.0088             0.0148             0.0057             0.0604        0.0240            0.0008            1.15              Notes:1The County General Obligation Bond (Measure A) was passed in 2008 to fund the seismic upgrade of the Santa Clara Valley Medical Center. Rates were first levied for the 2009‐10 fiscal year. 2The City of Palo Alto General Obligation Bond (Measure N) was passed in 2008 to fund the construction and  renovation of three of the City's libraries. Rates were first levied for the 2010‐11 fiscal year. 3The Midpeninsula Regional Open Space District Bond Issue and Property Tax, Measure AA, passed in 2014. 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 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Rate per $100 of Assessed Value 146 Fiscal Year Total Tax Percentage Collections in Percentage of Ended June 30 Levy1 for FY Amount of Levy Subsequent Years2 Amount Levy 2007 21,466            21,466         100%‐                              21,466       100% 2008 23,084            23,084         100%‐                              23,084       100% 2009 25,432            25,432         100%‐                              25,432       100% 2010 25,981            25,981         100%‐                              25,981       100% 2011 25,688            25,688         100%‐                              25,688       100% 2012 26,494            26,494         100%‐                              26,494       100% 2013 28,742            28,742         100%‐                              28,742       100% 2014 30,587            30,587         100%‐                              30,587       100% 2015 34,117            34,117         100%‐                              34,117       100% 2016 36,607            36,607         100%‐                              36,607       100% Notes: Source:Annual Financial Statements, Government Funds, Statement of Revenues, Expenditures and  Changes in Fund Balances. 1During fiscal year 1995, the County of Santa Clara began providing the City 100% of its tax levy  under an agreement which allows the county to keep all interest and delinquency charges  collected. 2Effective fiscal year 1994, the City is on the Teeter Plan, under which the County of Santa Clara  pays the full tax levy due. All prior delinquent taxes were also received in that fiscal year. CITY OF PALO ALTO Property Tax Levies and Collections Last Ten Fiscal Years (Amounts in thousands) Collected within the  Fiscal Year of the Levy Total Collections to Date 147 Taxable Assessed  Value Rank Percentage of  Total Taxable  Assessed Value Taxable  Assessed  Value Rank Percentage of  Total Taxable  Assessed Value Leland Stanford Jr. University 3,952,158$            1 13.4%2,632,853$   1 15.0% Loral Space & Communications 215,180 2 0.7%180,779         2 1.0% Google Inc.158,245 3 0.5% PPF OFF 3301 Hillview Avenue LP 130,150 4 0.4% EOSII Palo Alto Technology Center LLC 121,692 5 0.4% Whisman Ventures, LLC 112,001 6 0.4% SI 43 LLC 76,823 7 0.3% BVK Hamilton Ave LLC 69,290 8 0.2% Ronald & Ann Williams Charitable Foundation 62,685 9 0.2% PPC Forest Towers LLC 56,610 10 0.2% Agilent Technologies 81,285           3 0.5% Harbor Investment Partners 52,165           4 0.3% EOP‐Embarcadero Place, LLC 40,000           5 0.2% Hamilton Associates 38,843           6 0.2% California Pacific Commercial Corp.37,339           7 0.2% Palo Alto Town & Country Village Inc.36,306           8 0.2% Pacific Hotel Dev Venture LP 32,796           9 0.2% Thoits Bros Inc.29,751           10 0.2% Total 4,954,834$            16.7%3,162,117$   18.0% Total City Taxable Assessed Value: FY 2016 29,415,754$           FY 2007 17,609,613$           Source: California Municipal Statistics, Inc. Fiscal Year 2016 Fiscal Year 2007 Taxpayer CITY OF PALO ALTO Principal Property Taxpayers Current Year and Nine Years Ago (Amounts in thousands) 148 2015‐16 No. of Assessed % of No. of % of Taxable % of Valuation1 Total Parcels Total Parcels Total Non‐Residential: Agricultural/forest 32,729,878$            0.12 % 49           0.24 % 31           0.16 % Commercial 1,532,265,585         5.55 454         2.20 450         2.34 Professional/office 3,344,356,151         12.11 536         2.60 519         2.70 Industrial/research & development 1,863,968,386         6.75 179         0.87 175         0.91 Recreational 34,692,318              0.13 14           0.07 12           0.06 Government/social/institutional 149,945,877            0.54 115         0.56 46           0.24 Miscellaneous 7,121,330 0.03 18         0.09 17           0.09 Subtotal Non‐Residential 6,965,079,525$      25.22 % 1,365      6.62 % 1,250      6.50 % Residential: Single family residence 16,457,914,524$    59.59 % 14,968   72.57 % 14,922   77.55 % Condominium/townhouse 2,117,116,117         7.67 3,033      14.71 2,027      10.53 Mobile Home 71,060 0.00 7             0.03 7             0.04 2‐4 Residential units 423,208,249            1.53 506         2.45 506         2.63 5+ Residential units 1,434,539,561         5.19 336         1.63 321         1.67 Subtotal Residential 20,432,849,511$    73.98 % 18,850   91.39 % 17,783   92.41 % Vacant Parcels 220,331,113$          0.80 % 410         1.99 % 210         1.09 % Total 27,618,260,149$    100        % 20,625   100         % 19,243   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, 2016 149 No. of Taxable Average Parcels1 Assessed Valuation Single Family Residential 14,922 $1,102,930 No. of % of Cumulative % of Cumulative Taxable Total % of Total Total Total % of Total Parcels1 Parcels Parcels Valuation Valuation Valuation 1,334       8.94       8.94             105,594,792$            0.64         0.64              1,802       12.08  21.02         249,254,241 1.51         2.16             854 5.72       26.74           212,390,602 1.29         3.45              738 4.95       31.68           256,832,299 1.56         5.01              673 4.51       36.19           303,279,249 1.84         6.85              745 4.99       41.19           409,892,140 2.49         9.34              660 4.42       45.61           427,407,181 2.60         11.94            583 3.91       49.52           435,859,453 2.65         14.59            597 4.00       53.52           509,043,262 3.09         17.68            640 4.29       57.81           607,105,607 3.69         21.37            605 4.05       61.86           635,783,858 3.86         25.23            507 3.40       65.26           582,031,906 3.54         28.77            465 3.12       68.38           582,887,097 3.54         32.31            438 2.94       71.31           590,918,861 3.59         35.90            444 2.98       74.29           642,860,649 3.91         39.81            395 2.65       76.93           612,251,107 3.72         43.53            364 2.44       79.37           599,972,971 3.65         47.17            327 2.19       81.56           572,303,695 3.48         50.65            301 2.02       83.58           556,091,276 3.38         54.03            241 1.62       85.20           470,501,131 2.86         56.89            2,209       14.80  100.00 7,095,653,147         43.11       100.00 14,922     100.00  16,457,914,524$       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 $16,457,914,524 $815,747 2015‐2016 Assessed Valuation $0‐99,999 $100,000‐199,999 $200,000‐299,999 $300,000‐399,999 $400,000‐499,999 $500,000‐599,999 Assessed Valuation Assessed Valuation CITY OF PALO ALTO Per Parcel Assessed Valuation of Single Family Residential As of June 30, 2016 2015‐2016 Median 150 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 9,175$      8,405$      7,605$      6,765$      5,895$      1,685$      1,560$      1,430$      1,285$      1,135$       ‐                 ‐                 ‐                55,305      55,305      54,540      74,235      73,215      71,795      65,210       115           ‐                 ‐                 ‐                 ‐                 ‐                 ‐                 ‐                 ‐                 ‐                 2011 Lease‐Purchase Agreement ‐                 ‐                 ‐                 ‐                 ‐                2,764        2,400        2,026        1,643        1,248         Add: unamortized premium ‐                 ‐                 ‐                3,766        3,640        3,514        4,400        4,242        4,084        3,926         ‐‐‐ (571)          ‐‐‐‐‐‐  9,290        8,405        7,605        65,265      64,840      62,503      82,595      80,913      78,807      71,519       41,859      40,334      38,744      72,104      69,551      65,879      63,104      60,224      57,224      54,095       Energy Tax Credits ‐                1,400        1,300        1,200        1,100        1,000        900           800           700           600            State Water Resources Loan ‐                5,629        9,000        13,080      16,696      15,900      15,109      14,309      13,500      12,681       (972)          (1,053)       (2,479)       (2,737)       (229)          580           543           867           803           737            40,887      46,310      46,565      83,647      87,118      83,359      79,656      76,200      72,227      68,113       Outstanding Debt 50,177$    54,715$    54,170$   148,912$151,958$145,862$162,251$157,113$ 151,034$139,632$ 1.51% 1.53% 1.50% 4.48% 4.10% 3.61% 3.80% 3.39% 3.09% 2.67% Population 62,615      63,367      64,484      65,408      64,417      65,544      66,368      66,861      66,029      66,968       0.80$        0.86$        0.84$        2.28$        2.36$        2.23$        2.44$        2.35$        2.29$        2.09$         Notes: Sources: 2016 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 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $ Th o u s a n d s Total Governmental Activities Total Business‐type Activities 151 2015‐2016 Assessed Valuation 29,415,753,627$       Percentage Amount Applicable Applicable Total Debt to City of to City of Outstanding Palo Alto1 Palo Alto Santa Clara County 792,585,000$            7.58%60,085,869$                Foothill‐DeAnza Community College District 584,782,455              22.09% 129,155,053                Palo Alto Unified School District 306,673,766              87.20% 267,431,791                Fremont Union High School District 365,975,088              0.01%40,257  Los Gatos‐Saratoga Joint Union High School District 70,320,000                0.01%9,142  Mountain View‐Los Altos Union High School District 59,156,005                1.12%661,956  Cupertino Union School District 292,848,688              0.02%55,641  Los Altos School District 73,555,000                1.33%976,810  Mountain View‐Whisman School District 189,475,000              0.92%1,748,854  Saratoga Union School District 33,775,241                0.03%9,457  Whisman School District 19,357,334                2.50%483,933  City of Palo Alto 70,345,000                100%70,345,000                  El Camino Hospital District 136,280,000            0.09% 118,564 Midpeninsula Regional Open Space District 45,000,000              13.05% 5,870,250 City of Palo Alto Special Assessment Bonds 25,130,000              100% 25,130,000                Santa Clara Valley Water District Benefit Assessment District 99,060,000              7.58% 7,509,739 Total Direct and Overlapping Tax and Assessment Debt 569,632,316              683,441,121              7.58% 51,811,671                              367,118,349 7.58%                27,831,242  6,380,000 7.58%483,668  9,723,341 22.09%2,147,497  6,260,000 0.01%814  2,415,000 1.12%27,024  4,600,000 0.03%1,288  City of Palo Alto General Fund Obligations 2,383,453 100%2,383,453  2,890,000 7.58%219,091  Midpeninsula Regional Open Space Park District General Fund Obligations 122,305,886            13.05%                15,954,803  $            100,860,551  27,766,974  $              73,093,577   $            642,725,893  Ratio to  Assessed Valuation Total Direct Debt 0.25%72,728,453$                Total Overlapping Debt 1.94%569,997,440                Total Direct and Overlapping Debt 2.18%642,725,893$            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, 2016 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 152 Assessed  Valuation: Secured property assessed value, net of exempt real property 29,415,754$        Bonded Debt Limit (3.75% of Assessed Value) 1 1,103,091  Direct Debt: Certificates of Participation 1,135 Lease Purchase Agreement 1,248 General Obligation bonds 65,210                Total Direct Debt 67,593                Less: Amount of Debt Not Subject to Limit 2 2,383  Total Net Debt Applicable to Limit 65,210 Legal Bonded Debt Margin 1,037,881$                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 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 2016 29,415,754          1,103,091            65,210 1,037,881          66,968 5.91%0.0022 0.97 Notes: Source: CITY OF PALO ALTO Computation of Legal Bonded Debt Margin As of June 30, 2016 (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 153 Less: Net Revenue Fiscal Gross Direct Operating Available for Year Revenue Expenses2 Debt Service Principal Interest3 Total Coverage Ratio 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  2016 235,386            186,793                48,593 3,230            2,823            6,053            8.03  Notes:1Airport, Refuse and Fiber Optics funds have no debt and are therefore excluded from this schedule. 2Excludes depreciation and amortization expense. 3Excludes joint venture debt service and federal interest subsidy. Source: City of Palo Alto, Accounting Department Debt Service CITY OF PALO ALTO Revenue Bond Coverage Business‐type Activities1 Last Ten Fiscal Years (Amounts in thousands) $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $ Th o u s a n d s Net Revenue Available for Debt Service Total Debt Service 154 Fiscal Year 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           2016 2,250             4,134                  1,410           1,694          448             582            257            4,949                12,423          28,147           Source: California State Board of Equalization, compiled by MuniServices LLC Sales Tax Rates for the Fiscal Year ended June 30, 2016 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 8% Restaurants 15% Furniture/ Appliance 5% Apparel Stores 6% Food Markets 2% Service Stations 2%Drug Stores 1% Other Retail 17% All Other 44% Fiscal Year 2016 155 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) 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                     * 2016 66,968                    2.9%12,488                   1,927,888                  3.47% 150,600,000         *78,117                     * 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 156 Number of  Employees Rank Percentage of Total  City Employment Number of  Employees Rank Percentage of Total  City Employment Stanford University3 11,500        1 9.0% 9,821          1 7.0% Stanford Health Care3 5,000          2 3.9% 5,025          2 3.6% Lucile Packard Children's Hospital3 4,700          3 3.7% 3,326          4 2.4% Veteran's Affairs Palo Alto Health Care System 3,900          4 3.0%3,500          3 2.5% VMware Inc.3,500          5 2.7% SAP 3,500          6 2.7% Space Systems/Loral 2,800          7 2.2%1,700          7 1.2% Hewlett‐Packard Company 2,500          8 1.9%2,001          5 1.4% Palo Alto Medical Foundation 2,200          9 1.7%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 41,000      31.9% 31,251       22.3% Estimated Total City Day Population: FY 2016 128,282       FY 2008 140,000       Notes: Source:   1Comparable data was not available until FY 2008.  2016 Official City Data Set (total City day population); AtoZ databases; Stanford website. CITY OF PALO ALTO Principal Employers Current Year and Eight Years Ago FY 20162 FY 20081 Employer 2Available data sources are limited and may be unreliable. The City does not affirm the validity of this data. 2016 numbers are  rounded. 3Includes employees not located within City limits. 157 2006 2007 2008 2009 Governmental activities Community Services Number of theater performances 183  171  166  159   Total hours of athletic field usage2 65,791 70,769 63,212  45,762  Number of rounds of golf 76,000  76,241  74,630  72,170   Enrollment in recreation classes (includes summer camps)14,768  14,460  13,851  13,091   Planning and Community Environment Planning applications completed 408  299  257  273   Building permits issued 3,081 3,136 3,046 2,543  Caltrain average weekday boarding3 3,876 4,132 4,589 4,407 Police Calls for service 56,211  60,079  58,742  53,275   Total arrests 2,530 3,059 3,253 2,612  Parking citations issued 56,502  57,222  50,706  49,996   Animal Services Number of service calls 2,861 2,990 3,059 2,873  Number of animals handled 3,839 3,578 3,532 3,422  Fire Calls for service 6,897 7,236 7,723 7,549  Number of fire incidents 211  221  192  239   Number of fire inspections 899  1,021 1,277 1,028  Library  Total number of cardholders 55,909  53,099  53,740  54,878   Total number of items in collection 260,468                  270,755                  279,403                  293,735                   Total checkouts 1,280,547              1,414,509              1,542,116              1,633,955               Public Works Street resurfacing (lane miles)20  32  27  23   Number of potholes repaired 1,049 1,188 1,977 3,727  Sq. ft. of sidewalk replaced or permanently repaired 126,574                  94,620  83,827  56,909   Number of trees planted 263  164  188  250   Total tons of waste landfilled 59,276  59,938  61,866  68,228   Tons of materials recycled or composted 56,013  56,837  52,196  49,911   Business‐type activities Electric Number of customer accounts 28,653  28,684  29,024  28,527   Residential MWH consumed 161,202                  162,405                  162,680                  159,899                   Gas Number of customer accounts 23,353  23,357  23,502  23,090   Residential therms consumed 11,745,883            11,759,842            11,969,151            11,003,088             Water Number of customer accounts 19,645  19,726  19,942  19,422   Residential water consumption (CCF)2,647,758              2,807,477              2,746,980              2,566,962               Wastewater collection Number of customer accounts 21,784  21,789  21,970  21,210   Millions of gallons processed 8,972 8,853 8,510 7,958  Notes: 2According to the department, this measure was not accurately tracked during FY13 or FY14. Source: FUNCTIONS/PROGRAMS CITY OF PALO ALTO Operating Indicators by Function/Program Last Ten Fiscal Years1 City of Palo Alto Performance Report (formerly the Service Efforts and Accomplishments Report); 2015 Official City Data Set  (Caltrain) 3Prior‐year data has been updated based on annual counts revised by Caltrain. Beginning 2015, data source is Official City Data  Set. 1Ten most recent years available. Fiscal Year Ended June 30 158 2010 2011 2012 2013 2014 2015 174  175  175  184  108  172   41,705  42,687  44,226  ‐‐47,504  69,791  67,381  65,653  60,153  46,527  42,048   12,880  12,310  11,703  11,598  11,997  12,586   226  238  204  307  310  335   2,847 3,559 3,320 3,682 3,624 3,844  4,359 4,923 5,730 6,763 7,564 8,294  55,860  52,159  51,086  54,628  58,559  59,795   2,451 2,288 2,212 2,274 2,589 3,273  42,591  40,426  41,875  43,877  36,551  41,412   2,692 2,804 3,051 2,909 2,398 2,013  3,147 3,323 3,379 2,675 2,480 2,143  7,468 7,555 7,796 7,904 7,829 8,548  182  165  186  150  150  135   1,526 1,807 1,654 2,069 1,741 1,964  51,969  53,246  60,283  51,007  46,950  51,792   298,667                  314,101                  306,160                  277,749                  361,103                  429,460                   1,624,785              1,476,648              1,559,932              1,512,975              1,364,872              1,499,406               32  29  40  36  36  31   3,149 2,986 3,047 2,726 3,418 2,487  54,602  71,174  72,787  82,118  74,051  120,776                   201  150  143  245  148  305   48,955  38,524  43,947  45,411  47,088  43,730   48,811  56,586  51,725  47,941  49,594  50,546   29,430  29,708  29,545  29,299  29,338  29,065   163,098                  160,318                  160,604                  156,411                  153,190                  145,284                   23,724  23,816  23,915  23,659  23,592  23,461   11,394,712            11,476,609            11,522,999            10,834,793            10,253,776            8,537,754               20,134  20,248  20,317  20,043  20,037  20,061   2,415,467              2,442,415              2,513,595              2,521,930              2,496,549              2,052,176               22,231  22,320  22,421  22,152  22,105  21,990   8,184 8,652 8,130 7,546 7,186 6,512  Fiscal Year Ended June 30 159 2007 2008 2009 2010 2011 FUNCTION/PROGRAM Public Safety Fire: Fire Stations Operated 8               8               8               8                 8                Police: Police Stations 1                 1                 1                 1                 1                  Police Patrol Vehicles 30              30              30              30              30               Community Services Acres ‐ Downtown/Urban Parks2 157          157          157          157            157           Acres ‐ Open Space2 3,744       3,744       3,744       3,744         3,744        Acres ‐ Parks and Preserves2 ‐                ‐                ‐                ‐                  ‐                 Acres ‐ Open Space2 ‐                ‐                ‐                ‐                  ‐                 Parks and Preserves 36              36              36              36              36               Golf Course 1                 1                 1                 1                 1                  Tennis Courts 51              51              51              51              51               Athletic Center 4                 4                 4                 4                 4                  Community Centers 4                 4                 4                 4                 4                  Theaters 3                 3                 3                 3                 3                  Cultural Center/Art Center 1                 1                 1                 1                 1                  Junior Museum and Zoo 1                 1                 1                 1                 1                  Swimming Pools 1                 1                 1                 1                 1                  Nature Center 3                 3                 3                 3                 3                  Libraries Libraries 5                 5                 5                 5                 5                  Public Works: Number of Trees Maintained 34,556      35,058      34,991      35,025      34,977       Electric Utility1 Miles of Overhead Lines 194            193            193            193            193             Miles of Underground Lines 252            253            253            253            253             Water Utility Miles of Water Mains 217            217            214            214            214             Gas Utility Miles of Gas Mains 207            207            207            205            205             Waste Water Miles of Sanitary Sewer Lines 202            202            207            207            207             Note: Source: City of Palo Alto CITY OF PALO ALTO Capital Asset Statistics by Function/Program Last Ten Fiscal Years  2Beginning in 2016 park acreage is sourced from the Official City Data Set. 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. Fiscal Year Ended June 30 160 2012 2013 2014 2015 2016 7                 7                7               7               7                  1                 1                 1                 1                 1                  30              30              30              30              30               157            157            157            157            ‐                   3,744         3,744         3,744         3,752         ‐                   ‐                  ‐                  ‐                  ‐                  3,921          ‐                  ‐                  ‐                  ‐                  4,489          36              36              36              36              36               1                 1                 1                 1                 1                  51              51              51              51              51               4                 4                 4                 4                 4                  4                 4                 4                 4                 4                  3                 3                 3                 3                 3                  1                 1                 1                 1                 1                  1                 1                 1                 1                 1                  1                 1                 1                 1                 1                  3                 3                 3                 3                 3                  5                 5                 5                 5                 5                  34,874      34,907      34,741      34,636      34,683       223            222            223            223            222             245            246            249            262            268             234            233            236            236            235             210            210            214            211            209             217            217            217            217            216             Fiscal Year Ended June 30 161 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Governmental Funds General Fund: Administrative 99       98       98        89       83        83        85        83        84        86         Community Services 97       96       97        94       74        74        74        74        76        77         Development Services6 ‐           ‐           ‐            ‐           ‐            ‐            ‐            ‐           38        38         Fire 127     127     127      123     121      122      119      116      107      107       Library 44       44       44        42       41        41        41        42        44        48         Office of Emergency Services5 ‐           ‐           ‐            ‐           ‐            ‐            ‐           3          3          3           Planning and Community Environment6 53       53       53        49       44        43        48        49        28        31         Police 163     163     164      161     157      157      154      155      155      155       Public Works1 68       68       69        64       59        56        57        56        53        54         Subtotal General Fund 651     649     652      622     579      576      578      578      588      599       All Other Funds: Capital Projects Fund 20       20       21        24       24        24        26        27        27        28         Special Revenue Fund 1          1          1          1          2          2          2          9          10        9           Total Governmental Funds 672     670     674      647     605      602      606      614      625      636       Enterprise Funds Public Works2 113     113     113      115     115      115      104      99        100      95         Utilities3 235     235     238      242     251      251      254      255      258      256       External Services4 6          6          ‐           ‐          ‐           ‐           ‐           ‐           ‐           ‐            Total Enterprise Funds 354     354     351      357     366      366      358      354      358      351       Internal Service Funds Printing and Mailing 4          4          4          4          2          2          2          2          2          2           Technology 30       30       31        31       30        30        31        32        32        34         Vehicle Replacement 16       16       16        16       16        16        17        17        17        17         Total Internal Service Funds 50       50       51        51       48        48        50        51        51        53         Total 1,076 1,074 1,076 1,055 1,019 1,016 1,014 1,019  1,034  1,040   Notes: 1Fleet and Facilities Management 2Refuse, Storm Drainage, Wastewater Treatment Numbers adjusted for rounding purposes. Source:  City of Palo Alto ‐ Fiscal Year 2016 Adopted Operating Budget 6ln FY15, staff was moved from Planning and Community Environment (PC&E), Public Works and Fire to create  Development Services. 5In 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. 4In 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 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Fu l l  Ti m e  Eq u i v a l e n t s Governmental Funds Enterprise Funds Internal Service Funds 162 CITY OF PALO ALTO  Index to the Single Audit Report  For the Year Ended June 30, 2016  163  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 ..................................... 165  Independent Auditor’s Report on Compliance for Each Major Federal Program and  Report on Internal Control Over Compliance Required by Uniform Guidance ..................................... 167  Schedule of Expenditures of Federal Awards ........................................................................................... 169  Notes to the Schedule of Expenditures of Federal Awards ...................................................................... 170  Schedule of Findings and Questioned Costs ............................................................................................. 171  Schedule of Prior Years Findings and Questioned Costs ........................................................................... 172  164  This page is intentionally left blank.  Century City Los Angeles Newport Beach Oakland Sacramento San Diego San Francisco Walnut Creek Woodland Hills www.mgocpa.com Macias Gini & O’Connell LLP 2121 N. California Boulevard, Suite 750 Walnut Creek, CA 94596 165  Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Honorable Mayor and the Members of the City Council of the City of Palo Alto Palo Alto, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Palo Alto, California (City), as of and for the year ended June 30, 2016, 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 2, 2016. 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. 166  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 2, 2016 Century City Los Angeles Newport Beach Oakland Sacramento San Diego San Francisco Walnut Creek Woodland Hills www.mgocpa.com Macias Gini & O’Connell LLP 2121 N. California Boulevard, Suite 750 Walnut Creek, CA 94596 167  Independent Auditor’s Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by Uniform Guidance Honorable Mayor and the Members of the City Council of the City of Palo Alto Palo Alto, California Report on Compliance for Each Major Federal Program We have audited the City of Palo Alto’s, California (City) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on the City’s major federal program for the year ended June 30, 2016. The City’s major federal program is identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with federal statutes, regulations, and terms and conditions of its federal awards applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for the City’s major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of the City’s compliance. Opinion on the Major Federal 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 its major federal program for the year ended June 30, 2016. 168  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 the major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for the major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or 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 Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Walnut Creek, California November 2, 2016 Grantor Federal Identifying CFDA Passed Through Grantor/Pass‐Through Grantor/Program Title Number Number  Expenditures  to Subrecipients  U.S Department of Housing and Urban Development Direct B‐13‐MC‐06‐0020 CDBG ‐ Entitlement Grants Cluster B‐14‐MC‐06‐0020 Community Development Block Grants/Entitlement Grants B‐15‐MC‐06‐0020 14.218 478,193$               411,453$                 U.S Department of Interior Direct ARRA ‐ Water Reclamation and Reuse Program R10AP20003 15.504 111,014                 ‐  U.S. Department of Justice Direct Bulletproof Vest Partnership BA‐3A00S‐SM01 16.607 9,286 ‐  U.S. Department of Transportation Direct 3‐06‐0182‐009‐2014 Airport Improvement Program 3‐06‐0182‐010‐2015 20.106 244,070                 ‐  Pass‐through from State of California Office of the Traffic Safety Minimum Penalties for Repeat Offenders for Driving While Intoxicated  PT16113 20.608 15,487 ‐  Highway Safety Cluster State and Community Highway Safety  PT16113 20.600 4,835 ‐  National Priority Safety Program PT1618 20.616 14,813 ‐  Subtotal Highway Safety Cluster 19,648 ‐  Subtotal 35,135 ‐  Pass‐through from State of California Department of Transportation Highway Planning and Construction BRLS‐5100(017)132,457                  Highway Planning and Construction CML‐5100(018)20.205 148,978                 ‐  Subtotal 281,435                 ‐  Pass‐through from Dept of Resources Recycling & Recovery (CalRecycle) Highway Planning and Construction TRPS‐14‐0073 20.205 63,000 ‐  Pass‐through from State of California Department of Water Resources Highway Planning and Construction 4600010471 20.205 44,330 ‐  Total Highway Planning and Construction 388,765                 ‐  Total U.S. Department of Transportation 667,970                 ‐  Institute of Museum and Library Services Pass‐through from California State Library MA‐10‐14‐0431‐14 Museums for America MA‐11‐15‐02014‐15 45.301 51,858 ‐  TOTAL FEDERAL FINANCIAL AWARDS 1,318,321$           411,453$                 CITY OF PALO ALTO Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2016 169 CITY OF PALO ALTO  Notes to the Schedule of Expenditures of Federal Awards  For the Year Ended June 30, 2016 170  NOTE 1 – REPORTING ENTITY  The schedule of expenditures of federal awards (the Schedule) includes expenditures of federal awards  for the City of Palo Alto, California (City), and its component unit as disclosed in the notes to the basic  financial statements.  NOTE 2 – BASIS OF ACCOUNTING  Basis of accounting refers to when revenues and expenditures or expenses are recognized in the  accounts and reported in the financial statements, regardless of measurement focus applied. All  governmental funds are accounted for using the modified accrual basis of accounting. All proprietary  funds are accounted for using the accrual basis of accounting. Expenditures of federal awards reported  in the Schedule are recognized when incurred and all eligibility requirements have been met. Such  expenditures are recognized following the cost principles contained in 2 CFR 200, Subpart E (Cost  Principles), wherein certain types of expenditures are not allowable or are limited as to reimbursement.  The City did not elect to use the 10% de minimis cost rate as covered in 2 CFR 200.414(F&A) costs.   NOTE 3 – DIRECT AND INDIRECT (PASS‐THROUGH) FEDERAL AWARDS  Federal awards may be granted directly to the City by a federal granting agency or may be granted to  other government agencies which pass‐through federal awards to the City. The Schedule includes both  of these types of federal award programs when they occur.  NOTE 4 – RELATIONSHIP TO FEDERAL FINANCIAL REPORTS  Amounts reported in the Schedule agree to or can be reconciled with the amounts reported in the  related federal financial reports.  NOTE 5 – RELATIONSHIP TO BASIC FINANCIAL STATEMENTS  Federal awards and expenditures agree to or can be reconciled with the amounts reported in the City’s  basic financial statements.   CITY OF PALO ALTO  Schedule of Findings and Questioned Costs  For the Year Ended June 30, 2016  171  Section I ‐ Summary of Auditor’s Results  Financial Statements  Type of auditor’s report issued on the   basic financial statements of the City: Unmodified  Internal control over financial reporting:  Material weakness(es) identified? No   Significant deficiency(ies) identified? None reported  Noncompliance material to the financial statements  noted? No  Federal Awards  Internal control over major programs:  Material weakness(es) identified? No   Significant deficiency(ies) identified? None reported  Type of auditor’s report issued on compliance for  major programs: Unmodified  Any audit findings disclosed that are required to be  reported in accordance with Uniform Guidance? No  Identification of Major Programs: CFDA No. 14.218 Community Development  Block Grant  Dollar threshold used to distinguish between type A  and type B programs: $750,000  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, 2016 172  Financial Statement and Federal Award Findings   No financial statement nor federal award findings were reported for the year ended June 30, 2015.  ……….…………………………...……………………………………. City of Palo Alto 173 AMERICANS WITH DISABILITIES ACT STATEMENT In compliance with Americans with Disabilities Act (ADA) of 1990, this document may be provided in other accessible formats. For information contact: ADA Coordinator 250 Hamilton Avenue (650) 329-2550 ADA@cityofpaloalto.org 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. City of Palo Alto 250 Hamilton Avenue, Palo Alto, CA 94301 P 650.329.2100 W cityofpaloalto.org City of Palo Alto (ID # 7347) Finance Committee Staff Report Report Type: Action Items Meeting Date: 11/15/2016 City of Palo Alto Page 1 Summary Title: Development Services Cost of Services Study Title: Development Services Cost of Services Study Including Fiscal Year 2017 Fee Proposals From: City Manager Lead Department: Development Services Department Recommendation Staff recommends that the Finance Committee recommend that the City Council adopt an ordinance amending to Development Services Municipal Fees as described in Attachment A, based on the completion of a Cost of Services Study (Attachment B) and adjusted by the annual inflator applied to Municipal Fees from Fiscal Year 2016 to Fiscal Year 2017. Executive Summary The Development Services Department (DSD) undertook a Cost of Services Study in 2015 to evaluate development related service fees incurred by applicants seeking a construction related permit. These fees had not been reevaluated for many years, and the resulting recommendations -- if approved -- would increase fee revenues and lower General Fund subsidies consistent with the Cost Recovery Policy adopted by the City Council in May 2015. The proposed changes would amend the fee schedule to reflect current International Code Council (ICC) unit fee schedule structures and the City’s Green Building and Energy Ordinances by eliminating some fees, proposing new fees, consolidating or expanding others, and adjusting certain fees to a single flat-fee per permit. The City Council has the discretion to determine the level of cost recovery for each of these fees. However, under State law, fees cannot be set above the cost of service. The consultant report is discussed in detail below, and the recommended fee changes (Attachment A) and the full text of the consultant report (Attachment B) are attached. This study was completed based on Fy2016 data, therefore an annual inflation value of 5.5%, as recommended by the Office of Management and Budget for all Citywide fees in Fiscal Year 2017, is not included in the fees detailed in Attachment A but staff does recommend that this increase be applied to all Development Services related fees in order to capture their cost in FY 2017 and included as part of the final ordinance action for City Council consideration. City of Palo Alto Page 2 Background In July 2010, the City Manager launched the comprehensive “Development Center Blueprint” (Blueprint) project to restructure and adopt more holistic approaches to integrated development review, permitting services, and staff coordination in order to improve organizational efficiencies and minimize unnecessary costs and delays to customers. Since the inception of the Blueprint, DSD has implemented new technologies, acquired additional space, upgraded the existing space, and consolidated into a central department, that consists of Building (formerly within the Planning department), Planning, Public Works, and Fire Prevention divisions. Development Services is now a “one-stop” shop, located in a leased space across from City Hall. Design development projects now have a single point of contact that facilitates the customers’ experience throughout the permitting and construction process. As part of the Fiscal Year 2014 Adopted Budget, and in efforts to better align the budget with the current operational structure, the City Council created the Development Services Department. Development Services embodies all development-related activities, including staff allocations, resources, and associated service fees across multiple departments. The operating budget currently relies on development review fees, permitting fees, and a subsidy from the General Fund. Though the fees have been adjusted annually for inflation factors, it has been at least five years since the fee schedule and structure were last subject to a full evaluation. The Development Services Department is made up of key representatives from four different departments including the Building, Planning, Public Works, and Fire divisions. These representatives are physically stationed at the Development Center (285 Hamilton Avenue) or elsewhere in the City, and provide development-related services to applicants seeking a construction-related permit. In the current budget structure, representatives are allocated proportionally to Development Services based on their time involved in the review process. Approximately 80 employees are fully or fractionally budgeted to the department, resulting in a total of 40 FTE. For example, Development Services has watershed protection representatives in the Public Works department and transportation planners in the Planning department that review building permits. In addition to personnel costs, Development Services has specific overhead and indirect charges such as the rent, administrative functions, and city support services like Administrative Services, City Attorney, and Human Resources that must also be accounted for. As a department that operates based on fee revenues, the incoming fees must offset all expenses which include City of Palo Alto Page 3 personnel, overhead, and indirect charges. On May 18, 2015 the City Council adopted the User Fee Recovery Level Policy (CMR 5735) that suggests levels of cost recovery (high, medium, and low) based upon policy considerations. As referenced in the table below, activities in which participants receive most or all of the benefit from the service provided (i.e. issuance of building permits), or which are regulatory in nature, fall within the “high” cost recovery level group. The City retained the services of Capital Accounting Partners (CAP) to complete a cost of services study to identify the total cost of providing services for which the City charges fees, Phase I of which is included as Attachment D. CAP has prepared hundreds of cost allocation plans for cities, counties and special districts throughout California, Texas, Washington and more. Some of their clients include San Diego, Glendale, Los Gatos, Santa Barbara, Burbank and Sacramento. Dan Edds is a project manager with CAP and has more than 15 years of experience consulting within the public sector. His operational improvement work has involved problem solving and process improvement opportunities for core business processes. CAP uses an activity-based costing model to calculate the cost of a specific service (detailed further in Attachment D), which identifies activities in an organization and assigns the cost of each activity with resources to all services according to the consumption by each. The model assigns direct and indirect costs to each fee, and therefore, calculates the cost of each fee at full cost recovery. As discussed below, Phase I of the study includes recommendations for the Department’s flat fees only. Discussion Fees and Fee Structure: Development Services fees are structured in two ways: flat or project valuation-based. Based on estimated FY 2016 revenues, approximately 75%, or $8.6 million, of departmental revenue is derived from project valuation-based fees. Major project valuation-based fees include the Building Permit and Plan Check fees. Industry practice correlates the valuation of a job to its complexity, in the aggregate, and as such fees are calculated based on a percentage of a projects valuation. Currently, the department uses the construction value for labor and materials of the permitted work as the basis for determining the total Building Permit fee. An additional Plan Check fee is assessed on top of the Building Permit, which is based on a percentage of the total Permit fee. The Plan Check fee is intended to recover costs associated with the Building, Fire & Life Safety, Zoning, and Public Works review of applicant plan submittals. In contrast, flat rate fees are fees costed based on time and materials and activity levels. These fees comprise the remaining Development Services revenue. The following represents the projected breakdown of FY 2016 revenues evaluated as part of the fee study, at current fee levels: City of Palo Alto Page 4 FY 2016 Development Services Projected Revenue Fee Study Project Steps and Process: CAP was tasked to prepare a detailed cost analysis of its Development Services user fees with the objective of ensuring that the Development Services Department is fully accounting for all costs and recovering adequate revenues to cover expenses. Based on the current organizational structure, CAP developed a costing model to analyze the total cost of fee generating services and recommend adjustments necessary to reach full recovery. As the study progressed, it was determined that additional data points were necessary to recommend adjustments for valuation-based fee activities. Therefore, the report includes only a high-level assessment of aggregated building permit and plan check activities. Staff is currently in the process of implementing new data collection fields in the permit system and is expanding the existing study to include a survey of other comparable City valuation tables and alternative permit fee structures for what are currently valuation-based fees. The study conducted by CAP for all Non-Valuation-based fees, or “flat rate” fees as referenced earlier in this report, utilized an activity-based costing model to calculate the full cost of providing specific services. This methodology identifies activities in an organization and assigns the cost of each activity with resources to all services according to the consumption by each. The model assigns direct and indirect costs to each fee, where all proposed fees have been calculated at full recovery. A summary of how CAP builds cost structures follows: 1. Direct Costs Through meetings with staff, CAP identified all direct staff time spent on fee-related activities or services, where direct time is indicative of workers who are directly involved with activities of a specific fee or service. Average salaries and the City Standard productive rate of 1,600 hours/year were used for these calculations. Additionally, CAP identified other operational costs that are directly attributed to certain services, such as the Department’s use of on-call consultants for inspections in the Building and Fire divisions. City of Palo Alto Page 5 2. Indirect Costs (citywide administration) These costs include processes that support, but do not directly apply to any specific activity or fee, such as the Citywide and Departmental Overhead. The Citywide overhead costs are allocated to departments based on the City’s Cost Allocation Plan. These represent expenses of supporting departments including the offices of the City Manager, City Attorney, City Auditor, City Clerk, Administrative Services, Human Resources, Information Technology, and Facilities Maintenance. 3. Overhead (departmental administration) Department Overhead is represented in two aspects: 1) Development Services as a whole; and 2) Divisional Overhead. Development Services overhead includes the salaries of the Director, the Director’s Administrative Assistant, and the Senior Management Analyst, as well as rent, and other supplies commonly used by all divisions of the department (Building, Planning, Public Works, and Fire Prevention). These are not assigned to any particular service, but are allocated to all fees since these professionals support all the activities of the department as a whole. The Divisional Overhead represents costs associated with managers, supervisors, and support staff and common purpose operational costs of the Public Works, Planning, and Fire Departments. For example, direct staff is allocated as a percentage of an FTE to Development Services based upon activity levels for Public Works, while divisional overhead which reflects the Public Works administrative costs such as budget, contract, and executive leadership costs are calculated as a rate that is applied to the salaries allocated to Development services and executed through a year-end adjustment. The rate assumes that the same level of administrative support provided to the Public Works Department is provided to the Public Works division within Development Services. These are not assigned to any particular service, but are allocated to all fees in the respective division. 4. Reserve A reserve fund provides a mechanism to finance future unanticipated events and other identified or planned needs of the department. For purposes of the calculation, the reserve amount is allocated to all fees, similar to Overhead. As part of the study, the consultant recommended that the City set a specific reserve policy, however included an optional common practice to build 6-12 months of operating expenses over a three year period. The original consultant study incorporates a $2.3 million reserve within the cost structure of the department, where results show the full cost of fees with and without a reserve. However, due to the recommended significant changes to move closer towards cost recovery, and the delay necessary to adjust valuation-based fees, staff does not recommend the establishment of a reserve at this time. As such, the proposed fees presented in Attachment A do not include any assumption for reserve costs. Projections: The study indicates a total projected General Fund subsidy in FY 2016 of $1,787,985, excluding City of Palo Alto Page 6 impacts of one-time activities, such as deferred revenue for large projects and expense savings. Once adjusted for one-time revenues, the net general fund subsidy in FY 2016 is approximately $294,000. Drivers of Cost Recovery Variances: Staff believes the following to be key drivers for cost recovery variances within the Public Works, Planning, and Fire Prevention divisions: 1. Length of time since last comprehensive Fee Study. While fees have been adjusted annually for inflation factors, it has been at least five years since the fee schedule and structure were last subject to a full evaluation. 2. Fee levels in Planning, Public Works, and Fire have historically been set below full cost recovery. 3. As part of the creation of Development Services, the cost structure for Planning, Public Works, and Fire divisions has significantly changed. For example, divisions are now responsible for overhead allocations such as rent, Development Services managerial staff, and other commonly used operating expenses (e.g. scanning services, office supplies, etc.). Findings & Recommendations: Modifications to flat fees, representing approximately 25% or $2.7 million of departmental revenues, are representative of current resources, activities, and activity levels, as well as changes to California Building and Fire Codes, and/or state mandates. Recommended modifications to fees included re-naming fees, altering tiered fees and triggers, removing, and creating new fees. The proposed fees, including a description of changes where applicable, are included as Attachment A (excluding the recommended 5.5% increase to align with FY 2017 costs). Fire Prevention The largest impact of the Fee Study is anticipated in the Fire Prevention Division. Fire Prevention fees have historically been set below cost recovery, or were provided at no cost, and a complete fee study or evaluation has not been completed in at least five years. Further, as part of creating Development Services, all Fire Prevention staff and associated costs were moved to Development Services offices resulting in the need for additional space. Moving Fire Prevention entirely out of the Fire Department and into Development Services means that this division is now subject to a different cost structure that includes overhead allocations such as rent, Development Services managerial staff, and other commonly used operating expenses (e.g. scanning services, office supplies, etc.). All fees in Fire Prevention were calculated according to the consultant’s activity-based model, where fees have been proposed at full cost based on current activities, activity levels, and City of Palo Alto Page 7 proposed resources. These proposed fees are included in the fee study and are proposed to be increased as recommended by CAP. Public Works Public Works, like Planning, has a host of fees. However, many of their fees can be applied to both development and non-development-related work. The differentiating factor is that development-related work is entirely the result of private development. For example, a commercial developer has to apply for a street work permit to work in the right-of-way. That is entirely due to the impacts associated with their project. That work is driven by private interests and it has been the direction from Council to ensure that those fees are set at full cost recovery. Those fees are collected by and reside in Development Services as do the subsequent direct, indirect and overhead Public Works costs associated with providing those services. For purposes of this study, private development work is separate and distinct from non- development related work. Therefore, those services and fees are provided by Public Works as a whole, and the fees are set by Public Works as a whole through the Public Works departmental municipal fee schedule. Public Works, with direction from the City Council, decides how close to full cost recovery they should set those fees. The CAP study did include analysis of the Public Works Department, however, subsequent to the kick-off of the consultant study, updated analysis on staff allocations, time estimates, and fee volumes were obtained and staff was unable to incorporate this more current data into the consultant’s final results. Therefore, Public Works municipal fee proposals included as part of the development of the Adopted Fiscal Year 2017 Municipal Fee Schedule are reflective of a full cost recovery model, however, were not reflective of the specific methodologies and assumptions used in the CAP study. The FY 2017 Adopted Fees utilized the Questica Calculator launched by the Office of Management and Budget as opposed to those fees recommended in the CAP study. The Adopted amendments to Public Works’ fees in the Development Services Department represent significant recommended increases from the 2016 fees, and are expected to bring the Public Works fees much closer to cost recovery. As part of the FY 2018 budget process, the Office of Management and Budget, Development Services and Public Works will review these fees and ensure they are at full cost recovery and/or bring forward recommended adjustments to the fees and appropriate based on FY 2017 actual activity levels and estimated FY 2018 costs. Building Non-valuation fees were updated to reflect current ICC unit fee schedule structures, per California State code. Similar to Fire Prevention, a complete fee study or evaluation has not been completed in the last five years, and all fees are proposed at full cost according to the consultant’s activity based model and current activities, activity levels, and resources. The most significant changes recommended within the Building division are a result of restructuring Mechanical, Plumbing, and Electric Permit fees. These fees are charged in conjunction with the Building Permit and generally charge a Base Fee (representing administrative costs to process) and new or remodeled supplemental fee (based on square City of Palo Alto Page 8 footage and representative of inspection costs). As a result of the study, current processing and inspection times have both decreased. At full cost, the base fee is proposed to decrease to $82, from $92, and the square footage fee to decrease to $0.02, from $0.11 per square foot. Mechanical, Plumbing, and Electric fees can also be charged as stand-alone permits. These fees are structured as a Base fee (representing administrative costs to process) plus a supplemental permit fee (representing inspection costs). The base fee is proposed to decrease to $82 from $92 as stated above, where the unit of measure for the supplemental permit is proposed to change from “each” to “per permit”. The current unit of measure is reflective of time estimates for each incremental measure of an activity, such as the inspection of each individual light fixture or switch at $0.50/each. Determining the incremental unit of time is incredibly difficult, hard to justify, and is no longer a method promoted by ICC. As such, Development Services has revised these fees on a per permit basis, using time estimates of an average project (5,000 sq. ft.). In the case of the light fixture, the permit would be issued at a total cost of $82 for the Base Fee, representing administrative processing costs, plus $68 for the inspection of any number of light fixtures. Green Building Development Services continues to expand and develop the Green Building program in efforts to follow the City Council’s lead and maintain a leadership role in environmental sustainability. Fees were updated and new fees implemented to comply with State mandates, such as a Landscape review and permit management, as well as the current Green Building and Energy Ordinance. The cost structure of these fees includes consulting services associated with the integration and management of sustainable building practices and policies, Landscape review and permit management, as well as staff training, quality control, reporting, and informational outreach to the community. Use & Occupancy Use & Occupancy fees were included in the study; however, staff does not propose to adjust these fees at this time. These fees will be studied separately with the integration of the Business Registry fee where staff anticipates that drivers to calculate cost, such as activities and resources, will change as the program is developed. Next Steps: Development Services strives to operate as a revenue-supported department within the General Fund with the ultimate goal of being an enterprise fund. The ultimate goal of Development Services is to reach full cost recovery in all divisions and the adoption of the Fees outlined in Attachment A represents the next step towards this goal of full cost recovery. The department will continue to track revenues and expenditures at a divisional level through Fiscal Year 2017 in order to analyze their cost-recovery performance and will work collaboratively with the Office of Management and Budget, and the City Attorney’s Office to identify and define a reserve policy that is appropriate and specific to the Development City of Palo Alto Page 9 Services. Staff anticipates returning to City Council with iterative recommendations, including adjustments to valuation-based fees and the inclusion of reserve costs, through subsequent budget processes. Resource Impact The actions recommended in this report would increase the estimated revenue generated by the Development Service Department flat fee activities. Given the changing economic environment and the unknown potential impacts of the increases on activity levels (estimated to be minor), no adjustment to the budget is assumed. Revenue collections will be monitored and factored into the annual development of the budget as data is availabe and adjustments are found to be necessary. Environmental Review Adoption of an ordinance amending Development Services Municipal Fees is not a project for the purposes of the California Environmental Quality Act (CEQA) and therefore no environmental review is necessary. Attachments: Attachment A_Municipal Fee Proposals (PDF) Attachment B_CAP Cost of Services Study (PDF) FY 2016 Fee Proposed Fee Total Surcharge/(Subsidy)Notes Administration Business Registry Business Registry Fee $50.00 per business $50.00 per business No Change Business Registry fees studied separately Building Building Permit Fees A. $1.00 - $1,000.00 $69.20 base fee B. $1,000.01 - $2,000.00 $69.20 for the first $1,000.00 plus $5.47 for each additional $100.00 or fraction thereof, to and including $2,000.00 C. $2,000.01 - $25,000.00 $123.91 for the first $2,000.00 plus $25.03 for each additional $1,000.00 or fraction thereof, to and including $25,000.00 D. $25,000.01 - $50,000.00 $699.59 for the first $25,000.00 plus $18.58 for each additional $1,000.00 or fraction thereof, to and including $50,000.00 E. $50,000.01 - $100,000.00 $1,163.98 for the first $50,000.00 plus $12.50 for each additional $1,000.00 or fraction thereof, to and including $100,000.00 F. $100,000.01 - $500,000.00 $1,789.20 for the first $100,000.00 plus $10.03 for each additional $1,000.00 or fraction thereof, to and including $500,000.00 G. $500,000.01 - $1,000,000.00 $5,800.59 for the first $500,000.00 plus $8.52 for each additional $1,000.00 or fraction thereof, to and including $1,000,000.00 H. $1,000,000.01 and Up $10,058.55 for the first $1,000,000.00 plus $6.72 for each additional $1,000.00 or fraction thereof If valuation exceeds $5,000,000.00, an alternative fee arrangement may be established by the Chief Building Official to achieve full cost recovery I. Building Demolition Permit $320.00 (does not include C&D fees)$386 ($66) J. Commercial Interior Non-Structural Demolition Permit $194.00 (does not include C&D fees)$175 $19 Construction & Demolition Commercial and Multi-Family Projects greater than or equal to $25,000.00 in Valuation1 $238.00 per permit $369 ($131) Single Family and Two Family Projects greater than $25,000.00 and less than $75,000.00 in Valuations1 $80.00 per permit $154 ($74) Single Family and Two Family Projects greater than $75,000.00 in Valuation1 $212.00 per permit $225 ($13) Electrical Permits Base Fee $92.00 per permit $82 $10 New or Remodeled Square Footage $0.11 per square foot $0.02 $0.09 Air Conditioners $29.00 per unit $81 ($52) Air Cooled or Oil Cooled Lighting and/or Power Transformer Each KVA shall be considered as one horsepower and charged for as per motor schedule Delete Not actively charged Conditional Utility Agreement $252.00 each $237 $15 Busway, Power Duct, or Floor Duct Per Foot $0.50 each $68 Each Additional Meter $5.00 each $68 Fixtures, Switches, and Outlets $1.00 each $68 Lighting, Power and/or Control Panel Board, Switchboard Cabinet or Panel $5.00 each $68 Motor $23.00 each $68 Motor Generator $3.00 per KVA $68 Range, Electric Clothes Dryer, or Water Heater $5.00 each $68 Special Circuit (Not Listed Herein)$5.00 each $68 Service Conductor/Switch - Greater than 800 ampre $40.00 each $243 ($203) Service Conductor/Switch - Less than 200 ampre $18.00 each $122 ($104) Service Conductor/Switch - Less than 800 ampre $29.00 each $162 ($133) Temporary Power Pole $56.00 each $68 ($12) Temporary Wiring for Construction $56.00 each $68 ($12) Electrical Permits - Electrical Vehicle Charging Stations Commercial (Level 1 and 2)$370.00 $382 ($12) plus $92.50 for each additional station $74 $18 Commercial (Level 3 and 4)$560.00 $464 $96 plus $140.00 for each additional station $91 $49 Residential (All Types)$160.00 per station Delete Residential (Level 1 and 2)$168 Add Residential (Level 3)$236 Add DEVELOPMENT SERVICES No change to Valuation Table DSD to complete separate study Restructured to a single flat-fee per permit Converted to a multi-level fee. Attachment A FY 2016 Fee Proposed Fee Total Surcharge/(Subsidy)Notes Electrical Permits - Photovoltaic Systems Residential System $311.00 each Delete Residential Systems (less than 10kW)$81 Add Residential Systems (greater than 10kW)$304 Add Commercial System (less than 10 kW)$565.00 each $537 $28 Commercial System (10kW - 49kW)$850.00 each $805 $45 Commercial System (greater than 49kW)$900.00 each $873 $27 General & Miscellaneous Fees Address Change $224.00 single address; $356 ($132) $112.00 each additional address $171 ($59) All Other Publications $16.00 each No Change Construction/Maintenance Vehicles $76.00 per space per week No Change Electric Service and Safety Inspection $84.00 per hour $151 ($67) Extension of Building Permit or Building Permit Application $56.00 per application $86 ($30) Inspections and Investigations - Outside Normal Business Hours Note: Inspections and investigations outside normal business hours (2- hour minimum).$202.00 per 1.5x OT hour; $365 ($163) $226.00 per 2.0x OT hour $486 ($260) Inspections and Investigations - Unclassified Note: Inspections and investigations for which no fee is specifically indicated (2-hour minimum).$163.00 per hour $228 ($65) Reactivation of Expired Building Permit $168.00 per permit plus Plan Check Fees as applicable $189 ($21) Reactivation of Expired Building Permit - All Others 50% of original Building Permit Fee not to exceed the full cost to perform remaining inspections as determined by the Chief Building Official No Change Reactivation of Expired Building Permit - Final Inspection Only $375.00 or 50% of original Building Permit Fee, whichever is less $253 $122 Real Property Research Fee (1-hour minimum)$127.00 per hour $243 ($116) Records Retention $4.00 per plan sheet $6 ($2) Reinspection Fee - Multi-Family Residential and Non- Residential $308.00 each $281 $27 Reinspection Fee - Single Family Residential $84.00 each secondary inspection type;$220 ($136) $308.00 each primary inspection type $281 $27 Request for Release of Building Plans $45.00 each $76 ($31) Residential Inspection GuidelinesNote: Available free online $33.00 each No Change Green Building Residential - Single Family and Two Family New Construction1 Note: New construction plus additions greater than 1,250 sq. ft. and rebuilds.$677.00 per review Delete New Single Family $1,373 Add Residential - Existing Home Renovations, Rebuilds, and/or Additions Note: Any existing home renovation, rebuilds, and/or additions greater than 250 sq. ft. and less than 1,250 sq. ft. and/or greater than $100,000.00 valuation. $56.00 per review Delete Residential - Multi-Family Renovations or Alterations Note: Renovations or alterations greater than 50% of the existing unit sq. ft. and that include replacement or alteration of at least of the following: HVAC system, building envelope, hot water system, or lighting system. $1,190.00 per review Delete Alterations and additions for single and multifamily < 1,000 sq ft and increases conditioned space $1,097 Add Alterations and additions for single and multifamily > 1,000 sq ft $1,232 Add Residential - Multi-Family New Construction of Three or More Units (attached)$1,190.00 (1-10 units); $1,388.00 (11-24 units); $1,687.00 (25 units or more)Delete Multi Family New Construction of 3 or More (attached) Units $1,508 Add Multi Family New Construction of < 4 $1,238 Add Non-Residential - New Construction1 Note: New construction plus additions greater than 1,000 sq. ft. and rebuilds.$1,495.00 per review Delete New commercial 1000 - 25,000 SF $1,778 Add New commercial 25,001-50,000 SF $2,048 Add New commercial >50,000 SF $2,183 Add Non-Residential - Tenant Improvements, Renovations, or Alterations (greater than 5,000 sq. ft) Note: Any existing tenant improvement, renovation, rebuilds, and/or additions greater than 5,000 sq. ft. that include replacement or alteration of at least two of the following: HVAC system, building envelope, hot water system, or lighting system. $976.00 per review Delete Tenant improvements, renovations, or alterations > 5,000 sq ft Note: includes replacement or alteration of at least two of the following: HVAC system, building envelope, hot water system, or lighting system and project value greater than $200,000.$1,508 Add Tenant improvements, renovations or alterations > $200,000 in valuation (and not triggered by a Calgreen Tier) $1,238 Add Non-Residential - Tenant Improvements, Renovations, or Alterations (greater than $100,000 valuation) Note: Any existing tenant improvement, renovation, or alterations greater than $100,000.00 in valuation and/or landscape renovations 21,000 sq. ft. $357.00 per review Delete If the project is over $100,000 Energy Star is required after 12 months of occupancy $698 Add Landscape Plan Review - Single Family Residential $894 NEW Landscape Plan Review - Non-Residential & Multi-Family $1,453 NEW Landscape Inspection $218 NEW Converted to a multi-level fee. Green Building Fees have been updated in accordance with the current Green Building and Energy Ordinance. Necessary to provide services and compliance with the Emergency Building Standards for Outdoor Potable Water FY 2016 Fee Proposed Fee Total Surcharge/(Subsidy)Notes Mechanical Permits Base Fee $92.00 per permit $82 $10 New or Remodeled Square Footage $0.11 per square foot $0.02 $0.09 Flue $5.00 each Delete Furnace and Flue $28.00 each Delete Furance, Flue, and Associated Ducts $163 Add Boiler (Certified Design)$28.00 each Delete Boilers, Compressors, and Absoprtion Systems: For the installation or relocation of each boiler or compresor up to 30 hp, or each absopration system up to and including 1,000,000 Btu/h $109 Add For the installation or relocation of each boiler or compressor exceeding 30 hp, or each absorption system exceeding 1,000,000 Btu/h $163 Add Air Conditioner or Heat Pump $28.00 each Delete Duct Outlet $0.50 each Delete Air Handlers up to and including 10,000 cfm $54 Add Exhaust Hood - Kitchen or Industrial $28.00 each Delete Vent Fan (Bath, Dryer, Residential Kitchen)$11.00 each Delete Ventilation and Exhaust $54 Add Fire Damper $5.00 each Delete Miscellaneous For each appliance or piece of equipment regulated by this code, but not classed in other appliance categories, or for which no other fee is listed $54 Add Process Piping System $28.00 each $54 ($26) Process Piping System - Hazardous $56.00 each $130 ($74) Swimming Pool Heater $28.00 each $65 ($37) Evaporative Cooler $28.00 each Delete Not actively charged Plan Review Fees Additional Plan Review Note: Required by changes, additions, or revisions to plans including Alternative Means and Methods (2- hour minimum). For Elective (3rd party) and over-the-counter reviews (half hour minimum).$191.00 per hour $201 ($10) Certified Access Specialist (CASp) Review/Consultation Actual cost of CASp Consultant plus 15%$262 Building Plan Check 80% of Building Permit fee Elective Plan Check 35% of Building Plan Check fee Fire and Life Safety Plan Check 45% of Building Permit fee Public Works Plan Check 12% of Building Permit fee Zoning Plan Check 30% of Building Permit fee Plumbing Permits Base Fee $92.00 per permit $82 $10 New or Remodeled Square Footage $0.11 per square foot $0.02 $0.09 Plumbing Fixtures $3.00 each Delete Plumbing Fixtures: For each plumbing fixture on one trap or a set of fixtures on one trap (including water, drainage piping, and backflow protection therefore)$81 Add Commercial/Industrial Sewer $28.00 each Delete Residential Sewer $11.00 each Delete Plumbing Fixtures: For each building sewer $130 Add Rain Water System $5.00 each Delete Rain Water Systems $81 Add Water Heater $5.00 each Delete Water Heater, Vent, or Other $97 Add Gas Outlet $5.00 each Delete Radiant Heat Piping System $28.00 each Delete Gas Piping System $195 Add Industrial Waste System $28.00 each Delete Industrial Waste Pretreatment Interceptor (including trap and vent, except kitchen-type grease interceptors functioninga fixture traps)$195 Add Water Piping System or Repair $5.00 each Delete Water Piping Installation, alteration or repair of water piping, water treatment equipment or both.$97 Add Solar Hot Water System Note: Does not include Plan Check fee.$224.00 each $195 $29 Storm Drain System $28.00 each $195 ($167) Swimming Pool $28.00 each $65 ($37) Atmospheric-type Vaccume Breakers $97 New Backflow protective device other than atmospheric-type $195 New Medical Gas Piping Systems $195 New Plumbing Permits - Graywater Systems Clotheswasher System $56.00 each $81 ($25) Complex System $88.00 plus plan review at cost $195 ($107) Simple System $61.00 plus plan review at cost $81 ($20) Restructured to a single flat-fee per permit and re- named to be consistent with ICC permit fee tables Reflective of curent ICC tables and activities for which no other fee currently exists. Plumbing Fees have been updated to reflect current ICC table 114.1 unit fee schedule structure, per California state plumbing code. Mechanical Fees have been updated to reflect current ICC table 114.1 unit fee schedule structure, per California state mechanical code. Restructured to a single flat-fee per permit and re- named to be consistent with ICC permit fee tables No Change to Plan Check Permit Fees FY 2016 Fee Proposed Fee Total Surcharge/(Subsidy)Notes SB 1473 Fee A. $1.00 - $25,000.00 Permit Valuation $1.00 per valuation increment B. $25,001.00 - $50,000.00 Permit Valuation $2.00 per valuation increment C. $50,001.00 - $75,000.00 Permit Valuation $3.00 per valuation increment D. $75,001.00 - $100,000.00 Permit Valuation $4.00 per valuation increment E. Each $25,000.00 Increment or Fraction Thereof Above $100,000.00 Add $1.00 per valuation increment F. Minimum $1.00 minimum Strong Motion Instrument Program Commercial $28.00 per $100,000.00 permit valuation ($0.50 minimum) Residential $13.00 per $100,000.00 permit valuation ($0.50 minimum) Use & Occupancy Permits Certificate of Use and Occupancy $287.00 each Certificate of Use and Occupancy - Replacement $123.00 each SB 1186 Mandated FeeNote: Does not include fees collected by the Fire Department.$1.00 each No Change State mandated Temporary Occupancy Permit - Multi-Family Residential, Non-Residential, and Other Commercial $896.00 each $602 $294 Temporary Occupancy Permit - Single Family Residential and Commercial Tenant Improvement less than 10,000 sq. ft.$375.00 each $445 ($70) Fire Prevention Compliance Fees Emergency Response Fee - Hazmat (PAMC 17.24.050)Up to $1,212.00 for each incident up to 100% cost recovery No Change Installation or Closure Without Approved Plans and/or Permits $275.00 - $813.00 average fee range No Change Documents Emergency Planning Guide $253.00 each No Change Long-term Offsite Document Storage $0.25 per page No Change Microfilm Copy/Print $3.25 per blueprint page; $0.30 per specification/ calculation page No Change Photographs $30.00 first print; $0.55 each additional print No Change Hazardous Materials Classification Permits Compressed Gas $139.00 annually $350 ($211) Corrosives $139.00 annually $350 ($211) Cryogenic Fluid $139.00 annually $350 ($211) Flammable and Combustible Liquids $139.00 annually $350 ($211) Flammable Gas $139.00 annually $350 ($211) Flammable Solids $139.00 annually $350 ($211) Health Hazard (Liquids & Solids)$139.00 annually $350 ($211) Liquefied Petroleum Gases $139.00 annually $350 ($211) Organic Coatings $175.00 annually $350 ($211) Organic Peroxides $139.00 annually $350 ($211) Ovens - Industrial Baking or Drying $102.00 annually $350 ($211) Oxidizers (Liquids & Solids)$139.00 annually $350 ($211) Oxidizing Gas $139.00 annually $350 ($211) Pyrophoric Gas $139.00 annually $350 ($211) Pyrophoric Materials (Liquids & Solids)$139.00 annually $350 ($211) Pyrotechnical Special Effects Material $29.00 annually $350 ($211) Radioactive Materials $139.00 annually $350 ($211) Refrigeration Equipment $175.00 annually $350 ($211) Spraying/Dipping $175.00 annually $350 ($211) Toxic, Highly Toxic, Moderately Toxic, Health Hazard Gas Note: Includes pesticides, fumigants, and etiologic agents.$139.00 annually $350 ($211) Toxic, Highly Toxic, Moderately Toxic, Health Hazard Materials $139.00 annually $350 ($211) Unstable Reactive Gas $139.00 annually $350 ($211) Unstable Reactive Materials (Liquids & Solids)$139.00 annually $350 ($211) Water Reactive Materials (Liquids & Solids)$139.00 annually $350 ($211) Other Hazardous Materials - Unclassified Note: Inspections and investigations for which no fee is specifically indicated (1-hour maximum).$350 NEW General category to include other hazardous materials not listed above Tire Recapping/Tire Storage $575.00 annually $1,396 ($821) No Change These will be studied separately, with the integration of the Business Registry fee. No Change State mandated No Change State mandated FY 2016 Fee Proposed Fee Total Surcharge/(Subsidy)Notes Hazardous Materials Storage Permits Additional Approvals for Hazardous Materials Storage Permit Note: Additional approval for permit to construct, temporary closure, permanent closure, otherwise modify a hazardous materials storage facility. See CEQA for additional fees.$356.00 per occurrence, plus $758 ($402) $159.00 per hour for time above two hours $496 ($140) Business Plan (HMBP)$256.00 per location annually $496 ($240) Late Fee for Hazardous Materials Storage Permit 25% of total Hazerdous Material permit fee No Change Level I Facility (Includes 1 hr of Inspection Time) Note: Minimal storage as defined by having no hazardous materials over CFC permit amounts as specified in CFC section 105. $264.00 annually per location $350 ($86) Level II Facility (Includes 2 hrs of Inspection Time) Note: Quantities exceeding CFC permit threshold, but less than 50 gal., 500lbs or 200 cu. ft. Category also includes dry cleaning, fixed medical gas, auto or aircraft repair, and service stations. $404.00 annually per location plus other hazardous materials classification permit if applicable $700 ($296) Level III Facility (Includes 4 hours of Inspection Time) Note: Quantities exceed 50 gal. 500lbs, or 200 cu. ft. and not categorized as Level II.$729.00 annually per location plus other hazardous materials classification permit if applicable $1,399 ($670) Petroleum Aboveground Storage Tank (Includes 2hrs of Inspection Time)$593.00 annually $700 ($107) Provisional/6 Month (Includes 2 hrs of Inspection Time)$186.00 plus other hazardous materials classification permit fees if applicable $700 ($514) Inspection Fees Additional Inspection or Resinspection Fee $323.00 for up to 2 hours resinspection, plus $698 ($375) $159.00 per hour (during business hours)$349 ($190) After Hours Inspection Fee Note: Fee for before or after normal business hours; weekends and holidays included. Fee is to be paid in advance of inspection. $165.00 per hour; 4 hour minimum $523 ($358) Care Facility Note: Includes community, child day care and residential care for the elderly (CFC 111.4). Excludes residential elderly care facilities with six or fewer persons.$175.00 annually Delete Not actively charged Care Facility Inspection Including Fire Clearance $73.00 for facilities with 7-14 clients; $349 ($276) $140.00 for facilities with more than 14 clients $698 ($558) Christmas Tree Lot/Pumpkin Patch $175.00 each $349 ($174) $713.00 annually for up to 4 hours; plus $1,454 ($741) $159.00 for each additional hour $349 ($190) Outside Cooking Booths $198.00 each $523 ($325) Standby Fire Watch (Per Person)$159.00 per hour $349 ($190) Use and Occupancy Fire Inspection $148.00 per inspection No Change To be studied separately, with the integration of the Business Registry fee As-Built Plan Check and Additional Work $698 New Implemented to recover costs for activity in which no other permit currently exists Consultations Additional Hours Over Plan Review/Inspection $155.00 each $276 ($121)Changing to a Per Hour fee Alternate Means and Methods Application (2 hr Maximum)$356.00 per application $657 ($301) Appeals to Decisions $159.00 per hour $349 ($190) Consultation Fee $166.00 per hour $349 ($183) Hazardous Materials Data Entry Fee $77.00 per hour; 1 hour minimum Delete Not actively charged Hydrant Flow Fee $165.00 per occurrence $349 ($184) Prior Fee Range was 7- 25 clients & 25+ High Rise Building - Certificate of Compliance Note: Certificate of compliance inspection for each high rise building which is required by state law to be inspected and certified annually as meeting minimum compliance with applicable state of California fire and life safety standards for existing high rise buildings (CFC 111.4.3). FY 2016 Fee Proposed Fee Total Surcharge/(Subsidy)Notes Life Safety & Fire Protection Automatic Fire Sprinkler Installation/Modification: 1-19 Sprinkler Heads $356.00 $698 ($342) 19+ Sprinkler Heads (Includes Hydrostatic Test), plus additional per head fee $1,541 plus $1.80 per head $3 ($2) Express Fire Protection Plan Check Fee $163.00 per occurrence No Change Fire Alarm System Installation and Modification $356.00 plus $974 ($618) $2.00 a device or contact point $21 ($19) Fire and Life Safety Plan Check - Commercial Note: Includes one inspection and reinspection.The Fire and Life Safety Plan Review Fee is 45% of the Building Plan Check Fee and is collected by the Building Division at the time an application of a Building Permit is submitted No Change Fire Protection and Fire Access Plan Review for New Single Family Dwellings or Additions $100.00 each $800 ($700) Underground Fire Service Line Note: Includes 4 hrs of Inspection & 1 hr of Plan Check $356.00 per occurrence $1,672 ($1,316) Previously included one inspection and one reinspection Hydrant/Appliance Installation or Modification $261.00 Delete plus $59.00 per hydrant $174 ($115) Other Automatic Fire Extinguishing System Note: Includes hood and duct, FM 200, Inergen, and C02. If a system has a release panel, Fire Alarm fees apply as well.$356.00 plus $7.25 per nozzle $974 ($618) Site Disaster Planning $166.00 per hour $349 ($183) Standpipe System - Wet, Dry, or Combination $208.00 per riser $698 ($490) Temporary Certificate of Occupancy $356.00 per occurrence No Change To be studied separately, with the integration of the Business Registry fee. Verification of Fire Protection System Maintenance and Certification $89.00 annually $78 $11 Food truck permits $174 New Implemented to recover costs for activity in which no other permit currently exists Multifamily dwellings, hotels & motels 4-50 units $349 New 51-100 units $698 New Greater than 100 units $1,047 New Fire Prevention Inspection of Private Schools $698 New Specific Hazard Permits Aerosol Products $102.00 annually $436 ($334) Amusement Buildings $410.00 each $0 Delete Not actively charged Automobile Wrecking Yard or Junk Yard $179.00 annually $0 Delete Not actively charged Bowling Alley and Pin Refinishing Involving the use of Flammable Liquids $179.00 each $1,018 ($839) Candles and Open Flames in Assembly Areas $142.00 annually $349 ($207) Carnivals and Fairs $179.00 each $1,454 ($1,275) Cellulose Nitrate Storage/Nitrate Film $102.00 annually $102 $0 Combustible Fiber/Material Storage $179.00 annually Delete Not actively charged Confined Space $148.00 annually Delete Not actively charged Dust Producing Devices $126.00 annually Delete Not actively charged Excavate within 10 ft. of Flammable or Combustible Pipeline $88.00 each Delete Not actively charged Explosive or Blasting Agents $102.00 annually Delete Not actively charged Fireworks Display $565.00 each Delete Not actively charged High-piled Combustible Storage $102.00 annually Delete Not actively charged Hot Work (Welding) Operations $179.00 annually $349 ($170)Changing to a one-time fee Liquid or Gas-Fueled Powered Equipment/Generator $88.00 each $349 ($261) Liquid or Gas-Fueled Vehicles or Equipment in Assembly Buildings $103.00 each Delete Not actively charged Magnesium Working $103.00 annually Delete Not actively charged Malls - Covered $103.00 annually $698 ($595) Occupant Load Increase - Temporary Assembly $236.00 each $349 ($113) Open Burning $236.00 each $349 ($113) Open Flame/Flame Producing Devices $88.00 each $349 ($261) Operate a Tank Vehicle to Transport Flammable/Combustible Liquids $102.00 annually $494 ($392)Changing to a per-vehicle fee Parade Float $115.00 per hour $350 ($211) Place of Assembly $236.00 per occurrence $700 ($464) Place of Public Assembly - Temporary $236.00 each $349 ($113) Special Events Permit $349 New Implemented to recover costs for activity in which no other permit currently exists Tent or Air Supported Structure Note: Tent or air-supported structure having an area in excess of 200 sq. ft. or canopies in excess of 400 sq. ft. Fee includes a public assembly permit of $125.00 for all tents. $290.00 each $741 ($451) Restructuring to a two-tier fee Restructuring to one per- device fee to be charged in conjunction with the Underground Fire Service Line fee. New Fee and Fee Ranges implemented per State mandate to inspect these facilities Capital Accounting Partners Page 1 Report – Development Services Fee Study June 2016 CITY OF PALO ALTO Development Services Department CAPITAL ACCOUNTING PARTNERS, LLC Daniel B Edds, MBA, PMP 3570 Buena Vista Dr. Sacramento, Ca 95864 916.670.0001 danedds@mycapartner.com Attachment B Capital Accounting Partners Page 2 Contents Development Services Department ........................................................................................................................... 3 Introduction and Scope ................................................................................................................................... 3 Summary of Costing Methodologies ............................................................................................................... 3 Assuring Quality Results .................................................................................................................................. 6 Quantitative ............................................................................................................................................. 6 Qualitative ................................................................................................................................................ 6 Summary of Results ................................................................................................................................................ 8 General Observations of Cost Recovery and Pricing ....................................................................................... 8 Valuation Based Fees ............................................................................................................................... 8 Modifications to the Fee Schedule ........................................................................................................... 9 Results ............................................................................................................................................................. 9 Projecting Revenues ................................................................................................................................. 9 Challenges to Accurately Projecting Revenues .......................................................................................10 Reasons Revenues Can Fail to Meet Expenses .......................................................................................10 Summary of Results by Division or Work Unit ...............................................................................................11 Why Differences in Recovery Levels? .....................................................................................................11 Observations and Recommendations ......................................................................................................................13 General Observations and Recommendations .......................................................................................13 What is Not Covered in this Analysis ......................................................................................................13 Assessing Valuation Based Fees .............................................................................................................13 Adjusting the Fee Schedule ....................................................................................................................13 Building Reserves ...................................................................................................................................14 Development Services Fee Table ……………………………………………………………………………………………………………… 15 Capital Accounting Partners Page 3 Development Services Department The City’s Development Services Department is comprised of four divisions or functions: 1. Building; 2. Fire prevention; 3. Planning; and 4. Public works. Together, they form a valuable resource for home owners, businesses, contractors, developers, and citizens to build safe buildings that comply with the code requirements of the City. The long term objective of the Department is to become an enterprise fund. Financially, this means that fees for its various services must be sufficient to recover the cost of the Department. Introduction and Scope As part of its effort to manage its financial resources wisely, the City of Palo Alto engaged Capital Accounting Partners to prepare a detailed cost analysis of its Development Services user fees. The City's objectives for the study were to ensure that the Development Services Department is fully accounting for all of its costs and recovering adequate revenues to cover its expenses. The scope of this study included the following:  Review and update the fee schedule;  Calculate the total cost of fee generating services;  Calculate the cost of plan check and inspection services from valuation based fees;  Analyze cost recovery level;  Develop a cost model based on the current organizational structure;  Reviewing the results with staff; and  Provide recommendations or methodologies on how to adjust fees annually. Summary of Costing Methodologies Driver Based Costing Models Developing driver based costing models is a detailed and robust method of calculating the cost of a specific service. It is based on the principles of activity based costing so it seeks to understand cost at an operational level. This means it relies on understanding the time staff invests in core business processes to provide fee and non-fee services. This provides the ability to understand staff time and cost as each Capital Accounting Partners Page 4 staff position participates in providing fee services. Graphically, the following figure illustrates this methodology. Hypothetical Illustration of a Driver Based Costing Model Contributing Staff Process Steps Fee Project Managers Permit Intake Plan Reviewer Building Inspector Chief Building Official Plan Review Inspection 7500 SF SFR Zoning Code Review Project Steps and Process Step 1: Collect Data – This first step involves discussions with staff to identify those positions within the department that provide and support direct services. It also involves collecting departmental budget and expenditure data, identifying the salary and benefits for each position, and identifying non-personnel expenditures, as well as any departmental and City wide overhead. Specifically, the steps involve the following:  Identifying staff positions – This includes identifying both position titles and names.  Calculating the number of productive hours – For each position, vacation time, sick leave, paid holidays, professional development (training), routine staff meetings, and daily work breaks are deducted from the standard 2,080 annual hours. The result is a range of hours available for each position on an annual basis. This range is typically 1,500 to 1,600 hours. Factors that influence this range are length of service with the jurisdiction and local policies for holiday and personal leave time. However, based on previous work with the City where the calculated number of productive hours was almost exactly 1600 hours, and at the request of the Office of Management and Finance, we set all positions at 1600 productive hours.  Identifying and allocating non-personnel costs – Costs for materials and supplies are allocated to the salary and benefits for each position. Capital Accounting Partners Page 5  Assigning any other expenses that are budgeted in other areas – There are often expenses that should be included with the total cost of services. Examples of such costs might include amortized capital expenses for vehicles and technology.  Identifying core business processes or activities – This step also involves discussions with staff to understand, at an operational level, the work of the operating unit. Core business processes used to provide services are identified and then defined by the tasks that are involved. Processes are also organized by direct and indirect categories:  Direct processes and activities – Those processes that directly contribute to the processing of an application or permit are first identified. Examples of a direct activity are building inspection, application intake, and pre-application review.  Indirect processes and activities – Those processes that support, but do not directly apply to the processing of a specific application or permit. An example of an indirect activity is customer service or staff training to maintain certifications. Step 2: Building cost structures – This second step involves significant interaction with staff and the development of time estimates for both direct and indirect processes in each department. Specifically, this step is at the core of the analysis. There are four processes that comprise this step:  Gathering time estimates for direct processes – By interviewing staff in individual and group meetings, an estimate of time was assigned to each service by the process that is indicated. For the most part, the processes included three primary steps:  Permit intake;  Plan review; and  Construction inspections. In this analysis, staff time is estimated and assigned to each step. The sum of all the process steps is the total time that is required to provide that specific service.  Assigning indirect and annual process time – An annual time estimate is gathered from staff for those indirect or support processes in which they are involved. These may include activities such as program administration, customer service, and department administration. These costs are allocated to all services proportionately to all services provided by the department.  Calculating fully loaded hourly rates and the cost of service – Once the total time for each direct and indirect service is estimated, the cost of service is calculated by using the fully loaded hourly rates for each staff member or position that is involved with the service. The fully loaded hourly rate for each employee is based on the employee's salary and benefit costs plus a share of non- personnel and City overhead costs divided by the employee's available work hours (i.e. 2,080 hours minus all leave hours). Thus, the direct and indirect cost by activity also includes departmental and citywide overhead as well as non-labor costs. The source of City indirect costs and non-personnel costs is from the annual budget or cost allocation that has been established by the City.  Gathering activity or volume data – A critical element in the analysis is the number of times a given service is provided on an annual basis. This is critical data for three reasons:  It allows a calculated projection of current revenue based on current prices. This is compared with actual revenue to see if there is a close match as the data should match. Capital Accounting Partners Page 6  It allows for a calculated projection of revenue at full cost. This is compared to actual expenditures to see if there is a close match as the data should match.  It allows for a calculation of total hours consumed. Hours consumed must closely match actual hours available. If any of the three calculations do not approximate actual numbers, then time estimates and/or volume data need to be re-evaluated. These are critical quality checks for costing accuracy. Step 3: Calculating the full cost of services – This third step calculates the full cost of service for each direct service in the department. In the previous step, the cost of service was calculated for each direct and indirect service. In this step, the cost layers are brought together to establish the full cost of service for a specific direct service, program, or activity. As previously mentioned the cost of each direct service is calculated. To determine the full cost of service, the cost of indirect services is allocated to each direct service. The indirect services costs are allocated to each direct service based on each direct services proportion of labor spent processing each permit and application. By summing the direct and allocated indirect costs and multiplying that by the activity data, a total cost of service is calculated for both an individual service and the operating unit as a whole. Step 4: Set fees Based on any new, existing, or revised cost recovery policies, the recommended fees can be established. The recommended fees will be established based on City staff recommendations and Council discussion in the future. The fee analyses in this report are based on full cost recovery. Assuring Quality Results In our analysis we utilize both quantitative and qualitative tests for quality. Quantitative Our process incorporates substantial input from both individuals and groups. Our belief is that we get the best data from group interviews. For example, in determining how much time is required for any specific type of building inspection, we want to hear the perspective of an inspector, of the inspector supervisor, and the counter tech or project manager. Each will have a perspective. Each will contribute value to the estimate. When all perspectives agree, we gave have a good sense of confidence in our results. Qualitative We also utilize four qualitative measure of quality data. When each of these measures match and there are no major disagreements with the qualitative assessment, we have significant confidence in our results. These qualitative measures are: Quantitative Analysis Targeted Margin of Error 1) Budgeted expenses entering the cost models must equal total expenses accounted for in the costing model. 0% 2) Projected revenue from fees must closely match actual revenue from fees. + or – 5%-10% Capital Accounting Partners Page 7 3) Available staff time must be fully accounted for in the costing models. 0% 4) Total revenues from fees and contributions from the general fund or other sources must match total expenses. 0% Capital Accounting Partners Page 8 Summary of Results General Observations of Cost Recovery and Pricing In general, our results suggest that on average, Development Services has a level of cost recovery that almost covers its budgeted costs. However, our results also show some services are over recovering costs while other services are significantly under recovering cost. From our experience, this is fairly normal. One important result of a fee study is the “right sizing” of fees and a rebalancing of fees. The State of California requires that fees be in proportion to costs. For example, plumbing fees cannot be priced below cost while mechanical fees are price above cost. Similarly, green building fees cannot be priced below cost but new construction fees cannot be priced above cost to compensate for the loss of revenues. Therefore, establishing the full cost, and setting the price at or as near full cost is an important result of a fee study. Valuation Based Fees The Department recovers a substantial portion of its cost from its valuation based fees. These fees are generally for construction projects where the fee is based on a multiplier of construction value. Currently, the City is recovering about the correct amount from these fees. However, year over year, recovery from these fees may be a little over or a little under full cost. Expenses can be relatively constant but building activity can be volatile. As building activity heats up, revenues may exceed expenses. As building activity cools down, revenues may come short of expenses. Graphically, this relationship may appear this way. Currently, the City uses construction value to determine value as opposed to an independent assessment of value such as the International Code Council (ICC) valuation tables. Our recommendation to the City, and one that has been adopted by the Department, is to move towards using the ICC tables to determine value. This provides an independent assessment of valuation that is not tied to construction. Using construction value to calculate building fees means that Department revenues may move up or down depending upon market forces of supply and demand. A tight labor market will be higher labor costs for construction and City revenues will go up. Conversely, an Capital Accounting Partners Page 9 Projected Revenue at Full Cost Current Revenue Difference $ 2,500 $ 750 ($1,750) $ 500 $ 750 $250 $ 10,000 $ 7,000 ($3,000) $ 12,500 $ 3,750 ($8,750) $ 2,500 $ 1,250 ($1,250) $ 28,000 $ 13,500 ($14,500) oversupply of wood products may mean that construction costs go down and the City fees will go down with accordingly. The classic example of the two approaches can be seen when two houses with the exact floor plans are constructed. They both are the same size, they both have the same number of bathrooms, outlets, electrical panels, and sinks. However, one builder utilizes the cheapest materials and the homeowner wants the cheapest fixtures. The other builder utilizes the best materials and the home owner wants the finest fixtures available. The two homes will have very different construction values but the time and effort to review the plans and conduct all the inspections will be the same. To move to the ICC valuation of building, and to assure it will recover its cost, the City will need to start collecting three additional sources of data within its permitting system: 1.Building square footage; 2.Building type of construction; and 3.Building occupancy type. Without these additional data, it will be impossible to determine the correct multiplier that will result in full cost recovery. Therefore, we recommend the City begin collecting these data and when there are 6 months of data then calculate the correct multiplier. Modifications to the Fee Schedule Another result of a fee study is bringing the schedule of fees up to current code. As part of this study, we modified the schedule of fees to best reflect the California Building Standards Code. In some cases, this required little modification. In others, fees were dropped, fees were added, or some fees were simply renamed. However, in consultation with staff, it is our view that the schedule of fees reflected in our model brings the City’s fees into alignment with the California Building Standards Code. Results Projecting Revenues The math involved in projecting revenues is basic: Annual number of times a fee is charged X full cost = annual revenue. Hypothetical Example of how Revenue is Projected Fee Description Annual Activity Full cost Current Price Fee 1 10 $ 250 $ 75 Fee 2 5 $ 100 $ 150 Fee 3 20 $ 500 $ 350 Fee 4 50 $ 250 $ 75 Fee 5 25 $ 100 $ 50 Capital Accounting Partners Page 10 In this example, revenues from current fee levels is $13,500 and while these same services priced at full cost will generate $28,000 or $14,500 more. Challenges to Accurately Projecting Revenues Projecting future revenues should be simple. However, there are several challenges to projecting revenues accurately. Among these are: 1. Errors in the annual activity data; 2. Changes in fee descriptions; 3. New fees that are being from existing fees; 4. Fees where the work is being done but there is no fee to collect; and 5. Differences in timing between permitting systems and financial systems. Fire Prevention Fire Prevention is a classic example of how challenging projecting revenues can be. Frequently, Fire Prevention will be tasked for making inspections, but decisions by the Council prohibit or restrict the charging of full cost. Many councils will reduce or even eliminate some fees for non-profits, social service agencies, religious institutions, or operations catering to children. Public Works and Planning The Development Services Department is being charged for Planning and Public Works staff. These staff are built into the Departments budget in the normal budget cycle. The challenge for the Department is that these costs can be difficult to manage. The fees for Planning and Public Works are set by Council. The budgets for Planning and Public Works are based upon an assumed level of activity in the spring before the activity is actually realized. So if the actual activity is greater than projected activity, revenues higher than cost flow to the Department. However, if actual activity is lower than projected activity, then the Department has costs that it cannot recover. Reasons Revenues Can Fail to Meet Expenses There are several reasons why the Department might fail to meet its expenses. Among these are: 1. The Department is charged with inspection activity but it cannot charge for the service; 2. The Department has budgeted expenses but activity levels are lower than projected; 3. Former estimates required for plan review and inspection are not accurate; and 4. Productive hourly rates assumed in the calculations are not accurate. Capital Accounting Partners Page 11 Fee Type Projected Fee Revenues at Full Cost Projected Revenues at Current Prices Difference Surplus / Subsidy Valuation Bldg Permit & Plan Check $ 8,490,666 $ 8,599,967 $ 109,301 1% Non-Valuation Building Total 1,819,529$ 1,836,334$ $16,804 1% Construction & Demolition 149,930$ 124,042$ ($25,888)-17% Mechanical 166,768$ 387,519$ $220,751 132% Plumbing 222,406$ 358,690$ $136,284 61% Electrical 399,632$ 646,484$ $246,852 62% Green Building 675,347$ 187,421$ ($487,926)-72% Use and Occupancy 205,447$ 132,178$ ($73,269)-36% Fire Prevention Total 1,925,540$ 602,020$ ($1,323,520)-69% Public Works Total 860,363$ 269,792$ ($590,571)-69% Total Resources Consumed $ 13,096,098 $ 11,308,113 $ (1,787,985)-14% Summary of Results by Division or Work Unit The following graphic outlines various levels of recovery for each of the major work units within the Development Services Department. It shows, for example, that the Building function is subsidizing Fire Prevention, Planning, and Public Works. It should be noted however, that these data are based on current activity levels and the normal year to year changes to these activity levels can change these results. Project Revenues Based on Current Activity Levels Why Differences in Recovery Levels? There can be a many reasons why there are differences in cost recovery levels. Our observation is that the Department is under-recovering its fees. Much of this can be corrected by a rebalancing of fees. In other words, each division should be generating enough revenue to recover its costs. From our observations, the following are some reasons why each work group is either over recovering or under recovering its expenses. Building Observations The data suggests that Building Division is financially supporting the Department. There can be several reasons for this:  Activity levels are escalating faster than staffing (expenses) can be added. This has the input of showing that revenues are exceeding expenses.  Reliance on construction value vs an independent calculation such as the ICC valuation table. As building activity increases, basic supply and demand rules will push construction value higher. This will have the impact of increasing revenues to the City without incurring additional expenses. Capital Accounting Partners Page 12  Estimates of time to provide inspection and plan review services are incorrect. We see this in the current rates for mechanical, electrical, and plumbing fees for new construction. The current price is $.11/SF. Based on our analysis and in discussions with inspectors, the actual calculated cost is $.02/SF. Fire Prevention Observations Under recovering costs for Fire Prevention services is fairly common in the State of California. Sometimes this is by design but of often is it is not. From our observation there are three reasons why the City is under recovering costs of Fire Prevention: 1. Previous estimates of how much time is required for inspection and plan review time is different than actual. 2. Previous estimates of productive hourly rates are different and have not been updated until now. 3. The work unit is making inspections and providing a services but either the fee is not being charged or there is no fee. If the City were to decide that full cost recovery is in its best interest, then the fees the department collects, based on our calculations, should fully recover the cost of this function. Capital Accounting Partners Page 13 Observations and Recommendations General Observations and Recommendations As stated earlier, we observe that the Department is nearly recovering its expenses. However, “right sizing” its fees and adjusting its fees so that each division is recovering its costs is an important result of a fee study. We also observe that there are no built in costs to build reserves. We generally recommend reserves for building departments to be targeted at 6-12 months of operating expenses. For the Department, this would be a range of $6,500,000 - $13,000,000. What is Not Covered in this Analysis We are frequently asked “did you look at efficiency”. The simple answer is no, this was not within the scope of the project. However, we would add that with experience, certifications, and qualifications that we hold in the disciplines of process management and the application of lean thinking within the public sector we are very sensitive to this question. We would also add, that from our experience in providing these services, that seldom do they generate short term cost savings. The benefit they do bring in the short term is improvements in customer service. Plan review is completed faster. In the long term, they can reduce the escalation of costs. We are also frequently asked about work load demands. Again, this was outside project scope. However, we understand that the City is an ISO Class 1 accredited City. Only one of four in the State of California and one of 9 in the country. This is a prestigious award. From discussions with leadership, maintaining this certification may be a challenge going forward. Additional resources may be required to maintain the staffing to workload levels required by ISO. Assessing Valuation Based Fees As stated previously, the current methodology of assessing value, from which new construction building permits are based, is to use construction value. In addition, several other fees are derived from the calculation of permit value. From our observation, a better approach is to base value off an independent calculation of value such as the International Code Council (ICC) Valuation Table. This reduces fluctuations in revenues (up or down) to the City due to local supply & demand pressures, pricing and selection of internal fixtures, and temporary swings in commodities. However, moving toward this method will require additional data to be gathered on building permits. This will include data on the square footage of buildings, occupancy type, and building construction type. Without these data it will be impossible to accurately calculate what the multiplier needs to be to generate an appropriate level of cost recovery. We understand that this will be the objective of phase two of the user fee study. Adjusting the Fee Schedule A standard recommendation of ours is that fees be adjusted annually. We also recommend a complete review of costs for fee services every three to five years. With the annual update of fees, we recommend using a simple CPI type increase that is attached to the City’s labor cost. For example, if the Capital Accounting Partners Page 14 labor cost for the City goes up by 2% then adjust each fee by 2%. This is the simplest and most common method of adjusting fees annually. It is our observation that the regulatory requirements change enough within a three to five years that a comprehensive review of costs is then warranted. We understand that the City’s policy is to adjust fees annually based on changes to salaries and benefits. We would affirm this practice and find that those cities that do this, maintain better cost recovery levels over the long term. Building Reserves We regularly recommend 6-12 months of operating expenses as a reserve. We understand from staff that this will be a discussion for a later time. We would affirm this plan but also recommend that a reserve policy be set into place. This policy might target: Specific reserves (such as 12 months of operating expenses); An understanding of how the reserve will be managed; and How will a reserve be defined and realized? Capital Accounting Partners Page 15 DEVELOPMENT SERVICES FEE TABLE The following table details the individual unit costs of each fee in the Department and provides annual revenue impacts for each fee and all fees collectively. Palo Alto Building Dept Building Fees Service # If Any Fee Name Unit/Notes Actual Work Volume Bldg Time Fire Time Planning Time PW Time Direct Unit Cost Indirect Unit Allocated Costs Other external costs Total Cost Assigned Current Fee / Revenue Unit Surcharge or (Subsidy) Unit Cost SummaryUnit Time Assignments BUILDING FEES 1,165 Business Registry Fee per business -$ 50.00$ $50 -$ Building New Construction -$ All Valuation Based Building Fees Combined (total annual Calculations)5,973,018$ 2,517,648$ $8,490,666 8,599,967.00$ $109,301 -$ 1,217 I. Building Demolition Permit 177 1.17 0.333 234$ $152 $386 320.00$ ($66) 1,218 J. Commercial Interior Non-Structural Demolition Permit 39 0.33 0.333 106$ $69 $175 194.00$ $19 -$ 1,207 Additional Plan Review per hour 117 1 122$ $79 $201 191.00$ ($10) 1,202 Building Plan Check per hour -$ -$ 1,208 Certified Access Specialist (CASp) Review/Consultation Hourly 1 159$ $103 $262 -$ ($262) 1,203 -$ 1,204 Address change - single address 1 0.25 216$ $140 $356 224.00$ ($132) 1,206 Address change - each additional address 0.42 0.167 104$ $67 $171 112.00$ ($59) 1,205 -$ -$ Construction & Demolition -$ 1,198 Commercial and Multi-Family Projects greater than or equal to $25,000.00 in Valuation per permit 89 0.334 1.000 224$ $145 $369 238.00$ ($131) 1,200 Single Family and Two Family Projects greater than $25,000.00 and less than $75,000.00 in Valuations per permit 18 0.334 0.250 93$ $61 $154 80.00$ ($74) 1,199 Single Family and Two Family Projects greater than $75,000.00 in Valuation per permit 71 0.334 0.500 137$ $89 $225 212.00$ ($13) -$ -$ ELECTRICAL PERMITS 1,228 Air Conditioners per unit 39 0.5 49$ $32 $81 29.00$ ($52) 1,230 Air Cooled or Oil Cooled Lighting and/or Power Transformer per permit 0.50 49$ $32 $81 -$ ($81) 1,226 Base Fee per permit 1,696 0.33 50$ $32 $82 92.00$ $10 1,240 Busway, Power Duct install, repair or replace per permit 20 0.42 41$ $27 $68 0.50$ ($67) 1,229 per permit 0.42 41$ $27 $68 252.00$ $184 1,249 Each Additional section of meter per permit 2 0.42 41$ $27 $68 5.00$ ($63) 1,234 Fixtures, Switches, and Outlets per permit 1,633 0.42 41$ $27 $68 1.00$ ($67) 1,241 Lighting, Power and/or Control Panel Board, Switchboard Cabinet or Panel per permit 43 0.42 41$ $27 $68 5.00$ ($63) 1,236 Motor per permit 13 0.42 41$ $27 $68 23.00$ ($45) 1,235 Motor Generator per permit 40 0.42 41$ $27 $68 3.00$ ($65) 1,227 New or Remodeled Square Footage Per SqFt 3,723,840 0.00012 $0.01 $0.01 $0.02 0.11$ $0.09 1,237 Range, Electric Clothes Dryer, or Water Heater per permit 2 0.42 41$ $27 $68 5.00$ ($63) -$ 1,248 Service Conductor/Switch - Greater than 800 ampre per permit 2 1.50 148$ $96 $243 40.00$ ($203) 1,246 Service Conductor/Switch - Less than 200 ampre per permit 128 0.75 74$ $48 $122 18.00$ ($104) 1,247 Service Conductor/Switch - Less than 800 ampre per permit 11 1.00 98$ $64 $162 29.00$ ($133) 1,238 Special Circuit (Not Listed Herein)per permit 26 0.42 41$ $27 $68 5.00$ ($63) 1,250 Temporary Power Pole per permit 149 0.42 41$ $27 $68 56.00$ ($12) 1,251 Temporary Wiring for Construction per permit 0.42 41$ $27 $68 56.00$ ($12) -$ Electrical Permits - Electrical Vehicle Charging Stations -$ Capital Accounting Partners Page 1 of 14 BldCostCalcs Palo Alto Building Dept Building Fees Service # If Any Fee Name Unit/Notes Actual Work Volume Bldg Time Fire Time Planning Time PW Time Direct Unit Cost Indirect Unit Allocated Costs Other external costs Total Cost Assigned Current Fee / Revenue Unit Surcharge or (Subsidy) Unit Cost SummaryUnit Time Assignments 1,232 Commercial (Level 1 and 2)17 2.00 232$ $150 $382 370.00$ ($12) 1,233 Commercial (Level 1 and 2) - each additional station 79 0.42 45$ $29 $74 92.50$ $18 1,233 Commercial (Level 3 and 4)1 2.50 281$ $182 $464 560.00$ $96 1,234 Commercial (Level 3 and 4) - each additional station 0.50 55$ $36 $91 140.00$ $49 1,231 Residential (level 1 & 2)per station 57 0.92 102$ $66 $168 160.00$ ($8) Residential (level 3)1.33375 143$ $93 $236 ($236) Electrical Permits - Photovoltaic Systems -$ Residential System (less than 10 kw)127 0.5 49$ $32 $81 ($81) 1,242 Residential System (greater than 10 kw)each 1.875 185$ $120 $304 311.00$ $7 1,243 Commercial System (less than 10 kW)each 2.833333333 326$ $211 $537 565.00$ $28 1,244 Commercial System (10kW - 49kW)each 3 4.25 489$ $317 $805 850.00$ $45 1,245 Commercial System (greater than 49kW)each 1 4.666666667 530$ $343 $873 900.00$ $27 MECHANICAL PERMITS Swimming Pool Heather 23 0.40 39$ $26 $65 28.00$ ($37) 1,254 Admin base fee 1,021 0.334 50$ $32 $82 92.00$ $10 Mechanical new or remodel cost/SF Per SqFt 2,632,100 0.00012 $0.012 $0.008 $0.02 0.11$ $0 1a -$ 28.00$ $28 1b Furnaces 98 1.002 99$ $64 $163 92.00$ ($71) 1c 0.002 0$ $0 $0 ($0) 1d -$ 2 Appliance vents: installation, relocation or replacement of…0.335333 33$ $21 $54 28.00$ ($26) 3 Repairs, alteration or addition of each heating appliance… 0.335333 33$ $21 $54 28.00$ ($26) Boilers, Compressors, and Absorption Systems:-$ 4a Up to and including 3 HP, absorption system up to and including 100,000 Btu/h 0.67 66$ $43 $109 5.00$ ($104) 4b Up to and including 15HP, absorption system exceeding 100,000 Btu/h and including 500,000 Btu/h 86 0.67 66$ $43 $109 28.00$ ($81) 4c Up to and including 15-30HP, absorption system exceeding 500,000 Btu/h and including 1,000,000 Btu/h 0.67 66$ $43 $109 0.11$ ($108) 4d Up to and including 30-50HP, absorption system exceeding 1,000,000 Btu/h and including 1,750,000 Btu/h 1.00 99$ $64 $163 28.00$ ($135) 4e Greater than50HP, absorption system exceeding 1,750,000 Btu/h 1.00 99$ $64 $163 56.00$ ($107) 5 Air handlers up to and including 10,000 cf per cfm…0.34 33$ $21 $54 28.00$ ($26) Ventilation and exhaust:-$ 7a Each ventilation FAC connect to a single duct 76 0.34 33$ $21 $54 11.00$ ($43) 7b Each ventilation system that is not a portion of a heating or air- conditioning system …0.34 33$ $21 $54 ($54) 7c Installation of each hood that is served by mechanical exhaust, including the ducts of such hood 2 0.34 33$ $21 $54 28.00$ ($26) Miscellaneous -$ 9 Each appliance or piece of equipment regulated by this code, but not classed in other appliance categories for which no other fee is listed in this table 0.34 33$ $21 $54 ($54) Full Gas Piping -$ 10a Each gas piping system of 1-5 outlets 4 0.60 59$ $38 $98 28.00$ ($70) 10b Each additional gas piping system per outlet 0.33 33$ $21 $54 ($54) Process Piping -$ 11a Each hazardous process piping system 1-4 outlets 0.34 33$ $21 $54 28.00$ ($26) 11b Each hazardous process piping system >5 outlets 0.33 33$ $21 $54 28.00$ ($26) 11c Each nonhazardous process piping system of 1-4 outlets 0.80 79$ $51 $130 56.00$ ($74) Capital Accounting Partners Page 2 of 14 BldCostCalcs Palo Alto Building Dept Building Fees Service # If Any Fee Name Unit/Notes Actual Work Volume Bldg Time Fire Time Planning Time PW Time Direct Unit Cost Indirect Unit Allocated Costs Other external costs Total Cost Assigned Current Fee / Revenue Unit Surcharge or (Subsidy) Unit Cost SummaryUnit Time Assignments 11d Each NPP piping system of >5 outlets, per outlet 0.80 79$ $51 $130 5.00$ ($125) PLUMBING PERMITS - GRAY WATER SYSTEMS 1,266 Admin base fee 1,310 0.334 50$ $32 $82 92.00$ $10 1 For each plumbing fixture on one trap or set of fixtures..0.5 49$ $32 $81 3.00$ ($78) 2 For each building sewer and each trailer park sewer 15 0.802 79$ $51 $130 28.00$ ($102) 3 Rainwater system - per drain (inside building)66 0.5 49$ $32 $81 5.00$ ($76) 4 For each private sewage disposal system 120 0.802 79$ $51 $130 11.00$ ($119) 6 For each water heater, vent, or both 56 0.6 59$ $38 $97 5.00$ ($92) 7 For each gas piping system of one to five outlets 142 1.2 118$ $77 $195 28.00$ ($167) 8 For each additional gas piping system outlet, per outlet 0.3 30$ $19 $49 5.00$ ($44) 9 Industrial waste pretreatment interceptor, including trap and vent, X kitchen-type grease interceptors 1.2 118$ $77 $195 11.00$ ($184) 10 Installation, alteration or repair of water piping, water treatment equip or both 1 0.6 59$ $38 $97 5.00$ ($92) 11 Repair or alteration of drainage or vent piping, each fixture 16 0.5 49$ $32 $81 28.00$ ($53) 12 Lawn sprinkler system on one meter including backflow protection devices 0.5 49$ $32 $81 28.00$ ($53) 13A Atmospheric-type vacuum breakers not referenced above (1-5)0.6 59$ $38 $97 5.00$ ($92) 13B Atmospheric-type vacuum breakers not referenced above (>5)0.5 49$ $32 $81 5.00$ ($76) 14 Backflow protective device other than atmospheric-type (any size)78 1.2 118$ $77 $195 5.00$ ($190) Plumbing Permits - Graywater Systems -$ 1,271 Clothes washer System 0.5 49$ $32 $81 56.00$ ($25) 1,273 Complex System 1 1.2 118$ $77 $195 88.00$ ($107) 1,272 Simple System 3 0.5 49$ $32 $81 61.00$ ($20) 16 Installation and testing for a reclaimed water system 1.2 118$ $77 $195 -$ ($195) 17 Annual cross-connection testing of reclaimed water system…2.4 236$ $153 $390 ($390) 18 Each medical gas piping system 1-5 outlets 1.2 118$ $77 $195 ($195) Additional medical gas inlet(s)0.25 25$ $16 $41 -$ ($41) Electrical new or remodel cost/SF 2,127,236 0.00012 0.012$ 0.008$ 0.02$ 0.11$ $0 Solar hot water system 1.2 118.187$ 76.594$ 194.78$ 224.00$ $29 1,190 Storm drain system 1.2 118$ $77 $195 28.00$ ($167) 1,191 Swimming pool 0.4 39$ $26 $65 28.00$ ($37) Use & occupancy Permits 1,187 Certificate of Use and Occupancy each 155 2.5 456$ $296 $752 287.00$ ($465) 1,188 Certificate of Use and Occupancy - Replacement each 0.5 94$ $61 $155 123.00$ ($32) 1,189 -$ 1,186 Temporary Occupancy Permit - Multi-Family Residential, Non- Residential, and Other Commercial each 33 2.3 365$ $237 $602 896.00$ $294 1,185 Temporary Occupancy Permit - Single Family Residential and Commercial Tenant Improvement less than 10,000 sq. ft.each 155 1.7 270$ $175 $445 375.00$ ($70) -$ FIRE FEES Hazardous Materials Classification Permits -$ 1,367 Compressed Gas annually 28 1 229$ $121 $350 139.00$ ($211) 1,363 Corrosives annually 54 1 229$ $121 $350 139.00$ ($211) 1,364 Cryogenic Fluid annually 42 1 229$ $121 $350 139.00$ ($211) 1,365 Flammable and Combustible Liquids annually 172 1 229$ $121 $350 139.00$ ($211) 1,368 Flammable Gas annually 28 1 229$ $121 $350 139.00$ ($211) 1,366 Flammable Solids annually 1 229$ $121 $350 139.00$ ($211) 1,373 Health Hazard (Liquids & Solids)annually 33 1 229$ $121 $350 139.00$ ($211) Capital Accounting Partners Page 3 of 14 BldCostCalcs Palo Alto Building Dept Building Fees Service # If Any Fee Name Unit/Notes Actual Work Volume Bldg Time Fire Time Planning Time PW Time Direct Unit Cost Indirect Unit Allocated Costs Other external costs Total Cost Assigned Current Fee / Revenue Unit Surcharge or (Subsidy) Unit Cost SummaryUnit Time Assignments 1,381 Liquefied Petroleum Gases annually 10 1 229$ $121 $350 139.00$ ($211) 1,354 Organic Coatings annually 1 229$ $121 $350 175.00$ ($175) 1,374 Organic Peroxides annually 1 1 229$ $121 $350 139.00$ ($211) 1,355 Ovens - Industrial Baking or Drying annually 4 1 229$ $121 $350 102.00$ ($248) 1,375 Oxidizers (Liquids & Solids)annually 16 1 229$ $121 $350 139.00$ ($211) 1,369 Oxidizing Gas annually 34 1 229$ $121 $350 139.00$ ($211) 1,356 Parade Float per hour 1 229$ $121 $350 115.00$ ($235) 1,357 Place of Public Assembly per occurrence 2 457$ $242 $700 236.00$ ($464) 1,370 Pyrophoric Gas annually 1 1 229$ $121 $350 139.00$ ($211) 1,376 Pyrophoric Materials (Liquids & Solids)annually 4 1 229$ $121 $350 139.00$ ($211) 1,358 Pyrotechnical Special Effects Material annually 1 229$ $121 $350 29.00$ ($321) 1,377 Radioactive Materials annually 28 1 229$ $121 $350 139.00$ ($211) 1,359 Refrigeration Equipment annually 1 229$ $121 $350 175.00$ ($175) 1,360 Spraying/Dipping annually 17 1 229$ $121 $350 175.00$ ($175) 1,361 Tent or air-supported structure having an area in excess of 200 square feet; or canopies in excess of 400 square feet (includes a public assembly permit of $125.00 for all tents)each 2.167 485$ $257 $741 290.00$ ($451) 1,362 Tire Recapping/Tire Storage annually 4 913$ $483 $1,396 575.00$ ($821) 1,371 Toxic, Highly Toxic, Moderately Toxic, Health Hazard Gas annually 11 1 229$ $121 $350 139.00$ ($211) 1,378 Toxic, Highly Toxic, Moderately Toxic, Health Hazard Materials annually 38 1 229$ $121 $350 139.00$ ($211) 1,372 Unstable Reactive Gas annually 1 1 229$ $121 $350 139.00$ ($211) 1,379 Unstable Reactive Materials (Liquids & Solids)annually 1 229$ $121 $350 139.00$ ($211) 1,380 Water Reactive Materials (Liquids & Solids)annually 1 229$ $121 $350 139.00$ ($211) 1 229$ $121 $350 ($350) Hazardouis Materials County Reimbursement -$ 348,000.00$ $348,000 Hazardous Materials Storage Permits -$ 1,311 Additional Approvals for Hazardous Materials Storage Permit (first 2 hours)2.167 496$ $262 $758 356.00$ ($402) 1,312 Additional Approvals for Hazardous Materials Storage Permit (per hour for time above 2 hours)1.417 324$ $172 $496 159.00$ ($337) 1,308 Business Plan (HMBP)annually 234 1.417 324$ $172 $496 256.00$ ($240) 1,312 Late Fee for Hazardous Materials Storage Permit -$ -$ 1,305 Level I Facility 81 1 229$ $121 $350 264.00$ ($86) 1,306 Level II Facility 119 2 457$ $242 $700 404.00$ ($296) 1,307 Level III Facility 191 4 915$ $484 $1,399 729.00$ ($670) 1,309 Petroleum Aboveground Storage Tank annually 26 2 457$ $242 $700 593.00$ ($107) 1,310 Provisional (6 Month)2 457$ $242 $700 186.00$ ($514) -$ -$ Fire Inspection Fees -$ 1,313 Additional Resinspection Fee (up to 2 hours during normal business hours)150 2 456$ $242 $698 323.00$ ($375) 1,313 Additional Resinspection Fee (each additional hour)1 228$ $121 $349 159.00$ ($190) 1,314 After Hours Inspection Fee 1.5 342$ $181 $523 165.00$ ($358) Capital Accounting Partners Page 4 of 14 BldCostCalcs Palo Alto Building Dept Building Fees Service # If Any Fee Name Unit/Notes Actual Work Volume Bldg Time Fire Time Planning Time PW Time Direct Unit Cost Indirect Unit Allocated Costs Other external costs Total Cost Assigned Current Fee / Revenue Unit Surcharge or (Subsidy) Unit Cost SummaryUnit Time Assignments 1,316 Care Facility annually -$ 175.00$ $175 1,317 Care Facility Inspection Including Fire Clearance (greater than 25 2 456$ $242 $698 73.00$ ($625) Care Facility Inspection Including Fire Clearance (7-25 clients)1 228$ $121 $349 140.00$ ($209) 1,315 Christmas Tree Lot/Pumpkin Patch each 1 228$ $121 $349 175.00$ ($174) 1,321 High Rise Building - Certificate of Compliance (annually up to 4 4.167 951$ $503 $1,454 713.00$ ($741) 1,322 High Rise Building - Certificate of Compliance (each additional hour))1 228$ $121 $349 159.00$ ($190) 1,318 Outside Cooking Booths each 1.5 342$ $181 $523 198.00$ ($325) 1,320 Standby Fire Watch or After Hours at Fire or Incident Scene per hour 1 228$ $121 $349 159.00$ ($190) 1,319 Use and Occupancy Fire Inspection per inspection 155 1 228$ $121 $349 148.00$ ($201) As-Built Plan Check and Additional Work each 75 2 456$ $242 $698 ($698) -$ Investigations & Consultations -$ 1,325 Additional Hours Over Plan Review/Inspection each 1 181$ $96 $276 155.00$ ($121) 1,323 Alternate Means and Methods Application per application 75 2 429$ $227 $657 356.00$ ($301) 1,324 Appeals to Decisions per hour 1 228$ $121 $349 159.00$ ($190) 1,322 Consultation Fee per hour 475 1 228$ $121 $349 166.00$ ($183) 1,328 Hazardous Materials Data Entry Fee per hour -$ 77.00$ $77 1,327 Hydrant Flow Fee per occurrence 75 1 228$ $121 $349 165.00$ ($184) 1,326 Site Disaster Planning per hour 1 228$ $121 $349 166.00$ ($183) -$ -$ Life Safety & Fire Protection 1294A Automatic Fire Sprinkler Installation/Modification > 19 heads 4.417 1,008$ $534 $1,541 356.00$ ($1,185) 1,295 Automatic Fire Sprinkler Installation/Modification (plus per head)0.01 2$ $1 $3.49 1.80$ ($2) 1,301 Express Fire Protection Plan Check Fee 50% of usual fee -$ 163.00$ $163 1,296 Fire Alarm System Installation and Modification 3 637$ $337 $974 356.00$ ($618) 1,297 Fire Alarm System Installation and Modification (plus a device or contact point)0.060 14$ $7 $20.94 2.00$ ($19) 1,303 Fire Protection and Fire Access Plan Review for New Single Family Dwellings or Additions each 2.5 523$ $277 $800 100.00$ ($700) 1,298 Hydrant Installation/Modification - Private 0.5 114$ $60 $174 261.00$ $87 1,295 Other Automatic Fire Extinguishing System 3 637$ $337 $974 356.00$ ($618) 1,297 Standpipe System - Wet, Dry, or Combination 25 2 456$ $242 $698 208.00$ ($490) 1,300 Temporary Certificate of Occupancy per occurrence 2.167 494$ $262 $756 356.00$ ($400) 1,299 Underground Fire Service Line per 200LF of pipe (inspection, reinspection - 150 5 1,093$ $579 $1,672 356.00$ ($1,316) 1,304 Verification of Fire Protection System Maintenance and Certification annually 0.3 51$ $27 $78 89.00$ $11 Food truck permits 0.5 114$ $60 $174 ($174) Multifamily dwellings, hotels & motels -$ 4-50 units 1 228$ $121 $349 ($349) 51-100 units 2 456$ $242 $698 Greater than 100 units 3 684$ $362 $1,047 ($1,047) Fire Prevention Inspection of Private Schools 2 456$ $242 $698 ($698) 1294B Automatic Fire Sprinkler Installation/Modification > 19 heads 2 456$ $242 $698 ($698) Specific Hazard Permits -$ 1,329 Aerosol Products annually 1.25 285$ $151 $436 102.00$ ($334) 1,330 Amusement Buildings Delete -$ 410.00$ $410 Capital Accounting Partners Page 5 of 14 BldCostCalcs Palo Alto Building Dept Building Fees Service # If Any Fee Name Unit/Notes Actual Work Volume Bldg Time Fire Time Planning Time PW Time Direct Unit Cost Indirect Unit Allocated Costs Other external costs Total Cost Assigned Current Fee / Revenue Unit Surcharge or (Subsidy) Unit Cost SummaryUnit Time Assignments 1,331 Automobile Wrecking Yard or Junk Yard Delete -$ 179.00$ $179 1,332 Bowling Alley and Pin Refinishing Involving the use of Flammable each 2.917 666$ $352 $1,018 179.00$ ($839) 1,333 Candles and Open Flames in Assembly Areas annually 1 228$ $121 $349 142.00$ ($207) 1,334 Carnivals and Fairs each 4.167 951$ $503 $1,454 179.00$ ($1,275) 1,335 Cellulose Nitrate Storage/Nitrate Film annually 0.292 67$ $35 $102 102.00$ $0 1,337 Combustible Fiber/Material Storage Delete -$ 179.00$ $179 1,336 Confined Space annually -$ 148.00$ $148 1,338 Hot Work permit fee (one time permit)One time 1 228$ $121 $349 126.00$ ($223) 1,339 Hot Work permit fee (monthly permit)Monthy -$ 88.00$ $88 1,340 -$ 102.00$ $102 1,341 Fireworks Display Delete 3.167 723$ $383 565.00$ $565 1,342 High-piled Combustible Storage Delete -$ 102.00$ $102 1,343 Hot Work (Welding) Operations Delete -$ 179.00$ $179 1,349 Liquid or Gas-Fueled Powered Equipment each 1 228$ $121 $349 88.00$ ($261) 1,344 Liquid or Gas-Fueled Vehicles or Equipment in Assembly Buildings each -$ 103.00$ $103 1,350 Magnesium Working annually -$ 103.00$ $103 1,345 Malls - Covered annually 2 456$ $242 $698 103.00$ ($595) 1,351 Occupant Load Increase - Temporary Public Assembly each 1 228$ $121 $349 236.00$ ($113) 1,352 Open Burning each 1 228$ $121 $349 236.00$ ($113) 1,348 Open Flame/Flame Producing Devices each 1 228$ $121 $349 88.00$ ($261) 1,353 Operate a Tank Vehicle to Transport Flammable/Combustible annually 1.417 323$ $171 $494 102.00$ ($392) 1,347 Place of Public Assembly - Temporary each 1 228$ $121 $349 236.00$ ($113) 1,346 Temporary Kiosks -$ -$ -$ Fire Miscellaneous Fees -$ TCO fee for Vendors/Stock occupancy (Requires at least one additional inspection)250 3.5 752$ $398 $1,150 ($1,150) 1,288 Emergency Response Fee - Hazmat (PAMC 17.24.050)Per hour 1 228$ $121 $349 -$ ($349) 1,289 Installation or Closure Without Approved Plans and/or Permits Fine -$ -$ Fire plans revision 76 -$ Building General & Miscellaneous Fees -$ 1,176 All Other Publications each -$ 16.00$ $16 1,201 Construction/Maintenance Vehicles -$ 76.00$ $76 1,172 Electric Service and Safety Inspection per hour 1 98$ $52 $151 84.00$ ($67) 1,181 Extension of Building Permit or Building Permit Application per application 31 0.33 56$ $30 $86 56.00$ ($30) 1,174 Inspections and Investigations - Outside Normal Business Hours (1.5xOThour)1 1.5 238$ $126 $365 202.00$ ($163) 1,175 Inspections and Investigations - Outside Normal Business Hours (2.0xOThour)52 2 318$ $168 $486 226.00$ ($260) 1,173 Inspections and Investigations - Unclassified per hour 1 159$ $84 $243 163.00$ ($80) 1,184 Reactivation of Expired Building Permit - All Others 19 0.75 149$ $79 $228 ($228) 1,183 Reactivation of Expired Building Permit - Final Inspection Only 16 1.1 165$ $88 $253 375.00$ $122 1,182 Reactivation of Expired Building Permit Application 16 0.7 124$ $65 $189 168.00$ ($21) 1,178 Real Property Research Fee (1-hour minimum)per hour 1.0 159$ $84 $243 127.00$ ($116) 1,177 Records Retention per plan sheet 20,234 0.0 4$ $2 $6 4.00$ ($2) 1,180 Reinspection Fee - Multi-Family Residential and Non-Residential each 2 1.2 184$ $97 $281 308.00$ $27 1,179 Reinspection Fee - Single Family Residential (each secondary inspection type)14 0.9 144$ $76 220$ 84.00$ ($136) Capital Accounting Partners Page 6 of 14 BldCostCalcs Palo Alto Building Dept Building Fees Service # If Any Fee Name Unit/Notes Actual Work Volume Bldg Time Fire Time Planning Time PW Time Direct Unit Cost Indirect Unit Allocated Costs Other external costs Total Cost Assigned Current Fee / Revenue Unit Surcharge or (Subsidy) Unit Cost SummaryUnit Time Assignments 1,180 Reinspection Fee - Single Family Residential (each primary inspection type)1.2 184$ $97 281$ 308.00$ $27 1,171 Request for Release of Building Plans each 0.3 50$ $26 $76 45.00$ ($31) 1,175 Residential Inspection Guidelines each -$ 33.00$ $33 Conditional Utility Agreement 187 0.98 155$ $82 $237 252.00$ $15 Emergency Responder Radio Coverage (testing) fee.25 2 409$ $216 $625 ($625) GREEN BUILDING FEES Bldg Alterations and additions for single and multifamily < 1,000 sq ft and increases conditioned space Residential 99 3.70 495$ $602 $1,097 677.00$ ($420) Bldg Alterations and additions for single and multifamily > 1,000 sq ft Residential 166 4.20 556$ $676 $1,232 173.00$ ($1,059) Bldg Multi Family New Construction of 3 or More (attached) Units 4 5.10 681$ $827 $1,508 668.00$ ($840) Bldg Multi Family New Construction of < 4 Residential 4.10 559$ $679 $1,238 1,388.00$ $150 Bldg New Single family Residential 7 4.60 620$ $753 $1,373 1,687.00$ $314 Bldg Tenant improvements, renovations, or alterations > 5,000 sq ft that includes replacement or alteration of at least two of the following: HVAC system, building envelope, hot water system, or lighting system and project value greater than $200,000.Non-Residential 34 5.10 681$ $827 $1,508 942.00$ ($566) Bldg C. Tenant improvements, renovations or alterations > $200,000 in valuation (and not triggered by a Calgreen Tier) Non-Residential 42 4.10 559$ $679 $1,238 354.00$ ($884) Bldg If the project is over $100,000 Energy Star is required after 12 months of occupancy Non-Residential 2.10 315$ $383 $698 976.00$ $278 Bldg New commercial 1000 - 25,000 SF Non-Residential 21 6.10 803$ $975 $1,778 1,443.00$ ($335) Bldg New commercial 25,001-50,000 SF Non-Residential 7.10 924$ $1,123 $2,048 ($2,048) Bldg New commercial >50,000 SF Non-Residential 7.60 985$ $1,197 $2,183 ($2,183) Bldg Landscape Review - plan review Non-Residential 60 3.25 656$ $797 $1,453 ($1,453) Bldg Landscape Review - inspection Non-Residential 60 1.00 98$ $120 $218 ($218) Bldg Landscape Review - plan review SFR 80 2.00 404$ $490 $894 ($894) Bldg Landscape Review - inspection SFR 80 1.00 98$ $120 $218 ($218) Bldg Landscape Review - plan review Multifamily 10 3.25 656$ $797 $1,453 ($1,453) Bldg Landscape Review - inspection Multifamily 10 1.00 98$ $120 $218 ($218) Bldg -$ Fee # 325 Current -$ Capital Accounting Partners Page 7 of 14 BldCostCalcs Palo Alto Building Dept Building Fees Service # If Any Fee Name BUILDING FEES 1,165 Business Registry Fee Building New Construction All Valuation Based Building Fees Combined (total annual Calculations) 1,217 I. Building Demolition Permit 1,218 J. Commercial Interior Non-Structural Demolition Permit 1,207 Additional Plan Review 1,202 Building Plan Check 1,208 Certified Access Specialist (CASp) Review/Consultation 1,203 1,204 Address change - single address 1,206 Address change - each additional address 1,205 Construction & Demolition 1,198 Commercial and Multi-Family Projects greater than or equal to $25,000.00 in Valuation 1,200 Single Family and Two Family Projects greater than $25,000.00 and less than $75,000.00 in Valuations 1,199 Single Family and Two Family Projects greater than $75,000.00 in Valuation ELECTRICAL PERMITS 1,228 Air Conditioners 1,230 Air Cooled or Oil Cooled Lighting and/or Power Transformer 1,226 Base Fee 1,240 Busway, Power Duct install, repair or replace 1,229 1,249 Each Additional section of meter 1,234 Fixtures, Switches, and Outlets 1,241 Lighting, Power and/or Control Panel Board, Switchboard Cabinet or Panel 1,236 Motor 1,235 Motor Generator 1,227 New or Remodeled Square Footage 1,237 Range, Electric Clothes Dryer, or Water Heater 1,248 Service Conductor/Switch - Greater than 800 ampre 1,246 Service Conductor/Switch - Less than 200 ampre 1,247 Service Conductor/Switch - Less than 800 ampre 1,238 Special Circuit (Not Listed Herein) 1,250 Temporary Power Pole 1,251 Temporary Wiring for Construction Electrical Permits - Electrical Vehicle Charging Stations Annual Revenue Revenue at Full Cost of Services Projection of Revenues at Current Fees Annual Surplus (subsidy) R e q u i 6 Months Reserve, 3 yr build up Full Cost / Unit With Reserves Annual Cost Calculations w/o Reserves Reserve Requirements BUILDING FEES $ 2,307,699 1,165Business Registry Feeper business -$ 50.00$ $50 -$ $ - -$ -$ $ - $ - Building New Construction -$ -$ $ - $ - 5,973,018$ 2,517,648$ $8,490,666 8,599,967.00$ $109,301 8,490,666$ 8,599,967$ $109,301 $1,496,163 $ 9,986,829.26 $9,986,829 -$ -$ $ - 1,217I. Building Demolition Permit1771.17 0.333 234$ $152 $386 320.00$ ($66)68,288$ $56,640 ($11,648)$68 $ 453.79 $80,321 1,218J. Commercial Interior Non-Structural Demolition Permit390.33 0.333 106$ $69 $175 194.00$ $19 6,833$ $7,566 $733 $31 $ 206.09 $8,037 -$ -$ $ - 1,207Additional Plan Reviewper hour1171 122$ $79 $201 191.00$ ($10)23,497$ $22,347 ($1,150)$35 $ 236.21 $27,637 1,202Building Plan Checkper hour -$ -$ -$ $ - 1,208Certified Access Specialist (CASp) Review/ConsultationHourly1 159$ $103 $262 -$ ($262)-$ $46 $ 308.01 1,203 -$ -$ $ - 1,204Address change - single address10.25 216$ $140 $356 224.00$ ($132)-$ $63 $ 418.65 1,206Address change - each additional address0.420.167 104$ $67 $171 112.00$ ($59)-$ $30 $ 201.53 1,205 -$ -$ $ - -$ -$ $ - Construction & Demolition -$ -$ $ - 1,198per permit890.334 1.000 224$ $145 $369 238.00$ ($131)32,623$ $21,063 ($11,560)$65 $ 433.57 $38,371 1,200per permit180.334 0.250 93$ $61 $154 80.00$ ($74)2,725$ $1,416 ($1,309)$27 $ 181.05 $3,205 1,199per permit710.334 0.500 137$ $89 $225 212.00$ ($13)15,965$ $15,010 ($955)$40 $ 265.23 $18,778 -$ -$ $ - -$ $ - 3,165$ $1,131 ($2,034)$14 $ 95.46 $3,723 -$ $14 $ 95.46 139,694$ $156,032 $16,338 $15 $ 96.88 $164,310 1,353$ $10 ($1,343)$12 $ 79.55 $1,591 -$ $12 $ 79.55 135$ $10 ($125)$12 $ 79.55 $159 110,444$ $1,633 ($108,811)$12 $ 79.55 $129,906 2,908$ $215 ($2,693)$12 $ 79.55 $3,421 879$ $299 ($580)$12 $ 79.55 $1,034 2,705$ $120 ($2,585)$12 $ 79.55 $3,182 72,534$ $409,622 $337,089 $0.003 $ 0.0229 $85,315 135$ $10 ($125)$12 $ 79.55 $159 -$ $ - 487$ $80 ($407)$43 $ 286.38 $573 15,583$ $2,304 ($13,279)$21 $ 143.19 $18,328 1,785$ $319 ($1,466)$29 $ 190.92 $2,100 1,758$ $130 ($1,628)$12 $ 79.55 $2,068 10,077$ $8,344 ($1,733)$12 $ 79.55 $11,853 -$ $12 $ 79.55 -$ $ - -$ $ - Capital Accounting Partners Page 8 of 14 BldCostCalcs Palo Alto Building Dept Building Fees Service # If Any Fee Name 1,232 Commercial (Level 1 and 2) 1,233 Commercial (Level 1 and 2) - each additional station 1,233 Commercial (Level 3 and 4) 1,234 Commercial (Level 3 and 4) - each additional station 1,231 Residential (level 1 & 2) Residential (level 3) Electrical Permits - Photovoltaic Systems Residential System (less than 10 kw) 1,242 Residential System (greater than 10 kw) 1,243 Commercial System (less than 10 kW) 1,244 Commercial System (10kW - 49kW) 1,245 Commercial System (greater than 49kW) MECHANICAL PERMITS Swimming Pool Heather 1,254 Admin base fee Mechanical new or remodel cost/SF 1a 1b Furnaces 1c 1d 2 Appliance vents: installation, relocation or replacement of… 3 Repairs, alteration or addition of each heating appliance… Boilers, Compressors, and Absorption Systems: 4a Up to and including 3 HP, absorption system up to and including 100,000 Btu/h 4b Up to and including 15HP, absorption system exceeding 100,000 Btu/h and including 500,000 Btu/h 4c Up to and including 15-30HP, absorption system exceeding 500,000 Btu/h and including 1,000,000 Btu/h 4d Up to and including 30-50HP, absorption system exceeding 1,000,000 Btu/h and including 1,750,000 Btu/h 4e Greater than50HP, absorption system exceeding 1,750,000 Btu/h 5 Air handlers up to and including 10,000 cf per cfm… Ventilation and exhaust: 7a Each ventilation FAC connect to a single duct 7b Each ventilation system that is not a portion of a heating or air- conditioning system … 7c Installation of each hood that is served by mechanical exhaust, including the ducts of such hood Miscellaneous 9 Each appliance or piece of equipment regulated by this code, but not classed in other appliance categories for which no other fee is listed in this table Full Gas Piping 10a Each gas piping system of 1-5 outlets 10b Each additional gas piping system per outlet Process Piping 11a Each hazardous process piping system 1-4 outlets 11b Each hazardous process piping system >5 outlets 11c Each nonhazardous process piping system of 1-4 outlets Annual Revenue Revenue at Full Cost of Services Projection of Revenues at Current Fees Annual Surplus (subsidy) R e q u i 6 Months Reserve, 3 yr build up Full Cost / Unit With Reserves Annual Cost Calculations w/o Reserves Reserve Requirements 6,501$ $6,290 ($211) 5,850$ $7,308 $1,458 $13 $ 87.10 $6,881 464$ $560 $96 $82 $ 545.24 $545 -$ $16 $ 106.78 9,579$ $9,120 ($459)$30 $ 197.66 $11,266 -$ $42 $ 277.29 -$ $ - 10,307$ ($10,307)$14 $ 95.46 $12,123 -$ $39,497 $39,497 $ 304.35 -$ $95 $ 631.53 2,416$ $2,550 $134 $142 $ 947.29 $2,842 873$ $900 $27 $154 $ 1,026.84 $1,027 1,493$ $644 ($849)$11 $ 76.37 $1,756 84,096$ $93,932 $9,836 $15 $ 96.88 $98,915 51,268$ $289,531 $238,263 $0 $ 0.02 $60,303 -$ $ - 15,939$ ($15,939)$29 $ 191.30 $18,748 -$ $ 0.32 -$ $ - -$ $10 $ 64.02 -$ $10 $ 64.02 -$ $ - -$ $19 $ 127.66 9,334$ $2,408 ($6,926)$19 $ 127.66 $10,979 -$ $19 $ 127.66 -$ $29 $ 191.30 -$ $29 $ 191.30 -$ $10 $ 64.02 -$ $ - 4,137$ $836 ($3,301)$10 $ 64.02 $4,866 -$ $10 $ 64.02 109$ $56 ($53)$10 $ 63.96 $128 -$ $ - -$ $10 $ 63.96 -$ $ - 391$ $112 ($279)$17 $ 114.87 $459 -$ $10 $ 63.64 -$ $ - -$ -$ $10 $ 63.64 -$ $23 $ 153.05 Capital Accounting Partners Page 9 of 14 BldCostCalcs Palo Alto Building Dept Building Fees Service # If Any Fee Name 11d Each NPP piping system of >5 outlets, per outlet PLUMBING PERMITS - GRAY WATER SYSTEMS 1,266 Admin base fee 1 For each plumbing fixture on one trap or set of fixtures.. 2 For each building sewer and each trailer park sewer 3 Rainwater system - per drain (inside building) 4 For each private sewage disposal system 6 For each water heater, vent, or both 7 For each gas piping system of one to five outlets 8 For each additional gas piping system outlet, per outlet 9 Industrial waste pretreatment interceptor, including trap and vent, X kitchen-type grease interceptors 10 Installation, alteration or repair of water piping, water treatment equip or both 11 Repair or alteration of drainage or vent piping, each fixture 12 Lawn sprinkler system on one meter including backflow protection devices 13A Atmospheric-type vacuum breakers not referenced above (1-5) 13B Atmospheric-type vacuum breakers not referenced above (>5) 14 Backflow protective device other than atmospheric-type (any size) Plumbing Permits - Graywater Systems 1,271 Clothes washer System 1,273 Complex System 1,272 Simple System 16 Installation and testing for a reclaimed water system 17 Annual cross-connection testing of reclaimed water system… 18 Each medical gas piping system 1-5 outlets Additional medical gas inlet(s) Electrical new or remodel cost/SF Solar hot water system 1,190 Storm drain system 1,191 Swimming pool Use & occupancy Permits 1,187 Certificate of Use and Occupancy 1,188 Certificate of Use and Occupancy - Replacement 1,189 1,186 Temporary Occupancy Permit - Multi-Family Residential, Non- Residential, and Other Commercial 1,185 Temporary Occupancy Permit - Single Family Residential and Commercial Tenant Improvement less than 10,000 sq. ft. FIRE FEES Hazardous Materials Classification Permits 1,367 Compressed Gas 1,363 Corrosives 1,364 Cryogenic Fluid 1,365 Flammable and Combustible Liquids 1,368 Flammable Gas 1,366 Flammable Solids 1,373 Health Hazard (Liquids & Solids) Annual Revenue Revenue at Full Cost of Services Projection of Revenues at Current Fees Annual Surplus (subsidy) R e q u i 6 Months Reserve, 3 yr build up Full Cost / Unit With Reserves Annual Cost Calculations w/o Reserves Reserve Requirements -$ $23 $ 153.05 107,900$ $120,520 $12,620 $15 $ 96.88 $126,914 -$ $14 $ 95.46 1,953$ $420 ($1,533)$23 $ 153.12 $2,297 5,356$ $330 ($5,026)$14 $ 95.46 $6,300 15,621$ $1,320 ($14,301)$23 $ 153.12 $18,374 5,454$ $280 ($5,174)$17 $ 114.55 $6,415 27,659$ ($27,659)$34 $ 229.10 $32,533 -$ $710 $710 $ 48.70 -$ $34 $ 229.10 97$ $5 ($92)$17 $ 114.55 $115 1,299$ $448 ($851)$14 $ 95.46 $1,527 -$ $14 $ 95.46 -$ $17 $ 114.55 -$ $14 $ 95.46 15,193$ $390 ($14,803)$34 $ 229.10 $17,870 -$ $ - -$ $14 $ 95.46 195$ $88 ($107)$34 $ 229.10 $229 243$ $183 ($60)$14 $ 95.46 $286 -$ $34 $ 229.10 -$ $69 $ 458.21 -$ $34 $ 229.10 Additional medical gas inlet(s)0.25 25$ $16 $41 -$ ($41)-$ $7 $ 47.73 Electrical new or remodel cost/SF2,127,2360.00012 0.012$ 0.008$ 0.02$ 0.11$ $0 41,435$ $233,996 $192,561 $0 $ 0.02 $48,736 Solar hot water system1.2 118.187$ 76.594$ 194.78$ 224.00$ $29 -$ $34 $ 229.10 1,190Storm drain system1.2 118$ $77 $195 28.00$ ($167)-$ $34 $ 229.10 1,191Swimming pool 0.4 39$ $26 $65 28.00$ ($37)-$ $11 $ 76.37 Use & occupancy Permits 1,187Certificate of Use and Occupancyeach1552.5 456$ $296 $752 287.00$ ($465)116,569$ $44,485 ($72,084)$133 $ 884.58 $137,109 1,188Certificate of Use and Occupancy - Replacementeach0.5 94$ $61 $155 123.00$ ($32)-$ $27 $ 182.64 1,189 -$ -$ $ - 1,186each332.3 365$ $237 $602 896.00$ $294 19,876$ $29,568 $9,692 $106 $ 708.43 $23,378 1,185each1551.7 270$ $175 $445 375.00$ ($70)69,003$ $58,125 ($10,878)$78 $ 523.62 $81,162 -$ -$ $ - FIRE FEES Hazardous Materials Classification Permits -$ -$ 1,367Compressed Gasannually281 229$ $121 $350 139.00$ ($211)9,795$ ($9,795)$62 $ 411.45 $11,521 1,363Corrosivesannually541 229$ $121 $350 139.00$ ($211)18,890$ ($18,890)$62 $ 411.45 $22,219 1,364Cryogenic Fluidannually421 229$ $121 $350 139.00$ ($211)14,692$ ($14,692)$62 $411 $17,281 1,365Flammable and Combustible Liquidsannually1721 229$ $121 $350 139.00$ ($211)60,168$ ($60,168)$62 $411 $70,770 1,368Flammable Gasannually281 229$ $121 $350 139.00$ ($211)9,795$ ($9,795)$62 $411 $11,521 1,366Flammable Solidsannually1 229$ $121 $350 139.00$ ($211)-$ $62 $411 1,373Health Hazard (Liquids & Solids)annually331 229$ $121 $350 139.00$ ($211)11,544$ ($11,544)$62 $ 411.45 $13,578 Capital Accounting Partners Page 10 of 14 BldCostCalcs Palo Alto Building Dept Building Fees Service # If Any Fee Name 1,381 Liquefied Petroleum Gases 1,354 Organic Coatings 1,374 Organic Peroxides 1,355 Ovens - Industrial Baking or Drying 1,375 Oxidizers (Liquids & Solids) 1,369 Oxidizing Gas 1,356 Parade Float 1,357 Place of Public Assembly 1,370 Pyrophoric Gas 1,376 Pyrophoric Materials (Liquids & Solids) 1,358 Pyrotechnical Special Effects Material 1,377 Radioactive Materials 1,359 Refrigeration Equipment 1,360 Spraying/Dipping 1,361 Tent or air-supported structure having an area in excess of 200 square feet; or canopies in excess of 400 square feet (includes a public assembly permit of $125.00 for all tents) 1,362 Tire Recapping/Tire Storage 1,371 Toxic, Highly Toxic, Moderately Toxic, Health Hazard Gas 1,378 Toxic, Highly Toxic, Moderately Toxic, Health Hazard Materials 1,372 Unstable Reactive Gas 1,379 Unstable Reactive Materials (Liquids & Solids) 1,380 Water Reactive Materials (Liquids & Solids) Hazardouis Materials County Reimbursement Hazardous Materials Storage Permits 1,311 Additional Approvals for Hazardous Materials Storage Permit (first 2 hours) 1,312 Additional Approvals for Hazardous Materials Storage Permit (per hour for time above 2 hours) 1,308 Business Plan (HMBP) 1,312 Late Fee for Hazardous Materials Storage Permit 1,305 Level I Facility 1,306 Level II Facility 1,307 Level III Facility 1,309 Petroleum Aboveground Storage Tank 1,310 Provisional (6 Month) Fire Inspection Fees 1,313 Additional Resinspection Fee (up to 2 hours during normal business hours) 1,313 Additional Resinspection Fee (each additional hour) 1,314 After Hours Inspection Fee Annual Revenue Revenue at Full Cost of Services Projection of Revenues at Current Fees Annual Surplus (subsidy) R e q u i 6 Months Reserve, 3 yr build up Full Cost / Unit With Reserves Annual Cost Calculations w/o Reserves Reserve Requirements 1,381Liquefied Petroleum Gasesannually101 229$ $121 $350 139.00$ ($211)3,498$ ($3,498)$62 $ 411.45 $4,115 1,354Organic Coatingsannually1 229$ $121 $350 175.00$ ($175)-$ $62 $ 411.45 1,374Organic Peroxidesannually11 229$ $121 $350 139.00$ ($211)350$ ($350)$62 $ 411.45 $411 1,355Ovens - Industrial Baking or Dryingannually41 229$ $121 $350 102.00$ ($248)1,399$ ($1,399)$62 $ 411.45 $1,646 1,375Oxidizers (Liquids & Solids)annually161 229$ $121 $350 139.00$ ($211)5,597$ ($5,597)$62 $ 411.45 $6,583 1,369Oxidizing Gasannually341 229$ $121 $350 139.00$ ($211)11,894$ ($11,894)$62 $411 $13,989 1,356Parade Floatper hour1 229$ $121 $350 115.00$ ($235)-$ $62 $411 1,357Place of Public Assembly per occurrence2 457$ $242 $700 236.00$ ($464)-$ $123 $823 1,370Pyrophoric Gasannually11 229$ $121 $350 139.00$ ($211)350$ ($350)$62 $411 $411 1,376Pyrophoric Materials (Liquids & Solids)annually41 229$ $121 $350 139.00$ ($211)1,399$ ($1,399)$62 $411 $1,646 -$ $62 $411 9,795$ ($9,795)$62 $411 $11,521 -$ $62 $411 5,947$ ($5,947)$62 $411 $6,995 -$ $131 $872 -$ $246 $1,642 1,371Toxic, Highly Toxic, Moderately Toxic, Health Hazard Gasannually111 229$ $121 $350 139.00$ ($211)3,848$ ($3,848)$62 $411 $4,526 13,293$ ($13,293)$62 $411 $15,635 350$ ($350)$62 $411 $411 -$ $62 $411 -$ $62 $411 -$ $62 $411 -$ $348,000 $348,000 -$ -$ $134 $892 -$ $87 $583 115,990$ ($115,990)$87 $583 $136,429 -$ 1,305Level I Facility811 229$ $121 $350 264.00$ ($86)28,335$ ($28,335)$62 $411 $33,328 83,256$ ($83,256)$123 $823 $97,926 267,257$ ($267,257)$247 $1,646 $314,351 18,190$ ($18,190)$123 $823 $21,396 -$ $123 $823 -$ -$ -$ -$ -$ 104,687$ ($104,687)$123 $821 $123,134 -$ $61 $410 -$ $92 $616 Capital Accounting Partners Page 11 of 14 BldCostCalcs Palo Alto Building Dept Building Fees Service # If Any Fee Name 1,316 Care Facility 1,317 Care Facility Inspection Including Fire Clearance (greater than 25 Care Facility Inspection Including Fire Clearance (7-25 clients) 1,315 Christmas Tree Lot/Pumpkin Patch 1,321 High Rise Building - Certificate of Compliance (annually up to 4 1,322 High Rise Building - Certificate of Compliance (each additional hour)) 1,318 Outside Cooking Booths 1,320 Standby Fire Watch or After Hours at Fire or Incident Scene 1,319 Use and Occupancy Fire Inspection As-Built Plan Check and Additional Work Investigations & Consultations 1,325 Additional Hours Over Plan Review/Inspection 1,323 Alternate Means and Methods Application 1,324 Appeals to Decisions 1,322 Consultation Fee 1,328 Hazardous Materials Data Entry Fee 1,327 Hydrant Flow Fee 1,326 Site Disaster Planning Life Safety & Fire Protection 1294A Automatic Fire Sprinkler Installation/Modification > 19 heads 1,295 Automatic Fire Sprinkler Installation/Modification (plus per head) 1,301 Express Fire Protection Plan Check Fee 1,296 Fire Alarm System Installation and Modification 1,297 Fire Alarm System Installation and Modification (plus a device or contact point) 1,303 Fire Protection and Fire Access Plan Review for New Single Family Dwellings or Additions 1,298 Hydrant Installation/Modification - Private 1,295 Other Automatic Fire Extinguishing System 1,297 Standpipe System - Wet, Dry, or Combination 1,300 Temporary Certificate of Occupancy 1,299 Underground Fire Service Line 1,304 Verification of Fire Protection System Maintenance and Certification Food truck permits Multifamily dwellings, hotels & motels 4-50 units 51-100 units Greater than 100 units Fire Prevention Inspection of Private Schools 1294B Automatic Fire Sprinkler Installation/Modification > 19 heads Specific Hazard Permits 1,329 Aerosol Products 1,330 Amusement Buildings Annual Revenue Revenue at Full Cost of Services Projection of Revenues at Current Fees Annual Surplus (subsidy) R e q u i 6 Months Reserve, 3 yr build up Full Cost / Unit With Reserves Annual Cost Calculations w/o Reserves Reserve Requirements -$ -$ $123 $821 -$ $61 $410 -$ $61 $410 -$ $256 $1,710 -$ $61 $410 -$ $92 $616 -$ $61 $410 54,088$ $22,940 ($31,148)$61 $410 $63,619 52,344$ ($52,344)$123 $821 $61,567 -$ -$ -$ $49 $325 49,242$ ($49,242)$116 $772 $57,919 -$ $61 $410 165,755$ $78,850 ($86,905)$61 $410 $194,963 -$ 26,172$ ($26,172)$61 $410 $30,784 -$ $61 $410 -$ -$ -$ $272 $1,813 -$ $1 $4 -$ -$ $172 $1,146 -$ $4 $25 -$ $141 $941 -$ $31 $205 -$ $172 $1,146 17,448$ ($17,448)$123 $821 $20,522 -$ $133 $889 250,817$ ($250,817)$295 $1,967 $295,015 -$ $14 $92 -$ $31 $205 -$ -$ $61 $410 -$ $698 -$ $184 $1,231 -$ $123 $821 -$ $123 $821 -$ -$ $77 $513 -$ Capital Accounting Partners Page 12 of 14 BldCostCalcs Palo Alto Building Dept Building Fees Service # If Any Fee Name 1,331 Automobile Wrecking Yard or Junk Yard 1,332 Bowling Alley and Pin Refinishing Involving the use of Flammable 1,333 Candles and Open Flames in Assembly Areas 1,334 Carnivals and Fairs 1,335 Cellulose Nitrate Storage/Nitrate Film 1,337 Combustible Fiber/Material Storage 1,336 Confined Space 1,338 Hot Work permit fee (one time permit) 1,339 Hot Work permit fee (monthly permit) 1,340 1,341 Fireworks Display 1,342 High-piled Combustible Storage 1,343 Hot Work (Welding) Operations 1,349 Liquid or Gas-Fueled Powered Equipment 1,344 Liquid or Gas-Fueled Vehicles or Equipment in Assembly Buildings 1,350 Magnesium Working 1,345 Malls - Covered 1,351 Occupant Load Increase - Temporary Public Assembly 1,352 Open Burning 1,348 Open Flame/Flame Producing Devices 1,353 Operate a Tank Vehicle to Transport Flammable/Combustible 1,347 Place of Public Assembly - Temporary 1,346 Temporary Kiosks Fire Miscellaneous Fees TCO fee for Vendors/Stock occupancy (Requires at least one additional inspection) 1,288 Emergency Response Fee - Hazmat (PAMC 17.24.050) 1,289 Installation or Closure Without Approved Plans and/or Permits Fire plans revision Building General & Miscellaneous Fees 1,176 All Other Publications 1,201 Construction/Maintenance Vehicles 1,172 Electric Service and Safety Inspection 1,181 Extension of Building Permit or Building Permit Application 1,174 Inspections and Investigations - Outside Normal Business Hours (1.5xOThour) 1,175 Inspections and Investigations - Outside Normal Business Hours (2.0xOThour) 1,173 Inspections and Investigations - Unclassified 1,184 Reactivation of Expired Building Permit - All Others 1,183 Reactivation of Expired Building Permit - Final Inspection Only 1,182 Reactivation of Expired Building Permit Application 1,178 Real Property Research Fee (1-hour minimum) 1,177 Records Retention 1,180 Reinspection Fee - Multi-Family Residential and Non-Residential 1,179 Reinspection Fee - Single Family Residential (each secondary inspection type) Annual Revenue Revenue at Full Cost of Services Projection of Revenues at Current Fees Annual Surplus (subsidy) R e q u i 6 Months Reserve, 3 yr build up Full Cost / Unit With Reserves Annual Cost Calculations w/o Reserves Reserve Requirements -$ -$ $179 $1,197 -$ $61 $410 -$ $256 $1,710 -$ $18 $120 -$ -$ 1,338Hot Work permit fee (one time permit)One time1 228$ $121 $349 126.00$ ($223)-$ $61 $410 -$ -$ -$ -$ -$ -$ $61 $410 -$ -$ -$ $123 $821 -$ $61 $410 -$ $61 $410 -$ $61 $410 -$ $87 $582 -$ $61 $410 -$ -$ -$ 287,438$ ($287,438)$203 $1,352 $338,088 -$ $61 $410 -$ -$ -$ -$ -$ 1,172Electric Service and Safety Inspectionper hour1 98$ $52 $151 84.00$ ($67)-$ $27 $177 2,656$ $1,736 ($920)$15 $101 $3,124 365$ $202 ($163)$64 $429 $429 25,274$ $11,752 ($13,522)$86 $572 $29,727 -$ $43 $286 4,325$ ($4,325)$40 $268 $5,087 4,049$ $6,000 $1,951 $45 $298 $4,762 3,023$ $2,688 ($335)$33 $222 $3,556 -$ $43 $286 118,656$ $80,936 ($37,720)$1 $7 $139,564 562$ $616 $54 $50 $331 $661 3,086$ $1,176 ($1,910)$220 $3,086 $43,200 Capital Accounting Partners Page 13 of 14 BldCostCalcs Palo Alto Building Dept Building Fees Service # If Any Fee Name 1,180 Reinspection Fee - Single Family Residential (each primary inspection type) 1,171 Request for Release of Building Plans 1,175 Residential Inspection Guidelines Conditional Utility Agreement Emergency Responder Radio Coverage (testing) fee. GREEN BUILDING FEES Bldg Alterations and additions for single and multifamily < 1,000 sq ft and increases conditioned space Bldg Alterations and additions for single and multifamily > 1,000 sq ft Bldg Multi Family New Construction of 3 or More (attached) Units Bldg Multi Family New Construction of < 4 Bldg New Single family Bldg Tenant improvements, renovations, or alterations > 5,000 sq ft that includes replacement or alteration of at least two of the following: HVAC system, building envelope, hot water system, or lighting system and project value greater than $200,000. Bldg C. Tenant improvements, renovations or alterations > $200,000 in valuation (and not triggered by a Calgreen Tier) Bldg If the project is over $100,000 Energy Star is required after 12 months of occupancy Bldg New commercial 1000 - 25,000 SF Bldg New commercial 25,001-50,000 SF Bldg New commercial >50,000 SF Bldg Landscape Review - plan review Bldg Landscape Review - inspection Bldg Landscape Review - plan review Bldg Landscape Review - inspection Bldg Landscape Review - plan review Bldg Landscape Review - inspection Bldg Fee # 325 Annual Revenue Revenue at Full Cost of Services Projection of Revenues at Current Fees Annual Surplus (subsidy) R e q u i 6 Months Reserve, 3 yr build up Full Cost / Unit With Reserves Annual Cost Calculations w/o Reserves Reserve Requirements -$ $50 $331 -$ $13 $90 -$ 44,292$ $47,124 $2,832 $42 $279 $52,097 15,631$ ($15,631)$110 $735 $18,386 108,626$ $67,023 ($41,603)$193 $1,291 $127,767 204,545$ $28,718 ($175,827)$217 $1,449 $240,588 6,032$ $2,672 ($3,360)$266 $1,774 $7,095 -$ $218 $1,456 9,611$ $11,809 $2,198 $242 $1,615 $11,305 51,271$ $32,028 ($19,243)$266 $1,774 $60,305 51,997$ $14,868 ($37,129)$218 $1,456 $61,160 -$ $123 $821 37,336$ $30,303 ($7,033)$313 $2,091 $43,915 -$ $361 $2,409 -$ $385 $2,567 87,160$ ($87,160)$256 $1,709 $102,519 13,091$ ($13,091)$38 $257 $15,397 71,516$ ($71,516)$158 $1,051 $84,118 17,454$ ($17,454)$38 $257 $20,530 14,527$ ($14,527)$256 $1,709 $17,087 2,182$ ($2,182)$38 $257 $2,566 -$ -$ Annual Revenue Impact Revenue at Full Cost of Services Projection of Revenues at Current Fees Annual Surplus (subsidy)With Reserves 13,096,098$ 11,308,113$ ($1,787,985)$15,435,720 Annual Revenue Impacts Capital Accounting Partners Page 14 of 14 BldCostCalcs