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Tuesday, December 5, 2017
Regular Meeting
Community Meeting Room
7:00 PM
Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in
the Council Chambers on the Thursday 12 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/Community Meeting 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, 2017 and Management Letter
2.Recommendation to Approve the FY 2017 Comprehensive Annual
Financial Report (CAFR) and Approve Budget Amendments in Various
Funds
3.FY2019 - FY2028 Long Range Financial Forecast & City Pension
Liabilities
Future Meetings and Agendas
Adjournment
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MEMO
Meeting
Date Line No. Item Title Referral Date
1 Downtown Parking Management Study Finance Plan #1
(Planning)
2 Transportation Impact Fees (Planning)
2/20/2018 3 Hydroelectric Variability Management Strategy (Utilities)
Finance Committee Items Tentatively Scheduled
2/6/2018
City of Palo Alto (ID # 8677)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/5/2017
City of Palo Alto Page 1
Summary Title: Approval of FY 2017 Comprehensive Annual Financial Report
(CAFR) & Budget Amendments
Title: Recommendation to Approve the FY 2017 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 for its approval:
1. Amend the Fiscal Year (FY) 2017 Budget Appropriation for various funds as identified in
Attachment B – Exhibit 1 and various capital projects as identified in Attachment B –
Exhibit 2; and
2. The City’s FY 2017 Comprehensive Annual Financial Report (CAFR) (Attachment C).
Financial Highlights for FY 2017
General Fund ended FY 2017 with a surplus of $5.8 million when compared to the
assumptions used in the development of the FY 2018 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 approximately
$3.9 million 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 utility user taxes (approximately $1.9 million) when compared to the
estimated activity levels assumed in the development of the FY 2018 Adopted Budget. This
surplus is recommended to be utilized for the following purposes:
o FY 2018 Adopted Budget use of reserve as approved by the City Council in the FY
2018 Adopted Budget ($3.4 million)
o FY 2018 Budget Amendments approved or scheduled for Council consideration
($823,000);
o Recommended reserve of revenues as a result of the fees received from the
Edgewood Plaza development ($795,000); Additional FY 2017 Recommended
City of Palo Alto Page 2
Reappropriations to continue FY2017 activities that were not completed in time for
the fiscal year end close ($330,000); and
o Recommended transfer to the Infrastructure Reserve ($3.5 million).
After adjusting for amounts summarized above, the ending BSR balance of $39.3 million is
18.7 percent of FY 2018 General Fund budgeted expenditures and operating transfers
($357,000 over the 18.5 percent target set by the City Council).
Enterprise Funds, except for Electric and Wastewater Treatment Funds, ended the year in
surplus positions. With the end of the drought, financial conditions are improving most
notably for the Water and Electric Funds.
Internal Service Funds ended the fiscal year with $76.5 million fund balance. All funds
showed positive balances except the Printing and Mailing which reported a $0.3 million
negative balance due to the pension liability per GASB 68.
The City received a “clean” audit opinion for FY 2017 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 2016 – the 23rd 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 (CAFR).
The attachments to this Staff Report provide the necessary documents for closing the FY 2017
Budget. In addition, they provide detailed information on the City’s financial activities for FY
2017 and highlight key fiscal issues affecting the City of Palo Alto. The Management’s
Discussion and Analysis (MD&A) section of the CAFR (Attachment B) also provides a discussion
and analysis of the City’s current fiscal health, and includes financial statements and analysis
that is compared to the prior year, along with capital asset and debt administration data.
Discussion
Economic Environment:
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. While these results are welcome, continued rising benefit and other operating
costs diminish this more positive outlook over the next ten or so years.
City of Palo Alto Page 3
As a result of previous years' cost containment strategies, the City found that salaries of City of
Palo Alto employees, primarily public safety employees, had fallen behind. On April 11, 2016,
the City Council approved City Managers' Report #6789 Adoption of MOA for PMA, POA, SEIU,
and IAFF with additional changes approved on March 27, 2017 for FCA. The FY 2018 Adopted
Budget reflects a 5.8% increase in salaries from 2016-2017 levels of $70.7 million. However,
these agreements do contemplate that employees will pick up a portion of the employer share
of pension contributions, an important cost containment strategy. Miscellaneous employees in
the General Fund will pick up 1.0 percent by July 1, 2018 and Public Safety employees will pick
up 3.0 percent by the end of calendar year 2017.
In spite of these measures, 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 $561 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. During this fiscal year the General Fund contributed $2.1
million to the Section 115 trust with the plan to have the other funds provide funding during FY
2018.
Council approved a $125.8 million Infrastructure Plan (IP), which includes projects such as a
new Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan, and
two parking garages. The Plan was recently updated for scope increases and cost escalations,
resulting in a revised Infrastructure Plan of $196 million. 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 totaling $170
million. Staff is tasked with closing the funding gap in the upcoming FY19 budget process. As a
result of sound fiscal management and reserve policies, General Fund surpluses from FY 2012
through FY 2016 totaling $36.9 million were transferred to the Infrastructure Reserve. An
additional $3.5 million from the FY 2017 surplus is proposed for transfer to the Infrastructure
Reserve in FY 2017, for a total contribution of surplus funds of $40.4 million over seven years.
A detailed discussion of financial results for FY 2017 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 2019 and potential strategies to employ during the FY 2019 budget development to address
City of Palo Alto Page 4
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 $63.1 million, a
decrease of $3.8 million from the prior year. The $63.1 million fund balance is comprised of
several reserves: the Budget Stabilization Reserve (BSR), encumbrances and reappropriations,
notes and loans, inventory, prepaid items, and other general government special purposes
reserves. 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.
Over the past six fiscal years, a total of $36.9 million in surplus funds has been transferred to
the IR, as shown in the following table. In addition, $3.5 million of FY 2017 surplus (BSR balance
above 18.5% target) has been committed for transfer to the IR in FY 2018.
2012 $ 7,600
2013 8,900
2014 4,000
2015 5,087
2016 7,000
2017 4,327
36,914
2018 (FY2017 surplus) 3,500
Total transfers $ 40,414
As part of the development of the FY 2018 Adopted Budget, Council approved a one-time use
of the reserve in the amount of $3.4 million. Once adjusting for this, the BSR balance was $44.7
million compared to the FY 2018 Adopted Budget targeted level of $38.9 million; a $5.8 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 $39.3 million; approximately 18.7 percent of the FY 2018 Adopted Expenses of
$210.4 million. This level is approximately $357,000 above the target level of 18.5 percent or
$38.9 million.
City of Palo Alto Page 5
2017 Year-End Budget Stabilization Reserve (BSR) Summary
(000’s)
General Fund BSR Balance, June 30 2017 $48,118
Uses of the FY 2017 Surplus
FY 2018 Approved Uses of BSR
FY 2018 Adopted Budget (3,348)
FY 2018 City Manager Reports Budget Amendments -
Approved (as of October 31, 2017)
(823)
Additional FY 2017 Recommended Reappropriations (330)
Recommended Budget Amendments
Transfer to General Capital Improvement Fund (3,500)
Reserve: Edgewood Plaza development fees (795)
Current Projected FY 2018 BSR Level (June 30, 2018) $39,286
General Fund Revenues
General Fund revenues for FY 2017 were $164.4 million, which is $1.4 million or 0.8 percent
lower than the prior year. Year over year changes in each of the major tax revenue categories
are summarized in the following table.
Category FY 2017 FY 2016 % Change
Increase (Decrease)
Property tax $ 39,381 $ 36,607 7.6%
Sales tax 29,923 30,018 (0.3)%
Utility user tax 14,240 12,469 14.2%
Transient occupancy tax 23,477 22,366 5.0%
Documentary transfer tax 7,491 6,266 19.5%
Property tax revenue increased due to higher assessed values as a result of continued robust
commercial and residential real estate markets. Fiscal years 2017 and 2016 included unusual
receipts of $0.7 million and $1.0 million, respectively, for excess Educational Revenue
Augmentation Fund (ERAF) distributions from the County of Santa Clara. ERAF is the fund used
to collect and disburse property taxes that are shifted to/from cities, the county and special
districts prior to their reallocation to K-14 school agencies.
Sales tax revenue in total is relatively flat year over year. This performance reflects the
continued erosion of brick and mortar receipts caused by steady growth in on-line retail sales.
Utility user tax (UUT) revenue increased 14.2 percent from the prior year; almost $1.8 million
higher than the prior year. The increase is driven by telephone user services due, in part, to
new UUT revenue on prepaid wireless cards and phone plans.
City of Palo Alto Page 6
Transient occupancy tax (TOT) revenue experienced moderate growth over the prior year.
There was a 2 percent rate increase from 12 percent to 14 percent that became effective
January 1, 2015, and there were openings 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 2017 FY 2016 % Change
Increase (Decrease)
General Fund: $ 15,734 $ 15,187 3.6%
Infrastructure Plan:
New hotels – 12% 4,389 3,982 10.2%
All hotels – 2% 3,354 3,197 4.9%
7,743 7,179 7.9%
Total TOT Receipts $ 23,477 $ 22,366 5.0%
Documentary Transfer Tax (DTT) revenues increased $1.2 million, or 19.5 percent, from the
prior year resulting from a strong real estate sales activity.
Other revenues decreases of $8.2 million were as follows:
Charges for services decreased $1.6 million from the prior year due primarily to reduced
revenue for Stanford University fire services, and lost revenues from the closure of the
golf course due to renovations.
Actual investment earnings on the City’s portfolio increased by $176 thousand or 16.5%;
however, based on the Government Accounting Standard Board (GASB) rules, the net
interest earnings reported in the financial statement are $3.7 million lower as a result of
accounting for unrealized losses on the City’s investments. Per GASB rules, public
agencies are required to report the change in the valuation of City’s portfolio at June
30. Due to the rising interest rates, the portfolio’s fixed income securities have a
“paper” loss as of June 30. As the City has a long-term policy of holding its investments
until their maturity dates, there will likely be no actual losses incurred on these
investments.
In addition, FY 2016 revenues included a one-time $1.7 million in proceeds from the sale
of the residence of the former city manager which was co-owned by the City.
Following is a chart which depicts the relative contribution of each tax category over the past
seven years (2010 through 2017), as well as the current budgeted year (2018).
City of Palo Alto Page 7
General Fund Tax Revenues
Actual Fiscal Years 2010 – 2017
Budget Fiscal Year 2018
General Fund Expenditures
General Fund expenditures for FY 2017, including encumbrances and reappropriations, totaled
$176.3 million; an increase of $13.3 million from the prior year. The Original Budget of $170.5
million was increased to the Final Adjusted Budget amount of $178.4 million, primarily due to
the expenditure of prior year encumbered and reappropriated balances; increases for several
departments throughout the year based on the supplemental appropriations per the City
Manager Reports.
Following is a chart which compares actual departmental costs, including encumbrances and
reappropriations, over the past seven years and budgeted costs for FY 2018.
City of Palo Alto Page 8
General Fund Departments
Actual Expenditures Fiscal Years 2010 – 2017 (including encumbrances)
Budgeted Expenditures Fiscal Year 2018
($ in thousands)
Capital Projects Fund
The Capital Projects Fund ended the year with a fund balance of $72.0 million, which is
comprised of the following:
Fund Balance Component Amount
($ in millions)
Restricted for Library projects $ 716
Reserved for Roth Building rehabilitation 4,014
Reserved for TDR qualified expenditures 666
Reserved for Cubberley expenditures 4,081
Assigned for all other Capital projects 62,559
Total Capital Projects Fund Balance $ 72,036
City of Palo Alto Page 9
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 $62.6 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.
Enterprise Funds
On June 30, 2017, the City’s Enterprise Funds reported total net position of $696.4 million; an
increase of $19.5 million from the prior year. The change in net position for each of the
Enterprise Funds is detailed in the following table.
Enterprise Funds
Change in Net Position for the Year Ended June 30
(in Millions)
Increase/
Fund Name 2017 2016 (Decrease)
Water 6.5$ 4.7$ 1.8$
Electric (1.2)(8.3)7.1
Fiber Optics 2.2 3.0 (0.8)
Gas 2.4 3.4 (1.0)
Wastewater Collection 1.5 1.6 (0.1)
Wastewater Treatment (0.1)1.7 (1.8)
Refuse 3.3 2.6 0.7
Storm Drainage 2.5 3.3 (0.8)
Airport 2.4 0.1 2.3
Total Change in Net Position 19.5$ 12.1$ 7.4$
The total Change in Net Assets of $19.5 million is an increase of $7.4 million from the prior year,
primarily due to improvements in Water, Electric and Airport Funds. Electric Fund experienced
higher revenues based on rate increases and, combined with lower costs for electricity
purchases due to higher availability of hydroelectric energy because of the end of the drought
conditions, ended the fiscal year in a year-to-year positive net change of $7.1 million. Water
Fund also reported positive net change from the prior year mainly based on higher sales
resulting from a rate hike as well as growth in consumption with the end of the drought. Gas
City of Palo Alto Page 10
Fund showed a $1.0 million negative change due to higher commodity prices. The
corresponding increase in customer revenue (also commodity rate driven) was offset by lower
investment earnings and higher transfers. Refuse Fund net position increased by $0.7 million
from the prior year based on a 9% rate hike in the current fiscal year. Lastly, the Airport Fund
has started reporting a positive net position based on higher program revenues and a federal
grant award.
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, 2017, except for Wastewater Treatment, which is in a deficit position of $0.4 million
due to pension related items, and Airport Fund, which is in a deficit position of $2.6 million due
to life to date operating losses that 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: FY 2017 General Fund
Attachment B: Recommended FY 2017 Year End Budget Adjustments
Attachment C: City of Palo Alto FY 2017 - CAFR
Attachment A Exhibit 2
GENERAL FUND SUMMARY ($000s)
FY 2017 FY 2017 FY 2017 FY 2017 FY 2017 FY 2017 FY 2017
Adopted Adjusted CAFR Basis Allocated Encumbrances /Actual Actual to
Budget Budget Rev/Exp Charges Reappropriations Rev/Exp Adj BudgetVariance
Revenues
Sales Tax 29,150 29,150 29,923 n/a 29,923 773
Property Tax 38,953 38,953 39,381 n/a 39,381 428
Transient Occupancy Tax 23,134 23,134 23,477 n/a 23,477 343
Documentary Transfer Tax 6,747 6,747 7,491 n/a 7,491 744
Utility Users Tax 12,379 12,377 14,240 n/a 14,240 1,863
Other Taxes and Fines 2,022 2,057 2,167 n/a 2,167 110
Charges for Services 25,282 24,042 22,267 n/a 22,267 (1,775)
Permits and Licenses 8,756 8,215 7,437 n/a 7,437 (778)
Return on Investment 975 1,001 1,296 n/a 1,296 295
Rental Income 15,021 15,055 15,692 n/a 15,692 637
From Other Agencies 441 2,445 2,758 n/a 2,758 313
Charges to Other Funds 10,766 10,766 - 10,439 n/a 10,439 (327)
Other Revenues 1,406 585 760 - n/a 760 175
Total Revenues 175,032 174,527 166,888 10,439 n/a 177,327 2,800
Add: Operating Transfers In 20,046 19,222 19,222 n/a 19,222 -
Prior Year Encum / Reappropriation - 7,454 7,454 n/a 7,454 -
Total Source of Funds 195,078 201,203 193,564 10,439 n/a 204,003 2,800
Expenditures
City Attorney 3,179 3,794 3,048 110 579 3,737 57
City Auditor 1,221 1,372 1,163 45 125 1,333 39
City Clerk 1,370 1,128 913 136 34 1,083 45
City Council 501 523 436 16 24 476 47
City Manager 3,381 3,424 2,722 168 449 3,339 85
Administrative Services 7,798 7,767 7,015 364 240 7,619 148
Community Services 25,390 26,711 20,586 4,661 1,326 26,573 138
Fire 28,947 32,175 28,664 2,940 563 32,167 8
Police 39,108 40,648 37,317 2,801 530 40,648 -
Human Resources 3,357 3,823 3,088 182 549 3,819 4
Library 8,992 9,273 8,024 930 312 9,266 7
Planning & Community Environment 8,768 10,749 8,479 671 1,582 10,732 17
Development Services 12,169 12,368 10,189 825 654 11,668 700
Public Works 16,224 17,486 13,555 3,070 850 17,475 11
Non-Departmental 4,388 1,388 745 6 - 751 637
Cubberley Lease 5,751 5,751 5,584 - 5,584 167
Total Expenditures 170,544 178,380 151,528 16,925 7,817 176,270 2,110
Add: Operating Trans Out 5,136 7,276 6,572 - 6,572 704
Transfer to Infrastructure 18,486 23,113 22,859 - 22,859 254
Total Use of Funds 194,166 208,769 180,959 16,925 7,817 205,701 3,068
Net Surplus/(Deficit)912 (7,566) 12,605 (6,486) 7,817 (1,698) 5,868
CAFR Reconciliation:Unrealized gain/loss on investments (2,489)
Current year encumbrance and reappropriations 7,817
Prior Year encumbrances and reappropriations (7,454)
CAFR Net Income (3,824)
Department Adjustment Adjustment
GENERAL FUND (102)
Administrative
Services
Management Development & Training (reallocation to
Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2018.
-$ (15,000)$
Administrative
Services
Departmental Expense Savings
This action reallocates departmental vacancy savings and non-salary savings within the
General Fund in order to offset departments with higher than anticipated expenses in FY 2017.
-$ (560,000)$
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.
-$ (11,000)$
City Attorney's
Office
Departmental Expense Savings
This action reallocates departmental vacancy savings and non-salary savings within the
General Fund in order to offset departments with higher than anticipated expenses in FY 2017.
-$ (189,000)$
City Auditor's
Office
Management Development & Training (reallocation to
Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2018.
-$ (500)$
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.
-$ (3,500)$
City Clerk's Office Departmental Expense Savings
This action reallocates departmental vacancy savings and non salary savings within the
General Fund in order to offset departments with higher than anticipated expenses in FY 2017.
-$ (296,500)$
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.
-$ (7,500)$
City Manager's
Office
Departmental Expense Savings
This action reallocates departmental vacancy savings and non-salary savings within the
General Fund in order to offset departments with higher than anticipated expenses in FY 2017.
-$ (592,500)$
Development
Services
Management Development & Training (reallocation to
Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2018.
-$ (11,000)$
Development
Services
Departmental Expense Savings
This action reallocates departmental vacancy savings and non-salary savings within the
General Fund in order to offset departments with higher than anticipated expenses in FY 2017.
-$ 6,000$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
1
Department Adjustment Adjustment
GENERAL FUND (102)
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Fire 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.
-$ (2,500)$
Fire Allocated Charges
This action increases the appropriation for vehicle equipment maintenance as result of higher
than anticipated expenses in FY 2017.
-$ 62,500$
Fire Salaries & Benefits
This action reallocates funding as result of higher than anticipated salary expenses in FY 2017.
These higher anticipated expenditures are due to a number of variables including use of
overtime as a result of significant vacancies throughout the year.
-$ 2,215,000$
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.
-$ (8,500)$
Human Resources Departmental Non Salary Expense
This action increases the appropriation for non-salary expenses to align with year end
encumbrances and reappropriations in FY 2017.
-$ 128,500$
Library Departmental Expense Savings
This action reallocates departmental vacancy savings and non-salary savings within the
General Fund in order to offset departments with higher than anticipated expenses in FY 2017.
-$ (247,500)$
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.
-$ (2,500)$
Non-
Departmental
Transfer to the Public Art Fund
This action increases the estimated transfer to the Public Art Fund to account for full funding
of administrative costs in excess of 20% of art fund revenue, in accordance with Ordinance
#5226.
-$ 10,000$
Non-
Departmental
Management Development & Training (reallocation from various departments)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2018.
-$ 80,000$
Non-
Departmental
General Fund Reserves, Contingent Accounts, and Transfers
This action reduces appropriations in the General Fund uncertainty reserve and other
contingent accounts to align the budget with actuals in FY 2017. Additionally, this action
reduces the transfer to the Capital Improvement Fund as it relates to Transient Occupancy Tax
(TOT) revenues earmarked for city-wide infrastructure improvements due to lower than
anticipated TOT collections.
-$ (429,500)$
Planning &
Community
Environment
Management Development & Training (reallocation to
Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2018.
-$ (5,000)$
2
Department Adjustment Adjustment
GENERAL FUND (102)
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Planning &
Community
Environment
Departmental Expense Savings
This action reallocates departmental vacancy savings and non-salary savings within the
General Fund in order to offset departments with higher than anticipated expenses in FY 2017.
-$ (595,000)$
Police Management Development & Training (reallocation to
Non-Departmental)
This action reallocates departmental management development savings to Non-Departmental
to reappropriate funds for city-wide training needs in FY 2018.
-$ (8,000)$
Police Salaries & Benefits
This action reallocates funding as a result of higher than anticipated expenses in FY 2017.
These higher anticipated expenditures can be attributed to usage of overtime, higher than
estimated disability claims, and unbudgeted retirement payouts.
-$ 333,000$
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.
-$ (5,000)$
Public Works Salaries & Benefits
This action reallocates funding as a result of lower than anticipated vacancy savings in FY 2017.
-$ 155,000$
GENERAL FUND (102) SUBTOTAL -$ -$
3
Department Adjustment 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 2.
-$ 961,919$
Capital Transfer from General Fund
This action reduces the transfer from the General Fund related to TOT revenue Council
earmarked to use for city-wide infrastructure improvements due to actual revenue collected
being lower than budgeted in FY 2017.
(253,743)$ -$
Capital Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (1,215,662)$
GENERAL FUND CAPITAL IMPROVEMENT FUND (471) SUBTOTAL (253,743)$ (253,743)$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
4
Department Adjustment Adjustment
ENTERPRISE FUNDS
AIRPORT ENTERPRISE FUND (530)
Public Works Non Salary Expense (Contract Services)/Revenue (Leases)
This action increases the appropriation for contract service expenses in the Airport Fund to
align with year end expenses and encumbered funds in FY 2017. A corresponding adjustment
to revenue reflecting higher than budgeted renewal rates for airport leases is recommended to
offset this increase.
111,000$ 111,000$
AIRPORT ENTERPRISE FUND (530) SUBTOTAL 111,000$ 111,000$
GAS FUND (514 & 524)
Utilities Gas Utility Purchases
This action increases the appropriation for Utility purchases expenses to align with year end
expenses and encumbrances in FY 2017.
-$ 1,213,604$
Utilities Transfer to the Wastewater Treatment Fund
This action increases the transfer to the Wastewater Treatment Fund by $33,456. PG&E
charges from the Gas Station #3 on Page Mill Road were invoiced incorrectly to the
Wastewater Treatment Fund instead of the Gas Fund since 2004. This error has since been
corrected; however, a total of $33,456 needs to be transferred to the Wastewater Treatment
Fund to cover incorrect charges.
-$ 33,456$
Utilities Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (1,247,060)$
GAS FUND (514 & 524) SUBTOTAL -$ -$
STORM DRAINAGE FUND (528)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 64,388$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (64,388)$
STORM DRAINAGE FUND (528) SUBTOTAL -$ -$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
5
Department Adjustment Adjustment
ENTERPRISE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
WASTEWATER TREATMENT FUND (526)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 89,705$
Public Works Transfer from the Gas Fund
This action increases the transfer from the Gas Fund by $33,456. PG&E charges from the Gas
Station #3 on Page Mill Road were invoiced incorrectly to the Wastewater Treatment Fund
instead of the Gas Fund since 2004. This error has since been corrected; however, a total of
$33,456 needs to be transferred from the Gas Fund to cover incorrect charges.
33,456$ -$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (56,249)$
WASTEWATER TREATMENT FUND (526) SUBTOTAL 33,456$ 33,456$
WATER FUND (522)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 239$
Utilities Water Commodities Purchase from San Francisco Public Utilities Commission (SFPUC)
This action increases the appropriation for Utlities water commodities purchase from SFPUC
to align with year end expenses and encumbrances in FY 2017.
-$ 352,703$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (352,942)$
WATER FUND (522) SUBTOTAL -$ -$
6
Department Adjustment Adjustment
INTERNAL SERVICE FUNDS
PRINT AND MAILING FUND (683)
Administrative
Services
Non Salary Expense (Miscellaneous)
This action increases the appropriation for non salary expenses in the Print and Mailing Fund
to align with year end expenses and encumbered funds in FY 2017.
-$ 19,440$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report. As
the Print and Mailing Fund does not carry a balance to offset adjustments recommended in
this report, this will impact the General Fund in FY 2018 with a recommended clean-up
adjustment.
-$ (19,440)$
PRINT AND MAILING FUND (683) SUBTOTAL -$ -$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
7
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
PUBLIC ART FUND (207)
Community
Services
Transfer from the General Fund
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, in accordance with Ordinance
#5226.
10,000$ -$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 10,000$
PUBLIC ART FUND (207) SUBTOTAL 10,000$ 10,000$
PUBLIC SERVICES DONATION FUND (191)
Various Non Salary Expense/Miscellaneous Revenue (donations)
This action increases the appropriation for expenses in the Public Services Donation Fund to
align with FY 2017 year end expense and encumbered funds. Donations were for activities
such as parks and open space activities, art center programs, and animal care services. A
corresponding adjustment to revenue reflecting higher than budgeted donations is
recommended to offset this increase.
55,969$ 48,153$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 7,816$
PUBLIC SERVICES DONATION FUND (191) SUBTOTAL 55,969$ 55,969$
CALIFORNIA AVENUE PARKING PERMITS FUND (237)
Non-
Departmental
Non-Salary Expense (Miscellaneous)
This action increases the appropriation for non-salary expense as a technical adjustment to
align budget levels with actual expenses in FY 2017. A corresponding decrease to expense
appropriations elsewhere in the fund is recommended to offset this action.
-$ 10,800$
Administrative
Services Salaries & Benefits
This action increases the salaries and benefits appropriation as result of slightly higher
than anticipated expenses in FY 2017. A corresponding decrease to expense
appropriations elsewhere in the fund is recommended to offset this action.
-$ 2,100$
Public Works Non Salary Expense (Miscellaneous)
This action reallocates the appropriation for non-salary expenses within the fund to offset
slightly higher than anticipated salary and benefits and as a technical adjustment to align
budget levels with actual expenses in FY 2017.
-$ (12,900)$
CALIFORNIA AVENUE PARKING PERMITS FUND (237) SUBTOTAL -$ -$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
8
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
HOUSING IN-LIEU/RESIDENTIAL FUND (233)
Non-
Departmental
Non Salary Expense (Contract Services)
This action increases the appropriation for Contract Services within the fund as a technical
adjustment to align budget levels with actual expenses in FY 2017. A corresponding decrease
to expense appropriations within the fund is recommended to offset this action.
-$ 120,000$
Planning &
Community
Environment
Non Salary Expense (Contract Services)
This action reallocates the appropriation for Contract Services within the fund as a technical
adjustment to align budget levels with actual expenses in FY 2017.
-$ (120,000)$
HOUSING IN-LIEU/RESIDENTIAL FUND (233) SUBTOTAL -$ -$
HOUSING IN-LIEU/COMMERCIAL FUND (234)
Non-
Departmental
Non Salary Expense (Contract Services)
This action reallocates the appropriation for Contract Services within the fund as a technical
adjustment to align budget levels with actual expenses in FY 2017.
-$ (18,500)$
Planning &
Community
Environment
Non Salary Expense (Contract Services)
This action increases the appropriation for Contract Services within the fund as a technical
adjustment to align budget levels with actual expenses in FY 2017. A corresponding decrease
to expense appropriations within the fund is recommended to offset this action.
-$ 18,500$
HOUSING IN-LIEU/COMMERCIAL FUND (234) SUBTOTAL -$ -$
UNIVERSITY AVENUE PARKING PERMITS FUND (236)
Non-
Departmental
Non-Salary Expense (Miscellaneous)
This action increases non-salary appropriations within the fund as a technical adjustment to
align budget levels with actual expenses in FY 2017. A corresponding decrease to expense
appropriations elsewhere in the fund is recommended to offset this action.
-$ 192,580$
Administrative
Services
Department
Salaries & Benefits
This action increases the salaries and benefits appropriation as result of slightly higher
than anticipated expenses in FY 2017. A corresponding decrease to expense
appropriations elsewhere in the fund is recommended to offset this action.
-$ 1,100$
Planning &
Community
Environment
Non Salary Expense (Miscellaneous)
This action reallocates appropriations within the fund to offset slightly higher than anticipated
salary expense and as a technical adjustment to align budget levels with actual expenses in FY
2017.
-$ (193,680)$
UNIVERSITY AVENUE PARKING PERMITS FUND (236) SUBTOTAL -$ -$
9
Department Adjustment Adjustment
AGENCY TRUST FUNDS
CABLE - JPA FUND (779)
Administrative
Services
Non Salary Expense (General Expense)
This action increases the appropriation for general expense to align with higher than
anticipated interagency expenses in FY 2017. A corresponding decrease in transfers to
correctly align the budget category and a decrease to fund balance are recommended to offset
this action.
-$ 1,584,647$
Administrative
Services
Transfer to General Fund
This action decreases the appropriation for transfer to the General Fund and recategorizes it
as an interagency expense to accurately align with the appropriate treatment of expenses in
this fund as an agency fund.
-$ (824,000)$
Fund Balance Adjustment to Fund Balance
This action (increases/decreases) the fund balance to offset adjustments recommended in this
report.
-$ (760,647)$
CABLE - JPA FUND (779) SUBTOTAL -$ -$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
10
Project
Title Number Revenue Expense Comments
Salaries and Benefits Capital Improvement
Fund CIP Projects
AS-10000 $ (1,739,291) Adjustment to allocate Salaries and Benefits across
capital projects based on actual expenditures
Open Space Trails and Amenities OS-00001 $ 73,492 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Rinconada Park Improvements PE-08001 $ 18 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
City Facility Parking Lot Maintenance PE-09003 $ (12,668) Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Highway 101 Pedestrian/Bicycle
Overcrossing
PE-11011 $ (98,059) Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Rinconada Park Master Plan & Design PE-12003 $ 115,907 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Newell Road Bridge / SFC Bridge
Replacement
PE-12011 $ 48,251 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
City Hall 1st Floor PE-12017 $ 38,463 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Parks Master Plan PE-13003 $ 167,315 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
City Hall/King Plaza PE-13005 $ 4,288 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Bowden Park PE-13008 $ 42,649 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Charleston Arastradero PE-13011 $ (42,614) Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Structural Assessment PE-13012 $ 13,152 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
ATTACHMENT B, EXHIBIT 2
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 CAPITAL IMPROVEMENT PROGRAM
CAPITAL IMPROVEMENT FUND
11
Project
Title Number Revenue Expense Comments
ATTACHMENT B, EXHIBIT 2
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 CAPITAL IMPROVEMENT PROGRAM
El Camino Park Expand PE-13016 $ 12,503 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Byxbee Park Trails PE-13020 $ 43,974 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Lucie Stern Buildings Mecahnical and
Electrical Upgrades
PE-14015 $ 323,994 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000)
($219,353). Also increase to project due to higher
than anticipated expenditures ($104,641) with a
decrease in FY 2018 as part of the FY 2018
Reappropriation memo.
Bayland Interpretive Center PE-14018 $ 67,836 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
New Public Safety Building PE-15001 $ 78,509 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Fire Station 3 Replacement PE-15003 $ (2,855) Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
New Downtown Parking Garage PE-15007 $ 445,995 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000)
($40,912). Also increase to project due to higher
than anticipated expenditures ($405,083) with a
decrease in FY 2018 as part of the FY 2018
Reappropriation memo.
Ventura Building Improvements PE-15011 $ (24,316) Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Civic Center Waterproofing Study PE-15020 $ (52,577) Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Baylands Interpretive Center Improv PE-15029 $ 93,278 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Traffic Circle Improvements PE-16002 $ 4,101 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Michell Park Adobe Creek Bridge
Replacement
PE-17000 $ 14,525 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
12
Project
Title Number Revenue Expense Comments
ATTACHMENT B, EXHIBIT 2
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 CAPITAL IMPROVEMENT PROGRAM
City Hall 3rd Floor Remodel PE-17002 $ 71,742 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
City Hall 4th Floor Remodel PE-17008 $ 19,818 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
City Hall 5th Floor Remodel PE-17009 $ 24,284 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Civic Center Electical Upgrades & EV
Charger Installation
PE-17010 $ 5,124 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
New California Avenue Area Parking
Garage
PE-18000 $ (263,269) Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Street Maintenance PE-86070 $ 1,037,654 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000)
($616,787). Also increase to project due to higher
than anticipated expenditures ($420,867) with a
decrease in FY 2018 as part of the FY 2018
Reappropriation memo.
Roofing Replacement PF-00006 $ (20,174) Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Building Systems Improvements PF-01003 $ (112,038) Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Interior Finishes Construction PF-02022 $ (14,202) Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Fire Station 1 Improvements PF-14002 $ 681 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
University Ave Parking PF-14003 $ (16,577) Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Municipal Service Center Improvements PF-16006 $ 45,111 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Americans With Disabilities Act
Compliance
PF-93009 $ 16,299 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
13
Project
Title Number Revenue Expense Comments
ATTACHMENT B, EXHIBIT 2
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 CAPITAL IMPROVEMENT PROGRAM
Benches, Signage, Fencing, Walkways,
Landscaping
PG-06003 $ 102,531 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Park & Open Space Emergency Repairs PG-09002 $ 110,269 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Golf Reconfig & Baylands PG-13003 $ 93,298 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Buckeye Creek Hydrology Study PG-15000 $ 8,469 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Bicycle and Pedestrian Plan
Implementation Project
PL-04010 $ 5,725 Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000)
($25,599). Also increase to project due to higher
than anticipated expenditures ($31,324) with a
decrease in FY 2018 as part of the FY 2018
Reappropriation memo.
Transportation and Parking Improvements PL-12000 $ (214,986) Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Quarry Road PL-16000 $ 3,625 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Downtown Mobility and Safety
Improvements
PL-16001 $ (59,789) Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Sidewalk Repairs PO-89003 $ 502,454 Adjustment to Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Total $ - $ 961,919
Matadero Creek Storm Water Pump
Station and Trunk Line Improvements
SD-013003 $ 64,388 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 64,388
STORM DRAIN FUND
14
Project
Title Number Revenue Expense Comments
ATTACHMENT B, EXHIBIT 2
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2017 CAPITAL IMPROVEMENT PROGRAM
System Flow Meters WQ-80022 $ 89,705 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 89,705
Water System, Customer Connections WS-80013 $ 239 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 239
$ - $ 1,116,251 TOTAL CIP ADJUSTMENTS
WASTEWATER TREATMENT FUND
WATER FUND
15
2016‐2017
Comprehensive
Annual
Financial Report
Fiscal Year Ended
June 30, 2017
Prepared by:
Administrative Services Department
CITY OF PALO ALTO, CALIFORNIA
CITY OF PALO ALTO
For the Year Ended June 30, 2017
Table of Contents
Page
INTRODUCTORY SECTION:
Transmittal Letter .................................................................................................................................... i
City Officials ........................................................................................................................................... vi
Organizational Structure ....................................................................................................................... vii
Administrative Services Organization .................................................................................................. viii
GFOA Certificate of Achievement for Excellence in Financial Reporting ............................................... ix
FINANCIAL SECTION:
Independent Auditor’s Report .............................................................................................................. 1
Management’s Discussion and Analysis
(Required Supplementary Information – Unaudited) ...................................................................... 5
Basic Financial Statements
Government‐wide Financial Statements:
Statement of Net Position ....................................................................................................... 29
Statement of Activities ............................................................................................................ 31
Governmental Fund Financial Statements:
Balance Sheet .......................................................................................................................... 33
Reconciliation of the Balance Sheet of Governmental Funds to
the Statement of Net Position ‐ Governmental Activities ................................................. 34
Statement of Revenues, Expenditures and Changes in Fund Balances .................................. 35
Reconciliation of the Statement of Revenues, Expenditures and Changes
in Fund Balances of Governmental Funds to the Statement of Activities –
Governmental Activities ................................................................................................... 36
Statement of Revenues, Expenditures and Changes in Fund Balance –
Budget and Actual – General Fund ................................................................................... 37
Proprietary Fund Financial Statements:
Statement of Net Position ....................................................................................................... 38
Statement of Revenues, Expenses and Changes in Fund Net Position ................................... 40
Statement of Cash Flows ......................................................................................................... 42
Fiduciary Fund Financial Statement:
Statement of Assets and Liabilities ......................................................................................... 44
Index to the Notes to the Basic Financial Statements ................................................................. 45
Notes to the Basic Financial Statements ...................................................................................... 47
Required Supplementary Information:
Schedule of Changes in Net Pension Liability and related Ratios – Miscellaneous Plan ............. 103
Schedule of Contributions – Miscellaneous Plan ......................................................................... 104
CITY OF PALO ALTO
For the Year Ended June 30, 2017
Table of Contents (Continued)
Page
Required Supplementary Information:
Schedule of Changes in Net Pension Liability and Related Ratios – Safety Plan ......................... 105
Schedule of Contributions – Safety Plan ...................................................................................... 106
Supplementary Information:
Non‐Major Governmental Funds:
Combining Balance Sheet ...................................................................................................... 107
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 109
Non‐Major Special Revenue Funds:
Combining Balance Sheet ...................................................................................................... 112
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 114
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 116
Non‐Major Debt Service Funds:
Combining Balance Sheet ...................................................................................................... 122
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 123
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 124
Non‐Major Permanent Fund:
Schedule of Revenues, Expenditures and
Changes in Fund Balance – Budget and Actual ............................................................... 126
Internal Service Funds:
Combining Statement of Fund Net Position .......................................................................... 128
Combining Statement of Revenues, Expenses and
Changes in Fund Net Position ......................................................................................... 129
Combining Statement of Cash Flows ..................................................................................... 130
Fiduciary Funds:
Statement of Changes in Assets and Liabilities – All Agency Funds ...................................... 132
STATISTICAL SECTION:
Financial Trends:
Net Position by Component ......................................................................................................... 135
Changes in Net Position ............................................................................................................... 136
CITY OF PALO ALTO
For the Year Ended June 30, 2017
Table of Contents (Continued)
Page
STATISTICAL SECTION:
Financial Trends:
Fund Balances of Governmental Funds ....................................................................................... 138
Changes in Fund Balances of Governmental Funds ..................................................................... 140
Revenue Capacity:
Electric Operating Revenue by Source ......................................................................................... 141
Supplemental Disclosure for Water Utilities ............................................................................... 142
Assessed Value of Taxable Property ............................................................................................ 143
Property Tax Rates, All Overlapping Governments ..................................................................... 144
Property Tax Levies and Collections ............................................................................................ 145
Principal Property Taxpayers ....................................................................................................... 146
Assessed Valuation and Parcels by Land Use .............................................................................. 147
Per Parcel Assessed Valuation of Single Family Residential ........................................................ 148
Debt Capacity:
Ratio of Outstanding Debt by Type .............................................................................................. 149
Computation of Direct and Overlapping Debt ............................................................................. 150
Computation of Legal Bonded Debt Margin ................................................................................ 151
Revenue Bond Coverage .............................................................................................................. 152
Demographic and Economic Information:
Taxable Transactions by Type of Business ................................................................................... 153
Demographic and Economic Statistics ......................................................................................... 154
Principal Employers...................................................................................................................... 155
Operating Information:
Operating Indicators by Function/Program ................................................................................. 156
Capital Asset Statistics by Function/Program .............................................................................. 158
Full‐Time Equivalent City Government Employees by Function .................................................. 160
SINGLE AUDIT SECTION:
Index to the Single Audit Report .................................................................................................. 161
Independent Auditor’s Report on Internal Control Over Financial Reporting and
on Compliance and Other Matters Based on an Audit of Financial Statements
Performed in Accordance With Government Auditing Standards ........................................ 163
Independent Auditor’s Report on Compliance for Each Major Federal Program and
Report on Internal Control Over Compliance Required by Uniform Guidance .................... 165
Schedule of Expenditures of Federal Awards .............................................................................. 169
Notes to the Schedule of Expenditures of Federal Awards ......................................................... 171
Schedule of Findings and Questioned Costs ................................................................................ 172
Corrective Action Plan ................................................................................................................. 179
Schedule of Prior Years Findings and Questioned Costs ............................................................. 181
Introduction
………………………………………………………………………………………….
City of Palo Alto i
Transmittal Letter…………………………………………………...…
November 14, 2017
THE HONORABLE CITY COUNCIL
Palo Alto, California
Attention: Finance Committee
COMPREHENSIVE ANNUAL FINANCIAL REPORT
YEAR ENDED JUNE 30, 2017
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, 2017 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, 2017. Their report is presented as the first component of the financial
section of this report.
In addition, Macias Gini & O’Connell conducted the federally mandated “Single Audit” designed to
meet the special needs of federal grantor agencies. The standards governing the Single Audit require
the independent auditor to report on the fair presentation of the financial statements, government’s
internal controls and compliance with legal requirements. These reports are included in the Single
Audit section of the CAFR.
An overview of the City’s financial activities for the fiscal year is discussed in detail in the
Management’s Discussion and Analysis (MD&A) section of the CAFR. MD&A complements this
transmittal letter and should be read in conjunction with it.
City of Palo Alto
Office of the City Manager
Introduction
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ii City of Palo Alto
CITY OF PALO ALTO PROFILE
Palo Alto was incorporated in 1894 and named after a majestic coastal redwood tree which lives along
the San Francisquito Creek where early Spanish explorers settled. Located between the cities of San
Francisco and San Jose, Palo Alto is a largely built‐out community of approximately 67,000 residents.
Palo Alto delivers a full range of municipal services and public utilities under the Council‐Manager form
of government, and offers an outstanding quality of life for its residents. It covers an area of twenty‐
six square miles, and has dedicated almost one‐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 subcommittee is
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.
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
Introduction
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City of Palo Alto iii
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 2017 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 2018 and FY 2019 expenses, as
written in the City’s Adopted Budget. The Council adopted a General Fund budget with expenses of
$210.4 million for FY 2018, an increase of 8.4 percent, from the prior year Adopted Budget. The
increase is driven by increased investment in infrastructure and increased salary and benefits. Over a
year ago, staff identified an anticipated gap in available funds in the General Fund during the FY 2017
budget process. Council asked staff to make some short term adjustments to balance the FY 2017
budget, with the goal of making structural adjustments in FY 2018. The budget permanently addresses
this gap while maintaining the General Fund Budget Stabilization Reserves at the Council approved
level of 18.5 percent of expenditures. The structural fixes recommended in this budget also position
the City to address future needs expected to occur in FY 2019 and beyond.
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 $561
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 could 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.
During this fiscal year the General Fund contributed $2.1 million to the Section 115 trust with the plan
to have the other funds provide funding during FY 2018.
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 2017:
Housing
Infrastructure
Healthy City, Healthy Community
Transportation
Budget and Finance
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), CalTrain Grade Separation, transportation demand
management (Transportation Management Association, enhanced shuttle services, CalTrain GoPass
Introduction
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iv City of Palo Alto
program for employees), and short and long‐term parking supply strategies (valet parking,
construction of new garages). Recent budgets reflect longer‐term goals of the City Council and
positions the City to be able to address increases in pension costs and new labor agreement
negotiations, while highlighting the need to address the future year costs to complete the
Infrastructure Plan.
Council approved a $125.8 million Infrastructure Plan (IP), which includes projects such as a new Public
Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan, and two parking garages.
The Plan was recently updated for scope increases and cost escalations, resulting in a revised
Infrastructure Plan of $196 million. 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 totaling $170 million. Staff is tasked with closing the funding
gap in the upcoming FY 2019 budget process. Separately, as a result of sound fiscal management and
reserve policies, General Fund surpluses from FY 2012 through FY 2016 totaling $36.9 million were
transferred to the Infrastructure Reserve. For FY 2018, additional funds will be proposed for transfers
from the FY 2017 surplus amount. The funds from prior fiscal years have been allocated, but the FY
2017 surplus can be used to close the current gap.
Rate increases will take effect in FY 2018 for electric, fiber optics, gas, water, storm drain, and refuse
services. Increases are necessary due to higher revenue requirements resulting from the prolonged
drought and water conservation measures, higher electric and gas wholesale purchase 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.
During the development of the FY 2017 budget, staff identified a gap in revenues and expenses in the
near term. With the agreement of the Finance Committee and City Council, only a near term forecast
was produced for the FY 2018 budget process as staff focused on addressing this gap on an ongoing
basis. This near term forecast articulated a need to realign General Fund revenues and expenses as
expense growth was outpacing revenues. As such, the FY 2018 budget took a two year approach to
balancing the General Fund ultimately resulting in an anticipated ongoing forecast of slight surpluses
in the General Fund. 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, 2017 the BSR
balance is $48.1 million. Staff will bring forward recommendations for use of the BSR as part of the FY
2017 year‐end close process with the goal to maintain the 18.5 percent targeted goal.
Both Moody’s and Standard and Poor’s (S&P) awarded their highest credit rating of Triple A to the
City’s general obligation debt. This rating has been awarded to only a few cities in California.
Introduction
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City of Palo Alto v
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 2017
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 Tony Sandhu, Interim 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
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vi City of Palo Alto
City of Palo Alto City Officials ………………………….…………
Finance Committee
Eric Filseth, Chair
Adrian Fine
Karen Holman
Greg Tanaka
Policy and Services Committee
Cory Wolbach, Chair
Liz Kniss
Tom DuBois
Lydia Kou
Council‐Appointed Officers
City Manager
James Keene
City Attorney
Molly Stump
City Clerk
Beth Minor
City Auditor
Harriet Richardson
City Council
Gregory Scharff, Mayor
Liz Kniss, Vice‐Mayor
Tom DuBois
Eric Filseth
Adrian Fine
Karen Holman
Lydia Kou
Greg Tanaka
Cory Wolbach
Introduction
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City of Palo Alto vii
City Attorney
Molly Stump
City Manager
James Keene
City Auditor
Harriet Richardson
City Clerk
Beth Minor
Assistant City Manager
Edward K. Shikada
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
Ron Watson, Interim Chief Planning & Community Environment
Hillary Gitelman, Director
Utilities
Edward K. Shikada, General Manager
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
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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 J
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CityofPaloAltoix
Government Finance Officers Association of
the United States and Canada – Award ……
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, 2017, 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, 2017, and the respective changes
in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison
for the General Fund for the year then ended in accordance with accounting principles generally accepted
in the United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s
discussion and analysis, the schedules of changes in net pension liability and related ratios 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 14, 2017 on our consideration of the City’s internal control over financial reporting and on our
tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and
other matters. The purpose of that report is solely to describe the scope of our testing of internal control
over financial reporting and compliance and the results of that testing, and not to provide an opinion on
the effectiveness of the City’s internal control over financial reporting or on compliance. That report is an
integral part of an audit performed in accordance with Government Auditing Standards in considering the
City’s internal control over financial reporting and compliance.
Walnut Creek, California
November 14, 2017
4
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Management’s Discussion and Analysis
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City of Palo Alto 5
Management’s Discussion and Analysis
Management’s Discussion and Analysis (MD&A) provides an overview of the City of Palo Alto’s financial
performance for the fiscal year ended June 30, 2017. 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) 2017 by $1,226.6 million. Of this amount,
$200.5 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 2017, the City’s governmental funds reported combined fund balances of $234.7
million, a decrease of $11 million from prior year. Approximately 20.5 percent of this amount, or
$48.1 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 $55.4 million, or 30 percent
of total general fund expenditures, including transfers.
The City’s total outstanding long‐term debt decreased by $3.3 million during the current fiscal year
due to scheduled debt retirement in the amount of $6.5 million offset by a new State Water Resources
loan of $3.2 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
Supplementary Information
Statistical Information
Single Audit
Basic Financial Statements
The Basic Financial Statements contain the Government‐wide Financial Statements, the Fund Financial
Statements and the Notes to these financial statements. This report also includes supplementary information
intended to furnish additional detail to support the Basic Financial Statements.
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.
Management’s Discussion and Analysis
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6 City of Palo Alto
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.
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.
Management’s Discussion and Analysis
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City of Palo Alto 7
The Fund Financial Statements display the City’s operations in more detail than the Government‐wide
Financial Statements. Their focus is primarily on the short‐term activities of the City’s General Fund and other
major funds such as Capital Projects, Water Services, Electric Services, Fiber Optics, Gas Services, Wastewater
Collection Services, Wastewater Treatment Services, Refuse Services, Storm Drainage Services and Airport.
Budget and actual financial comparison information is presented only for the General Fund. Fund Financial
Statements include Governmental, Enterprise, Internal Service and Agency Funds.
Governmental Funds
Governmental Fund Financial Statements are prepared on the modified accrual basis of accounting, which
means they measure only current financial resources and uses. Capital assets and other long‐lived assets,
along with long‐term liabilities, are presented only in the Government‐wide Financial Statements. In FY 2017,
the City had two major governmental funds, the General Fund and the Capital Projects Fund. Data from the
other governmental funds are combined into a single aggregated presentation. Individual fund data for each
of these non‐major governmental funds is provided in the Supplemental section of this report.
Because the focus of governmental funds is narrower than that of the Government‐wide Financial Statements,
it is useful to compare the information presented for governmental funds with similar information presented
for governmental activities in the Government‐wide Financial Statements. By doing so, readers may better
understand the long‐term impact of the government’s near‐term financing decisions. Both the Governmental
Fund Balance Sheet and the Governmental Fund Statement of Revenues, Expenditures and Changes in Fund
Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental
activities.
The Governmental Fund Financial Statements can be found on pages 33‐37 of this report.
Proprietary Funds
Enterprise and Internal Service Fund Financial Statements are prepared on the full accrual basis of accounting,
similar to that used by private sector companies. These statements include all of their assets, deferred
outflows and inflows of resources and liabilities, both current and long‐term.
Since the City’s Internal Service Funds provide goods and services exclusively to the City’s governmental and
business‐type activities, their activities are only reported in total at the fund level. Internal Service Funds,
such as Technology and General Benefits, cannot be considered major funds because their revenues are
derived from other City funds. Revenues between funds are eliminated in the Government‐wide Financial
Statements, and any related profits or losses in Internal Service Funds are returned to the activities in which
they were created, along with any residual net assets of the Internal Service Funds.
The Proprietary Fund Financial Statements can be found on pages 38‐43 of this report.
Management’s Discussion and Analysis
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8 City of Palo Alto
Fiduciary Funds
The City is the fiduciary agent for certain assessment districts such as the University Avenue Area Off‐Street
Parking Assessment District. In this role, the City holds money collected from property owners and awaiting
transfer to the districts’ bond trustees. The City’s fiduciary activities are reported in the separate Statement
of Fiduciary Net Position and the supplemental Agency Funds Statement of Changes in Assets and Liabilities.
These activities are excluded from the City’s other financial statements because the City cannot utilize these
assets to finance its own operations.
The Fiduciary Fund Financial Statements can be found on page 44 of this report.
Notes to the Financial Statements
The Notes provide additional information that is necessary to acquire a full understanding of the data provided
in the Government‐wide and Fund Financial Statements. The Notes to the financial statements can be found
on pages 47‐102 of this report.
Other Information
The Required Supplementary Information related to the City’s pension plans is included after the Notes to the
Financial Statements on pages 103‐106. The combining statements referred to earlier in connection with non‐
major Governmental Funds and Internal Service Funds, are presented immediately following the Required
Supplementary Information. Combining statements and individual fund statements and schedules can be
found on pages 107‐132 of this report.
Management’s Discussion and Analysis
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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, 2017. As noted earlier, the City’s total assets and deferred
outflows of resources exceeded total liabilities and deferred inflows of resources by $1,226.6 million at the
end of the fiscal year, an improvement in net position of $35.8 million.
CONDENSED STATEMENT OF NET POSITION
As of June 30, 2017
(in millions)
2017 2016 2017 2016 2017 2016
Cash and investments 288.8$ 295.0$ 243.3$ 244.7$ 532.1$ 539.7$
Other assets 63.7 62.3 44.7 35.3 108.4 97.6
Capital assets 522.5 496.0 595.2 576.8 1,117.7 1,072.8
Total Assets 875.0 853.3 883.2 856.8 1,758.2 1,710.1
Unamortized loss from refunding ‐ ‐ 0.3 0.3 0.3 0.3
Pension related 52.8 21.2 19.2 9.4 72.0 30.6
Total Deferred Outflows of Resources 52.8 21.2 19.5 9.7 72.3 30.9
Net pension liabilities 273.5 230.1 103.8 89.5 377.3 319.6
Long‐term debt 69.3 71.5 67.0 68.1 136.3 139.6
Other liabilities 51.8 48.1 30.9 24.0 82.7 72.1
Total Liabilities 394.6 349.7 201.7 181.6 596.3 531.3
Pension related 5.8 13.7 1.7 5.1 7.5 18.8
Total Deferred Inflows of Resources 5.8 13.7 1.7 5.1 7.5 18.8
Net Position
Net investment in capital assets 453.9 425.2 532.0 512.9 985.9 938.1
Restricted 36.1 47.9 4.1 4.1 40.2 52.0
Unrestricted 37.3 37.9 163.2 162.8 200.5 200.7
Total Net Position 527.3$ 511.0$ 699.3$ 679.8$ 1,226.6$ 1,190.8$
Governmental
Activities
Business‐type
Activities
Government‐wide
Totals
The largest portion of the City’s net position (80.4 percent) is its investment in capital assets such as land,
buildings, infrastructure and vehicles, less any related outstanding debt that was used to acquire those assets.
The City uses these capital assets to provide a variety of services to its citizens. Accordingly, these assets are
not available for future spending. Although the City’s investment in capital assets is reported net of related
debt, it should be noted that the resources used to repay this debt must be provided from other sources, since
the capital assets themselves cannot be used to liquidate these liabilities.
Management’s Discussion and Analysis
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10 City of Palo Alto
The restricted portion of the City’s net position (3.3 percent) represents resources that are subject to external
restrictions on how they may be used. The remaining balance of $200.5 million, representing 16.3 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 $0.4 million deficit due to pension related items;
Airport Fund $2.6 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 $35.8 million increase in total net position are discussed in the following sections for
governmental activities and business‐type activities.
Management’s Discussion and Analysis
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City of Palo Alto 11
Governmental Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Governmental
Activities, presented in the Government‐wide Statement of Net Position and Statement of Activities.
Increase/
2017 2016 (Decrease)
Cash and investments 288.8$ 295.0$ (6.2)$
Other assets 63.7 62.3 1.4
Capital assets 522.5 496.0 26.5
Total Assets 875.0 853.3 21.7
Pension related 52.8 21.2 31.6
Total Deferred Outflows of Resources 52.8 21.2 31.6
Net pension liabilities 273.5 230.1 43.4
Long‐term debt 69.3 71.5 (2.2)
Other liabilities 51.8 48.1 3.7
Total Liabilities 394.6 349.7 44.9
Pension related 5.8 13.7 (7.9)
Total Deferred Inflows of Resources 5.8 13.7 (7.9)
Net investment in capital assets 453.9 425.2 28.7
Restricted 36.1 47.9 (11.8)
Unrestricted 37.3 37.9 (0.6)
Total Net Position 527.3$ 511.0$ 16.3$
GOVERNMENTAL ACTIVITIES
Net Position at June 30
(in millions)
The City’s Governmental Activities total net position increased $16.3 million to $527.3 million as of June 30,
2017. This increase was a result of the following:
Cash decreased $6.2 million due to a higher spending in the Capital Projects Fund and an increase in
salary and benefit costs associated with the implementation of new employee bargaining agreements,
and sharp increases in CalPers retirement and OPEB related costs.
Capital assets net of depreciation increased $26.5 million due to major capital projects such as Golf
Course improvements, a new public safety building, and street and sidewalk improvements
throughout the City.
Deferred Ouflows of Resources related to pensions increased $31.6 million due to higher net
difference between the projected and actual earnings on the pension plan investments.
Net pension liability increased $43.4 million due to higher unfunded liability reported in the latest
valuation study by CalPERS.
Other liabilities increased $3.7 million mainly due to higher accrued salary based on the number of
pay days falling in the current fiscal year and an increase in deferred revenues related to Development
Services activities.
Management’s Discussion and Analysis
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12 City of Palo Alto
Net investment in capital assets increased $28.7 million to $453.9 million. Restricted net position
decreased $11.8 million to $36.1 million due primarily to expenditure of remaining proceeds of
Stanford development agreement funds. Unrestricted net position remained almost unchanged from
prior year. Unrestricted net position represents current net assets available to finance subsequent
year operations and other expenditures approved by City Council.
Long‐term debt decreased $2.2 million due to scheduled debt repayments.
Governmental Activities – Revenues
The table below shows that Governmental Activities revenues totaled $181.2 million in FY 2017, a decrease
of $12.1 million from prior year revenues of $193.3 million.
Increase/
Revenues by Source 2017 2016 (Decrease)
Program Revenues:
Charges for services 57.3$ 67.4$ (10.1)$
Operating grants and contributions 2.0 2.2 (0.2)
Capital grants and contributions 1.9 0.3 1.6
Total Program Revenues 61.2 69.9 (8.7)
General Revenues:
Property tax 44.0 41.2 2.8
Sales tax 29.9 30.0 (0.1)
Utility user tax 14.2 12.4 1.8
Transient occupancy tax 23.4 22.4 1.0
Documentary transfer tax 7.5 6.3 1.2
Other tax 1.5 1.6 (0.1)
Investment earnings (0.7) 8.6 (9.3)
Rents and miscellaneous 0.2 0.9 (0.7)
Total General Revenues 120.0 123.4 (3.4)
Total Revenues 181.2$ 193.3$ (12.1)$
GOVERNMENTAL ACTIVITIES
Revenues for the Year Ended June 30
(in millions)
Program Revenues such as charges for services, operating grants and contributions, and capital grants and
contributions are generated from or restricted to each activity. Total Program Revenues decreased $8.7
million from the prior year due to the following major factors:
$3.3 million decrease in housing in‐lieu fees because of lower development activity compared to the
prior year.
Management’s Discussion and Analysis
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City of Palo Alto 13
$1.2 million decrease in Golf Course related fees because the course was closed the entire year due
to renovations.
One‐time receipt of $1.7 million in FY 2016 from sale of former City Manager’s residence.
$0.7 million decrease in revenue from Stanford University for fire services due to contract
amendments.
General Revenues decreased $3.4 million, or 2.8 percent, from the prior year primarily due to lower
investment earnings with the recognition of unrealized losses on the investments per GASB Statement 31.
Further analysis of general revenues can be found in the Financial Analysis of Governmental Funds section of
the MD&A.
Governmental Activities – Revenues by Source
The chart below presents revenues by source for Governmental Activities. General Revenues are composed
of taxes and other revenues not specifically generated by, or restricted to, individual activities. All tax revenues
and investment earnings are included in General Revenues.
Program Revenues
34%
Property Tax
24%
Sales Tax
16%
Utility User Tax
8%
Transient Occupancy Tax
13%
Documentary
Transfer Tax
4%
Other
1%
Management’s Discussion and Analysis
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14 City of Palo Alto
Governmental Activities – Expenses
The table below presents a comparison of FY 2017 and FY 2016 expenses by function, along with interest and
other expenses. Total Governmental Activities functional expense was $183.2 million in FY 2017, an increase
of $18.3 million.
Increase/
Activities 2017 2016 (Decrease)
City Council 0.3$ 0.4$ (0.1)$
City Manager 2.0 2.7 (0.7)
City Attorney 2.1 2.5 (0.4)
City Clerk 0.8 0.6 0.2
City Auditor 0.8 0.4 0.4
Administrative Services 11.9 10.6 1.3
Human Resources 2.3 2.2 0.1
Public Safety 73.3 56.6 16.7
Planning and Community Environment 10.9 10.2 0.7
Development Services 11.1 11.2 (0.1)
Public Works 25.5 24.6 0.9
Community Services 27.9 28.5 (0.6)
Library 11.4 10.8 0.6
Interest and Other Expense 2.9 3.6 (0.7)
Total Functional Expense 183.2 164.9 18.3
Excess (Shortfall) of Revenues over
Functional Expenses before Transfers (2.0) 28.4 (30.4)
Transfers in 18.3 18.7 (0.4)
Change in Net Position 16.3 47.1 (30.8)
Net Position, Beginning 511.0 463.9 47.1
Net Position, Ending 527.3$ 511.0$ 16.3$
GOVERNMENTAL ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 30
(in millions)
Management’s Discussion and Analysis
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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 ($6.8 million); and
Capital asset activities such as depreciation and asset retirements ($1.5 million).
Governmental Activities – Functional Expenses
The functional expenses chart below includes only current year expenses. It does not include capital outlays,
as those are added to the City’s capital assets. Functions which comprise 1 percent or less of total expenses
are combined into the All Other category in the chart below. All Other includes City Council, City Manager,
City Attorney, City Clerk, City Auditor and Human Resources.
Administrative
Services
6%
Public Works
14%
Interest and Other
2%
Planning and
Community
Environment
6%
Development Services
6%
Public Safety
40%
Community Services
15%
Library
6%
All Other
5%
Management’s Discussion and Analysis
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16 City of Palo Alto
Business‐type Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Business‐type
Activities presented in the Government‐wide Statement of Net Position and Statement of Activities.
Increase/
2017 2016 (Decrease)
Cash and investments 243.3$ 244.7$ (1.4)$
Other assets 44.7 35.3 9.4
Capital assets 595.2 576.8 18.4
Total Assets 883.2 856.8 26.4
Unamortized loss from refunding 0.3 0.3 ‐
Deferred pension contribution 19.2 9.4 9.8
Total Deferred Outflows of Resources 19.5 9.7 9.8
Net pension liabilities 103.8 89.5 14.3
Long‐term debt 67.0 68.1 (1.1)
Other liabilities 30.9 24.0 6.9
Total Liabilities 201.7 181.6 20.1
Difference between expected and actual
earnings on investments 1.7 5.1 (3.4)
Total Deferred Outflows of Resources 1.7 5.1 (3.4)
Net Position
Net investment in capital assets 532.0 512.9 19.1
Restricted 4.1 4.1 0.0
Unrestricted 163.2 162.8 0.4
Total Net Position 699.3$ 679.8$ 19.5$
BUSINESS‐TYPE ACTIVITIES
Net Position at June 30
(in millions)
The City’s Business‐type Activities total net position increased $19.5 million to $699.3 million as of
June 30, 2017.
Other assets increased $9.4 million due to higher account balances in the Electric and Wastewater Treatment
funds.
Management’s Discussion and Analysis
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City of Palo Alto 17
Capital assets increased $18.4 million to $595.2 million in FY 2017 primarily due to capital improvements in
the Wastewater Collection, Electric, and Storm Drain Funds. These capital improvements contributed to $19.1
million in net investment in capital assets to $532.0 million.
Unrestricted net position of $163.2 million, an increase of $0.4 million from the prior year, represents liquid
assets available to finance day‐to‐day operations and other expenditures approved by Council. This amount
includes rate stabilization reserves (RSR) of $50.1 million and operations reserves of $59.6 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 $86.3
million. Additional detail is included in Note 10.
Business‐type Activities – Revenues
The table below presents the revenues for each of the City’s Business‐type Activities or Enterprise Funds. The
City operates the Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse,
Storm Drainage and Airport Funds.
BUSINESS‐TYPE ACTIVITIES
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2017 2016 (Decrease)
Program Revenues:
Charges for services 304.5$ 272.9$ 31.6$
Operating grants and contributions 0.5 0.7 (0.2)
Capital grants and contributions 4.3 1.1 3.2
Total Program Revenues 309.3 274.7 34.6
General Revenues:
Investment earnings (0.5) 7.3 (7.8)
Total General Revenues (0.5) 7.3 (7.8)
Total Revenues 308.8$ 282.0$ 26.8$
Business‐type Activities revenues totaled $308.8 million, an increase of $26.8 million from the prior year.
Program revenues increased $34.6 million year over year. Revenues for all funds were higher year over year
with the exception of the Wastewater Treatment Fund. All utility rates were increased at the beginning of
the fiscal year and water and electric commodity consumptions were also higher compared to the prior year.
Investment earnings decreased due to the unrealized losses which resulted from adjusting investments to
market value at year‐end, as required by GASB 31.
Management’s Discussion and Analysis
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18 City of Palo Alto
Business‐type Activities – Expenses
The table below presents a comparison of the FY 2017 and FY 2016 expenses for the City’s Business‐type
Activities. Encumbrances and reappropriations are not included.
BUSINESS‐TYPE ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Business‐type Activities 2017 2016 (Decrease)
Water 37.5$ 35.1$ 2.4$
Electric 128.6 120.3 8.3
Fiber Optics 2.1 2.1 0.0
Gas 26.8 20.9 5.9
Wastewater Collection 16.4 15.2 1.2
Wastewater Treatment 23.5 22.5 1.0
Refuse 30.7 30.4 0.3
Storm Drainage 4.1 3.7 0.4
Airport 1.3 1.0 0.3
Total Functional Expense 271.0 251.2 19.8
Excess of Revenues over
Functional Expenses before Transfers 37.8 30.7 7.1
Transfers out (18.3) (18.7) 0.4
Change in Net Position 19.5 12.0 7.5
Net Position, Beginning 679.8 667.8 12.0
Net Position, Ending 699.3$ 679.8$ 19.5$
Business‐type Activities expenses increased $19.8 million for a total of $271.0 million. Year over year expenses
were significantly affected by the following events:
Water Fund expenses increased $2.4 million due to increased wholesale water rates to cover the cost
of upgrades and improvements to the water supply distribution system.
Electric Fund expenses increased $8.3 million due to higher surplus energy costs offset by lower
electric purchase costs.
Gas Fund expenses increased $5.9 million due mainly to higher commodity prices.
Management’s Discussion and Analysis
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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, 2017, the City’s Governmental Funds reported combined fund balances of $234.7 million, a
decrease of $11 million from the prior year. Approximately 20.5 percent, or $48.1 million, constitutes
unassigned fund balance, which is available for spending at the government’s discretion and other purposes.
The remainder of the fund balance is either non‐spendable, restricted, committed, or assigned to indicate that
it is: 1) not in spendable form ($9.2 million); 2) restricted for particular purposes ($35.3 million); 3) committed
for particular purposes ($71.6 million); or 4) assigned for particular purposes ($70.5 million).
Governmental Fund revenues decreased $10.5 million, or 5.4 percent, from the prior year to $181.4 million.
Revenues in the General Fund decreased $1.4 million (mainly a result of unrealized losses on investments),
and Capital Projects Fund revenue decreased by $2.6 million. Other Governmental Funds revenue decreased
by $6.4 million due to reduced developer impact and housing‐in‐lieu fees.
Governmental Fund expenditures were $206.0 million, an increase of $19.8 million from the prior year.
General Fund expenditures increased $12.8 million, Capital Projects Fund expenditures increased by $13.4
million, and Non‐major Fund expenditures decreased 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 $63.1 million, compared to $66.9 million in the prior year. The fund balance has
been classified as $7.7 million non‐spendable, $7.3 million assigned, and $48.1 million unassigned. The
unassigned amount is designated by the Council for Budget Stabilization Reserve (BSR) and other purposes.
Management’s Discussion and Analysis
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20 City of Palo Alto
Statement of Revenues, Expenditures and Changes in Fund Balance
Revenues
The City’s General Fund revenues totaled $164.4 million in FY 2017. This represents a decrease of $1.4 million,
or 0.8 percent, compared to the prior year. The year over year change in significant revenue sources is noted
in the following table.
GENERAL FUND
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2017 2016 (Decrease)
Property tax 39.4$ 36.6$ 2.8$
Sales tax 29.9 30.0 (0.1)
Utility user tax 14.2 12.5 1.7
Transient occupancy tax 23.5 22.4 1.1
Documentary transfer tax 7.5 6.3 1.2
Charges for services 22.3 23.9 (1.6)
Permits and licence 7.4 7.9 (0.5)
Rental income 15.7 15.8 (0.1)
All other 4.5 10.4 (5.9)
Total Revenues 164.4$ 165.8$ (1.4)$
Property tax revenue increased by $2.8 million, or 7.7 percent, due to increased property assessment roll
growth. Sales tax receipts were flat compared to the prior fiscal year with more retail customers switching to
online purchases
Utility user tax revenues were $1.7 million higher compared to the prior year due to increased receipts from
the telephone segment of the tax. Transient occupancy tax (TOT) ended the year $1.1 million, or 4.9 percent,
higher than prior year due to higher room rates, newly opened hotels that performed better than expected,
and a revenue from Airbnb rentals. Also, FY 2016 and FY 2017 reflects two full years of the Council approved
2 percent increase in the TOT rate from 12 percent to 14 percent.
Documentary transfer tax increased $1.2 million to $7.5 million as the real estate market continues to be
strong.
Management’s Discussion and Analysis
.…………………………………………………………………………………………………………………………………………………………….
City of Palo Alto 21
All other revenue decreased from prior year by $5.9 million primarily due to $2.5 million in unrealized losses
on investments. The prior year revenues included $1.7 million from the sale of a former City Manager’s
residence which was co‐owned with the City.
Expenditures
General Fund expenditures totaled $158 million for FY 2017 compared to $145.2 in the prior year. This
amount excludes encumbrances and reappropriations. The majority of increases were related to higher salary
and benefit costs with the implementation of new bargaining agreements. In addition, the benefit costs,
especially CalPers retirement and retiree health costs, were substantially higher compared to the prior year.
Lastly, the General Fund Cost Allocation Plan was revised which allocated higher costs to non‐general fund
departments, lowering overall expenditures in the Administrative departments. The year over year change for
major functions is noted in the following table.
Increase/
Expenditures by Function 2017 2016 (Decrease)
Administrative Services 5.0$ 3.5$ 1.5$
Public Works 13.6 12.3 1.3
Planning and Community Environment 9.1 9.1 0.0
Development Services 10.9 10.6 0.3
Police 39.6 35.2 4.4
Fire 31.4 28.3 3.1
Community Services 25.2 24.3 0.9
Library 9.0 8.0 1.0
Non‐Departmental 5.9 5.7 0.2
All other 8.3 8.2 0.1
Total Expenditures 158.0$ 145.2$ 12.8$
GENERAL FUND
Expenditures for the Year Ended June 30
(in millions)
Administrative Services expenditures variance of $1.5 million was mainly related to changes in the General
Fund Cost Allocation plan as discussed above.
Police expenditures increased $4.4 million due to $3 million higher personnel costs resulting from negotiated
salary adjustments and higher retirement contributions, and increased $1.4 million in expenditures for
contract services related to the Track Watch program.
Fire expenditures increased $3.1 million due to $2 million salary and overtime and $1.6 million pension costs,
and was offset by lower expenditures in other categories. Public Works costs were $1.3 million higher in the
current year mainly due to salary and benefit costs.
Management’s Discussion and Analysis
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22 City of Palo Alto
General Fund Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual
Original budget compared to final budget
Revenues were originally budgeted at $164.3 million and were revised downward by $0.5 million. Revenue
categories that were adjusted are shown in the table below.
Adopted Final Increase/
Budgeted Revenues Budget Budget (Decrease)
Property tax 39.0$ 39.0$ ‐$
Sales tax 29.2 29.2 0.0
Utility user tax 12.4 12.4 0.0
Transient occupancy tax 23.1 23.1 0.0
Documentary transfer tax 6.7 6.7 0.0
All other 53.9 53.4 (0.5)
164.3 163.8 (0.5)
Charges to other funds 10.8 10.8 ‐
Prior year encumbrances and appropriations ‐ 7.5 7.5
Total Budgeted Revenues 175.1$ 182.1$ 7.0$
GENERAL FUND
Budgeted Revenues for the Year Ended June 30
(in millions)
In FY 2017, there were no major changes to the Adopted Budget general fund revenues. These were minor
changes in the all other revenue categories based on the grants received after the budget adoption.
Actual revenues of $166.9 million were $3.1 million higher than final budgeted revenues of $163.8 million due
to the following:
$1.2 million higher than anticipated sales and property tax proceeds;
$1.9 million higher than expected utility user tax; and
All other revenue categories also reported favorable variances except for Charges for Services ($1.8
million) and Permits and Licenses ($0.8 million) categories offsetting the favorable results.
Management’s Discussion and Analysis
.…………………………………………………………………………………………………………………………………………………………….
City of Palo Alto 23
Expenditures were originally budgeted at $170.5 million and were revised upward by $7.9 million, including
prior year encumbrances and reappropriations of $7.5 million, for a final budgeted amount of $178.4 million.
GENERAL FUND
Budgeted Expenditures for the Year Ended June 30
(in millions)
Adopted Final Increase/ Actuals, plus
Budgeted Expenditures Budget Budget (Decrease) Encumbrances
Community Services 25.4 26.7 1.3 26.6
Fire 39.1 40.6 1.5 40.6
Police 28.9 32.2 3.3 32.2
Library 9.0 9.3 0.3 9.3
Planning and Community Environment 8.8 10.7 1.9 10.7
Public Works 16.2 17.5 1.3 17.5
Development Services 12.2 12.4 0.2 11.7
Non‐departmental 10.1 7.1 (3.0) 6.3
All other 20.8 21.9 1.1 21.3
Total Budgeted Expenditures 170.5$ 178.4$ 7.9$ 176.2
Less: Charges to Other Funds (10.4)
Less: Encumbrances/reappropriations (7.8)
Net General Fund Expenditures 158.0$
The final budgeted expenditure amount of $178.4 million compares to the actual expenditures plus
encumbrances/reappropriations of $176.2 million, a difference of $2.1 million, of which $7.8 million is
encumbrances and reappropriations carried forward to FY 2018. The lower than budgeted expenditures were
primarily due to vacancy and benefits savings higher than expected.
Transfers out were originally budgeted at $23.6 million, with the final budget number at $30.4 million, an
increase of $6.8 million. The increase was due primarily to the additional $4.6 million transferred to the
Capital Improvement Fund, and $2.1 million transferred to the General Benefits Internal Service Fund to set‐
up a Public Agency Retirement Services (PARS) account for supplemental retirement expenses.
Capital Projects Fund
Capital Projects Fund expenditures and other uses were $39.6 million in FY 2017, an increase of $13.4 million
from the prior year driven by higher construction costs for the Golf Course reconfiguration and Baylands
Athletic Center in addition to Lucie Stern Building Improvements that were ongoing during FY 2017. This level
of expenditure is consistent with the City’s effort to rehabilitate and maintain its existing infrastructure.
Management’s Discussion and Analysis
..……………………………………………………………………………………………………………………………………………………………….
24 City of Palo Alto
Non‐major Funds
These funds are not presented separately in the Basic Financial Statements, but are individually presented as
Supplemental Information.
Financial Analysis of Enterprise Funds
At June 30, 2017, the City’s Enterprise Funds reported total net position of $696.4 million, an increase of $19.5
million or 2.9 percent from the prior year. The increase of $7.4 million was primarily from the Electric, Water
and Airport Funds. Further analysis is noted in the following section. Unrestricted net position for the
Enterprise Funds totaled $160.3 million, a $0.4 million increase from FY 2016.
Following is a table which compares the year over year change in net position for each of the Enterprise Funds.
ENTERPRISE FUNDS
Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Fund Name 2017 2016 (Decrease)
Water 6.5$ 4.7$ 1.8$
Electric (1.2) (8.3) 7.1
Fiber Optics 2.2 3.0 (0.8)
Gas 2.4 3.4 (1.0)
Wastewater Collection 1.5 1.6 (0.1)
Wastewater Treatment (0.1) 1.7 (1.8)
Refuse 3.3 2.6 0.7
Storm Drainage 2.5 3.3 (0.8)
Airport 2.4 0.1 2.3
Total Change in Net Position 19.5$ 12.1$ 7.4$
The most significant factors in the year over year change in net position for Enterprise Funds are as follows:
Water change in net position was positive as customer revenue increased $5.3 million based on a
combination of rate changes and higher consumption with the end of drought conditions. The
increase was offset by higher wholesale commodity costs.
Electric change in net position increased $7.1 million. Revenues were higher due to a 11 percent rate
increase in the current fiscal year. In addition, wholesale electricity costs were lower due to higher
hydroelectric generation with the end of drought conditions.
Wastewater Treatment decreased its change in net position by $1.8 million due to engineering
services for a recycled water feasibility study and charges from the Vehicle Maintenance Fund for use
of a flatbed crane truck.
Airport change in net position increased $2.3 million due to higher revenue resulting from a $2.3
million federal grant reimbursement for capital improvement projects.
Management’s Discussion and Analysis
.…………………………………………………………………………………………………………………………………………………………….
City of Palo Alto 25
CAPITAL ASSETS
GASB 34 requires that the City record all its capital assets, including infrastructure and intangible assets.
Infrastructure includes roads, bridges, signals and similar assets used by the entire population. The table
below shows capital assets and the amount of accumulated depreciation for these assets for Governmental
and Business‐type Activities. Further detail can be found in Note 6 to the financial statements.
Increase/
2017 2016 (Decrease)
Governmental Activities
Capital Assets
Land and improvements 78.5$ 78.5$ ‐$
Street trees 14.9 15.1 (0.2)
Construction in progress 62.7 46.5 16.2
Buildings and improvements 225.4 220.9 4.5
Intangible assets 3.8 3.8 0.0
Equipment 11.9 12.9 (1.0)
Roadway network 324.8 308.6 16.2
Recreation and open space network 35.2 33.1 2.1
Less accumulated depreciation (253.3) (239.8) (13.5)
Internal Service Fund Assets
Construction in progress 3.2 1.8 1.4
Equipment 56.9 55.4 1.5
Less accumulated depreciation (41.5) (40.8) (0.7)
Total Governmental Activities 522.5$ 496.0$ 26.5$
Business‐type Activities
Land 5.0$ 5.0$ ‐$
Construction in progress 110.3 93.9 16.4
Buildings and improvements 56.9 56.9 ‐
Infrastructure 0.6 ‐ 0.6
Transmission, distribution and treatment systems 765.8 746.7 19.1
Less accumulated depreciation (343.4) (325.7) (17.7)
Total Business‐type Activities 595.2$ 576.8$ 18.4$
CAPITAL ASSETS AT JUNE 30
(in millions)
Governmental Activities’ capital assets net of depreciation increased by $26.5 million from the prior year. The
increase was primarily due to Golf Course improvements, and street and sidewalk improvements throughout
the City.
Management’s Discussion and Analysis
…..…………………………………………………………………………………………………………………………………………………………….
26 City of Palo Alto
Council approved a $125.8 million Infrastructure Plan (IP) in June 2014, which includes projects such as a new
Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan, and two parking
garages. Funding for these projects will come from a variety of sources, including TOT revenues, Stanford
University Medical Center development agreement, grant revenue, and developer impact fees. As part of the
FY 2018 Adopted Capital Budget, the IP was updated for cost escalations, primarily attributable to new
preliminary estimates for construction costs for the Public Safety Building and the two parking garages,
resulting in a revised IP of $196 million excluding costs for salaries and benefits and public art.
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 ‐ $3.2 million
Fire Station 3 replacement ‐ $6.5 million
Charleston Arastradero Corridor ‐ $3.6 million
Business‐type Activities’ capital assets net of depreciation increased by $18.4 million over FY 2016. The
increase is due primarily to Wastewater Collection, Electric, and Storm Drain infrastructure improvements.
Major Business‐type Activities’ capital projects that are currently in progress, including the remaining capital
commitment of each, are as follows:
Water main replacement for Water Fund ‐ $6.9 million
Matadero Creek Storm Water Pump Station Project for Storm Drainage Fund ‐ $5.2 million
Dewatering & loadout facility project for Wastewater Treatment Fund ‐ $9.6 million
The City depreciates its capital assets over their estimated useful lives, as required by GASB 34. The purpose
of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable
portion of the cost of the asset is borne by all users. Additional information on capital assets and depreciable
lives are in Note 6.
Management’s Discussion and Analysis
.…………………………………………………………………………………………………………………………………………………………….
City of Palo Alto 27
DEBT ADMINISTRATION
Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements. The City’s debt as
of June 30, 2017 is shown in the following table.
Increase/
2017 2016 (Decrease)
Governmental Activities
General Long‐Term Obligations
Certificates of Participation
2002B Downtown Parking Improvements 1.0$ 1.1$ (0.1)$
General Obligation Bonds
2010 47.0 48.1 (1.1)
2013A 16.7 17.1 (0.4)
2011 Lease Purchase Agreement 0.8 1.3 (0.5)
Add: unamortized premium 3.8 3.9 (0.1)
Total Governmental Activities 69.3$ 71.5$ (2.2)$
Business‐type Activities
Enterprise Long‐Term Obligations
Utility Revenue Bonds
1995 Series A1.8$ 2.4$ (0.6)$
1999 Refunding 9.0 9.7 (0.7)
2009 Series A 28.7 29.7 (1.0)
2011 Refunding 11.3 12.3 (1.0)
Add: unamortized premium 0.7 0.8 (0.1)
Energy Tax Credit Bonds
2007 Series A0.5 0.6 (0.1)
Less: unamortized discount (0.1) (0.1)‐
State Water Resources Loan
2007 5.4 5.9 (0.5)
2009 6.5 6.8 (0.3)
2017 3.2 ‐ 3.2
Total Business‐type Activities 67.0$ 68.1$ (1.1)$
LONG‐TERM DEBT AT JUNE 30
(in millions)
Long‐term debt decreased a total of $3.3 million due to scheduled debt repayments of $6.3 million, and a $3.2
million addition of State Water Resources Loan in FY 2017. As noted in the Statistical Section of the CAFR, the
combined direct debt ratio to assessed valuation for the General Fund is 0.21 percent compared to the
allowable legal debt margin of 15 percent.
Management’s Discussion and Analysis
.……………………………….……………………………………………………………………………………………………………………………….
28 City of Palo Alto
SPECIAL ASSESSMENT DISTRICT DEBT
Special assessment districts throughout different parts of the City have also issued debt to finance
infrastructure and facilities construction exclusively in their districts. As of June 30, 2017, the City had no
special assessment district debt with City commitment outstanding.
ECONOMIC OUTLOOK
The economy of the City is discussed in the accompanying Transmittal Letter.
CONTACTING THE CITY’S FINANCIAL MANAGEMENT
The CAFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the
City’s finances. Questions about this report should be directed to the Administrative Services Department, at
250 Hamilton Avenue, 4th Floor, Palo Alto, California. The Department can also be contacted by email at:
adminsvcs@cityofpaloalto.org. This report and other financial reports can be viewed on the City of Palo Alto
website at: www.cityofpaloalto.org. On the home page, select Departments, select Administrative Services,
and select Financial Reporting. Within Financial Reporting, there are links to reports by title and reporting
date.
CITY OF PALO ALTO
Statement of Net Position
June 30, 2017
(Amounts in thousands)
Governmental Business‐Type
Activities Activities Total
ASSETS:
Cash and investments available for operations (Note 3) 285,732$ 239,266$ 524,998$
Receivables, net:
Accounts and intergovernmental 18,409 39,632 58,041
Interest receivable 1,539 1,127 2,666
Notes and loans receivable (Note 5) 19,823 ‐ 19,823
Internal balances (Note 4) 21 (21) ‐
Net OPEB asset (Note 12) 19,419 ‐ 19,419
Due from other government agencies ‐ 3,600 3,600
Inventory of materials and supplies, prepaids and deposits 4,542 315 4,857
Restricted cash and investments with fiscal agents (Note 3) 3,021 4,073 7,094
Capital assets (Note 6):
Nondepreciable 162,784 115,260 278,044
Depreciable, net of accumulated depreciation 359,673 479,954 839,627
Total assets 874,963 883,206 1,758,169
DEFERRED OUTFLOWS OF RESOURCES:
Unamortized loss from refunding ‐ 281 281
Pension related 52,767 19,250 72,017
Total deferred outflows of resources 52,767 19,531 72,298
LIABILITIES:
Accounts payable and accruals 12,179 23,493 35,672
Accrued salaries and benefits 1,637 707 2,344
Unearned revenue 4,087 ‐ 4,087
Accrued compensated absences (Note 1):
Due in one year 5,416 ‐ 5,416
Due in more than one year 6,062 ‐ 6,062
Claims payable (Note 14):
Due in one year 5,286 ‐ 5,286
Due in more than one year 17,184 ‐ 17,184
Landfill post‐closure liability (Note 9):
Due in more than one year ‐ 6,704 6,704
Net pension liabilities (Note 11): 273,493 103,826 377,319
Long‐term debt (Note 7):
Due in one year 2,314 4,363 6,677
Due in more than one year 66,981 62,669 129,650
Total liabilities 394,639 201,762 596,401
DEFERRED INFLOWS OF RESOURCES:
Pension related 5,802 1,681 7,483
NET POSITION (Note 10):
Net Investment in capital assets 453,878 532,063 985,941
Restricted for:
Transportation, infrastructure and other 30,643 ‐ 30,643
Debt service 3,939 4,073 8,012
Nonexpendable ‐ Eyerly Family 1,499 ‐ 1,499
Total restricted net position 36,081 4,073 40,154
Unrestricted 37,330 163,158 200,488
Total net position $ 527,289 $ 699,294 $ 1,226,583
See accompanying notes to the basic financial statements.
29
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CITY OF PALO ALTO
Statement of Activities
For the Year Ended June 30, 2017
(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 329$ ‐$ ‐$ ‐$ (329)$ ‐$ (329)$
City Manager 1,975 ‐ 31 ‐ (1,944) ‐ (1,944)
City Attorney 2,140 ‐ ‐ ‐ (2,140) ‐ (2,140)
City Clerk 762 ‐ ‐ ‐ (762) ‐ (762)
City Auditor 847 ‐ ‐ ‐ (847) ‐ (847)
Administrative Services 11,887 5,242 ‐ 182 (6,463) ‐ (6,463)
Human Resources 2,272 ‐ ‐ ‐ (2,272) ‐ (2,272)
Public Works 25,539 878 ‐ 1,717 (22,944) ‐ (22,944)
Planning and Community Environment 10,918 6,067 937 ‐ (3,914) ‐ (3,914)
Development Services 11,102 11,768 ‐ ‐ 666 ‐ 666
Public Safety 73,320 12,670 938 ‐ (59,712) ‐ (59,712)
Community Services 27,866 20,472 62 30 (7,302) ‐ (7,302)
Library 11,437 139 22 ‐ (11,276) ‐ (11,276)
Interest on long‐term debt 2,846 ‐ ‐ ‐ (2,846) ‐ (2,846)
Total Governmental Activities 183,240 57,236 1,990 1,929 (122,085) ‐ (122,085)
Business‐Type Activities:
Water 37,535 42,678 512 1,089 ‐ 6,744 6,744
Electric 128,603 137,543 ‐ ‐ ‐ 8,940 8,940
Fiber Optics 2,159 4,553 ‐ ‐ ‐ 2,394 2,394
Gas 26,783 36,431 ‐ ‐ ‐ 9,648 9,648
Wastewater Collection 16,405 17,748 ‐ 804 ‐ 2,147 2,147
Wastewater Treatment 23,498 23,649 ‐ ‐ ‐ 151 151
Refuse 30,665 33,918 ‐ ‐ ‐ 3,253 3,253
Storm Drainage 4,106 6,693 ‐ ‐ ‐ 2,587 2,587
Airport 1,274 1,286 ‐ 2,372 ‐ 2,384 2,384
Total Business‐Type Activities 271,028 304,499 512 4,265 ‐ 38,248 38,248
Total 454,268$ 361,735$ 2,502$ 6,194$ (122,085) 38,248 (83,837)
General Revenues:
Taxes:
Property tax 43,953 ‐ 43,953
Sales tax 29,923 ‐ 29,923
Utility user tax 14,240 ‐ 14,240
Transient occupancy tax 23,477 ‐ 23,477
Documentary transfer tax 7,491 ‐ 7,491
Other taxes 1,498 ‐ 1,498
Investment earnings (711) (449) (1,160)
Miscellaneous 168 ‐ 168
Transfers (Note 4)18,344 (18,344) ‐
Total general revenues and transfers 138,383 (18,793) 119,590
Change in net position 16,298 19,455 35,753
Net position, beginning of year 510,991 679,839 1,190,830
Net position, end of year 527,289$ 699,294$ 1,226,583$
See accompanying notes to the basic financial statements.
31
32
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CITY OF PALO ALTO
Governmental Funds
Balance Sheet
June 30, 2017
(Amounts in thousands)
Capital Other Total
General Projects Governmental Governmental
Fund Fund Funds Funds
ASSETS:
Cash and investments available for operations (Note 3) 47,779$ 75,453$ 79,909$ 203,141$
Receivables, net:
Accounts and intergovernmental 17,418 298 237 17,953
Interest receivable 738 22 396 1,156
Notes and loans receivable (Note 5) 496 ‐ 19,327 19,823
Advance to other fund (Note 4) 2,915 ‐ ‐ 2,915
Inventory of materials and supplies 4,298 ‐ ‐ 4,298
Restricted cash and investments with fiscal agents (Note 3)‐ 716 248 964
Total assets 73,644$ 76,489$ 100,117$ 250,250$
LIABILITIES AND FUND BALANCES:
Liabilities:
Accounts payable and accruals 4,984$ 4,387$ 549$ 9,920$
Accrued salaries and benefits 1,466 66 16 1,548
Unearned revenue 4,087 ‐ ‐ 4,087
Total liabilities 10,537 4,453 565 15,555
Fund balances (Note 10):
Nonspendable:
Notes and loans receivable 496 ‐ ‐ 496
Inventories 4,298 ‐ ‐ 4,298
Advance to other fund 2,915 ‐ ‐ 2,915
Eyerly family ‐ ‐ 1,499 1,499
Restricted for:
Transportation mitigation ‐ ‐ 10,941 10,941
Federal revenue ‐ ‐ 5,028 5,028
Street improvement ‐ ‐ 866 866
Local law enforcement ‐ ‐ 239 239
Library bond project ‐ 716 ‐ 716
Public benefit ‐ ‐ 13,569 13,569
Debt service ‐ ‐ 3,939 3,939
Committed for:
Roth Building Rehabilitation ‐ 4,014 ‐ 4,014
Cubberley Improvements ‐ 4,081 ‐ 4,081
Developer impact fees ‐ ‐ 15,401 15,401
Housing in‐lieu ‐ ‐ 43,781 43,781
Special districts ‐ ‐ 4,264 4,264
Downtown business ‐ ‐ 25 25
Assigned for:
Capital projects ‐ 63,225 ‐ 63,225
Other general government purposes 6,150 ‐ ‐ 6,150
Reappropriations 1,130 ‐ ‐ 1,130
Unassigned for:
Budget Stabilization and other purposes 48,118 ‐ ‐ 48,118
Total fund balances 63,107 72,036 99,552 234,695
Total liabilities and fund balances 73,644$ 76,489$ 100,117$ 250,250$
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, 2017
Total fund balances reported on the governmental funds balance sheet 234,695$
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 52,767
Deferred inflows of resources (5,802)
Capital assets used in governmental activities are not current assets or financial
resources and therefore are not reported in the governmental funds (Note 6) 522,457
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) 67,202
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 (1,242)
Net pension liabilities (Note 11) (273,493)
Long‐term debt (Note 7) (69,295)
Net position of governmental activities 527,289$
(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, 2017
(Amounts in thousands)
Capital Other Total
General Projects Governmental Governmental
Fund Fund Funds Funds
REVENUES:
Property tax 39,381$ ‐$ 4,572$ 43,953$
Special assessments ‐ ‐ 97 97
Sales tax 29,923 ‐ ‐ 29,923
Utility user tax 14,240 ‐ ‐ 14,240
Transient occupancy tax 23,477 ‐ ‐ 23,477
Documentary transfer tax 7,491 ‐ ‐ 7,491
Other taxes and fines 2,167 ‐ 1,500 3,667
Charges for services 22,267 ‐ ‐ 22,267
From other agencies 2,758 1,747 938 5,443
Permits and licenses 7,437 ‐ 3,086 10,523
Investment earnings (1,193) 1,076 (233) (350)
Rental income 15,692 ‐ 6 15,698
Other revenue 760 122 4,103 4,985
Total revenues 164,400 2,945 14,069 181,414
EXPENDITURES:
Current:
City Council 316 ‐ ‐ 316
City Manager 1,896 ‐ ‐ 1,896
City Attorney 2,049 ‐ ‐ 2,049
City Clerk 724 ‐ ‐ 724
City Auditor 822 ‐ ‐ 822
Administrative Services 4,975 ‐ 216 5,191
Human Resources 2,194 ‐ ‐ 2,194
Public Works 13,578 ‐ 907 14,485
Planning and Community Environment 9,054 ‐ 1,514 10,568
Development Services 10,908 ‐ ‐ 10,908
Police 39,597 ‐ 148 39,745
Fire 31,419 ‐ ‐ 31,419
Community Services 25,192 ‐ 216 25,408
Library 8,953 ‐ ‐ 8,953
Non‐Departmental 5,906 ‐ 660 6,566
Capital outlay ‐ 39,643 ‐ 39,643
Debt service:
Principal 406 ‐ 1,660 2,066
Interest and fiscal charges 26 ‐ 3,006 3,032
Total expenditures 158,015 39,643 8,327 205,985
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 6,385 (36,698) 5,742 (24,571)
OTHER FINANCING SOURCES (USES):
Transfers in (Note 4) 19,222 38,397 712 58,331
Transfers out (Note 4) (29,431) (13) (15,326) (44,770)
Total other financing sources (uses) (10,209) 38,384 (14,614) 13,561
Change in fund balances (3,824) 1,686 (8,872) (11,010)
FUND BALANCES, BEGINNING OF YEAR 66,931 70,350 108,424 245,705
FUND BALANCES, END OF YEAR 63,107$ 72,036$ 99,552$ 234,695$
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, 2017
Net change in fund balances ‐ total governmental funds (11,010)$
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 40,131
Depreciation expense is deducted from fund balance (depreciation expense is net of
internal service fund depreciation of $2,808 (Note 6), which has already been allocated
through the internal service fund activities below (15,042)
Disposal of capital assets (760)
Pension contribution made subsequent to the measurement date is an expenditure in the
governmental funds, but reported as a deferred outflows of resources in the
government‐wide financial statements 21,267
Pension expenses reported in the statement of activities do not require the use of current
financial resources and, therefore, are not reported as expenditures in governmental funds (24,902)
Principal payments on long‐term liabilities are reported as expenditures in governmental
funds when paid. The governmental activities, however, report principal payments as
a reduction of long‐term debt on the statement of net position. Interest accrued on
long‐term debt and amortization of premiums do not require the use of current financial
resources and therefore are not reported as expenditures in governmental funds. Therefore,
the activities associated with long‐term debt are as follows:
Principal paid during the year 2,066
Change in interest payable 28
Amortization of bond premium 158
Internal service funds are used by management to charge the costs of activities, such
as insurance, equipment acquisition and maintenance, and employees benefits to
individual funds. The portion of the net revenue of these internal service
funds arising out of their transactions with governmental funds is reported with
governmental activities. 4,362
Change in net position of governmental activities 16,298$
(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)
29,150$ 29,150$ 29,923$ 773$
38,953 38,953 39,381 428
23,134 23,134 23,477 343
Documentary transfer tax 6,747 6,747 7,491 744
12,379 12,377 14,240 1,863
2,022 2,057 2,167 110
25,282 24,042 22,267 (1,775)
8,756 8,215 7,437 (778)
975 1,001 1,296 295
15,021 15,055 15,692 637
441 2,445 2,758 313
1,406 585 760 175
164,266 163,761 166,889 3,128
10,766 10,766 10,438 (328)
‐ 7,454 7,454 ‐
175,032 181,981 184,781 2,800
3,179 3,794 3,737 57
1,221 1,372 1,333 39
1,370 1,128 1,083 45
501 523 476 47
3,381 3,424 3,339 85
7,798 7,767 7,619 148
25,390 26,711 26,573 138
Police 28,947 32,175 32,167 8
39,108 40,648 40,648 ‐
3,357 3,823 3,819 4
8,992 9,273 9,266 7
8,768 10,749 10,732 17
Development Services 12,169 12,368 11,668 700
16,224 17,486 17,475 11
10,139 7,139 6,335 804
170,544 178,380 176,270 2,110
4,488 3,601 8,511 4,910
20,046 19,222 19,222 ‐
(23,622) (30,389) (29,431) 958
(3,576) (11,167) (10,209) 958
912$ (7,566)$ (1,698) 5,868$
Unrealized gain/loss on investments (2,489)
Current year encumbrances and reappropriations 7,817
Prior year encumbrances and reappropriations (7,454)
(3,824)
66,931
63,107$
FUND BALANCE AT BEGINNING OF YEAR, GAAP BASIS
FUND BALANCE AT END OF YEAR, GAAP BASIS
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER)
EXPENDITURES, BUDGETARY BASIS
Adjustment to Budgetary Basis:
CHANGE IN FUND BALANCE, GAAP BASIS
Total other financing sources (uses)
Human Resources
Library
Planning and Community Environment
Total expenditures
EXCESS OF REVENUES OVER EXPENDITURES
OTHER FINANCING SOURCES (USES):
Transfers in
Transfers out
Public Works
Non‐Departmental
Fire
Prior year encumbrances
Total revenues
EXPENDITURES:
Current:
City Attorney
City Auditor
City Clerk
City Council
City Manager
Administrative Services
Community Services
Charges to other funds and departments
Sales tax
Property tax
Transient occupancy tax
Utility user tax
Other taxes, fines and penalties
Charges for services
Permits and licenses
Investment earnings
Rental income
From other agencies
Other revenues
REVENUES:
CITY OF PALO ALTO
General Fund
Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual
For the Year Ended June 30, 2017
(Amounts in thousands)
See accompanying notes to the basic financial statements.
37
Fiber
Water Electric Optics Gas
ASSETS:
Current assets:
Cash and investments available for operations (Note 3) 39,118$ 93,653$ 27,166$ 27,844$
Accounts receivable, net of allowance of $478 6,053 18,595 896 2,371
Interest receivable 176 456 123 125
Due from other government agencies ‐ ‐ ‐ ‐
Inventory of materials and supplies ‐ ‐ ‐ ‐
Restricted cash and investments with fiscal agents (Note 3) 3,260 ‐ ‐ 813
Total current assets 48,607 112,704 28,185 31,153
Noncurrent assets:
Due from other government agencies ‐ ‐ ‐ ‐
Deposit ‐ 15 ‐ ‐
Prepaid expense 100 ‐ ‐ ‐
Capital assets (Note 6):
Nondepreciable 21,409 25,889 1,965 4,265
Depreciable, net 99,461 165,514 6,074 97,602
Net OPEB asset (Note 12)‐ ‐ ‐ ‐
Total noncurrent assets 120,970 191,418 8,039 101,867
Total assets 169,577 304,122 36,224 133,020
DEFERRED OUTFLOWS OF RESOURCES:
Unamortized loss from refunding 116 ‐ ‐ 152
Pension related 2,497 6,356 476 2,676
Total deferred outflows of resources 2,613 6,356 476 2,828
LIABILITIES:
Current liabilities:
Accounts payable and accruals 4,791 8,174 424 1,280
Accrued salaries and benefits 93 242 16 95
Unearned revenue ‐ ‐ ‐ ‐
Accrued compensated absences (Note 1)‐ ‐ ‐ ‐
Current portion of long term debt (Note 7) 1,573 100 ‐ 597
Accrued claims payable (Note 14)‐ ‐ ‐ ‐
Total current liabilities 6,457 8,516 440 1,972
Noncurrent liabilities:
Accrued compensated absences (Note 1)‐ ‐ ‐ ‐
Accrued claims payable (Note 14)‐ ‐ ‐ ‐
Advance from other fund (Note 4)‐ ‐ ‐ ‐
Landfill post‐closure liability (Note 9)‐ ‐ ‐ ‐
Net pension liabilities (Note 11) 14,016 33,453 2,139 14,942
Long term debt, net of
unamortized discounts/premiums (Note 7) 33,169 373 ‐ 6,037
Total noncurrent liabilities 47,185 33,826 2,139 20,979
Total liabilities 53,642 42,342 2,579 22,951
DEFERRED INFLOWS OF RESOURCES:
Pension related 217 563 37 239
Total deferred inflows of resources 217 563 37 239
NET POSITION (Note 10):
Net Investment in capital assets 86,244 190,930 8,039 95,385
Restricted for debt service 3,260 ‐ ‐ 813
Unrestricted (deficit) 28,827 76,643 26,045 16,460
Total net position 118,331$ 267,573$ 34,084$ 112,658$
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, 2017
(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
8,989$ 15,332$ 17,672$ 8,631$ 861$ 239,266$ 82,591$
2,059 5,445 3,255 747 211 39,632 456
52 72 75 45 3 1,127 383
‐ 300 ‐ ‐ ‐ 300 ‐
‐ ‐ ‐ ‐ ‐ ‐ 244
‐ ‐ ‐ ‐ ‐ 4,073 2,057
11,100 21,149 21,002 9,423 1,075 284,398 85,731
‐ 3,300 ‐ ‐ ‐ 3,300 ‐
‐ ‐ ‐ ‐ ‐ 15 ‐
‐ 200 ‐ ‐ ‐ 300 ‐
30,801 9,989 2,741 15,134 3,067 115,260 3,182
56,090 31,294 2,680 20,607 632 479,954 15,425
‐ ‐ ‐ ‐ ‐ ‐ 19,419
86,891 44,783 5,421 35,741 3,699 598,829 38,026
97,991 65,932 26,423 45,164 4,774 883,227 123,757
‐ ‐ ‐ 13 ‐ 281 ‐
1,463 4,100 817 625 240 19,250 3,062
1,463 4,100 817 638 240 19,531 3,062
1,412 3,905 2,707 481 319 23,493 1,017
53 143 32 21 12 707 89
‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ 5,416
90 1,358 ‐ 645 ‐ 4,363 ‐
‐ ‐ ‐ ‐ ‐ ‐ 5,286
1,555 5,406 2,739 1,147 331 28,563 11,808
‐ ‐ ‐ ‐ ‐ ‐ 6,062
‐ ‐ ‐ ‐ ‐ ‐ 17,184
‐ ‐ ‐ ‐ 2,915 2,915 ‐
‐ ‐ 6,704 ‐ ‐ 6,704 ‐
8,347 21,141 5,642 3,525 621 103,826 15,001
645 17,720 ‐ 4,725 ‐ 62,669 ‐
8,992 38,861 12,346 8,250 3,536 176,114 38,247
10,547 44,267 15,085 9,397 3,867 204,677 50,055
135 342 80 55 13 1,681 236
135 342 80 55 13 1,681 236
86,156 25,805 5,421 30,384 3,699 532,063 18,607
‐ ‐ ‐ ‐ ‐ 4,073 ‐
2,616 (382) 6,654 5,966 (2,565) 160,264 57,921
88,772$ 25,423$ 12,075$ 36,350$ 1,134$ 696,400 76,528$
2,894
699,294$
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
39
Fiber
Water Electric Optics Gas
OPERATING REVENUES:
Sales to:
Customers 39,223$ 110,173$ 3,537$ 33,605$
City departments 1,768 3,780 867 1,136
Surplus energy ‐ 10,884 ‐ ‐
Service connection charges and miscellaneous 803 1,582 119 956
Charges for services ‐ ‐ ‐ ‐
Other 884 11,124 30 734
Total operating revenues 42,678 137,543 4,553 36,431
OPERATING EXPENSES:
Purchase of utilities:
Retail purchase of utilities 20,075 60,375 ‐ 12,563
Surplus energy ‐ 20,136 ‐ ‐
Administrative and general 4,767 6,531 538 3,991
Engineering (operating) 356 1,657 ‐ 355
Resource management and energy efficiency 868 6,210 ‐ 1,422
Operations and maintenance 5,291 11,805 1,236 4,321
Rent 1,721 5,121 73 583
Depreciation and amortization 2,739 7,733 334 3,154
Claims payments and changes in
estimated self‐insurance liability ‐ ‐ ‐ ‐
Refund of charges for services ‐ ‐ ‐ ‐
Compensated absences and other benefits ‐ ‐ ‐ ‐
Total operating expenses 35,817 119,568 2,181 26,389
Operating income (loss) 6,861 17,975 2,372 10,042
NONOPERATING REVENUES (EXPENSES):
Investment earnings (6) (367) ‐ (11)
Interest expense (1,765) (8,857) ‐ (227)
Gain on disposal of capital assets ‐ ‐ ‐ ‐
Loss on disposal of capital assets (51) (116) ‐ (177)
Other nonoperating revenues 512 ‐ ‐ ‐
Total nonoperating revenues (expenses) (1,310) (9,340) ‐ (415)
Income (loss) before transfers and capital contributions 5,551 8,635 2,372 9,627
Capital contributions 1,089 ‐ ‐ ‐
Transfers in (Note 4) 244 2,679 ‐ ‐
Transfers out (Note 4) (401) (12,543) (118) (7,256)
Change in net position 6,483 (1,229) 2,254 2,371
NET POSITION (DEFICIT), BEGINNING OF YEAR 111,848 268,802 31,830 110,287
NET POSITION (DEFICIT), END OF YEAR 118,331$ 267,573$ 34,084$ 112,658$
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, 2017
(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
17,052$ 14,187$ 29,453$ 6,222$ 714$ 254,166$ ‐$
74 8,435 792 376 ‐ 17,228 ‐
‐ ‐ ‐ ‐ ‐ 10,884 ‐
243 ‐ ‐ ‐ ‐ 3,703 ‐
‐ ‐ ‐ ‐ ‐ ‐ 92,026
379 1,027 3,673 95 572 18,518 614
17,748 23,649 33,918 6,693 1,286 304,499 92,640
8,391 ‐ 16,463 ‐ ‐ 117,867 ‐
‐ ‐ ‐ ‐ ‐ 20,136 ‐
1,917 ‐ 1,658 930 726 21,058 12,075
292 2,243 202 250 ‐ 5,355 ‐
‐ ‐ ‐ 483 ‐ 8,983 ‐
2,759 18,065 9,121 1,285 497 54,380 28,937
300 ‐ 2,516 40 ‐ 10,354 ‐
1,977 2,635 98 765 2 19,437 2,809
‐ ‐ ‐ ‐ ‐ ‐ 3,078
‐ ‐ ‐ ‐ ‐ ‐ 81
‐ ‐ ‐ ‐ ‐ ‐ 45,961
15,636 22,943 30,058 3,753 1,225 257,570 92,941
2,112 706 3,860 2,940 61 46,929 (301)
(88) 19 16 (11) (1) (449) (359)
(43) (482) (565) (336) (56) (12,331) ‐
‐ ‐ ‐ ‐ ‐ ‐ 103
(786) ‐ ‐ ‐ ‐ (1,130) ‐
‐ ‐ ‐ ‐ ‐ 512 139
(917) (463) (549) (347) (57) (13,398) (117)
1,195 243 3,311 2,593 4 33,531 (418)
804 ‐ ‐ ‐ 2,372 4,265 ‐
‐ ‐ 13 ‐ ‐ 2,936 7,265
(465) (335) (29) (133) ‐ (21,280) (2,482)
1,534 (92) 3,295 2,460 2,376 19,452 4,365
87,238 25,515 8,780 33,890 (1,242) 72,163
88,772$ 25,423$ 12,075$ 36,350$ 1,134$ 76,528$
3
19,455$
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 39,310$ 117,052$ 3,624$ 34,295$
Cash refunds to customers ‐ ‐ ‐ ‐
Cash payments to suppliers for goods and services (28,594) (101,338) (1,303) (18,793)
Cash payments to employees (4,812) (6,609) (523) (4,036)
Internal activity‐ receipts (payments) from (to) other funds 1,768 3,780 867 1,136
Other receipts 884 11,124 30 734
Net cash provided by operating activities 8,556 24,009 2,695 13,336
Cash flows from noncapital financing activities:
Receipt of loans from other funds ‐ ‐ ‐ ‐
Interest subsidy received from Build America Bonds 512 ‐ ‐ ‐
Transfers in 244 2,679 ‐ ‐
Transfers out (401) (12,543) (118) (7,256)
Net cash provided by (used in)
noncapital financing activities 355 (9,864) (118) (7,256)
Cash flows from capital and related financing activities:
Acquisition and construction of capital assets (3,454) (11,588) (459) (2,695)
Proceeds from sale of capital assets ‐ ‐ ‐ ‐
Capital grants and contributions 1,089 ‐ ‐ ‐
Proceeds from debt issuance ‐ ‐ ‐ ‐
Principal paid on long‐term debt (1,510) (100) ‐ (575)
Interest paid on long‐term debt (1,766) (8,857) ‐ (227)
Net cash used in capital and related
financing activities (5,641) (20,545) (459) (3,497)
Cash flows from investing activities:
Interest received (23) (361) (21) (31)
Net cash provided by (used in) investing activities (23) (361) (21) (31)
Net change in cash and cash equivalents 3,247 (6,761) 2,097 2,552
Cash and cash equivalents, beginning of year 39,131 100,414 25,069 26,105
Cash and cash equivalents, end of year $ 42,378 $ 93,653 $ 27,166 $ 28,657
Financial statement presentation:
Cash and investments available for operations 39,118$ 93,653$ 27,166$ 27,844$
Restricted cash and investments with fiscal agent 3,260 ‐ ‐ 813
Cash and cash equivalents, end of year 42,378$ 93,653$ 27,166$ 28,657$
Reconciliation of operating income (loss) to
net cash provided by operating activities:
Operating income (loss) 6,861$ 17,975$ 2,372$ 10,042$
Adjustments to reconcile operating income (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,739 7,733 334 3,154
Other ‐ ‐ ‐ ‐
Change in assets and liabilities:
Accounts receivable (716) (5,587) (32) (266)
Inventory of materials and supplies ‐ ‐ ‐ ‐
Deposit 8 34 ‐ ‐
Net OPEB asset ‐ ‐ ‐ ‐
Deferred outflow of resources ‐ pension plans (1,279) (3,183) (275) (1,349)
Accounts payable and accruals (291) 3,932 6 451
Accrued salaries and benefits (172) (454) (24) (184)
Accrued compensated absences ‐ ‐ ‐ ‐
Landfill closure and post‐closure care ‐ ‐ ‐ ‐
Accrued claims payable ‐ ‐ ‐ ‐
Net Pension liabilitty 1,916 4,560 362 2,001
Deferred inflow of resources ‐ pension plans (510) (1,001) (48) (513)
Net cash provided by operating activities $ 8,556 $ 24,009 $ 2,695 $ 13,336
Business‐Type Activities‐Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Cash Flows
For the Year Ended June 30, 2017
(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
17,158$ 10,763$ 29,471$ 6,149$ 550$ 258,372$ 91,689$
‐ ‐ ‐ ‐ ‐ ‐ (81)
(11,268) (16,782) (28,354) (1,841) (340) (208,613) (29,882)
(1,944) (242) (1,700) (935) (707) (21,508) (52,894)
74 8,435 792 376 ‐ 17,228 (3,907)
379 1,027 3,759 95 572 18,604 144
4,399 3,201 3,968 3,844 75 64,083 5,069
‐ ‐ ‐ ‐ 704 704 ‐
‐ ‐ ‐ ‐ ‐ 512 ‐
‐ ‐ 13 ‐ ‐ 2,936 7,265
(465) (335) (29) (133) ‐ (21,280) (2,482)
(465) (335) (16) (133) 704 (17,128) 4,783
(10,266) (2,975) (227) (4,683) (2,648) (38,995) (4,961)
‐ ‐ ‐ ‐ ‐ ‐ 112
804 300 ‐ ‐ 2,372 4,565 ‐
‐ 3,181 ‐ ‐ ‐ 3,181 ‐
(85) (1,318) ‐ (610) ‐ (4,198) ‐
(42) (483) (565) (334) (57) (12,331) ‐
(9,589) (1,295) (792) (5,627) (333) (47,778) (4,849)
(74) 4 1 (15) (3) (523) (399)
(74) 4 1 (15) (3) (523) (399)
(5,729) 1,575 3,161 (1,931) 443 (1,346) 4,604
14,718 13,757 14,511 10,562 418 244,685 80,044
$ 8,989 $ 15,332 $ 17,672 $ 8,631 $ 861 $ 243,339 $ 84,648
8,989$ 15,332$ 17,672$ 8,631$ 861$ 239,266$ 82,591$
‐ ‐ ‐ ‐ ‐ 4,073 2,057
8,989$ 15,332$ 17,672$ 8,631$ 861$ 243,339$ 84,648$
2,112$ 706$ 3,860$ 2,940$ 61$ 46,929$ (301)$
1,977 2,635 98 765 2 19,437 2,809
‐ ‐ ‐ ‐ ‐ ‐ 139
(137) (3,424) 18 (73) (164) (10,381) (341)
‐ ‐ ‐ ‐ ‐ ‐ 124
‐ 17 ‐ ‐ ‐ 59 ‐
‐ ‐ ‐ ‐ ‐ ‐ 2,243
(740) (2,170) (388) (316) (136) (9,836) (1,622)
474 3,251 (52) 217 157 8,145 1,010
(96) (242) (55) (37) (15) (1,279) (176)
‐ ‐ ‐ ‐ ‐ ‐ 256
‐ ‐ 86 ‐ ‐ 86 ‐
‐ ‐ ‐ ‐ ‐ ‐ (909)
1,092 3,099 655 475 166 14,326 2,326
(283) (671) (254) (127) 4 (3,403) (489)
$ 4,399 $ 3,201 $ 3,968 $ 3,844 $ 75 $ 64,083 $ 5,069
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) 2,408$
Restricted cash and investments with fiscal agents (Note 3) 2,556
Account receivable 579
Interest receivable 12
Total assets 5,555$
LIABILITIES:
Due to bondholders 4,564$
Due to other governments 991
Total liabilities 5,555$
CITY OF PALO ALTO
Statement of Assets and Liabilities
June 30, 2017
(Amounts in thousands)
Agency Funds
See accompanying notes to the basic financial statements.
44
CITY OF PALO ALTO
Index to the Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
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 .......................................................................................................................... 69
7. General Long‐Term Obligations .............................................................................................. 74
8. Special Assessment Debt ......................................................................................................... 80
9. Landfill Post‐Closure Maintenance ......................................................................................... 80
10. Net Position and Fund Balances .............................................................................................. 81
11. Pension Plans ........................................................................................................................... 84
12. Retiree Health Benefits ........................................................................................................... 91
13. Deferred Compensation Plan .................................................................................................. 94
14. Risk Management .................................................................................................................... 95
15. Joint Ventures .......................................................................................................................... 96
16. Commitments and Contingencies ........................................................................................... 99
Notes are essential to present fairly the information contained in the overview level of the basic financial
statements. Narrative explanations are intended to communicate information that is not readily apparent
or cannot be included in the statements themselves, and to provide additional disclosures as required by
the Governmental Accounting Standards Board.
46
This page is left intentionally blank.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
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, 2017
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, 2017
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, 2017
50
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other Funds (Continued)
The City also reports the following funds:
Airport Fund – This non‐major enterprise fund accounts for all financial transactions relating to
the Palo Alto Airport (PAO). The City assumed control over operation of PAO from the County of
Santa Clara, effective August 11, 2014.
Internal Service Funds – These funds account for fleet replacement and maintenance, technology,
central duplicating, printing and mailing services, administration of compensated absences and
health benefits, and the City’s self‐insured workers’ compensation and general liability programs,
all of which are provided to other departments on a cost‐reimbursement basis. Also included is
the Retiree Health Benefits Internal Service Fund, which accounts for benefits to retirees.
Vehicle Replacement and Maintenance – This fund accounts for the maintenance and
replacement of vehicles and equipment used by all City departments. The source of revenue is
from reimbursement of fleet replacement and maintenance costs allocated to each department
by usage of vehicle.
Technology – This fund accounts for replacement and upgrade of technology, and covers four
primary areas used by all City departments: desktop, infrastructure, applications, and technology
research and development. The source of revenue is from reimbursement of costs for support
provided to other departments.
Printing and Mailing Services – This fund accounts for central duplicating, printing and mailing
services provided to all City departments. The source of revenue for this fund is from
reimbursement of costs for services and supplies purchased by other departments.
General Benefits – This fund accounts for the administration of compensated absences and health
benefits.
Workers’ Compensation Insurance Program – This fund accounts for the administration of the
City’s self‐insured workers’ compensation program.
General Liability Insurance Program – This fund accounts for the administration of the City’s self‐
insured general liability program.
Retiree Health Benefits – This fund accounts for retiree health benefits.
Fiduciary Funds – These funds account for assets held by the City, an agent for assessment
districts, and members of the Cable Joint Powers Authority. These funds are custodial in nature
and do not involve measurement of results of operations. The City maintains two agency funds.
The financial activities of these funds are excluded from the government‐wide financial
statements, but are presented in separate fiduciary fund financial statements. Agency funds
apply the accrual basis of accounting but do not have a measurement focus.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
51
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other Funds (Continued)
Cable Joint Powers Authority – This fund accounts for the activities of the cable television system
on behalf of the members.
University Avenue Area Off‐Street Parking Assessment District – This fund accounts for the
receipts and disbursements associated with the 2012 Limited Obligation Refunding Improvement
Bonds.
(d) Basis of Accounting
The government‐wide and proprietary fund financial statements are reported using the economic
resources measurement focus and the full accrual basis of accounting. 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, 2017
52
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Cash and Cash Equivalents
Restricted and unrestricted pooled cash and investments held in the City Treasury, and other
unrestricted investments invested by the City Treasurer, are considered cash equivalents for
purposes of the statement of cash flows because the City’s cash management pool and funds
invested by the City Treasurer possess the characteristics of demand deposit accounts. Other
restricted and unrestricted investments with maturities of less than three months at the time of
purchase are considered cash equivalents for purposes of the statement of cash flows.
(f) Investments
The City’s investments are carried at fair value, and its fair value measurements are categorized
within the fair value hierarchy established by generally accepted accounting principles. Fair value
is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date.
(g) Inventory of Materials and Supplies
Materials and supplies are held for consumption and are valued at average cost. The consumption
method is used to account for inventories. Under the consumption method, inventories are
recorded as expenditures at the time inventory items are used, rather than purchased.
(h) Prepaid items
Prepaid items are recorded at cost. Using the consumption method, prepaid items are recorded
as expenditures over the period that service is provided.
(i) Compensated Absences
The liability for compensated absences includes the vested portion of vacation, sick leave, and
overtime compensation pay. The City’s liability for accrued compensated absences is recorded in
the General Benefits Internal Service Fund. The fund is reimbursed through payroll charges to all
other funds. Earned but unpaid vacation and overtime compensation pay are recognized as an
expense or expenditure in the proprietary and governmental fund types when earned because
the City has provided financial resources for the full amount through its budgetary process.
Vested accumulated sick pay is paid in the event of termination due to disability and, under certain
conditions, is specified in employment agreements.
During the fiscal year ended June 30, 2017, changes to the compensated absences liabilities were
as follows (in thousands):
Beginning balance 11,222$
Additions 6,308
Payments (6,052)
Ending balance 11,478$
Current portion 5,416$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
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, 2017
54
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements
As of July 1, 2016, the City implemented 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.
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.
In December 2015, the GASB issued Statement No. 78, Pensions Provided through Certain
Multiple‐Employer Defined Benefit Pension Plans. The Statement addresses 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.
In January 2016, the GASB issued Statement No. 80, Blending Requirements for Certain
Component Units—an amendment of GASB Statement No. 14. The Statement improves 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.
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.
Implementation of these statements did not have a significant impact on the City in the fiscal year
ended June 30, 2017.
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. 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
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
55
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements (Continued)
employees of other governments. This statement is effective for the City’s fiscal year ending
June 30, 2018.
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 November 2016, the GASB issued Statement No. 83, Certain Asset Retirement Obligations. The
Statement addresses accounting and reporting for certain Asset Retirement Obligations, and
outlines criteria for determining the timing and procedures for recognizing a liability and deferred
outflow of resources related to future asset retirement activities related to tangible assets. The
statement requires that a recognition occur when the liability is incurred and reasonably
estimable. This is effective for the City’s fiscal year ending June 30, 2019.
In January 2017, the GASB issued Statement No. 84, Fiduciary Activities. The Statement
establishes specific criteria for identifying activities that should be reported as fiduciary activities.
The Statement also clarifies how business‐type activities should report their fiduciary activities,
and will be effective for the City’s fiscal year ending June 30, 2020.
In March 2017, the GASB issued Statement No. 85, Omnibus 2017. The Statement addressed
various issues related to the implementation and application of certain GASB Statements. It
addresses a variety of topics including issues related to blending of component units, goodwill,
fair value measurement and application, and postemployment benefits. This statement will be
effective for the City’s fiscal year ending June 30, 2018.
In May 2017, the GASB issued Statement No. 86, Certain Debt Extinguishment Issues. The
Statement provides criteria for accounting and financial reporting for debt extinguishments
related to derecognizing debt that is defeased in substance, regardless of how cash and other
monetary assets placed in an irrevocable trust for the purpose of extinguishing that debt were
acquired. This statement will be effective for the City’s fiscal year ending June 30, 2018.
In June 2017, the GASB issued Statement No. 87, Leases. The Statement requires recognition of
certain lease assets and liabilities for leases that previously were classified as operating leases and
recognized as inflows of resources or outflows of resources based on the payment of provisions
of the contract. The Statement also establishes a single model for lease accounting, and requires
recognition of a lease liability and an intangible right‐to‐use lease asset, and it requires a lessor to
recognize a lease receivable and deferred inflow of resources. It will be effective for the City’s
fiscal year ending June 30, 2021.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
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
Public Agency Retirement Services, and invests its pooled idle cash according to State of California law
and the City’s Investment Policy. The basic principles underlying the City’s investment philosophy are to
ensure the safety of public funds, ensure that sufficient funds are available to meet current expenditures,
and achieve a reasonable rate of return on investments.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
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 285,732$ 239,266$ 2,408$ 527,406$
Held with fiscal agents 3,021 4,073 2,556 9,650
Total cash and investments 288,753$ 243,339$ 4,964$ 537,056$
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, 2017
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 20% 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, 2017
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, 2017 (in thousands):
Type of Investment June 30, 2017 Level 2
Investments by fair value hierarchy
U.S. Federal Agency Securities 351,825$ 351,825$
U.S. Treasury Notes 12,933 12,933
Local Government Bonds 51,482 51,482
Negotiable Certificates of Deposit 46,390 46,390
Corporate Bonds 18,849 18,849
Total investments by fair value hierarchy 481,479 481,479$
Investment not subject to fair value hierarchy
Money Market Mutual Funds 10,206
California Asset Management Program 3,272
Local Agency Investment Fund 38,205
Total investments not subject to fair value hierarchy 51,683
Total investments measured at fair value 533,162$
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, 2017,
LAIF had a weighted average maturity of 194 days.
Fidelity Institutional Asset Management
Money market mutual funds are available for withdrawal on demand and at June 30, 2017, had a weighted
average maturity of 23 days.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
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, 2017, the fair value approximated the City’s cost. CAMP had a weighted average
maturity of 49 days at June 30, 2017.
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates may adversely affect the fair value of an
investment. Normally, the longer the maturity of an investment, the greater the sensitivity its fair value
is to changes in market interest rates. As of June 30, 2017, the City’s investments consisted of the
following (in thousands):
Type of Investment
Less Than
One Year
One to
Three Years
Three to
Five Years
Over
Five Years Total
U.S. Federal Agency Securities 70,463$ 81,272$ 72,838$ 127,252$ 351,825$
U.S. Treasury Notes 1,997 9,442 1,494 ‐ 12,933
Local Government Bonds ‐ 6,291 19,903 25,288 51,482
Corporate Bonds ‐ 10,627 8,222 ‐ 18,849
Money Market Mutual Funds 10,206 ‐ ‐ ‐ 10,206
Negotiable Certificates of Deposit 2,451 15,809 21,327 6,803 46,390
California Asset Management Program 3,272 ‐ ‐ ‐ 3,272
Local Agency Investment Fund 38,205 ‐ ‐ ‐ 38,205
Total Investments 126,594$ 123,441$ 123,784$ 159,343$ 533,162
Cash in bank and on hand 3,894
Total Cash and Investments 537,056$
Maturities
Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations
At June 30, 2017, the City’s investments (including investments held by bond trustees) include U.S. Federal
Agency Callable Securities in the amount of $119 million that are highly sensitive to interest rate
fluctuations (to a greater degree than already indicated in the information provided above. These
securities are subject to early redemption at par in a period of declining interest rates.
Credit Risk
Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the
investment. This is measured by the assignment of a rating by a nationally recognized statistical rating
organization.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
61
NOTE 3 – CASH AND INVESTMENTS (Continued)
Presented below is the actual rating as provided by Standard & Poor’s investment rating system as of June
30, 2017, for each investment type (in thousands):
Type of Investment Rating Total
U.S. Federal Agency Securities AA+ 351,825$
Corporate Bonds AAA 18,849
Local Government Bonds AAA 51,482
Money Market Mutual Funds AAAm 10,206
Total Investments 432,362
Not Applicable:
U.S. Treasury Notes 12,933
Not Rated:
California Asset Management Program 3,272
Local Agency Investment Fund 38,205
Negotiable Certificates of Deposit 46,390
Cash in bank and on hand 3,894
Total Cash and Investments 537,056$
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, 2017
(in thousands):
Investments Reporting Type Fair Value at Year‐End
Federal Home Loan Bank U.S. Federal Agency Securities 111,275$
Federal Agricultural Mortgage Corporation U.S. Federal Agency Securities 105,973
Federal Farm Credit Bank U.S. Federal Agency Securities 56,614
Federal National Mortgage Association U.S. Federal Agency Securities 34,169
Federal Home Loan Mortgage Corporation U.S. Federal Agency Securities 26,892
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
62
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 2017 were as follows (in thousands):
Fund Making Transfer
Amount
Transferred
General Fund Nonmajor Governmental Funds 461$ A
Electric Services Fund 12,035 A
Gas Services Fund 6,726 A
Capital Projects Fund General Fund 22,859 B
Nonmajor Governmental Funds 14,865 B
Water Services Fund 84 B
Electric Services Fund 190 B
Fiber Optics Fund 14 B
Gas Services Fund 72 B
Wastewater Collection Fund 50 B
Internal Service Funds 263 B
Nonmajor Governmental Funds General Fund 676 A
Water Services Fund 5 A
Electric Services Fund 11 A
Fiber Optics Fund 1 A
Gas Services Fund 4 A
Wastewater Collection Fund 3 A
Internal Service Funds 12 A
Water Services Fund Gas Services Fund 122 B
Wastewater Collection Fund 122 B
Electric Services Fund General Fund 2,300 D
Water Services Fund 136 B
Gas Services Fund 136 B
Fiber Optics Fund 102 D
Internal Service Funds 5 C
Refuse Services Fund Capital Projects Fund 13 C
Internal Service Funds General Fund 3,596 E
Water Services Fund 176 B
Electric Services Fund 307 B
Fiber Optics Fund 1 B
Gas Services Fund 195 B
Wastewater Collection Fund 290 B
Wastewater Treatment Fund 335 B
Refuse Services Fund 29 B
Storm Drainage Services Fund 133 B
Internal Service Funds 2,203 E
Total 68,532$
Fund Receiving Transfer
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
63
NOTE 4 – INTERFUND TRANSACTIONS (Continued)
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.
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
515,601 Due July 2025
704,150 Due July 2026
All advances bear interest equal to the average return yield on the City’s investment portfolio. As of
June 30, 2017, the total outstanding principal amount is $2.9 million.
Internal Balances
Internal balances represent the net interfund receivables and payables remaining after the elimination of
all such balances within governmental and business‐type activities.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
64
NOTE 5 – NOTES AND LOANS RECEIVABLE
At June 30, 2017, the City’s notes and loans receivable totaled (in thousands):
Palo Alto Housing Corporation:
El Dorado Palace LLC 52$
Tree House Apartments 5,344
Emerson Street Project 375
Alma Single Room Occupancy Development 2,222
Barker Hotel 2,111
Sheridan Apartments 2,222
Oak Court Apartments, L.P. 7,834
Mid‐Peninsula Housing Coalition:
Palo Alto Gardens Apartments 100
Community Working Group, Inc. 1,280
Opportunity Center Associates, L.P. 750
Home Rehabilitation Loans 46
Executive Relocation Assistance Loans 496
Below Market Rate Assessment Loans 53
Oak Manor Townhouse Water System 114
Lytton Gardens Assisted Living 101
Emergency Housing Consortium 75
Alma Gardens Apartments 1,150
2811‐2825 Alma Street Acquisition 1,890
Palo Alto Family Housing, 801 Alma Street 6,422
Palo Alto Senior Housing Project ‐ Stevenson House, LLC 1,000
MP Palo Alto Garden, LLC 619
Colorado Park Housing Corporation 204
Total Notes and Loans 34,460
Less: Valuation Allowance (14,637)
Total Notes and Loans, Net 19,823$
Housing Loans
The City engages in programs designed to encourage construction or improvement in low‐to‐moderate
income housing or other projects. Under these programs, grants or loans are provided under favorable
terms to homeowners or developers who agree to spend these funds in accordance with the City’s terms.
These loans have been offset by restricted or committed fund balances, as they are not expected to be
repaid immediately.
Some of these loans contain forgiveness clauses that provide for the amount loaned to be forgiven if the
third party maintains compliance with the terms of the loan and associated regulatory agreements. Since
some of these loans are secured by trust deeds that are subordinated to other debt on the associated
projects or are only repayable from residual cash receipts on the projects, collectability of some of the
outstanding balances may not be realized. As a result of the forgiveness clauses and nature of these
housing projects and associated cash flows, a portion of the outstanding balances of the loans has been
offset by a valuation allowance.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
65
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Tree House Apartments
In March 2009, the City agreed to loan $2.8 million to Tree House Apartments, L.P. (THA) for the purchase
of the real property located at 488 West Charleston Road. The loan accrues simple interest at the rate of
3 percent per annum. The loan was funded with $1.8 million of Community Development Block Grant
(CDBG) funds and $1.0 million of residential housing funds. An additional development loan in the amount
of $2.5 million was approved by the City on October 18, 2010. As of June 30, 2017, the outstanding
balance for THA in aggregate is $5.3 million. Principal and interest payments will be deferred, however if
the borrower has earned extra income, and if it is acceptable to the other entities providing final
permanent sources of funds, payment of interest and principal based on the City’s proportionate share of
the project’s residual receipts from net operating income shall be made by the borrower. In no event
shall full payment be made by the borrower later than concurrently with the expiration or earlier
termination of the loan agreement, which is December 31, 2067.
Emerson Street Project
On November 8, 1994, the City loaned $375,000 to Palo Alto Housing Corporation (PAHC) for expenses
necessary to acquire an apartment complex for the preservation of rental housing for low and very low
income households in the City. This loan is collateralized by a second deed of trust. The loan bears interest
at 3 percent.
Alma Single Room Occupancy Development
On December 13, 1996, the City loaned $2.2 million to Alma Place Associates, L.P. for development of a
107‐unit single room occupancy development. This loan bears interest at 3 percent and is collateralized
by a subordinated deed of trust. The principal balance is due in 2041.
Barker Hotel
On April 12, 1994, the City loaned a total of $2.1 million for the preservation, rehabilitation and expansion
of a low‐income, single occupancy hotel. This loan was funded by three sources: $400,000 from the
Housing In‐Lieu Fund, $1 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 is collateralized by a second deed
of trust and an affordability reserve account held by PAHC. The loan was amended in June 2017. It will not
accrue interest between May 1, 2017 and March 1, 2030. The loan will be forgiven on June 30, 2030 if
PAHC uses the funds that would otherwise have been due to the City for another affordable housing
project.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
66
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Oak Court Apartments, L.P.
On August 18, 2003, the City loaned $5.9 million to PAHC for the purchase of land. The note bears interest
of 5 percent and is secured by a deed of trust. Note payments are due annually after 55 years, or beginning
in 2058, unless PAHC elects to extend the note until 2102, as defined in the regulatory agreement.The
City also loaned $1.9 million to Oak Court Apartments, L.P. for the construction of a 53‐unit rental
apartment complex for low and very low‐income households with children, which was completed in April
2005. The note bears no interest until certain criteria defined in the note are satisfied, at which time the
note will bear an interest rate not to exceed 3 percent. The note is secured by a subordinate deed of
trust. The principal balance is due in 2060.
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.
Community Working Group, Inc.
On May 13, 2002, the City loaned $1.3 million to Community Working Group, Inc. for predevelopment,
relocation and acquisition of land for development of an 89‐unit complex and homeless service center for
very low income households. The loan was funded with $1.3 million of CDBG funds. The note bears no
interest and is secured by a first deed of trust. No repayment is required as long as the borrower complies
with all terms and conditions of the agreement. After 89 years of compliance with the regulatory
agreement, the City’s loan would convert to a grant and its deed of trust would be re‐conveyed.
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
67
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
As of June 30, 2017, 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, 2017 is $389,000. 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, 2017 was $107,000.
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 2017, the City did not receive interest payments.
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
68
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
2811‐2825 Alma Street Acquisition
On October 9, 2011, the City agreed to loan $1.3 million to PAHC to acquire properties on Alma Street for
the purpose of developing an affordable rental housing project. On June 29, 2015, the City loaned PAHC
an additional $0.6 million, and entered into an Amended and Restated Acquisition and Development
Agreement which combined the two loans for a total loan of $1.9 million. The loan term expires on
December 8, 2066 with an option to extend the term for an additional 44 years. The loan bears simple
interest of 3 percent, however in the event of default interest will accrue at the lesser of 8 percent or the
highest rate permitted by law. Principal and interest payments are payable during the term of the
agreement on a “residual receipt” basis as described in the agreement. All principal and interest is due in
the event of an unauthorized transfer, a default or the expiration of the term. As of June 30, 2017, the
outstanding balance was $1.9 million.
Palo Alto Family Housing, 801 Alma Street
On February 14, 2011, the City agreed to loan Palo Alto Family, LP up to $9.3 million for the purposes of
predevelopment expenses and acquiring certain real property for the Alma Street Affordable Multi‐Family
Rental Housing Project. The loan bears simple interest of 3 percent. Principal and interest are due and
payable during the term of the agreement on a “residual receipt” basis as described in the agreement.
Except in the case of default, all remaining principal and interest shall be payable on the Restriction
Termination Date as defined in the agreement. As of June 30, 2017, 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.
MP Palo Alto Garden, LLC
On March 14, 2017, the City loaned $619,000 in CDBG funds for the rehabilitation of the property. The
note bears 3% simple interest and shall be deferred until April 24, 2054. If there are no Events of Default
prior to the end of the terms, the unpaid principal and interest will be treated as a grant and no repayment
will be due to the City.
El Dorado Palace, LLC
On June 22, 2015, the City approved a loan to PAHC Housing Corporation in the amount of $375,000 to
increase the supply of affordable low income housing in the City. In June 2017, the City loaned $52,000.
The loan bears three percent (3%) interest, however in the event of default will accrue at the lesser of 8%
or the highest rate permitted by law. The term of the loan shall expire 55 years unless the City agree to
extend an additional 44 years.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
69
NOTE 6 – CAPITAL ASSETS
Valuation
Capital assets are valued at historical cost or estimated historical cost if actual historical cost is not
available. Contributed capital assets are valued at their estimated fair value on the date contributed. The
City’s policy is to capitalize all assets when costs are equal to or exceed $5,000 and the useful life exceeds
one year. Infrastructure assets are capitalized when costs are equal to or exceed $100,000.
Proprietary fund capital assets are recorded at cost including significant interest costs incurred under
restricted tax‐exempt borrowings, which finance the construction of capital assets. These interest costs,
net of interest earned on investment of proceeds of such borrowings, are capitalized and added to the
cost of capital assets during the construction period. Maintenance and repairs are expensed as incurred.
The City has recorded all its public domain capital assets, consisting of roadway and recreation and open
space, in its government‐wide financial statements. GASB Statement No. 34 requires that all capital assets
with limited useful lives be depreciated over their estimated useful lives. Alternatively, the “modified
approach” may be used for certain capital assets. Depreciation is not provided under this approach, but
all expenditures on these assets are expensed unless they are additions or improvements. The City has
elected to use the depreciation method for its capital assets. The purpose of depreciation is to spread the
cost of capital assets equitably among all users over the life of those assets. The amount charged to
depreciation expense each year represents that year’s pro rata share of the cost of capital assets.
Depreciation of capital assets is charged as an expense against operations each year and the total amount
of depreciation taken over the years, called accumulated depreciation, is reported on the statement of
net position as a reduction in the book value of capital assets.
Depreciation is calculated using the straight line method, which means the cost of the asset is divided by
its expected useful life in years, and the result is charged to expense each year until the asset is fully
depreciated. The City has assigned the useful lives listed below to capital assets.
Governmental Activities Years
Buildings and structures 20 ‐ 30
Equipment:
Computer equipment 3 ‐ 5
Office machinery and equipment 5
Machinery and equipment 5 ‐ 30
Intangible assets ‐ software 5‐20
Roadway network:
5 ‐ 40
Recreation and open space network:
25 ‐ 40
Business‐type Activities
Buildings and structures 25 ‐ 60
Vehicles and heavy equipment 3 ‐ 10
Machinery and equipment 10 ‐ 50
Transmission, distribution and treatment systems 10 ‐ 100
Includes pavement, striping and legends, curbs, gutters and sidewalks, parking lots,
traffic signage, and bridges
Includes major park facilities, park trails, bike paths and medians
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
70
NOTE 6 – CAPITAL ASSETS (Continued)
General Capital Assets
Changes in the City’s general capital assets during the year ended June 30, 2017 were (in thousands):
Balance Balance
July 1, 2016 Additions Retirements Transfers June 30, 2017
Governmental activities
Nondepreciable capital assets:
Land and improvements 78,481$ ‐$ ‐$ ‐$ 78,481$
Street trees 15,077 203 (387) ‐ 14,893
Intangible assets ‐ Easement 3,567 ‐ ‐ ‐ 3,567
Construction in progress 46,527 39,772 (373) (23,265) 62,661
Total nondepreciable capital assets 143,652 39,975 (760) (23,265) 159,602
Depreciable capital assets:
Buildings and structures 220,910 ‐ ‐ 4,504 225,414
Intangible assets ‐ Software 279 ‐ ‐ ‐ 279
Equipment 12,859 156 (1,532) 408 11,891
Roadway network 308,572 ‐ ‐ 16,245 324,817
Recreation and open space network 33,078 ‐ ‐ 2,108 35,186
Total depreciable capital assets 575,698 156 (1,532) 23,265 597,587
Less accumulated depreciation:
Buildings and structures (79,225) (6,022) ‐ ‐ (85,247)
Intangible assets ‐ Software (265) (9) ‐ ‐ (274)
Equipment (8,370) (515) 1,532 ‐ (7,353)
Roadway network (141,096) (7,274) ‐ ‐ (148,370)
Recreation and open space network (10,873) (1,222) ‐ ‐ (12,095)
Total accumulated depreciation (239,829) (15,042) 1,532 ‐ (253,339)
Depreciable capital assets, net 335,869 (14,886) ‐ 23,265 344,248
Internal service fund capital assets
Construction in progress 1,829 4,846 ‐ (3,493) 3,182
Equipment 55,412 116 (2,082) 3,493 56,939
Less accumulated depreciation (40,775) (2,809) 2,070 ‐ (41,514)
Net internal service fund capital assets 16,466 2,153 (12) ‐ 18,607
Governmental activities capital assets, net 495,987$ 27,242$ (772)$ ‐$ 522,457$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
71
NOTE 6 – CAPITAL ASSETS (Continued)
Business‐type Capital Assets
Changes in the City’s enterprise fund capital assets during the year ended June 30, 2017 were
(in thousands):
Balance Balance
July 1, 2016 Additions Retirements Transfers June 30, 2017
Business‐type activities
Nondepreciable capital assets:
Land and improvements 4,973$ ‐$ ‐$ ‐$ 4,973$
Construction in progress 93,970 38,549 ‐ (22,232) 110,287
Total nondepreciable capital assets 98,943 38,549 ‐ (22,232) 115,260
Depreciable capital assets:
Buildings and structures 56,929 ‐ ‐ (73) 56,856
Infrastructure ‐ ‐ ‐ 633 633
Transmission, distribution and treatment systems 746,652 445 (2,944) 21,672 765,825
Total depreciable capital assets 803,581 445 (2,944) 22,232 823,314
Less accumulated depreciation:
Buildings and structures (11,576) (1,001) ‐ ‐ (12,577)
Infrastructure ‐ (2) ‐ ‐ (2)
Transmission, distribution and treatment systems (314,141) (18,454) 1,814 ‐ (330,781)
Total accumulated depreciation (325,717) (19,457) 1,814 ‐ (343,360)
Depreciable capital assets, net 477,864 (19,012) (1,130) 22,232 479,954
Business‐type activities capital assets, net 576,807$ 19,537$ (1,130)$ ‐$ 595,214$
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 19$ Water 2,763$
City Attorney 3 Electric 7,727
City Clerk 4 Fiber Optics 334
City Audtior 1 Gas 3,185
Administrative Services 3 Wastewater Collection 1,977
Community Services 2,134 Wastewater Treatment 2,633
Public Safety 323 Refuse 98
Public Works 10,066 Storm Drainage 738
Planning and Community Environment 169 Airport 2
Library 2,320 19,457$
Internal Service Funds 2,809
17,851$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
72
NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress
Construction in progress as of June 30, 2017 is comprised of the following (in thousands):
Governmental Activities
Expended to
June 30, 2017
Golf Reconfig and Baylands Athletic Center 12,304$
City Hall First Floor Renovation 4,449
Lucie Stern Buildings Mech/Electrical Improv 3,425
Traffic Signal Upgrades 3,125
Bicycle Boulevards Implementation Project 2,954
Highway 101 Pedestrian/Bicycle Overpass 2,772
Furniture/Technology for Library Bond Prj 2,470
Vehicle Replacement Fund 2,414
Charleston/Arastradero Corridor 1,873
Transportation and Parking Improvements 1,843
New Public Safety Building 1,418
Safe Routes To School 1,266
Park Trails 1,238
Parks Master Plan 1,184
Baylands Interpretive Center Improvements 1,126
Curb & Gutter Repairs 1,111
Stanford / PA Soccer Turf Replacement 1,004
Fire Station No. 3 Replacement Design 860
Newell Road Bridge/SFC Bridge Replacemen 834
Telephone Infrastructure and Network 768
Interior Finishes Construction 762
Benches/Signage/Fencing/Walkways 742
Embarcadero Corridor Improvements 690
Quarry Road 667
Library & Comm Center Temp Facilities 657
Other Construction In Progress 13,887
Total Governmental Activities Construction In Progress 65,843$
Business‐type Activities
Expended to
June 30, 2017
Water system extension replacements and improvements 11,734$
Gas system extension replacements and improvements 3,178
Sewer system rehabilitation and extensions 11,305
Electric distribution system improvements 9,880
Water quality control plant equipment replacement and lab facilities 954
Storm drainage structural and water quality improvements 4,128
Other electrical improvements projects 1,648
Other construction in progress 67,460
Total Business‐type Activities Construction In Progress 110,287$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
73
NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress
Allocations of business‐type activity administration and general expenses of $13.4 million have been
capitalized and included in amounts expended to June 30, 2017.
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 ‐ $3.2 million
Fire Station Number 3 replacement – $6.5 million
Charleston Arastradero Corridor ‐ $3.6 million
Major business‐type capital projects that are currently in progress, and the remaining capital commitment
of each, are as follows:
Water main Replacement for Water fund ‐ $6.9 million
Matadero Creek Storm Water Pump Station Project for Storm Drainage Fund ‐ $5.2 million
Dewatering & loadout facility project for Wastewater Treatment Fund ‐ $9.6 million
Vehicle Registration Fees (VRF)
In FY 2017, the City received VRF funds from the Santa Clara Valley Transportation Authority and
expended the full amount on capital expenditures for Alma/Middlefield Resurfacing Project (Project PE‐
86070).:
Starting VRF balance July 1, 2016 5,500$
VRF revenue 412,918
VRF interest 958
VRF expense (419,376)
Ending VRF balance June 30, 2017 ‐$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
74
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, 2016 Additions Retirements June 30, 2017 Portion
Governmental Activities Debt:
General Long‐Term Obligations:
2002B Downtown Parking Improvements,
Certificates of Participation,
6.50%, due 03/01/2022
3,555$ 1,135$ ‐$ 160$ 975$ 170$
2010 General Obligation Bonds,
3.25% ‐ 5%, due 08/01/2040
55,305 48,090 ‐ 1,110 46,980 1,170
2011 Lease‐Purchase Agreement 3,222 1,248 ‐ 406 842 416
2013A General Obligation Bonds,
2 ‐ 5%, due 08/01/2041
20,695 17,120 ‐ 390 16,730 400
Add: Unamortized Premium ‐ 3,926 ‐ 158 3,768 158
Total Governmental Activities Debt 82,777$ 71,519$ ‐$ 2,224$ 69,295$ 2,314$
Original Issue
Amount
Balance
July 1, 2016 Additions Retirements
Balance
June 30, 2017
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$ 2,355$ ‐$ 535$ 1,820$ 570$
1999 Refunding,
5.125‐5.25%, due 06/01/2024
17,735 9,680 ‐ 700 8,980 735
2009 Series A,
1.80‐5.95%, due 06/01/2035
35,015 29,745 ‐ 990 28,755 1,035
2011 Refunding,
3‐4%, due 06/01/2035
17,225 12,315 ‐ 1,045 11,270 1,085
Add: Unamortized Premium ‐ 770 ‐ 70 700 ‐
Energy Tax Credit Bonds
2007 Series A, 0%, Due 12/15/2021 1,500 600 ‐ 100 500 100
Less: Unamortized Discount ‐ (33) ‐ (6) (27) ‐
State Water Resources Loans
2007, 1.02%, due 06/30/2029 9,000 5,850 ‐ 450 5,400 450
2009, 2.6%, due 11/30/2030 8,500 6,831 ‐ 378 6,453 388
2017, 1.8%, due 3/30/2049 29,684 ‐ 3,181 ‐ 3,181 ‐
Total Business‐type Activities Debt 127,299$ 68,113$ 3,181$ 4,262$ 67,032$ 4,363$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
75
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, 2017, the City received $4.6 million in ad valorem property taxes for principal of $1.5 million and
interest of $2.9 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, 2017
76
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 at 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 $1.8 million principal
and $0.2 million interest as the remaining debt service on the bonds, which is scheduled to occur in
FY 2020. For FY 2017, Net Revenues, including operating revenues and non‐operating interest earnings,
amounted to $264.3 million; operating costs, including operating expenses but not interest, depreciation
or amortization, amounted to $205.1 million. Net Revenues available for debt service amounted to $59.2
million, which represented coverage of 86.8 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, 2017
77
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
The pledge of future Net Revenues for the above bonds ends upon repayment of the $8.9 million principal
and $2.2 million interest as the remaining debt service on the bonds, which is scheduled to occur in
FY 2024. For FY 2017, 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 $36.9 million. Net Revenues available for debt service amounted to $11.1
million, which represents coverage of 9.17 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 $0.5 million remaining debt
service on the bonds, which is scheduled to occur in FY 2022. For FY 2017, Net Revenues, including
operating revenues and non‐operating interest earnings, amounted to $137.2 million; operating costs,
including operating expenses but not interest, depreciation or amortization, amounted to $111.8 million.
Net Revenues available for debt service amounted to $25.4 million, which represented coverage of
253.4 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 $512 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 $28.8 million
principal and $17.4 million interest as the remaining debt service on the bonds, which is scheduled to
occur in FY 2035. For FY 2017, Net Revenues, including operating revenues and non‐operating interest
earnings, amounted to $42.7 million; operating costs, including operating expenses but not interest,
depreciation or amortization, amounted to $33.1 million. Net Revenues available for debt service
amounted to $9.6 million, which represented coverage of 3.7 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, 2017
78
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 $11.2 million principal
and $1.8 million interest as remaining debt service on the bonds, which is scheduled to occur in FY 2035.
For FY 2017, Net Revenues, including operating revenues and non‐operating interest earnings, amounted
to $79.1 million; operating costs, including operating expenses but not interest, depreciation or
amortization, amounted to $56.3 million. Net Revenues available for debt service amounted to $22.8
million, which represented coverage of 15.6 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.
2017 State Water Resources Loan ‐ In June 2017, the SWRCB and the City executed agreement for an
award up to $30 million, 30 years 1.8% to finance the project replacing the sewage sludge “bio‐solids”
incinerators at the City’s Regional Water Quality Control Plant (RWQCP). In September 2017, due to the
projected lower project costs, the agreement was amended to a lower loan amount of $29.7 million.
Under the terms of the contract, a portion of the loan amount, $4 million, is anticipated to be forgiven,
contingent on the City’s performance of its obligations under the agreement.
The new facility will dewater the bio‐solids and allow it to be loaded onto trucks and taken to an offsite
for further treatment until further treatment units can be build onsite. The RWQCP provides treatment
and disposal for wastewater for Palo Alto, Mountain View, Los Altos, Los Altos Hills, East Palo Alto Sanitary
District, and Stanford University. Though Palo Alto is the recipient of the loan, the City’s agreement with
the partner agencies oblige them to pay their proportionate share of the principal and interest of this
loan. Palo Alto’s share of the loan payment is 38.2% with the partner agencies paying 61.8%.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
79
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
Debt Service Requirements (in thousands):
Debt service requirements are shown below for all long‐term debt.
For the Year Ending
June 30 Principal Interest Total Principal Interest Total
2018 2,156$ 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 5,291 2,651 7,942
2021 1,985 2,674 4,659 5,562 2,523 8,085
2022 2,080 2,583 4,663 5,778 2,359 8,137
2023‐2027 10,590 11,527 22,117 21,862 8,869 30,731
2028‐2032 13,380 8,682 22,062 12,110 3,835 15,945
2033‐2037 16,620 5,387 22,007 6,860 832 7,692
2038‐2042 14,545 1,292 15,837 ‐ ‐ ‐
Total 65,527$ 40,689$ 106,216$ 66,359$ 26,209$ 92,568$
Governmental Activities Business‐Type Activities
Debt Call Provisions
Long‐term debt as of June 30, 2017 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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
80
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
Leasing arrangements are similar to debt in that they allow investors to participate in a share of
guaranteed payments made by the City. Because they are similar to debt, the present value of the total
payments to be made by the City is recorded as long‐term debt. The City’s leasing arrangements are
included in long‐term obligations discussed above.
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, 2017,
the outstanding bonds have been fully paid.
NOTE 8 – SPECIAL ASSESSMENT DEBT
Special Assessment Debt with no City Commitment
On February 29, 2012, the University Avenue Area Off‐Street Parking Assessment District issued Limited
Obligation Refunding Improvement Bonds (2012 Bonds), but the City has no legal or moral liability with
respect to the payment of this debt, which is secured only by assessments on properties in this District.
Therefore, this debt is not included in Governmental Activities long‐term debt of the City. At
June 30, 2017, the District’s outstanding debt amounted to $23.8 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, 2017 are
$6.7 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, 2017
81
NOTE 10 – NET POSITION AND FUND BALANCES
Net Position
Net Position is the excess of the City’s assets and deferred outflows of resources over its liabilities and
deferred inflows of resources. Net position is divided into three categories that are described below:
Net Investment in Capital Assets describes the portion of net position, which is represented by current net
book value of the City’s capital assets, less the outstanding balance of any debt issued to finance these
assets.
Restricted describes the portion of net position that is reduced by liabilities related to restricted assets.
Generally a liability relates to restricted assets if the asset results from a resource flow that also results in
the recognition of a liability or if the liability will be liquidated with the restricted assets reported.
Unrestricted describes the portion of net position which is not restricted as to use.
Fund Balances
As prescribed by GASB Statement No. 54, governmental funds report fund balances in classifications based
primarily on the extent to which the City is bound to honor constraints on the specific purposes for which
amounts in the funds can be spent. Fund balances for governmental funds are made up of the following:
Nonspendable – This category is comprised of amounts that are: (a) not in spendable form, or (b) legally
or contractually required to be maintained intact. The “not in spendable form” criterion includes items
that are not expected to be converted to cash, for example: prepaid items. The corpus of the permanent
fund is contractually required to be maintained intact.
Restricted – This category is comprised of amounts that can be spent only for the specific purposes
stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions
may effectively be changed or lifted only with the consent of resource providers.
Committed – This category is comprised of amounts that can only be used for the specific purposes
determined by the action that constitutes the most binding constraint (i.e. ordinance) of the City’s highest
level of decision‐making authority, the City Council. Commitments may be changed or lifted only by the
City taking the same formal action that imposed the constraint originally.
Assigned – This category is comprised of amounts intended to be used by the City for specific purposes
that are neither restricted nor committed. Intent is expressed by the City Council or the City Manager, to
whom the City Council has delegated the authority to assign amounts to be used for specific purposes.
Unassigned –This category is the residual classification for the General Fund and includes all amounts not
contained in the other classifications. Unassigned amounts are technically available for any purpose.
Other governmental funds may report negative unassigned fund balance, which occurs when a fund has
a residual deficit after allocation of fund balance to the nonspendable, restricted or committed categories.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
82
NOTE 10 – NET POSITION AND FUND BALANCES (Continued)
The fund balances of all governmental funds are presented by the above mentioned categories on the
face of the financial statements. In circumstances when an expenditure is made for a purpose for which
amounts are available in multiple fund balance categories, fund balance is depleted in the order of
restricted, committed, assigned, and unassigned.
The General Fund Budget Stabilization Reserve (BSR) is established by authority of the General Fund
Reserve Policy, which is approved by the City Council and included in the City’s annual adopted budget.
The BSR is maintained in the range of 15 to 20 percent of General Fund expenditures and operating
transfers, with a target of 18.5 percent. Any reserve level below 15 percent requires City Council approval.
At the discretion of the City Manager, a reserve balance above 18.5 percent may be transferred to the
Infrastructure Reserve within the Capital Projects Fund. The purpose of the General Fund BSR is to fund
unbudgeted, unanticipated one‐time costs. The BSR is not meant to fund ongoing, recurring General Fund
expenditures.
As of June 30, 2017 total outstanding encumbrances and reapropriations related to governmental
activities were $7.8 million for the General Fund, $21.9 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 $1.6 million, Development Services $0.7
million, Public Works $0.9 million, Community Services $0.9 million, Fire $0.6 million, and the remaining
City departments $2 million.
Enterprise Funds
At June 30, 2017, Enterprise Fund unrestricted net position (in thousands) were as follows:
Water Electric Fiber Optics Gas
Wastewater
Collection
Wastewater
Treatment Refuse
Storm
Drainage Airport Total
Unrestricted
Rate stabilization
Supply ‐$ 9,011$ ‐$ 177$ ‐$ ‐$ ‐$ ‐$ ‐$ 9,188$
Distribution 4,069 ‐ 25,422 6,363 342 (4,027) 9,567 2,044 (2,904) 40,876
4,069 9,011 25,422 6,540 342 (4,027) 9,567 2,044 (2,904) 50,064
Operations
Supply ‐ 12,890 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 12,890
Distribution 19,792 7,022 ‐ 13,549 6,393 ‐ ‐ ‐ ‐ 46,756
19,792 19,912 ‐ 13,549 6,393 ‐ ‐ ‐ ‐ 59,646
Emergency plant replacement ‐ ‐ 1,000 ‐ ‐ 1,980 ‐ ‐ ‐ 2,980
Electric special projects ‐ 51,838 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 51,838
Reappropriations 3,458 5,652 1,200 3,859 449 804 ‐ ‐ 67 15,489
Commitments 10,518 4,198 124 1,197 1,473 17,685 996 6,877 666 43,734
Underground loan ‐ 730 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 730
Notes and loans ‐ ‐ ‐ ‐ ‐ 559 ‐ ‐ ‐ 559
Landfill corrective action ‐ ‐ ‐ ‐ ‐ ‐ 728 ‐ ‐ 728
Hydro stabilization reserve ‐ 11,400 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 11,400
Public benefit program ‐ 681 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 681
CIP reserve 2,726 880 ‐ 3,820 978 ‐ ‐ ‐ ‐ 8,404
Geng Road Reserve ‐ ‐ ‐ ‐ ‐ ‐ 268 ‐ ‐ 268
GASB 68 Pension reserve (11,736) (27,659) (1,701) (12,505) (7,019) (17,383) (4,905) (2,955) (394) (86,257)
Total 28,827$ 76,643$ 26,045$ 16,460$ 2,616$ (382)$ 6,654$ 5,966$ (2,565)$ 160,264$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
83
NOTE 10 – NET POSITION AND FUND BALANCES (Continued)
The City Council has set aside unrestricted net position for general contingencies, and future capital and
debt service expenditures including operating and capital contingencies for unusual or emergency
expenditures.
Internal Service Funds
At June 30, 2017, 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 4,287$ 1,810$ 50$ 184$ 10$ 26$ ‐$ 6,367$
Future catastrophic losses ‐ ‐ ‐ ‐ 3,136 1,797 ‐ 4,933
Retiree health care ‐ ‐ ‐ ‐ ‐ ‐ 24,798 24,798
Capital projects 4,328 3,344 75 ‐ ‐ ‐ ‐ 7,747
GASB68 pension reserve (2,650) (9,220) (291) ‐ 13 ‐ ‐ (12,148)
Available 1,885 18,276 (130) 6,193 ‐ ‐ ‐ 26,224
Total 7,850$ 14,210$ (296)$ 6,377$ 3,159$ 1,823$ 24,798$ 57,921$
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, 2017
84
NOTE 11 – PENSION PLANS
(a) General Information about the Pension Plans
Plan Descriptions ‐ Substantially all permanent City employees are eligible to participate in the City’s
separate Safety (police and fire) and Miscellaneous (all other) Plans, agent multiple‐employer defined
benefit pension plans administered by California Public Employees’ Retirement System (CalPERS), which
acts as a common investment and administrative agent for its participating member employers. Benefits
provisions under the Plans are established by State statute and City resolution. CalPERS issues publicly
available reports that include a full description of the pension plans including benefits provisions,
assumptions and membership information. The reports can be found on the CalPERS website at:
<http://www.calpers.ca.gov/index.jsp?bc=/about/forms‐pubs/calpers‐reports/actuarial‐
reports/home.xml>
Benefits Provided ‐ CalPERS provides retirement and disability benefits, annual cost of living adjustments
and death benefits to Plan members, who must be public employees and beneficiaries. Benefits are based
on years of credited service (equal to one year of full‐time employment), age at retirement and final
compensation. The death benefit is one of the following: the 1959 Survivor Benefit, or the pre‐retirement
option 2W Death Benefit for local fire members only.
The Plans’ provisions and benefits in effect at June 30, 2017, are summarized in the following table.
Contribution rates are based on the Actuarial Valuation Report as of June 30, 2014.
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 55
1 551 571
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 45.426% 45.426% 45.426% 45.426%
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 55
2 602 623
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 28.890% 28.890% 28.890%
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, 2017
85
NOTE 11 – PENSION PLANS (Continued)
Employees Covered – Based on the Actuarial Valuation Report as of June 30, 2016, the following
employees were covered by the benefits terms for each Plan:
Miscellaneous
Plan Safety Plan
Inactive employees or beneficiaries currently receiving benefits 1,061 417
Inactive employees entitled to but not yet receiving benefits 744 101
Active employees 821 174
Total 2,626 692
Contributions –Section 20814(c) of the California Public Employees’ Retirement Law requires that the
employer contribution rates for all public employers be determined on an annual basis by the actuary and
shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Plans
are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate
is the estimated amount necessary to finance the costs of benefits earned by employees during the year,
with an additional amount to finance any unfunded accrued liability. The City is required to contribute
the difference between the actuarially determined rate and the contribution rate of employees.
Further detail can be found in the Required Supplemental Information Schedule of Contributions.
In April 2017, the City established a Section 115 irrevocable trust with the Public Agency Retirement
Services (PARS). The Council approved an initial deposit of $2.1 million in General Fund proceeds into the
General Fund subaccount of the City’s PARS Trust Account. The Trust Account allows more control and
flexibility in investment allocations compared to City’s portfolio which is restricted by State regulations to
fixed income instruments. As of June 30, 2017, the City reported the account balance of $2.1 million as
restricted cash in the General Benefits, an Internal Service Fund.
(b) Net Pension Liability
The City’s net pension liability for both Plans is measured as the total pension liability, less the plan’s
fiduciary net position. Net pension liability is measured as of June 30, 2016 (measurement date), using
the Actuarial Valuation Report as of June 30, 2015 rolled forward to June 30, 2016 using standard update
procedures. At June 30, 2017, the City reported a net pension liability of $377.3 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, 2017
86
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, 2015 June 30, 2015
Measurement Date June 30, 2016 June 30, 2016
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 7.65% 7.65%
Retirement Age
Mortality2
1 Net of pension plan investment expenses, including inflation.
2 Mortality table used was developed based on CalPERS Experience Study for perio
1997 to 2011. Pre‐ and post‐retirement mortality rates include 20 years of projecte
mortality improvement using Scale BB 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 2014 CalPERS Experience Study
for the period 1997 to 2011.
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, 2016
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, 2017
87
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, 2017
88
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, 2016 683,974$ 477,782$ 206,192$
Changes for the year:
Service cost 12,582 ‐ 12,582
Interest on total pension liability 51,531 ‐ 51,531
Differences between expected and actual
experiences 757 ‐ 757
Contributions from employer ‐ 18,840 (18,840)
Contributions from employees ‐ 5,812 (5,812)
Net investment income ‐ 2,464 (2,464)
Benefit payments, including refunds of
employee contributions (34,825) (34,825) ‐
Administrative expense ‐ (291) 291
Net changes 30,045 (8,000) 38,045
Balances reported at June 30, 2017 $ 714,019 $ 469,782 $ 244,237
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, 2016 373,009$ 259,579$ 113,430$
Changes for the year:
Service cost 5,916 ‐ 5,916
Interest on total pension liability 27,816 ‐ 27,816
Differences between expected and actual
experiences (1,516) ‐ (1,516)
Contributions from employer ‐ 9,403 (9,403)
Contributions from employees ‐ 2,059 (2,059)
Net investment income ‐ 1,259 (1,259)
Benefit payments, including refunds of
employee contributions (21,669) (21,669) ‐
Administrative expense ‐ (157) 157
Net changes 10,547 (9,105) 19,652
Balances reported at June 30, 2017 $ 383,556 $ 250,474 $ 133,082
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
89
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) 334,439$ 244,237$ 169,179$
Safety Plan:
Plan's Net Pension Liability/(Asset) 181,270$ 133,082$ 93,171$
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, 2017, the City recognized a pension expense of $23.9 million and $11.9 million
for the Miscellaneous and Safety Plan respectively. At June 30, 2017, the City reported pension related
deferred outflows of resources and deferred inflows of resources for Miscellaneous Plan from the
following sources (in thousands):
Deferred
Outflows
of Resources
Deferred
Inflows
of Resources
Pension contributions subsequent to
measurement date 20,644$ ‐$
Change of assumptions ‐ 3,851
Difference between expected and actual experience 1,665 ‐
Net difference between projected and actual earnings
on plan investments 25,746 ‐
Total 48,055$ 3,851$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
90
NOTE 11 – PENSION PLANS (Continued)
At June 30, 2017, the City reported pension related deferred outflows of resources and deferred inflows
of resources for Safety Plan from the following sources (in thousands):
Deferred
Outflows
of Resources
Deferred
Inflows
of Resources
Pension contributions subsequent to
measurement date 10,185$ ‐$
Change of assumptions ‐ 2,605
Difference between expected and actual experience 31 1,027
Net difference between projected and actual earnings
on plan investments 13,746 ‐
Total 23,962$ 3,632$
The $30.8 million reported as deferred outflows of resources relates to contributions paid by the City from
July 1, 2016 through June 30, 2017 which is subsequent to the City’s measurement date of June 30, 2016
for both the Miscellaneous and Safety Plans. This amount will be recognized as a reduction of the net
pension liability in the year ended June 30, 2018.
The net differences reported as deferred outflows of resources and deferred inflows of resources related
to pensions will be recognized in future pension expense as follows (in thousands):
Year Ended June 30,
Miscellaneous
Plan
Safety
Plan Total
2018 1,227$ (483)$ 744$
2019 3,883 622 4,505
2020 11,752 6,377 18,129
2021 6,698 3,629 10,327
23,560$ 10,145$ 33,705$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
91
NOTE 12 – RETIREE HEALTH BENEFITS
In addition to providing pension benefits, the City participates in the California Public Employees’ Medical
and Health Care Act program to provide certain health care benefits for retired employees. Employees
who retire directly from the City are eligible for retiree health benefits if they retire on or after age 50
with 5 years of service and are receiving a monthly pension from CalPERS. Details of benefits provided to
retirees are noted in the following tables:
Unit
Hired
Before
Retiree
Coverage1
Dependent
Coverage
Retired on
or After
Retiree
Contribution
Management & Professional2 1/1/2004 100% 100% 5/1/2011 Flat rate4
Police Management2 1/1/2004 100% 100% 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, 2017
92
NOTE 12 – RETIREE HEALTH BENEFITS (Continued)
In FY 2008, the City elected to participate in an irrevocable trust to provide a funding mechanism for
retiree health benefits. The Trust, California Employers’ Retirees Benefit Trust (CERBT), is administrated
by CalPERS and managed by a separately appointed board, which is not under control of the City Council.
This Trust is not considered a component unit of the City.
Funding Policy and Actuarial Assumptions
The City’s policy is to prefund these benefits by accumulating assets in the Trust Fund discussed above
pursuant to City Council Resolution. The annual required contribution (ARC) was determined as part of a
June 30, 2015 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) 7.25 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, 2017
93
NOTE 12 – RETIREE HEALTH BENEFITS (Continued)
Generally accepted accounting principles permit assets to be treated as other post employment benefit
(OPEB) assets and deducted from the actuarial accrued liability when such assets are placed in an
irrevocable trust or equivalent arrangement. During the year ended June 30, 2017, 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 16,365$
Amortization of the Net OPEB Asset 2,096
Interest on the Net OPEB Asset (1,571)
Annual OPEB Cost 16,890
Contributions made:
Contributions to OPEB Trust 2,731
Contributions to Retirees 8,074
Implicit rate subsidy 2,203
City portion of current year premiums paid* 1,639
Total contributions made 14,647
Change in Net OPEB Asset (2,243)
Net OPEB Asset, beginning of year 21,662
Net OPEB Asset, end of year 19,419$
* FY 2017 premiums for 929 retirees.
Shortly after year‐end, the City contributed an additional $4.4 million to the Trust.
The Plan’s annual OPEB cost and actual contributions for the past three years ended June 30 are set forth
below (in thousands):
Fiscal Year
Annual OPEB
Cost
Actual
Contribution
Percentage
of OPEB Cost
Net OPEB
Obligation
(Asset)
June 30, 2015 14,773$ 15,034$ 102% (22,871)$
June 30, 2016 15,292 14,083 92% (21,662)
June 30, 2017 16,890 14,647 87% (19,419)
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
94
NOTE 12 – RETIREE HEALTH BENEFITS (Continued)
The Schedule of Funding Progress presents multi‐year trend information about whether the actuarial
value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for
benefits. Trend data from the actuarial studies is presented below (in thousands):
Valuation Date
Entry Age
Accrued
Liability
Value of
Assets
Unfunded
Liability
Funded
Ratio
Annual
Covered
Payroll
Unfunded
Liability as a
% of Payroll
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, 2017
95
NOTE 14 – RISK MANAGEMENT
Coverage
The City provides dental coverage to employees through a City plan, which is administered by a third party
service agent. The City is self‐insured for dental claims.
The City has a workers’ compensation insurance policy with coverage up to the statutory limit set by the
State of California. The City retains the risk for the first $750,000 in losses for each accident and employee
under this policy.
The City also has public employee dishonesty insurance with a $5,000 deductible and coverage up to
$1.0 million per loss. The Director of Administrative Service Director 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, 2017, the City paid $0.9 million to ACCEL for current year coverage.
Audited financial statements are available from ACCEL at 100 Pine Street, 11th Floor, San Francisco,
California 94110.
Claims Liability
The City provides for the uninsured portion of claims and judgments in the General Liabilities insurance
program funds. Claims and judgments, including a provision for claims incurred but not reported, and
claim adjustment expenses are recorded when a loss is deemed probable of assertion and the amount of
the loss is reasonably determinable. As discussed above, the City has coverage for such claims, but it has
retained the risk for the deductible or uninsured portion of these claims.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
96
NOTE 14 – RISK MANAGEMENT (Continued)
The City’s liability for uninsured claims is limited to dental, general liability, and workers’ compensation
claims, as discussed above. Dental liability is based on a percentage of current year actual expense.
General and workers’ compensation liabilities are based on the results of actuarial studies, and include
amounts for claims incurred but not reported as follows as of June 30 (in thousands):
2017 2016
Beginning balance 23,379$ 24,118$
Liability for current and prior fiscal years claims
and claims incurred but not reported (IBNR) 2,998 2,850
Claims paid (3,907) (3,589)
Ending balance 22,470$ 23,379$
Current portion 5,286$ 5,237$
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, 2017
97
NOTE 15 – JOINT VENTURES (Continued)
During the year ended June 30, 2017, the City incurred expenses totaling $60.4 million for purchased
power and assessments earned by NCPA.
The City’s interest in NCPA projects and reserves, as computed by NCPA, was $9.2 million at June 30, 2017.
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, 2017 is $77.7 million. The City’s participation in this project was 6.2 percent, or $4.8 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, 2017, the book value of this
Project’s plant, equipment and other assets was $412 million, while its long‐term debt totaled
$333 million and other liabilities totaled $65.5 million. The City’s share of the Project’s long‐term debt
amounted to $77.2 million at that date.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
98
NOTE 15 – JOINT VENTURES (Continued)
Geothermal Public Power Line
In 1983, NCPA, the Sacramento Municipal Utility District, the City of Santa Clara and the Modesto Irrigation
District (Joint Owners) initiated studies for a Geothermal Public Power Line (GPPL), which would carry
power generated at several existing and planned geothermal plants in The Geysers area to a location
where the Joint Owners could receive it for transmission to their load centers. NCPA has an 18.5 percent
share of this Project and the City has an 11.1 percent participation in NCPA’s share. In 1989, the
development of the proposed Geothermal Public Power Line was discontinued because NCPA was able to
contract for sufficient transmission capacity to meet its needs in The Geysers.
However, because the project financing provided funding for an ownership interest in a Pacific Gas &
Electric (PG&E) transmission line, a central dispatch facility and a performance bond pursuant to the
Interconnection Agreement with PG&E, as well as an ownership interest in the proposed GPPL, NCPA
issued $16 million in long‐term, fixed‐rate revenue bonds in November 1989 to defease the remaining
variable rate refunding bonds used to refinance this project. The City is obligated to pay its 11.1 percent
share of the related debt service, but debt service costs are covered through NCPA billing mechanisms
that allocate the costs to members based on use of the facilities and services.
At June 30, 2017, 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, 2017
99
NOTE 15 – JOINT VENTURES (Continued)
Bay Area Water Supply and Conservation Agency (BAWSCA)
The City is a member of a regional water district with 26 other entities, the Bay Area Water Supply and
Conservation Agency (BAWSCA). BAWSCA was created on May 27, 2003 to represent the interests of 24
cities and water districts and two private utilities in Alameda, Santa Clara and San Mateo counties that
purchase water on a wholesale basis from the San Francisco regional water system. It has the power to
issue debt and plan, finance, construct, and operate water supply, transmission, reclamation, and
conservation projects on behalf of its members.
In 2013 the City participated in a debt issuance by BAWSCA. The debt was issued to repay certain long‐
term costs associated with the San Francisco Public Utilities Commission (SFPUC) water supply contract.
During the fiscal year, the City paid its share of the annual debt service of $1.9 million, which will vary
based on annual water purchases of the City compared to other BAWSCA agencies.
BAWSCA’s financial statements can be obtained from BAWSCA, 155 Bovet Road, Suite 650, San Mateo,
California 94402.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Palo Alto Unified School District – The City leases 27 acres of the former Cubberley School site and twelve
extended day care sites from Palo Alto Unified School District (PAUSD). The lease includes a mechanism
for a joint planning process between the City and PAUSD to develop a long‐term master plan for the
Cubberley site. The City will pay $1.86 million annually into a separate fund to be used for repairing,
renovating and/or improving the infrastructure at the Cubberley site. The previous lease term expired on
December 31, 2014, and the City and PAUSD reached an agreement to extend the lease agreement for an
additional five (5) years, with a new expiration date of 12/31/2019. The City and PAUSD also agreed to
distribute gains or losses of revenue that resulted from the Foothill College departure from Cubberley.
The City’s rent and infrastructure payment for the facilities is $7.3 million per year plus insurance, repairs
and maintenance. Lease expenditures for the year ended June 30, 2017 amounted to $7.5 million. Future
minimum annual lease and infrastructure payments are as follows (in thousands):
Year Ending
June 30 Payment
2018 7,736$
2019 7,912
2020 4,001
2021 ‐
19,649$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2017
100
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 2017
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. During the year ended June 30, 2017, the City paid $0.4 million as its portion of current debt
service. As of June 30, 2017, the City has fully paid off its outstanding portion.
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 $0.7 million as of
June 30, 2017. During the year ended June 30, 2017, 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, 2017
101
NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)
UTILITIES ENERGY RESOURCE MANAGEMENT
Electric Power Supply Purchase Agreements – The City has numerous power purchase agreements with
power producers to purchase capacity and energy to supply a portion of its load requirements. As of
June 30, 2017, the approximate minimum obligations for the contracts, assuming the energy is delivered
over the next five years, are as follows:
Fiscal Year Projected Obligation
2018 $64.1 million
2019 $65.7 million
2020 $66.6 million
2021 $65.8 million
2022 $68.1 million
Contractual Commitments beyond 2022 (Electricity) – Several of the City’s purchase power and
transmission contracts extend beyond the five‐year summary presented above. These contracts expire
between 2026 and 2051 and provide for power under various terms and conditions. The City estimates
that its annual minimum commitments under the contracts, assuming the energy is delivered, ranges
between $67.1 million in 2023 and $51.7 million in 2034. . The City’s largest single purchase power source
is the Western Base Resource contract, whereby the City receives 12.31 percent of the amount of energy
made available by Western, after meeting Central Valley Project use requirements, in any given year at a
12.31 percent share of their revenue requirement. The Western contract expires on December 31, 2024.
The City expects to have the option to extend the Western contract for an additional 30‐year period
beyond 2024, although likely at a slightly lower share of the total energy output and revenue requirement.
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 10% by 2021 as the SFPUC has nearly completed 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, 2017
102
NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)
Litigation
The City is subject to litigation arising in the normal course of business. In the opinion of the City Attorney,
there is no pending litigation, claims or assessments that are likely to have a materially adverse effect on
the City’s financial condition.
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.
CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 3 Fiscal Years*
103
I. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – MISCELLANEOUS PLAN
(In thousands)
Fiscal year 2016‐17 2015‐16 2014‐15
Measurement Period 2015‐16 2014‐15 2013‐14
Total pension liability
Service cost 12,582$ 12,183$ 12,442$
Interest 51,531 49,345 46,963
Changes of assumptions ‐ (11,552) ‐
Difference between expected and actual experience 757 3,507 ‐
Benefit payments, including refunds of employee contributions (34,825) (32,980) (31,781)
Net change in total pension liability 30,045 20,503 27,624
Total pension liability ‐ beginning 683,974 663,471 635,847
Total pension liability ‐ ending (a) 714,019$ 683,974$ 663,471$
Plan fiduciary net position
Contributions ‐ employer 18,840$ 18,610$ 17,400$
Contributions ‐ employee 5,812 5,730 6,345
Net investment income 2,464 10,597 70,989
Benefit payments, including refunds of employee contributions (34,825) (32,980) (31,781)
Administrative expense (291) (538) ‐
Net change in fiduciary net position (8,000) 1,419 62,953
Plan fiduciary net position ‐ beginning 477,782 476,363 413,410
Plan fiduciary net position ‐ ending (b) 469,782$ 477,782$ 476,363$
Plan net pension liability/(asset) ‐ Ending (a) ‐ (b) 244,237$ 206,192$ 187,108$
Plan fiduciary net position as a percentage of total pension liability 65.79% 69.85% 71.80%
Covered payroll 73,722$ 69,837$ 66,373$
Plan net pension liability/(asset) as a percentage of covered employee payroll 331.29% 295.25% 281.90%
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, 2014 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) in 2015 to 7.65
percent in 2016.
* Fiscal year ended June 30, 2015 was the first year of implementation of GASB Statement No. 68, therefore only three years of
information is shown.
CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 4 Fiscal Years*
104
II. SCHEDULE OF CONTRIBUTIONS– MISCELLANEOUS PLAN
(In thousands)
Fiscal Year 2016‐17 2015‐16 2014‐15 2013‐14
Contractually required contribution (actuarially determined) 20,644$ 18,808$ 17,958$ 16,209$
Actual contribution (20,644) (18,808) (17,958) (16,209)
Contribution deficiency/(excess)‐$ ‐$ ‐$ ‐$
Covered‐employee payroll 70,090$ 70,415$ 68,744$ 65,889$
Contributions as percentage of covered‐employee payroll 29.45% 26.71% 26.12% 24.60%
Notes to Schedule:
The actuarial methods and assumptions used to set the actuarially determined contributions for
fiscal year 2017 contribution rates are as follows:
ADC for fiscal year June 30, 2017
Actuarial valuation date June 30, 2014
Actuarial cost method Entry‐Age Normal Cost Method
Asset valuation method Actuarial value of assets
Inflation 2.75%
Salary increases Varies by entry age and services
Payroll growth 3.00%
Investment rate of return
Retirement age
Mortality
7.50%, net of pension plan investment and administrative expenses,
includes inflation.
The probabilities of retirement are based on the 2014 CalPERS
Experience Study for the period 1997 to 2011.
The probabilities of mortality are based on the 2014 CalPERS Experience
Study for the period from 1997 to 2011. Pre‐retirement and Post‐
retirement mortality rates include 20 years of projected mortality
improvement using Scale BB published by the Society of Actuaries.
* Fiscal year ended June 30, 2015 was the first year of implementation of GASB Statement No. 68, therefore only
four years of information is shown.
CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 3 Fiscal Years*
105
III. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – SAFETY PLAN
(In thousands)
Fiscal year 2016‐17 2015‐16 2014‐15
Measurement Period 2015‐16 2014‐15 2013‐14
Total pension liability
Service cost 5,916$ 5,959$ 6,221$
Interest 27,816 27,047 26,113
Changes of assumptions ‐ (6,327) ‐
Difference between expected and actual experience (1,516) 75 ‐
Benefit payments, including refunds of employee contributions (21,669) (21,148) (19,985)
Net change in total pension liability 10,547 5,606 12,349
Total pension liability ‐ beginning 373,009 367,403 355,054
Total pension liability ‐ ending (a) 383,556$ 373,009$ 367,403$
Plan fiduciary net position
Contributions ‐ employer 9,403$ 8,617$ 7,616$
Contributions ‐ employee 2,059 2,047 2,762
Net investment income 1,259 5,774 40,033
Benefit payments, including refunds of employee contributions (21,669) (21,148) (19,985)
Administrative expense (157) (290) ‐
Net change in fiduciary net position (9,105) (5,000) 30,426
Plan fiduciary net position ‐ beginning 259,579 264,579 234,153
Plan fiduciary net position ‐ ending (b) 250,474$ 259,579$ 264,579$
Plan net pension liability/(asset) ‐ Ending (a) ‐ (b) 133,082$ 113,430$ 102,824$
Plan fiduciary net position as a percentage of total pension liability 65.30% 69.59% 72.01%
Covered payroll 21,822$ 21,912$ 21,896$
Plan net pension liability/(asset) as a percentage of covered employee payroll 609.85% 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, 2014 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) in 2015 to 7.65
percent in 2016.
* Fiscal year ended June 30, 2015 was the first year of implementation of GASB Statement No. 68, therefore only three years of
information is shown.
CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 4 Fiscal Years*
106
IV. SCHEDULE OF CONTRIBUTIONS – SAFETY PLAN
(In thousands)
Fiscal Year 2016‐17 2015‐16 2014‐15 2013‐14
Contractually required contribution (actuarially determined) 10,185$ 9,395$ 9,036$ 8,323$
Actual contribution (10,185) (9,395) (9,036) (8,323)
Contribution deficiency/(excess)‐$ ‐$ ‐$ ‐$
Covered‐employee payroll 23,247$ 23,229$ 22,860$ 24,886$
Contributions as percentage of covered‐employee payroll 43.81% 40.45% 39.53% 33.44%
Notes to Schedule:
The actuarial methods and assumptions used to set the actuarially determined contributions for
fiscal year 2017 contribution rates are as follows:
ADC for fiscal year June 30, 2017
Actuarial valuation date June 30, 2014
Actuarial cost method Entry‐Age Normal Cost Method
Asset valuation method Actuarial value of assets
Inflation 2.75%
Salary increases Varies by entry age and services
Payroll growth 3.00%
Investment rate of return
Retirement age
Mortality
7.50%, net of pension plan investment and administrative expenses,
includes inflation.
The probabilities of retirement are based on the 2010 CalPERS
Experience Study for the period 1997 to 2007.
The probabilities of mortality are based on the 2010 CalPERS Experience
Study for the period from 1997 to 2007. Pre‐retirement and Post‐
retirement mortality rates include 5 years of projected mortality
improvement using Scale AA published by the Society of Actuaries.
* Fiscal year ended June 30, 2015 was the first year of implementation of GASB Statement No. 68, therefore only
four years of information is shown.
Total
Special Debt Other
Revenue Service Permanent Governmental
Funds Funds Fund Funds
ASSETS:
Cash and investments:
Available for operations 74,774$ 3,643$ 1,492$ 79,909$
Cash and investments with fiscal agents ‐ 248 ‐ 248
Receivables, net:
Accounts 206 31 ‐ 237
Interest 372 17 7 396
Notes 19,327 ‐ ‐ 19,327
Total assets 94,679$ 3,939$ 1,499$ 100,117$
Liabilities:
Accounts payable and accruals 549$ ‐$ ‐$ 549$
Accrued salaries and benefits 16 ‐ ‐ 16
Total liabilities 565 ‐ ‐ 565
Fund balances:
Nonspendable
Eyerly family ‐ ‐ 1,499 1,499
Restricted
Transportation mitigation 10,941 ‐ ‐ 10,941
Federal revenue 5,028 ‐ ‐ 5,028
Street improvement 866 ‐ ‐ 866
Local law enforcement 239 ‐ ‐ 239
Debt service ‐ 3,939 ‐ 3,939
Public benefit 13,569 ‐ ‐ 13,569
Committed
Developer impact fee 15,401 ‐ ‐ 15,401
Housing In‐Lieu 43,781 ‐ ‐ 43,781
Special districts 4,264 ‐ ‐ 4,264
Downtown business 25 ‐ ‐ 25
Total fund balances 94,114 3,939 1,499 99,552
Total liabilities and fund balances 94,679$ 3,939$ 1,499$ 100,117$
LIABILITIES AND FUND BALANCES:
CITY OF PALO ALTO
Non‐major Governmental Funds
Combining Balance Sheet
June 30, 2017
(Amounts in thousands)
107
108
This page is intentionally left blank.
Total
Special Debt Other
Revenue Service Permanent Governmental
Funds Funds Fund Funds
REVENUES:
Property tax ‐$ 4,572$ ‐$ 4,572$
Special assessments 97 ‐ ‐ 97
Other taxes and fines 1,500 ‐ ‐ 1,500
From other agencies:
Community Development Block Grants 803 ‐ ‐ 803
State of California 135 ‐ ‐ 135
Permits and licenses
University Avenue Parking 2,271 ‐ ‐ 2,271
California Avenue Parking 279 ‐ ‐ 279
Other permits and licenses 536 ‐ ‐ 536
Investment earnings (165) (66) (2) (233)
Rental income 6 ‐ ‐ 6
Other:
Housing In‐Lieu ‐ residential 2,234 ‐ ‐ 2,234
Other fees 1,869 ‐ ‐ 1,869
Total revenues 9,565 4,506 (2) 14,069
EXPENDITURES:
Current:
Administrative Services 216 ‐ ‐ 216
Public Works 907 ‐ ‐ 907
Planning and Community Environment 1,514 ‐ ‐ 1,514
Police 148 ‐ ‐ 148
Community Services 216 ‐ ‐ 216
Non‐Departmental 667 (11) 4 660
Debt service:
Principal retirement ‐ 1,660 ‐ 1,660
Interest and fiscal charges ‐ 3,006 ‐ 3,006
Total expenditures 3,668 4,655 4 8,327
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 5,897 (149) (6) 5,742
OTHER FINANCING SOURCES (USES):
Transfers in 479 233 ‐ 712
Transfers out (15,326) ‐ ‐ (15,326)
Total other financing sources (uses) (14,847) 233 ‐ (14,614)
Change in fund balances (8,950) 84 (6) (8,872)
FUND BALANCES, BEGINNING OF YEAR 103,064 3,855 1,505 108,424
FUND BALANCES, END OF YEAR 94,114$ 3,939$ 1,499$ 99,552$
CITY OF PALO ALTO
Non‐major Governmental Funds
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2017
(Amounts in thousands)
109
110
This page is intentionally left blank.
111
NON‐MAJOR GOVERNMENTAL FUNDS
SPECIAL REVENUE FUNDS
Street Improvement
This fund accounts for revenues received from state gas tax. Allocations must be spent on the construction
and maintenance of the road network system of the City.
Federal Revenue
This fund accounts for grant funds received under the Community Development Act of 1974 and HOME
Investment Grant Programs, for activities approved and subject to federal regulations.
Housing In‐Lieu
This fund accounts for revenues from commercial and residential developers to provide housing under
the City’s Below Market Rate program.
Special Districts
This fund accounts for revenues from parking permits and for maintenance of various parking lots within
the City’s parking districts.
Transportation Mitigation
This fund accounts for revenues from fees or contributions required for transportation mitigation issues
encountered as a result of City development.
Local Law Enforcement
This fund accounts for revenues received in support of City’s law enforcement program.
Asset Seizure
This fund accounts for seized property and funds associated with drug trafficking. Under California
Assembly Bill No. 4162, the monies are released to the City for specific expenditures related to law
enforcement activities.
Developer Impact Fee
This fund accounts for fees imposed on new developments to be used for parks, community centers and
libraries.
Downtown Business Development District
The Downtown Business Development District Fund was established to account for the activities of the
Palo Alto Downtown Business Development District, which was established to enhance the viability of the
downtown business district.
Public Benefit
This fund accounts for the activities of the 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 861$ 204$ 29,125$ 4,558$
Receivables:
Accounts ‐ 206 ‐ ‐
Interest 5 ‐ 132 20
Notes ‐ 4,779 14,548 ‐
Total assets 866$ 5,189$ 43,805$ 4,578$
Liabilities:
Accounts payable and accruals ‐$ 160$ 24$ 302$
Accrued salaries and benefits ‐ 1 ‐ 12
Total liabilities ‐ 161 24 314
Fund balances:
Restricted
Transportation mitigation ‐ ‐ ‐ ‐
Federal revenue ‐ 5,028 ‐ ‐
Street improvement 866 ‐ ‐ ‐
Local law enforcement ‐ ‐ ‐ ‐
Public benefit ‐ ‐ ‐ ‐
Committed
Developer impact fee ‐ ‐ ‐ ‐
Housing In‐Lieu ‐ ‐ 43,781 ‐
Special districts ‐ ‐ ‐ 4,264
Downtown business ‐ ‐ ‐ ‐
Total fund balances 866 5,028 43,781 4,264
Total liabilities and fund balances 866$ 5,189$ 43,805$ 4,578$
LIABILITIES AND FUND BALANCES:
CITY OF PALO ALTO
Non‐major Special Revenue Funds
Combining Balance Sheet
June 30, 2017
(Amounts in thousands)
112
Downtown Total
Business Special
Transportation Local Law Asset Developer Development Public Revenue
Mitigation Enforcement Seizure Impact Fee District Benefit Funds
10,890$ 247$ 3$ 15,333$ 76$ 13,477$ 74,774$
‐ ‐ ‐ ‐ ‐ ‐ 206
51 1 ‐ 70 ‐ 93 372
‐ ‐ ‐ ‐ ‐ ‐ 19,327
10,941$ 248$ 3$ 15,403$ 76$ 13,570$ 94,679$
‐$ 12$ ‐$ ‐$ 51$ ‐$ 549$
‐ ‐ ‐ 2 ‐ 1 16
‐ 12 ‐ 2 51 1 565
10,941 ‐ ‐ ‐ ‐ ‐ 10,941
‐ ‐ ‐ ‐ ‐ ‐ 5,028
‐ ‐ ‐ ‐ ‐ ‐ 866
‐ 236 3 ‐ ‐ ‐ 239
‐ ‐ ‐ ‐ ‐ 13,569 13,569
‐ ‐ ‐ 15,401 ‐ ‐ 15,401
‐ ‐ ‐ ‐ ‐ ‐ 43,781
‐ ‐ ‐ ‐ ‐ ‐ 4,264
‐ ‐ ‐ ‐ 25 ‐ 25
10,941 236 3 15,401 25 13,569 94,114
10,941$ 248$ 3$ 15,403$ 76$ 13,570$ 94,679$
113
Street Federal Housing Special
Improvement Revenue In‐Lieu Districts
REVENUES:
Special assessments ‐$ ‐$ ‐$ ‐$
Other taxes and fines 1,304 ‐ ‐ 196
From other agencies:
Community Development Block Grants ‐ 803 ‐ ‐
State of California ‐ ‐ ‐ ‐
Permits and licenses
University Avenue Parking ‐ ‐ ‐ 2,271
California Avenue Parking ‐ ‐ ‐ 279
Other permits and licenses ‐ ‐ ‐ 536
Investment earnings (7) ‐ 68 11
Rental income ‐ ‐ 6 ‐
Other:
Housing In‐Lieu ‐ ‐ 2,234 ‐
Other fees ‐ 134 278 ‐
Total revenues 1,297 937 2,586 3,293
EXPENDITURES:
Current:
Administrative Services ‐ ‐ ‐ 216
Public Works ‐ ‐ ‐ 907
Planning and Community Environment ‐ 478 32 1,004
Police ‐ ‐ 68 ‐
Community Services ‐ ‐ ‐ 23
Non‐Departmental ‐ ‐ 357 203
Total expenditures ‐ 478 457 2,353
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 1,297 459 2,129 940
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐ ‐ 400
Transfers out (1,764) ‐ ‐ (780)
Total other financing sources (uses) (1,764) ‐ ‐ (380)
Change in fund balances (467) 459 2,129 560
FUND BALANCES, BEGINNING OF YEAR 1,333 4,569 41,652 3,704
FUND BALANCES, END OF YEAR 866$ 5,028$ 43,781$ 4,264$
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, 2017
(Amounts in thousands)
114
Downtown Total
Business Special
Transportation Local Law Asset Developer Development Public Revenue
Mitigation Enforcement Seizure Impact Fee District Benefit Funds
‐$ ‐$ ‐$ ‐$ 97$ ‐$ 97$
‐ ‐ ‐ ‐ ‐ ‐ 1,500
‐ ‐ ‐ ‐ ‐ ‐ 803
‐ 135 ‐ ‐ ‐ ‐ 135
‐ ‐ ‐ ‐ ‐ ‐ 2,271
‐ ‐ ‐ ‐ ‐ ‐ 279
‐ ‐ ‐ ‐ ‐ ‐ 536
(36) ‐ ‐ (8) (1) (192) (165)
‐ ‐ ‐ ‐ ‐ ‐ 6
‐ ‐ ‐ ‐ ‐ ‐ 2,234
369 ‐ ‐ 1,088 ‐ ‐ 1,869
333 135 ‐ 1,080 96 (192) 9,565
‐ ‐ ‐ ‐ ‐ ‐ 216
‐ ‐ ‐ ‐ ‐ ‐ 907
‐ ‐ ‐ ‐ ‐ ‐ 1,514
‐ 80 ‐ ‐ ‐ ‐ 148
‐ ‐ ‐ 160 ‐ 33 216
‐ ‐ ‐ ‐ 107 ‐ 667
‐ 80 ‐ 160 107 33 3,668
333 55 ‐ 920 (11) (225) 5,897
‐ ‐ ‐ 79 ‐ ‐ 479
(432) ‐ ‐ ‐ ‐ (12,350) (15,326)
(432) ‐ ‐ 79 ‐ (12,350) (14,847)
(99) 55 ‐ 999 (11) (12,575) (8,950)
11,040 181 3 14,402 36 26,144 103,064
10,941$ 236$ 3$ 15,401$ 25$ 13,569$ 94,114$
115
Street Improvement Federal Revenue
Variance Variance
Actual, plus Positive Actual, plus Positive
Budget Encumbrances (Negative) Budget Encumbrances (Negative)
REVENUES:
Special assessments ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Other taxes and fines 1,416 1,304 (112) ‐ ‐ ‐
From other agencies:
Community Development Block Grants ‐ ‐ ‐ 834 803 (31)
State of California ‐ ‐ ‐ ‐ ‐ ‐
Permits and licenses
University Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
California Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
Other permits and licenses ‐ ‐ ‐ ‐ ‐ ‐
Investment earnings 13 (7) (20) ‐ ‐ ‐
Rental income ‐ ‐ ‐ ‐ ‐ ‐
Other:
Housing In‐Lieu ‐ residential ‐ ‐ ‐ ‐ ‐ ‐
Other fees ‐ ‐ ‐ 100 134 34
Total revenues 1,429 1,297 (132) 934 937 3
EXPENDITURES:
Current:
Administrative Services ‐ ‐ ‐ ‐ ‐ ‐
Public Works ‐ ‐ ‐ ‐ ‐ ‐
Planning and Community Environment ‐ ‐ ‐ 1,186 554 632
Police ‐ ‐ ‐ ‐ ‐ ‐
Community Services ‐ ‐ ‐ ‐ ‐ ‐
Non‐Departmental ‐ ‐ ‐ ‐ ‐ ‐
Total expenditures ‐ ‐ ‐ 1,186 554 632
Excess (deficiency) of revenues
over (under) expenditures 1,429 1,297 (132) (252) 383 635
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐ ‐ ‐ ‐ ‐
Transfers out (1,764) (1,764) ‐ ‐ ‐ ‐
Total other financing sources (uses) (1,764) (1,764) ‐ ‐ ‐ ‐
Change in fund balances, budgetary basis (335)$ (467) (132)$ (252)$ 383 635$
Adjustment to Budgetary Basis:
Current year encumbrances/reappropriations ‐ 76
(467) 459
FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 1,333 4,569
FUND BALANCES, END OF YEAR, GAAP BASIS 866$ 5,028$
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, 2017
116
Housing In‐Lieu Special Districts Transportation Mitigation
Variance Variance Variance
Actual, plus Positive Actual, plus Positive Actual, plus Positive
Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative)
‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
‐ ‐ ‐ 43 196 153 ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ 1,929 2,271 342 ‐ ‐ ‐
‐ ‐ ‐ 195 279 84 ‐ ‐ ‐
‐ ‐ ‐ 275 536 261 ‐ ‐ ‐
143 68 (75) 27 11 (16) 172 (36) (208)
9 6 (3) ‐ ‐ ‐ ‐ ‐ ‐
3,400 2,234 (1,166) ‐ ‐ ‐ ‐ ‐ ‐
210 278 68 ‐ ‐ ‐ 1,717 369 (1,348)
3,762 2,586 (1,176) 2,469 3,293 824 1,889 333 (1,556)
‐ ‐ ‐ 213 216 (3) ‐ ‐ ‐
‐ ‐ ‐ 1,143 907 236 ‐ ‐ ‐
607 443 164 2,044 1,301 743 ‐ ‐ ‐
‐ 68 (68) ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ 26 23 3 ‐ ‐ ‐
478 357 121 192 203 (11) ‐ ‐ ‐
1,085 868 217 3,618 2,650 968 ‐ ‐ ‐
2,677 1,718 (959) (1,149) 643 1,792 1,889 333 (1,556)
‐ ‐ ‐ 400 400 ‐ ‐ ‐ ‐
‐ ‐ ‐ (780) (780) ‐ (432) (432) ‐
‐ ‐ ‐ (380) (380) ‐ (432) (432) ‐
2,677$ 1,718 (959)$ (1,529)$ 263 1,792$ 1,457$ (99) (1,556)$
411 297 ‐
2,129 560 (99)
41,652 3,704 11,040
43,781$ 4,264$ 10,941$
117
Local Law Enforcement Asset Seizure
Variance Variance
Actual, plus Positive Actual, plus Positive
Budget Encumbrances (Negative) Budget Encumbrances (Negative)
REVENUES:
Special assessments ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Other taxes and fines ‐ ‐ ‐ ‐ ‐ ‐
From other agencies:
Community Development Block Grants ‐ ‐ ‐ ‐ ‐ ‐
State of California 107 135 28 ‐ ‐ ‐
Permits and licenses
University Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
California Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
Other permits and licenses ‐ ‐ ‐ ‐ ‐ ‐
Investment earnings ‐ ‐ ‐ ‐ ‐ ‐
Rental income ‐ ‐ ‐ ‐ ‐ ‐
Other:
Housing In‐Lieu ‐ residential ‐ ‐ ‐ ‐ ‐ ‐
Other fees ‐ ‐ ‐ ‐ ‐ ‐
Total revenues 107 135 28 ‐ ‐ ‐
EXPENDITURES:
Current:
Administrative Services ‐ ‐ ‐ ‐ ‐ ‐
Public Works ‐ ‐ ‐ ‐ ‐ ‐
Planning and Community Environment ‐ ‐ ‐ ‐ ‐ ‐
Police 105 81 24 ‐ ‐ ‐
Community Services ‐ ‐ ‐ ‐ ‐ ‐
Non‐Departmental ‐ ‐ ‐ ‐ ‐ ‐
Total expenditures 105 81 24 ‐ ‐ ‐
Excess (deficiency) of revenues
over (under) expenditures 2 54 52 ‐ ‐ ‐
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐ ‐ ‐ ‐ ‐
Transfers out ‐ ‐ ‐ ‐ ‐ ‐
Total other financing sources (uses)‐ ‐ ‐ ‐ ‐ ‐
Change in fund balances, Budgetary basis 2$ 54 52$ ‐$ ‐ ‐$
Adjustment to Budgetary Basis:
Current year encumbrances/reappropriations 1 ‐
55 ‐
FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 181 3
FUND BALANCES, END OF YEAR, GAAP BASIS 236$ 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, 2017
118
Developer Impact Fee Downtown Business Improvement District Public Benefit
Variance Variance Variance
Actual, plus Positive Actual, plus Positive Actual, plus Positive
Budget Encumbrances (Negative) Budget Encumbrances (Negative) Budget Encumbrances (Negative)
‐$ ‐$ ‐$ 140$ 97$ (43)$ ‐$ ‐$ ‐$
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
215 (8) (223) 2 (1) (3) 663 (192) (855)
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
1,569 1,088 (481) ‐ ‐ ‐ ‐ ‐ ‐
1,784 1,080 (704) 142 96 (46) 663 (192) (855)
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
145 160 (15) ‐ ‐ ‐ 243 68 175
‐ ‐ ‐ 161 111 50 ‐ ‐ ‐
145 160 (15) 161 111 50 243 68 175
1,639 920 (719) (19) (15) 4 420 (260) (680)
69 79 10 ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ (12,350) (12,350) ‐
69 79 10 ‐ ‐ ‐ (12,350) (12,350) ‐
1,708$ 999 (709)$ (19)$ (15) 4$ (11,930)$ (12,610) (680)$
‐ 4 35
999 (11) (12,575)
14,402 36 26,144
15,401$ 25$ 13,569$
119
120
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121
NON‐MAJOR GOVERNMENTAL FUNDS
DEBT SERVICE FUNDS
Downtown Parking Improvement
This fund accounts for revenues received from the General Fund to provide payment of principal and
interest associated with the 2002B Downtown Parking Improvement 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, 2017
(Amounts in thousands)
Downtown Total
Parking Library Debt Service
Improvement Projects Funds
ASSETS:
Cash and investments:
Available for operations 14$ 3,629$ 3,643$
Cash and investments with fiscal agents 237 11 248
Receivables:
Accounts ‐ 31 31
Interest ‐ 17 17
Total assets 251$ 3,688$ 3,939$
FUND BALANCES:
Debt service 251$ 3,688$ 3,939$
122
CITY OF PALO ALTO
Non‐major Debt Service Funds
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2017
(Amounts in thousands)
Downtown Total
Parking Library Debt Service
Improvement Projects Funds
REVENUES:
Property tax ‐$ 4,572$ 4,572$
Investment earnings 1 (67) (66)
Total revenues 1 4,505 4,506
EXPENDITURES:
Current:
Non‐Departmental ‐ (11) (11)
Debt service:
Principal retirement 160 1,500 1,660
Interest and fiscal charges 74 2,932 3,006
Total expenditures 234 4,421 4,655
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES (233) 84 (149)
OTHER FINANCING SOURCES (USES):
Transfers in 233 ‐ 233
Total other financing sources (uses) 233 ‐ 233
Change in fund balances ‐ 84 84
FUND BALANCES, BEGINNING OF YEAR 251 3,604 3,855
FUND BALANCES, END OF YEAR 251$ 3,688$ 3,939$
123
Downtown Parking Improvement Library Projects
Variance Variance
Actual, plus Positive Actual, plus Positive
Budget Encumbrances (Negative) Budget Encumbrances (Negative)
REVENUES:
Special assessments ‐$ ‐$ ‐$ 4,655$ 4,572$ (83)$
Investment earnings ‐ 1 1 ‐ (67) (67)
Total revenues ‐ 1 1 4,655 4,505 (150)
EXPENDITURES:
Current:
Non‐Departmental ‐ ‐ ‐ ‐ (11) 11
Debt service:
Principal retirement 150 160 (10) 1,445 1,500 (55)
Interest and fiscal charges 93 74 19 3,210 2,932 278
Total expenditures 243 234 9 4,655 4,421 234
Excess (deficiency) of revenues
over (under) expenditures (243) (233) 10 ‐ 84 84
OTHER FINANCING SOURCES (USES):
Transfers in 243 233 (10) ‐ ‐ ‐
Total other financing sources (uses) 243 233 (10) ‐ ‐ ‐
Change in fund balances, Budgetary basis ‐$ ‐ ‐$ ‐$ 84 84$
‐ 84
FUND BALANCES, BEGINNING OF YEAR 251 3,604
FUND BALANCES, END OF YEAR 251$ 3,688$
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, 2017
124
125
NON‐MAJOR GOVERNMENTAL FUNDS
PERMANENT FUND
Eyerly Family
This fund accounts for the revenues received from assets donated by Mr. and Mrs. Fred Eyerly for the City
and or its citizenry.
Eyerly Family Permanent Fund
Variance
Actual, plus Positive
Budget Encumbrances (Negative)
REVENUES:
Investment earnings 27$ (2)$ (29)$
Total revenues 27 (2) (29)
EXPENDITURES:
Current:
Non‐Departmental ‐ 4 (4)
Total expenditures ‐ 4 (4)
Excess (deficiency) of revenues
over (under) expenditures 27 (6) (33)
Change in fund balance 27$ (6) (33)$
(6)
FUND BALANCE, BEGINNING OF YEAR 1,505
FUND BALANCE, END OF YEAR 1,499$
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, 2017
126
127
INTERNAL SERVICE FUNDS
INTRODUCTION
Internal Service Funds are used to finance and account for special activities and services performed by a
designated department for other departments in the City on a cost reimbursement basis.
Vehicle Replacement and Maintenance
This fund accounts for the maintenance and replacement of vehicles and equipment used by all City
departments. The source of revenue is 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 Total
Replacement and Compensation Liabilities Retiree Internal
and Mailing General Insurance Insurance Health Services
Maintenance Technology Services Benefits Program Program Benefits Funds
ASSETS:
Current Assets:
Cash and investments:
Available for operations 10,313$ 23,724$ 35$ 16,311$ 20,187$ 6,664$ 5,357$ 82,591$
Cash and investments with fiscal agents ‐ ‐ ‐ 2,057 ‐ ‐ ‐ 2,057
Accounts receivable, net 12 ‐ ‐ 13 431 ‐ ‐ 456
Interest receivable 50 108 ‐ 70 98 35 22 383
Inventory of materials and supplies 244 ‐ ‐ ‐ ‐ ‐ ‐ 244
Total current assets 10,619 23,832 35 18,451 20,716 6,699 5,379 85,731
Noncurrent Assets:
Capital assets:
Nondepreciable 2,414 768 ‐ ‐ ‐ ‐ ‐ 3,182
Depreciable, net 13,200 2,192 33 ‐ ‐ ‐ ‐ 15,425
Net OPEB asset ‐ ‐ ‐ ‐ ‐ ‐ 19,419 19,419
Total noncurrent assets 15,614 2,960 33 ‐ ‐ ‐ 19,419 38,026
Total assets 26,233 26,792 68 18,451 20,716 6,699 24,798 123,757
DEFERRED OUTFLOWS OF RESOURCES:
Deferred pension contribution 752 2,196 48 ‐ 66 ‐ ‐ 3,062
Total deferred outflows of resources 752 2,196 48 ‐ 66 ‐ ‐ 3,062
LIABILITIES:
Current Liabilities:
Accounts payable and accruals 94 323 38 469 41 52 ‐ 1,017
Accrued salaries and benefits 21 64 2 ‐ 2 ‐ ‐ 89
Accrued compensated absences 4 15 ‐ 5,397 ‐ ‐ ‐ 5,416
Accrued claims payable ‐ current ‐ ‐ ‐ 146 3,010 2,130 ‐ 5,286
Total current liabilities 119 402 40 6,012 3,053 2,182 ‐ 11,808
Noncurrent liabilities:
Accrued compensated absences ‐ ‐ ‐ 6,062 ‐ ‐ ‐ 6,062
Accrued claims payable ‐ ‐ ‐ ‐ 14,490 2,694 ‐ 17,184
Net pension liabilities 3,344 11,243 334 ‐ 80 ‐ ‐ 15,001
Total noncurrent liabilities 3,344 11,243 334 6,062 14,570 2,694 ‐ 38,247
Total liabilities 3,463 11,645 374 12,074 17,623 4,876 ‐ 50,055
DEFERRED INFLOWS OF RESOURCES:
Pension Related 58 173 5 ‐ ‐ ‐ ‐ 236
Total deferred inflows of resources 58 173 5 ‐ ‐ ‐ ‐ 236
NET POSITION:
Net Investment in capital assets 15,614 2,960 33 ‐ ‐ ‐ ‐ 18,607
Unrestricted 7,850 14,210 (296) 6,377 3,159 1,823 24,798 57,921
Total net position 23,464$ 17,170$ (263)$ 6,377$ 3,159$ 1,823$ 24,798$ 76,528$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Fund Net Position
June 30, 2017
(Amounts in thousands)
128
Vehicle Printing Workers' General Total
Replacement and Compensation Liabilities Retiree Internal
and Mailing General Insurance Insurance Health Services
Maintenance Technology Services Benefits Program Program Benefits Funds
OPERATING REVENUES:
Charges for services 8,287$ 13,806$ 1,339$ 52,322$ 2,432$ 32$ 13,808$ 92,026$
Other 5 ‐ ‐ ‐ 605 4 ‐ 614
Total operating revenues 8,292 13,806 1,339 52,322 3,037 36 13,808 92,640
OPERATING EXPENSES:
Administrative and general 1,502 6,344 944 151 938 1,604 592 12,075
Operations and maintenance 4,009 7,584 389 526 177 (113) 16,365 28,937
Depreciation and amortization 2,299 509 1 ‐ ‐ ‐ ‐ 2,809
Claim payments and change in estimated
self‐insured liability ‐ ‐ ‐ 1,440 1,636 2 ‐ 3,078
Refund of charges for services 69 12 ‐ ‐ ‐ ‐ ‐ 81
Compensated absences and other benefits ‐ ‐ ‐ 45,961 ‐ ‐ ‐ 45,961
Total operating expenses 7,879 14,449 1,334 48,078 2,751 1,493 16,957 92,941
Operating income (loss) 413 (643) 5 4,244 286 (1,457) (3,149) (301)
NONOPERATING REVENUES (EXPENSES):
Investment earnings (24) (10) ‐ (247) (47) (25) (6) (359)
Gain on disposal of capital assets 101 ‐ 2 ‐ ‐ ‐ ‐ 103
Other nonoperating revenues 139 ‐ ‐ ‐ ‐ ‐ ‐ 139
Total nonoperating revenues (expenses) 216 (10) 2 (247) (47) (25) (6) (117)
Income (loss) before transfers 629 (653) 7 3,997 239 (1,482) (3,155) (418)
Transfers in 924 2,078 ‐ 2,055 ‐ 5 2,203 7,265
Transfers out (263) (16) ‐ (2,203) ‐ ‐ ‐ (2,482)
Change in net position 1,290 1,409 7 3,849 239 (1,477) (952) 4,365
NET POSITION, BEGINNING OF YEAR 22,174 15,761 (270) 2,528 2,920 3,300 25,750 72,163
NET POSITION, END OF YEAR 23,464$ 17,170$ (263)$ 6,377$ 3,159$ 1,823$ 24,798$ 76,528$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Revenues, Expenses and Changes in Fund Net Position
For the Year Ended June 30, 2017
(Amounts in thousands)
129
Vehicle Printing Workers' General Total
Replacement and Compensation Liabilities Retiree Internal
and Mailing General Insurance Insurance Health Services
Maintenance Technology Services Benefits Program Program Benefits Funds
Cash flows from operating activities:
Cash received from customers 8,309$ 13,806$ 1,339$ 52,342$ 2,049$ 36$ 13,808$ 91,689$
Cash refunds to customers (69) (12) ‐ ‐ ‐ ‐ ‐ (81)
Cash payments to suppliers for goods and services (3,143) (7,970) (1,072) (127) (291) (914) (16,365) (29,882)
Cash payments to employees (2,136) (6,282) (224) (44,981) (922) ‐ 1,651 (52,894)
Cash payments for judgments and claims ‐ ‐ ‐ (1,440) (1,827) (640) ‐ (3,907)
Other cash receipts 144 ‐ ‐ ‐ ‐ ‐ ‐ 144
Net cash flows provided by (used in)
operating activities 3,105 (458) 43 5,794 (991) (1,518) (906) 5,069
Cash flows from noncapital financing activities:
Transfers in 924 2,078 ‐ 2,055 ‐ 5 2,203 7,265
Transfers out (263) (16) ‐ (2,203) ‐ ‐ ‐ (2,482)
Net cash flows provided by (used in)
noncapital financing activities 661 2,062 ‐ (148) ‐ 5 2,203 4,783
Cash flows from capital and related financing activities:
Acquisition of capital assets (4,673) (256) (32) ‐ ‐ ‐ ‐ (4,961)
Proceeds from sale of capital assets 112 ‐ ‐ ‐ ‐ ‐ ‐ 112
Net cash flows (used in)
capital and related financing activities (4,561) (256) (32) ‐ ‐ ‐ ‐ (4,849)
Cash flows from investing activities:
Interest received (26) (27) ‐ (255) (53) (26) (12) (399)
Net cash flows provided by investing activities (26) (27) ‐ (255) (53) (26) (12) (399)
Net change in cash and cash equivalents (821) 1,321 11 5,391 (1,044) (1,539) 1,285 4,604
Cash and cash equivalents, beginning of year 11,134 22,403 24 12,977 21,231 8,203 4,072 80,044
Cash and cash equivalents, end of year $ 10,313 $ 23,724 $ 35 $ 18,368 $ 20,187 $ 6,664 $ 5,357 $ 84,648
Reconciliation of operating income (loss) to net cash
flows provided by (used in) operating activities:
Operating income (loss) 413$ (643)$ 5$ 4,244$ 286$ (1,457)$ (3,149)$ (301)$
Adjustments to reconcile operating income (loss)
to net cash provided by (used in) operating activities:
Depreciation 2,299 509 1 ‐ ‐ ‐ ‐ 2,809
Other 139 ‐ ‐ ‐ ‐ ‐ ‐ 139
Change in assets and liabilities:
Accounts receivable 22 ‐ ‐ 20 (383) ‐ ‐ (341)
Inventory of materials and supplies 124 ‐ ‐ ‐ ‐ ‐ ‐ 124
Net OPEB asset ‐ ‐ ‐ ‐ ‐ ‐ 2,243 2,243
Deferred outflows of resources ‐ pension plan (395) (1,143) (18) ‐ (66) ‐ ‐ (1,622)
Accounts payable and accruals 94 (321) 38 1,261 (114) 52 ‐ 1,010
Accrued salaries and benefits (43) (132) (1) (2) 2 ‐ ‐ (176)
Accrued compensated absences (4) (11) ‐ 271 ‐ ‐ ‐ 256
Accrued claims payable ‐ ‐ ‐ ‐ (796) (113) ‐ (909)
Net pension liability 537 1,678 31 ‐ 80 ‐ ‐ 2,326
Deferred inflows of resources ‐ pension plans (81) (395) (13) ‐ ‐ ‐ ‐ (489)
Net cash flows provided by (used in)
operating activities 3,105$ (458)$ 43$ 5,794$ (991)$ (1,518)$ (906)$ 5,069$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Cash Flows
For the Year Ended June 30, 2017
(Amounts in thousands)
130
131
FIDUCIARY FUNDS
INTRODUCTION
Fiduciary Funds are used to account for assets held by the City acting in a fiduciary capacity for other
entities and individuals. The funds are operated to carry out the specific actions required by the trust
agreements, ordinances and other governing regulations.
Fiduciary Funds are presented separately from the Citywide and Fund financial statements.
Agency Funds are custodial in nature and do not involve measurement of results of operations. The City
maintains three agency funds, as follows:
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, 2017
Balance Balance
June 30, 2016 Additions Deletions June 30, 2017
Cable Joint Powers Authority
ASSETS:
Cash and investments available for operations 651$ ‐$ 178$ 473$
Accounts receivable 495 20 ‐ 515
Interest receivable 3 ‐ ‐ 3
Total assets 1,149$ 20$ 178$ 991$
LIABILITIES:
Due to other governments 1,149$ ‐$ 158$ 991$
ASSETS:
Cash and investments available for operations 1,996$ ‐$ 61$ 1,935$
Cash and investments with fiscal agents 2,550 6 ‐ 2,556
Accounts receivable 10 54 ‐ 64
Interest receivable 9 ‐ ‐ 9
Total assets 4,565$ 60$ 61$ 4,564$
LIABILITIES:
Due to bondholders 4,565$ ‐$ 1$ 4,564$
Total Agency Funds
ASSETS:
Cash and investments available for operations 2,647$ ‐$ 239$ 2,408$
Cash and investments with fiscal agents 2,550 6 ‐ 2,556
Accounts receivable 505 74 ‐ 579
Interest receivable 12 ‐ ‐ 12
Total assets 5,714$ 80$ 239$ 5,555$
LIABILITIES:
Due to bondholders 4,565$ ‐$ 1$ 4,564$
Due to other governments 1,149 ‐ 158 991
Total liabilities 5,714$ ‐$ 159$ 5,555$
(Amounts in thousands)
University Avenue Area
Off‐Street Parking Assessment District
132
133
STATISTICAL SECTION
The statistical section contains comprehensive statistical data, which relates to physical, economic, social
and political characteristics of the City. It is intended to provide users with a broader and more complete
understanding of the City and its financial affairs than is possible from the financial statements and
supporting schedules included in the financial section.
In this section, readers will find comparative information related to the City’s revenue sources,
expenditures, property tax valuations, levies and collections, general obligation bonded debt, utility
revenue debt service, and demographics. Where available, the comparative information is presented for
the last ten fiscal years.
In addition, this section presents information related to the City’s legal debt margin computation, principal
taxpayers, notary and security bond coverages, and other miscellaneous statistics pertaining to services
provided by the City.
In contrast to the financial section, the statistical section information is not usually subject to independent
audit.
Financial Trends
These schedules contain trend information to help the reader understand how the City’s financial
performance and well‐being have changed over time:
Net Position by Component
Changes in Net Position
Fund Balances of Governmental Funds
Changes in Fund Balances of Governmental Funds
Revenue Capacity
These schedules contain information to help the reader assess the City’s most significant local revenue
sources, property tax and electric charges:
Electric Operating Revenue by Source
Supplemental Disclosure for Water Utilities
Assessed Value of Taxable Property
Property Tax Rates, All Overlapping Governments
Property Tax Levies and Collections
Principal Property Taxpayers
Assessed Valuation and Parcels by Land Use
Per Parcel Assessed Valuation of Single Family Residential
Debt Capacity
These schedules present information to help the reader assess the affordability of the City’s current levels
of outstanding debt and the City’s ability to issue additional debt in the future:
Ratio of Outstanding Debt by Type
Computation of Direct and Overlapping Debt
Computation of Legal Bonded Debt Margin
Revenue Bond Coverage
134
STATISTICAL SECTION
Demographic and Economic Information
These schedules offer demographic and economic indicators to help the reader understand the
environment within which the City’s financial activities take place:
Taxable Transactions by Type of Business
Demographic and Economic Statistics
Principal Employers
Operating Information
These schedules contain service and infrastructure data to help the reader understand how the
information in the City’s financial report relates to the services the City provides and the activities it
performs:
Operating Indicators by Function/Program
Capital Asset Statistics by Function/Program
Full‐Time Equivalent City Government Employees by Function
Sources
Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual
Financial Reports for the relevant year.
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Governmental Activities
Investment in capital assets 343,537$ 356,657$ 369,499$ 364,747$ 370,111$ 378,047$ 386,696$ 405,921$ 425,179$ 453,878$
Restricted 27,428 36,632 34,323 16,437 52,934 71,717 68,331 55,963 47,907 36,081
Unrestricted 130,460 118,133 102,199 134,722 142,102 165,810 187,386 1,972 37,905 37,330
Total Governmental Activities Net Position 501,425$ 511,422$ 506,021$ 515,906$ 565,147$ 615,574$ 642,413$ 463,856$ 510,991$ 527,289$
Business‐type Activities
Investment in capital assets 370,303$ 384,313$ 399,317$ 416,418$ 437,151$ 446,597$ 473,795$ 490,874$ 512,918$ 532,063$
Restricted 1,732 1,732 4,300 ‐ ‐ 4,060 4,166 4,142 4,115 4,073
Unrestricted 226,539 208,025 232,420 253,740 262,602 269,926 266,794 172,802 162,806 163,158
Total Business‐type Activities Net Position 598,574$ 594,070$ 636,037$ 670,158$ 699,753$ 720,583$ 744,755$ 667,818$ 679,839$ 699,294$
Primary Government
Investment in capital assets 713,840$ 740,970$ 768,816$ 781,165$ 807,262$ 824,644$ 860,491$ 896,795$ 938,097$ 985,941$
Restricted 29,160 38,364 38,623 16,437 52,934 75,777 72,497 60,105 52,022 40,154
Unrestricted 356,999 326,158 334,619 388,462 404,704 435,736 454,180 174,774 200,711 200,488
Total Primary Government Net Position 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$ 1,226,583$
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
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$ Th
o
u
s
a
n
d
s
Primary Government
Investment in capital assets Restricted Unrestricted
135
PROGRAM REVENUES 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Governmental Activities
Charges for services
City Council ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
City Manager ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
City Attorney 16$ 12$ 53$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
City Clerk ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
City Auditor ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Administrative Services 870 726 984 2,889 1,647 15,629 4,055 5,460 9,444 5,242
Human Resources ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Public Works 1,310 1,169 1,258 2,419 1,008 1,314 1,093 1,209 599 878
Planning & Community Environment 5,498 4,704 4,813 7,237 31,491 28,768 12,896 8,090 9,071 6,067
Development Services3 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 12,019 12,570 11,768
Public Safety 13,692 14,670 14,337 15,274 15,658 16,139 14,902 15,726 13,945 12,670
Community Services 10,314 8,522 8,729 7,724 11,365 13,808 20,882 20,912 21,551 20,472
Library 176 177 199 480 1,600 187 166 137 198 139
Operating grants and contributions 4,029 3,599 4,829 2,884 3,441 5,038 5,360 5,300 2,164 1,990
Capital grants and contributions 1,930 3,810 1,280 1,903 1,064 515 917 619 344 1,929
Total Governmental Activities
Program Revenues 37,835 37,389 36,482 40,810 67,274 81,398 60,271 69,472 69,886 61,155
Business‐type Activities
Charges for services
Water 26,510 27,120 26,259 26,624 31,467 37,746 40,291 35,847 37,588 42,678
Electric 103,833 119,320 121,900 122,109 118,886 121,805 121,916 120,842 120,743 137,543
Fiber Optics1 ‐ 3,336 3,105 3,322 3,662 4,382 4,485 4,627 4,505 4,553
Gas 49,021 47,838 44,450 43,584 41,774 34,633 35,737 30,751 30,212 36,431
Wastewater Collection 15,102 14,486 15,136 15,094 14,942 16,077 15,599 16,182 16,496 17,748
Wastewater Treatment 22,889 28,425 16,915 18,830 22,200 21,528 18,460 24,120 23,825 23,649
Refuse 28,805 29,101 28,568 30,469 30,645 30,583 30,297 31,576 32,169 33,918
Storm Drainage 5,450 5,505 5,647 5,796 5,892 6,053 6,183 6,281 6,520 6,693
Airport ‐ ‐ ‐ ‐ ‐ ‐ ‐ 683 826 1,286
External Services 112 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Operating grants and contributions ‐ ‐ 361 610 605 572 549 534 744 512
Capital grants and contributions 1,594 639 475 3,004 1,526 2,224 2,005 2,080 1,061 4,265
Total Business‐type Activities
Program Revenues 253,316 275,770 262,816 269,442 271,599 275,603 275,522 273,523 274,689 309,276
Total Primary Government
Program Revenues 291,151$ 313,159$ 299,298$ 310,252$ 338,873$ 357,001$ 335,793$ 342,995$ 344,575$ 370,431$
EXPENSES
Governmental Activities
City Council 323$ 394$ 455$ 15$ 345$ 94$ 387$ 271$ 352$ 329$
City Manager 2,273 2,085 2,399 1,842 1,960 1,237 2,180 2,155 2,662 1,975
City Attorney 2,653 2,575 2,621 953 1,656 1,642 1,797 1,759 2,472 2,140
City Clerk 1,241 1,098 1,369 803 908 330 641 680 582 762
City Auditor 1,379 2,053 2,601 138 235 464 489 362 414 847
Administrative Services2 15,477 17,784 17,893 9,888 10,100 7,614 11,388 9,980 10,637 11,887
Human Resources 2,806 3,448 3,707 1,346 1,071 1,420 1,346 1,464 2,224 2,272
Public Works 18,565 21,270 18,658 19,357 14,568 20,816 24,577 21,075 24,613 25,539
Planning & Community Environment 16,388 12,940 12,114 15,031 12,074 13,549 14,926 8,423 10,208 10,918
Development Services3 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 10,449 11,158 11,102
Public Safety 50,126 52,487 55,799 58,996 62,817 59,452 62,883 58,660 56,653 73,320
Community Services 17,736 19,862 17,171 22,845 21,915 22,705 23,822 24,688 28,547 27,866
Library 6,321 6,244 6,143 6,920 7,323 7,319 7,758 7,721 10,825 11,437
Interest on long term debt 438 404 370 2,742 2,575 2,562 3,367 3,658 3,552 2,846
Total Governmental
Activities Expenses 135,726 142,644 141,300 140,876 137,547 139,204 155,561 151,345 164,899 183,240
Business‐type Activities
Water 18,842 20,271 21,037 24,268 29,093 30,707 31,593 33,205 35,120 37,535
Electric 108,032 122,268 107,910 100,130 102,030 106,438 113,004 122,499 120,319 128,603
Fiber Optics1 ‐ 1,284 1,407 1,561 1,489 1,437 1,661 1,891 2,107 2,159
Gas 37,211 34,603 32,498 32,051 28,878 26,749 26,869 23,525 20,879 26,783
Wastewater Collection 12,023 14,875 10,696 12,275 14,825 14,313 13,235 14,595 15,199 16,405
Wastewater Treatment 18,902 36,896 13,466 19,731 20,712 20,635 21,018 21,553 22,546 23,498
Refuse 28,827 37,217 28,119 30,684 31,900 28,542 28,413 27,974 30,370 30,665
Storm Drainage 3,202 2,943 2,491 3,229 3,103 3,703 3,644 3,721 3,735 4,106
Airport ‐ ‐ ‐ 31 153 246 466 1,004 970 1,274
External Services 984 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total Business‐type
Activities Expenses 228,023 270,357 217,624 223,960 232,183 232,770 239,903 249,967 251,245 271,028
Total Primary
Government Expenses 363,749$ 413,001$ 358,924$ 364,836$ 369,730$ 371,974$ 395,464$ 401,312$ 416,144$ 454,268$
CITY OF PALO ALTO
Changes in Net Position
Last Ten Fiscal Years
(Accrual basis of accounting)
(Amounts in thousands)
Fiscal Year Ended June 30
136
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
NET (EXPENSE)/REVENUE
Governmental Activities (97,891)$ (105,255)$ (104,818)$ (100,066)$ (70,273)$ (57,806)$ (95,290)$ (81,873)$ (95,013)$ (122,085)$
Business‐type Activities 25,293 5,413 45,192 45,482 39,416 42,833 35,619 23,556 23,444 38,248
Total Primary Government
Net (Expense)/Revenue (72,598)$ (99,842)$ (59,626)$ (54,584)$ (30,857)$ (14,973)$ (59,671)$ (58,317)$ (71,569)$ (83,837)$
GENERAL REVENUES AND OTHER CHANGES IN NET ASSETS
Governmental Activities
Taxes
Property tax 23,084$ 25,432$ 25,981$ 29,156$ 30,104$ 31,929$ 35,299$ 38,750$ 41,189$ 43,953$
Sales tax 22,623 20,089 17,991 20,746 22,132 25,606 29,424 29,675 30,018 29,923
Utility user tax 10,285 11,030 11,295 10,851 10,834 10,861 11,008 10,861 12,469 14,240
Transient occupancy tax 7,976 7,111 6,858 8,082 9,664 10,794 12,255 16,699 22,366 23,477
Other taxes 6,261 3,364 4,055 8,156 8,173 10,504 9,660 11,867 7,868 8,989
Investment earnings 12,313 8,525 6,514 3,500 6,238 (1,228) 5,859 5,010 8,639 (711)
Rents and miscellaneous 11,896 15,682 12,729 12,377 14,943 518 2,575 3,428 894 168
Transfers 18,701 24,020 13,994 17,083 17,426 19,249 17,103 16,405 18,705 18,344
Total Governmental Activities 113,139 115,253 99,417 109,951 119,514 108,233 123,183 132,695 142,148 138,383
Business‐type Activities
Investment earnings 16,416 14,103 10,769 5,722 7,605 (2,754) 6,379 4,857 7,282 (449)
Transfers (18,701) (24,020) (13,994) (17,083) (17,426) (19,249) (17,103) (16,405) (18,705) (18,344)
Total Business‐type Activities (2,285) (9,917) (3,225) (11,361) (9,821) (22,003) (10,724) (11,548) (11,423) (18,793)
Total Primary Government 110,854$ 105,336$ 96,192$ 98,590$ 109,693$ 86,230$ 112,459$ 121,147$ 130,725$ 119,590$
CHANGE IN NET POSITION
Governmental Activities 15,248$ 9,998$ (5,401)$ 9,885$ 49,241$ 50,427$ 27,893$ 50,822$ 47,135$ 16,298$
Business‐type Activities 23,008 (4,504) 41,967 34,121 29,595 20,830 24,895 12,008 12,021 19,455
Total Primary Government
Change in Net Position 38,256$ 5,494$ 36,566$ 44,006$ 78,836$ 71,257$ 52,788$ 62,830$ 59,156$ 35,753$
Notes:1Prior to 2009, Fiber Optics was included in Electric.
2Beginning in 2008, includes Non‐departmental expenses.
3The Development Services Department was formed in FY15.
Source: Annual Financial Statements, Statement of Activities
Fiscal Year Ended June 30
137
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
General Fund
Nonspendable 7,286$ 6,476$ 6,581$ 6,085$ 6,007$ 5,749$ 6,188$ 6,296$ 7,088$ 7,709$
Assigned 4,851 6,100 7,295 6,235 6,400 5,415 5,432 7,976 8,261 7,280
Unassigned 30,278 30,648 27,581 31,859 29,616 30,913 36,690 48,198 51,582 48,118
Total General Fund 42,415$ 43,224$ 41,457$ 44,179$ 42,023$ 42,077$ 48,310$ 62,470$ 66,931$ 63,107$
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
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$ Th
o
u
s
a
n
d
s
Nonspendable Assigned Unassigned
138
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
All Other Governmental Funds
Nonspendable 731$ 1,308$ 1,402$ 1,422$ 11,112$ 18,189$ 14,869$ 1,468$ 1,505$ 1,499$
Restricted 1,406 1,412 55,400 50,646 61,324 84,688 68,468 59,650 47,113 35,298
Committed 15,207 22,043 16,962 24,775 14,284 20,400 27,145 48,434 65,745 71,566
Assigned 44,116 36,629 38,538 20,114 33,264 45,514 55,211 52,627 64,411 63,225
Total All Other
Governmental Funds 61,460$ 61,392$ 112,302$ 96,957$ 119,984$ 168,791$ 165,693$ 162,179$ 178,774$ 171,588$
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
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$ Th
o
u
s
a
n
d
s
Nonspendable Restricted Committed Assigned
139
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Revenues
Property tax 23,084$ 25,432$ 25,981$ 29,248$ 30,216$ 32,040$ 35,393$ 38,836$ 41,289$ 44,050$
Sales tax 22,623 20,089 17,991 20,746 22,132 25,606 29,424 29,675 30,018 29,923
Other taxes and fines 27,385 24,843 25,063 27,890 29,231 32,141 35,305 41,576 44,909 48,875
Charges for services 19,610 19,837 19,775 22,311 46,273 38,976 23,962 25,973 23,910 22,267
From other agencies 4,300 5,984 3,035 1,614 1,116 4,109 5,700 7,727 4,417 5,443
Permits and licenses 4,761 4,033 4,408 5,433 7,136 8,218 8,990 9,179 11,228 10,523
Interest and rentals 20,507 19,183 19,045 16,553 18,583 12,136 18,445 18,658 22,269 15,348
Other revenue 4,713 6,223 4,724 8,624 12,739 17,570 7,471 12,837 13,827 4,985
Total Revenues 126,983 125,624 120,022 132,419 167,426 170,796 164,690 184,461 191,867 181,414
Expenditures
Administration1 16,250 16,002 17,353 8,351 9,412 8,291 9,961 10,806 11,501 13,192
Public Works 10,072 10,064 9,787 11,317 11,304 11,489 12,439 12,276 13,112 14,485
Planning and Community Environment 9,861 10,462 9,480 10,309 11,966 13,474 14,761 8,628 9,722 10,568
Development Services3 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 11,152 10,643 10,908
Public Safety 48,650 48,957 51,022 58,874 62,418 59,537 62,028 61,447 63,784 71,164
Community Services2 17,138 17,451 16,451 20,029 20,860 21,661 22,644 23,553 25,511 25,408
Library2 6,219 5,985 5,900 6,509 7,072 6,902 7,340 7,980 7,960 8,953
Non‐departmental 14,089 10,765 10,149 7,352 6,819 4,567 8,135 6,180 8,068 6,566
Special revenue and capital projects 21,626 21,485 22,006 35,486 29,154 29,542 37,035 41,754 24,457 39,643
Debt service ‐ principal payments 885 800 840 870 1,743 1,489 1,524 1,948 7,130 2,066
Debt service ‐interest and fiscal fees 451 416 382 1,815 2,757 2,659 3,196 3,404 4,266 3,032
Payment to bond refunding escrow ‐ ‐ ‐ ‐ 586 540 ‐ ‐ ‐ ‐
Total Expenditures 145,241 142,387 143,370 160,912 164,091 160,151 179,063 189,128 186,154 205,985
Excess (Deficiency) of Revenues
Over (Under) Expenditures (18,258) (16,763) (23,348) (28,493) 3,335 10,645 (14,373) (4,667) 5,713 (24,571)
Other Financing Sources (Uses)
Transfers in 33,437 39,903 34,835 30,323 47,200 50,343 41,683 45,137 61,835 58,331
Transfers out (16,819) (22,399) (21,415) (14,352) (29,782) (33,833) (24,175) (29,824) (46,492) (44,770)
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)16,618 17,504 72,491 15,870 17,536 38,216 17,508 15,313 15,343 13,561
Net Change in Fund Balances (1,640)$ 741$ 49,143$ (12,623)$ 20,871$ 48,861$ 3,135$ 10,646$ 21,056$ (11,010)$
Debt Service as a Percentage of
Non‐Capital Expenditures 1.1% 1.0% 1.0% 2.2% 3.5% 3.2% 3.3% 3.7% 7.1% 3.1%
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)
140
Fiscal Commercial & City of
Year Residential Industrial Palo Alto Total
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
2017 20,269 90,635 3,780 114,684
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, LLC Satellite & Satellite Systems
Stanford Hospital & Clinics Hospital
Varian Medical Systems, Inc. Manufacturing
Veterans Administration Hospital Hospital
VMware, Inc. Computer
Number Kilowatt‐hour
of Customers Sales (kWh)Revenue2
Residential 25,642 148,985,634 20,269$
Commercial 3,753 580,831,575 73,471
Industrial 85 157,501,954 17,164
CPA 136 30,367,953 3,780
Total 29,616 917,687,116 114,684$
City of Palo Alto Power Purchase
Western Area Power Administration Hydroelectric 51%
Forward Market Purchases 4%
Wind Energy 12%
Landfill Gas Energy 11%
Solar Energy 26%
Northern California Power Agency Hydroelectric 24%
Short‐Term Market ‐28%
Source: City of Palo Alto, Utilities and Accounting Departments
Customer (alphabetical order)Type of Business
1The top ten customers accounted for approximately 36.8% of total kWh consumption (337,495,175 kWh)
and 32.2% of revenue ($38,191,663). The largest customer accounted for 8.9% of total kWh consumption
and 6.9% 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
141
Top Ten Largest Water Utility Customers (alphabetical order)
City of Palo Alto
Oak Creek Apartments
Palo Alto Hills Golf & Country Club
Palo Alto Unified School District
Space Systems/Loral, LLC
Stanford Hospital & Clinics
Stanford West Management
Veterans Administration Hospital
Vi at Palo Alto
VMware Inc.
The top ten customers total consumption is 730,845 CCF with revenue of $7,061,676.
This amount accounts for approximately 17.8% of total consumption and 16.4% of total
revenue. The largest customer (other than the City of Palo Alto) accounted for 2.9% of
consumption and 2.5% of revenue. The smallest customer accounted for 0.8% of
consumption and 0.8% of revenue. Revenue used to determine top ten water utility
customers includes metered and non‐metered charges, adjustments, surcharges
and discounts. Revenue does not include Utility Users Tax (UUT) and deposits.
Note:
Source: City of Palo Alto, Utilities Department
CITY OF PALO ALTO
Supplemental Disclosure for Water Utilities
Fiscal Year 2017
This schedule is provided as required by the Continuing Disclosure Agreement for the City's Utility Revenue
Bond and is not required by Governmental Accounting Standards Board (GASB).
142
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Net Local Secured Roll
Land 9,497,746$ 10,420,139$ 11,007,650$ 11,011,160$ 11,352,993$ 12,255,515$ 13,357,851$ 14,409,837$ 15,718,665$ 17,333,969$
Improvements 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 16,752,295
Personal property 228,875 303,688 288,148 241,280 257,436 287,296 307,499 290,590 310,929 306,576
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 34,392,840
Less:
Exemptions net of state aid (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) (4,244,500)
Total Net Local Secured Roll 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 30,148,340
Public utilities 3,174 2,573 2,573 2,573 2,573 2,573 2,573 2,573 2,573 2,573
Unsecured property 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 1,803,468
Total Assessed Value 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$ 31,954,381$
Total Direct Tax Rate 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%
Note: The State Constitution requires property to be assessed at 100% of the most recent purchase price, plus an increment of no more than 2% annually,
plus any local over‐rides. These values are considered to be full market values.
Source: County of Santa Clara Assessor's Office
CITY OF PALO ALTO
Assessed Value of Taxable Property
Last Ten Fiscal Years
(Amounts in thousands)
Fiscal Year Ended June 30
$13,000,000
$15,000,000
$17,000,000
$19,000,000
$21,000,000
$23,000,000
$25,000,000
$27,000,000
$29,000,000
$31,000,000
$33,000,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$ Th
o
u
s
a
n
d
s
Total Assessed Value
143
Basic County Total
County County Hospital City Library Santa Clara Direct and
Fiscal Wide Retirement G.O. Bond G.O. Bond Valley Water School Community Midpeninsula Overlapping
Year Levy Levy (Measure A)1 (Measure N)2 District District College Open Space3 Rates
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
2017 1.00 0.0388 0.0086 0.0129 0.0086 0.0591 0.0234 0.0006 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
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Rate per $100 of Assessed Value
144
Fiscal Year Total Tax Percentage Collections in Percentage of
Ended June 30 Levy1 for FY Amount of Levy Subsequent Years2 Amount Levy
2008 23,084 23,084 100%‐ 23,084 100%
2009 25,432 25,432 100%‐ 25,432 100%
2010 25,981 25,981 100%‐ 25,981 100%
2011 25,688 25,688 100%‐ 25,688 100%
2012 26,494 26,494 100%‐ 26,494 100%
2013 28,742 28,742 100%‐ 28,742 100%
2014 30,587 30,587 100%‐ 30,587 100%
2015 34,117 34,117 100%‐ 34,117 100%
2016 36,607 36,607 100%‐ 36,607 100%
2017 39,381 39,381 100%‐ 39,381 100%
Notes:
Source:Annual Financial Statements, Government Funds, Statement of Revenues, Expenditures and
Changes in Fund Balances.
1During fiscal year 1995, the County of Santa Clara began providing the City 100% of its tax levy
under an agreement which allows the county to keep all interest and delinquency charges
collected.
2Effective fiscal year 1994, the City is on the Teeter Plan, under which the County of Santa Clara
pays the full tax levy due. All prior delinquent taxes were also received in that fiscal year.
CITY OF PALO ALTO
Property Tax Levies and Collections
Last Ten Fiscal Years
(Amounts in thousands)
Collected within the
Fiscal Year of the Levy Total Collections to Date
145
Taxable Assessed
Value Rank
Percentage of
Total Taxable
Assessed Value
Taxable
Assessed
Value Rank
Percentage of
Total Taxable
Assessed Value
Leland Stanford Jr. University 4,517,330$ 1 14.1% 2,968,746$ 1 15.7%
Loral Space & Communications 254,505 2 0.8% 169,513 2 0.9%
Google Inc. 191,425 3 0.6%
EOSII Palo Alto Technology Center LLC 123,548 4 0.4%
Whisman Ventures, LLC 113,709 5 0.4% 100,470 3 0.5%
Hudson Embarcadero Place LLC 110,126 6 0.3%
Hobach Realty Co. LP 76,703 7 0.2%
SI 45 LLC 72,300 8 0.2%
BVK Hamilton Ave LLC 70,347 9 0.2%
Ronald & Ann Williams Charitable Foundation 63,641 10 0.2%
Agilent Technologies
Harbor Investment Partners 65,791 4 0.3%
Western Pacific Housing Inc.60,033 5 0.3%
EOP‐Embarcadero Place, LLC 45,000 6 0.2%
505 Hamilton Avenue Partners LP 38,583 7 0.2%
Pacific Hotel Dev Venture LP 38,143 8 0.2%
Palo Alto Town & Country Village Inc. 37,031 9 0.2%
California Pacific Commercial Corp. 35,953 10 0.2%
Total 5,593,634$ 17.5% 3,559,263$ 18.8%
Total City Taxable Assessed Value:
FY 2017 31,954,381$
FY 2008 18,922,488$
Source: California Municipal Statistics, Inc.
Fiscal Year 2017 Fiscal Year 2008
Taxpayer
CITY OF PALO ALTO
Principal Property Taxpayers
Current Year and Nine Years Ago
(Amounts in thousands)
146
2016‐2017 No. of
Assessed % of No. of % of Taxable % of
Valuation1 Total Parcels Total Parcels Total
Non‐Residential:
Agricultural/forest 33,225,926$ 0.11 % 49 0.24 % 31 0.15 %
Commercial 1,740,608,446 5.77 456 2.20 452 2.22
Professional/office 4,287,861,059 14.22 543 2.62 527 2.59
Industrial/research & development 1,827,375,527 6.06 236 1.14 235 1.16
Recreational 44,181,880 0.15 14 0.07 12 0.06
Government/social/institutional 224,759,011 0.75 119 0.57 52 0.26
Miscellaneous 7,246,556 0.02 18 0.09 17 0.08
Subtotal Non‐Residential 8,165,258,405$ 27.08 % 1,435 6.93 % 1,326 6.52 %
Residential:
Single family residence 17,718,787,884$ 58.77 % 14,989 72.39 % 14,943 73.50 %
Condominium/townhouse 2,239,121,931 7.43 3,033 14.65 3,029 14.90
Mobile Home 71,957 0.00 7 0.03 7 0.03
2‐4 Residential units 444,070,837 1.47 504 2.43 504 2.48
5+ Residential units 1,356,760,376 4.50 340 1.64 325 1.60
Subtotal Residential 21,758,812,985$ 72.17 % 18,873 91.15 % 18,808 92.51 %
Vacant Parcels 224,269,330$ 0.74 % 397 1.92 % 196 0.96 %
Total 30,148,340,720$ 100 % 20,705 100 % 20,330 100 %
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, 2017
147
No. of
Taxable Average
Parcels1 Assessed Valuation
Single Family Residential 14,943 $1,185,758
No. of % of Cumulative % of Cumulative
Taxable Total % of Total Total Total % of Total
Parcels1 Parcels Parcels Valuation Valuation Valuation
1,221 8.17 8.17 97,020,778$ 0.55 0.55
1,745 11.68 19.85 241,250,008 1.36 1.91
840 5.62 25.47 208,040,251 1.17 3.08
713 4.77 30.24 247,385,211 1.40 4.48
651 4.36 34.60 292,801,617 1.65 6.13
714 4.78 39.38 393,101,146 2.22 8.35
650 4.35 43.73 421,102,529 2.38 10.73
580 3.88 47.61 433,600,392 2.45 13.17
555 3.71 51.32 473,716,449 2.67 15.85
631 4.22 55.54 599,068,177 3.38 19.23
578 3.87 59.41 607,681,693 3.43 22.66
515 3.45 62.86 591,460,904 3.34 26.00
433 2.90 65.76 542,355,723 3.06 29.06
444 2.97 68.73 598,481,773 3.38 32.43
423 2.83 71.56 613,070,079 3.46 35.89
396 2.65 74.21 613,614,049 3.46 39.36
382 2.56 76.77 630,090,601 3.56 42.91
311 2.08 78.85 543,559,536 3.07 45.98
318 2.13 80.97 587,288,592 3.31 49.30
236 1.58 82.55 459,800,376 2.59 51.89
2,607 17.45 100.00 8,524,298,000 48.11 100.00
14,943 100.00 17,718,787,884$ 100.00
Notes:
Source: California Municipal Statistics, Inc.
Assessed Valuation Assessed Valuation
CITY OF PALO ALTO
Per Parcel Assessed Valuation of Single Family Residential
As of June 30, 2017
2016‐2017 Median
$600,000‐699,999
$17,718,787,884 $868,625
2016‐2017
Assessed Valuation
$0‐99,999
$100,000‐199,999
$200,000‐299,999
$300,000‐399,999
$400,000‐499,999
$500,000‐599,999
$1,800,000‐1,899,999
$700,000‐799,999
$800,000‐899,999
$900,000‐999,999
$1,000,000‐1,099,999
$1,100,000‐1,199,999
$1,200,000‐1,299,999
$1,300,000‐1,399,999
$1,400,000‐1,499,999
$1,500,000‐1,599,999
$1,600,000‐1,699,999
$1,700,000‐1,799,999
This schedule is provided as required by the Continuing Disclosure Agreement for the City's 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
$2,000,000 and greater
Total
148
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
8,405$ 7,605$ 6,765$ 5,895$ 1,685$ 1,560$ 1,430$ 1,285$ 1,135$ 975$
‐ ‐ 55,305 55,305 54,540 74,235 73,215 71,795 65,210 63,710
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
2011 Lease‐Purchase Agreement ‐ ‐ ‐ ‐ 2,764 2,400 2,026 1,643 1,248 842
Add: unamortized premium ‐ ‐ 3,766 3,640 3,514 4,400 4,242 4,084 3,926 3,768
‐ ‐ (571) ‐ ‐ ‐ ‐ ‐ ‐ ‐
8,405 7,605 65,265 64,840 62,503 82,595 80,913 78,807 71,519 69,295
40,334 38,744 72,104 69,551 65,879 63,104 60,224 57,224 54,095 50,825
Energy Tax Credits 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500
State Water Resources Loan 5,629 9,000 13,080 16,696 15,900 15,109 14,309 13,500 12,681 15,034
(1,053) (2,479) (2,737) (229) 580 543 867 803 737 673
46,310 46,565 83,647 87,118 83,359 79,656 76,200 72,227 68,113 67,032
Outstanding Debt 54,715$ 54,170$ 148,912$151,958$145,862$162,251$157,113$151,034$ 139,632$136,327$
1.55% 1.53% 4.51% 3.86% 3.36% 3.36% 3.24% 2.94% 2.52% 2.38%
Population 63,367 64,484 65,408 64,417 65,544 66,368 66,861 66,029 66,968 66,478
0.86$ 0.84$ 2.28$ 2.36$ 2.23$ 2.44$ 2.35$ 2.29$ 2.09$ 2.05$
Notes:
Sources:
2017 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
Governmental Activities
CITY OF PALO ALTO
Ratio of Outstanding Debt by Type
Last Ten Fiscal Years
(Amounts in thousands)
Fiscal Year Ended June 30
Percentage of Personal Income1
Certificates of Participation
General Obligation Bonds
Special Assessment Debt
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
Debt Per Capita
1See the schedule of Demographic and Economic Statistics for personal income data. Per capita personal income is only available for Santa Clara
County, therefore personal income is the product of the countywide per capita amount and the City's population.
County of Santa Clara (assessed valuation)
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$ Th
o
u
s
a
n
d
s
Total Governmental Activities Total Business‐type Activities
149
2016‐2017 Assessed Valuation 31,954,381,415$
Percentage Amount
Applicable Applicable
Total Debt to City of to City of
Outstanding Palo Alto1 Palo Alto
Santa Clara County 784,845,000$ 7.63% 59,875,825$
Foothill‐DeAnza Community College District 649,079,095 22.20% 144,082,578
Palo Alto Unified School District 280,846,553 89.99% 252,747,855
Fremont Union High School District 364,345,088 0.01% 40,078
Los Gatos‐Saratoga Joint Union High School District 114,990,000 0.01% 13,799
Mountain View‐Los Altos Union High School District 55,766,725 1.03% 572,167
Cupertino Union School District 281,213,688 0.02% 50,618
Los Altos School District 70,340,000 1.29% 906,683
Mountain View‐Whisman School District 189,475,000 0.79% 1,502,537
Saratoga Union School District 30,006,318 0.03% 8,102
Whisman School District 17,374,836 2.11% 366,262
City of Palo Alto 63,710,000 100% 63,710,000
El Camino Hospital District 227,050,000 0.08% 190,722
Midpeninsula Regional Open Space District 44,225,000 13.05% 5,773,132
City of Palo Alto Special Assessment Bonds 23,765,000 100% 23,765,000
Santa Clara Valley Water District Benefit Assessment District 90,945,000 7.63% 6,938,194
Total Direct and Overlapping Tax and Assessment Debt 560,543,552
634,190,521 7.63% 48,382,395
362,470,957 7.63% 27,652,909
5,690,000 7.63% 434,090
30,830,528 22.20% 6,843,761
5,495,000 0.01% 659
1,940,000 1.03% 19,904
Mountain View‐Whisman School District Certificates of Participation 34,020,000 0.79% 269,779
4,260,000 0.03% 1,150
City of Palo Alto General Fund Obligations 1,817,334 100% 1,817,334
2,685,000 7.63% 204,839
Midpeninsula Regional Open Space Park District General Fund Obligations 112,143,611 13.05% 14,639,227
$ 100,266,047
30,089,041
$ 70,177,006
$ 630,720,558
Ratio to
Assessed Valuation
Total Direct Debt 0.21% 65,527,334$
Total Overlapping Debt 1.77% 565,193,224
Total Direct and Overlapping Debt 1.97% 630,720,558$ 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.
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
CITY OF PALO ALTO
Computation of Direct and Overlapping Debt
As of June 30, 2017
Direct and Overlapping Tax and Assessment Debt
Direct and Overlapping General Fund Debt
Santa Clara County Pension Obligations
Santa Clara County Board of Education Certificates of Participation
Foothill‐DeAnza Community College District Certificates of Participation
Los Gatos‐Saratoga Joint Union High School District Certificates of Participation
Santa Clara County General Fund Obligations
150
Assessed Valuation:
Secured property assessed value,
net of exempt real property 31,954,381$
Bonded Debt Limit (3.75% of Assessed Value) 1 1,198,289
Direct Debt:
Certificates of Participation 975
Lease Purchase Agreement 842
General Obligation bonds 63,710
Total Direct Debt 65,527
Less: Amount of Debt Not Subject to Limit 2 1,817
Total Net Debt Applicable to Limit 63,710
Legal Bonded Debt Margin 1,134,579$
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
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
2017 31,954,381 1,198,289 63,710 1,134,579 66,478 5.32% 0.0020 0.96
Notes:
Source:
CITY OF PALO ALTO
Computation of Legal Bonded Debt Margin
As of June 30, 2017
(Amounts in thousands)
1California Government Code, Section 43605 sets the debt limit at 15% of the assessed value of all real and personal property of the City. Because this
Code section was enacted when assessed value was 25% of market value, the limit is calculated at one‐fourth, or 3.75%. This legal debt margin applies
to General Obligation debt. Prior year limits have been adjusted to conform to the current year methodology.
2In accordance with California Government Code Section 43605, only the City's General Obligation bonds are subject to the legal debt limit of 15%.
Annual Financial Statements, Assessed Value of Taxable Property and Note 7 General Long‐Term Obligations
151
Less: Net Revenue
Fiscal Gross Direct Operating Available for
Year Revenue Expenses2 Debt Service Principal Interest3 Total Coverage Ratio
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
2017 264,734 205,102 59,632 3,370 2,678 6,048 9.86
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
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$ Th
o
u
s
a
n
d
s
Net Revenue Available for Debt Service Total Debt Service
152
Fiscal
Year
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
2017 2,036 4,079 1,513 1,794 542 502 259 3,810 14,325 28,860
Source: California State Board of Equalization, compiled by MuniServices LLC
Sales Tax Rates for the Fiscal Year ended June 30, 2017
State Rate:7.25%
Special District Tax Rates:
Santa Clara County Transit District (SCCT) 0.50%
Santa Clara County Valley Transportation Authority (SCVT) 0.50%
Santa Clara VTA BART Operating and Maintenance Transactions and Use Tax (SVTB) 0.125%
Santa Clara Retail Transactions and Use Tax (SCCR) 0.125%
Santa Clara County Valley Transportation Authority (SCVT) 0.50%
Total Sales and Use Tax Rate:9.000%
Source: California State Board of Equalization
CITY OF PALO ALTO
Taxable Transactions by Type of Business
Last Ten Fiscal Years
(Amounts in thousands)
Total
ECONOMIC SEGMENT
Department
Stores Restaurants
Furniture/
Appliance
Food
Markets
Service
Stations
Drug
Stores Other Retail All Other
Apparel
Stores
Department Stores
7%Restaurants
14%
Furniture/ Appliance
5%
Apparel Stores
6%
Food Markets
2%
Service Stations
2%Drug Stores
1%
Other Retail
13%
All Other
50%
Fiscal Year 2017
153
Santa Clara Santa Clara
City of Palo Alto City of Palo Alto Santa Clara City Population County Total County Per Capita
Fiscal City of Palo Alto Unemployment School County as a Percentage of Personal Income Personal Income
Year Population Rate Enrollment Population County Population (in thousands)(in thousands)
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 1,786,443 3.61% 109,300,000 * 61,183 *
2012 65,544 4.7% 12,286 1,813,860 3.61% 120,100,000 * 66,212 *
2013 66,368 3.6% 12,396 1,840,218 3.61% 134,000,000 * 72,817 *
2014 66,861 2.8% 12,483 1,866,208 3.58% 135,200,000 * 72,446 *
2015 66,029 2.7% 12,532 1,890,929 3.49% 147,300,000 * 77,898 *
2016 66,968 2.9% 12,488 1,915,102 3.50% 158,700,000 * 82,868 *
2017 66,478 2.4% 12,261 1,930,215 3.44% 166,600,000 86,312
Note: Data on personal income and per capita personal income is only available for Santa Clara County.
Source: Beginning in 2015 population is sourced from the US Census Bureau Community Survey (via the City of Palo Alto's Official City Data Set).
State Employment Development Office (unemployment rate)
Palo Alto Unified School District (school enrollment)
* California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income). Forecasts from prior years are updated annually.
CITY OF PALO ALTO
Demographic and Economic Statistics
Last Ten Fiscal Years
60,000
61,000
62,000
63,000
64,000
65,000
66,000
67,000
68,000 City Population
10,000
10,500
11,000
11,500
12,000
12,500
13,000 School Enrollment
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%City Unemployment Rate
154
Number of
Employees Rank
Percentage of Total
City Employment
Number of
Employees Rank
Percentage of Total
City Employment
Stanford Health Care 5,500 1 4.3%
Lucile Packard Children's Hospital 4,850 2 3.8% 1,300 8 2.1%
Stanford University2 4,300 3 3.4%
Veteran's Affairs Palo Alto Health Care System 3,900 4 3.1% 3,500 2 5.5%
VMware Inc. 3,500 5 2.8%
SAP 3,500 6 2.8%
Space Systems/Loral 2,800 7 2.2% 1,700 6 2.7%
Hewlett‐Packard Company 2,500 8 2.0% 2,001 4 3.2%
Palo Alto Medical Foundation 2,200 9 1.7%
Varian Medical Systems 1,400 10 1.1%
HP Labs 7,500 1 11.8%
VA Palo Alto Health Care 2,900 3 4.6%
Palo Alto Medical Foundation 2,000 5 3.2%
Wilson Sonsini Goodrich & Rosati 1,500 7 2.4%
City of Palo Alto 1,100 9 1.7%
Roche Palo Alto 1,000 10 1.6%
Total 34,450 27.2% 24,501 38.7%
Estimated Total City Day Population:
FY 2017 126,601
FY 2008 63,367
Notes:
Source: 2017 Official City Data Set (total City day population); AtoZ databases; Stanford website, Stanford Planning Office.
CITY OF PALO ALTO
Principal Employers
Current Year and Nine Years Ago
FY 20171 FY 2008
Employer
1Available data sources are limited and may be unreliable. The City does not affirm the validity of this data. 2017 numbers are
rounded. Figures may include employees not located within City limits.
2Stanford University number of employees was provided by the Stanford Office of Planning and includes only employees located
in Palo Alto.
155
2007 2008 2009 2010
Governmental activities
Community Services
Number of theater performances 171 166 159 174
Total hours of athletic field usage2 70,769 63,212 45,762 41,705
Number of rounds of golf 76,241 74,630 72,170 69,791
Enrollment in recreation classes (includes summer camps) 14,460 13,851 13,091 12,880
Planning and Community Environment
Planning applications completed 299 257 273 226
Building permits issued 3,136 3,046 2,543 2,847
Caltrain average weekday boarding3 4,132 4,589 4,407 4,359
Police
Calls for service 60,079 58,742 53,275 55,860
Total arrests 3,059 3,253 2,612 2,451
Parking citations issued 57,222 50,706 49,996 42,591
Animal Services
Number of service calls 2,990 3,059 2,873 2,692
Number of animals handled 3,578 3,532 3,422 3,147
Fire
Calls for service 7,236 7,723 7,549 7,468
Number of fire incidents 221 192 239 182
Number of fire inspections 1,021 1,277 1,028 1,526
Library
Total number of cardholders 53,099 53,740 54,878 51,969
Total number of items in collection 270,755 279,403 293,735 298,667
Total checkouts 1,414,509 1,542,116 1,633,955 1,624,785
Public Works
Street resurfacing (lane miles) 32 27 23 32
Number of potholes repaired 1,188 1,977 3,727 3,149
Sq. ft. of sidewalk replaced or permanently repaired 94,620 83,827 56,909 54,602
Number of trees planted 164 188 250 201
Tons of materials recycled or composted 56,837 52,196 49,911 48,811
Business‐type activities
Electric
Number of customer accounts 28,684 29,024 28,527 29,430
Residential MWH consumed 162,405 162,680 159,899 163,098
Gas
Number of customer accounts 23,357 23,502 23,090 23,724
Residential therms consumed 11,759,842 11,969,151 11,003,088 11,394,712
Water
Number of customer accounts 19,726 19,942 19,422 20,134
Residential water consumption (CCF) 2,807,477 2,746,980 2,566,962 2,415,467
Wastewater collection
Number of customer accounts 21,789 21,970 22,210 22,231
Millions of gallons processed 8,853 8,510 7,958 8,184
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); 2016 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
156
2011 2012 2013 2014 2015 2016
175 175 184 108 172 161
42,687 44,226 ‐ ‐47,504 65,723
67,381 65,653 60,153 46,527 42,048 42,573
12,310 11,703 11,598 11,997 12,586 12,974
238 204 307 310 335 383
3,559 3,320 3,682 3,624 3,844 3,492
4,923 5,730 6,763 7,564 8,294 9,622
52,159 51,086 54,628 58,559 59,795 53,870
2,288 2,212 2,274 2,589 3,273 2,988
40,426 41,875 43,877 36,551 41,412 37,624
2,804 3,051 2,909 2,398 2,013 2,421
3,323 3,379 2,675 2,480 2,143 2,184
7,555 7,796 7,904 7,829 8,548 8,882
165 186 150 150 135 150
1,807 1,654 2,069 1,741 1,964 2,806
53,246 60,283 51,007 46,950 51,792 57,307
314,101 306,160 277,749 361,103 429,460 461,292
1,476,648 1,559,932 1,512,975 1,364,872 1,499,406 1,400,926
29 40 36 36 31 39
2,986 3,047 2,726 3,418 2,487 3,435
71,174 72,787 82,118 74,051 120,776 115,293
150 143 245 148 305 387
56,586 51,725 47,941 49,594 50,546 56,438
29,708 29,545 29,299 29,338 29,065 29,304
160,318 160,604 156,411 153,190 145,284 150,112
23,816 23,915 23,659 23,592 23,461 23,467
11,476,609 11,522,999 10,834,793 10,253,776 8,537,754 9,535,377
20,248 20,317 20,043 20,037 20,061 19,994
2,442,415 2,513,595 2,521,930 2,496,549 2,052,176 1,696,383
22,320 22,421 22,152 22,105 21,990 22,016
8,652 8,130 7,546 7,186 6,512 6,387
Fiscal Year Ended June 30
157
2008 2009 2010 2011 2012
FUNCTION/PROGRAM
Public Safety
Fire:
Fire Stations Operated 8 8 8 8 7
Police:
Police Stations 1 1 1 1 1
Police Patrol Vehicles 30 30 30 30 30
Community Services
Acres ‐ Downtown/Urban Parks2 157 157 157 157 157
Acres ‐ Open Space2 3,744 3,744 3,744 3,744 3,744
Acres ‐ Parks and Preserves2 ‐ ‐ ‐ ‐ ‐
Acres ‐ Open Space2 ‐ ‐ ‐ ‐ ‐
Acres ‐ Municipal Golf Course2 ‐ ‐ ‐ ‐ ‐
Parks and Preserves 36 36 36 36 36
Golf Course (see above for acreage) 1 1 1 1 1
Tennis Courts 51 51 51 51 51
Athletic Center 4 4 4 4 4
Community Centers 4 4 4 4 4
Theaters 3 3 3 3 3
Cultural Center/Art Center 1 1 1 1 1
Junior Museum and Zoo 1 1 1 1 1
Swimming Pools 1 1 1 1 1
Nature Center 3 3 3 3 3
Libraries
Libraries 5 5 5 5 5
Public Works:
Number of Trees Maintained 35,058 34,991 35,025 34,977 34,874
Electric Utility1
Miles of Overhead Lines 193 193 193 193 223
Miles of Underground Lines 253 253 253 253 245
Water Utility
Miles of Water Mains 217 214 214 214 234
Gas Utility
Miles of Gas Mains 207 207 205 205 210
Waste Water
Miles of Sanitary Sewer Lines 202 207 207 207 217
Note:
Source: City of Palo Alto
1The City of Palo Alto Utilities Department recently completed the conversion of its electric system maps to a GIS
mapping system database. Therefore, the distances reported for FY 11/12 and forward are more accurate than the
distances reported in previous years.
2Beginning in 2016 park acreage is sourced from the Official City Data Set. The discrepancy between FY16 and FY17
is because FY16 numbers were derived off GIS parcels identified as parks or zoned in the Open Space Zoning District.
For FY17, Council approved Parks Master Plan numbers were used.
CITY OF PALO ALTO
Capital Asset Statistics by Function/Program
Last Ten Fiscal Years
Fiscal Year Ended June 30
158
2013 2014 2015 2016 2017
7 7 7 7 7
1 1 1 1 1
30 30 30 30 30
157 157 157 ‐ ‐
3,744 3,744 3,752 ‐ ‐
‐ ‐ ‐ 3,921 174
‐ ‐ ‐ 4,489 4,030
‐ ‐ ‐ ‐ 181
36 36 36 36 36
1 1 1 1 1
51 51 51 51 51
4 4 4 4 4
4 4 4 4 4
3 3 3 3 3
1 1 1 1 1
1 1 1 1 1
1 1 1 1 1
3 3 3 3 3
5 5 5 5 5
34,907 34,741 34,636 34,683 34,696
222 223 223 222 223
246 249 262 268 264
233 236 236 235 236
210 214 211 209 210
217 217 217 216 216
Fiscal Year Ended June 30
159
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Governmental Funds
General Fund:
Administrative 98 98 89 83 83 85 83 84 86 87
Community Services 96 97 94 74 74 74 74 76 77 78
Development Services6 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 38 38 36
Fire 127 127 123 121 122 119 116 107 107 109
Library 44 44 42 41 41 41 42 44 48 48
Office of Emergency Services5 ‐ ‐ ‐ ‐ ‐ ‐ 3 3 3 3
Planning and Community Environment6 53 53 49 44 43 48 49 28 31 32
Police 163 164 161 157 157 154 155 155 155 155
Public Works1 68 69 64 59 56 57 56 53 54 56
Subtotal General Fund 649 652 622 579 576 578 578 588 599 604
All Other Funds:
Capital Projects Fund 20 21 24 24 24 26 27 27 28 31
Special Revenue Fund 1 1 1 2 2 2 9 10 9 10
Total Governmental Funds 670 674 647 605 602 606 614 625 636 645
Enterprise Funds
Public Works2 113 113 115 115 115 104 99 100 95 99
Utilities3 235 238 242 251 251 254 255 258 256 255
External Services4 6 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total Enterprise Funds 354 351 357 366 366 358 354 358 351 354
Internal Service Funds
Printing and Mailing 4 4 4 2 2 2 2 2 2 2
Technology 30 31 31 30 30 31 32 32 34 35
Vehicle Replacement 16 16 16 16 16 17 17 17 17 16
Total Internal Service Funds 50 51 51 48 48 50 51 51 53 53
Total 1,074 1,076 1,055 1,019 1,016 1,014 1,019 1,034 1,040 1,052
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
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Fu
l
l
Ti
m
e
Eq
u
i
v
a
l
e
n
t
s
Governmental Funds Enterprise Funds Internal Service Funds
160
CITY OF PALO ALTO
Index to the Single Audit Report
For the Year Ended June 30, 2017
161
Page
Independent Auditor’s Report on Internal Control Over Financial Reporting
and on Compliance and Other Matters Based on an Audit of Financial
Statements Performed in Accordance With Government Auditing Standards .................................... 163
Independent Auditor’s Report on Compliance for Each Major Federal Program and
Report on Internal Control Over Compliance Required by Uniform Guidance .................................... 165
Schedule of Expenditures of Federal Awards ........................................................................................... 169
Notes to the Schedule of Expenditures of Federal Awards ...................................................................... 171
Schedule of Findings and Questioned Costs ............................................................................................. 172
Corrective Action Plan ............................................................................................................................... 179
Schedule of Prior Years Findings and Questioned Costs ........................................................................... 181
162
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www.mgocpa.com
Macias Gini & O’Connell LLP 2121 N. California Boulevard, Suite 750 Walnut Creek, CA 94596
163
Independent Auditor’s Report on Internal Control Over Financial Reporting
and on Compliance and Other Matters Based on an Audit of Financial
Statements Performed in Accordance With Government Auditing Standards
Honorable Mayor and the Members
of the City Council of the City of Palo Alto
Palo Alto, California
We have audited, in accordance with the auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States, the financial statements of the governmental
activities, the business-type activities, each major fund, and the aggregate remaining fund information of
the City of Palo Alto, California (City), as of and for the year ended June 30, 2017, 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 14, 2017.
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 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 weakness. However, material weaknesses may exist that
have not been identified.
164
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s financial statements are free from
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on compliance with those
provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The
results of our tests disclosed no instances of noncompliance or other matters that are required to be
reported under Government Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance
and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal
control or on compliance. This report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly,
this communication is not suitable for any other purpose.
Walnut Creek, California
November 14, 2017
www.mgocpa.com
Macias Gini & O’Connell LLP 2121 N. California Boulevard, Suite 750 Walnut Creek, CA 94596
165
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 each of the City’s major federal programs for the year ended June 30, 2017. The City’s major federal
programs are identified in the summary of auditor’s results section of the accompanying schedule of
findings and questioned costs.
Management’s Responsibility
Management is responsible for compliance with federal statutes, regulations, and the terms and conditions
of its federal awards applicable to its federal programs.
Auditor’s Responsibility
Our responsibility is to express an opinion on compliance for each of the City’s major federal programs
based on our audit of the types of compliance requirements referred to above. We conducted our audit of
compliance in accordance with auditing standards generally accepted in the United States of America; the
standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal
Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for
Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan
and perform the audit to obtain reasonable assurance about whether noncompliance with the types of
compliance requirements referred to above that could have a direct and material effect on a major federal
program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance
with those requirements and performing such other procedures as we considered necessary in the
circumstances.
We believe that our audit provides a reasonable basis for our qualified and unmodified opinions on
compliance for major federal programs. However, our audit does not provide a legal determination of the
City’s compliance.
Basis for qualified opinion on Highway Planning and Construction Program
As described in the accompanying schedule of findings and questioned costs, the City did not comply
with requirements regarding CFDA No. 20.205 Highway Planning and Construction Program as
described in item 2017-002 for Wage Rate Requirement. Compliance with such requirement is necessary,
in our opinion, for the City to comply with the requirements applicable to that program.
166
Qualified Opinion on Highway Planning and Construction Program
In our opinion, except for the noncompliance described in the Basis for Qualified Opinion paragraph, 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 Highway Planning and Construction Program for the year
ended June 30, 2017.
Unmodified Opinion on the Other 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 other major program identified in the
summary of auditor’s results section of the accompanying schedule of findings and questioned costs for
the year ended June 30, 2017.
Other Matters
The City’s response to the noncompliance findings identified in our audit are described in the
accompanying corrective action plan. The City’s response was not subjected to the auditing procedures
applied in the audit of compliance and, accordingly, we express no opinion on the response.
Report on Internal Control Over Compliance
Management of the City is responsible for establishing and maintaining effective internal control over
compliance with the types of compliance requirements referred to above. In planning and performing our
audit of compliance, we considered the City’s internal control over compliance with the types of
requirements that could have a direct and material effect on each major federal program to determine the
auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on
compliance for each major federal program and to test and report on internal control over compliance in
accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the
effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the
effectiveness of the City’s internal control over compliance.
Our consideration of internal control over compliance was for the limited purpose described in the
preceding paragraph and was not designed to identify all deficiencies in internal control over compliance
that might be material weaknesses or significant deficiencies and therefore, material weaknesses or
significant deficiencies may exist that have not been identified. However, as discussed below, we
identified certain deficiencies in internal control over compliance that we consider to be material
weaknesses and significant deficiencies.
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. We consider the deficiency in
internal control over compliance described in the accompanying schedule of findings and questioned
costs as item 2017-002 to be a material weakness.
167
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. We consider the deficiencies in internal
control over compliance described in the accompanying schedule of findings and questioned costs as
items 2017-001 and 2017-003 to be significant deficiencies.
The City’s response to the internal control over compliance findings identified in our audit is described in
the accompanying corrective action plan. The City’s response was not subjected to the auditing
procedures applied in the audit of compliance and, accordingly, we express no opinion on the response.
The purpose of this report on internal control over compliance is solely to describe the scope of our
testing of internal control over compliance and the results of that testing based on the requirements of
Uniform Guidance. Accordingly, this report is not suitable for any other purpose.
Walnut Creek, California
November 14, 2017
168
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Grantor Federal
Identifying CFDA Subrecipients
Grantor/Pass‐Through Grantor/Program Title Number Number Expenditures Expenditures
U.S Department of Housing and Urban Development B‐13‐MC‐06‐0020
Direct B‐14‐MC‐06‐0020
CDBG ‐ Entitlement Grants Cluster B‐15‐MC‐06‐0020
Community Development Block Grants/Entitlement Grants B‐16‐MC‐06‐0020 14.218 1,085,655$ 1,010,673$
U.S. Department of Justice
Direct
Bulletproof Vest Partnership 16.607 12,391 ‐
U.S. Environmental Protection Agency
Pass‐through from State of California Water Resources Control Board
Capitalization Grants for Clean Water State
Revolving Funds D16‐01034 66.458 4,310,937 ‐
U.S. Department of Transportation
Direct
Public Transportation Research, Technical Assistance
and Training CA‐2017‐020‐00 20.514 23,528 ‐
Airport Improvement Program
3‐06‐0182‐009‐2014
3‐06‐0182‐010‐2015,
3‐06‐0182‐011‐2016,
3‐06‐0182‐012‐2016 20.106 2,265,152 ‐
Subtotal ‐ Direct Awards 2,288,680 ‐
Pass‐through from State of California Office of the Traffic Safety
National Priority Safety Program PT1618 20.616 31,364 ‐
Pass‐through from State of California Department of Transportation
Highway Planning and Construction BRLS‐5100(017) 20.205 58,828 ‐
Highway Planning and Construction STPL5100022 20.205 956,000 ‐
Subtotal ‐ Highway Planning and Construction 1,014,828 ‐
Subtotal ‐ Pass‐through awards 1,046,192 ‐
Total U.S. Department of Transportation 3,334,871 ‐
National Endowment for the Humanities
Direct
Promotion of the Arts Grants to Organization and Individuals 45.024 30,000 ‐
Pass‐through from California State Library
Museums for America MA‐10‐14‐0431‐14 45.301
MA‐11‐15‐02014‐15 45.301 61,545 ‐
Total National Endownment for the Humanities 91,545 ‐
TOTAL FEDERAL FINANCIAL AWARDS 8,835,400$ 1,010,673$
CITY OF PALO ALTO
Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2017
See accompanying notes to the Schedule of Expenditures of Federal Awards
169
170
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CITY OF PALO ALTO
Notes to the Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2017
171
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, 2017
172
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? Yes
Significant deficiency(ies) identified? Yes
Type of auditor’s report issued on compliance for
major programs:
Qualified for Highway Planning and
Construction (CFDA 20.205) and Unmodified
for Capitalization Grants for Clean Water
State Revolving Funds (CFDA 66.458)
Any audit findings disclosed that are required to be
reported in accordance with Uniform Guidance?
Yes
Identification of Major Programs: CFDA No. 20.205 Highway Planning and
Construction
CFDA No. 66.458 Capitalization Grants for
Clean Water State Revolving Funds
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.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2017
173
Section III ‐ Federal Award Findings and Questioned Costs
Reference Number: 2017‐001
Federal Agency: U.S. Department of Transportation
Federal Program Title: Highway Planning and Construction
Federal Catalog Number: 20.205
Pass‐through Agency: State of California Department of Transportation
Federal Grant Number and Year: BRLS‐5100‐017 and 2015
Category of Finding: Procurement, Suspension and Debarment
Classification of Findings: Significant Deficiency in Internal Control over Compliance
Criteria
In accordance with 2 CFR part 180, non‐federal entities are prohibited from contracting with or making
subawards under covered transactions to parties that are suspended or debarred or whose principals
are suspended or debarred. “Covered transactions” include those procurement contracts for goods and
services awarded under a non‐procurement transaction (e.g., grant or cooperative agreement) that are
expected to or exceed $25,000 or meet certain other specified criteria. All non‐procurement transaction
(i.e., subawards to subrecipients), irrespective of award amount, are considered covered transactions.
When a non‐Federal entity enters into a covered transaction with an entity at a lower tier, the non‐
Federal entity must verify that the entity, as defined in 2 CFR section 180.995 and agency adopting
regulations, is not suspended or debarred or otherwise excluded from participating in the transaction.
This verification may be accomplished by (1) checking the Excluded Parties List System (EPLS) maintained
by the General Services Administration (GSA) and available at
https://www.sam.gov/portal/public/SAM/, (2) collecting a certification from the entity, or (3) adding a
clause or condition to the covered transaction with that entity (2 CFR section 180.300)
Condition
MGO selected and tested all contracts for which the City has incurred expenditures during the fiscal year
ended June 30, 2017. We noted that the Public Works department did not verify the suspension and
debarment status for 1 out of the 2 contracts tested prior to entering into the contract. Based on our
review from the GSA website, the contractor in question is not suspended or debarred.
Cause
The department was not aware that the contractor in question, who was contracted in FY2012 to
perform design services rather than construction, was also subject to the suspension and debarment
verification requirement.
Effect
The City is at risk that federal funds could be remitted to a vendor that is suspended or debarred.
Questioned Costs
Not applicable. The contract in question is not suspended or debarred based on the record from EPLS
maintained by GSA.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2017
174
Section III ‐ Federal Award Findings and Questioned Costs (Continued)
Recommendation
MGO recommends the City department evaluate its existing procedures and policies in place to ensure it
includes all compliance requirements from federal statutes, regulations and terms and conditions of the
grants, including verification that contractors paid with federal funds are not suspended or debarred.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2017
175
Section III ‐ Federal Award Findings and Questioned Costs (Continued)
Reference Number: 2017‐002
Federal Agency: U.S. Department of Transportation
Federal Program Title: Highway Planning and Construction
Federal Catalog Number: 20.205
Pass‐through Agency: State of California Department of Transportation
Federal Grant Number and Year: STPL‐5100‐022 and 2017
Category of Finding: Wage Rate Requirements
Classification of Findings: Material Weakness in Internal Control over Compliance
Material Noncompliance
Criteria
The Wage Rate Requirements requires all laborers and mechanics employed by contractors or
subcontractors to work on construction contracts in excess of $2,000 financed by federal assistance
funds be paid prevailing wage rates. Contractors or subcontractors must submit timely, for each week in
which any contract work is performed, a copy of the payroll and a statement of compliance (certified
payrolls) (29 CFR §5.5 and 5.6). The City is required to notify the contractors and subcontractors of the
requirements and obtain copies of certified payrolls.
Condition
During our testing of the City’s compliance with the wage rates requirements, we noted that during
FY2017 the City only obtained the certified payroll for the month of July 2016 from the contractors and
subcontractors, while the full duration of construction activities occurred from May 23, 2016 through
November 30, 2016. MGO selected and tested a statistically valid sample of 4 out of 12 certified payrolls
submitted for the month July 2016, and noted no exceptions.
Cause
The Public Works Department hired O’Grady Construction to construct the project. Per the terms of the
contract with the City, O’Grady collects and reviews certified payrolls and statements of noncompliance
from subcontractors, submits them to the California State Department of Industrial Relations and
forwards the documents to the City. Although the City relied on O’Grady to ensure all required
documents are collected before requesting payment from the City, the City did not verify receipt of the
weekly certified payrolls from O’Grady prior making payment to them.
Effect
The City is at risk that payments may be made to contractor and subcontractors that did not comply with
the Wage rate requirements.
Questioned Costs
The questioned costs would be $653,231, which is the total payments made to the contractors and
subcontractors for services during the months of August through November 30, 2016.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2017
176
Section III ‐ Federal Award Findings and Questioned Costs (Continued)
Recommendation
We recommend the Public Works Department establish internal control procedures ensuring the City
develop a mechanism to ensure that all certified payrolls/statements of non‐performance is received
and reviewed by the City of Palo Alto before release of payment to contractors occurs. This will ensure
that federally‐funded disbursements were made for allowable activities throughout the service period.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2017
177
Section III ‐ Federal Award Findings and Questioned Costs (Continued)
Reference Number: 2017‐003
Federal Agency: Environmental Protection Agency
Federal Program Title: Capitalization Grants for Clean Water State Revolving Funds
Federal Catalog Number: 66.458
Pass‐through Agency: California State Water Resources Control Board
Federal Grant Number and Year: D16‐01034 and 2017
Category of Finding: Wage Rate Requirements
Classification of Findings: Significant Deficiency in Internal Control over Compliance
Criteria
The Wage Rate Requirements requires all laborers and mechanics employed by contractors or
subcontractors to work on construction contracts in excess of $2,000 financed by federal assistance
funds be paid prevailing wage rates. Contractors or subcontractors must submit timely, for each week in
which any contract work is performed, a copy of the payroll and statement of compliance (certified
payrolls) (29 CFR § 5.5). The City is required to notify the contractors and subcontractors of the
requirements and obtain copies of certified payrolls.
Condition
The City hired a construction management company to oversee the project, whose responsibilities
include collection of certified payroll from the construction contractors. During the audit, we selected
and tested a statistically valid sample of 4 out of a population of 7 certified payrolls, and noted that the
City did not have procedures in place to obtain documentation from the construction management
company that all certified payrolls are collected and reviewed. The City occasionally checks the California
State Department of Industrial Relations website to ensure that the certified payrolls were submitted.
However, no record was maintained. MGO was able to review the certified payroll and verified that the
compliance requirement was satisfied.
Cause
Due to staffing constraints, the department outsourced its contract management responsibility and
relied on verbal communication from the management company that all required documents were
collected.
Effect
The City is at risk that payments may be made to contractors and subcontractors who do not comply
with the wage rate requirements.
Questioned Costs
Not applicable – all certified payrolls were obtained and reviewed.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2017
178
Section III ‐ Federal Award Findings and Questioned Costs (Continued)
Recommendation
We recommend the City modify the existing procedures to obtain documentation from the construction
management company and retain record of the verification of certified payroll to the California State
Department of Industrial Relations, to substantiate the compliance of the contractors and
subcontractors before release of payment to contractors occurs.
179
180
181
……….……………………………………………………………………………………………. City of Palo Alto 182
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IN COMPLIANCE WITH
AMERICANS WITH DISABILITIES ACT (ADA) OF 1990,
THIS DOCUMENT MAY BE PROVIDED
IN OTHER ACCESSIBLE FORMATS.
For information contact:
ADA Coordinator
City of Palo Alto
250 Hamilton Ave
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ADA@cityofpaloalto.org
City of Palo Alto (ID # 8676)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/5/2017
City of Palo Alto Page 1
Summary Title: FY2019 - FY2028 Long Range Financial Forecast & City
Pension Liabilities
Title: FY2019 - FY2028 Long Range Financial Forecast & City Pension
Liabilities
From: City Manager
Lead Department: Administrative Services
RECOMMENDATION
Staff recommends that the Finance Committee
1) review, comment, and forward the Fiscal Year 2019 to 2028 General Fund Long Range
Financial Forecast (Base Case) for City Council approval; and
2) review, comment and provide further direction on the City’s pension obligations and
assumptions informing the City’s calculation of pension liabilities and annual
contribution goals.
EXECUTIVE SUMMARY
The Fiscal Year (FY) 2019 2028 General Fund Long Range Financial Forecast (LRFF), marks the
beginning of the FY 2019 annual budget process. It includes projected General Fund financials
over the next ten years based on current City Council approved service levels as well as
alternative financial models. The current Base Case financial forecast projects a gap in the
General Fund of $2.6 million in FY 2019 and a range between annual gaps of up to $2.4 million
and surpluses of $8.8 million in the out years. The Base Case provides a launching point, a
forecast that can assist in gauging effects of major policy interventions against a likely “status
quo” version of the future. It assumes that the world continues to change and unfold in line
with current expectations.
It is from these projections that City staff will continue to review and refine to establish the FY
2019 Base Budget and direction will be provided to Departments on the FY 2019 budget
process. Based on this Forecast, it is anticipated that again guidance to prioritize spending will
be critical to ensure financial stability.
City of Palo Alto Page 2
Looking forward, the City is facing a number of pressures from the 2014 Council approved
Infrastructure Plan including a new public safety building, to the growing costs of pension
benefits, and the upcoming labor negotiations for many of the City’s largest employee units. A
containment strategy is necessary to maintain a manageable financial position and to address
these future financial challenges and any unforeseen program needs or the inevitable economic
downturn. This review and planning will be critical since the City is facing many requests and
has identified several key programs that the community would like to fund and complete.
Included in this report and subsequent documents are the following:
- Overview of the current financial status of the General Fund as of the FY 2018 Adopted
Budget
- Discussion of the current financial climate of the United States to the City of Palo Alto
- Review of the Base Case for the Long Range Financial Report including Revenue and
Expense modeling assumptions
- Alternative Scenarios as directed by the Finance Committee on October 17, 2017 (to be
issued in a subsequent report for the December 5, 2017 Finance Committee meeting)
- Continued discussion of the City’s Pension Liabilities
BACKGROUND
Annually the Office of Management and Budget produces a ten year Long Range Financial
Forecast that reflects staff’s best estimates on the projected revenues and expenditures over
the next ten years based on the information currently available. A comprehensive review of
the cost to provide current City Council approved service levels, including looking at current
contracts, updates to salaries and benefits based on the current population of employees and
the current labor contracts in effect, and review of the status of the current economy and
various economically sensitive revenues such as Sales Tax, Documentary Tax, Property Tax, and
Transient Occupancy Tax is completed to compile this report. This Forecast allows staff and
Council to look at both the short term and long term financial status of current service levels in
the General Fund and inform daily policy decisions and ongoing long term goals and challenges.
Since the great recession, the City has approved a number of strategies to mitigate rising costs,
especially to mitigate the rising increase in salaries and benefits. Strategies include: a second
pension tier, sharing in health plan cost increases between employees and the employer, and
cost of living freezes for four years. Most recently, the current labor agreements approved in
April 2016 not only assume employees paying their own CalPERS contribution, but also begin
cost sharing with the employees contributing between 1 percent and 3 percent of the City
contribution.
The City Council continues to invest in the community and approved significant improvements
in June 2014 with the Infrastructure Plan in the original amount of $125.8 million. However,
the projects identified in the plan are estimated to cost substantially more due to updated
designs, rising construction costs, and minimum and prevailing wage requirements. This is one
example of a number of known items that are not included in this Forecast.
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Palo Alto serves a diverse community with a broad range of unique services that adds to the
significant complexity of managing a balanced budget and healthy long range financial outlook.
The demands and conflicts emerging from our vibrant economy have heightened the intensity
of the “Palo Alto Process,” with new analyses and data generation demands, and deep dives
into complex problem solving within an engaged public process across a wide range of issues.
These forecast figures present staff with the challenge of prioritizing the growing needs of the
City with the long-term sustainability of these needs.
The Economy
The national economic outlook is healthy per key economic indicators. The 2018 forecasts for:
- gross domestic product (GDP) between mid-2 percent to low 3 percent;
- unemployment remaining around 4 percent which is currently at the lowest level in a
decade at 4.1 percent; and
- the CPI (consumer price index; aka inflation) is expected to be in the low 2 percent
though wage growth is tepid.
There’s great uncertainty on federal legislative actions (e.g. tax cut, health care change,
infrastructure spending, etc.) and their future economic impacts.
The local, regional and State economies are faring well. According to recent reports from the
Center for Continuing Study of the California Economy’s (CCSCE), the Bay Area led the State and
nationally with real (inflation adjusted) GDP growth of 5.2 percent in 2016. During the same
period San Jose led the state with a GDP increase of 5.9 percent with San Francisco-Oakland
metro area coming in second with a 5.4 percent; additional comparatives are shown in the
below CCSCE’s graph.
Source of above chart: CCSCE article “The Bay Area Led the State and Nation in GDP Growth in 2016”, September
2017
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Jobs grew between September 2016 to September 2017 by 1.4 percent in the Bay Area, 1.7
percent for California, and 1.2 percent for the U.S. The State’s unemployment in this period
declined to 5.1 percent, in the Bay Area to 3.3 percent while in San Jose to 3.3 percent and San
Francisco to 2.9 percent. The State’s job growth for the past 12 months (as of June 2017) was
slightly below the State’s average in several years due to significant lower growth in the Bay
Area. Though this recent trend is of concern, the expectation is this isn’t a sign of the California
and local economy heading into a protracted downturn or outright contraction in the coming
year. The State and local economies continue to have a diverse and favorable mix of businesses;
combined with a favorable location (Pacific Rim),the State and the local economies are well
positioned to benefit from future national growth though the Bay Area continues to face the
challenge of housing and transportation as an impediment to the growth.
With unemployment running low and the Silicon Valley geographically well positioned, Palo
Alto has been at the epicenter of growth that presents opportunities and challenges.
DISCUSSION
Included in this section are both the base case and alternative scenarios. As with all forecasts,
there is uncertainty regarding the revenue and expenditure estimates contained in this
document. For example, General Fund revenues may exceed or fall below expectations based
on changes in economic or non-economic conditions. Various cost elements can also vary from
year to year.
As is customary in the Forecast, and consistent with the direction provided by the Finance
Committee at the October 17, 2017 meeting, alternative forecasts have been developed to
model scenarios specific to alternative pension assumptions. However, the necessary
information was not available at the time of the printing of this report. Therefore, these
alternatives will be provided in a supplemental memorandum presented at places for the
December 5, 2017 Finance Committee.
Base Case
The following table displays the projected General Fund revenues and expenditures over the
next five years and the total cumulative surplus. In addition to the cumulative surplus, the
incremental surplus or shortfall (assuming each preceding surplus or shortfall is addressed
completely with ongoing solutions in the year it appears) for each year of the forecast is
included. Because it is the City’s goal to remain in balance on an ongoing basis, the incremental
figure is useful in that it shows the additional surplus and/or shortfall attributed to a particular
fiscal year. To the extent that a shortfall is not resolved or a surplus is not expended on an
ongoing basis, it is important to understand that the remaining budget gap or surplus will carry
over to the following year.
In this FY 2019-2028 Long Range Financial Forecast, gaps ranging from $2.6 million in FY 2019 to
a gap of $3.3 million in FY 2024 are forecast, with slight surpluses in the remaining four years.
As outlined above, if the City resolves the gap in FY 2019 of $2.6 million on an ongoing basis,
revenues are expected to meet expenses from FY 2020 through FY 2023.
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TABLE 1: FY 2019-2028 Long Range Financial Forecast
Adopted
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Total Revenue $207,042 $213,229 $221,638 $229,695 $237,623 $245,792 $253,881 $262,065 $269,898 $277,349 $285,652
3.0%3.9%3.6%3.5%3.4%3.3%3.2%3.0%2.8%3.0%
Total Expenditures $210,426 $215,780 $223,855 $232,045 $239,609 $246,919 $253,672 $260,223 $266,387 $270,488 $276,842
2.5%3.7%3.7%3.3%3.1%2.7%2.6%2.4%1.5%2.3%
Net One-Time Surplus/(Shortfall)($3,384)($2,551)($2,217)($2,350)($1,986)($1,127)$209 $1,842 $3,511 $6,861 $8,810
Cumulative Net Operating Margin (One-Time)$11,002
Net Operating Margin ($2,551)$334 ($133)$363 $859 $1,336 $1,634 $1,668 $3,350 $1,949
Cumulative Net Operating Margin $8,810
Assumes that the annual shortfalls are solved with ongoing solutions and annual surpluses are spent for ongoing expenditures.
TABLE 2: FY 2019-2028 Long Range Financial Forecast Net Operating Margin
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Revenue Assumptions
The City of Palo Alto tax revenues continue to parallel the local economy. The economic
information above is the foundation for the solid performance turned in by Palo Alto tax
revenues over the past two years. Steady receipts are expected to continue in FY 2018 and FY
2019. For all tax revenues, staff projects a $5.0 million or 4.2 percent revenue increase in FY
2019 over those now projected for FY 2018. Tax revenues constitute nearly 60 percent of
General Fund resources.
TABLE 3: FY 2019 - 2028 General Fund Revenue Forecast
Revenue & Other Sources
Adopted
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
CAGR 10
Years
Sales Taxes $31,458 $31,097 $32,217 $33,128 $34,026 $34,931 $35,842 $36,742 $37,598 $38,418 $39,379 2.3%
Property Taxes 41,927 45,120 47,996 50,890 53,816 56,792 59,846 63,000 66,245 69,624 73,133 5.7%
Transient Occupancy Tax- General Purpose 16,629 16,487 16,928 17,396 17,892 18,411 18,963 19,553 20,150 20,746 21,327 2.5%
Transient Occupancy Tax- Infrastructure 8,514 8,190 8,408 8,642 8,888 9,146 9,420 9,713 10,009 10,306 10,594 2.2%
Documentary Transfer Tax 6,930 7,207 7,396 7,596 7,805 8,025 8,255 8,499 8,736 8,976 9,210 2.9%
Utility Users Tax 13,867 15,970 16,220 16,562 16,929 17,279 17,620 17,965 18,313 18,652 19,000 3.2%
Other Taxes and Fines 2,060 1,859 1,859 1,859 1,859 1,859 1,859 1,859 1,859 1,859 1,863 -1.0%
Subtotal: Taxes 121,385 125,930 131,024 136,073 141,215 146,443 151,805 157,331 162,910 168,581 174,506 3.7%
Charges for Services 19,427 20,135 21,897 22,965 23,887 24,807 25,667 26,500 27,054 27,348 28,094 3.8%
Stanford Fire & Dispatch Services 7,070 7,265 7,601 7,914 8,197 8,467 8,701 8,918 9,132 9,296 9,358 2.8%
Permits and Licenses 8,837 8,876 8,987 9,092 9,182 9,274 9,358 9,440 9,493 9,520 9,593 0.8%
Return on Investments 1,024 1,166 1,197 1,230 1,266 1,304 1,346 1,390 1,432 1,475 1,519 4.0%
Rental Income 15,575 16,059 16,552 17,048 17,559 18,085 18,627 19,185 19,760 20,352 20,962 3.0%
From Other Agencies 688 539 539 539 539 539 539 539 539 539 539 -2.4%
Charges to Other Funds 11,076 11,432 11,376 11,895 12,364 12,890 13,308 13,701 13,931 14,009 14,250 2.6%
Other Revenue 1,169 2,070 2,089 2,069 2,089 2,109 2,130 2,151 2,173 2,195 2,217 6.6%
Total Non-Tax Revenue 64,866 67,542 70,238 72,752 75,082 77,475 79,675 81,825 83,514 84,732 86,532 2.9%
Operating Transfers-In 20,791 19,757 20,376 20,871 21,326 21,875 22,401 22,909 23,475 24,036 24,614 1.7%
BSR Contribution (One-Time)3,384
Golf Operating Loss Reserve Liquidation
Total Source of Funds $210,426 $213,229 $221,638 $229,695 $237,623 $245,792 $253,881 $262,065 $269,898 $277,349 $285,652
Sales Tax
Reflected in this Forecast is the continued erosion of brick and mortar receipts that is resulting
from steady growth in on-line retail sales and the completion of Stanford Hospital construction
projects which will reduce future sales (use) tax revenue. Updated activity and revenue figures
for FY 2018 show probable receipts of $29.8 million or flat compared to the prior year due to
on-line sales tax reporting adjustments, a significant decline in an irregular sales tax business
(art gallery), an upcoming business moving to another city (needing a larger location) and a
significant prior period negative (one-time) sales tax adjustment. Sales taxes are expected to
rise to $30.8 million in FY 2019, a 3.1 percent growth rate that is consistent with the compound
annual growth rate over the past ten years of 3.1 percent and City’s sales tax consultant’s
(MuniServices) forecast of 3.2 percent. Segments contributing to this growth include electronic
equipment, restaurants, and auto leases. Department store sales continue to experience
declines; should this trend accelerate this holiday season and not offset by online sales, the
above forecasted growth may need to be revised downward.
Property Tax
Palo Alto property tax revenues have continued to climb. They have risen from $36.6 million in
FY 2016 to $39.4 million in FY 2017 and are now projected to grow to $42.4 million in FY 2018
and to $45.1 million in FY 2019. The increase from FY 2018 to 2019 equals 6.5 percent or $2.8
million. The 6.5 percent growth rate is in sync with the growth rate over the past 10 years.
Staff estimates include excess ERAF funds. The first four months of FY 2018 property tax
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growth data, both in sales volume and price, are consistent with the prior year. According to a
September 30, 2017 posting concerning residential sales values, Zillow states they have gone up
8.3 percent over the past year and predicts they will rise 2.9 percent within the next year.
City staff meets with the County quarterly to obtain the latest data and estimates of “in-the-
fiscal-year” tax revenue. Over the past half-dozen years, County data and projections have
proven reliable. Staff uses the County information and local assessment data to produce its
forecast of property tax revenues.
Transient Occupancy Tax (TOT)
TOT receipts have moderated. Prior to last fiscal year, TOT realized double digit growth due the
recovering economy, Palo Alto voters approved the TOT tax increase from 12 percent to 14
percent to fund infrastructure needs, and the Council approved the new tax revenues from the
addition of the Hilton hotels, the Clement on El Camino Real, and the upgrade of the Quality Inn
into the Nest to be dedicated to Infrastructure as well. Revenues moved upward from $22.4
million in FY 2016 to $23.5 million in FY 2017. TOT for FY 2018 is expected to reach $24.1
million, $0.6 million or 2.6 percent above the FY 2017 actual. Projections for FY 2019 stand at
$24.8 million, $0.7 million or 2.6 percent above the estimate for FY 2018. Average occupancy
rates through the first three months of this FY are running at 82 percent compared to 84
percent in the same prior year period. During these periods, room rates have increased from
$258 to $266 per day or a 3.1 percent increase.
Utility User’s Tax (UUT)
The UUT is levied on electric, gas, and water consumption, as well as on telephone usage. In
total, FY 2018 revenues are estimated at $15.2 million and in FY 2019 at $15.7 million.
UUT telephone revenues rose from $4.6 million in FY 2016 to $5.5 million in FY 2017. This
revenue has realized double digit growth the prior two years despite the voter approved 0.25
percent decrease to a 4.75 percent rate in FY 2015. Without data from providers to understand
this steep increase, staff is projecting, somewhat conservatively though almost double the
historical average, $5.8 million in FY 2018 and $6.0 million in FY 2019.
UUT revenue from Utility sales came in at $8.7 million in FY 2017 and is anticipated to reach
nearly $9.4 million in FY 2018. Rate increases of 12 percent for electric and 4 percent for water
are the chief drivers of the revenue growth. This source is expected to rise to $9.7 million in FY
2019.
Documentary Transfer Tax
In FY 2015, documentary transfer taxes peaked at $10.1 million. This milestone was a
consequence of several large commercial transactions on Page Mill Road and in the Stanford
Research Park. Since that time, transfer taxes have returned to more “normal” levels such as
the $7.5 million earned in FY 2017. Given that revenue from July through November this FY is
running nearly 2.5 percent above the same period in FY 2017, staff will likely modify the
Adopted Budget at midyear from $6.9 million up to $7.1 million. For FY 2019, a slight uptick to
$7.3 million is estimated.
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As in past years, this revenue source is challenging to forecast since it is highly dependent on
sales volume and the mix of commercial and residential sales. The transactions through
September (176) are running higher than those through October of last year (166), the total
value of these transactions has increased by 2.5 percent. This confirms that the Palo Alto
housing market remains stable. In addition, data from this FY and the latter half of last FY
indicates that there have been few to no large commercial sales.
The strong performance in property, transient occupancy, and the utility user taxes bode well
for FY 2019 and there are no indications of an economic slowdown at this time. However, sales
and documentary taxes have weakened. This, along with a federal legislative economic
recovery uncertainties, merits close monitoring and a prudent spending plan.
Sources:
1. CCSCE September 2017 “The Bay Area Led the State and Nation in GDP Growth in 2016” Report
2. Bay Area Council Economic Institute October 2017 “Bay Area Job Watch” Report
Rental Income
Rental Income of $16.1 million primarily reflects rent from the City’s Enterprise Funds and the
Cubberley Community Center and reflects growth of approximately 3 percent from the FY 2018
Adopted Budget of $15.6 million. Growth of 3 percent reflects the current growth in the San
Francisco Bay Area CPI growth, which is the typical growth assumed in rental agreements.
Charges for Services & Permits and Licenses
Revenue for Charges for Services and Permits and Licenses of $27.4 million and $8.9 million
respectively are primarily driven by the cost to provide services to the community from
recreational activities to development activities. Therefore, revenues are significantly impacted
by personal service costs. Therefore revenues are modeled to grow in line with the average
increase in general salaries and benefits increases included in the Forecast.
Stanford Fire and Dispatch Services: The City has two separate agreements with Stanford
University to provide its response and emergency dispatch services. On October 8, 2013, the
City received a Notice of Termination letter from Stanford stating its intention to terminate the
contract with the City no sooner than one year and no later than two years from the date of
notice. Since this time, the City has continued to negotiate with Stanford to settle on a service
level and cost. This Forecast currently assumes the revised staffing deployment model as
approved by the City Council in October 2017 with growth rates in line with the average growth
of the Fire Department expenses over the ten-year forecast.
Charges to Other Funds
The preponderance of revenues in this category is General Fund administrative cost allocation
plan charges to the Enterprise and Internal Service Funds. Internal support departments such
as Administrative Services, Human Resources, and Council Appointees provide services to
enterprise and internal service funds. The costs for these services are recouped through the
administrative cost plan charges. The FY 2019 estimate for Charges to Other Funds of $11.4
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million reflects growth of 3.2 percent from the FY 2018 Adopted Budget of $11.1 million. This is
attributed to the assumed increases in salary and benefits costs. This Forecast includes
increases ranging between no growth to 4.3 percent each year based primarily on the modeled
increases in expenses such as salaries and benefits and contractual services.
Operating’s Transfers
Operating Transfers primarily include the equity transfer from the Electric and Gas funds. In
accordance with a methodology approved by the City Council in June 2009, the equity transfer
is calculated by applying a rate of return on the capital asset base of the Electric and Gas funds.
This rate of return is based on PG&E's rate of return on equity as approved by the California
Public Utilities Commission (CPUC). Using the Utility Department’s projections from the Electric
and Gas Five Year Financial Forecasts, as approved by the City Council in spring 2017, the equity
transfer from the Electric and Gas funds are projected to increase from $19.3 million in FY 2019
to $24.1 million in FY 2028. Overall Operating Transfers are estimated to decline slightly to
$20.6 million in FY 2019, a 0.9 percent reduction from the FY 2018 Adopted Budget level of
$20.8 million due to one-time adjustments.
Expense Assumptions
As part of developing the FY 2019 Forecast expenditure budget, the General Fund expense
categories have been adjusted by removing FY 2018 Adopted Budget one-time expenses and
updating major cost elements such as salary and benefits costs. The tables below display the
expense forecast and when compared to the FY 2018 Adopted Budget, growth of 2.6 percent is
expected in FY 2019, with growth ranging from 1.5 percent to 3.7 percent throughout the ten
year forecast.
TABLE 4: FY 2019-2028 General Fund Expense Forecast
Expenditures & Other Uses
Adopted
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
CAGR 10
Years
Salary 74,191$ 76,171$ 78,361$ 80,475$ 82,445$ 84,343$ 86,262$ 88,190$ 90,141$ 92,117$ 94,113$ 2.4%
Benefits 51,432 54,116 58,512 62,655 66,184 69,592 72,411 74,962 76,546 76,666 78,661 4.3%
Subtotal: Salary & Benefits 125,623 130,287 136,873 143,130 148,629 153,935 158,673 163,153 166,687 168,783 172,774 3.2%
Contract Services 18,984 19,202 19,581 19,899 20,307 20,711 21,129 21,548 21,981 22,427 22,876 1.9%
Supplies & Material 3,544 3,616 3,689 3,763 3,839 3,917 3,996 4,077 4,159 4,243 4,389 2.2%
General Expense 11,933 11,521 11,782 12,087 12,400 12,714 13,036 13,367 14,290 14,665 15,344 2.5%
Debt Service 432 801 569 573 572 573 574 575 570 570 572 2.9%
Rents & Leases 1,567 1,653 1,668 1,684 1,700 1,716 1,733 1,750 1,768 1,786 1,805 1.4%
Facilities & Equipment 517 481 491 501 511 521 531 542 552 563 575 1.1%
Allocated Charges 17,937 18,804 19,306 19,812 20,327 20,858 21,257 21,669 22,021 22,297 22,555 2.3%
Total Non Sal/Ben Before Transfers 54,914 56,078 57,087 58,319 59,655 61,010 62,257 63,528 65,342 66,553 68,116 2.2%
Operating Transfers-Out 4,908 4,404 4,301 4,394 4,493 4,492 4,584 4,678 4,774 4,838 4,904 0.0%
Transfer to Infrastructure - Base 16,467 16,822 17,187 17,561 17,945 18,337 18,739 19,152 19,575 20,009 20,455 2.2%
Transfer to Infrastructure - TOT 8,514 8,190 8,408 8,642 8,888 9,146 9,420 9,713 10,009 10,306 10,594 2.2%
Total Use of Funds $210,426 $215,780 $223,855 $232,045 $239,609 $246,919 $253,672 $260,223 $266,387 $270,488 $276,842 2.8%
Salary and Benefits
The table above (also available as an attachment) depicts the salaries and benefits costs for the
next ten years. Over the forecast period, the salaries and benefits costs gradually increase in
comparison to the total expenditure budget. In FY 2019, salaries and benefits costs represent
approximately 60 percent of the General Fund budget expenditures, increasing to 62 percent of
the General Fund budget expenditures by FY 2028.
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Salary
Consistent with the City’s salary budget methodology for recent budgets, positions are
budgeted at the actual rate of pay including benefits as of Fall 2017. Then, by position, salary
costs are updated in accordance with applicable Memorandum of Agreements (MOA) between
the City and its labor groups and the Management and Professional Personnel and Council
Appointees Compensation Plan. It is important to note that as of this Forecast, many
Memorandums of Agreement are near the end of their agreement term. The Forecast assumes
step increases for employees in applicable positions, including SEIU, IAFF, and PAPOA, as well as
merit increases for Management and Professional employees. General wage adjustments of 2%
are included in each year of the Forecast for all employees. This is consistent with prior Council
direction to use the 2 percent as a forecasting model not as a commitment to future
negotiations.
Benefits
Pension: The Forecast includes pension rates from CalPERs as of the June 30, 2016 valuation for
the City’s Miscellaneous and Safety plans for the first seven years of the Forecast, and modeled
by the City’s Actuary (Bartel Associates) for the final years of the Forecast noted by an asterisk.
This methodology is necessary as CalPERs only provides projected pension rates for the next
seven years. CalPERs has implemented some changes with significant impacts to the City’s
pension liability lowering the discount rate from 7.5 percent to 7.0 percent over three years.
The impact of this phase-in is discussed below. Concurrent to the preparation of this report,
Bartel Associates is preparing alternative scenarios that assume alternative discount rate
scenarios and the estimated impact to the City. It is anticipated that these alternative scenarios
will be detailed in a subsequent memorandum provided at places for the December 5, 2017
Finance Committee meeting. As shown in the table below, the FY 2019 pension contribution
rates for the Miscellaneous and Safety plans will increase from FY 2018. It should be noted that
the FY 2019 forecast does presume that employees will pick up 1% of the employer pension
cost for miscellaneous plan members, and that safety plan members will pick up 3% of the
employer pension cost.
For the miscellaneous plan, the projected pension contribution rate will increase 2.4 percent
from 30.2 percent in FY 2018 to 32.6 percent in FY 2019. This marks the beginning of the phase-
in of the lower discount rate, which continues in the next year, as the percentage increases
another 3.3 percent, from 32.6 percent to 35.9 percent, for the Miscellaneous plan. Subsequent
increases continue through FY 2025, to a high of 44.0 percent, as various factors are amortized
according to the CalPERs schedule. Based on the amortization schedule and other factors,
Bartel Associates does forecast a slight dip in pension costs for the Miscellaneous plan
beginning in FY 2026 at the discount rate of 7.0%.
The Safety plan follows a similar trend line, with the increases plateauing in the out years of the
Forecast. Initial increases of almost six percent year over year, from 49.7 percent in FY 2018 to
55.6 percent in FY 2019 to 61.5 percent in FY 2020, reflect the phase-in of the 7.0 percent
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discount rate instead of the previous 7.5 percent discount rate. This growth stabilizes in the out
years of the Forecast, but does continue to increase.
FY 2018-2028 Retirement Rates
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
Miscellaneous 30.2 32.6 35.9 38.7 40.9 42.6 43.5 44.0 42.0* 38.4* 38.3*
Miscellaneous
EE Cost Share 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%
Safety 49.7 55.6 61.5 66.3 70.3 73.5 75.1 76.2 77.5* 78.0* 78.2*
Safety EE Cost
Share 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
As additional information is brought forward by Bartel Associates regarding alternative discount
rate modeling, the City will be able to have substantive conversations about its long term
pension strategy. The CalPERs board is also currently scheduled to discuss items that will
continue to affect the City of Palo Alto, including the Quadrennial Asset Liability Management
review. As direction from these conversations is issued from the CalPERs board it will be
incorporated into subsequent analysis as appropriate. For a brief summary of these initiatives
the Board is taking, the California Association of Counties issued this bulletin:
http://www.counties.org/csac-bulletin-article/calpers-considers-changes-impacting-employer-
contributions. Although it references Counties, it is equally pertinent and the same for Cities.
Retiree Medical: Retiree Medical is based on the most recent actuarial study prepared by
Bartel Associates, which is done every two years. The last actuarial study was done in FY 2016
and the City is currently undergoing an update to this study for FY 2018. The table below
details the cost to the General Fund for every year based on that actuarial study, excluding the
implied subsidy. Consistent with City Council direction, as recommended by staff, the City
continues to budget for the full payment of the Actuarial Determined Contribution (ADC) for
retiree healthcare. Since CalPERs blends active employees with pre-Medicare retirees and
charges the same medical premium, even though younger employees on average consume less
healthcare and thereby subsidize older employees and retirees, there is an implied subsidy that
effectively lowers the funding necessary to meet the ADC.
FY 2018- 2026 Retiree Medical General Fund Contributions
FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
General Fund 9.8M 10.1M 10.4M 10.7M 10.9M 11.3M 11.7M 12.0M 12.5M
Bartel Associates is currently working on the next actuarial study for retiree healthcare which is
anticipated to be brought before the Finance Committee in the March/April 2018 timeframe.
That actuarial study will inform the development of the FY 2019 Proposed Operating Budget
that will be reviewed by the Finance Committee in May 2018. The Committee will have
opportunities to review the various assumptions used to determine the benefits and its costs.
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Unlike the pension trust, the Retiree Medical Trust has options that the City can choose from to
determine how quickly it funds its obligations.
Healthcare: Consistent with the most recent labor agreements between the City and its
bargaining units in the General Fund, the City’s contribution amounts towards medical costs for
employees are based on a flat rate contribution from the City, with the employee contributing
towards the remaining medical plan premium. This Forecast assumes an inflator of four
percent on healthcare costs to the City over the term of the Forecast, as well as four percent for
dental and vision costs through the Forecast.
Contract Services
This FY 2019 forecast assumes $19.2 million in contract services, a 1.1 percent increase from
the FY 2018 Adopted Budget of $19.0 million. This increase includes important contract
increases for contractual obligations already approved by the City Council, including the third
year of street trees and the latest janitorial services contract. Throughout the Forecast, a 2.0
percent annual escalator was modeled to capture anticipated growth in this expense category.
Expenses associated with anticipated contracts, such as to operate the newly renovated golf
course, that are still pending have not been incorporated into the Forecast.
Supplies and Materials
The FY 2018 Adopted Budget for the General Fund included $3.5 million for Supplies and
Materials, which is modeled to grow modestly to $3.6 million in FY 2019. An escalator of 2.0
percent was applied to this expense category to capture anticipated growth.
General Expense
This category includes costs for travel and meetings, telephone and non-city utilities,
contingency accounts, bank card service charges, and subsidies and grants provided through
the Human Services Resource Allocation Program (HSRAP). The FY 2018 Adopted Budget of $6.0
million included one-time costs for a parking study ($150,000), Fire Department Hiring and
Recruitment Costs ($50,000), Labor Negotiation Funding ($100,000), matching funds for a San
Mateo County Transit District Grant ($22,600) and a reserve for anticipated operating needs in
FY 2018 ($500,000). The FY 2019 forecast for this category excludes those items, partially offset
by an increase of 2.0 percent for modeling purposes; a decrease to $5.4 million is anticipated in
FY 2019. Increases of 2.0 percent were modeled in years beyond 2019 in the Forecast. These
figures do not include General Expenses for the Cubberley Lease, which is explained in further
detail below.
General Expense - Cubberley Lease: In FY 2015, the City and Palo Alto Unified School District
(PAUSD) agreed to an extension of the Cubberley Lease by five years starting January 1, 2015.
As part of the lease agreement, the City Council approved creation of a fund for Cubberley
infrastructure improvements. Based on the new lease, $1.9 million is transferred to the
Cubberley Property Infrastructure Fund annually for future infrastructure improvements.
Therefore, the $1.9 million is classified as an Operating Transfer Out which is discussed in
City of Palo Alto Page 13
further detail below. With the Cubberley infrastructure funds set aside, the FY 2019 Budget
includes $6.1 million for Cubberley Lease payments. In accordance with the lease agreement,
the Forecast assumes a 3.0 percent annual CPI increase for the lease payments to the PAUSD
for the Cubberley facility. The lease agreement period is five years and ends on December 30,
2020; however, for planning purposes in this Forecast, it is assumed that the agreement will
continue during the entire Forecast period.
Rents & Leases
The Rents & Leases expense category for FY 2019 is estimated to increase by 5.5 percent. from
$1.57 million in FY 2018 to $1.65 million in FY 2019. This growth slows significantly in FY 2020
and beyond to approximately 1.0 percent. The uptick from FY 2018 to FY 2019 is primarily
attributable to the increase for the lease for the Development Services Department at its new
location at 526 Bryant St ($74,000). In both FY 2019 and throughout the Forecast, an increase
of 3.0 percent is modeled where appropriate to capture anticipated increases in leases held by
the City.
Facilities and Equipment
The Facilities and Equipment expense category is expected to experience a slight decrease of
$36,000, from $517,000 to $481,000, from FY 2018 to FY 2019. This is the result of a one-time
expense of $45,000 in FY 2018 to buy two new gurneys for the fire department, partially offset
by a 2.0 percent increase to this expense category. Growth of 2.0 percent is modeled in later
years to capture anticipated increases.
Allocated Charges
Allocated Charges represent expense allocations by the City’s enterprise and internal service
funds for services and products they provide to General Fund departments. The FY 2018
Adopted Budget for the General Fund included $17.9 million for these expenses, including
utilities usage, general liability insurance, technology costs, vehicle equipment and replacement
costs and other charges. The allocated charges for technology costs in FY 2018 were subsidized
on a one-time basis by the use of excess fund balance in the technology fund, which is not
anticipated to continue in FY 2019. The FY 2019 charges of the Forecast updates the revenues
and expenses for these various allocations based on the information available at the time of the
Forecast development. FY 2019 is anticipated to experience an increase of 4.8 percent to a
total of $18.8 million. This increase is driven primarily by the restoration of the full allocation of
costs associated with the technology fund.
Operating Transfers Out
Operating Transfers Out include transfers from the General Fund to the Debt Service Fund, to
the Technology Fund, and to the Airport Fund. The transfer level for the FY 2018 Adopted
Budget is $4.9 million, which included a one-time transfer of $480,000 to the Technology Fund
for the Radio Infrastructure replacement capital project. In FY 2019, the Operating Transfers
Out are anticipated to be $4.4 million, decreasing further to $4.3 million in FY 2020 before
City of Palo Alto Page 14
starting to increase slightly in FY 2021 for the duration of the Forecast. The reason for the
decrease in FY 2020 is the elimination of a $200,000 transfer to the Airport Fund.
Transfer to Infrastructure
In FY 2018, the adopted General Fund transfer to the Capital Improvement Fund is $24.9
million, which includes the base transfer of $16.5 million and $8.5 million from additional
Transient Occupancy Tax (TOT) proceeds generated through a two percentage point TOT
increase as well as through the addition of new hotels. Incremental TOT increases from the
rate increase and new hotels are dedicated to the Capital Improvement Fund to support the
Infrastructure Plan, consistent with City Council direction. This category also includes the $1.9
million transfer to the Cubberley Property Infrastructure Fund, described earlier in this
document. This transfer remains flat in all out-years of this Forecast.
The transfers to the Capital Improvement Fund are anticipated to remain consistent with the FY
2018 Adopted Budget for the next few years, with slight increases annually over the forecast
period. Both the TOT and base transfers to the Capital Improvement Fund are anticipated to
increase by approximately 2.6 percent each year of the forecast period; however, due to lower
TOT revenue collected in FY 2017, the estimated TOT collection and transfer in FY 2019 is
approximately $0.7 million lower than the amount initially forecast for FY 2019 in the adopted
FY 2018-2023 Capital Improvement Program.
Budget Stabilization Reserve
The City's Budget Stabilization Reserve (BSR) serves as the primary General Fund reserve. By
policy, the BSR is maintained in the range of 15 to 20 percent of General Fund operating
expenditures, with a target of 18.5 percent. Any reduction to the reserve below 15 percent
requires City Council approval. At the discretion of the City Manager, any BSR balance above
18.5 percent may be transferred to the Infrastructure Reserve (IR), which was established to
provide funding for maintenance and rehabilitation of the City’s capital assets. The BSR is used
to fund unanticipated one-time costs as opposed to ongoing or recurring operating
expenditures. The City's intent is to fund ongoing programs and services with ongoing dollars.
This forecast assumes that the BSR meets or exceeds the Council approved minimum of 15
percent of anticipated expenses in any given year.
The City has held a long-standing practice of maintaining a BSR balance of no less than 15
percent of General Fund operating expenses. At the close of Fiscal Year 2017, the BSR is
anticipated to remain slightly above the 18.5 percent target at 18.7 percent or $39.3 million.
Establishing sound fiscal reserve policies have been a strong factor in the City being rated AAA
by rating agencies.
City of Palo Alto Page 15
Assumptions NOT Included in Forecast
It should be noted that this Forecast does not include a number of potential impacts to the FY
2018 projected budget and the out years of the Forecast. Below is a list of a number of items
not included (not intended to be a comprehensive list or in any priority order).
Labor negotiations: Four significant labor contracts expire June 30, 2018, Palo Alto Police
Officers Association (PAPOA), the International Association of Fire Fighters (IAFF), Fire Chiefs
Association (FCA), and Police Management Association (PAPMA); with the Service Employees
International Union (SEIU) expiring by the conclusion of calendar year 2018. Any agreements
reached between the City’s bargaining units will need to be incorporated into future budgets
and forecasts, as applicable.
Capital Infrastructure Plan: As referenced earlier, the June 2014 Council approved
Infrastructure Plan of $125.8 million in projects was based on construction and design costs
with data from 2012. As construction costs have increased and the City is required to pay
prevailing wages, the Plan is not sufficiently funded. Current estimates cited in the FY 2018
Adopted Capital Budget anticipate this Plan to cost $196 million (excluding salaries and benefits
and public art costs). In addition, this Forecast does not assume ongoing operating impacts as a
result of the Infrastructure Plan, but future forecasts will include operating cost impacts as the
specific projects are designed.
Parks Master Plan: the Parks Master Plan was finalized in 2017, however, when approved it
identified a need to develop a funding strategy. As such, this Forecast does not yet
contemplate the necessary investments to execute this plan.
Junior Museum and Zoo: In November 2014, the City Council directed staff to negotiate a
capital lease with the Friends of the Junior Museum and Zoo for the reconstruction of the
Junior Museum and Zoo. This Forecast does not assume any additional capital or ongoing
operating costs related to the renovated building and changes in programming as a result of the
new building.
Other Capital Improvement Projects: A number of both assets and planned projects remain on
the horizon, however, none have resulted in formalized capital improvement projects. Major
improvements such as update to the animal care shelter, rail grade separation, the former ITT
site, Foothills Park 7.7 acres, and the Boulware park potential acquisition are not factored into
the Forecast.
City owned assets operated by non-profit organizations: This Forecast does not include any
additional capital investments for the Avenidas Senior Center, the Palo Alto History Museum,
the Ventura Child Care Center, the Junior Museum and Zoo, or the Scout Building.
Cubberley Community Center Master Plan: The City Council has approved the start of the
Cubberley Community Center Master Plan process, however, costs in excess of the dedicated
City of Palo Alto Page 16
Cubberley infrastructure funding as agreed to between the PAUSD and the City are not
assumed in this Forecast. In addition, the lease agreement with the PAUSD is set to expire in
December 2019.
Loans for special projects: From time to time the City’s General Fund will assist other City
operations with modest cash flow loans to bridge fiscal years. For example, the City has
provided over $3 million in loans to the Airport Fund as it works to secure significant grant
funding from the Federal Aviation Administration (FAA) for capital improvement costs. It is
anticipated that other projects such as parking initiatives may need a similar type of short term
loan in order to fund the capital costs necessary to implement certain initiatives.
Cadillac Healthcare Federal Excise Tax: A 40 percent excise tax will be imposed on the value of
health insurance benefits that exceed a certain threshold. CalPERs may be able to design
healthcare premiums to stay below the threshold and discussions are in the preliminary stage.
Congress is also discussing possibly delaying or modifying this tax. If the tax is applicable, the
City may have to pay the tax.
CalPERs City contribution increases: Currently, CalPERS assumes an annual investment return of
7.0 percent. Further, the CalPERS Board approved a gradual de-risking strategy, which is
intended to reduce the assumed investment return to 6.5% over the next 20 years in the years
when CalPERS earns an investment on its portfolio in excess of 11.5%. This Forecast assumes
that CalPERS will meet the annual investment return. However, staff and the Finance
Committee are actively engaged in a conversation about investment return estimates for the
next ten years and strategies to supplement the current annual bill CalPERs provides the City
through mechanisms like providing additional funding to the City’s irrevocable Section 115
Pension Trust. This Forecast does not assume any additional level of funding above and beyond
the annual CalPERS contribution pending further Council direction.
Transient Occupancy Tax increases: The City is in the process of reviewing plans for an
additional hotels and increase in number of rooms. This Forecast does not assume any potential
Transient Occupancy Tax increases from any new hotels.
Tax revenue alignment with updated Comprehensive Plan: The City Council recently completed
updating its Comprehensive Plan, including the potential fiscal impact of various land use
scenarios. The fiscal impact of this plan and various land use scenarios are not factored into this
Forecast.
Changes in the local, regional, and national economy: This Forecast assumes a steadily growing
local economy. Any changes may have positive or negative impacts on economically sensitive
revenues such as Sales Tax and the Transient Occupancy Tax.
City of Palo Alto Page 17
City’s Pension Discussions Continued
Concurrent with the development of the FY 2019 Long Range Financial Report, and the start of
the FY 2019 annual budget process, the Finance Committee has been actively engaged in a
discussion with staff about the growing liabilities associated with pension benefits as directed
by the City Council in the adoption of the FY 2018 budget. To date, the City has made strides to
address these liabilities in a proactive manner both financially and through detailed discussion
on the variables that impact the calculation of liability levels.
The City Council took proactive steps in the last two years by 1) establishing a cost share with
employees for additional pick-up of the employer portion of pension contributions and 2)
establishing an irrevocable Section 115 pension trust fund of over $3 million. The Finance
Committee and staff have held two public discussions on September 19, 2017 and October 17,
2017 discussing the growing pension liability, the variables that impact it, and how we got here.
Most recently at the October 2017 meeting, the Finance Committee provided clear direction for
alternative assumptions to be included in the City’s Long Range Financial Report in addition to
the ongoing referrals from the September 2017 meeting. All parties agreed that a series of
meetings will be necessary to address these assumptions. Once the assumptions are
determined, the Committee will take up potential solutions and implications. Below is a
summary of the requested referrals and the status of them through conversation to date:
September 17, 2017:
1. Develop an easily understood explanation for a general audience articulating the City’s
pension discussion and variables that may impact it
Staff anticipate developing and refining this communication framework upon
further clarification of the desired variable assumptions in determining the City’s
pension liability.
2. Provide total cost per employee assuming an alternative discount rate
Staff provided this chart as part of the October 17, 2017 meeting with the current
phased in reduction to a 6.2 percent discount rate and plans to continue to provide
similar views as the Committee and Council continue discussions surrounding
alternative assumptions.
3. How best can the City utilize expert resources to further inform this pension discussion
Staff are currently in discussions with Stanford University on data sharing and
calculation modeling
4. Reexamine the FY 2018 Adopted Budget and adjust the General Fund expenses to reflect a
six (6) percent discount rate for the retirement system and compare this adjusted total
expense to the Adopted revenues
Staff provided this at the October 17, 2017 meeting
5. Provide the potential payment schedule should the City choose to accelerate the
amortization period (also known as “fresh start” or “refinancing the mortgage”)
Staff provided this as displayed in the June 30, 2016 CalPERs report and discussed
at the October 2017 Finance Committee meeting. It is anticipated that alternative
revisions to these schedules based on potentially different assumed discount rates
City of Palo Alto Page 18
may be necessary in the future as the Committee refines alternative liability
assumptions.
6. Provide employee compensation in tabular form including salary, benefits, unfunded
pension liability, unfunded retiree medical liability for each scenario
Pending, staff anticipates brining this back as part of further discussions
surrounding
October 17, 2017
Provide three alternative scenarios in the Long Range Financial Report: (1) Alternative with a
7.0 percent discount rate but without the current phase-in schedule as proposed by CalPERs,
(2) Alternative with a 6.2 percent discount rate without any phase in, and (3) in consultation
with the City Attorney’s Office, review and report back on the feasibility of data sharing as
requested by Stanford University to bring forward an alternative with a further reduced
discount rate as modeled by Stanford.
In addition, the Committee outlined clear next steps in the continued pension discussions. To
finalize the recommended assumptions for the calculation of the City’s Pension liability and
provide guidance to the City Manager on potential additional pension contribution funding
levels desired to be included in the FY 2019 budget process. Subsequent to identifying the
Council’s recommended assumptions, then being to discuss potential long standing financial
policies to address the pension liability to ensure the City is well positioned to fulfill the benefits
afforded to past, present, and future employees.
Conclusion
The FY 2019 Long Range Financial Forecast puts in perspective the growing desires and the
limited resources available to complete all in an expeditious fashion. It is a report of caution as
the City and its staff grapple with needing to prioritize resources and projects in order to
maintain the financial stability the City has historically maintained. A much more focused
approach to services and investments will be necessary. As the Committee and Council
continue to discuss major projects such as pension, infrastructure, grade separation, a constant
eye on thinking outside of the box and managing expectations will be key. The pension
obligation have not had a crowd out impact to City services to date, but prioritization of needs
and staying within the resources available will be key to having a sound financial future.
RESOURCE IMPACT
Financial implications from this report and input from the Finance Committee will be
considered in the City Manager’s development of the Proposed Fiscal Year 2019 budget.
ENVIRONMENTAL IMPACT
This report is not a project for the purposes of the California Environmental Quality Act.
Environmental review is not required.
Attachments:
Attachment A: Long Range Financial Report Revenue Tables
Attachment B: Long Range Financial Report Expense Tables
FY 2019-2028 Long Range Financial Forecast Revenue Table ATTACHMENT A
Revenue & Other Sources Adopted 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
CAGR 10
Years
Sales Taxes $31,458 $31,097 $32,217 $33,128 $34,026 $34,931 $35,842 $36,742 $37,598 $38,418 $39,379 2.3%
Property Taxes 41,927 45,120 47,996 50,890 53,816 56,792 59,846 63,000 66,245 69,624 73,133 5.7%
Transient Occupancy Tax- General Purpose 16,629 16,487 16,928 17,396 17,892 18,411 18,963 19,553 20,150 20,746 21,327 2.5%
Transient Occupancy Tax- Infrastructure 8,514 8,190 8,408 8,642 8,888 9,146 9,420 9,713 10,009 10,306 10,594 2.2%
Documentary Transfer Tax 6,930 7,207 7,396 7,596 7,805 8,025 8,255 8,499 8,736 8,976 9,210 2.9%
Utility Users Tax 13,867 15,970 16,220 16,562 16,929 17,279 17,620 17,965 18,313 18,652 19,000 3.2%
Other Taxes and Fines 2,060 1,859 1,859 1,859 1,859 1,859 1,859 1,859 1,859 1,859 1,863 -1.0%
Subtotal: Taxes 121,385 125,930 131,024 136,073 141,215 146,443 151,805 157,331 162,910 168,581 174,506 3.7%
Charges for Services 19,427 20,135 21,897 22,965 23,887 24,807 25,667 26,500 27,054 27,348 28,094 3.8%
Stanford Fire & Dispatch Services 7,070 7,265 7,601 7,914 8,197 8,467 8,701 8,918 9,132 9,296 9,358 2.8%
Permits and Licenses 8,837 8,876 8,987 9,092 9,182 9,274 9,358 9,440 9,493 9,520 9,593 0.8%
Return on Investments 1,024 1,166 1,197 1,230 1,266 1,304 1,346 1,390 1,432 1,475 1,519 4.0%
Rental Income 15,575 16,059 16,552 17,048 17,559 18,085 18,627 19,185 19,760 20,352 20,962 3.0%
From Other Agencies 688 539 539 539 539 539 539 539 539 539 539 -2.4%
Charges to Other Funds 11,076 11,432 11,376 11,895 12,364 12,890 13,308 13,701 13,931 14,009 14,250 2.6%
Other Revenue 1,169 2,070 2,089 2,069 2,089 2,109 2,130 2,151 2,173 2,195 2,217 6.6%
Total Non-Tax Revenue 64,866 67,542 70,238 72,752 75,082 77,475 79,675 81,825 83,514 84,732 86,532 2.9%
Operating Transfers-In 20,791 19,757 20,376 20,871 21,326 21,875 22,401 22,909 23,475 24,036 24,614 1.7%
BSR Contribution (One-Time)3,384
Golf Operating Loss Reserve Liquidation
Total Source of Funds $210,426 $213,229 $221,638 $229,695 $237,623 $245,792 $253,881 $262,065 $269,898 $277,349 $285,652
Revenue & Other Sources 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Sales Taxes -1.1%3.6%2.8%2.7%2.7%2.6%2.5%2.3%2.2%2.5%
Property Taxes 7.6%6.4%6.0%5.7%5.5%5.4%5.3%5.2%5.1%5.0%
Transient Occupancy Tax - General Purpose -0.9%2.7%2.8%2.9%2.9%3.0%3.1%3.1%3.0%2.8%
Transient Occupancy Tax - Infrastructure -3.8%2.7%2.8%2.8%2.9%3.0%3.1%3.0%3.0%2.8%
Documentary Transfer Tax 4.0%2.6%2.7%2.8%2.8%2.9%3.0%2.8%2.7%2.6%
Utility Users Tax 15.2%1.6%2.1%2.2%2.1%2.0%2.0%1.9%1.9%1.9%
Other Taxes and Fines -9.8%0.0%0.0%0.0%0.0%0.0%0.0%0.0%0.0%0.2%
Subtotal: Taxes 3.7%4.0%3.9%3.8%3.7%3.7%3.6%3.5%3.5%3.5%
Charges for Services 3.6%8.8%4.9%4.0%3.9%3.5%3.2%2.1%1.1%2.7%
Stanford Fire & Dispatch Services 3.2%4.6%4.1%3.6%3.3%2.8%2.5%2.4%1.8%0.7%
Permits and Licenses 0.4%1.3%1.2%1.0%1.0%0.9%0.9%0.6%0.3%0.8%
Return on Investments 13.9%2.7%2.8%2.9%3.0%3.2%3.3%3.0%3.0%3.0%
Rental Income 3.1%3.1%3.0%3.0%3.0%3.0%3.0%3.0%3.0%3.0%
From Other Agencies -21.7%0.0%0.0%0.0%0.0%0.0%0.0%0.0%0.0%0.0%
Charges to Other Funds 3.2%-0.5%4.6%3.9%4.3%3.2%3.0%1.7%0.6%1.7%
Other Revenue 77.1%0.9%-1.0%1.0%1.0%1.0%1.0%1.0%1.0%1.0%
Total Non-Tax Revenue 4.2%4.0%3.6%3.2%3.2%2.8%2.7%2.1%1.5%2.1%
Operating Transfers-In -5.0%3.1%2.4%2.2%2.6%2.4%2.3%2.5%2.4%2.4%
BSR Contribution (One-Time)
Golf Operating Loss Reserve Liquidation
Total Source of Funds 1.4%3.9%3.6%3.5%3.4%3.3%3.2%3.0%2.8%3.0%
FY 2019-2028 General Fund Long Range Financial Forecast Expense Table ATTACHMENT B
Expenditures & Other Uses
Adopted
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
CAGR 10
Years
Salary 74,191$ 76,171$ 78,361$ 80,475$ 82,445$ 84,343$ 86,262$ 88,190$ 90,141$ 92,117$ 94,113$ 2.4%
Benefits 51,432 54,116 58,512 62,655 66,184 69,592 72,411 74,962 76,546 76,666 78,661 4.3%
Subtotal: Salary & Benefits 125,623 130,287 136,873 143,130 148,629 153,935 158,673 163,153 166,687 168,783 172,774 3.2%
Contract Services 18,984 19,202 19,581 19,899 20,307 20,711 21,129 21,548 21,981 22,427 22,876 1.9%
Supplies & Material 3,544 3,616 3,689 3,763 3,839 3,917 3,996 4,077 4,159 4,243 4,389 2.2%
General Expense 11,933 11,521 11,782 12,087 12,400 12,714 13,036 13,367 14,290 14,665 15,344 2.5%
Debt Service 432 801 569 573 572 573 574 575 570 570 572 2.9%
Rents & Leases 1,567 1,653 1,668 1,684 1,700 1,716 1,733 1,750 1,768 1,786 1,805 1.4%
Facilities & Equipment 517 481 491 501 511 521 531 542 552 563 575 1.1%
Allocated Charges 17,937 18,804 19,306 19,812 20,327 20,858 21,257 21,669 22,021 22,297 22,555 2.3%
Total Non Sal/Ben Before Transfers 54,914 56,078 57,087 58,319 59,655 61,010 62,257 63,528 65,342 66,553 68,116 2.2%
Operating Transfers-Out 4,908 4,404 4,301 4,394 4,493 4,492 4,584 4,678 4,774 4,838 4,904 0.0%
Transfer to Infrastructure - Base 16,467 16,822 17,187 17,561 17,945 18,337 18,739 19,152 19,575 20,009 20,455 2.2%
Transfer to Infrastructure - TOT 8,514 8,190 8,408 8,642 8,888 9,146 9,420 9,713 10,009 10,306 10,594 2.2%
Total Use of Funds $210,426 $215,780 $223,855 $232,045 $239,609 $246,919 $253,672 $260,223 $266,387 $270,488 $276,842 2.8%
Expenditures & Other Uses
Adopted
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Salary N/A 2.7%2.9%2.7%2.4%2.3%2.3%2.2%2.2%2.2%2.2%
Benefits N/A 5.2%8.1%7.1%5.6%5.1%4.1%3.5%2.1%0.2%2.6%
Subtotal: Salary & Benefits N/A 3.7%5.1%4.6%3.8%3.6%3.1%2.8%2.2%1.3%2.4%
Contract Services N/A 1.1%2.0%1.6%2.0%2.0%2.0%2.0%2.0%2.0%2.0%
Supplies & Material N/A 2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%3.4%
General Expense N/A -3.5%2.3%2.6%2.6%2.5%2.5%2.5%6.9%2.6%4.6%
Debt Service N/A 85.3%-28.9%0.7%-0.2%0.2%0.2%0.1%-0.8%0.0%0.4%
Rents & Leases N/A 5.5%0.9%0.9%0.9%1.0%1.0%1.0%1.0%1.0%1.1%
Facilities & Equipment N/A -6.9%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%
Allocated Charges N/A 4.8%2.7%2.6%2.6%2.6%1.9%1.9%1.6%1.3%1.2%
Total Non Sal/Ben Before Transfers N/A 2.1%1.8%2.2%2.3%2.3%2.0%2.0%2.9%1.9%2.3%
Operating Transfers-Out N/A -10.3%-2.3%2.2%2.3%0.0%2.1%2.1%2.1%1.3%1.4%
Transfer to Infrastructure - Base N/A 2.2%2.2%2.2%2.2%2.2%2.2%2.2%2.2%2.2%2.2%
Transfer to Infrastructure - TOT N/A -3.8%2.7%2.8%2.8%2.9%3.0%3.1%3.0%3.0%2.8%
Total Use of Funds N/A 2.5%3.7%3.7%3.3%3.1%2.7%2.6%2.4%1.5%2.3%
FINANCE COMMITTEE MEETING
__12/05/2017__
[X] Placed Before Meeting
[ ] Received at Meeting
Item #_3_
City of Palo Alto
M E M O R A N D U M
TO: Finance Committee
DATE: December 4, 2017
SUBJECT: FY 2019-2028 Long Range Financial Forecast (LRFF) Alternative Scenarios
This memorandum provides additional information pertaining to the FY 2019-2028 Long Range
Financial Report and City Pension Liabilities report, issued on November 21, 2017. When the
report was issued, staff had insufficient data to complete the alternative forecast scenarios
requested by the Finance Committee at the October 17, 2017 committee meeting.
Three alternative scenarios are outlined in this memorandum that each have adverse impacts
on the General Fund’s bottom line. The intent is to review these alternatives as a modeling of
isolated changes in variables and for comparison against the Base Case. As a reminder the base
case reflects the forecasted revenues and expenses if the same general trends and policy
choices continue. The following three alternative scenarios are described in detail in this
memorandum, however, it is important to note these are not the only variables that could
impact the financial outlook.
Alternative Scenario #1: 7.0% discount rate beginning FY 2019 (no phase-in)
Alternative Scenario #2: 6.2% discount rate beginning FY 2019 (no phase-in)
Alternative Scenario #3: Major tax revenue sensitivity analysis
Analysis
As part of the ongoing discussions associated with the Finance Committee regarding
assumptions used to calculate the City’s pension liability, the Committee passed a motion to
direct staff to prepare two alternate long range financial models. Below are the details for each
scenario and a third scenario articulating the implications on major tax revenues should an
economic downturn occur (based on previous experience in the City of Palo Alto). These
models take the LRFF Base case, and alter the assumptions as detailed, resulting in a re-stated
General Fund forecast in totality.
Overall the FY 2019 forecasted gap can range from the status quo of $2.6 million as forecasted
in the base case, up to $11.1 million in Alternative Scenario #3. In each scenario, the near term
experience worsens to varying degrees depending on the model, before improving in the out
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years of the forecast. The cumulative surplus/(gap) over the full ten years of the forecast
improves by approximately $1.6 million in the Alternative #1 when compared to the base case,
however it could grow to $33.5 million should an economic contraction be felt (Alt Scenario #3).
Table 5: FY 2019 - 2028 General Fund LRFF Base Case & Alternative Scenarios (Net One-time
Surplus/(Gap) implications)
Each alternative scenario reaches an inflection point, a point where eventually revenues will
outpace expenses assuming the same general trends and policy choices are continued. For
example, in the first alternative scenario, should the City choose to solve these gaps with one-
time solutions, in FY 2024 the organization will still experience a surplus of $1.3 million.
However, should the City continue its history of prudent financial planning and solve these gaps
with ongoing solutions, such as ongoing expense reductions or ongoing increases in revenues,
the financial outlook is positive through the remaining nine years of the forecast period with
marginal surpluses (excluding alternative scenario #3) beginning as early as FY 2020.
Table 6: FY 2019 - 2028 General Fund LRFF
Base Case & Alternative Scenarios (Net Operating Margin)
Adopted
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Base Case (3,384)$ (2,551) (2,217) (2,350) (1,986) (1,127) 209 1,842 3,511 6,861 8,810
Cumulative Surplus/(Gap)11,002$
Alternative Scenario #1 (3,384)$ (7,006) (5,685) (4,612) (3,242) (1,261) 1,329 3,950 6,452 10,183 12,510
Cumulative Surplus/(Gap)12,619$
Alternative Scenario #2 (3,384)$ (11,129) (9,319) (8,316) (6,872) (4,831) (2,140) 643 2,776 7,089 9,615
Cumulative Surplus/(Gap)(22,484)$
Alternative Scenario #3 (3,384)$ (2,551) (2,362) (11,967) (16,720) (15,465) (8,294) (621) 2,986 8,562 12,908
Cumulative Surplus/(Gap)(33,525)$
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Alternative Scenario #1: 7% discount rate beginning FY 2019
In early 2017, the CalPERs board approved a reduction in the assumed discount rate of the
pension plans from 7.5 percent to 7.0 percent with a phased implementation. The current
CalPERS actuarial valuations reflect this phased approach with a 7.35 percent discount rate in
FY 2019. This alternative scenario assumes that the City’s contributions would immediately be
calculated based on a 7.0 percent discount rate in FY 2019. As a result, the City’s pension
contribution rate increases from 32.6 percent and 55.6 percent for miscellaneous and safety
plans to 37.6 percent and 64.9 percent respectively. This results in a $4.6 million increase in the
anticipated pension payment in FY 2019 when compared to the base case. However, over the
10 year forecast, this results in savings of $1.0 million in pension costs. Overall this model
shows a gap of $7.0 million in FY 2019.
Table 7: FY 2019 - 2028 Long Range Financial Forecast Alternative Scenario #1
The near term outline reflects a more significant gap between revenues and expenses.
However, if that gap were to be addressed through ongoing solutions, the City would face
marginal surpluses of $1.0 million to $2.6 million over the 10 year period. This model does not
project any additional revenue growth compared to the base mode; slight increases in revenues
reflecting fees for service would minimally diminish this increased gap in FY 2019 assuming
current cost recovery
levels and activity
levels are maintained.
This scenario does
assume that the
Budget Stabilization
Reserve (BSR) meets
or exceeds the Council
approved minimum of
15 percent of
anticipated expenses
in any given year.
Alternative Scenario #1
Adopted
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Total Revenue $207,042 $213,229 $221,638 $229,695 $237,623 $245,792 $253,881 $262,065 $269,898 $277,349 $285,652
3.0%3.9%3.6%3.5%3.4%3.3%3.2%3.0%2.8%3.0%
Total Expenditures $210,426 $220,235 $227,323 $234,307 $240,865 $247,053 $252,552 $258,115 $263,445 $267,167 $273,142
4.7%3.2%3.1%2.8%2.6%2.2%2.2%2.1%1.4%2.2%
Net One-Time Surplus/(Shortfall)($3,384)($7,006)($5,685)($4,612)($3,242)($1,261)$1,329 $3,950 $6,452 $10,183 $12,510
Cumulative Net Operating Margin (One-Time)$12,619
Net Operating Margin ($7,006)$1,321 $1,073 $1,369 $1,981 $2,590 $2,622 $2,502 $3,730 $2,328
Cumulative Net Operating Margin $12,510
Assumes that the annual shortfalls are solved with ongoing solutions and annual surpluses are spent for ongoing expenditures.
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Alternative Scenario #2: 6.2% discount rate beginning FY 2019
In early 2017, the CalPERs board approved a reduction in the assumed discount rate of the
pension plans from 7.5 percent to 7.0 percent with a phased implementation. The current
CalPERS actuarial valuations reflect this phased approach with a 7.35 percent discount rate in
FY 2019. However, this alternative scenario assumes an even lower discount rate than that
approved by the CalPERs Board. It assumes a discount rate of 6.2 percent as compared to the
current approved rate of 7.0 percent. This rate reflects Wilshire Associates’ projection for
CalPERs over the next ten (10) years. This alternative also assumes no phase-in of this drop to a
6.2 percent rate, and calculates the City’s contributions immediately in FY 2019. As a result, the
City’s pension contribution rate spikes from 32.6 percent and 55.6 percent for miscellaneous
and safety plans to 42.3 percent and 73.4 percent respectively. This results in an $8.6 million
increase in the anticipated pension payment in FY 2019 when compared to the base case. Over
the 10 year forecast, this results in higher pension costs of $33.6 million. Overall this model
shows a gap of $11.1 million in FY 2019.
Table 9: FY 2019 - 2028 Long Range Financial Forecast Alternative Scenario #2
The near term outline reflects a more significant gap between revenues and expenses.
However, if that gap were to be addressed through ongoing solutions, the City would face
marginal surpluses of $1.0 million to $4.3 million over the 10 year period. This model does not
project any additional revenue growth compared to the base model; slight increases in
revenues reflecting fees for
service would minimally
diminish this increased gap
in FY 2019 assuming
current cost recovery levels
and activity levels are
maintained. This scenario
does assume that the
Budget Stabilization
Reserve (BSR) meets or
exceeds the Council
approved minimum of 15
percent of anticipated
expenses in any given year.
Alternative Scenario #2
Adopted
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Total Revenue $207,042 $213,229 $221,638 $229,695 $237,623 $245,792 $253,881 $262,065 $269,898 $277,349 $285,652
3.0%3.9%3.6%3.5%3.4%3.3%3.2%3.0%2.8%3.0%
Total Expenditures $210,426 $224,358 $230,957 $238,011 $244,495 $250,623 $256,021 $261,422 $267,122 $270,260 $276,037
6.6%2.9%3.1%2.7%2.5%2.2%2.1%2.2%1.2%2.1%
Net One-Time Surplus/(Shortfall)($3,384)($11,129)($9,319)($8,316)($6,872)($4,831)($2,140)$643 $2,776 $7,089 $9,615
Cumulative Net Operating Margin (One-Time)-$22,484
Net Operating Margin ($11,129)$1,810 $1,003 $1,443 $2,041 $2,691 $2,784 $2,132 $4,313 $2,526
Cumulative Net Operating Margin $9,615
Assumes that the annual shortfalls are solved with ongoing solutions and annual surpluses are spent for ongoing expenditures.
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Alternative Scenario #3: Major Tax Revenue Sensitivity Analysis
As discussed in the base case, FY 2019 total tax receipts constitute nearly 60 percent of the
General Fund revenues. The base case assumes that average tax receipts grow 4.2 percent or
$5.0 million in FY 2019 over current FY 2018 projections reflecting 3.7 percent growth over the
FY 2018 budget. The year over year assumed growth in total tax revenues is between 3.5
percent and 4.0 percent. All other assumptions remaining the same, if tax receipts’ growth falls
similar to patterns in prior recessions in the City of Palo Alto, the loss in revenue would be
approximately $11.1 million in the first year. This scenario models the potential impact should
the economy feel a contraction in FY 2021 and the growth rates expected following that
downturn.
Table 11: FY 2019 - 2028 Long Range Financial Forecast Alternative Scenario #3
Table 12: FY 2019 - 2028 Long Range Financial Forecast
Alternative Scenario #3 Net Operating Margin
Summary
These alternative scenarios look to better inform and prepare the City for future implications
not contemplated in the base case forecast. They are intended for discussion purposes and to
assist in forming future policy direction. As the City continues to discuss the pension liabilities
Alternative Scenario #3
Adopted
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Total Revenue $207,042 $213,229 $221,506 $218,636 $220,590 $229,087 $243,279 $257,657 $267,369 $276,987 $287,629
3.0%3.9%-1.3%0.9%3.9%6.2%5.9%3.8%3.6%3.8%
Total Expenditures $210,426 $215,780 $223,868 $230,603 $237,309 $244,552 $251,574 $258,278 $264,384 $268,425 $274,721
2.5%3.7%3.0%2.9%3.1%2.9%2.7%2.4%1.5%2.3%
Net One-Time Surplus/(Shortfall)($3,384)($2,551)($2,362)($11,967)($16,720)($15,465)($8,294)($621)$2,986 $8,562 $12,908
Cumulative Net Operating Margin (One-Time)-$33,525
Net Operating Margin ($2,551)$189 ($9,605)($4,753)$1,255 $7,170 $7,673 $3,607 $5,576 $4,346
Cumulative Net Operating Margin $12,908
Assumes that the annual shortfalls are solved with ongoing solutions and annual surpluses are spent for ongoing expenditures.
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for its employees, the growing costs of infrastructure total cost of ownership and services will
be an important consideration to bear in mind. The City has made sound financial decisions
recently including establishing an irrevocable IRS Section 115 Pension Trust fund. That fund
currently has $3.5 million residing in it ($2.1 million General Fund) reflecting contributions from
all funds made over the past two fiscal years.
The table summarizes the different pension rates as a percentage of salary over the term of the
forecast.
Table 13: Comparison of Pension Rates Among Forecast Scenarios by Plan
FY
2018
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
Miscellaneous (Base
Case, per CalPERS) 30.2% 32.6% 35.9% 38.7% 40.9% 42.6% 43.5% 44.0% 42.0% 38.4% 38.3%
Misc: Alternative #1
(per Bartel Associates) 37.6% 39.2% 40.1% 40.9% 41.3% 40.9% 40.8% 38.5% 34.2% 34.0%
Misc: Alternative #2
(per Bartel Associates) 42.3% 43.2% 44.1% 44.7% 44.9% 44.3% 44.0% 41.5% 37.1% 36.6%
Misc. EE Cost Share 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%
Safety (Base Case,
per CalPERS) 49.7% 55.6% 61.5% 66.3% 70.3% 73.5% 75.1% 76.2% 77.5% 78.0% 78.2%
Safety: Alternative #1
(per Bartel Associates) 64.9% 67.7% 69.4% 71.1% 71.9% 71.2% 71.2% 71.7% 71.3% 70.6%
Safety: Alternative #2
(per Bartel Associates) 73.4% 74.9% 76.4% 77.8% 78.4% 77.4% 77.0% 77.2% 76.4% 75.4%
Safety EE Cost Share 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
Consistent with these increases in the rate, a spike in the contribution from the General Fund
can be seen in the graph below in FY 2019 ranging from $4.6 million to $8.6 million depending
on the
scenario.
Table 14: Comparison of Pension Contributions among Forecast Scenarios
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The graph below articulates the impact on the average total cost to the City of an employee
assuming average salaries of $110,000 and $140,000 for miscellaneous and safety employees
respectively. This shows the marginal increase on the total cost for the alternative scenarios,
and it is for illustrative purposes only. In these scenarios, additional costs up to $11,000 or 5.8
percent of the miscellaneous total employee cost or additional costs up to $25,000 or 8.5
percent of the safety total employee cost would be realized.
Table 15: Comparison of average total cost of an Employee by Plan in FY 2019
*Overtime is included for each plan, but is averaged only for the total overtime budget for eligible groups divided by the eligible number of
employees. Overtime is not pensionable, and changes to the discount rate would be de minimis on the overtime budget.
DEPARTMENT HEAD:
LALO PEREZ
Director, Administrative Services/CFO
CITY MANAGER:
JAMES KEENE
City Manager