HomeMy WebLinkAbout2018-12-04 Finance Committee Agenda PacketFinance Committee
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Tuesday, December 4, 2018
Special Meeting
Community Meeting Room
2:00 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
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comment may be addressed to the full Finance Committee via email at City.Council@cityofpaloalto.org.
Call to Order
Oral Communications
Members of the public may speak to any item NOT on the agenda.
Action Items
1.Discussion and Recommendation to the City Council to Accept the
Macias Gini & O'Connell's Audit of the City of Palo Alto's Financial
Statements as of June 30, 2018 and Management Letter
2.Discussion and Recommendation to Approve the Fiscal Year (FY) 2018
Comprehensive Annual Financial Report (CAFR) and Approve Budget
Amendments in Various Funds
3.Review of Near Term Capital Projects at the Regional Water Quality
Control Plant and Recommendation to Adopt a Resolution Declaring
Intention to Reimburse Expenditures Related to the Four Capital
Projects From the Proceeds of the Bonds to be Issued by the City for
the Wastewater Treatment Fund
4.Discussion and Recommendation to the City Council to Approve the
Chambers Audio Visual Phased Design Upgrade Approach
COUNCIL MEMBER TANAKA PARTICIPATING FROM THE PRINCE PARK TOWER TOKYO,
4-8-1 SHIBAKOEN MINATO,TOKYO 105-8563 JAPAN
2 December 4, 2018
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA
PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE.
DURING NORMAL BUSINESS HOURS.
Future Meetings and Agendas
Adjournment
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City of Palo Alto (ID # 9846)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/4/2018
City of Palo Alto Page 1
Summary Title: Approval of FY 2018 Comprehensive Annual Financial Report
(CAFR) & Budget Amendments
Title: Discussion and Recommendation to Approve the FY 2018
Comprehensive Annual Financial Report (CAFR) and Approve Budget
Amendments in Various Funds
From: City Manager
Lead Department: Administrative Services
Recommended Motion
Staff recommends that Council consider the following motion:
Recommendation
Staff recommends that the Finance Committee forward to the City Council for its approval:
1. Amendments to the Fiscal Year (FY) 2018 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 2018 Comprehensive Annual Financial Report (CAFR) (Attachment C)
Financial Highlights for FY 2018
The General Fund ended FY 2018 with a surplus of $11.5 million when compared to the
assumptions used in the development of the FY 2019 Adopted Operating Budget. The surplus
was largely a result of higher than estimated expense savings primarily in the Police
Department, Development Services Department, and non-departmental activities such as
contingent accounts. Revenue receipts beyond budgeted estimates in documentary transfer
taxes ($2.3 million), Charges for services ($1.7 million), and Sales Taxes ($883,000) also
contributed to the $11.5 million surplus. This surplus is recommended to be utilized for the
following purposes:
• use of reserve as approved by the City Council in the FY 2019 Adopted Budget
($206,000, net of the $4 million);
• FY 2019 Budget Amendments approved by the City Council ($797,000);
• Recommended reserve of revenues because of the fees received from Development
City of Palo Alto Page 2
Services Fees and the Edgewood Plaza development ($4.0 million); and
• Recommended appropriation of expenses for the settlement of fire services agreement
($5.5 million).
After adjusting for amounts summarized above, the ending BSR balance of $42.3 million is 20.1
percent of FY 2019 General Fund budgeted expenditures and operating transfers ($3.3 million
over the 18.5 percent target set by the City Council).
Enterprise Funds, except for Electric, ended the year in surplus positions. The Airport and
Wastewater Treatment Funds financial condition improved notably. The Airport Fund ended
with a surplus of $10.1 million due to the increase in operating revenues and federal grant
reimbursements for the Airport Capital Improvement Projects. The Wastewater Treatment
Fund ended with a surplus of $4.8 million because of an increase in partner billing due to higher
sewage treatment, operating and capital costs.
Internal Service Funds ended the fiscal year with $49.3 million fund balance. All funds showed
positive balances except the Printing and Mailing which reported a $0.4 million negative
balance due to the pension liability per GASB 68 and OPEB liability per GASB 75.
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 2018
Budget. In addition, they provide detailed information on the City’s financial activities for FY
2018 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 of the CAFR) 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.
City of Palo Alto Page 3
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
which had previously levelled off showed signs of growth in FY 2018. The robust local economy
and job growth are also driving increases in other revenues, such as development fees and tax
growth. While these results are welcome, continued rising benefit and other operating costs
diminish this more positive outlook over the next ten or so years.
As a service driven organization, salaries and benefits are a significant component of annual
expenses outside of commodity purchases. The City continues to proactively take steps 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. The City continues to balance the need
to be a competitive employer of choice while implementing cost containment strategies.
Through negotiations and employment agreements, employees pick up a portion of the
employer share of pension contributions, an important cost containment strategy.
Miscellaneous employees in the General Fund pick up 1.0 percent as of July 1, 2018 and Public
Safety employees each picked up 3.0 percent during FY 2018. New contracts for these groups
contemplate further cost containment measures such as increasing this share of cost sharing
between the employer and employees.
Despite 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 $568 million. Council has approved funding a Section 115 Trust
that is separate from CalPERS and acts as a mitigation reserve if the City were unable to meet
its annual required contribution due to budget constraints each year. Through Fiscal Year 2018,
total contributions of $7.6 million have been invested, $4.6 million from the General Fund.
In 2014, Council approved a $125.8 million Council 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 continues to be updated for scope increases
and cost escalations, resulting in an estimated gap in funding of $75 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. Staff and Council continue to work on strategies to close the remaining funding gap.
Because of sound fiscal management and reserve policies, General Fund surpluses totaling
$36.9 million were transferred to the Infrastructure Reserve over the past six years. No
additional transfer of excess funds from the BSR are recommended at this time, however,
should funds become available further contributions may be brought forward.
City of Palo Alto Page 4
A detailed discussion of financial results for FY 2018 is included in the CAFR MD&A. In addition,
staff will continue to discuss the financial outlook and potential strategies to employ during the
FY 2020 budget development to address the management of resources.
Results by Fund:
General Fund Reserves
At the end of the current fiscal year, fund balance of the General Fund was $68.3 million, an
increase of $5.2 million from the prior year. The $68.3 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 (city’s general reserve) policy approved by Council,
the reserve is to remain between 15 and 20 percent of the General Fund operating budget, with
a target goal of 18.5 percent. Any reserve balance in excess of 18.5 percent of expenditures
and transfers may be transferred to the Infrastructure Reserve (IR) in the Capital Projects Fund
at the discretion of the City Manager.
The Fiscal Year 2019 Budget projected to have a $41.3 million Budget Stabilization Reserve
Balance as of June 30, 2018, compared to the actual balance of $52.8 million (this is a
component of the General Fund fund balance noted above). This is $11.5 million above
estimates, however, of this $11.5 million, over 90 percent of it is already approved to be used
or is recommended to be allocated (details are in the table below) leaving an excess of only
$1.0 million from budgeted estimates. This is less than 0.5 percent of the annual expense
budget.
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
$42.3 million; approximately 20.1 percent of the FY 2019 Adopted expenses of $210.7 million.
This level is approximately $3.3 million above the target level of 18.5 percent.
City of Palo Alto Page 5
Year-End Budget Stabilization Reserve (BSR) Summary
(000’s)
General Fund BSR Balance, June 30 2018 $52,826
Uses of the FY 2018 Surplus
FY 2019 Approved Uses of BSR Balance
FY 2019 City Manager Reports Budget Amendments - Approved
(as of October 31, 2018)
(797)
Reserve: Edgewood Plaza development fees (701)
FY 2019 Adopted Budget
(excludes the Finance Committee $4 million referral)
(206)
Recommended Budget Amendments
Reserve: Development Services Fees (3,300)
Fire services settlement payment (Stanford) (5,500)
Current Projected FY 2019 BSR Level (June 30, 2019) $42,322
As part of the FY 2019 Budget Adoption, a $4.0 million reduction in budgeted expenses was
approved by the City Council as recommended by the Finance Committee. The specific impacts
of the reduction are to be identified and articulated during the remainder of the 2018 calendar
year to the Finance Committee, scheduled for discussion on November 28, 2018. At the time of
the adoption of the budget, this reduction in expenses was accounted for in the BSR.
Over the past six fiscal years, a total of $36.9 million in surplus funds have been transferred to
the IR, as shown in the following table. Due to competing priorities, it is recommended that
surplus BSR not be transferred to the IR and it is recommended that the BSR remain at levels
similar to those approved in the FY 2019 Adopted Budget, or approximately 20 percent of the
FY 2019 budgeted expenses.
2012 $ 7,600
2013 8,900
2014 4,000
2015 5,087
2016 7,000
2017 ___4,327
Total Transfers $36,914
City of Palo Alto Page 6
General Fund Revenues
General Fund revenues for FY 2018 were $180.0 million, which is $15.6 million or 9.5 percent
higher than the prior year. Year over year changes in each of the major tax revenue categories
are summarized in the following table.
Category FY 2018 FY 2017 % Change
Increase (Decrease)
Property tax $ 42,839 $ 39,381 8.8%
Sales tax 31,091 29,923 3.9%
Utility user tax 15,414 14,240 8.2%
Transient occupancy tax 24,937 23,477 6.2%
Documentary transfer tax 9,229 7,491 23.2%
Property tax revenue increased due to higher assessed values because of continued robust
commercial and residential real estate markets. Fiscal years 2018 and 2017 included unusual
receipts of $1.4 million and $0.7 million, respectively, for excess Educational Revenue
Augmentation Fund (ERAF) distributions from the County of Santa Clara. ERAF is the fund used
to collect and disburse property taxes that are shifted to/from cities, the county, and special
districts prior to their reallocation to K-14 school agencies. When the state shifts more local
property tax than required to support schools these funds are returned and known as excess
ERAF.
Sales tax revenue has remained flat in recent years however, in FY 2018 a healthy growth of 3.9
percent was noted. This growth is primarily attributable to growth in electronic equipment,
restaurants, furniture/appliance, and auto leases. There is continued erosion of brick and
mortar receipts caused by steady growth in on-line retail sales. However, increased receipts
from the county pool, which include a growing number of on-line retailers collecting sales and
use tax, has been offsetting these losses.
Utility user tax (UUT) revenue increased 1.2 million or 8.2 percent from the prior year. The
increase is driven by an increase is driven equally by electric, gas, water, and the telephone user
services.
Transient occupancy tax (TOT) revenues were $1.5 million or 6.2 percent higher than the prior
year. The average occupancy remained steady at 79.0 percent while room rate increased by 4.6
percent. 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:
City of Palo Alto Page 7
FY 2018 FY 2017 % Change
Increase (Decrease)
General Fund: $ 16,697 $ 15,734 3.6%
Infrastructure Plan:
New hotels – 12% 4,678 4,389 10.2%
All hotels – 2% 3,562 3,354 4.9%
Subtotal Infrastructure 8,240 7,743 7.9%
Total TOT Receipts $ 24,937 $ 23,477 6.2%
Documentary Transfer Tax (DTT) revenues increased $1.7 million, or 23.2 percent, from the
prior year resulting from a strong real estate sales activity.
Other revenue increases of $6.7 million from prior year levels are as follows:
• Charges for Services and Permits and Licenses increased $4.7 million due primarily to
the higher than anticipated receipts for Development Center activities as well as the re-
opening of the Golf Course (spring 2018).
• Actual investment earnings on the City’s portfolio increased by $240,000 or 18.0
percent, however, based on the Government Accounting Standard Board (GASB) rules,
the net interest earnings reported in the financial statement is a loss of $0.8 million
because of accounting for unrealized losses of $2.4 million 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.
Following is a chart which depicts the relative contribution of each tax category over the past
seven years (2012 through 2018), as well as the current budgeted year (2019).
City of Palo Alto Page 8
General Fund Tax Revenues
Actual Fiscal Years 2012 – 2018
Budget Fiscal Year
2019
FY 2019 Budget
FY 2018 Actual
FY 2017 Actual
FY 2016 Actual
FY 2015 Actual
FY 2014 Actual
FY 2013 Actual
FY 2012 Actual
FY 2019
Budget
FY 2018
Actual
FY 2017
Actual
FY 2016
Actual
FY 2015
Actual
FY 2014
Actual
FY 2013
Actual
FY 2012
Actual
Property Tax 45,332 42,839 39,381 36,607 34,117 30,587 28,742 26,494
Sales Tax 31,246 31,091 29,923 30,018 29,675 29,424 25,606 22,132
Utility User Tax 16,092 15,414 14,240 12,469 10,861 11,008 10,861 10,834
Trans Occ Tax 25,049 24,937 23,477 22,366 16,699 12,255 10,794 9,664
Doc Transfer Tax 7,434 9,229 7,491 6,266 10,384 7,811 6,810 4,821
General Fund Expenditures
General Fund expenditures for FY 2018, including encumbrances and reappropriations, totaled
$184.9 million; an increase of 4.9 percent from the prior year. The Original Budget of $180.5
million was increased to the Final Adjusted Budget amount of $190.7 million, primarily due to
the expenditure of prior year encumbered and reappropriated balances; increases for several
departments throughout the year also occurred based on City Council direction per
recommendations contained in City Manager Reports.
Following is a chart which compares actual departmental costs, including encumbrances and
reappropriations, over the past seven years and budgeted costs for FY 2019.
City of Palo Alto Page 9
General Fund Departments
Actual Expenditures Fiscal Years 2012– 2018 (including encumbrances)
Budgeted Expenditures Fiscal Year 2019
($ in thousands)
0 20 40 60 80 100 120 140 160 180 200
FY 2019 Budget
FY 2018 Actual
FY 2017 Actual
FY 2016 Actual
FY 2015 Actual
FY 2014 Actual
FY 2013 Actual
FY 2012 Actual
FY
2019
Budget
FY
2018
Actual
FY
2017
Actual
FY
2016
Actual
FY
2015
Actual
FY
2014
Actual
FY
2013
Actual
FY
2012
Actual
Public Safety 76,765 75,975 72,815 65,005 62,459 63,403 61,222 63,879
Community Services 30,096 28,395 26,573 25,262 23,902 23,402 22,279 21,399
Admin Depts 23,408 22,127 21,406 22,059 19,771 19,784 18,544 18,693
Public Works 19,004 18,908 17,475 15,084 14,210 14,138 13,987 13,789
Planning & Comm Env 11,009 10,446 10,732 10,912 9,026 14,637 13,112 11,186
Development Svcs 13,098 12,560 11,668 10,872 11,335 0 0 0
Library 9,900 9,357 9,266 8,217 8,144 8,072 7,555 7,714
Capital Projects Fund
The Capital Projects Fund ended the year with a fund balance of $77.9 million, which are
comprised of the following:
Fund Balance Component Amount
($ in millions)
Restricted for Library projects $ 638
Reserved for Roth Building rehabilitation 4,020
Reserved for TDR qualified expenditures 667
Reserved for Cubberley expenditures 4,991
Assigned for all other Capital projects 67,594
Total Capital Projects Fund Balance $ 77,910
City of Palo Alto Page 10
Restricted for Library projects of $0.6 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. Staff is
reviewing the need for this reserve due to the completion of library projects and will make
adjustments in the future as necessary.
Assigned for all other Capital projects of $67.6 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, 2018, the City’s Enterprise Funds reported a total net position of $688.1 million; a
decrease of $11.2 million from the prior year. The change in net position for each of the
Enterprise Funds is detailed in the following table.
Enterprise Funds
Change in Net Position for the Year Ended June 30
(in Millions)
Increase/
Fund Name 2018 2017 (Decrease)
Water 5.1$ 6.5$ (1.4)$
Electric (1.2)(1.2)(0.0)
Fiber Optics 1.7 2.2 (0.5)
Gas 1.5 2.4 (0.9)
Wastewater Collection 1.0 1.5 (0.5)
Wastewater Treatment 4.8 (0.1)4.9
Refuse 6.1 3.3 2.8
Storm Drainage 1.8 2.5 (0.7)
Airport 10.1 2.4 7.7
Total Change in Net Position 30.9$ 19.5$ 11.4$
The total Change in Net Assets of $30.9 million is an increase of $11.4 million from the prior
year, primarily due to improvements in Wastewater Treatment, Refuse, and Airport Funds. The
Wastewater Treatment Fund experienced higher revenues because of higher partner billing due
to higher sewage treatment operating and capital costs. The Refuse Fund reported a positive
change from prior year based on the 5 percent rate increase in the current year. The Airport
Fund reported a positive change because of higher program revenue and increase in federal
grant reimbursements.
City of Palo Alto Page 11
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, 2018, except for Wastewater Treatment, which is in a deficit position of $15.0
million due to pension related items, and Airport Fund, which is in a deficit position of $3.3
million due to operating losses that are currently being funded by advances from the General
Fund.
Resource Impact
Recommended actions in the report will align the FY 2018 appropriations with final financial
activities. The approrpiation of funds in FY 2019 as recommended in the BSR table would be
brought forward as part of the FY 2019 Mid-Year Budget Report.
Environmental Review
This is not a project for purposes of the California Environmental Quality Act.
Attachments:
• Attachment A: FY 2018 General Fund
• Attachment B: Recommended FY 2018 Year End Budget Adjustments
• Attachment C: City of Palo Alto FY 2018 - CAFR
EXHIBIT 2
GENERAL FUND SUMMARY ($000s)
FY 2018 FY 2018 FY 2018 FY 2018 FY 2018 FY 2018 FY 2018
Adopted Adjusted CAFR Basis Allocated Encum /Actual Actual to
Budget Budget Rev/Exp Charges Reappropriation Rev/Exp Adj Budget
Variance
Revenues
Sales Tax 31,458 30,208 31,091 n/a 31,091 883
Property Tax 41,927 42,327 42,839 n/a 42,839 512
Transient Occupancy Tax 25,143 24,398 24,937 n/a 24,937 539
Documentary Transfer Tax 6,930 6,930 9,229 n/a 9,229 2,299
Utility User Tax 13,867 15,367 15,414 n/a 15,414 47
Other Taxes, Fines and penalties 2,060 2,060 2,141 n/a 2,141 81
Charges for Services 26,902 25,125 26,824 n/a 26,824 1,699
Permits and Licenses 8,432 8,432 8,560 n/a 8,560 128
Investment Earnings 1,050 1,050 1,535 n/a 1,535 486
Rental Income 15,502 15,485 15,896 n/a 15,896 411
From Other Agencies 1,355 3,074 3,205 n/a 3,205 131
Charges to Other Funds 11,076 11,076 - 11,476 n/a 11,476 400
Other Revenues 502 824 776 - n/a 776 (48)
Total Revenues 186,204 186,356 182,448 11,476 n/a 193,925 7,568
Add: Operating Transfers In 20,791 20,310 20,310 n/a 20,310 -
Prior Year Encum / Reappropriation - 8,097 8,097 n/a 8,097 -
Total Source of Funds 206,995 214,764 210,856 11,476 n/a 222,332 7,568
Expenditures
3,356 3,825 2,244 1,063 317 3,624 201
City Auditor 1,301 1,427 870 363 43 1,276 151
City Clerk 1,374 1,372 819 352 35 1,206 165
City Council 500 524 337 139 13 489 35
City Manager 3,681 4,227 2,509 1,205 317 4,031 195
Administrative Services 7,983 8,038 5,347 2,333 169 7,849 189
Community Services 27,560 28,756 27,122 56 1,217 28,395 362
Fire 31,774 34,077 33,522 183 347 34,052 25
Police 43,372 43,425 40,326 576 1,021 41,923 1,502
Human Resources 3,757 4,044 2,369 1,068 215 3,652 392
Library 9,447 9,767 9,120 237 9,357 410
Planning and Community Environment 8,452 10,708 8,312 66 2,068 10,446 262
Development Services 12,540 13,187 11,749 274 537 12,560 627
Public Works 17,005 19,071 14,569 3,798 541 18,908 163
Non-Departmental 2,510 2,218 667 745 1,412 807
Cubberley Lease 5,924 5,924 5,738 5,739 186
Total Expenditures 180,536 190,590 165,620 11,476 7,821 184,918 5,672
Add: Operating Trans Out 4,908 4,934 4,934 - 4,934 -
Transfer to Infrastructure 24,981 24,801 24,801 - 24,801 -
Total Use of Funds 210,425 220,325 195,355 11,476 7,821 214,653 5,672
Net Surplus/(Deficit)(3,430) (5,562) 15,501 0 7,821 7,679 13,240
CAFR Reconciliation:Unrealized gain/loss on investments (2,364)
Changes in advances to other funds 200
Current year encumbrance / reappropriations 7,821
Prior Year encumbrances / reappropriations (8,097)
CAFR Net Income 5,239
City Attorney
1
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 2019.
-$ (15,000)$
Administrative
Services
Departmental Expense Savings
This action reallocates departmental vacancy savings within the General Fund in order to
offset departments with higher than anticipated expenses in FY 2018.
-$ (200,000)$
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 2019.
-$ (10,000)$
City Attorney's
Office
Departmental Expense Savings
This action reallocates departmental vacancy savings within the General Fund in order to
offset departments with higher than anticipated expenses in FY 2018.
-$ (200,000)$
City Clerk's Office Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-
Departmental to reappropriate funds for city-wide training needs in FY 2019.
-$ (1,000)$
City Clerk's Office Departmental Expense Savings
This action reallocates departmental vacancy savings within the General Fund in order to
offset departments with higher than anticipated expenses in FY 2018.
-$ (75,000)$
City Manager's
Office
Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-
Departmental to reappropriate funds for city-wide training needs in FY 2019.
-$ (8,000)$
City Manager's
Office
Departmental Expense Savings
This action reallocates departmental vacancy savings within the General Fund in order to
offset departments with higher than anticipated expenses in FY 2018.
-$ (100,000)$
Community
Services
Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-
Departmental to reappropriate funds for city-wide training needs in FY 2019.
-$ (11,000)$
Community
Services
Departmental Expense Savings
This action reallocates departmental vacancy savings within the General Fund in order to
offset departments with higher than anticipated expenses in FY 2018.
-$ (200,000)$
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 2019.
-$ (7,000)$
Fire Salaries & Benefits
This action reallocates funding as a result of higher than anticipated salary expenses in FY
2018. These higher anticipated expenditures are due to a number of variables including use
of overtime as a result of significant vacancies throughout the year. This total adjustment
includes strike team reimbursements received from the State in the amount of $489,062.
-$ 1,450,000$
Human Management Development & Training (reallocation to Non-Departmental) Resources This action reallocates departmental management development savings to Non-
Departmental to reappropriate funds for city-wide training needs in FY 2019.
-$ (5,000)$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2018 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 2018 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
Library Management Development & Training (reallocation to Non-Departmental)
This action reallocates departmental management development savings to Non-
Departmental to reappropriate funds for city-wide training needs in FY 2019.
-$ (4,000)$
Non-
Departmental
Management Development & Training (reallocation from various departments)
This action reallocates departmental management savings to Non-Departmental to
reappropriate funds for city-wide training needs in FY 2019.
-$ 85,000$
Non-
Departmental
Transient Occupancy Tax/Transfer to Capital Improvement Fund
This action increases the transfer to the Capital Improvement Fund as it relates to Transient
Occupancy Tax (TOT) revenues earmarked for city-wide infrastructure improvements due to
higher than anticipated TOT collections.
255,184$ 255,184$
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 2019.
-$ (3,000)$
Planning &
Community
Environment
-$ 27,000$
Planning &
Community
Environment
Transfer to Vehicle Maintenance Fund
This action increases the transfer from the General Fund to the Vehicle Maintenance
Fund for the purchase of a vehicle out of cycle. This expenditure is offset by other non-
salary savings within the Department.
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
2018.
-$ (227,000)$
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 2019.
-$ (13,000)$
Police Departmental Expense Savings
This action reallocates departmental vacancy savings within the General Fund in order to
offset departments with higher than anticipated expenses in FY 2018.
-$ (475,000)$
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 2019.
-$ (8,000)$
GENERAL FUND (102) SUBTOTAL 255,184$ 255,184$
2
Department Adjustment Adjustment
CAPITAL IMPROVEMENT FUNDS
GENERAL FUND CAPITAL IMPROVEMENT FUND (471)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 133,333$
Capital Transfer from General Fund
This action increases the transfer from the General Fund related to TOT revenue Council
earmarked to use for city-wide infrastructure improvements due to actual revenue collected
being higher than budgeted in FY 2018.
255,184$ -$
Capital Transfer from Gas Tax Fund/ Street Maintenance (PE-86070)
This action increases the transfer from the Gas Tax Fund. In October, 2017 the City Council
approved a budget amendment in the Capital Fund to recognize and appropriate SB1 funding
directly to the Capital Improvement Project PE-86070, Street Maintenance (CMR 8423). A
technical correction is recommended to recognize the SB1 revenue estimate in the Gas Tax
Fund. A corresponding transfer is recommended from the Gas Tax Fund to the Capital Fund to
appropriate funding for this project.
402,500$ 17,124$
Capital Revenue from the State of California
This action is a technical correction to decrease the SB1 funding that was originally recorded as
Revenue from the State of California in the Capital Improvement Fund as part of CMR 8423. A
separate action in this document recommends updating the SB1 funding to be recorded in the
Gas Tax Fund, with a subsequent transfer to the Capital Improvement Fund to support the
Street Maintenance Project (PE-86070).
(385,376)$ -$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 104,727$
GENERAL FUND CAPITAL IMPROVEMENT FUND (471) SUBTOTAL 255,184$ 255,184$
CUBBERLEY PROPERTY INFRASTRUCTURE FUND (472)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 20,710$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (20,710)$
CUBBERLEY PROPERTY INFRASTRUCTURE FUND (472) SUBTOTAL -$ -$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2018 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
3
Department Adjustment Adjustment
ENTERPRISE FUNDS
GAS FUND (514 & 524)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 132,365$
Utilities Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (132,365)$
GAS FUND (514 & 524) SUBTOTAL -$ -$
WASTEWATER COLLECTION FUND (527)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 64,713$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
(64,713)$
WASTEWATER COLLECTION FUND (527) SUBTOTAL -$ -$
WATER FUND (522)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 284,240$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (284,240)$
WATER FUND (522) SUBTOTAL -$ -$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2018 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
-$
4
Department Adjustment Adjustment
INTERNAL SERVICE FUNDS
PRINT AND MAILING FUND (683)
Administrative
Services
Revenue
This action increases the appropriation for revenue in the Print and Mailing Fund to align with
year end revenues collected.
305,000$ -$
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.
-$ 205,000$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 100,000$
PRINT AND MAILING FUND (683) SUBTOTAL 305,000$ 305,000$
INFORMATION TECHNOLOGY FUND (682)
Capital Capital Improvement Project Adjustments
This action reflects the combined impact from adjustments to projects as outlined in
Attachment A, Exhibit 2.
-$ 4,897$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (4,897)$
INFORMATION TECHNOLOGY FUND (682) SUBTOTAL -$ -$
VEHICLE REPLACEMENT & MAINTENANCE FUND (681)
General Fund Transfer from General Fund
This action increases the transfer from the General Fund to the Vehicle Maintenance Fund for
the purchase of a vehicle out of cycle. This expenditure is offset by other non-salary savings
within the Department.
27,000$ -$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 27,000$
VEHICLE REPLACEMENT & MAINTENANCE FUND (681) SUBTOTAL 27,000$ 27,000$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2018 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
5
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
PUBLIC ART FUND (207)
Community
Services
Public Art Fee Revenue
This action increases the estimate for Art Fees as result of higher than anticipated revenues in
FY 2018.
90,000$ -$
Community
Services
Salaries & Benefits
This action increases the salaries and benefits appropriation as result of slightly higher than
anticipated expenses in FY 2018. These higher than anticipated expenditures are a result of a
change in benefit election that occured during the year.
-$ 2,600$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 87,400$
PUBLIC ART FUND (207) SUBTOTAL 90,000$ 90,000$
PUBLIC SERVICES DONATION FUND (191)
Various Donations Revenue/Non-Salary Expenses
This action increases the appropriation for expenses in the Public Services Donation Fund to
align with FY 2018 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.
77,000$ 47,000$
Fund Balance Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 30,000$
PUBLIC SERVICES DONATION FUND (191) SUBTOTAL 77,000$ 77,000$
GAS TAX FUND (231)
Non-
Departmental
State of California Revenue: SB1
This action increases the revenue estimate for State of California SB1 allocations. In October,
2017 the City Council approved a budget amendment in the Capital Fund to recognize and
appropriate SB1 funding directly to the Capital Improvement Project PE-86070, Street
Maintenance (CMR 8423). A technical correction is recommended to recognize the SB1 revenue
estimate in the Gas Tax Fund. A corresponding transfer is recommended from the Gas Tax Fund
to the Capital Fund to appropriate funding for this project.
402,500$ -$
Non-
Departmental
Transfer to Capital Fund
This action increases the transfer to the Capital Fund. In October, 2017 the City Council
approved a budget amendment in the Capital Fund to recognize and appropriate SB1 funding
directly to the Capital Improvement Project PE-86070, Street Maintenance (CMR 8423). A
technical correction is recommended to recognize the SB1 revenue estimate in the Gas Tax
Fund. A corresponding transfer is recommended from the Gas Tax Fund to the Capital Fund to
appropriate funding for this project.
-$ 402,500$
GAS TAX FUND (231) SUBTOTAL 402,500$ 402,500$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2018 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
6
Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2018 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
CALIFORNIA AVENUE PARKING PERMITS FUND (237)
Planning &
Community
Environment
Non Salary Expense (Contract Services)
This action increases the contract services appropriation as result of higher than anticipated
expenses in FY 2018 for the California Avenue parking study and the gathering of parking
occupancy data. A corresponding decrease to expense appropriations elsewhere in the fund is
recommended to offset this action.
-$ 20,000$
Public Works Non Salary Expense (Contract Services)
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 2018.
-$ (20,000)$
CALIFORNIA AVENUE PARKING PERMITS FUND (237) SUBTOTAL -$ -$
LAW ENFORCEMENT SERVICES FUND (248)
Police State Revenue: Citizens Options for Public Safety (COPS)/Non Salary Expense $ 68,000 151,000 $
Fund Balance
This action increases the appropriation for expenses in the Law Enforcement Services Fund to
align with year end expense and encumbered funds. A corresponding adjustment to revenue is
recommended for allocations received from the State during the period. The acceptance of the
COPS CY 2018 annual expenditure plan was approved by the City Council in October, 2018
(CMR 9682).
Adjustment to Fund Balance
This action increases the fund balance to offset adjustments recommended in this report.
-$ 83,000$
LAW ENFORCEMENT SERVICES FUND (248) SUBTOTAL $ 151,000 151,000 $
7
Department Adjustment Adjustment
DEBT SERVICE & AGENCY TRUST FUNDS
CABLE - JPA FUND (779)
Administrative
Services
Cable Franchise Fee Revenue/Inter-Agency Expense
This action increases the cable franchise fee revenue collected by the City due to higher than
anticipated fee collections in FY 2018. As the City manages this fund, a corresponding increase
to inter-agency expenses is also recommended to align the revenue collected with the funding
that was distributed to the other Cable Franchise JPA partners.
374,000$ 374,000$
CABLE - JPA FUND (779) SUBTOTAL 374,000$ 374,000$
EYERLY TRUST FUND (774)
Administrative
Services
Investment Income/General Expense (Special Events)
This action increases the interest income revenue collected in this fund to align the budget with
the actual revenue collected. A corresponding increase to the appropriation for General
Expenses within the fund is also recommended to align budget levels with actual expenditures
in FY 2018.
3,000$ 3,000$
EYERLY TRUST FUND (774) SUBTOTAL 3,000$ 3,000$
2002 DOWNTOWN PARKING IMPROVEMENT FUND (360)
Administrative
Services
Bond Proceeds
This action recognizes Certificates of Participation (COP) bond funding that was issued as part of
the refinancing of debt for the 2002 Downtown parking garage improvements approved by the
Council in CMR 9063 on April 16, 2018.
595,000$ -$
Administrative
Services
Debt Service Payment
This action appropriates additional funding to repay the original debt service on the 2002
Downtown parking garage improvement bond in order to refinance the bond debt as approved
by the Council in CMR 9063 on April, 16, 2018.
-$ 833,000$
Fund Balance Adjustment to Fund Balance
This action decreases the fund balance to offset adjustments recommended in this report.
-$ (238,000)$
2002 DOWNTOWN PARKING IMPROVEMENT FUND (360) SUBTOTAL 595,000$ 595,000$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2018 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
8
Project
Title Number Revenue Expense Comments
Salaries and Benefits Capital
Improvement Fund CIP Projects
AS-10000 $ (1,913,242) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
JMZ Renovation AC-86017 $ (255,757) Costs associated with this project was erroneously
charged in a different project, Rinconada Park
Improvements (PE-08001). A decrease in this
project is offset by an increase in PE-08001.
Open Space Trails and Amenities OS-00001 $ 64,702 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 $ 255,757 Adjustment to cover costs errorneously charged in
this project instead of JMZ Renovation (AC-86017).
Highway 101 Pedestrian/Bicycle
Overcrossing
PE-11011 $ 172,578 Adjustment from 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 $ 7,739 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 $ 28,501 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 $ 406 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Bayland Interpretive Center PE-14018 $ 188,229 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 $ 119,480 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 $ 135,842 Adjustment from 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 $ 470,200 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 $ 25,847 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
City Hall 3rd Floor Remodel PE-17002 $ 23,927 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 2018 CAPITAL IMPROVEMENT PROGRAM
CAPITAL IMPROVEMENT FUND
9
Project
Title Number Revenue Expense Comments
ATTACHMENT B, EXHIBIT 2
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2018 CAPITAL IMPROVEMENT PROGRAM
Boulware Park Improvements PE-17005 $ 31,633 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Baylands Flood Protection PE-17006 $ 133,333 Adjustment is necessary to fund additional costs
associated with the Baylands Flood Protection
study.
CalTrain Corridor Video Monitoring
System
PE-18001 $ 25,026 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Emergency Facility Improvements PF-15005 $ 1,130 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Benches, Signage, Fencing, Walkways,
Landscaping
PG-06003 $ 14,592 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 $ 10,432 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Dog Park Installation and Renovation PG-18001 $ 42,261 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Downtown Parking Wayfinding PL-15004 $ 414 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Sidewalk Repairs PO-89003 $ 550,303 Adjustment from Salaries and Benefits Capital
Improvement Fund CIP Projects (AS-10000) to
allocate Salaries and Benefits based on actual
expenditures
Total $ - $ 133,333
Cubberley Repairs CB-17001 $ 20,710 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 20,710
Gas Main Replacement - Project 22 GS-12001 $ 132,365 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 132,365
Library Computer Systems TE-11001 $ 4,897 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 4,897
Wastewater Collection System
Rehabilitation/Augmentation Project 25
WC-14001 $ 64,713 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 64,713
CUBBERLEY PROPERTY INFRASTRUCTURE FUND
GAS FUND
TECHNOLOGY FUND
WASTEWATER COLLECTION FUND
10
Project
Title Number Revenue Expense Comments
ATTACHMENT B, EXHIBIT 2
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2018 CAPITAL IMPROVEMENT PROGRAM
Water Main Replacement Project - 26 WS-12001 $ 259,937 Increase to project due to higher than anticipated
expenditures.
Water System, Customer Connections WS-80013 $ 24,303 Increase to project due to higher than anticipated
expenditures.
Total $ - $ 284,240
$ - $ 640,258 TOTAL CIP ADJUSTMENTS
WATER FUND
11
2017 - 2018
Comprehensive
Annual Financial
Report
City of Palo Alto, California
Fiscal Year Ended: June 30, 2018
Attachment C
Fiscal Year 2018
Comprehensive Annual
Financial Report
City of Palo Alto, CA Fiscal Year Ended June 30, 2018
City Council
Liz Kniss, Mayor
Eric Filseth, Vice Mayor
Tom DuBois
Adrian Fine
Karen Holman
Lydia Kou
Gregory Scharff
Greg Tanaka
Cory Wolbach
James Keene, City Manager
Edward K. Shikada, Assistant City Manager/Utilities General Manager
Kiely Nose, Interim Director of Administrative Services/Chief Financial Officer
Rima Lobo, Finance Manager
Prepared by: Administrative Services Department
CITY OF PALO ALTO
For the Year Ended June 30, 2018
Table of Contents
Page
INTRODUCTORY SECTION:
Transmittal Letter .................................................................................................................................... i
City Officials ........................................................................................................................................... vii
Organizational Structure……………………………………………………………… … ................................................. viii
Administrative Services Organization .................................................................................................... ix
GFOA Certificate of Achievement for Excellence in Financial Reporting ............................................... x
FINANCIAL SECTION:
Independent Auditor’s Report .............................................................................................................. 1
Management’s Discussion and Analysis
(Required Supplementary Information – Unaudited) ...................................................................... 5
Basic Financial Statements
Government‐wide Financial Statements:
Statement of Net Position ....................................................................................................... 29
Statement of Activities ............................................................................................................ 31
Governmental Fund Financial Statements:
Balance Sheet .......................................................................................................................... 33
Reconciliation of the Balance Sheet of Governmental Funds to
the Statement of Net Position ‐ Governmental Activities ................................................. 34
Statement of Revenues, Expenditures and Changes in Fund Balances .................................. 35
Reconciliation of the Statement of Revenues, Expenditures and Changes
in Fund Balances of Governmental Funds to the Statement of Activities –
Governmental Activities ................................................................................................... 36
Statement of Revenues, Expenditures and Changes in Fund Balance –
Budget and Actual – General Fund ................................................................................... 37
Proprietary Fund Financial Statements:
Statement of Net Position ....................................................................................................... 38
Statement of Revenues, Expenses and Changes in Fund Net Position ................................... 40
Statement of Cash Flows ......................................................................................................... 42
Fiduciary Fund Financial Statement:
Statement of Assets and Liabilities ......................................................................................... 44
Index to the Notes to the Basic Financial Statements ................................................................. 45
Notes to the Basic Financial Statements ...................................................................................... 47
Required Supplementary Information:
Schedule of Changes in Net Pension Liability and related Ratios – Miscellaneous Plan ............. 109
Schedule of Pension Contributions – Miscellaneous Plan ........................................................... 110
CITY OF PALO ALTO
For the Year Ended June 30, 2018
Table of Contents (Continued)
Page
Required Supplementary Information:
Schedule of Changes in Net Pension Liability and Related Ratios – Safety Plan ......................... 111
Schedule of Pension Contributions – Safety Plan ........................................................................ 112
Schedule of Changes in Net OPEB Liability and Related Ratios ................................................... 113
Schedule of Employer OPEB Contributions ................................................................................. 114
Supplementary Information:
Non‐Major Governmental Funds:
Combining Balance Sheet ...................................................................................................... 115
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 117
Non‐Major Special Revenue Funds:
Combining Balance Sheet ...................................................................................................... 120
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 122
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 124
Non‐Major Debt Service Funds:
Combining Balance Sheet ...................................................................................................... 130
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 131
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 132
Non‐Major Permanent Fund:
Schedule of Revenues, Expenditures and
Changes in Fund Balance – Budget and Actual ............................................................... 134
Internal Service Funds:
Combining Statement of Fund Net Position .......................................................................... 136
Combining Statement of Revenues, Expenses and
Changes in Fund Net Position ......................................................................................... 137
Combining Statement of Cash Flows ..................................................................................... 138
Fiduciary Funds:
Statement of Changes in Assets and Liabilities – All Agency Funds ...................................... 140
CITY OF PALO ALTO
For the Year Ended June 30, 2018
Table of Contents (Continued)
Page
STATISTICAL SECTION:
Financial Trends:
Net Position by Component ......................................................................................................... 143
Changes in Net Position ............................................................................................................... 144
Fund Balances of Governmental Funds ....................................................................................... 146
Changes in Fund Balances of Governmental Funds ..................................................................... 148
Revenue Capacity:
Electric Operating Revenue by Source ......................................................................................... 149
Supplemental Disclosure for Water Utilities ............................................................................... 150
Supplemental Disclosure for Gas Utilities .................................................................................... 151
Assessed Value of Taxable Property ............................................................................................ 152
Property Tax Rates, All Overlapping Governments ..................................................................... 153
Property Tax Levies and Collections ............................................................................................ 154
Principal Property Taxpayers ....................................................................................................... 155
Assessed Valuation and Parcels by Land Use .............................................................................. 156
Per Parcel Assessed Valuation of Single Family Residential ........................................................ 157
Debt Capacity:
Ratio of Outstanding Debt by Type .............................................................................................. 158
Computation of Direct and Overlapping Debt ............................................................................. 159
Computation of Legal Bonded Debt Margin ................................................................................ 160
Revenue Bond Coverage .............................................................................................................. 161
Demographic and Economic Information:
Taxable Transactions by Type of Business ................................................................................... 162
Demographic and Economic Statistics ......................................................................................... 163
Principal Employers...................................................................................................................... 164
Operating Information:
Operating Indicators by Function/Program ................................................................................. 166
Capital Asset Statistics by Function/Program .............................................................................. 168
Full‐Time Equivalent City Government Employees by Function .................................................. 170
SINGLE AUDIT SECTION:
Index to the Single Audit Report .................................................................................................. 171
Independent Auditor’s Report on Internal Control Over Financial Reporting and
on Compliance and Other Matters Based on an Audit of Financial Statements
Performed in Accordance With Government Auditing Standards ........................................ 173
Independent Auditor’s Report on Compliance for Each Major Federal Program and
Report on Internal Control Over Compliance Required by Uniform Guidance .................... 175
Schedule of Expenditures of Federal Awards .............................................................................. 177
Notes to the Schedule of Expenditures of Federal Awards ......................................................... 179
Schedule of Findings and Questioned Costs ................................................................................ 180
Schedule of Prior Years Findings and Questioned Costs ............................................................. 182
Introduction
……….…………………………………………………………………
City of Palo Alto i
Transmittal Letter…………………………………………………...…
November 19, 2018
THE HONORABLE CITY COUNCIL
Palo Alto, California
Attention: Finance Committee
COMPREHENSIVE ANNUAL FINANCIAL REPORT
YEAR ENDED JUNE 30, 2018
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, 2018 in accordance with Article III, Section 16 and Article IV, Section 13 of the City of Palo Alto
Charter. The format and content of this CAFR complies with the principles and standards of accounting
and financial reporting adopted by the Governmental Accounting Standards Board (GASB), and
contains all information needed for readers to gain a reasonable understanding of City of Palo Alto
financial affairs. Management takes sole responsibility for the completeness and reliability of the
information contained in this report, based upon a comprehensive framework of internal control that
it has established for this purpose. The objective of internal controls is to provide reasonable, rather
than absolute, assurance that the financial statements are free of any material misstatements.
The City of Palo Alto’s financial statements have been audited by Macias Gini & O’Connell LLP, Certified
Public Accountants. The goal of the audit is to obtain reasonable assurance that the financial
statements are free of material misstatements and are fairly presented in conformity with generally
accepted accounting principles (GAAP). Macias Gini & O’Connell issued an unqualified opinion for the
fiscal year ended June 30, 2018. 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
……….…………………………………………………………………
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 2.2 percent. This compares to Santa Clara County’s unemployment rate of 2.7 percent. The
state’s unemployment rate was 4.5 percent.
Real Estate Market: In its most recent annual report, the Santa Clara County Assessor’s Office noted
that Santa Clara County’s 2017/2018 assessment roll increased 7.4 percent, from $419 billion to $450
billion. The assessment roll growth was balanced throughout the County, with Santa Clara and
Mountain View once again led the highest growth. Palo Alto’s assessment roll growth rate was 7.8
percent, compared to 8.6 percent in the prior report. Reassessment of changes in ownership,
significant new construction and the increase in the value of new business property were the primary
factors contributing to the robust growth. With its highly regarded school district, well‐educated and
high‐income population, cultural amenities, and the presence of Stanford University, the City’s real
estate activity continues to experience a pattern of high demand and short supply. The result of this
continued pattern is reflected in the increase in FY 2018 property tax revenue.
Introduction
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City of Palo Alto iii
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 2019 and FY 2020 expenses, as
written in the City’s Adopted Budget. The Council adopted a General Fund budget with expenses of
$210.7 million for FY 2019 an increase of 0.1 percent from the prior year Adopted Budget. This modest
increase is due primarily to a downward adjustment in expenses of $4.0 million as directed by the City
Council. Through strategic actions taken over the past few years, the City was able to deal with
increasing salary and benefit costs, increase its investments in infrastructure, and proactively
contribute to the City’s irrevocable Section 115 Pension Trust Fund, while balancing the General Fund
in FY 2019. Through the Budget Adoption process, the City Council directed staff to identify an
additional $4.0 million in savings, which is recognized as a contribution to the Budget Stabilization
Reserve in the FY 2019 Adopted Operating Budget. Staff anticipates returning to the City Council to
identify the $4.0 million in savings during FY 2019 and incorporating the policy direction from City
Council into the FY 2019 Operating Budget and into the development of the FY 2020 Operating Budget.
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
totaling $558 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. The most recent labor agreements with the Safety units increase the employee
pick‐up of the employer share over the term of the agreement. The current labor agreements with the
miscellaneous groups also include this cost‐sharing mechanism. Further pension cost sharing with
employees could be necessary to fund future cost increases. The City has established an irrevocable
Section 115 Pension Trust Fund that is separate from CalPERS and could act as a mitigation reserve if
the City were unable to meet its annual required contribution due to budget constraints in a given
year. As of the end of Fiscal Year 2018, the City has contributed $5.5 million to this trust, of which $3.4
million is from the General Fund. Additional contributions are included in the FY 2019 Adopted
Operating Budget to bring the total to $7.6 million across all funds, of which $4.6 million would be
from the General Fund.
As economic growth continues to flourish in this area of Silicon Valley, it also underscores the
challenges of increased traffic and congestion, affordable housing and demand for services. These
issues were reflected in the setting of Council priorities for 2018:
Transportation
Housing
Budget and Finance (focus on funding our infrastructure
and pensions)
Grade Separation (choose preferred alternative by end of
year)
In keeping with these priorities, the City has begun to implement various strategies to address traffic
congestion in the City, including: parking management (Residential Preferential Parking program,
parking technology enhancements, garage wayfinding signage), CalTrain Grade Separation,
transportation demand management (Transportation Management Association, enhanced shuttle
Introduction
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iv City of Palo Alto
services, CalTrain GoPass 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 position 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.
In FY 2014, the City Council approved a $125.8 million Infrastructure Plan (IP), which includes
projects such as a new Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian
plan and two parking garages. Through the development of the 2019‐2023 CIP, the IP was updated
for scope increases and cost escalations, resulting in a revised Infrastructure Plan of $249.9
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 $186.7 million. Staff was tasked with closing this funding gap in the FY
2019 budget process, and this was done through project prioritization within the 2019‐2023 CIP and
additional revenue assumptions. The 2019‐2023 CIP assumes the opening of new Marriott hotels in
FY 2020. Based on this, an additional $3.6 million of annual TOT funding as well as one time COP
issuance of $35.2 million is estimated to cover the cost of the IP projects.
Rate increases will take effect in FY 2019 for electric, fiber optics, gas, storm drain, wastewater, and
water services. In general, the size and timing of rate adjustments take into account current and future
revenue requirements and reserve levels for needs such as increasing costs of commodity purchases,
capital construction costs, and contractually obligated increases to compensate for inflation, usually
based on the annual change to the Bay Area consumer price index (CPI).
Long Range Financial Forecast: The City produces a 10 year General Fund Long Range Financial
Forecast (LRFF) annually. This comprehensive report analyzes local, state, and federal economic
conditions, short and long‐term revenue and expense trends, and addresses challenges such as funding
long‐term pension and healthcare liabilities and infrastructure needs. The forecast is designed to
highlight finance issues which the City can address proactively. Moreover, it is a tool that allows
policymakers an opportunity to prioritize funding needs over time. It sets the tone for the annual
budget process and is one of the many tools and reports that Council uses for financial planning.
The FY 2019 – FY 2028 LRFF was presented to the Finance Committee in December 2017 and to the
City Council in January 2018. The FY 2019 forecast anticipated a near‐term gap in the General Fund.
Staff identified and recommended a course of action that would structurally balance the General Fund
in FY 2019 and largely balance the General Fund on an ongoing basis. As discussed above, during the
adoption of the FY 2019 Operating Budget, the City Council directed that an additional $4.0 million be
reduced in the General Fund, which has been recognized in the Budget Stabilization Reserve (BSR) in
the FY 2019 Budget. By policy, the City maintains a General Fund BSR level of 15 to 20 percent of the
General Fund Operating Budget, with a target of 18.5 percent. As of June 30, 2018 the BSR balance is
$52.8 million. Staff will bring forward recommendations regarding the potential uses of the BSR as part
of the FY 2018 year‐end close process.
Both Moody’s and Standard and Poor’s (S&P) awarded their highest credit rating of Triple A to the
City’s general obligation debt. This rating has been awarded to only a few cities in California.
SIGNIFICANT EVENTS AND ACCOMPLISHMENTS
Introduction
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City of Palo Alto v
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, the environment, education, recreational
facilities, cultural events and safe streets and neighborhoods are important
aspects of the community. The City has been recognized for its accomplishments
with a wide variety of awards and recognitions over the past year. Following is
a sampling:
Recipient of the Acterra Business Environmental Award and the Acterra Award for
Sustainability in recognition of the City’s overall approach, commitment and leadership in
sustainability.
Awarded Voice of the People Award for Excellence in the Natural Environment by the National
Research Center for being a top performing jurisdiction in the National Citizen Survey.
Santa Clara County presented Palo Alto with the Top Public Health Award for reducing second
hand smoke, the Safe Routes to School program and offering healthier choices in public
facilities like water bottle filling stations and healthy snacks.
The World Health Organization recognized Palo Alto as an Age‐Friendly City for involving older
adults in decision‐making, encouraging older adults to remain in the community and
promoting their autonomy.
Recipient of the Platinum Level Beacon Award – the highest level possible – for its effort and
leadership in addressing climate change.
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;
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 2018
CAFR will be submitted to the GFOA award program to be considered for this distinguished financial
reporting award.
Acknowledgments: This CAFR reflects the hard work, talent and commitment of the staff members of
the Administrative Services Department. This document could not have been accomplished without
their efforts and each contributor deserves sincere appreciation. Management wishes to acknowledge
the support of the entire accounting staff for their high level of professionalism and dedication.
Management would also like to express its appreciation to Macias Gini & O’Connell, the City’s
independent external auditors, who assisted and contributed to the preparation of this
Comprehensive Annual Financial Report.
Introduction
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vi City of Palo Alto
Special acknowledgment must be given to City Council and the Finance and Policy and Services
Committees for their dedication to directing the financial affairs of the City in a responsible,
professional and progressive manner.
Respectfully submitted,
KIELY NOSE, JAMES KEENE,
Interim Chief Financial Officer City Manager
Introduction
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City of Palo Alto vii
City of Palo Alto City Officials ………………………….…………
Finance Committee
Gregory Scharff, Chair
Eric Filseth
Lydia Kou
Greg Tanaka
Policy and Services Committee
Adrian Fine, Chair
Tom DuBois
Karen Holman
Cory Wolbach
Council‐Appointed Officers
City Manager
James Keene
City Attorney
Molly Stump
City Clerk
Beth Minor
City Auditor
Harriet Richardson
City Council
Liz Kniss, Mayor
Eric Filseth, Vice‐Mayor
Tom DuBois
Adrian Fine
Karen Holman
Lydia Kou
Gregory Scharff
Greg Tanaka
Cory Wolbach
Introduction
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viii City of Palo Alto
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
Monique le Conge‐Ziesenhenne,
Interim Director
Administrative Services
Kiely Nose, Interim Chief Financial Officer
Fire
Eric Nickel, Chief
Human Resources
Rumi Portillo, Director
Police
Robert Jonsen, Chief Planning & Community Environment
Jonathan Lait, Interim Director
Utilities
Edward K. Shikada, General Manager
Public Works
Brad Eagleston, Interim Director
Library
Monique le Conge‐Ziesenhenne,
Director
Development Services
Michelle Flaherty, Interim 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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City of Palo Alto ix
Administrative Services Organization ………
Administrative Division Treasury Division
Accounting Division Budget Division
Purchasing Division Real Estate Division
Mission Statement
To provide proactive administrative and technical support to
City departments and decision makers, and to safeguard and
facilitate the optimal use of City resources.
Administrative Services Department
Introduction
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x City of Palo Alto
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, 2018, 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, 2018, and the respective changes
in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison
for the General Fund for the year then ended in accordance with accounting principles generally accepted
in the United States of America.
Emphasis of Matter
As discussed in Note 1(n) to the financial statements, effective as of July 1, 2017, the City adopted the provisions of
Governmental Accounting Standards Board Statement No. 75, Accounting and Financial Reporting for
Postemployment Benefits Other Than Pensions. Our opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s
discussion and analysis, the schedules of changes in net pension liability and related ratios and the
schedules of contributions, the schedule of changes in net OPEB liability and related ratios, the schedule
of employer OPEB contributions, as listed in the table of contents, be presented to supplement the basic
financial statements. Such information, although not a part of the basic financial statements, is required by
the Governmental Accounting Standards Board who considers it to be an essential part of financial
reporting for placing the basic financial statements in an appropriate operational, economic, or historical
context. We have applied certain limited procedures to the required supplementary information in
accordance with auditing standards generally accepted in the United States of America, which consisted
of inquiries of management about the methods of preparing the information and comparing the
information for consistency with management’s responses to our inquiries, the basic financial statements,
and other knowledge we obtained during our audit of the basic financial statements. We do not express an
opinion or provide any assurance on the information because the limited procedures do not provide us
with sufficient evidence to express an opinion or provide any assurance.
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
comprise the City’s basic financial statements. The introductory section, combining and individual
nonmajor fund financial statements and schedules, statistical section and the schedule of expenditures of
federal awards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative
Requirements, Cost Principles, and Audit Requirements for Federal Awards, are presented for purposes
of additional analysis and are not a required part of the basic financial statements.
The combining and individual nonmajor fund financial statements and schedules and the schedule of
expenditures of federal awards are the responsibility of management and were derived from and relate
directly to the underlying accounting and other records used to prepare the basic financial statements.
Such information has been subjected to the auditing procedures applied in the audit of the basic financial
statements and certain additional procedures, including comparing and reconciling such information
directly to the underlying accounting and other records used to prepare the basic financial statements or to
the basic financial statements themselves, and other additional procedures in accordance with auditing
standards generally accepted in the United States of America. In our opinion, the combining and
individual nonmajor fund financial statements and schedules and the schedule of expenditures of federal
awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole.
3
The introductory and statistical sections have not been subjected to the auditing procedures applied in the
audit of the basic financial statements, and accordingly, we do not express an opinion or provide any
assurance on them.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated
November 19, 2018 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 19, 2018
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, 2018. 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) 2018 by $1.1 billion. Of this amount,
$23.4 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 2018, the City’s governmental funds reported combined fund balances of $251.2
million, an increase of $16.5 million from prior year. Approximately 21.1 percent of this amount, or
$52.8 million, is unassigned fund balance and available for spending at the government’s discretion.
At the end of the current fiscal year, unrestricted fund balance (the total of the committed, assigned
and unassigned components of fund balance) for the General Fund was $60.3 million, or 0.31 percent
of total general fund expenditures, including transfers.
The City’s total outstanding long‐term debt increased $5.0 million during the current fiscal year. On
June 1, 2018 the city issued $9.0 million of Certificates of Participation (COPs) refinancing the 2002B
Downtown parking Improvement projects COPs and providing new funding to finance the costs of the
renovation of the Palo Alto Municipal Golf Course. The City received a loan of $7.5 million from the
State Water Resources Control Board (SWRCB) and was forgiven $4.0 million of a prior loan under the
terms of the contract with the SWRCB.
The City implemented GASB Statement No.75, Accounting and Reporting for Postemployment Benefits
Other than Pensions, effective July 1, 2017 and the balances were restated to reflect the impact. The
City’s net Other Postemployment Benefits (OPEB) liabilities of $153.5 million was allocated to
Governmental Activities ($109.4 million or 71.3 percent) and Business‐Type Activities ($44.1 million
or 28.7 percent) which reduced their unrestricted net positions by a like amount.
OVERVIEW OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR)
The CAFR is presented in six sections:
An introductory section that includes the Transmittal Letter and general information
Management’s Discussion and Analysis
The Basic Financial Statements that include the Government‐wide and Fund Financial
Statements, along with the Notes to these statements
Required and Other Supplemental Information
Statistical Information
Single Audit
Management’s Discussion and Analysis
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City of Palo Alto 6
Basic Financial Statements
The Basic Financial Statements contain the Government‐wide Financial Statements, the Fund Financial
Statements and the Notes to these financial statements. This report also includes supplementary information
intended to furnish additional detail to support the Basic Financial Statements.
For certain entities and funds, the City acts solely as a depository agent. For example, the City has several
Assessment Districts for which it produces fiduciary statements detailing the cash balances and activities of
these districts. These entities are independent, and their balances are excluded from the City’s government‐
wide financial statements.
Government‐wide Financial Statements
The Government‐wide Financial Statements provide a longer‐term view of the City’s activities as a whole.
They include the Statement of Net Position and the Statement of Activities.
The Statement of Net Position includes the City’s capital assets and long‐term liabilities on a full accrual basis
of accounting similar to that used by private sector companies. Over time, increases or decreases in net
position may serve as a useful indicator of whether the financial position of the City is improving or
deteriorating.
The Statement of Activities provides information about the City’s revenues and expenses on a full accrual
basis, with an emphasis on measuring net revenues or expenses for each of the City’s programs. The
Statement of Activities explains in detail the change in net position for the year. All changes in net position
are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of
related cash flows.
The amounts in the Statement of Net Position and the Statement of Activities are separated into
Governmental and Business‐type Activities in order to provide a summary of each type of activity.
Governmental Activities ‐ All of the City’s basic services are considered to be governmental activities. Included
in basic services are the City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative
Services, Human Resources, Public Works, Planning and Community Environment, Development Services,
Public Safety, Community Services, and Library. These services are supported by general City revenues such
as taxes, and by specific program revenues such as fees and grants.
The City’s governmental activities also include the activities of the Palo Alto Public Improvement Corporation,
which is a separate legal entity financially accountable to the City.
Business‐type Activities ‐ All of the City’s enterprise activities are reported as business‐type activities,
including Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse, Storm
Drainage and Airport. Unlike governmental services, these services are intended to recover all or a significant
portion of their costs through user fees and charges, except for the Airport which is currently supported by a
long‐term advance from the General Fund, as discussed in Note 4.
The Government‐wide Financial Statements can be found on pages 29‐31 of this report.
Management’s Discussion and Analysis
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City of Palo Alto 7
Fund Financial Statements
The Fund Financial Statements provide detailed information about each of the City’s most significant funds,
called major funds. The concept of major funds, and the determination of which are major funds, was
established by Governmental Accounting Standards Board (GASB) Statement No. 34 and replaced the concept
of combining like funds and presenting them in total. Therefore, each major fund is presented individually,
with all non‐major funds combined in a single column on each fund statement. Subordinate schedules display
these non‐major funds in more detail. Major funds present the major activities of the City for the year. The
General Fund is always considered a major fund, but other funds may change from year to year as a result of
changes in the pattern of City activities.
The Fund Financial Statements display the City’s operations in more detail than the Government‐wide
Financial Statements. Their focus is primarily on the short‐term activities of the City’s General Fund and other
major funds.
Budget and actual financial comparison information is presented only for the General Fund. Fund Financial
Statements include Governmental, Proprietary, and Fiduciary Funds.
Governmental Funds
Governmental Fund Financial Statements are prepared on the modified accrual basis of accounting, which
means they measure only current financial resources and uses. Capital assets and other long‐lived assets,
along with long‐term liabilities, are presented only in the Government‐wide Financial Statements. In FY 2018,
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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City of Palo Alto 8
Fiduciary Funds
The City is the fiduciary agent for certain assessment districts such as the University Avenue Area Off‐Street
Parking Assessment District. In this role, the City holds money collected from property owners and awaiting
transfer to the districts’ bond trustees. The City’s fiduciary activities are reported in the separate Statement
of Fiduciary Net Position and the supplemental Agency Funds Statement of Changes in Assets and Liabilities.
These activities are excluded from the City’s governmental‐wide financial statements because the City cannot
utilize these assets to finance its own operations.
The Fiduciary Fund Financial Statement can be found on page 44 of this report.
Notes to the Financial Statements
The Notes provide additional information that is necessary to acquire a full understanding of the data provided
in the Government‐wide and Fund Financial Statements. The Notes to the financial statements can be found
on pages 47‐106 of this report.
Other Information
The Required Supplementary Information related to the City’s pension and OPEB plans is included after the
Notes to the Financial Statements on pages 107‐112. The combining statements referred to earlier in
connection with non‐major Governmental Funds and Internal Service Funds, are presented immediately
following the Required Supplementary Information. Combining statements and individual fund statements
and schedules can be found on pages 113‐138 of this report.
Management’s Discussion and Analysis
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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, 2018. As noted earlier, the City’s total assets and deferred
outflows of resources exceeded total liabilities and deferred inflows of resources by $1.1 billion at the end of
the fiscal year, a change in net position of $111.1 million.
STATEMENT OF NET POSITION
As of June 30, 2018
(in millions)
2018 2017 2018 2017 2018 2017
Cash and investments 286.9$ 288.8$ 241.8$ 243.3$ 528.7$ 532.1$
Other assets 62.5 63.7 42.1 44.7 104.6 108.4
Capital assets 547.7 522.5 636.7 595.2 1,184.4 1,117.7
Total Assets 897.1 875.0 920.6 883.2 1,817.7 1,758.2
Unamortized loss from refunding ‐ ‐ 0.2 0.3 0.2 0.3
Pension and OPEB related 78.8 52.8 28.9 19.2 107.7 72.0
Total Deferred Outflows of Resources 78.8 52.8 29.1 19.5 107.9 72.3
Net pension and OPEB liabilities 411.4 273.5 157.1 103.8 568.5 377.3
Long‐term debt 75.1 69.3 66.1 67.0 141.2 136.3
Other liabilities 54.5 51.8 36.0 30.9 90.5 82.7
Total Liabilities 541.0 394.6 259.2 201.7 800.2 596.3
Pension and OPEB related 7.4 5.8 2.4 1.7 9.8 7.5
Total Deferred Inflows of Resources 7.4 5.8 2.4 1.7 9.8 7.5
Net Position
Net investment in capital assets 473.2 453.9 573.7 532.0 1,046.9 985.9
Restricted 41.2 36.1 4.0 4.1 45.2 40.2
Unrestricted (87.0) 37.3 110.4 163.2 23.4 200.5
Total Net Position 427.4$ 527.3$ 688.1$ 699.3$ 1,115.5$ 1,226.6$
Governmental
Activities
Business‐type
Activities
Government‐wide
Totals
The largest portion of the City’s net position (93.9 percent) is its net investment in capital assets such as land,
buildings, infrastructure and vehicles, less any related outstanding debt that was used to acquire those assets.
The City uses these capital assets to provide a variety of services to its citizens. Accordingly, these assets are
not available for future spending. Although the City’s investment in capital assets is reported net of related
debt, it should be noted that the resources used to repay this debt must be provided from other sources, since
the capital assets themselves cannot be used to liquidate these liabilities.
Management’s Discussion and Analysis
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City of Palo Alto 10
The restricted portion of the City’s net position (4.0 percent) represents resources that are subject to external
restrictions on how they may be used. The remaining balance of $23.4 million, representing 2.1 percent of
the City’s net position, is unrestricted and may be used to meet the government’s ongoing obligations to its
citizens and creditors.
The City implemented GASB 75 effective July 1, 2017. The beginning balance of FY 2017 net position was
restated to reflect the impact of the implementation. The City’s net OPEB asset that was reported in previous
years, has been eliminated in accordance with the new OPEB standards. Compliance with GASB 75 resulted
in reporting net OPEB liabilities on the Statement of Net Position for government‐wide and proprietary fund
financial statements, which reduces the unrestricted net position and, in some cases, creates a negative
unrestricted net position.
Deferred OPEB contributions are the total amount of FY2018 contributions. The contributions are deferred to
FY2019 because the measurement of the net OPEB liability balance is one year in arrears.
At June 30, 2018, the net OPEB liability represents the actuarially valued liability for OPEB benefits, less the
amount of resources accumulated in the OPEB trust, as of June 30, 2017. The difference between expected
and actual earnings on investments is the portion of investment gains that is deferred. The new accounting
standards require the differences between the projected and actual investment returns be amortized on a
straight‐line basis over five years.
At the end of the current fiscal year, the City is able to report positive unrestricted net positions for the
government as a whole. The unrestricted net position for governmental activities is negative due to the
implementation of GASB Statement No 75. The business‐type activities are positive except for two funds,
Wastewater treatment fund and Airport fund are negative mainly due to the pension and OPEB related
expenses.
Components of the $111.1 million decrease in total net position are discussed in the following sections for
governmental activities and business‐type activities.
Management’s Discussion and Analysis
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City of Palo Alto 11
Governmental Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Governmental
Activities, presented in the Government‐wide Statement of Net Position and Statement of Activities.
Increase/
2018 2017 (Decrease)
Cash and investments 286.9$ 288.8$ (1.9)$
Other assets 62.5 63.7 (1.2)
Capital assets 547.7 522.5 25.2
Total Assets 897.1 875.0 22.1
Pension and OPEB related 78.8 52.8 26.0
Total Deferred Outflows of Resources 78.8 52.8 26.0
Net pension and OPEB liabilities 411.4 273.5 137.9
Long‐term debt 75.1 69.3 5.8
Other liabilities 54.5 51.8 2.7
Total Liabilities 541.0 394.6 146.4
Pension and OPEB related 7.4 5.8 1.6
Total Deferred Inflows of Resources 7.4 5.8 1.6
Net investment in capital assets 473.2 453.9 19.3
Restricted 41.2 36.1 5.1
Unrestricted (87.0) 37.3 (124.3)
Total Net Position 427.4$ 527.3$ (99.9)$
GOVERNMENTAL ACTIVITIES
Net Position at June 30
(in millions)
The City’s Governmental Activities total net position decreased $99.9 million to $427.4 million as of June 30,
2018. This decrease was a result of the following:
Capital assets net of depreciation increased $25.2 million due to major capital projects such as street
and sidewalk improvements throughout the City, Bicycle Boulevard project, Fire station #3 project,
Golf course reconfiguration, Baylands Athletic center project and Rinconada Park Improvements.
Pension and OPEB related deferred outflows increased $26 million due to the City implementing GASB
75, Accounting and Financial Reporting for Postemployment Benefits Other than Pension and for the
changes in assumptions for pension.
Net pension and OPEB liabilities increased $137.9 million as the City implemented GASB 75,
Accounting and Financial Reporting for Postemployment Benefits Other than Pension and for the
changes in assumptions for pension.
Long‐term debt increased $5.8 million due to the issuance of $9.0 million in Certificates of
Participation (COPs) to finance the renovation of the Palo Alto Municipal Golf Course and to refinance
the 2002B Downtown Parking Improvement Project COPS.
Management’s Discussion and Analysis
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City of Palo Alto 12
Net investment in capital assets increased $19.3 million to $473.2 million due to the current year
capital additions noted above. Restricted net position increased $5.1 million to $41.2 million due
primarily to the increased fund balance in the public benefit fund. Unrestricted net position decreased
$124.3 million from prior year. The unrestricted net position for governmental activities is negative
primarily due to the implementation of GASB Statement No 75.
Governmental Activities – Revenues
The table below shows that Governmental Activities revenues totaled $211.3 million in FY 2018, an increase
of $30.1 million from prior year revenues of $181.2 million.
Increase/
Revenues by Source 2018 2017 (Decrease)
Program Revenues:
Charges for services 63.4$ 57.3$ 6.1$
Operating grants and contributions 14.1 2.0 12.1
Capital grants and contributions 1.5 1.9 (0.4)
Total Program Revenues 79.0 61.2 17.8
General Revenues:
Property tax 47.2 44.0 3.2
Sales tax 31.1 29.9 1.2
Utility user tax 15.4 14.2 1.2
Transient occupancy tax 24.9 23.4 1.5
Documentary transfer tax 9.2 7.5 1.7
Other tax 2.1 1.5 0.6
Investment earnings 0.4 (0.7) 1.1
Rents and miscellaneous 2.0 0.2 1.8
Total General Revenues 132.3 120.0 12.3
Total Revenues 211.3$ 181.2$ 30.1$
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 increased $17.8
million from the prior year due to the following major factors:
$2.7 million increase in plan checking fee due to a decrease in deferred revenue.
$0.7 million increase in Golf Course related fees due to opening in May 2018.
Management’s Discussion and Analysis
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City of Palo Alto 13
$1.1 million increase in permits and licenses.
$11.7 million increase in receipts from Stanford Hospital and Clinics, Lucile Salter Packard Children’s
hospital at Stanford and the Board of Trustees of the Leland Stanford Junior University (SUMC Parties)
Development Agreement.
General Revenues increased $12.3 million, or 10.3 percent, from the prior year primarily due to increased
General Fund Tax revenues. Further analysis of general revenues can be found in the Financial Analysis of
Governmental Funds section of 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
37%
Property Tax
22%
Sales Tax
15%
Utility User Tax
7%
Transient Occupancy Tax
12%
Documentary
Transfer Tax
4%
Other
2%
Management’s Discussion and Analysis
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City of Palo Alto 14
Governmental Activities – Expenses
The table below presents a comparison of FY 2018 and FY 2017 expenses by function, along with interest and
other expenses. Total Governmental Activities functional expense was $211.1 million in FY 2018, an increase
of $27.9 million.
Increase/
Activities 2018 2017 (Decrease)
City Council 0.3$ 0.3$ ‐$
City Manager 2.8 2.0 0.8
City Attorney 2.5 2.1 0.4
City Clerk 0.9 0.8 0.1
City Auditor 1.0 0.8 0.2
Administrative Services 13.9 11.9 2.0
Human Resources 2.7 2.3 0.4
Public Safety 83.9 73.3 10.6
Planning and Community Environment 11.4 10.9 0.5
Development Services 12.7 11.1 1.6
Public Works 30.3 25.5 4.8
Community Services 33.7 27.9 5.8
Library 12.2 11.4 0.8
Interest and Other Expense 2.8 2.9 (0.1)
Total Functional Expense 211.1 183.2 27.9
Increase (Decrease) in Net Position
before Transfers 0.2 (2.0) 2.2
Transfers in 19.1 18.3 0.8
Change in Net Position 19.3 16.3 3.0
Net Position, Beginning 527.3 511.0 16.3
Restatement for implemation of GASB 75 (119.2) ‐ (119.2)
Net Position, Ending 427.4$ 527.3$ (99.9)$
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 for GASB 68 of $16.6 million;
Change in OPEB related adjustments for GASB 75 of ($3.6 million); and
Capital asset activities such as depreciation and asset retirements of ($22.1 million).
Governmental Activities – Functional Expenses
The functional expenses chart below includes only current year expenses. It does not include capital outlays,
as those are added to the City’s capital assets. Functions which comprise 1 percent or less of total expenses
are combined into the All Other category in the chart below. All Other includes City Council, City Manager,
City Attorney, City Clerk, City Auditor and Human Resources.
Administrative
Services
7%
Public Works
14%
Interest and Other
1%
Planning and
Community
Environment
5%
Development Services
6%
Public Safety
40%
Community Services
16%
Library
6%
All Other
5%
Management’s Discussion and Analysis
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City of Palo Alto 16
Business‐type Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Business‐type
Activities presented in the Government‐wide Statement of Net Position and Statement of Activities.
Increase/
2018 2017 (Decrease)
Cash and investments 241.8$ 243.3$ (1.5)$
Other assets 42.1 44.7 (2.6)
Capital assets 636.7 595.2 41.5
Total Assets 920.6 883.2 37.4
Unamortized loss from refunding 0.2 0.3 (0.1)
Deferred pension contribution 28.9 19.2 9.7
Total Deferred Outflows of Resources 29.1 19.5 9.6
Net pension and OPEB liabilities 157.1 103.8 53.3
Long‐term debt 66.1 67.0 (0.9)
Other liabilities 36.0 30.9 5.1
Total Liabilities 259.2 201.7 57.5
Difference between expected and actual
earnings on investments 2.4 1.7 0.7
Total Deferred Outflows of Resources 2.4 1.7 0.7
Net Position
Net investment in capital assets 573.7 532.0 41.7
Restricted 4.0 4.1 (0.1)
Unrestricted 110.4 163.2 (52.8)
Total Net Position 688.1$ 699.3$ (11.2)$
BUSINESS‐TYPE ACTIVITIES
Net Position at June 30
(in millions)
The City’s Business‐type Activities total net position decreased $11.2 million to $688.1 million as of
June 30, 2018.
Capital assets increased $41.5 million to $636.7 million in FY 2018 primarily due to capital improvements in
the Wastewater Treatment, Electric, Water and Airport Funds. These capital improvements contributed to the
$41.7 million increase in net investment in capital assets to $573.7 million.
Unrestricted net position of $110.4 million, a decrease of $52.8 million from the prior year, represents assets
available to finance day‐to‐day operations and other expenditures approved by Council. This amount includes
Management’s Discussion and Analysis
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City of Palo Alto 17
rate stabilization reserves (RSR) of $48.1 million and operations reserves of $56.9 million, along with the
Electric special projects (Calaveras) reserve of $41.7 million, and the hydro stabilization reserve of $11.4
million. The positive balances in these reserves are offset by the GASB 68 adjustment pension reserve of $91.9
million and GASB 75 OPEB reserve of $38.7 million. Additional detail is included in Note 10.
Business‐type Activities – Revenues
The table below presents the revenues for each of the City’s Business‐type Activities or Enterprise Funds. The
City operates the Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse,
Storm Drainage and Airport Funds.
BUSINESS‐TYPE ACTIVITIES
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2018 2017 (Decrease)
Program Revenues:
Charges for services 330.2$ 304.5$ 25.7$
Operating grants and contributions 0.5 0.5 ‐
Capital grants and contributions 14.2 4.3 9.9
Total Program Revenues 344.9 309.3 35.6
General Revenues:
Investment earnings 0.6 (0.5) 1.1
Total General Revenues 0.6 (0.5) 1.1
Total Revenues 345.5$ 308.8$ 36.7$
Business‐type Activities revenues totaled $345.5 million, an increase of $36.7 million from the prior year.
Program revenues increased $35.6 million year over year. Charges for services increased $25.7 million from
the prior year due to the rate increase in the Electric Fund and the increased billing for capital and operating
costs in the Wastewater Treatment Fund.
Capital grants and contributions increased by $9.9 million from the prior year due to an increase in grant
revenues for the Airport Fund and $4.0 million in capital contributions for the Wastewater treatment fund
related to the forgiveness of a portion of the 2017 State Water Resources Loan.
Management’s Discussion and Analysis
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City of Palo Alto 18
Business‐type Activities – Expenses
The table below presents a comparison of the FY 2018 and FY 2017 expenses for the City’s Business‐type
Activities. Encumbrances and reappropriations are not included.
BUSINESS‐TYPE ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Business‐type Activities 2018 2017 (Decrease)
Water 40.8$ 37.5$ 3.3$
Electric 146.0 128.6 17.4
Fiber Optics 2.7 2.1 0.6
Gas 27.9 26.8 1.1
Wastewater Collection 16.8 16.4 0.4
Wastewater Treatment 27.5 23.5 4.0
Refuse 28.8 30.7 (1.9)
Storm Drainage 5.1 4.1 1.0
Airport 1.7 1.3 0.4
Total Functional Expense 297.3 271.0 26.3
Increase in Net Position
before Transfers 48.2 37.8 10.4
Transfers out (19.1) (18.3) (0.8)
Change in Net Position 29.1 19.5 9.6
Net Position, Beginning 699.3 679.8 19.50
Reinstatement for implementationfor GASB 75 (40.3) ‐ (40.3)
Net Position, Ending 688.1$ 699.3$ (11.2)$
Business‐type Activities expenses increased $26.3 million for a total of $297.3 million. Year over year expenses
were significantly affected by the following events:
Water Fund expenses increased $3.3 million due to increased wholesale water rates to cover the cost
of upgrades and improvements to the water supply distribution system and an increase in salaries
and benefits.
Electric Fund expenses increased $17.4 million due to higher energy purchase costs offset by lower
surplus energy costs.
Wastewater Treatment Fund expenses increased $4.0 million due to higher sewage treatment costs,
higher operating costs and capital improvement costs for upgrades to the facilities plant.
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, 2018, the City’s Governmental Funds reported combined fund balances of $251.2 million, an
increase of $16.5 million from the prior year. Approximately 21.0 percent, or $52.8 million, constitutes
unassigned fund balance, which is available for spending at the government’s discretion and other purposes.
The remainder of the fund balance is either non‐spendable, restricted, committed, or assigned to indicate that
it is: 1) not in spendable form ($9.5 million); 2) restricted for particular purposes ($40.3 million); 3) committed
for particular purposes ($73.2 million); or 4) assigned for particular purposes ($75.4 million).
Governmental Fund revenues increased $29.9 million, or 16.5 percent, from the prior year to $211.3 million.
Revenues in the General Fund increased $15.7 million and Capital Projects Fund revenue decreased $0.2
million. Other Governmental Funds revenue increased $14.4 million due to increased plan checking fees, Golf
course related fees, permits and licenses and $11.7 million from Stanford University Medical Center (SUMC)
parties of the Development agreement.
Governmental Fund expenditures were $219.6 million, an increase of $3.6 million from the prior year. General
Fund expenditures increased $7.6 million, Capital Projects Fund expenditures increased by $1.3 million, and
Non‐major Fund expenditures increased by $4.7 million. Details of significant changes are discussed in the
following sections.
General Fund
Balance Sheet
The General Fund is the primary operating fund of the City. At the end of the current fiscal year, fund balance
of the General Fund was $68.3 million, compared to $63.1 million in the prior year. The fund balance has
been classified as $8.0 million non‐spendable, $0.4 million committed, $7.1 million assigned and $52.8 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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City of Palo Alto 20
Statement of Revenues, Expenditures and Changes in Fund Balance
Revenues
The City’s General Fund revenues totaled $180 million in FY 2018. This represents an increase of $15.6 million,
or 9.5 percent, compared to the prior year. The year over year change in significant revenue sources is noted
in the following table.
Property tax revenue increased by $3.4 million or 8.6 percent, due to increased property assessed value
growth. Sales tax receipts were $1.2 million higher compared to the prior fiscal year, and is driven by growth
of auto leasing and sales, drug stores, recreation products, furniture/appliance, office equipment, and health
services.
Utility user tax revenues were $1.2 million or 8.5 percent, higher compared to the prior year due to increased
utility rate. Transient occupancy tax (TOT) ended the year $1.4 million, or 6.0 percent, higher than prior year
due to higher room rates, newly opened hotels that performed better than expected, and revenue from short‐
term rentals.
Documentary transfer tax increased $1.7 million to $9.2 million or 22.7 percent, as real property turnover
continued to trend as in prior years.
Increase/
Revenues by Source 2018 2017 (Decrease)
Property tax 42.8$ 39.4$ 3.4$
Sales tax 31.1 29.9 1.2
Utility user tax 15.4 14.2 1.2
Transient occupancy tax 24.9 23.5 1.4
Documentary transfer tax 9.2 7.5 1.7
Charges for services 26.8 22.3 4.5
Permits and licence 8.6 7.4 1.2
Rental income 15.9 15.7 0.2
All other 5.3 4.5 0.8
Total Revenues 180.0$ 164.4$ 15.6$
GENERAL FUND
Revenues for the Year Ended June 30
(in millions)
Management’s Discussion and Analysis
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City of Palo Alto 21
All other revenue increased from prior year by $6.7 million primarily due to $2.7 million increase in plan check
fees, $0.7 million increase in golf course related fees and $1.1 million increase in permits and licenses.
Expenditures
General Fund expenditures totaled $165.6 million for FY 2018 compared to $158.0 in the prior year. This
amount excludes encumbrances and reappropriations. The majority of increases were related to higher salary
and benefit costs with the implementation of new bargaining agreements. In addition, the benefit costs,
especially CalPERS retirement and retiree health costs, were substantially higher compared to the prior year.
The year over year change for major functions is noted in the following table.
Increase/
Expenditures by Function 2018 2017 (Decrease)
Administrative Services 5.3$ 5.0$ 0.3$
Public Works 14.6 13.6 1.0
Planning and Community Environment 8.3 9.1 (0.8)
Development Services 11.7 10.9 0.8
Police 40.3 39.6 0.7
Fire 33.5 31.4 2.1
Community Services 27.1 25.2 1.9
Library 9.1 9.0 0.1
Non‐Departmental 6.0 5.9 0.1
All other 9.6 8.3 1.3
Total Expenditures 165.5$ 158.0$ 7.5$
GENERAL FUND
Expenditures for the Year Ended June 30
(in millions)
Public Works expenditures variance of $1.0 million was mainly due to increased janitorial services and salary
and benefit costs.
Fire department expenditures increased $2.1 million due to $1.5 million salary and overtime and $0.6 million
in other categories.
Community Services expenditures increased $1.9 million mainly due to golf course maintenance and salary
and benefit costs.
Management’s Discussion and Analysis
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City of Palo Alto 22
Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Budget and Actual
Original budget compared to final budget
Revenues were originally budgeted at $175.1 million and were revised downward by $0.2 million. Revenue
categories that were adjusted are shown in the table below.
Adopted Final Increase/
Budgeted Revenues Budget Budget (Decrease)
Property tax 41.9$ 42.3$ 0.4$
Sales tax 31.5 30.2 (1.3)
Utility user tax 13.9 15.4 1.5
Transient occupancy tax 25.1 24.4 (0.7)
Documentary transfer tax 6.9 6.9 ‐
All other 55.8 56.1 0.3
175.1 175.3 0.2
Charges to other funds 11.1 11.1 ‐
Prior year encumbrances and appropriations ‐ 8.1 8.1
Total Budgeted Revenues 186.2$ 194.5$ 8.3$
GENERAL FUND
Budgeted Revenues for the Year Ended June 30
(in millions)
In FY 2018, there were no major changes to the Adopted Budget general fund revenues. These were minor
changes in the taxes.
Actual revenues of $182.5 million were $7.2 million higher than final budgeted revenues of $175.3 million due
to the following:
$1.4 million higher than anticipated sales and property tax proceeds;
$2.3 million higher than expected documentary transfer tax;
$1.7 million higher than expected charges for services; and
All other revenue categories also reported favorable variances.
Management’s Discussion and Analysis
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City of Palo Alto 23
Expenditures were originally budgeted at $180.5 million and were revised upward by $10.1 million, including
prior year encumbrances and reappropriations of $8.1 million, for a final budgeted amount of $190.6 million.
GENERAL FUND
Budgeted Expenditures for the Year Ended June 30
(in millions)
Adopted Final Increase/ Actuals, plus
Budgeted Expenditures Budget Budget (Decrease) Encumbrances
Community Services 27.6$ 28.8$ 1.2$ 28.4$
Fire 31.8 34.1 2.3 34.1
Police 43.4 43.4 0.0 41.9
Library 9.4 9.8 0.4 9.4
Planning and Community Environment 8.5 10.7 2.2 10.4
Public Works 17.0 19.1 2.1 18.9
Development Services 12.5 13.2 0.7 12.6
Non‐departmental 8.4 8.1 (0.3) 7.2
All other 21.9 23.5 1.6 22.1
Total Budgeted Expenditures 180.5$ 190.7$ 10.2$ 185.0
Less: Charges to Other Funds (11.5)
Less: Encumbrances/reappropriations (7.8)
Net General Fund Expenditures 165.7$
The final budgeted expenditure amount of $190.6 million compares to the actual expenditures plus
encumbrances/reappropriations of $184.9 million, a difference of $5.7 million, of which $7.8 million is
encumbrances and reappropriations carried forward to FY 2019. The lower than budgeted expenditures were
primarily due to vacancy and benefits savings higher than expected.
Transfers out were originally budgeted at $29.8 million, with the final budget number at $29.7 million, a
decrease of $0.1 million.
Capital Projects Fund
Capital Projects Fund expenditures and other uses were $41.0 million in FY 2018 an increase of $1.3 million
from the prior year.
Management’s Discussion and Analysis
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City of Palo Alto 24
Non‐major Funds
These funds are not presented separately in the Basic Financial Statements, but are individually presented as
Supplemental Information.
Financial Analysis of Enterprise Funds
At June 30, 2018, the City’s Enterprise Funds reported total net position of $688.1 million, a decrease of $11.2
million or 1.6 percent from the prior year, which includes the impact of the restatement from implementation
of GASB 75 of $40.3 million. The decrease was primarily from the Electric, Gas, Wastewater Collection and the
Wastewater Treatment Funds. Further analysis is noted in the following section. Unrestricted net position for
the Enterprise Funds totaled $109.4 million, a 31.7 percent decrease from FY 2017. Of the $50.9 million
decrease, $40.3 million is a result of the adjustment for the GASB 75 OPEB liability.
Following is a table which compares the year over year change in net position for each of the Enterprise Funds.
ENTERPRISE FUNDS
Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Fund Name 2018 2017 (Decrease)
Water 5.1$ 6.5$ (1.4)$
Electric (1.2) (1.2) ‐
Fiber Optics 1.7 2.2 (0.5)
Gas 1.5 2.4 (0.9)
Wastewater Collection 1.0 1.5 (0.5)
Wastewater Treatment 4.8 (0.1) 4.9
Refuse 6.1 3.3 2.8
Storm Drainage 1.8 2.5 (0.7)
Airport 10.1 2.4 7.7
Total Change in Net Position 30.9$ 19.5$ 11.4$
The most significant factors in the year over year change in net position for Enterprise Funds are as follows:
Wastewater Treatment increased its net position $4.9 million as a result of increased billing to
partners and $4.0 million in federal grant revenues that represents forgiveness of a portion of the
State Water Resources Control Board loan amount. The principal was forgiven for $4.0 million for the
sewage “bio‐solids” incinerators project (2017 State Water Resources Loan).
Net position for Refuse increased $2.8 million. Revenues were higher due to a 5 percent rate increase
in the current year and decrease in operating expenses due to rent and green waste costs.
The net positon for Airport increased $7.7 million. Revenues were higher resulting from a federal
grant reimbursement for $9.3 million for capital improvement projects.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 25
CAPITAL ASSETS
GASB 34 requires that the City record all its capital assets, including infrastructure and intangible assets.
Infrastructure includes roads, bridges, signals and similar assets used by the entire population. The table
below shows capital assets and the amount of accumulated depreciation for these assets for Governmental
and Business‐type Activities. Further detail can be found in Note 6 to the financial statements.
Increase/
2018 2017 (Decrease)
Governmental activites
Capital Assets
Land and improvements 78.5$ 78.5$ ‐
Street trees 14.8 14.9 (0.1)
Construction in progress 69.3 62.7 6.6
Building and improvements 246.5 225.4 21.1
Intangible assets 3.8 3.8 ‐
Equipment 12.6 11.9 0.7
Roadway network 334.3 324.8 9.5
Recreation and open space network 35.2 35.2 ‐
Less accumulated depreciation (269.0) (253.3) (15.7)
Internal Service funds ‐
Construction in progress 1.9 3.2 (1.3)
Equipment 61.6 56.9 4.7
Less accumulated depreciation (41.7) (41.5) (0.2)
Total Governmental Activities 547.8 522.5 25.3
Business‐Type Activities
Land 5.0 5.0 ‐
Construction in progress 153.4 110.3 43.1
Buildings and improvements 59.9 56.9 3.0
Capital Leases 0.5 ‐ 0.5
Infrastructure 0.6 0.6 ‐
Transmission, distribution and treatment systems 779.3 765.8 13.5
Less accumulated depreciation (362.0) (343.4) (18.6)
Total Business‐type Activities 636.7$ 595.2$ 41.5$
CAPITAL ASSETS AT JUNE 30
(in millions)
Governmental Activities’ capital assets net of depreciation increased by $25.2 million from the prior year. The
increase was primarily due to Golf Course improvements, city facilities improvements and street and sidewalk
improvements throughout the City.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 26
Council approved a $125.8 million Infrastructure Plan (IP) in June 2014, which includes projects such as a new
Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan, and two parking
garages. Through the developments of the 2019‐2023 Capital Improvement Projects, the IP was updated for
scope increases and cost escalations, resulting in a revised IP of $249.9 million. Funding for these projects will
come from a variety of sources, including TOT revenues, Stanford University Medical Center development
agreement, grant revenue, developer impact fees and the one time issuance of COPs.
Major Governmental Activities’ capital projects that are currently in progress, including the remaining capital
commitment of each, are as follows:
Fire Station 3 replacement ‐ $5.6 million
Charleston Arastradero Corridor ‐ $10.2 million
Bicycle Boulevards Implementation Project ‐ $9.3 million
Business‐type Activities’ capital assets net of depreciation increased by $41.5 million over FY 2017. The
increase is due primarily to Water, Electric, Wastewater Treatment, Storm Drainage and Airport infrastructure
improvements.
Major Business‐type Activities’ capital projects that are currently in progress, including the remaining capital
commitment of each, are as follows:
Water Main Replacement for Water fund ‐ $4.7 million
Dewatering & Loadout Facility Project for Wastewater Treatment Fund ‐ $12.3 million
Gas Main Replacement for Gas Fund ‐ $6.8 million
The City depreciates its capital assets over their estimated useful lives, as required by GASB 34. The purpose
of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable
portion of the cost of the asset is borne by all users. Additional information on capital assets and depreciable
lives are in Note 6.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 27
DEBT ADMINISTRATION
Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements. The City’s debt as
of June 30, 2018 is shown in the following table.
Increase/
2018 2017 (Decrease)
Governmental Activities
General Long‐Term Obligations
Certificates of Participation
2002B Downtown Parking Improvements ‐$ 1.0$ (1.0)$
General Obligation Bonds
2010 45.8 47.0 (1.2)
2013A 16.3 16.7 (0.4)
2011 Lease Purchase Agreement 0.4 0.8 (0.4)
Add: unamortized premium 3.6 3.8 (0.2)
2018 Capital Improvement, COP 9.0 ‐ 9.0
Total Governmental Activities 75.1$ 69.3$ 5.8$
Business‐type Activities
Enterprise Long‐Term Obligations
Utility Revenue Bonds
1995 Series A 1.3$ 1.8$ (0.5)$
1999 Refunding 8.2 9.0 (0.8)
2009 Series A 27.7 28.7 (1.0)
2011 Refunding 10.2 11.3 (1.1)
Add: unamortized premium 0.6 0.7 (0.1)
Energy Tax Credit Bonds
2007 Series A 0.4 0.5 (0.1)
Less: unamortized discount (0.1) (0.1) ‐
State Water Resources Loan
2007 5.0 5.4 (0.4)
2009 6.1 6.5 (0.4)
2017 6.7 3.2 3.5
Total Business‐type Activities 66.1$ 67.0$ (0.9)$
LONG‐TERM DEBT AT JUNE 30
(in millions)
City‐wide long‐term debt increased a total of $4.8 million due to an issuance of COPs that refinanced existing
COPs and financed the Golf Course renovation and an addition to the 2017 State Water Resources Loan. As
noted in the Statistical Section of the CAFR, the combined direct debt ratio to assessed valuation for the
General Fund is 0.21 percent compared to the allowable legal debt margin of 15 percent.
Management’s Discussion and Analysis
……….……………………………………………………………………
City of Palo Alto 28
SPECIAL ASSESSMENT DISTRICT DEBT
Special assessment districts throughout different parts of the City have also issued debt to finance
infrastructure and facilities construction exclusively in their districts. As of June 30, 2018, the City had no
special assessment district debt with City commitment outstanding.
CONTACTING THE CITY’S FINANCIAL MANAGEMENT
The CAFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the
City’s finances. Questions about this report should be directed to the Administrative Services Department, at
250 Hamilton Avenue, 4th Floor, Palo Alto, California. The Department can also be contacted by email at:
adminsvcs@cityofpaloalto.org. This report and other financial reports can be viewed on the City of Palo Alto
website at: www.cityofpaloalto.org. On the home page, select Departments, select Administrative Services,
and select Financial Reporting. Within Financial Reporting, there are links to reports by title and reporting
date.
CITY OF PALO ALTO
Statement of Net Position
June 30, 2018
(Amounts in thousands)
Governmental Business‐Type
Activities Activities Total
ASSETS:
Cash and investments available for operations (Note 3) 280,681$ 237,800$ 518,481$
Receivables, net:
Accounts and intergovernmental 19,575 39,237 58,812
Interest receivable 1,872 1,373 3,245
Notes and loans receivable (Note 5) 34,295 ‐ 34,295
Internal balances (Note 4) 2,122 (2,122) ‐
Deposits 15 ‐ 15
Due from other government agencies ‐ 3,300 3,300
Inventory of materials and supplies, prepaids and deposits 4,641 310 4,951
Restricted cash and investments with fiscal agents and trustees (Note 3) 6,185 4,014 10,199
Capital assets (Note 6):
Nondepreciable 168,026 158,377 326,403
Depreciable, net of accumulated depreciation 379,715 478,337 858,052
Total assets 897,127 920,626 1,817,753
DEFERRED OUTFLOWS OF RESOURCES:
Unamortized loss from refunding ‐ 239 239
Pension related (Note 11): 63,621 22,698 86,319
OPEB related (Note 12): 15,210 6,139 21,349
Total deferred outflows of resources 78,831 29,076 107,907
LIABILITIES:
Accounts payable and accruals 14,012 28,426 42,438
Accrued salaries and benefits 1,714 720 2,434
Unearned revenue 2,966 ‐ 2,966
Accrued compensated absences (Note 1):
Due in one year 5,996 ‐ 5,996
Due in more than one year 6,062 ‐ 6,062
Claims payable (Note 14):
Due in one year 5,835 ‐ 5,835
Due in more than one year 17,913 ‐ 17,913
Landfill post‐closure liability (Note 9):
Due in more than one year ‐ 6,825 6,825
Net pension liabilities (Note 11) 302,131 112,981 415,112
Net OPEB liabilities (Note 12) 109,377 44,132 153,509
Long‐term debt (Note 7):
Due in one year 2,259 4,533 6,792
Due in more than one year 72,887 61,586 134,473
Total liabilities 541,152 259,203 800,355
DEFERRED INFLOWS OF RESOURCES:
Pension related (Note 11): 5,644 1,644 7,288
OPEB related (Note 12): 1,792 724 2,516
Total deferred inflows of resources 7,436 2,368 9,804
NET POSITION (Note 10):
Net Investment in capital assets 473,233 573,688 1,046,921
Restricted for:
Transportation, infrastructure and other 36,108 ‐ 36,108
Debt service 3,571 4,014 7,585
Nonexpendable ‐ Eyerly Family 1,498 ‐ 1,498
Total restricted net position 41,177 4,014 45,191
Unrestricted (87,040) 110,429 23,389
Total net position $ 427,370 $ 688,131 $ 1,115,501
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, 2018
(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 345$ ‐$ ‐$ ‐$ (345)$ ‐$ (345)$
City Manager 2,757 ‐ 59 ‐ (2,698) ‐ (2,698)
City Attorney 2,511 ‐ ‐ ‐ (2,511) ‐ (2,511)
City Clerk 931 ‐ ‐ ‐ (931) ‐ (931)
City Auditor 994 ‐ ‐ ‐ (994) ‐ (994)
Administrative Services 13,949 6,536 ‐ ‐ (7,413) ‐ (7,413)
Human Resources 2,674 ‐ ‐ ‐ (2,674) ‐ (2,674)
Public Works 30,349 781 ‐ 1,523 (28,045) ‐ (28,045)
Planning and Community Environment 11,357 5,119 594 ‐ (5,644) ‐ (5,644)
Development Services 12,664 16,000 ‐ ‐ 3,336 ‐ 3,336
Public Safety 83,923 13,507 1,656 ‐ (68,760) ‐ (68,760)
Community Services 33,709 21,285 11,741 11 (672) ‐ (672)
Library 12,208 145 4 ‐ (12,059) ‐ (12,059)
Interest on long‐term debt 2,761 ‐ ‐ ‐ (2,761) ‐ (2,761)
Total Governmental Activities 211,132 63,373 14,054 1,534 (132,171) ‐ (132,171)
Business‐Type Activities:
Water 40,836 45,087 501 531 ‐ 5,283 5,283
Electric 146,033 154,142 ‐ ‐ ‐ 8,109 8,109
Fiber Optics 2,653 4,529 ‐ ‐ ‐ 1,876 1,876
Gas 27,930 37,044 ‐ ‐ ‐ 9,114 9,114
Wastewater Collection 16,801 17,990 ‐ 329 ‐ 1,518 1,518
Wastewater Treatment 27,518 27,382 ‐ 4,000 ‐ 3,864 3,864
Refuse 28,808 34,647 ‐ ‐ ‐ 5,839 5,839
Storm Drainage 5,059 6,964 ‐ ‐ ‐ 1,905 1,905
Airport 1,656 2,382 ‐ 9,334 ‐ 10,060 10,060
Total Business‐Type Activities 297,294 330,167 501 14,194 ‐ 47,568 47,568
Total 508,426$ 393,540$ 14,555$ 15,728$ (132,171) 47,568 (84,603)
General Revenues:
Taxes:
Property tax 47,170 ‐ 47,170
Sales tax 31,091 ‐ 31,091
Utility user tax 15,414 ‐ 15,414
Transient occupancy tax 24,937 ‐ 24,937
Documentary transfer tax 9,229 ‐ 9,229
Other taxes 2,108 ‐ 2,108
Investment earnings 420 596 1,016
Miscellaneous 1,973 ‐ 1,973
Transfers (Note 4)19,077 (19,077) ‐
Total general revenues and transfers 151,419 (18,481) 132,938
Change in net position 19,248 29,087 48,335
Net Position, beginning of year,
as previously stated 527,289 699,294 1,226,583
Restatement for implementation of
GASB Statement No. 75 (119,167) (40,250) (159,417)
Net position, beginning of year, as restated 408,122 659,044 1,067,166
Net position, end of year 427,370$ 688,131$ 1,115,501$
See accompanying notes to the basic financial statements.
31
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CITY OF PALO ALTO
Governmental Funds
Balance Sheet
June 30, 2018
(Amounts in thousands)
Capital Other Total
General Projects Governmental Governmental
Fund Fund Funds Funds
ASSETS:
Cash and investments available for operations (Note 3) 49,250$ 82,525$ 70,655$ 202,430$
Receivables, net:
Accounts and intergovernmental 18,881 242 399 19,522
Interest receivable 950 27 432 1,409
Notes and loans receivable (Note 5) 479 ‐ 33,816 34,295
Deposits 15 ‐ ‐ 15
Advance to other fund (Note 4) 3,128 ‐ ‐ 3,128
Inventory of materials and supplies 4,427 ‐ ‐ 4,427
Restricted cash and investments with fiscal agents (Note 3)‐ 638 ‐ 638
Total assets 77,130$ 83,432$ 105,302$ 265,864$
LIABILITIES AND FUND BALANCES:
Liabilities:
Accounts payable and accruals 4,293$ 5,452$ 358$ 10,103$
Accrued salaries and benefits 1,525 70 16 1,611
Unearned revenue 2,966 ‐ ‐ 2,966
Interfund payables and advances ‐ ‐ 13 13
Total liabilities 8,784 5,522 387 14,693
Fund balances (Note 10):
Nonspendable:
Notes and loans receivable 479 ‐ ‐ 479
Deposits 15 ‐ ‐ 15
Inventories 4,427 ‐ ‐ 4,427
Advance to other fund 3,128 ‐ ‐ 3,128
Eyerly family ‐ ‐ 1,498 1,498
Restricted for:
Transportation mitigation ‐ ‐ 10,511 10,511
Federal revenue ‐ ‐ 5,080 5,080
Street improvement ‐ ‐ 562 562
Local law enforcement ‐ ‐ 322 322
Library bond project ‐ 638 ‐ 638
Public benefit ‐ ‐ 19,633 19,633
Debt service ‐ ‐ 3,571 3,571
Committed for:
Development Services 373 ‐ ‐ 373
Roth Building Rehabilitation ‐ 4,020 ‐ 4,020
Cubberley Improvements ‐ 4,991 ‐ 4,991
Developer impact fees ‐ ‐ 13,764 13,764
Housing in‐lieu ‐ ‐ 44,863 44,863
Special districts ‐ ‐ 5,143 5,143
Assigned for:
Capital projects ‐ 68,261 ‐ 68,261
Other general government purposes 5,325 ‐ ‐ 5,325
Reappropriations 1,773 ‐ ‐ 1,773
Unassigned for:
Budget Stabilization 52,826 ‐ ‐ 52,826
Downtown business ‐ ‐ (32) (32)
Total fund balances 68,346 77,910 104,915 251,171
Total liabilities and fund balances 77,130$ 83,432$ 105,302$ 265,864$
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, 2018
Total fund balances reported on the governmental funds balance sheet 251,171$
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 78,831
Deferred inflows of resources (7,436)
Capital assets used in governmental activities are not current assets or financial
resources and therefore are not reported in the governmental funds (Note 6)547,741
Internal service funds are used by management to charge the costs of activities
such as insurance, equipment acquisition and maintenance, and certain
employee benefits to individual funds. The assets and liabilities of the
internal service funds are therefore included in governmental activities in
the statement of net position (excludes capital assets, deferred outflows
of resources, deferred inflows of resources, net pension liabilities and
net OPEB liabilities reported herein)44,922
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 (1,205)
Net pension liabilities (Note 11)(302,131)
Net OPEB liabilities (Note 12)(109,377)
Long‐term debt (Note 7)(75,146)
Net position of governmental activities 427,370$
(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, 2018
(Amounts in thousands)
Capital Other Total
General Projects Governmental Governmental
Fund Fund Funds Funds
REVENUES:
Property tax 42,839$ ‐$ 4,331$ 47,170$
Special assessments ‐ ‐ 72 72
Sales tax 31,091 ‐ ‐ 31,091
Utility user tax 15,414 ‐ ‐ 15,414
Transient occupancy tax 24,937 ‐ ‐ 24,937
Documentary transfer tax 9,229 ‐ ‐ 9,229
Other taxes and fines 2,141 ‐ 2,116 4,257
Contributions ‐ ‐ 11,733 11,733
Charges for services 26,824 ‐ 11 26,835
Intergovernmental 3,205 1,595 592 5,392
Permits and licenses 8,560 ‐ 4,226 12,786
Investment earnings (828) 1,016 198 386
Rental income 15,896 ‐ 6 15,902
Other revenue 776 131 5,160 6,067
Total revenues 180,084 2,742 28,445 211,271
EXPENDITURES:
Current:
City Council 337 ‐ ‐ 337
City Manager 2,509 ‐ ‐ 2,509
City Attorney 2,244 ‐ ‐ 2,244
City Clerk 819 ‐ ‐ 819
City Auditor 870 ‐ ‐ 870
Administrative Services 5,347 ‐ 226 5,573
Human Resources 2,369 ‐ ‐ 2,369
Public Works 14,569 ‐ 857 15,426
Planning and Community Environment 8,312 ‐ 2,020 10,332
Development Services 11,749 ‐ ‐ 11,749
Police 40,326 ‐ 68 40,394
Fire 33,522 ‐ ‐ 33,522
Community Services 27,122 ‐ 2,709 29,831
Library 9,120 ‐ ‐ 9,120
Non‐Departmental 5,973 ‐ 1,606 7,579
Capital outlay ‐ 40,971 ‐ 40,971
Debt service:
Principal 416 ‐ 2,545 2,961
Interest and fiscal charges 16 ‐ 2,940 2,956
Total expenditures 165,620 40,971 12,971 219,562
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 14,464 (38,229) 15,474 (8,291)
OTHER FINANCING SOURCES (USES):
Issuance of debt ‐ 8,375 595 8,970
Transfers in (Note 4) 20,310 35,844 728 56,882
Transfers out (Note 4) (29,535) (116) (11,434) (41,085)
Total other financing sources (uses) (9,225) 44,103 (10,111) 24,767
Change in fund balances 5,239 5,874 5,363 16,476
FUND BALANCES, BEGINNING OF YEAR 63,107 72,036 99,552 234,695
FUND BALANCES, END OF YEAR 68,346$ 77,910$ 104,915$ 251,171$
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, 2018
Net change in fund balances ‐ total governmental funds 16,476$
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 41,586
Depreciation expense is deducted from fund balance (depreciation expense is net of
internal service fund depreciation of $3,074 (Note 6), which has already been allocated
through the internal service fund activities below (15,814)
Disposal of capital assets (3,659)
Pension and OPEB contribution made subsequent to the measurement date is an
expenditure in the governmental funds, but reported as a deferred outflows of
resources in the government‐wide financial statements 37,915
Pension and OPEB expenses reported in the statement of activities do not require the
use of current financial resources and, therefore, are not reported as expenditures in
governmental funds (50,932)
Principal payments on long‐term liabilities are reported as expenditures in governmental
funds when paid. The governmental activities, however, report principal payments as
a reduction of long‐term debt on the statement of net position. Interest accrued on
long‐term debt and amortization of premiums do not require the use of current financial
resources and therefore are not reported as expenditures in governmental funds. Therefore,
the activities associated with long‐term debt are as follows:
Principal paid during the year 2,961
Proceeds from debt issuance (8,970)
Change in interest payable 37
Amortization of bond premium 158
Internal service funds are used by management to charge the costs of activities, such
as insurance, equipment acquisition and maintenance, and employees benefits to
individual funds. The portion of the net expense of these internal service
funds arising out of their transactions with governmental funds is reported with
governmental activities. (510)
Change in net position of governmental activities 19,248$
(Amounts in thousands)
See accompanying notes to the basic financial statements.
36
Variance with
Budgeted Amounts Final Budget
Actual, Budgetary Positive
Adopted Final Basis (Negative)
31,458$ 30,208$ 31,091$ 883$
41,927 42,327 42,839 512
25,143 24,398 24,937 539
Documentary transfer tax 6,930 6,930 9,229 2,299
13,867 15,367 15,414 47
2,060 2,060 2,141 81
26,902 25,125 26,824 1,699
8,432 8,432 8,560 128
1,050 1,050 1,536 486
15,502 15,485 15,896 411
1,355 3,074 3,205 131
501 824 776 (48)
175,127 175,280 182,448 7,168
11,076 11,076 11,476 400
‐ 8,097 8,097 ‐
186,203 194,453 202,021 7,568
3,356 3,825 3,624 201
1,301 1,427 1,276 151
1,374 1,372 1,206 166
500 524 489 35
3,681 4,227 4,031 196
7,983 8,038 7,849 189
27,560 28,756 28,395 361
Police 43,372 43,425 41,923 1,502
31,774 34,077 34,052 25
3,714 4,044 3,652 392
9,447 9,767 9,357 410
8,452 10,708 10,446 262
Development Services 12,540 13,187 12,560 627
16,975 19,071 18,908 163
8,437 8,142 7,149 993
180,466 190,590 184,917 5,673
5,737 3,863 17,104 13,241
20,791 20,310 20,310 ‐
(29,888) (29,735) (29,735) ‐
(9,097) (9,425) (9,425) ‐
(3,360)$ (5,562)$ 7,679 13,241$
Unrealized gain/loss on investments (2,364)
Changes in advances to other funds 200
Current year encumbrances and reappropriations 7,821
Prior year encumbrances and reappropriations (8,097)
5,239
63,107
68,346$
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, 2018
(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) 38,726$ 90,470$ 28,656$ 28,705$
Accounts receivable, net of allowance of $608 5,715 18,727 1,094 2,476
Interest receivable 224 530 161 163
Due from other government agencies ‐ ‐ ‐ ‐
Inventory of materials and supplies ‐ ‐ ‐ ‐
Restricted cash and investments with fiscal agents and trustees (Note 3) 3,219 ‐ ‐ 795
Total current assets 47,884 109,727 29,911 32,139
Noncurrent assets:
Due from other government agencies ‐ ‐ ‐ ‐
Deposit ‐ 35 ‐ ‐
Prepaid expense 92 ‐ ‐ ‐
Capital assets (Note 6):
Nondepreciable 27,555 25,696 2,923 8,366
Depreciable, net 98,964 168,441 5,827 95,701
Total noncurrent assets 126,611 194,172 8,750 104,067
Total assets 174,495 303,899 38,661 136,206
DEFERRED OUTFLOWS OF RESOURCES:
Unamortized loss from refunding 104 ‐ ‐ 135
Pension related 2,939 7,403 567 3,153
OPEB related 690 2,246 ‐ 988
Total deferred outflows of resources 3,733 9,649 567 4,276
LIABILITIES:
Current liabilities:
Accounts payable and accruals 5,617 8,001 955 3,022
Accrued salaries and benefits 94 241 18 100
Accrued compensated absences (Note 1)‐ ‐ ‐ ‐
Current portion of long term debt (Note 7) 1,636 100 ‐ 619
Accrued claims payable (Note 14)‐ ‐ ‐ ‐
Total current liabilities 7,347 8,342 973 3,741
Noncurrent liabilities:
Accrued compensated absences (Note 1)‐ ‐ ‐ ‐
Accrued claims payable (Note 14)‐ ‐ ‐ ‐
Advance from other fund (Note 4)‐ ‐ ‐ ‐
Landfill post‐closure liability (Note 9)‐ ‐ ‐ ‐
Net pension liabilities (Note 11) 15,180 36,384 2,381 16,202
Net OPEB liabilities (Note 12) 4,958 16,149 ‐ 7,107
Long term debt, net of
unamortized discounts/premiums (Note 7) 31,496 278 ‐ 5,370
Total noncurrent liabilities 51,634 52,811 2,381 28,679
Total liabilities 58,981 61,153 3,354 32,420
DEFERRED INFLOWS OF RESOURCES:
Pension related 213 531 41 228
OPEB related 81 265 ‐ 116
Total deferred inflows of resources 294 796 41 344
NET POSITION (Note 10):
Net Investment in capital assets 93,491 193,313 8,750 98,213
Restricted for debt service 3,219 ‐ ‐ 795
Unrestricted (deficit) 22,243 58,286 27,083 8,710
Total net position 118,953$ 251,599$ 35,833$ 107,718$
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, 2018
(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
8,419$ 12,897$ 23,703$ 5,189$ 1,035$ 237,800$ 78,251$
2,165 2,504 3,548 754 2,254 39,237 53
48 83 119 40 5 1,373 463
‐ 300 ‐‐‐300 ‐
‐ ‐ ‐‐‐‐214
‐ ‐ ‐‐‐4,014 5,547
10,632 15,784 27,370 5,983 3,294 282,724 84,528
‐ 3,000 ‐‐‐3,000 ‐
‐ ‐ ‐‐‐35 ‐
‐ 183 ‐‐‐275 ‐
33,240 26,773 1,952 18,435 13,437 158,377 1,873
54,538 28,717 3,359 22,179 611 478,337 19,905
87,778 58,673 5,311 40,614 14,048 640,024 21,778
98,410 74,457 32,681 46,597 17,342 922,748 106,306
‐ ‐ ‐‐‐239 ‐
1,754 4,739 966 872 305 22,698 3,795
378 1,164 421 184 68 6,139 822
2,132 5,903 1,387 1,056 373 29,076 4,617
572 4,602 2,594 557 2,506 28,426 2,704
58 141 30 27 11 720 103
‐ ‐ ‐‐‐‐5,996
94 1,399 ‐685 ‐4,533 ‐
‐ ‐ ‐‐‐‐5,835
724 6,142 2,624 1,269 2,517 33,679 14,638
‐ ‐ ‐‐‐‐6,062
‐ ‐ ‐‐‐‐17,913
‐ ‐ ‐‐3,115 3,115 ‐
‐ ‐ 6,825 ‐‐6,825 ‐
9,075 22,984 6,009 3,991 775 112,981 16,710
2,717 8,366 3,024 1,320 491 44,132 5,910
551 19,838 ‐4,053 ‐61,586 ‐
12,343 51,188 15,858 9,364 4,381 228,639 46,595
13,067 57,330 18,482 10,633 6,898 262,318 61,233
128 340 70 70 23 1,644 286
45 137 50 22 8 724 97
173 477 120 92 31 2,368 383
87,133 37,553 5,311 35,876 14,048 573,688 21,778
‐ ‐ ‐‐‐4,014 ‐
169 (15,000) 10,155 1,052 (3,262) 109,436 27,529
87,302$ 22,553$ 15,466$ 36,928$ 10,786$ 687,138 49,307$
993
688,131$
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
39
Fiber
Water Electric Optics Gas
OPERATING REVENUES:
Sales to:
Customers 40,661$ 122,089$ 3,380$ 33,389$
City departments 2,735 4,264 874 1,373
Surplus energy ‐ 11,792 ‐ ‐
Service connection charges and miscellaneous 852 1,766 101 1,079
Charges for services ‐ ‐ ‐ ‐
Other 839 14,231 174 1,203
Total operating revenues 45,087 154,142 4,529 37,044
OPERATING EXPENSES:
Purchase of utilities:
Retail purchase of utilities 21,958 83,910 ‐ 12,921
Surplus energy ‐ 10,749 ‐ ‐
Administrative and general 5,743 9,762 820 4,767
Engineering (operating) 349 1,776 ‐ 345
Resource management and energy efficiency 911 5,941 ‐ 1,176
Operations and maintenance 5,626 11,384 1,453 4,561
Rent 1,776 5,285 75 602
Depreciation and amortization 2,722 8,095 337 3,152
Claims payments and changes in
estimated self‐insurance liability ‐ ‐ ‐ ‐
Refund of charges for services ‐ ‐ ‐ ‐
Employment benefits ‐ ‐ ‐ ‐
Total operating expenses 39,085 136,902 2,685 27,524
Operating income (loss) 6,002 17,240 1,844 9,520
NONOPERATING REVENUES (EXPENSES):
Investment earnings 122 310 40 24
Interest expense (1,703) (8,787) ‐ (203)
Gain on disposal of capital assets ‐ ‐ ‐ ‐
Loss on disposal of capital assets (117) (26) ‐ (122)
Other nonoperating revenues 501 ‐ ‐ ‐
Total nonoperating revenues (expenses)(1,197) (8,503) 40 (301)
Income (loss) before transfers and capital contributions 4,805 8,737 1,884 9,219
Capital contributions 531 ‐ ‐ ‐
Transfers in (Note 4) 512 3,465 ‐ ‐
Transfers out (Note 4) (704) (13,448) (135) (7,677)
Change in net position 5,144 (1,246) 1,749 1,542
NET POSITION (DEFICIT), BEGINNING OF YEAR
AS PREVIOUSLY STATED 118,331 267,573 34,084 112,658
RESTATEMENT FOR IMPLEMENTATION OF GASB STATEMENT NO. 75 (4,522) (14,728) ‐ (6,482)
NET POSITION (DEFICIT), BEGINNING OF YEAR, AS RESTATED 113,809 252,845 34,084 106,176
NET POSITION (DEFICIT), END OF YEAR 118,953$ 251,599$ 35,833$ 107,718$
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, 2018
(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
17,324$ 16,775$ 30,402$ 6,515$ 1,760$ 272,295$ ‐$
95 9,596 804 393 ‐ 20,134 ‐
‐ ‐ ‐ ‐ ‐ 11,792 ‐
220 ‐ ‐ ‐ ‐ 4,018 ‐
‐ ‐ ‐ ‐ ‐ ‐ 99,378
351 1,011 3,441 56 622 21,928 121
17,990 27,382 34,647 6,964 2,382 330,167 99,499
9,559 ‐ 15,060 ‐ ‐ 143,408 ‐
‐ ‐ ‐ ‐ ‐ 10,749 ‐
1,933 ‐ 1,584 1,274 967 26,850 13,742
303 2,374 320 198 ‐ 5,665 ‐
‐ ‐ ‐ 922 ‐ 8,950 ‐
2,683 20,768 8,950 1,352 554 57,331 13,327
310 ‐ 2,272 41 ‐ 10,361 ‐
2,049 2,882 109 763 21 20,130 3,074
‐ ‐ ‐ ‐ ‐ ‐ 4,705
‐ ‐ ‐ ‐ ‐ ‐ 87
‐ ‐ ‐ ‐ ‐ ‐ 70,547
16,837 26,024 28,295 4,550 1,542 283,444 105,482
1,153 1,358 6,352 2,414 840 46,723 (5,983)
18 35 15 31 1 596 32
(38) (423) (156) (298) (64) (11,672) ‐
‐ ‐ ‐ ‐ ‐ ‐ 218
(12) ‐ ‐ ‐ ‐ (277) ‐
‐ ‐ ‐ ‐ ‐ 501 42
(32) (388) (141) (267) (63) (10,852) 292
1,121 970 6,211 2,147 777 35,871 (5,691)
329 4,000 ‐ ‐ 9,334 14,194 ‐
‐ ‐ ‐ ‐ ‐ 3,977 5,934
(442) (210) (62) (365) (11) (23,054) (2,654)
1,008 4,760 6,149 1,782 10,100 30,988 (2,411)
88,772 25,423 12,075 36,350 1,134 76,528
(2,478) (7,630) (2,758) (1,204) (448) (24,810)
86,294 17,793 9,317 35,146 686 51,718
87,302$ 22,553$ 15,466$ 36,928$ 10,786$ 49,307$
(1,901)
29,087$
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
41
Fiber
Water Electric Optics Gas
Cash flows from operating activities:
Cash received from customers 41,851$ 135,515$ 3,283$ 34,363$
Cash refunds to customers ‐ ‐ ‐ ‐
Cash payments to suppliers for goods and services (29,786) (119,238) (997) (17,863)
Cash payments to employees (5,197) (8,471) (663) (4,237)
Internal activity‐ receipts (payments) from (to) other funds 2,735 4,264 874 1,373
Other receipts 839 14,231 174 1,203
Net cash provided by operating activities 10,442 26,301 2,671 14,839
Cash flows from noncapital financing activities:
Receipt of loans from other funds ‐ ‐ ‐ ‐
Interest subsidy received from Build America Bonds 501 ‐ ‐ ‐
Transfers in 512 3,465 ‐ ‐
Transfers out (704) (13,448) (135) (7,677)
Net cash provided by (used in)
noncapital financing activities 309 (9,983) (135) (7,677)
Cash flows from capital and related financing activities:
Acquisition and construction of capital assets (8,511) (10,850) (1,048) (5,505)
Proceeds from sale of capital assets ‐ ‐ ‐ ‐
Capital grants and contributions 531 ‐ ‐ ‐
Proceeds from debt issuance ‐ ‐ ‐ ‐
Principal paid on long‐term debt (1,573) (100) ‐ (597)
Interest paid on long‐term debt (1,705) (8,787) ‐ (203)
Net cash used in capital and related
financing activities (11,258) (19,737) (1,048) (6,305)
Cash flows from investing activities:
Interest received 74 236 2 (14)
Net cash provided by (used in) investing activities 74 236 2 (14)
Net change in cash and cash equivalents (433) (3,183) 1,490 843
Cash and cash equivalents, beginning of year 42,378 93,653 27,166 28,657
Cash and cash equivalents, end of year $ 41,945 $ 90,470 $ 28,656 $ 29,500
Financial statement presentation:
Cash and investments available for operations 38,726$ 90,470$ 28,656$ 28,705$
Restricted cash and investments with fiscal agent 3,219 ‐ ‐ 795
Cash and cash equivalents, end of year 41,945$ 90,470$ 28,656$ 29,500$
Reconciliation of operating income (loss) to
net cash provided by operating activities:
Operating income (loss) 6,002$ 17,240$ 1,844$ 9,520$
Adjustments to reconcile operating income (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,722 8,095 337 3,152
Other ‐ ‐ ‐ ‐
Change in assets and liabilities:
Accounts receivable 338 (132) (198) (105)
Inventory of materials and supplies ‐ ‐ ‐ ‐
Deposit 8 (20) ‐ ‐
Deferred outflow of resources ‐ pension plans (442) (1,047) (91) (477)
Deferred outflow of resources ‐ OPEB (214) (696) ‐ (306)
Accounts payable and accruals 826 (173) 531 1,742
Accrued salaries and benefits 1 (1) 2 5
Accrued compensated absences ‐ ‐ ‐ ‐
Landfill closure and post‐closure care ‐ ‐ ‐ ‐
Accrued claims payable ‐ ‐ ‐ ‐
Net Pension liability 1,164 2,931 242 1,260
Net OPEB liability (40) (129) ‐ (57)
Deferred inflow of resources ‐ pension plans (4) (32) 4 (11)
Deferred inflow of resources ‐ OPEB 81 265 ‐ 116
Net cash provided by operating activities $ 10,442 $ 26,301 $ 2,671 $ 14,839
Business‐Type Activities‐Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Cash Flows
For the Year Ended June 30, 2018
(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
17,438$ 19,716$ 30,109$ 6,508$ (283)$ 288,500$ 99,787$
‐ ‐ ‐ ‐ ‐ ‐ (10)
(13,695) (21,517) (26,715) (2,437) 1,633 (230,615) (14,463)
(1,592) (2) (1,483) (1,080) (886) (23,611) (79,574)
95 9,596 804 393 ‐ 20,134 (3,837)
351 1,011 3,562 56 622 22,049 42
2,597 8,804 6,277 3,440 1,086 76,457 1,945
‐ ‐ ‐ ‐ 200 200 ‐
‐ ‐ ‐ ‐ ‐ 501 ‐
‐ ‐ ‐ ‐ ‐ 3,977 5,934
(442) (210) (62) (365) (11) (23,054) (2,654)
(442) (210) (62) (365) 189 (18,376) 3,280
(2,948) (17,088) ‐ (5,610) (10,370) (61,930) (6,275)
‐ ‐ ‐ ‐ ‐ ‐ 248
329 4,300 ‐ ‐ 9,334 14,494 ‐
‐ 7,516 ‐ ‐ ‐ 7,516 ‐
(90) (5,358) ‐ (645) ‐ (8,363) ‐
(38) (423) (155) (298) (64) (11,673) ‐
(2,747) (11,053) (155) (6,553) (1,100) (59,956) (6,027)
22 24 (29) 36 (1) 350 (48)
22 24 (29) 36 (1) 350 (48)
(570) (2,435) 6,031 (3,442) 174 (1,525) (850)
8,989 15,332 17,672 8,631 861 243,339 84,648
$ 8,419 $ 12,897 $ 23,703 $ 5,189 $ 1,035 $ 241,814 $ 83,798
8,419$ 12,897$ 23,703$ 5,189$ 1,035$ 237,800$ 78,251$
‐ ‐ ‐ ‐ ‐ 4,014 5,547
8,419$ 12,897$ 23,703$ 5,189$ 1,035$ 241,814$ 83,798$
1,153$ 1,358$ 6,352$ 2,414$ 840$ 46,723$ (5,983)$
2,049 2,882 109 763 21 20,130 3,074
‐ ‐ ‐ ‐ ‐ ‐ 42
(106) 2,941 (293) (7) (2,043) 395 403
‐ ‐ ‐ ‐ ‐ ‐ 30
‐ 17 ‐ ‐ ‐ 5 ‐
(291) (639) (149) (247) (65) (3,448) (733)
(117) (361) (131) (57) (21) (1,903) (255)
(840) 697 (113) 76 2,187 4,933 1,687
5 (2) (2) 6 (1) 13 14
‐ ‐ ‐ ‐ ‐ ‐ 580
‐ ‐ 121 ‐ ‐ 121 ‐
‐ ‐ ‐ ‐ ‐ ‐ 1,278
728 1,843 367 466 154 9,155 1,709
(22) (67) (24) (11) (4) (354) (48)
(7) (2) (10) 15 10 (37) 50
45 137 50 22 8 724 97
$ 2,597 $ 8,804 $ 6,277 $ 3,440 $ 1,086 $ 76,457 $ 1,945
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) 2,522$
Restricted cash and investments with fiscal agents (Note 3) 2,594
Account receivable 532
Interest receivable 14
Total assets 5,662$
LIABILITIES:
Due to bondholders 4,595$
Due to other governments 1,067
Total liabilities 5,662$
CITY OF PALO ALTO
Statement of Assets and Liabilities
June 30, 2018
(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, 2018
45
Page
1. Summary of Significant Accounting Policies ........................................................................... 47
2. Budgets and Budgetary Accounting ........................................................................................ 56
3. Cash and Investments ............................................................................................................. 57
4. Interfund Transactions ............................................................................................................ 63
5. Notes and Loans Receivable .................................................................................................... 65
6. Capital Assets .......................................................................................................................... 70
7. General Long‐Term Obligations .............................................................................................. 77
8. Special Assessment Debt ......................................................................................................... 83
9. Landfill Post‐Closure Maintenance ......................................................................................... 84
10. Net Position and Fund Balances .............................................................................................. 84
11. Pension Plans ........................................................................................................................... 88
12. Other Post‐Employment Benefits (OPEB) ............................................................................... 95
13. Deferred Compensation Plan .................................................................................................. 99
14. Risk Management .................................................................................................................. 100
15. Joint Ventures ........................................................................................................................ 101
16. Commitments and Contingencies ......................................................................................... 104
Notes are essential to present fairly the information contained in the overview level of the basic financial
statements. Narrative explanations are intended to communicate information that is not readily apparent
or cannot be included in the statements themselves, and to provide additional disclosures as required by
the Governmental Accounting Standards Board.
46
This page is left intentionally blank.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
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, 2018
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, 2018
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, 2018
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, 2018
51
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other Funds (Continued)
Cable Joint Powers Authority – This fund accounts for the activities of the cable television system
on behalf of the members.
University Avenue Area Off‐Street Parking Assessment District – This fund accounts for the
receipts and disbursements associated with the 2012 Limited Obligation Refunding Improvement
Bonds.
(d) Basis of Accounting
The government‐wide and proprietary fund financial statements are reported using the economic
resources measurement focus and the full accrual basis of accounting. Agency funds do not have
a measurement focus but are reported using the accrual basis of accounting. Revenues are
recorded when earned and expenses are recorded at the time liabilities are incurred, regardless
of when the related cash flows take place.
Governmental funds are reported using the current financial resources measurement focus and
the modified accrual basis of accounting. Under this method, revenues are recognized when
measurable and available. The City considers revenues susceptible to accrual reported in the
governmental funds to be available if the revenues are collected within ninety days after year‐
end, except for property taxes, which are available if collected within sixty days after year‐end.
Expenditures are recorded when the related fund liability is incurred, except for principal and
interest on general long‐term debt, claims and judgments, and compensated absences, which are
recognized as expenditures to the extent they have matured. General capital asset acquisitions
are reported as expenditures in governmental funds. Proceeds of general long‐term debt and
acquisitions under capital leases are reported as other financing sources.
Revenues susceptible to accrual include taxes, intergovernmental revenues, interest and charges
for services.
Grant revenues are recognized in the fiscal year in which all eligibility requirements are met.
Under the terms of grant agreements, the City may fund certain programs with a combination of
cost‐reimbursement grants, categorical block grants, and general revenues. Thus, both restricted
and unrestricted net position may be available to finance program expenditures. The City’s policy
is to first apply restricted grant resources to such programs, followed by general revenues if
necessary.
Certain indirect costs are included in program expenses reported for individual functions and
activities. Transactions representing the exchange of interfund goods and services have also been
included.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
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, 2018, changes to the compensated absences liabilities were
as follows (in thousands):
Beginning balance 11,478$
Additions 7,374
Payments (6,794)
Ending balance 12,058$
Current portion 5,996$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
53
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(j) Property Tax
Santa Clara County (the County) assesses properties and bills, collects, and distributes property
taxes to the City. The County remits the entire amount levied and handles all delinquencies,
retaining interest and penalties.
The County assesses property values, levies bills and collects taxes as follows:
Secured Unsecured
Lien Dates January 01 January 01
Levy Dates October 01 July 01
Due Dates 50% on November 01 Upon receipt of billing
50% on February 01
Delinquent after December 10 (for November)August 31
April 10 (for February)
The term “unsecured” refers to taxes on personal property other than real estate, land and
buildings. These taxes are secured by liens on the property being taxed. Property tax revenues
are recognized by the City in the fiscal year they are assessed, provided they become available as
defined previously within sixty days after year‐end.
(k) Deferred Outflows of Resources and Deferred Inflows of Resources
A deferred outflow of resources is the consumption of net position that is applicable to a future
reporting period. A deferred inflow of resources is defined as an acquisition of net position
applicable to a future reporting period.
(l) Pensions and OPEB
For purposes of measuring the net pension liability and net OPEB liability, deferred
outflows/inflows of resources related to pensions and OPEB, and pension and OPEB expense,
information about the fiduciary net position of the City’s pension and OPEB plans and additions
to/deductions from the plans’ fiduciary net positions have been determined on the same basis as
they are reported by the California Public Employees’ Retirement System (CalPERS) and the
California Employer’s Retiree Benefit Trust Fund Program (CERBT). For this purpose, benefit
payments (including refunds of employee contributions) are recognized when due and payable in
accordance with the benefit terms. Investments are reported at fair value.
(m) Rounding
All amounts included in the basic financial statements and footnotes are presented to the nearest
thousand.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
54
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements
As of July 1, 2017, the City implemented 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
employees of other governments. As of July 1, 2017, the City recorded the beginning net OPEB
liability of $154.7 million, the beginning deferred outflows of resources of $14.7 million related to
OPEB contributions made after the beginning measurement date, the removal of the net OPEB
asset under the previous standards of $19.4 million, to arrive at the restatement of $159.4 million.
See Note 12 for detailed information about the impact of the implementation on the City’s
financial statements.
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. Implementation of this statement did not have a significant
impact on the City’s financial statements for the fiscal year ended June 30, 2018.
In March 2017, the GASB issued Statement No. 85, Omnibus 2017. The objective of the statement
is to address practice issues that have been identified during implementation and application of
certain GASB Statements. The statement addresses a variety of topics including issues related to
blending component units, goodwill, fair value measurement and application, and
postemployment benefits (pensions and other postemployment benefits). Implementation of this
statement did not have a significant impact on the City’s financial statements for the fiscal year
ended June 30, 2018.
In May 2017, the GASB issued Statement No. 86, Certain Debt Extinguishment Issues. The primary
objective of the statement is to improve consistency in accounting and financial reporting for in‐
substance defeasance of debt by providing guidance for transactions in which cash and other
monetary assets acquired with only existing resources ‐ resources other than the proceeds of
refunding debt ‐ are placed in an irrevocable trust for the sole purpose of extinguishing debt.
Implementation of this statement did not have a significant impact on the City’s financial
statements for the fiscal year ended June 30, 2018.
The City is currently analyzing its accounting practices to determine the potential impact on the
financial statements for the following GASB Statements:
In November 2016, the GASB issued Statement No. 83, Certain Asset Retirement Obligations. The
statement addresses accounting and financial reporting for certain asset retirement obligations
(AROs). An ARO is a legally enforceable liability associated with the retirement of a tangible capital
asset. A government that has legal obligations to perform future asset retirement activities
related to its tangible capital assets should recognize a liability based on the guidance in this
statement. The requirements of this statement are effective for the City’s fiscal year ending
June 30, 2019.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
55
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements (Continued)
In January 2017, the GASB issued Statement No. 84, Fiduciary Activities. The statement establishes
criteria for identifying fiduciary activities of all state and local governments. The focus of the
criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity
and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included
to identify fiduciary component units and postemployment benefit arrangements that are
fiduciary activities. The statement also provides for recognition of a liability to the beneficiaries in
a fiduciary fund when an event has occurred that compels the government to disburse fiduciary
resources. The requirements of this statement are effective for the City’s fiscal year ending
June 30, 2020.
In June 2017, the GASB issued Statement No. 87, Leases. The objective of this statement is to
better meet the information needs of financial statement users by improving accounting and
financial reporting for leases by governments. This Statement increases the usefulness of
governments’ financial statements by requiring recognition of certain lease assets and liabilities
for leases that previously were classified as operating leases and recognized as inflows of
resources or outflows of resources based on the payment provisions of the contract. It establishes
a single model for lease accounting based on the foundational principle that leases are financings
of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a
lease liability and an intangible right‐to‐use lease asset, and a lessor is required to recognize a
lease receivable and a deferred inflow of resources, thereby enhancing the relevance and
consistency of information about governments’ leasing activities. The requirements of this
statement are effective for the City’s fiscal year ending June 30, 2021.
In March 2018, the GASB issued Statement No. 88, Certain Disclosures Related to Debt, including
Direct Borrowings and Direct Placements. The objective of this statement is to improve the
information that is disclosed in notes to government financial statements related to debt,
including direct borrowings and direct placements. It also clarities which liabilities governments
should include when disclosing information related to debt. The requirements of this statement
are effective for the City’s fiscal year ending June 30, 2019.
In June 2018, the GASB issued Statement No. 89, Accounting for Interest Cost Incurred before the
End of a Construction Period. The objectives of this statement are 1) to enhance the relevance
and comparability of information about capital assets and the cost of borrowing for a reporting
period, and 2) to simplify accounting for interest cost incurred before the end of a construction
period. The requirements of this statement are effective for the City’s fiscal year ending
June 30, 2021.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
56
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements (Continued)
In August 2018, the GASB issued Statement No. 90, Majority Equity Interests, an amendment of
GASB Statements No.14 and No.61. The objectives of this statement are to improve the
consistency and comparability of reporting a government’s majority equity interest in a legally
separate organization and to improve the relevance of financial statement information for certain
component units. The requirements of this statement are effective for the City’s fiscal year ending
June 30, 2020.
(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 on investments, changes in advances to other
funds and notes receivable are not recognized on a budgetary basis and encumbrances are treated as
budgetary expenditures when incurred.
7. Expenditures for the Capital Projects Fund are budgeted and maintained at a project level for the life
of the project. Budget to actual comparisons for these expenditures have been excluded from the
accompanying financial statements.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
57
NOTE 3 – CASH AND INVESTMENTS The City pools cash from all sources and all funds, except restricted bond proceeds with fiscal agents and
Public Agency Retirement Services, and invests its pooled idle cash according to State of California law
and the City’s Investment Policy. The basic principles underlying the City’s investment philosophy are to
ensure the safety of public funds, ensure that sufficient funds are available to meet current expenditures,
and achieve a reasonable rate of return on investments.
Policies
The City invests in individual investments and in investment pools. Individual investments are evidenced
by specific identifiable securities instruments, or by an electronic entry registering the owner in the
records of the institution issuing the security, called the book entry system. In order to increase security,
the City employs the trust department of a bank as the custodian of certain City managed investments.
Classification
Cash and investments are classified in the financial statements as shown below, based on whether or not
their use is restricted under the terms of City debt instruments or agreements (in thousands):
Governmental Business‐Type Fiduciary
Activities Activities Funds Total
Cash and investments:
Available for operations 280,681$ 237,800$ 2,522$ 521,003$
Held with fiscal agents and trustees 6,185 4,014 2,594 12,793
Total cash and investments 286,866$ 241,814$ 5,116$ 533,796$
Investments Authorized by the City’s Investment Policy, Debt Agreements and Trust Agreements
The table below summarizes the investment types that are authorized by the California Government Code
(Code) and the City’s Investment Policy, and includes the interest rate risk, credit risk and concentration
of credit risk as outlined in the Investment Policy. In addition, the table discloses investment of debt
proceeds held by bond trustees. These investments are governed by the provisions of each debt
agreement of the City, rather than the general provisions of the City’s Investment Policy.
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.
The City has implemented investment guidelines for its Public Agencies Retirement Services (PARS) Trust
which authorizes the investments in U.S. Treasury securities, federal agencies and U.S. guaranteed
obligations, corporate notes, certificates of deposit, bankers’ acceptances, equities investments, and
mutual funds.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
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, 2018
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, 2018 (in thousands):
Type of Investment June 30, 2018 Level 2
Investments by fair value hierarchy
U.S. Federal Agency Securities 316,594$ 316,594$
U.S. Treasury Notes 19,470 19,470
Local Government Bonds 82,220 82,220
Negotiable Certificates of Deposit 48,556 48,556
Corporate Bonds 20,443 20,443
Total investments by fair value hierarchy 487,283 487,283$
Investment not subject to fair value hierarchy
Bonds Fund:
Money Market Mutual Funds 3,005
U.S Bank Trust Services 4,012
Equity Mutual Funds (Irrevocable for pension)5,548
California Asset Management Program 3,214
Local Agency Investment Fund 24,647
Total investments not subject to fair value hierarchy 40,426
Total investments measured at fair value 527,709$
Local Agency Investment Fund
The City participates in the Local Agency Investment Fund (LAIF) which, under the oversight of the
Treasury of the State of California, is regulated by California Government Code Section 16429. LAIF
management calculates the fair value and cost of the entire LAIF pool. The City adjusts its cost basis
invested in LAIF to fair value based on this ratio. The fair value of the City’s position in the pool is the
same as the value of the pool share. The balance available for withdrawal on demand is based on
accounting records maintained by LAIF, which are recorded on an amortized cost basis. At June 30, 2018,
LAIF had a weighted average maturity of 193 days.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
60
NOTE 3 – CASH AND INVESTMENTS (Continued)
Fidelity Institutional Asset Management
Money market mutual funds are available for withdrawal on demand and at June 30, 2018, had a weighted
average maturity of 29 days.
California Asset Management Program
The City is a voluntary participant in the California Asset Management Program (CAMP). CAMP is an
investment pool offered by the California Asset Management Trust (the Trust). The Trust is a joint powers
authority and public agency created by the Declaration of Trust and established under the provisions of
the California Joint Exercise of Powers Act (California Government Code Sections 6500 et seq., or the
“Act”) for the purpose of exercising the common power of its participants to invest certain proceeds of
debt issues and surplus funds. The City’s investments are limited to investments permitted by
subdivisions (a) to (n), inclusive, of Section 53601 of the California Government Code. The City reports its
investments in CAMP at the fair value amounts provided by CAMP, which is the same as the value of the
pool share. At June 30, 2018, the fair value approximated the City’s cost. CAMP had a weighted average
maturity of 35 days at June 30, 2018.
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, 2018, 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 43,867$ 80,159$ 81,637$ 110,931$ 316,594$
U.S. Treasury Notes 6,436 2,951 10,083 ‐ 19,470
Local Government Bonds 251 14,468 34,032 33,469 82,220
Corporate Bonds 2,787 17,558 98 ‐ 20,443
Bond Funds:
Money Market Mutual Funds 3,005 ‐ ‐ ‐ 3,005
U.S Bank Trust Services 4,012 ‐ ‐ ‐ 4,012
Equity Mutual Funds (pension trust) 5,548 ‐ ‐ ‐ 5,548
Negotiable Certificates of Deposit 6,650 15,935 23,479 2,492 48,556
California Asset Management Program 3,214 ‐ ‐ ‐ 3,214
Local Agency Investment Fund 24,647 ‐ ‐ ‐ 24,647
Total Investments 100,417$ 131,071$ 149,329$ 146,892$ 527,709
Cash in bank and on hand 6,087
Total Cash and Investments 533,796$
Maturities
Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations
At June 30, 2018, the City’s investments (including investments held by bond trustees) include U.S. Federal
Agency Callable Securities totaling $113 million. These investments are highly sensitive to interest rate
fluctuations (to a greater degree than already indicated in the information provided above) and are
subject to early redemption.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
61
NOTE 3 – CASH AND INVESTMENTS (Continued)
Credit Risk
Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the
investment. This is measured by the assignment of a rating by a nationally recognized statistical rating
organization.
Presented below is the actual rating as provided by Standard & Poor’s, Moody’s and/or Fitch’s investment
rating system as of June 30, 2018, for each investment type (in thousands):
Type of Investment Rating Total
U.S. Federal Agency Securities AA+ 167,190$
N/A 149,404
Total U.S Federal Agency Securities 316,594
Corporate Bonds AAA 10,646
AA+ 8,831
AA 966
Total Corporate Bonds 20,443
Local Government Bonds AAA 39,659
AA+ 22,566
AA 19,995
Total Government Bonds 82,220
Money Market Mutual Funds AAAm 3,005
Total Money Market Mutual Funds 3,005
Total Investments 422,262
Not Applicable:
U.S. Treasury Notes 19,470
Not Rated:
Bond Fund: U.S Bank Trust Services 4,012
California Asset Management Program 3,214
Local Agency Investment Fund 24,647
Negotiable Certificates of Deposit 48,556
Equity Mutual Funds 5,548
Cash in bank and on hand 6,087
Total Cash and Investments 533,796$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
62
NOTE 3 – CASH AND INVESTMENTS (Continued)
Concentration of Credit Risk
Investments in any one issuer, other than U.S. Treasury securities, mutual funds, and external investment
pools, that represent 5 percent or more of total City portfolio investments are as follows at June 30, 2018
(in thousands):
Investments Reporting Type Fair Value at Year‐End
Federal Home Loan Bank U.S. Federal Agency Securities 99,848$
Federal Agricultural Mortgage Corporation U.S. Federal Agency Securities 109,183
Federal Farm Credit Bank U.S. Federal Agency Securities 52,623
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, 2018
63
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 2018 were as follows (in thousands):
Fund Making Transfer
Amount
Transferred
General Fund Nonmajor Governmental Funds 717$ A
Electric Services Fund 12,887 B
Gas Services Fund 6,699 B
Capital Projects Fund 7 A
Capital Projects Fund General Fund 24,800 C
Nonmajor Governmental Funds 10,696 C
Water Services Fund 6 C
Fiber Optics Fund 6 C
Gas Services Fund 6 C
Storm Drainage 330 C
Nonmajor Governmental Funds General Fund 659 A
Water Services Fund 10 A
Electric Services Fund 22 A
Fiber Optics Fund 2 A
Gas Services Fund 9 A
Wastewater Collection Fund 5 A
Internal Service Funds 21 A
Water Services Fund Gas Services Fund 256 C
Wastewater Collection Fund 256 C
Electric Services Fund General Fund 2,486 D
Water Services Fund 436 C
Gas Services Fund 436 C
Fiber Optics Fund 102 C
Internal Service Funds 5 C
Internal Service Funds General Fund 1,590 E/F
Capital Projects Fund 108 E/F
Nonmajor Governmental Funds 22 E/F
Water Services Fund 252 E/F
Electric Services Fund 538 E/F
Fiber Optics Fund 25 E/F
Gas Services Fund 271 E/F
Wastewater Collection Fund 181 E/F
Wastewater Treatment Fund 210 E/F
Refuse Services Fund 62 E/F
Storm Drainage Services Fund 35 E/F
Airport 11 E/F
Internal Service Funds 2,629 E/G
Total 66,793$
Fund Receiving Transfer
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
64
NOTE 4 – INTERFUND TRANSACTIONS (Continued)
The reasons for these transfers are set forth below:
(A) Transfer to fund street maintenance activities, to pay debt service, fund City employee parking,
and to return unspent project funds.
(B) Transfer to fund the return of initial investment made by general fund when utility department
was created.
(C) Allocation of funds to construct, purchase or maintain capital assets.
(D) Transfer to fund electricity costs associated with City streetlight and traffic signal costs.
(E) Transfer to fund supplemental pension trust fund.
(F) Transfer to fund replacement and maintenance of critical desktop, software, infrastructure,
vehicles and equipment.
(G) Transfer to fund an implied subsidy for retiree healthcare.
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
200,000 Due July 2027
All advances bear interest equal to the average return yield on the City’s investment portfolio. As of
June 30, 2018, the total outstanding principal amount is $3.1 million.
Internal Balances
Internal balances represent the net interfund receivables and payables remaining after the elimination of
all such balances within governmental and business‐type activities.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
65
NOTE 5 – NOTES AND LOANS RECEIVABLE
At June 30, 2018, the City’s notes and loans receivable totaled (in thousands):
Palo Alto Housing Corporation:
Tree House Apartments 5,344$
Emerson Street Project 375
Alma Single Room Occupancy Development 2,222
Barker Hotel 2,111
Sheridan Apartments 2,222
Oak Court Apartments, L.P. 7,834
El Dorado Palace LLC 65
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 479
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 923
MP Palo Alto Garden, LLC 672
Colorado Park Housing Corporation 204
Buena Vista ‐ County of Santa Clara 14,500
Total Notes and Loans 48,932
Less: Valuation Allowance (14,637)
Total Notes and Loans, Net 34,295$
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, 2018
66
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Tree House Apartments
In March 2009, the City agreed to loan $2.8 million to Tree House Apartments, L.P. (THA) for the purchase
of the real property located at 488 West Charleston Road. The loan accrues simple interest at the rate of
3 percent per annum. The loan was funded with $1.8 million of Community Development Block Grant
(CDBG) funds and $1.0 million of residential housing funds. An additional development loan in the amount
of $2.5 million was approved by the City on October 18, 2010. As of June 30, 2018, the outstanding
balance for THA in aggregate is $5.3 million. Principal and interest payments will be deferred, however if
the borrower has earned extra income, and if it is acceptable to the other entities providing final
permanent sources of funds, payment of interest and principal based on the City’s proportionate share of
the project’s residual receipts from net operating income shall be made by the borrower. In no event
shall full payment be made by the borrower later than concurrently with the expiration or earlier
termination of the loan agreement, which is December 31, 2067.
Emerson Street Project
On November 8, 1994, the City loaned $375,000 to Palo Alto Housing Corporation (PAHC) for expenses
necessary to acquire an apartment complex for the preservation of rental housing for low and very low
income households in the City. This loan is collateralized by a second deed of trust. The loan bears interest
at 3 percent.
Alma Single Room Occupancy Development
On December 13, 1996, the City loaned $2.2 million to Alma Place Associates, L.P. for development of a
107‐unit single room occupancy development. This loan bears interest at 3 percent and is collateralized
by a subordinated deed of trust. The principal balance is due in 2041.
Barker Hotel
On April 12, 1994, the City loaned a total of $2.1 million for the preservation, rehabilitation and expansion
of a low‐income, single occupancy hotel. This loan was funded by three sources: $400,000 from the
Housing In‐Lieu Fund, $1.0 million from HOME Investment Partnership Program Funds, and $670,000 from
CDBG funds. All three notes bear no interest and are collateralized by a deed of trust, which is
subordinated to private financing. Loan repayments are deferred until 2035.
In July 2004, the City agreed to loan up to $41,000 to PAHC to rehabilitate the interior of the Barker Hotel.
The loan was funded with CDBG funds and is collateralized by a deed of trust on the property. Annual
loan payments are deferred until certain criteria defined in the loan agreement are reached. The loan will
be forgiven if the borrower satisfactorily complies with all terms and conditions of the loan agreement.
Sheridan Apartments
On December 8, 1998, the City loaned $2.2 million to PAHC for the purchase and rehabilitation of a 57‐
unit apartment complex to be used for senior and low‐income housing. The loan was funded with $1.6
million in CDBG funds, and $825,000 of Housing In‐Lieu funds. The note is collateralized by a second deed
of trust and an affordability reserve account held by PAHC. The loan was amended in June 2017. It will not
accrue interest between May 1, 2017 and March 1, 2030. The loan will be forgiven on June 30, 2030 if
PAHC uses the funds that would otherwise have been due to the City for another affordable housing
project.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
67
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.
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. The City loaned $52,000 and $13,000 in
June 2017 and March 2018, respectively. 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.
Palo Alto Gardens Apartments
On April 22, 1999, the City loaned $1.0 million to Mid‐Peninsula Housing Coalition (the Coalition) for the
purchase and rehabilitation of a 155‐unit complex for the continuation of low‐income housing. The loan
was funded with $659,000 of CDBG funds and $341,000 of Housing In‐Lieu funds. The two notes bear
interest at 3 percent and are secured by second deeds of trust and a City Affordability Reserve Account
held by the Coalition. Principal and interest payments began in FY 2008. The principal balance of $100,000
is due in 2039.
Community Working Group, Inc.
On May 13, 2002, the City loaned $1.3 million to Community Working Group, Inc. for predevelopment,
relocation and acquisition of land for development of an 89‐unit complex and homeless service center for
very low income households. The loan was funded with $1.3 million of CDBG funds. The note bears no
interest and is secured by a first deed of trust. No repayment is required as long as the borrower complies
with all terms and conditions of the agreement. After 89 years of compliance with the regulatory
agreement, the City’s loan would convert to a grant and its deed of trust would be re‐conveyed.
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
68
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Executive Relocation Assistance Loans
The City Council may authorize a mortgage loan as part of a relocation assistance package to executive
staff. The loans are secured by first deeds of trust, and interest is adjusted annually based on the rate of
return of invested funds of the City for the year ended June 30 plus one‐quarter of 1 percent. Principal
and interest payments are due bi‐weekly. Employees must pay any outstanding balance on their loans
within a certain period after ending employment with the City.
As of June 30, 2018, 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, 2018 is $375,000. 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, 2018 was $103,000.
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 2018, 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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
69
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Alma Garden Apartments
In March 2006, the City agreed to loan up to $1.2 million to Community Working Group, Inc. to acquire a
10‐unit multi‐family housing complex known as Alma Garden Apartments. The loan was funded with
CDBG funds. Principal and interest payments are deferred until July 1, 2061 as long as the borrower
complies with all terms and conditions of the agreement.
2811‐2825 Alma Street Acquisition
On October 9, 2011, the City agreed to loan $1.3 million to PAHC to acquire properties on Alma Street for
the purpose of developing an affordable rental housing project. On June 29, 2015, the City loaned PAHC
an additional $0.6 million, and entered into an Amended and Restated Acquisition and Development
Agreement which combined the two loans for a total loan of $1.9 million. The loan term expires on
December 8, 2066 with an option to extend the term for an additional 44 years. The loan bears simple
interest of 3 percent, however in the event of default interest will accrue at the lesser of 8 percent or the
highest rate permitted by law. Principal and interest payments are payable during the term of the
agreement on a “residual receipt” basis as described in the agreement. All principal and interest is due in
the event of an unauthorized transfer, a default or the expiration of the term. As of June 30, 2018, 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, 2018, 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. As of June 30, 2018,
the loan outstanding balance is $923,000 and is due at the end of the 55‐year term.
MP Palo Alto Garden, LLC
The City loaned $619,000 and $53,000 in March 2017 and October 2017, respectively, in CDBG funds for
the rehabilitation of the property. The note bears 3% simple interest and shall be deferred until April 24,
2054. If there are no Events of Default prior to the end of the terms, the unpaid principal and interest will
be treated as a grant and no repayment will be due to the City.
Colorado Park Housing Corporation
On September 8, 2014, the City entered into an affordable housing fund loan agreement with Colorado
Park Housing Corporation (CPHC), a California nonprofit public benefit corporation, in the principal
amount of $204,000. The loan bears no interest except in the event of default. The principal and any
accrued interest is due and payable on the earlier of (a) expiration of the term, or (b) a default by CPHC
which has not been cured as provided for in the agreement.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
70
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Buena Vista Mobile Home Park – Santa Clara County
In September 2017, the City entered into an agreement with the Santa Clara County Housing Authority
(SCCHA) for the acquisition of Buena Vista Mobile Home Park. The City loaned SCCHA $14.5 million for
the acquisition. The City is entitled to twenty six percent of all residual receipts. Interest for the
promissory note is 3% simple interest. Principal and interest payments will commence on September 30,
2019 and the note and all interest is payable in full on September 29, 2019. As of June 30, 2018, the loan
balance is $14.5 million.
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 recorded at acquisition value at the time received. The City’s
policy is to capitalize all assets when costs are equal to or exceed $5,000 and the useful life exceeds one
year. Infrastructure assets are capitalized when costs are equal to or exceed $100,000.
Proprietary fund capital assets are recorded at cost including significant interest costs incurred under
restricted tax‐exempt borrowings, which finance the construction of capital assets. These interest costs,
net of interest earned on investment of proceeds of such borrowings, are capitalized and added to the
cost of capital assets during the construction period. Maintenance and repairs are expensed as incurred.
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
71
NOTE 6 – CAPITAL ASSETS (Continued)
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, 2018
72
NOTE 6 – CAPITAL ASSETS (Continued)
General Capital Assets
Changes in the City’s general capital assets during the year ended June 30, 2018 were (in thousands):
Balance Balance
July 1, 2017 Additions Retirements Transfers June 30, 2018
Governmental activities
Nondepreciable capital assets:
Land and improvements 78,481$ ‐$ ‐$ ‐$ 78,481$
Street trees 14,893 147 (278) ‐ 14,762
Intangible assets ‐ Easement 3,567 ‐ ‐ ‐ 3,567
Construction in progress 62,661 40,679 (3,334) (30,663) 69,343
Total nondepreciable capital assets 159,602 40,826 (3,612) (30,663) 166,153
Depreciable capital assets:
Buildings and structures 225,414 574 (178) 20,656 246,466
Intangible assets ‐ Software 279 ‐ ‐ ‐ 279
Equipment 11,891 186 ‐ 494 12,571
Roadway network 324,817 ‐ ‐ 9,513 334,330
Recreation and open space network 35,186 ‐ ‐ ‐ 35,186
Total depreciable capital assets 597,587 760 (178) 30,663 628,832
Less accumulated depreciation:
Buildings and structures (85,247) (6,418) 131 ‐ (91,534)
Intangible assets ‐ Software (274) (5) ‐ ‐ (279)
Equipment (7,353) (507) ‐ ‐ (7,860)
Roadway network (148,370) (7,620) ‐ ‐ (155,990)
Recreation and open space network (12,095) (1,264) ‐ ‐ (13,359)
Total accumulated depreciation (253,339) (15,814) 131 ‐ (269,022)
Depreciable capital assets, net 344,248 (15,054) (47) 30,663 359,810
Internal service fund capital assets
Construction in progress 3,182 6,198 ‐ (7,507) 1,873
Equipment 56,939 77 (2,954) 7,507 61,569
Less accumulated depreciation (41,514) (3,074) 2,924 ‐ (41,664)
Net internal service fund capital assets 18,607 3,201 (30) ‐ 21,778
Governmental activities capital assets, net 522,457$ 28,973$ (3,689)$ ‐$ 547,741$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
73
NOTE 6 – CAPITAL ASSETS (Continued)
Business‐type Capital Assets
Changes in the City’s enterprise fund capital assets during the year ended June 30, 2018 were
(in thousands):
Balance Balance
July 1, 2017 Additions Retirements Transfers June 30, 2018
Business‐type activities
Nondepreciable capital assets:
Land and improvements 4,973$ ‐$ ‐$ ‐$ 4,973$
Construction in progress 110,287 61,118 ‐ (18,001) 153,404
Total nondepreciable capital assets 115,260 61,118 ‐ (18,001) 158,377
Depreciable capital assets:
Buildings and structures 56,856 ‐ ‐ 3,039 59,895
Capital Leases ‐ 531 ‐ ‐ 531
Infrastructure 633 ‐ ‐ ‐ 633
Transmission, distribution and treatment systems 765,825 280 (1,781) 14,962 779,286
Total depreciable capital assets 823,314 811 (1,781) 18,001 840,345
Less accumulated depreciation:
Buildings and structures (12,577) (1,020) ‐ ‐ (13,597)
Infrastructure (2) (21) ‐ ‐ (23)
Transmission, distribution and treatment systems (330,781) (19,112) 1,505 ‐ (348,388)
Total accumulated depreciation (343,360) (20,153) 1,505 ‐ (362,008)
Depreciable capital assets, net 479,954 (19,342) (276) 18,001 478,337
Business‐type activities capital assets, net 595,214$ 41,776$ (276)$ ‐$ 636,714$
Capital Asset Contributions
Some capital assets may be acquired using federal and state grant funds, or they may be contributed by
developers or other governments. Generally accepted accounting principles require that these
contributions be accounted for as revenues at the time the capital assets are contributed.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
74
NOTE 6 – CAPITAL ASSETS (Continued)
Depreciation Allocation
Depreciation expense was charged to functions and programs based on their usage of the related assets.
The amount allocated to each function or program is as follows (in thousands):
Governmental Activities Business‐type Activities
City Manager 19$ Water 2,747$
City Attorney 3 Electric 8,089
City Clerk 4 Fiber Optics 337
City Auditor 1 Gas 3,183
Administrative Services 4 Wastewater Collection 2,049
Community Services 2,523 Wastewater Treatment 2,880
Public Safety 311 Refuse 109
Public Works 10,267 Storm Drainage 738
Planning and Community Environment 333 Airport 21
Library 2,349 20,153$
Internal Service Funds 3,074
18,888$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
75
NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress
Construction in progress as of June 30, 2018 is comprised of the following (in thousands):
Governmental Activities
Expended to
June 30, 2018
Bicycle Boulevards Implementation Project 7,917$
Highway 101 Pedestrian/Bicycle Overpass 4,406
Fire Station No. 3 Replacement Design 4,109
Lucie Stern Buildings Mech/Electrical Improvements 3,918
Traffic Signal Upgrades 3,593
New Public Safety Building 3,101
Charleston/Arastradero Corridor 2,770
Transportation and Parking Improvements 2,383
Rinconada Park Improvement 2,183
Safe Routes To School 1,647
New California Ave Area Parking Garage 1,634
Park Trails 1,461
CalTrain Corridor Video Management System Installation 1,417
Curb & Gutter Repairs 1,268
Telephone Infrastructure and Network 1,251
Parks Master Plan 1,250
Newell Road Bridge/SFC Bridge Replacement 1,114
Cubberley Roof Replacements 1,103
Baylands Interpretive Center Improvements 1,078
City Facility Parking Lot Maintenance 1,067
Railroad Grade Separation 998
Benches/Signage/Fencing/Walkways 995
New Downtown Parking Garage 976
Baylands Interpretive Center & Boardwalk Improvement 839
Interior Finishes Construction 826
Other Construction In Progress 17,912
Total Governmental Activities Construction In Progress 71,216$
Business‐type Activities
Expended to
June 30, 2018
Water system extension replacements and improvements 16,900$
Gas system extension replacements and improvements 7,101
Sewer system rehabilitation and extensions 13,271
Electric distribution system improvements 8,097
Water quality control plant equipment replacement and lab facilities 4,063
Storm drainage structural and water quality improvements 9,667
Other electrical improvements projects 2,443
Other construction in progress 91,862
Total Business‐type Activities Construction In Progress 153,404$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
76
NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress
Allocations of business‐type activity administration and general expenses of $12.2 million have been
capitalized and included in amounts expended to June 30, 2018.
Major governmental capital projects that are currently in progress, and the remaining capital commitment
of each, are as follows:
Fire Station Number 3 Replacement – $5.6 million
Charleston Arastradero Corridor ‐ $10.2 million
Bicycle Boulevards Implementation Project ‐ $9.3 million
Major business‐type capital projects that are currently in progress, and the remaining capital commitment
of each, are as follows:
Water Main Replacement for Water fund ‐ $4.7 million
Dewatering & Loadout Facility Project for Wastewater Treatment Fund ‐ $12.3 million
Gas Main Replacement for Gas Fund ‐ $6.8 million
Vehicle Registration Fees (VRF)
In FY 2018, the City received VRF funds from the Santa Clara Valley Transportation Authority and
expended the full amount on capital expenditures for the Overlay Resurfacing Project (PE‐86070):
Starting VRF balance July 1, 2017 ‐$
VRF revenue 421,874
VRF interest 2,999
VRF expense (424,873)
Ending VRF balance June 30, 2018 ‐$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
77
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, 2017 Additions Retirements June 30, 2018 Portion
Governmental Activities Debt:
General Long‐Term Obligations:
2002B Downtown Parking Improvements,
Certificates of Participation,
6.50%, due 03/01/2022 3,555$ 975$ ‐$ 975$ ‐$ ‐$
2010 General Obligation Bonds,
3.25% ‐ 5%, due 08/01/2040 55,305 46,980 ‐ 1,170 45,810 1,225
2011 Lease‐Purchase Agreement 3,222 842 ‐ 416 426 426
2013A General Obligation Bonds,
2 ‐ 5%, due 08/01/2041 20,695 16,730 ‐ 400 16,330 415
2018 Captial Improvement,
Certficates of Participation, 2.2%‐4.33%,
due 11/1/2047 8,970 ‐ 8,970 ‐ 8,970 35
Add: Unamortized Premium ‐ 3,768 ‐ 158 3,610 158
Total Governmental Activities Debt 91,747$ 69,295$ 8,970$ 3,119$ 75,146$ 2,259$
Original Issue
Amount
Balance
July 1, 2017 Additions Retirements
Balance
June 30, 2018 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$ 1,820$ ‐$ 570$ 1,250$ 605$
1999 Refunding,
5.125‐5.25%, due 06/01/2024
17,735 8,980 ‐ 735 8,245 775
2009 Series A,
1.80‐5.95%, due 06/01/2035
35,015 28,755 ‐ 1,035 27,720 1,080
2011 Refunding,
3‐4%, due 06/01/2035
17,225 11,270 ‐ 1,085 10,185 1,125
Add: Unamortized Premium ‐ 700 ‐ 70 630 ‐
Energy Tax Credit Bonds
2007 Series A, 0%, Due 12/15/2021 1,500 500 ‐ 100 400 100
Less: Unamortized Discount ‐ (27) ‐ (5) (22) ‐
State Water Resources Loans
2007, 1.02%, due 06/30/2029 9,000 5,400 ‐ 450 4,950 450
2009, 2.6%, due 11/30/2030 8,500 6,452 ‐ 388 6,064 398
2017, 1.8%, due 3/30/2049 29,684 3,181 7,516 4,000 6,697 ‐
Total Business‐type Activities Debt 127,299$ 67,031$ 7,516$ 8,428$ 66,119$ 4,533$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
78
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. Due to lower
construction costs, $0.9 million in par bonds were paid off early in January 2005. Principal payments are
due annually on March 1 and interest payments semi‐annually on March 1 and September 1. Debt service
payments are payable from lease revenues received by the Palo Alto Public Improvement Corporation.
As of June 30, 2018, these bonds were refinanced (extinguished) with the issuance of the AA+ rated 2018
(Golf Course Renovation) and refinancing COPs. The present value savings of $0.3 million included $0.2
million in reserve funds. The final payment on the defeased 2002B COPs will be in November 2022.
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, and to fund
substantial improvements to the Rinconada Library and the Downtown Library. Principal payments are
due annually on August 1 and interest payments semi‐annually on February 1 and August 1 and are
payable from property tax revenues.
On June 28, 2016, the City defeased $2.3 million of 2010 GO Bonds using funds from bond premiums
received at time of issue by depositing the amount in an irrevocable trust account. The trust account
assets and the liability for the defeased bonds are not included in the City’s financial statements. The City
legally remains the primary obligor on the $2.3 million of defeased bonds until they are paid on August 1,
2020.
2013A General Obligation Bonds (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 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, 2018, the City received $4.3 million in ad valorem property taxes for principal of $1.5 million and
interest of $2.8 million for both 2010 and 2013A GO Bonds.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
79
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
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.
As of June 30, 2018, there will be $0.4 million in principal and $5,302 in interest as the remaining debt
service on the bonds with the final payment occurring in September 2018.
2018 Capital Improvement (“Golf Course”) Project and 2002B (“Civic Center Refinancing and Downtown
Parking Improvements Project”) Refinancing Certificates of Participation (COPs) – On June 1, 2018, the
City issued taxable (Green Bonds) COPs of $8.4 million for the renovation of the Palo Alto Municipal Golf
Course and $0.6 million to refinance the 2002B COPs. There are two semi‐annual debt service payments,
consisting of principal payments due annually on November 1 and interest payments due on May 1 and
November 1, which are payable solely from and secured by the lease payments to be made by the City’s
General Fund to the Public Improvement Corporation pursuant to the Lease Agreement. The leased
property is the Palo Alto University Fire Station 1. The 2018 Capital Improvement Project and 2002B
refinancing COPs maturity dates and true interest costs are November 2047 and 4.14 percent and
November 2022 and 3.11 percent, respectively. The refinancing of the 2002B COPs resulted in present
value savings of $283 thousand and net present savings of $46 thousand; the higher present value savings
was due to utilizing $0.2 million in the 2002B reserve account cash on hand to reduce the principal amount
that was needed to be refinanced. A reserve account is no longer required for a highly rated bond issuer
like the City of Palo Alto, so the entire 2018 COPs didn’t have a reserve account.
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 $1.3 million principal
and $0.1 million interest as the remaining debt service on the bonds, which is scheduled to occur in
FY 2020. For FY 2018, Net Revenues, including operating revenues and non‐operating interest earnings,
amounted to $289.1 million; operating costs, including operating expenses but not interest, depreciation
or amortization, amounted to $231.3 million. Net Revenues available for debt service amounted to $57.9
million, which represented coverage of 84.7 times over the $0.7 million in debt service.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
80
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
1999 Utility Revenue and Refunding Bonds – The City issued $17.7 million of Utility Revenue Bonds on
June 1, 1999, to refund the 1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue
Bonds, Series A, and to finance rehabilitation of 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).
The pledge of future Net Revenues for the above bonds ends upon repayment of the $8.2 million principal
and $1.7 million interest as the remaining debt service on the bonds, which is scheduled to occur in
FY 2024. For FY 2018, Net Revenues, including operating revenues and non‐operating interest earnings,
amounted to $52.4 million; operating costs, including operating expenses but not interest, depreciation
or amortization, amounted to $41.7 million. Net Revenues available for debt service amounted to $10.7
million, which represents coverage of 8.88 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 $0.4 million remaining debt
service on the bonds, which is scheduled to occur in FY 2022. For FY 2018, Net Revenues, including
operating revenues and non‐operating interest earnings, amounted to $154.5 million; operating costs,
including operating expenses but not interest, depreciation or amortization, amounted to $128.8 million.
Net Revenues available for debt service amounted to $25.7 million, which represented coverage of
256.4 times over the $0.1 million in debt service.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
81
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
2009 Water Revenue Bonds, Series A – On October 6, 2009, the City issued $35.0 million of Water
Revenue Bonds to finance certain improvements to the City’s water utility system. Principal payments are
due annually on June 1, and interest payments are due semi‐annually on June 1 and December 1 from
1.80 percent to 5.95 percent. The 2009 Revenue Bonds are secured by net revenues generated by the
Water Services Fund. The 2009 Bonds were issued as bonds designated as “Direct Payment Build America
Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (“Build America
Bonds”). The City expects to receive a cash subsidy payment from the United States Treasury equal to 35
percent of the interest payable on the 2009 Bonds. The lien of the 1995 Bonds on the Net Revenues is
senior to the lien on Net Revenues securing the 2009 Bonds and the 2011 Bonds. The City received subsidy
payments amounting to $501 thousand, which represents 32.7 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 $27.7 million
principal and $15.9 million interest as the remaining debt service on the bonds, which is scheduled to
occur in FY 2035. For FY 2018, Net Revenues, including operating revenues and non‐operating interest
earnings, amounted to $45.2 million; operating costs, including operating expenses but not interest,
depreciation or amortization, amounted to $36.4 million. Net Revenues available for debt service
amounted to $8.8 million, which represented coverage of 3.45 times over the $2.6 million in debt service.
2011 Utility Revenue Refunding Bonds – On September 8, 2011, the City issued $17.2 million in Lease
Revenue Bonds (2011 Bonds) to refund the outstanding 2002 Series A Utility Revenue Bonds (2002 Bonds)
on a current basis. The 2002 Bonds were issued to finance improvement to the City’s municipal water
utility system and the natural gas utility system. Principal of the 2011 Bonds is payable annually on June
1, and interest on the 2011 Bonds is payable semi‐annually on June 1 and December 1. The 2011 Bonds
are secured by net revenues generated by the Water Services and Gas Services Funds.
The pledge of future Net Revenues of the above bonds ends upon repayment of the $10.2 million principal
and $1.6 million interest as remaining debt service on the bonds, which is scheduled to occur in FY 2035.
For FY 2018, Net Revenues, including operating revenues and non‐operating interest earnings, amounted
to $82.3 million; operating costs, including operating expenses but not interest, depreciation or
amortization, amounted to $60.7 million. Net Revenues available for debt service amounted to $21.5
million, which represented coverage of 14.78 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 $6.0 million loan repayable to the City. This loan has been
recorded as “Due from other government agencies” in the accompanying financial statements. The
balance due to the City at June 30, 2018 was $3.3 million.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
82
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
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, payable over 30 years to finance the replacement of sewage sludge “bio‐solids”
incinerators at the City’s Regional Water Quality Control Plant (RWQCP). In September 2017, due to the
projected lower project costs, the agreement was amended to a lower loan amount of $29.7 million.
Under the terms of the contract, a portion of the loan amount, $4.0 million, is federally funded and has
been adjusted to reflect the correct long term obligation balance.
The new facility will dewater the bio‐solids and allow the material to be loaded onto trucks and taken to
a separate facility for further treatment. The RWQCP provides treatment and disposal for wastewater for
Palo Alto, Mountain View, Los Altos, Los Altos Hills, East Palo Alto Sanitary District, and Stanford
University. Though Palo Alto is the recipient of the loan, the City’s agreement with the partner agencies
oblige them to pay their proportionate share of the principal and interest of this loan. Palo Alto’s share of
the loan payment is 38.2 percent with the partner agencies paying 61.8 percent.
Debt Service Requirements (in thousands):
Debt service requirements are shown below for all long‐term debt.
For the Year Ending
June 30 Principal Interest Total Principal Interest Total
2019 2,101$ 3,112$ 5,213$ 4,533$ 2,484$ 7,017$
2020 1,905 3,068 4,973 5,291 2,651 7,942
2021 1,965 2,991 4,956 5,562 2,523 8,085
2022 2,050 2,909 4,959 5,778 2,359 8,137
2023 2,130 2,826 4,956 5,882 2,158 8,040
2024‐2028 12,155 12,624 24,779 21,641 8,063 29,704
2029‐2033 15,285 9,405 24,690 12,120 4,861 16,981
2034‐2038 18,930 5,677 24,607 4,705 424 5,129
2039‐2043 12,665 1,403 14,068 ‐ ‐ ‐
2044‐2048 2,350 256 2,606 ‐ ‐ ‐
2048‐2052 ‐ ‐ ‐ ‐ ‐ ‐
Total 71,536$ 44,271$ 115,807$ 65,512$ 25,523$ 91,035$
Governmental Activities Business‐Type Activities
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
83
NOTE 7 – GENERAL LONG‐TERM OBLIGATIONS (Continued)
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
2010 General Obligation Bonds
$6.595 million due 08/01/2032 08/01/31 (2)
$4.890 million due 08/01/2034 08/01/33 (2)
$17.725 million due 08/01/2040 08/01/35 (2)
Business‐Type Activities Long‐Term Debt
Utility Revenue Bonds
1999 Refunding 06/01/09 (1)
2011 Refunding 06/01/21 (1)
(1) Callable in inverse numerical order of maturity at par plus a premium of 2 percent beginning on the
initial call date. The call price declines subsequent to the initial date.
(2) Callable in any order specified by the City at par value plus any accrued interest beginning on the
initial call date.
Leasing Arrangements
COPs and Capital Leases are issued for the purpose of financing the construction or acquisition of projects
defined in each leasing arrangement. Projects are leased to the City for lease payments which, together
with unspent proceeds of the leasing arrangement, will be sufficient to meet the debt service obligations
of the leasing arrangement. At the termination of the leasing arrangement, title to the project will pass to
the City.
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.
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, 2018, the District’s outstanding debt amounted to $22.4 million. The proceeds from the 2012
Bonds, combined with available Assessment Funds, were used to redeem the outstanding University
Avenue Area Off‐Street Parking Assessment District Series 2001‐A and Series 2002‐A Bonds. 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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
84
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, 2018 are
$6.8 million, an increase of $0.1 million from the previous year. The City is required by state and federal
laws and regulations to fund post‐closure maintenance activities by pledging future revenue received
from Refuse customers through rate fees.
NOTE 10 – NET POSITION AND FUND BALANCES
Net Position
Net Position is the excess of the City’s assets and deferred outflows of resources over its liabilities and
deferred inflows of resources. Net position is divided into three categories that are described below:
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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
85
NOTE 10 – NET POSITION AND FUND BALANCES (Continued)
Assigned – This category is comprised of amounts intended to be used by the City for specific purposes
that are neither restricted nor committed. Intent is expressed by the City Council or the City Manager, to
whom the City Council has delegated the authority to assign amounts to be used for specific purposes.
Unassigned –This category is the residual classification for the General Fund and includes all amounts not
contained in the other classifications. Unassigned amounts are technically available for any purpose.
Other governmental funds may report negative unassigned fund balance, which occurs when a fund has
a residual deficit after allocation of fund balance to the nonspendable, restricted or committed categories.
The fund balances of all governmental funds are presented by the above mentioned categories on the
face of the financial statements. In circumstances when an expenditure is made for a purpose for which
amounts are available in multiple fund balance categories, fund balance is depleted in the order of
restricted, committed, assigned, and unassigned.
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, 2018 total outstanding encumbrances and reappropriations related to governmental
activities were $7.8 million for the General Fund, $41.4 million for the Capital Projects Fund, and $1.0
million for the Special Revenue Funds. General Fund encumbrances are reserved for the following
governmental activities: Planning & Community Environment $1.9 million, Development Services $0.5
million, Public Works $0.5 million, Community Services $0.8 million, Police $0.9 million, and the remaining
City departments $1.4 million.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
86
NOTE 10 – NET POSITION AND FUND BALANCES (Continued)
Enterprise Funds
At June 30, 2018, Enterprise Fund unrestricted net position (in thousands) were as follows:
Water Electric Fiber Optics Gas
Wastewater
Collection
Wastewater
Treatment Refuse
Storm
Drainage Airport Total
Unrestricted
Rate stabilization
Supply ‐$ 9,011$ ‐$ 727$ ‐$ ‐$ ‐$ ‐$ ‐$ 9,738$
Distribution 4,069 ‐ 26,040 6,363 342 (12,865) 14,748 2,560 (2,926) 38,331
4,069 9,011 26,040 7,090 342 (12,865) 14,748 2,560 (2,926) 48,069
Operations
Supply ‐ 9,537 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 9,537
Distribution 20,927 10,363 ‐ 8,638 7,414 ‐ ‐ ‐ ‐ 47,342
20,927 19,900 ‐ 8,638 7,414 ‐ ‐ ‐ ‐ 56,879
Emergency plant replacement ‐ ‐ 1,000 ‐ ‐ 1,980 ‐ ‐ ‐ 2,980
Electric special projects ‐ 41,665 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 41,665
Reappropriations 3,614 9,063 1,194 600 506 2,585 ‐ 1,063 ‐ 18,625
Commitments 7,712 8,637 704 8,074 762 18,665 2,165 1,776 588 49,083
Underground loan ‐ 728 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 728
Notes and loans ‐ ‐ ‐ ‐ ‐ 559 ‐ ‐ ‐ 559
Landfill corrective action ‐ ‐ ‐ ‐ ‐ ‐ 741 ‐ ‐ 741
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 (12,455) (29,511) (1,855) (13,277) (7,449) (18,584) (5,114) (3,189) (493) (91,927)
GASB 75 OPEB reserve (4,350) (14,168) (6,235) (2,384) (7,340) (2,653) (1,158) (431) (38,719)
Total 22,243$ 58,286$ 27,083$ 8,710$ 169$ (15,000)$ 10,155$ 1,052$ (3,262)$ 109,436$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
87
NOTE 10 – NET POSITION AND FUND BALANCES (Continued)
The City Council has set aside unrestricted net position for general contingencies, and future capital and
debt service expenditures including operating and capital contingencies for unusual or emergency
expenditures.
Internal Service Funds
At June 30, 2018, Internal Service Funds unrestricted net position (in thousands) were as follows:
Vehicle
Replacement
and
Maintenance Technology
Printing and
Mailing Services
General
Benefits
Workers'
Compensation
Insurance
Program
General
Liabilities
Insurance
Program
Retiree Health
Benefits Total
Unrestricted net position:
Commitments 1,998$ 2,030$ 61$ 302$ 40$ 19$ ‐$ 4,450$
Future catastrophic losses ‐ ‐ ‐ ‐ 1,595 985 ‐ 2,580
Retiree health care ‐ ‐ ‐ ‐ ‐ ‐ 999 999
Capital projects 1,973 2,189 ‐ ‐ ‐ ‐ ‐ 4,162
GASB68 pension reserve (2,889) (9,961) (306) ‐ (43) ‐ ‐ (13,199)
PARS supplemental pension reserve ‐ ‐ ‐ 5,483 ‐ ‐ ‐ 5,483
GASB75 OPEB reserve (1,657) (3,380) (148) ‐ ‐ ‐ ‐ (5,185)
Available 5,505 18,809 (69) 3,994 ‐ ‐ ‐ 28,239
Total 4,930$ 9,687$ (462)$ 9,779$ 1,592$ 1,004$ 999$ 27,529$
Commitments represent the portion of net position set aside for open purchase orders.
Future catastrophic losses represent the portion of net position to be used for unforeseen future
losses.
Retiree health care represents the portion of net position set aside to defer future costs of retiree
health care coverage.
Capital projects represent the portion of net position set aside for adopted capital projects.
GASB68 pension reserve is the portion of net position required to be set aside to meet defined benefit
pension obligations.
PARS supplemental pension reserve represents Section 115 irrevocable trust with the PARS to prefund
pension obligations.
GASB75 OPEB reserve is the portion of net position required to be set aside to meet OPEB obligations.
Funds with deficits:
At June 30, 2018, the City’s Downtown Business Development District special revenue fund had a deficit
fund balance of $32,000. The fund balance will be cured through collection of future special assessments.
At June 30, 2018, the City’s Printing and Mailing Services internal service revenue fund had a deficit net
position of $433,000. The deficit is due to the impact from the recording of OPEB items. The deficit is
expected to be funded by future internal service charges to other City funds.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
88
NOTE 11 – PENSION PLANS
(a) General Information about the Pension Plans
Plan Descriptions ‐ Substantially all permanent City employees are eligible to participate in the City’s
separate Safety (police and fire) and Miscellaneous (all other) Plans, agent multiple‐employer defined
benefit pension plans administered by California Public Employees’ Retirement System (CalPERS), which
acts as a common investment and administrative agent for its participating member employers. Benefits
provisions under the Plans are established by State statute and City resolution. CalPERS issues publicly
available reports that include a full description of the pension plans including benefits provisions,
assumptions and membership information. The reports can be found on the CalPERS website 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, 2018, are summarized in the following table.
Contribution rates are based on the Actuarial Valuation Report as of June 30, 2015.
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 49.689% 49.689% 49.689% 49.689%
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 30.196% 30.196% 30.196%
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, 2018
89
NOTE 11 – PENSION PLANS (Continued)
Employees Covered – Based on the Actuarial Valuation Report as of June 30, 2017, the following
employees were covered by the benefits terms for each Plan:
Miscellaneous
Plan Safety Plan
Inactive employees or beneficiaries currently receiving benefits 1,098 427
Inactive employees entitled to but not yet receiving benefits 774 103
Active employees 818 172
Total 2,690 702
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, 2018, the City reported the account balance of $5.5 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, 2017 (measurement date), using
the Actuarial Valuation Report as of June 30, 2016 rolled forward to June 30, 2017 using standard update
procedures. At June 30, 2018, the City reported a net pension liability of $415.1 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, 2018
90
NOTE 11 – PENSION PLANS (Continued)
Actuarial Assumptions ‐ The total pension liabilities were determined using the following actuarial
assumptions in the Accounting Valuation Report:
Miscellaneous
Plan Safety Plan
Valuation Date June 30, 2016 June 30, 2016
Measurement Date June 30, 2017 June 30, 2017
Actuarial Cost Method Entry Age Normal Entry Age Normal
Actuarial Assumptions:
Discount Rate 7.15% 7.15%
Inflation 2.75% 2.75%
Salary Increases
Mortality1
Retirement Age
table includes 20 years of mortality improvements using Society of Actuaries
Scale VV. For more details on this table, please refer to the 2014 experience
study report.
Further details of the Experience Study can be found on the CalPERS website.
Derived using CalPERS membership data
Probabilities of retirement are based on
the 2014 CalPERS Experience Study for the
period 1997 to 2011.
Varies by Entry Age and Service
1 Mortality table used was developed based on CalPERS' specific data. The
Change in Assumptions – The discount rate reduced from 7.65 percent to 7.15 percent for the June 30,
2017 actuarial valuation.
Discount Rate – The discount rate used to measure the total pension liability was 7.15 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 7.15 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 7.15
percent is applied to all plans in the Public Employees Retirement Fund for the June 30, 2017
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, 2018
91
NOTE 11 – PENSION PLANS (Continued)
The long‐term expected rate of return on pension plan investments was determined using a building‐
block method in which best estimate ranges of expected future real rates of return (expected returns, net
of pension plan investment expense and inflation) are developed for each major asset class.
In determining the long‐term expected rate of return, CalPERS took into account both short‐term
and long‐term market return expectations as well as the expected pension fund cash flows. 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
Current
Target
Allocation
Real Return
Years 1 ‐ 101
Real Return
Years 11+2
Global Equity 47.0% 4.90% 5.38%
Global Fixed Income 19.0 0.8 2.27
Inflation Sensitive 6.0 0.6 1.39
Private Equity 12.0 6.6 6.63
Real Estate 11.0 2.80 5.21
Infrastructure and Forestland3.03.905.36
Liquidity 2.0 (0.4) (0.9)
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, 2018
92
NOTE 11 – PENSION PLANS (Continued)
(c) Changes in the Net Pension Liability
The following table is based on the GASB 68 Accounting Valuation Report and shows the changes in the
net pension liability for the Miscellaneous and Safety Plans (in thousands):
Total Pension
Liability
Plan Net
Position
Net Pension
Liability
Miscellaenous Plan:
Balances calculated at July 1, 2017 714,019$ 469,782$ 244,237$
Changes for the year:
Service cost 14,423 ‐ 14,423
Interest on total pension liability 52,831 ‐ 52,831
Changes in benefit terms ‐ ‐ ‐
Differences between expected and actual experiences (6,378) ‐ (6,378)
Changes in assumptions 42,239 ‐ 42,239
Contributions from employer ‐ 20,638 (20,638)
Contributions from employees ‐ 6,314 (6,314)
Net investment income ‐ 53,259 (53,259)
Benefit payments, including refunds of employee contributions (36,405) (36,405) ‐
Administrative expense ‐ (694) 694
Other non‐investment expenses ‐ 30 (30)
Net changes 66,710 43,142 23,568
Balances reported at June 30, 2018 780,729 512,924 267,805
Safety Plan:
Balances calculated at July 1, 2017 $383,556 $250,474 $133,082
Changes for the year:
Service cost 6,584 ‐ 6,584
Interest on total pension liability 28,272 ‐ 28,272
Change of assumption 22,566 ‐ 22,566
Differences between expected and actual experiences (2,790) ‐ (2,790)
Contributions from employer ‐ 10,220 (10,220)
Contributions from employees ‐ 2,475 (2,475)
Net investment income ‐ 28,112 (28,112)
Benefit payments, including refunds of employee contributions (22,413) (22,413) ‐
Administrative expense ‐ (370) 370
Other non‐investment expenses ‐ (30) 30
Net changes 32,219 17,994 14,225
Balances reported at June 30, 2018 415,775 268,468 147,307
Total for Miscellaneous & Safety Plans 1,196,504$ 781,392$ 415,112$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
93
NOTE 11 – PENSION PLANS (Continued)
Sensitivity of the Net Pension Liability to Changes in the Discount Rate ‐ The following table presents the
net pension liability of the Plans as of the measurement date, calculated using the discount rate of 7.15
percent, compared to a discount rate that is 1 percentage point lower (6.15 percent) or 1 percentage
point higher (8.15 percent). Amounts shown below are in thousands:
Discount Rate ‐ 1%
(6.15%)
Current Discount Rate
(7.15%)
Discount Rate + 1%
(8.15%)
Miscellaneous Plan:
Plan's Net Pension Liability/(Asset) 369,257$ 267,805$ 183,661$
Safety Plan:
Plan's Net Pension Liability/(Asset) 201,189$ 147,307$ 102,861$
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, 2018, the City recognized a pension expense of $38.1 million and $19.5 million
for the Miscellaneous and Safety Plan respectively, for a total of $57.6 million. At June 30, 2018, the City
reported pension related deferred outflows of resources and deferred inflows of resources for the
Miscellaneous and Safety Plans from the following sources (in thousands):
Miscellaneous Plan:
Outflows
of Resources
Inflows
of Resources
Pension contributions subsequent to
measurement date 23,225$ ‐$
Change of assumptions 27,674 ‐
Difference between expected and actual experience 235 4,178
Net difference between projected and actual earnings
on plan investments 5,949 ‐
Balance reported at June 30, 2018 57,083 4,178
Safety Plan:
Pension contributions subsequent to
measurement date 11,030 ‐
Change of assumptions 14,785 744
Difference between expected and actual experience 9 2,366
Net difference between projected and actual earnings
on plan investments 3,412 ‐
Balance reported at June 30, 2018 29,236 3,110$
Total, Miscellaneous & Safety Plans 86,319$ 7,288$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
94
NOTE 11 – PENSION PLANS (Continued)
The $34.2 million reported as deferred outflows of resources relates to contributions paid by the City from
July 1, 2017 through June 30, 2018 which is subsequent to the City’s measurement date of June 30, 2017
for both the Miscellaneous and Safety Plans. This amount will be recognized as a reduction of the net
pension liability in the year ended June 30, 2019.
The net differences reported as deferred outflows of resources and deferred inflows of resources related
to pensions will be recognized in future pension expense as follows (in thousands):
Year Ended June 30,
Miscellaneous
Plan
Safety
Plan Total
2019 12,212$ 5,318$ 17,530$
2020 18,844 10,392 29,236
2021 2,661 1,507 4,168
2022 (4,037) (2,121) (6,158)
29,680$ 15,096$ 44,776$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
95
NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB)
(a) General Information about the OPEB Plan
In addition to providing pension benefits, the City participates in the California Public Employees’ Medical
and Health Care Act program to provide certain health care benefits for retired employees. Employees
who retire directly from the City are eligible for retiree health benefits if they retire on or after age 50
with 5 years of service and are receiving a monthly pension from CalPERS. Details of benefits to retirees
are noted in the following tables:
Unit
Hired
Before
Retiree
Coverage1
Dependent
Coverage
Retired on
or After
Retiree
Contribution
Management & Professional2 1/1/2004 100% 100% 5/1/2011 Flat rate4
Police Management2 1/1/2004 100% 100% 6/1/2012 Flat rate4
Fire Fighters2 1/1/2004 100% 100% 12/1/2011 Flat rate4
Fire Chiefs Association2 1/1/2004 100% 100% 1/1/2013 Flat rate4
SEIU 1/1/2005 100% 100% 5/1/2011 Flat rate4
Police Officers3 1/1/2006 100% 100% 4/1/2015 Flat rate4
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 1/1/2017 City pays $773 for employee, $1,544 for employee +1, $2,008 for family. Effective 1/1/2018 City pays
$804 for employee, $1,606 for employee +1, $2,088 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 The City will contribute an additional 90 percent of the weighted average of the additional premiums required for
enrollment of those family members, during the benefit year to which the forumla is applied.
1 100% of benefits if the employee has five years CalPERS service credit and the employee retired from the City.
1 Employees with ten years of CalPERS service, at least five of which are at the City of Palo Alto, receive 50% of the
Retiree contributions for units with the following hire dates are determined by Government Code
Section 22893, 20 year graduated schedule:
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
96
NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued)
In FY 2008, the City elected to participate in an irrevocable trust to provide a funding mechanism for
retiree health benefits. The Trust, California Employers’ Retirees Benefit Trust (CERBT), is administrated
by CalPERS and managed by a separately appointed board, which is not under control of the City Council.
This Trust is not considered a component unit of the City.
Employees Covered – Employees covered by the benefit terms as of June 30, 2017 are as follows:
Inactive employees or beneficiaries currently
receiving benefits 921
Inactive employees entitled to but not yet
receiving benefits 113
Active employees 967
Total 2,001
Contributions – The City’s OPEB funding policy is to prefund these benefits by accumulating assets in the
Trust Fund discussed above pursuant to City Council Resolution. For the year ended June 30, 2018, the
City’s contributions totaled $21.3 million.
(b) Net OPEB Liability
The City’s net OPEB liability is measured as the total OPEB liability, less the OPEB plan’s fiduciary net
position. The net OPEB liability is measured as of June 30, 2017, using an annual actuarial valuation as of
June 30, 2017. A summary of principal assumptions and methods used to determine the net OPEB liability
is shown below.
Valuation Date June 30, 2017
Measurement Date June 30, 2017
Actuarial Cost Method Entry‐Age, level percentage of payroll
Actuarial Assumptions:
Discount Rate 6.75%
Inflation 2.75%
Payroll Growth 3.00%
Projected Salary Increase CalPERS 1997‐2015 Experience Study
Investment Rate of Return 6.75% Net of OPEB Plan Investment Expenses,
includes Inflation.
Post Retirement Benefit Increase
For medical plan premiums: 6.50% for 2019,
decreasing to 4.00% for 2076 and later; For pre‐
Medicare premiums: 7.50% for 2019, decreasing to
4.00% for 2076 and later
Disability, Termination, Retirement CalPERS 1997‐2015 Experience Study
Mortality CalPERS 1997‐2011 Experience Study, and Society
of Actuaries mortality improvement scale MP‐17
Increase to Group 3 Flat Dollar Caps 1/2 of Medical Trend, not less than assumed
inflation (2.75%)
Healthcare Participation for Future Future retirees: 90%, Based on Plan experience
ACA Excise Tax Estimate by 2% load on cash subsidy
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
97
NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued)
Discount Rate – The discount rate used to measure the total OPEB liability was 6.75%. The projection of
cash flows used to determine the discount rate assumed that the City’s contribution will be made equal
to the actuarially determined contribution. Based on those assumptions, the OPEB plan’s fiduciary net
position was projected to be available to make all projected OPEB payments for current active and inactive
employees. Therefore, the long‐term expected rate of return on OPEB plan investments applied to all
periods of projected benefit payments to determine the total OPEB liability.
The long‐term expected rate of return for OPEB plan investments was 6.75%. The asset class target
allocation and geometric real rates of return for each major asset class are summarized in the following
table.
Asset Class
Current
Target
Allocation
Expected Real
Rate of Return
Global Equity 57.0% 4.82%
Fixed Income 27.0 1.47
TIPS 5.0 1.29
Commodities 3.0 0.84
REITS 8.0 3.76
(a) An expected inflation of 2.50% used for this period
(b) An expected inflation of 3.00% used for this period
(c) Changes in the Net OPEB Liability
The following table shows the changes in the net OPEB liability for the fiscal year ended June 30, 2018.
Total OPEB
Liability
Plan Fiduciary
Net Position
Net OPEB
Liability
Balance at June 30, 2016 234,580$ 79,843$ 154,737$
Changes during the measurement period:
Service cost 6,242 ‐ 6,242
Interest on the total OPEB liability 15,853 ‐ 15,853
Contributions ‐ employer ‐ 14,739 (14,739)
Investment income ‐ 8,628 (8,628)
Administrative expenses ‐ (44) 44
Benefit payments (11,916) (11,916) ‐
Net changes 10,179 11,407 (1,228)
Balance at June 30, 2017 244,759$ 91,250$ 153,509$
Increase (Decrease)
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
98
NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued)
Sensitivity of the Net OPEB Liability to Changes in the Discount Rate – The following presents the net
OPEB liability of the City as of the measurement date, calculated using the discount rate of 6.75 percent,
as well as what the City’s net OPEB liability would be if it were calculated using a discount rate that is 1
percentage‐point lower (5.75 percent) or 1 percentage‐point higher (7.75 percent) than the current
discount rate:
Discount Rate
‐1% (5.75%)
Current
Discount Rate
(6.75%)
Discount Rate
+1% (7.75%)
186,295$ 153,509$ 126,553$
Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rate – The following
presents the net OPEB liability of the City, as well as what the City’s net OPEB liability would be if it were
calculated using healthcare cost trends rates that are 1% lower or 1% higher than the current healthcare
cost trend rates.
Healthcare Trend
Rate ‐ 1%
Healthcare Trend
Current Rate
Healthcare Trend
Rate + 1%
124,392$ 153,509$ 189,207$
OPEB Plan Fiduciary Net Position – Detailed information about the OPEB plan’s fiduciary net position is
available in the separately issued CalPERS financial report.
(d) OPEB Expenses and Deferred Outflows/Inflows of Resources Related to OPEB
For the fiscal year ended June 30, 2018, the City recognized an OPEB expense of $16.0 million for the OPEB
plan. At June 30, 2018, the City reported deferred outflows of resources and deferred inflows of resources
related to OPEB from the following sources (dollars in thousands):
Deferred
Outflows
of Resources
Deferred
Inflows
of Resources
OPEB contributions subsequent to
measurement date $ 21,349 $ ‐
Net differences between projected and actual
earnings on plan investments ‐ (2,516)
Total $ 21,349 $ (2,516)
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
99
NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued)
The $21.3 million reported as deferred outflows of resources relates to contributions made by the City
from July 1, 2017 through June 30, 2018, which is subsequent to the City’s measurement date of June 30,
2017. This amount will be recognized as a reduction of the net OPEB liability in the fiscal year ended June
30, 2019. The net difference between projected and actual earnings on plan investments will be
recognized in future OPEB expense as follows (dollars in thousands):
Fiscal Year Ending June 30,
2019 (629)$
2020 (629)
2021 (629)
2022 (629)
Total (2,516)$
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, 2018
100
NOTE 14 – RISK MANAGEMENT
Coverage
The City provides dental coverage to employees through a City plan, which is administered by a third party
service agent. The City is self‐insured for dental claims.
The City has a workers’ compensation insurance policy with coverage up to the statutory limit set by the
State of California. The City retains the risk for the first $750,000 in losses for each accident and employee
under this policy.
The City also has public employee dishonesty insurance with a $5,000 deductible and coverage up to
$1.0 million per loss. The Interim Director of Administrative Services/CFO and City Manager each have
coverage up to $4.0 million per loss.
The City’s property, boiler, and machinery insurance policy has various deductibles and coverage based
on the type of property.
The City is a member of the Authority for California Cities Excess Liability (ACCEL), which provides excess
general liability insurance coverage, including auto liability, up to $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, 2018, the City paid $0.9 million to ACCEL for current year coverage.
Audited financial statements are available from ACCEL at 100 Pine Street, 11th Floor, San Francisco,
California 94110.
Claims Liability
The City provides for the uninsured portion of claims and judgments in the General Liabilities insurance
program funds. Claims and judgments, including a provision for claims incurred but not reported, and
claim adjustment expenses are recorded when a loss is deemed probable of assertion and the amount of
the loss is reasonably determinable. As discussed above, the City has coverage for such claims, but it has
retained the risk for the deductible or uninsured portion of these claims.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
101
NOTE 14 – RISK MANAGEMENT (Continued)
The City’s liability for uninsured claims is limited to dental, general liability, and workers’ compensation
claims, as discussed above. Dental liability is based on a percentage of current year actual expense.
General and workers’ compensation liabilities are based on the results of actuarial studies, and include
amounts for claims incurred but not reported as follows as of June 30 (in thousands):
2018 2017
Beginning balance 22,470$ 23,379$
Claims expense, including claims incurred but not
reported (IBNR)4,705 3,078
Claims paid (3,427) (3,987)
Ending balance 23,748$ 22,470$
Current portion 5,835$ 5,286$
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, 2018
102
NOTE 15 – JOINT VENTURES (Continued)
During the year ended June 30, 2018, the City incurred expenses totaling $83.9 million for purchased
power and assessments earned by NCPA.
The City’s interest in NCPA projects and reserves, as computed by NCPA, was $7.7 million at June 30, 2018.
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, 2018 is $74.8 million. The City’s participation in this project was 6.2 percent, or $4.6 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, 2018, the book value of this
Project’s plant, equipment and other assets was $378 million, while its long‐term debt totaled
$309 million and other liabilities totaled $62.3 million. The City’s share of the Project’s long‐term debt
amounted to $75.9 million at that date.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
103
NOTE 15 – JOINT VENTURES (Continued)
Geothermal Public Power Line
In 1983, NCPA, the Sacramento Municipal Utility District, the City of Santa Clara and the Modesto Irrigation
District (Joint Owners) initiated studies for a Geothermal Public Power Line (GPPL), which would carry
power generated at several existing and planned geothermal plants in The Geysers area to a location
where the Joint Owners could receive it for transmission to their load centers. NCPA has an 18.5 percent
share of this Project and the City has an 11.1 percent participation in NCPA’s share. In 1989, the
development of the proposed Geothermal Public Power Line was discontinued because NCPA was able to
contract for sufficient transmission capacity to meet its needs in The Geysers.
However, because the project financing provided funding for an ownership interest in a Pacific Gas &
Electric (PG&E) transmission line, a central dispatch facility and a performance bond pursuant to the
Interconnection Agreement with PG&E, as well as an ownership interest in the proposed GPPL, NCPA
issued $16 million in long‐term, fixed‐rate revenue bonds in November 1989 to defease the remaining
variable rate refunding bonds used to refinance this project. The City is obligated to pay its 11.1 percent
share of the related debt service, but debt service costs are covered through NCPA billing mechanisms
that allocate the costs to members based on use of the facilities and services.
At June 30, 2018, 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, 2018
104
NOTE 15 – JOINT VENTURES (Continued)
Bay Area Water Supply and Conservation Agency (BAWSCA)
The City is a member of a regional water district with 26 other entities, the Bay Area Water Supply and
Conservation Agency (BAWSCA). BAWSCA was created on May 27, 2003 to represent the interests of 24
cities and water districts and two private utilities in Alameda, Santa Clara and San Mateo counties that
purchase water on a wholesale basis from the San Francisco regional water system. It has the power to
issue debt and plan, finance, construct, and operate water supply, transmission, reclamation, and
conservation projects on behalf of its members.
In 2013 the City participated in a debt issuance by BAWSCA. The debt was issued to repay certain long‐
term costs associated with the San Francisco Public Utilities Commission (SFPUC) water supply contract.
During the fiscal year, the City paid its share of the annual debt service of $1.9 million, which will vary
based on annual water purchases of the City compared to other BAWSCA agencies.
BAWSCA’s financial statements can be obtained from BAWSCA, 155 Bovet Road, Suite 650, San Mateo,
California 94402.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Palo Alto Unified School District – The City leases 27 acres of the former Cubberley School site and twelve
extended day care sites from Palo Alto Unified School District (PAUSD). The lease includes a mechanism
for a joint planning process between the City and PAUSD to develop a long‐term master plan for the
Cubberley site. The City will pay $1.86 million annually into a separate fund to be used for repairing,
renovating and/or improving the infrastructure at the Cubberley site. The previous lease term expired on
December 31, 2014, and the City and PAUSD reached an agreement to extend the lease agreement for an
additional five (5) years, with a new expiration date of 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, 2018 amounted to $7.6 million. Future
minimum annual lease and infrastructure payments are as follows (in thousands):
Year Ending
June 30 Payment
2019 7,653$
2020 3,922
11,575$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2018
105
NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)
GreenWaste of Palo Alto – GreenWaste of Palo Alto is the City’s contractor for waste collection,
transportation, and processing services. The agreement expires June 30, 2021. The base compensation
for GreenWaste is adjusted annually based on CPI indicators stipulated in the contract. In FY 2018
payments to GreenWaste were $9.3 million.
City of Palo Alto Regional Water Quality Control Plant – The cities of Palo Alto, Mountain View and Los
Altos (the Partners) participate jointly in the cost of maintaining and operating the City of Palo Alto
Regional Water Quality Control Plant and related system (the Plant). The City is the owner and
administrator of the Plant, which provides the transmission, treatment and disposal of sewage for the
Partners. The cities of Mountain View and Los Altos are entitled to use a portion of the capacity of the
Plant for a specified period of time. Each partner has the right to rent unused capacity from/to the other
partners. The expenses of operations and maintenance are paid quarterly by each partner based on its
pro rata share of treatment costs. Additionally, joint system revenues are shared by the partners in the
same ratio as expenses are paid. The amended agreement has a term of fifty years beginning from the
original signing in October 1968, but may be terminated by any partner upon ten years’ notice to the other
partners. All sewage treatment property, plant and equipment are included in the Wastewater Treatment
Enterprise Fund’s capital assets balance. If the City initiates the termination of the contracts, it is required
to pay the other partners their unamortized contribution towards the capital assets.
Solid Waste Materials Recovery and Transfer Station (SMaRT Station) – On June 9, 1992, the City, along
with the City of Mountain View, signed a Memorandum of Understanding (MOU) with the City of
Sunnyvale (Sunnyvale) to participate in the construction and operation of the SMaRT Station, which
recovers recyclable materials from the municipal solid waste delivered from participating cities. Per the
MOU, the City has a capacity share of 21.3 percent of this facility and reimburses its proportionate capacity
share of design, construction and operation costs to Sunnyvale.
In FY 2008, the members agreed to finance an Equipment Replacement Project from existing reserves and
proceeds from the Solid Waste Revenue Bond, Series 2007. The City has committed to repay 27.8 percent
of the remaining debt service on the Bonds. The City’s portion of the Bonds amounts to $0.6 million as of
June 30, 2018. During the year ended June 30, 2018, 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, 2018
106
NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)
UTILITIES ENERGY RESOURCE MANAGEMENT
Electric Power Supply Purchase Agreements – The City has numerous power purchase agreements with
power producers to purchase capacity and energy to supply a portion of its load requirements. As of
June 30, 2018, the approximate minimum obligations for the contracts, assuming the energy is delivered
over the next five years, are as follows:
Fiscal Year Projected Obligation
2019 $65.6 million
2020 $63.0 million
2021 $62.6 million
2022 $65.2 million
2023 $63.9 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. A processing is underway at the California
Public Utilities Commission which will determine new PG&E gas transportation rates to be implemented
in 2019.
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, 2018
107
NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)
Litigation
The City is subject to litigation arising in the normal course of business. In the opinion of the City Attorney,
there is no pending litigation, claims or assessments that are likely to have a materially adverse effect on
the City’s financial condition.
A class action lawsuit for refund of telephone users tax was filed against the City in August 2015. 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.
108
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CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 4 Fiscal Years*
I. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – MISCELLANEOUS PLAN
(In thousands)
Fiscal year 2017‐18 2016‐17 2015‐16 2014‐15
Measurement Period 2016‐17 2015‐16 2014‐15 2013‐14
Total pension liability
Service cost 14,423$ 12,582$ 12,183$ 12,442$
Interest 52,831 51,531 49,345 46,963
Changes of assumptions 42,239 ‐ (11,552) ‐
Difference between expected and actual experience (6,378) 757 3,507 ‐
Benefit payments, including refunds of employee contributions (36,405) (34,825) (32,980) (31,781)
Net change in total pension liability 66,710 30,045 20,503 27,624
Total pension liability ‐ beginning 714,019 683,974 663,471 635,847
Total pension liability ‐ ending (a)780,729$ 714,019$ 683,974$ 663,471$
Plan fiduciary net position
Contributions ‐ employer 20,638$ 18,840$ 18,610$ 17,400$
Contributions ‐ employee 6,314 5,812 5,730 6,345
Net investment income 53,259 2,464 10,597 70,989
Benefit payments, including refunds of employee contributions (36,405) (34,825) (32,980) (31,781)
Administrative expense (694) (291) (538) ‐
Other non‐investment expenses 30 ‐ ‐ ‐
Net change in fiduciary net position 43,142 (8,000) 1,419 62,953
Plan fiduciary net position ‐ beginning 469,782 477,782 476,363 413,410
Plan fiduciary net position ‐ ending (b)512,924$ 469,782$ 477,782$ 476,363$
Plan net pension liability/(asset) ‐ Ending (a) ‐ (b)267,805$ 244,237$ 206,192$ 187,108$
Plan fiduciary net position as a percentage of total pension liability 65.70% 65.79% 69.85% 71.80%
Covered payroll 77,606$ 73,722$ 69,837$ 66,373$
Plan net pension liability/(asset) as a percentage of covered employee pay 345.08% 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, 2015 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. In
2017, the accounting discount rate reduced from 7.65% to 7.15%
* 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.
109
CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 5 Fiscal Years*
II.SCHEDULE OF PENSION CONTRIBUTIONS– MISCELLANEOUS PLAN
(In thousands)
Fiscal Year 2017‐18 2016‐17 2015‐16 2014‐15 2013‐14
Contractually required contribution (actuarially determined) 23,225$ 20,638$ 18,840$ 18,610$ 17,400$
Actual contribution (23,225) (20,638) (18,840) (18,611) (17,400)
Contribution deficiency/(excess)‐$ ‐$ ‐$ (1)$ ‐$
Covered payroll 82,228$ 77,606$ 73,722$ 69,837$ 66,373$
Contributions as percentage of covered‐employee payroll 28.24% 26.59% 25.56% 26.65% 26.22%
Notes to Schedule:
The actuarial methods and assumptions used to set the actuarially determined contributions for
fiscal year 2018 contribution rates are as follows:
ADC for fiscal year June 30, 2018
Actuarial valuation date June 30, 2015
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
five years of information is shown.
110
CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 4 Fiscal Years*
III.SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – SAFETY PLAN
(In thousands)
Fiscal year 2017‐18 2016‐17 2015‐16 2014‐15
Measurement Period 2016‐17 2015‐16 2014‐15 2013‐14
Total pension liability
Service cost 6,584$ 5,916$ 5,959$ 6,221$
Interest 28,272 27,816 27,047 26,113
Changes of assumptions 22,566 ‐ (6,327) ‐
Difference between expected and actual experience (2,790) (1,516) 75 ‐
Benefit payments, including refunds of employee contributions (22,413) (21,669) (21,148) (19,985)
Net change in total pension liability 32,219 10,547 5,606 12,349
Total pension liability ‐ beginning 383,556 373,009 367,403 355,054
Total pension liability ‐ ending (a)415,775$ 383,556$ 373,009$ 367,403$
Plan fiduciary net position
Contributions ‐ employer 10,220$ 9,403$ 8,617$ 7,616$
Contributions ‐ employee 2,475 2,059 2,047 2,762
Net investment income 28,112 1,259 5,774 40,033
Benefit payments, including refunds of employee contributions (22,413) (21,669) (21,148) (19,985)
Administrative expense (370) (157) (290) ‐
Other non‐investment expenses (30) ‐ ‐ ‐
Net change in fiduciary net position 17,994 (9,105) (5,000) 30,426
Plan fiduciary net position ‐ beginning 250,474 259,579 264,579 234,153
Plan fiduciary net position ‐ ending (b)268,468$ 250,474$ 259,579$ 264,579$
Plan net pension liability/(asset) ‐ Ending (a) ‐ (b)147,307$ 133,082$ 113,430$ 102,824$
Plan fiduciary net position as a percentage of total pension liability 64.57% 65.30% 69.59% 72.01%
Covered payroll 21,906$ 21,822$ 21,912$ 21,896$
Plan net pension liability/(asset) as a percentage of covered employee 672.45% 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, 2015 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. In 2017, the accounting discount rate reduced from 7.65% to 7.15%.
* 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.
111
CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 5 Fiscal Years*
IV.SCHEDULE OF PENSION CONTRIBUTIONS – SAFETY PLAN
(In thousands)
Fiscal Year 2017‐18 2016‐17 2015‐16 2014‐15 2013‐14
Contractually required contribution (actuarially determined) 11,030$ 10,220$ 9,403$ 8,617$ 7,616$
Actual contribution (11,030) (10,220) (9,403) (8,617) (7,616)
Contribution deficiency/(excess)‐$ ‐$ ‐$ ‐$ ‐$
Covered payroll 24,477$ 21,906$ 21,822$ 21,912$ 21,896$
Contributions as percentage of covered‐employee payroll 45.06% 46.65% 43.09% 39.33% 34.78%
Notes to Schedule:
The actuarial methods and assumptions used to set the actuarially determined contributions for
fiscal year 2018 contribution rates are as follows:
ADC for fiscal year June 30, 2018
Actuarial valuation date June 30, 2015
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
five years of information is shown.
112
CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 5 Fiscal Years*
V. SCHEDULE OF CHANGES IN NET OPEB LIABILITY AND RELATED RATIOS
(In thousands)
Fiscal year 2017‐18
Measurement Period 2016‐17
Total OPEB liability
Service cost 6,242$
Interest 15,853
Benefit payments, including refunds of employee contributions (11,916)
Net change in total OPEB liability 10,179
Total OPEB liability ‐ beginning 234,580
Total OPEB liability ‐ ending (a)244,759$
Plan fiduciary net position
Contributions ‐ employer 14,739$
Net investment income 8,628
Benefit payments, including refunds of employee contributions (11,916)
Administrative expense (44)
Net change in fiduciary net position 11,407
Plan fiduciary net position ‐ beginning 79,843
Plan fiduciary net position ‐ ending (b)91,250$
Plan net OPEB liability/(asset) ‐ Ending (a) ‐ (b)153,509$
Plan fiduciary net position as a percentage of total OPEB liability 37.28%
Covered payroll 118,774$
Plan net OPEB liability/(asset) as a percentage of covered employee payroll 129.24%
Notes to Schedule:
Benefit changes ‐ The figures above do not include any liability that may have resulted
which occurred after the measurement dates.
Changes in assumptions‐ There were no changes in assumptions
* Fiscal year ended June 30, 2018 was the first year of implementation of GASB Statement
No. 75, therefore only one year of information is shown. The measurement date for GASB
Statement No. 75 purposes is June 30, 2017.
113
CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 5 Fiscal Years*
VI.SCHEDULE OF EMPLOYER OPEB CONTRIBUTIONS
(In thousands)
Fiscal Year 2017‐18 2016‐17
Contractually required contribution (actuarially determined) 16,938$ 16,365$
Actual contribution (21,349) (14,739)
Contribution deficiency/(excess)(4,411)$ 1,626$
Covered payroll 119,090$ 118,774$
Contributions as percentage of covered‐employee payroll 17.93% 12.41%
Notes to Schedule:
The actuarial methods and assumptions used to set the actuarially determined contributions for
fiscal year 2018 contribution rates are as follows:
ADC for fiscal year June 30, 2018
Actuarial valuation date June 30, 2015
Actuarial cost method Entry‐Age, level percentage of payroll
Amortization method Level percent of payroll over closed 27 year period.
Asset valuation method Market value, no smoothing
Inflation 3.00%
Payroll growth 3.25%
Investment rate of return
Other Assumptions
7.25%, net of pension plan investment and administrative expenses,
includes inflation.
Same as for determining total OPEB liability, except for rates of
retirement/mortality/termination, medical trend, medical plan at
retirement, waived retiree re‐election, and assumed spouse coverage
percent.
114
Total
Special Debt Other
Revenue Service Permanent Governmental
Funds Funds Fund Funds
ASSETS:
Cash and investments:
Available for operations 65,621$ 3,545$ 1,489$ 70,655$
Receivables, net:
Accounts 394 5 ‐ 399
Interest 402 21 9 432
Notes 33,816 ‐‐ 33,816
Total assets 100,233$ 3,571$ 1,498$ 105,302$
Liabilities:
Accounts payable and accruals 358$ ‐$‐$ 358$
Accrued salaries and benefits 16 ‐‐ 16
Interfund payables and advances 13 ‐‐ 13
Total liabilities 387 ‐‐ 387
Fund balances:
Nonspendable
Eyerly family ‐‐1,498 1,498
Restricted
Transportation mitigation 10,511 ‐‐ 10,511
Federal revenue 5,080 ‐‐ 5,080
Street improvement 562 ‐‐ 562
Local law enforcement 322 ‐‐ 322
Debt service ‐3,571 ‐ 3,571
Public benefit 19,633 ‐‐ 19,633
Committed
Developer impact fee 13,764 ‐‐ 13,764
Housing In‐Lieu 44,863 ‐‐ 44,863
Special districts 5,143 ‐‐ 5,143
Unassigned
Downtown business (32)‐‐ (32)
Total fund balances 99,846 3,571 1,498 104,915
Total liabilities and fund balances 100,233$ 3,571$ 1,498$ 105,302$
LIABILITIES AND FUND BALANCES:
CITY OF PALO ALTO
Non‐major Governmental Funds
Combining Balance Sheet
June 30, 2018
(Amounts in thousands)
115
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116
Total
Special Debt Other
Revenue Service Permanent Governmental
Funds Funds Fund Funds
REVENUES:
Property tax ‐$4,331$ ‐$ 4,331$
Special assessments 72 ‐‐ 72
Other taxes and fines 2,116 ‐‐ 2,116
Contributions 11,733 ‐‐ 11,733
Charges for services 11 ‐‐ 11
Intergovernmental:
Community Development Block Grants 363 ‐‐ 363
State of California 229 ‐‐ 229
Permits and licenses
University Avenue Parking 3,088 ‐‐ 3,088
California Avenue Parking 556 ‐‐ 556
Other permits and licenses 582 ‐‐ 582
Investment earnings 224 (28) 2 198
Rental income 6 ‐‐ 6
Other:
Housing In‐Lieu ‐ residential 1,145 ‐‐ 1,145
Other fees 4,015 ‐‐ 4,015
Total revenues 24,140 4,303 2 28,445
EXPENDITURES:
Current:
Administrative Services 226 ‐‐ 226
Public Works 857 ‐‐ 857
Planning and Community Environment 2,020 ‐‐ 2,020
Police 68 ‐‐ 68
Community Services 2,709 ‐‐ 2,709
Non‐Departmental 1,589 14 3 1,606
Debt service:
Principal retirement ‐2,545 ‐ 2,545
Interest and fiscal charges ‐2,940 ‐ 2,940
Total expenditures 7,469 5,499 3 12,971
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 16,671 (1,196) (1) 15,474
OTHER FINANCING SOURCES (USES):
Issuance of debt ‐595 ‐ 595
Transfers in 495 233 ‐ 728
Transfers out (11,434) ‐‐ (11,434)
Total other financing sources (uses)(10,939) 828 ‐ (10,111)
Change in fund balances 5,732 (368) (1) 5,363
FUND BALANCES, BEGINNING OF YEAR 94,114 3,939 1,499 99,552
FUND BALANCES, END OF YEAR 99,846$ 3,571$ 1,498$ 104,915$
CITY OF PALO ALTO
Non‐major Governmental Funds
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2018
(Amounts in thousands)
117
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118
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.
119
Street Federal Housing Special
Improvement Revenue In‐Lieu Districts
ASSETS:
Cash and investments:
Available for operations 412$ 219$ 15,809$ 5,292$
Receivables:
Accounts 146 137 ‐ 9
Interest 4 ‐ 129 28
Notes ‐ 4,831 28,985 ‐
Total assets 562$ 5,187$ 44,923$ 5,329$
Liabilities:
Accounts payable and accruals ‐$106$ 60$ 173$
Accrued salaries and benefits ‐1 ‐ 13
Interfund payables and advances ‐‐‐ ‐
Total liabilities ‐ 107 60 186
Fund balances:
Restricted
Transportation mitigation ‐‐‐ ‐
Federal revenue ‐ 5,080 ‐ ‐
Street improvement 562 ‐‐ ‐
Local law enforcement ‐‐‐ ‐
Public benefit ‐‐‐ ‐
Committed
Developer impact fee ‐‐‐ ‐
Housing In‐Lieu ‐‐ 44,863 ‐
Special districts ‐‐‐ 5,143
Unassigned
Downtown business ‐‐‐ ‐
Total fund balances 562 5,080 44,863 5,143
Total liabilities and fund balances 562$ 5,187$ 44,923$ 5,329$
LIABILITIES AND FUND BALANCES:
CITY OF PALO ALTO
Non‐major Special Revenue Funds
Combining Balance Sheet
June 30, 2018
(Amounts in thousands)
120
Downtown Total
Business Special
Transportation Local Law Asset Developer Development Public Revenue
Mitigation Enforcement Seizure Impact Fee District Benefit Funds
10,450$ 317$ 3$13,581$ ‐$19,538$ 65,621$
‐ ‐ ‐ 102 ‐‐ 394
61 2 ‐83 ‐95 402
‐ ‐ ‐‐‐‐ 33,816
10,511$ 319$ 3$13,766$ ‐$19,633$ 100,233$
‐$ ‐$ ‐$‐$19$ ‐$ 358$
‐ ‐ ‐2 ‐‐ 16
‐ ‐ ‐‐13 ‐ 13
‐ ‐ ‐2 32 ‐ 387
10,511 ‐ ‐‐‐‐ 10,511
‐ ‐ ‐‐‐‐ 5,080
‐ ‐ ‐‐‐‐ 562
‐ 319 3 ‐‐‐ 322
‐ ‐ ‐‐‐ 19,633 19,633
‐ ‐ ‐13,764 ‐‐ 13,764
‐ ‐ ‐‐‐‐ 44,863
‐ ‐ ‐‐‐‐ 5,143
‐ ‐ ‐‐(32)‐ (32)
10,511 319 3 13,764 (32) 19,633 99,846
10,511$ 319$ 3$13,766$ ‐$19,633$ 100,233$
121
Street Federal Housing SpecialImprovement Revenue In‐Lieu Districts
REVENUES:
Special assessments ‐$‐$‐$ ‐$
Other taxes and fines 1,781 ‐‐ 335
Contributions ‐‐‐ ‐
Charges for services ‐‐‐ ‐Intergovernmental:Community Development Block Grants ‐363 ‐ ‐
State of California 78 ‐‐ ‐
Permits and licenses
University Avenue Parking ‐‐‐ 3,088
California Avenue Parking ‐‐‐ 556
Other permits and licenses ‐‐‐ 582 Investment earnings 3 ‐70 3
Rental income ‐‐6 ‐
Other:
Housing In‐Lieu ‐‐ 1,145 ‐
Other fees ‐217 106 27
Total revenues 1,862 580 1,327 4,591
EXPENDITURES:
Current:Administrative Services ‐‐‐ 226 Public Works ‐‐‐ 857
Planning and Community Environment ‐528 87 1,405
Police ‐‐‐ ‐
Community Services ‐‐‐ 24
Non‐Departmental ‐‐157 303
Total expenditures ‐528 244 2,815
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 1,862 52 1,083 1,776
OTHER FINANCING SOURCES (USES):
Transfers in ‐‐‐ 340
Transfers out (2,166) ‐(1) (1,237)
Total other financing sources (uses)(2,166) ‐(1) (897)
Change in fund balances (304) 52 1,082 879
FUND BALANCES, BEGINNING OF YEAR 866 5,028 43,781 4,264
FUND BALANCES, END OF YEAR 562$ 5,080$ 44,863$ 5,143$
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, 2018
(Amounts in thousands)
122
Downtown Total
Business Special
Transportation Local Law Asset Developer Development Public RevenueMitigation Enforcement Seizure Impact Fee District Benefit Funds
‐$ ‐$ ‐$‐$72$ ‐$ 72$
‐ ‐ ‐‐‐‐ 2,116
‐ ‐ ‐‐‐ 11,733 11,733
‐ ‐ ‐‐‐11 11
‐ ‐ ‐‐‐‐ 363
‐ 151 ‐‐‐‐ 229
‐ ‐ ‐‐‐‐ 3,088
‐ ‐ ‐‐‐‐ 556
‐ ‐ ‐‐‐‐ 582 39 ‐ ‐39 ‐70 224
‐ ‐ ‐‐‐‐ 6
‐ ‐ ‐‐‐‐ 1,145
2,158 ‐ ‐ 1,507 ‐‐ 4,015
2,197 151 ‐1,546 72 11,814 24,140
‐ ‐ ‐‐‐‐ 226 ‐ ‐ ‐‐‐‐ 857
‐ ‐ ‐‐‐‐ 2,020
‐ 68 ‐‐‐‐ 68
‐ ‐ ‐ 2,685 ‐‐ 2,709
1,000 ‐ ‐‐129 ‐ 1,589
1,000 68 ‐ 2,685 129 ‐ 7,469
1,197 83 ‐ (1,139) (57) 11,814 16,671
‐ ‐ ‐155 ‐‐ 495
(1,627) ‐ ‐ (653) ‐ (5,750) (11,434)
(1,627) ‐ ‐ (498) ‐ (5,750) (10,939)
(430) 83 ‐ (1,637) (57) 6,064 5,732
10,941 236 3 15,401 25 13,569 94,114
10,511$ 319$ 3$ 13,764$ (32)$ 19,633$ 99,846$
123
Street Improvement Federal Revenue
Variance Variance
Actual, Positive Actual, Positive
Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative)
REVENUES:
Special assessments ‐$ ‐$‐$ ‐$ ‐$‐$
Other taxes and fines 1,416 1,781 365 ‐ ‐‐
Contributions ‐ ‐‐ ‐ ‐‐
Charges for services ‐ ‐‐ ‐ ‐‐
Intergovernmental:
Community Development Block Grants ‐ ‐‐ 436 363 (73)
State of California ‐ 78 78 ‐ ‐‐
Permits and licenses
University Avenue Parking ‐ ‐‐ ‐ ‐‐
California Avenue Parking ‐ ‐‐ ‐ ‐‐
Other permits and licenses ‐ ‐‐ ‐ ‐‐
Investment earnings 13 13 ‐ ‐ ‐‐
Rental income ‐ ‐‐ ‐ ‐‐
Other:
Housing In‐Lieu ‐ residential ‐ ‐‐ ‐ ‐‐
Loan payoffs ‐ ‐‐ ‐ ‐‐
Other fees ‐ ‐‐ 136 217 81
Total revenues 1,429 1,872 443 572 580 8
EXPENDITURES:
Current:
Administrative Services ‐ ‐‐ ‐ ‐‐
Public Works ‐ ‐‐ ‐ ‐‐
Planning and Community Environment ‐ ‐‐ 977 959 18
Police ‐ ‐‐ ‐ ‐‐
Community Services ‐ ‐‐ ‐ ‐‐
Non‐Departmental ‐ ‐‐ ‐ ‐‐
Total expenditures ‐ ‐‐ 977 959 18
Excess (deficiency) of revenues
over (under) expenditures 1,429 1,872 443 (405) (379) 26
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐‐ ‐ ‐‐
Transfers out (1,764) (2,166) (402) ‐ ‐‐
Total other financing sources (uses)(1,764) (2,166) (402) ‐ ‐‐
Change in fund balances, budgetary basis (335)$ (294) 41$ (405)$ (379) 26$
Adjustment to Budgetary Basis:
Unrealized gain/loss on investments (10)‐
Changes in notes receivable ‐52
Current year encumbrances/reappropriations ‐379
(304) 52
FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 866 5,028
FUND BALANCES, END OF YEAR, GAAP BASIS 562$ 5,080$
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, 2018
124
Housing In‐Lieu Special Districts Transportation Mitigation
Variance Variance Variance
Actual, Positive Actual, Positive Actual, Positive
Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative)
‐$ ‐$ ‐$ ‐$ ‐$‐$ ‐$ ‐$‐$
‐ ‐ ‐ 180 335 155 ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ 2,717 3,088 371 ‐ ‐‐
‐ ‐ ‐ 441 556 115 ‐ ‐‐
‐ ‐ ‐ 1,069 582 (487) ‐ ‐‐
427 478 51 27 100 73 204 240 36
9 6 (3) ‐ ‐‐ ‐ ‐‐
2,150 1,145 (1,005) ‐ ‐‐ ‐ ‐‐
25 77 52 ‐ ‐‐ ‐ ‐‐
170 106 (64) ‐ 27 27 467 2,158 1,691
2,781 1,812 (969) 4,434 4,688 254 671 2,398 1,727
‐ ‐ ‐ 231 226 5 ‐ ‐‐
‐ ‐ ‐ 1,224 857 367 ‐ ‐‐
573 440 133 2,021 2,176 (155) ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ 26 24 2 ‐ ‐‐
14,765 14,670 95 683 303 380 1,000 1,000 ‐
15,338 15,110 228 4,185 3,586 599 1,000 1,000 ‐
(12,557) (13,298) (741) 249 1,102 853 (329) 1,398 1,727
‐ ‐ ‐ 340 340 ‐ ‐ ‐‐
‐ (1) (1) (1,237) (1,237) ‐ (1,627) (1,627) ‐
‐ (1) (1) (897) (897) ‐ (1,627) (1,627) ‐
(12,557)$ (13,299) (742)$ (648)$ 205 853$ (1,956)$ (229) 1,727$
(408) (97)(201)
14,436 ‐‐
353 771 ‐
1,082 879 (430)
43,781 4,264 10,941
44,863$ 5,143$ 10,511$
125
Local Law Enforcement Asset Seizure
Variance Variance
Actual, Positive Actual, Positive
Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative)
REVENUES:
Special assessments ‐$ ‐$‐$ ‐$ ‐$‐$
Other taxes and fines ‐ ‐‐ ‐ ‐‐
Contributions ‐ ‐‐ ‐ ‐‐
Charges for services ‐ ‐‐ ‐ ‐‐
Intergovernmental:
Community Development Block Grants ‐ ‐‐ ‐ ‐‐
State of California ‐ 151 151 ‐ ‐‐
Permits and licenses
University Avenue Parking ‐ ‐‐ ‐ ‐‐
California Avenue Parking ‐ ‐‐ ‐ ‐‐
Other permits and licenses ‐ ‐‐ ‐ ‐‐
Investment earnings 2 6 4 ‐ ‐‐
Rental income ‐ ‐‐ ‐ ‐‐
Other:
Housing In‐Lieu ‐ residential ‐ ‐‐ ‐ ‐‐
Loan payoffs ‐ ‐‐ ‐ ‐‐
Other fees ‐ ‐‐ ‐ ‐‐
Total revenues 2 157 155 ‐ ‐‐
EXPENDITURES:
Current:
Administrative Services ‐ ‐‐ ‐ ‐‐
Public Works ‐ ‐‐ ‐ ‐‐
Planning and Community Environment ‐ ‐‐ ‐ ‐‐
Police 1 68 (67) ‐ ‐‐
Community Services ‐ ‐‐ ‐ ‐‐
Non‐Departmental ‐ ‐‐ ‐ ‐‐
Total expenditures 1 68 (67) ‐ ‐‐
Excess (deficiency) of revenues
over (under) expenditures 1 89 88 ‐ ‐‐
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐‐ ‐ ‐‐
Transfers out ‐ ‐‐ ‐ ‐‐
Total other financing sources (uses)‐ ‐‐ ‐ ‐‐
Change in fund balances, Budgetary basis 1$ 89 88$ ‐$ ‐‐$
Adjustment to Budgetary Basis:
Unrealized gain/loss on investments (6)‐
Changes in notes receivable ‐‐
Current year encumbrances/reappropriations ‐‐
83 ‐
FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 236 3
FUND BALANCES, END OF YEAR, GAAP BASIS 319$ 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, 2018
126
Developer Impact Fee Downtown Business Improvement District Public Benefit
Variance Variance Variance
Actual, Positive Actual, Positive Actual, Positive
Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative) Budget Budgetary Basis (Negative)
‐$ ‐$ ‐$ 140$ 72$(68)$ ‐$ ‐$‐$
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ 11,734 11,733 (1)
‐ ‐ ‐ ‐ ‐‐ 11 11 ‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
215 314 99 2 1 (1) 211 374 163
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
1,599 1,507 (92) ‐ ‐‐ ‐ ‐‐
1,814 1,821 7 142 73 (69) 11,956 12,118 162
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
‐ ‐ ‐ ‐ ‐‐ ‐ ‐‐
2,682 2,685 (3) ‐ ‐‐ 35 45 (10)
‐ ‐ ‐ 152 150 2 ‐ ‐‐
2,682 2,685 (3) 152 150 2 35 45 (10)
(868) (864) 4 (10) (77)(67) 11,921 12,073 152
155 155 ‐ ‐ ‐‐ ‐ ‐‐
(653) (653) ‐ ‐ ‐‐ (5,750) (5,750) ‐
(498) (498) ‐ ‐ ‐‐ (5,750) (5,750) ‐
(1,366)$ (1,362) 4$ (10)$ (77)(67)$ 6,171$ 6,323 152$
(275) (1)(304)
‐ ‐‐
‐ 21 45
(1,637) (57)6,064
15,401 25 13,569
13,764$ (32)$ 19,633$
127
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128
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.
129
CITY OF PALO ALTO
Non‐major Debt Service Funds
Combining Balance Sheet
June 30, 2018
(Amounts in thousands)
Downtown Total
Parking Library Debt Service
Improvement Projects Funds
ASSETS:
Cash and investments:
Available for operations 15$ 3,530$ 3,545$
Receivables:
Accounts ‐5 5
Interest ‐21 21
Total assets 15$ 3,556$ 3,571$
FUND BALANCES:
Debt service 15$ 3,556$ 3,571$
130
CITY OF PALO ALTO
Non‐major Debt Service Funds
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2018
(Amounts in thousands)
Downtown Total
Parking Library Debt Service
Improvement Projects Funds
REVENUES:
Property tax ‐$4,331$ 4,331$
Investment earnings 2 (30) (28)
Total revenues 2 4,301 4,303
EXPENDITURES:
Current:
Non‐Departmental 14 ‐ 14
Debt service:
Principal retirement 975 1,570 2,545
Interest and fiscal charges 77 2,863 2,940
Total expenditures 1,066 4,433 5,499
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES (1,064) (132) (1,196)
OTHER FINANCING SOURCES (USES):
Issuance of debt 595 ‐ 595
Transfers in 233 ‐ 233
Total other financing sources (uses)828 ‐ 828
Change in fund balances (236) (132) (368)
FUND BALANCES, BEGINNING OF YEAR 251 3,688 3,939
FUND BALANCES, END OF YEAR 15$ 3,556$ 3,571$
131
Downtown Parking Improvement Library Projects
Variance Variance
Actual, plus Positive Actual, plus Positive
Budget Encumbrances (Negative) Budget Encumbrances (Negative)
REVENUES:
Special assessments ‐$‐$‐$4,433$ 4,331$ (102)$
Investment earnings ‐2 2 ‐ 38 38
Total revenues ‐2 2 4,433 4,369 (64)
EXPENDITURES:
Current:
Debt service:
Principal retirement 170 975 (805) 1,570 1,570 ‐Interest and fiscal charges 63 77 (14) 2,863 2,863 ‐
Total expenditures 233 1,052 (819) 4,433 4,433 ‐
Excess (deficiency) of revenues
over (under) expenditures (233) (1,050) (817) ‐ (64)(64)
OTHER FINANCING SOURCES (USES):
Issuance of debt ‐595 595 ‐ ‐‐
Payment to bond refunding escrow ‐(14) (14) ‐ ‐‐
Transfers in 233 233 ‐‐ ‐‐
Total other financing sources (uses)233 814 581 ‐ ‐‐
Change in fund balances, Budgetary basis ‐$(236) (236)$ ‐$ (64) (64)$
Adjustment to Budgetary Basis:
Unrealized gain/loss on investments (68)
(236) (132)
FUND BALANCES, BEGINNING OF YEAR 251 3,688
FUND BALANCES, END OF YEAR 15$ 3,556$
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, 2018
132
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.
133
Eyerly Family Permanent Fund
Variance
Actual, plus Positive
Budget Encumbrances (Negative)
REVENUES:
Investment earnings 27$ 31$ 4$
Total revenues 27 31 4
EXPENDITURES:
Current:
Non‐Departmental ‐3 (3)
Total expenditures ‐3 (3)
Excess (deficiency) of revenues
over (under) expenditures 27 28 1
Change in fund balance 27$ 28 1$
Adjustment to Budgetary Basis:
Unrealized gain/loss on investments (29)
(1)
FUND BALANCE, BEGINNING OF YEAR 1,499
FUND BALANCE, END OF YEAR 1,498$
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, 2018
134
INTERNAL SERVICE FUNDS
INTRODUCTION
Internal Service Funds are used to finance and account for special activities and services performed by a
designated department for other departments in the City on a cost reimbursement basis.
Vehicle Replacement and Maintenance
This fund accounts for the maintenance and replacement of vehicles and equipment used by all City
departments. The source of revenue is from reimbursement of fleet replacement and maintenance costs
allocated to each department by usage of vehicle.
Technology
This fund accounts for replacement and upgrade of technology, and covers four primary areas used by all
City departments: desktop, infrastructure, applications, and technology research and development. The
source of revenue is from reimbursement of costs for support provided to other departments.
Printing and Mailing Services
This fund accounts for central duplicating, printing and mailing services provided to all City departments.
Source of revenue for this fund is from reimbursement of costs for services and supplies purchased by
other departments.
General Benefits
This fund accounts for the administration of compensated absences and health benefits.
Workers’ Compensation Insurance Program
This fund accounts for the administration of the City’s self‐insured workers’ compensation programs.
General Liabilities Insurance Program
This fund accounts for the administration of the City’s self‐insured general liability programs.
Retiree Health Benefits
This fund accounts for the retiree health benefits contributions.
135
Vehicle Printing Workers' General Total
Replacement and Compensation Liabilities Retiree Internal
and Mailing General Insurance Insurance Health ServicesMaintenance Technology Services Benefits Program Program Benefits Funds
ASSETS:Current Assets:
Cash and investments:
Available for operations 9,614$ 23,419$ 188$ 17,304$ 19,805$ 6,289$ 1,632$ 78,251$ Restricted investments with trustees ‐ ‐ ‐ 5,547 ‐ ‐ ‐ 5,547
Accounts receivable, net 4 ‐ ‐ 32 17 ‐ ‐ 53
Interest receivable 57 136 1 96 116 37 20 463
Inventory of materials and supplies 214 ‐ ‐ ‐ ‐ ‐ ‐ 214
Total current assets 9,889 23,555 189 22,979 19,938 6,326 1,652 84,528
Noncurrent Assets:
Capital assets:Nondepreciable 622 1,251 ‐ ‐ ‐ ‐ ‐ 1,873
Depreciable, net 17,720 2,156 29 ‐ ‐ ‐ ‐ 19,905
Total noncurrent assets 18,342 3,407 29 ‐ ‐ ‐ ‐ 21,778
Total assets 28,231 26,962 218 22,979 19,938 6,326 1,652 106,306
DEFERRED OUTFLOWS OF RESOURCES:Pension related 878 2,776 64 ‐ 77 ‐ ‐ 3,795
OPEB related 263 536 23 ‐ ‐ ‐ ‐ 822
Total deferred outflows of resources 1,141 3,312 87 ‐ 77 ‐ ‐ 4,617
LIABILITIES:
Current Liabilities:Accounts payable and accruals 386 435 193 1,002 35 ‐ 653 2,704
Accrued salaries and benefits 23 76 2 ‐ 2 ‐ ‐ 103
Accrued compensated absences 4 16 ‐ 5,976 ‐ ‐ ‐ 5,996 Accrued claims payable ‐ current ‐ ‐ ‐ 160 3,231 2,444 ‐ 5,835
Total current liabilities 413 527 195 7,138 3,268 2,444 653 14,638
Noncurrent liabilities:
Accrued compensated absences ‐ ‐ ‐ 6,062 ‐ ‐ ‐ 6,062 Accrued claims payable ‐ ‐ ‐ ‐ 15,035 2,878 ‐ 17,913
Net pension liabilities 3,704 12,526 366 ‐ 114 ‐ ‐ 16,710
Net OPEB liabilities 1,888 3,853 169 ‐ ‐ ‐ ‐ 5,910
Total noncurrent liabilities 5,592 16,379 535 6,062 15,149 2,878 ‐ 46,595
Total liabilities 6,005 16,906 730 13,200 18,417 5,322 653 61,233
DEFERRED INFLOWS OF RESOURCES:
Pension related 64 211 5 ‐ 6 ‐ ‐ 286
OPEB related 31 63 3 ‐ ‐ ‐ ‐ 97
Total deferred inflows of resources 95 274 8 ‐ 6 ‐ ‐ 383
NET POSITION:Net Investment in capital assets 18,342 3,407 29 ‐ ‐ ‐ ‐ 21,778
Unrestricted 4,930 9,687 (462) 9,779 1,592 1,004 999 27,529
Total net position 23,272$ 13,094$ (433)$ 9,779$ 1,592$ 1,004$ 999$ 49,307$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Fund Net Position
June 30, 2018
(Amounts in thousands)
136
Vehicle Printing Workers' General Total
Replacement and Compensation Liabilities Retiree Internal
and Mailing General Insurance Insurance Health ServicesMaintenance Technology Services Benefits Program Program Benefits Funds
OPERATING REVENUES:Charges for services 9,361$ 13,775$ 1,646$ 56,429$ 1,827$ 1,813$ 14,527$ 99,378$
Other ‐ ‐ ‐ 1 114 6 ‐ 121
Total operating revenues 9,361 13,775 1,646 56,430 1,941 1,819 14,527 99,499
OPERATING EXPENSES:Administrative and general 1,420 7,994 1,218 177 740 2,150 43 13,742
Operations and maintenance 3,994 7,770 432 926 205 ‐ ‐ 13,327 Depreciation and amortization 2,601 469 4 ‐ ‐ ‐ ‐ 3,074
Claim payments and change in estimated
self‐insured liability ‐ ‐ ‐ 1,613 2,594 498 ‐ 4,705 Refund of charges for services 77 10 ‐ ‐ ‐ ‐ ‐ 87
Employment benefits ‐ ‐ ‐ 49,231 ‐ ‐ 21,316 70,547
Total operating expenses 8,092 16,243 1,654 51,947 3,539 2,648 21,359 105,482
Operating income (loss)1,269 (2,468) (8) 4,483 (1,598) (829) (6,832) (5,983)
NONOPERATING REVENUES (EXPENSES):
Investment earnings 17 37 (5) (64) 34 5 8 32
Gain on disposal of capital assets 218 ‐ ‐ ‐ ‐ ‐ ‐ 218 Other nonoperating revenues 42 ‐ ‐ ‐ ‐ ‐ ‐ 42
Total nonoperating revenues (expenses)277 37 (5) (64) 34 5 8 292
Income (loss) before transfers 1,546 (2,431) (13) 4,419 (1,564) (824) (6,824) (5,691)
Transfers in 26 2,032 ‐ 1,427 ‐ 5 2,444 5,934 Transfers out (42) (162) (3) (2,444) (3) ‐ ‐ (2,654)
Change in net position 1,530 (561) (16) 3,402 (1,567) (819) (4,380) (2,411)
NET POSITION (DEFICIT), BEGINNING OF YEARAS PREVIOUSLY STATED 23,464 17,170 (263) 6,377 3,159 1,823 24,798 76,528
RESTATEMENT FOR IMPLEMENTATION OF
GASB STATEMENT NO. 75 (1,722) (3,515) (154) ‐ ‐ ‐ (19,419) (24,810)
NET POSITION, BEGINNING OF YEAR, AS RESTATED 21,742 13,655 (417) 6,377 3,159 1,823 5,379 51,718
NET POSITION, END OF YEAR 23,272$ 13,094$ (433)$ 9,779$ 1,592$ 1,004$ 999$ 49,307$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Revenues, Expenses and Changes in Fund Net Position
For the Year Ended June 30, 2018
(Amounts in thousands)
137
Vehicle Printing Workers' General TotalReplacementandCompensation Liabilities Retiree Internal
and Mailing General Insurance Insurance Health ServicesMaintenance Technology Services Benefits Program Program Benefits Funds
Cash flows from operating activities:
Cash received from customers 9,369$ 13,775$ 1,646$ 56,410$ 2,241$ 1,819$ 14,527$ 99,787$ Cash refunds to customers ‐ (10) ‐ ‐ ‐ ‐ ‐ (10)
Cash payments to suppliers for goods and services (2,782) (7,964) (1,227) (1,255) (211) (1,677) 653 (14,463) Cash payments to employees (2,211) (7,069) (257) (47,967) (711) ‐ (21,359) (79,574)
Cash payments for judgments and claims ‐ ‐ ‐ (1,598) (1,714) (525) ‐ (3,837)
Other cash receipts 42 ‐ ‐ ‐ ‐ ‐ ‐ 42
Net cash flows provided by (used in)
operating activities 4,418 (1,268) 162 5,590 (395) (383) (6,179) 1,945
Cash flows from noncapital financing activities:
Transfers in 26 2,032 ‐ 1,427 ‐ 5 2,444 5,934 Transfers out (42) (162) (3) (2,444) (3) ‐ ‐ (2,654)
Net cash flows provided by (used in)
noncapital financing activities (16) 1,870 (3) (1,017) (3) 5 2,444 3,280
Cash flows from capital and related financing activities:
Acquisition of capital assets (5,359) (916) ‐ ‐ ‐ ‐ ‐ (6,275) Proceeds from sale of capital assets 248 ‐ ‐ ‐ ‐ ‐ ‐ 248
Net cash flows (used in)
capital and related financing activities (5,111) (916) ‐ ‐ ‐ ‐ ‐ (6,027)
Cash flows from investing activities:
Interest received (charged)10 9 (6) (90) 16 3 10 (48)
Net change in cash and cash equivalents (699) (305) 153 4,483 (382) (375) (3,725) (850)
Cash and cash equivalents, beginning of year 10,313 23,724 35 18,368 20,187 6,664 5,357 84,648
Cash and cash equivalents, end of year $ 9,614 $ 23,419 $ 188 $ 22,851 $ 19,805 $ 6,289 $ 1,632 $ 83,798
Reconciliation of operating income (loss) to net cash
flows provided by (used in) operating activities:
Operating income (loss)1,269$ (2,468)$ (8)$ 4,483$ (1,598)$ (829)$ (6,832)$ (5,983)$ Adjustments to reconcile operating income (loss)
to net cash provided by (used in) operating activities:Depreciation 2,601 469 4 ‐ ‐ ‐ ‐ 3,074
Other 42 ‐ ‐ ‐ ‐ ‐ ‐ 42
Change in assets and liabilities:Accounts receivable 8 ‐ ‐ (19) 414 ‐ ‐ 403
Inventory of materials and supplies 30 ‐ ‐ ‐ ‐ ‐ ‐ 30 Net OPEB asset ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Deferred outflows of resources ‐ pension plan (126) (580) (16) ‐ (11) ‐ ‐ (733)
Deferred outflows of resources ‐ OPEB (82) (166) (7) ‐ ‐ ‐ ‐ (255) Accounts payable and accruals 292 112 155 533 (6) (52) 653 1,687
Accrued salaries and benefits 2 12 ‐ ‐ ‐ ‐ ‐ 14 Accrued compensated absences ‐ 1 ‐ 579 ‐ ‐ ‐ 580
Accrued claims payable ‐ ‐ ‐ 14 766 498 ‐ 1,278
Net pension liability 360 1,283 32 ‐ 34 ‐ ‐ 1,709 Net OPEB liability (15) (32) (1) ‐ ‐ ‐ ‐ (48)
Deferred inflows of resources ‐ pension plans 6 38 ‐ ‐ 6 ‐ ‐ 50 Deferred inflows of resouces ‐ OPEB 31 63 3 ‐ ‐ ‐ ‐ 97
Net cash flows provided by (used in)
operating activities 4,418$ (1,268)$ 162$ 5,590$ (395)$ (383)$ (6,179)$ 1,945$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Cash Flows
For the Year Ended June 30, 2018
(Amounts in thousands)
138
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.
139
CITY OF PALO ALTO
All Agency Funds
Statement of Changes in Assets and Liabilities
For the Year Ended June 30, 2018
Balance Balance
June 30, 2017 Additions Deletions June 30, 2018
Cable Joint Powers Authority
ASSETS:
Cash and investments available for operations 473$ 76$ ‐$ 549$
Accounts receivable 515 ‐‐ 515
Interest receivable 3 ‐‐ 3
Total assets 991$ 76$ ‐$ 1,067$
LIABILITIES:
Due to other governments 991$ 76$ ‐$ 1,067$
ASSETS:
Cash and investments available for operations 1,935$ 38$ ‐$ 1,973$
Cash and investments with fiscal agents 2,556 38 ‐ 2,594
Accounts receivable 64 ‐47 17
Interest receivable 9 2 ‐ 11
Total assets 4,564$ 78$ 47$ 4,595$
LIABILITIES:
Due to bondholders 4,564$ 31$ ‐$ 4,595$
Total Agency Funds
ASSETS:
Cash and investments available for operations 2,408$ 114$ ‐$ 2,522$
Cash and investments with fiscal agents 2,556 38 ‐ 2,594
Accounts receivable 579 ‐47 532
Interest receivable 12 2 ‐ 14
Total assets 5,555$ 154$ 47$ 5,662$
LIABILITIES:
Due to bondholders 4,564$ 31$ ‐$ 4,595$
Due to other governments 991 76 ‐ 1,067
Total liabilities 5,555$ 107$ ‐$ 5,662$
(Amounts in thousands)
University Avenue Area
Off‐Street Parking Assessment District
140
STATISTICAL SECTION
The statistical section contains comprehensive statistical data, which relates to physical, economic, social
and political characteristics of the City. It is intended to provide users with a broader and more complete
understanding of the City and its financial affairs than is possible from the financial statements and
supporting schedules included in the financial section.
In this section, readers will find comparative information related to the City’s revenue sources,
expenditures, property tax valuations, levies and collections, general obligation bonded debt, utility
revenue debt service, and demographics. Where available, the comparative information is presented for
the last ten fiscal years.
In addition, this section presents information related to the City’s legal debt margin computation, principal
taxpayers, notary and security bond coverages, and other miscellaneous statistics pertaining to services
provided by the City.
In contrast to the financial section, the statistical section information is not usually subject to independent
audit.
Financial Trends
These schedules contain trend information to help the reader understand how the City’s financial
performance and well‐being have changed over time:
Net Position by Component
Changes in Net Position
Fund Balances of Governmental Funds
Changes in Fund Balances of Governmental Funds
Revenue Capacity
These schedules contain information to help the reader assess the City’s most significant local revenue
sources, property tax and electric charges:
Electric Operating Revenue by Source
Supplemental Disclosure for Water Utilities
Supplemental Disclosure for Gas Utilities
Assessed Value of Taxable Property
Property Tax Rates, All Overlapping Governments
Property Tax Levies and Collections
Principal Property Taxpayers
Assessed Valuation and Parcels by Land Use
Per Parcel Assessed Valuation of Single Family Residential
Debt Capacity
These schedules present information to help the reader assess the affordability of the City’s current levels
of outstanding debt and the City’s ability to issue additional debt in the future:
Ratio of Outstanding Debt by Type
Computation of Direct and Overlapping Debt
Computation of Legal Bonded Debt Margin
Revenue Bond Coverage
141
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.
142
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Governmental Activities
Investment in capital assets 356,657$ 369,499$ 364,747$ 370,111$ 378,047$ 386,696$ 405,921$ 425,179$ 453,878$ 473,233$
Restricted 36,632 34,323 16,437 52,934 71,717 68,331 55,963 47,907 36,081 41,177
Unrestricted 118,133 102,199 134,722 142,102 165,810 187,386 1,972 37,905 37,330 (87,040)
Total Governmental Activities Net Position 511,422$ 506,021$ 515,906$ 565,147$ 615,574$ 642,413$ 463,856$ 510,991$ 527,289$ 427,370$
Business‐type Activities
Investment in capital assets 384,313$ 399,317$ 416,418$ 437,151$ 446,597$ 473,795$ 490,874$ 512,918$ 532,063$ 573,688$
Restricted 1,732 4,300 ‐ ‐ 4,060 4,166 4,142 4,115 4,073 4,014
Unrestricted 208,025 232,420 253,740 262,602 269,926 266,794 172,802 162,806 163,158 110,429
Total Business‐type Activities Net Position 594,070$ 636,037$ 670,158$ 699,753$ 720,583$ 744,755$ 667,818$ 679,839$ 699,294$ 688,131$
Primary Government
Investment in capital assets 740,970$ 768,816$ 781,165$ 807,262$ 824,644$ 860,491$ 896,795$ 938,097$ 985,941$ 1,046,921$
Restricted 38,364 38,623 16,437 52,934 75,777 72,497 60,105 52,022 40,154 45,191
Unrestricted 326,158 334,619 388,462 404,704 435,736 454,180 174,774 200,711 200,488 23,389
Total Primary Government Net Position 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$ 1,115,501$
Notes:
Source: Annual Financial Statements, Statement of Net Position
The City implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions, effective July 1, 2014, and GASB Statement No. 75,
Accounting and Financial Reporting for Postemployment Benefits Other Than Pension, effective July 1, 2017. The City's unrestricted net position decreased in FY
2015 and again in FY 2018 as a result.
Fiscal Year Ended June 30
CITY OF PALO ALTO
Net Position by Component
Last Ten Fiscal Years
(Amounts in thousands)
(Accrual basis of accounting)
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$
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Primary Government
Investment in capital assets Restricted Unrestricted
143
PROGRAM REVENUES 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Governmental Activities
Charges for services
City Council ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
City Manager ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
City Attorney 12.00 53.00 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
City Clerk ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
City Auditor ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Administrative Services 726 984 2,889 1,647 15,629 4,055 5,460 9,444 5,242 6,536
Human Resources ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Public Works 1,169 1,258 2,419 1,008 1,314 1,093 1,209 599 878 781
Planning & Community Environment 4,704 4,813 7,237 31,491 28,768 12,896 8,090 9,071 6,067 5,119
Development Services1 ‐ ‐ ‐ ‐ ‐ ‐ 12,019 12,570 11,768 16,000
Public Safety 14,670 14,337 15,274 15,658 16,139 14,902 15,726 13,945 12,670 13,507
Community Services 8,522 8,729 7,724 11,365 13,808 20,882 20,912 21,551 20,472 21,285
Library 177 199 480 1,600 187 166 137 198 139 145
Operating grants and contributions 3,599 4,829 2,884 3,441 5,038 5,360 5,300 2,164 1,990 14,054
Capital grants and contributions 3,810 1,280 1,903 1,064 515 917 619 344 1,929 1,534
Total Governmental Activities
Program Revenues 37,389 36,482 40,810 67,274 81,398 60,271 69,472 69,886 61,155 78,961
Business‐type Activities
Charges for services
Water 27,120 26,259 26,624 31,467 37,746 40,291 35,847 37,588 42,678 45,087
Electric 119,320 121,900 122,109 118,886 121,805 121,916 120,842 120,743 137,543 154,142
Fiber Optics 3,336 3,105 3,322 3,662 4,382 4,485 4,627 4,505 4,553 4,529
Gas 47,838 44,450 43,584 41,774 34,633 35,737 30,751 30,212 36,431 37,044
Wastewater Collection 14,486 15,136 15,094 14,942 16,077 15,599 16,182 16,496 17,748 17,990
Wastewater Treatment 28,425 16,915 18,830 22,200 21,528 18,460 24,120 23,825 23,649 27,382
Refuse 29,101 28,568 30,469 30,645 30,583 30,297 31,576 32,169 33,918 34,647
Storm Drainage 5,505 5,647 5,796 5,892 6,053 6,183 6,281 6,520 6,693 6,964
Airport ‐ ‐ ‐ ‐ ‐ ‐ 683 826 1,286 2,382
External Services ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Operating grants and contributions ‐ 361 610 605 572 549 534 744 512 501
Capital grants and contributions 639 475 3,004 1,526 2,224 2,005 2,080 1,061 4,265 14,194
Total Business‐type Activities
Program Revenues 275,770 262,816 269,442 271,599 275,603 275,522 273,523 274,689 309,276 344,862
Total Primary Government
Program Revenues 313,159$ 299,298$ 310,252$ 338,873$ 357,001$ 335,793$ 342,995$ 344,575$ 370,431$ 423,823$
EXPENSES
Governmental Activities
City Council 394$ 455$ 15$ 345$ 94$ 387$ 271$ 352$ 329$ 345$
City Manager 2,085 2,399 1,842 1,960 1,237 2,180 2,155 2,662 1,975 2,757
City Attorney 2,575 2,621 953 1,656 1,642 1,797 1,759 2,472 2,140 2,511
City Clerk 1,098 1,369 803 908 330 641 680 582 762 931
City Auditor 2,053 2,601 138 235 464 489 362 414 847 994
Administrative Services 17,784 17,893 9,888 10,100 7,614 11,388 9,980 10,637 11,887 13,949
Human Resources 3,448 3,707 1,346 1,071 1,420 1,346 1,464 2,224 2,272 2,674
Public Works 21,270 18,658 19,357 14,568 20,816 24,577 21,075 24,613 25,539 30,349
Planning & Community Environment 12,940 12,114 15,031 12,074 13,549 14,926 8,423 10,208 10,918 11,357
Development Services1 ‐ ‐ ‐ ‐ ‐ ‐ 10,449 11,158 11,102 12,664
Public Safety 52,487 55,799 58,996 62,817 59,452 62,883 58,660 56,653 73,320 83,923
Community Services 19,862 17,171 22,845 21,915 22,705 23,822 24,688 28,547 27,866 33,709
Library 6,244 6,143 6,920 7,323 7,319 7,758 7,721 10,825 11,437 12,208
Interest on long term debt 404 370 2,742 2,575 2,562 3,367 3,658 3,552 2,846 2,761
Total Governmental
Activities Expenses 142,644 141,300 140,876 137,547 139,204 155,561 151,345 164,899 183,240 211,132
Business‐type Activities
Water 20,271 21,037 24,268 29,093 30,707 31,593 33,205 35,120 37,535 40,836
Electric 122,268 107,910 100,130 102,030 106,438 113,004 122,499 120,319 128,603 146,033
Fiber Optics 1,284 1,407 1,561 1,489 1,437 1,661 1,891 2,107 2,159 2,653
Gas 34,603 32,498 32,051 28,878 26,749 26,869 23,525 20,879 26,783 27,930
Wastewater Collection 14,875 10,696 12,275 14,825 14,313 13,235 14,595 15,199 16,405 16,801
Wastewater Treatment 36,896 13,466 19,731 20,712 20,635 21,018 21,553 22,546 23,498 27,518
Refuse 37,217 28,119 30,684 31,900 28,542 28,413 27,974 30,370 30,665 28,808
Storm Drainage 2,943 2,491 3,229 3,103 3,703 3,644 3,721 3,735 4,106 5,059
Airport ‐ ‐ 31 153 246 466 1,004 970 1,274 1,656
Total Business‐type
Activities Expenses 270,357 217,624 223,960 232,183 232,770 239,903 249,967 251,245 271,028 297,294
Total Primary
Government Expenses 413,001$ 358,924$ 364,836$ 369,730$ 371,974$ 395,464$ 401,312$ 416,144$ 454,268$ 508,426$
CITY OF PALO ALTO
Changes in Net Position
Last Ten Fiscal Years
(Accrual basis of accounting)
(Amounts in thousands)
Fiscal Year Ended June 30
144
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
NET (EXPENSE)/REVENUE
Governmental Activities (105,255)$ (104,818)$ (100,066)$ (70,273)$ (57,806)$ (95,290)$ (81,873)$ (95,013)$ (122,085)$ (132,171)$
Business‐type Activities 5,413 45,192 45,482 39,416 42,833 35,619 23,556 23,444 38,248 47,568
Total Primary Government
Net (Expense)/Revenue (99,842)$ (59,626)$ (54,584)$ (30,857)$ (14,973)$ (59,671)$ (58,317)$ (71,569)$ (83,837)$ (84,603)$
GENERAL REVENUES AND OTHER CHANGES IN NET POSITION
Governmental Activities
Taxes
Property tax 25,432$ 25,981$ 29,156$ 30,104$ 31,929$ 35,299$ 38,750$ 41,189$ 43,953$ 47,170$
Sales tax 20,089 17,991 20,746 22,132 25,606 29,424 29,675 30,018 29,923 31,091
Utility user tax 11,030 11,295 10,851 10,834 10,861 11,008 10,861 12,469 14,240 15,414
Transient occupancy tax 7,111 6,858 8,082 9,664 10,794 12,255 16,699 22,366 23,477 24,937
Other taxes 3,364 4,055 8,156 8,173 10,504 9,660 11,867 7,868 8,989 11,337
Investment earnings 8,525 6,514 3,500 6,238 (1,228) 5,859 5,010 8,639 (711) 420
Miscellaneous 15,682 12,729 12,377 14,943 518 2,575 3,428 894 168 1,973
Transfers 24,020 13,994 17,083 17,426 19,249 17,103 16,405 18,705 18,344 19,077
Total Governmental Activities 115,253 99,417 109,951 119,514 108,233 123,183 132,695 142,148 138,383 151,419
Business‐type Activities
Investment earnings 14,103 10,769 5,722 7,605 (2,754) 6,379 4,857 7,282 (449) 596
Transfers (24,020) (13,994) (17,083) (17,426) (19,249) (17,103) (16,405) (18,705) (18,344) (19,077)
Total Business‐type Activities (9,917) (3,225) (11,361) (9,821) (22,003) (10,724) (11,548) (11,423) (18,793) (18,481)
Total Primary Government 105,336$ 96,192$ 98,590$ 109,693$ 86,230$ 112,459$ 121,147$ 130,725$ 119,590$ 132,938$
CHANGE IN NET POSITION
Governmental Activities 9,998$ (5,401)$ 9,885$ 49,241$ 50,427$ 27,893$ 50,822$ 47,135$ 16,298$ 19,248$
Business‐type Activities (4,504) 41,967 34,121 29,595 20,830 24,895 12,008 12,021 19,455 29,087
Total Primary Government
Change in Net Position 5,494$ 36,566$ 44,006$ 78,836$ 71,257$ 52,788$ 62,830$ 59,156$ 35,753$ 48,335$
Notes:1The Development Services Department was formed in FY15.
Source: Annual Financial Statements, Statement of Activities
Fiscal Year Ended June 30
145
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
General Fund
Nonspendable 6,476$ 6,581$ 6,085$ 6,007$ 5,749$ 6,188$ 6,296$ 7,088$ 7,709$ 8,049$
Committed ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 373$
Assigned 6,100 7,295 6,235 6,400 5,415 5,432 7,976 8,261 7,280 7,098
Unassigned 30,648 27,581 31,859 29,616 30,913 36,690 48,198 51,582 48,118 52,826
Total General Fund 43,224$ 41,457$ 44,179$ 42,023$ 42,077$ 48,310$ 62,470$ 66,931$ 63,107$ 68,346$
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
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$
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Nonspendable Committed Assigned Unassigned
146
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
All Other Governmental Funds
Nonspendable 1,308$ 1,402$ 1,422$ 11,112$ 18,189$ 14,869$ 1,468$ 1,505$ 1,499$ 1,498$
Restricted 1,412 55,400 50,646 61,324 84,688 68,468 59,650 47,113 35,298 40,317
Committed 22,043 16,962 24,775 14,284 20,400 27,145 48,434 65,745 71,566 72,781
Assigned 36,629 38,538 20,114 33,264 45,514 55,211 52,627 64,411 63,225 68,261
Unassigned ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ (32)
Total All Other
Governmental Funds 61,392$ 112,302$ 96,957$ 119,984$ 168,791$ 165,693$ 162,179$ 178,774$ 171,588$ 182,825$
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
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$ T
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Nonspendable Restricted Committed Unassigned
($20,000)
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$ T
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Nonspendable Restricted Committed Assigned Unassigned
147
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Revenues
Property tax 25,432$ 25,981$ 29,248$ 30,216$ 32,040$ 35,393$ 38,836$ 41,289$ 44,050$ 47,242$
Sales tax 20,089 17,991 20,746 22,132 25,606 29,424 29,675 30,018 29,923 31,091
Other taxes and fines 24,843 25,063 27,890 29,231 32,141 35,305 41,576 44,909 48,875 53,837
Contributions3 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 11,733
Charges for services 19,837 19,775 22,311 46,273 38,976 23,962 25,973 23,910 22,267 26,835
From other agencies 5,984 3,035 1,614 1,116 4,109 5,700 7,727 4,417 5,443 5,392
Permits and licenses 4,033 4,408 5,433 7,136 8,218 8,990 9,179 11,228 10,523 12,786
Interest and rentals 19,183 19,045 16,553 18,583 12,136 18,445 18,658 22,269 15,348 16,288
Other revenue 6,223 4,724 8,624 12,739 17,570 7,471 12,837 13,827 4,985 6,067
Total Revenues 125,624 120,022 132,419 167,426 170,796 164,690 184,461 191,867 181,414 211,271
Expenditures
Administration1 16,002 17,353 8,351 9,412 8,291 9,961 10,806 11,501 13,192 14,721
Public Works 10,064 9,787 11,317 11,304 11,489 12,439 12,276 13,112 14,485 15,426
Planning and Community Environment 10,462 9,480 10,309 11,966 13,474 14,761 8,628 9,722 10,568 10,332
Development Services2 ‐ ‐ ‐ ‐ ‐ ‐ 11,152 10,643 10,908 11,749
Public Safety 48,957 51,022 58,874 62,418 59,537 62,028 61,447 63,784 71,164 73,916
Community Services 17,451 16,451 20,029 20,860 21,661 22,644 23,553 25,511 25,408 29,831
Library 5,985 5,900 6,509 7,072 6,902 7,340 7,980 7,960 8,953 9,120
Non‐departmental 10,765 10,149 7,352 6,819 4,567 8,135 6,180 8,068 6,566 7,579
Special revenue and capital projects 21,485 22,006 35,486 29,154 29,542 37,035 41,754 24,457 39,643 40,971
Debt service ‐ principal payments 800 840 870 1,743 1,489 1,524 1,948 7,130 2,066 2,961
Debt service ‐interest and fiscal fees 416 382 1,815 2,757 2,659 3,196 3,404 4,266 3,032 2,956
Payment to bond refunding escrow ‐ ‐ ‐ 586 540 ‐ ‐ ‐ ‐ ‐
Total Expenditures 142,387 143,370 160,912 164,091 160,151 179,063 189,128 186,154 205,985 219,562
Excess (Deficiency) of Revenues
Over (Under) Expenditures (16,763) (23,348) (28,493) 3,335 10,645 (14,373) (4,667) 5,713 (24,571) (8,291)
Other Financing Sources (Uses)
Issuance of Debt ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 8,970
Transfers in 39,903 34,835 30,323 47,200 50,343 41,683 45,137 61,835 58,331 56,882
Transfers out (22,399) (21,415) (14,352) (29,782) (33,833) (24,175) (29,824) (46,492) (44,770) (41,085)
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)17,504 72,491 15,870 17,536 38,216 17,508 15,313 15,343 13,561 24,767
Net Change in Fund Balances 741$ 49,143$ (12,623)$ 20,871$ 48,861$ 3,135$ 10,646$ 21,056$ (11,010)$ 16,476$
Debt Service as a Percentage of
Non‐Capital Expenditures 1.0% 1.0% 2.2% 3.5% 3.2% 3.3% 3.7% 7.1% 3.1% 3.3%
Notes:
2The Development Services Department was formed in FY15.
3Contributions from the Stanford University Medical Center.
Source: Annual Financial Statements, Governmental Funds, Statement of Revenues, Expenditures and Changes in Fund Balances
1Comprised of the following departments: City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative Services and Human Resources.
Fiscal Year Ended June 30
CITY OF PALO ALTO
Changes in Fund Balances of Governmental Funds
Last Ten Fiscal Years
(Modified accrual basis of accounting)
(Amounts in thousands)
148
Fiscal Commercial & City of
Year Residential Industrial Palo Alto Total
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
2018 22,764 100,200 4,264 127,228
* The electric operating revenues include sales to customers and city departments, and
excludes the sale of surplus energy, utility billing discounts, and bad debt expense.
529 Bryant Street LLC Technology
City of Palo Alto Municipal
Communications & Power Industries (CPI)Research
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 25,502 150,064,098 22,764$
Commercial 3,788 588,217,628 82,299
Industrial 79 141,387,345 17,901
CPA 144 29,780,348 4,264
Total 29,513 909,449,419 127,228$
City of Palo Alto Power Purchase
Western Area Power Administration Hydroelectric 39.3%
Forward Market Purchases ‐9.4%
Wind Energy 9.6%
Landfill Gas Energy 11.4%
Solar Energy 36.3%
Northern California Power Agency Hydroelectric 12.4%
Short‐Term Market 0.4%
Source: City of Palo Alto, Utilities and Accounting Departments
Customer (alphabetical order)Type of Business
1The top ten customers accounted for approximately 35.2% of total kWh consumption (317,136,608 kWh)
and 31.0% of revenue ($40,521,589). The largest customer accounted for 8.1% of total kWh consumption
and 6.9% of revenue. The smallest customer accounted for 1.9% of total kWh consumption and 1.6% of
revenue. Revenue used to determine top ten electric customers includes metered and non‐metered
charges, adjustments, surcharges and discounts. Revenue does not include Utility Users Tax (UUT) and
deposits.
2Revenue includes metered and non‐metered charges and revenue adjustments. Revenue does not
include California Energy Commission (CEC) surcharges, Utility Users Tax (UUT), Primary Voltage and Rate
Assistance (RAP) discounts and deposits. Parts of this schedule are provided as required by the Continuing
Disclosure Agreement for the City's Utility Revenue Bond and are not required by Governmental
Accounting Standards Board (GASB).
CITY OF PALO ALTO
Electric Operating Revenue by Source *
Last Ten Fiscal Years
(Amounts in thousands)
Top Ten Electric Customers by Revenue1
149
Top Ten Largest Water Utility Customers (alphabetical order)
City of Palo Alto
Oak Creek Apartments
Palo Alto Hills Golf & Country Club
Palo Alto Unified School District
Simon Property Group
Stanford Hospital & Clinics
Stanford West Management
Veterans Administration Hospital
Vi at Palo Alto
VMware Inc.
The top ten customers total consumption is 867,488 CCF with revenue of $8,116,799.
This amount accounts for approximately 19% of total consumption and 17.6% of total
revenue. The largest customer (other than the City of Palo Alto) accounted for 2.4% of
consumption and 2.1% of revenue. The smallest customer accounted for 0.8% of
consumption and 0.7% of revenue. Revenue used to determine top ten water utility
customers includes metered and non‐metered charges, adjustments, surcharges
and discounts. Revenue does not include Utility Users Tax (UUT) and deposits.
Note:
Source: City of Palo Alto, Utilities Department
CITY OF PALO ALTO
Supplemental Disclosure for Water Utilities
Fiscal Year 2018
This schedule is provided as required by the Continuing Disclosure Agreement for the City's Utility Revenue
Bond and is not required by Governmental Accounting Standards Board (GASB).
150
Top Ten Largest Gas Utility Customers (alphabetical order)
City of Palo Alto
Communications & Power Industries (CPI)
Hewlett Packard
Palo Alto Unified School District
Space Systems/Loral, LLC
Stanford Hospital & Clinics
Stanford School of Medicine
Stanford University
Veterans Administration Hospital
VMware Inc.
The top ten customers total consumption is 6,972,852 THM with revenue of $7,608,768.
This amount accounts for approximately 24.5% of total consumption and 21% of total
revenue. The largest customer (other than the City of Palo Alto) accounted for 6.2% of
consumption and 5.2% of revenue. The smallest customer accounted for 1.1% of
consumption and 1% of revenue.
Note:
Source: City of Palo Alto, Utilities Department
CITY OF PALO ALTO
Supplemental Disclosure for Gas Utilities
Fiscal Year 2018
This schedule is provided as required by the Continuing Disclosure Agreement for the City's Utility Revenue
Bond and is not required by Governmental Accounting Standards Board (GASB).
151
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Net Local Secured Roll
Land 10,420,139$ 11,007,650$ 11,011,160$ 11,352,993$ 12,255,515$ 13,357,851$ 14,409,837$ 15,718,665$ 17,333,969$ 18,770,642$
Improvements 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 18,642,970
Personal property 303,688 288,148 241,280 257,436 287,296 307,499 290,590 310,929 306,576 300,352
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 37,713,964
Less:
Exemptions net of state aid (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) (5,203,968)
Total Net Local Secured Roll 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 32,509,996
Public utilities 2,573 2,573 2,573 2,573 2,573 2,573 2,573 2,573 2,573 2,573
Unsecured property 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 1,922,170
Total Assessed Value 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$ 34,434,739$
Total Direct Tax Rate 1%1%1%1%1%1%1%1%1%1%
Note: The State Constitution requires property to be assessed at 100% of the most recent purchase price, plus an increment of no more than 2% annually,
plus any local over‐rides. These values are considered to be full market values.
Source: County of Santa Clara Assessor's Office
CITY OF PALO ALTO
Assessed Value of Taxable Property
Last Ten Fiscal Years
(Amounts in thousands)
Fiscal Year Ended June 30
$13,000,000
$15,000,000
$17,000,000
$19,000,000
$21,000,000
$23,000,000
$25,000,000
$27,000,000
$29,000,000
$31,000,000
$33,000,000
$35,000,000
$37,000,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$
T
h
o
u
s
a
n
d
s
Total Assessed Value
152
Basic County County Total
County County Hospital City Library Santa Clara Affordable Direct and
Fiscal Wide Retirement G.O. Bond G.O. Bond Valley Water School Community Midpeninsula Housing Bond Overlapping
Year Levy Levy (Measure A)1 (Measure N)2 District District College Open Space3 (Measure A)4 Rates
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
2018 1.00 0.0388 0.0082 0.0118 0.0062 0.0570 0.0220 0.0009 0.0127 1.16
Notes:1The County General Obligation Bond (Measure A) was passed in 2008 to fund the seismic upgrade of the
Santa Clara Valley Medical Center. Rates were first levied for the 2009‐10 fiscal year.
2The City of Palo Alto General Obligation Bond (Measure N) was passed in 2008 to fund the construction and
renovation of three of the City's libraries. Rates were first levied for the 2010‐11 fiscal year.
3The Midpeninsula Regional Open Space District Bond Issue and Property Tax, Measure AA, passed in 2014.
4The Santa Clara County Affordable Housing Bond ‐ Measure A 2016 passed on November 8, 2016.
Source: County of Santa Clara, Tax Rates and Information
CITY OF PALO ALTO
Property Tax Rates
All Overlapping Governments
Last Ten Fiscal Years
$1.10
$1.12
$1.14
$1.16
$1.18
$1.20
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Rate per $100 of Assessed Value
153
Fiscal Year Total Tax Percentage Collections in Percentage of
Ended June 30 Levy1 for FY Amount of Levy Subsequent Years2 Amount Levy
2009 25,432 25,432 100%‐ 25,432 100%
2010 25,981 25,981 100%‐ 25,981 100%
2011 25,688 25,688 100%‐ 25,688 100%
2012 26,494 26,494 100%‐ 26,494 100%
2013 28,742 28,742 100%‐ 28,742 100%
2014 30,587 30,587 100%‐ 30,587 100%
2015 34,117 34,117 100%‐ 34,117 100%
2016 36,607 36,607 100%‐ 36,607 100%
2017 39,381 39,381 100%‐ 39,381 100%
2018 42,839 42,839 100%‐ 42,839 100%
Notes:
Source:Annual Financial Statements, Government Funds, Statement of Revenues, Expenditures and
Changes in Fund Balances.
1During fiscal year 1995, the County of Santa Clara began providing the City 100% of its tax levy
under an agreement which allows the county to keep all interest and delinquency charges
collected.
2Effective fiscal year 1994, the City is on the Teeter Plan, under which the County of Santa Clara
pays the full tax levy due. All prior delinquent taxes were also received in that fiscal year.
CITY OF PALO ALTO
Property Tax Levies and Collections
Last Ten Fiscal Years
(Amounts in thousands)
Collected within the
Fiscal Year of the Levy Total Collections to Date
154
Taxable Assessed
Value Rank
Percentage of
Total Taxable
Assessed Value
Taxable
Assessed
Value Rank
Percentage of
Total Taxable
Assessed Value
Leland Stanford Jr. University 5,119,879$ 1 14.9%3,288,925$ 1 15.6%
Loral Space & Communications 235,175 2 0.7%182,172 2 0.9%
Google Inc.209,211 3 0.6%
EOSII Palo Alto Technology Center LLC 126,019 4 0.4%
395 Page Mill LLC 115,984 5 0.3%
Hudson Embarcadero Place LLC 112,328 6 0.3%
Hohbach Realty Co. LP 92,081 7 0.3%
SI 45 LLC 79,554 8 0.2%
BVK Hamilton Ave LLC 71,754 9 0.2%
LVBL Ventures LLC 69,744 10 0.2%
Arden Realty Limited Partnership 109,703 3 0.5%
Whisman Ventures, LLC 102,479 4 0.5%
ECI 2 Bayshore LLC/ECI Hamilton LLC 66,421 5 0.3%
Blackhawk Parent LLC 48,960 6 0.2%
Pacific Hotel Dev Venture LP 42,829 7 0.2%
300 / 400 Hamilton Associates 40,413 8 0.2%
505 Hamilton Avenue Partners LLC 39,355 9 0.2%
Ronald & Ann Williams Charitable Foundation 39,189 10 0.2%
Total 6,231,729$ 18.1%3,960,446$ 18.8%
Total City Taxable Assessed Value:
FY 2018 34,434,739$
FY 2009 21,085,609$
Source: California Municipal Statistics, Inc.
Fiscal Year 2018 Fiscal Year 2009
Taxpayer
CITY OF PALO ALTO
Principal Property Taxpayers
Current Year and Nine Years Ago
(Amounts in thousands)
155
2017‐2018 No. of
Assessed % of No. of % of Taxable % of
Valuation1 Total Parcels Total Parcels Total
Non‐Residential:
Agricultural/forest 32,699,093$ 0.10 % 49 0.24 % 31 0.15 %
Commercial 1,919,466,847 5.90 458 2.21 455 2.23
Professional/office 4,829,648,560 14.86 550 2.65 530 2.60
Industrial/research & development 2,014,536,745 6.20 232 1.12 231 1.13
Recreational 45,199,508 0.14 14 0.07 12 0.06
Government/social/institutional 81,684,346 0.25 111 0.53 46 0.23
Miscellaneous 7,539,575 0.02 18 0.09 17 0.08
Subtotal Non‐Residential 8,930,774,674$ 27.47 % 1,432 6.90 % 1,322 6.48 %
Residential:
Single family residence 19,059,115,051$ 58.63 % 15,066 72.54 % 15,019 73.66 %
Condominium/townhouse 2,429,099,115 7.47 3,033 14.60 3,029 14.86
Mobile Home 72,701 0.00 7 0.03 7 0.03
2‐4 Residential units 486,523,359 1.50 502 2.42 502 2.46
5+ Residential units 1,426,234,104 4.39 341 1.64 326 1.60
Subtotal Residential 23,401,044,330$ 71.98 % 18,949 91.24 % 18,883 92.61 %
Vacant Parcels 178,176,982$ 0.55 % 387 1.86 % 184 0.90 %
Total 32,509,995,986$ 100 % 20,768 100 % 20,389 100 %
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, 2018
156
No. of
Taxable Average
Parcels1 Assessed Valuation
Single Family Residential 15,019 $1,269,000
No. of % of Cumulative % of Cumulative
Taxable Total % of Total Total Total % of Total
Parcels1 Parcels Parcels Valuation Valuation Valuation
1,104 7.35 7.35 88,330,950$ 0.46 0.46
1,724 11.48 18.83 239,011,366 1.25 1.72
788 5.25 24.08 194,789,586 1.02 2.74
700 4.66 28.74 242,034,889 1.27 4.01
628 4.18 32.92 282,502,458 1.48 5.49
678 4.51 37.43 373,803,650 1.96 7.45
638 4.25 41.68 413,101,443 2.17 9.62
581 3.87 45.55 434,768,134 2.28 11.90
529 3.52 49.07 451,055,602 2.37 14.27
615 4.09 53.17 584,609,797 3.07 17.34
557 3.71 56.87 585,596,977 3.07 20.41
528 3.52 60.39 606,426,223 3.18 23.59
414 2.76 63.15 517,138,530 2.71 26.30
440 2.93 66.08 592,647,993 3.11 29.41
419 2.79 68.87 607,508,258 3.19 32.60
376 2.50 71.37 582,467,595 3.06 35.66
390 2.60 73.97 643,233,203 3.37 39.03
318 2.12 76.08 556,202,247 2.92 41.95
315 2.10 78.18 582,513,341 3.06 45.01
264 1.76 79.94 513,482,644 2.69 47.70
3,013 20.06 100.00 9,967,890,165 52.30 100.00
15,019 100.00 19,059,115,051$ 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, 2018
2017‐2018 Median
$600,000‐699,999
$19,059,115,051 $923,460
2017‐2018
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
$2,000,000 and greater
Total
157
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
7,605$ 6,765$ 5,895$ 1,685$ 1,560$ 1,430$ 1,285$ 1,135$ 975$ 8,970$
‐ 55,305 55,305 54,540 74,235 73,215 71,795 65,210 63,710 62,140
2011 Lease‐Purchase Agreement ‐ ‐ ‐ 2,764 2,400 2,026 1,643 1,248 842 426
Add: unamortized premium ‐ 3,766 3,640 3,514 4,400 4,242 4,084 3,926 3,768 3,610
‐ (571) ‐ ‐ ‐ ‐ ‐ ‐ ‐
7,605 65,265 64,840 62,503 82,595 80,913 78,807 71,519 69,295 75,146
38,744 72,104 69,551 65,879 63,104 60,224 57,224 54,095 50,825 47,400
Energy Tax Credits 1,300 1,200 1,100 1,000 900 800 700 600 500 400
State Water Resources Loan 9,000 13,080 16,696 15,900 15,109 14,309 13,500 12,681 15,034 17,711
(2,479) (2,737) (229) 580 543 867 803 737 673 608
46,565 83,647 87,118 83,359 79,656 76,200 72,227 68,113 67,032 66,119
Outstanding Debt 54,170$ 148,912$ 151,958$ 145,862$ 162,251$ 157,113$ 151,034$ 139,632$ 136,327$ 141,265$
1.53% 4.51% 3.86% 3.36% 3.36% 3.24% 2.94% 2.52% 2.38% 2.33%
Population 64,484 65,408 64,417 65,544 66,368 66,861 66,029 66,968 66,478 66,649
0.84$ 2.28$ 2.36$ 2.23$ 2.44$ 2.35$ 2.29$ 2.09$ 2.05$ 2.12$
Notes:
Sources:
2018 Official City Data Set (population)
California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income)
Annual Financial Statements and Note 7 General Long‐Term Obligations
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
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
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$
T
h
o
u
s
a
n
d
s
Total Governmental Activities Total Business‐type Activities
158
2017‐2018 Assessed Valuation 34,434,739,002$
Percentage Amount
Applicable Applicable
Total Debt to City of to City of
Outstanding Palo Alto1 Palo Alto
Santa Clara County 1,012,400,000$ 7.66%77,509,344$
Foothill‐DeAnza Community College District 633,997,978 22.10% 140,145,253
Palo Alto Unified School District 298,433,689 90.08% 268,841,004
Fremont Union High School District 433,280,088 0.01%43,328
Los Gatos‐Saratoga Joint Union High School District 105,845,000 0.01%12,701
Mountain View‐Los Altos Union High School District 52,243,375 0.96%502,059
Cupertino Union School District 270,528,688 0.02%45,990
Los Altos School District 57,145,000 1.21%692,026
Mountain View‐Whisman School District 185,455,000 0.75%1,381,640
Saratoga Union School District 25,833,901 0.03%6,717
Whisman School District 15,293,173 1.96%299,593
City of Palo Alto 62,140,000 100%62,140,000
El Camino Hospital District 127,800,000 0.08% 102,240
Midpeninsula Regional Open Space District 93,350,000 12.97% 12,107,495
City of Palo Alto Special Assessment Bonds 22,370,000 100% 22,370,000
Santa Clara Valley Water District Benefit Assessment District 82,285,000 7.66% 6,299,740
Total Direct and Overlapping Tax and Assessment Debt 592,499,130
590,242,965 7.66% 45,189,001
357,547,175 7.66% 27,373,812
4,985,000 7.66%381,652
28,803,859 22.10%6,367,093
4,424,000 0.01% 531
1,845,000 0.96%17,730
Mountain View‐Whisman School District Certificates of Participation 32,850,000 0.75%244,733
3,905,000 0.03%1,015
Los Altos School District Certificates of Participation 2,616,389 1.21%31,684
City of Palo Alto General Fund Obligations 9,395,852 100%9,395,852
2,470,000 7.66%189,103
Midpeninsula Regional Open Space Park District General Fund Obligations 123,040,600 12.97% 15,958,366
$ 105,150,572
31,151,167
$ 73,999,405
$ 666,498,535
Ratio to
Assessed Valuation
Total Direct Debt 0.21%71,535,852$ 3
Total Overlapping Debt 1.73%594,962,683
Total Direct and Overlapping Debt 1.94%666,498,535$ 2
Notes:
1Percentage of overlapping agency's assessed valuation located within boundaries of the city.
2Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and
non‐bonded capital lease obligations.
Source: California Municipal Statistics, Inc.
Santa Clara County General Fund Obligations
CITY OF PALO ALTO
Computation of Direct and Overlapping Debt
As of June 30, 2018
Direct and Overlapping Tax and Assessment Debt
Direct and Overlapping General Fund Debt
3Total direct debt excludes any premiums, discounts or other amortization amounts.
Santa Clara County Pension Obligations
Santa Clara County Board of Education Certificates of Participation
Foothill‐DeAnza Community College District Certificates of Participation
Los Gatos‐Saratoga Joint Union High School District Certificates of Participation
Mountain View‐Los Altos Union High School District Certificates of Participation
Saratoga Union High School District Certificates of Participation
Less: Santa Clara County supported obligations
Total Net Direct and Overlapping General Fund Debt
Overlapping debt is the financial obligations of one political jurisdiction that also falls partly on a nearby jurisdiction. The amount of debt of each
unit applicable to the reporting unit is arrived at by 1) determining what percentage of the total assessed value of the overlapping jurisdiction
lies within the limits of the reporting unit, and 2) applying this percentage to the total debt of the overlapping jurisdiction.
Santa Clara County Vector Control District Certificates of Participation
Total Gross Direct and Overlapping General Fund Debt
Total Combined Debt
159
Assessed Valuation:
Secured property assessed value,
net of exempt real property 34,434,739$
Bonded Debt Limit (3.75% of Assessed Value) 1 1,291,303
Direct Debt:
Certificates of Participation 8,970
Lease Purchase Agreement 426
General Obligation bonds 62,140
Total Direct Debt3 71,536
Less: Amount of Debt Not Subject to Limit 2 9,396
Total Net Debt Applicable to Limit 62,140
Legal Bonded Debt Margin 1,229,163$
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
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
2018 34,434,739 1,291,303 62,140 1,229,163 66,649 4.81%0.0018 0.93
Notes:
Source: Annual Financial Statements, Assessed Value of Taxable Property and Note 7 General Long‐Term Obligations
2In accordance with California Government Code Section 43605, only the City's General Obligation bonds are subject to the legal debt limit of 15%.
Enterprise Fund debt is not subject to legal debt margin.
CITY OF PALO ALTO
Computation of Legal Bonded Debt Margin
As of June 30, 2018
(Amounts in thousands)
1California Government Code, Section 43605 sets the debt limit at 15% of the assessed value of all real and personal property of the City. Because this
Code section was enacted when assessed value was 25% of market value, the limit is calculated at one‐fourth, or 3.75%. This legal debt margin applies
to General Obligation debt. Prior year limits have been adjusted to conform to the current year methodology.
3Total direct debt excludes any premiums, discounts or other amortization amounts.
160
Less: Net Revenue
Fiscal Gross Direct Operating Available for
Year Revenue Expenses2 Debt Service Principal Interest3 Total Coverage Ratio
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
2018 288,610 231,255 57,355 3,525 2,524 6,049 9.48
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
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$
T
h
o
u
s
a
n
d
s
Net Revenue Available for Debt Service Total Debt Service
161
Fiscal
Year
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
2018 2,001 4,224 1,716 1,647 428 614 243 3,184 15,663 29,720
Source: California State Board of Equalization, compiled by MuniServices LLC
Sales Tax Rates for the Fiscal Year ended June 30, 2018
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
6%
Apparel Stores
5%
Food Markets
1%
Service Stations
2%
Drug Stores
1%
Other Retail
11%
All Other
53%
Fiscal Year 2018
162
Santa Clara Santa Clara
City of Palo Alto City of Palo Alto Santa Clara City Population County Total County Per Capita
Fiscal City of Palo Alto Unemployment School County as a Percentage of Personal Income Personal Income
Year Population Rate Enrollment Population County Population (in thousands)(in thousands)
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
2018 66,649 2.5%12,230 1,948,176 3.42% 177,600,000 91,162
Note: Data on personal income and per capita personal income is only available for Santa Clara County.
Source: Beginning in 2015 population is sourced from the US Census Bureau Community Survey (via the City of Palo Alto's Official City Data Set).
State of California Employment Development Office (unemployment rate)
Palo Alto Unified School District (school enrollment)
* California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income). Forecasts from prior years are updated annually.
CITY OF PALO ALTO
Demographic and Economic Statistics
Last Ten Fiscal Years
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
163
Number of
Employees Rank
Percentage of Total
City Employment
Number of
Employees Rank
Percentage of Total
City Employment
Stanford Health Care 5,500 1 4.2%5,025 2 7.8%
Lucile Packard Children's Hospital 5,400 2 4.1%3,326 4 5.2%
Stanford University2 4,300 3 3.3%9,821 1 15.2%
Veteran's Affairs Palo Alto Health Care System 3,900 4 3.0%3,500 3 5.4%
VMware Inc.3,500 5 2.7%
SAP Labs Inc.3,500 6 2.7%
Space Systems/Loral 2,800 7 2.1%1,700 7 2.6%
Hewlett‐Packard Company 2,500 8 1.9%2,001 5 3.1%
Palo Alto Medical Foundation 2,200 9 1.7%2,000 6 3.1%
Varian Medical Systems 1,400 10 1.1%
Wilson Sonsini Goodrich & Rosati 1,500 8 2.3%
Palo Alto Unified School District 1,304 9 2.0%
City of Palo Alto 1,100 10 1.7%
Total 35,000 26.8%31,277 48.5%
Estimated Total City Day Population:
FY 2018 130,443
FY 2008 64,484
Notes:
Source: 2018 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 20181 FY 2009
Employer
1Available data sources are limited and may be unreliable. The City does not affirm the validity of this data. 2018 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 in FY17 and includes only employees
located in Palo Alto.
164
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165
2008 2009 2010 2011
Governmental activities
Community Services
Number of theater performances 166 159 174 175
Total hours of athletic field usage2 63,212 45,762 41,705 42,687
Number of rounds of golf 74,630 72,170 69,791 67,381
Enrollment in recreation classes (includes summer camps)13,851 13,091 12,880 12,310
Planning and Community Environment
Planning applications completed 257 273 226 238
Building permits issued 3,046 2,543 2,847 3,559
Caltrain average weekday boarding3 4,589 4,407 4,359 4,923
Police
Calls for service 58,742 53,275 55,860 52,159
Total arrests 3,253 2,612 2,451 2,288
Parking citations issued 50,706 49,996 42,591 40,426
Animal Services
Number of service calls 3,059 2,873 2,692 2,804
Number of animals handled 3,532 3,422 3,147 3,323
Fire
Calls for service 7,723 7,549 7,468 7,555
Number of fire incidents 192 239 182 165
Number of fire inspections4 1,277 1,028 1,526 1,807
Library
Total number of cardholders 53,740 54,878 51,969 53,246
Total number of items in collection 279,403 293,735 298,667 314,101
Total checkouts 1,542,116 1,633,955 1,624,785 1,476,648
Public Works
Street resurfacing (lane miles)27 23 32 29
Number of potholes repaired 1,977 3,727 3,149 2,986
Sq. ft. of sidewalk replaced or permanently repaired 83,827 56,909 54,602 71,174
Number of trees planted 188 250 201 150
Tons of materials recycled or composted 52,196 49,911 48,811 56,586
Business‐type activities
Electric
Number of customer accounts 29,024 28,527 29,430 29,708
Residential MWH consumed 162,680 159,899 163,098 160,318
Gas
Number of customer accounts 23,502 23,090 23,724 23,816
Residential therms consumed 11,969,151 11,003,088 11,394,712 11,476,609
Water
Number of customer accounts 19,942 19,422 20,134 20,248
Residential water consumption (CCF)2,746,980 2,566,962 2,415,467 2,442,415
Wastewater collection
Number of customer accounts 21,970 22,210 22,231 22,320
Millions of gallons processed 8,510 7,958 8,184 8,652
Notes:
2According to the department, this measure was not accurately tracked during FY13 or FY14.
Source:
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); 2017 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
FUNCTIONS/PROGRAMS
4The method for calculating the number of fire inspections changed in FY17. The department now uses a more detailed feature
which categorizes inspections by type and location.
166
2012 2013 2014 2015 2016 2017
175 184 108 172 161 171
44,226 ‐‐47,504 65,723 82,526
65,653 60,153 46,527 42,048 42,573 ‐
11,703 11,598 11,997 12,586 12,974 11,649
204 307 310 335 383 365
3,320 3,682 3,624 3,844 3,492 2,970
5,730 6,763 7,564 8,294 9,622 9,994
51,086 54,628 58,559 59,795 53,870 53,901
2,212 2,274 2,589 3,273 2,988 2,745
41,875 43,877 36,551 41,412 37,624 33,661
3,051 2,909 2,398 2,013 2,421 2,399
3,379 2,675 2,480 2,143 2,184 2,211
7,796 7,904 7,829 8,548 8,882 9,056
186 150 150 135 150 155
1,654 2,069 1,741 1,964 2,806 5,476
60,283 51,007 46,950 51,792 57,307 54,676
306,160 277,749 361,103 429,460 461,292 427,548
1,559,932 1,512,975 1,364,872 1,499,406 1,400,926 1,524,614
40 36 36 31 39 39
3,047 2,726 3,418 2,487 3,435 3,449
72,787 82,118 74,051 120,776 115,293 17,275
143 245 148 305 387 319
51,725 47,941 49,594 50,546 56,438 60,582
29,545 29,299 29,338 29,065 29,304 29,616
160,604 156,411 153,190 145,284 150,112 148,986
23,915 23,659 23,592 23,461 23,467 23,637
11,522,999 10,834,793 10,253,776 8,537,754 9,535,377 10,233,669
20,317 20,043 20,037 20,061 19,994 20,213
2,513,595 2,521,930 2,496,549 2,052,176 1,696,383 1,856,879
22,421 22,152 22,105 21,990 22,016 22,216
8,130 7,546 7,186 6,512 6,387 7,176
Fiscal Year Ended June 30
167
2009 2010 2011 2012 2013
FUNCTION/PROGRAM
Public Safety
Fire:
Fire Stations Operated 8 8 8 7 7
Police:
Police Stations 1 1 1 1 1
Police Patrol Vehicles 30 30 30 30 30
Community Services
Acres ‐ Downtown/Urban Parks2 157 157 157 157 157
Acres ‐ Open Space2 3,744 3,744 3,744 3,744 3,744
Acres ‐ Parks and Preserves2 ‐ ‐ ‐ ‐ ‐
Acres ‐ Open Space2 ‐ ‐ ‐ ‐ ‐
Acres ‐ Municipal Golf Course2 ‐ ‐ ‐ ‐ ‐
Parks and Preserves 36 36 36 36 36
Golf Course (see above for acreage)1 1 1 1 1
Tennis Courts 51 51 51 51 51
Athletic Center 4 4 4 4 4
Community Centers 4 4 4 4 4
Theaters 3 3 3 3 3
Cultural Center/Art Center 1 1 1 1 1
Junior Museum and Zoo 1 1 1 1 1
Swimming Pools 1 1 1 1 1
Nature Center 3 3 3 3 3
Libraries
Libraries 5 5 5 5 5
Public Works:
Number of Trees Maintained3 32,007 32,007 31,993 31,890 31,923
Electric Utility1
Miles of Overhead Lines 193 193 193 223 222
Miles of Underground Lines 253 253 253 245 246
Water Utility
Miles of Water Mains 214 214 214 234 233
Gas Utility
Miles of Gas Mains 207 205 205 210 210
Waste Water
Miles of Sanitary Sewer Lines 207 207 207 217 217
Note:
Source: City of Palo Alto
3Due to an error in the beginning balance, the number of trees maintained was adjusted for all prior years in FY18.
1The City of Palo Alto Utilities Department recently completed the conversion of its electric system maps to a GIS
mapping system database. Therefore, the distances reported for FY 11/12 and forward are more accurate than the
distances reported in previous years.
2Beginning in 2016 park acreage is sourced from the Official City Data Set. The discrepancy between FY16 and FY17
is because FY16 numbers were derived off GIS parcels identified as parks or zoned in the Open Space Zoning District.
For FY17, Council approved Parks Master Plan numbers were used.
CITY OF PALO ALTO
Capital Asset Statistics by Function/Program
Last Ten Fiscal Years
Fiscal Year Ended June 30
168
2014 2015 2016 2017 2018
7 7 7 7 7
1 1 1 1 1
30 30 30 30 30
157 157 ‐ ‐ ‐
3,744 3,752 ‐ ‐ ‐
‐ ‐ 3,921 174 174
‐ ‐ 4,489 4,030 4,030
‐ ‐ ‐ 181 181
36 36 36 36 36
1 1 1 1 1
51 51 51 51 51
4 4 4 4 4
4 4 4 4 4
3 3 3 3 3
1 1 1 1 1
1 1 1 1 1
1 1 1 1 1
3 3 3 3 3
5 5 5 5 5
31,757 31,652 31,699 31,712 31,849
223 223 222 223 222
249 262 268 264 272
236 236 235 236 236
214 211 209 210 210
217 217 216 216 216
Fiscal Year Ended June 30
169
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Governmental Funds
General Fund:
Administrative 98 89 83 83 85 83 84 86 87 89
Community Services 97 94 74 74 74 74 76 77 78 79
Development Services6 ‐ ‐ ‐ ‐ ‐ ‐ 38 38 36 36
Fire 127 123 121 122 119 116 107 107 109 109
Library 44 42 41 41 41 42 44 48 48 48
Office of Emergency Services5 ‐ ‐ ‐ ‐ ‐ 3 3 3 3 3
Planning and Community Environment6 53 49 44 43 48 49 28 31 32 30
Police 164 161 157 157 154 155 155 155 155 155
Public Works1 69 64 59 56 57 56 53 54 56 55
Subtotal General Fund 652 622 579 576 578 578 588 599 604 604
All Other Funds:
Capital Projects Fund 21 24 24 24 26 27 27 28 31 34
Special Revenue Fund 1 1 2 2 2 9 10 9 10 9
Total Governmental Funds 674 647 605 602 606 614 625 636 645 647
Enterprise Funds
Public Works2 113 115 115 115 104 99 100 95 99 101
Utilities3 238 242 251 251 254 255 258 256 255 257
External Services4 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total Enterprise Funds 351 357 366 366 358 354 358 351 354 358
Internal Service Funds
Printing and Mailing 4 4 2 2 2 2 2 2 2 2
Technology 31 31 30 30 31 32 32 34 35 36
Vehicle Replacement 16 16 16 16 17 17 17 17 16 16
Total Internal Service Funds 51 51 48 48 50 51 51 53 53 54
Total 1,076 1,055 1,019 1,016 1,014 1,019 1,034 1,040 1,052 1,059
Notes: 1Fleet and Facilities Management
2Refuse, Storm Drainage, Wastewater Treatment
Numbers adjusted for rounding purposes.
Source: City of Palo Alto ‐ Fiscal Year 2017 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
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Fu
l
l
T
i
m
e
E
q
u
i
v
a
l
e
n
t
s
Governmental Funds Enterprise Funds Internal Service Funds
170
CITY OF PALO ALTO
Index to the Single Audit Report
For the Year Ended June 30, 2018
171
Page
Independent Auditor’s Report on Internal Control Over Financial Reporting
and on Compliance and Other Matters Based on an Audit of Financial
Statements Performed in Accordance With Government Auditing Standards ..................................... 173
Independent Auditor’s Report on Compliance for Each Major Federal Program and
on Internal Control Over Compliance Required by the Uniform Guidance ........................................... 175
Schedule of Expenditures of Federal Awards ........................................................................................... 177
Notes to the Schedule of Expenditures of Federal Awards ...................................................................... 179
Schedule of Findings and Questioned Costs ............................................................................................. 180
Schedule of Prior Year Findings and Questioned Costs ............................................................................ 182
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172
www.mgocpa.com
Macias Gini & O’Connell LLP 2121 N. California Boulevard, Suite 750 Walnut Creek, CA 94596
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, 2018, 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 15, 2018.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal
control over financial reporting (internal control) to determine the audit procedures that are appropriate
in the circumstances for the purpose of expressing our opinions on the financial statements, but not for
the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we
do not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control such that there is a reasonable possibility that a material
misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a
timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control
that is less severe than a material weakness, yet important enough to merit attention by those charged
with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may
exist that have not been identified. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. We did identify a certain
deficiency in internal control, described in the accompanying schedule of findings and questioned costs
as item 2018‐001 that we consider to be a significant deficiency.
173
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.
City’s Response to Finding
The City’s response to the finding identified in our audit is described in the accompanying schedule of
findings and questioned costs. The City’s response was not subjected to the auditing procedures applied
in the audit of the financial statements and, accordingly, we express no opinion on it.
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 19, 2018
174
www.mgocpa.com
Macias Gini & O’Connell LLP 2121 N. California Boulevard, Suite 750 Walnut Creek, CA 94596
Independent Auditor’s Report on Compliance for Each Major Federal Program and on Internal Control
Over Compliance Required by the Uniform Guidance
Honorable Mayor and the Members
of the City Council of the City of Palo Alto
Palo Alto, California
Report on Compliance for Each Major Federal Program
We have audited the City of Palo Alto’s, California (City) compliance with the types of compliance
requirements described in the OMB Compliance Supplement that could have a direct and material effect
on the City’s major federal program for the year ended June 30, 2018. The City’s major federal program
is identified in the summary of auditor’s results section of the accompanying schedule of findings and
questioned costs.
Management’s Responsibility
Management is responsible for compliance with federal statutes, regulations, and 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 the City’s major federal program based on
our audit of the types of compliance requirements referred to above. We conducted our audit of
compliance in accordance with auditing standards generally accepted in the United States of America;
the standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal
Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for
Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan
and perform the audit to obtain reasonable assurance about whether noncompliance with the types of
compliance requirements referred to above that could have a direct and material effect on a major
federal program occurred. An audit includes examining, on a test basis, evidence about the City’s
compliance with those requirements and performing such other procedures as we considered necessary
in the circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for the major
federal program. However, our audit does not provide a legal determination of the City’s compliance.
Opinion on Each Major Federal Program
In our opinion, the City of Palo Alto, complied, in all material respects, with the types of compliance
requirements referred to above that could have a direct and material effect on its major federal program
for the year ended June 30, 2018.
175
Report on Internal Control Over Compliance
Management of the City is responsible for establishing and maintaining effective internal control over
compliance with the types of compliance requirements referred to above. In planning and performing
our audit of compliance, we considered the City’s internal control over compliance with the types of
requirements that could have a direct and material effect on each major federal program to determine
the auditing procedures that are appropriate in the circumstances for the purpose of expressing an
opinion on compliance for each major federal program and to test and report on internal control over
compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion
on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on
the effectiveness of the City’s internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over
compliance does not allow management or employees, in the normal course of performing their
assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance
requirement of a federal program on a timely basis. A material weakness in internal control over
compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such
that there is a reasonable possibility that material noncompliance with a type of compliance
requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A
significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies,
in internal control over compliance with a type of compliance requirement of a federal program that is
less severe than a material weakness in internal control over compliance, yet important enough to merit
attention by those charged with governance.
Our consideration of internal control over compliance was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control over
compliance that might be material weaknesses or significant deficiencies. We did not identify any
deficiencies in internal control over compliance that we consider to be material weaknesses. However,
material weaknesses may exist that have not been identified.
The purpose of this report on internal control over compliance is solely to describe the scope of our
testing of internal control over compliance and the results of that testing based on the requirements of
the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.
Walnut Creek, California
November 19, 2018
176
Grantor Federal
Identifying CFDA Subrecipients
Grantor/Pass‐Through Grantor/Program Title Number Number Expenditures Expenditures
U.S Department of Housing and Urban Development
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 14.218 579,856$ 497,396$
U.S. Department of Justice
Direct
Bulletproof Vest Partnership n/a 16.607 12,391 ‐
U.S. Department of Transportation
Direct
Public Transportation Research, Technical Assistance
and Training CA‐2017‐020‐00 20.514 42,374 ‐
Airport Improvement Program 3‐06‐0182‐010‐2015
3‐06‐0182‐011‐2016,
3‐06‐0182‐012‐2016,
3‐06‐0182‐013‐2017 20.106 9,340,267 ‐
Subtotal ‐ Direct Awards 9,382,641 ‐
Pass‐through from State of California Department of Transportation
Highway Planning and Construction BRLS‐5100(017) 20.205 132,623 ‐
Total U.S. Department of Transportation 9,515,264 ‐
National Endowment for the Humanities
Pass‐through from California State Library
Museums for America MA‐10‐17‐0327‐17 45.301 10,937
MA‐11‐15‐0104‐15 45.301 8,324 ‐
Total National Endownment for the Humanities 19,261 ‐
U.S. Department of Homeland Security
Pass‐through from State of California Department of Transportation
Emergency Management Performance Grants 085‐00000‐2017‐0007 97.042 2,600 ‐
TOTAL FEDERAL FINANCIAL AWARDS 10,129,372$ 497,396$
CITY OF PALO ALTO
Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2018
See accompanying notes to the Schedule of Expenditures of Federal Awards177
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178
CITY OF PALO ALTO
Notes to the Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2018
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.
179
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2018
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? Yes
Noncompliance material to the financial statements
noted? No
Federal Awards
Internal control over major programs:
Material weakness(es) identified? No
Significant deficiency(ies) identified? None reported
Type of auditor’s report issued on compliance for
major programs: Unmodified
Any audit findings disclosed that are required to be
reported in accordance with Uniform Guidance? No
Identification of Major Programs: CFDA No. 20.106 ‐ Airport Improvement
Program
Dollar threshold used to distinguish between type A
and type B programs: $750,000
Auditee qualified as a low‐risk auditee? No
180
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2018
Section II – Financial Statements Findings
Item 2018‐001 Significant Deficiency
Internal Controls over Financial Reporting
Effective March 20, 2017, the City and the State Water Resources Control Board (SWRCB) entered into an
agreement to award the City up to $30 million from its Clean Water State Revolving Fund for the Sludge
Dewatering and Loadout Facility project. The SWRCB loan is to be repaid over 30 years at a rate of 1.8%,
with the first annual installment due on May 31, 2020. In September 2017, due to the projected lower
project costs, the agreement was amended to reduce the SWRCB loan amount to $29.7 million. Under the
terms of the agreement, $4 million of the SWRCB loan is a federal pass through grant from the U.S.
Environmental Protection Agency under its Capitalization Grants for Clean Water Tate Revolving Funds
program.
On August 4, 2018, the City received a letter from the SWRCB explaining the status of the SWRCB loan and
the federal pass through grant. The letter clarified the funding sources and summarized the project draws
through the date of the letter. Based on the information provided in the SWRCB letter, we observed the
following two issues:
1.The SWRCB letter on August 4, 2018 clarified that the project costs included in the first two draws
submitted to SWRCB were applied to the federal awards first, before applying them to State funding
sources. Therefore, an adjustment of $4,000,000 was necessary to reduce the SWRCB loan balance
and recognize grant revenue for the year ended June 30, 2018.
2.The City incurred eligible project costs of $4,964,775 during the year ended June 30, 2018 and
submitted the loan draws subsequent to year end. Accordingly, the City accrued draws made in
July and August as a receivable from the SWRCB and as an obligation for SWRCB loan payable.
The draws for the $4,964,775 were not made by June 30, 2018, therefore City does not owe that
amount to SWRCB as of year‐end and overstated its obligation for the SWRCB loan. An audit
adjustment of $4,964,775 was necessary to reduce the SWRCB loan balance at June 30, 2018 and
reduce receivables from the SWRCB to properly account for the loan.
We recommend the City document the important terms and conditions of the SWRCB loan, to ensure
proper internal controls over the financial reporting and compliance. The City’s Finance department
should also collaborate with other departments that have material or complex transactions to
strengthen internal controls over financial reporting and compliance.
Management Response
The City concurs with the finding and recommendation. City Staff will update the year‐end closing
processes and procedures to ensure that all material transactions and balances are properly reflected in
the financial statements in conformance with Generally Accepted Accounting Principles (GAAP) and the
terms and conditions of the loan.
Section III ‐ Federal Award Findings and Questioned Costs
No current year findings are reported.
181
182
183
184
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185
Americans with Disabilities Act Statement
IN COMPLIANCE WITH
AMERICANS WITH DISABILITIES ACT (ADA) OF 1990,
THIS DOCUMENT MAY BE PROVIDED
IN OTHER ACCESSIBLE FORMATS.
For information contact:
ADA Coordinator
City of Palo Alto
250 Hamilton Ave
(650) 329-2550
ADA@cityofpaloalto.org
City of Palo Alto 250 Hamilton Avenue, Palo Alto, CA 94301 P 650.329.2100 W cityofpaloalto.org
Spanish explorers named the area for the tall, twin-trunked redwood tree
they camped beneath in 1769. Palo Alto incorporated in 1894 and the State of
California granted its first charter in 1909. The City has long been known for
its innovative people and its exploration of ideas that have changed the world.
In Palo Alto, our history has always been about the future.
City of Palo Alto (ID # 9678)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/4/2018
City of Palo Alto Page 1
Summary Title: Reimbursement Resolution for Revenue Bonds for the
Regional Water Quality Control Plant
Title: Review of Near Term Capital Projects at the Regional Water Quality
Control Plant and Recommendation to Adopt a Resolution Declaring
Intention to Reimburse Expenditures Related to the Four Capital Projects
From the Proceeds of the Bonds to be Issued by the City for Wastewater
Treatment Fund
From: City Manager
Lead Department: Public Works
Recommendation
Staff recommends that the Finance Committee review the near term capital
improvement program for the Regional Water Quality Control Plant and
recommend to the City Council approval of a resolution (Attachment A) declaring
the City’s intention to reimburse expenditures made for related capital
improvement projects from the proceeds of bonds to be issued by the City’s
Regional Water Quality Control Plant (RWQCP),Wastewater Treatment Fund,for
a not-to-exceed amount of $85 million.
Background
The RWQCP, originally constructed in 1934, has undergone several expansions
and upgrades. The RWQCP is now an advanced (tertiary treatment) facility that
provides treatment and disposal of wastewater for Palo Alto, Mountain View, Los
Altos, Los Altos Hills, East Palo Alto Sanitary District, and Stanford University.
A Long Range Facilities Plan (LRFP)was prepared in 2012 to provide a plan for
future capital projects. A Biosolids Facility Plan (BFP)was completed in 2014 to
map the management of biosolids when the sewage sludge incinerators are
decommissioned.In October 17, 2016, Council approved (CMR# 7144) executing a
City of Palo Alto Page 2
loan agreement for low-interest State Revolving Fund loan of $29.7 million to
replace the sewage sludge incinerators at the RWQCP; $4 million of this loan is
expected to be forgiven by the State so the repayment plan is based on a $25.7
million loan.
The City Council, on June 18, 2018, adopted the City’s Capital Budget (CMR#
9229), which included the Wastewater Treatment Fund’s multi-year capital
expenditure plan. Included in this plan were four capital improvement projects
(the “Projects”)which are consistent with the RWQCP’s LRFP.The projects
include: 1) WQ-14002 New Laboratory and Environmental Services Building; 2)
WQ-14003 Primary Sedimentation Tank Rehabilitation; 3) WQ-19000 Outfall Line
Construction; and 4) WQ-19001 Secondary Treatment Upgrades. More detail and
descriptions of the projects are included in Attachment B.
Discussion
At this time, staff anticipates selling two series of tax-exempt Utility Revenue
Bonds around May 2019 and early 2020. Prior to that, staff will be conducting
design and other work on the projects. To pay for certain pre-construction costs
from bond proceeds, it is necessary for the City Council to approve a resolution
declaring the City’s intent to reimburse those expenditures. Prior to seeking the
Council’s approval, staff is first bringing this to the Finance Committee to obtain
its recommendation on the proposed resolution and provide a status
update/briefing on these projects.
The City engaged the services of Woodard and Curran, an engineering firm, to
assist with conceptual designs and preliminary cost estimates which are shown in
the below table. Since these cost estimates are based on conceptual designs and
due to recent escalation of construction costs, staff is seeking a higher not-to-
exceed amount of $85 million for this reimbursement resolution. The Finance
Committee recommendation and Council approval of this reimbursement
resolution is not authorizing the issuance of these bonds. Staff will return to
Council in 2019 and early 2020 with a recommendation for approval to issue
bonds.
City of Palo Alto Page 3
Project Cost Estimate Based on Conceptual Designs as of November 2018:
CIP Project Titles Design Phase
Est. Expense
Construction
Phase Est.
Expense
Total Est.
Project cost
1)WQ-14003 Primary
Sedimentation Tank
Rehabilitation
$800,000 $12,900,000 $13,700,000
2)WQ-14002 New Laboratory
and Environmental Services
Building
$1,800,000 $16,500,000 $18,300,000
3)WQ-19001 Secondary
Treatment Upgrades $2,300,000 $31,300,000 $33,600,000
4)WQ-19000 Outfall Line
Construction $0 $7,400,000 $7,400,000
Total Project Costs $4,900,000 $68,100,000 $73,000,000
Less: Available Funds ($3,400,000)
Total Est. Bond Financing $69,600,000
Timeline
Two series of tax-exempt Utility Revenue Bonds will be issued, around May 2019
and early 2020. The conceptual timeline for the first bond issuance is below.
10/16/2018 Finance Committee –Reimbursement resolution and project
status/briefing
December 2018 City Council –Reimbursement resolution adoption
March 2019 Rating Presentation & Receipt of Rating
April 2019 City Council approves resolution authorizing the issuance
and sale of the first Utility Revenue Bonds
May 2019 Receive bond proceeds from the first series bonds
Resource Impact
It is estimated that the principal amount of the bonds, not including the amount
needed to pay for debt service reserve funds, costs of issuance, and capitalized
interest, will not exceed $85 million. The annual debt service payment depends
upon prevailing interest rates at the time of the bond issuance. The annual debt
service payments will be paid by all the Partners to the Palo Alto RWQCP and will
City of Palo Alto Page 4
be specified in amendments to their Agreements with Palo Alto,which are being
developed.
The impact of the Bonds on expenses from the Wastewater Treatment Enterprise
Fund is shown in Attachment C. This 10 year forecast is for the entire fund, and is
supported by all six Partners of the RWQCP; Palo Alto being responsible for
payment of approximately one-third of the total. Attachment C also shows the
impact on the Debt Service Ratio of establishing the two Bonds. The current Palo
Alto policy is to keep the Debt Service Ratio below 15%; and the Bonds would
cause this amount to be exceeded. Should the Bonds be established, Staff will
return to Council with recommendations on handling the potential increase in the
debt service and related issues.
The impact of executing the two bonds on customer Sewer Rates in Palo Alto is
shown in Attachment D. This 10 year forecast is just for Palo Alto, as opposed to
Attachment C, which is for the entire Wastewater Treatment Enterprise Fund.The
rate increases shown are not being proposed at this time, and the Finance
Committee is not being asked to act on them. In the spring of 2019, other factors
(such as impacts on Reserves) will be considered, and adjustments to rates will be
proposed. Attachment D is designed to isolate and show the increase in rates that
would be caused by increasing expenses and the new debt service.
Environmental Review
The approval of the resolution is not a project approval under the California
Environmental Quality Act (CEQA) and thus is not subject to CEQA review.
Individual capital improvement projects, however, will be reviewed under CEQA
prior to any project approval.
Attachments:
·Attachment A: RESO Declaring Intent to Reimburse Expenditures -WW Revenue Bonds
·Attachment B: CIP Project Description
·Attachment C: WWT FY19-29 estimated expenses and debt ratio
·Attachment D: CPAU FY19-28 Wastewater rate projection - 2018Nov
1
Not Yet Approved
Resolution No. _____
Resolution of the Council of the City of Palo Alto
Declaring Intention to Reimburse Expenditures Relating to Four Capital Projects at
the Regional Water Quality Control Plant From the Proceeds of Tax-Exempt Debt
WHEREAS, the City proposes to undertake the capital projects at the Regional Water
Quality Control Plant (the “Plant”) described on Exhibit A hereto (collectively, the “Project”), to
incur tax-exempt debt to finance the Project, and use a portion of the proceeds of such debt to
reimburse expenditures made for the Project prior to the issuance of the debt;
WHEREAS, United States Income Tax Regulations section 1.150-2 provides generally
that proceeds of tax-exempt debt are not deemed to be expended when such proceeds are
used for reimbursement of expenditures made prior to the date of issuance of such debt
unless certain procedures are followed, one of which is a requirement that prior to the
payment of any such expenditure, the issuer declares an intention to reimburse such
expenditure; and
WHEREAS, it is in the public interest and for the public benefit that the City declares its
official intent to reimburse the expenditures referenced herein.
NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE, as
follows:
SECTION 1. The City intends to issue one or more series of debt payable from its
Wastewater Treatment Fund, including, but not limited to revenue bonds, loans and
installment purchase obligations (the “Bonds”) for the purpose of paying the costs of the
Project.
SECTION 2. The City hereby declares that it reasonably expects (i) to pay certain
costs of the Project prior to the date of issuance of the Bonds, and (ii) to use a portion of the
proceeds of the Bonds for reimbursement of expenditures for the Project that are paid before
the date of issuance of the Bonds.
* * * * *
Attachment A
2
SECTION 3. The principal amount of the Bonds is not expected to exceed
$85,000,000, not including the amount needed to pay for debt service reserve funds, costs of
issuance and capitalized interest.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
City Attorney City Manager
Jones Hall,
A Professional Law Corporation
Director of Public Works
By:
Christopher K. Lynch,
Jones Hall, A Professional Law Corporation
Bond Counsel
Director of Administrative Services
3
EXHIBIT A
Project Description
1. Primary Sedimentation Tank Replacement (PST)
This project is for new protective coatings on each of the four concrete primary sedimentation
tanks and replacement of worn rotating parts. The tanks which remove settled solids and
grease were installed in 1972. The coating ensures that reinforcing steel bars within the
concrete are protected from penetrating corrosive sewer gases and extends the concrete’s life
another 30 years. Without recoating, the concrete will lose its structural integrity, gradually
spalling and harming pumps, pipes, and treatment systems as a result. In a mild seismic event,
weakened concrete could potentially collapse, endangering staff and the treatment system.
2. Laboratory & Environmental Services Building (Lab)
This project is for a new building that will consolidate staff and provide a larger updated lab.
Currently staff is located in four separate aging buildings that also house industrial pumps. An
existing laboratory does not have adequate space for staff, instruments, chemical storage, and
microbiology testing.
3. Secondary Treatment Upgrades (STU)
The existing Secondary Treatment process has two main components: the Fixed Film Reactors
(FFR) and the Activated Sludge (AS) Process. This project includes the reconstruction of the AS
process, rehabilitation of the AS Aeration Basins and the elimination of the FFRs. The AS
Aeration Basins will be subdivided with concrete walls creating different zones where different
pollutants can be treated. A special study was completed in 2017, which proposed a complete
Secondary Treatment process upgrade instead of individual rehabilitation projects (e.g. FFR).
The project will not only reduce organics and ammonia like the existing processes, but will also
reduce total nitrogen, the next pollutant being regulated.
4. Outfall Line (OFL)
This project is to construct a new parallel outfall pipe to convey final plant effluent to San
Francisco Bay. Installation of a new outfall line is needed to address outfall age (built in 1964),
but especially to address the outfall capacity considering all peak wet-weather flow, peak tide,
and future sea level rise scenarios. The existing system lines are inadequate to pass the Plant's
peak wet weather hydraulic flow capacity of 80 million gallons per day under all circumstances
of peak tides, peak wet-weather flows, and future sea level rise scenarios.
Attachment B
Capital Improvement Program Project Description
1.Primary Sedimentation Tank Replacement (PST)
This project is for new protective coatings on each of the four concrete primary sedimentation tanks and
replacement of worn rotating parts. The tanks remove settled solids and grease were installed in 1972.
The coating ensures reinforcing steel bars within the concrete are protected from penetrating corrosive
sewer gases and extends the concrete’s life another 30 years. Without recoating, the concrete will lose its
structural integrity, gradually spalling and harming pumps, pipes, and treatment systems as a result. In a
mild seismic event, weakened concrete could potentially collapse, endangering staff and the treatment
system.
2.Laboratory & Environmental Services Building (Lab)
This project is for a new building that will consolidate staff and provide a larger updated lab. Currently
staff is located in four separate aging buildings that also house industrial pumps. An existing laboratory
does not have adequate space for staff, instruments, chemical storage, and microbiology testing.
3.Secondary Treatment Upgrades (STU)
The existing Secondary Treatment process has two main components; the Fixed Film Reactors (FFR)
and the Activated Sludge (AS) Process. This project includes the reconstruction of the AS process,
rehabilitation of the AS Aeration Basins and the elimination of the FFRs. The AS Aeration Basins will be
subdivided with concrete walls creating different zones where different pollutants can be treated. A
special study was completed in 2017, which proposed a complete Secondary Treatment process upgrade
instead of individual rehabilitation projects (e.g. FFR). The project will not only reduce organics and
ammonia like the existing processes, but will also reduce total nitrogen, the next pollutant being
regulated.
4.Outfall Line (OFL)
This project is to construct a new parallel outfall pipe to convey final plant effluent to San Francisco Bay.
Installation of a new outfall line is needed to address outfall age (built in 1964), but especially to address
the outfall capacity considering all peak wet-weather flow, peak tide, and future sea level rise scenarios.
The existing system lines are inadequate to pass the Plant's peak wet weather hydraulic flow capacity of
80 million gallons per day under all circumstances of peak tides, peak wet-weather flows, and future sea
level rise scenarios.
Estimated Expenses FY2019-FY2029
2019 Bond $18.1M + 2020 Bond $51.5M + 2025 SRF $39M
Attachment C
Palo Alto’s Wastewater Rate Projection
Attachment D
City of Palo Alto (ID # 9849)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/4/2018
City of Palo Alto Page 1
Summary Title: Council Chambers A/V Phased Design Option
Title: Discussion and Recommendation to the City Council to Approve the
Chambers Audio Visual Phased Design Upgrade Approach
From: City Manager
Lead Department: IT Department
Recommended Motion
Staff recommends that Finance Committee:
1. Recommend to Council that the Council Chambers Audio Visual project be
approved to proceed using a multi-year phased approach, with anticipated
funding needs as follows:
a. Funding for Phase 1 and 2 in FY2020 of $1,000,000
b. Funding for Phase 3 in FY2021 of $750,000
2. Recommend to Council that the Council direct staff to proceed with the
development of the bridging documents with consultant The Shalleck
Collaborative, Inc. (Shalleck) for the Phase 1 and 2 design/build solicitation.
Executive Summary
On March 26, 2018, staff recommended to Council the Shalleck Design Option 2 with an
estimated cost of $2,040,000 (CMR 8997).
Council approved a motion to:
1. Refer this item to the Finance Committee with direction to evaluate options
between Design Option 1 and Design Option 2; and
2. Direct Staff to continue to value engineer the Project, continue to identify options
to reduce the overall cost, and identify items that can be completed
incrementally.
In response to this direction, staff reevaluated the scope of the project and removed
$290,000 of elements that were determined to be non-essential. Staff prioritized the
remaining features from the original Design Option 2, then separated them into three
potential phases considering priority and the efficiency of completing related scope
components together.
City of Palo Alto Page 2
Shalleck produced a cost estimation report and executive summary for a phased project
approach. Staff's recommendation is to combine Phases 1 and 2 for Year One, to be
followed by Phase 3 in the following year. This recommendation is consistent with
Council's motion.
If Finance Committee and Council approve staff’s recommendations, Shalleck will
develop bridging documents that will further define the scope and additional
information necessary to complete the design for the project and a design/build
Request for Proposal (RFP) for Phases 1 and 2 of the Council Chambers upgrade will be
issued.
Background
Consultant
Shalleck was hired to assist the City to design and implement upgrades to the Council
Chambers’ audio visual, broadcasting, and voting systems as well as integrate
peripheral sites that also have broadcast capability (e.g. Rinconada Library). After
receiving three responses to the Request for Proposals, staff determined Shalleck was
the most qualified firm, and the city entered into a professional services agreement with
them. Council approved staff’s recommendation to do so on 8/21/2017 – CMR ID
#8254.
Design
Shalleck produced three preliminary design options which staff reviewed to determine
the best fit for the City's needs and costs - CMR ID #8997. Staff recommended Design
Option 2.
Council directed staff to reduce the project’s cost and to explore an incremental
(phased) approach.
Phased Design Approach
Shalleck produced a prioritized 4-phase project approach to include the most essential
design items in Phase 1, then Phases 2 and 3 respectively. Items included in Phase 4
were determined to be optional and non-essential items.
Staff recommends combining Phases 1 and 2 the first year, followed by Phase 3 in the
second year.
Phase 1: $250,000
• Replace dais (Councilmember) screens/monitors, request to speak, and voting
system for functionality and reliability, as the system is no longer repairable
• Enable audience use of wireless assistive listening devices
• Install a height-adjustable lectern (public speaker) replacement for ADA
compliance and with speaker timer display
City of Palo Alto Page 3
Phase 2: $750,000
• Upgrade the broadcast system, with modern digital cameras, switcher,
captioning and supporting infrastructure
• Enable closed captioning capabilities
• Install new electrical system to accommodate upgraded audio visual (AV) devices
• Rebuild new control booth with HVAC
Phase 3: $750,000
• Upgrade the base audio system with speakers, wireless microphones, and
supporting infrastructure
• Install a dual screen & projector system, to display required 3 simultaneous
sources
• Install broadcast lighting system to optimize viewing and recording environment
• Install AV Control System for upgraded equipment
• Install skylight glare reduction film and motorized shades
• Demolition and infill of existing rear projection glass wall
Phase 4: $350,000 (Not recommended at this time).
• KZSU Radio desk system
• Audio Video links via network to (3) libraries & Media Center
• Glare reduction film at windows
• Motorized blackout shades
Discussion
Current Condition of Council Chambers Equipment and Facility
The current audio/visual (AV) and broadcast equipment in the Council Chambers have
exceeded their serviceable life and have been out of warranty since 2013. The outdated
analog hardware has no backup or redundant capabilities, and could lead to electrical
outages. A system failure would cease video streaming to the public, halt recording of
meeting content, and disrupt the general function of the Council meetings, Council
Standing Committee meetings, board and commission meetings, and meetings held by
outside agencies that use the equipment to record their meetings.
Outside agencies that routinely use the chambers and the audio/video equipment for
their meetings include; Congresswoman Eshoo (several times per year), SC County
Supervisor Simitian, Santa Clara County Planning Department, San Francisquito Creek
Joint Powers Board, North County Joint Recycled Water Board, Canopy, Palo Alto
Neighborhoods (PAN), Rotary Regional Speech Contest, administrative hearings such as
Edgewood Plaza citation hearings.
City of Palo Alto Page 4
Figure 1 – The existing equipment’s cables and wiring are cumbersome and difficult to
work with.
City Clerk staff reported to IT Service Desk on 11/14/18 that one of the projectors is
unable to maintain its resolution and display size. This remains an open request due to
the outdated nature of the equipment.
Council meeting recordings made in Council Chambers are low-quality, standard-
definition media that provide poor viewing quality for the public audience. In contrast,
HD recordings of meetings held at remote sites, using modern equipment, are far
superior in quality.
Figure 2 – Example of current recording capability of existing Council Chambers system,
resulting in low-quality standard-definition recordings with poor viewing quality.
City of Palo Alto Page 5
Figure 3 – Example of HD-quality recording of a meeting held at City’s Mitchell Park
venue, recorded using modern equipment.
On several occasions, City Clerk, IT staff, and/or contract support staff have had to
troubleshoot faulty audio/video equipment during Council meetings.
Figure 4 – Legacy wiring underneath the dais is a fire hazard to meeting members.
The large overhead Council Chambers display is low-quality standard definition, limited
to two simultaneous sources, mismatched in size, and the overall display quality is
greatly affected by variable lighting conditions due to time of day and season.
Information on the screens can be difficult to read unless a large font is used, which
limits how much information can be displayed at one time. Additionally, due to the
City of Palo Alto Page 6
current screen’s position and seating arrangement, audience seated to the right facing
towards the dais have a father viewing distance.
Figure 5 – Example no.1 of display with overhead glare from daylight.
Figure 6 – Example no. 2 of display with overhead glare due to daylight.
City of Palo Alto Page 7
The room where the projector equipment is located poses operational challenges due to
the slope of the floor.
Figure 7 – Rear-Projector Room
Figure 8 – Example of mismatched size displays, and the limitation to only two sources.
At the dais, the voting system is obsolete. There are no replacement parts for the
electrical components and electrical service providers are unable to service the system.
Similarly, the public speaking timer is outdated and in need of modernization.
City of Palo Alto Page 8
ADA Compliance
Technology and facilities Americans with Disabilities Act (ADA) compliance were
considered in the planning for this project. Based on Shalleck's report and
recommendation, the Building Official and Public Works Engineering determined a
number of accessibility improvements will be included in the project, while additional
improvements will be included in a planned future project coinciding with the Police
Department’s move to the planned Public Safety Building. These ADA implementation
items are included as essential items across all three design options.
Timeline
Milestones Completed
Date Description Notes
8/23/17 Project Kickoff
10/11/17 Completed all site visits including Mid-Peninsula Media Center
11/1/17 Three Design Options Delivered to Staff
2/21/18 Staff selection of Design Option 2 as recommendation to
Council
3/26/18 City Council Action - Resolution
Tentative Milestones
Date Description Notes
December 4, 2018 Recommendation to Finance
Committee
February 2019 Council Consideration of
Finance Committee
Recommendation
March - April 2019 Shalleck Design Process Phase 1 and 2
May - June 2019 RFP Procurement Process
August 2019 Council Approval of
Design/Build Contract
City of Palo Alto Page 9
September - December
2019
Contractor Design Process
February - July 2020 Phases 1 and 2 Construction
Period
TBD Phase 3
Resource Impact
Funding for the Council Chambers project is available in the Technology Fund and in the
Americans With Disabilities Act (ADA) Compliance capital project (PF-93003). The FY
2019-2023 Five Year Capital Improvement Plan has on average $147,000 allocated
annually to this project except for FY 2019 which has $608,000 appropriated. Finance
Committee and Council’s direction would be incorporated in the development of the
FY2020 Capital Budget and 5-year Plan. Preliminary project estimates are below; staff
recommends Phase 1 and 2 be completed in FY 2020.
Funding Source Phase 1 Phase 2 Phase 3 Est. Project
Total*
Technology Fund $200,000 $700,000 $650,000 $1,550,000
ADA Compliance Project** $50,000 $50,000 $100,000 $200,000
$250,000 $750,000 $750,000 $1,750,000
* Includes an assumption of 5% soft costs for items such as permit and inspection fees.
** Timing between Phases 1 & 2 contributions are estimates; in total Phases 1 and 2 are anticipated to
reach $100,000.
Policy Implications
This recommendation does not represent any change to existing City policies.
Environmental Review
This project is categorically exempt from California Environmental Quality Act (CEQA)
under Sections 15301 and 15302 of the CEQA guidelines as an alteration to an existing
facility and no further environmental review is necessary.