HomeMy WebLinkAbout2021-11-30 Finance Committee Agenda Packet1
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FINANCE COMMITTEE
Tuesday, November 30, 2021
Special Meeting
Virtual Meeting
6:00 PM
***BY VIRTUAL TELECONFERENCE ONLY***
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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 Accept the Macias
Gini & O’Connell’s (MGO) Audit of the City of Palo Alto’s Financial
Statements as of June 30, 2021
2.Recommendation to the City Council to Approve the Fiscal Year (FY)
2021 Annual Comprehensive Financial Report (ACFR) and FY 2021
Budget Amendments in Various Funds
3.FY 2022 Finance Committee Referrals Update
Presentation
Presentation
2
Finance Committee Special Meeting November 30, 2021
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City of Palo Alto (ID # 13784)
Finance Committee Staff Report
Meeting Date: 11/30/2021
City of Palo Alto Page 1
Title: Discussion and Recommendation to the City Council Accept the Macias
Gini & O’Connell’s (MGO) Audit of the City of Palo Alto’s Financial Statements
as of June 30, 2021
From: City Manager
Lead Department: City Auditor
Recommendation
The City Auditor recommends that the Finance Committee review and forward to the
City Council for approval the City of Palo Alto’s audited financial statements for the fiscal
year ended June 30, 2021 and the accompanying reports provided by Macias Gini &
O’Connell LLP.
Discussion
The City Charter requires that the City Council, through the City Auditor, engage an
independent public accounting firm to conduct the annual financial audit. The selected
firm reports the results of the audit, in writing, to the City Council. Macias Gini &
O’Connell LLP, a certified public accounting firm, conducted the audits of the City’s
financial statements for the fiscal year ended June 30, 2021.
The City Auditor is providing copies of the following financial statements and reports as
prepared by MGO:
• Auditor’s Report to the City Council (the “Management Letter”) – Attachment A
• Cable TV Franchise, Independent Auditor’s Report and Statements of Franchise
Revenues and Expenses for the Years Ended December 31, 2020 and 2019 –
Attachment B
• Palo Alto Public Improvement Corporation Annual Financial Report for the Year
Ended June 30, 2021 – Attachment C
• Regional Water Quality Control Plant Independent Auditor’s Report and Financial
Statements for the Year Ended June 30, 2021 – Attachment D
• Independent Accountant’s Report on Applying Agreed-Upon Procedures Related
to the Article XIII-B Appropriations Limit for the Year Ended June 30, 2021 –
Attachment E
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City of Palo Alto Page 2
Note that the final audit report, the Single Audit, will be completed and presented at a
subsequent meeting.
The Annual Comprehensive Financial Report (ACFR), a separate item on this agenda,
includes the following Independent Auditor’s report:
• Independent Auditor’s Reports on the Financial Statements (pgs. 1-3)
Macias Gini & O’Connell LLP issued a clean opinion on each audit report and reported
no findings within the Agreed-Upon Procedures report.
The City Auditor would like to express appreciation to Macias Gini & O’Connell LLC, Ms.
Kiely Nose, and her staff in the Administrative Services Department for their hard work
and cooperation during the audit.
Attachments:
• Attachment A: Auditor's Report to the City Council
• Attachment B: Cable TV Franchise Auditor's Report
• Attachment C: Public Improvement Corporation Annual Financial Report
• Attachment D: Regional Water Quality Control Plant Auditor's Report
• Attachment E: GANN Limit Agreed Upon Procedures Report
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council
For the Year Ended June 30, 2021
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council
For the Year Ended June 30, 2021
Table of Contents
Page
Transmittal Letter ........................................................................................................................................... i
Required Communications ............................................................................................................................ 1
Summary of Uncorrected Financial Statements Misstatements .................................................................... 6
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www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
i
Honorable Mayor and the Members of
the City Council of the City of Palo Alto
Palo Alto, California
We have audited the financial statements of the governmental activities, the business-type activities, each
major fund, and the aggregate remaining fund information of City of Palo Alto, California (City), as of
and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively
comprise the City’s basic financial statements. Professional standards require that we communicate to you
the information related to our audit discussed on pages 1 through 5.
In planning and performing our audit of the basic financial statements of the City as of and for the year
ended June 30, 2021, 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, we considered the City’s internal control over
financial reporting (internal control) as a basis for designing 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
reasonable possibility exists when the likelihood of an event occurring is either reasonably possible or
probable as defined as follows:
Reasonably possible. The chance of the future event or events occurring is more than remote but less
than likely.
Probable. The future event or events are likely to occur.
Our consideration of internal control was for the limited purpose described in the second paragraph and
was not designed to identify all deficiencies in internal control that might be material weaknesses. Given
these limitations, during our audit we did not identify any deficiencies in internal control that we consider
to be material weaknesses. However, material weaknesses may exist that have not been identified.
The purpose of this communication, which is an integral part of our audit, is to describe, for management
and those charged with governance, the scope of our testing of internal control and the results of that
testing. Accordingly, this communication is not intended to be and should not be used for any other
purpose. This report is a matter of public record and this does not limit the distribution of this report.
Walnut Creek, California
November 15, 2021
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ii
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council
For the Year Ended June 30, 2021
1
REQUIRED COMMUNICATIONS
We have audited the basic financial statements of the City as of and for the year ended June 30, 2021, and
have issued our report thereon dated November 15, 2021. Professional standards require that we advise
you of the following matters relating to our audit.
Our Responsibility in Relation to the Financial Statement Audit
As communicated in our engagement letter dated April 26, 2021, our responsibility, as described by
professional standards, is to form and express opinions about whether the financial statements that have
been prepared by management with your oversight are presented fairly, in all material respects, in
accordance with accounting principles generally accepted in the United States of America. Our audit of
the financial statements does not relieve you or management of your respective responsibilities.
Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain
reasonable, rather than absolute, assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes consideration of internal control over financial
reporting as a basis for designing 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 over financial
reporting. Accordingly, as part of our audit, we considered the internal control of the City solely for the
purpose of determining our audit procedures and not to provide any assurance concerning such internal
control.
We are also responsible for communicating significant matters related to the audit that are, in our
professional judgment, relevant to your responsibilities in overseeing the financial reporting process.
However, we are not required to design procedures for the purpose of identifying other matters to
communicate to you.
Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and timing we previously communicated to
you.
Compliance with All Ethics Requirements Regarding Independence
The engagement team, others in our firm, as appropriate, our firm, and our network firms have complied
with all relevant ethical requirements regarding independence.
Qualitative Aspects of the City’s Accounting Practices
Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of the
significant accounting policies adopted by the City is included in Note 1 to the basic financial statements.
As described in Note 1(n) to the City’s basic financial statements, the City implemented Governmental
Accounting Standards Board (GASB) Statement No. 84, Fiduciary Activities. The City evaluated all
funds and activities in accordance with the statement and determine that the Cable Joint Powers Authority
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council (Continued)
For the Year Ended June 30, 2021
2
and assessment district activities previously reported as agency funds should be reported as custodial
funds. The City also implemented GASB Statement No. 90, Majority Equity Interests, an amendment of
GASB Statements No. 14 and No. 61, and Statement No. 98, The Annual Comprehensive Financial Report
and the implementation of these statements did not have a significant impact on the City’s financial
statements for the fiscal year ended June 30, 2021.
No matters have come to our attention that would require us, under professional standards, to inform you
about (1) the methods used to account for significant unusual transactions and (2) the effect of significant
accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance
or consensus.
Significant Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management’s current judgments. Those judgments are normally based on knowledge and
experience about past and current events and assumptions about future events. Certain accounting
estimates are particularly sensitive because of their significance to the financial statements and because of
the possibility that future events affecting them may differ markedly from management’s current
judgments.
The most sensitive accounting estimates affecting the City’s basic financial statements were:
Fair value of investments. The City’s investments are generally carried at fair value, which 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. The City’s investments
are primarily classified as level 2 of the fair value hierarchy established by GASB Statement
No. 72 and are valued using prices determined by the use of matrix pricing techniques maintained
by the pricing vendors for these securities. The City’s investment in the money market mutual
funds, California Local Agency Investment Fund and California Asset Management Program are
not subject to the fair value hierarchy.
Estimated allowance for losses on notes and loans receivable. The allowance for losses on notes
and loans receivable is based on the types of loans (e.g. forgivable, deferred, grant, or amortizing)
and management’s estimate regarding the likelihood of collectability based on loan provisions
and collateral.
Depreciation estimates for capital assets, including depreciation methods and useful lives
assigned to depreciable assets. The estimated useful lives of capital assets were determined
based on the nature of the capital assets and management’s estimate of the economic life of the
assets.
Landfill post-closure liability. The City has estimated, based on a study conducted by consultants,
the post-closure costs of the Palo Alto landfill based on what it would cost to perform all
currently mandated post-closure care. Actual post-closure care costs may be higher due to
inflation variances, changes in technology, or changes in State or federal regulations.
Net pension and Other Postemployment Benefits (OPEB) liabilities, contributions, expenses, and
other related balances. These balances for pension and OPEB are based on actuarial valuations,
which incorporate actuarial methods and assumptions adopted by the City, performed by the
California Public Employees’ Retirement System’s and the City’s independent actuaries,
respectively.
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council (Continued)
For the Year Ended June 30, 2021
3
Claims loss reserve. The City is exposed to a variety of risks of loss due to general liability,
workers’ compensation and other claims and records an estimate of these losses based on
actuarial studies performed by third party actuaries. These studies are prepared based on the
City’s prior claims history, which is used as a basis for extrapolating losses for known and
incurred but not reported claims. Actual loss experience may vary from these estimates.
We evaluated the key factors and assumptions used to develop the accounting estimates described above
and determined that it is reasonable in relation to the basic financial statements taken as a whole and in
relation to the applicable opinion units.
Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive because
of their significance to financial statement users. The most sensitive disclosures affecting the financial
statements were the disclosure of Pension Plans in Note 11, Other Post-Employment Benefits (OPEB) in
Note 12, and Commitments and Contingencies in Note 16.
Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the performance of the
audit.
Corrected and Uncorrected Misstatements
For purposes of this communication, professional standards require us to accumulate all known and likely
misstatements identified during the audit, other than those that we believe are trivial, and communicate
them to the appropriate level of management. Further, professional standards require us to also
communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of
transactions, account balances or disclosures, and the financial statements as a whole and each applicable
opinion unit. The accompanying Summary of Uncorrected Financial Statements Misstatements
summarizes uncorrected financial statement misstatements whose effects in the current and prior periods,
as determined by management, are immaterial, both individually and in the aggregate, to the financial
statements taken as a whole and each applicable opinion unit.
In addition, professional standards require us to communicate to you all material, corrected misstatements
that were brought to the attention of management as a result of our audit procedures. None of the
misstatements identified by us as a result of our audit procedures and corrected by management were
material, either individually or in the aggregate, to the financial statements taken as a whole or applicable
opinion units.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a matter,
whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing
matter, which could be significant to the City’s financial statements or the auditor’s report. No such
disagreements arose during the course of the audit.
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council (Continued)
For the Year Ended June 30, 2021
4
Representations Requested from Management
We have requested certain written representations from management, which are included in the letter
dated November 15, 2021.
Management’s Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting
matters. Management informed us that, and to our knowledge, there were no consultations with other
accountants regarding auditing and accounting matters.
Other Significant Matters, Findings, or Issues
In the normal course of our professional association with the City, we generally discuss a variety of
matters, including the application of accounting principles and auditing standards, operating and
regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of
material misstatement. None of the matters discussed resulted in a condition to our retention as the City’s
auditors.
Other Information in Documents Containing Audited Financial Statements
Pursuant to professional standards, our responsibility as auditors for other information in documents
containing the City’s audited financial statements does not extend beyond the financial information
identified in the audit report, and we are not required to perform any procedures to corroborate such other
information. However, in accordance with such standards:
Required Supplementary Information
We applied certain limited procedures to the management’s discussion and analysis, the schedules of
changes in net pension liability and related ratios, the schedules of pension contributions, the schedule of
changes in net OPEB liability and related ratios, and the schedule of employer OPEB contributions,
which are required supplementary information (RSI) that supplements the basic financial statements. Our
procedures consisted of inquiries of management regarding 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 did not audit the RSI and do not express an opinion or provide any assurance on the RSI.
Supplementary Information and Other Sections
We were engaged to report on the combining and individual nonmajor fund financial statements and
schedules, which accompany the financial statements but are not RSI. With respect to this supplementary
information, we made certain inquiries of management and evaluated the form, content, and methods of
preparing the information to determine that the information complies with accounting principles generally
accepted in the United States of America, the method of preparing it has not changed from the prior
period, and the information is appropriate and complete in relation to our audit of the financial statements.
We compared and reconciled the supplementary information to the underlying accounting records used to
prepare the financial statements or to the financial statements themselves.
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council (Continued)
For the Year Ended June 30, 2021
5
We were not engaged to report on the introductory and statistical sections, which accompany the financial
statements but are not RSI or supplementary information. Such information has 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 it.
Our responsibility also includes communicating to you any information which we believe is a material
misstatement of fact. Nothing came to our attention that caused us to believe that such information, or its
manner of presentation, is materially inconsistent with the information, or manner of its presentation,
appearing in the financial statements.
Modification of the Auditor’s Report
Our report includes an emphasis of matter paragraph to reference to Note 1 to the basic financial
statements for the City’s implementation of GASB Statement No. 84, Fiduciary Activities. Our opinion
is not modified with respect to this matter.
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CITY OF PALO ALTO, CALIFORNIA
Report to the City Council (Continued)
For the Year Ended June 30, 2021
6
SUMMARY OF UNCORRECTED FINANCIAL STATEMENTS MISSTATEMENTS
Debit Credit
Current Year Adjustment #1
Beginning Net Position 11,933,391$
Expenses - Public Works 11,933,391$
(Government-wide Governmental Activities - To adjust expenses for capital assets improperly capitalized in prior
years and written off during the year ended June 30, 2021. The net position and capital assets balances were
corrected as of June 30, 2021.)
1.a
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CABLE TV FRANCHISE
Independent Auditor’s Report and
Statements of Franchise Revenues and Expenses
For the Years Ended December 31, 2020 and 2019
1.b
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CABLE TV FRANCHISE
Independent Auditor’s Report and Statements of Franchise Revenues and Expenses
For the Years Ended December 31, 2020 and 2019
Table of Contents
Page
Independent Auditor’s Report ....................................................................................................................... 1
Financial Statements:
Statements of Franchise Revenues and Expenses ................................................................................... 3
Notes to the Financial Statements ........................................................................................................... 4
1.b
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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 Members
of the City Council of the City of Palo Alto
Palo Alto, California
We have audited the accompanying Statements of Franchise Revenues and Expenses of the Cable TV
Franchise (Franchise) for the years ended December 31, 2020 and 2019, and the related notes to the
financial statements, which collectively comprise the Franchise’s 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 the financial reporting provisions of the Amended and Restated Joint Exercise of Powers
Agreement signed on June 9, 2009, between the City of Palo Alto, the City of East Palo Alto, the City of
Menlo Park, the County of San Mateo, the County of Santa Clara, and the Town of Atherton as described
in Note 1 to the financial statements. Management is also responsible for 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 an opinion 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. 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 opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the
revenues and expenses of the Franchise for the years ended December 31, 2020 and 2019, in accordance
with the financial reporting provisions of the Amended and Restated Joint Exercise of Powers Agreement
signed on June 9, 2009, between the City of Palo Alto, the City of East Palo Alto, the City of Menlo Park,
the County of San Mateo, the County of Santa Clara, and the Town of Atherton as described in Note 1 to
the financial statements.
1.b
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Basis of Accounting
As discussed in Note 1 to the financial statements, the financial statements are prepared in accordance
with the financial reporting provisions of the Amended and Restated Joint Exercise of Powers Agreement
signed on June 9, 2009, between the City of Palo Alto, the City of East Palo Alto, the City of Menlo Park,
the County of San Mateo, the County of Santa Clara, and the Town of Atherton, which is a basis of
accounting other than accounting principles generally accepted in the United States of America. Our
opinion is not modified with respect to this matter.
Restriction on Use
This report is intended solely for the information and use of the governing bodies and management of the
City of Palo Alto, the City of East Palo Alto, the City of Menlo Park, the County of San Mateo, the
County of Santa Clara, and the Town of Atherton, and is not intended to be and should not be used by
anyone other than these specified parties.
Walnut Creek, California
November 15, 2021
1.b
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2020 2019
Revenues:
Franchise fees $ 1,614,163 $ 1,679,591
Expenses:
Franchise administration 37,480 69,790
Consulting fees 5,287 12,650
Total expenses 42,767 82,440
Net revenues $ 1,571,396 $ 1,597,151
Amount Percent Amount Percent
Allocated Net Revenues:
City of Palo Alto $ 743,953 47.3% $ 762,686 47.8%
City of Menlo Park 420,485 26.7%428,867 26.9%
City of East Palo Alto 162,894 10.4%165,082 10.3%
Town of Atherton 133,139 8.5%131,766 8.3%
County of Santa Clara 85,698 5.5%86,425 5.4%
County of San Mateo 25,227 1.6%22,325 1.4%
Total allocated net revenues $ 1,571,396 100.0% $ 1,597,151 100.0%
CABLE TV FRANCHISE
Statements of Franchise Revenues and Expenses
For the Years Ended December 31, 2020 and 2019
2020 2019
See accompanying notes to the financial statements.
3
1.b
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CABLE TV FRANCHISE
Notes to the Financial Statements
For the Years Ended December 31, 2020 and 2019
4
NOTE 1 – JOINT OPERATING AGREEMENT AND BASIS OF ACCOUNTING
In July 1983, a Joint Exercise of Powers Agreement was entered into by and between the Cities of Palo
Alto, Menlo Park, East Palo Alto, the Counties of San Mateo and Santa Clara, and the Town of Atherton
(Members) for the purpose of obtaining a state-of-the-art cable service for residents, businesses, and
institutions, within each of their jurisdictions in the most efficient and economical manner possible.
In October 1988, the Members entered into a Joint Operating Agreement in which the City was granted
the power and the authority to administer and coordinate the activities of the franchise and exercise the
rights and responsibilities of the City pursuant to the Franchise Agreement. The activities are
administered by the City and are accounted for within the City’s Agency Fund. The program is accounted
for using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recorded
when earned and expenses are recognized when the liability is incurred.
On August 9, 2000, the City of Palo Alto (City), acting on behalf of the Members, signed a Franchise
Agreement with TCI Cablevision of California, Inc., a wholly owned subsidiary of AT&T Broadband
(AT&T), a third-party contractor, which was granted a non-exclusive franchise to construct, operate,
maintain and repair a cable television system within the Members jurisdictions. In 2002, the Franchise
Agreement was transferred from AT&T to Comcast Corporation (Comcast).
TCI Cablevision of California, Inc. also signed an asset purchase agreement with Cable Communications
Cooperative of Palo Alto, Inc. (CCCOPA), the former cable television system operator/owner, and
acquired the system.
On January 1, 2007, the Digital Infrastructure and Video Competition Act (DIVCA) went into effect.
Under DIVCA, cable and video service franchises are now granted exclusively by the California Public
Utilities Commission (Commission) rather than by local franchising entities. On March 30, 2007, the
Commission granted AT&T a statewide franchise. Comcast was allowed to seek a State franchise after
January 1, 2008, when another State franchise holder (in this case AT&T) entered the local market. On
January 2, 2008, the Commission granted Comcast a State franchise.
On June 9, 2009, the Members approved an Amended and Restated Joint Exercise of Powers Agreement,
in substitution of the existing Joint Exercise of Powers Agreement and the Joint Operating Agreement, to
reflect changes in the law due to DIVCA and to continue to allow the City to administer the cable and
video franchise enforcement and monitoring process for State franchise holders.
The accompanying financial statements are prepared in accordance with the financial reporting provisions
of the Amended and Restated Joint Exercise of Powers Agreement between the Members, which is a
basis of accounting other than accounting principles generally accepted in the United States of America,
and are not intended to be a complete presentation of the Franchise’s financial position or results of
operations.
As compensation for services under the State franchise agreements, AT&T and Comcast pay annual
franchise fees in an amount equal to 5% of annual gross revenues, considering a reasonable adjustment
for bad debts. From these fees the City is first reimbursed for out-of-pocket franchise administration
costs. The remaining fees are distributed to each Member according to the percentage of revenues derived
from the residents and businesses in each of the entities compared to revenues in total.
1.b
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CABLE TV FRANCHISE
Notes to the Financial Statements (Continued)
For the Years Ended December 31, 2020 and 2019
5
NOTE 2 – PRIOR FRANCHISE SETTLEMENTS
A prior Franchise Agreement with CCCOPA was set to expire on March 24, 2001. On June 21, 1999, the
City hired a cable communications consultant and retained the services of a law firm to assist in the
franchise renewal process. On July 31, 2000, CCCOPA reimbursed the City $185,000 toward the actual
costs incurred as part of the franchise renewal efforts.
On July 24, 2000, the City reached a settlement with CCCOPA in the amount of $220,000 to resolve
outstanding claims resulting from CCCOPA’s alleged failure to fully perform under the prior Franchise
Agreement.
On November 22, 2004, the City reached a settlement agreement with Comcast regarding cable plant
construction claims in the amount of $175,000. This money was to be used towards the institutional
network connection costs.
In 2006, the City conducted a franchise compliance audit performed by the City Auditor’s Office. A
settlement was reached in the amount of $155,391. In addition, CCCOPA paid the City a $250,000 grant
to acquire, install, and/or maintain equipment to be used in connection with an institutional network
defined in the Franchise Agreement.
In 2016, the City Auditor discovered that AT&T and Comcast did not consistently calculate the fees due
in accordance with DIVCA and the municipal code of each of the cable joint powers members. As a result
of the audit, the City received a settlement from AT&T in the amount of $75,647 in 2016. Additionally,
the City received a settlement from Comcast in the amount of $25,000 in 2019.
The settlements and grant have been deposited and are being held by the City and earning interest. The
City has since spent a part of the balance on various projects including installing and maintaining the
institutional network equipment. As of December 31, 2020 and 2019, the remaining balances on deposit
with the City, including balances from other funding sources, were $1,067,151 and $760,344,
respectively. These balances include interest receivable of $4,211 and $4,316 at December 31, 2020 and
2019, respectively.
1.b
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PALO ALTO PUBLIC IMPROVEMENT
CORPORATION
(A Component Unit of the
City of Palo Alto, California)
Annual Financial Report
For the Year Ended June 30, 2021
1.c
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Annual Financial Report
For the Year Ended June 30, 2021
Table of Contents
Page
Independent Auditor’s Report ................................................................................................................... 1
Management’s Discussion and Analysis (Unaudited) .............................................................................. 3
Basic Financial Statements
Government-wide Financial Statements:
Statement of Net Position ................................................................................................................... 5
Statement of Activities ....................................................................................................................... 6
Debt Service Fund Financial Statements:
Balance Sheet ..................................................................................................................................... 7
Statement of Revenues, Expenditures and Changes in Fund Balance ................................................ 8
Notes to the Basic Financial Statements .................................................................................................. 9
1.c
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www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1
Independent Auditor’s Report
The Honorable Mayor and
Members of the City Council of the
City of Palo Alto, California
We have audited the accompanying financial statements of the governmental activities and the major fund
of Palo Alto Public Improvement Corporation (Corporation), a component unit of the City of Palo Alto,
California (City), as of and for the year ended June 30, 2021, and the related notes to the financial
statements, which collectively comprise the Corporation’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. 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.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the
respective financial position of the governmental activities and the major fund of the Corporation as of
June 30, 2021, and the respective changes in financial position thereof for the year then ended in
accordance with accounting principles generally accepted in the United States of America.
1.c
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Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s
discussion and analysis on pages 3 through 4 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.
Walnut Creek, California
November 15, 2021
1.c
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Management’s Discussion & Analysis (Unaudited)
For the Year Ended June 30, 2021
3
The Palo Alto Public Improvement Corporation (Corporation), a component unit of the City of Palo Alto
(City), follows the provisions of Governmental Accounting Standards Board (GASB) Statement No. 34,
Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local
Governments. The Corporation is controlled by the City and was organized to assist the City in financing
public improvements. The Corporation issues debt and turns the proceeds of the debt over to the City
under lease agreements that provide a revenue source for the repayment of this debt. The Corporation has
three outstanding debts and has turned over the proceeds to the City, which pledged certain lease
payments as collateral for this debt as discussed in Note 4 to the financial statements.
FINANCIAL HIGHLIGHTS
GASB Statement No. 34 requires the issuance of government-wide financial statements as well as fund
financial statements. The government-wide financial statements report the balance of the Corporation’s
long-term debt while the individual fund statements do not.
In fiscal year 2018, the City issued 2018 Capital Improvement Project and Refinancing Certificates of
Participation (2018 COPs) in the amount of $9.0 million to refinance the 2002B Downtown Parking
Improvements Certificates of Participation remaining balance of $805 thousand, and also to fund the Palo
Alto Municipal Golf Course renovations.
In fiscal year 2019, the City issued the 2019 California Avenue Parking Garage tax exempt Series A and
taxable Series B Certificates of Participation (2019A and 2019B COPs) in the amount of $26.8 million
plus $4.9 million premium, and $10.6 million, respectively. The 2019A and 2019B COPs are issued to
fund the construction of the new California Avenue parking garage.
In fiscal year 2021, the City issued the 2021 Public Safety Building Certificates of Participation (2021
COPs) in the amount of $101.5 million plus $6.5 million premium. The 2021 COPs are issued to fund the
construction of the new public safety building.
As of June 30, 2021, the Corporation has the following outstanding debt: the 2018 COPs, 2019A and
2019B COPs, and 2021 COPs
At the government-wide level, the interest and fiscal agent charges were $4.0 million for fiscal year 2021,
an increase of $2.0 million from the prior year. The interest on leases from the City of Palo Alto was $8.6
million, an increase of $6.6 million from the prior year. The increases of interest and fiscal charges and
interest on leases are due to the issuance of the 2021 COPs during the year which lead to the increase of
outstanding bonds and incurrence of one-time costs of issuance.
The Corporation ended fiscal year 2021 with total assets of $163.1 million, an increase of $112.3 million
from the prior year. Total assets consisted of $4.7 million in cash and investments, $1.1 million of lease
interest receivable from the City of Palo Alto, and $157.4 million of investment in leases to the City of
Palo Alto. The total liabilities were $158.5 million, an increase of $107.7 million from the prior year. The
increases of assets and liabilities resulted from the issuance of the 2021 COPs during the year.
At the fund level, the Corporation’s expenditures exceeded revenues by $103.4 million due to the
payment of lease proceeds to the City of Palo Alto in relation to the issuance of 2021 COPS during the
year. As of June 30, 2021, the Corporation had one fund, the Debt Service Fund, which reported a $4.7
million restricted fund balance.
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Management’s Discussion & Analysis (Unaudited) (Continued)
For the Year Ended June 30, 2021
4
OVERVIEW OF THE CORPORATION’S BASIC FINANCIAL STATEMENTS
The annual financial report is comprised of two parts:
1) Management’s discussion and analysis (this part),
2) The basic financial statements, which include the government-wide and the fund financial statements,
along with the notes to these financial statements.
The basic financial statements comprise the government-wide financial statements and the fund financial
statements. These two sets of financial statements provide two different views of the Corporation’s
financial activities and financial positions, both short-term and long-term.
The government-wide financial statements provide a long-term view of the Corporation’s activities as a
whole, and comprise the statement of net position and the statement of activities. The statement of net
position provides information about the financial position of the Corporation as a whole, including all its
long-term liabilities on the full accrual basis, similar to that used by corporations. The statement of
activities provides information about all the Corporation’s revenues and expenses on the full accrual
basis, with the emphasis on measuring net revenues or expenses of the Corporation’s program. The
statement of activities explains in detail the change in net position for the year.
The fund financial statements report the Corporation’s operations in more detail than the corporate-wide
statements and focus primarily on the short-term activities of the debt service fund. Fund financial
statements measure only current revenues and expenditures; current assets, liabilities and fund balances;
and they exclude capital assets and long-term debt.
Together, these statements along with the notes to the financial statements are called the basic financial
statements.
DEBT ADMINISTRATION
The Corporation issues debt in the form of Certificates of Participation (COPs) to be repaid from future
lease receipts from the City. Legally, these COPs issues are the Corporation’s debt only; the City is liable
only for the payment of the amounts set forth in the lease securing each debt issue.
As of June 30, 2021, the Corporation has the following outstanding debt: 2018 COPs, 2019A and 2019B
COPs, and 2021 COPs with outstanding principal balances of $8.6 million, 36.4 million and $101.5
million, respectively.
ECONOMIC OUTLOOK AND MAJOR INITIATIVES
The economy of the City and its major initiatives for the coming year are discussed in detail in the City’s
Comprehensive Annual Financial Report.
CONTACTING THE CORPORATION’S FINANCIAL MANAGEMENT
These Basic Financial Statements are intended to provide citizens, taxpayers, investors, and creditors with
a general overview of the Corporation’s finances. Questions about these financial statements should be
directed to the Finance Department of the City of Palo Alto, 250 Hamilton Avenue, Palo Alto, CA 94301.
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Assets
Cash held for operations 5,597$
Cash and investments held by trustee 4,655,285
Lease interest receivable 1,057,878
Investment in leases to the City of Palo Alto 157,403,773
Total assets 163,122,533
Liabilities
Interest payable 1,057,878
Long-term debt:
Due in one year 1,243,353
Due in more than one year 156,160,420
Total liabilities 158,461,651
Net Position
Restricted for debt service 4,660,882$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Net Position
June 30, 2021
See accompanying notes to financial statements.
5
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Expenses
Interest and fiscal agent charges 3,962,421$
Program revenues
Interest on leases from the City of Palo Alto 8,585,169
Net program revenues 4,622,748
General revenues
Investment earnings 56
Change in net position 4,622,804
Net position, beginning of the year 38,078
Net position, end of the year 4,660,882$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Activities
For the Year Ended June 30, 2021
See accompanying notes to financial statements.
6
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Assets
Cash held for operations 5,597$
Cash and investments held by trustee 4,655,285
Lease interest receivable 1,057,878
Investment in leases to City of Palo Alto 157,403,773
Total assets 163,122,533$
Deferred Inflows of Resources
Unavailable lease receipts from the City of Palo Alto 158,461,651$
Fund balance
Restricted for debt service 4,660,882
Total deferred inflows of resources and fund balance 163,122,533$
Reconciliation of fund balance to net position
Fund balance restricted for debt service 4,660,882$
Long-term receivables are not available to pay for current period expenditures
and are considered unavailable on the governmental fund balance sheet 158,461,651
Some liabilities, including bonds payable, are not due and payable in
the current period and therefore are not reported in the Fund:
Interest payable (1,057,878)
Long-term debt due within one year (1,243,353)
Long-term debt due in more than one year (156,160,420)
Net position of governmental activities 4,660,882$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Balance Sheet
June 30, 2021
Debt Service Fund
See accompanying notes to financial statements.
7
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Revenues:
Lease receipts from the City of Palo Alto:
Principal 815,000$
Interest 2,093,576
Others 1,588
Investments earnings 56
Total revenues 2,910,220
Expenditures:
Intergovernmental disbursement to the City of Palo Alto 102,000,000
Debt service:
Principal repayment 815,000
Interest and fiscal agent charges 2,093,576
Costs of issuance 1,408,212
Total expenditures 106,316,788
Deficiency of revenues under expenditures (103,406,568)
Other Financing Sources:
Issuance of bonds 101,505,000
Bond premium 6,524,372
Total other financing sources 108,029,372
Net change in fund balance 4,622,804
Fund balance, beginning of the year 38,078
Fund balance, end of the year 4,660,882$
Reconciliation of net change in fund balance to change in net position
Net change in fund balance - debt service fund 4,622,804$
Amounts reported for governmental activities in the statement of activities are
different because:
Repayment of bond principal is an expenditure in the governmental funds,
but in the statement of net position the repayment reduces long-term liabilities. 815,000
Interest accrued on long-term debt and amortization of bond premium do not
require the use of current financial resources and therefore are not reported
as expenditures in governmental funds.
Change in interest payable (707,124)
Amortization of bond premium 246,491
The issuance of bonds are reported as other financing sources in governmental
funds and thus contribute to the change in fund balances. However,
bonds issuance change long-term liabilities in the statement of net position
and do not affect the statement of activities.
Issuance of bonds (101,505,000)
Bonds premium (6,524,372)
Some amounts reported in the statement of revenues, expenditures and changes
in fund balances reflect the timing of collection of assets which are
not includable as revenues on the statement of activities.
Lease receipt for bond principal repayment (815,000)
Lease receipt for interest payment 707,124
Intergovernmental disbursement to the City of Palo Alto 102,000,000
Lease proceeds from new bond issuance 6,029,372
Impact of bond premium amortization on lease receipt (246,491)
Change in net position of governmental activities 4,622,804$
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto)
Statement of Revenues, Expenditures and Changes in Fund Balance
For the Year Ended June 30, 2021
Debt Service Fund
See accompanying notes to financial statements.
8
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
9
NOTE 1 – DESCRIPTION OF REPORTING ENTITY
The Palo Alto Public Improvement Corporation (the Corporation) was incorporated in September 1983
under the General Nonprofit Corporation Law of the State of California to acquire, construct and lease
capital improvement projects. The Corporation is exempt from federal income taxes under
Section 501(c)(4) of the Internal Revenue Code. The Corporation provides financing of public capital
improvements for the City through the issuance of Certificates of Participation (COPs), a form of debt
which allows investors to participate in a stream of future lease payments. Proceeds from the COPs are
used to construct projects which are leased to the City for lease payments which are sufficient in timing
and amount to meet the debt service requirements of the COPs.
The Corporation is an integral part of the City of Palo Alto, California (City). It primarily services the
City and its governing body is composed of the City Council. Therefore, the financial data of the
Corporation has also been included as a blended component unit within the City’s comprehensive annual
financial report for the year ended June 30, 2021.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
Government-wide Statements: The statement of net position and the statement of activities include the
financial activities of the Corporation. Eliminations have been made to minimize the double counting of
internal activities.
The statement of activities presents a comparison between direct expenses and program revenues for each
function of the Corporation’s 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 of goods or services offered by the programs, and (b) grants and
contributions that are restricted to meeting the operational or capital requirements of a particular program.
Revenues that are not classified as program revenues, including investment earnings, are presented as
general revenues.
Fund Financial Statements: The fund financial statements provide information about the Corporation’s
funds. The emphasis of fund financial statements is on major individual funds, of which the Corporation
only reports one debt service fund.
(b) Major Fund
Major funds are defined as funds that have either assets, liabilities, revenues or expenditures equal to ten
percent of their fund-type total and five percent of the grand total. The Corporation has one fund which is
reported as a major governmental fund in the accompanying financial statements as follows:
Debt Service Fund – This fund accounts for debt service payments on the Corporation’s long-term debt.
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
10
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Basis of Accounting
The government-wide financial statements are reported using the economic resources measurement focus
and the full accrual basis of accounting. Revenues are recorded when earned ad 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 to be available if the revenues are collected
within ninety days after year-end. Expenditures are recorded when the related fund liability is incurred,
except for principal and interest on long-term debt, claims and judgments, and compensated absences,
which are recognized as expenditures to the extent they have matured.
(d) Investment in Leases
Improvements financed by the Corporation are leased to the City for their entire estimated useful life and
will become the City property at the conclusion of the lease on November 1, 2050. The Corporation
therefore records the present value of the lease and considers the leased improvement to have been sold
for this amount when leased.
(e) Net Position
The government-wide financial statements utilize a net position presentation. Net position is further
categorized as net investment in capital assets, restricted and/or unrestricted. As of June 30, 2021, the
entire net position was considered restricted.
Restricted Net Position – This category presents external restrictions imposed by creditors, grantors,
contributors or laws or regulations of other governments and restrictions imposed by law through
constitutional provisions or enabling legislation.
(f) Deferred Inflows of Resources
A deferred inflow of resources is defined as an acquisition of net position or fund balances applicable to a
future reporting period and will not be recognized as an inflow of resources (revenue) until that time. On
the governmental fund balance sheet, the lease receipts from the City corresponding to the debt are
recorded as deferred inflows of resources since the balances are not current financial resources.
(g) Fund Balances
At June 30, 2021, the Corporation’s governmental fund’s fund balances include the following
classification:
Restricted Fund Balance – includes 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.
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
11
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Effects of New Pronouncements
The Corporation is currently analyzing its accounting practices to determine the potential impact on the
financial statements for the following Governmental Accounting Standards Board (GASB) Statement:
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 Corporation’s fiscal year ending June 30, 2022.
(i) Estimates
The preparation of basic financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE
(a) Interest Rate Risk
Interest rate risk is the risk that a change in market interest rates will adversely affect the fair value of an
investment. Normally, the longer it takes an investment to reach maturity, the greater will be that
investment’s sensitivity to changes in market rates. Information about the sensitivity of the fair values of
the Corporation’s investments to market interest rate fluctuations is provided by the following table that
shows the distribution of the Corporation’s investments by maturity:
Investment Type Amount Maturity Date
Money Market Mutual Fund 4,655,285$ 19 days
Credit Risk
Generally, 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. As of June 30, 2021, the Corporation’s investments in money market mutual funds
are rated AAAm by Standard & Poor’s.
(b) Fair Value Hierarchy
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. The
Corporation’s investments in money market mutual funds are not subject to the fair value hierarchy.
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
12
NOTE 3 – CASH AND INVESTMENTS HELD BY TRUSTEE (Continued)
(c) Investment Policy
The Corporation must maintain required amounts of cash and investments by trustee under the terms of
certain debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if the
Corporation fails to meet its obligation under these debt issues. The California Government Code (Code)
requires these funds to be invested in accordance with bond indentures or State statutes. All these funds
have been invested as permitted under the Code. The Investment Policy is described in detail in the City’s
Annual Comprehensive Financial Report.
The table below identifies the investment types that are authorized by the City’s Investment Policy. The
table also identifies certain provisions of the City’s Investment Policy that address interest rate risk, credit
risk and concentration of credit risk.
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. Government Agency Securities 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 N/A 30% $5 million
Commercial Paper 270 days A-1 15% $3 million (B)
Local Agency Investment Fund N/A N/A No Limit $75 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 Deposit Accounts N/A N/A No Limit No Limit
Mutual Funds N/A N/A 20% 10%
Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million
Medium-Term Corporate Notes 5 years AA 10% $5 million
10 years (*) AA/AA2 30% No Limit
Supranational 5 years AA/AA2 20% 10% of the par
value of
portfolio
(A)
(B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution.
(*) The maximum maturity is based on the Investment Policy that is approved by the City Council
and is less restrictive than the California Governmental Code.
Authorized Investment Type
Bonds of State of California Municipal
Agencies & Other U.S. States
Callable and multi-step securities are limited to no more than 25% of the par value of the portfolio, provided that:
1) the potential call dates are known at the time of purchase, 2) the interest rates at which they "step-up" are
known at the time of purchase, and 3) the entire face value of the security is redeemed at the call date.
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
13
NOTE 4 – CERTIFICATES OF PARTICIPATION
The Corporation’s long-term debt activities are presented below:
Balance Balance Amount due
July 1, 2020 Additions Retirements June 30, 2021 in one year
Certificates of Participation
2018 Capital Improvement Project
2.20-4.22%, due 11/1/2047 8,755,000$ -$ 185,000$ 8,570,000$ 190,000$
2019 California Ave. Parking Garage
Series A & B
2.5%-5%, due 11/1/2048 36,995,000 - 630,000 36,365,000 645,000
2021 Public Safety Building
2%-5%, due 11/1/2050 - 101,505,000 - 101,505,000 -
Add: Unamortized Premium 4,685,892 6,524,372 246,491 10,963,773 408,253
Total 50,435,892$ 108,029,372$ 1,061,491$ 157,403,773$ 1,243,253$
On June 1, 2018, the City issued the 2018 Capital Improvement Project and Refinancing Certificates of
Participation (2018 COPs) in the amount of $9.0 million to fully refinance the 2002B COPs and to fund
the renovation of the Palo Alto Municipal Golf Course. Principal payments are due annually on
November 1 and interest payments semi-annually at various rates on May 1 and November 1. The 2018
COPs are secured by lease revenues received by the Corporation from any City’s General Fund revenue
source.
On March 21, 2019, the City issued the 2019 California Avenue Parking Garage tax exempt Series A and
taxable Series B Certificates of Participation (2019A and 2019B COPs) in the amount of $26.8 million
plus $4.9 million premium, and $10.6 million, respectively, for the construction of the new California
Avenue Parking Garage. Principal payments are due annually on November 1 and interest payments
semi-annually at various rates on May 1 and November 1. The 2019A and 2019B COPs are secured by
lease revenues received by the Corporation from any City’s General Fund revenue source.
On March 24, 2021, the City issued the 2021 Public Safety Building Certificates of Participation (2021
COPs) in the amount of $101.5 million plus $6.5 million premium for the construction of the new public
safety building. Principal payments are due annually on November 1 and interest payments semi-annually
at various rates on May 1 and November 1. The 2021 COPs are secured by lease revenues received by the
Corporation from any City’s General Fund revenue source.
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PALO ALTO PUBLIC IMPROVEMENT CORPORATION
(A Component Unit of the City of Palo Alto, California)
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2021
14
NOTE 4 – CERTIFICATES OF PARTICIPATION (Continued)
Future annual debt service on the outstanding debt is shown below:
For the Year Interest Total
Ending June 30, Principal Payment Payment
2022 835,000$ 3,534,317$ 4,369,317$
2023 860,000 4,970,244 5,830,244
2024 3,025,000 4,880,640 7,905,640
2025 3,170,000 4,729,195 7,899,195
2026 3,335,000 4,569,844 7,904,844
2027-2031 19,340,000 20,154,727 39,494,727
2032-2036 23,975,000 15,481,970 39,456,970
2037-2041 28,105,000 11,306,264 39,411,264
2042-2046 32,530,000 6,831,131 39,361,131
2047-2051 31,265,000 1,836,486 33,101,486
146,440,000$ 78,294,818$ 224,734,818$
Events of Default and Acceleration Clauses
Generally, the Corporation is considered to be in default if the Corporation fails to pay the principal of
and interest on the outstanding long-term debt when become due and payable. If an event of default has
occurred and is continuing, the principal of the long-term debt, together with the accrued interest, may be
declared due and payable immediately.
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CITY OF PALO ALTO
REGIONAL WATER QUALITY
CONTROL PLANT
Independent Auditor’s Report
and Financial Statements
For the Year Ended June 30, 2021
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CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Independent Auditor’s Report and Financial Statements
For the Year Ended June 30, 2021
Table of Contents
Page
Independent Auditor’s Report ................................................................................................................... 1
Financial Statements:
Statement of Net Expenditures ............................................................................................................... 3
Statement of Quarterly Billings .............................................................................................................. 4
Notes to the Financial Statements ........................................................................................................... 5
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www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1
Independent Auditor’s Report
The Honorable Mayor and Members
of the City Council of the City of Palo Alto
Palo Alto, California
We have audited the accompanying financial statements of the City of Palo Alto Regional Water Quality
Control Plant (Plant), an enterprise operation of the City of Palo Alto, California, for the year ended
June 30, 2021, and the related notes to the financial statements, which collectively comprise the Plant’s
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 the financial reporting provisions of the Basic Agreement between the City of Palo Alto,
the City of Mountain View and the City of Los Altos for the Acquisition, Construction and Maintenance
of a Joint Sewer System, dated October 10, 1968, as amended by addenda dated December 5, 1977,
January 14, 1980, April 9, 1985, May 30, 1991, July 31, 1992, March 16, 1998, April 15, 2009,
October 17, 2016, March 4, 2019, and May 17, 2021 (collectively, the “Basic Agreement”), as described
in Note 2 to the financial statements. Management is also responsible for 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 an opinion 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. 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 opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the
revenues, expenditures and quarterly billings of the Plant for the year ended June 30, 2021, in accordance
with the financial reporting provisions of the Basic Agreement as described in Note 2 to the financial
statements.
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2
Basis of Accounting
As discussed in Note 2 to the financial statements, the financial statements are prepared in accordance
with the financial reporting provisions of the Basic Agreement, which is a basis of accounting other than
accounting principles generally accepted in the United States of America. Our opinion is not modified
with respect to this matter.
Restriction on Use
This report is intended solely for the information and use of the City Council and management of the
Cities of Palo Alto, Mountain View and Los Altos, and is not intended to be and should not be used by
anyone other than these specified parties.
Walnut Creek, California
November 15, 2021
1.d
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CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Statement of Net Expenditures
City of City of City of
Total Mountain View Los Altos Palo Alto
Direct Expenditures:
Source control program 1,517,602$ 638,607$ 164,508$ 714,487$
Public outreach 105,761 44,504 11,465 49,792
Permitting and enforcement 1,051,805 292,068 17,255 742,482
Operations and maintenance 15,087,850 6,348,967 1,635,523 7,103,360
System improvement CIP (Note 3) 4,787,692 2,014,661 518,986 2,254,045
Total Direct Expenditures 22,550,710 9,338,807 2,347,737 10,864,166
Indirect Administrative Expenditures (Note 4):
Source control program 841,017 353,900 91,166 395,951
Public outreach 1,235 520 134 581
Permitting and enforcement 358,148 269,602 15,928 72,618
Operations and maintenance 3,877,572 1,631,682 420,329 1,825,561
Others (121,851) (61,546) (17,041) (43,264)
Total Indirect Administrative Expenditures 4,956,121 2,194,158 510,516 2,251,447
Debt Service Expenditures (Note 5):
Refunding 1990 Series A Bonds 281,008 143,314 21,919 115,775
1999 Wastewater Treatment New Project 543,416 205,900 51,462 286,054
2009 State Water Resource Loan 555,726 210,565 52,627 292,534
2017 State Water Resource Loan 1,091,863 413,708 103,399 574,756
Total Debt Service Expenditures 2,472,013 973,487 229,407 1,269,119
Total Expenditures 29,978,844 12,506,452 3,087,660 14,384,732
Deduct Joint Systems Revenues (Note 6) (543,965) (194,160) (138,617) (211,188)
Net Expenditures 29,434,879$ 12,312,292$ 2,949,043$ 14,173,544$
For the Year Ended June 30, 2021
See accompanying notes to the financial statements.
3
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CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Statement of Quarterly Billings
City of City of
Mountain View Los Altos
Billings by Quarter, Beginning:
July 1, 2020 2,764,163$ 661,058$
October 1, 2020 3,006,584 720,366
January 1, 2021 2,764,163 661,058
April 1, 2021 3,495,244 831,113
Total billings 12,030,154 2,873,595
Net expenditures 12,312,292 2,949,043
Deficit of total billings under net expenditures (282,138)$ (75,448)$
For the Year Ended June 30, 2021
See accompanying notes to the financial statements.
4
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CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Notes to the Financial Statements
For the Year Ended June 30, 2021
5
NOTE 1 – THE REPORTING ENTITY
The Cities of Palo Alto, Mountain View and Los Altos (the Members) participate jointly in the cost of
maintaining and operating the Regional Water Quality Control Plant and related system (the Plant). The
Members share the original costs of acquisition and construction of the Plant in the same proportions as
the allocation of capacity rights to them. The City of Palo Alto (the City) is the owner and administrator
of the Plant. The Cities of Mountain View and Los Altos are entitled to use a portion of the capacity of
the Plant, as set forth in the Basic Agreement between the City of Palo Alto, the City of Mountain View
and the City of Los Altos for the Acquisition, Construction and Maintenance of a Joint Sewer System
dated October 10, 1968, as amended by addenda dated December 5, 1977, January 14, 1980,
April 9, 1985, May 30, 1991, July 31, 1992, March 16, 1998, April 15, 2009, October 17, 2016,
March 4, 2019, and May 17, 2021 (collectively, the “Basic Agreement”). The Basic Agreement will
terminate on December 31, 2060, unless a written notice of withdrawal is tendered ten years preceding the
date of withdrawal.
On May 17, 2021, the Members approved the construction of a new outfall and related improvements to
existing discharge infrastructure and the rehabilitation of the primary sedimentation tanks including
electrical upgrades. Each Member agreed to pay its share of the project costs, in proportion to the
capacity it owns in the Joint Sewer System. The Members also authorized the City to receive State
Revolving Fund Loan from the State Water Resources Control Board (SWRCB) or pursue other project
financing to fund the costs of the projects.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Plant is an enterprise that is operated by the City and its operations are accounted for as an enterprise
fund in the City’s basic financial statements. The financial statements are prepared in accordance with the
financial reporting provisions of the Basic Agreement, which is a basis of accounting other than
accounting principles generally accepted in the United States of America. The accompanying financial
statements are intended to present the Plant’s net expenditures and quarterly billings by the Plant to the
Cities of Mountain View and Los Altos pursuant to the agreement of the Members as described above and
are not intended to be a complete presentation of the Plant’s financial position or results of operations.
Additionally, the capital cost and the outstanding debt of the Plant are not presented in these statements
but are presented in the basic financial statements of the City.
Plant expenditures, joint system revenues, debt service and industrial waste compliance expenditures are
shared by the Members based on agreed upon allocation percentages. The expenditures, including indirect
administrative expenditures (see Note 4), are allocated to each of the Members based primarily on their
respective percentages of the annual sewage flow and treatment needed for suspended solids, chemical
oxygen demand and ammonia. Revenues from services, fines and penalties are allocated to each of the
Members in the same proportions as those of expenditures. Debt service payments are allocated based on
percentages established at the time of bond issuance. Industrial waste compliance (public outreach and
permitting and enforcement) charges are allocated to Members primarily based on upon the number of
industries and efforts required to maintain compliance with sewage use ordinances and other regulations
from Environmental Protection Agency.
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CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Notes to the Financial Statements
For the Year Ended June 30, 2021
6
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The percentages used for the year ended June 30, 2021, to allocate expenditures and revenues were as
follows:
City of City of City of
Mountain View Los Altos Palo Alto
Public outreach, source control program,
operations and maintenance, system improvement 42.08% 10.84% 47.08%
CIP, and joint system revenues
Permitting and enforcement 39.84% 2.35% 57.81%
Debt services expenditures:
1999 Utility Refunding Bonds
1999 Wastewater Treatment New Project 37.89% 9.47% 52.64%
Refunding 1990 Series A Bonds 51.00% 7.80% 41.20%
2009 State Water Resources Loan 37.89% 9.47% 52.64%
2017 State Water Resources Loan 37.89% 9.47% 52.64%
The City is allocated 47.08% of total usage of the treatment plant. The City does not fully utilize its
percentage allocation. Therefore, the City has entered into separate contracts to allocate portions of its
excess to other entities. Fiscal year 2021 allocations are as follows:
East Palo Alto Sanitary District 6.15%
Stanford University 3.77%
Town of Los Altos Hills 2.31%
Remaining City percentages 34.85%
Total 47.08%
The agreement the City has with the above entities has no effect on the partnership agreement between
the Members.
Billings are made in advance and are based on the adopted budget for the plant and estimated sewage
flow. Excess (deficit) billings over (under) net expenditures are offset against the payments during the
second quarter of the subsequent fiscal year.
NOTE 3 – SYSTEM IMPROVEMENT CAPITAL IMPROVEMENTS PROGRAM (CIP)
The basic agreement between the Members, dated October 10, 1968, provides that the administrator of the
Plant is responsible for capital additions. These capital additions should be for the replacement of obsolete
or worn-out units, or minor capital additions to improve the efficiency of the Plant’s operations. Per the
addendum to the agreement dated March 16, 1998, the Members agreed that capital additions should not
exceed $1.9 million in 1998-99 (base year). For future years, the base year amount will be adjusted
annually based on increases to the Consumer Price Index-Urban Wage Earners and Clerical Workers for
the San Francisco-Oakland-San Jose area. For fiscal year 2021, the adjusted capital additions limit is
$3,442,929. Actual System Improvement CIP expenditures amounted to $2,383,745 for fiscal year 2021.
As of June 30, 2021, the commitments for minor capital additions, including unspent capital additions, is
$8,114,803 which have been carried forward to fiscal year 2022.
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CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Notes to the Financial Statements
For the Year Ended June 30, 2021
7
NOTE 4 – INDIRECT ADMINISTRATIVE EXPENDITURES
Indirect expenditures include those costs allocated from the City’s General Fund administrative services,
which supports all operating departments of the City. Other indirect expenses are administrative charges
from the City’s Internal Services Funds. These allocations are applied on a uniform basis throughout the
City. The allocations are applied in accordance with the subsequent letter of agreement dated
April 9, 1985.
NOTE 5 – DEBT SERVICE EXPENDITURES
Debt service expenditures include principal repayments, interest expense and amortization of bond
discount reduced by any interest income earned from investments with the fiscal agent, related to the
1999 Series A Bonds (split for the portions used for the “New Project” and refunding of the 1990 Series
A Bonds) and the 2009 and 2017 State Water Resources loans.
In June 1999, the City, City of Mountain View, City of Los Altos, Town of Los Altos Hills, East Palo
Alto Sanitary District, and Stanford University agreed to issue bonds (1999 Series A Bonds) to finance
the rehabilitation of the Wastewater Treatment System’s two sludge incinerators and to refund the 1990
Series A Bonds.
In October 2009, the City and the SWRCB executed an agreement for the 2009 State Water Resources
Loan to finance the Ultraviolet Disinfection Project.
In June 2017, the City and the SWRCB executed an agreement for State Water Resources Loan for an
award up to $30 million, 30 years at 1.8% to finance the project replacing the sewage sludge “bio-solids”
incinerators at the Plant. On September 13, 2017, the City and the SWRCB amended the original
agreement of the 2017 SRF loan to lower the total amount to $29.7 million and the due date of the last
debt service payment be May 31, 2049. Under the terms of the amended agreement, a portion of the loan
amount, $4.0 million, is federally funded and the obligation balance was adjusted.
The new facility will dewater the bio-solids and allow it to be loaded onto trucks and taken offsite for
further treatment until further treatment units can be built onsite. The Plant provides treatment and
disposal for wastewater for the City, City of Mountain View, City of Los Altos, Town of Los Altos Hills,
East Palo Alto Sanitary District, and Stanford University. Though the City is the recipient of the loan, the
City’s agreement with the partner agencies oblige them to pay their proportionate share of the principal
and interest of this loan. The City’s share of the loan payment is 38.2% with the partner agencies paying
61.8%.
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CITY OF PALO ALTO
REGIONAL WATER QUALITY CONTROL PLANT
Notes to the Financial Statements
For the Year Ended June 30, 2021
8
NOTE 5 – DEBT SERVICE EXPENDITURES (Continued)
The principal amount of the debt outstanding as of June 30, 2021 are allocated as follows:
1999 Wastewater Refunding of 2009 2017
Treatment 1990 Series A State Water State Water
New Project Bonds Resources Loan Resources Loan Total
City of Palo Alto 549,504$ 190,115$ 1,846,454$ 9,101,046$ 11,687,119$
City of Mountain View 545,616 387,835 1,833,389 9,036,652 11,803,492
City of Los Altos 136,368 59,316 458,226 2,258,567 2,912,477
East Palo Alto Sanitary District 110,016 90,495 369,678 1,822,117 2,392,306
Stanford University 75,744 31,179 254,516 1,254,494 1,615,933
Town of Los Altos Hills 22,752 1,521 76,452 376,825 477,550
Total 1,440,000$ 760,461$ 4,838,715$ 23,849,702$ 30,888,878$
1999 Utility Revenue Refunding Bonds
NOTE 6 – JOINT SYSTEM REVENUES
The Plant’s joint system revenues for the year ended June 30, 2021 total $543,965 which consisted of the
following:
Septic hauling services 293,871$
Receipt from Santa Clara Valley Water District 203,400
Other miscellaneous revenues 3,563
Salt water marsh services 7,500
Interdepartment services 8,661
Utility service to other utility funds 37,397
Bad debt expense (10,427)
543,965$
NOTE 7 – RELATED PARTY TRANSACTIONS
During fiscal year 2021, the Plant paid the City $1,936,103 for utility costs. Such costs are included in the
Statement of Net Expenditures as source control program, permitting and enforcement, and operations
and maintenance expenditures. Vehicle replacement charges of $22,293 were paid to the City’s Vehicle
Replacement and Maintenance Internal Services Fund, which is included in the Statement of Net
Expenditures as operations and maintenance expenditures.
NOTE 8 – SUBSEQUENT EVENT
On July 12, 2021, the SWRCB and the City executed a direct loan agreement for an award up to $17.5
million to finance the rehabilitate and upgrade the Plant’s primary sedimentation tanks and ancillary
systems. The loan interest rate is 0.9% and has a final maturity on February 15, 2053.
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CITY OF PALO ALTO, CALIFORNIA
Independent Accountant’s Report on
Applying Agreed–Upon Procedures Related to
the Article XIII-B Appropriations Limit
For the Year Ended June 30, 2021
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www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1
Independent Accountant’s Report on
Applying Agreed-Upon Procedures Related to
the Article XIII-B Appropriations Limit
Honorable Mayor and the Members
of the City Council, of
City of Palo Alto, California
We have performed the procedures enumerated below to the accompanying Appropriations Limit
Worksheet of the City of Palo Alto, California (City) for the year ended June 30, 2021. The City’s
management is responsible for the appropriations limit calculation for the year ended June 30, 2021.
The City has agreed to and acknowledged that the procedures performed are appropriate to meet the
intended purpose of assisting the City in evaluating the appropriations limit calculation in accordance with
the requirements of Section 1.5 of Article XIIB of the California Constitution. The procedures are
recommended by the California Committee on Municipal Accounting (as presented in the CCMA White
Paper titled Agreed-upon Procedures Applied to the Appropriations Limit Prescribed by Article XIII-B of
the California Constitution). This report may not be suitable for any other purpose. The procedures
performed may not address all the items of interest to a user of this report and may not meet the needs of
all users of this report and, as such, users are responsible for determining whether the procedures performed
are appropriate for their purposes.
The procedures and associated findings are as follows:
1. We obtained the completed worksheets setting forth the calculations necessary to establish the
City’s appropriations limit and compared the limit and annual adjustment factors included in those
worksheets to the limit and annual adjustment factors that were adopted by resolution of the City
Council. We also compared the population and inflation options included in the aforementioned
worksheets to those that were selected by a recorded vote of the City Council.
Finding: No exceptions were noted as a result of our procedures.
2. For the accompanying Appropriations Limit Worksheet, we added the prior year appropriations
limit to the total adjustments and compared the resulting amount to the current year appropriations
limit.
Finding: No exceptions were noted as a result of our procedures.
3. We agreed the current year information presented in the accompanying Appropriations Limit
Worksheet to the appropriate supporting worksheets described in No. 1 above.
Finding: No exceptions were noted as a result of our procedures.
4. We agreed the prior year appropriations limit presented in the accompanying Appropriations Limit
Worksheet to the prior year appropriations limit adopted by the City Council.
Finding: No exceptions were noted as a result of our procedures.
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We were engaged by the City to perform this agreed-upon procedures engagement and conducted our
engagement in accordance with attestation standards established by the American Institute of Certified
Public Accountants. We were not engaged to and did not conduct an examination or review, the objective
of which would be the expression of an opinion or conclusion, respectively, on the appropriations limit
calculation for the year ended June 30, 2021. Accordingly, we do not express such an opinion or conclusion.
Had we performed additional procedures, other matters might have come to our attention that would have
been reported to you. No procedures have been performed with respect to the determination of the
appropriations limit for the base year, as defined by Article XIII-B of the California Constitution.
We are required to be independent of the City and to meet our other ethical responsibilities, in accordance
with the relevant ethical requirements related to our agreed-upon procedures engagement.
This report is intended solely for the information and use of City Council and the City’s management, and
is not intended to be and should not be used by anyone other than these specified parties.
Walnut Creek, California
November 15, 2021
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CITY OF PALO ALTO, CALIFORNIA
Appropriations Limit Worksheet
For the Year Ended June 30, 2021
3
2019-2020 appropriation limit, as adopted 172,760,000$
Adjustment factors:
Population (1)1.0037
Inflation (2)1.0373
Total adjustment factors (rounded) (3)1.0411
Total adjustments (rounded) 7,100,000
2020-2021 appropriation limit, as adopted 179,860,000$
(1) The population factor may be based on the change in population of 1) the City or 2) the County of Santa
Clara, as provided by the State of California’s Department of Finance. The population factor adopted
by the City for the current year appropriation limit represents the change in population of the County
of Santa Clara.
(2) The inflation factor may be based on 1) the change in per capita personal income for the State of
California, as provided by the State of California’s Department of Finance; or 2) the change in the
assessed valuation due to new non-residential construction within the City. The inflation factor adopted
by the City for the current year appropriation limit represents the change in per capita personal income.
(3) The total adjustment factor is calculated by multiplying the population factor by the inflation factor.
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City of Palo Alto (ID # 13501)
Finance Committee Staff Report
Meeting Date: 11/30/2021
City of Palo Alto Page 1
Title: Recommendation to the City Council to Approve the Fiscal Year (FY)
2021 Annual Comprehensive Financial Report (ACFR) and FY 2021 Budget
Amendments in Various Funds
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee forward to the City Council for its approval:
1. The City’s FY 2021 Annual Comprehensive Financial Report (ACFR) (Attachment C); and
2. Amend the Fiscal Year (FY) 2021 Budget Appropriation Ordinance for various funds as
identified in the attached Recommended Amendments to the City Manager’s FY 2021
Budget (Operating Budget: Attachment B – Exhibit 1; Capital Budget: Attachment B –
Exhibit 2).
Financial Highlights for FY 2021
Government-wide
At the close of FY 2021, the City’s overall Net Position remains positive despite of the fiscal
challenges due to the COVID-19 pandemic. The Statement of Net Position (p. 31 of the attached
ACFR) reports Governmental Activities (the City’s basic services which are generally funded by
taxes, and by specific program revenues such as fees and grants) Net Position at $423.1 million,
a $17.4 million decrease from the prior year, and Business-Type Activities (the City’s enterprise
activities which are funded in whole or in part by fees charged to external parties) Net Position
at $807.2 million, a $22.2 million increase. Various factors contributed to these changes,
including accounting adjustments required by the Governmental Accounting Standards Board
(GASB).
General Fund
The General Fund ended with a $49.1 million Budget Stabilization Reserve (BSR), a $13.2
million, or 36.8 percent, increase when compared to FY 2020. The $13.2 million BSR increase is
driven mainly by a $13.8 million surplus and changes in various General Fund Reserves (see
Attachment A, Change in Fund Balance GAAP Basis on p. 37 of the ACFR). The revenues such as
sales tax, property tax and documentary tax were higher than expected while expense savings
were realized across many of the departments (detailed in Attachment A). Although some of
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the major taxes are higher than projected in the Adjusted Budget, the pandemic continues to
impact the City’s revenue with sales tax, transient occupancy tax, utility user tax, rental income,
and charges for services, remaining lower compared to pre-pandemic revenues.
The General Fund ended FY 2021 ended with a $49.1 million BSR, however once adjusted for
Council approved uses, the City’s $43.3 million BSR reflects a surplus of $4.6 million compared
to the Council 18.5 percent target ($38.7 million). Council approved use of the BSR for the
balancing of the FY 2022 Adopted Budget and for the Utilities Transfer Litigation Reserve (CMR
13439).
Capital Project Funds
Capital Project Fund ended with a $165.7 million, which is higher compared to $83.6 million in
prior year. The fund balance is restricted for the Public Safety Building ($90.9 million) and
library project ($0.6 million), committed for Roth building rehabilitation ($5.2 million) and
Cubberley improvements ($4.7 million) and the remaining balance of $64.3 million is available
for all other capital projects.
Enterprise Funds
The City’s Enterprise Funds, except for the Electric fund, resulted to a positive change in net
positions. The Electric Fund ended with a net loss due to the lower demand in commercial and
industrial sector as a result of a continued limited operations and shelter-in-place restrictions,
due to higher energy purchase cost as a result of low hydroelectric supply, and an increase in
operations and maintenance expenses.
Internal Service Funds
Internal Service Funds ended the fiscal year with $87.6 million fund balance. All funds showed
positive balances except the Printing and Mailing which reported a $0.3 million negative
balance due to the pension liability per GASB 68 and Other Post-Employment Benefits (OPEB)
liability per GASB 75. Once adjusted for these noncash transactions, the Printing and Mailing
fund remains with a positive fund balance.
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
Annual Comprehensive Financial Report (ACFR) that can be found in Attachment C.
Attachment B outlines recommended amendments to the FY 2021 Budget. These
recommended actions close the fiscal year by reallocating and realigning budget to
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reappropriate funds or adjust transfers between operating and capital funds. The General Fund
Summary found in Attachment A, provides detailed information of the fund’s activity this year.
The ACFR includes government-wide statements and fund level financial statements that
provide a snapshot of fund balances and activity for the year. An overview of financial results,
information on how to navigate the ACFR document, and highlights of key fiscal issues affecting
the City can be found in the Management’s Discussion and Analysis (MD&A) section (ACFR p. 5).
The MD&A also provides a discussion and analysis of the City’s current fiscal health and
includes financial statements and analysis that is compared to the prior year, along with capital
asset and debt administration data.
In addition, staff has prepared and attached a budgetary basis summary of General Fund
Revenues and Expenditures to provide a snapshot of the fund’s revenue and expenditures by
department (Attachment A). The Discussion section of this staff report includes Results by Fund
which discusses position of fund balances, major revenue sources, and expense highlights.
Throughout this report, pronouncements released by GASB are referred to by issuance number.
For example, GASB Pronouncement No. 68 is referenced in this report as GASB 68. A full list of
pronouncements can be found on GASB’s website.
Financial Results
Government-wide Statements
Statement of Net Position
The Statement of Net Position presents information on all of the City’s assets plus deferred
outflows of resources, and liabilities plus deferred inflows of resources, with the reported net
position.
The City’s net position was $1.230 billion on June 30, 2021 compared to the balance of $1.226
billion on June 30, 2020. Of the total increase of $4.8 million, or 0.4 percent, $22.2 million is
from business-type activities partially offset by a decrease of $17.4 million from governmental
activities.
The largest portion of the City’s net position ($1.123 billion or 91.2 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 these assets. The restricted portion of the City’s net
position ($83.7 million or 6.8 percent) represents resources that are subject to external
restrictions on how they may be used. The remaining balance of $24.1 million, across all funds,
representing 2.0 percent of the City’s net position, is unrestricted and may be used to meet the
City’s ongoing obligations to its citizens and creditors.
The unrestricted net position for the governmental activities portion is negative due to the
recognition of the net pension liabilities as required by GASB Statement No. 68 and net OPEB
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liabilities a required by GASB Statement No. 75. The $137.7 million deficit for governmental
activities includes the $303.8 million impact of net pension liabilities and its related deferred
outflows of resources (GASB 68) and $89.9 million impact of net OPEB liabilities and its related
deferred outflows of resources and deferred inflows of resources (GASB 75).
Governmental activities’ unrestricted net position, excluding these impacts, is $256.0 million.
STATEMENT OF NET POSITION
As of June 30, 2021
(in millions)
2021 2020 2021 2020 2021 2020
Cash and investments 443.4$ 342.8$ 285.6$ 277.4$ 729.0$ 620.2$
Other assets 76.6 60.5 47.7 52.8 124.3 113.3
Capital assets 602.0 596.3 693.2 693.2 1,295.2 1,289.5
Deferred outflows 60.8 55.8 21.1 21.1 81.9 76.9
Total assets and deferred outflows 1,182.8 1,055.4 1,047.6 1,044.5 2,230.4 2,099.9
Net pension and OPEB liabilities 438.2 416.3 159.7 153.7 597.9 570.0
Long-term debt 217.5 112.5 68.9 74.5 286.4 187.0
Other liabilities 87.6 61.5 23.8 21.7 111.4 83.2
Deferred inflows 16.3 24.5 6.4 9.6 22.7 34.1
Total Liabilities 759.6 614.8 258.8 259.5 1,018.4 874.3
Net Position
Net investment in capital assets 480.6 497.4 642.0 621.3 1,122.6 1,118.7
Restricted 80.3 44.6 3.4 4.1 83.7 48.7
Unrestricted (137.7)(101.4)161.8 159.6 24.1 58.2
Total Net Position 423.2$ 440.6$ 807.2$ 785.0$ 1,230.4$ 1,225.6$
Governmental Business-type Government-wide
Activities Activities Totals
Statement of Activities
The major sources of the City’s revenues are Program Revenues and General Revenues.
Program Revenues consist of charges for services (both governmental and business type
activities) as well as operating and capital grants and contributions. General Revenues include
property tax, sales tax, utility user tax, transient occupancy tax, documentary transfer tax, other
taxes and miscellaneous revenue.
Revenues for the City in FY 2021 were $553.7 million, a decrease of $31.0 million or 5.3 percent
compared to FY 2020, due to a $15.2 million decrease in Governmental Activities and $15.8
million decrease from Business Activities. Governmental Activities decreased $15.2 million
mainly due to decreases in sales tax, utility user tax, and transient occupancy tax. Business
Activities revenue decreased $15.4 million mainly due to decreases in Electric and Refuse Funds
revenue as a result of continued limited businesses operations and closures. Another factor
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driving the decrease of the revenue is due to the decrease of investment earnings which
resulted from negative fair market value adjustments.
Expenses for the City in FY 2021 were $548.9 million, a decrease of $1.6 million or 0.3 percent
compared to FY 2020, due to a $8.3 million decrease from Governmental Activities that is
partially offset by a $6.7 increase from Business-type expenses.
The decrease in Governmental Activities expenses is mainly due to the decrease in salaries and
benefits and contract services. All department expenses decreased except for Administrative
Services and Public Works.
Administrative Services expenses increased $7.1 million, primarily due to $12.6 million in
expenses incurred in a class action lawsuit (Green v. City of Palo Alto). In the Green case, which
was filed against the City in October 2016, Plaintiffs allege that the City’s gas and electric rates
include charges that are unlawful under Proposition 26. On June 24, 2021, a trial court entered
judgment upholding the City’s electric rates but finding that gas rates include an unlawful
component and ordering the City to pay $12.6 million to a common fund to refund gas rate
payers and for payment of incurred litigation costs. The City and the plaintiffs have appealed
the trial court’s judgment. Payment of refunds due to gas rate payers under the trial court
judgment are stayed pending a decision by the Court of Appeal (expected in late 2022/early
2023) on the parties’ respective appeals. While the outcome of the claim is uncertain, the City
has recorded a non-current claims liability equal to the trial court judgement on the
governmental activities financial statement, since this liability is not due and payable on June
30, 2021.
The Public Works which increased $7.1 million was due to various repairs and maintenance of
capital assets such as streets, sidewalks, facilities, and parks all of which are non-capitalizable
This fiscal year staff reviewed construction in progress balances on a timely manner and
determined that certain expenses, specifically repair and maintenance costs, should not have
been capitalized per Generally Accepted Accounting Principles (GAAP). The expense to correct
these balances was recorded as part of Public Works functional expenses. This process was put
in place in FY 2021.
The increase of Business Type Activities is driven by several cost categories and resulted in
higher costs compared to prior year, including energy purchase cost, operations and
maintenance in Electric Fund, and commodity purchases in Gas Fund. These increases were
partially offset by the lower payment to GreenWaste of Palo Alto for reimbursement of new
waste collection vehicles, decrease in facility rent and adjustment as a result of a five-year post
closure maintenance plan update and cost estimate that was approved in the current fiscal year
in Refuse Fund.
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2021 2020
Increase /
(Decrease)
Revenues
Program Revenues 423.2$ 428.6$ (5.4)$
General Revenues 130.5 156.1 (25.6)
Total Revenues 553.7$ 584.7$ (31.0)$
Expenses
Governmental Activities
City Council 0.2$ 0.2$ -
City Manager 2.5 3.6 (1.1)
City Attorney 2.3 2.8 (0.5)
City Clerk 0.7 0.8 (0.1)
City Auditor 0.6 0.6 -
Administrative Services 23.0 15.9 7.1
Human Resources 2.5 3.0 (0.5)
Public Works 52.7 45.6 7.1
Planning and Development Services 18.1 21.7 (3.6)
Office Of Transportation 3.6 4.7 (1.1)
Police 43.6 50.9 (7.3)
Fire 37.1 41.3 (4.2)
Community Services 30.3 34.1 (3.8)
Library 11.1 13.0 (1.9)
Interest and Other Expense 6.3 4.7 1.6
Business Type Activities
Water 43.6 43.0 0.6
Electric 156.1 142.4 13.7
Fiber Optics 2.5 2.8 (0.3)
Gas 28.6 27.2 1.4
Wastewater Collection 19.6 18.9 0.7
Wastewater Treatment 28.4 28.8 (0.4)
Refuse 29.1 36.9 (7.8)
Storm Drainage 4.9 5.5 (0.6)
Airport 1.5 2.1 (0.6)
Total Expenses 548.9$ 550.5$ (1.6)$
Change in Net Position 4.8$ 34.2$ (29.4)$
Statement of Activities for the Year Ended June 30
(in millions)
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Capital Assets
The City’s capital assets for its governmental and business-type activities as of June 30, 2021,
amounts to $1.311 billion (net of accumulated depreciation), which is a $21.0 million or 1.6
percent increase, compared to FY 2020. The increase was primarily due to various projects such
as the Highway 101 Pedestrian / Bicycle overpass, Public Safety Building and California Avenue
Parking Garage, and Transmission, Distribution and Treatment systems for the various utility
services.
Increase/
2021 2020 (Decrease)
Governmental activites
Land and improvements 82.1$ 82.2$ (0.1)
Street trees 14.8 14.8 -
Construction in progress 143.4 142.1 1.3
Building and improvements 272.1 251.1 21.0
Intangible assets 3.8 3.8 -
Equipment 80.3 79.2 1.1
Roadway network 335.3 335.2 0.1
Recreation and open space network 35.2 35.2 -
Less accumulated depreciation (365.0) (347.3) 17.7
Business-Type Activities
Land 5.0 5.0 -
Construction in progress 129.0 121.1 7.9
Buildings and improvements 74.0 74.0 -
Capital Leases 0.5 0.5 -
Infrastructure 0.6 0.6 -
Transmission, distribution and treatment systems 914.8 884.8 30.0
Less accumulated depreciation (415.4) (392.8) 22.6
Total Capital Assets 1,310.5$ 1,289.5$ 21.0$
CAPITAL ASSETS AT JUNE 30
(in millions)
Liabilities
As of June 30, 2021, the City’s liabilities totaled $995.9 million, which is $155.6 million, or 18.5
percent increase, compared to FY 2020. The increase was due to a total of $108.0 million
($101.5 million and $6.5 million) for the issuance of Certificates of Participation (COPs) to
finance the construction of the public safety building, a $6.9 million receipt of City’s first two
distributions of American Rescue Plan Act of 2021 (ARPA) allocations, and the $12.6 million
potential liability for the Green v. City of Palo Alto class action lawsuit. The ARPA allocation was
which was recorded as unearned revenue as of June 30, 2021, as the funds are not earned nor
spent this fiscal year per GAAP. Higher net pension liability contributed also to the increase of
City’s total liabilities.
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Fund Financial Statements
General Fund
General Fund Reserves
At the end of the current fiscal year, fund balance of the General Fund was $75.6 million. This
fund balance is comprised of several reserves: the BSR (City’s general reserve),
reappropriations, notes and loans, inventory, prepaid items, and other general government
special purpose reserves (this includes reserves for encumbrances and donations). The $1.6
million reserve for excess Educational Revenue Augmentation Fund (ERAF) in FY 2020 was
returned to the City’s BSR in FY2021 due to the favorable resolution of the calculation for
excess ERAF1. As described in the BSR reserve policy approved by the 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 the 18.5 percent target may be transferred to
the Infrastructure Reserve (IR) in the Capital Projects Fund at the discretion of the City
Manager.
The FY 2022 Adopted Operating Budget projected a $35.8 million BSR balance as of June 30,
2021, compared to the actual balance of $49.1 million (this is a component of the General
Fund, fund balance noted above). This is $13.3 million above estimates mainly due to higher
sales tax, property tax and documentary transfer tax receipts. The $49.1 million is $10.4 million
above the Council’s 18.5 percent target of the FY 2022 Adopted expenses of $38.7 million.
The chart below outlines the approved uses of the BSR in FY 2022. These adjustments, totalling
$5.8 million, results in a BSR balance of $43.3 million; approximately 20.7 percent of the FY
2022 Adopted expenses of $209.2 million. This level is approximately $4.6 million above the
target level of 18.5 percent. Staff recommends leaving the BSR above the targeted level in
order to anticipate potential service level augmentation recommendations in FY 2022.
1 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. In a claim by the State,
calculations for excess ERAF incorrectly shifted too much property tax from schools to local agencies. This has since
been resolved in the favor of the local agencies
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Year-End Budget Stabilization Reserve (BSR) Summary
(in millions)
General Fund BSR Balance, June 30, 2021 $ 49,089
Uses of the FY 2021 Surplus
FY 2022 Approved Adjustments to the BSR Balance
FY 2022 Adopted Budget ($ 1,808)
Utilities Transfer Litigation (Equity Transfer) (CMR 13439) ($ 4,000)
Subtotal: Approved Adjustments to the BSR Balance ($ 5,808)
Current Projected FY 2021 BSR Level, (June 30, 2022) $ 43,281
General Fund Revenues
General Fund revenues for FY 2021 were $166.8 million, which is $13.6 million or 7.5 percent
lower than the prior year. Year over year changes in each of the major tax revenue categories
are summarized in the following table.
Category FY 2021 FY 2020
% Change
Increase (Decrease)
Property tax $ 56,572 $ 51,089 10.8%
Sales tax 29,127 30,563 (4.9%)
Utility user tax 14,642 16,140 (9.3%)
Transient occupancy tax 5,179 18,553 (72.0%)
Documentary transfer tax 10,627 6,903 53.6%
Property tax revenue increased $5.5 million, or 10.8 percent due to pre-pandemic assessed
value growth and an increase of $1.7 million in the Excess ERAF distribution. The FY 2021
secured and unsecured property tax assessed values growth rates are 7.6 percent and 12.7
percent, respectively, an average of 7.8 percent. These higher assessed values reflect continued
strength in commercial and residential real estate markets. Historically, during economic
downturn such as recession and/or a pandemic, impacts to property tax are delayed a year and
then the growth rate typically plateaus.
Over a seven-year period, ERAF has grown from $0.4 million in FY 2014 to $5.6 million in FY
2021. Increased in FY2021 was due to the favorable settlement between State of California and
County of the calculation for excess ERAF1. Due to the uncertainty of whether local agencies
will continue to receive excess ERAF funds, it is not considered a permanent local revenue
source.
Sales tax receipts were $1.5 million or 4.9 percent, lower than the prior year. The decrease is
lower than expected even though there is a significant decline of high-end goods and dining
options at regional destinations, such as the Stanford Shopping Center, which was offset by the
strong performance in the business-to-business segment and on-line sales. As the nation
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transitions from a shopping center country to online sales, a surge in online retail sales will
partially displace tax revenue from traditional industry segments to state and county pools. The
sales tax growth in the second half of FY 2021 is due to high vaccination rates in the Bay Area
resulting in increased employment and economic activity.
Utility user tax revenues are $1.5 million, or 9.3 percent, which is lower compared to prior year
due to lower business consumption of electric and telephone services. The telephone UUT
receipts declined by $1.2 million or 19.3 percent due to business closures and shelter-in-place
restrictions which reduced the workforce present in the City.
Transient occupancy tax (TOT) continues to be the most significantly impacted by the
pandemic and reached $5.2 million, a $13.4 million, or 72.0 percent decrease than the prior
year. Six hotels, representing 16.3 percent of available rooms remained closed while two other
smaller hotels reopened during the fiscal year. In addition, two Marriott hotels (approximately
293 total rooms) opened hotels in the middle and end of the fiscal year. The opened hotels
average daily room and occupancy rates significantly declined in the first three quarters and
partially recovered in the fourth quarter. In FY 2021, the average occupancy rate was 40.6
percent, a 33.4 percent decrease and the average room rate was $116.90, a 55.9 percent
decrease over the prior year. The entire 15.5 percent TOT rate from new hotels, plus 3.5
percent from all other hotels, has been allocated to the Infrastructure Plan pursuant to City
Council direction. The following is a comparative breakdown of the allocation of transient
occupancy tax receipts:
FY 2021 FY 2020
% Change
Increase (Decrease)
General Fund $ 2,796 $ 11,567 (75.8%)
Infrastructure Plan
New hotels – 12% 1,214 2,793 (56.5%)
All hotels – 3.5% 1,169 4,193 (72.1%)
Subtotal Infrastructure 2,383 6,986 (65.9%)
Total TOT Receipts $ 5,179 $ 18,553 (72.0%)
Documentary transfer tax increased $3.7 million, or 53.6 percent when compared to prior year
due to six large commercial property transactions that occurred in FY2021. This revenue source
is volatile since it is highly dependent on sales volume and the mix of commercial and
residential sales.
Charges for services increased $1.0 million, or 4.1 percent, when compared to prior year due to
an increase of golf course revenues by $2.3 million which due to higher demand to play golf
after re-opening during the COVID-19 pandemic. This increase is offset by reduced programs
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and classes and fewer reviews and inspections due to limited operations caused by COVID-19
restrictions.
Rental income decreased $2.7 million, or 16.9 percent, when compared to prior year due to
lower facility rentals and number of tenants due to limited and some businesses closures. The
City has continued to follow the Santa Clara County Moratorium Order to give protection for
small businesses and approved a rent forgiveness program.
All other revenues decreased $4.5 million, or 47.4 percent, when compared to prior year due to
decrease of investment earnings which resulted from adjusting the investments to market
value at year-end, as required by GASB 31.
The following is a chart which depicts the relative contribution of each tax category over the
past seven years (2015 through 2021), as well as the current budgeted year (2022).
General Fund Tax Revenues
Actual Fiscal Years 2015 – 2021
Budget Fiscal Year 2022
($ in thousands)
0 25,000 50,000 75,000 100,000 125,000 150,000
FY 2022 Budget
FY 2021 Actual
FY 2020 Actual
FY 2019 Actual
FY 2018 Actual
FY 2017 Actual
FY 2016 Actual
FY 2015 Actual
FY 2022
Budget
FY 2021
Actual
FY 2020
Actual
FY 2019
Actual
FY 2018
Actual
FY 2017
Actual
FY 2016
Actual
FY 2015
Actual
Property Tax 51,228 56,572 51,089 47,327 42,839 39,381 36,607 34,117
Sales Tax 28,184 29,127 30,563 36,508 31,091 29,923 30,018 29,675
Utility User Tax 14,370 14,642 16,140 16,402 15,414 14,240 12,469 10,861
Trans Occ Tax 8,428 5,179 18,553 25,649 24,937 23,477 22,366 16,699
Doc Transfer Tax 7,137 10,627 6,903 6,923 9,229 7,491 6,266 10,384
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General Fund Expenditures
General Fund expenditures for FY 2021, including encumbrances and reappropriations, totaled
$183.8 million; a decrease of 10.0 percent from the prior year, mainly due to cost savings
implemented by the City including reductions in staff and services. In response to financial
uncertainties caused by the COVID-19 pandemic, the City adopted various strategies to lower
expenses such as implementing furlough to Management and Professional Group, leaving some
vacant positions unfilled, eliminating few positions, and deferring wage increases to most of the
labor unions. The City also reduced service hours and various operating expenditures such as
travel and training, program and project consultants, and other contractual services.
The Adopted Budget of $179.1 million was increased to the Final Adjusted Budget amount of
$187.5 million, primarily due to the expenditure of prior year encumbered and reappropriated
balances; increases for several departments throughout the year also occurred based on City
Council direction per recommendations contained in City Manager Reports.
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The following is a chart which compares actual departmental costs, including encumbrances
and reappropriations, excluding Cubberley lease over the past seven years and budgeted costs
for FY 2022.
General Fund Departments
Actual Expenditures Fiscal Years 2015– 2021 (including reappropriations and encumbrances)
Budgeted Expenditures Fiscal Year 2022
($ in thousands)
0 20 40 60 80 100 120 140 160 180 200
FY 2022 Budget
FY 2021 Actuals
FY 2020 Actual
FY 2019 Actual
FY 2018 Actual
FY 2017 Actual
FY 2016 Actual
FY 2015 Actual
FY 2014 Actual
FY 2022
Budget
FY 2021
Actuals
FY 2020
Actual
FY 2019
Actual
FY 2018
Actual
FY 2017
Actual
FY 2016
Actual
FY 2015
Actual
FY 2014
Actual
Public Safety 80,029 77,795 83,616 77,592 75,975 72,815 65,005 62,459 63,403
Community Services 31,052 27,769 31,489 30,201 28,395 26,573 25,262 23,902 23,402
Admin Depts 32,829 26,165 28,169 29,304 23,538 22,157 22,059 19,771 19,784
Public Works 18,785 18,553 18,932 17,928 18,908 17,475 15,084 14,210 14,138
Planning and Development Services 17,673 18,782 21,098 22,606 23,006 22,400 21,784 20,361 14,637
Office Of Transportation 1,747 2,010 2,360 -
Library 8,903 8,636 10,092 9,491 9,357 9,266 8,217 8,144 8,072
The Development Services Department was combined with the Planning and Community Environment in FY 2020 and renamed
to the Planning and Development Services Department.
The Office of Transportation Department, which previously was a division of the Planning and Community Environment
Department was established in FY 2020.
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Capital Projects Fund
The Capital Projects Fund ended the year with a fund balance of $165.7 million, which are
comprised of the following:
Fund Balance Component
Amount
($ in millions)
Restricted for Library projects $ 598
Reserved for Roth Building rehabilitation 5,179
Reserved for Cubberley expenditures 4,726
Restricted for Public Safety Building 90,922
Assigned for all other Capital projects 64,279
Total Capital Projects Fund Balance $ 165,704
Restricted for Library projects $0.6 million is the portion of fund balance dedicated to the
remaining Library expenditures which, if considered bond expenses will be paid for with cash
from bond proceeds. Non-bondable expenditures such as salaries and benefits are funded from
the Infrastructure Reserve, as established at the time of the bond issuance. The library project
is already completed but the roof defects need to be fixed using this reserve.
Restricted for Public Safety Building $90.9 million represents the remaining bond funding
dedicated to the construction of the public safety building.
Assigned for all other Capital projects $64.3 million represents the amount of unspent funds
associated with Adopted Capital projects and other noted items. Outside funding sources such
as grants, donations and future debt issues are not factored into this component of the fund
balance until they are received.
Enterprise Funds
The City’s Enterprise Funds reported a total Net Position of $807.2 million, a $22.2 million
increase from the prior year. All Enterprise funds contributed to this increase except Electric
Fund.
The table below summarizes the overall change in Net Position for each Enterprise Fund.
Compared to FY 2020, the Change in Net Position for Enterprise funds decreased $17.4 million
driven primarily by the Electric Fund – details of these funds are summarized following this
table.
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ENTERPRISE FUNDS
Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Fund Name 2021 2020 (Decrease)
Water 6.6$ 8.0$ (1.4)$
Electric (4.8)18.6 (23.4)
Fiber Optics 1.5 2.9 (1.4)
Gas 3.5 3.0 0.5
Wastewater Collection 0.7 2.1 (1.4)
Wastewater Treatment 3.1 0.3 2.8
Refuse 1.9 (3.1)5.0
Storm Drainage 3.0 2.2 0.8
Airport 6.7 5.6 1.1
Total Change in Net Position 22.2$ 39.6$ (17.4)$
The Water and Fiber Optic Funds operating income has no significant change, however, the
change in net position for both funds decreased $1.4 million from prior year due to the decline
in other revenues specifically interest earnings due to lower market value at year-end.
The change in net position for Electric Fund decreased $23.4 million from prior year due to
decrease in commercial retail revenues as a result of lower consumption, a decrease in
investment earnings due to lower market value at year-end, an increase in purchase cost of
electricity due to low hydroelectric supply, and an increase in operations and maintenance.
The change in net position for Wastewater Collection Fund decreased $1.4 million due to lower
non-residential sewer charge, lower non-operating revenue including interest earnings and an
increase in operating expenses.
The change in net position for Wastewater Treatment Fund increased $2.8 million due to higher
billing to partners for capital costs and decrease in operations and maintenance.
The change in net position of Refuse Fund increased $5.0 million due to decrease in operating
expenses as a result of lower payment to GreenWaste of Palo Alto for reimbursements of new
waste collections and vehicles, a decrease in facility rent and adjustment to landfill post closure
maintenance. The decrease of operating expenses was partially offset by lower revenues
including investment earnings.
The table below details the Change in Unrestricted Net Position in the Enterprise Funds.
Enterprise Fund Rate Stabilization, Operations and other reserve balances are shown in detail in
the ACFR (ACFR p. 88 Note 10). Overall, except for the Wastewater Treatment Fund and the
Airport Fund, each Enterprise Funds maintained a positive unrestricted net position balance as
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of June 30, 2021. Adjustments for the Pension Reserve (as required by GASB 68) and OPEB
Reserve (as required by GASB 75) total $142.0 million for all Enterprise Funds and reduce each
fund’s unrestricted net position.
The Wastewater Treatment Fund reflects a $10.8 million Unrestricted Reserve deficit and is
driven by $28.2 million in Pension Reserves and OPEB Reserves adjustments.
The Airport Fund reports a $3.7 million deficit net position which is attributed to the $1.2
million Pension Reserve and OPEB Reserve adjustments. Second, the fund deficit in the Airport
Fund is also a result of cumulative fund deficits over the life of the fund as fiscal operations at
the airport stabilize and capital projects near completion. The $6.7 million change in net
position of Airport Fund in current year is $1.1 million from operations and $5.6 million grants
received in current year.
Increase/
Fund Name 2021 2020 (Decrease)
Water 33.0$ 28.2$ 4.8$
Electric 74.5 83.6 (9.1)
Fiber Optics 34.5 33.0 1.5
Gas 11.6 8.5 3.1
Wastewater Collection 0.8 1.2 (0.4)
Wastewater Treatment (10.8)(10.5)(0.3)
Refuse 14.3 12.1 2.2
Storm Drainage 4.0 4.0 -
Airport (3.7)(4.4)0.7
Total Change in Reserves (Unrestricted)158.2$ 155.7$ 2.5$
Enterprise Funds
Change in Unrestricted (Deficit) Net Position
(In Millions)
Resource Impact
Recommended actions in the report will align the FY 2021 appropriations with final financial
activities as outlined in Attachment B. Overall, the City ended the FY 2021 in a positive net
position and in certain areas where net reserves were higher than estimated in the
development of the FY 2022 Adopted Budget, those additional funds will be included as part of
the FY 2022 budget balancing and rate setting activities.
Stakeholder Engagement
The review and writing of this report was coordinated among various divisions within the
Administrative Services Department, along with Departments who assisted in staff’s analysis.
The actions recommended in this report were discussed and communicated to the impacted
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departments.
Environmental Review
This is not a project for purposes of the California Environmental Quality Act.
.
Attachments:
• Attachment A Budget and Actuals
• Attachment B: Recommended FY 2021 Year-End Budget Actions
• Attachment C: FY 2021 Annual Comprehensive Financial Report (ACFR)
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GENERAL FUND SUMMARY ($000s)
FY 2021 FY 2021 FY 2021 FY 2021 FY 2021 FY 2021 FY 2021AdoptedAdjustedRev/Exp Allocated Encum /Actual Actual to
Budget Budget Actuals Charges Reappropriation Rev/Exp Adj Budget
Variance
RevenuesSales Tax 20,500 25,030 29,127 29,127 4,097
Property Tax 52,000 53,173 56,572 56,572 3,399
Transient Occupancy Tax 14,900 5,123 5,179 5,179 56
Documentary Transfer Tax 4,700 6,875 10,627 10,627 3,752
Utility User Tax 15,100 14,080 14,642 14,642 562
Other Taxes, Fines and penalties 1,925 392 683 683 290
Charges for Services 25,984 24,414 25,105 25,105 692
Permits and Licenses 7,770 8,366 7,261 447 7,708 (658)
Investment Earnings 1,145 1,145 1,063 1,063 (83)
Rental Income 15,949 15,331 13,293 13,293 (2,038)
From Other Agencies 2,448 4,580 3,828 394 4,222 (358)
Charges to Other Funds 11,992 11,992 11,661 11,661 (331)
Other Revenues 674 666 732 - 732 66
Total Revenues 175,088 171,168 168,112 11,661 841 180,615 9,447
Add: Operating Transfers In 21,359 21,151 21,151 21,151 -
Prior Year Encum / Reappropriation 7,570 7,570 7,570 -
Total Source of Funds 196,447 199,889 196,833 11,661 841 209,336 9,447
Expenditures 3,485 3,744 2,149 1,074 366 3,589 154
City Auditor 828 981 645 288 29 962 19
City Clerk 1,245 1,293 748 344 54 1,147 147
City Council 419 509 224 110 32 366 143
City Manager 3,161 3,562 2,304 1,070 117 3,492 71
Administrative Services 8,362 8,338 5,202 2,416 278 7,897 442
Community Services 28,379 28,839 26,254 203 1,312 27,769 1,069
Fire 33,607 35,355 34,918 163 274 35,354 0
Human Resources 3,554 3,622 2,421 1,088 36 3,545 77
Library 8,421 8,655 8,528 - 108 8,636 19
Office of Transportation 1,904 2,139 1,936 - 74 2,010 129
Planning and Development Services 17,386 19,611 15,830 247 2,705 18,782 830
Police 41,733 42,440 41,328 737 375 42,441 (0)
Public Works 18,397 19,089 13,265 3,920 1,368 18,553 536
Non-Departmental 8,237 9,332 4,599 - 4,659 9,260 71
Total Expenditures 179,118 187,509 160,352 11,661 11,787 183,803 3,707
Add: Operating Trans Out 4,334 4,326 4,326 - 4,326 -
Transfer to Infrastructure 13,467 9,294 9,294 - 9,294 -
Total Use of Funds 196,919 201,129 173,972 11,661 11,787 197,423 3,707
Net Surplus/(Deficit)(472) (1,240) 22,861 - (10,946) 11,913 13,153
(1,297)
(197)
10,946
(7,570)
Change in Fund Balance, GAAP Basis 13,795
0
Attachment A
Statement of Revenues, Expenditures and Change in Fund Balance - Budget and Actual
City Attorney
Adjustment to Budgetary Basis:
Unrealized gain/loss on investments
Chnages in interfund balances
Current year encumbrances / reappropriations
Prior year encumbrances / reappropriations
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Department Adjustment Adjustment
GENERAL FUND (102)
Fire Salaries & Benefits
This action reallocates funding as a result of higher than anticipated salary and benefit expenses in FY 2021.
These higher anticipated expenditures are due to several variables, including City Council approval at the
October 19, 2020 meeting to extend the attrition period for Firefighter positions that were frozen and
defunded in FY 2021 (CMR 11376) from December 2020 to March 2021. Additionally, the department
experienced higher than anticipated payments for disability/workers' compensation. These overages were
partially offset by overtime savings.
-$ 620,000$
Non-
Departmental
Transient Occupancy Tax/Transfer to Capital Improvement Fund
This action decreases the transfer to the Capital Improvement Fund as it relates to Transient Occupancy Tax
(TOT) revenues earmarked for city-wide infrastructure improvements due to lower than anticipated TOT
collections.
293,000$ 293,000$
Non-
Departmental
American Rescue Plan Act (ARPA) Funding/ARPA Reserve
This action decreases the estimates for ARPA in FY 2021. The City received one of two distributions in FY 2021
($6.85 million of the $13.7 million total), however, no expenditures occurred prior to year end. With this
action, staff will defer this funding to FY 2022 in accordance with Government Accounting Standards Board
(GASB) pronouncements that require agencies to recognize these distributions in the same period that the
related expenditures occur.
(6,850,000)$ (6,850,000)$
Non-
Departmental
Cubberley Community Center Lease with Palo Alto Unified School District (PAUSD) Reconciliation
This action appropriates $604,000 to true up lease payments to PAUSD for the Cubberley Community Center
that were underpaid in calendar year 2018 through the end of FY 2020. Funding was previously appropriated
in the FY 2020 Mid-Year Review (CMR 10959) to correct for this; however, the actual payments to PAUSD were
not updated to align with the increased budget in FY 2020. This will allow the City to pay past due rent to
PAUSD for the Cubberley Community Center and move forward in good standing with the current lease
agreement.
-$ 604,000$
Police Salaries & Benefits
This action reallocates funding as a result of higher than anticipated salary and benefit expenses in FY 2021.
These higher anticipated expenditures are due to several variables, including overtime to backfill vacancies
and critical public safety roles that were frozen and defunded in FY 2021 (CMR 11376). Additionally, the
department experienced higher than anticipated payments for disability/workers' compensation. These
overages were partially offset by salary savings.
-$ 175,000$
Public Works Departmental Expense Savings
This action reallocates departmental cost savings within the General Fund in order to offset departments with
higher than anticipated expenses in FY 2021. The Public Works Department realized a net General Fund cost
savings, primarily due to: salaries and benefits, resulting from hiring freezes and other citywide cost reduction
strategies; contract services, resulting from timing delays in procurement processes related to planned
maintenance projects; and supplies and materials, mostly due to delayed and postponed maintenance work
and repairs related to streets and sidewalks.
-$ (795,000)$
Public Works Transfer from Gas Tax Fund/Streets Maintenance
This action decreases the transfer from the Gas Tax Fund/Streets Maintenance Fund from $196,000 to $96,000
due to lower than anticipated Gas Tax revenues. This reduction resulted in minimal impacts to streets
maintenance work, due to reduced capacity as a result of vacancies in the department.
(100,000)$ (100,000)$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset adjustments recommended in this report.
-$ (604,000)$
GENERAL FUND (102) SUBTOTAL (6,657,000)$ (6,657,000)$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
2.b
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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.
-$ 4,500,044$
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 2021.
293,000$ -$
Capital Transfer from Gas Tax Fund/Street Maintenance (PE-86070)
This action decreases the transfer from the Gas Tax Fund due to actual revenue collected
being lower than budgeted in FY 2021. A corresponding transfer is recommended from the Gas
Tax Fund to the Capital Improvement Fund. The $18,000 commensurate reduction in expenses
are reflected in the Street Maintenance capital project (PE-86070) as outlined in Attachment
B, Exhibit 2.
(18,000)$ -$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset adjustments recommended in this report.
-$ (4,225,044)$
GENERAL FUND CAPITAL IMPROVEMENT FUND (471) SUBTOTAL 275,000$ 275,000$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
2.b
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Department Adjustment Adjustment
INTERNAL SERVICE FUNDS
WORKERS' COMPENSATION FUND (688)
Human
Resources
1,500,000$ -$
Human
Resources
Charges to Other Funds
This action increases the estimate for charges to other funds by $1.5 million ($1.0 million in
the General Fund) in alignment with actuarial analysis in August 2021 for workers'
compensation claims Incurred But Not Reported (IBNR) in FY 2021 at $2.1 million. Of this
amount, $1.5 million was charged to departments to offset this expense and maintain a
positive fund balance. Departments had sufficient savings at the end of FY 2021 to support the
additional costs and did not require budgetary adjustments.
Insurance Claims Paid
This action increases the appropriation for insurance claims expense by $1.5 million in
alignment with updated actuarial analysis in August 2021 for workers' compensation claims
Incurred But Not Reported (IBNR) in FY 2021 at $2.1 million. The IBNR claims expense has
been fully recognized in FY 2021 and recovered through additional allocations to
departments.
1,500,000$
WORKERS' COMPENSATION FUND (688) SUBTOTAL 1,500,000$ 1,500,000$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
2.b
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Department Adjustment Adjustment
SPECIAL REVENUE FUNDS
PUBLIC ART FUND (207)
Non-
Departmental
Salaries and Benefits
This action increases the salaries and benefits appropriation in the Public Art Fund to align with
slightly higher than anticipated expenses in FY 2021.
-$ 3,000$
Non-
Departmental
Art Fee Revenues
This action increases the estimate for Art Fee revenue as a result of higher than anticipated revenues
collected in FY 2021.
91,930$ -$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset adjustments recommended in this report.
-$ 88,930$
PUBLIC ART FUND (207) SUBTOTAL 91,930$ 91,930$
GAS TAX FUND (231)
Non-
Departmental
State of California Revenue: Gas Tax/Transfer to Capital Improvement Fund and General Fund
This action decreases the revenue estimate for State of California Gas Tax allocations to align with
lower than anticipated actuals during the period. In FY 2021, the total allocation to the City was $2.79
million, which was $41,500 lower than the preliminary estimate of $2.83 million from the State
Department of Finance. Additionally, in order to restore a positive fund balance in the Gas Tax Fund,
transfers to the General Fund and Capital Improvement Fund are reduced by $118,000. This funding is
used for transportation and traffic-related capital projects such as the Street Maintenance Capital
Improvement Project (PE-86070) and streets maintenance work in the Public Works Department.
(41,500)$ (118,000)$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset adjustments recommended in this report.
-$ 76,500$
GAS TAX FUND (231) SUBTOTAL (41,500)$ (41,500)$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
2.b
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Department Adjustment Adjustment
DEBT SERVICE & AGENCY TRUST FUNDS
2021 PUBLIC SAFETY BUILDING COP FUND (363)
Administrative
Services
Bond Proceeds/Debt Service Payment
This action recognizes bond proceeds from the sale of certificates of participation to fund
construction of the Public Safety Building capital project. This action also appropriates funding
for the first interest only debt service payment.
6,029,400$ 1,408,300$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset adjustments recommended in this report.
-$ 4,621,100$
2021 PUBLIC SAFETY BUILDING COP FUND (363) SUBTOTAL 6,029,400$ 6,029,400$
UNIVERSITY AVENUE PARKING ASSESSMENT AGENCY FUND (775)
Administrative
Services
Contract Services
This action increases the appropriation for Contract Services within the fund to align budget
levels with actual expenditures in FY 2021.
-$ 13,000$
Fund Balance Adjustment to Fund Balance
This action adjusts the fund balance to offset adjustments recommended in this report.
-$ (13,000)$
UNIVERSITY AVENUE PARKING ASSESSMENT AGENCY FUND (775) SUBTOTAL -$ -$
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 BUDGET
Revenues Expenses
ATTACHMENT B, EXHIBIT 1
2.b
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Project
Number Title Revenue Expense Comments
AS-10000 Capital Improvement Fund Administration $ (562,800) Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PG-06003 Benches, Signage, Walkways, Perimeter
Landscaping, and Site Amenities
$ 1,071 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-13011 Charleston/Arastradero Corridor Project $ 3,171,040 Adjustment to increase project in FY 2021 with a
commensurate reduction in FY 2022 (CMR 12397
technical clean-up action) due to project
expenses anticipated in FY 2022 being
completed sooner in FY 2021.
PE-17009 City Hall Floor 5 Remodel $ 1,021 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PF-14002 Fire Station 1 Improvements $ 3,623 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-11011 Highway 101 Pedestrian/Bicycle Overpass
Project
$ 334,031 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
OS-00001 Open Space Trails and Amenities $ 105,086 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PO-89003 Sidewalk Repairs $ 91,068 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PO-05054 Street Lights Improvements $ 26,900 Adjustment to allocate Salaries and Benefits
across capital projects based on actual
expenditures
PE-86070 Street Maintenance $ 1,329,004 Adjustment to align project expenses with actual
revenue received from Gas Tax fund transfers ($-
18,000); actual salaries and benefits
($+117,230); and a commensurate reduction in
FY 2022 (CMR 12397 technical clean-up action)
due to project expenses anticipated in FY 2022
being completed sooner in FY 2021
($+1,229,774).
Total $ - $ 4,500,044
ELECTRIC FUND
EL-14000 Coleridge/Cowper/Tennyson 4/12kV
Conversion
$ 18,934 Increase to project due to higher than
anticipated expenditures with a commensurate
expense reduction in EL-11010, which had some
project savings.
EL-02010 SCADA System Upgrades $ 9,969 Increase to project due to higher than
anticipated expenditures with a commensurate
expense reduction in EL-11010, which had some
project savings.
EL-11010 Underground District 47-Middlefield,
Homer, Webster, Addison
$ (28,903) Decrease to project due to lower than
anticipated expenditures to offset overspent
projects.
Total $ - $ -
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 CAPITAL IMPROVEMENT PROGRAM
ATTACHMENT B, EXHIBIT 2
CAPITAL IMPROVEMENT FUND
2.b
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Project
Number Title Revenue Expense Comments
CITY OF PALO ALTO
RECOMMENDED AMENDMENTS TO THE CITY MANAGER'S FY 2021 CAPITAL IMPROVEMENT PROGRAM
ATTACHMENT B, EXHIBIT 2
FO-10001 Fiber Optics Network - System
Improvements
$ (4,690) Decrease to project due to lower than
anticipated expenditures to offset overspent
projects.
FO-16000 Fiber Optics Network - System Rebuild $ 4,690 Increase to project due to higher than
anticipated expenditures with a commensurate
expense reduction in FO-16000, which had some
project savings.
Total $- $-
GS-18000 Gas ABS/Tenite Replacement Project $ (126,806) Decrease to project due to lower than
anticipated expenditures to offset overspent
projects.
GS-80017 Gas System, Customer Connections $ 126,806 Increase to project due to higher than
anticipated expenditures with a commensurate
expense reduction in GS-18000, which had some
project savings.
Total $- $-
SD-19000 Loma Verde Avenue Trunk Line
Improvements
$ (20,016) Decrease to project due to lower than
anticipated expenditures to offset overspent
projects.
SD-20000 West Bayshore Road Pump Station $ 20,016 Increase to project due to higher than
anticipated expenditures with a commensurate
expense reduction in SD-19000, which had some
project savings.
Total $- $-
WC-80020 Sewer System, Customer Connections $ 25,888 Increase to project due to higher than
anticipated expenditures with a commensurate
expense reduction in WC-16001, which had
some project savings.
WC-16001 Wastewater Collection System
Rehabilitation/Augmentation Project 29
$ (25,888) Decrease to project due to lower than
anticipated expenditures to offset overspent
projects.
Total $- $-
WS-80014 Water Service and Hydrant Replacement $ (152,523) Decrease to project due to lower than
anticipated expenditures to offset overspent
projects.
WS-80013 Water System Customer Connections $ 152,523 Increase to project due to higher than
anticipated expenditures with a commensurate
expense reduction in WS-80014, which had
some project savings.Total $- $-
TOTAL CIP ADJUSTMENTS $-$ 4,500,044
WATER FUND
WASTEWATER COLLECTION FUND
FIBER FUND
GAS FUND
STORMWATER MANAGEMENT FUND
2.b
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ANNUAL COMPREHENSIVE
FINANCIAL REPORT
CITY OF PALO ALTO
CALIFORNIA
FISCAL YEAR ENDED
JUNE 30, 2021
2.c
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CITY OF
PALO
ALTO
Fiscal Year 2021
Annual Comprehensive
Financial Report
City of Palo Alto, CA
Fiscal Year Ended June 30, 2021
City Council
Tom DuBois, Mayor
Patrick Burt, Vice Mayor
Alison Cormack
Eric Filseth
Lydia Kou
Greer Stone
Greg Tanaka
Ed Shikada, City Manager
Kiely Nose, Director of Administrative Services/Chief Financial Officer
Prepared by: Administrative Services Department
2.c
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2.c
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CITY OF PALO ALTO
For the Year Ended June 30, 2021
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 ....................................................................................................... 31
Statement of Activities ............................................................................................................ 33
Governmental Fund Financial Statements:
Balance Sheet .......................................................................................................................... 35
Reconciliation of the Balance Sheet of Governmental Funds to
the Statement of Net Position ‐ Governmental Activities ................................................. 36
Statement of Revenues, Expenditures and Changes in Fund Balances .................................. 37
Reconciliation of the Statement of Revenues, Expenditures and Changes
in Fund Balances of Governmental Funds to the Statement of Activities –
Governmental Activities ................................................................................................... 38
Statement of Revenues, Expenditures and Changes in Fund Balance –
Budget and Actual – General Fund ................................................................................... 39
Proprietary Fund Financial Statements:
Statement of Net Position ....................................................................................................... 40
Statement of Revenues, Expenses and Changes in Fund Net Position ................................... 42
Statement of Cash Flows ......................................................................................................... 44
Fiduciary Fund Financial Statement:
Statement of Fiduciary Net Position ....................................................................................... 46
Statement of Changes in Fiduciary Net Position ..................................................................... 47
Index to the Notes to the Basic Financial Statements ................................................................. 49
Notes to the Basic Financial Statements ...................................................................................... 51
Required Supplementary Information:
Schedule of Changes in Net Pension Liability and related Ratios – Miscellaneous Plan ............. 109
Schedule of Pension Contributions – Miscellaneous Plan ........................................................... 110
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CITY OF PALO ALTO
For the Year Ended June 30, 2021
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 ............................................................................................... 116
Non‐Major Special Revenue Funds:
Combining Balance Sheet ...................................................................................................... 118
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 120
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 122
Non‐Major Debt Service Funds:
Combining Balance Sheet ...................................................................................................... 128
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances ............................................................................................... 129
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................. 130
Non‐Major Permanent Fund:
Schedule of Revenues, Expenditures and
Changes in Fund Balance – Budget and Actual ............................................................... 132
Internal Service Funds:
Combining Statement of Fund Net Position .......................................................................... 134
Combining Statement of Revenues, Expenses and
Changes in Fund Net Position ......................................................................................... 135
Combining Statement of Cash Flows ..................................................................................... 136
Fiduciary Funds:
Combining Statement of Fiduciary Net Position – Custodial Funds ...................................... 138
Combining Statement of Changes in Fiduciary Net Position – Custodial Funds ................... 139
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CITY OF PALO ALTO
For the Year Ended June 30, 2021
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
Power Supply Resources .............................................................................................................. 150
Supplemental Disclosure for Water Utilities ............................................................................... 151
Supplemental Disclosure for Gas Utilities .................................................................................... 152
Assessed Value of Taxable Property ............................................................................................ 153
Property Tax Rates, All Overlapping Governments ..................................................................... 154
Property Tax Levies and Collections ............................................................................................ 155
Principal Property Taxpayers ....................................................................................................... 156
Assessed Valuation and Parcels by Land Use .............................................................................. 157
Per Parcel Assessed Valuation of Single Family Residential ........................................................ 158
Debt Capacity:
Ratio of Outstanding Debt by Type .............................................................................................. 159
Computation of Direct and Overlapping Debt ............................................................................. 160
Computation of Legal Bonded Debt Margin ................................................................................ 161
Revenue Bond Coverage .............................................................................................................. 162
Demographic and Economic Information:
Taxable Transactions by Type of Business ................................................................................... 163
Demographic and Economic Statistics ......................................................................................... 164
Principal Employers...................................................................................................................... 165
Operating Information:
Operating Indicators by Function/Program ................................................................................. 166
Capital Asset Statistics by Function/Program .............................................................................. 168
Full‐Time Equivalent City Government Employees by Function .................................................. 170
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Introduction
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City of Palo Alto i
Transmittal Letter…………………………………………………...…
OFFICE OF THE CITY MANAGER
250 Hamilton Ave, 7th Floor
Palo Alto, CA 94301
650.329.2692
November 15, 2021
THE HONORABLE CITY COUNCIL
Palo Alto, California
ANNUAL COMPREHENSIVE FINANCIAL REPORT
YEAR ENDED JUNE 30, 2021
Members of the Council and Citizens of Palo Alto:
I am pleased to present the Annual Comprehensive Financial Report (ACFR) for the fiscal year ended
June 30, 2021 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 ACFR complies with the principles and standards of accounting
and financial reporting adopted by the Governmental Accounting Standards Board (GASB), and
contains all information needed for readers to gain a reasonable understanding of City of Palo Alto
(City) financial affairs. Management takes sole responsibility for the completeness and reliability of
the information contained in this report, based upon a comprehensive framework of internal control
that it has established for this purpose. The objective of internal controls is to provide reasonable,
rather than absolute, assurance that the financial statements are free of any material misstatements.
The City’s financial statements have been audited by Macias Gini & O’Connell LLP, Certified Public
Accountants (MGO). The goal of the audit is to obtain reasonable assurance that the financial
statements are free of material misstatements and are fairly presented in conformity with generally
accepted accounting principles (GAAP). MGO issued an unmodified opinion for the fiscal year ended
June 30, 2021. Their report is presented as the first component of the financial section of this report.
While MGO has issued an unmodified opinion for this report, information and the contents of this
report is the responsibility of the City.
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 ACFR. MD&A complements this
transmittal letter and should be read in conjunction with it.
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Introduction
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ii City of Palo Alto
CITY OF PALO ALTO PROFILE
The City was incorporated in 1894 and named after a majestic coastal redwood tree which lives along
the San Francisquito Creek where early Spanish explorers settled. Located between the cities of San
Francisco and San Jose, the City is a largely built-out community of approximately 66,573 residents.
The City delivers a full range of municipal services and public utilities under the Council-Manager form
of government and offers an outstanding quality of life for its residents. It covers an area of twenty-
six square miles and has dedicated almost one-half of the area to open spaces of parks and wildlife
preserves. Public facilities include five libraries, four community centers, a cultural arts center, an
adult and children’s theater, a junior museum and zoo, an airport, 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: The seven members are elected at-large for four-year staggered terms. At the first
meeting of each calendar year, Council elects a Mayor and Vice-Mayor from its membership, with the
Mayor having the duty of presiding over Council meetings. Council is the appointing authority for the
positions of City Manager and three other officials, the City Attorney, City Clerk, and City Auditor, all
of whom report to Council.
Finance Committee and Policy and Services Committee: While retaining the authority to approve all
actions, Council has established two subcommittees, the Finance Committee and the Policy and
Services Committee. The Finance Committee considers and makes recommendations on matters
relating to finance, budget, financial audits, capital planning and debt. Each subcommittee is
comprised of three Council members. Staff provides the subcommittees and Council with reports such
as the ACFR, quarterly budget-versus-actual results, and various planning reports, all of which are
utilized in their review of the City’s financial position.
FISCAL/ECONOMIC CONDITIONS AND OUTLOOK
The City declared a state of emergency in March 2020 and the world began to grapple with the impacts
of the novel coronavirus (COVID-19), a global pandemic, and the ensuing public health emergency.
While the Fiscal Year 2020 Adopted Budget saw the most significant immediate impacts as shelter in
place orders were instituted in the County of Santa Clara and State of California, work on Economic
Recovery began in Fall 2020, prior to the City Council setting this priority in January 2021. These
financials reflect the one full year of the economic impacts of the pandemic – the stark, immediate
results stemming from shelter in place orders through promising third calendar quarter results and
widespread distribution of the COVID-19 vaccine. Throughout these times, several conversations with
the City Council occurred in 2020 and 2021 that resulted in the Community and Economic Recovery
workplan. This workplan includes several priority projects that connect the City Council’s Priorities and
ensure organization support and capacity to further recovery efforts.
Employment Trends: The City is located in the heart of Silicon Valley and is adjacent to Stanford
University, one of the premier institutions of higher education in the nation which has produced much
of the talent that founded many successful high-tech companies in Palo Alto and Silicon Valley. With
varied historically and relatively stable employers such as Lucille Packard Children’s Hospital, Stanford
Health Care, Stanford University, Veteran’s Affairs Palo Alto Healthcare System, Palo Alto Medical
Foundation, Palo Alto Unified School District, Stanford Shopping Center and businesses such as
Hewlett-Packard, VMware, Tesla, SAP labs Inc. and Space Systems Loral, Palo Alto has enjoyed diverse
employment and revenue bases. As of June 2021, the City’s unemployment rate was 3.2 percent
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Introduction
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City of Palo Alto iii
compared to the prior year level of 5.7 percent. The County of Santa Clara’s unemployment rate was
5.2 percent compared to the prior year level of 10.7 percent. The State of California’s unemployment
rate was 8.0 percent, compared to the prior year level of 14.9 percent. These levels are lower than FY
2020 but are still significantly higher than recent years as many businesses were forced to adjust their
workforce and operations were severely restricted by the COVID-19 shelter in place orders.
Real Estate Market: The 2020-2021 County of Santa Clara Assessor’s Annual Report noted that the
County of Santa Clara’s annual assessment roll increased by $35.5 billion to $551.5 billion, a 6.87
percent increase over the prior year. Palo Alto’s assessment roll represents 7.69 percent of the County
of Santa Clara’s assessment roll and grew 7.77 percent over the prior year to $42.4 billion. Per the
Santa Clara County Association of Realtors, home prices in Palo Alto remain well above the County of
Santa Clara’s average at $4.0 million as of second quarter 2021. According to Newmark, a company
that tracks real estate trends throughout the county, the average asking rent in Palo Alto for
commercial space during the second quarter of 2021 was $6.88 per square foot. Based on this report,
leasing activities are rebounding, after a sluggish start in calendar year 2021. Despite continuing
struggles between executives and employees as it relates to the push to return to offices, the
continued focus on distribution of the vaccine, and increase confidence in the second half of calendar
year 2021 will influence how quickly leasing activities will recover.
Local Trends: Mixed economic opinions and indicators existed at the time the FY 2021 budget was
developed. It is important to recall that the actions and leadership of the City Council quickly
recognized and worked to address these impacts. On March 16, 2020, the State of California and the
County of Santa Clara ordered Shelter in Place directives to slow the spread of COVID-19, which
continued into FY 2021. Prior to COVID-19 and after, the Bay Area economy had sustained better
performance than the state and the nation. Disruptions caused by COVID-19 are both widespread and
significant to Palo Alto, the state and nation’s economic environment and community. The City’s
unemployment has been elevated since the pandemic hit the region, however, the rate is significantly
lower than national, State of California, and County of Santa Clara’s unemployment rates. Job growth
is tepid. Economically sensitive revenue sources in FY 2020 and/or FY 2021, such as transient
occupancy tax, sales and utility user’s taxes have significantly declined while documentary transfer and
property taxes have been resilient with a healthy growth, however, future years will be monitored
closely.
General Fund Balancing and Results: The FY 2021 budget was developed as the world grappled with
COVID-19, a global pandemic with unknown financial implications impacting regional, national and
global economies in response to shelter in place orders and related social distancing restrictions. The
City Council provided direction to build the FY 2021 budget assuming a loss of $39.0 million in General
Fund tax revenues in FY 2021. Overall, the City’s General Fund was adopted to collect $196.4 million
in revenues and $196.9 million in expenditure, a 15 percent reduction compared to the FY 2020
Adopted Operating Budget. In the General Fund, full-time staffing was reduced from 574.43 FTE to
509.91 FTE (a reduction of 64.52 FTE) and part-time staffing was reduced from 81.31 FTE to 55.61 FTE
(a reduction of 25.70 FTE). Prioritizing essential services and reducing or eliminating discretionary
services was reflected in this budget and achieved through compiling feedback throughout the May
and June budget sessions with the City Council. Notwithstanding the service delivery reductions
reflected in this budget, the budget balancing strategy ensured that the City continued to proactively
pay for long term liabilities, maintained capital investments in its most critical infrastructure, provided
resources for the City to successfully adapt from shelter in place to future service delivery models, and
established funding to ensure those service delivery transitions.
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iv City of Palo Alto
Despite the financial constraints, the City maintained its commitment to addressing its long-term
liabilities. Contributions towards the City’s long-term pension obligations and other post- employment
obligations were maintained this fiscal year including payment to trust funds. These were made
possible by cost containment strategies utilized across the organization over the past several years. In
addition to the City’s past practice of planning for staffing costs contained in the agreed upon labor
terms outlined in memorandums of agreement, CalPERS-determined retirement contribution levels,
and a vacancy factor in the General Fund, proactive pension funding contributions to the City’s
irrevocable Section 115 Pension Trust Fund were achieved in FY 2021. In the General Fund, this
resulted in $3.0 million in additional contributions from various departments and reflects what
retirement costs would be if the “normal cost” of contributions was budgeted at a 6.2 percent discount
rate (CalPERS is currently at a 7.0 percent discount rate). As of June 30, 2021, the City’s irrevocable
pension trust fund has a total of $32.3 million in Citywide contributions (excluding earnings from
investments), of which $21.0 million is from the General Fund.
As the community grappled with the various impacts of COVID-19, the City took a hard look at both
the operating and capital budgets and prioritized essential services, pared back discretionary items,
and continued to monitor impacts the global pandemic had on the City’s major revenue sources and
economic sectors. In addition to these challenges, the City remained focused on maintaining high
quality services with the resources available, while addressing issues facing the City as well as the state,
and nation. These issues were reflected in the setting of Council priorities for 2021:
• Economic Recovery
• Housing for Social and Economic Balance
• Social Justice
• Climate Change - Protection and Adaptation
Progress continues to be made on these priorities, which require long-term strategies. The FY 2021
budget established a number of COVID-19 related reserves to address needs of the City organization
and the community during shelter in place, as well as planning for transition to the “new normal” after
restrictions were lessened.
In FY 2014, the City Council approved a $125.8 million Infrastructure Plan (IP), which included projects
such as a new Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan, and
two parking garages. As part of the development of the 2021-2025 Capital Improvement Plan (CIP),
the IP projects were updated for scope increases and cost escalations, resulting in a revised
Infrastructure Plan of $260.5 million. These projects will be funded partially by debt to be repaid with
voter-approved increases of 3.5 percent in the transient occupancy tax (TOT) rate and from other
sources such as impact fees and Stanford University Medical Center development agreement monies.
The 2021-2025 CIP assumed the opening of new Marriott hotels in FY 2021; however, as a result of the
public health emergency and its impact on revenues, the annual TOT funding is not estimated to cover
the cost of the debt service related to the IP projects for several years. Staff is continually revising these
figures and adjusting and planning for these impacts in order to maintain funding for the City’s most
critical infrastructure improvements.
Due to the COVID-19 pandemic, the City Council aimed to provide economic relief for residential and
commercial customers by directing staff to maintain flat rates without compromising the safety and
integrity of the utility systems. Rates increased in 2021 for gas, stormwater, and fiber 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
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City of Palo Alto v
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
LRFF was developed prior to the COVID-19 pandemic, at a time when national, state, and local
economic indicators were mixed. Unemployment remained low, job growth slowed, and international
trade had negative impacts on economic data.
The FY 2021-2030 LRFF was presented to the Finance Committee in December 2019 and approved by
the City Council in February 2020. The forecast anticipated a small surplus in FY 2021 followed by
annual gaps in FY 2022 through 2025, before the revenues outpaced the expenses in FY 2026 and
beyond. Staff identified and recommended a course of action that would structurally balance the
General Fund in FY 2021 and largely balance the General Fund on an ongoing basis. The FY 2021 budget
included a proactive pension funding contribution to the City’s irrevocable Section 115 Pension Trust
Fund and reflected what retirement costs would be if the “normal cost” of contributions was budgeted
at a 6.2 percent discount rate compared to the CalPERS estimated 7.0 percent discount rate.
Subsequent to the development of the LRFF, revenue and expense numbers were revised based on
estimated impacts from the pandemic to recalculate the budget and reflect changes in revenues and
expenses to incorporate policy direction from City Council issued after the LRFF to prioritize essential
services and pare back discretionary services as discussed in the General Fund Balancing and Results
section above.
Both Moody’s and Standard and Poor’s (S&P) awarded their highest credit rating of Triple A to the
City’s general obligation bonds. This rating has been awarded to only a few cities in the State of
California.
SIGNIFICANT EVENTS AND ACCOMPLISHMENTS
The City is a community dedicated to meeting the social, cultural, recreational,
educational, commercial, and retail needs of its citizens and businesses. As such,
open space, education, recreational facilities, cultural events and safe streets
and neighborhoods are important aspects of the community and the City has
been recognized for its accomplishments with a wide variety of awards and
recognitions over the past year. Following is a sampling of those awards and
accomplishments:
• Applied for and awarded the Bike Friendly Communities Gold-level Status.
• Received Santa Clara County Supervisor’s Medal for Outstanding Service for staff contributions
and efforts in areas of auto theft and community service.
• Received the Reliable Public Power Provider (RP3) award from American Public Power
Association (APPA) for industry-recognized leading practices in reliability & safety.
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Introduction
…….…………………………………………………………………………………………….
vi City of Palo Alto
•Received the Smart Energy Provider Award from American Public Power Association (APPA),
which recognizes utilities for demonstrating commitment and accomplishment in smart
energy program planning; energy efficiency and distributed energy resources; environmental
and sustainability programs; and communication and customer experience.
•Launched a robust Race & Equity framework and initiative and partnered with local community
organizations and stakeholders.
•Established the Uplift Local program to expand outdoor dining, retail, and more, generally
supporting the business community and connecting the broader Palo Alto community together
during challenging economic and public health emergencies. Continued to support key
business districts such as Downtown Palo Alto, California Avenue, and the Stanford Shopping
Center.
•Responded to the COVID-19 pandemic by participating in the City's Emergency Operations
Center and quickly developing policies and protocols to protect firefighters and patients by
minimizing exposure.
•Opened Foothills Nature Preserve to all visitors and partnered with the Environmental
Volunteers and other volunteers to create a welcome video for the Preserve.
•Awarded the construction contract for the Public Safety Building, a 2014 Infrastructure Plan
Project, and associated debt financing.
•Substantially completed the Junior Museum and Zoo rebuilding project after 10 years in the
making, with all new exhibits designed by JMZ staff, a re-imagined zoo with new animals, and
a focus on inclusion, accessibility, and the highest standards in animal care. It is expected to
open in Fall 2021.
•Completed construction of the new California Avenue Area Parking Garage project.
Awards: During the past year, the City received an award for the prior fiscal year (2020) ACFR from
the Government Finance Officers Association (GFOA) for “excellence in financial reporting.” The 2021
ACFR will be submitted to the GFOA award program to be considered for this distinguished financial
reporting award.
Acknowledgments: This ACFR 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 MGO, the City’s independent external
auditors, who assisted and contributed to the preparation of this Annual Comprehensive Financial
Report.
Special acknowledgment must be given to City Council and the Finance and Policy and Services
Committees for their dedication to directing the financial affairs of the City in a responsible,
professional and progressive manner.
Respectfully submitted,
KIELY NOSE ED SHIKADA
Chief Financial Officer City Manager
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Introduction
……….…………………………………………………………………………………………….
City of Palo Alto vii
City of Palo Alto City Officials ………………………….…………
Council-Appointed Officers
City Manager
Ed Shikada
City Attorney
Molly Stump
City Clerk
Lesley Milton
City Auditor
Kyle O'Rourke
City Council
Tom DuBois, Mayor
Patrick Burt, Vice-Mayor
Alison Cormack
Eric Filseth
Lydia Kou
Greer Stone
Greg Tanaka
Finance Committee
Alison Cormack, Chair
Patrick Burt
Eric Filseth
Policy and Services Committee
Lydia Kou, Chair
Greer Stone
Greg Tanaka
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Introduction
…….…………………………………………………………………………………………….
viii City of Palo Alto
City Attorney
Molly Stump
City Manager*
Ed Shikada
City Auditor
Kyle O'Rourke City Clerk
Lesley Milton
City of Palo Alto Organization ……………………………………
1
* The Office of Transportation is situated in the City Manager’s Office.
Community Services
Kristen O’Kane, Director
Administrative Services
Kiely Nose, Director/Chief Financial Officer
Fire Department
Geoffrey Blackshire, Chief
Human Resources
Rumi Portillo, Director/Chief People Officer
Police Department
Robert Jonsen, Chief
Planning & Development Services
Jonathan Lait, Director
Utilities
Dean Batchelor, Director
Public Works
Brad Eggleston, Director
Library
Gayathri Kanth, Director
Office of Emergency Services
Kenneth Dueker, Director
Information Technology
Darren Numoto,
Chief Information Officer
Palo Alto Residents
City Council
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Introduction
……….…………………………………………………………………………………………….
City of Palo Alto ix
Administrative Services Organization ………
Administrative Services Department
Administrative Division Treasury Division
Accounting Division Office of Management & Budget
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.
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Introduction
…….…………………………………………………………………………………………….
x City of Palo Alto
Government Finance Officers Association of
the United States and Canada – Award ……
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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, 2021, 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.
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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, 2021, 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, as of July 1, 2020, the City implemented
Governmental Accounting Standards Board (GASB) Statement No. 84, Fiduciary Activities. Our opinions
are 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, the schedules
of pension contributions, the schedule of changes in net OPEB liability and related ratios, and the schedule
of employer OPEB contributions, as listed in the table of contents, be presented to supplement the basic
financial statements. Such information, although not a part of the basic financial statements, is required by
the GASB who considers it to be an essential part of financial reporting for placing the basic financial
statements in an appropriate operational, economic, or historical context. We have applied certain limited
procedures to the required supplementary information in accordance with auditing standards generally
accepted in the United States of America, which consisted of inquiries of management about the methods
of preparing the information and comparing the information for consistency with management’s responses
to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the
basic financial statements. We do not express an opinion or provide any assurance on the information
because the limited procedures do not provide us with sufficient evidence to express an opinion or provide
any assurance.
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
comprise the City’s basic financial statements. The introductory section, combining and individual
nonmajor fund financial statements and schedules, and statistical section, 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 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 are fairly stated, in all material respects,
in relation to the basic financial statements as a whole.
The introductory and statistical sections have not been subjected to the auditing procedures applied in the
audit of the basic financial statements, and accordingly, we do not express an opinion or provide any
assurance on them.
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Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated
November 15, 2021 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 15, 2021
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City of Palo Alto 5
Management’s Discussion and Analysis (Unaudited)
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, 2021. 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. Certain balances for prior year are reclassified to conform with current year
presentation.
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) 2021 by $1.2 billion. Of this amount, $24.1
million represents unrestricted net position, which may be used to meet the government’s ongoing
obligations to citizens and creditors.
The City’s total net position is $1.2 billion, an increase of $4.8 million, or 0.4 percent over the prior
fiscal year. Of this amount, $22.2 million was generated by business‐type activities and offset by a
decrease of $17.4 million by governmental activities.
The City’s total outstanding long‐term debt increased by $99.4 million during the current fiscal year
due to the issuance of Certificates of Participation (COPs) amounting to $101.5 million plus a $6.5
million premium to finance the construction of a public safety building, offset by the scheduled debt
retirements.
At the close of FY 2021, the City’s governmental funds reported total fund balances of $365.6 million,
an increase of $98.9 million from the prior year. Approximately 13.4 percent of this amount, or $49.1
million, is unassigned fund balance and available for spending at the City’s discretion.
At the end of the current fiscal year, unrestricted fund balance (the total of the committed, assigned
and unassigned components of fund balance) for the General Fund was $66.3 million, or 38.1 percent
of total General Fund expenditures, including transfers.
In May 2021, the City received the first half of its total $13.7 million American Rescue Plan Act of 2021
(ARPA) allocation. The first distribution of $6.9 million was recorded as unearned revenue at
June 30, 2021 as the funds are not earned nor spent. The second distribution is expected in May 2022.
The City implemented the Governmental Accounting Standards Board (GASB) Statement No. 84,
Fiduciary Activities, effective fiscal year ended June 30, 2021. The statement establishes criteria for
identifying fiduciary activities of all state and local governments. The City evaluated all funds and
activities in accordance with the statement and determined that the Cable Joint Powers Authority and
the assessment district activities previously reported as agency funds should be reported as custodial
funds.
OVERVIEW OF THE ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR)
The ACFR is presented in five 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 the Basic Financial Statements
Required and Other Supplemental Information
Statistical Information
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City of Palo Alto 6
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 Development Services, Office of Transportation, Police, Fire, Community Services,
and Library. These services are supported by City’s general revenues such as taxes, and by specific program
revenues such as fees and grants.
The City’s governmental activities also include the activities of the Palo Alto Public Improvement Corporation,
which is a separate legal entity financially accountable to the City.
Business‐type Activities
All of the City’s enterprise activities are reported as business‐type activities, including Water, Electric, Fiber
Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse, Storm Drainage, and Airport. Unlike
governmental services, these services are intended to recover all or a significant portion of their costs through
user fees and charges.
The Government‐wide Financial Statements can be found on pages 31‐33 of this report.
Fund Financial Statements
The Fund Financial Statements provide detailed information about each of the City’s most significant funds,
called major funds. The concept of major funds, and the determination of which funds are major funds, was
established by GASB Statement No. 34. Each major fund is presented individually and all non‐major funds are
combined in a single column on each fund statement. Supplemental schedules display these non‐major funds
in more detail. 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. Fund Financial Statements include Governmental, Proprietary, and Fiduciary Funds.
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City of Palo Alto 7
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‐term assets,
along with long‐term liabilities, are presented only in the Government‐wide Financial Statements. In FY 2021,
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 column for presentation. Individual fund data for each
of these non‐major governmental funds is provided in the Supplemental Information section of this report.
Since 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 35‐39 of this report.
Proprietary Funds
Enterprise and Internal Service Fund Financial Statements are prepared on the full accrual basis of accounting,
similar to the basis of accounting that is used by private sector companies. These statements include all of the
current and long‐term assets, deferred outflows of resources, current and long‐term liabilities, and deferred
inflows of resources.
The City’s Internal Service Funds provide goods and services exclusively to the City’s governmental and
business‐type activities. Internal Service Funds 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 position of the Internal Service Funds.
The Proprietary Fund Financial Statements can be found on pages 40‐45 of this report.
Fiduciary Funds
Fiduciary funds are used to account for assets held by the City acting in a fiduciary capacity for other entities
and individuals. Custodial Funds are fiduciary funds used to report fiduciary activities that are not required to
be reported in pension (and other employee benefit) trust funds, investment trust funds, or private purpose
trust funds. These include balances and activities of the Cable Joint Powers Authority and the assessment
district. The financial activities of these funds are excluded from the government‐wide financial statements,
but are presented in separate fiduciary fund financial statements.
The Fiduciary Fund Financial Statement can be found on pages 46 and 47 of this report.
Notes to the Basic Financial Statements
The Notes to the Basic Financial Statements 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 51‐108 of this report.
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City of Palo Alto 8
Required and Other Supplemental Information
The Required Supplementary Information related to the City’s pension and Other Post‐Employment Benefits
(OPEB) plans is included after the Notes to the Basic Financial Statements on pages 109‐114. The combining
statements and individual fund statements and schedules referred to earlier in connection with non‐major
Governmental Funds and Internal Service Funds are presented immediately following the Required
Supplementary Information and can be found on pages 115‐139 of this report.
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 ended June 30, 2021. As noted earlier, the City’s total assets and deferred
outflows of resources exceeded total liabilities and deferred inflows of resources by $1.2 billion at the end of
the fiscal year, an increase in net position of $4.8 million.
CONDENSED STATEMENT OF NET POSITION
As of June 30
(in millions)
2021 2020 2021 2020 2021 2020
Cash and investments 443.4$ 342.8$ 285.6$ 277.4$ 729.0$ 620.2$
Other assets 76.6 60.5 47.7 52.8 124.3 113.3
Capital assets 602.0 596.3 708.5 693.2 1,310.5 1,289.5
Total Assets 1,122.0 999.6 1,041.8 1,023.4 2,163.8 2,023.0
Unamortized loss from refunding ‐ 0.1 0.2 0.1 0.2
Pension and OPEB related 60.8 55.8 24.1 20.9 84.9 76.7
Total Deferred Outflows of Resources 60.8 55.8 24.2 21.1 85.0 76.9
Net pension and OPEB liabilities 438.2 416.3 159.7 153.7 597.9 570.0
Long‐term debt 217.5 112.5 68.9 74.5 286.4 187.0
Other liabilities 87.6 61.5 23.8 21.7 111.4 83.2
Total Liabilities 743.3 590.3 252.4 249.9 995.7 840.2
Pension and OPEB related 16.3 24.5 6.4 9.6 22.7 34.1
Total Deferred Inflows of Resources 16.3 24.5 6.4 9.6 22.7 34.1
Net Position
Net investment in capital assets 480.6 497.4 642.0 621.3 1,122.6 1,118.7
Restricted 80.3 73.3 3.4 4.1 83.7 77.4
Unrestricted (137.7) (130.1) 161.8 159.6 24.1 29.5
Total Net Position 423.2$ 440.6$ 807.2$ 785.0$ 1,230.4$ 1,225.6$
Governmental
Activities
Business‐type
Activities
Government‐wide
Totals
The largest portion of the City’s net position (91.2 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.
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City of Palo Alto 9
The restricted portion of the City’s net position (6.8 percent) represents resources that are subject to external
restrictions on how they may be used. The remaining balance of $24.1 million, representing 2.0 percent of
the City’s net position, is unrestricted and may be used to meet the City’s ongoing obligations to its citizens
and creditors.
Overall, the City has positive unrestricted net positions for the government on a combined basis, considering
both governmental activities and business‐type activities. The unrestricted net position for governmental
activities is negative due to recognition of the net pension liabilities, as required by GASB Statement No. 68,
and net OPEB liabilities, as required by GASB Statement No. 75. The $137.7 million net deficit for
governmental activities includes the $303.8 million net impact of net pension liabilities and its related
deferred outflows of resources and $89.9 million net impact of net OPEB liabilities and its related deferred
outflows of resources and deferred inflows of resources. Governmental activities’ unrestricted net position,
excluding these impacts, is $256.0 million.
Components of the $4.8 million increase in total net position are discussed in the following sections for
governmental activities and business‐type activities.
Governmental Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Governmental
Activities presented in the Government‐wide Statement of Net Position and Statement of Activities.
Increase/
2021 2020 (Decrease)
Cash and investments 443.4$ 342.8$ 100.6$
Other assets 76.6 60.5 16.1
Capital assets 602.0 596.3 5.7
Total Assets 1,122.0 999.6 122.4
Pension and OPEB related 60.8 55.8 5.0
Total Deferred Outflows of Resources 60.8 55.8 5.0
Net pension and OPEB liabilities 438.2 416.3 21.9
Long‐term debt 217.5 112.5 105.0
Other liabilities 87.6 61.5 26.1
Total Liabilities 743.3 590.3 153.0
Pension and OPEB related 16.3 24.5 (8.2)
Total Deferred Inflows of Resources 16.3 24.5 (8.2)
Net investment in capital assets 480.6 497.4 (16.8)
Restricted 80.3 73.3 7.0
Unrestricted (137.7) (130.1) (7.6)
Total Net Position 423.2$ 440.6$ (17.4)$
CONDENSED STATEMENT OF NET POSITION
As of June 30
(in millions)
GOVERNMENTAL ACTIVITIES
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City of Palo Alto 10
The City’s Governmental Activities total net position decreased $17.4 million to $423.2 million as of June 30,
2021 due to the following:
Assets and Deferred Outflows of Resources
Cash and investments increased $100.6 million mainly due to the issuance of COPs amounting
to $101.5 million plus $6.5 million premium to finance the construction of a public safety
building and an increase in restricted cash and investments held in the Public Agency
Retirement Services Section 115 irrevocable trust (Section 115 Pension Trust).
Other assets increased $16.1 million mainly due to an increase in notes receivable for the
predevelopment and construction of multifamily rental housing reserved for occupancy by
extremely low, very low and low‐income households.
Capital assets increased $5.7 million due to continued construction of the Highway 101
Pedestrian / Bicycle overpass, Public Safety Building, and California Avenue Parking Garage
and offset by the retirements and depreciation.
Pension and OPEB related deferred outflows of resources increased $5.0 million due to
increase of pension related deferred outflows of resources of $5.7 million offset by a decrease
of OPEB related deferred outflows of resources of $0.7 million.
Liabilities and Deferred Inflows of Resources
Net pension and OPEB liabilities increased $21.9 million due to increase in net pension
liabilities of $23.5 million offset by the decrease of net OPEB liabilities of $1.6 million.
Long‐term debt increased $105.0 million due to issuance of COPs amounting to $101.5 million
plus $6.5 premium to finance the construction of a public safety building, offset by the
scheduled debt retirements.
Other liabilities increased $26.1 million primarily due to $6.9 million receipt of City’s first of
two distributions of the ARPA funding that was recorded as unearned revenue as the funds
are not earned nor spent. Another factor driving the increase was the recording of a claim
liability of $12.6 million for a class action lawsuit.
Pension and OPEB related deferred inflows of resources decreased $8.2 million due to
decrease of $5.8 million pension related inflows of resources and decrease of OPEB related
deferred inflows of resources of $2.4 million.
Net position
Net investment in capital assets decreased $16.8 million to $480.6 million mainly due to
current year depreciation for capital assets. Restricted net position increased $7.0 million to
$80.3 million primarily due to increases of restricted cash and investments held in the Section
115 Pension Trust and debt service. Unrestricted net position is negative primarily due to the
recognition of the net pension and OPEB liabilities as required by GASB Statements Nos. 68
and 75.
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City of Palo Alto 11
Governmental Activities – Revenues
The table below shows that Governmental Activities revenues totaled $198.1 million in FY 2021, a decrease
of $15.2 million from prior year revenues of $213.3 million.
Increase/
Revenues by Source 2021 2020 (Decrease)
Program Revenues:
Charges for services 55.5$ 57.1$ (1.6)$
Operating grants and contributions 3.0 2.6 0.4
Capital grants and contributions 11.3 9.0 2.3
Total Program Revenues 69.8 68.7 1.1
General Revenues:
Property tax 60.9 55.6 5.3
Sales tax 29.1 30.6 (1.5)
Utility user tax 14.6 16.1 (1.5)
Transient occupancy tax 5.2 18.6 (13.4)
Documentary transfer tax 10.6 6.9 3.7
Other tax 2.8 2.9 (0.1)
Investment earnings 4.9 13.8 (8.9)
Miscellaneous 0.2 0.1 0.1
Total General Revenues 128.3 144.6 (16.3)
Total Revenues 198.1$ 213.3$ (15.2)$
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 $1.1 million, or 1.6 percent, from the prior year.
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City of Palo Alto 12
General Revenues decreased $16.3 million, or 11.3 percent, from the prior year mainly due to decreases in
sales tax, utility user tax, transient occupancy tax revenues as a result of the economic impact of the COVID‐
19 pandemic, and investment earnings due to impact of negative fair market value adjustments.
Further analysis of program revenues and general revenues can be found in the Financial Analysis of
Governmental Funds section of the MD&A.
Governmental Activities – Revenues by Source
The chart below presents revenues by source for Governmental Activities. General Revenues are composed
of taxes and other revenues not specifically generated by, or restricted to, individual activities. All tax revenues
and investment earnings are included in General Revenues.
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City of Palo Alto 13
Governmental Activities – Expenses
The table below presents a comparison of FY 2021 and FY 2020 expenses by function, along with interest and
other expenses and transfers. Total Governmental Activities functional expense was $234.6 million in FY 2021,
a decrease of $8.3 million.
Increase/
Activities 2021 2020 (Decrease)
City Council 0.2$ 0.2$ ‐$
City Manager 2.5 3.6 (1.1)
City Attorney 2.3 2.8 (0.5)
City Clerk 0.7 0.8 (0.1)
City Auditor 0.6 0.6 0.0
Administrative Services 23.0 15.9 7.1
Human Resources 2.5 3.0 (0.5)
Public Works 52.7 45.6 7.1
Planning and Development Services 18.1 21.7 (3.6)
Office of Transportation 3.6 4.7 (1.1)
Police 43.6 50.9 (7.3)
Fire 37.1 41.3 (4.2)
Community Services 30.3 34.2 (3.9)
Library 11.1 13.0 (1.9)
Interest and Other Expense 6.3 4.6 1.7
Total Functional Expense 234.6 242.9 (8.3)
Change in Net Position before Transfers (36.5) (29.6) (6.9)
Transfers 19.1 20.2 (1.1)
Change in Net Position (17.4) (9.4) (8.0)
Net Position, Beginning 440.6 450.0 (9.4)
Net Position, Ending 423.2$ 440.6$ (17.4)$
GOVERNMENTAL ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 30
(in millions)
Functional expenses consisted of depreciation, uncapitalized operating expenses from capital project funds,
internal service funds allocation, changes in pension and OPEB liabilities due to deferred contributions, and
the amortization of pension and OPEB‐related outflows and inflows of resources.
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City of Palo Alto 14
Total functional expenses were $234.6 million in the current fiscal year, a decrease of $8.3 million from the
prior year mainly due to decreases in salaries and benefits and contract services. All department functional
expenses decreased except for a) Public Works which increased $7.1 million due to various repairs and
maintenance of capital assets such as streets, sidewalks, facilities, and parks all of which are non‐capitalizable;
and b) Administrative Services which increased $7.1 million mainly due to the expenses incurred for claims
related to a class action lawsuit of $12.6 million.
Further variance analysis of functional expenses can be found in the Financial Analysis of Governmental Funds
section of the MD&A.
Governmental Activities – Functional Expenses
The functional expenses chart below includes only current year expenses. It does not include capital outlays,
as those are added to the City’s capital assets. Functions which comprise less than 2 percent of total expenses
are combined into the “All Other” category in the chart below. All Other includes City Council, City Manager,
City Attorney, City Clerk, City Auditor, and Human Resources.
Community Services
13%
Library
5%
All Other
4%
Administrative
Services
10%
Public Works
22%
Interest and Other
Expense
3%
Planning &
Development Services
8%
Office Of
Transportation
1%
Fire
16%
Police
18%
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City of Palo Alto 15
Business‐Type Activities – Net Position
The following analysis focuses on the net position and changes in net position of the City’s Business‐type
Activities presented in the Government‐wide Statement of Net Position and Statement of Activities.
Increase/
2021 2020 (Decrease)
Cash and investments 285.6$ 277.4$ 8.2$
Other assets 47.7 52.8 (5.1)
Capital assets 708.5 693.2 15.3
Total Assets 1,041.8 1,023.4 18.4
Unamortized loss from refunding 0.1 0.2 (0.1)
Pension and OPEB related 24.1 20.9 3.2
Total Deferred Outflows of Resources 24.2 21.1 3.1
Net pension and OPEB liabilities 159.7 153.7 6.0
Long‐term debt 68.9 74.5 (5.6)
Other liabilities 23.8 21.7 2.1
Total Liabilities 252.4 249.9 2.5
Pension and OPEB related 6.4 9.6 (3.2)
Total Deferred Inflows of Resources 6.4 9.6 (3.2)
Net Position
Net investment in capital assets 642.0 621.3 20.7
Restricted 3.4 4.1 (0.7)
Unrestricted 161.8 159.6 2.2
Total Net Position 807.2$ 785.0$ 22.2$
BUSINESS‐TYPE ACTIVITIES
As of June 30
(in millions)
CONDENSED STATEMENT OF NET POSITION
The City’s Business‐type Activities total net position increased $22.2 million to $807.2 million as of
June 30, 2021 due to the following:
Assets and Deferred Outflows of Resources
Cash and investments increased $8.2 million mainly due to increases in net position for all
enterprise funds except for the Electric Fund.
Other assets decreased $5.1 million mainly due to lower accounts receivable balance in the
Electric Fund.
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City of Palo Alto 16
Capital assets increased $15.3 million to $708.5 million primarily due to capital assets addition
in the Electric, Wastewater Collection, Wastewater Treatment, Storm Drainage and Airport
Funds. These capital assets additions and reduction in related long term debt also contributed
to the $20.7 million increase in net investment in capital assets to $642.0 million in FY 2021.
Liabilities and Deferred Inflows of Resources
Pension and OPEB related deferred outflows of resources increased $3.2 million due to
increases of pension related deferred outflows of resources of $3.5 million offset by the
decrease of OPEB related deferred outflows of resources of $0.3 million.
Net pension and OPEB liabilities increased $6.0 million due to a $6.6 million increase in net
pension liabilities offset by a $0.6 million decrease in net OPEB liabilities.
Long term debt decreased $5.6 million due to scheduled debt retirements.
Other liabilities increased $2.1 million primarily due to higher year‐end accruals in the Electric
and Airport Funds.
Pension and OPEB related deferred inflows of resources decreased $3.2 million due to a
decrease of $2.3 million related pension inflows of resources and decrease of OPEB related
deferred inflows of resources of $0.9 million.
Net Position
Unrestricted net position of $161.8 million, an increase of $2.2 million from the prior year,
represents assets available to finance day‐to‐day operations and other expenses approved by
the City Council. This amount includes rate stabilization reserves (RSR) of $51.3 million and
operations reserves of $69.2 million, along with the electric special projects (Calaveras)
reserve of $46.7 million, the hydro stabilization reserve of $15.4 million and the CIP reserve
of $18.6 million. The positive balances in these reserves are offset by $105.7 million net
impact of net pension liabilities and its related deferred outflows of resources and $36.3
million net impact of net OPEB liabilities and its related deferred outflows of resources and
deferred inflows of resources.
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City of Palo Alto 17
Business‐Type Activities – Revenues
The table below presents the revenues by source of the City’s Business‐type Activities. The City operates the
Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse, Storm Drainage,
and Airport funds.
BUSINESS‐TYPE ACTIVITIES
Revenues for the Year Ended June 30
(in millions)
Increase/
Revenues by Source 2021 2020 (Decrease)
Program Revenues:
Charges for services 346.5$ 353.0$ (6.5)$
Operating grants and contributions 0.5 0.5 ‐
Capital grants and contributions 6.4 6.4 ‐
Total Program Revenues 353.4 359.9 (6.5)
General Revenues:
Investment earnings 2.2 11.5 (9.3)
Total General Revenues 2.2 11.5 (9.3)
Total Revenues 355.6$ 371.4$ (15.8)$
Business‐type Activities revenues totaled $355.6 million, a decrease of $15.8 million from the prior year.
Program revenues decreased $6.5 million year over year. Charges for services decreased $6.5 million from the
prior year due to the following:
Electric fund revenue decreased due to lower demand in the commercial and industrial sectors as a
result of continued limited businesses operations and closures.
Refuse fund revenue decreased due to a reduction of commercial and industrial services due to
limited business operations and shelter in place restrictions.
The decreases mentioned above were partially offset by the increases in Gas Fund revenues due to a
2 percent rate increase and higher residential consumption and in Wastewater Treatment fund as a
result of higher billing for capital costs. Storm Drainage and Fiber Optic rates also increased in FY 2021.
Investment earnings decreased $9.3 million from the prior year mainly due to the impact of negative fair
market value adjustments.
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City of Palo Alto 18
Business‐Type Activities – Expenses
The table below presents a comparison of the FY 2021 and FY 2020 expenses for the City’s Business‐type
Activities.
BUSINESS‐TYPE ACTIVITIES
Expenses and Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Business‐type Activities 2021 2020 (Decrease)
Water 43.6$ 43.0$ 0.6$
Electric 156.1 142.4 13.7
Fiber Optics 2.5 2.8 (0.3)
Gas 28.6 27.2 1.4
Wastewater Collection 19.6 18.9 0.7
Wastewater Treatment 28.4 28.8 (0.4)
Refuse 29.1 36.9 (7.8)
Storm Drainage 4.9 5.5 (0.6)
Airport 1.5 2.1 (0.6)
Total Functional Expense 314.3 307.6 6.7
Increase in Net Position before Transfers 41.3 63.7 (22.4)
Transfers (19.1) (20.2) 1.1
Change in Net Position 22.2 43.5 (21.3)
Net Position, Beginning 785.0 741.5 43.5
Net Position, Ending 807.2$ 785.0$ 22.2$
Business‐type Activities expenses increased $6.7 million for a total of $314.3 million mainly due to the
following:
Electric Fund expenses increased $13.7 million due to higher energy purchase costs and increases in
operations and maintenance. The availability of hydroelectric energy resources is lower than average
and requires electricity purchases at market rates which were significantly higher during the spring of
2021.
Gas Fund expenses increased $1.4 million due to higher commodity purchases as a result of higher
natural gas prices.
Refuse Fund expenses decreased $7.8 million due to lower payments to GreenWaste of Palo Alto for
reimbursement of new waste collection vehicles, decreases in facility rent and a downward
adjustment to landfill post closure maintenance as a result of a maintenance cost update that was
approved in FY 2021.
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City of Palo Alto 19
FINANCIAL ANALYSIS OF GOVERNMENTAL FUNDS
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance‐related
legal requirements.
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, 2021, the City’s Governmental Funds reported combined fund balances of $365.6 million, an
increase of $98.9 million from the prior year mainly due to issuance of COPs for the construction of a public
safety building. Approximately 13.4 percent, or $49.1 million, constitutes unassigned fund balance, which is
available for spending at the City’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 ($11.9
million); 2) restricted for particular purposes ($136.8 million); 3) committed for particular purposes ($90.0
million); or 4) assigned for particular purposes ($77.9 million).
Governmental Fund revenues decreased $13.8 million, or 6.6 percent, from the prior year to $194.9 million.
General Fund revenues decreased $13.6 million and Capital Projects Fund revenue increased $1.8 million.
Non‐major Governmental Funds revenue decreased $2.0 million primarily due to suspension of most parking
enforcement which decreased the demand for parking permits. The violations were partially offset by an
increase in housing in‐lieu fees and federal revenue.
Governmental Fund expenditures were $222.1 million, a decrease of $38.7 million from the prior year.
General Fund expenditures decreased $21.8 million, Capital Projects Fund expenditures decreased by $18.2
million, and Non‐major Governmental Funds expenditures increased by $1.3 million. Details of significant
changes are discussed in the following sections.
Governmental Fund other financing resources increased $112.3 million, from the prior year to $126.1 million
mainly due to the issuance of COPs for the construction of a public safety building.
General Fund
Balance Sheet
The General Fund is the primary operating fund of the City. At the end of the current fiscal year, the fund
balance of the General Fund was $75.6 million, compared to $61.8 million in the prior year. The fund balance
is classified as follows: $9.4 million non‐spendable, $4.6 million committed, $12.5 million assigned, and $49.1
million unassigned. The unassigned amount is designated by the City Council for Budget Stabilization Reserve.
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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 $166.8 million in FY 2021. This represents a decrease of $13.6
million, or 7.5 percent, compared to the prior year. The year over year change in significant revenue sources
is noted in the following table.
Increase/
Revenues by Source 2021 2020 (Decrease)
Property tax 56.6$ 51.1$ 5.5$
Sales tax 29.1 30.6 (1.5)
Utility user tax 14.6 16.1 (1.5)
Transient occupancy tax 5.2 18.6 (13.4)
Documentary transfer tax 10.6 6.9 3.7
Charges for services 25.1 24.1 1.0
Permits and license 7.3 7.5 (0.2)
Rental income 13.3 16.0 (2.7)
Other 5.0 9.5 (4.5)
Total Revenues 166.8$ 180.4$ (13.6)$
GENERAL FUND
Revenues for the Year Ended June 30
(in millions)
Property tax revenue increased $5.5 million, or 10.8 percent due to pre‐pandemic assessed value growth and
an increase of $1.7 million in the Excess Educational Revenue Augmentation Fund (ERAF) distribution. The FY
2021 secured and unsecured property tax assessed values growth rates are 7.6 percent and 12.7 percent,
respectively, a weighted average of 7.8 percent. These higher assessed values reflect continued strength in
commercial and residential real estate markets. Historically, during economic downturns such as a recession
and/or a pandemic, impacts to property tax are delayed a year and then the growth rate typically plateaus.
Over a seven‐year period, ERAF distribution has grown from $0.4 million in FY 2014 to $5.6 million in FY 2021.
Excess 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. Due to the
uncertainty of whether local agencies will continue to receive excess ERAF funds, it is not considered a
permanent local revenue source.
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City of Palo Alto 21
Sales tax receipts were $1.5 million or 4.9 percent, lower than the prior year. The decrease is lower than
expected even though there is a significant decline of high‐end goods and dining options at regional
destinations, such as the Stanford Shopping Center, which was offset by the strong performance in the
business to business segment and online sales. As the nation transitions from a shopping center country to
online sales, a surge in online retail sales will partially displace tax revenue from traditional industry segments
to state and county pools. Online sales data that cannot be tracked to a specific county jurisdiction are
allocated to the Santa Clara County sales tax pool and then distributed to local jurisdictions based on local tax
percentages. City’s average proportion of the county pool sales tax allocation is approximately 5.6 percent, a
1.5 percent decrease compared to the fourth calendar quarter of 2019 (pre‐pandemic). The sales tax growth
in the second half of FY 2021 is due to high vaccination rates in the Bay Area resulting in increased employment
and economic activity.
Utility user tax (UUT) revenues are $1.5 million, or 9.3 percent, lower compared to prior year due to lower
business consumption of electric and telephone services. The telephone UUT receipts declined by $1.2 million
or 19.3 percent due to business closures and shelter in place restrictions which reduced the workforce present
in the City.
Transient occupancy tax (TOT) continues to be the revenue source most significantly impacted by the
pandemic and fell to $5.2 million, a $13.4 million, or 72.0 percent decrease when compared to the prior year.
Six hotels, representing 16.3 percent of available rooms remained closed while two other smaller hotels
reopened during the fiscal year. However, two Marriott hotels (with around 293 rooms) are newly opened in
the middle and end of the fiscal year. The opened hotels average daily room and occupancy rates significantly
declined in the first three quarters and partially recovered in the fourth quarter. In FY 2021, the average
occupancy rate was 40.6 percent, a 33.4 percent decrease and the average room rate was $116.90, a 55.9
percent decrease over the prior year.
Documentary transfer tax increased $3.7 million, or 53.6 percent when compared to prior year due to six large
commercial property transactions that occurred in FY2021. This revenue source is volatile since it is highly
dependent on sales volume and the mix of commercial and residential sales.
Charges for services increased $1.0 million, or 4.1 percent, when compared to prior year due to an increase
of golf course revenues by $2.3 million which due to higher demand to play golf after re‐opening during the
COVID‐19 pandemic. This increase is offset by reduced programs and classes and fewer reviews and
inspections due to limited operations caused by COVID‐19 restrictions.
Rental income decreased $2.7 million, or 16.9 percent, when compared to prior year due to lower facility
rentals and number of tenants due to limited economic activities and some businesses closures. The City has
continued to follow the Santa Clara County Moratorium Order to give protection for small businesses and
approved a rent forgiveness program.
Other revenues decreased $4.5 million, or 47.4 percent, when compared to prior year due to a decrease of
investment earnings which resulted from negative fair market value adjustments
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City of Palo Alto 22
Statement of Revenues, Expenditures and Changes in Fund Balance ‐ Expenditures
General Fund expenditures totaled $160.3 million for FY 2021 compared to $182.1 in the prior year. This
amount excludes encumbrances and reappropriations. The year over year change for major functions is noted
in the following table.
Increase/
Expenditures by Function 2021 2020 (Decrease)
Administrative Services 5.2$ 6.0$ (0.8)$
Public Works 13.3 13.6 (0.3)
Planning and Development Services 15.8 19.3 (3.5)
Police 41.3 45.7 (4.4)
Fire 34.9 36.4 (1.5)
Community Services 26.3 29.6 (3.3)
Library 8.5 10.0 (1.5)
Non‐Departmental 4.6 9.2 (4.6)
All other 10.4 12.3 (1.9)
Total Expenditures 160.3$ 182.1$ (21.8)$
GENERAL FUND
Expenditures for the Year Ended June 30
(in millions)
General Fund expenditures decreased by $21.8 million, or 12.0 percent compared to prior year primarily due
to the decrease in salaries and benefits and reduced contract services. In response to financial uncertainties
caused by the COVID‐19 pandemic, the City adopted various strategies to lower expenses such as
implementing furloughs to the Management and Professional Group, leaving some vacant positions unfilled,
eliminating a few positions, and deferring wage increases to most of the labor unions. The City also reduced
service hours and various operating expenditures such as travel and training, program and project consultants,
and other contractual services.
Planning and Development expenses decreased $3.5 million primarily due to reduced contract services due
to reorganized building inspection and plan review.
Police expenses decreased $4.4 million mainly due to decreases in salaries and benefits, including overtime,
as a result of eliminated positions including specialized police teams, detectives, dispatchers, records staff,
animal control officers, parking enforcement officers and administration.
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City of Palo Alto 23
Fire expenses decreased $1.5 million mainly due to decreases in indirect charges such as vehicle replacement
allocation and IT support.
Community Services expenses decreased $3.3 million primarily due to decreases in salaries and benefits and
contract services. In response to continued governmental restrictions, Community Services Facilities reduced
operating hours in community centers, museums, theater and open space preserves. Special events, art
exhibits and teen programs were also reduced or eliminated.
Library expenses decreased $1.5 million which was attributed to a decrease in salaries and benefits and
reduced contract services as a result of reduced library hours at all branches.
Non‐Departmental expenditures decreased $4.6 million due to reduced lease payments for the Cubberley
facility and a one‐time purchase of the current City Manager’s house in FY 2020.
Statement of Revenues, Expenditures and Changes in Fund Balance‐Budget and Actual
Revenues, excluding Charges to Other Funds, were originally budgeted at $163.1 million. Budget estimates
were revised downward by $3.9 million. The revenue categories that were adjusted are shown in the table
below.
Adopted Final Increase/
Budgeted Revenues Budget Budget (Decrease)
Property tax 52.0$ 53.2$ 1.2$
Sales tax 20.5 25.0 4.5
Utility user tax 15.1 14.1 (1.0)
Transient occupany tax 14.9 5.1 (9.8)
Documentary transfer tax 4.7 6.9 2.2
All other 55.9 54.9 (1.0)
163.1 159.2 (3.9)
Charges to other funds 12.0 12.0 ‐
Prior year encumbrances and appropriations ‐ 7.6 7.6
Total Budgeted Revenues 175.1$ 178.8$ 3.7$
GENERAL FUND
Budgeted Revenues for the Year Ended June 30
(in millions)
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City of Palo Alto 24
Adjustments to the original budget were based on the following:
Property tax was increased by $1.2 million due to property assessed value growth and change in
ownership.
Sales tax was increased by $4.5 million due to the higher than expected receipts.
Utility user tax decreased by $1.0 million due to the lower consumption of both utility commodity and
telephone.
Transient occupancy tax decreased by $9.8 million due to continued declines in hotel activities and
rates.
Documentary transfer tax increased by $2.2 million based on year‐to‐date receipts tracking higher
than anticipated.
Expenditures, excluding Operating Transfers, were originally budgeted at $179.1 million and were revised
upward by $8.4 million, for a final budgeted amount of $187.5 million.
Adopted Final Increase/ Actuals, plus
Budgeted Expenditures Budget Budget (Decrease) Encumbrances
Community Services 28.4$ 28.8$ 0.4$ 27.8$
Fire 33.6 35.4 1.8 35.4
Police 41.7 42.4 0.7 42.4
Library 8.4 8.7 0.3 8.6
Planning and Development Services 17.4 19.6 2.2 18.8
Public Works 18.4 19.1 0.7 18.6
Non‐Departmental 8.2 9.3 1.1 9.3
All Other 23.0 24.2 1.2 22.9
Total Budgeted Expenditures 179.1$ 187.5$ 8.4$ 183.8
Less: Charges to Other Funds and Departments (11.7)
Less: Encumbrances and Reappropriations (11.8)
Net General Fund Expenditures 160.3$
GENERAL FUND
Budgeted Expenditures for the Year Ended June 30
(in millions)
Adjustments of $8.4 million to the original budget were primarily due to the $7.6 million carry‐forward of
encumbrances from prior year and reappropriations.
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City of Palo Alto 25
Final actual expenditures totaled $183.8 million, $3.7 million lower than the final budget totaling $187.5
million. As mentioned previously, the Final budget includes encumbrances and reappropriations carried
forward from prior year, totaling $7.6 million. In closing FY 2021, $11.8 million was encumbered and
reappropriated in FY 2022. The actual expenditures were lower as compared with the budget primarily due
to reduced contract services.
Transfers out were originally budgeted at $17.8 million, with the final budget number at $13.6 million, a
decrease of $4.2 million. The decrease was due to a reduction of the transfers to Capital Project Fund because
of decreases in TOT revenues.
Capital Projects Fund
At the end of the current fiscal year, the fund balance of the Capital Project Fund was $165.7 million, compared
to $83.6 million in the prior year. The fund balance is restricted for the Public Safety Building ($90.9 million)
and library project ($0.6 million), committed for Roth building rehabilitation ($5.2 million) and Cubberley
improvements ($4.7 million) and the remaining balance of $64.3 million is available for all other capital
projects.
Capital Projects Fund revenues were $11.4 million in FY 2021, an increase of $1.8 million from the prior year
due to federal grant reimbursements while other financing sources were $118.8 million, an increase of $87.9
million mainly due to issuance of COPs amounting to $101.5 million plus $6.5 premium to finance the
construction of a public safety building partially offset by the decrease of operating transfers in from General
Fund due to significant decreases in revenues, including TOT.
Capital Project Fund expenditures were $48.1 million in FY 2021, a decrease of $18.2 million. To manage
resources with funding needs and balance for the City’s severe decrease in TOT revenues resulting from the
pandemic, the most critical capital investments were prioritized and project budget for other projects were
deferred into later years or beyond the five‐year capital plan.
Non‐Major Governmental Funds
These funds are not presented separately in the Basic Financial Statements but are individually presented in
the Other Supplemental Information.
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City of Palo Alto 26
FINANCIAL ANALYSIS OF ENTERPRISE FUNDS
At June 30, 2021, the City’s Enterprise Funds reported total net position of $807.2 million, an increase of $22.2
million or 2.8 percent from the prior year. All Enterprise funds contributed to this increase except Electric
Fund.
The changes in net position in the Enterprise Funds are summarized in the following table.
ENTERPRISE FUNDS
Change in Net Position for the Year Ended June 30
(in millions)
Increase/
Fund Name 2021 2020 (Decrease)
Water 6.6$ 8.0$ (1.4)$
Electric (4.8) 18.6 (23.4)
Fiber Optics 1.5 2.9 (1.4)
Gas 3.5 3.0 0.5
Wastewater Collection 0.7 2.1 (1.4)
Wastewater Treatment 3.1 0.3 2.8
Refuse 1.9 (3.1) 5.0
Storm Drainage 3.0 2.2 0.8
Airport 6.7 5.6 1.1
Total Change in Net Position 22.2$ 39.6$ (17.4)$
The most significant factors in the change in net position between years for Enterprise Funds are as follows:
The Water and Fiber Optic Funds operating income has no significant change, however, the change in
net position for both funds decreased $1.4 million from prior year due to decline in other revenues
specifically interest earnings due to the impact of negative fair market value adjustments.
The change in net position for Electric Fund decreased $23.4 million from prior year due to decrease
in commercial retail revenues as a result of lower consumption, a decrease in investment earnings
due to the impact of negative fair market value adjustments, an increase in purchases of electricity
due to low hydroelectric supply, and an increase in operations and maintenance expenses.
The change in net position for Wastewater Collection Fund decreased $1.4 million due to lower non‐
residential sewer charges, lower non‐operating revenue including interest earnings and an increase
in operating expenses
The change in net position for Wastewater Treatment Fund increased $2.8 million due to higher billing
to partners for capital costs and decreases in operations and maintenance expenses.
The change in net position of Refuse Fund increased $5.0 million due to a decrease in operating
expenses as a result of lower payment to GreenWaste of Palo Alto for reimbursements of new waste
collections and vehicles, a decrease in facility rent and downward adjustment to landfill post closure
maintenance. The decrease of operating expenses was partially offset by lower revenues including
investment earnings.
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City of Palo Alto 27
CAPITAL ASSETS
GASB Statement No. 34 requires that the City record all its capital assets, including infrastructure and
intangible assets. Infrastructure includes roads, bridges, signals and similar assets used by the entire
population. The table below shows capital assets and the amount of accumulated depreciation for these
assets for Governmental and Business‐type Activities. Further detail can be found in Note 6 to the financial
statements.
Increase/
2021 2020 (Decrease)
Governmental activites
Capital Assets
Land and improvements 82.1$ 82.2$ (0.1)
Street trees 14.8 14.8 ‐
Construction in progress 137.8 139.4 (1.6)
Building and improvements 272.1 251.1 21.0
Intangible assets 3.8 3.8 ‐
Equipment 17.2 15.7 1.5
Roadway network 335.3 335.2 0.1
Recreation and open space network 35.2 35.2 ‐
Less accumulated depreciation (319.3) (302.5) (16.8)
Internal Service funds
Construction in progress 5.6 2.7 2.9
Equipment 63.1 63.5 (0.4)
Less accumulated depreciation (45.7) (44.8) (0.9)
Total Governmental Activities 602.0$ 596.3$ 5.7$
Business‐Type Activities
Land 5.0$ 5.0$ ‐$
Construction in progress 129.0 121.1 7.9
Buildings and improvements 74.5 74.5 ‐
Infrastructure 0.6 0.6 ‐
Transmission, distribution and treatment systems 914.8 884.8 30.0
Less accumulated depreciation (415.4) (392.8) (22.6)
Total Business‐type Activities 708.5$ 693.2$ 15.3$
CAPITAL ASSETS AT JUNE 30
(in millions)
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City of Palo Alto 28
Governmental Activities’ capital assets net of depreciation increased by $5.7 million from the prior year. The
increase was primarily due to activity in various projects such as the Highway 101 Pedestrian / Bicycle
overpass, the Public Safety Building and California Avenue Parking Garage offset with retirements.
The City Council approved a $125.8 million Infrastructure Plan (IP) in June 2014, which includes projects such
as a new Public Safety Building, replacement of two Fire Stations, a Bike and Pedestrian plan and two parking
garages. Through the development of the 2021‐2025 Capital Improvement Plan (CIP), the IP projects were
updated resulting in a revised Infrastructure Plan of $260.5 million. These projects will be funded partially by
debt to be repaid with voter‐approved increases of 3.5 percent in the TOT rate and from other sources such
as impact fees and Stanford University Medical Center development agreement monies. Staff is continually
assessing the COVID‐19 impact to maintain funding for these projects.
Major Governmental Activities’ capital projects that are currently in progress, including the remaining capital
commitment of each, are as follows:
Public Safety Building ‐ $97.1 million
Charleston Arastradero Corridor – $7.4 million
Municipal Service Center Improvements – $6.0 million
Churchill Ave/Alma – $4.2 million
Railroad Grade Separation – $4.0 million
Highway 101 Pedestrian/Bicycle Overpass – $3.7 million
Vehicle Replacements – $3.3 million
Business‐type Activities’ capital assets net of depreciation increased by $15.3 million from the prior year. The
increase is primarily due to, Electric, Wastewater Collection, Wastewater Treatment, Storm Drain and Airport
Funds.
Major Business‐type Activities’ capital projects that are currently in progress, including the remaining capital
commitment of each, are as follows:
Seismic Water System Upgrade – $5.3 million
Gas Main Replacement Project 23 – $6.9 million
Primary Sedimentation Tank Rehabilitation – $11.8 million
Airport Apron Reconstruction Phase 1 – $23.3 million
The City depreciates its capital assets over their estimated useful lives, as required by GASB Statement No. 34.
The purpose of depreciation is to spread the cost of a capital asset over the years of its useful life so that an
allocable portion of the cost of the asset is borne by all users. Additional information on capital assets and
depreciable lives are in Note 6.
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City of Palo Alto 29
DEBT ADMINISTRATION
Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements. The City’s debt as of
June 30, 2021 is shown in the following table.
Increase/
2021 2020 (Decrease)
Governmental Activities
General Long‐Term Obligations
General Obligation Bonds
2010 42.0$ 43.3$ (1.3)$
Add: unamortized premium 2.3 2.5 (0.2)
2013A 15.0 15.5 (0.5)
Add: unamortized premium 0.7 0.8 (0.1)
Certificates of Participation
2018 Capital Improvement Projects 8.6 8.7 (0.1)
2019 California Ave Parking Garage
Series A & B 36.4 37.0 (0.6)
Add: unamortized premium 4.5 4.7 (0.2)
2021 Public Safety Building 101.5 ‐ 101.5
Add: unamortized premium 6.5 ‐ 6.5
Total Governmental Activities 217.5$ 112.5$ 105.0$
Business‐type Activities
Enterprise Long‐Term Obligations
Utility Revenue Bonds
1999 Refunding 5.1$ 6.7$ (1.6)$
2009 Series A 24.3 25.5 (1.2)
2011 Refunding 6.7 7.9 (1.2)
Add: unamortized premium 0.4 0.5 (0.1)
Energy Tax Credit Bonds
2007 Series A 0.1 0.2 (0.1)
Less: unamortized discount ‐ (0.1) 0.1State Water Resources Loan
2007 3.6 4.0 (0.4)
2009 4.8 5.3 (0.5)
2017 23.9 24.5 (0.6)
Total Business‐type Activities 68.9$ 74.5$ (5.6)$
LONG‐TERM DEBT AT JUNE 30
(in millions)
City‐wide long‐term debt increased by a total of $99.4 million mainly due the issuance of COPs for the
construction of the public safety building in the amount of $101.5 million plus $6.5 million premium which
was offset by the scheduled debt retirement.
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City of Palo Alto 30
ECONOMIC OUTLOOK
The COVID‐19 pandemic came with the strict orders for the safety of the public which resulted in a drastic
drop in revenues. In FY2021, the City took swift, decisive, and difficult action to balance the budget by
prioritizing essential services and reducing or eliminating discretionary services, while continue to address its
long‐term liabilities such as pension and OPEB obligations. The fiscal challenges remain constant as the
COVID‐19 pandemic continues. The City will maintain services at the same levels in previous year for the
upcoming fiscal year, but these service levels are not sustainable for the fiscal health of the City in the long
term. The FY 2022 adopted Operating and Capital reflects current fiscal reality, however, as hopeful signs for
recovery continue, the City will respond quickly and adapt should more moderate growth occur than
forecasted.
More information about the economy of the City is discussed in the accompanying Transmittal Letter.
CONTACTING THE CITY’S FINANCIAL MANAGEMENT
The ACFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the
City’s finances. Questions about this report should be directed to the Administrative Services Department,
located at 250 Hamilton Avenue, 4th Floor, Palo Alto, California. The Department can also be contacted by
email at: adminsvcs@cityofpaloalto.org. This report and other financial reports can be viewed on the City of
Palo Alto website at: www.cityofpaloalto.org. On the home page, select Departments, select Administrative
Services, and select Financial Reporting https://www.cityofpaloalto.org/Departments/Administrative‐
Services/Financial‐Reporting. Within Financial Reporting, there are links to reports by title and reporting date.
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CITY OF PALO ALTO
Statement of Net Position
June 30, 2021
(Amounts in thousands)
Governmental Business‐Type Activities Activities Total
ASSETS:
Cash and investments available for operations (Note 3) 310,091$ 282,271$ 592,362$ Receivables, net:
Accounts and intergovernmental 16,099 43,321 59,420
Interest receivable 1,544 1,405 2,949 Notes and loans receivable (Note 5) 53,677 ‐ 53,677
Internal balances (Note 4) (298) 298 ‐
Deposits 15 ‐ 15
Due from other government agencies ‐ 2,400 2,400 Inventory of materials and supplies, prepaids and deposits 5,615 244 5,859
Restricted cash and investments with fiscal agents and trustees (Note 3) 133,264 3,340 136,604
Capital assets (Note 6):Nondepreciable 243,923 133,909 377,832
Depreciable, net of accumulated depreciation 358,056 574,600 932,656
Total assets 1,121,986 1,041,788 2,163,774
DEFERRED OUTFLOWS OF RESOURCES:
Unamortized loss from refunding ‐ 149 149
Pension related (Note 11) 45,531 18,119 63,650
OPEB related (Note 12) 15,271 6,012 21,283
Total deferred outflows of resources 60,802 24,280 85,082
LIABILITIES:
Accounts payable and accruals 14,812 16,432 31,244 Accrued salaries and benefits 2,679 1,224 3,903
Unearned revenue 9,400 ‐ 9,400 Accrued compensated absences (Note 1):
Due in one year 6,327 ‐ 6,327
Due in more than one year 9,320 ‐ 9,320 Claims payable (Notes 14 and 16):
Due in one year 6,811 ‐ 6,811
Due in more than one year 38,339 ‐ 38,339 Landfill post‐closure liability (Note 9):
Due in more than one year ‐ 6,179 6,179 Net pension liabilities (Note 11):
Due in more than one year 349,296 123,787 473,083
Net OPEB liabilities (Note 12):Due in more than one year 88,883 35,915 124,798
Long‐term debt (Note 7):
Due in one year 3,264 5,757 9,021 Due in more than one year 214,270 63,153 277,423
Total liabilities 743,401 252,447 995,848
DEFERRED INFLOWS OF RESOURCES:
OPEB related (Note 12) 16,250 6,402 22,652
NET POSITION (Note 10):
Net Investment in capital assets 480,620 642,018 1,122,638 Restricted for:
Transportation mitigation 12,512 ‐ 12,512
Public benefit 18,282 ‐ 18,282 Supplemental pension 37,089 ‐ 37,089
Others 6,077 ‐ 6,077
Debt service 3,749 3,340 7,089 Nonexpendable ‐ Eyerly Family 2,556 ‐ 2,556
Total restricted net position 80,265 3,340 83,605
Unrestricted (137,748) 161,861 24,113
Total net position $ 423,137 $ 807,219 $ 1,230,356
See accompanying notes to the basic financial statements.
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CITY OF PALO ALTO
Statement of Activities
For the Year Ended June 30, 2021
(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 178$ ‐$ ‐$ ‐$ (178)$ ‐$ (178)$
City Manager 2,466 ‐ ‐ ‐ (2,466) ‐ (2,466)
City Attorney 2,292 ‐ ‐ ‐ (2,292) ‐ (2,292)
City Clerk 702 ‐ ‐ ‐ (702) ‐ (702)
City Auditor 641 ‐ ‐ ‐ (641) ‐ (641) Administrative Services 22,985 1,150 457 ‐ (21,378) ‐ (21,378)
Human Resources 2,518 ‐ ‐ ‐ (2,518) ‐ (2,518)
Public Works 52,727 937 ‐ 9,748 (42,042) ‐ (42,042) Planning and Development Services 18,141 21,228 1,191 ‐ 4,278 ‐ 4,278
Office of Transportation 3,636 80 ‐ 118 (3,438) ‐ (3,438)
Police 43,627 2,008 414 ‐ (41,205) ‐ (41,205) Fire 37,131 9,127 888 51 (27,065) ‐ (27,065)
Community Services 30,289 20,893 49 1,409 (7,938) ‐ (7,938)
Library 11,145 47 34 ‐ (11,064) ‐ (11,064) Interest on long‐term debt 6,317 ‐ ‐ ‐ (6,317) ‐ (6,317)
Total Governmental Activities 234,795 55,470 3,033 11,326 (164,966) ‐ (164,966)
Business‐Type Activities:
Water 43,556 48,812 462 533 ‐ 6,251 6,251 Electric 156,105 162,240 ‐ ‐ ‐ 6,135 6,135
Fiber Optics 2,529 3,936 ‐ ‐ ‐ 1,407 1,407
Gas 28,556 39,520 ‐ ‐ ‐ 10,964 10,964 Wastewater Collection 19,577 20,484 ‐ 239 ‐ 1,146 1,146
Wastewater Treatment 28,403 30,522 ‐ ‐ ‐ 2,119 2,119
Refuse 29,138 30,636 ‐ ‐ ‐ 1,498 1,498 Storm Drainage 4,897 7,785 ‐ ‐ ‐ 2,888 2,888
Airport 1,499 2,585 ‐ 5,619 ‐ 6,705 6,705
Total Business‐Type Activities 314,260 346,520 462 6,391 ‐ 39,113 39,113
Total 549,055$ 401,990$ 3,495$ 17,717$ (164,966) 39,113 (125,853)
General Revenues:Taxes:
Property tax 60,901 ‐ 60,901
Sales tax 29,127 ‐ 29,127 Utility user tax 14,642 ‐ 14,642
Transient occupancy tax 5,179 ‐ 5,179
Documentary transfer tax 10,627 ‐ 10,627 Other taxes 2,844 ‐ 2,844
Investment earnings 4,939 2,187 7,126
Miscellaneous 183 ‐ 183 Transfers (Note 4)19,087 (19,087) ‐
Total general revenues and transfers 147,529 (16,900) 130,629
Change in net position (17,437) 22,213 4,776
Net position, beginning of year 440,574 785,006 1,225,580
Net position, end of year 423,137$ 807,219$ 1,230,356$
See accompanying notes to the basic financial statements.
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CITY OF PALO ALTO
Governmental Funds
Balance Sheet
June 30, 2021
(Amounts in thousands)
Capital Other Total
General Projects Governmental Governmental
Fund Fund Funds Funds
ASSETS:
Cash and investments available for operations (Note 3) 67,397$ 79,130$ 66,758$ 213,285$
Receivables, net:Accounts and intergovernmental 14,053 1,429 519 16,001
Interest receivable 645 26 389 1,060
Notes and loans receivable (Note 5) 826 ‐ 52,851 53,677
Deposits 15 ‐ ‐ 15
Prepaid items 291 ‐ ‐ 291
Due from other fund (Note 4) 943 ‐ ‐ 943
Advances to other funds (Note 4) 3,036 ‐ ‐ 3,036 Inventory of materials and supplies 5,208 ‐ ‐ 5,208
Restricted cash and investments with fiscal agents (Note 3) ‐ 91,520 4,655 96,175
Total assets 92,414$ 172,105$ 125,172$ 389,691$
LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES:
Liabilities:
Accounts payable and accruals 5,115$ 5,350$ 495$ 10,960$ Accrued salaries and benefits 2,254 141 34 2,429 Unearned revenue 9,400 ‐ ‐ 9,400 Due to other funds (Note 4) ‐ ‐ 341 341
Total liabilities 16,769 5,491 870 23,130
Deferred inflows of resourcesDeferred inflows of resources ‐ Unavailable revenue 9 910 ‐ 919
16,778 6,401 870 24,049
Fund balances (Note 10):
Nonspendable:
Deposits 15 ‐ ‐ 15 Prepaid items 291 ‐ ‐ 291
Inventories 5,208 ‐ ‐ 5,208
Advances to other funds 3,036 ‐ ‐ 3,036 Notes and loans receivable 826 ‐ ‐ 826
Eyerly family ‐ ‐ 2,556 2,556
Restricted for: Transportation mitigation ‐ ‐ 12,512 12,512
Federal revenue ‐ ‐ 5,293 5,293
Street improvement ‐ ‐ 28 28
Local law enforcement ‐ ‐ 756 756
Public safety building ‐ 90,922 ‐ 90,922 Library bond project ‐ 598 ‐ 598
Public benefit ‐ ‐ 18,282 18,282
Debt service ‐ ‐ 8,404 8,404 Committed for:
Development services 3,950 ‐ ‐ 3,950
Roth building rehabilitation ‐ 5,179 ‐ 5,179 Cubberley improvements ‐ 4,726 ‐ 4,726
Developer impact fees ‐ ‐ 13,300 13,300
Housing in‐lieu ‐ ‐ 58,883 58,883 Special districts ‐ ‐ 3,186 3,186
Edgewood Plaza 701 ‐ ‐ 701
Downtown business ‐ ‐ 50 50
Assigned for:
Unrealized gains on investments 1,891 ‐ 1,052 2,943 Capital projects ‐ 64,279 ‐ 64,279
Other general government purposes 5,912 ‐ ‐ 5,912
Electric charger 30 ‐ ‐ 30 Reappropriations 4,687 ‐ ‐ 4,687
Unassigned for:
Budget Stabilization 49,089 ‐ ‐ 49,089
Total fund balances 75,636 165,704 124,302 365,642
Total liabilities, deferred inflows of resources, and fund
balances 92,414$ 172,105$ 125,172$ 389,691$
Total liabilities and deferred inflows of resources
See accompanying notes to the basic financial statements.
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CITY OF PALO ALTO
Reconciliation of the Balance Sheet of Governmental Funds to
the Statement of Net Position ‐ Governmental Activities
June 30, 2021
Total fund balances reported on the governmental funds balance sheet 365,642$
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 60,802
Deferred inflows of resources (16,250)
Certain receivables are not available to pay for current period expenditures
and therefore are deferred in the governmental funds. 919
Capital assets used in governmental activities are not current assets or financial
resources and therefore are not reported in the governmental funds. 601,979
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) 80,520
Some liabilities, including bonds payable and claims payable, are not
due and payable in the current period and therefore are not reported
in the governmental funds:
Interest payable (2,143)
Net pension liabilities (Note 11) (349,296)
Net OPEB liabilities (Note 12) (88,883)
Claims payable (Note 14 and 16) (12,619)
Long‐term debt (Note 7) (217,534)
Net position of governmental activities 423,137$
(Amounts in thousands)
See accompanying notes to the basic financial statements.
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CITY OF PALO ALTO
Governmental Funds
Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2021
(Amounts in thousands)
Capital Other TotalGeneral Projects Governmental Governmental
Fund Fund Funds Funds
REVENUES:
Property tax 56,572$ ‐$ 4,329$ 60,901$
Special assessments ‐ ‐ 5 5
Sales tax 29,127 ‐ ‐ 29,127
Utility user tax 14,642 ‐ ‐ 14,642
Transient occupancy tax 5,179 ‐ ‐ 5,179
Documentary transfer tax 10,627 ‐ ‐ 10,627
Other taxes and fines 683 ‐ 2,816 3,499
Charges for services 25,105 1 ‐ 25,106
Intergovernmental 3,828 10,087 1,337 15,252
Licenses, permits and fees 7,261 ‐ 2,161 9,422
Investment earnings (161) 1,034 175 1,048
Rental income 13,293 ‐ ‐ 13,293
Housing In‐Lieu ‐ residential ‐ ‐ 5,804 5,804
Other revenue 632 247 154 1,033
Total revenues 166,788 11,369 16,781 194,938
EXPENDITURES:Current:
City Council 224 ‐ ‐ 224
City Manager 2,304 ‐ ‐ 2,304
City Attorney 2,149 ‐ ‐ 2,149
City Clerk 748 ‐ ‐ 748
City Auditor 645 ‐ ‐ 645
Administrative Services 5,202 ‐ 261 5,463
Human Resources 2,421 ‐ ‐ 2,421
Public Works 13,265 ‐ 1,427 14,692
Planning and Development Services 15,830 ‐ 1,285 17,115
Office of Transportation 1,936 ‐ 1,437 3,373
Police 41,328 ‐ 36 41,364
Fire 34,918 ‐ ‐ 34,918
Community Services 26,254 ‐ 236 26,490
Library 8,528 ‐ ‐ 8,528
Non‐Departmental 4,599 ‐ 255 4,854
Capital outlay ‐ 48,114 ‐ 48,114
Debt service:
Principal ‐ ‐ 2,595 2,595 Interest and fiscal charges ‐ ‐ 6,147 6,147
Total expenditures 160,351 48,114 13,679 222,144
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 6,437 (36,745) 3,102 (27,206)
OTHER FINANCING SOURCES (USES):
Issuance of debt ‐ 95,476 6,029 101,505
Original debt premium ‐ 6,524 ‐ 6,524
Proceeds from sale of capital assets 100 ‐ ‐ 100
Transfers in (Note 4) 20,880 19,198 3,480 43,558
Transfers out (Note 4) (13,620) (2,380) (9,564) (25,564)
Total other financing sources (uses) 7,360 118,818 (55) 126,123
Change in fund balances 13,797 82,073 3,047 98,917
FUND BALANCES, BEGINNING OF YEAR 61,839 83,631 121,255 266,725
FUND BALANCES, END OF YEAR 75,636$ 165,704$ 124,302$ 365,642$
See accompanying notes to the basic financial statements.
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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, 2021
Net change in fund balances ‐ total governmental funds 98,917$
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 33,525
Depreciation expense is deducted from fund balance (depreciation expense is net of
internal service fund depreciation of $3,153) (Note 6), which has already been allocated
through the internal service fund activities below (17,136)
Disposal of capital assets (12,291)
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 41,324
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 (50,170)
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, amortization of premium, and changes in claims payable do not require
the use of current financial resources and therefore are not reported as expenditures in
governmental funds. Therefore, the activities associated with these balances are as follows:
Principal paid during the year 2,595
Proceeds from debt issuance (101,505)
Original debt premium (6,524) Change in interest payable (575)
Amortization of bond premium 405
Change in claims payable (12,619)
Revenues earned but not available are deferred in the governmental funds but are recognized
in the government‐wide financial statements. Also, revenues recognized in the governmental
funds during the current year that were earned and recognized in previous years in the
government‐wide financial statements are reported as beginning net position in the
statement of activities (563)
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. 7,180
Change in net position of governmental activities (17,437)$
(Amounts in thousands)
See accompanying notes to the basic financial statements.
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Budgeted Amounts
Actual, Budgetary Variance with
Adopted Final Basis Final Budget
52,000$ 53,173$ 56,572$ 3,399$
20,500 25,030 29,127 4,097
15,100 14,080 14,642 562
14,900 5,123 5,179 56
Documentary transfer tax 4,700 6,875 10,627 3,752
1,925 392 683 291
25,984 24,414 25,105 691
2,448 4,580 4,222 (358)
7,770 8,366 7,708 (658)
1,145 1,145 1,062 (83)
15,949 15,331 13,293 (2,038)
674 666 732 66
163,095 159,175 168,952 9,777
11,992 11,992 11,661 (331)
‐ 7,570 7,570 ‐
175,087 178,737 188,183 9,446
419 509 366 143
3,161 3,562 3,492 70
3,485 3,744 3,589 155
1,245 1,293 1,147 146
828 981 962 19
8,362 8,338 7,897 441
3,554 3,622 3,545 77
18,397 19,089 18,553 536
17,386 19,611 18,782 829
Office of Transportation 1,904 2,139 2,010 129
Police 41,733 42,441 42,441 ‐
33,607 35,354 35,354 ‐
28,379 28,839 27,769 1,070
8,421 8,655 8,636 19
8,237 9,332 9,259 73
179,118 187,509 183,802 3,707
(4,031) (8,772) 4,381 13,153
21,359 21,154 21,154 ‐
(17,801) (13,620) (13,620) ‐
3,558 7,534 7,534 ‐
(473)$ (1,238)$ 11,915 13,153$
Unrealized gain/loss on investments (1,297)
Changes in interfund balances (197)
Current year encumbrances and reappropriations 10,946
Prior year encumbrances and reappropriations (7,570)
13,797
61,839
75,636$
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, 2021
(Amounts in thousands)
Charges to other funds and departments
Sales tax
Property tax
Transient occupancy tax
Utility user tax
Other taxes and fines
Charges for services
Licenses, permits and fees
Investment earnings
Rental income
Intergovernmental
Other revenues
City Auditor
City Clerk
City Council
City Manager
Administrative Services
Prior year encumbrances
Total revenues
EXPENDITURES:
Current:
City Attorney
Community Services
Total other financing sources (uses)
Human Resources
Library
Planning and Development Services
Total expenditures
EXCESS OF REVENUES OVER EXPENDITURES
OTHER FINANCING SOURCES (USES):
Transfers in
Transfers out
Public Works
Non‐Departmental
Fire
FUND BALANCE AT BEGINNING OF YEAR, GAAP BASIS
FUND BALANCE AT END OF YEAR, GAAP BASIS
EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER)
EXPENDITURES, BUDGETARY BASIS
Adjustment to Budgetary Basis:
CHANGE IN FUND BALANCE, GAAP BASIS
See accompanying notes to the basic financial statements.
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Fiber
Water Electric Optics Gas
ASSETS:
Current assets:Cash and investments available for operations (Note 3) 46,602$ 107,044$ 35,983$ 30,484$
Accounts receivable, net of allowance of $1,551 6,636 19,244 864 2,996
Interest receivable 228 540 178 149
Due from other government agencies ‐ ‐ ‐ ‐ Inventory of materials and supplies ‐ ‐ ‐ ‐
Restricted cash and investments with fiscal agents and trustees (Note 3) 2,906 ‐ ‐ 434
Total current assets 56,372 126,828 37,025 34,063
Noncurrent assets:
Due from other government agencies ‐ ‐ ‐ ‐
Deposits ‐ 44 ‐ ‐
Prepaid expense 67 ‐ ‐ ‐ Capital assets (Note 6):
Nondepreciable 17,926 35,248 2,236 17,925
Depreciable, net 115,588 174,828 7,075 93,347
Total noncurrent assets 133,581 210,120 9,311 111,272
Total assets 189,953 336,948 46,336 145,335
DEFERRED OUTFLOWS OF RESOURCES:
Unamortized loss from refunding 65 ‐ ‐ 84
Pension related (Note 11) 2,660 6,164 349 2,740
OPEB related (Note 12) 757 2,284 83 961
Total deferred outflows of resources 3,482 8,448 432 3,785
LIABILITIES:Current liabilities:
Accounts payable and accruals 2,175 4,663 275 1,185
Accrued salaries and benefits 176 413 19 182
Due to other funds ‐ ‐ ‐ ‐ Accrued compensated absences (Note 1) ‐ ‐ ‐ ‐
Current portion of long term debt (Note 7) 1,852 100 ‐ 693
Accrued claims payable (Note 14) ‐ ‐ ‐ ‐
Total current liabilities 4,203 5,176 294 2,060
Noncurrent liabilities:
Accrued compensated absences (Note 1) ‐ ‐ ‐ ‐
Accrued claims payable (Note 14) ‐ ‐ ‐ ‐ Advance from other fund (Note 4) ‐ ‐ ‐ ‐
Landfill post‐closure liability (Note 9) ‐ ‐ ‐ ‐
Net pension liabilities (Note 11) 16,803 40,376 2,587 17,532
Net OPEB liabilities (Note 12) 4,009 13,022 67 5,786 Long term debt, net of unamortized discounts/premiums (Note 7) 26,051 (5) ‐ 3,223
Total noncurrent liabilities 46,863 53,393 2,654 26,541
Total liabilities 51,066 58,569 2,948 28,601
DEFERRED INFLOWS OF RESOURCES:
OPEB related (Note 12) 802 2,495 17 1,024
NET POSITION (Note 10):Net Investment in capital assets 105,676 209,851 9,311 107,440
Restricted for:
Debt service 2,906 ‐ ‐ 434
Supplemental pension ‐ ‐ ‐ ‐ Unrestricted (deficit) 32,985 74,481 34,492 11,621
Total net position 141,567$ 284,332$ 43,803$ 119,495$
Some amounts reported for Business‐type Activities in the statement of net position are different because certainInternal 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, 2021
(Amounts in thousands)
See accompanying notes to the basic financial statements.
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Governmental
Non‐Major Activities ‐Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
9,358$ 16,076$ 28,363$ 8,361$ ‐$ 282,271$ 96,806$
2,709 2,601 3,297 890 4,084 43,321 98
46 83 139 42 ‐ 1,405 484
‐ 300 ‐ ‐ ‐ 300 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 116
‐ ‐ ‐ ‐ ‐ 3,340 37,089
12,113 19,060 31,799 9,293 4,084 330,637 134,593
‐ 2,100 ‐ ‐ ‐ 2,100 ‐
‐ ‐ ‐ ‐ ‐ 44 ‐
‐ 133 ‐ ‐ ‐ 200 ‐
4,784 11,152 1,952 12,121 30,565 133,909 5,587
88,204 58,783 3,076 30,801 2,898 574,600 17,354
92,988 72,168 5,028 42,922 33,463 710,853 22,941
105,101 91,228 36,827 52,215 37,547 1,041,490 157,534
‐ ‐ ‐ ‐ ‐ 149 ‐
1,256 3,355 765 695 135 18,119 2,578
368 930 422 152 55 6,012 844
1,624 4,285 1,187 847 190 24,280 3,422
667 1,248 3,127 127 2,965 16,432 1,709
91 242 46 37 18 1,224 250
‐ ‐ ‐ ‐ 602 602 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 6,327
110 2,187 ‐ 815 ‐ 5,757 ‐
‐ ‐ ‐ ‐ ‐ ‐ 6,811
868 3,677 3,173 979 3,585 24,015 15,097
‐ ‐ ‐ ‐ ‐ ‐ 9,320
‐ ‐ ‐ ‐ ‐ ‐ 25,720 ‐ ‐ ‐ ‐ 3,036 3,036 ‐
‐ ‐ 6,179 ‐ ‐ 6,179 ‐
9,624 24,633 6,661 4,682 889 123,787 17,548
2,212 6,874 2,458 1,083 404 35,915 4,800
238 31,896 ‐ 1,750 ‐ 63,153 ‐
12,074 63,403 15,298 7,515 4,329 232,070 57,388
12,942 67,080 18,471 8,494 7,914 256,085 72,485
392 1,001 449 163 59 6,402 897
92,640 38,252 5,028 40,357 33,463 642,018 22,941
‐ ‐ ‐ ‐ ‐ 3,340 ‐
‐ ‐ ‐ ‐ ‐ ‐ 37,089
751 (10,820) 14,066 4,048 (3,699) 157,925 27,544
93,391$ 27,432$ 19,094$ 44,405$ 29,764$ 803,283 87,574$
3,936
807,219$
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
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Fiber
Water Electric Optics Gas
OPERATING REVENUES:
Sales to:
Customers 44,154$ 124,153$ 2,878$ 36,583$
City departments 2,532 4,167 1,045 542
Surplus energy ‐ 9,286 ‐ ‐
Service connection charges and miscellaneous 1,239 942 12 845
Charges for services ‐ ‐ ‐ ‐
Other 887 23,692 1 1,550
Total operating revenues 48,812 162,240 3,936 39,520
OPERATING EXPENSES:
Purchase of utilities:
Retail purchase of utilities 21,935 92,088 ‐ 12,750
Surplus energy ‐ 6,373 ‐ ‐
Administrative and general 5,771 9,605 873 4,285
Engineering (operating) 663 2,409 ‐ 571
Resource management and energy efficiency 1,216 6,597 ‐ 968
Operations and maintenance 7,401 17,191 1,249 6,225
Rent 2,225 5,950 52 471
Depreciation 3,127 8,637 420 3,409
Claims payments and changes in
estimated self‐insurance liability ‐ ‐ ‐ ‐
Refund of charges for services ‐ ‐ ‐ ‐
Employment benefits ‐ ‐ ‐ ‐
Total operating expenses 42,338 148,850 2,594 28,679
Operating income 6,474 13,390 1,342 10,841
NONOPERATING REVENUES (EXPENSES):
Investment earnings 366 941 268 205
Interest expense (1,476) (7,760) ‐ (104)
Gain on disposal of capital assets ‐ ‐ ‐ ‐
Loss on disposal of capital assets (8) (70) ‐ (49)
Other nonoperating revenues 462 ‐ ‐ ‐
Total nonoperating revenues (expenses) (656) (6,889) 268 52
Income before transfers and capital contributions 5,818 6,501 1,610 10,893
Capital contributions 533 ‐ ‐ ‐
Transfers in (Note 4) 557 2,582 ‐ ‐
Transfers out (Note 4) (268) (13,945) (118) (7,369)
Change in net position 6,640 (4,862) 1,492 3,524
NET POSITION, BEGINNING OF YEAR 134,927 289,194 42,311 115,971
NET POSITION, END OF YEAR 141,567$ 284,332$ 43,803$ 119,495$
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, 2021
(Amounts in thousands)
See accompanying notes to the basic financial statements.
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Governmental
Non‐Major Activities‐
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
19,654$ 18,883$ 27,374$ 7,275$ 1,815$ 282,769$ ‐$
162 10,587 860 434 ‐ 20,329 ‐
‐ ‐ ‐ ‐ ‐ 9,286 ‐
263 ‐ ‐ ‐ ‐ 3,301 ‐
‐ ‐ ‐ ‐ ‐ ‐ 115,429
405 1,052 2,402 76 770 30,835 200
20,484 30,522 30,636 7,785 2,585 346,520 115,629
10,542 ‐ 17,474 ‐ ‐ 154,789 ‐
‐ ‐ ‐ ‐ ‐ 6,373 ‐
2,264 ‐ 1,342 1,135 698 25,973 13,212
351 2,359 260 253 ‐ 6,866 ‐
‐ ‐ ‐ 1,127 ‐ 9,908 ‐
3,413 20,387 8,529 1,168 632 66,195 12,765
252 ‐ 981 19 ‐ 9,950 ‐
2,849 4,143 81 871 69 23,606 3,153
‐ ‐ ‐ ‐ ‐ ‐ 8,745
‐ ‐ ‐ ‐ ‐ ‐ 115
‐ ‐ ‐ ‐ ‐ ‐ 75,775
19,671 26,889 28,667 4,573 1,399 303,660 113,765
813 3,633 1,969 3,212 1,186 42,860 1,864
42 159 148 77 (19) 2,187 3,891
(24) (721) (197) (174) (74) (10,530) ‐
‐ ‐ ‐ ‐ ‐ ‐ 385
(1) ‐ ‐ ‐ ‐ (128) ‐
‐ ‐ ‐ ‐ ‐ 462 5
17 (562) (49) (97) (93) (8,009) 4,281
830 3,071 1,920 3,115 1,093 34,851 6,145
239 ‐ ‐ ‐ 5,619 6,391 ‐
‐ ‐ ‐ ‐ ‐ 3,139 3,797
(342) ‐ (30) (154) ‐ (22,226) (2,704)
727 3,071 1,890 2,961 6,712 22,155 7,238
92,664 24,361 17,204 41,444 23,052 80,336
93,391$ 27,432$ 19,094$ 44,405$ 29,764$ 87,574$
58
22,213$
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
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Fiber
Water Electric Optics GasCash flows from operating activities:
Cash received from customers 45,811$ 141,628$ 3,130$ 36,977$
Cash payments to suppliers for goods and services (30,814) (115,045) (992) (16,679)
Cash payments to employees (10,576) (23,010) (1,246) (9,123)
Internal activity‐ receipts (payments) from (to) other funds 2,532 4,167 1,045 542 Other receipts 887 23,692 1 1,550
Net cash provided by operating activities 7,840 31,432 1,938 13,267
Cash flows from noncapital financing activities:
Repayment of loans from other funds ‐ ‐ ‐ ‐
Interest subsidy received from Build America Bonds 462 ‐ ‐ ‐ Transfers in 557 2,582 ‐ ‐
Transfers out (268) (13,945) (118) (7,369)
Net cash provided by (used in) noncapital financing activities 751 (11,363) (118) (7,369)
Cash flows from capital and related financing activities:Acquisition and construction of capital assets (3,549) (12,741) (398) (3,543)
Proceeds from sale of capital assets ‐ ‐ ‐ ‐
Capital grants and contributions 533 ‐ ‐ ‐ Principal paid on long‐term debt (1,774) (99) ‐ (667)
Interest paid on long‐term debt (1,501) (7,755) ‐ (134)
Net cash used in capital and relatedfinancing activities (6,291) (20,595) (398) (4,344)
Cash flows from investing activities:Investment interest received (expenses paid) 379 975 278 211
Net cash provided by investing activities 379 975 278 211
Net change in cash and cash equivalents 2,679 449 1,700 1,765
Cash and cash equivalents, beginning of year 46,829 106,595 34,283 29,153
Cash and cash equivalents, end of year $ 49,508 $ 107,044 $ 35,983 $ 30,918
Financial statement presentation:Cash and investments available for operations 46,602$ 107,044$ 35,983$ 30,484$
Restricted cash and investments with fiscal agents and trustees 2,906 ‐ ‐ 434
Cash and cash equivalents, end of year 49,508$ 107,044$ 35,983$ 30,918$
Reconciliation of operating income to net cash provided by (used in) operating activities:
Operating income 6,474$ 13,390$ 1,342$ 10,841$ Adjustments to reconcile operating income (loss) to
net cash provided by (used in) operating activities:
Depreciation 3,127 8,637 420 3,409 Other ‐ ‐ ‐ ‐
Change in assets and liabilities:Accounts receivable 418 7,247 240 (451)
Inventory of materials and supplies ‐ ‐ ‐ ‐
Deposit 8 ‐ ‐ ‐ Deferred outflow of resources ‐ pension plans (686) (1,389) 17 (679)
Deferred outflow of resources ‐ OPEB 31 183 (83) 45 Accounts payable and accruals (2,070) 2,172 (144) (287)
Accrued salaries and benefits 15 29 (5) 23
Accrued compensated absences ‐ ‐ ‐ ‐ Landfill closure and post‐closure care ‐ ‐ ‐ ‐
Accrued claims payable ‐ ‐ ‐ ‐ Net pension liability 980 2,579 129 894
Net OPEB liability (79) (314) 67 (101)
Deferred inflow of resources ‐ pension plans (266) (725) (62) (274)
Deferred inflow of resources ‐ OPEB (112) (377) 17 (153)
Net cash provided by operating activities $ 7,840 $ 31,432 $ 1,938 $ 13,267
Business‐Type Activities‐Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Cash Flows
For the Year Ended June 30, 2021
(Amounts in thousands)
See accompanying notes to the basic financial statements.
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Governmental
Non‐Major Activities‐
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
20,091$ 19,259$ 27,385$ 7,231$ (40)$ 301,472$ 115,400$
(11,507) (9,786) (24,905) (1,153) 2,120 (208,761) (14,110)
(5,103) (13,195) (2,963) (2,422) (972) (68,610) (86,418)
162 10,587 860 434 ‐ 20,329 (5,765) 405 1,052 1,480 76 770 29,913 5
4,048 7,917 1,857 4,166 1,878 74,343 9,112
‐ ‐ ‐ ‐ (1,354) (1,354) ‐
‐ ‐ ‐ ‐ ‐ 462 ‐ ‐ ‐ ‐ ‐ ‐ 3,139 3,797
(342) ‐ (30) (154) ‐ (22,226) (2,704)
(342) ‐ (30) (154) (1,354) (19,979) 1,093
(3,976) (5,682) ‐ (3,053) (6,050) (38,992) (4,828)
‐ ‐ ‐ ‐ ‐ ‐ 484
239 300 ‐ ‐ 5,619 6,691 ‐
(104) (2,131) ‐ (775) ‐ (5,550) ‐
(24) (719) (197) (172) (74) (10,576) ‐
(3,865) (8,232) (197) (4,000) (505) (48,427) (4,344)
49 158 168 77 (19) 2,276 3,914
49 158 168 77 (19) 2,276 3,914
(110) (157) 1,798 89 ‐ 8,213 9,775
9,468 16,233 26,565 8,272 ‐ 277,398 124,120
$ 9,358 $ 16,076 $ 28,363 $ 8,361 $ ‐ $ 285,611 $ 133,895
9,358$ 16,076$ 28,363$ 8,361$ ‐$ 282,271$ 96,806$
‐ ‐ ‐ ‐ ‐ 3,340 37,089$
9,358$ 16,076$ 28,363$ 8,361$ ‐$ 285,611$ 133,895$
813$ 3,633$ 1,969$ 3,212$ 1,186$ 42,860$ 1,864$
2,849 4,143 81 871 69 23,606 3,153 ‐ ‐ ‐ ‐ ‐ ‐ 5
174 376 11 (44) (1,855) 6,116 (67)
‐ ‐ ‐ ‐ ‐ ‐ (14)
‐ 17 ‐ ‐ ‐ 25 ‐ (145) (494) (150) (75) 77 (3,524) (275)
17 53 19 8 3 276 37 236 (226) 686 11 2,632 3,010 141
6 34 1 (7) (1) 95 47
‐ ‐ ‐ ‐ ‐ ‐ 1,403 ‐ ‐ (922) ‐ ‐ (922) ‐
‐ ‐ ‐ ‐ ‐ ‐ 2,818 373 1,098 375 370 (158) 6,640 681
(38) (99) (44) (16) (5) (629) (89)
(179) (451) (104) (137) (60) (2,258) (462)
(58) (167) (65) (27) (10) (952) (130)
$ 4,048 $ 7,917 $ 1,857 $ 4,166 $ 1,878 $ 74,343 $ 9,112
Business‐Type Activities‐Enterprise Funds
See accompanying notes to the basic financial statements.
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Custodial
Funds
ASSETS:
Cash and investments available for operations (Note 3) 3,276$
Accounts receivable 491
Interest receivable 16
Restricted cash and investments with fiscal agents (Note 3) 2,705
Total assets 6,488
LIABILITIES:
Accounts payable and accruals 411
NET POSITION:
Restricted for:
Governmental entities 1,260
Bondholders of special assessment bonds 4,817
Total net position 6,077$
CITY OF PALO ALTO
Statement of Fiduciary Net Position
June 30, 2021
(Amounts in thousands)
See accompanying notes to the basic financial statements.
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Custodial
Funds
ADDITIONS:
Franchise and other fees collected 1,821$
Special assessments collected 2,407
Investment earnings 9
Other 5
Total additions 4,242
DEDUCTIONS:
Administrative and general 39
Distribution to governmental entities 1,538
Debt services payments 2,409
Total deductions 3,986
Changes in net position 256
NET POSITION, BEGINNING OF YEAR 5,821
NET POSITION, END OF YEAR 6,077$
CITY OF PALO ALTO
Statement of Changes in Fiduciary Net Position
For the Year Ended June 30, 2021
(Amounts in thousands)
See accompanying notes to the basic financial statements.
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CITY OF PALO ALTO
Index to the Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
49
Page
1. Summary of Significant Accounting Policies ........................................................................... 51
2. Budgets and Budgetary Accounting ........................................................................................ 60
3. Cash and Investments ............................................................................................................. 61
4. Interfund Transactions ............................................................................................................ 67
5. Notes and Loans Receivable .................................................................................................... 69
6. Capital Assets .......................................................................................................................... 74
7. Long‐Term Debt ....................................................................................................................... 80
8. Special Assessment Debt ......................................................................................................... 86
9. Landfill Post‐Closure Maintenance ......................................................................................... 86
10. Net Position and Fund Balances .............................................................................................. 87
11. Pension Plans ........................................................................................................................... 90
12. Other Post‐Employment Benefits (OPEB) ............................................................................... 97
13. Deferred Compensation Plan ................................................................................................ 101
14. Risk Management .................................................................................................................. 101
15. Joint Ventures ........................................................................................................................ 103
16. Commitments and Contingencies ......................................................................................... 105
17. Subsequent Event .................................................................................................................. 108
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.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
51
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The City of Palo Alto (the City) was incorporated in 1894 and operates as a charter city, having had its first charter granted by the State of California in 1909. The City operates under the Council‐Manager form of
government and provides the following services: public safety (police and fire), public works, electric, fiber optics, water, gas, wastewater, storm drain, refuse, airport, golf course, planning and zoning, general administration services, library, open space and science, recreational and human services.
(a) Reporting Entity
The City is governed by a seven‐member council, elected by City residents. The City is legally
separate and fiscally independent, which means it can issue debt, set and modify budgets and
fees, and sue or be sued. The accompanying basic financial statements present the financial
activities of the City, which is the primary government presented, along with the financial
activities of its component unit, which is an entity for which the City is financially accountable.
Although a separate legal entity, a blended component unit is, in substance, part of the City’s
operations and is reported as an integral part of the City’s financial statements. The City’s
component unit are described below.
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 Corporation is a blended component unit of the City. The financial
activities of the Corporation are included in the non‐major Debt Service Funds.
The University Avenue Area Off‐Street Parking Assessment District (the District) provides
financing for the construction of public vehicle off‐street parking improvements. The City is
responsible for the governance of the District. The City can impose its will on the District but does
not have a financial benefit or burden from the District. The assets associated with the District
are for the benefit of the District and are not derived from the City’s provision of goods or services
to the District. The District is a fiduciary component unit of the City. The financial activities of the
District are included in the University Avenue Area Off‐Street Parking Assessment District
Custodial 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.
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
52
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
(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.
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
53
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
(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.
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
54
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other Funds (Continued)
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.
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.
Custodial Funds – These funds are fiduciary funds used to report fiduciary activities that are not
required to be reported in pension (and other employee benefit) trust funds, investment trust
funds, or private purpose trust funds. These include balances and activities of the Cable Joint
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
55
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Major Funds and Other Funds (Continued)
Powers Authority and the assessment district. The financial activities of these funds are excluded
from the government‐wide financial statements, but are presented in separate fiduciary fund
financial statements.
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, proprietary fund, and fiduciary fund financial statements are reported
using the economic resources measurement focus and the full accrual basis of accounting.
Revenues are recorded when earned and expenses are recorded at the time liabilities are
incurred, regardless of when the related cash flows take place.
Governmental funds are reported using the current financial resources measurement focus and
the modified accrual basis of accounting. Under this method, revenues are recognized when
measurable and available. The City considers revenues susceptible to accrual reported in the
governmental funds to be available if the revenues are collected within ninety days after year‐
end, except for property taxes, which are available if collected within sixty days after year‐end.
Expenditures are recorded when the related fund liability is incurred, except for principal and
interest on general long‐term debt, claims and judgments, and compensated absences, which are
recognized as expenditures to the extent they have matured. General capital asset acquisitions
are reported as expenditures in governmental funds. Proceeds from 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.
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
56
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, 2021, changes to the compensated absences liabilities were
as follows (in thousands):
Beginning balance 14,244$
Additions 8,751
Payments (7,348)
Ending balance 15,647$
Current portion 6,327$
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
57
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 1 January 1
Levy Dates October 1 July 1
Due Dates 50% on November 1 Upon receipt of billing
50% on February 1
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), respectively. 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. The
governmental activities’ share of net pension liability and net OPEB liability are typically liquidated
by the General Fund.
(m) Rounding
All amounts included in the basic financial statements and footnotes are presented to the nearest
thousand.
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
58
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements
As of July 1, 2020, the City implemented the following GASB Statement:
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 provides recognition and measurement guidance for situations
in which a government is a beneficiary of these agreements. The City evaluated all funds and
activities in accordance with the statement and determine that the Cable Joint Powers Authority
and the District’s activities previously reported as agency funds should be reported as custodial
funds.
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. Implementation of this statement did not have a significant impact on the City’s
financial statements for the fiscal year ended June 30, 2021.
In October 2021, the GASB issued Statement No. 98, The Annual Comprehensive Financial Report.
This statement establishes the term annual comprehensive financial report and its acronym ACFR
and eliminates the prior name and acronym in generally accepted accounting principles for state
and local governments. No changes were made to the report’s structure or content.
Implementation of this statement did not have a significant impact on the City’s financial
statements for the fiscal year ended June 30, 2021.
The City is currently analyzing its accounting practices to determine the potential impact on the
financial statements for the following GASB Statements:
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, 2022.
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
59
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements (Continued)
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,
2022.
In May 2019, the GASB issued Statement No. 91, Conduit Debt Obligations. The objectives of this
statement are to provide a single method of reporting conduit debt obligations by issuers and
eliminate diversity in practice associated with 1) commitments extended by issuers, 2)
arrangements associated with conduit debt obligations, and 3) related note disclosure. The
requirements of this statement are effective for the City’s fiscal year ending June 30, 2023.
In January 2020, the GASB issued Statement No. 92, Omnibus 2020. The objectives of this
statement are to enhance comparability in accounting and financial reporting and to improve the
consistency of authoritative literature by addressing practice issues that have been identified
during implementation and application of certain GASB statements. The requirements of this
statement are effective for the City’s fiscal year ending June 30, 2022.
In March 2020, the GASB issued Statement No. 93, Replacement of Interbank Offered Rates. The
objective of this statement is to address those and other accounting and financial reporting
implications that result from the replacement of an interbank offered rate. The requirements of
this statement are effective for the City’s fiscal year ending June 30, 2022.
In March 2020, the GASB issued Statement No. 94, Public‐Private and Public‐Public Partnerships
and Availability Payment Arrangements. The objective of this Statement is to improve financial
reporting by addressing issues related to public‐private and public‐public partnership
arrangements (PPPs). This statement also provides guidance for accounting and financial
reporting for availability payment arrangements (APAs). As defined in this statement, an APA is
an arrangement in which a government compensates an operator for services that may include
designing, constructing, financing, maintaining, or operating an underlying nonfinancial asset for
a period of time in an exchange or exchange‐like transaction. The requirements of this statement
are effective for the City’s fiscal year ending June 30, 2023.
In May 2020, the GASB issued Statement No. 96, Subscription‐Based Information Technology
Arrangements. This statement provides guidance on the accounting and financial reporting for
subscription‐based information technology arrangements (SBITAs) for government end users
(governments). This statement (1) defines a SBITA; (2) establishes that a SBITA results in a right‐
to‐use subscription asset—an intangible asset—and a corresponding subscription liability; (3)
provides the capitalization criteria for outlays other than subscription payments, including
implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. The
requirements of this statement are effective for the City’s fiscal year ending June 30, 2023.
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
60
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Effects of New Pronouncements (Continued)
In June 2020, the GASB issued Statement No. 97, Certain Component Unit Criteria, and Accounting
and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans – an
Amendment of GASB Statements No. 14 and No. 84, and a Supersession of GASB Statement No. 32.
The primary objectives of this statement are to (1) increase consistency and comparability related
to the reporting of fiduciary component units in circumstances in which a potential component
unit does not have a governing board and the primary government performs the duties that a
governing board typically would perform; (2) mitigate costs associated with the reporting of
certain defined contribution pension plans, defined contribution other postemployment benefit
(OPEB) plans, and employee benefit plans other than pension plans or OPEB plans (other
employee benefit plans) as fiduciary component units in fiduciary fund financial statements; and
(3) enhance the relevance, consistency, and comparability of the accounting and financial
reporting for Internal Revenue Code (IRC) Section 457 deferred compensation plans (Section 457
plans) that meet the definition of a pension plan and for benefits provided through those plans.
The requirements of this statement are effective for the City’s fiscal year ending June 30, 2022.
(o) Use of Estimates
The accompanying basic financial statements have been prepared on the modified accrual and
accrual basis of accounting in accordance with generally accepted accounting principles. This
requires management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ from those
estimates.
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 budget includes planned 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 Custodial 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. Amendments to appropriations to
departments in the General Fund, to total appropriations for all other budgeted funds, or to transfer
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, Internal Service,
Special Revenue and Debt Service Funds.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
61
NOTE 2 – BUDGETS AND BUDGETARY ACCOUNTING (Continued)
6. Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting
principles (GAAP), except that unrealized gains or losses on investments, changes in advances to other
funds and notes receivable are not recognized on a budgetary basis and encumbrances are treated as
budgetary expenditures when incurred.
7. Expenditures for the Capital Projects Fund are budgeted and maintained at a project level for the life
of the project. Budget to actual comparisons for these expenditures have been excluded from the
accompanying financial statements.
NOTE 3 – CASH AND INVESTMENTS The City pools cash from all sources and all funds, except restricted bond proceeds with fiscal agents and
Public Agency Retirement Services, and invests its pooled idle cash according to State of California law
and the City’s Investment Policy. The basic principles underlying the City’s investment philosophy are to
ensure the safety of public funds, ensure that sufficient funds are available to meet current expenditures,
and achieve a reasonable rate of return on investments.
Policies
The City invests in individual investments and in investment pools. Individual investments are evidenced
by specific identifiable securities instruments, or by an electronic entry registering the owner in the
records of the institution issuing the security, called the book entry system. In order to increase security,
the City employs the trust department of a bank as the custodian of certain City managed investments.
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 310,091$ 282,271$ 3,276$ 595,638$
With fiscal agents and trustees 133,264 3,340 2,705 139,309
Total cash and investments 443,355$ 285,611$ 5,981$ 734,947$
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.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
62
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 $75 million per
account
Short‐Term Repurchase Agreements 1 year N/A No Limit No Limit
City of Palo Alto Bonds N/A N/A No Limit No Limit
Money Market Mutual Funds N/A N/A (E) No Limit No Limit
Mutual Funds (F) N/A N/A 20% 10%
Negotiable Certificates of Deposit 10 years (*) N/A 10% $5 million
Medium‐Term Corporate Notes 5 years AA 10% $5 million
10 years (*) AA/AA2 30% No Limit
5 years AA/AA2 20% 10% of the par
value of
portfolio
(A)
(B) The lesser of $3 million or 10% of outstanding commercial 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 & Other U.S. States
Callable and multi‐step securities are limited to no more than 25% of the par value of the portfolio, provided that: 1) the
potential call dates are known at the time of purchase, 2) the interest rates at which they "step‐up" are known at the time of
purchase, and 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.
Water Revenue Bonds 2009 Series A, Utility Revenue Bonds 2011 Refunding and 1999 Refunding require a minimum credit
quality rating of AAAm or AAAm‐G by Standard & Poor's.
Supranational
The City must maintain required amounts of cash and investments with trustees under the terms of
certain debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if
the City fails to meet its obligations under these debt issues. The Code requires these funds to be invested
in accordance with City ordinance, bond indentures or state statute. All of these funds have been invested
as permitted under the Code and the investment policy approved by the City Council.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
63
NOTE 3 – CASH AND INVESTMENTS (Continued)
The City has implemented investment guidelines for its Public Agencies Retirement Services (PARS) Trust
which authorizes the investments in U.S. Treasury securities, federal agencies and U.S. guaranteed
obligations, corporate notes, certificates of deposit, bankers’ acceptances, equities investments, and
mutual funds.
Fair Value Measurements
The City categorizes its fair value measurements within the fair value hierarchy established by generally
accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value
of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are
significant other observable inputs; and Level 3 inputs are significant unobservable inputs. All of the
investments are measured using level 2 inputs, except for investments in money market mutual funds,
California Asset Management Program and Local Agency Investment Fund, which are not subject to the
fair value hierarchy.
Investment securities classified in Level 2 of the fair value hierarchy are valued using prices determined by the use of matrix pricing techniques maintained by the pricing vendors for these securities. Matrix pricing is used to value securities based on the securities relationship to benchmark quoted prices.
The following is a summary of the fair value measurements of the City as of June 30, 2021 (in thousands):
Type of Investment June 30, 2021 Level 2
Investments by fair value hierarchy
U.S. Federal Agency Securities 243,526$ 243,526$
U.S. Treasury Notes 13,680 13,680
Local Government Bonds 172,085 172,085
Negotiable Certificates of Deposit 36,271 36,271
Corporate Bonds 24,491 24,491
Supranational Bonds 31,792 31,792
Total investments by fair value hierarchy 521,845 521,845$
Investment not subject to fair value hierarchy
Money Market Mutual Funds 103,428
Equity Mutual Funds (Irrevocable for Pension)37,089
California Asset Management Program 3,304
Local Agency Investment Fund 67,394
Total investments not subject to fair value hierarchy 211,215
Total investments measured at fair value 733,060$
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
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
64
NOTE 3 – CASH AND INVESTMENTS (Continued)
accounting records maintained by LAIF, which are recorded on an amortized cost basis. LAIF is part of the
State’s Pooled Money Investment Account (PMIA). The total balance of the PMIA is approximately $193.3
billion as of June 30, 2021. Of that amount, 97.7 percent was invested in nonderivative financial products
and 2.3 percent in structured notes and asset backed securities. At June 30, 2021, LAIF had a weighted
average maturity of 291 days.
Money Market Mutual Funds
Money market mutual funds are available for withdrawal on demand and at June 30, 2021, had a weighted
average maturity of approximately 1 month.
California Asset Management Program
The City is a voluntary participant in the California Asset Management Program (CAMP). CAMP is an
investment pool offered by the California Asset Management Trust (the Trust). The Trust is a joint powers
authority and public agency created by the Declaration of Trust and established under the provisions of
the California Joint Exercise of Powers Act (California Government Code Sections 6500 et seq., or the
“Act”) for the purpose of exercising the common power of its participants to invest certain proceeds of
debt issues and surplus funds. The City’s investments are limited to investments permitted by
subdivisions (a) to (n), inclusive, of Section 53601 of the California Government Code. The City reports its
investments in CAMP at the fair value amounts provided by CAMP, which is the same as the value of the
pool share. At June 30, 2021, the fair value approximated the City’s cost. CAMP had a weighted average
maturity of 52 days at June 30, 2021.
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates may adversely affect the fair value of an
investment. Normally, the longer the maturity of an investment, the greater the sensitivity its fair value
is to changes in market interest rates. As of June 30, 2021, the City’s investments consisted of the
following (in thousands):
Type of Investment
Less Than
One Year
One to
Three Years
Three to
Five Years
Over
Five Years Total
U.S. Federal Agency Securities 23,669$ 50,617$ 75,136$ 94,104$ 243,526$
U.S. Treasury Notes 1,517 9,215 2,948 ‐ 13,680
Local Government Bonds 24,545 27,492 47,841 72,207 172,085
Corporate Bonds 860 7,547 16,084 ‐ 24,491
Money Market Mutual Funds 103,428 ‐ ‐ ‐ 103,428
Equity Mutual Funds
(Irrevocable for Pension)37,089 ‐ ‐ ‐ 37,089
Negotiable Certificates of Deposit 10,287 12,527 9,801 3,656 36,271
California Asset Management Program 3,304 ‐ ‐ ‐ 3,304
Supranational Bonds ‐ 4,257 27,535 ‐ 31,792
Local Agency Investment Fund 67,394 ‐ ‐ ‐ 67,394
Total Investments 272,093$ 111,655$ 179,345$ 169,967$ 733,060
Cash in bank and on hand 1,887
Total Cash and Investments 734,947$
Maturities
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
65
NOTE 3 – CASH AND INVESTMENTS (Continued)
Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations
At June 30, 2021, the City’s investments (including investments held by bond trustees) include U.S. Federal
Agency Callable Securities totaling $137.0 million. These investments are highly sensitive to interest rate
fluctuations (to a greater degree than already indicated in the information provided above) and are
subject to early redemption.
Credit Risk
Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the
investment. This is measured by the assignment of a rating by a nationally recognized statistical rating
organization.
Presented below is the actual rating as provided by Standard & Poor’s, Moody’s and/or Fitch’s investment
rating system as of June 30, 2021, for each investment type (in thousands):
Type of Investment Rating Total
U.S. Federal Agency Securities AA+ 243,526$
Corporate Bonds AAA 19,076
AA+ 5,415
Total Corporate Bonds 24,491
Local Government Bonds AAA 52,338
AA+ 50,433
AA 41,241
N/A 28,073
Total Government Bonds 172,085
Supranational Bonds AAA 31,792
Money Market Mutual Funds AAA 103,428
Subtotal rated investments 575,322
Not Applicable:
U.S. Treasury Notes 13,680
Not Rated:
California Asset Management Program 3,304
Local Agency Investment Fund 67,394
Negotiable Certificates of Deposit 36,271
Equity Mutual Funds (Irrevocable for Pension) 37,089
Cash in bank and on hand 1,887
Total Cash and Investments 734,947$
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
66
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, 2021
(in thousands):
Investments Reporting Type Fair Value at Year‐End
Federal Agricultural Mortgage Corporation U.S. Federal Agency Securities 88,423$
Federal Home Loan Mortgage Corporation U.S. Federal Agency Securities 45,987
Federal Home Loan Bank U.S. Federal Agency Securities 43,991
Federal Farm Credit Bank U.S. Federal Agency Securities 39,439
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.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
67
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 fiscal year 2021 were as follows on the following page (in thousands):
Fund Making Transfer
Amount
Transferred
General Fund Nonmajor Governmental Funds 394$ A
Electric Services Fund 13,639 B
Gas Services Fund 6,847 B
20,880
Capital Projects Fund General Fund 9,294 C
Nonmajor Governmental Funds 9,170 C
Water Services Fund 84 C
Electric Services Fund 165 C
Fiber Optics Fund 10 C
Gas Services Fund 69 C
Wastewater Collection Fund 41 C
Refuse Fund 10 C
Storm Drainage Fund 150 C
Internal Service Funds 205 C
19,198
Nonmajor Governmental Funds General Fund 1,019 A
Capital Projects Fund 2,380 A
Water Services Fund 13 A
Electric Services Fund 24 A
Fiber Optics Fund 1 A
Gas Services Fund 10 A
Wastewater Collection Fund 6 A
Internal Service Funds 27 A
3,480
Water Services Fund Gas Services Fund 279 C
Wastewater Collection Fund 278 C
557
Electric Services Fund General Fund 2,082 D
Water Services Fund 137 C
Gas Services Fund 136 C
Fiber Optics Fund 102 C
Internal Service Funds 125 C
2,582
Internal Service Funds General Fund 1,225 E
Water Services Fund 34 E
Electric Services Fund 117 E
Fiber Optics Fund 5 E
Gas Services Fund 28 E
Wastewater Collection Fund 17 E
Refuse Fund 20 E
Storm Drainage Services Fund 4 E
Internal Service Funds 2,347 F
3,797
Total 50,494$
Fund Receiving Transfer
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
68
NOTE 4 – INTERFUND TRANSACTIONS (Continued)
The reasons for these transfers are set forth below:
(A) Transfer to fund street maintenance activities, to pay debt service, fund City employee parking,
and to return unspent project funds.
(B) Transfer to fund the return of initial investment made by general fund when utility department
was created.
(C) Transfers of funds to construct, purchase or maintain capital assets.
(D) Transfer to fund electricity costs associated with City streetlight and traffic signal costs.
(E) Transfer to fund replacement and maintenance of critical desktop, software, infrastructure,
vehicles and equipment.
(F) Transfer to fund for retiree healthcare.
Current Interfund Balances
Current interfund balances arise in the normal course of business and are expected to be repaid shortly
after the end of the fiscal year. At June 30, 2021, the non‐major Street Improvement Special Revenue
Fund, the non‐major Federal Revenue Special Revenue Fund, and the non‐major Airport Enterprise Fund
owed the General Fund $206,000, $135,000, and $602,000, respectively.
Long‐Term Interfund Advance
On December 6, 2010, the City Council accepted an Airport Business Plan of the Palo Alto Airport (PAO)
and approved creation of the Airport Enterprise Fund to facilitate the transition of PAO control from the
County of Santa Clara to the City. The City Council approved six separate general fund advances to the
non‐major Airport Enterprise Fund. All advances bear interest equal to the average return yield on the
City’s investment portfolio. The six separate advances and interest incurred have been consolidated and
are scheduled to be repaid by June 2034. At June 30, 2021, the outstanding advances was $3.0 million.
Internal Balances
Internal balances represent the net interfund receivables and payables remaining after the elimination of
all such balances within governmental and business‐type activities.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
69
NOTE 5 – NOTES AND LOANS RECEIVABLE
At June 30, 2021, the City’s notes and loans receivable totaled (in thousands):
Palo Alto Housing Corporation:
Tree House Apartments 5,344$
Emerson Street Project 375
Alma Single Room Occupancy Development 2,222
Barker Hotel 2,111
Sheridan Apartments 2,222
Oak Court Apartments, L.P. 7,834
El Dorado Palace, LLC 150
Mid‐Peninsula Housing Coalition:
Palo Alto Gardens Apartments 100
Community Working Group, Inc.1,280
Opportunity Center Associates, L.P.945
Home Rehabilitation Loans 46
Executive Relocation Assistance Loans 826
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, LP 901
MP Palo Alto Garden, LLC 672
Colorado Park Housing Corporation 204
Buena Vista Mobile Home Park – Santa Clara County 14,500
Wilton Court Apartments 18,752
Total Notes and Loans Receivable 49,537
Less: Valuation Allowance (14,612)
Total Notes and Loans Receivable, Net 53,677$
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.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
70
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. 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 (Sheridan Apartments). 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.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
71
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 in the amount of $375,000 to increase the supply of
affordable low income housing in the City. The City loaned $52,000 and $13,000 in June 2017 and March
2018, respectively. In February 2019, the City loaned an additional $85,000. The loan bears three percent
(3%) interest, however in the event of default will accrue at the lesser of 8% or the highest rate permitted
by law. The term of the loan shall expire 55 years unless the City agree to extend an additional 44 years.
As of June 30, 2021, the outstanding balance was $150,000.
Palo Alto Gardens Apartments
On April 22, 1999, the City loaned $1.0 million to Mid‐Peninsula Housing Coalition (the Coalition) for the
purchase and rehabilitation of a 155‐unit complex for the continuation of low‐income housing. The loan
was funded with $659,000 of CDBG funds and $341,000 of Housing In‐Lieu funds. The two notes bear
interest at 3 percent and are secured by second deeds of trust and a City Affordability Reserve Account
held by the Coalition. The remaining principal balance is due in 2039. As of June 30, 2021, the outstanding
balance was $100,000.
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. During fiscal year 2019, the City received $25,000 in principal payments. On April 17, 2019, the City
approved up to an additional $220,000 loan drawn from CDBG for the improvement of rental housing. In
February 2019 and April 2019, the City loaned $191,000 and $29,000, respectively. The note bears 3
percent interest, and all payments of interest and principal shall be deferred until July 19, 2103. The loan
balance owed as of June 30, 2021 was $945,000.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
72
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Home Rehabilitation Loans
The City administers a closed housing rehabilitation loan program initially funded with CDBG funds. Under
this program, individuals with incomes below a certain level are eligible to receive low interest loans for
rehabilitation work on their homes. These loans are secured by deeds of trust, which may be subordinated
to subsequent encumbrances upon said real property with the prior written consent of the City. The loan
repayments may be amortized over the life of the loans, deferred, or a combination of both.
Executive Relocation Assistance Loans
The City Council may authorize a mortgage loan as part of a relocation assistance package to executive
staff. The loans are secured by first deeds of trust, and interest is adjusted annually based on the rate of
return of invested funds of the City for the year ended June 30 plus one‐quarter of a percent. Principal
and interest payments are due monthly. Employees must pay any outstanding balance on their loans
within a certain period after ending employment with the City. During the year ended June 30, 2020, the
City entered into a 30‐year loan with the City Manager for $845,000. The purchase cost for the City
Manager’s home was $3.4 million and the City holds 75 percent equity share. During the year ended June
30, 2021, the City Manager paid $21,000 for capital improvements and $100,000 to the City to exercise a
one‐time option to purchase a portion of the City’s equity share which decreased to 71.43 percent. As of
June 30, 2021, the outstanding balance was $826,000.
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.
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) 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
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.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
73
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.
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, 2021, the outstanding amount is $6.4
million.
Palo Alto Senior Housing Project – Stevenson House, LP
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, 2021,
the loan outstanding balance is $901,000 and is due at the end of the 55‐year term.
MP Palo Alto Garden, LLC
The City loaned $619,000 and $53,000 in March 2017 and October 2017, respectively, in CDBG funds for
the rehabilitation of the property. The note bears 3% simple interest and shall be deferred until April 24,
2054. If there are no Events of Default prior to the end of the terms, the unpaid principal and interest will
be treated as a grant and no repayment will be due to the City.
Colorado Park Housing Corporation
On September 8, 2014, the City entered into an affordable housing fund loan agreement with Colorado
Park Housing Corporation (CPHC), a California nonprofit public benefit corporation, in the principal
amount of $204,000. The loan bears no interest except in the event of default. The principal and any
accrued interest is due and payable on the earlier of (a) expiration of the term, or (b) a default by CPHC
which has not been cured as provided for in the agreement.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
74
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 commenced on
September 30, 2019 and the note and all interest is payable in full on September 29, 2092.
Wilton Court Apartments
In October 2020, the City entered into a predevelopment and construction loan agreement with Wilton
ECR L.P. to construct approximately fifty‐nine (59) residential rental units on property located at 3703‐
3709 El Camino Real with the City. Fifty‐eight (58) would be affordable to low, very low, and extremely
low‐income households earning between thirty percent to sixty percent of area median income as
determined by the United States Department of Housing and Urban Development, of which twenty‐one
(21) of the units will be designated for persons with developmental disabilities. The City entered into a
loan agreement with Wilton ECR L.P. in the amount of $18.8 million. The loan bear interest rate of 0%
until the date of the permanent closing and 3% commencing the date of the permanent closing. The loan
matures on December 31, 2077. During the year, $18.8 million was drawn. As of June 30, 2021, the
outstanding balance was $18.8 million.
NOTE 6 – CAPITAL ASSETS
Valuation
Capital assets are valued at historical cost if purchased or constructed. Donated capital assets, donated
works of art and similar items, and capital assets received in a service concession arrangement are
recorded at acquisition value at the time received. The City’s policy is to capitalize all assets when costs
are equal to or exceed $5,000 and the useful life exceeds one year. Infrastructure assets are capitalized
when costs are equal to or exceed $100,000.
Proprietary fund capital assets are recorded at cost including significant interest costs incurred under
restricted tax‐exempt borrowings, which finance the construction of capital assets. These interest costs,
net of interest earned on investment of proceeds of such borrowings, are capitalized and added to the
cost of capital assets during the construction period. Maintenance and repairs are expensed as incurred.
The City has recorded all its public domain capital assets, consisting of roadway and recreation and open
space, in its government‐wide financial statements. All capital assets with limited useful lives are
depreciated over their estimated useful lives. 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.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
75
NOTE 6 – CAPITAL ASSETS (Continued)
Depreciation of capital assets is charged as an expense against operations each year and the total amount
of depreciation taken over the years, called accumulated depreciation, is reported on the statement of
net position as a reduction in the book value of capital assets.
Depreciation is calculated using the straight‐line method, which means the cost of the asset is divided by
its expected useful life in years, and the result is charged to expense each year until the asset is fully
depreciated. The City has assigned the useful lives listed below to capital assets.
Governmental Activities Years
Buildings and structures 20 ‐ 30
Equipment:
Computer equipment 3 ‐ 5
Office machinery and equipment 5
Machinery and equipment 5 ‐ 30
Intangible assets ‐ software 5‐20
Roadway network:
5 ‐ 40
Recreation and open space network:
25 ‐ 40
Business‐type Activities
Buildings and structures 25 ‐ 60
Vehicles and heavy equipment 3 ‐ 10
Machinery and equipment 10 ‐ 50
Transmission, distribution and treatment systems 10 ‐ 100
Includes pavement, striping and legends, curbs, gutters and sidewalks, parking lots,
traffic signage, and bridges
Includes major park facilities, park trails, bike paths and medians
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
76
NOTE 6 – CAPITAL ASSETS (Continued)
Governmental Activities
Changes in the capital assets for governmental activities during the year ended June 30, 2021 were (in
thousands):
Balance Balance
July 1, 2020 Additions Retirements Transfers June 30, 2021
Governmental activities
Nondepreciable capital assets:
Land and improvements 82,206$ ‐$ (75)$ ‐$ 82,131$
Street trees 14,787 165 (127) ‐ 14,825
Intangible assets ‐ Easement 3,567 ‐ ‐ ‐ 3,567
Construction in progress 139,365 33,143 (11,934) (22,761) 137,813
Total nondepreciable capital assets 239,925 33,308 (12,136) (22,761) 238,336
Depreciable capital assets:
Buildings and structures 251,119 ‐ (25) 21,003 272,097
Intangible assets ‐ Software 279 ‐ ‐ ‐ 279
Equipment 15,737 217 (520) 1,758 17,192
Roadway network 335,202 ‐ ‐ ‐ 335,202
Recreation and open space network 35,186 ‐ ‐ ‐ 35,186
Total depreciable capital assets 637,523 217 (545) 22,761 659,956
Less accumulated depreciation:
Buildings and structures (105,984) (7,728) 1 ‐ (113,711)
Intangible assets ‐ Software (279) ‐ ‐ ‐ (279)
Equipment (8,856) (460) 389 ‐ (8,927)
Roadway network (171,522) (7,694) ‐ ‐ (179,216)
Recreation and open space network (15,867) (1,254) ‐ ‐ (17,121)
Total accumulated depreciation (302,508) (17,136) 390 ‐ (319,254)
Depreciable capital assets, net 335,015 (16,919) (155) 22,761 340,702
Internal service fund capital assets
Construction in progress 2,723 2,864 ‐ ‐ 5,587
Equipment 63,476 1,964 (2,415) ‐ 63,025
Less accumulated depreciation (44,834) (3,153) 2,316 ‐ (45,671)
Net internal service fund capital assets 21,365 1,675 (99) ‐ 22,941
Governmental activities capital assets, net 596,305$ 18,064$ (12,390)$ ‐$ 601,979$
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
77
NOTE 6 – CAPITAL ASSETS (Continued)
Business‐Type Activities Capital Assets
Changes in the capital assets for the business‐type activities during the year ended June 30, 2021 were
(in thousands):
Balance Balance
July 1, 2020 Additions Retirements Transfers June 30, 2021
Business‐type activities
Nondepreciable capital assets:
Land and improvements 4,973$ ‐$ ‐$ ‐$ 4,973$
Construction in progress 121,096 38,420 ‐ (30,580) 128,936
Total nondepreciable capital assets 126,069 38,420 ‐ (30,580) 133,909
Depreciable capital assets:
Buildings and structures 74,568 ‐ ‐ ‐ 74,568
Infrastructure 633 ‐ ‐ ‐ 633
Transmission, distribution and treatment systems 884,791 572 (1,154) 30,580 914,789
Total depreciable capital assets 959,992 572 (1,154) 30,580 989,990
Less accumulated depreciation:
Buildings and structures (16,141) (1,393) ‐ ‐ (17,534)
Infrastructure (65) (21) ‐ ‐ (86)
Transmission, distribution and treatment systems (376,604) (22,192) 1,026 ‐ (397,770)
Total accumulated depreciation (392,810) (23,606) 1,026 ‐ (415,390)
Depreciable capital assets, net 567,182 (23,034) (128) 30,580 574,600
Business‐type activities capital assets, net 693,251$ 15,386$ (128)$ ‐$ 708,509$
Capital Asset Contributions
Some capital assets may be acquired using federal and state grant funds, or they may be contributed by
developers or other governments. Generally accepted accounting principles require that these
contributions be accounted for as revenues at the time the capital assets are contributed.
Depreciation Allocation
Depreciation expense was charged to functions and programs based on their usage of the related assets.
The amount allocated to each function or program is as follows (in thousands):
Governmental Activities Business‐type Activities
City Manager 22$ Water 3,127$
City Attorney 1 Electric 8,637
City Clerk 4 Fiber Optics 420
City Auditor 1 Gas 3,409
Administrative Services 4 Wastewater Collection 2,849
Public Works 10,530 Wastewater Treatment 4,143
Planning and Development Services 419 Refuse 81
Office of Transportation 9 Storm Drainage 871 Police 89 Airport 69
Fire 392 23,606$
Community Services 3,297
Library 2,368
Internal Service Funds 3,153
20,289$
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
78
NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress
Construction in progress as of June 30, 2021 is comprised of the following (in thousands):
Governmental Activities
Expended to
June 30, 2021
California Avenue Parking Garage 48,522$
Highway 101 Pedestrian/Bicycle Overpass 19,617
New Public Safety Building 17,163
Charleston/Arastradero Corridor 13,136
Bicycle Boulevards Implementation Project 9,163
Traffic Signal Upgrades 4,875
Railroad Grade Separation 3,772
Technology Fund 3,748
JMZ Renovation 2,928
Animal Shelter Renovation 2,739
Rincondada Park Improvements 2,508
Vehicle Fund 1,839
Newell Road Bridge/SFC Bridge Replacement 1,829
Cubberley Track and Field Replacement 1,808
New Downtown Parking Garage 1,440
Quarry Road 1,282
Art in Public Places 1,027
Tennis & Basketball Court Resurfacing 908
Municipal Service Center Improvements 571
Emerg Vehicle Traffic Signal Preempt Sys 486
Park Wayfinding Design 475
Civic Center Electrical Upgrade 416
Other construction in progress 3,148
Total Governmental Activities 143,400$
Business‐type Activities
Expended to
June 30, 2021
Airport's Apron Reconstruction 30,464$
Electric distribution system improvements 22,752
Gas system extension replacements and improvements 17,800
Storm drainage structural and water quality improvements 11,779
Water quality control plant equipment replacement and lab facilities 7,528
Sewer system rehabilitation and extensions 4,241
Water system extension replacements and improvements 2,958
Other electrical improvements projects 2,148
Other construction in progress 29,266
Total Business‐type Activities 128,936$
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
79
NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress Commitments
Major governmental capital projects that are currently in progress, and the remaining capital commitment
of each, are as follows:
New Public Safety Building ‐ $97.1 million
Charleston Arastradero Corridor – $7.4 million
Municipal Service Center Improvements ‐ $6.0 million
Churchill Ave/Alma ‐ $4.2 million
Railroad Grade Separation ‐ $4.0 million
Highway 101 Pedestrian/Bicycle Overpass ‐ $3.7 million
Vehicle Replacements ‐ $3.3 million
Major business‐type capital projects that are currently in progress, and the remaining capital commitment
of each, are as follows:
Seismic Water Systems Upgrades ‐ $5.3 million
Gas Main Replacement Project 23 ‐ $6.9 million
Primary Sedimentation Tank Rehabilitation ‐ $11.8 million
Airport Apron Reconstruction Phase 1 ‐ $23.3 million
Vehicle Registration Fees (VRF)
In fiscal year 2021, the City received VRF funds from the Santa Clara Valley Transportation Authority and
expended the full amount on capital expenditures for the Overlay Resurfacing Project (PE‐86070) (in
thousands):
Starting VRF balance July 1, 2020 ‐$
VRF revenue 444
VRF interest earned 2
VRF expense (446)
Ending VRF balance June 30, 2021 ‐$
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
80
NOTE 7 – LONG‐TERM DEBT
The City’s long‐term debt balances and activities, other than special assessment debt discussed in Note 8,
are as follows (in thousands):
Original Balance Balance Current
Issue Amount July 1, 2020 Additions Retirements June 30, 2021 Portion
Governmental Activities Debt:
2010 General Obligation Bonds,
3.25% ‐ 5%, due 08/01/2040 55,305$ 43,295$ ‐$ 1,330$ 41,965$ 1,395$
2013A General Obligation Bonds,
2 ‐ 5%, due 08/01/2041 20,695 15,480 ‐ 450 15,030 465
2018 Captial Improvement Project and Refinancing Certficates of Participation,
2.2%‐ 4.22%, due 11/1/2047 8,970 8,755 ‐ 185 8,570 190
2019 California Ave Parking Garage
Certficates of Participation, Series A & B
2.5%‐5%, due 11/1/2048 37,370 36,995 ‐ 630 36,365 645
2021 Public Safety Building
Certficates of Participation,
2%‐5%, due 11/1/2050 101,505 ‐ 101,505 ‐ 101,505 ‐
Add: Unamortized Premium ‐ 7,980 6,524 405 14,099 569
Total Governmental Activities Debt 223,845$ 112,505$ 108,029$ 3,000$ 217,534$ 3,264$
Original Issue
Amount
Balance
July 1, 2020 Additions Retirements
Balance
June 30, 2021
Current
Portion
Business‐type Activities Debt:
Utility Revenue Bonds
1999 Refunding,
5.125‐5.25%, due 06/01/2024
17,735$ 6,660$ ‐$ 1,540$ 5,120$ 1,620$
2009 Series A,
1.80‐5.95%, due 06/01/2035
35,015 25,510 ‐ 1,180 24,330 1,235
2011 Refunding,
3‐4%, due 06/01/2035
17,225 7,890 ‐ 1,210 6,680 1,260
Add: Unamortized Premium ‐ 479 ‐ 81 398 ‐
Energy Tax Credit Bonds
2007 Series A, 0%, Due 12/15/2021 1,500 200 ‐ 100 100 100
Less: Unamortized Discount ‐ (11) ‐ (5) (6) ‐
Total Bonds 71,475 40,728 ‐ 4,106 36,622 4,215
State Water Resources Loans
Direct Borrowings:
2007, 1.02%, due 06/30/2029 9,000 4,050 ‐ 450 3,600 450
2009, 2.6%, due 11/30/2030 8,500 5,258 ‐ 419 4,839 430
2017, 1.8%, due 5/31/2049 29,684 24,500 ‐ 651 23,849 662
Total Direct Borrowings 47,184 33,808 ‐ 1,520 32,288 1,542
Total Business‐type Activities Debt 118,659$ 74,536$ ‐$ 5,626$ 68,910$ 5,757$
Bond premiums and discounts of long‐term debt issues are amortized over the life of the related debt.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
81
NOTE 7 – LONG‐TERM DEBT (Continued)
Description of Long‐Term Debt Issues
2010 General Obligation Bonds (2010 GO Bonds) – On June 30, 2010, the City issued $55.3 million of 2010
GO Bonds to finance costs for constructing a new Mitchell Park Library and Community Center, and to
fund substantial improvements to the Rinconada Library and the Downtown Library. Principal payments
are due annually on August 1 and interest payments semi‐annually on February 1 and August 1 and are
payable from property tax revenues.
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
defeased amount was paid off on August 1, 2020.
2013A General Obligation Bonds (2013A GO Bonds) – On June 30, 2013, the City issued $20.7 million of
2013A GO Bonds to finance costs for constructing a new Mitchell Park Library and Community Center, as
well as making substantial improvements to the Rinconada Library and the Downtown Library. Principal
payments are due annually on August 1 and interest payments semi‐annually on February 1 and August 1
from 2 percent to 5 percent, and are payable from property tax revenues.
On June 28, 2016, the City defeased $2.8 million of 2013A GO Bonds using funds remaining at completion
of the project by depositing the amount in an irrevocable trust account. The trust account assets and the
liability for the defeased bonds are not included in the City’s financial statements. The City legally remains
the primary obligor on the $2.8 million of defeased bonds until they are paid on August 1, 2023.
The City’s 2010 and 2013A GO Bonds are general obligations of the City, secured and payable solely from
ad valorem property taxes levied by the City and collected by the County of Santa Clara. The City is
empowered and obligated to annually levy ad valorem taxes for the payment of the Bonds and the interest
thereon upon all property within the City subject to taxation by the City, without limitation of rate or
amount (except certain personal property which is taxable at limited rates) until the final maturity dates
of the bonds on August 1, 2040 and August 1, 2041 respectively. For the fiscal year ended June 30, 2021,
the City received $4.3 million in ad valorem property taxes for principal of $1.8 million and interest of $2.6
million for the 2010 and 2013A GO Bonds.
2018 Capital Improvement (“Golf Course”) Project and Refinancing Certificates of Participation (2018
COPs) – On June 1, 2018, the City issued taxable COPs of $9.0 million for the renovation of the Palo Alto
Municipal Golf Course ($8.4 million) and to fully refinance the 2002B COPs ($0.6 million). There are two
semi‐annual debt service payments, consisting of principal payments due annually on November 1 and
interest payments due on May 1 and November 1, which are payable solely from and secured by the lease
payments to be made by the City’s General Fund to the Public Improvement Corporation pursuant to the
Lease Agreement. The leased property is the Palo Alto University Fire Station 1. The 2018 COPs has a final
maturity date of November 1, 2047.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
82
NOTE 7 – LONG‐TERM DEBT (Continued)
2019 California Avenue Parking Garage Series A and B Certificates of Participation (2019A and 2009B
COPs) – On March 21, 2019, the City issued tax exempt 2019A COPs of $26.8 million and taxable 2019B
COPs of $10.6 million for the construction of the California Avenue Parking Garage. There are two semi‐
annual debt service payments, consisting of principal payments due annually on November 1 and interest
payments due on May 1 and November 1. The debt service is payable solely from and secured by the lease
payments to be made by the City’s General Fund to the Public Improvement Corporation pursuant to the
Lease Agreement. The leased property is the Rinconada Library and after construction and the substantial
readiness of the California Avenue Parking Garage project, the garage will become the leased property.
The maturity dates for the 2019A COPs and 2019B COPs are November 1, 2044 and November 1, 2048,
respectively. The reserve account requirement was waived due to the City being a highly rated bond
issuer.
2021 Public Safety Building Certificates of Participation (2021 COPs) – On March 24, 2021, the City issued
taxable COPs of $101.5 million for the construction of the City’s new public safety building. There are two
semi‐annual debt service payments, consisting of principal payments due annually on November 1 and
interest payments due on May 1 and November 1. The debt service is payable solely from and secured by
the lease payments to be made by the City’s General Fund to the Public Improvement Corporation
pursuant to the Lease Agreement. The leased property is the City’s Civic Center and after construction
and the substantial readiness of the Public Safety Building project, the new public safety building will
become the leased property. The maturity date for the 2021 COPs is November 1, 2050. The reserve
account requirement was waived due to the City being a highly rated bond issuer.
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. The bonds have a final maturity
date of the June 1, 2024.
As required by the Indenture, the City established a Reserve Account with a Reserve Requirement. At the
time it issued the Bonds, the City satisfied the Reserve Requirement with a deposit into the Reserve
Account of a surety bond issued by Ambac Indemnity Corporation (renamed to Ambac Assurance
Corporation in 1997).
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
83
NOTE 7 – LONG‐TERM DEBT (Continued)
The pledge of future Net Revenues for the above bonds ends upon repayment of the $5.1 million principal
and $0.5 million interest as the remaining debt service on the bonds, which is scheduled to occur in fiscal
year 2024. For fiscal year 2021, Net Revenues, including operating revenues and non‐operating interest
earnings, amounted to $59.1 million; operating costs, including operating expenses but not interest,
depreciation or amortization, amounted to $43.3 million. Net Revenues available for debt service
amounted to $15.8 million, which represents coverage of 8.4 times over the $1.9 million in debt service.
2009 Water Revenue Bonds, Series A – On October 6, 2009, the City issued $35.0 million of Water
Revenue Bonds to finance certain improvements to the City’s water utility system. Principal payments are
due annually on June 1, and interest payments are due semi‐annually on June 1 and December 1 from
1.80 percent to 5.95 percent. The 2009 Revenue Bonds are secured by net revenues generated by the
Water Services Fund. The 2009 Bonds were issued as bonds designated as “Direct Payment Build America
Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (“Build America
Bonds”). The City expects to receive a cash subsidy payment from the United States Treasury equal to 35
percent of the interest payable on the 2009 Bonds. The lien of the 1995 Bonds on the Net Revenues is
senior to the lien on Net Revenues securing the 2009 Bonds and the 2011 Bonds. The City received subsidy
payments amounting to $462,000, which represents 30.8 percent of the interest payments due on
December 1 and June 1.
The pledge of future Net Revenues for the above bonds ends upon repayment of the $24.3 million
principal and $11.6 million interest as the remaining debt service on the bonds, which is scheduled to
occur in fiscal year 2035. For fiscal year 2021, Net Revenues, including operating revenues and non‐
operating interest earnings, amounted to $49.2 million; operating costs, including operating expenses but
not interest, depreciation or amortization, amounted to $39.2 million. Net Revenues available for debt
service amounted to $10.0 million, which represented coverage of 3.9 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 $6.7 million principal
and $0.6 million interest as remaining debt service on the bonds, which is scheduled to occur in fiscal year
2026. For fiscal year 2021, Net Revenues, including operating revenues and non‐operating interest
earnings, amounted to $88.9 million; operating costs, including operating expenses but not interest,
depreciation or amortization, amounted to $64.5 million. Net Revenues available for debt service
amounted to $24.4 million, which represented coverage of 16.7 times over the $1.5 million in debt service.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
84
NOTE 7 –LONG‐TERM DEBT (Continued)
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 $0.1 million remaining debt
service on the bonds, which is scheduled to occur in fiscal year 2022. For fiscal year 2021, Net Revenues,
including operating revenues and non‐operating interest earnings, amounted to $163.2 million; operating
costs, including operating expenses but not interest, depreciation or amortization, amounted to $140.2
million. Net Revenues available for debt service amounted to $23.0 million, which represented coverage
of 229.7 times over the $0.1 million in debt service.
Direct Borrowing ‐ 2007 State Water Resources Loan – In October 2007, the City approved a $9 million
direct loan agreement with State Water Resources Control Board (SWRCB) to finance the City’s Mountain
View/Moffett Area reclaimed water pipeline project. Under the terms of the contract, the City has agreed
to repay $9 million to the State in exchange for receiving $7.5 million in proceeds to be used to fund the
Project. The difference of $1.5 million between the repayment obligation and proceeds represents in‐
substance interest on the outstanding balance. Principal payments are payable annually on June 30.
Concurrently with the loan, the City entered into various other agreements including a cost sharing
arrangement with the City of Mountain View. Pursuant to that agreement, City of Mountain View agreed
to finance a portion of the project with a $6.0 million loan repayable to the City. This loan has been
recorded as “Due from other government agencies” in the accompanying financial statements. The
balance due to the City at June 30, 2021 was $2.4 million.
Direct Borrowing ‐ 2009 State Water Resources Loan – In October 2009, the City approved an $8.5 million
direct loan agreement with SWRCB to finance the City’s Ultraviolet Disinfection project. Principal and
interest payments are payable annually on November 30. The loan interest rate is 2.60 percent which
represents a combination of loan service charge and interest.
Direct Borrowing ‐ 2017 State Water Resources Loan ‐ In June 2017, the SWRCB and the City executed a
direct loan agreement for an award up to $30 million, payable over 30 years to finance the replacement
of sewage sludge “bio‐solids” incinerators at the City’s Regional Water Quality Control Plant (RWQCP). In September 2017, due to the projected lower project costs, the agreement was amended to a lower loan
amount of $29.7 million. Under the terms of the agreement, a portion of the loan amount, $4.0 million,
is federally funded and has been adjusted to reflect the correct long term obligation balance. The loan
interest rate is 1.80 percent.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
85
NOTE 7 – LONG‐TERM DEBT (Continued)
The new facility will dewater the bio‐solids and allow the material to be loaded onto trucks and taken to
a separate facility for further treatment. The RWQCP provides treatment and disposal for wastewater for
Palo Alto, Mountain View, Los Altos, Los Altos Hills, East Palo Alto Sanitary District, and Stanford
University. Though Palo Alto is the recipient of the loan, the City’s agreement with the partner agencies
oblige them to pay their proportionate share of the principal and interest of this loan. Palo Alto’s share of
the loan payment is 38.2 percent with the partner agencies paying 61.8 percent.
Debt Service Requirements (in thousands):
Debt service requirements are shown below for all long‐term debt.
For the Year Ending
June 30 Principal Interest Total Principal Interest Total Principal Interest Total
2022 2,695$ 7,762$ 10,457$ 4,215$ 1,797$ 6,012$ 1,542$ 317$ 1,859$
2023 2,795 7,462 10,257 4,300 1,616 5,916 1,566 300 1,866
2024 5,045 7,286 12,331 4,485 1,427 5,912 1,589 283 1,872
2025 5,280 7,062 12,342 2,790 1,229 4,019 1,613 266 1,879
2026 5,545 6,802 12,347 2,900 1,121 4,021 1,638 248 1,886
2027‐2031 32,115 29,450 61,565 8,645 4,178 12,823 7,679 962 8,641
2032‐2036 39,895 21,590 61,485 8,895 1,361 10,256 4,105 602 4,707
2037‐2041 45,720 13,356 59,076 ‐ ‐ ‐ 4,488 432 4,920
2042‐2046 33,080 6,842 39,922 ‐ ‐ ‐ 4,907 246 5,153
2047‐2051 31,265 1,836 33,101 ‐ ‐ ‐ 3,161 51 3,212
Total 203,435$ 109,448$ 312,883$ 36,230$ 12,729$ 48,959$ 32,288$ 3,707$ 35,995$
Governmental Activities
Bonds Direct Borrowings
Business‐Type Activities
Debt Call Provisions
Long‐term debt as of June 30, 2021 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.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
86
NOTE 7 – LONG‐TERM DEBT (Continued)
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.
Events of Default and Acceleration Clauses
Generally, the City is considered to be in default if the City fails to pay the principal of and interest on the
outstanding long‐term debt when become due and payable. If an event of default has occurred and is
continuing, the principal of the long‐term debt, together with the accrued interest, may be declared due
and payable immediately.
NOTE 8 – SPECIAL ASSESSMENT DEBT
Special Assessment Debt with no City Commitment
On February 29, 2012, the 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. The City is in no way for the repayment of the Bonds, but is
only acting as an agent for the property owners in collecting the assessments, forwarding the collections
to bondholders, and initiating foreclosure proceedings, when appropriate. Therefore, this debt is not
included in Governmental Activities long‐term debt of the City. At June 30, 2021, the District’s outstanding
debt amounted to $17.9 million. The proceeds from the 2012 Bonds, combined with available Assessment
Funds, were used to redeem the outstanding University Avenue Area Off‐Street Parking Assessment
District Series 2001‐A and Series 2002‐A Bonds. On June 28, 2016, the District defeased $1.6 million of the
2012 Bonds using funds remaining from completion of the project. The defeased debt will be paid on
September 2, 2022. Reserve and redemption funds held by the District are reported within the University
Avenue Area Off‐Street Parking Assessment District Custodial Fund.
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 maintenance related activities
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
87
NOTE 9 – LANDFILL POST‐CLOSURE MAINTENANCE (Continued)
and corrective action costs was approved by State and local regulatory agencies in 2014. As required by
the State, an updated five‐year post‐closure maintenance plan and cost estimate was submitted and
approved in FY 2021. This cost estimate is adjusted annually for inflation at a percentage provided by the
State. Landfill post‐closure liabilities as of June 30, 2021 are $6.2 million, a decrease of $0.9 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
Governmental funds report fund balances in classifications based primarily on the extent to which the City
is bound to honor constraints on the specific purposes for which amounts in the funds can be spent. Fund
balances for governmental funds are made up of the following:
Nonspendable – This category is comprised of amounts that are: (a) not in spendable form, or (b) legally
or contractually required to be maintained intact. The “not in spendable form” criterion includes items
that are not expected to be converted to cash, for example: prepaid items. The corpus of the permanent
fund is contractually required to be maintained intact.
Restricted – This category is comprised of amounts that can be spent only for the specific purposes
stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions
may effectively be changed or lifted only with the consent of resource providers.
Committed – This category is comprised of amounts that can only be used for the specific purposes
determined by the action that constitutes the most binding constraint (i.e. ordinance) of the City’s highest
level of decision‐making authority, the City Council. Commitments may be changed or lifted only by the
City taking the same formal action that imposed the constraint originally.
Assigned – This category is comprised of amounts intended to be used by the City for specific purposes
that are neither restricted nor committed. Intent is expressed by the City Council or the City Manager, to
whom the City Council has delegated the authority to assign amounts to be used for specific purposes.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
88
NOTE 10 – NET POSITION AND FUND BALANCES (Continued)
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, 2021, total outstanding encumbrances and reappropriations related to governmental funds
were $10.9 million for the General Fund, $148.0 million for the Capital Projects Fund, and $3.2 million for
the Special Revenue Funds.
Enterprise Funds
At June 30, 2021, enterprise funds’ unrestricted net position (in thousands) were as follows:
Water Electric Fiber Optics Gas
Wastewater
Collection
Wastewater
Treatment Refuse
Storm
Drainage Airport TotalUnrestricted
Rate stabilization
Supply ‐$ ‐$ ‐$ 2,766$ ‐$ ‐$ ‐$ ‐$ ‐$ 2,766$
Distribution 9,070 ‐ 33,343 ‐ 342 (4,988) 20,014 4,745 (14,006) 48,520 9,070 ‐ 33,343 2,766 342 (4,988) 20,014 4,745 (14,006) 51,286
Operations
Supply ‐ 19,875 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 19,875
Distribution 20,773 10,026 ‐ 11,982 6,578 ‐ ‐ ‐ ‐ 49,359
20,773 29,901 ‐ 11,982 6,578 ‐ ‐ ‐ ‐ 69,234
Emergency plant replacement ‐ ‐ 1,000 ‐ ‐ 1,980 ‐ ‐ ‐ 2,980
Electric special projects ‐ 46,665 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 46,665
Reappropriations 4,451 10,050 202 443 716 ‐ ‐ 3,553 ‐ 19,415
Commitments 6,181 7,142 2,186 8,709 541 18,760 1,484 831 11,469 57,303
Underground loan ‐ 727 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 727
Notes and loans ‐ ‐ ‐ ‐ ‐ 1,651 ‐ ‐ ‐ 1,651
Landfill corrective action ‐ ‐ ‐ ‐ ‐ ‐ 681 ‐ ‐ 681 Hydro stabilization reserve ‐ 15,400 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 15,400
Public benefit program ‐ 3,028 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 3,028
Reserve for LCFS ‐ 6,944 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 6,944
CIP reserve 10,707 880 ‐ 3,820 3,178 ‐ ‐ ‐ ‐ 18,585
Geng Road reserve ‐ ‐ ‐ ‐ ‐ ‐ 268 ‐ ‐ 268 Cap & Trade ‐ 1,189 ‐ 4,542 ‐ ‐ ‐ ‐ ‐ 5,731
GASB 68 Pension (14,143) (34,212) (2,238) (14,792) (8,368) (21,278) (5,896) (3,987) (754) (105,668)
GASB 75 OPEB (4,054) (13,233) (1) (5,849) (2,236) (6,945) (2,485) (1,094) (408) (36,305)
Total 32,985$ 74,481$ 34,492$ 11,621$ 751$ (10,820)$ 14,066$ 4,048$ (3,699)$ 157,925$
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
89
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, 2021, Internal Service Funds unrestricted net position (in thousands) were as follows:
Vehicle
Replacement
and
Maintenance Technology
Printing and
Mailing
Services
General
Benefits
Workers'
Compensation
Insurance
Program
General
Liabilities
Insurance
Program
Retiree Health
Benefits Total
Unrestricted net position:Commitments 4,608$ 3,236$ 40$ 325$ 178$ 11$ ‐$ 8,398$
Future catastrophic losses ‐ ‐ ‐ ‐ ‐ 3,670 ‐ 3,670
Retiree health care ‐ ‐ ‐ ‐ ‐ ‐ 2,694 2,694 GASB 68 pension (3,235) (11,509) (263) ‐ 37 ‐ ‐ (14,970)
GASB 75 OPEB (1,549) (3,162) (142) ‐ ‐ ‐ ‐ (4,853)
Available 7,065 18,557 85 5,572 1,326 ‐ ‐ 32,605 Total 6,889$ 7,122$ (280)$ 5,897$ 1,541$ 3,681$ 2,694$ 27,544$
Commitments represent the portion of net position set aside for open purchase orders and
reappropriations.
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.
GASB 68 pension represents the net impact of net pension liability and related deferred
outflows/inflows of resources balances.
GASB 75 OPEB represents the net impact of net OPEB liability and related deferred
outflows/inflows of resources balances.
Deficit Fund Balance and Net Position:
At June 30, 2021, the City’s Printing and Mailing Services internal service fund had a deficit net position of
$254,000. The deficit is due to the impact of Pension and OPEB liabilities and related balances. The deficit
is expected to be funded by future internal service charges to other City funds.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
90
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 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 www.calpers.ca.gov.
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, 2021, are summarized in the following table.
Contribution rates are based on the Actuarial Valuation Report as of June 30, 2018.
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 compensation 3% 3% 3% 2.7%
Actuarially determined contribution rate ‐ EE 9% 9% 9% 11.25%
Actuarially determined contribution rate ‐ ER 65.332% 65.332% 65.332% 65.332%
Hire Date Prior to July 17, 2010
On or after July 17,
2010
On or after Jan 1,
2013
Benefit formula 2.7% at 55
2 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 compensation2 2.70% 2.0% ‐ 2.418% 2%
Actuarially determined contribution rate ‐ EE 8% 7% 6.25%
Actuarially determined contribution rate ‐ ER 38.367% 38.367% 38.367%
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
Safety Plan
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
91
NOTE 11 – PENSION PLANS (Continued)
Employees Covered – Based on the Actuarial Valuation Report as of June 30, 2020, the most recent
information available, the following employees were covered by the benefits terms for each Plan:
Miscellaneous
Plan Safety Plan
Inactive employees or beneficiaries currently receiving benefits 1,223 435
Inactive employees entitled to but not yet receiving benefits 835 104
Active employees 777 174
Total 2,835 713
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 of contributions can be found in the Required Supplemental Information Schedules of Pension
Contributions.
In April 2017, the City established a Section 115 irrevocable trust with the Public Agency Retirement
Services (PARS). The Council approved an initial deposit of $2.1 million in General Fund proceeds into the
General Fund subaccount of the City’s PARS Trust Account. The Trust Account allows more control and
flexibility in investment allocations compared to City’s portfolio which is restricted by State regulations to
fixed income instruments. The City proactively contributes to the Section 115 irrevocable trust amounts
reflective of what retirement costs would be if the normal cost of contributions was budgeted at a 6.2%
discount rate. During the year, the City contributed $5.0 million to the PARS Trust. As of June 30, 2021,
the City reported the account balance of $37.1 million as restricted investments in the General Benefits
Internal Service Fund.
(b) Net Pension Liability
The City’s net pension liability for each plan is measured as the total pension liability, less each plan’s
fiduciary net position. Net pension liability is measured as of June 30, 2020 (measurement date), using
the Actuarial Valuation Report as of June 30, 2019 rolled forward to June 30, 2020 using standard update
procedures.
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
92
NOTE 11 – PENSION PLANS (Continued)
Actuarial Assumptions ‐ The total pension liabilities were determined using the following actuarial
assumptions:
Valuation Date
Measurement Date
Actuarial Cost Method
Actuarial Assumptions:
Discount Rate
Inflation
Salary Increases
Mortality1
Post Retirement Benefit Increase
Derived using CalPERS membership data
for all funds.
The lessor of contract COLA or 2.50% until
Purchasing Power Protection Allowance
Floor on purchasing power applies, 2.50%
thereafter.
Varies by Entry Age and Service
1 The mortality table used was developed based on CalPERS' specific data. The
probabilities of mortality are based on the 2017 CalPERS Experience Study for the
period from 1997 to 2015. Pre‐retirement and post‐retirement mortality rates
includes 15 years of projected mortality improvements using 90% of Scale MP‐2016
published by the Society of Actuaries. For more details on this table, please refer
to the 2017 CalPERS Experience Study available on the CalPERS website.
Miscellaneous and Safety Plans
June 30, 2019
June 30, 2020
Entry Age Normal
7.15%
2.50%
All other actuarial assumptions used in the June 30, 2019 actuarial valuation were based on the 2017
CalPERS Experience Study for the period from 1997 to 2015, including updates to salary increase, mortality
and retirement rates. Further details of the 2017 CalPERS Experience Study can be found on the CalPERS
website under Forms and Publications.
Discount Rate – The discount rate used to measure the total pension liability was 7.15 percent for each
Plan. The projection of cash flows used to determine the discount rate assumed that the contributions
from employers will be made at current member contribution rates and that contributions from
employers will be made at statutorily required rates, actuarially determined. Based on those
assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future
benefit payments of current plan members. Therefore, the long‐term expected rate of return on plan
investments was applied to all periods of projected benefit payments to determine the total pension
liability.
The long‐term expected rate of return on pension plan investments was determined using a building‐
block method in which expected future real rates of return (expected returns, net of pension plan
investment expense and inflation) are developed for each major asset class.
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
93
NOTE 11 – PENSION PLANS (Continued)
In determining the long‐term expected rate of return, CalPERS took into account both short‐term
and long‐term market return expectations as well as the expected pension fund cash flows. Using
historical returns of all the funds’ asset classes, expected compound ( geometric) returns were
calculated over the short‐term (first 10 years) and the long‐term (11+ 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 rounded
single equivalent expected return that arrived at the same present value of benefits for cash flows as
the one calculated using both short‐term and long‐term returns. The expected rate of return was then
set equal to the single equivalent rate calculated and adjusted to account for assumed administrative
expenses.
The rate of return was calculated using the capital market assumptions applied to determine the discount
rate and asset allocation. The long‐term expected real rate of return by asset class and the target
allocation adopted by the CalPERS Board effective on July 1, 2019, are as follows:
Asset Class
Current
Target
Allocation
Real Return
Years 1 ‐ 10 1
Real Return
Years 11+ 2
Global Equity 50.0% 4.80% 5.98%
Global Fixed Income 28.0 1.00 2.62
Inflation Sensitive 0.0 0.77 1.81
Private Equity 8.0 6.30 7.23
Real Estate 13.0 3.75 4.93
Liquidity 1.0 0.00 (0.92)
(1) An expected inflation rate of 2.00% is used for this period.
(2) An expected inflation rate of 2.92% is used for this period.
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
94
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, 2020 849,004$ 573,840$ 275,164$
Changes for the year:
Service cost 14,267 ‐ 14,267
Interest on total pension liability 59,995 ‐ 59,995
Differences between expected and actual experiences 4,850 ‐ 4,850
Contributions from employer ‐ 28,889 (28,889)
Contributions from employees ‐ 7,189 (7,189)
Net investment income ‐ 28,735 (28,735)
Benefit payments, including refunds of employee contributions (43,781) (43,781) ‐
Administrative expense ‐ (809) 809
Net changes 35,331 20,223 15,108
Balances reported at June 30, 2021 884,335 594,063 290,272
Safety Plan:
Balances calculated at July 1, 2020 456,817$ 289,028$ 167,789$
Changes for the year:
Service cost 7,898 ‐ 7,898
Interest on total pension liability 32,469 ‐ 32,469
Differences between expected and actual experiences 6,314 ‐ 6,314
Contributions from employer ‐ 14,297 (14,297)
Contributions from employees ‐ 3,459 (3,459)
Net investment income ‐ 14,310 (14,310)
Benefit payments, including refunds of employee contributions (25,948) (25,948) ‐
Administrative expense ‐ (407) 407
Net changes 20,733 5,711 15,022
Balances reported at June 30, 2021 477,550 294,739 182,811
Total 1,361,885$ 888,802$ 473,083$
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
95
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 401,532$ 290,272$ 197,747$
Safety Plan:
Plan's Net Pension Liability 244,169$ 182,811$ 132,093$
Plan Fiduciary Net Position – Detailed information about the Plan’s fiduciary net position is available in
the separately issued CalPERS financial report.
(d) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions
For the year ended June 30, 2021, the City recognized a pension expense of $34.7 million and $25.7 million
for the Miscellaneous and Safety Plan, respectively, for a total of $60.4 million. At June 30, 2021, the City
reported pension related deferred outflows of resources for the Miscellaneous and Safety Plans from the
following sources (in thousands):
Miscellaneous Plan:
Deferred
Outflows
of Resources
Pension contributions subsequent to
measurement date 32,782$
Difference between expected and actual experience 5,051
Net difference between projected and actual earnings
on plan investments 3,887
Balance reported at June 30, 2021 41,720
Safety Plan:
Pension contributions subsequent to
measurement date 14,796
Difference between expected and actual experience 5,157
Net difference between projected and actual earnings
on plan investments 1,977
Balance reported at June 30, 2021 21,930
Total, Miscellaneous and Safety Plans 63,650$
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
96
NOTE 11 – PENSION PLANS (Continued)
The $47.6 million reported as deferred outflows of resources relates to contributions paid by the City from
July 1, 2020 through June 30, 2021 which is subsequent to the City’s measurement date of June 30, 2020
for both the Miscellaneous and Safety Plans. This amount will be recognized as a reduction of the net
pension liability in the year ended June 30, 2022.
The net differences reported as deferred outflows of resources and deferred inflows of resources related
to pensions will be recognized in future pension expense as follows (in thousands):
Year Ended June 30,
Miscellaneous
Plan
Safety
Plan Total
2022 975$ 1,931$ 2,906$
2023 2,732 2,505 5,237
2024 2,849 1,494 4,343
2025 2,382 1,204 3,586
8,938$ 7,134$ 16,072$
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
97
NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB)
(a) General Information about the OPEB Plan
In addition to providing pension benefits, the City participates in the California Public Employees’ Medical
and Health Care Act program to provide certain health care benefits for retired employees. The City’s
Other Post‐Employment Benefit plan is an agent multiple‐employer defined benefit plan. Employees who
retire directly from the City are eligible for retiree health benefits if they retire on or after age 50 with 5
years of service and are receiving a monthly pension from CalPERS. Details of benefits to retirees are
noted in the following tables:
Unit Hired Before
Retiree
Coverage1 Dependent
Coverage
Retired on or
After
Retiree
Contribution
Management & Professional2 1/1/2004 100% 100% 5/1/2011 Flat rate
4
Police Management2 1/1/2004 100% 100% 6/1/2012 Flat rate
4
Fire Fighters2 1/1/2004 100% 100% 12/1/2011 Flat rate
4
Fire Chiefs Association2 1/1/2004 100% 100% 1/1/2013 Flat rate
4
SEIU2 1/1/2005 100% 100% 5/1/2011 Flat rate4
Police Officers3 1/1/2006 100% 100% 4/1/2015 Flat rate
4
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 For the year ended June 20, 2021, City pays $840‐$871 for employee, $1,680‐1,742 for employee +1, and $2,180‐$2,260 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:
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
98
NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued)
In fiscal year 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, 2020, the most recent
information available, are as follows:
Inactive employees or beneficiaries currently
receiving benefits 1,011
Inactive employees entitled to but not yet
receiving benefits 75
Active employees 897
Total 1,983
Contributions – The City’s OPEB funding policy is to contribute 100 percent or more of the actuarially
determined contribution each year pursuant to City Council Resolution. For the year ended June 30, 2021,
the City’s contributions totaled $14.6 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, 2020, using an annual actuarial valuation as of
June 30, 2019 rolled forward to June 30, 2020 using standard update procedures. A summary of principal
assumptions and methods used to determine the net OPEB liability is shown below.
Valuation Date June 30, 2019
Measurement Date June 30, 2020
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 2017 CalPERS Experience Study for the period from
1997 to 2015
Medical Trend Non‐Medicare ‐ 7.25% for 2021, decreasing to an
ultimate rate of 4.0% in 2076
Medicare ‐ 6.3% for 2021, decreasing to an ultimate
rate of 4.0% in 2076
Disability, Termination, Retirement CalPERS 1997‐2015 Experience Study
Mortality 2017 CalPERS Experience Study for the period from
1997 to 2015
Mortality Improvement Post‐retirement mortality projected fully
generational with Society of Actuaries Scale MP‐
2019
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: 95‐98%, based on Plan experience
ACA Excise Tax None
2.c
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
99
NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued)
Change of Assumptions – During measurement period 2020, actuarial assumptions for ACA Exercise Tax
was changed from 2% load on cash subsidy to none.
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 59.0% 4.82%
Fixed Income 25.0 1.47
TIPS 5.0 1.29
Commodities 3.0 0.84
REITS 8.0 3.76
Assumed long‐term rate of inflation of 2.75%
(c) Changes in the Net OPEB Liability
The following table shows the changes in the net OPEB liability (in thousands):
Total OPEB
Liability
Plan Fiduciary
Net Position
Net OPEB
Liability
Balance at June 30, 2020 245,509$ 118,479$ 127,030$
Changes during the measurement period:
Service cost 6,366 ‐ 6,366
Interest on the total OPEB liability 16,572 ‐ 16,572
Changes in assumptions (4,426) ‐ (4,426)
Contributions ‐ employer ‐ 16,475 (16,475)
Investment income ‐ 4,327 (4,327)
Administrative expenses ‐ (58) 58
Benefit payments (12,728) (12,728) ‐
Net changes 5,784 8,016 (2,232)
Balance at June 30, 2021 251,293$ 126,495$ 124,798$
Increase (Decrease)
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
100
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%)
157,131$ 124,798$ 98,126$
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%
94,719$ 124,798$ 161,763$
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, 2021, the City recognized an OPEB expense of $10.0 million for the OPEB
plan. At June 30, 2021, the City reported deferred outflows of resources and deferred inflows of resources
related to OPEB from the following sources (in thousands):
Deferred
Outflows
of Resources
Deferred
Inflows
of Resources
OPEB contributions subsequent to
measurement date $ 14,592 $ ‐
Differences between expected and
actual experience ‐ 19,031
Changes in assumptions 4,491 3,621
Net differences between projected and actual
earnings on plan investments 2,200 ‐
Total $ 21,283 $ 22,652
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
101
NOTE 12 – OTHER POST‐EMPLOYMENT BENEFITS (OPEB) (Continued)
The $14.6 million reported as deferred outflows of resources relates to contributions made by the City
from July 1, 2020 through June 30, 2021, which is subsequent to the City’s measurement date of
June 30, 2020. This amount will be recognized as a reduction of the net OPEB liability in the fiscal year
ended June 30, 2022.
The net differences reported as deferred outflows of resources and deferred inflows of resources related
to OPEB will be recognized in future OPEB expense as follows (in thousands):
Fiscal Year Ending June 30,
2022 (4,964)$
2023 (4,336)
2024 (4,125)
2025 (2,135)
2026 (401)
Total (15,961)$
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.
NOTE 14 – RISK MANAGEMENT
Coverage
The City provides dental coverage to employees through a City plan, which is administered by a third party
service agent. The City is self‐insured for dental claims.
The City has a workers’ compensation insurance policy with coverage up to the statutory limit set by the
State of California. The City retains the risk for the first $750,000 in losses for each accident and employee
under this policy.
The City also has public employee dishonesty insurance with a $5,000 deductible and coverage up to $1.0
million per loss. The Director of Administrative Services/CFO and City Manager each have coverage up to
$4.0 million per loss.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
102
NOTE 14 – RISK MANAGEMENT (Continued)
The City’s property, boiler, and machinery insurance policy has various deductibles and coverage based
on the type of property.
The City is a member of the Authority for California Cities Excess Liability (ACCEL), which provides excess
general liability insurance coverage, including auto liability, up to $200 million per occurrence. The City
retains the risk for the first $1.0 million in losses for each occurrence under this policy.
ACCEL was established for the purpose of creating a risk management pool for central California
municipalities. ACCEL is governed by a Board of Directors consisting of representatives of its member
cities. The board controls the operations of ACCEL, including selection of claims management, general
administration and approval of the annual budget.
The City’s deposits with ACCEL equal the ratio of the City’s payroll to the total payroll of all entities. Actual
surpluses or losses are shared according to a formula developed from overall loss costs and spread to
member entities on a percentage basis after a retrospective rating.
During the year ended June 30, 2021, the City paid $2.1 million to ACCEL for current year coverage.
Audited financial statements are available from ACCEL at 100 Pine Street, 11th Floor, San Francisco,
California 94111.
Claims Liability
The City provides for the uninsured portion of claims and judgments in the General Liabilities insurance
program funds. Claims and judgments, including a provision for claims incurred but not reported, and
claim adjustment expenses are recorded when a loss is deemed probable of assertion and the amount of
the loss is reasonably determinable. As discussed above, the City has coverage for such claims, but it has
retained the risk for the deductible or uninsured portion of these claims.
The City’s liability for uninsured claims is limited to dental, general liability, and workers’ compensation
claims, as discussed above. Dental liability is based on a percentage of current year actual expense.
General and workers’ compensation liabilities are based on the results of actuarial studies, and include
amounts for claims incurred but not reported as follows as of June 30 (in thousands):
2021 2020
Beginning balance 29,713$ 28,365$
Claims expense, including claims incurred but not
reported (IBNR)11,197 6,914
Claims paid (8,379) (5,566)
Ending balance 32,531$ 29,713$
Current portion 6,811$ 6,198$
Year Ended June 30
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
103
NOTE 14 – RISK MANAGEMENT (Continued)
The City also recorded claims payable of $12.6 million on its governmental activities’ financial statements
for a class action lawsuit filed against the City that challenged the City’s gas and electric rates. See Note
16.
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.
During the year ended June 30, 2021, the City incurred expenses totaling $92.1 million for purchased
power and assessments earned by NCPA.
The City’s interest in NCPA projects and reserves, as computed by NCPA, was $8.1 million at June 30, 2021.
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
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
104
NOTE 15 – JOINT VENTURES (Continued)
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.
NCPA’s financial statements can be obtained from NCPA, 651 Commerce Drive, Roseville, CA 95678.
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, 2021, the book value of this
Project’s plant, equipment and other assets was $303.8 million, while its long‐term debt totaled $255.8
million and other liabilities totaled $44.5 million. The City’s share of the Project’s long‐term debt
amounted to $58.6 million at that date.
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.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
105
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 leased 27 acres of the former Cubberley School site and twelve
extended day care sites from Palo Alto Unified School District (PAUSD) through December 31, 2019. The
City and the PAUSD reached new agreements for the Cubberley School site through December 31, 2024,
and the twelve extended day care sites through June 30, 2022. Under the new Cubberley lease, the City
leases approximately 65,046 rentable square feet of building area and 15.94 acres of outdoor recreational
area. The City has the right to reduce the leased premises by surrendering the Junior Museum and Zoo
(JMZ) Building and/or the Building S. The City intends to surrender the JMZ Building after the completion
of the new museum building that is not located on the property.
The total lease expenditures for the year ended June 30, 2021 amounted to $4.1 million. Future minimum
annual lease payments are as follows (in thousands):
Year Ending
June 30 Payment
2022 3,406$
2023 2,568
2024 2,568
2025 1,284
9,826$
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
106
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, 2026. The base compensation
for GreenWaste is adjusted annually based on CPI indicators stipulated in the contract. In fiscal year 2021
payments to GreenWaste were $11.0 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 will terminate on December 31, 2060, but may
be terminated by any partner upon ten years’ written 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.
Sunnyvale Materials Recovery and Transfer Station (SMaRT Station) – On September 30, 1991, as
amended on June 9, 1992, the City, the City of Sunnyvale, and the City of Mountain View, entered into a
Memorandum of Understanding (MOU) 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 capital share of 21.3 percent of this facility and reimburses its
proportionate capital share of design, construction and operation costs to Sunnyvale.
In fiscal year 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. During the year ended June 30, 2021, the City
made the last debt service payment of $0.2 million and the City’s obligation to pay related debt service
payments is completed. The MOU is expiring on December 31, 2021.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
107
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, 2021, the approximate minimum obligations for the contracts, assuming the energy is delivered
over the next four years, are as follows:
Fiscal Year Projected Obligation
2022 $63.66 million
2023 $57.61 million
2024 $55.60 million
2025 $52.02 million
2026 $52.63 million
Contractual Commitments beyond 2022 (Electricity) – Several of the City’s purchase power and
transmission contracts extend beyond the five‐year summary presented above. These contracts expire
between 2026 and 2051 and provide for power under various terms and conditions. The City also has a
new solar power purchase agreement that is schedule to start in January 2023. The City estimates that
its annual minimum commitments under all of its contracts, assuming the energy is delivered, ranges
between $62.06 million in 2025 and $67.13 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 has the option to extend the Western contract for an additional 30‐year
period beyond 2024, although at a slightly lower share of the total energy output and revenue
requirement (12.06 percent instead of 12.31 percent).
Gas Transmission and Local Transportation Rates – The City relies on Pacific Gas and Electric Company’s
(PG&E) natural gas pipeline infrastructure, including both high‐pressured transmission and medium‐
pressure local transportation, to move gas from the California border to the City’s distribution system.
Rates are determined through proceedings at the California Public Utilities Commission. The gas
transmission and local transportation rates increased by 26% and 8%, respectively, from fiscal year 2020
to fiscal year 2021. The gas transmission and local transportation rates are expected to increase by 4%
and 3%, respectively, in fiscal year 2022.
San Francisco Public Utilities Commission – The City purchases water from the San Francisco Public
Utilities Commission (SFPUC) under a Water Supply Agreement (WSA) 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 WSA contains certain restrictions regarding water purchases from other
water suppliers, though those restrictions do not apply to recycled water or emergency water supplies.
The City’s cost of water under this contract is projected to remain flat through 2022.
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2021
108
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 was filed against the City in October 2016 that challenged the City’s gas and electric
rates under Proposition 26. On June 24, 2021, a trial court entered judgment partially against the City and
ordered the City to pay $12.6 million to a common fund to refund gas rate payers and for payment of
incurred litigation costs. The City and the plaintiffs have appealed the trial court’s judgment. Payment of
refunds due to gas rate payers under the trial court judgment are stayed pending a decision by the Court
of appeal (expected in late 2022/early 2023) on the parties’ respective appeals. While the ultimate
outcome of the claim is uncertain, the City has recorded a claims payable equal to the trial court judgment.
This liability is not due and payable at June 30, 2021 and the City recorded a non‐current claims payable
of $12.6 million on its governmental activities’ financial statements for this lawsuit. In 2022, the City has
set aside funding in the General Fund for the potential financial impacts.
A personal injury lawsuit was filed against the City in August 2018. Plaintiff, a bicyclist, alleges that the
City created a dangerous condition of public property that caused him to suffer catastrophic injuries. The
City Attorney is of the opinion that a loss is reasonably possible but cannot be reasonably estimated at
this time.
Grant Programs
The City participates in Federal and State grant programs. These programs have been audited by the City’s
independent auditors in accordance with the provisions of the Federal Single Audit Act amendments of
1996 and applicable State requirements. No costs were questioned as a result of these audits; however,
these programs are still subject to further examination by the grantors and the amount, if any, of
expenditures which may be disallowed by the granting agencies cannot be determined at this time. The
City expects such amounts, if any, to be immaterial.
Uncertainties
In March 2020, the World Health Organization declared coronavirus COVID‐19 a global pandemic. This
contagious disease outbreak and any related adverse public health developments have adversely affected
workforces, customers, economies, and financial markets globally. It has also disrupted the normal
operations of many governments, including the City. The City expects this outbreak to impact the City’s
operations for future reporting periods. It is not possible for the City to predict the duration or magnitude
of the adverse results of the outbreak and its effects on the City’s operations.
Note 17 – SUBSEQUENT EVENT
On July 12, 2021, the SWRCB and the City executed a direct loan agreement for an award up to $17.5
million to finance the rehabilitate and upgrade the RWQCP primary sedimentation tanks and ancillary
systems. The loan interest rate is 0.9% and has a final maturity on February 15, 2053.
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CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 7 Fiscal Years*
109
I. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – MISCELLANEOUS PLAN
(In thousands)
Fiscal year 2020‐21 2019‐20 2018‐19 2017‐18 2016‐17 2015‐16 2014‐15
Measurement Period 2019‐20 2018‐19 2017‐18 2016‐17 2015‐16 2014‐15 2013‐14
Total pension liability
Service cost 14,267$ 15,045$ 14,724$ 14,423$ 12,582$ 12,183$ 12,442$
Interest 59,995 57,523 54,903 52,831 51,531 49,345 46,963
Changes of assumptions ‐ ‐ (5,673) 42,239 ‐ (11,552) ‐
Difference between expected and actual experience 4,850 6,230 4,271 (6,378) 757 3,507 ‐
Benefit payments, including refunds of employee contributions (43,781) (41,124) (37,624) (36,405) (34,825) (32,980) (31,781)
Net change in total pension liability 35,331 37,674 30,601 66,710 30,045 20,503 27,624
Total pension liability ‐ beginning 849,004 811,330 780,729 714,019 683,974 663,471 635,847
Total pension liability ‐ ending (a) 884,335$ 849,004$ 811,330$ 780,729$ 714,019$ 683,974$ 663,471$
Plan fiduciary net position
Contributions ‐ employer 28,889$ 25,423$ 23,342$ 20,638$ 18,840$ 18,610$ 17,400$
Contributions ‐ employee 7,189 6,939 6,654 6,314 5,812 5,730 6,345
Net investment income 28,735 36,322 43,690 53,259 2,464 10,597 70,989
Benefit payments, including refunds of employee contributions (43,781) (41,124) (37,624) (36,405) (34,825) (32,980) (31,781)
Administrative expense (809) (390) (799) (694) (291) (538) ‐
Other non‐investment income (expenses) ‐ 1 (1,518) 30 ‐ ‐ ‐
Net change in fiduciary net position 20,223 27,171 33,745 43,142 (8,000) 1,419 62,953
Plan fiduciary net position ‐ beginning 573,840 546,669 512,924 469,782 477,782 476,363 413,410
Plan fiduciary net position ‐ ending (b) 594,063$ 573,840$ 546,669$ 512,924$ 469,782$ 477,782$ 476,363$
Plan net pension liability/(asset) ‐ Ending (a) ‐ (b) 290,272$ 275,164$ 264,661$ 267,805$ 244,237$ 206,192$ 187,108$
Plan fiduciary net position as a percentage of total pension liability 67.18% 67.59% 67.38% 65.70% 65.79% 69.85% 71.80%
Covered payroll 81,017$ 82,573$ 80,634$ 77,606$ 73,722$ 69,837$ 66,373$
Plan net pension liability/(asset) as a percentage of covered payroll 358.29% 333.24% 328.23% 345.08% 331.29% 295.25% 281.90%
Notes to Schedule:
Change in assumptions ‐ During measurement period 2014, the discount rate was 7.50%. During measurement period 2015, the discount rate was increased from 7.50 percent
to 7.65 percent. There is no change in discount rate during measurement period 2016. During measurement period 2017, the discount rate was reduced from 7.65 percent to
7.15 percent. During measurement period 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of
Actuarial Assumptions December 2017. There are no change in assumptions during measurement periods 2019 and 2020.
* Fiscal year ended June 30, 2015 was the first year of implementation of GASB Statement No. 68, therefore only seven years of information is shown.
Benefit changes ‐ The figures above do not include any liability that may have resulted from plan changes which occurred after the June 30, 2019 valuation date. This applies
for voluntary benefit changes as well as any offers of two years additional service credit (a.k.a. Golden Handshake).
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CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 8 Fiscal Years*
110
II. SCHEDULE OF PENSION CONTRIBUTIONS– MISCELLANEOUS PLAN
(In thousands)
Fiscal Year 2020‐21 2019‐20 2018‐19 2017‐18 2016‐17 2015‐16 2014‐15 2013‐14
Contractually required
contribution (actuarially determined) 32,782$ 28,889$ 25,423$ 23,342$ 20,638$ 18,840$ 18,610$ 17,400$
Actual contribution (32,782) (28,889) (25,423) (23,342) (20,638) (18,840) (18,610) (17,400)
Contribution deficiency/(excess) ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Covered payroll 87,177$ 81,017$ 82,573$ 80,634$ 77,606$ 73,722$ 69,837$ 66,373$
Contributions as percentage of covered payroll 37.60% 35.66% 30.79% 28.95% 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 2021
contribution rates are as follows:
ADC for fiscal year June 30, 2021
Actuarial valuation date June 30, 2018
Actuarial cost method Entry‐Age Normal Cost Method
Asset valuation method Actuarial value of assets
Inflation 2.50%
Salary increases Varies by entry age and services
Payroll growth 2.75%
Investment rate of return
Retirement age
Mortality
7.00%, net of pension plan investment and administrative expenses,
includes inflation.
The probabilities of retirement are based on the 2017 CalPERS
Experience Study for the period 1997 to 2015.
The probabilities of mortality are based on the 2017 CalPERS Experience
Study for the period from 1997 to 2015. Pre‐retirement and post‐
retirement mortality rates includes 15 years of projected mortality
improvements using 90% of Scale MP‐2016 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
eight years of information is shown.
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CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 7 Fiscal Years*
111
III. SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS – SAFETY PLAN
(In thousands)
Fiscal year 2020‐21 2019‐20 2018‐19 2017‐18 2016‐17 2015‐16 2014‐15
Measurement Period 2019‐20 2018‐19 2017‐18 2016‐17 2015‐16 2014‐15 2013‐14
Total pension liability
Service cost 7,898$ 7,259$ 7,168$ 6,584$ 5,916$ 5,959$ 6,221$
Interest 32,469 31,066 29,871 28,272 27,816 27,047 26,113
Changes of assumptions ‐ ‐ (1,374) 22,566 ‐ (6,327) ‐ Difference between expected and actual experience 6,314 3,841 11,604 (2,790) (1,516) 75 ‐
Benefit payments, including refunds of employee contributions (25,948) (24,757) (23,636) (22,413) (21,669) (21,148) (19,985)
Net change in total pension liability 20,733 17,409 23,633 32,219 10,547 5,606 12,349
Total pension liability ‐ beginning 456,817 439,408 415,775 383,556 373,009 367,403 355,054
Total pension liability ‐ ending (a) 477,550$ 456,817$ 439,408$ 415,775$ 383,556$ 373,009$ 367,403$
Plan fiduciary net position
Contributions ‐ employer 14,297$ 12,370$ 11,030$ 10,220$ 9,403$ 8,617$ 7,616$
Contributions ‐ employee 3,459 3,225 2,799 2,475 2,059 2,047 2,762
Net investment income 14,310 18,217 22,724 28,112 1,259 5,774 40,033
Benefit payments, including refunds of employee contributions (25,948) (24,757) (23,636) (22,413) (21,669) (21,148) (19,985)
Administrative expense (407) (201) (418) (370) (157) (290) ‐
Other non‐investment income (expenses) ‐ 1 (794) (30) ‐ ‐ ‐
Net change in fiduciary net position 5,711 8,855 11,705 17,994 (9,105) (5,000) 30,426
Plan fiduciary net position ‐ beginning 289,028 280,173 268,468 250,474 259,579 264,579 234,153
Plan fiduciary net position ‐ ending (b) 294,739$ 289,028$ 280,173$ 268,468$ 250,474$ 259,579$ 264,579$
Plan net pension liability/(asset) ‐ Ending (a) ‐ (b) 182,811$ 167,789$ 159,235$ 147,307$ 133,082$ 113,430$ 102,824$
Plan fiduciary net position as a percentage of total pension liability 61.72% 63.27% 63.76% 64.57% 65.30% 69.59% 72.01%
Covered payroll 26,189$ 24,263$ 24,131$ 21,906$ 21,822$ 21,912$ 21,896$
Plan net pension liability/(asset) as a percentage of covered payroll 698.04% 691.54% 659.88% 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, 2019 valuation date. This applies
for voluntary benefit changes as well as any offers of two years additional service credit (a.k.a. Golden Handshake).
* Fiscal year ended June 30, 2015 was the first year of implementation of GASB Statement No. 68, therefore only seven years of information is shown.
Change in assumptions ‐ During measurement period 2014, the discount rate was 7.50%. During measurement period 2015, the discount rate was increased from 7.50 percent
to 7.65 percent. There is no change in discount rate during measurement period 2016. During measurement period 2017, the discount rate was reduced from 7.65 percent to
7.15 percent. During measurement period 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of
Actuarial Assumptions December 2017. There are no change in assumptions during measurement periods 2019 and 2020.
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CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 8 Fiscal Years*
112
IV. SCHEDULE OF PENSION CONTRIBUTIONS – SAFETY PLAN
(In thousands)
Fiscal Year 2020‐21 2019‐20 2018‐19 2017‐18 2016‐17 2015‐16 2014‐15 2013‐14
Contractually required
contribution (actuarially determined) 14,796$ 14,297$ 12,370$ 11,030$ 10,220$ 9,403$ 8,617$ 7,616$
Actual contribution (14,796) (14,297) (12,370) (11,030) (10,220) (9,403) (8,617) (7,616)
Contribution deficiency/(excess) ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Covered payroll 25,615$ 26,189$ 24,263$ 24,131$ 21,906$ 21,822$ # 21,912$ 21,896$
Contributions as percentage of covered payroll 57.76% 54.59% 50.98% 45.71% 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 2021
contribution rates are as follows:
ADC for fiscal year June 30, 2021
Actuarial valuation date June 30, 2018
Actuarial cost method Entry‐Age Normal Cost Method
Asset valuation method Actuarial value of assets
Inflation 2.50%
Salary increases Varies by entry age and services
Payroll growth 2.75%
Investment rate of return
Retirement age
Mortality
7.00%, net of pension plan investment and administrative expenses,
includes inflation.
The probabilities of retirement are based on the 2017 CalPERS
Experience Study for the period 1997 to 2015.
The probabilities of mortality are based on the 2017 CalPERS Experience
Study for the period from 1997 to 2015. Pre‐retirement and post‐
retirement mortality rates includes 15 years of projected mortality
improvements using 90% of Scale MP‐2016 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
eight years of information is shown.
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CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 4 Fiscal Years*
113
V. SCHEDULE OF CHANGES IN NET OPEB LIABILITY AND RELATED RATIOS
(In thousands)
Fiscal year 2020‐21 2019‐20 2018‐19 2017‐18
Measurement Period 2019‐20 2018‐19 2017‐18 2016‐17
Total OPEB liability
Service cost 6,366$ 6,622$ 6,429$ 6,242$
Interest 16,572 17,292 16,546 15,853
Changes in benefit terms ‐ 972 ‐ ‐
Changes of assumptions (4,426) 7,057 ‐ ‐
Difference between expected and actual experience ‐ (29,907) ‐ ‐
Benefit payments, including refunds of employee contributions (12,728) (12,157) (12,104) (11,916)
Net change in total OPEB liability 5,784 (10,121) 10,871 10,179
Total OPEB liability ‐ beginning 245,509 255,630 244,759 234,580
Total OPEB liability ‐ ending (a) 251,293$ 245,509$ 255,630$ 244,759$
Plan fiduciary net position
Contributions ‐ employer 16,475$ 15,997$ 21,349$ 14,739$
Net investment income 4,327 6,852 7,519 8,628
Benefit payments, including refunds of employee contributions (12,728) (12,157) (12,104) (11,916)
Administrative expense (58) (23) (204) (44)
Net change in fiduciary net position 8,016 10,669 16,560 11,407
Plan fiduciary net position ‐ beginning 118,479 107,810 91,250 79,843
Plan fiduciary net position ‐ ending (b) 126,495$ 118,479$ 107,810$ 91,250$
Plan net OPEB liability/(asset) ‐ Ending (a) ‐ (b) 124,798$ 127,030$ 147,820$ 153,509$
Plan fiduciary net position as a percentage of total OPEB liability 50.34% 48.26% 42.17% 37.28%
Covered employee payroll 125,676$ 118,014$ 119,090$ 118,774$
Plan net OPEB liability/(asset) as a percentage of covered employee payroll 99.30% 107.64% 124.12% 129.24%
Notes to Schedule:
Benefit changes ‐ The figures above do not include any liability that may have resulted from plan changes
which occurred after the measurement dates.
Changes in assumptions ‐ During measurement period 2020, demographic assumptions were change in accordance to the 2017 CalPERS
Experience Study while mortality improvement scale was updated to Scale MP‐2019.
* Fiscal year ended June 30, 2018 was the first year of implementation of GASB Statement No. 75, therefore only four years of information is
shown.
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CITY OF PALO ALTO
Required Supplementary Information (Unaudited)
Last 5 Fiscal Years*
114
VI. SCHEDULE OF EMPLOYER OPEB CONTRIBUTIONS
(In thousands)
Fiscal Year 2020‐21 2019‐20 2018‐19 2017‐18 2016‐17
Contractually required contribution (actuarially determined) 14,566$ 16,482$ 15,997$ 16,938$ 16,365$
Actual contribution (14,592) (16,475) (15,997) (21,349) (14,739)
Contribution deficiency/(excess) (26)$ 7$ ‐$ (4,411)$ 1,626$
Covered employee payroll 120,869$ 125,676$ 118,014$ 119,090$ 118,774$
Contributions as percentage of covered employee payroll 12.07% 13.11% 13.56% 17.93% 12.41%
Notes to Schedule:
The actuarial methods and assumptions used to set the actuarially determined contributions for fiscal year 2021 contribution
rates are as follows:
ADC for fiscal year June 30, 2021
Actuarial valuation date June 30, 2019
Actuarial cost method Entry‐Age, level percentage of payroll
Amortization method Level percent of pay
Amortization period 24‐year fixed period for 2020/21
Asset valuation method Market value, no smoothing
Inflation 2.75%
Payroll growth 3.00%
Investment rate of return
Medical trend
Mortality
Mortality Improvement
6.75%
* Fiscal year ended June 30, 2018 was the first year of implementation of GASB Statement No. 75, therefore only
five years of information is shown.
Non‐Medicare ‐ 7.25% for 2021, decreasing to an ultimate rate of 4.0% in 2076
Medicare ‐ 6.3% for 2021, decreasing to an ultimate rate of 4.0% in 2076
CalPERS 1997‐2015 Experience Study
Post‐retirement mortality projected fully generational with Society of Actuaries
Scale MP‐2019
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Total
Special Debt Other
Revenue Service Permanent Governmental
Funds Funds Fund Funds
ASSETS:Cash and investments available for operations 60,487$ 3,728$ 2,543$ 66,758$
Receivables, net:
Accounts and intergovernmental 517 2 ‐ 519
Interest 357 19 13 389
Notes and loan receivable 52,851 ‐ ‐ 52,851
Restricted cash and investments with fiscal agents ‐ 4,655 ‐ 4,655
Total assets 114,212$ 8,404$ 2,556$ 125,172$
Liabilities:
Accounts payable and accruals 495$ ‐$ ‐$ 495$
Accrued salaries and benefits 34 ‐ ‐ 34
Due to other funds 341 ‐ ‐ 341
Total liabilities 870 ‐ ‐ 870
Fund balances:
Nonspendable
Eyerly family ‐ ‐ 2,556 2,556
Restricted for:
Transportation mitigation 12,512 ‐ ‐ 12,512
Federal revenue 5,293 ‐ ‐ 5,293
Street improvement 28 ‐ ‐ 28
Local law enforcement 756 ‐ ‐ 756
Public benefit 18,282 ‐ ‐ 18,282
Debt service ‐ 8,404 ‐ 8,404
Committed for:
Developer impact fee 13,300 ‐ ‐ 13,300
Housing In‐Lieu 58,883 ‐ ‐ 58,883
Special districts 3,186 ‐ ‐ 3,186
Downtown business 50 ‐ ‐ 50
Assigned for:
Unrealized gain on investment 1,052 ‐ ‐ 1,052
Total fund balances 113,342 8,404 2,556 124,302
Total liabilities and fund balances 114,212$ 8,404$ 2,556$ 125,172$
LIABILITIES AND FUND BALANCES:
CITY OF PALO ALTO
Non‐major Governmental Funds
Combining Balance Sheet
June 30, 2021
(Amounts in thousands)
115
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Total
Special Debt Other
Revenue Service Permanent Governmental
Funds Funds Fund Funds
REVENUES:
Property tax ‐$ 4,329$ ‐$ 4,329$
Special assessments 5 ‐ ‐ 5
Other taxes and fines 2,816 ‐ ‐ 2,816
Intergovernmental 1,337 ‐ ‐ 1,337
Licenses, permits and fees:
University Avenue Parking 83 ‐ ‐ 83
California Avenue Parking 22 ‐ ‐ 22
Other licenses, permits and fees 2,056 ‐ ‐ 2,056
Investment earnings 169 (10) 16 175
Housing In‐Lieu ‐ residential 5,804 ‐ ‐ 5,804
Other revenue 154 ‐ ‐ 154
Total revenues 12,446 4,319 16 16,781
EXPENDITURES:
Current:
Administrative Services 261 ‐ ‐ 261
Public Works 1,427 ‐ ‐ 1,427
Planning and Development Services 1,285 ‐ ‐ 1,285
Office of Transportation 1,437 ‐ ‐ 1,437
Police 36 ‐ ‐ 36
Community Services 236 ‐ ‐ 236
Non‐Departmental 255 ‐ ‐ 255
Debt service:
Principal retirement ‐ 2,595 ‐ 2,595
Interest and fiscal charges ‐ 6,147 ‐ 6,147
Total expenditures 4,937 8,742 ‐ 13,679
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 7,509 (4,423) 16 3,102
OTHER FINANCING SOURCES (USES):
Transfers in 570 2,910 ‐ 3,480
Transfers out (9,564) ‐ ‐ (9,564)
Total other financing sources (uses) (8,994) 8,939 ‐ (55)
Change in fund balances (1,485) 4,516 16 3,047
FUND BALANCES, BEGINNING OF YEAR 114,827 3,888 2,540 121,255
FUND BALANCES, END OF YEAR 113,342$ 8,404$ 2,556$ 124,302$
CITY OF PALO ALTO
Non‐major Governmental Funds
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2021
(Amounts in thousands)
116
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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.
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Street Federal Housing Special
Improvement Revenue In‐Lieu Districts
ASSETS:
Cash and investments available for operations ‐$ ‐$ 11,573$ 3,546$
Receivables, net:
Accounts and intergovernmental 234 283 ‐ ‐
Interest ‐ ‐ 92 27
Notes and loan receivable ‐ 5,351 47,500 ‐
Total assets 234$ 5,634$ 59,165$ 3,573$
Liabilities:
Accounts payable and accruals ‐$ 203$ 10$ 282$
Accrued salaries and benefits ‐ 3 1 26
Due to other funds 206 135 ‐ ‐
Total liabilities 206 341 11 308
Fund balances:
Restricted
Transportation mitigation ‐ ‐ ‐ ‐
Federal revenue ‐ 5,293 ‐ ‐
Street improvement 28 ‐ ‐ ‐
Local law enforcement ‐ ‐ ‐ ‐
Public benefit ‐ ‐ ‐ ‐
Committed
Developer impact fee ‐ ‐ ‐ ‐
Housing In‐Lieu ‐ ‐ 58,883 ‐
Special districts ‐ ‐ ‐ 3,186
Downtown business ‐ ‐ ‐ ‐
Assigned
Unrealized gains on investments ‐ ‐ 271 79
Total fund balances 28 5,293 59,154 3,265
Total liabilities and fund balances 234$ 5,634$ 59,165$ 3,573$
LIABILITIES AND FUND BALANCES:
CITY OF PALO ALTO
Non‐major Special Revenue Funds
Combining Balance Sheet
June 30, 2021
(Amounts in thousands)
118
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Downtown Total
Business Special
Transportation Local Law Asset Developer Development Public Revenue
Mitigation Enforcement Seizure Impact Fee District Benefit Funds
12,635$ 760$ 3$ 13,446$ 51$ 18,473$ 60,487$
‐ ‐ ‐ ‐ ‐ ‐ 517
64 3 ‐ 73 ‐ 98 357
‐ ‐ ‐ ‐ ‐ ‐ 52,851
12,699$ 763$ 3$ 13,519$ 51$ 18,571$ 114,212$
‐$ ‐$ ‐$ ‐$ ‐$ ‐$ 495$
‐ ‐ ‐ 4 ‐ ‐ 34
‐ ‐ ‐ ‐ ‐ ‐ 341
‐ ‐ ‐ 4 ‐ ‐ 870
12,512 ‐ ‐ ‐ ‐ ‐ 12,512
‐ ‐ ‐ ‐ ‐ ‐ 5,293
‐ ‐ ‐ ‐ ‐ ‐ 28
‐ 753 3 ‐ ‐ ‐ 756
‐ ‐ ‐ ‐ ‐ 18,282 18,282
‐ ‐ ‐ 13,300 ‐ ‐ 13,300
‐ ‐ ‐ ‐ ‐ ‐ 58,883
‐ ‐ ‐ ‐ ‐ ‐ 3,186
‐ ‐ ‐ ‐ 50 ‐ 50
187 10 ‐ 215 1 289 1,052
12,699 763 3 13,515 51 18,571 113,342
12,699$ 763$ 3$ 13,519$ 51$ 18,571$ 114,212$
119
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Street Federal Housing Special
Improvement Revenue In‐Lieu Districts
REVENUES:
Special assessments ‐$ ‐$ ‐$ ‐$
Other taxes and fines 2,793 ‐ ‐ 23
Intergovernmental ‐ 1,172 ‐ ‐
Licenses, permits and fees:
University Avenue Parking ‐ ‐ ‐ 83
California Avenue Parking ‐ ‐ ‐ 22
Other licenses, permits and fees ‐ ‐ ‐ 49
Investment earnings (3) ‐ 9 1
Housing In‐Lieu ‐ residential ‐ ‐ 5,804 ‐
Other revenue ‐ ‐ 85 29
Total revenues 2,790 1,172 5,898 207
EXPENDITURES:
Current:
Administrative Services ‐ ‐ ‐ 261
Public Works ‐ ‐ ‐ 1,427
Planning and Development Services ‐ 1,100 179 6
Office of Transportation ‐ ‐ ‐ 1,437
Police ‐ ‐ ‐ ‐
Community Services ‐ ‐ ‐ 32
Non‐Departmental ‐ ‐ 75 160
Total expenditures ‐ 1,100 254 3,323
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES 2,790 72 5,644 (3,116)
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐ ‐ 400
Transfers out (2,837) ‐ ‐ (838)
Total other financing sources (uses) (2,837) ‐ ‐ (438)
Change in fund balances (47) 72 5,644 (3,554)
FUND BALANCES, BEGINNING OF YEAR 75 5,221 53,510 6,819
FUND BALANCES, END OF YEAR 28$ 5,293$ 59,154$ 3,265$
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, 2021
(Amounts in thousands)
120
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Downtown Total
Business Special
Transportation Local Law Asset Developer Development Public Revenue
Mitigation Enforcement Seizure Impact Fee District Benefit Funds
‐$ ‐$ ‐$ ‐$ 5$ ‐$ 5$
‐ ‐ ‐ ‐ ‐ ‐ 2,816
‐ 165 ‐ ‐ ‐ ‐ 1,337
‐ ‐ ‐ ‐ ‐ ‐ 83
‐ ‐ ‐ ‐ ‐ ‐ 22
429 ‐ ‐ 1,578 ‐ ‐ 2,056
66 7 ‐ 14 ‐ 75 169
‐ ‐ ‐ ‐ ‐ ‐ 5,804
‐ ‐ ‐ 40 ‐ ‐ 154
495 172 ‐ 1,632 5 75 12,446
‐ ‐ ‐ ‐ ‐ ‐ 261
‐ ‐ ‐ ‐ ‐ ‐ 1,427
‐ ‐ ‐ ‐ ‐ ‐ 1,285
‐ ‐ ‐ ‐ ‐ ‐ 1,437
‐ 36 ‐ ‐ ‐ ‐ 36
‐ ‐ ‐ 204 ‐ ‐ 236
‐ ‐ ‐ ‐ 20 ‐ 255
‐ 36 ‐ 204 20 ‐ 4,937
495 136 ‐ 1,428 (15) 75 7,509
‐ ‐ ‐ 170 ‐ ‐ 570
(400) ‐ ‐ (3,539) ‐ (1,950) (9,564)
(400) ‐ ‐ (3,369) ‐ (1,950) (8,994)
95 136 ‐ (1,941) (15) (1,875) (1,485)
12,604 627 3 15,456 66 20,446 114,827
12,699$ 763$ 3$ 13,515$ 51$ 18,571$ 113,342
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Street Improvement Federal Revenue
Actual, Actual,
Budget Budgetary Basis Variance Budget Budgetary Basis Variance
REVENUES:
Special assessments ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Other taxes and fines 2,793 2,793 ‐ ‐ ‐ ‐
Intergovernmental ‐ ‐ ‐ 1,384 1,172 (212)
Licenses, permits and fees
University Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
California Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
Other licenses, permits and fees ‐ ‐ ‐ ‐ ‐ ‐
Investment earnings 9 (1) (10) ‐ ‐ ‐
Rental income ‐ ‐ ‐ ‐ ‐ ‐
Housing In‐Lieu ‐ residential ‐ ‐ ‐ ‐ ‐ ‐
Other:
Loan payoffs ‐ ‐ ‐ ‐ ‐ ‐
Other revenue ‐ ‐ ‐ ‐ ‐ ‐
Total revenues 2,802 2,792 (10) 1,384 1,172 (212)
EXPENDITURES:
Current:
Administrative Services ‐ ‐ ‐ ‐ ‐ ‐
Public Works ‐ ‐ ‐ ‐ ‐ ‐
Planning and Development Services ‐ ‐ ‐ 1,886 1,462 424
Office of Transportation ‐ ‐ ‐ ‐ ‐ ‐
Police ‐ ‐ ‐ ‐ ‐ ‐
Community Services ‐ ‐ ‐ ‐ ‐ ‐
Non‐Departmental ‐ ‐ ‐ ‐ ‐ ‐
Total expenditures ‐ ‐ ‐ 1,886 1,462 424
Excess (deficiency) of revenues
over (under) expenditures 2,802 2,792 (10) (502) (290) 212
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐ ‐ ‐ ‐ ‐
Transfers out (2,837) (2,837) ‐ ‐ ‐ ‐
Total other financing sources (uses) (2,837) (2,837) ‐ ‐ ‐ ‐
Change in fund balances, budgetary basis (35)$ (45) (10)$ (502)$ (290) 212$
Adjustment to Budgetary Basis:
Unrealized gain (loss) on investments (2) ‐
Changes in notes receivable ‐ ‐
Current year encumbrances/reappropriations ‐ 362
(47) 72
FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 75 5,221
FUND BALANCES, END OF YEAR, GAAP BASIS 28$ 5,293$
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, 2020
122
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Actual, Actual, Actual,
Budget Budgetary Basis Variance Budget Budgetary Basis Variance Budget Budgetary Basis Variance
‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
‐ ‐ ‐ 52 23 (29) ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ 2,464 83 (2,381) ‐ ‐ ‐
‐ ‐ ‐ 880 22 (858) ‐ ‐ ‐
‐ ‐ ‐ 1,198 49 (1,149) 276 429 153
463 366 (97) 109 92 (17) 260 217 (43)
9 ‐ (9) ‐ ‐ ‐ ‐ ‐ ‐
2,150 5,804 3,654 ‐ ‐ ‐ ‐ ‐ ‐
25 ‐ (25) ‐ ‐ ‐ ‐ ‐ ‐
170 85 (85) ‐ 29 29 ‐ ‐ ‐
2,817 6,255 3,438 4,703 298 (4,405) 536 646 110
‐ ‐ ‐ 330 261 69 ‐ ‐ ‐
‐ ‐ ‐ 1,697 1,634 63 ‐ ‐ ‐
20,462 20,720 (258) 1 7 (6) ‐ ‐ ‐
‐ ‐ ‐ 3,539 2,005 1,534 ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ 43 42 1 ‐ ‐ ‐
695 75 620 206 410 (204) ‐ ‐ ‐
21,157 20,795 362 5,816 4,359 1,457 ‐ ‐ ‐
(18,340) (14,540) 3,800 (1,113) (4,061) (2,948) 536 646 110
‐ ‐ ‐ 400 400 ‐ ‐ ‐ ‐
‐ ‐ ‐ (838) (838) ‐ (400) (400) ‐
‐ ‐ ‐ (438) (438) ‐ (400) (400) ‐
(18,340)$ (14,540) 3,800$ (1,551)$ (4,499) (2,948)$ 136$ 246 110$
(357) (91) (151)
18,752 ‐ ‐
1,789 1,036 ‐
5,644 (3,554) 95
53,510 6,819 12,604
59,154$ 3,265$ 12,699$
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Local Law Enforcement Asset Seizure
Actual, Actual,
Budget Budgetary Basis Variance Budget Budgetary Basis Variance
REVENUES:
Special assessments ‐$ ‐$ ‐$ ‐$ ‐$ ‐$
Other taxes and fines ‐ ‐ ‐ ‐ ‐ ‐
Intergovernmental 105 165 60 ‐ ‐ ‐
Licenses, permits and fees
University Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
California Avenue Parking ‐ ‐ ‐ ‐ ‐ ‐
Other licenses, permits and fees ‐ ‐ ‐ ‐ ‐ ‐
Investment earnings 7 11 4 ‐ ‐ ‐
Rental income ‐ ‐ ‐ ‐ ‐ ‐
Housing In‐Lieu ‐ residential ‐ ‐ ‐ ‐ ‐ ‐
Other:
Loan payoffs ‐ ‐ ‐ ‐ ‐ ‐
Other revenue ‐ ‐ ‐ ‐ ‐ ‐
Total revenues 112 176 64 ‐ ‐ ‐
EXPENDITURES:
Current:
Administrative Services ‐ ‐ ‐ ‐ ‐ ‐
Public Works ‐ ‐ ‐ ‐ ‐ ‐
Planning and Development Services ‐ ‐ ‐ ‐ ‐ ‐
Office of Transportation ‐ ‐ ‐ ‐ ‐ ‐
Police 105 36 69 ‐ ‐ ‐
Community Services ‐ ‐ ‐ ‐ ‐ ‐
Non‐Departmental ‐ ‐ ‐ ‐ ‐ ‐
Total expenditures 105 36 69 ‐ ‐ ‐
Excess (deficiency) of revenues
over (under) expenditures 7 140 133 ‐ ‐ ‐
OTHER FINANCING SOURCES (USES):
Transfers in ‐ ‐ ‐ ‐ ‐ ‐
Transfers out ‐ ‐ ‐ ‐ ‐ ‐
Total other financing sources (uses) ‐ ‐ ‐ ‐ ‐ ‐
Change in fund balances, budgetary basis 7$ 140 133$ ‐$ ‐ ‐$
Adjustment to Budgetary Basis:
Unrealized gain (loss) on investments (4) ‐
Changes in notes receivable ‐ ‐
Current year encumbrances/reappropriations ‐ ‐
136 ‐
FUND BALANCES, BEGINNING OF YEAR, GAAP BASIS 627 3
FUND BALANCES, END OF YEAR, GAAP BASIS 763$ 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, 2021
124
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Developer Impact Fee Downtown Business Improvement District
Actual, Actual, Actual,
Budget Budgetary Basis Variance Budget Budgetary Basis Variance Budget Budgetary Basis Variance
‐$ ‐$ ‐$ 140$ 5$ (135)$ ‐$ ‐$ ‐$
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
875 1,578 703 ‐ ‐ ‐ ‐ ‐ ‐
352 227 (125) ‐ ‐ ‐ 370 324 (46)
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‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ 40 40 ‐ ‐ ‐ ‐ ‐ ‐
1,227 1,845 618 140 5 (135) 370 324 (46)
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‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
203 204 (1) ‐ ‐ ‐ ‐ ‐ ‐
‐ ‐ ‐ 203 20 183 ‐ ‐ ‐
203 204 (1) 203 20 183 ‐ ‐ ‐
1,024 1,641 617 (63) (15) 48 370 324 (46)
170 170 ‐ ‐ ‐ ‐ ‐ ‐ ‐
(3,539) (3,539) ‐ ‐ ‐ ‐ (1,950) (1,950) ‐
(3,369) (3,369) ‐ ‐ ‐ ‐ (1,950) (1,950) ‐
(2,345)$ (1,728) 617$ (63)$ (15) 48$ (1,580)$ (1,626) (46)$
(213) ‐ (249)
‐ ‐ ‐
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(1,941) (15) (1,875)
15,456 66 20,446
13,515$ 51$ 18,571$
Public Benefit
125
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127
NON‐MAJOR GOVERNMENTAL FUNDS
DEBT SERVICE FUNDS
2018 Golf Course Capital Improvement
This fund accounts for revenues received from the General Fund to provide payment of principal and
interest associated with the 2018 Golf Course Capital Improvement Certificates of Participation as they
become due.
2019 California Avenue Parking Garage COPs
This fund accounts for revenues received from the General Fund to provide payment of principal and
interest associated with the 2019 California Avenue Parking Garage Certificates of Participation as they
become due.
Library Projects
This fund accounts for revenues received from property taxes to provide payment of principal and interest
associated with the 2010 and 2013A General Obligation Bonds as they become due.
Public Safety Building
This fund accounts for revenues received from the General Fund to provide payment of principal and
interest associated with the 2021 Public Safety Building Certificates of Participation as they become due.
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CITY OF PALO ALTO
Non‐major Debt Service Funds
Combining Balance Sheet
June 30, 2021
(Amounts in thousands)
2018 Golf Course 2019 California Total
Capital Avenue Parking Library Public Safety Debt Service
Improvement Garage COPs Projects Building Funds
ASSETS:
Cash and investments available for operations 1$ 5$ 3,722$ ‐$ 3,728$
Receivables:
Accounts and intergovernmental ‐ ‐ 2 ‐ 2
Interest ‐ ‐ 19 ‐ 19
Restricted cash and investments with fiscal agents 18 16 ‐ 4,621 4,655
Total assets 19$ 21$ 3,743$ 4,621$ 8,404$
FUND BALANCES:
Restricted:
Debt service 19$ 21$ 3,743$ 4,621$ 8,404$
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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, 2021
(Amounts in thousands)
2018 Golf Course 2019 California TotalCapital Avenue Parking Library Public Safety Debt Service
Improvement Garage COPs Projects Building Funds
REVENUES:
Property tax ‐$ ‐$ 4,329$ ‐$ 4,329$
Investment earnings ‐ ‐ (10) ‐ (10)
Total revenues ‐ ‐ 4,319 ‐ 4,319
EXPENDITURES:
Debt service:
Principal retirement 185 630 1,780 ‐ 2,595
Interest and fiscal charges 345 1,748 2,646 1,408 6,147
Total expenditures 530 2,378 4,426 1,408 8,742
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES (530) (2,378) (107) (1,408) (4,423)
OTHER FINANCING SOURCES (USES):
Issuance of debt ‐ ‐ ‐ 6,029 6,029
Transfers in 530 2,380 ‐ ‐ 2,910
Total other financing sources (uses) 530 2,380 ‐ 6,029 8,939
Change in fund balances ‐ 2 (107) 4,621 4,516
FUND BALANCES, BEGINNING OF YEAR 19 19 3,850 ‐ 3,888
FUND BALANCES, END OF YEAR 19$ 21$ 3,743$ 4,621$ 8,404$
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Actual, Actual, Actual, Actual,Budgetary Budgetary Budgetary BudgetaryBudget Basis Variance Budget Basis Variance Budget Basis Variance Budget Basis Variance
REVENUES:
Property tax ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ 4,559$ 4,329$ (230)$ ‐$ ‐$ ‐$ Investment earnings ‐ ‐ ‐ ‐ ‐ ‐ 29 32 3 ‐ ‐ ‐
Total revenues ‐ ‐ ‐ ‐ ‐ ‐ 4,588 4,361 (227) ‐ ‐ ‐
EXPENDITURES:Debt service:Principal retirement 185 185 ‐ 630 630 ‐ 1,780 1,780 ‐ ‐ ‐ ‐
Interest and fiscal charges 345 345 ‐ 1,750 1,748 2 2,646 2,646 ‐ 1,408 1,408 ‐
Total expenditures 530 530 ‐ 2,380 2,378 2 4,426 4,426 ‐ 1,408 1,408 ‐
Excess (deficiency) of revenues
over (under) expenditures (530) (530) ‐ (2,380) (2,378) 2 162 (65) (227) (1,408) (1,408) ‐
OTHER FINANCING SOURCES (USES):Issuance of debt ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 6,029 6,029 ‐ Transfers in 530 530 ‐ 2,380 2,380 ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total other financing sources (uses) 530 530 ‐ 2,380 2,380 ‐ ‐ ‐ ‐ 6,029 6,029 ‐
Change in fund balances, budgetary bas ‐$ ‐ ‐$ ‐$ 2 2$ 162$ (65) (227)$ 4,621$ 4,621 ‐$
Adjustment to Budgetary Basis:Unrealized gain (loss) on investments ‐ ‐ (42) ‐
‐ 2 (107) 4,621
FUND BALANCES, BEGINNING OF YEAR 19 19 3,850 ‐
FUND BALANCES, END OF YEAR 19$ 21$ 3,743$ 4,621$
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, 2021
2018 Golf Course Capital
Improvement
2019 California Avenue Parking
Garage COPs Library Projects Public Safety Building
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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.
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Eyerly Family Permanent Fund
Variance
Actual, Positive
Budget Budgetary Basis (Negative)
REVENUES:
Investment earnings 42$ 44$ 2$
Change in fund balance 42$ 44 2$
Adjustment to Budgetary Basis:
Unrealized gain (loss) on investments (28)
16
FUND BALANCE, BEGINNING OF YEAR 2,540
FUND BALANCE, END OF YEAR 2,556$
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, 2021
132
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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.
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Vehicle Printing Workers' General Total
Replacement and Compensation Liabilities Retiree Internal
and Mailing General Insurance Insurance Health ServicesMaintenance Technology Services Benefits Program Program Benefits FundsASSETS:Current Assets:
Cash and investments available for operations 11,524$ 22,009$ 231$ 22,833$ 27,555$ 9,970$ 2,684$ 96,806$
Accounts receivable, net 70 ‐ ‐ 16 12 ‐ ‐ 98 Interest receivable 62 119 1 108 134 50 10 484 Inventory of materials and supplies 116 ‐ ‐ ‐ ‐ ‐ ‐ 116 Restricted cash and investments with fiscal agents and trustees ‐ ‐ ‐ 37,089 ‐ ‐ ‐ 37,089
Total current assets 11,772 22,128 232 60,046 27,701 10,020 2,694 134,593
Noncurrent Assets:
Capital assets:
Nondepreciable 1,839 3,748 ‐ ‐ ‐ ‐ ‐ 5,587 Depreciable, net 15,419 1,909 26 ‐ ‐ ‐ ‐ 17,354
Total noncurrent assets 17,258 5,657 26 ‐ ‐ ‐ ‐ 22,941
Total assets 29,030 27,785 258 60,046 27,701 10,020 2,694 157,534
DEFERRED OUTFLOWS OF RESOURCES:
Pension related 469 2,058 10 ‐ 41 ‐ ‐ 2,578 OPEB related 271 552 10 ‐ 11 ‐ ‐ 844
Total deferred outflows of resources 740 2,610 20 ‐ 52 ‐ ‐ 3,422
LIABILITIES:Current Liabilities:
Accounts payable and accruals 62 195 105 1,253 94 ‐ ‐ 1,709
Accrued salaries and benefits 37 140 2 ‐ 71 ‐ ‐ 250 Accrued compensated absences ‐ ‐ ‐ 6,327 ‐ ‐ ‐ 6,327 Accrued claims payable ‐ current ‐ ‐ ‐ 160 4,240 2,411 ‐ 6,811
Total current liabilities 99 335 107 7,740 4,405 2,411 ‐ 15,097
Noncurrent liabilities:
Accrued compensated absences ‐ ‐ ‐ 9,320 ‐ ‐ ‐ 9,320 Accrued claims payable ‐ ‐ ‐ ‐ 21,792 3,928 ‐ 25,720 Net pension liabilities 3,704 13,567 273 ‐ 4 ‐ ‐ 17,548 Net OPEB liabilities 1,532 3,127 141 ‐ ‐ ‐ ‐ 4,800
Total noncurrent liabilities 5,236 16,694 414 9,320 21,796 3,928 ‐ 57,388
Total liabilities 5,335 17,029 521 17,060 26,201 6,339 ‐ 72,485
DEFERRED INFLOWS OF RESOURCES:OPEB related 288 587 11 ‐ 11 ‐ ‐ 897
NET POSITION:
Net Investment in capital assets 17,258 5,657 26 ‐ ‐ ‐ ‐ 22,941 Restricted for supplemental pension ‐ ‐ ‐ 37,089 ‐ ‐ ‐ 37,089 Unrestricted 6,889 7,122 (280) 5,897 1,541 3,681 2,694 27,544
Total net position 24,147$ 12,779$ (254)$ 42,986$ 1,541$ 3,681$ 2,694$ 87,574$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Fund Net Position
June 30, 2021
(Amounts in thousands)
134
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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 6,522$ 12,322$ 1,314$ 72,224$ 6,578$ 2,892$ 13,577$ 115,429$
Other ‐ 27 ‐ ‐ 162 11 ‐ 200
Total operating revenues 6,522 12,349 1,314 72,224 6,740 2,903 13,577 115,629
OPERATING EXPENSES:Administrative and general 1,478 7,801 948 137 613 2,208 27 13,212
Operations and maintenance 3,269 7,463 253 1,577 203 ‐ ‐ 12,765 Depreciation 2,751 395 7 ‐ ‐ ‐ ‐ 3,153
Claim payments and change in estimated
self‐insured liability ‐ ‐ ‐ 1,524 6,075 1,146 ‐ 8,745 Refund of charges for services 105 10 ‐ ‐ ‐ ‐ ‐ 115
Employment benefits ‐ ‐ ‐ 61,205 ‐ ‐ 14,570 75,775
Total operating expenses 7,603 15,669 1,208 64,443 6,891 3,354 14,597 113,765
Operating income (loss) (1,081) (3,320) 106 7,781 (151) (451) (1,020) 1,864
NONOPERATING REVENUES (EXPENSES):Investment earnings 83 83 (1) 3,380 224 65 57 3,891
Gain on disposal of capital assets 385 ‐ ‐ ‐ ‐ ‐ ‐ 385
Other nonoperating revenues 5 ‐ ‐ ‐ ‐ ‐ ‐ 5
Total nonoperating revenues (expenses) 473 83 (1) 3,380 224 65 57 4,281
Income (loss) before transfers (608) (3,237) 105 11,161 73 (386) (963) 6,145
Transfers in 105 1,340 ‐ ‐ ‐ 5 2,347 3,797 Transfers out (326) (31) ‐ (2,347) ‐ ‐ ‐ (2,704)
Change in net position (829) (1,928) 105 8,814 73 (381) 1,384 7,238
NET POSITION, BEGINNING OF YEAR 24,976 14,707 (359) 34,172 1,468 4,062 1,310 80,336
NET POSITION, END OF YEAR 24,147$ 12,779$ (254)$ 42,986$ 1,541$ 3,681$ 2,694$ 87,574$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Revenues, Expenses and Changes in Fund Net Position
For the Year Ended June 30, 2021
(Amounts in thousands)
135
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Vehicle Printing Workers' General TotalReplacement and Compensation 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 6,455$ 12,354$ 1,314$ 72,225$ 6,572$ 2,903$ 13,577$ 115,400$ Cash payments to suppliers for goods and services (2,895) (7,615) (1,011) 59 (430) (2,218) ‐ (14,110)
Cash payments to employees (2,191) (7,694) (146) (61,422) (368) ‐ (14,597) (86,418) Cash payments for judgments and claims ‐ ‐ ‐ (1,524) (3,814) (427) ‐ (5,765)
Other cash receipts 5 ‐ ‐ ‐ ‐ ‐ ‐ 5
Net cash flows provided by (used in)
operating activities 1,374 (2,955) 157 9,338 1,960 258 (1,020) 9,112
Cash flows from noncapital financing activities:Transfers in 105 1,340 ‐ ‐ ‐ 5 2,347 3,797
Transfers out (326) (31) ‐ (2,347) ‐ ‐ ‐ (2,704)
Net cash flows provided by (used in)noncapital financing activities (221) 1,309 ‐ (2,347) ‐ 5 2,347 1,093
Cash flows from capital and related financing activities:Acquisition of capital assets (3,317) (1,511) ‐ ‐ ‐ ‐ ‐ (4,828)
Proceeds from sale of capital assets 484 ‐ ‐ ‐ ‐ ‐ ‐ 484
Net cash flows (used in) capital and related financing activities (2,833) (1,511) ‐ ‐ ‐ ‐ ‐ (4,344)
Cash flows from investing activities:
Investment interest received (expenses paid) 88 110 (1) 3,377 223 66 51 3,914
Net change in cash and cash equivalents (1,592) (3,047) 156 10,368 2,183 329 1,378 9,775
Cash and cash equivalents, beginning of year 13,116 25,056 75 49,554 25,372 9,641 1,306 124,120
Cash and cash equivalents, end of year $ 11,524 $ 22,009 $ 231 $ 59,922 $ 27,555 $ 9,970 $ 2,684 $ 133,895
Financial statement presentation:Cash and investments available for operations 11,524$ 22,009$ 231$ 22,833$ 27,555$ 9,970$ 2,684$ 96,806$
Restricted cash and investments with
fiscal agents and trustees ‐ ‐ ‐ 37,089 ‐ ‐ ‐ 37,089
Cash and cash equivalents, end of year 11,524$ 22,009$ 231$ 59,922$ 27,555$ 9,970$ 2,684$ $ 133,895
Reconciliation of operating income (loss) to net cashflows provided by (used in) operating activities:
Operating income (loss) (1,081)$ (3,320)$ 106$ 7,781$ (151)$ (451)$ (1,020)$ 1,864$ Adjustments to reconcile operating income (loss)
to net cash provided by (used in) operating activities:
Depreciation 2,751 395 7 ‐ ‐ ‐ ‐ 3,153 Other 5 ‐ ‐ ‐ ‐ ‐ ‐ 5
Change in assets and liabilities:Accounts receivable (67) 5 ‐ 1 (6) ‐ ‐ (67)
Inventory of materials and supplies (14) ‐ ‐ ‐ ‐ ‐ ‐ (14)
Deferred outflows of resources ‐ pension plans 32 (330) 23 ‐ ‐ ‐ ‐ (275) Deferred outflows of resources ‐ OPEB 12 24 1 ‐ ‐ ‐ ‐ 37
Accounts payable and accruals (74) (16) 63 153 25 (10) ‐ 141 Accrued salaries and benefits 3 9 (2) ‐ 37 ‐ ‐ 47
Accrued compensated absences ‐ ‐ ‐ 1,403 ‐ ‐ ‐ 1,403
Accrued claims payable ‐ ‐ ‐ ‐ 2,099 719 ‐ 2,818 Net pension liability 8 747 (33) ‐ (41) ‐ ‐ 681
Net OPEB liability (29) (58) (2) ‐ ‐ ‐ ‐ (89) Deferred inflows of resources ‐ pension plans (131) (326) (3) ‐ (2) ‐ ‐ (462)
Deferred inflows of resouces ‐ OPEB (41) (85) (3) ‐ (1) ‐ ‐ (130)
Net cash flows provided by (used in) operating activities 1,374$ (2,955)$ 157$ 9,338$ 1,960$ 258$ (1,020)$ 9,112$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Cash Flows
For the Year Ended June 30, 2021
(Amounts in thousands)
136
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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.
Custodial Funds are fiduciary funds used to report fiduciary activities that are not required to be reported
in pension (and other employee benefit) trust funds, investment trust funds, or private purpose trust
funds. The City maintains two agency custodial 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.
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University Avenue
Cable Area Off‐Street
Joint Powers Parking Assessment
Authority District Total
ASSETS:
Cash and investments available for operations (Note 3) 1,207$ 2,069$ 3,276$
Accounts receivable 459 32 491
Interest receivable 5 11 16
Restricted cash and investments with fiscal agents (Note 3) ‐ 2,705 2,705
Total assets 1,671 4,817 6,488
LIABILITIES:
Accounts payable and accruals 411 ‐ 411
NET POSITION:
Restricted for:
Governmental entities 1,260 ‐ 1,260
Bondholders of special assessment bonds ‐ 4,817 4,817
Total net position 1,260$ 4,817$ 6,077$
CITY OF PALO ALTO
Custodial Funds
Combining Statement of Fiduciary Net Position
June 30, 2021
(Amounts in thousands)
138
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University Avenue
Cable Area Off‐Street
Joint Powers Parking Assessment
Authority District Total
ADDITIONS:
Franchise and other fees collected 1,821$ ‐$ 1,821$
Special assessments collected ‐ 2,407 2,407
Investment earnings 14 (5) 9
Other ‐ 5 5
Total additions 1,835 2,407 4,242
DEDUCTIONS:
Administrative and general 34 5 39
Distribution to governmental entities 1,538 ‐ 1,538
Debt services payments ‐ 2,409 2,409
Total deductions 1,572 2,414 3,986
Changes in net position 263 (7) 256
NET POSITION, BEGINNING OF YEAR 997 4,824 5,821
NET POSITION, END OF YEAR 1,260$ 4,817$ 6,077$
CITY OF PALO ALTO
Custodial Funds
Combining Statement of Changes in Fiduciary Net Position
For the Year Ended June 30, 2021
(Amounts in thousands)
139
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141
STATISTICAL SECTION
The statistical section contains comprehensive statistical data, which relates to physical, economic, social
and political characteristics of the City. It is intended to provide users with a broader and more complete
understanding of the City and its financial affairs than is possible from the financial statements and
supporting schedules included in the financial section.
In this section, readers will find comparative information related to the City’s revenue sources,
expenditures, property tax valuations, levies and collections, general obligation bonded debt, utility
revenue debt service, and demographics. Where available, the comparative information is presented for
the last ten fiscal years.
In addition, this section presents information related to the City’s legal debt margin computation, principal
taxpayers, notary and security bond coverages, and other miscellaneous statistics pertaining to services
provided by the City.
In contrast to the financial section, the statistical section information is not usually subject to independent
audit.
Financial Trends
These schedules contain trend information to help the reader understand how the City’s financial
performance and well‐being have changed over time:
Net Position by Component
Changes in Net Position
Fund Balances of Governmental Funds
Changes in Fund Balances of Governmental Funds
Revenue Capacity
These schedules contain information to help the reader assess the City’s most significant local revenue
sources, property tax and electric charges:
Electric Operating Revenue by Source
Power Supply Resources
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
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142
STATISTICAL SECTION
Demographic and Economic Information
These schedules offer demographic and economic indicators to help the reader understand the
environment within which the City’s financial activities take place:
Taxable Transactions by Type of Business
Demographic and Economic Statistics
Principal Employers
Operating Information
These schedules contain service and infrastructure data to help the reader understand how the
information in the City’s financial report relates to the services the City provides and the activities it
performs:
Operating Indicators by Function/Program
Capital Asset Statistics by Function/Program
Full‐Time Equivalent City Government Employees by Function
Sources
Unless otherwise noted, the information in these schedules is derived from the Annual Comprehensive
Financial Reports for the relevant year.
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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Governmental Activities
Investment in capital assets 370,111$ 378,047$ 386,696$ 405,921$ 425,179$ 453,878$ 473,233$ 493,706$ 497,378$ 480,620$
Restricted 52,934 71,717 68,331 55,963 47,907 38,138 46,724 59,669 73,274 80,265
Unrestricted 142,102 165,810 187,386 1,972 37,905 35,273 (92,587) (103,392) (130,078) (137,748)
Total Governmental Activities Net Position 565,147$ 615,574$ 642,413$ 463,856$ 510,991$ 527,289$ 427,370$ 449,983$ 440,574$ 423,137$
Business‐type Activities
Investment in capital assets 437,151$ 446,597$ 473,795$ 490,874$ 512,918$ 532,063$ 573,688$ 602,136$ 621,354$ 642,018$
Restricted ‐ 4,060 4,166 4,142 4,115 4,073 4,014 4,016 4,060 3,340
Unrestricted 262,602 269,926 266,794 172,802 162,806 163,158 110,429 135,391 159,592 161,861
Total Business‐type Activities Net Position 699,753$ 720,583$ 744,755$ 667,818$ 679,839$ 699,294$ 688,131$ 741,543$ 785,006$ 807,219$
Primary Government
Investment in capital assets 807,262$ 824,644$ 860,491$ 896,795$ 938,097$ 985,941$ 1,046,921$ 1,095,842$ 1,118,732$ 1,122,638$
Restricted 52,934 75,777 72,497 60,105 52,022 42,211 50,738 63,685 77,334 83,605
Unrestricted 404,704 435,736 454,180 174,774 200,711 198,431 17,842 31,999 29,514 24,113
Total Primary Government Net Position 1,264,900$ 1,336,157$ 1,387,168$ 1,131,674$ 1,190,830$ 1,226,583$ 1,115,501$ 1,191,526$ 1,225,580$ 1,230,356$
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
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
$ T
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Primary Government
Investment in capital assets Restricted Unrestricted
143
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PROGRAM REVENUES 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Governmental Activities
Charges for services
Administrative Services 1,647$ 15,629$ 4,055$ 5,460$ 9,444$ 5,242$ 6,536$ 6,413$ 5,758$ 1,150$
Public Works 1,008 1,314 1,093 1,209 599 878 781 1,478 990 937
Planning & Community Environment 31,491 28,768 12,896 8,090 9,071 6,067 5,119 11,997 ‐ ‐
Development Services1&2 ‐ ‐ ‐ 12,019 12,570 11,768 16,000 13,904 ‐ ‐
Planning & Development Services2 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 16,173 21,228
Office of Transportation3 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 1,161 80
Public Safety 15,658 16,139 14,902 15,726 13,945 12,670 13,507 14,179 12,101 11,135
Community Services 11,365 13,808 20,882 20,912 21,551 20,472 21,285 22,805 20,808 20,893
Library 1,600 187 166 137 198 139 145 134 94 47
Operating grants and contributions 3,441 5,038 5,360 5,300 2,164 1,990 14,054 2,100 2,619 3,033 Capital grants and contributions 1,064 515 917 619 344 1,929 1,534 8,247 9,021 11,326
Total Governmental Activities
Program Revenues 67,274 81,398 60,271 69,472 69,886 61,155 78,961 81,257 68,725 69,829
Business‐type Activities
Charges for services
Water 31,467 37,746 40,291 35,847 37,588 42,678 45,087 45,571 48,740 48,812
Electric 118,886 121,805 121,916 120,842 120,743 137,543 154,142 163,514 169,389 162,240
Fiber Optics 3,662 4,382 4,485 4,627 4,505 4,553 4,529 4,657 4,576 3,936
Gas 41,774 34,633 35,737 30,751 30,212 36,431 37,044 42,113 37,402 39,520
Wastewater Collection 14,942 16,077 15,599 16,182 16,496 17,748 17,990 20,219 20,933 20,484
Wastewater Treatment 22,200 21,528 18,460 24,120 23,825 23,649 27,382 27,573 29,310 30,522
Refuse 30,645 30,583 30,297 31,576 32,169 33,918 34,647 33,996 32,695 30,636
Storm Drainage 5,892 6,053 6,183 6,281 6,520 6,693 6,964 7,249 7,543 7,785
Airport ‐ ‐ ‐ 683 826 1,286 2,382 2,483 2,362 2,585
Operating grants and contributions 605 572 549 534 744 512 501 488 473 462
Capital grants and contributions 1,526 2,224 2,005 2,080 1,061 4,265 14,194 6,677 6,449 6,391
Total Business‐type Activities
Program Revenues 271,599 275,603 275,522 273,523 274,689 309,276 344,862 354,540 359,872 353,373
Total Primary Government
Program Revenues 338,873$ 357,001$ 335,793$ 342,995$ 344,575$ 370,431$ 423,823$ 435,797$ 428,597$ 423,202$
EXPENSES
Governmental Activities
City Council 345$ 94$ 387$ 271$ 352$ 329$ 345$ 270$ 172$ 178$
City Manager 1,960 1,237 2,180 2,155 2,662 1,975 2,757 3,336 3,616 2,466
City Attorney 1,656 1,642 1,797 1,759 2,472 2,140 2,511 3,086 2,845 2,292
City Clerk 908 330 641 680 582 762 931 822 748 702
City Auditor 235 464 489 362 414 847 994 1,081 645 641
Administrative Services 10,100 7,614 11,388 9,980 10,637 11,887 13,949 19,169 15,919 22,985
Human Resources 1,071 1,420 1,346 1,464 2,224 2,272 2,674 3,021 3,060 2,518
Public Works 14,568 20,816 24,577 21,075 24,613 25,539 30,349 36,617 45,609 52,727
Planning & Community Environment2 12,074 13,549 14,926 8,423 10,208 10,918 11,357 12,169 ‐ ‐
Development Services1&2 ‐ ‐ ‐ 10,449 11,158 11,102 12,664 12,622 ‐ ‐
Planning & Development Services2 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 21,725 18,141
Office of Transportation3 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 4,693 3,636
Public Safety (Police and Fire) 62,817 59,452 62,883 58,660 56,653 73,320 83,923 89,189 92,187 80,758
Community Services 21,915 22,705 23,822 24,688 28,547 27,866 33,709 36,815 34,147 30,289
Library 7,323 7,319 7,758 7,721 10,825 11,437 12,208 12,557 12,971 11,145 Interest on long term debt 2,575 2,562 3,367 3,658 3,552 2,846 2,761 3,653 4,576 6,317
Total Governmental
Activities Expenses 137,547 139,204 155,561 151,345 164,899 183,240 211,132 234,407 242,913 234,795
Business‐type Activities
Water 29,093 30,707 31,593 33,205 35,120 37,535 40,836 40,606 43,034 43,556
Electric 102,030 106,438 113,004 122,499 120,319 128,603 146,033 139,605 142,426 156,105
Fiber Optics 1,489 1,437 1,661 1,891 2,107 2,159 2,653 2,476 2,761 2,529
Gas 28,878 26,749 26,869 23,525 20,879 26,783 27,930 30,915 27,212 28,556
Wastewater Collection 14,825 14,313 13,235 14,595 15,199 16,405 16,801 17,324 18,877 19,577
Wastewater Treatment 20,712 20,635 21,018 21,553 22,546 23,498 27,518 27,070 28,755 28,403
Refuse 31,900 28,542 28,413 27,974 30,370 30,665 28,808 30,391 36,947 29,138
Storm Drainage 3,103 3,703 3,644 3,721 3,735 4,106 5,059 4,951 5,514 4,897
Airport 153 246 466 1,004 970 1,274 1,656 1,790 2,131 1,499
Total Business‐type
Activities Expenses 232,183 232,770 239,903 249,967 251,245 271,028 297,294 295,128 307,657 314,260
Total Primary
Government Expenses 369,730$ 371,974$ 395,464$ 401,312$ 416,144$ 454,268$ 508,426$ 529,535$ 550,570$ 549,055$
CITY OF PALO ALTO
Changes in Net Position
Last Ten Fiscal Years
(Accrual basis of accounting)
(Amounts in thousands)
Fiscal Year Ended June 30
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NET (EXPENSE)/REVENUE
Governmental Activities (70,273)$ (57,806)$ (95,290)$ (81,873)$ (95,013)$ (122,085)$ (132,171)$ (153,150)$ (174,188)$ (164,966)$
Business‐type Activities 39,416 42,833 35,619 23,556 23,444 38,248 47,568 59,412 52,215 39,113
Total Primary Government
Net (Expense)/Revenue (30,857)$ (14,973)$ (59,671)$ (58,317)$ (71,569)$ (83,837)$ (84,603)$ (93,738)$ (121,973)$ (125,853)$
GENERAL REVENUES AND OTHER CHANGES IN NET POSITION
Governmental Activities
Taxes
Property tax 30,104$ 31,929$ 35,299$ 38,750$ 41,189$ 43,953$ 47,170$ 51,718$ 55,604$ 60,901$
Sales tax 22,132 25,606 29,424 29,675 30,018 29,923 31,091 36,508 30,563 29,127
Utility user tax 10,834 10,861 11,008 10,861 12,469 14,240 15,414 16,402 16,140 14,642
Transient occupancy tax 9,664 10,794 12,255 16,699 22,366 23,477 24,937 25,649 18,553 5,179
Other taxes 8,173 10,504 9,660 11,867 7,868 8,989 11,337 9,525 9,775 13,471
Investment earnings 6,238 (1,228) 5,859 5,010 8,639 (711) 420 15,375 13,850 4,939
Miscellaneous 14,943 518 2,575 3,428 894 168 1,973 1,906 60 183
Transfers 17,426 19,249 17,103 16,405 18,705 18,344 19,077 18,680 20,234 19,087
Total Governmental Activities 119,514 108,233 123,183 132,695 142,148 138,383 151,419 175,763 164,779 147,529
Business‐type Activities
Investment earnings 7,605 (2,754) 6,379 4,857 7,282 (449) 596 12,680 11,482 2,187
Transfers (17,426) (19,249) (17,103) (16,405) (18,705) (18,344) (19,077) (18,680) (20,234) (19,087)
Total Business‐type Activities (9,821) (22,003) (10,724) (11,548) (11,423) (18,793) (18,481) (6,000) (8,752) (16,900)
Total Primary Government 109,693$ 86,230$ 112,459$ 121,147$ 130,725$ 119,590$ 132,938$ 169,763$ 156,027$ 130,629$
CHANGE IN NET POSITION
Governmental Activities 49,241$ 50,427$ 27,893$ 50,822$ 47,135$ 16,298$ 19,248$ 22,613$ (9,409)$ (17,437)$ Business‐type Activities 29,595 20,830 24,895 12,008 12,021 19,455 29,087 53,412 43,463 22,213
Total Primary Government
Change in Net Position 78,836$ 71,257$ 52,788$ 62,830$ 59,156$ 35,753$ 48,335$ 76,025$ 34,054$ 4,776$
Notes:1The Development Services Department was formed in FY15.
Source: Annual Financial Statements, Statement of Activities
2In FY20, the Development Services Department was combined with the Planning and Community Environment Department to form the Planning and
Development Services Department.3In FY20, the City established the Office of Transportation.
Fiscal Year Ended June 30
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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
General Fund
Nonspendable 6,007$ 5,749$ 6,188$ 6,296$ 7,088$ 7,709$ 8,049$ 7,647$ 8,967$ 9,376$
Committed ‐ ‐ ‐ ‐ ‐ ‐ 373 5,100 4,505 4,651
Assigned 6,400 5,415 5,432 7,976 8,261 7,280 7,098 7,657 12,496 12,520
Unassigned 29,616 30,913 36,690 48,198 51,582 48,118 52,826 54,811 35,871 49,089
Total General Fund 42,023$ 42,077$ 48,310$ 62,470$ 66,931$ 63,107$ 68,346$ 75,215$ 61,839$ 75,636$
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)
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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
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All Other Governmental Funds
Nonspendable 11,112$ 18,189$ 14,869$ 1,468$ 1,505$ 1,499$ 1,498$ 2,438$ 2,540$ 2,556$
Restricted 61,324 84,688 68,468 59,650 47,113 35,298 40,317 85,940 55,548 136,795
Committed 14,284 20,400 27,145 48,434 65,745 71,566 72,781 84,616 83,973 85,324
Assigned 33,264 45,514 55,211 52,627 64,411 63,225 68,261 56,842 62,825 65,331
Unassigned ‐ ‐ ‐ ‐ ‐ ‐ (32) (32) ‐ ‐
Total All Other
Governmental Funds 119,984$ 168,791$ 165,693$ 162,179$ 178,774$ 171,588$ 182,825$ 229,804$ 204,886$ 290,006$
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)
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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Revenues
Property tax 30,216$ 32,040$ 35,393$ 38,836$ 41,289$ 44,050$ 47,242$ 51,776$ 55,628$ 60,906$
Sales tax 22,132 25,606 29,424 29,675 30,018 29,923 31,091 36,508 30,563 29,127
Other taxes and fines 29,231 32,141 35,305 41,576 44,909 48,875 53,837 53,525 45,729 33,947
Contributions5 ‐ ‐ ‐ ‐ ‐ ‐ 11,733 ‐ ‐ ‐
Charges for services 46,273 38,976 23,962 25,973 23,910 22,267 26,835 27,346 24,127 25,106
From other agencies 1,116 4,109 5,700 7,727 4,417 5,443 5,392 4,689 12,315 15,252
Permits and licenses 7,136 8,218 8,990 9,179 11,228 10,523 12,786 17,759 13,144 9,422
Interest and rentals 18,583 12,136 18,445 18,658 22,269 15,348 16,288 32,905 26,123 20,145
Other revenue 12,739 17,570 7,471 12,837 13,827 4,985 6,067 7,955 1,091 1,033
Total Revenues 167,426 170,796 164,690 184,461 191,867 181,414 211,271 232,463 208,720 194,938
Expenditures
Administration1 9,412 8,291 9,961 10,806 11,501 13,192 14,721 15,799 16,527 13,954
Public Works 11,304 11,489 12,439 12,276 13,112 14,485 15,426 14,764 14,793 14,692
Planning and Community Environment3 11,966 13,474 14,761 8,628 9,722 10,568 10,332 10,911 ‐ ‐
Development Services2, 3 ‐ ‐ ‐ 11,152 10,643 10,908 11,749 11,549 ‐ ‐
Planning and Development Services2 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 20,170 17,115
Office of Transportation4 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 4,175 3,373
Public Safety (Police and Fire) 62,418 59,537 62,028 61,447 63,784 71,164 73,916 76,344 82,173 76,282
Community Services 20,860 21,661 22,644 23,553 25,511 25,408 29,831 31,619 29,868 26,490
Library 7,072 6,902 7,340 7,980 7,960 8,953 9,120 9,288 9,988 8,528
Non‐departmental 6,819 4,567 8,135 6,180 8,068 6,566 7,579 12,231 9,498 4,854
Capital Outlay 29,154 29,542 37,035 41,754 24,457 39,643 40,971 46,914 66,362 48,114
Debt service ‐ principal payments 1,743 1,489 1,524 1,948 7,130 2,066 2,961 2,101 2,280 2,595
Debt service ‐ interest and fiscal fees 2,757 2,659 3,196 3,404 4,266 3,032 2,956 3,398 5,025 6,147
Payment to bond refunding escrow 586 540 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total Expenditures 164,091 160,151 179,063 189,128 186,154 205,985 219,562 234,918 260,859 222,144
Excess (Deficiency) of Revenues
Over (Under) Expenditures 3,335 10,645 (14,373) (4,667) 5,713 (24,571) (8,291) (2,455) (52,139) (27,206)
Other Financing Sources (Uses)
Issuance of Debt ‐ ‐ ‐ ‐ ‐ ‐ 8,970 42,297 ‐ 101,505
Original debt premium ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 6,524
Proceeds from sale of capital assets ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2,442 ‐ 100
Transfers in 47,200 50,343 41,683 45,137 61,835 58,331 56,882 54,711 58,397 43,558
Transfers out (29,782) (33,833) (24,175) (29,824) (46,492) (44,770) (41,085) (43,147) (44,552) (25,564)
Proceeds from long term debt 3,222 21,706 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Payments to refund bond escrow (3,104) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Total Other Financing Sources (Uses)17,536 38,216 17,508 15,313 15,343 13,561 24,767 56,303 13,845 126,123
Net Change in Fund Balances 20,871$ 48,861$ 3,135$ 10,646$ 21,056$ (11,010)$ 16,476$ 53,848$ (38,294)$ 98,917$
Debt Service as a Percentage of
Non‐Capital Expenditures 3.3% 2.6% 2.6% 2.8% 6.1% 2.5% 2.7% 2.3% 2.8% 4.6%
Notes:
Source: Annual Financial Statements, Governmental Funds, Statement of Revenues, Expenditures and Changes in Fund Balances
4In FY20, the City established the Office of Transportation.
5Represents contributions from the Stanford University Medical Center in FY18.
2The Development Services Department was formed in FY15.
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)
1Comprised of the following departments: City Council, City Manager, City Attorney, City Clerk, City Auditor, Administrative Services, and Human Resources.
3In FY20, the Development Services Department was combined with the Planning and Community Environment Department to form the Planning and Development
Services Department.
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Fiscal Commercial & City of
Year Residential Industrial Palo Alto Total
2012 20,328 85,895 3,352 109,575
2013 19,951 86,998 3,265 110,214
2014 18,744 88,419 3,225 110,388
2015 17,404 88,257 3,234 108,895
2016 18,191 86,715 3,127 108,033
2017 20,269 90,635 3,780 114,684
2018 22,764 100,200 4,264 127,228
2019 23,613 103,509 4,404 131,526
2020 25,466 107,335 4,286 137,087
2021 26,719 98,582 4,167 129,468
* The electric operating revenues include sales to customers and City departments, andexcludes the sale of surplus energy, utility billing discounts, and bad debt expense.
City of Palo Alto Municipal
Communications & Power Industries (CPI) Research
Lucille Packard Children's Hospital Hospital
Space Systems/Loral, LLC Satellite & Satellite Systems
Stanford Health Care Hospital/Health Care
Stanford Hospital & Clinics Hospital
Tesla, Inc. Manufacturing
Varian Medical Systems, Inc. Manufacturing
Veterans Administration Hospital Hospital
VMware, Inc. Computer
Average Kilowatt‐hour
Installations Billed1 Sales (kWh)Revenue
Residential 25,074 165,102,659 26,719$
Commercial 3,599 501,635,237 81,235
Industrial 62 122,154,960 17,347
City of Palo Alto 143 24,991,825 4,167
Total 28,878 813,884,681 129,468$
Source: City of Palo Alto, Utilities and Accounting Departments
1Values provided are in terms of average number of meters (installations) billed per month. Individual
customers may utilize multiple meters or facilities within Palo Alto which encompass one or more
designations (commercial, industrial and/or residential), thus aggregation on the basis of ‘number of
customers’ does not hold for this type of breakdown. The number of active meters in any given month
may vary due to patterns of move in, move outs, as well as meter reading cycles.
1The top ten customers accounted for approximately 38.1% of total kWh consumption
(309,840,850 kWh) and 33.9% of revenue ($45,815,976). The largest top ten customer
accounted for 9.4% of total kWh consumption and 8.1% of revenue. The smallest top ten
customer accounted for 2% of total kWh consumption and 1.9% 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.
Customer (alphabetical order)Type of Business
CITY OF PALO ALTO
Electric Operating Revenue by Source *
Last Ten Fiscal Years
(Amounts in thousands)
Top Ten Electric Customers by Revenue1
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Source
Capacity Available
(MW)
Actual Energy
(GWh)
Percent of
Total EnergyPurchased Power:
Solar 130 311 38%
Wind 21 120 15%
Landfill Gas 14 104 13%
Hydro (NCPA) 58 49 6%Hydro (Western) 182 246 30%
Net Forward Market Sales/Purchases 60 (30) ‐4%
Net Spot Market Sales/Purchases ‐ 27 3%
Total N/A
1 827 100%
Notes:
Source: City of Palo Alto, Utilities Department
In the fiscal year ended June 30, 2021, Palo Alto's average cost of power delivered to the Palo Alto electric
system was approximately $0.10 per kWh.
CITY OF PALO ALTO
For the Fiscal Year Ended June 30, 2021
1Capacity availability varies by season and is not necessarily additive at any given time.
Department of Utilities
Power Supply Resources
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Top Ten Largest Water Utility Customers (alphabetical order)
City of Palo Alto
Palo Alto Hills Golf & Country Club
Lucille Packard Children's Hospital
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 866,031 CCF with revenue of $8,293,613.
This amount accounts for approximately 18.2% of total consumption and 16.6% of total
revenue. The largest top ten customer (other than the City of Palo Alto) accounted for 2.1% of
consumption and 2.1% of revenue. The smallest top ten customer accounted for 0.7% of
consumption and 0.6% 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
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).
CITY OF PALO ALTO
Supplemental Disclosure for Water Utilities
For the Fiscal Year Ended June 30, 2021
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Top Ten Largest Gas Utility Customers (alphabetical order)
City of Palo Alto
Genencor International
Lucille Packard Children's Hospital
Palo Alto Unified School District
Space Systems/Loral, LLC
Stanford Health Care
Stanford Hospital & Clinics
Stanford University
Veterans Administration Hospital
VMWare, Inc.
The top ten customers total consumption is 5,993,550 THM with revenue of $7,292,737.
This amount accounts for approximately 23.4% of total consumption and 18.9% of total
revenue. The largest top ten customer (other than the City of Palo Alto) accounted for 8.1% of
consumption and 6.3% of revenue. The smallest top ten customer accounted for 0.9% of
consumption and 0.8% of revenue.
Note:
Source: City of Palo Alto, Utilities Department
This schedule is provided as required by the Continuing Disclosure Agreement for the City's Utility Revenue
Bond and is not required by Governmental Accounting Standards Board (GASB).
CITY OF PALO ALTO
Supplemental Disclosure for Gas Utilities
For the Fiscal Year Ended June 30, 2021
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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Net Local Secured Roll
Land 11,352,993$ 12,255,515$ 13,357,851$ 14,409,837$ 15,718,665$ 17,333,969$ 18,770,642$ 20,386,904$ 22,186,582$ 24,028,178$
Improvements 11,703,597 12,381,306 12,984,735 13,633,986 14,998,502 16,752,295 18,642,970 19,845,666 21,183,768 22,706,856
Personal property 257,436 287,296 307,499 290,590 310,929 306,576 300,352 181,381 194,646 198,396
23,314,026 24,924,117 26,650,085 28,334,413 31,028,096 34,392,840 37,713,964 40,413,951 43,564,996 46,933,430
Less:
Exemptions net of state aid (2,346,728) (2,589,653) (2,610,521) (2,761,495) (3,409,836) (4,244,500) (5,203,968) (5,522,323) (6,233,220) (6,781,123)
Total Net Local Secured Roll 20,967,298 22,334,464 24,039,564 25,572,918 27,618,260 30,148,340 32,509,996 34,891,628 37,331,776 40,152,307
Public utilities 2,573 2,573 2,573 2,573 2,573 2,573 2,573 7,004 7,004 7,004
Unsecured property 1,516,837 1,355,970 1,493,922 1,622,636 1,794,921 1,803,468 1,922,170 1,902,781 1,946,680 2,194,615
Total Assessed Value 22,486,708$ 23,693,007$ 25,536,059$ 27,198,127$ 29,415,754$ 31,954,381$ 34,434,739$ 36,801,413$ 39,285,460$ 42,353,926$
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
$20,000,000
$22,000,000
$24,000,000
$26,000,000
$28,000,000
$30,000,000
$32,000,000
$34,000,000
$36,000,000
$38,000,000
$40,000,000
$42,000,000
$44,000,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
$
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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)(Measure N)District District College Open Space1 (Measure A)2 Rates
2012 1.00 0.0388 0.0047 0.0155 0.0064 0.0742 0.0297 ‐ ‐ 1.17
2013 1.00 0.0388 0.0051 0.0129 0.0069 0.0718 0.0287 ‐ ‐ 1.16
2014 1.00 0.0388 0.0035 0.0177 0.0070 0.0655 0.0290 ‐ ‐ 1.16
2015 1.00 0.0388 0.0091 0.0159 0.0065 0.0657 0.0276 ‐ ‐ 1.16
2016 1.00 0.0388 0.0088 0.0148 0.0057 0.0604 0.0240 0.0008 ‐ 1.15
2017 1.00 0.0388 0.0086 0.0129 0.0086 0.0591 0.0234 0.0006 ‐ 1.15
2018 1.00 0.0388 0.0082 0.0118 0.0062 0.0570 0.0220 0.0009 0.0127 1.16
2019 1.00 0.0388 0.0072 0.0111 0.0042 0.0858 0.0217 0.0018 0.0105 1.18
2020 1.00 0.0388 0.0069 0.0106 0.0041 0.0783 0.0208 0.0016 0.0100 1.17
2021 1.00 0.0388 0.0069 0.0096 0.0037 0.1113 0.0364 0.0015 ‐ 1.21
Notes:1The Midpeninsula Regional Open Space District Bond Issue and Property Tax, Measure AA, passed in 2014.
Rates were first levied for the 2015‐16 fiscal year.
2The Santa Clara County Affordable Housing Bond ‐ Measure A 2016 passed on November 8, 2016.
Rates were first levied for the 2017‐18 fiscal year.
Source: County of Santa Clara, Tax Rates and Information
CITY OF PALO ALTO
Property Tax Rates
All Overlapping Governments
Last Ten Fiscal Years
$1.14
$1.15
$1.16
$1.17
$1.18
$1.19
$1.20
$1.21
$1.22
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Rate per $100 of Assessed Value
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Fiscal Year Total Tax Percentage Collections in Percentage of
Ended June 30 Levy for FY1 Amount of Levy Subsequent Years2 Amount Levy
2012 26,494$ 26,494$ 100% ‐ 26,494$ 100%
2013 28,742 28,742 100% ‐ 28,742 100%
2014 30,587 30,587 100% ‐ 30,587 100%
2015 34,117 34,117 100% ‐ 34,117 100%
2016 36,607 36,607 100% ‐ 36,607 100%
2017 39,381 39,381 100% ‐ 39,381 100%
2018 42,839 42,839 100% ‐ 42,839 100%
2019 47,327 47,327 100% ‐ 47,327 100%
2020 51,089 51,089 100% ‐ 51,089 100%
2021 56,572 56,572 100% ‐ 56,572 100%
Notes:
Source:Annual Financial Statements, Government Funds, Statement of Revenues, Expenditures and
Changes in Fund Balances.
1During fiscal year 1995, the County of Santa Clara began providing the City 100% of its tax levy
under an agreement which allows the County to keep all interest and delinquency charges
collected.
2Effective fiscal year 1994, the City is on the Teeter Plan, under which the County of Santa Clara
pays the full tax levy due.
CITY OF PALO ALTO
Property Tax Levies and Collections
Last Ten Fiscal Years
(Amounts in thousands)
Collected within the
Fiscal Year of the Levy Total Collections to Date
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Taxable
Assessed
Value Rank
Percentage of
Total Taxable
Assessed Value
Taxable
Assessed
Value Rank
Percentage of
Total Taxable
Assessed Value
Leland Stanford Jr. University 6,529,897$ 1 15.4% 3,035,075$ 1 13.5%
Google Inc. 303,697 2 0.7%
ARE‐San Francisco 80 LLC 291,000 3 0.7%
SVF Sherman Palo Alto Corporation 143,575 4 0.3%
ARE‐San Francisco 69 LLC 141,494 5 0.3%
395 Page Mill LLC 123,083 6 0.3%
530 Lytton Owner LLC 119,850 7 0.3%
Hohbach Realty Co. LP 110,392 8 0.3%
SI 45 LLC 84,423 9 0.2%
PA Hotel Holdings LLC 82,600 10 0.2%
Space Systems/Loral, Inc. 226,246 2 1.0%
Arden Realty Limited Partnership 112,472 3 0.5%
Whisman Ventures, LLC 105,066 4 0.5%
ECI 2 Bayshore LLC/ECI Hamilton LLC 73,901 5 0.3%
Ronald & Ann Williams Charitable Foundation 58,804 6 0.3%
Blackhawk Parent LLC 50,196 7 0.2%
300 / 400 Hamilton Associates 41,433 8 0.2%
Thoit Bros., Inc.31,740 9 0.1%
529 Bryant St.31,737 10 0.1%
Total 7,930,011$ 18.7% 3,766,670$ 16.7%
Total City Taxable Assessed Value:
FY 2021 42,353,926$
FY 2012 22,486,708$
Source: California Municipal Statistics, Inc.
Fiscal Year 2021 Fiscal Year 2012
Taxpayer
CITY OF PALO ALTO
Principal Property Taxpayers
Current Year and Nine Years Ago
(Amounts in thousands)
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2020‐2021 No. of
Assessed % of No. of % of Taxable % of
Valuation1 Total Parcels Total Parcels Total
Non‐Residential:
Agricultural/forest 37,697,860$ 0.09 % 49 0.23 % 31 0.15 %
Commercial 2,192,486,496 5.46 459 2.20 457 2.23
Professional/office 6,506,771,625 16.21 560 2.68 540 2.64
Industrial/research & development 2,295,767,267 5.72 230 1.10 229 1.12
Recreational 77,145,645 0.19 16 0.08 14 0.07
Government/social/institutional 44,228,709 0.11 115 0.55 50 0.24
Miscellaneous 11,435,206 0.03 18 0.09 17 0.08
Subtotal Non‐Residential 11,165,532,808 27.81 1,447 6.92 1,338 6.53
Residential:
Single family residence 23,266,022,527 57.94 15,096 72.20 15,024 73.31
Condominium/townhouse 2,863,724,800 7.13 3,151 15.07 3,146 15.35
Mobile Home 114,938 0.00 8 0.04 8 0.04
2‐4 Residential units 534,551,067 1.33 497 2.38 497 2.43
5+ Residential units 1,944,144,849 4.84 345 1.65 329 1.61
Subtotal Residential 28,608,558,181 71.25 19,097 91.33 19,004 92.73
Vacant Parcels 378,215,314 0.94 365 1.75 151 0.74
Total 40,152,306,303$ 100 % 20,909 100 % 20,493 100 %
Notes: This schedule is provided as required by the Continuing Disclosure Agreement for the City's 2010 and 2013A General Obligation 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, 2021
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No. of
Taxable Average
Parcels1 Assessed Valuation
Single Family Residential 15,024 $1,548,590
No. of % of Cumulative % of Cumulative
Taxable Total % of Total Total Total % of Total
Parcels1 Parcels Parcels Valuation Valuation Valuation
774 5.15 % 5.15 % 62,751,790$ 0.27 % 0.27 %
1,627 10.83 15.98 226,741,966 0.97 1.24
736 4.90 20.88 181,708,519 0.78 2.03
636 4.23 25.11 221,115,384 0.95 2.98
552 3.67 28.79 248,397,391 1.07 4.04
565 3.76 32.55 311,648,230 1.34 5.38
604 4.02 36.57 392,667,685 1.69 7.07
534 3.55 40.12 401,042,038 1.72 8.79
445 2.96 43.08 377,885,136 1.62 10.42
517 3.44 46.53 492,018,891 2.11 12.53
517 3.44 49.97 542,105,280 2.33 14.86
484 3.22 53.19 557,127,718 2.39 17.26
432 2.88 56.06 539,458,161 2.32 19.58
361 2.40 58.47 487,217,064 2.09 21.67
392 2.61 61.08 566,176,362 2.43 24.10
369 2.46 63.53 571,850,964 2.46 26.56
353 2.35 65.88 582,441,439 2.50 29.07
325 2.16 68.04 567,977,334 2.44 31.51
297 1.98 70.02 548,853,685 2.36 33.87
283 1.88 71.90 551,751,152 2.37 36.24
4,221 28.10 100.00 14,835,086,338 63.76 100.00
15,024 100.00 % 23,266,022,527$ 100.00 %
Notes:
Source: California Municipal Statistics, Inc.
This schedule is provided as required by the Continuing Disclosure Agreement for the City's 2010 and 2013A
General Obligation Bonds and is not required by Governmental Accounting Standards Board (GASB). Therefore, ten
years of comparison data is not presented.
1Improved single family residential parcels. Excludes condominiums and parcels with multiple family units.
$1,900,000‐1,999,999
$2,000,000 and greater
Total
$1,800,000‐1,899,999
$700,000‐799,999
$800,000‐899,999
$900,000‐999,999
$1,000,000‐1,099,999
$1,100,000‐1,199,999
$1,200,000‐1,299,999
$1,300,000‐1,399,999
$1,400,000‐1,499,999
$1,500,000‐1,599,999
$1,600,000‐1,699,999
$1,700,000‐1,799,999
$600,000‐699,999
$23,266,022,527 $1,096,758
2020‐2021
Assessed Valuation
$0‐99,999
$100,000‐199,999
$200,000‐299,999
$300,000‐399,999
$400,000‐499,999
$500,000‐599,999
Assessed Valuation Assessed Valuation
2020‐2021 Median
CITY OF PALO ALTO
Per Parcel Assessed Valuation of Single Family Residential
As of June 30, 2021
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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
1,685$ 1,560$ 1,430$ 1,285$ 1,135$ 975$ 8,970$ 46,305$ 45,750$ 146,440$
54,540 74,235 73,215 71,795 65,210 63,710 62,140 60,500 58,775 56,995
2011 Lease‐Purchase Agreement 2,764 2,400 2,026 1,643 1,248 842 426 ‐ ‐ ‐
Add: unamortized premium 3,514 4,400 4,242 4,084 3,926 3,768 3,610 8,331 7,980 14,099
62,503 82,595 80,913 78,807 71,519 69,295 75,146 115,136 112,505 217,534
65,879 63,104 60,224 57,224 54,095 50,825 47,400 43,815 40,060 36,130
Energy Tax Credits 1,000 900 800 700 600 500 400 300 200 100
State Water Resources Loan 15,900 15,109 14,309 13,500 12,681 15,034 17,711 29,589 33,808 32,288
580 543 867 803 737 673 608 544 468 392
83,359 79,656 76,200 72,227 68,113 67,032 66,119 74,248 74,536 68,910
Outstanding Debt 145,862$ 162,251$ 157,113$ 151,034$ 139,632$ 136,327$ 141,265$ 189,384$ 187,041$ 286,444$
3.36% 3.36% 3.24% 2.94% 2.42% 2.22% 2.13% 2.64% 2.48% 3.81%
Population 65,544 66,368 66,861 66,029 66,968 66,478 66,649 67,082 67,019 66,573
2.23$ 2.44$ 2.35$ 2.29$ 2.09$ 2.05$ 2.12$ 2.82$ 2.79$ 4.30$
Notes:
Sources:
2020 Official City Data Set (population)
California Department of Transportation Long‐Term Socio‐Economic Forecasts (personal income)
Annual Financial Statements and Note 7 Long‐Term Debt
Debt Per Capita
1See the schedule of Demographic and Economic Statistics for personal income data. Per capita personal income is only available for Santa Clara
County, therefore personal income is the product of the countywide per capita amount and the City's population.
County of Santa Clara (assessed valuation)
Percentage of Personal Income1
Certificates of Participation
General Obligation Bonds
Total Governmental Activities
Business‐type Activities
Utility Revenue Bonds
Add: unamortized premium
(discount), net
Total Business‐type Activities
Total Primary Government
Governmental Activities
CITY OF PALO ALTO
Ratio of Outstanding Debt by Type
Last Ten Fiscal Years
(Amounts in thousands)
Fiscal Year Ended June 30
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
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2020‐2021 Assessed Value 42,353,925,962$
Percentage Amount
Applicable Applicable
Total Debt to City of to City of
Outstanding Palo Alto1 Palo Alto
Santa Clara County 812,685,000$ 7.69% 62,471,096$
Foothill‐DeAnza Community College District 707,932,142 21.92% 155,214,122
Palo Alto Unified School District 241,738,172 90.39% 218,499,882
Fremont Union High School District 617,160,088 0.01% 55,544
Los Gatos‐Saratoga Joint Union High School District 86,585,000 0.01% 11,256
Mountain View‐Los Altos Union High School District 207,011,101 0.85% 1,755,454
Cupertino Union School District 284,223,303 0.02% 48,318
Los Altos School District 164,070,000 1.13% 1,860,554
Mountain View‐Whisman School District 279,115,000 0.61% 1,691,437
Saratoga Union School District 19,249,458 0.03% 5,775
Whisman School District 8,380,054 1.62% 135,505
City of Palo Alto 56,995,000 100% 56,995,000
El Camino Hospital District 116,290,000 0.07% 82,566
Midpeninsula Regional Open Space District 86,400,000 12.58% 10,872,576
City of Palo Alto Special Assessment Bonds 17,915,000 100% 17,915,000
Santa Clara Valley Water District Benefit Assessment District 57,010,000 7.69% 4,382,359
Total Direct and Overlapping Tax and Assessment Debt 531,996,444
914,957,860 7.69% 70,332,811
341,399,194 7.69% 26,243,356
2,670,000 7.69% 205,243
22,085,000 21.92% 4,842,136
1,709,000 0.01% 222
2,489,970 0.85% 21,115
2,750,000 0.03% 825
Los Altos School District Certificates of Participation 1,954,070 1.13% 22,159
City of Palo Alto General Fund Obligations 146,440,000 100% 146,440,000
1,765,000 7.69% 135,676
Midpeninsula Regional Open Space Park District General Fund Obligations 106,000,600 12.58% 13,339,116
$ 261,582,659
1,943,066
$ 259,639,593
$ 791,636,037
Ratio to
Assessed Value
Total Direct Debt 0.51% 217,534,000$ 3
Total Overlapping Debt 1.39% 588,201,037
Total Direct and Overlapping Debt 1.90% 805,735,037$ 2
Notes:
2Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non‐bonded capital lease obligations
Source: California Municipal Statistics, Inc.
3Includes unamortized premium of $14,099,000.
Santa Clara County Pension Obligations
Santa Clara County Board of Education Certificates of Participation
Foothill‐DeAnza Community College District Certificates of Participation
Los Gatos‐Saratoga Joint Union High School District Certificates of Participation
Mountain View‐Los Altos Union High School District Certificates of Participation
Saratoga Union High School District Certificates of Participation
Less: Santa Clara County supported obligations
Total Net Direct and Overlapping General Fund Debt
Santa Clara County Vector Control District Certificates of Participation
Total Gross Direct and Overlapping General Fund Debt
Total Combined Debt
1The percentage of overlapping debt applicable to the City is estimated using taxable assessed property value. Applicable percentages were
estimated by determining the portion of the overlapping district's assessed value that is within the boundaries of the City divided by the
district's total taxable assessed value.
Santa Clara County General Fund Obligations
CITY OF PALO ALTO
Computation of Direct and Overlapping Debt
As of June 30, 2021
Direct and Overlapping Tax and Assessment Debt
Direct and Overlapping General Fund Debt
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Assessed Valuation:
Secured property assessed value,
net of exempt real property 42,353,926$
Bonded Debt Limit (3.75% of Assessed Value) 1 1,588,272
Direct Debt:Certificates of Participation 146,440 General Obligation bonds 56,995
Total Direct Debt3 203,435
Less: Amount of Debt Not Subject to Limit 2 146,440
Total Net Debt Applicable to Limit 56,995
Legal Bonded Debt Margin 1,531,277$
Total Bonded Total Net Debt Legal Total Net Debt Ratio of Net General
Fiscal Assessed Debt Limit Applicable to Bonded Debt Applicable as % of Debt to Bonded Debt
Year Value (AV)(3.75% of AV)Limit Margin Population Bonded Debt Limit Assessed Value Per Capita
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 2019 36,801,413 1,380,053 60,500 1,319,553 67,082 4.38% 0.0016 0.90 2020 39,285,460 1,473,205 58,775 1,414,430 67,019 3.99% 0.0015 0.88
2021 42,353,926 1,588,272 56,995 1,531,277 66,573 3.59% 0.0013 0.86
Notes:
Source: Annual Financial Statements, Assessed Value of Taxable Property and Note 7 Long‐Term Debt
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, 2021
(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.
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Less: Net Revenue
Fiscal Gross Direct Operating Available for
Year Revenue Expenses2 Debt Service Principal Interest3 Total Coverage Ratio
2012 235,160 169,777 65,383 2,945 2,959 5,904 11.07
2013 237,842 173,510 64,332 2,875 3,167 6,042 10.65
2014 239,948 176,718 63,230 2,980 3,073 6,053 10.45
2015 234,025 188,276 45,749 3,100 2,954 6,054 7.56
2016 235,386 186,793 48,593 3,230 2,823 6,053 8.03
2017 264,734 205,102 59,632 3,370 2,678 6,048 9.86
2018 288,610 231,255 57,355 3,525 2,524 6,049 9.48
2019 306,237 227,824 78,413 3,685 2,359 6,044 12.97
2020 313,317 237,223 76,094 3,855 2,419 6,274 12.13
2021 309,363 247,962 61,401 4,030 2,008 6,038 10.17
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
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
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Net Revenue Available for Debt Service Total Debt Service
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Fiscal
Year
2012 2,445 2,937 1,590 1,492 387 722 257 5,049 7,034 21,913
2013 2,478 3,160 1,465 1,656 424 765 259 4,056 13,729 27,992
2014 2,097 3,541 1,555 2,041 392 772 444 4,845 9,890 25,577
2015 2,398 3,894 1,672 1,708 435 699 265 3,674 11,253 25,998
2016 2,250 4,134 1,410 1,694 448 582 257 4,949 12,423 28,147
2017 2,036 4,079 1,513 1,794 542 502 259 3,810 14,325 28,860
2018 2,001 4,224 1,716 1,647 428 614 243 3,184 15,663 29,720
2019 1,934 4,299 1,795 1,994 409 706 810 2,245 22,254 36,446
2020 1 1,260 3,488 1,421 1,391 417 572 1,413 1,597 18,313 29,872
2021 1 1,125 2,410 980 1,283 332 489 700 2,062 18,744 28,125
Source: California State Board of Equalization, compiled by MuniServices LLC
Sales Tax Rates for the Fiscal Year Ended June 30, 2021
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%
Silicon Valley Transportation Solutions Tax (SVTS) 0.50%
Total Sales and Use Tax Rate:9.000%
Notes:1Decrease due to the adverse impact of coronavirus COVID‐19 since March 2020.
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
4%
Restaurants9%Furniture/ Appliance
3%Apparel Stores
5%Food Markets
1%Service Stations2%
Drugs Stores 2%
Other Retail7%
All Other67%
Fiscal Year 2019
Department Stores 0
5%Restaurants 012%
Furniture/ Appliance 05%
Apparel Stores 06%
Food Markets 01%
Service Stations 02%
Drugs Stores 2%
Other Retail 0
6%
All Other 0
61%
Fiscal Year 2019
Department Stores4%
Restaurants 9%
Furniture/ Appliance 3%
Apparel Stores 5%
Food Markets 1%
Service Stations 2%
Drugs Stores 2%
Other Retail 7%All Other
67%
Fiscal Year 2021
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Santa Clara
City of Palo Alto City of Palo Alto Santa Clara City Population County Total Santa Clara
Fiscal City of Palo Alto Unemployment School County as a Percentage of Personal Income County Per Capita
Year Population Rate Enrollment Population County Population (in thousands)Personal Income
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 1,919,736 3.49% 165,300,000 * 86,106 *
2017 66,478 2.4% 12,261 1,933,839 3.44% 178,500,000 * 92,303 *
2018 66,649 2.5% 12,230 1,945,829 3.43% 193,700,000 * 99,546 *
2019 67,082 2.1% 11,938 1,955,946 3.43% 209,000,000 * 106,854 *
2020 67,019 5.7% 11,683 1,961,117 3.42% 220,400,000 * 112,385 *
2021 66,573 3.2% 10,801 1,967,525 3.38% 222,200,000 112,934
Note: Data on personal income and per capita personal income is only available for Santa Clara County.
Source:
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.
CITY OF PALO ALTO
Demographic and Economic Statistics
Last Ten Fiscal Years
Beginning in 2015 City population is sourced from the US Census Bureau American Community Survey (via the City of Palo Alto's Official City Data
Set).
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%City Unemployment Rate
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Number of
Employees Rank
Percentage of Total
City Employment
Number of
Employees Rank
Percentage of Total
City Employment
Stanford Health Care2 5,500 1 4.1% 5,059 2 4.6%
Hewlett‐Packard Company2 5,000 2 3.7% 2,201 5 2.0%
Stanford University2 4,060 3 3.0% 10,680 1 9.7%
Veteran's Affairs Palo Alto Health Care System 3,900 4 2.9% 3,500 4 3.2%
Stanford Children's Health/Lucile Packard Children's H 3,500 5 2.6% 4,750 3 4.3%
VMware Inc. 3,500 6 2.6%
SAP Labs Inc. 3,500 7 2.6%
Varian Medical Systems 3,300 8 2.5%
Tesla Inc. 2,650 9 2.0%
Palo Alto Medical Foundation2 2,200 10 1.6% 2,200 6 2.0%
Space Systems/Loral 1,870 7 1.7%
Wilson Sonsini Goodrich & Rosati 1,650 8 1.5%
Palo Alto Unified School District 1,362 9 1.2%
City of Palo Alto 1,017 10 0.9%
Total 37,110 27.6% 34,289 31.2%
Estimated Total City Day Population:
FY 2021 134,582
FY 2012 110,000
Notes:
Source:
Employer
1Available data sources are limited and may be unreliable. The City does not affirm the validity of this data. 2021 numbers are
rounded. Figures may include employees not located within City limits.2FY21 data was not available. Prior years data was used.
2020 Official City Data Set (total City day population); AtoZ databases; Stanford Comprehensive Plan Economic Impact Report,
Stanford University Land Use Planning, "Stanford Facts 2021."
CITY OF PALO ALTO
Principal Employers
Current Year and Nine Years Ago
FY 20211 FY 2012
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2011 2012 2013 2014
Governmental activities
Community Services
Number of theater performances 175 175 184 108
Total hours of athletic field usage2 42,687 44,226 ‐ ‐
Number of rounds of golf 67,381 65,653 60,153 46,527
Enrollment in recreation classes (includes summer camps) 12,310 11,703 11,598 11,997
Planning and Community Environment
Planning applications completed 238 204 307 310
Building permits issued 3,559 3,320 3,682 3,624
Caltrain average weekday boarding3 4,923 5,730 6,763 7,564
Police
Calls for service 52,159 51,086 54,628 58,559
Total arrests 2,288 2,212 2,274 2,589
Parking citations issued 40,426 41,875 43,877 36,551
Animal Services
Number of service calls 2,804 3,051 2,909 2,398
Number of animals handled 3,323 3,379 2,675 2,480
Fire
Calls for service 7,555 7,796 7,904 7,829
Number of fire incidents 165 186 150 150
Number of fire inspections4 1,807 1,654 2,069 1,741
Library
Total number of cardholders 53,246 60,283 51,007 46,950
Total number of items in collection 314,101 306,160 277,749 361,103
Total checkouts 1,476,648 1,559,932 1,512,975 1,364,872
Public Works
Street resurfacing (lane miles) 29 40 36 36
Number of potholes repaired 2,986 3,047 2,726 3,418
Sq. ft. of sidewalk replaced or permanently repaired 71,174 72,787 82,118 74,051
Number of trees planted 150 143 245 148
Tons of materials recycled or composted 56,586 51,725 47,941 49,594
Business‐type activities
Electric
Number of customer accounts 29,708 29,545 29,299 29,338
Residential MWH consumed 160,318 160,604 156,411 153,190
Gas
Number of customer accounts 23,816 23,915 23,659 23,592
Residential therms consumed 11,476,609 11,522,999 10,834,793 10,253,776
Water
Number of customer accounts 20,248 20,317 20,043 20,037
Residential water consumption (CCF) 2,442,415 2,513,595 2,521,930 2,496,549
Wastewater collection
Number of customer accounts 22,320 22,421 22,152 22,105
Millions of gallons processed 8,652 8,130 7,546 7,186
Notes:
2According to the department, this measure was not accurately tracked during FY13, FY14 and FY20 and thus are not presented.
3Beginning 2015, data source is Official City Data Set. In FY20 the count was not provided due to COVID‐19.
Source:
FUNCTIONS/PROGRAMS
4The method for calculating the number of fire inspections changed in FY17. The department uses a more detailed feature which
categorizes inspections by type and location.
CITY OF PALO ALTO
Operating Indicators by Function/Program
Last Ten Fiscal Years1
City of Palo Alto Performance Report (formerly the Service Efforts and Accomplishments Report); Official City Data Set (Caltrain); 2019
and 2020 data supplied by City of Palo Alto Departments.
1Ten most recent years available.
Fiscal Year Ended June 30
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2015 2016 2017 2018 2019 2020
172 161 171 160 175 191
47,504 65,723 71,431 65,443 67,608 ‐
42,048 42,573 ‐ 6,790 54,619 42,429
12,586 12,974 11,649 10,652 13,553 12,997
335 383 365 376 327 262
3,844 3,492 2,970 3,105 2,918 2,476
8,294 9,622 9,994 9,977 10,400 ‐
59,795 53,870 53,901 55,480 54,479 48,394
3,273 2,988 2,745 2,678 2,388 1,568
41,412 37,624 33,661 37,441 33,496 20,261
2,013 2,421 1,674 1,737 2,550 3,081
2,143 2,184 2,211 2,077 2,125 2,361
8,548 8,882 9,153 8,981 8,843 8,102
135 150 155 189 133 140
1,964 2,806 5,476 9,581 10,984 9,602
51,792 57,307 54,676 56,159 68,034 66,530
429,460 461,292 427,548 472,895 485,157 515,032
1,499,406 1,400,926 1,524,614 1,538,118 1,467,038 1,048,676
31 39 39 31 10 7
2,487 3,435 3,449 2,835 2,929 1,761
120,776 115,293 17,275 38,557 66,662 48,847
305 387 319 411 403 346
50,546 56,438 60,582 57,744 55,900 51,852
29,065 29,304 29,616 29,475 29,616 29,849
145,284 150,112 148,986 149,526 146,036 153,976
23,461 23,467 23,637 23,395 23,664 23,770
8,537,754 9,535,377 10,233,669 10,261,276 9,794,177 10,382,762
20,061 19,994 20,213 20,000 20,012 20,608
2,052,176 1,696,383 1,856,879 2,120,588 2,058,663 2,241,461
21,990 22,016 22,216 21,979 22,216 22,410
6,512 6,387 7,176 6,464 6,958 6,294
Fiscal Year Ended June 30
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2012 2013 2014 2015 2016
FUNCTION/PROGRAM
Public Safety
Fire:
Fire Stations Operated 7 7 7 7 7
Police:
Police Stations 1 1 1 1 1
Police Patrol Vehicles 30 30 30 30 30
Community Services
Acres ‐ Downtown/Urban Parks2 157 157 157 157 ‐
Acres ‐ Open Space2 3,744 3,744 3,744 3,752 ‐
Acres ‐ Parks and Preserves2 ‐ ‐ ‐ ‐ 3,921
Acres ‐ Open Space2 ‐ ‐ ‐ ‐ 4,489
Acres ‐ Municipal Golf Course2 ‐ ‐ ‐ ‐ ‐
Parks and Preserves3 36 36 36 36 36
Golf Course (see above for acreage) 1 1 1 1 1
Tennis Courts 51 51 51 51 51
Athletic Center 4 4 4 4 4
Community Centers 4 4 4 4 4
Theaters 3 3 3 3 3
Cultural Center/Art Center 1 1 1 1 1
Junior Museum and Zoo 1 1 1 1 1
Swimming Pools 1 1 1 1 1
Nature Center 3 3 3 3 3
Libraries
Libraries 5 5 5 5 5
Public Works:
Number of Trees Maintained 31,890 31,923 31,757 31,652 31,699
Electric Utility1
Miles of Overhead Lines 223 222 223 223 222
Miles of Underground Lines 245 246 249 262 268
Water Utility
Miles of Water Mains 234 233 236 236 235
Gas Utility
Miles of Gas Mains 210 210 214 211 209
Waste Water
Miles of Sanitary Sewer Lines 217 217 217 217 216
Note:
Source: City of Palo Alto
1The City of Palo Alto Utilities Department 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.
3Williams Park is excluded from the list as the City does not operate it as a park. Located near downtown and across
from Heritage Park, the land is leased to a non‐profit that operates it as the Museum of American Heritage.
CITY OF PALO ALTO
Capital Asset Statistics by Function/Program
Last Ten Fiscal Years
Fiscal Year Ended June 30
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.
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7 7 7 7 7
1 1 1 1 1
30 30 30 29 29
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‐ ‐ ‐ ‐ ‐
174 174 174 174 174
4,030 4,030 4,030 4,018 4,018
181 181 181 181 181
36 36 36 36 36
1 1 1 1 1
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4 4 4 4 4
4 4 4 4 4
3 3 3 3 3
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1 1 1 1 1
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5 5 5 5 5
31,712 31,849 31,815 31,819 31,716
223 222 220 220 221
264 272 274 279 287
236 236 236 236 236
210 210 210 210 211
216 216 216 216 216
Fiscal Year Ended June 30
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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Governmental Funds
General Fund:
Administration 83 85 83 84 86 87 89 87 86 85
Community Services 74 74 74 76 77 78 79 78 76 75
Development Services5 ‐ ‐ ‐ 38 38 36 36 36 ‐ ‐
Fire 122 119 116 107 107 109 109 98 98 98
Library 41 41 42 44 48 48 48 48 47 47
Office of Emergency Services4 ‐ ‐ 3 3 3 3 3 3 3 3
Planning and Community Environment5 43 48 49 28 31 32 30 30 ‐ ‐
Planning and Development Services5 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 62 62
Office of Transportation6 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 6 6
Police 157 154 155 155 155 155 155 155 149 149
Public Works1 56 57 56 53 54 56 55 51 49 51
Subtotal General Fund 576 578 578 588 599 604 604 586 576 576
All Other Funds:
Capital Projects Fund 24 26 27 27 28 31 34 33 36 36
Special Revenue Fund 2 2 9 10 9 10 9 10 11 11
Total Governmental Funds 602 606 614 625 636 645 647 629 623 623
Enterprise Funds
Public Works2 115 104 99 100 95 99 101 101 101 101
Utilities3 251 254 255 258 256 255 257 257 257 257
Total Enterprise Funds 366 358 354 358 351 354 358 358 358 358
Internal Service Funds
Printing and Mailing 2 2 2 2 2 2 2 2 2 2
Technology 30 31 32 32 34 35 36 36 36 36
Vehicle Replacement 16 17 17 17 17 16 16 16 16 16
Total Internal Service Funds 48 50 51 51 53 53 54 54 54 54
Total 1,016 1,014 1,019 1,034 1,040 1,052 1,059 1,041 1,035 1,035
Notes: 1Fleet and Facilities Management
2Refuse, Storm Drainage, Wastewater Treatment
Numbers adjusted for rounding purposes.
Source: City of Palo Alto ‐ Fiscal Year 2021 Adopted Operating Budget
5ln FY15, staff was moved from Planning and Community Environment (PC&E), Public Works and Fire to create Development Services; In FY20, the Development Services Department was combined with the Planning and Community Environment
Department to form the Planning and Development Services Department.
6ln FY20, the City established the Office of Transportation. Staffing in prior years was included in the Development Services
Department and Planning and Community Environment Department.
4In FY14, emergency services and disaster preparation activities were transferred from the Fire Department and are shown in
newly created Office of Emergency Services.
3Electric, Fiber Optics, Gas, Wastewater Collection, Water 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
0
5
10
15
20
25
30
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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
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Governmental Funds Enterprise Funds Internal Service Funds
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Americans with Disabilities Act Statement
IN COMPLIANCE WITH
AMERICANS WITH DISABILITIES ACT (ADA) OF 1990,
THIS DOCUMENT MAY BE PROVIDED
IN OTHER ACCESSIBLE FORMATS.
For information contact:
ADA Coordinator
City of Palo Alto
250 Hamilton Ave
(650) 329-2550
ADA@cityofpaloalto.org
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CITY OF PALO ALTO
250 HAMILTON AVENUE,
PALO ALTO, CA 94301
P 650.329.2100
W CITYOFPALOALTO.ORG
Spanish explorers named the area
for the tall, twin-trunked redwood
tree they camped beneath in 1769.
Palo Alto incorporated in 1894 and
the State of California granted its
first charter in 1909. The City has
long been known for its innovative
people and its exploration of ideas
that have changed the world. In
Palo Alto, our history has always
been about the future.
PALO ALTO
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City of Palo Alto (ID # 13500)
Finance Committee Staff Report
Meeting Date: 11/30/2021
City of Palo Alto Page 1
Title: FY 2022 Finance Committee Referrals Update
From: City Manager
Lead Department: Administrative Services
Recommendation
This report provides a status update of Council referrals requested, during the City Council
Retreat and annual Budget Process.
Staff recommends the Committee review and accept this report, and potentially provide any
recommendation to the full City Council for additional action.
Background and Discussion
This report provides an update of the outstanding Council referrals to the Finance Committee
as requested during the January 2021 City Council Retreat, during the May 2021 Budget
Process, and throughout the year. The City Council requested information on various items that
are discussed in this report and is provided in coordination with assigned departments. A
summary table of the current referrals and their status follows.
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Referral
Assigned
Department Status
FY 2021 Budget:
Direct Staff to return by
the end of October with
preliminary Q1 financial
results so that the
Council can consider
budget amendments.
Referred in June 2021.
Administrative
Services
Department
Closed
On October 25, 2021, staff presented to
Council with preliminary information of the
City’s financial condition for Q1 of FY 2022
(CMR 13439) that included recommended
adjustments to the FY 2022 budget based on
preliminary estimates, along with a current
status of the organization and administrative
areas impacting the timeline of transition and
delivery of services. In addition, the staff report
also included an amendment to the Utilities
Management and Professionals Association
(UMAPA) salary schedule for the Utility Safety
Officer and amendments to the Table of
Organization to add four positions.
FY2021
Direct the Finance
Committee to have an
additional review of
Public Safety long-term
financial trends,
beginning with the Fire
Department, and
concurrent with the
September review of
pensions. Referred on
February 2, 2021.
Fire
Department/
Administrative
Services
Department
Closed
Staff returned to Finance Committee in
November 2, 2021 (CMR 13499) which
included a review of the summary of services
provided, significant service delivery, and
staffing changes, and the primary revenue and
expense drivers that impact cost recovery,
including ten years of historical actuals and a
five-year projection, and staffing summary. At
the February 2, 2021 meeting, the Finance
Committee approved a staff referral to return
to the Finance Committee to review the long
term trends acknowledging the net costs of
public safety are increasing (CMR 11966).
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City of Palo Alto Page 3
Referral
Assigned
Department Status
CY2019 Fiscal
Sustainability Workplan:
Improvement of code
enforcement, 311
system, and customer
relationship
management activities.
Referred April 2019.
Planning &
Development
Services/ City
Manager’s
Office/
Information
Technology
Department
Closed
The “311” Customer Relationship Management
(CRM) system for Code Enforcement required
integration to prevent duplication of effort and
potential tracking oversights for both the
community and the City. In February 2020
integration began in the Accela ‘test’
environment, with a demonstration on both
systems on 03/03/20. City staff are satisfied
with the specifications and behavior. The
integration will allow community members to
continue to submit real-time issues or ‘service
requests’ via 311 CRM while eliminating the
duplication of records between the two
systems. Improvements included new
workflows and new drop downs with new
selections.
FY 2020
Evaluation of Printing &
Mailing Services levels
and service delivery.
Referred May 2019.
Administrative
Services
Nov 2021 Status: In Progress
The Administrative Services Department is
finalizing a Request for Proposal (RFP),
expected to be posted before the end of the
calendar year.
Refer to the Finance
Committee, a proposal to
consider affordable
housing funding.
Referred February 2020,
revised January 2021.
Planning &
Development
Services
Department/
Administrative
Services
Department
November 2021 Status: In Progress: Referred
to Policy and Services Committee
Staffed returned to Finance Committee on June
15, 2021 to discuss the Affordable Housing
Referral (CMR 12299) and to City Council on
August 16, 2021. The item was referred to the
Policy & Services Committee with the action to
review the housing land trust, Jobs Housing
Linkage Policy, and particularly with the
CalCHA.
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City of Palo Alto Page 4
Referral
Assigned
Department Status
Stanford University
Medical Fund
Referred January 30,
2021
Closed
Staff returned to the Finance Committee in
May 2021 to discuss and accept the Stanford
University Medical Fund report of the current
and planned commitments, in preparation for
the Finance Committee review of the FY 2022
budget (CMR 12233)
Review sworn versus
non-sworn staffing for
cost savings/enhanced
services/increased
revenues.
Referred May 2016.
Police
Department/
Fire
Department
Nov 2021 Status: recommend to Policy &
Services Committee
Staff continue to evaluate delivery of services
through the annual budget process with a lens
towards cost savings. However, considering the
current race and equity work, it is
recommended that this work be reassigned to
the Policy & Services Committee in alignment
with the services reforms being explored
through race and equity workplan. Fire staffing
models have been discussed below in the
summary of the current status of Fire medical
services delivery.
2021 City Council
Retreat:
Resume work on a
potential business tax or
local tax ballot measure.
Referred March 2020
Latest Update: On hold,
this work was placed on
hold in March 2020 as
part of CMR #11161 due
to the COVID-19 public
health emergency.
Administrative
Services
Nov 2021 Status: In Process
A first round of this work began in 2019 and in
March 2020, this work was placed on hold(
CMR 11161) due to the COVID-19 public health
emergency. The City Council directed staff in
the City Council retreat to resume this work. As
of November 2021, the City Council and
Finance Committee has conducted five public
meetings on this topic, and will this iterative
process continue through summer 2022 with
Council.
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City of Palo Alto Page 5
Referral
Assigned
Department Status
FY 2021 Budget:
A report or item on the
JMZ six months after it
opens and what it would
look like to eliminate the
General Fund Subsidy
through a fully cost
recoverable program.
Referred June 2020
Community
Services
Department
Nov 2021 Status: Pending
May 2020, staff presented the preliminary
operating plan to Council (CMR 11222) along
with adjustments to the municipal fee schedule
(memo). Due to COVID-19, re-opening of the
museum was delayed. The opening of the new
reimagined palo alto junior museum opened
on November 12, 2021. The project doubled
the size, offering over 50 species of animals,
interactive exhibits and programs. A report will
follow on what a potential cost recovery
program would entail.
Stakeholder Engagement
This is an informational report to follow up on Council referral items and has been coordinated
internally among departmental parties.
Environmental Review
This is not a project under Section 21065 for purposes of the California Environmental Quality
Act (CEQA).
.
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