HomeMy WebLinkAboutStaff Report 2423City of Palo Alto (ID # 2423)
City Council Staff Report
Report Type: Consent Calendar Meeting Date: 1/30/2012
January 30, 2012 Page 1 of 2
(ID # 2423)
Summary Title: Close Budget and Approve CAFR for FY 2011
Title: Adopt Ordinance to Close FY 2011 Budget and Authorize Re-
Appropriations into FY 2012 Budget; Close Completed Capital Improvement
Projects and Transfer Remaining Balances to Reserves; Approve the City's FY
2011 Comprehensive Annual Financial Report (CAFR)
From:City Manager
Lead Department: Administrative Services
RECOMMENDATION
The Finance Committee and Staff recommend that Council:
·Adopt the attached Ordinance authorizing closing of the Budget for the Fiscal Year
ending June 30, 2011 and authorize re-appropriation of 2011 funds into the 2012
budget;
·Close completed capital improvement projects and transfer remaining Capital
Improvement Project balances to the appropriate reserves.
·Approve the City’s 2010 Comprehensive Annual Financial Report (CAFR), Attachment A
to CMR 2285. An electronic copy is available at:
www.cityofpaloalto.org/depts/asd/financial_reporting.asp, and hard copies are
available at the Administrative Services Office upon request.
BACKGROUND
As customary, the City Council is required to close out its financials each fiscal year. At its
December 14, 2011 meeting, the Finance Committee unanimously approved closing of the 2011
fiscal year. Details are included in Attachment A and the minutes from the meeting are
included in Attachment D.
During the December 14 meeting, Finance Committee asked for an explanation of the decrease
in the actual expenses in the City Council department between FY2010 and FY2011 from $0.5
million to $0.1 million, as shown on page 11 of the CAFR. The decrease in expenses is
attributable to a change in methodology in how the cost for retiree medical is allocated. In
FY2010, retiree medical was allocated on a head count basis and in FY2011 the allocation was
based on the actuarial calculation. The actuarial calculation is a more precise allocation of
costs. In addition, in 2010 the external auditor recommended a year-end allocation to
apportion expenses between governmental and business activities at the government-wide
financial statement level, which resulted in higher allocated expenses.
January 30, 2012 Page 2 of 2
(ID # 2423)
The Committee pointed out several necessary language corrections to the budget amendment
document when they approved the ordinance. These changes have been incorporated into the
attached version (Attachment B).
Staff has attached to this memo the report from October that provided an update on the 2012
budget (Attachment C). Staff provided this memo to the Finance Committee in response to
direction the Committee provided to staff during the FY2012 budget process. In the report staff
provided the Finance Committee with a preliminary view of the FY2011 year-end close figures.
Attachments:
·Attachment A: CMR ID# 2285 FY2011 Year End Close (PDF)
·Attachment B: BAO FY 2011 Year-End (PDF)
·Attachment C: 2012 Budget Update (ID 2104)(PDF)
·Attachment D: Excerpt Minutes from December 14, 2011 Finance Committee meeting
(PDF)
Prepared By:Laura Kuryk, Manager of Accounting
Department Head:Lalo Perez, Director
City Manager Approval: ____________________________________
James Keene, City Manager
City of Palo Alto (ID # 2285)
Finance Committee Staff Report
Report Type:Meeting Date: 12/14/2011
December 14, 2011 Page 1 of 12
(ID # 2285)
Summary Title: Close FY2011 Budget And Approve FY2011 CAFR
Title: Recommendation Regarding Adoption of Ordinance Authorizing Closing of
the Budget for the Fiscal Year Ending June 30, 2011, Including Reappropriation
Requests, Closing Completed Capital Improvement Projects, Authorizing
Transfers to Reserves and Approval of Comprehensive Annual Financial Report
(CAFR)
From:City Manager
Lead Department: Administrative Services
RECOMMENDATION
Staff recommends that the Finance Committee review, provide input, and forward the attached
ordinance (Attachment A) and associated exhibits to the City Council for its approval to:
·Close the Fiscal Year (FY) 2011 Budget;
·Authorize re-appropriation of FY 2011 funds into the FY 2012 Budget (Exhibits 1 & 2);
·Close completed capital improvement projects (Exhibit 3); and
·Transfer remaining balances to the appropriate reserves (Table 1 for General Fund and
Exhibits 5 & 6 for Enterprise Funds).
In addition, staff recommends the Finance Committee review and forward to the City Council
for its approval the City’s FY 2011 Comprehensive Annual Financial Report (CAFR) (Attachment
B).
BACKGROUND
At the conclusion of each fiscal year (July-June) the City must close the financial system for the
year and produce year-end financial reports. The reports along with financial data are reviewed
by Macias Gini & O’Connell (MGO), an audit firm hired by the City Auditor. MGO produces a
written assessment of the City’s year-end fiscal condition and this, together with other financial
information, forms the City’s Comprehensive Annual Financial Report.
The attachments to this report provide the necessary documents for closing the FY 2011 Budget
and reauthorizing FY 2011 funds for the current FY 2012. In addition, they provide detailed
information on the City’s financial activities for FY 2011. This CMR highlights key fiscal issues
affecting the City of Palo Alto. The Management's Discussion and Analysis (MD&A) chapter of
the CAFR (Attachment B) also provides a discussion and analysis of the City’s current fiscal
health, and includes financial statements and performance information that is compared to the
prior year, along with capital asset and debt administration data.
December 14, 2011 Page 2 of 12
(ID # 2285)
DISCUSSION
Economy
Like jurisdictions throughout the country, the City was impacted by the “Great Recession,” and
is now showing signs of slow recovery in key revenue sources such as property, sales, and hotel
taxes. The recovery in Silicon Valley is now outpacing that of the state, with most job growth
coming from the technology sector. Palo Alto’s unemployment rate decreased by fiscal year-
end 2011 to 5.5 percent from 6.1 percent compared to the prior year. During the same period,
the unemployment rates for Santa Clara County and the state also declined, but the County’s
rate was 10.3 percent and the state’s was 12.4 percent.
The City believes it will take multiple years to fully recover from the effects of the recession.
Though some revenues are showing short-term recovery, the City’s long-term structural
expenses continue to rise. For example, retiree medical costs are expected to increase nearly
40% between FY 2011 and FY 2012; pension expenses continue to rise; and the City is far
behind in funding its infrastructure needs.
The City continues to take steps to align expenses and revenues through service and program
cuts, revenue enhancements, and employee compensation concessions. The City Council
adopted a General Fund budget for FY 2012 that eliminated a projected deficit of $3.1 million,
mostly by placing a safety employee compensation placeholder. This is after implementing a
total of $14.3 million in structural changes during the prior two fiscal years. Most of the City’s
employees have accepted a number of cost-sharing concessions, and the City is in continued
negotiations with the remaining employee groups to seek comparable concessions. A detailed
discussion of the economy and FY 2011 revenues also is included in the CAFR MD&A pages 3-4.
In addition, staff will present the 10 year Long Range Financial Forecast to the Finance
Committee in early 2012.
Results by Fund
General Fund
The FY 2011 figures in the General Fund represent an improvement over recent years,
reflecting the modestly positive economic conditions that transpired in FY 2011. The final FY
2011 result for the General Fund is a net increase of $2.7 million, which represents the
difference between revenues and expenditures, and transfers in and out, for one fiscal year.
This difference increases the Budget Stabilization Reserve (BSR), a component of the fund
balance. FY 2011 revenues were $7.4 million more than prior year primarily from increased
sales tax revenue and charges for services. While year-end results are encouraging, the City still
faces substantial financial challenges, such as costs for retiree medical, employee pensions, and
infrastructure.
Effective for FY 2011, the City was required to implement Governmental Accounting Standards
Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type
Definition for its governmental funds. The objective of this Statement is to enhance the
usefulness of fund balance information by providing clearer fund balance classifications that
December 14, 2011 Page 3 of 12
(ID # 2285)
can be more consistently applied. Fund balances are now classified as non-spendable,
restricted,committed, assigned and unassigned based on the relative strength of the
constraints that control how specific amounts can be spent. Previously, fund balance
classifications were either reserved, unreserved designated or unreserved undesignated. The
new fund balance classifications affect only the financial statement presentation and do not
impact any of the reserve calculations. GASB Statement No. 54 is described more fully in Note
1 of the CAFR.
The General Fund reserves are comprised of the BSR, encumbrances, notes and loans,
inventory, prepaid items, unrealized gain on investment, and reappropriations. The $2.7 million
increase results in an increase in the BSR. The BSR balance will also increase or decrease as the
balances in the other reserve components change. The net increase to the General Fund of $2.7
million and net changes in other reserves of $1.3 million is a total increase of $4 million to the
BSR, resulting in an ending BSR balance of $31.4 million, which is 21.4 percent of budgeted
expenditures and operating transfers for FY 2012. This percentage is slightly higher than the
Council approved guidelines of 15 to 20 percent of budgeted expenditures. As described in the
BSR reserve policy approved by Council, any reserve balance above 18.5 percent may be
transferred to the infrastructure budget within the Capital Fund at the discretion of the City
Manager. Staff’s recommendation contained in this report is to keep the balance in the BSR
above 18.5 percent to offer flexibility for possible needs in FY 2012, in case the remaining safety
labor groups do not provide compensation concessions.
December 14, 2011 Page 4 of 12
(ID # 2285)
At fiscal yearend, the fund balance for the General Fund totaled $44.2 million. This is
comprised of reserves for:
Table 1
Balance Net From Balance
@ 06/30/10 Operations @ 06/30/11
CAFR TO Budget Reconciliation:
CAFR Fund Balance 41,457 2,722 44,179
Less: Encumbrances (3,778)373 (3,405)
Reappropriations (185)(298)(483)
Adjustment for Stores Operations (117)73 (44)
Budgetary Fund Balance 37,377 2,870 40,247
Allocate To Reserves:
Budget Stabilization Reserve 27,396 3,980 31,376
Notes Receivable Reserve 1,430 (145)1,285
Stores Inventory Reserve 3,661 (74)3,587
Prepaid Reserve 1,490 (277)1,213
Unrealized Investment Gain/Loss Reserve 3,517 (687)2,830
Adjustment for Stores Operations (117)73 (44)
Budgetary Fund Balance 37,377 2,870 40,247
Adjustment for Stores Inventory Encumbrance 0
Adjustment for Stores Operations (44)
Total Adjustments (44)
GENERAL FUND RESERVE SUMMARY ($000s)
FISCAL YEAR 2010
December 14, 2011 Page 5 of 12
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The following graph provides a snapshot of the General Fund BSR balance and percentage of
budgeted expenditures for the last ten years:
Graph 1
General Fund BSR & Percent of Budgeted
Expenditures FY 2002-2011
($ in millions)
$31.4
21.4%$27.4
19.7%
$24.7
17.4%
$26.1
18.0%
$27.5
19.8%$22.7
18.1%
$21.1
17.5%
$21.5
18.5%
$21.4
18.5%
$22.7
18.5%
$0
$5
$10
$15
$20
$25
$30
$35
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Fiscal Year
December 14, 2011 Page 6 of 12
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The following graph provides a five-year comparison of major General Fund tax revenues.
Graph 2
Major General Fund Tax Revenues Fiscal Years 2007-2011
($ in thousands)
21,466
22,194
9,356
6,709
5,837
23,084
22,623
10,285
7,976
5,382
25,432
20,089
11,030
7,111
3,092
25,981
17,991
11,295
6,858
3,707
25,688
20,746
10,851
8,082
5,167
1,000
6,000
11,000
16,000
21,000
26,000
31,000
FY2007 21,466 22,194 9,356 6,709 5,837
FY2008 23,084 22,623 10,285 7,976 5,382
FY2009 25,432 20,089 11,030 7,111 3,092
FY2010 25,981 17,991 11,295 6,858 3,707
FY2011 25,688 20,746 10,851 8,082 5,167
Totals 121,651 103,643 52,817 36,736 23,185
Property Tax Sales Tax User Utility Tax Transient Occupancy Tax Documentary Transfer Tax
December 14, 2011 Page 7 of 12
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The following graph provides a five-year comparison of General Fund department expenditures.
Graph 3
General Fund Department Expenditures Fiscal Years 2007-2011
($in thousands)
17,116 20,879
21,868
6,158 9,744
26,077
12,863
19,098 21,866 24,279
7,033 10,145
29,784
13,24317,717 21,677 23,765
6,502 10,483
28,464
13,489
19,219
20,846
28,180
6,623 10,058
29,090
13,40516,906 20,518
29,012
6,722 10,416
31,286
13,842
5,000
10,000
15,000
20,000
25,000
30,000
35,000
FY2007 17,116 20,879 21,868 6,158 9,744 26,077 12,863
FY2008 19,098 21,866 24,279 7,033 10,145 29,784 13,243
FY2009 17,717 21,677 23,765 6,502 10,483 28,464 13,489
FY2010 19,219 20,846 28,180 6,623 10,058 29,090 13,405
FY2011 16,906 20,518 29,012 6,722 10,416 31,286 13,842
Totals 90,056 105,786 127,104 33,038 50,846 144,701 66,842
Administrative
Depts CSD Fire Library Planning &
Community Env.Police PWD
FY 2009 postponed a budgeted $4.8 million transfer to the Technology Fund. This one-time deferral was the General
Fund share of technology cost allocations and it will be addressed in a four year funding plan for all departments except
Fire. FY 2010 Fire Department expenditures include $1.2 million cost allocations to the Technology Fund for FY 2009.
Details of the General Fund are discussed in the MD&A pp. 15-16.
The FY 2011 year-end Budget Amendment Ordinance (BAO) includes transfers of
unencumbered appropriation balances between General Fund Departments. These
reallocations include: (1) distribution of the $1.5 million in attrition savings that was included in
the adopted budget, and (2) transfer of remaining unencumbered appropriations to various
departments that fell short after attrition savings were distributed. Table 2 depicts a before and
after view of these General Fund adjustments. Details of these reallocations can be found in the
Year-End Budget Amendment Ordinance.
December 14, 2011 Page 8 of 12
(ID # 2285)
Table 2
General Fund Reallocation of Unencumbered Appropriations
(in thousands)
Budget
Remaining
Before Adj Change After Adj Actual Budget
City Attorney 2,996$ (184)$ 2,812$ 2,808$ 4$
City Auditor 1,060 21 1,081 1,081 -
City Clerk 1,367 (97) 1,270 1,257 13
City Council 217 (24) 193 192 1
City Manager 2,442 13 2,455 2,456 (1)
Administrative Services 6,778 (322) 6,456 6,446 10
Community Services 20,718 (188) 20,530 20,518 12
Fire 28,503 511 29,014 29,012 2
Human Resources 2,898 (221) 2,677 2,666 11
Library 6,906 (173) 6,733 6,722 11
Planning 10,795 (368) 10,427 10,416 11
Police 31,273 15 31,288 31,286 2
Public Works 14,329 (483) 13,846 13,842 4
Non-Departmental 5,399 1,500 6,899 7,958 (1,059)
Transfers out 11,224 - 11,224 11,000 224
Total 146,905$ -$ 146,905$ 147,660$ (755)$
Capital Projects Fund
For FY 2011, the Capital Projects Fund reported $36.3 million in expenditures and other uses, an
increase of $10.4 million from prior year. This level of expenditures is consistent with the City’s
effort to rehabilitate and maintain its existing infrastructure. The Capital Projects Fund balance
totaled $62.7 million, a decrease of $21.1 million. This decrease is due to expenditures for
major projects such as construction of the Mitchell Park Library and Community Center,
improvements to the Main Library, and infrastructure improvements to the Civic Center.
As noted previously, fund balances are now classified as non-spendable, restricted, committed,
assigned and unassigned. As of June 30, 2011,the assigned fund balance was comprised of the
Infrastructure Reserve (IR) of $3.2 million, a decrease of $5.4 million from prior year, and the
Capital Projects Reserve (formerly Reappropriation Reserve) of $16.2 million, an increase of $1
million from prior year. The Committed fund balance for capital projects (formerly
Encumbrance Reserve) is $6.7 million, compared to $5.9 million in the prior year. The Library
Bond Project has a balance of $36 million that represents the unused portion of bond proceeds.
The prior year balance was $53.5 million. Bond proceeds are maintained by a fiscal agent and
the Library Oversight Committee makes quarterly presentations to the City Council.
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Overall, the following summarizes changes to the City’s General and Capital Fund reserves:
·The General Fund BSR is 21.4 percent of budgeted expenditures and operating transfers
for FY 2012. This percentage is slightly above the Council approved guidelines of 15 to
20 percent and shows a closing balance of $31.4 million, an increase of $4 million from
the prior year.
·Budget transactions included in the attached ordinance decreased General Fund
reserves by $0.9 million.
·The Infrastructure Reserve has a final balance of $3.2 million at the end of FY 2011. To
address the infrastructure backlog, the City Council created the Infrastructure Blue
Ribbon Commission (IBRC) and tasked it with identifying and prioritizing the City’s
infrastructure needs. Steps to address the infrastructure backlog are pending the
outcome of the IBRC’s report in early 2012.
Enterprise Funds:
Exhibit F provides the balance changes for all reserve categories for the Enterprise Funds. Major
changes include a $6.4 million decrease in the Water Fund, $12 million increase in the Electric
Fund, and $15.3 million increase in the Wastewater Treatment Fund. Exhibit F provides the
balance changes for all reserve categories for the Enterprise Funds.
Water Fund
The Water Fund ended the year with a net income of $3.5 million, a decrease of $3.5 million
from the prior year. At fiscal year-end, unrestricted net assets for the Water Fund totaled $25.5
million, which includes $10.6 million for RSR. The Water Fund also has restricted cash and
investments of $30 million for the Emergency Water Supply project, funded by a bond issuance.
Electric Fund
For FY 2011 the Electric Fund had a net income of $13.1 million compared to a net income of
$9.4 million in the prior year. The increase is due mainly to lower utility purchase costs. The RSR
balance is $66.3 million, an increase of $12 million from the prior year.
Gas Fund
The Gas Fund ended the year with a net income of $6.2 million, a decrease of $1.7 million from
prior year. The decrease is primarily due to a $.5 million decline in return on investments and a
$.9 million reduction in transfers in. The RSR has an ending balance of $16.2 million, a decrease
of $2.4 million from the prior year.
Fiber Optics Fund
The Fiber Optics Fund had a net income of $2.1 million, which is the same as the prior year. The
ending RSR is $10.1 million, an increase of $1.9 million from prior year.
December 14, 2011 Page 10 of 12
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Wastewater Collection Fund
The Wastewater Collection Fund had a net income of $3.4 million compared to a net income of
$4.7 million in the prior year. The RSR ended the year with a balance of $5.9 million, compared
to $6.8 million for the prior year.
Wastewater Treatment Fund
Wastewater Treatment Fund ended the year with a net income of $1.4 million compared to a
net loss of $1.2 million in FY 2010. The net income increases the RSR, resulting in a balance of
$3 million, compared to a negative $12.4 million for the prior year. The improvement is also
due to a $10 million reduction in the appropriation for the Disinfection Facility Improvement
Program in December, 2010 as a result of savings realized from lower bids. At fiscal year-end,
unrestricted net assets for the Wastewater Treatment Fund totaled $36.5 million. This was
comprised of reserves for:
Table 3
Rate Stabilization Reserve $3.0 million
Reappropriations –Disinfection Facility Improvement Program $1.6 million
Reappropriations –other projects $6.2 million
Emergency plant replacement $1.7 million
Commitments $2.7 million
Refuse Fund
For FY 2011 the Refuse Fund had a net income of $.3 million, compared to the prior year net
loss of $2.8 million. The improvement in net income is due to increased revenue of $1.9
million, which resulted primarily from increased disposal fees due to the reinstatement of
commercial drop-offs, and $.8 million in increased transfers in. The ending balance of the RSR
as of June 30, 2011 is a negative $5 million compared to the prior year negative balance of $4.9
million.
The City is required by State and Federal laws and regulations to make annual funding
contributions to finance closure and post-closure care. In FY 2011, for the $5.2 million post-
closure maintenance, the City changed its financial assurance mechanism from an enterprise
fund mechanism to a pledge of revenue agreement with the California Integrated Waste
Management Board. The $5.6 million closure liability remains under the enterprise fund
mechanism. The City is in compliance with these requirements for the year ended June 30,
2011.
Refuse Fund 2012 Update
Staff continues to closely monitor the activities of the Refuse Fund. On September 19, 2011
December 14, 2011 Page 11 of 12
(ID # 2285)
Council approved retaining the rate increases from FY 2010, and implemented an additional
monthly fixed fee for residential customers effective October 1, 2011.
The General Fund has provided a $1.25 million loan to the Refuse Fund in FY 2012 that will be
repaid with interest based on the investment portfolio earnings in FY 2013.
At the beginning of FY 2012 the Rate Stabilization Reserve was in a negative position of $5
million due to the recognition of the landfill post closure costs as required by accounting rules.
Without recognition of the $5.2 million post closure liability the Rate Stabilization Reserve
would be positive $0.15 million. It is anticipated that the Rate Stabilization Reserve will return
to a positive balance in future years under a subsequent rate structure to be determined after a
cost of service study is completed.
Storm Drainage Fund
The Storm Drainage Fund ended the year with a net income of $3 million, an increase of $.5
million from the prior year. The RSR had an ending balance of $1.6 million compared to $.3
million in the prior year.
Retiree Medical Benefits and Trust Assets
For FY 2011, the City’s annual required contribution (ARC) for retiree medical costs is $9.8
million. During FY 2011, the City made contributions of $8.2 million for retiree premiums, which
covered 860 retirees. The City also contributed an additional $2.4 million to the California
Employers’ Retirees Benefit Trust (CERBT) in early FY 2012, which was accrued for in FY 2011.
As of June 30, 2011 the balance of the trust, including the contribution made in early FY 2012,
was $44.8 million. Total contributions from inception of the trust are $40.5 million, investment
income is $4.4 million, and administrative cost is $.1 million. The retiree medical liability per the
June 30, 2011 actuarial valuation was $179.9 million, less the actuarial value of the trust assets,
$40.2 million, leaving a net unfunded liability of $139.7 million.
RESOURCE IMPACT
Adoption of the attached budget-closing ordinance (Attachment A) allows for the re-
appropriation and carryover of funding from the FY 2010 budget so that specific operating
programs and capital projects can be completed in the current fiscal year (Exhibit 2). In
addition, by closing completed capital improvement projects, balances (Exhibit 3) are returned
to the original funding source for future appropriation. Exhibits 4 and 5 summarize financial
results for the General Fund and Enterprise Funds, respectively, by providing an analysis of the
performance of these funds in comparison to the budget as adopted and adjusted by Council.
Exhibit E reflects the changes to and status of major reserves.
POLICY IMPLICATIONS
This recommendation is consistent with existing City policies.
ENVIRONMENTAL REVIEW
December 14, 2011 Page 12 of 12
(ID # 2285)
The action recommended is not a project for the purposes of the California Environmental
Quality Act.
Attachments:
·Attachment A: Budget Amendment Ordinance Authorizing Closing of the Budget for Fiscal
Year June 30, 2011 (DOC)
·Exhibit 1: Detailed Changes to the Adjusted Budget (XLS)
·Exhibit 2: Fiscal Year 2011 Re-Appropriation Requests (DOC)
·Exhibit 3: FY 2011 Year-end BAO-Exhibit C (XLS)
·Exhibit 4 -General Fund Summary (XLS)
·Exhibit 5: ENT by FYE Actuals 1011 (XLS)
·Exhibit 6: ENT by FYE Actuals 1011 (XLS)
·Attachment B: City of Palo Alto 2011 CAFR (PDF)
Prepared By:Laura Kuryk, Manager of Accounting
Department Head:Lalo Perez, Director
City Manager Approval: ____________________________________
James Keene, City Manager
ATTACHMENT A
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ORDINANCE NO. XXXXX
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AUTHORIZING CLOSING OF THE BUDGET FOR THE
FISCAL YEAR ENDING JUNE 30, 2011
The Council of the City of Palo Alto does ordain as
follows:
SECTION 1. The Council of the City of Palo Alto finds
and determines as follows:
A. Pursuant to the provisions of Section 12 of Article
III of the Charter of the City of Palo Alto and as set
forth in Section 2.28.070 of the Palo Alto Municipal Code,
the Council on June 28, 2010 did adopt a budget for fiscal
year 2011; and
B. Fiscal year 2011 has ended and the financial
results, although subject to post-audit adjustment, are now
available and are herewith reported in summarized financial
Exhibits “1”, “2”, “3”, “4”, “5”, and “6”prepared by the
Director, Administrative Services, which are attached
hereto, and by reference made a part hereof.
SECTION 2. Pursuant to Section 2.28.080 of the Palo
Alto Municipal Code, the City Manager during fiscal year
2011 did amend the budgetary accounts of the City of Palo
Alto to reflect:
A. Additional appropriations authorized by ordinance
of the City Council.
B. Amendments to employee compensation plans adopted
by the City Council.
C. Transfers of appropriations from the contingent
account as authorized by the City Manager.
D.Redistribution of appropriations between
divisions, cost centers, and objects within various
departments as authorized by the City Manager.
E. Fiscal Year 2011 appropriations which on July 1,
2010 were encumbered by properly executed, but uncompleted,
purchase orders or contracts.
ATTACHMENT A
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SECTION 3. The Council hereby approves adjustments
to the fiscal year 2011 budget for Fund Balancing Entries
as shown on attached Exhibit 1.
SECTION 4. The Council hereby re-appropriates
fiscal year 2011 appropriations in certain departments and
categories, as shown on the attached Exhibit 2, which were
not encumbered by purchase order or contract, at year end
into the fiscal year 2012 budget.
SECTION 5. The fiscal year 2011 encumbered
balances for the departments and categories shown on
Exhibit 4 shall be carried forward and re-appropriated to
those same departments and categories in the fiscal year
2012 budget.
SECTION 6.The City Manager is authorized and
directed:
A. To close the fiscal year 2011 budget accounts in
all funds and departments and, as required by the Charter
of the City of Palo Alto, to make such interdepartmental
transfers in the 2011 budget as adopted or amended by
ordinance of the Council; and
B. To close various completed Capital Improvement
Projects (CIP)as shown in Exhibit 3 and move all completed
CIP to their respective reserve funds indicated in Exhibit
1; and
C. To establish reserves as shown in Exhibits 5 and 6
for all Funds as necessary to provide for:
(1)A reserve for encumbrances and re-
appropriations in the various funds, the
purpose of which is to carry forward into
the fiscal year 2012 budget and continue,in
effect,the unexpended balance of
appropriations for fiscal year 2011
departmental expenditures as shown in
Exhibits 5 and 6; and
(2)Reserves for Advances to Other Funds,
Stores Inventory, and other reserves in
accordance with ordinance and policy
guidelines as shown in Exhibit 5; and
ATTACHMENT A
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(3)A reserve for general contingencies of such
amount that the City Council has approved;
and
(4)Reserves for utilities plant replacement,
rate stabilization, and other reserves in
accordance with Charter and policy
guidelines as shown Exhibit F.
D. To fund the Budget Stabilization Reserve in
accordance with the General Fund Reserves Policy adopted by
the City Council.
SECTION 7. The Utilities Administration Fund is
hereby increased by the sum of One Hundred Eighty Six
Thousand Nine Hundred Ninety Four Dollars ($186,994), as
described in Exhibit 1. This transaction will change the
balance in the Electric Supply Rate Stabilization Reserve
to zero.
SECTION 8. The Electric Supply Rate Stabilization
Reserve is hereby decreased by the sum of Fifty Nine
Dollars ($59), as described in Exhibit 1. This transaction
will change the balance in the Electric Supply Rate
Stabilization Reserve to $57,091,000.
SECTION 9.The Electric Distribution Rate
Stabilization Reserve is hereby increased by the sum of
Sixty Two Thousand Eight Hundred Sixteen Dollars ($62,816)
as described in Exhibit 1. This transaction will change the
Electric Distribution Rate Stabilization Reserve to
$9,240,000.
SECTION 10.The Fiber Optics Rate Stabilization
Reserve is hereby increased by the sum of Sixty Six
Thousand Three Hundred Eighty Nine Dollars ($66,389) as
described in Exhibit 1. This transaction will change the
Electric Fiber Optics Rate Stabilization Reserve to
$10,130,000.
SECTION 11. The Gas Distribution Rate Stabilization
Reserve is hereby decreased by the sum of Two Thousand
Seven Hundred Forty Nine Dollars ($2,749) as described in
Exhibit 1. This transaction will change the Gas
Distribution Rate Stabilization Reserve to $7,399,000.
ATTACHMENT A
Page of 64
SECTION 12.The Wastewater Collection Rate
Stabilization Reserve is hereby decreased by Two Hundred
Eighty Nine Dollars ($289) as described in Exhibit 1. This
transaction will change the Wastewater Collection Rate
Stabilization Reserve to $5,896,000.
SECTION 13. The Water Rate Stabilization Reserve is
hereby decreased by the sum of Two Thousand Nine Hundred
Three Dollars ($2,903) as described in Exhibit 1. This
transaction will change the Water Rate Stabilization
Reserve to $10,639,000.
SECTION 14. The Refuse Fund Rate Stabilization
Reserve is hereby decreased by the sum of Six Thousand Two
Hundred Ninety Nine Dollars ($6,299) as described in
Exhibit 1. This transaction will change the Refuse Fund
Rate Stabilization Reserve to ($5,049,000).
SECTION 15. The Storm Drain Fund Rate Stabilization
Reserve is hereby decreased by the sum of Five Hundred
Twenty Six Dollars ($526) as described in Exhibit 1. This
transaction will change the Storm Drain Rate Stabilization
Reserve to $1,640,000.
SECTION 16. The Wastewater Treatment Rate
Stabilization Reserve is hereby decreased by the sum of Two
Thousand Eight Hundred Ninety Two Dollars ($2,892) as
described in Exhibit 1. This transaction will change the
Wastewater Treatment Rate Stabilization Reserve to
$3,020,000.
SECTION 17. The Community Development Block Grant
Fund is hereby increased by Ten Thousand Four Hundred Forty
Four Dollars ($10,444) as described in Exhibit 1. This
transaction will change the Community Development Block
Grant Balance to $3,510,000.
SECTION 18. The University Avenue Parking Permit
Fund is hereby increased by One Hundred Eighty Four
Thousand Eight Hundred Eight Six Dollars ($184,886) as
described in Exhibit 1. This transaction will change the
Community Development Block Grant Balance to $652,000.
SECTION 19. The Recovery Act JAG Fund is hereby
decreased by Five Thousand Five Hundred Dollars ($5,500) as
described in Exhibit 1. This transaction will change the
Recovery Act JAG Fund Balance to $11,000.
ATTACHMENT A
Page of 65
SECTION 20. The Capital Projects Fund
Infrastructure Reserve is hereby increased by Ninety Six
Thousand One Hundred Twenty Eight Dollars ($96,128)as
described in Exhibit 1. This transaction will change the
Infrastructure Reserve to $3,199,000.
SECTION 21. The Vehicle Replacement Fund is hereby
decreased by Four Hundred Eighty Nine Dollars ($489) as
described in Exhibit 1. This transaction will change the
Local Law Enforcement Block Grant Fund Balance to
$21,871,000.
SECTION 22. The Technology Fund is hereby increased
by One Hundred Twenty Nine Three Hundred Thirty Six Dollars
($129,336) as described in Exhibit 1. This transaction
will change the Technology Fund Balance to $19,637,000.
SECTION 23.The Retiree Medical Fund is hereby
increased by Fifty One Thousand Nine Hundred Sixty Four
Dollars ($51,964) as described in Exhibit 1. This
transaction will change the Retiree Medical Fund Fund
Balance to $26,285,000.
SECTION 24.Upon completion of the independent audit,
detailed financial statements reflecting the changes made
by the Sections 7 through 23 of this ordinance shall be
published as part of the annual financial report of the
City as required by Article III, Section 16, of the Charter
of the City of Palo Alto and in accordance with generally
accepted accounting principles.
SECTION 25. As specified in Section 2.28.080(a) of
the Palo Alto Municipal Code, a two-thirds vote of the City
Council is required to adopt this ordinance.
SECTION 26. The Council of the City of Palo Alto
hereby finds that the enactment of this ordinance is not a
project under the California Environmental Quality Act and,
therefore, no environmental impact assessment is necessary.
SECTION 24. As provided in Section 2.04.330 of the
Palo Alto Municipal Code, this ordinance shall become
effective upon adoption.
INTRODUCED AND PASSED:
ATTACHMENT A
Page of 66
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:
____________________________________________________
City Clerk Mayor
APPROVED AS TO FORM:APPROVED:
____________________________________________________
City Attorney City Manager
____________________________
Director of Administrative
Services
EXHIBIT 1
CITY OF PALO ALTO
FISCAL YEAR ENDING JUNE 30, 2011 BUDGET SUMMARY
DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE
Page 1 of 5
Fund/Dept Category Description
GENERAL FUND
various Salaries & Benefits Retiree ARC allocation (63,551)
various Salaries & Benefits Retiree medical reimbursement program 924,685
NON Salaries & Benefits Allocate attrition savings to General Fund depts 1,500,000
CMO Salaries & Benefits Allocate attrition savings to General Fund depts (50,700)
CLK Salaries & Benefits Allocate attrition savings to General Fund depts (28,950)
HR Salaries & Benefits Allocate attrition savings to General Fund depts (38,550)
AUD Salaries & Benefits Allocate attrition savings to General Fund depts (28,950)
ATT Salaries & Benefits Allocate attrition savings to General Fund depts (23,250)
ASD Salaries & Benefits Allocate attrition savings to General Fund depts (112,200)
PWD Salaries & Benefits Allocate attrition savings to General Fund depts (149,550)
PCE Salaries & Benefits Allocate attrition savings to General Fund depts (117,300)
POL Salaries & Benefits Allocate attrition savings to General Fund depts (425,100)
FIR Salaries & Benefits Allocate attrition savings to General Fund depts (334,950)
CSD Salaries & Benefits Allocate attrition savings to General Fund depts (132,750)
LIB Salaries & Benefits Allocate attrition savings to General Fund depts (57,750)
various Indirect charges Allocate print charges to General Fund depts 60,160
109 Indirect charges Allocate print charges to General Fund depts 154
191 Indirect charges Allocate print charges to General Fund depts 258
AUD Various Additional appropriations from other departments 50,000
FIR Various Additional appropriations from other departments 844,820
MGR Various Additional appropriations from other departments 64,000
POL Various Additional appropriations from other departments 440,000
ASD Various Allocate savings to other departments (210,349)
ATT Various Allocate savings to other departments (160,685)
CLK Various Allocate savings to other departments (68,055)
COU Various Allocate savings to other departments (24,480)
CSD Various Allocate savings to other departments (55,000)
HRD Various Allocate savings to other departments (182,050)
LIB Various Allocate savings to other departments (114,901)
PCE Various Allocate savings to other departments (250,820)
PWD Various Allocate savings to other departments (332,480)
TOTAL - EXPENSE 921,707
FUND BALANCING ENTRY
Budget Stabilization Reserve (921,707)$
12/8/2011
EXHIBIT 1
CITY OF PALO ALTO
FISCAL YEAR ENDING JUNE 30, 2011 BUDGET SUMMARY
DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE
Page 2 of 5
ENTERPRISE FUNDS
Utilities Administration Fund
UTL Salaries & Benefits Retiree ARC allocation (200,039)
UTL Indirect costs Indirect costs allocation for printing services 13,045
Total Utilities Administration Fund (186,994)
FUND BALANCING ENTRY
Increase to fund balance 186,994
Electric Fund
UTL Salaries & Benefits Retiree ARC allocation (162,440)
UTL Salaries & Benefits Retiree medical reimbursement program 162,440
UTL Indirect costs Indirect costs allocation for printing services 4,748
UTL CIP Completed and closed projects in FY 2011 (67,505)
Total Electric Fund (62,757)
FUND BALANCING ENTRY
Decrease to RSR - Electric Supply (59)
Increase to RSR - Electric Distribution 62,816
Fiber Optics Fund
UTL Salaries & Benefits Retiree ARC allocation (66,797)
UTL Indirect costs Indirect costs allocation for printing services 408
Total Fiber Optics Fund (66,389)
FUND BALANCING ENTRY
Increase to RSR - Fiber Optics Fund 66,389
Gas Fund
UTL Salaries & Benefits Retiree ARC allocation (76,161)
UTL Salaries & Benefits Retiree medical reimbursement program 76,161
UTL Indirect costs Indirect costs allocation for printing services 2,749
Total Gas Fund 2,749
FUND BALANCING ENTRY
Decrease to RSR - Gas Distribution (2,749)
12/8/2011
EXHIBIT 1
CITY OF PALO ALTO
FISCAL YEAR ENDING JUNE 30, 2011 BUDGET SUMMARY
DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE
Page 3 of 5
Wastewater Collection Fund
UTL Salaries & Benefits Retiree ARC allocation (37,711)
UTL Salaries & Benefits Retiree medical reimbursement program 37,711
UTL Indirect costs Indirect costs allocation for printing services 289
Total Wastewater Collection Fund 289
FUND BALANCING ENTRY
Decrease to RSR - Wastewater Collection Fund (289)
Water Fund
UTL Indirect costs Indirect costs allocation for printing services 2,903
Total Water Fund 2,903
FUND BALANCING ENTRY
Decrease to RSR - Water Fund (2,903)
Refuse Fund
PWD Salaries & Benefits Retiree ARC allocation (47,564)
PWD Salaries & Benefits Retiree medical reimbursement program 47,564
PWD Indirect costs Indirect costs allocation for printing services 6,299
Total Refuse Fund 6,299
FUND BALANCING ENTRY
Decrease to RSR - Refuse (6,299)
Storm Drain Fund
PWD Salaries & Benefits Retiree ARC allocation (14,771)
PWD Salaries & Benefits Retiree medical reimbursement program 14,771
PWD Indirect costs Indirect costs allocation for printing services 526
Total Storm Drain Fund 526
FUND BALANCING ENTRY
Decrease to RSR - Storm Drain Fund (526)
Wastewater Treatment Fund
PWD Salaries & Benefits Retiree ARC allocation (100,543)
PWD Salaries & Benefits Retiree medical reimbursement program 100,543
PWD Indirect costs Indirect costs allocation for printing services 2,892
Total Wastewater Treatment Fund 2,892
FUND BALANCING ENTRY
Decrease to RSR - Wastewater Treatment Fund (2,892)
12/8/2011
EXHIBIT 1
CITY OF PALO ALTO
FISCAL YEAR ENDING JUNE 30, 2011 BUDGET SUMMARY
DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE
Page 4 of 5
OTHER FUNDS
Community Development Block Grant
232 Salaries & Benefits Retiree ARC allocation (10,444)
Total Community Development Block Grant (10,444)
FUND BALANCING ENTRY
Increase to Fund Balance 10,444
University Avenue Parking Permit Fund
236 Revenue Administrative citation and permit revenue 201,821
236 Salary & Benefits Hourly salary 11,222
236 Contract Services Facilities repair 5,713
Total University Avenue Parking Permit Fund 184,886
FUND BALANCING ENTRY
Increase to Fund Balance 184,886
Recovery Act - JAG
251 Contract Services Instruction and training expense 5,500
Total Recovery Act - JAG 5,500
FUND BALANCING ENTRY
Decrease to Fund Balance (5,500)
Capital Projects Fund
471 Indirect charges Printing charges to Capital Improvement 66
471 Salaries & Benefits Retiree ARC allocation (96,194)
Total Capital Projects Fund (96,128)
FUND BALANCING ENTRY
Increase to Fund Balance 96,128
Vehicle Replacement Fund
681 Salaries & Benefits Retiree ARC allocation (20,764)
681 Salaries & Benefits Retiree medical reimbursement program 20,764
681 Indirect charges Printing charges to Vehicle Replacement Fund 489
Total Vehicle Replacement Fund 489
FUND BALANCING ENTRY
Decrease to Fund Balance (489)
12/8/2011
EXHIBIT 1
CITY OF PALO ALTO
FISCAL YEAR ENDING JUNE 30, 2011 BUDGET SUMMARY
DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE
Page 5 of 5
Technology Fund
682 Indirect charges Printing charges to Tech Fund 464
682 Salaries & Benefits Retiree ARC allocation (49,143)
682 Salaries & Benefits Retiree medical reimbursement program 49,143
682 CIP Completed and closed projects in FY 2011 (129,800)
Total Technology Fund (129,336)
FUND BALANCING ENTRY
Increase to Fund Balance 129,336
Print and Mail Fund
683 Reimbursements Additional department charges 95,450
683 Salaries & Benefits Retiree ARC allocation (1,516)
683 Salaries & Benefits Retiree medical reimbursement program 1,516
683 Contract Svcs Additional contract expense 95,450
Total Print and Mail Fund -
FUND BALANCING ENTRY
N/A -
Retiree Medical Fund
694 Miscellaneous Department Charges - Retiree ARC 913,099
694 Salaries & Benefits Retiree ARC department charges 913,098
694 Salaries & Benefits Retiree ARC & reimbursement program 51,965
Total Print and Mail Fund (51,964)
FUND BALANCING ENTRY
Increase to Fund Balance 51,964$
12/8/2011
Page 1 of 3
FY 2011 REAPPROPRIATION REQUESTS
SUMMARY OF REQUESTS
Total Requests Total Recommended
GENERAL FUND $483,290 $483,290
ENTERPRISE FUND $1,400,221 $1,400,221
INTERNAL SERVICE FUND $0 $0
TOTAL $1,883,511 $1,883,511
$
AMOUNT INTENDED USE
COMMENTS/REASONS
FOR NOT COMPLETING IN FY 2011 STATUS
City Manager’s Office
$68,890 Rail Project This reappropriation is being requested for costs
related to the Rail Project which is a multi-year
project without an identified source of funding.
Council approved the appropriation of funds from
the FY 2011 Council contingency.$68,890
represents the balance remaining from those
funds.
Recommended $68,890. There is
sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
$94,000 Various projects See attached (Attachment 2).Recommended $94,000. There is
sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
Planning Department
$221,800 Development Center
Blueprint Process
This reappropriation is being requested for
contract services related to the Development
Center Blueprint Process, a multi-year project.In
FY 2011, CMR1442 increased the budget for the
Blueprint Process by $115,000 for contract staff
and $113,233 for salaries and benefits. A
delayed start to the contracting effort resulted in
remaining budget that will be needed
immediately and was not included in the FY2012
budget proposal.
Recommended $221,800. There
is sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
Administrative Services
$68,600 Fee Study This reappropriation is being requested to hire a
consultant to update the cost allocation plan,
municipal fee schedule, and development impact
fees. Development of the RFP was delayed due to
staffing shortages. The RFP is now completed
and will be released early in Fiscal Year 2012.
Recommended $68,600.There is
sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
Fire Department
Exhibit 2
Page 2 of 3
$
AMOUNT INTENDED USE
COMMENTS/REASONS
FOR NOT COMPLETING IN FY 2011 STATUS
$30,000 Fire Chief Recruitment This reappropriation is being requested for the
funding of the recruitment of a Fire Chief.
CMR1442 added a budget of $50,000 for this
effort. The bid process is not yet complete and a
specific contract award timeframe has not yet
been established. Concurrent experience with
other recruitment indicates that $30,000 is more
than adequate for this activity.
Recommended $30,000. There is
sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
Utilities Department
$100,000 Organizational
Assessment
This reappropriation is being requested for the
funding of an organizational assessment to review
the services Utilities delivers and how to best
deliver these services. It will include evaluating
utility industry trends and challenges.This
project was funded mid-year 2011.Utilities is
coordinating the drafting of the scope and does
not have $100,000 in its budget for FY2012 to
cover this expense if not reapprorpriated..
Recommended $100,000. There
is sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
Utilities Department-Electric Fund
$250,000 Electric Efficiency
Financing Program
This reappropriation is being requested to fund
rebates for customers who complete electric
energy efficiency projects. There are many
projects in process, but they did not complete by
June 30, 2011. Recently updated Council goals
are expected to increase the number of efficiency
rebates in FY 2012.These energy efficiency
projects support Council’s environmental
sustainability objectives.
Recommended $250,000. There
is sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
Utilities Department –Gas Fund
$230,000 Energy Efficiency
Projects
This reappropriation is being requested to fund
rebates for customers who complete energy
efficiency projects related to gas. Utilities expects
to work with new vendors to increase the number
of rebates issued. Funds are expected to be
exhausted in FY 2012.
Recommended $230,000.There
is sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
$62,000 Energy Risk
Management
This reappropriation is being requested to
contract for energy risk management services.
These services had been part of the Energy Risk
Management position. Duties will be undertaken
by contractor, alongside the .5 FTE Senior
Financial Analyst in the FY2012 budget, saving
the City an estimated $50,000 to $100,000 per
year.
Recommended $62,000. There is
sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
Page 3 of 3
Public Works Department-Storm Drainage Fund
$758,221 Storm Drain Innovative
Improvements
This reappropriation is being requested for
innovative storm drain improvements.These
funds must be reappropriated because they were
specifically earmarked for innovative storm drain
improvements per the 2005 Storm Drainage
ballot measure approved by Palo Alto property
owners. These funds have been budgeted for a
stormwater rebate program that offers incentives
to residents and businesses to reduce stormwater
runoff, but the rebate program has not generated
sufficient demand to exhaust funds. Staff has
proposed to utilize the unused funds to fund the
Southgate Neighborhood Storm Drain
Improvements CIP project, which may include
permeable pavement, infiltration devices, and/or
an underground cistern that could supplement
irrigation water demands for Peers Park.
Recommended $758,221. There
is sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
PROJECT NUMBER PROJECT TITLE
PROJECT
BALANCE
General Fund
CC-10000 Replacement of Cubberley Gym B Bleachers 0
PE-04014 Animal Shelter Expansion & Renovation 0
PE-07007 Cubberley Turf Renovation 0
PE-08005 Municipal Service Center Resurfacing 0
PE-10006 Bridge Rail, Abutment, and Deck Repair 0
PL-06001 Adobe Creek Bicycle Bridge Replacement 0
Total $0
Internal Service Fund
TE-02016 Enterprise Resourse Planning 102,526
TE-06002 9-1-1 Emergency Phone System Upgrade 27,274
TE-07001*Emergency Notification System 0
TE-07003 Bill and Payment Processing 0
Total $129,800
Electric Fund
EL-11005 Rebuild UG Dist 22 67,505
Total $67,505
Gas Fund
GS-00011*Compress Natural Gas 0
GS-03010*CNG Seq Fuel System 0
Total $0
Wastewater Collection Fund
WC-03003*WC Reh/Aug. Prj 16 0
Total $0
Wastewater Treatment Fund
WQ-04010*Replacement of Existing Reclaimed Water Pipes 0
Total $0
* Projects are closed. No expenditures were incurred in the current fiscal year.
Exhibit 3
CAPITAL IMPROVEMENT PROGRAM PROJECTS
Completed and Closed in FY 2011
City of Palo Alto
1
EXHIBIT 4
GENERAL FUND SUMMARY ($000s)
FY 2011 FY 2011 FY 2011 FY 2011 FY 2011 FY 2011 FY 2011
Adopted Adjusted CAFR Basis Allocated Encum+Budgetary Variance
Budget Budget Rev/Exp Charges Reapprop Rev/Exp Adj Budget
Revenues
Sales Taxes 18,218$ 19,507$ 20,746$ -$ n/a 20,746$ 1,239$
Property Taxes 25,907 25,323 25,688 - n/a 25,688 365
Transient Occupancy Tax 7,021 7,400 8,082 - n/a 8,082 682
Documentary Tranfer Tax 3,613 4,002 5,167 - n/a 5,167 1,165
Utility User Tax 11,429 10,824 10,851 - n/a 10,851 27
Other Taxes and Fines 2,330 2,137 2,129 - n/a 2,129 (8)
Charges for Services 20,008 20,924 22,390 - n/a 22,390 1,466
Permits and Licenses 4,593 5,102 5,058 - n/a 5,058 (44)
Return on Investment 1,646 1,337 565 - n/a 565 (772)
Rental Income 13,716 13,776 14,264 - n/a 14,264 488
From Other Agencies 155 221 295 - n/a 295 74
Charges to Other Funds 10,622 10,681 -11,211 n/a 11,211 530
Other Revenues 1,490 1,584 2,117 - n/a 2,117 533
Total Revenues 120,748 122,818 117,352 11,211 n/a 128,563 5,745
Add: Operating Transfers In 18,684 18,677 17,932 n/a 17,932 (745)
Prior Year Encum & Reapprop -3,963 -3,963 n/a 3,963 -
Total Source of Funds 139,432 145,458 135,284 15,174 n/a 150,458 5,000
Expenditures
City Attorney 2,369 2,812 2,241 98 469 2,808 4
City Auditor 982 1,081 905 41 135 1,081 -
City Clerk 1,093 1,270 1,159 86 12 1,257 13
City Council 142 193 183 - 9 192 1
City Manager 2,178 2,455 2,180 119 157 2,456 (1)
Administrative Services 6,293 6,456 5,652 614 180 6,446 10
Community Services 20,032 20,530 15,885 4,196 437 20,518 12
Fire 27,007 29,014 26,127 2,573 312 29,012 2
Human Resources 2,817 2,677 2,361 211 94 2,666 11
Library 6,609 6,733 5,630 879 213 6,722 11
Planning 9,320 10,427 8,783 772 861 10,416 11
Police 30,579 31,288 27,959 3,052 275 31,286 2
Public Works 13,084 13,846 10,040 3,072 730 13,842 4
Non-Departmental/School Site 5,970 6,899 7,955 - 3 7,958 (1,059)
Total Expenditures 128,475 135,681 117,060 15,713 3,887 136,660 (979)
Add: Operating Transfers Out 10,924 11,224 11,000 - - 11,000 224
Total Use of Funds 139,399 146,905 128,060 15,713 3,887 147,660 (755)
Excess (deficiency) of revenues
over (under) expenditures,
budgetary basis 33$ (1,447)$ 7,224$ (539)$ (3,887)$ 2,798 4,245$
CAFR Reconciliation:Current year encumbrances/reappropriations 3,887
Prior year encumbrances/reappropriations (3,963)
CAFR Excess of revenues over expenditures, GAAP basis 2,722$
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Water sales 25,841 28,801 26,115 (2,686)
Other revenues 3,113 2,572 2,831 259
Bond Proceeds 34,958 - - -
Bonded Reappropriations/Enc - 28,853 28,853 -
Restricted Bond Proceeds - 2,358 2,358 -
Reappropriations / Enc 20,113 10,639 10,639 -
TOTAL REVENUE 84,025 73,223 70,796 (2,427)
EXPENSES
Purchases 9,061 12,845 10,678 2,167
Other Expenses 13,810 13,194 14,398 (1,204)
TOTAL OPERATING EXPENSES 22,871 26,039 25,076 963
Capital Expenses 49,155 48,881 50,917 (2,036)
Principal Payments 362 1,201 1,201 -
TOTAL EXPENSES 72,388 76,121 77,194 (1,073)
TO/(FROM) RESERVES 11,637 (2,898) (6,398) (3,500)
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Electric retail sales 111,140 111,380 109,950 (1,430)
Electric wholesale sales - - - -
Other revenues 19,535 17,351 15,915 (1,436)
Bond Proceeds - - - -
Reappropriations / Enc 10,900 13,393 13,393 -
TOTAL REVENUE 141,575 142,124 139,258 (2,866)
EXPENSES
Purchases 68,713 74,130 61,247 12,883
NCPA & TANC Debt Svc 7,819 8,849 7,243 1,606
Other Expenses 44,870 47,069 42,570 4,499
TOTAL OPERATING EXPENSES 121,402 130,048 111,060 18,988
Capital Expenses 18,550 19,391 21,020 (1,629)
Principal Payments 100 100 100 -
TOTAL EXPENSES 140,052 149,539 132,180 17,359
TO/(FROM) RESERVES 1,523 (7,415) 7,078 14,493
EXHIBIT 5
ELECTRIC FUND
WATER FUND ($000)
EXHIBIT 5
WATER FUND ($000)
EXHIBIT 5
WATER FUND ($000)
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues 3,593 3,312 3,660 348
Reappropriations / Enc 607 921 921 -
TOTAL REVENUE 4,200 4,233 4,581 348
EXPENSES
Operating Expenses 1,510 1,909 1,575 334
TOTAL OPERATING EXPENSES 1,510 1,909 1,575 334
Capital Expenses 856 1,119 1,146 (27)
TOTAL EXPENSES 2,366 3,028 2,721 307
TO/(FROM) RESERVES 1,834 1,205 1,860 655
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Gas retail sales 43,502 43,993 42,855 (1,138)
Gas wholesale sales - - - -
Other revenues 3,248 7,694 7,586 (108)
Reappropriations / Enc 12,063 10,042 10,042 -
TOTAL REVENUE 58,813 61,729 60,483 (1,246)
EXPENSES
Purchases 22,529 24,619 21,464 3,155
Other Expenses 16,191 23,809 22,778 1,031
TOTAL OPERATING EXPENSES 38,720 48,428 44,242 4,186
Capital Expenses 14,284 18,115 18,142 (27)
Principal Payments 443 459 459 -
TOTAL EXPENSES 53,447 67,002 62,843 4,159
TO/(FROM) RESERVES 5,366 (5,273) (2,360) 2,913
FIBER OPTICS FUND
GAS FUND
EXHIBIT 5
WATER FUND ($000)
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues 15,914 15,999 16,129 130
Reappropriations / Enc 7,122 8,789 8,789 -
TOTAL REVENUE 23,036 24,788 24,918 130
EXPENSES
Sewer Treatment Exp.6,519 7,499 7,414 85
Operating Expenses 4,244 5,305 4,898 407
TOTAL OPERATING EXPENSES 10,763 12,804 12,312 492
Capital Expenses 11,441 12,823 13,417 (594)
Principal Payments 61 65 65 -
TOTAL EXPENSES 22,265 25,692 25,794 (102)
TO/(FROM) RESERVES 771 (904) (876) 28
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Operating Revenues 17,550 20,590 20,932 342
Restricted Bond Proceeds - - - -
Loan Proceeds 4,528 3,972 3,972 -
Reappropriations / Enc 26,298 22,043 22,043 -
Bonded Reappro/Encum - - - -
TOTAL REVENUE 48,376 46,605 46,947 342
EXPENSES
Operating Expenses 18,122 19,955 18,385 1,570
TOTAL OPERATING EXPENSES 18,122 19,955 18,385 1,570
Capital Expenses 26,654 12,835 12,610 225
Principal Payments 384 400 400 -
TOTAL EXPENSES 45,160 33,190 31,395 1,795
TO/(FROM) RESERVES 3,216 13,415 15,552 2,137
WASTEWATER TREATMENT FUND
WASTEWATER COLLECTION FUND
EXHIBIT 5
WATER FUND ($000)
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues 29,163 33,696 31,605 (2,091)
Reappropriations / Enc 3,021 2,836 2,836 -
TOTAL REVENUE 32,184 36,532 34,441 (2,091)
EXPENSES
Payments to GreenWaste 12,478 13,205 12,529 676
Other Expenses 19,582 20,488 18,940 1,548
TOTAL OPERATING EXPENSES 32,060 33,693 31,469 2,224
Capital Expenses 2,207 3,669 3,079 590
TOTAL EXPENSES 34,267 37,362 34,548 2,814
TO/(FROM) RESERVES (2,083) (830) (107) 723
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues 5,815 6,058 6,286 228
Reappropriations / Enc 2,305 2,408 2,408 -
TOTAL REVENUE 8,120 8,466 8,694 228
EXPENSES
Operating Expenses 3,292 3,799 3,349 450
TOTAL OPERATING EXPENSES 3,292 3,799 3,349 450
Capital Expenses 3,039 4,278 3,561 717
Principal Payments 405 430 430 -
TOTAL EXPENSES 6,736 8,507 7,340 1,167
TO/(FROM) RESERVES 1,384 (41) 1,354 1,395
STORM DRAINAGE FUND
REFUSE FUND
EXHIBIT 5
WATER FUND ($000)
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues -- - -
Reappropriations / Enc -- - -
TOTAL REVENUE - - - -
EXPENSES
Operating Expenses -- 118 (118)
TOTAL OPERATING EXPENSES - - 118 (118)
Capital Expenses -- - -
Principal Payments -- - -
TOTAL EXPENSES - - 118 (118)
TO/(FROM) RESERVES - - (118) (118)
AIRPORT FUND
FISCAL YEAR 2011 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total
Beginning Reserves $18,037 $119,991 $9,270 $19,548 $7,772 ($10,226)($4,277)$286 $0 $160,401
To (From) Reserves (6,398)7,078 1,860 (2,360)(876)15,552 (107)1,354 (118)15,985
Ending Reserves 11,639 127,069 11,130 17,188 6,896 5,326 (4,384)1,640 (118)176,386
Adj Budgeted Reserves 15,170 119,711 8,256 19,599 7,817 (36)1,902 125 0 172,544
% of Budgeted Reserves 77%106%135%88%88%-14794%-230%1312%102%
FISCAL YEAR 2011 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total
Rate Stabilization
General RSR $10,639 $10,130 $5,896 $3,020 ($5,049)$1,640 ($118)$26,158
Supply RSR 57,091 8,789 $65,880
Distribution RSR 9,240 7,399 $16,639
Total RSR 10,639 66,331 10,130 16,188 5,896 3,020 (5,049) 1,640 (118) $108,677
Emergency Plant Replace 1,000 1,000 1,000 1,000 1,000 1,747 $6,747
Calaveras 55,558 $55,558
Underground Loan 736 $736
Notes and Loans 559 $559
Landfill Corrective Action 665 $665
Shasta rewind Loan $0
Central Valley Project 305 $305
Public Benefit Program 3,139 $3,139
Ending Reserves 11,639 127,069 11,130 17,188 6,896 5,326 (4,384) 1,640 (118) 176,386
FISCAL YEAR 2011 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total
Beginning RSR $17,037 $54,339 $8,270 $18,548 $6,772 ($12,386)($4,935)$286 $0 $87,931
To(from) RSR (6,398) 11,992 1,860 (2,360) (876) 15,406 (114) 1,354 (118) 20,746
Ending RSR 10,639 66,331 10,130 16,188 5,896 3,020 (5,049) 1,640 (118) 108,677
RSR Minimum 4,300 38,371 609 9,379 2,156 2,990 2,614 N/A N/A 60,419
RSR Maximum 8,600 76,741 1,522 18,759 4,311 5,980 5,228 N/A N/A 121,141
RSR % of Maximum 124%86%666%86%137%51%-97%N/A N/A 90%
EXHIBIT 6
RATE STABILIZATION RESERVE
RESERVE SUMMARY ($000)
RESERVE DETAIL
Page 1 of 1 12/2/2011
2010-2011
Comprehensive Annual
Financial Report
Fiscal Year Ended June 30, 2011
CITY OF PALO ALTO, CALIFORNIA
City of Palo Alto
California
Prepared by: Administrative Services Department
Comprehensive
Annual Financial
Report
For the fiscal year ended
June 30, 2011
This page is intentionally left blank.
CITY OF PALO ALTO
For the Year Ended June 30, 2011
Table of Contents
Page
INTRODUCTORY SECTION:
Transmittal Letter .................................................................................................................................... i
City Officials .......................................................................................................................................... v
Organizational Structure ........................................................................................................................ vi
Administrative Services Department Organization .............................................................................. vii
GFOA Certificate of Achievement for Excellence in Financial Reporting ......................................... viii
FINANCIAL SECTION:
Independent Auditor’s Report ................................................................................................................ 1
Management’s Discussion and Analysis
(Required Supplementary Information – Unaudited) ...................................................................... 3
Basic Financial Statements:
Government-wide Financial Statements:
Statement of Net Assets .......................................................................................................... 24
Statement of Activities ............................................................................................................ 25
Governmental Fund Financial Statements:
Balance Sheet .......................................................................................................................... 28
Reconciliation of the Balance Sheet of Governmental Funds to
the Statement of Net Assets - Governmental Activities .................................................... 29
Statement of Revenues, Expenditures and Changes in Fund Balances ................................... 30
Reconciliation of the Statement of Revenues, Expenditures and Changes
in Fund Balances of Governmental Funds to the Statement of Activities – Governmental
Activities ........................................................................................................................... 31
Statement of Revenues, Expenditures and Changes in Fund Balance –
Budget and Actual – General Fund ................................................................................... 32
Proprietary Fund Financial Statements:
Statement of Fund Net Assets ................................................................................................. 34
Statement of Revenues, Expenses and Changes in Fund Net Assets ...................................... 36
Statement of Cash Flows ......................................................................................................... 38
Fiduciary Funds Financial Statement:
Statement of Fiduciary Net Assets .......................................................................................... 42
Index to the Notes to the Basic Financial Statements .......................................................................... 43
Notes to the Basic Financial Statements .............................................................................................. 45
CITY OF PALO ALTO
For the Year Ended June 30, 2011
Table of Contents (Continued)
Page
Supplementary Information:
Non-Major Governmental Funds:
Combining Balance Sheet ..................................................................................................... 101
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances .............................................................................................. 102
Non-Major Special Revenue Funds:
Combining Balance Sheet ..................................................................................................... 104
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances .............................................................................................. 106
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................ 108
Non-Major Debt Service Funds:
Combining Balance Sheet ..................................................................................................... 114
Combining Statement of Revenues, Expenditures and
Changes in Fund Balances .............................................................................................. 115
Combining Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................ 116
Non-Major Permanent Fund:
Schedule of Revenues, Expenditures and
Changes in Fund Balances – Budget and Actual ............................................................ 120
Internal Service Funds:
Combining Statement of Fund Net Assets ............................................................................ 122
Combining Statement of Revenues, Expenses and
Changes in Fund Net Assets ........................................................................................... 123
Combining Statement of Cash Flows .................................................................................... 124
Fiduciary Funds:
Statement of Changes in Assets and Liabilities– All Agency Funds .................................... 126
STATISTICAL SECTION:
Financial Trends:
Net Assets by Component ............................................................................................................ 129
Changes in Net Assets ................................................................................................................. 130
Fund Balances of Governmental Funds ....................................................................................... 132
Changes in Fund Balance of Governmental Funds ...................................................................... 134
CITY OF PALO ALTO
For the Year Ended June 30, 2011
Table of Contents (Continued)
Page
Revenue Capacity:
Electric Daily Loads and Top Customers by Usage .................................................................... 136
Electric Operating Revenue by Source ........................................................................................ 137
Assessed Value of Taxable Property ........................................................................................... 138
Property Tax Rates, All Overlapping Governments .................................................................... 139
Property Tax Levies and Collections ........................................................................................... 140
Principal Property Taxpayers ....................................................................................................... 141
Assessed Valuation and Parcels by Land Use ............................................................................. 142
Per Parcel Assessed Valuation of Single Family Homes ............................................................. 143
Debt Capacity:
Ratios of Outstanding Debt by Type ........................................................................................... 144
Computation of Direct and Overlapping Debt ............................................................................. 145
Computation of Legal Bonded Debt Margin ............................................................................... 146
Revenue Bond Coverage .............................................................................................................. 147
Demographic and Economic Information:
Taxable Transactions by Type of Business .................................................................................. 148
Demographic and Economic Statistics ........................................................................................ 149
Principal Employers ..................................................................................................................... 150
Operating Information:
Full-Time Equivalent City Government Employees by Function ............................................... 151
Operating Indicators by Function/Program .................................................................................. 152
Capital Asset Statistics by Function/Program .............................................................................. 154
Insurance Coverage ...................................................................................................................... 156
SINGLE AUDIT SECTION:
Index to the Single Audit Report ................................................................................................. 157
Independent Auditor’s Report on Internal Control over Financial Reporting and
on Compliance and Other Matters Based On an Audit of Financial Statements
Performed in Accordance with Government Auditing Standards ......................................... 159
Independent Auditor’s Report on Compliance with Requirements That Could Have a
Direct and Material Effect on Each Major Program and on Internal Control
Over Compliance in Accordance with OMB Circular A-133 ............................................... 161
Schedule of Expenditures of Federal Awards .............................................................................. 163
Notes to the Schedule of Expenditures of Federal Awards .......................................................... 164
Section I – Summary of Auditor’s Results .................................................................................. 165
Section II – Financial Statement Findings ................................................................................... 166
Section III – Federal Award Findings and Questioned Costs ...................................................... 170
Section IV – Status of Prior Year Findings and Questioned Costs .............................................. 176
Introduction
i
City of Palo Alto
Office of the City Manager
Transmittal Letter…………………………………
December 6, 2011
THE HONORABLE CITY COUNCIL
Palo Alto, California
Attention: Finance Committee
COMPREHENSIVE ANNUAL FINANCIAL REPORT
YEAR ENDED JUNE 30, 2011
Members of the Council and Citizens of Palo Alto:
Transmittal: The Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30,
2011, is submitted for Council review in accordance with Article III, Section 16 and Article IV, Section
13 of the City of Palo Alto Charter and is published as a matter of public record for interested citizens.
This transmittal letter provides information regarding the economy and the governing structure in Palo
Alto. An overview of the City’s financial activities for the fiscal year is discussed in detail in the
Management’s Discussion and Analysis section of the CAFR. While the independent auditor has
expressed opinions on the basic financial statements contained in this report, 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 CAFR information is
accurate in all material respects.
INDEPENDENT AUDIT
The City of Palo Alto’s financial statements have been audited by Macias Gini & O’Connell LLP, a firm
of licensed certified public accountants. The goal of the audit is to obtain reasonable assurance that the
financial statements are free of material misstatement. Macias Gini & O’Connell LLP concluded, based
on the audit, that there was a reasonable basis for rendering an unqualified opinion for the fiscal year
ended June 30, 2011, and that the financial statements are fairly presented in conformity with generally
accepted accounting principles (GAAP). The independent auditor’s report is presented as the first
component of the financial section of this report.
In addition, Macias Gini & O’Connell LLP also conducts the federally mandated “Single Audit” designed
to meet the special needs of federal grantor agencies. The standards governing the Single Audit require
the independent auditor to report on the fair presentation of the financial statements, government’s
internal controls and compliance with legal requirements. These reports are available in the Single Audit
section of the CAFR.
Introduction
ii
THE PALO ALTO ECONOMY
Local Trends: The City of Palo Alto, population 64,417, is a largely “built-out” community in the heart
of Silicon Valley and the greater San Francisco and San Jose areas. The adjacent Stanford University, one
of the premier institutions of higher education in the nation, has produced much of the talent that founded
many successful high-tech companies in Palo Alto and Silicon Valley. With varied and relatively stable
employers such as Stanford University, the Stanford Medical Center, the Palo Alto Medical Foundation,
the Palo Alto Unified School District, the Stanford Shopping Center and businesses such as Hewlett-
Packard Company, VMware, Facebook, and Space Systems Loral, Palo Alto has enjoyed diverse
employment and revenue bases.
Like jurisdictions throughout the country, the City was impacted by the “Great Recession,” and is now
showing signs of slow recovery. At the end of Fiscal Year (FY) 2011, the City’s unemployment rate had
dropped to 5.5 percent from 6.1 percent the prior year, as compared to Santa Clara County’s
unemployment rate of 10.3 percent, and the state’s rate of 12.4 percent.
Property taxes in FY 2011 were marginally lower than in FY 2010. This was a consequence of
commercial property valuation appeals many of which have not been processed and will impact FY 2012
revenue levels. In addition, the City has seen a falloff in its telephone utility user tax. Changes in
provider billing practices are believed to cause this revenue source decline.
The City believes it will take multiple years for revenue sources to fully recover from the effects of the
“Great Recession.” This perspective is reinforced by recent volatility in the stock market and challenges
to the developed and developing economies.
The City also faces rising benefit costs and a significant backlog in infrastructure investment. As with
past economic downturns, the City is proactively taking steps to align expenses and revenues through
service and program cuts, revenue enhancements, and employee compensation savings. The City Council
adopted a General Fund budget for FY 2012 that eliminated a projected deficit of $3.1 million, after
implementing a total of $14.3 million in structural changes during the prior two fiscal years. The City’s
non-safety employees have accepted a number of cost-sharing concessions, along with a reduced
retirement benefit for new employees. The City is in continued negotiations with public safety employees
to seek comparable concessions.
Employment Trends: Palo Alto is home to a strong mix of small, medium, and large firms.
Employment opportunities within the City are much sought after and include: education at Stanford
University, high technology at the Stanford Research Park, and health care at two medical facilities of
national stature.
Numerous institutions that have more than 1,000 employees include: the University, the Veterans Affairs
Palo Alto Health Care facility, the Palo Alto Medical Foundation, Hewlett Packard, the Palo Alto Unified
School District, and the City of Palo Alto.
Real Estate Market: In its most recent annual report, the Santa Clara County Assessor’s Office noted
that Santa Clara County’s 2011/2012 assessment roll increased by just under 1%, from $296 billion to
$299 billion, and that “compared to the last three years, this very small increase in property assessments
provides encouraging news, and hopefully signifies the beginning of a positive trend out of the depths of
the Great Recession.” There are, however, significant geographic differences within the County. For
example, Los Altos Hills and Los Altos had increases of 3.81 and 3.59 percent, respectively; Palo Alto’s
roll increased by 2.39 percent; but Milpitas experienced a 3.48 percent decline.
Introduction
iii
With its highly regarded school district, well-educated and high-income population, cultural amenities,
and the presence of Stanford University, the City’s real estate values are typically shielded from major
price swings. However, Palo Alto experienced just 0.36 percent growth in 2011 after 3.8 percent growth
in 2010, which in turn was down from its 11.43 percent growth in FY 2009.
Long Range Financial Forecast: The City of Palo Alto produces a 10 year Long Range Financial
Forecast (LRFF) annually. This comprehensive report analyzes, for example, local, state, and federal
economic conditions; short and long-term revenue and expense trends; expense challenges such as
funding retiree medical benefits; revenue opportunities such as instituting an occupancy tax increase; and
infrastructure needs. The forecast is designed to highlight finance issues which the City can address
proactively. Moreover, it is a tool that allows policymakers an opportunity to prioritize funding needs
over time.
Delivered to Council in December or January, this forecast sets the tone and themes for the annual budget
process that begins in January. The forecast is one of the many tools and reports the City uses for
financial planning. These include, for example: quarterly revenue and expense analysis, midyear budget
adjustments, a five-year capital improvement plan, quarterly sales tax reports, and actuarial reports to
ascertain long-term retiree liabilities. The City is conscientious and pro-active in financial planning.
It is worthwhile to note that during the last two economic downturns, the City has balanced its annual
budget via expenditure reductions or revenue enhancements and has not drawn down reserves.
Cash and Investments: The City of Palo Alto invests its excess cash prudently and has adopted an
investment policy as prescribed by State law. The policy states that investments are to be made in the
following priority order: safety, liquidity, and yield. As of June 30, 2011, the City had $373 million (par
value) in its portfolio. Its principal investments were in agency securities, treasuries, and a State of
California investment pool. The City’s investment practice is to buy securities and hold them to maturity
to avoid principal loss. Staff provides a quarterly report of investments for Council review. During FY
2011, staff complied with all requirements of the City’s investment policy.
THE PALO ALTO GOVERNMENT
As a charter city delivering a full range of municipal services and public utilities under the council-
manager form of government, Palo Alto offers an outstanding quality of life for its residents. The
independent Palo Alto Unified School District (PAUSD) has achieved state and national recognition for
the excellence of its programs. The City has dedicated 4,000 acres of open space to parks and wildlife
preserves. Public facilities include five libraries, four community centers, a cultural arts center, an adult
and children’s theater, a junior museum and zoo, and a golf course. The City provides a diversity of
human services for seniors and youths, an extensive continuing education program, concerts, exhibits,
team sports and special events.
City Council: The Council consists of nine members elected at-large for four-year, staggered terms. At
the first meeting of each calendar year, the Council elects a Mayor and Vice-Mayor from its membership,
with the Mayor having the duty of presiding over Council meetings. The Council is the appointing
authority for the positions of City Manager, City Attorney, City Clerk, and City Auditor, and those
positions report directly to the City Council.
Finance Committee: While retaining the authority to approve all actions, the City Council has
established a subcommittee to review financial matters. Staff provides the CAFR, the results of external
and internal audits, periodic budget-versus-actual, and investment and performance measure reports to the
Finance Committee and Council to assist in their evaluation of the City’s financial performance.
Introduction
iv
City Manager: The City Manager directs administrative services, human resources, libraries, public
works, planning and community environment, public safety, community services departments and also
the municipal electric, water, gas, fiber optics, wastewater collection, wastewater treatment, storm
drainage, and refuse utilities (the utilities represent almost two-thirds of the City’s revenues).
SUMMARY
Awards: During the past year, the City received an award for the prior fiscal year CAFR from the
Government Finance Officers Association (GFOA) for “excellence in financial reporting.” The 2011
CAFR has been submitted to the GFOA award program and management believes that, once again, it will
meet the criteria for this distinguished financial reporting award.
Acknowledgment: This CAFR reflects the hard work, talent and commitment of the staff members of
the Administrative Services Department. This document could not have been accomplished without their
efforts and each contributor deserves sincere appreciation. Management wishes to acknowledge the
support of Laura Kuryk, Accounting Manager, and the Senior Accountants, Staff Accountants, Payroll
Analysts and Accounting Specialists for the high level of professionalism and dedication they bring to the
City of Palo Alto. Management would also like to express its appreciation to Macias Gini & O’Connell
LLP, the City’s independent external auditors, who assisted and contributed to the preparation of this
Comprehensive Annual Financial Report.
Special acknowledgment must be given to the City Council Finance Committee for its support and
interest in directing the financial affairs of the City in a responsible, professional and progressive manner.
Respectfully submitted,
LALO PEREZ, JAMES KEENE,
Administrative Services Director City Manager
Introduction
v
City of Palo Alto City Officials ………………
Finance Committee
Greg Scharff, Chair
Greg Schmid
Nancy Shepherd
Yiaway Yeh
Policy and Services Committee
Gail A. Price, Chair
Pat Burt
Karen Holman
Larry Klein
Council-Appointed Officers
City Manager
James Keene
City Attorney
Molly Stump
City Clerk
Donna Grider
City Auditor
Michael Edmonds, Interim
Pat Burt
Karen Holman
Larry Klein
Gail A. Price
Greg Scharff
Greg Schmid
City Council
Sid Espinosa, Mayor
Yiaway Yeh, Vice-Mayor
Nancy Shepherd
Introduction
vi
Assistant City Manager
Pam Antil
City Attorney
Molly Stump
City Manager
James Keene
City Auditor
Michael Edmonds, Interim
City Clerk
Donna Grider
Community Services Department
Greg Betts, Director
Administrative Services Department
Lalo Perez, Director
Fire Department
Dennis Burns, Acting Chief
Human Resources Department
Sandra Blanch, Acting Director
Police Department
Dennis Burns, Chief
Planning & Community Environment Dept
Curtis Williams, Director
Utilities Department
Valerie Fong, Director
Public Works Department
Mike Sartor, Acting Director
Library Department
Vacant
City of Palo Alto Organization ………………
Palo Alto Residents
City Council
Introduction
vii
Administrative Services Organization ………
Administrative Division Treasury Division
Accounting Division Budget Division
Information Technology Division Real Estate Division
Administrative Services Department
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.
Purchasing Division
Introduction
viii
Government Finance Officers Association of the
United States and Canada – Award ……
1
INDEPENDENT AUDITOR’S REPORT
Honorable Mayor and City Council
City of Palo Alto, California
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, 2011, which collectively comprise the City’s basic
financial statements as listed in the table of contents. These financial statements are the responsibility of
the City’s management. 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 of material
misstatement. An audit 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 City’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and the
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our 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, 2011, 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 conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note 1(k) to the basic financial statements, effective July 1, 2010, the City adopted the
provisions of Governmental Accounting Standards Board Statement No. 54, Fund Balance Reporting and
Governmental Fund Type Definitions.
In accordance with Government Auditing Standards, we have also issued our report dated
December 1, 2011 on our consideration of the City’s internal control over financial reporting and on our
tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and
other matters. The purpose of that report is to describe the scope of our testing of internal control over
financial reporting and compliance and the results of that testing, and not to provide an opinion on
internal control over financial reporting or on compliance. That report is an integral part of an audit
performed in accordance with Government Auditing Standards and should be considered in assessing the
results of our audit.
2
Accounting principles generally accepted in the United States of America require that the management’s
discussion and analysis, as listed in the table of contents be presented to supplement the basic financial
statements. Such information, although not a part of the basic financial statements, is required by the
Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting
for placing the basic financial statements in an appropriate operational, economic, or historical context.
We have applied certain limited procedures to the required supplementary information in accordance with
auditing standards generally accepted in the United States of America, which consisted of inquiries of
management about the methods of preparing the information and comparing the information for
consistency with management’s responses to our inquiries, the basic financial statements, and other
knowledge we obtained during our audit of the basic financial statements. We do not express an opinion
or provide any assurance on the information because the limited procedures do not provide us with
sufficient evidence to express an opinion or provide any assurance.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
comprise the City’s financial statements as a whole. The introductory section, combining and individual
nonmajor fund financial statements and schedules, statistical section, and schedule of expenditures of
federal awards (SEFA)are presented for purposes of additional analysis and as required by OMB Circular
A-133 for the schedule of expenditures of federal awards and are not a required part of the financial
statements. The combining and individual nonmajor fund financial statements and schedules and the
schedule of expenditures of federal awards are the responsibility of management and were derived from
and relate directly to the underlying accounting and other records used to prepare the financial statements.
The information has been subjected to the auditing procedures applied by us in the audit of the financial
statements and certain additional procedures, including comparing and reconciling such information
directly to the underlying accounting and other records used to prepare the financial statements or to the
financial statements themselves, and other additional procedures in accordance with auditing standards
generally accepted in the United States of America. In our opinion, the information is fairly stated in all
material respects in relation to the 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.
Walnut Creek, California
December 1, 2011
Management’s Discussion and Analysis
3
Management’s Discussion and Analysis
Management’s Discussion and Analysis (MD&A) provides an overview of the City of Palo Alto’s financial
performance for the fiscal year ended June 30, 2011. 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.
OVERVIEW OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT
The CAFR is presented in six sections:
An introductory section that includes the Transmittal Letter and general information
Management’s Discussion and Analysis
The Basic Financial Statements that include the Government-wide and Fund Financial
Statements, along with the Notes to these statements
Supplemental Information
Statistical Information
Single Audit
Basic Financial Statements
The Basic Financial Statements contain the Government-wide Financial Statements and the Fund Financial
Statements. These statements provide long and short-term views of the City’s financial activities and financial
position.
The Government-wide Financial Statements provide a longer-term view of the City’s activities as a whole.
They include the Statement of Net Assets and the Statement of Activities. The Statement of Net Assets
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. 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 assets for the year. The
amounts in the Statement of Net Assets and the Statement of Activities are separated into Governmental and
Business-type Activities in order to provide a summary of these activities for the City.
The Fund Financial Statements display the City’s operations in more detail than the Government-wide
financial statements. Their focus is primarily on the short-term activities of the City’s General Fund and other
major funds such as the Capital Projects Fund, Water Services Fund, Electric Services Fund, Fiber Optics
Fund, Gas Services Fund, Wastewater Collection Services Fund, Wastewater Treatment Services Fund,
Refuse Services Fund, Storm Drainage Services Fund and Airport Fund.
For certain entities and funds, the City acts solely as a depository agent. For example, the City has several
Assessment Districts for which it produces fiduciary statements detailing the cash balances and activities of
Management’s Discussion and Analysis
4
these districts. These entities are independent, and their balances are excluded from the City’s financial
statements.
Together, all these statements are called the Basic Financial Statements.
Government-wide Financial Statements
Governmental Activities - All of the City’s basic services are considered to be Governmental Activities.
Included in basic services are the City Council, City Manager, City Attorney, City Clerk, City Auditor,
Administrative Services, Human Resources, Public Works, Planning and Community Environment, Police,
Fire, Community Services, and Library. These services are supported by general City revenues such as taxes,
and by specific program revenues such as fees and grants.
The City’s Governmental Activities also include the activities of the Palo Alto Public Improvement
Corporation and the Redevelopment Agency, which are separate legal entities financially accountable to the
City. The Redevelopment Agency was dissolved on September 6, 2011, as discussed in Note 17.
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 supported by charges paid by
customers based on services used, except for Airport which is currently supported by a long-term advance
from the General Fund, as discussed in Note 4.
Government-wide Financial Statements are prepared on the accrual basis of accounting, which means they
measure the flow of all economic resources for the City as a whole.
Fund Financial Statements
The Fund Financial Statements provide detailed information about each of the City’s most significant funds,
called Major Funds. The concept of Major Funds, and the determination of which are Major Funds, was
established by Governmental Accounting Standards Board (GASB) Statement No. 34 and replaced the
concept of combining like funds and presenting them in total. Therefore, each Major Fund is presented
individually, with all Non-major Funds combined in a single column on each fund statement. Subordinate
schedules display these Non-major Funds in more detail. Major Funds present the major activities of the City
for the year. The General Fund is always considered a Major Fund, but other funds may change from year to
year as a result of changes in the pattern of City activities.
Fund Financial Statements include Governmental, Enterprise and Internal Service Funds.
Governmental Fund financial statements are prepared on the modified accrual basis of accounting, which
means they measure only current financial resources and uses. Capital assets and other long-lived assets,
along with long-term liabilities, are presented only in the Government-wide Financial Statements. In Fiscal
Year (FY) 2011, the City had two Major Governmental Funds, the General Fund and the Capital Projects
Fund.
Enterprise and Internal Service Fund financial statements are prepared on the full accrual basis of accounting,
similar to that used by private sector companies. These statements, as in the past, include all their assets and
liabilities, current and long-term.
Since the City’s Internal Service Funds provide goods and services exclusively to the City’s Governmental
and Business-type Activities, their activities are only reported in total at the Fund level. Internal Service
Management’s Discussion and Analysis
5
Funds, such as Technology and General Benefits, cannot be considered Major Funds because their revenues
are derived from other City Funds. Revenues between Funds are eliminated in the Government-wide
Financial Statements, and any related profits or losses in Internal Service Funds are returned to the activities
in which they were created, along with any residual net assets of the Internal Service Funds.
Budget and actual financial comparison information is presented only for the General Fund and all Major
Special Revenue Funds.
Fiduciary Statements
The City is the fiduciary agent for certain assessment districts such as the University Avenue Area Parking
Assessment District, and holds amounts collected from property owners that await transfer to the districts’
bond trustees. The City’s fiduciary activities are reported in the separate Statement of Fiduciary Assets and
Liabilities and the supplemental Agency Funds Statement of Changes in Assets and Liabilities. These
activities are excluded from the City’s other financial statements because the City cannot utilize these assets
to finance its own operations.
FINANCIAL HIGHLIGHTS
Economic Background
Like jurisdictions throughout the country, the City was impacted by the “Great Recession,” and is now
showing signs of slow recovery. At the end of FY 2011, the City’s unemployment rate had dropped to 5.5
percent from 6.1 percent the prior year, as compared to Santa Clara County’s unemployment rate of 10.3
percent.
More recently, the recovery in Silicon Valley has outpaced that of the state. The state’s economic recovery
seems to have stalled, according to the California Department of Finance. While about 25,000 jobs were
gained each month between January and April, about 900 jobs were lost in each month from May to August.
The state unemployment rate rose from 12.0 to 12.1 percent from July to August, before falling to 11.9
percent in September, leaving California with the second highest unemployment rate, behind Nevada.
In contrast, the unemployment rate in Santa Clara County fell in September from 9.9 percent to 9.6 percent,
according to the state’s Employment Development Department. While most of this decrease came from added
jobs in the technology sector, 1,000 construction jobs were also added in the South Bay that month.
The City believes it will take multiple years to fully recover from the effects of the “Great Recession.” While
revenue sources seem to be recovering in the short-term, the City’s long-term structural expenses continue to
rise. The CalPERS system, for example, charges rates dependent on its investment returns, which are tied to
the stock market returns and the nation’s economic progress. The City’s healthcare expenses for employees
and retirees are tied to continually rising healthcare costs – again, independent of other economic upward
trends.
The City continues to take steps to align expenses and revenues through service and program cuts, revenue
enhancements, and employee compensation savings. The City Council adopted a General Fund budget for FY
2012 that eliminated a projected deficit of $3.1 million, after implementing a total of $14.3 million in
structural changes during the prior two fiscal years. The City’s non-safety employees, along with one of its
public safety units, have accepted a number of cost-sharing concessions, along with a reduced retirement
benefit for new employees. The City is in continued negotiations with the remaining public safety employees
to seek comparable concessions.
Management’s Discussion and Analysis
6
Through its 10 year Long Range Financial Forecast, the City closely monitors available resources versus
current and long-term expenses. This tool has enabled the City to be forewarned and forearmed as it confronts
the numerous uncertainties and challenges that jurisdictions across the nation are facing.
Government-wide
The City’s total net assets increased to $1,186 million, a $44.1 million increase. Governmental
activities had an increase of $9.9 million and are discussed on page 8. Business-type activities
had an increase of $34.2 million and are discussed on page 13.
The City’s total invested in capital assets, net of related debt, increased to $781.2 million, a
$12.4 million increase. Governmental activities had a net decrease of $4.7 million. Business-
type activities had an increase of $17.1 million primarily in the Water Fund and the Electric
Fund.
The City’s total restricted net assets decreased to $16.4 million, a $22.2 million decrease. This
reflects a $14.9 million decrease for governmental special revenue programs, a decrease of $3.7
million for governmental capital projects and a decrease of $3.6 million for the City’s debt
service.
The City’s total unrestricted net assets increased to $388.5 million, a $53.9 million increase.
Governmental activities had an increase of $32.5 million and Business-type activities had an
increase of $21.4 million.
Government-wide revenues totaled $409 million, an increase of $13.5 million from the prior
year. This total consists of $310.4 million in program revenues and $98.6 million in general
revenues. Program revenues increased by $11.2 million, and general revenues increased by $2.3
million.
Total Government-wide expenses were $364.9 million, a $6 million increase.
Government-wide total assets increased to $1,412 million, a $44.5 million increase.
Government-wide capital assets increased by $32.8 million to $859.1 million.
Government-wide cash and other assets increased $11.7 million to $552.9 million.
Government-wide total liabilities were $225.9 million, an increase of $.4 million.
Government-wide long-term debt decreased $.1 million to $151.9 million.
Government-wide other liabilities were $74 million, an increase of $.5 million.
Fund Level – Governmental Funds
Governmental Fund balances decreased to $141.1 million, a $12.6 million decrease.
Governmental Fund revenues increased to $132.4 million, a $12.4 million increase.
Governmental Fund expenditures were $160.9 million, a $17.5 million increase.
General Fund revenues came in at $117.3 million, an increase of $7.4 million over the prior
year.
General Fund expenditures were $121.5 million, an increase of $2.6 million.
The General Fund balance of $44.2 million at June 30, 2011, was an increase of $2.7 million
from the prior year (refer to Performance of Governmental Funds – General Fund, page 16).
Management’s Discussion and Analysis
7
Fund Level – Enterprise Funds
Enterprise Fund net assets increased to $668.1 million, a $33 million increase.
Enterprise Fund operating revenues increased to $265.8 million, a $3.8 million increase from
prior year revenues.
Enterprise Fund operating expenses decreased to $214 million, a $4.5 million decrease.
Management’s Discussion and Analysis
8
FINANCIAL PERFORMANCE
Government-wide Financial Statements – Governmental Activities
The following analysis focuses on the net assets and changes in net assets of the City’s Governmental
Activities, presented in the Government-wide Statement of Net Assets and Statement of Activities.
2011 2010
Increase/
(Decrease)
Cash and investments 190.6$ 192.5$ (1.9)$
Other assets 47.5 47.1 0.4
Capital assets 393.4 376.0 17.4
Total Assets 631.5 615.6 15.9
Long-term debt outstanding 64.8 65.9 (1.1)
Other liabilities 50.8 43.7 7.1
Total Liabilities 115.6 109.6 6.0
Net Assets:
Invested in capital assets, net of debt 364.8 369.5 (4.7)
Restricted 16.4 34.3 (17.9)
Unrestricted 134.7 102.2 32.5
Total Net Assets 515.9$ 506.0$ 9.9$
GOVERNMENTAL ACTIVITIES
Net Assets at June 30
(in Millions)
The City’s Governmental activities total net assets increased $9.9 million to $515.9 million in FY 2011. This
change results from the following:
Capital assets increased $17.4 million due to additions to the City’s roadway network and sidewalks,
Parks and Open Space facilities’ improvements, the College Terrace Library seismic upgrade, and
City-purchased easements.
Other liabilities increased $7.1 million, primarily due to costs for the Mitchell Park Library and
Community Center project.
Net assets invested in capital assets, net of related debt, decreased $4.7 million to $364.8 million.
Restricted net assets decreased $17.9 million to $16.4 million. Unrestricted net assets increased $32.5
million to $134.7 million. Unrestricted net assets represent current net assets available to finance
subsequent year operations and other expenditures approved by City Council.
Management’s Discussion and Analysis
9
Governmental Activities – Revenues
2011 2010
Increase/
(Decrease)
Program Revenues:
Charges for services 36.0$ 30.4$ 5.6$
Operating grants and contributions 2.9 4.8 (1.9)
Capital grants and contributions 1.9 1.3 0.6
Total Program Revenues 40.8 36.5 4.3
General Revenues:
Property taxes 29.2 26.0 3.2
Sales taxes 20.7 18.0 2.7
Utility user tax 10.8 11.3 (0.5)
Transient occupancy tax 8.1 6.9 1.2
Other taxes 8.2 4.1 4.1
Investment earnings 3.5 6.5 (3.0)
Rents and miscellaneous 12.4 12.7 (0.3)
Total General Revenues 92.9 85.5 7.4
Total Revenues 133.7$ 122.0$ 11.7$
Revenues by Source
GOVERNMENTAL ACTIVITIES
Revenues for the Year ended June 30
(in Millions)
The table above shows that Governmental activities revenues totaled $133.7 million in FY 2011, an increase
of $11.7 million over prior year revenues of $122 million.
Charges for services increased by $5.6 million from prior year for an ending balance of $36 million. The
increase includes the following:
$2.5 million increase in permit and plan checking fees due to increased building activity;
$1.0 million increase in in-lieu housing fees due to completion of major developments, and
$.9 million increase in charges to Stanford for police, communication and fire services.
Operating contributions and grants decreased by $1.9 million from the prior year primarily due to the
following:
$.4 million less for HUD Children’s Library improvements;
$.5 million less in Proposition 42 traffic congestion relief;
$.4 million less in CDBG funding, and
$.3 million less in reimbursement of state mandated costs.
Management’s Discussion and Analysis
10
Property taxes had an increase of $3.2 million, sales taxes increased by $2.7 million, the utility user tax
decreased by $0.5 million, and transient occupancy taxes increased by $1.2 million. The property tax increase
is a result of first year tax receipts from the assessment for the general obligation library bond debt. The sales
tax increase is due to an uptick in sales activity, primarily in department store, miscellaneous retail and
electronic equipment. Transient occupancy taxes increased as a result of higher levels of business activity
which improved occupancy and room rates. Other taxes increased from $4.1 million to $8.2 million primarily
due to a $1.5 million increase in documentary transfer tax and new gas tax revenues of $.6 million.
Investment earnings decreased by $3 million. This is a result of decreased investment earnings of $.7 million,
and a negative $2.3 million for the year-end adjustment to fair value required by GASB 31.
Program revenues such as charges for services, operating grants and contributions, and capital grants and
contributions are generated from or restricted to each activity. Program revenues include contributions from
the University Avenue Off-Street Parking Assessment District as well as other recurring resources.
Sources of Revenues
2
1
3
4
8
7
6
5
1- Program Revenues - 31%
2- Property Taxes - 22%
3- Sales Taxes - 15%
4- Utility User Tax - 8%
5- Transient Occupancy Tax - 6%
6- Other Taxes - 6%
7- Investment Earnings - 3%
8- Rents and Miscellaneous - 9%
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.
Management’s Discussion and Analysis
11
Governmental Activities – Expenses
The table below presents a comparison of FY 2011 and FY 2010 expenses (does not include encumbrances
and reappropriations) by Governmental Activities and interest on long-term debt. Total Governmental
Activities functional expense was $140.9 million in FY 2011, a decrease of $.4 million.
Activities 2011 2010
Increase/
(Decrease)
City Council 0.1$ 0.5$ (0.4)$
City Manager 1.8 2.4 (0.6)
City Attorney 1.0 2.6 (1.6)
City Clerk 0.8 1.4 (0.6)
City Auditor 0.1 2.6 (2.5)
Administrative Services 9.9 17.9 (8.0)
Human Resources 1.3 3.7 (2.4)
Public Works 19.4 18.7 0.7
Planning and Community Environment 15.0 12.1 2.9
Police 30.5 29.3 1.2
Fire 28.5 26.4 2.1
Community Services 22.9 17.2 5.7
Library 6.9 6.1 0.8
Interest on long-term debt 2.7 0.4 2.3
Total Functional Expense 140.9 141.3 (0.4)
Increase/(Decrease) in Net Assets before
Transfers (7.2) (19.4) 12.2
Transfers in 17.1 14.0 3.1
Change in Net Assets 9.9 (5.4) 15.3
Net Assets, Beginning 506.0 511.4 (5.4)
Net Assets, Ending 515.9$ 506.0$ 9.9$
GOVERNMENTAL ACTIVITIES
Expenses and Change in Net Assets for the Year ended June 30
(in Millions)
Administrative Services expense decreased by $8 million due to the following:
Expense classifications were changed in FY 2011 to effect a more informative presentation. In
the prior year, the net of interdepartmental revenues and expenses was included with
miscellaneous revenue. Effective for FY 2011, interdepartmental revenues and expenses are
spread back to individual departments, reducing Administrative Services expense by $3 million.
Management’s Discussion and Analysis
12
In the prior year, stores inventory cost of sales of $2.2 million was included in Administrative
Services expense. Effective for FY 2011, the cost of sales was netted with stores revenue and
the net was reported as miscellaneous general revenue.
In FY 2011, $.9 million was received from Refuse Services Fund for interest on unpaid landfill
rent.
In FY 2010, $1.9 million was expended for additional retiree medical, compared to $1.0 million
in FY 2011 for additional benefits allocation.
The Functional Expenses Chart below includes only current year expenses. It does not include capital outlays,
which are now added to the City’s capital assets. In FY 2011, the City added $17.4 million in net capital
assets. The composition of FY 2011 additions is shown in detail in the Capital Asset section of Management’s
Discussion and Analysis.
Functional Expense
2 314 514
13 6 7
8
9
10
11
12
1- City Council - less than 1%
2.- City Manager 1%
3- City Attorney - less than 1%
4- City Clerk - less than 1%
5- City Auditor - less than 1%
6- Administrative Services 7%
7- Human Resources 1%
8- Public Works 14%
9- Planning & Community Environment 11%
10-Police 22%
11-Fire 21%
12-Community Services 16%
13-Library 5%
14-Interest on long-term debt 2%
Management’s Discussion and Analysis
13
Government-wide Financial Statements – Business-Type Activities
The following analysis focuses on the net assets and changes in net assets of the City’s Business-type
Activities presented in the Government-wide Statement of Net Assets and Statement of Activities.
2011 2010
Increase/
(Decrease)
Cash and investments 274.0$ 262.6$ 11.4$
Other assets 40.8 39.0 1.8
Capital assets 465.7 450.3 15.4
Total Assets 780.5 751.9 28.6
Long-term debt outstanding 87.1 86.1 1.0
Other liabilities 23.2 29.8 (6.6)
Total Liabilities 110.3 115.9 (5.6)
Net Assets:
Invested in capital assets, net of debt 416.4 399.3 17.1
Restricted 0.0 4.3 (4.3)
Unrestricted 253.8 232.4 21.4
Total Net Assets 670.2$ 636.0$ 34.2$
(in Millions)
BUSINESS-TYPE ACTIVITIES
Net Assets at June 30
The City’s Business-type activities total net assets increased $34.2 million to $670.2 million in FY 2011.
Cash and investments increased $11.4 million primarily due to the decrease in the retail
purchase of utilities for Electric.
Capital assets increased $15.4 million to $465.7 million in FY 2011 as a result of Water and
Electric infrastructure improvements.
Other liabilities decreased $6.6 million primarily as a result of $2.3 million less accrued for
utility construction costs, $1.8 million less accrued for hydro power, and $1.9 million less
accrued for partner’s year-end true-up for Wastewater Treatment.
Net assets invested in capital assets, net of related debt, increased $17.1 million to $416.4
million. The increase was mostly due to $8 million of capital improvements in Water and $7.5
million of capital improvements in Electric.
The amount shown as restricted net assets for debt service in FY 2010 is now correctly reduced
by the amount of debt outstanding that was deposited to debt service reserve accounts when the
debt was issued, thereby reducing the balance to zero at year-end. Unrestricted net assets of
Management’s Discussion and Analysis
14
$253.8 million, an increase of $21.4 million from the prior year, represent liquid assets
available to finance day-to-day operations and other expenditures approved by the City Council.
This amount includes Council-designated reserves such as the rate stabilization reserves of
$108.7 million, the Calaveras reserve for stranded costs of $55.6 million, and the emergency
plant replacement reserve of $6.7 million.
Revenues by Source 2011 2010
Increase/
(Decrease)
Program Revenues:
Water 28.1$ 27.0$ 1.1$
Electric 122.1 121.9 0.2
Fiber Optics 3.3 3.1 0.2
Gas 43.6 44.5 (0.9)
Wastewater Collection 15.6 15.1 0.5
Wastewater Treatment 20.5 16.9 3.6
Refuse 30.6 28.6 2.0
Storm Drainage 5.8 5.6 0.2
Total Program Revenues 269.6 262.7 6.9
General Revenues:
Investment earnings 5.7 10.8 (5.1)
Total General Revenues 5.7 10.8 (5.1)
Total Revenues 275.3$ 273.5$ 1.8$
BUSINESS-TYPE ACTIVITIES
(in Millions)
Revenues for the Year ended June 30
The table above presents the revenues for each of the City’s Business-type Activities or Enterprise Funds. The
City operates the Water, Electric, Fiber Optics, Gas, Wastewater Collection, Wastewater Treatment, Refuse,
Storm Drainage and Airport Funds, which are Major Funds and are presented in the Basic Financial
Statements.
Business-type Activities revenues totaled $275.3 million, an increase of $1.8 million from the prior year.
Revenues were significantly affected by the following events:
Program Revenues for Wastewater Treatment increased $3.6 million from prior year as a result
of $1.6 million in grant revenue for the reclaimed water project and $1.9 million for increased
billings to the partners and to Wastewater Collection.
Investment earnings decreased $5.1 million due to a decrease in interest earnings on
investments. Electric decreased $2.5 million, Water decreased $1.2 million and Gas decreased
$.5 million from prior year.
Management’s Discussion and Analysis
15
Activities 2011 2010
Increase/
(Decrease)
Water 24.3$ 21.0$ 3.3$
Electric 100.1 107.9 (7.8)
Fiber optics 1.6 1.4 0.2
Gas 32.0 32.5 (0.5)
Wastewater collection 12.3 10.7 1.6
Wastewater treatment 19.7 13.5 6.2
Refuse 30.7 28.1 2.6
Storm drainage 3.2 2.5 0.7
Airport 0.1 0.0 0.1
Total Functional Expense 224.0 217.6 6.4
Increase in Net Assets before Transfers 51.3 55.9 (4.6)
Transfers out 17.1 14.0 3.1
Total Transfers 17.1 14.0 3.1
Change in Net Assets 34.2 41.9 (7.7)
Net Assets, Beginning 636.0 594.1 41.9
Net Assets, Ending 670.2$ 636.0$ 34.2$
BUSINESS-TYPE ACTIVITIES
Expenses and Change in Net Assets for the Year ended June 30
(in Millions)
The table above presents a comparison of the FY 2011 and FY 2010 expenses for the City’s Business-type
Activities. Encumbrances and reappropriations are not included.
Business-type Activities expenses and transfers increased $9.5 million for a total of $241.1 million. Changes
to expenses were significantly affected by the following events:
Functional Expense for the Water Fund increased $3.3 million from prior year due to a $1.6
million increase in retail purchase of utilities and a $.9 million increase in operating and
administrative expenses.
Functional Expense for the Electric Fund decreased $7.8 million primarily due to a decrease in
the retail purchase of utilities. Further detail may be found in Note 16 to the financial
statements.
Functional Expense for the Wastewater Treatment Fund increased by $6.2 million due to
allocation of the prior year operating transfers.
Management’s Discussion and Analysis
16
FUND FINANCIAL STATEMENTS
Performance of Governmental Funds
As of June 30, 2011, the City’s Governmental Funds reported combined fund balances of $141.1 million, a
decrease of $12.6 million or 8.2 percent compared with the prior year. The decrease is primarily due to the
expenditure of Library bond proceeds in the current year.
As discussed more fully in Note 1, the City implemented GASB Statement No. 54, Fund Balance Reporting
and Governmental Fund Type Definitions, for the year ended June 30, 2011. Fund balances are classified on
the face of the financial statement as nonspendable, restricted, committed, assigned and unassigned.
Governmental Fund revenues and other financing sources decreased $51.1 million from prior year to $162.7
million. Revenues and other financing sources in the General Fund increased $3.4 million; Capital Projects
Fund decreased $58.6 million, due primarily to the receipt of library bond proceeds from the General
Obligation Bond in the prior year; Non-major Fund revenues and other financing sources increased by $4
million.
Governmental Fund expenditures and other uses were $175.4 million, an increase of $10.6 million from the
prior year. General Fund expenditures and other uses decreased $1.1 million, Capital Projects Fund
expenditures increased by $10.4 million, and Non-major Fund expenditures and other uses increased by $1.3
million.
General Fund
Governmental Funds – General Fund – Balance Sheet
As of June 30, 2011, the General Fund Balance totaled $44.2 million, compared to $41.5 million in the prior
year. This represents 36.4 percent of direct General Fund expenditures, providing a buffer against unexpected
financial events. The Fund Balance has been classified as $6.1 million nonspendable, $6.2 million assigned,
and $31.9 million unassigned. Of the unassigned amount, $31.4 million is designated by the Council for
budget stabilization.
General Fund
Governmental Funds – General Fund – Statement of Revenues, Expenditures and Changes in Fund Balance
The General Fund ended the year with a $2.7 million increase in fund balance, for a total of $44.2 million,
compared to a $1.8 million decrease in the prior year.
The City of Palo Alto’s General Fund revenues totaled $117.3 million in FY 2011. This represents an increase
of $7.4 million, or 6.8 percent, compared to the prior year.
General Fund expenditures and other uses totaled $132.5 million, a decrease of $1.1 million from the prior
year. Transfers out decreased $3.6 million as a result of the prior year Equity Transfer Stabilization Reserve
that was returned to the Gas and Electric Funds.
General Fund - Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual
Sales taxes increased by $2.8 million or 15.3 percent over FY 2010 levels for a total of $20.7 million, which
is $2.5 million more than the adopted budget and $1.2 million greater than the adjusted budget. The City has
seen an uptick in department store, miscellaneous retail, and electronic equipment sales activity. New auto
Management’s Discussion and Analysis
17
sales, however, continue to slump. Overall, sales tax receipts have been trending upward, although stock
market volatility, the broader economy, and consumer sentiment can change this pattern quickly.
Property taxes decreased by $.3 million or 1.1 percent from FY 2010 to FY 2011 for a total of $25.7 million.
This is $.2 million less than the adopted budget and $.4 million greater than the adjusted budget. Amidst the
significant downturn in the housing market, the City has had relatively stable housing valuations and tax
revenues. A significant number of assessment appeals by commercial property owners, however, caused the
City to adjust its budget projections for FY 2011.
Transient occupancy tax (TOT) revenues were $8.1 million in FY 2011, a $1.2 million or 17.8 percent
increase over FY 2010. The $8.1 million is $1.1 million greater than the adopted budget and $.7 million
greater than the adjusted budget. This revenue source has shown considerable improvement in FY 2011,
likely due to heightened and healthy business activity on the Peninsula. Both occupancy and room rates have
been marching upward, and this trend appears to be continuing into FY 2012.
Documentary transfer tax came in at $5.2 million, an increase of $1.5 million or 40.5 percent from the prior
year. Actual revenue results were $1.2 million above the FY 2011 adjusted budget. As a consequence of
multiple large commercial transactions, this tax source turned in a robust performance in FY 2011. Since it is
dependent on the volume and size of transactions, transfer tax receipts can vary considerably from year to
year. For FY 2011, seventeen transactions, or 1.9 percent of the volume, accounted for $.9 million, or 64
percent, of the increase. After the “Great Recession”, this tax fell to $3 million from a high in previous years
of $5 million. While receipts have risen again to over $5 million, there is uncertainty at this time as to
whether this mark will be achieved in FY 2012.
Charges for services were $22.4 million in FY 2011, an increase of $2.7 million from the prior year, an
increase of $2.4 million from the adopted budget and an increase of $1.5 million from the adjusted budget.
Return on investment totaled $.6 million, a decrease of $2.1 million from the prior year, and a decrease of
$1.1 million and $.8 million from the adopted and adjusted budgets, respectively. The budget does not include
the year-end adjustment to the carrying value of investments.
Charges to other funds totaled $11.2 million, a $.2 million increase from prior year. Charges to other funds
were $.6 million greater than the adopted budget and $.5 million greater than adjusted budget.
Non-Departmental expenditures and encumbrances totaled $8 million, a decrease of $.8 million from the prior
year, and $1.1 million more than the adjusted budget due to a $1 million allocation to increase the General
Benefits Internal Services Fund
Capital Projects Fund – Capital Projects Fund expenditures and other uses were $36.3 million in FY 2011,
which is an increase of $10.3 million from the prior year. This level of expenditure is consistent with the
City’s effort to rehabilitate and maintain its existing infrastructure.
Non-major Funds - These funds are not presented separately in the Basic Financial Statements, but are
individually presented as Supplemental Information.
Performance of Enterprise Funds
At June 30, 2011, the City’s Enterprise Funds reported total net assets of $668.1 million, an increase of $33
million or 5.2 percent compared with the prior year. The increase was primarily from the Water, Electric and
Gas Funds for $3.5 million, $13.1 million and $6.2 million, respectively. These net assets constitute 75.2
percent of the Enterprise Funds’ total net assets. Unrestricted net assets for these three funds totaled $202.5
million, a 5.7 percent increase from FY 2010.
Management’s Discussion and Analysis
18
Water Services Fund – Water ended the year with change in net assets of $3.5 million, compared to $7
million in the prior year, a $3.5 million decrease. The decrease in change in net assets is primarily due to a
$1.6 million increase in retail purchase of utilities and a $1.2 million decline in return on investments. The
ending Rate Stabilization Reserve (RSR) balance is $10.6 million.
Electric Services Fund – Electric ended the year with a change in net assets of $13.1 million compared to
$9.4 million in the prior year. The increase in change in net assets is due to a $7.5 million decrease in the
purchase of utilities expense, offset by a $2.5 million decline in return on investments and a $2.5 million
decrease in transfers in. The ending balance for the RSR is $66.3 million, an increase of $12 million.
Fiber Optics Fund – Fiber Optics ended the year with a change in net assets of $2.1 million, the same as the
prior year. The ending RSR is $10.1 million.
Gas Services Fund – Gas ended the year with a change in net assets of $6.2 million, compared to $7.9 million
in the prior year, a decrease of $1.7 million. The decrease is due to a $.5 million decline in return on
investments and a $.9 million reduction in transfers in. The RSR has an ending balance of $16.2 million, a
decrease of $2.3 million.
Wastewater Collection Services Fund - Wastewater Collection ended the year with a change in net assets of
$3.4 million compared to $4.7 million in the prior year. The decrease in change in net assets is primarily due
to a $.9 million increase in purchase of utilities expense and a $.5 million reduction in capital grants and
contributions. The RSR had an ending balance of $5.9 million.
Wastewater Treatment Services Fund – Wastewater Treatment ended the year with a change in net assets of
$1.4 million compared to a negative change in net assets of $1.2 million in FY 2010. The improvement in
change in net assets is due to increased revenue resulting from $1.6 million for the reclaimed water project
and $1.9 million in increased billings to the partners and to Wastewater Collection. The ending RSR balance
is $3 million compared to a negative $12.4 million in the prior year. The improvement is due to a $10 million
reduction in the appropriation for the Disinfection Facility Improvement Program in December 2010 as a
result of savings realized from lower bids.
Refuse Services Fund – Refuse ended the year with a change in net assets of $.3 million, compared to a $2.7
million negative change in net assets in FY 2010. The increased change in net assets is due to increased
revenue of $1.9 million, which resulted primarily from increased disposal fees due to the reinstatement of
commercial drop-offs, and $.8 million in increased transfers in. The ending RSR balance is negative $5
million, compared to a negative $4.9 million the prior year. Compliance requirements for the landfill closure
and post-closure maintenance plan are discussed in detail in Note 9.
Storm Drainage Services Fund – Storm Drainage ended the year with a change in net assets of $3 million
compared to a change in net assets of $2.5 million in the prior year, an increase of $.5 million. The RSR had
an ending balance of $1.6 million compared to $.3 million in the prior year.
Airport Fund – Airport was created in the current fiscal year. The initial funding was $.3 million and
primarily all of that remains in the cash account at the end of the year. The ending RSR balance is negative
$.1 million.
Management’s Discussion and Analysis
19
CAPITAL ASSETS
GASB 34 requires the City to record all its capital assets, including infrastructure and intangible assets.
Infrastructure includes roads, bridges, signals and similar assets used by the entire population. The table
below shows capital assets and the amount of accumulated depreciation for these assets for Governmental and
Business-type Activities. Further detail may be found in Note 6 to the financial statements.
2011 2010
Increase/
(Decrease)
Capital Assets
Land and improvements 78.6$ 78.5$ 0.1$
Street trees 15.4 15.1 0.3
Intangible assets 3.8 0.0 3.8
Construction in progress 36.2 32.3 3.9
Buildings and improvements 124.0 114.6 9.4
Equipment 9.7 8.2 1.5
Roadway network 267.5 260.5 7.0
Recreation and open space network 21.8 18.5 3.3
Less accumulated depreciation (183.7) (174.0)(9.7)
Internal Service Fund Assets
Construction in progress 0.2 0.6 (0.4)
Equipment 51.7 51.3 0.4
Less accumulated depreciation (31.8) (29.6)(2.2)
Total Governmental 393.4$ 376.0$ 17.4$
Land 5.0$ 5.0$ -$
Construction in progress 132.4 111.8 20.6
Buildings and improvements 31.9 30.9 1.0
Transmission, distribution and treatment systems 545.6 536.6 9.0
Less accumulated depreciation (249.2) (234.0) (15.2)
Total Business-type 465.7$ 450.3$ 15.4$
Governmental Activities
Business-type Activities
CAPITAL ASSETS AT JUNE 30
(in Millions)
Governmental Activities’ capital assets net of depreciation increased by $17.4 million over FY 2010. This
increase was primarily due to capitalizations for improvements to the City’s roadway network and sidewalks,
Parks and Open Space facility improvements, the College Terrace Library seismic upgrade, and City-
purchased easements.
Management’s Discussion and Analysis
20
Business-type Activities’ capital assets net of depreciation increased by $15.4 million over FY 2010. The
increased amounts are primarily driven by construction in progress of $8 million in Water, $7.5 million in
Electric, and $3.6 million in Wastewater Treatment.
In early 2010, the Palo Alto City Council established an Infrastructure Blue Ribbon Commission (IBRC) to
review the City’s General Fund infrastructure needs and to recommend resources to fill any funding gaps
identified. Their work builds upon two prior consultant studies that have helped the City address backlogged
and other necessary work. The Commission’s findings and recommendations will be delivered to the City
Council in December 2011.
Major capital projects that are currently in progress, and the remaining capital commitment of each, are as
follows:
Mitchell Park Library and Community Center - $35.6 million
Main Library - $17.3 million
Art Center electrical and mechanical upgrades - $7.2 million
Civic Center infrastructure improvements - $2.6 million
The City depreciates its capital assets over their estimated useful lives, as required by GASB 34. The purpose
of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable
portion of the cost of the asset is borne by all users. Additional information on capital assets and depreciable
lives may be found in Note 6.
Management’s Discussion and Analysis
21
DEBT ADMINISTRATION
Each of the City’s debt issues is discussed in detail in Note 7 to the financial statements. Effective for FY
2011, bond issuance costs have been reclassified to noncurrent assets, rather than netted with long-term debt.
FY 2010 has also been reclassified in the following table. At June 30, 2011, the City’s debt was comprised of
the following:
2011 2010
Increase/
(Decrease)
General Long-Term Obligations:
1998 Golf Course Certificates of Participation 3.7$ 4.1$ (0.4)$
2002A Civic Center Refinancing
Certificates of Participation 0.4 0.8 (0.4)
2002B Downtown Parking Improvements
Certificates of Participation 1.8 1.9 (0.1)
General Obligation Bonds
2010 Series A 55.3 55.3 0.0Add: unamortized premium 3.6 3.8 (0.2)
Total Governmental Activities Debt 64.8$ 65.9$ (1.1)$
Enterprise Long-Term Obligations:
Utility Revenue Bonds
1995 Series A 4.6$ 5.0$ (0.4)$
1999 Refunding 12.7 13.2 (0.5)
2002 Series A 18.1 18.9 (0.8)
2009 Series A 34.2 35.0 (0.8)
Less: unamortized premium (discount)(0.2) (0.2) 0.0
Energy Tax Credit Bonds
2007 Series A 1.1 1.2 (0.1)
State Water Resources Loan
2007 8.1 8.6 (0.5)
2009 8.6 4.5 4.1
Less: unamortized premium (discount)(0.1) (0.1) 0.0
Total Business-type Activities Debt 87.1$ 86.1$ 1.0$
Governmental Activities Debt:
Business-type Activities Debt:
LONG-TERM DEBT AT JUNE 30
(in Millions)
Management’s Discussion and Analysis
22
On June 30, 2010, the City issued $55.3 million in General Obligation Bonds to finance costs for construction
of the new Mitchell Park Library and Community Center and to make substantial capital improvements to the
Main and Downtown Libraries. The pledge of future net revenues ends upon repayment of the remaining
debt service on the bonds and is scheduled to occur in 2040.
As stated in the Statistical Section of the CAFR, the combined direct debt ratio to assessed valuation for the
General Fund is a low 0.28 percent compared to the allowable legal debt margin of 15 percent.
SPECIAL ASSESSMENT DISTRICT DEBT
Special assessment districts throughout different parts of the City have also issued debt to finance
infrastructure and facilities construction exclusively in their districts. As of June 30, 2011, the City had no
special assessment district debt with City commitment outstanding.
ECONOMIC OUTLOOK
The economy of the City is discussed in the accompanying Transmittal Letter and in this Discussion and
Analysis.
CONTACTING THE CITY’S FINANCIAL MANAGEMENT
The CAFR is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the City’s
finances. Questions about this report should be directed to the Administrative Services Department, at 250
Hamilton Avenue, 4th Floor, Palo Alto, California. 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 City Departments, select Administrative
Services, and select Financial Reporting. Within Financial Reporting, there are links to reports by title and
reporting date or use the following link: www.cityofpaloalto.org/depts/asd/financial_reporting/asp
23
GOVERNMENT-WIDE STATEMENT OF NET ASSETS AND STATEMENT OF ACTIVITIES
The Citywide Statement of Net Assets and the Statement of Activities summarize all of the City’s
financial activities and financial position. They are prepared on the same basis as is used by most
businesses, which means they include all the City’s assets and all its liabilities, as well as all its revenues
and expenses. This is known as the full accrual basis — the effect of all the City’s transactions is taken
into account, regardless of whether or when cash changes hands. All material internal transactions
between City funds have been eliminated.
The Statement of Net Assets reports the difference between the City’s total assets and the City’s total
liabilities, including all the City’s capital assets and all its long-term debt. The Statement of Net Assets
focuses the reader on the composition of the City’s net assets, by subtracting total liabilities from total
assets.
The Statement of Net Assets summarizes the financial position of all the City’s Governmental Activities
in a single column, and the financial position of all the City’s Business-type Activities in a single column;
these columns are followed by a Total column that presents the financial position of the entire City.
The City’s Governmental and Business-type Activities include the activities of its General Fund, along
with all its Special Revenue, Capital Projects, Debt Service Funds, and Enterprise Funds.
Since the City’s Internal Service Funds service these Funds, their activities are consolidated with
Governmental and Business-type Activities, after eliminating inter-fund transactions and balances.
The Statement of Activities reports increases and decreases in the City’s net assets. It is also prepared on
the full accrual basis, which means it includes all the City’s revenues and all its expenses, regardless of
when cash changes hands. This differs from the “modified accrual” basis used in the Fund financial
statements, which reflect only current assets, current liabilities, available revenues and measurable
expenditures.
The format of the Statement of Activities presents the City’s expenses first, listed by program, and
follows these with the expenses of its Business-type Activities. Program revenues — that is, revenues
which are generated directly by these programs — are then deducted from program expenses to arrive at
the net expense of each governmental and Business-type program. The City’s general revenues are then
listed in the Governmental Activities or Business-type Activities column, as appropriate, and the Change
in Net Assets is computed and reconciled with the Statement of Net Assets.
These Statements include the financial activities of the City Public Improvement Corporation and
Redevelopment Agency, which are legally separate component units of the City because they are
controlled by the City, which is financially accountable for its activities.
These financial statements along with the fund financial statements and footnotes are called Basic
Financial Statements.
CITY OF PALO ALTO
Statement of Net Assets
June 30, 2011
(Amounts in Thousands)
Governmental Business-Type
Activities Activities Total
Assets:
Cash and investments available for operations (Note 3) 148,452$ 237,409$ 385,861$
Receivables, net:
Accounts and intergovernmental 8,234 30,332 38,566
Interest receivable 1,188 1,863 3,051
Notes and loans receivable (Note 5) 10,809 - 10,809
Internal balances (Note 4) (1,727) 1,727 -
Net OPEB asset (Note 12) 23,006 - 23,006
Due from other government agencies - 4,500 4,500
Inventory of materials and supplies and prepaids 5,413 9 5,422
Deferred charges 552 2,342 2,894
Restricted cash and investments with fiscal agents (Note 3) 42,187 30,970 73,157
Restricted cash for post-closure landfill (Note 3) - 5,599 5,599
Capital assets (Note 6):
Nondepreciable 134,183 137,408 271,591
Depreciable, net of accumulated depreciation 259,221 328,316 587,537
Total assets 631,518 780,475 1,411,993
Liabilities:
Accounts payable and accrued liabilities 14,678 10,089 24,767
Accrued salaries and benefits 2,436 1,126 3,562
Unearned revenue 369 1,213 1,582
Accrued compensated absences (Note 1):
Due in one year 3,100 - 3,100
Due in more than one year 6,286 - 6,286
Claims payable (Note 14):
Due in one year 5,873 - 5,873
Due in more than one year 18,030 - 18,030
Accrued landfill closure liability and post-closure care (Note 9):
Due in more than one year - 10,771 10,771
Long-term debt (Note 7):
Due in one year 1,796 3,548 5,344
Due in more than one year 63,044 83,570 146,614
Total liabilities 115,612 110,317 225,929
Net Assets (Note 10):
Invested in capital assets, net of related debt 364,747 416,418 781,165
Restricted for:
Special revenue programs 10,825 - 10,825
Capital projects 2,150 - 2,150
Debt service 2,040 - 2,040
Eyerly Family 1,422 - 1,422
Total restricted net assets 16,437 - 16,437
Unrestricted 134,722 253,740 388,462
Total net assets $ 515,906 $ 670,158 $ 1,186,064
See accompanying notes to basic financial statements.
24
CITY OF PALO ALTO
Statement of Activities
For the Year Ended June 30, 2011
(Amounts in Thousands)
Net (Expense) Revenue and
Program Revenues Changes in Net Assets
Operating Capital
Charges for Grants and Grants and Governmental Business-Type
Functions/Programs Expenses Services Contributions Contributions Activities Activities Total
Governmental Activities:
City Council 15$ -$ -$ -$ (15)$ -$ (15)$
City Manager 1,842 - - - (1,842) - (1,842)
City Attorney 953 - - - (953) - (953)
City Clerk 803 - - - (803) - (803)
City Auditor 138 - - - (138) - (138)
Administrative Services 9,888 2,889 32 619 (6,348) - (6,348)
Human Resources 1,346 - - - (1,346) - (1,346)
Public Works 19,357 2,419 774 1,277 (14,887) - (14,887)
15,031 7,237 1,907 7 (5,880) - (5,880)
Police 30,465 3,237 100 - (27,128) - (27,128)
Fire 28,531 12,037 - - (16,494) - (16,494)
Community Services 22,845 7,724 11 - (15,110) - (15,110)
Library 6,920 480 60 - (6,380) - (6,380)
Interest on long-term debt 2,742 - - - (2,742) - (2,742)
Total Governmental Activities 140,876 36,023 2,884 1,903 (100,066) - (100,066)
Business-Type Activities:
Water 24,268 26,624 610 864 - 3,830 3,830
Electric 100,130 122,109 - - - 21,979 21,979
Fiber Optics 1,561 3,322 - - - 1,761 1,761
Gas 32,051 43,584 - - - 11,533 11,533
Wastewater Collection 12,275 15,094 - 507 - 3,326 3,326
Wastewater Treatment 19,731 18,830 - 1,633 - 732 732
Refuse 30,684 30,469 - - - (215) (215)
Storm Drainage 3,229 5,796 - - - 2,567 2,567
Airport 31 - - - - (31) (31)
Total Business-Type Activities 223,960 265,828 610 3,004 - 45,482 45,482
Total 364,836$ 301,851$ 3,494$ 4,907$ (100,066) 45,482 (54,584)
General revenues:
Taxes:
Property taxes 29,156 - 29,156
Sales taxes 20,746 - 20,746
Utility user tax 10,851 - 10,851
Transient occupancy tax 8,082 - 8,082
Transfer and other taxes 8,156 - 8,156
Investment earnings 3,500 5,722 9,222
Miscellaneous 12,377 - 12,377
Transfers (Note 4)17,083 (17,083) -
Total general revenues and transfers 109,951 (11,361) 98,590
Change in net assets 9,885 34,121 44,006
Net assets, beginning of year 506,021 636,037 1,142,058
Net assets, end of year 515,906$ 670,158$ 1,186,064$
Planning and Community Environment
See accompanying notes to basic financial statements.
25
26
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27
FUND FINANCIAL STATEMENTS
Introduction
The Fund Financial Statements are presented by individual major funds, while non-major funds are
combined in a single column. Major funds are defined generally as having significant activities or
balances in the current year.
Major Governmental Funds
The funds described below were determined to be Major Funds by the City in fiscal year 2011. Individual
non-major funds may be found in the Supplemental Section.
General Fund
The General Fund is used for all the general revenues of the City not specifically levied or collected for
other City funds, and related expenditures.
Capital Projects Fund
The Capital Projects Fund is utilized to account for resources used for the acquisition and construction of
capital facilities by the City, with the exception of those assets financed by proprietary funds.
CITY OF PALO ALTO
Governmental Funds
Balance Sheet
June 30, 2011
(Amounts in Thousands)
Capital Other Total
General Projects Governmental Governmental
Fund Fund Funds Funds
Assets:
Cash and investments available for operations (Note 3) 37,150$ 27,382$ 23,182$ 87,714$
Receivables, net:
Accounts and intergovernmental 7,682 272 220 8,174
Interest receivable 546 138 143 827
Notes and loans receivable (Note 5) 985 - 9,824 10,809
Prepaid items 1,213 - - 1,213
Advance to other fund (Note 4)300 - - 300
Inventory of materials and supplies 3,587 - - 3,587
Restricted cash and investments with fiscal agents (Note 3)- 40,962 1,225 42,187
Total assets 51,463$ 68,754$ 34,594$ 154,811$
Liabilities and Fund Balances:
Liabilities:
Accounts payable and accrued liabilities 4,693$ 6,013$ 298$ 11,004$
Accrued salaries and benefits 2,222 76 4 2,302
Deferred revenue 369 - - 369
Total liabilities 7,284 6,089 302 13,675
Fund balances (Note 10):
Nonspendable:
Notes and loans receivable 985 - - 985
Prepaid items 1,213 - - 1,213
Inventories 3,587 - - 3,587
Advance to other fund 300 - - 300
Eyerly family - - 1,422 1,422
Restricted for:
Transportation mitigation - - 4,344 4,344
Federal revenue - - 4,619 4,619
Street improvement - - 1,598 1,598
Local law enforcement - - 264 264
Library bond project - 35,961 - 35,961
Improvement to parking garage - 595 - 595
Debt service - - 3,265 3,265
Committed to:
Capital projects - 6,693 - 6,693
Developer's impact fees - - 5,287 5,287
Housing in-lieu - - 11,662 11,662
Special districts - - 1,075 1,075
Downtown business - - 58 58
Assigned to:
Unrealized gains on investments 2,830 - 696 3,526
Infrastructure - 3,199 - 3,199
Capital projects - 16,217 - 16,217
Other general government purposes 3,405 - 2 3,407
Unassigned to:
Budget Stabilization 31,376 - - 31,376
Reappropriations 483 - - 483
Total fund balances 44,179 62,665 34,292 141,136
Total liabilities and fund balances 51,463$ 68,754$ 34,594$ 154,811$
See accompanying notes to basic financial statements.
28
CITY OF PALO ALTO
Reconciliation of the Balance Sheet of Governmental Funds to
the Statement of Net Assets - Governmental Activities
June 30, 2011
Total fund balances reported on the governmental funds balance sheet 141,136$
Amounts reported for governmental activities in the statement of net assets
are different from those reported in the governmental funds above because
of the following:
Costs of issuance related to the bonds are capitalized and amortized 552
over the life of the bonds in the government-wide financial statements
Capital assets used in governmental activities are not current assets or financial
resources and therefore are not reported in the governmental funds (Note 6)393,404
Internal service funds are used by management to charge the costs of activities
such as insurance, equipment acquisition and maintenance, and certain
employees' benefits to individual funds. The assets and liabilities of the
internal service funds are therefore included in governmental activities in
the statement of net assets (excludes capital assets reported above) 46,805
Some liabilities, including bonds payable, are not due and payable in the
current period and therefore are not reported in the governmental funds:
Interest payable (1,151)
Long-term debt (Note 7)(64,840)
Net assets of governmental activities 515,906$
(Amounts in Thousands)
See accompanying notes to basic financial statements.
29
CITY OF PALO ALTOGovernmental FundsStatement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2011
(Amounts in Thousands)
Capital Other
General Projects Governmental
Fund Fund Funds Total
Revenues:
Property taxes 25,688$ -$ 3,468$ 29,156$
Special assessments - - 92 92
Sales taxes 20,746 - - 20,746
Utility users tax 10,851 - - 10,851
Transient occupancy tax 8,082 - - 8,082
Other taxes and fines 7,296 - 1,661 8,957
Charges for services 22,311 - - 22,311
From other agencies 397 778 439 1,614
Permits and licenses 5,074 - 359 5,433
Investment earnings 565 1,184 521 2,270
Rental income 14,264 - 19 14,283
Other revenue 2,020 1,986 4,618 8,624
Total revenues 117,294 3,948 11,177 132,419
Expenditures:Current:
City Council 18 - - 18
City Manager 1,867 - - 1,867
City Attorney 934 - - 934
City Clerk 796 - - 796
City Auditor 131 - - 131
Administrative Services 3,285 - - 3,285
Human Resources 1,320 - - 1,320
Public Works 11,317 - - 11,317
Planning and Community Environment 9,368 - 941 10,309
Police 30,497 - 22 30,519
Fire 28,355 - - 28,355
Community Services 20,029 - - 20,029
Library 6,509 - - 6,509
Non-Departmental 7,078 - 274 7,352
Capital outlay - 35,486 - 35,486
Debt service:
Principal - - 870 870
Interest and fiscal charges - - 1,815 1,815
Total expenditures 121,504 35,486 3,922 160,912
Excess (deficiency) of revenues
over (under) expenditures (4,210) (31,538) 7,255 (28,493)
Other financing sources (uses):
Other - (101) - (101)
Transfers in (Note 4)17,932 11,202 1,189 30,323
Transfers out (Note 4)(11,000) (747) (2,605) (14,352)
Total other financing sources (uses)6,932 10,354 (1,416) 15,870
Change in fund balances 2,722 (21,184) 5,839 (12,623)
Fund balances, beginning of year 41,457 83,849 28,453 153,759
Fund balances, end of year 44,179$ 62,665$ 34,292$ 141,136$
See accompanying notes to basic financial statements.
30
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, 2011
Net change in fund balances - total governmental funds (12,623)$
Amounts reported for governmental activities in the statement of activities are different
from those reported in the governmental funds above 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 36,564
Depreciation expense is deducted from fund balance (depreciation expense is net of
internal service fund depreciation of $4,695 (Note 6), which has already been allocated
through the internal service fund activities below (9,708)
Disposal and impairment of capital assets (7,232)
Principal payments on long-term liabilities are reported as expenditures in governmental
funds when paid. The governmental activities, however, report principal payments as
a reduction of long-term debt on the statement of net assets. Interest accrued on
long-term debt and amortization of bond issuance costs and premiums do not require
the use of current financial resources and therefore are not reported as expenditures
in governmental funds. Therefore, the activities associated with long-term debt are
as follows:
Principal paid during the year 870
Change in interest payable (1,034)
Amortization of deferred costs of issuance (19)
Amortization of bond premium 126
Internal service funds are used by management to charge the costs of activities, such
as insurance, equipment acquisition and maintenance, and employees' benefits to
individual funds. The portion of the net revenue (expense) of these internal service
funds arising out of their transactions with governmental funds is reported with
governmental activities.2,941
Change in net assets of governmental activities 9,885$
(Amounts in Thousands)
See accompanying notes to basic financial statements.
31
Variance with
Budgeted Amounts Final Budget
Actual Positive
Original Final Amounts (Negative)
18,218$ 19,507$ 20,746$ 1,239$
25,907 25,323 25,688 365
7,021 7,400 8,082 682
11,429 10,824 10,851 27
5,943 6,139 7,296 1,157
20,008 20,924 22,390 1,466
4,593 5,102 5,058 (44)
1,646 1,337 565 (772)
13,716 13,776 14,264 488
155 221 295 74
10,622 10,681 11,211 530
1,490 1,584 2,117 533
- 3,963 3,963 -
120,748 126,781 132,526 5,745
2,369 2,812 2,808 4
982 1,081 1,081 -
1,093 1,270 1,257 13
142 193 192 1
2,178 2,455 2,456 (1)
6,293 6,456 6,446 10
20,032 20,530 20,518 12
27,007 29,014 29,012 2
2,817 2,677 2,666 11
6,609 6,733 6,722 11
9,320 10,427 10,416 11
30,579 31,288 31,286 2
13,084 13,846 13,842 4
5,970 6,899 7,958 (1,059)
128,475 135,681 136,660 (979)
(7,727) (8,900) (4,134) 4,766
18,684 18,677 17,932 (745)
(10,924) (11,224) (11,000) 224
7,760 7,453 6,932 (521)
33$ (1,447)$ 2,798 4,245$
3,887
(3,963)
2,722
41,457
44,179$
CITY OF PALO ALTO
General Fund
Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual
For the Year Ended June 30, 2011
(Amounts in Thousands)
Transient occupancy tax
Property taxes
Sales taxes
Revenues:
Charges for appropriations (outflows):
Return on investments
Permits and licenses
Charges for services
Other taxes, fines and penalties
Utility users tax
Prior year encumbrances and reappropriations
Other revenues
Charges to other funds
From other agencies
Rental income
Total revenues
Total expenditures
Current:
City Attorney
City Auditor
City Clerk
City Council
City Manager
Administrative Services
Community Services
Fire
Human Resources
Library
Planning and Community Environment
Prior year encumbrances/reappropriations
Excess of revenues over expenditures, GAAP basis
Fund balance at beginning of year, GAAP basis
Fund balance at ending of year, GAAP basis
Police
Public Works
Non-Departmental
Current year encumbrances/reappropriations
Other financing sources (uses):
Transfers in
Transfers out
expenditures, budgetary basis
Adjustment to Budgetary Basis:
Excess (deficiency) of revenues over (under)
Total other financing sources (uses)
(Deficiency) of revenues over (under) expenditures
See accompanying notes to basic financial statements.
32
33
PROPRIETARY FUNDS
Introduction
Proprietary Funds account for City operations financed and operated in a manner similar to a private
business enterprise. The intent of the City is that the cost of providing goods and services be financed
primarily through user charges.
The City has elected to treat all of its Enterprise Funds as Major Funds in fiscal year 2011.
Proprietary Funds do not provide for the disclosure of budget versus actual comparisons.
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 Palo Alto.
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 Palo Alto.
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 Palo Alto.
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 Palo Alto.
Wastewater Collection Fund
This fund accounts for all financial transactions relating to the City’s Wastewater Collection service.
Collections are on a user charge basis to residents and business owners located in Palo Alto.
Wastewater Treatment 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 Palo Alto.
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 Palo Alto.
Storm Drainage Services Fund
This fund accounts for all financial transactions relating to the City’s Storm Drain service. Services are on
a user charge basis to residents and business owners located in Palo Alto.
Airport Fund
This fund was established to account for financial transactions relating to the Palo Alto Airport. The City
will be taking over operation of the airport from Santa Clara County no later than 2017.
Fiber
Water Electric Optics Gas
Assets:
Current assets:
Cash and investments available for operations (Note 3) 24,365$ 129,137$ 11,392$ 32,544$
Accounts receivable, net 3,507 15,572 534 2,997
Interest receivable 296 941 78 224
Due from other government agencies - - - -
Inventory of materials and supplies - - - -
Net OPEB asset (Note 12)- - - -
Restricted cash and investments with fiscal agents (Note 3)29,991 - - 978
Restricted cash for landfill closure (Note 3)- - - -
Total current assets 58,159 145,650 12,004 36,743
Noncurrent assets:
Due from other government agencies - - - -
Deferred bond issuance costs 612 53 - 167
Deposit - 9 - -
Capital assets (Note 6):
Nondepreciable 27,663 39,498 1,049 22,937
Depreciable, net 51,616 123,189 5,891 57,351
Total noncurrent assets 79,891 162,749 6,940 80,455
Total assets 138,050 308,399 18,944 117,198
Liabilities:
Current liabilities:
Accounts payable and accrued liabilities 2,504 2,659 40 1,235
Accrued salaries and benefits 151 347 25 168
Unearned revenue - - - -
Accrued compensated absences (Note 1)- - - -
Current portion of revenue bonds (Note 7)1,277 100 - 479
Accrued claims payable (Note 14)- - - -
Total current liabilities 3,932 3,106 65 1,882
Noncurrent liabilities:
Accrued compensated absences (Note 1)- - - -
Accrued claims payable (Note 14)- - - -
Advance from other fund (Note 4)- - - -
Landfill closure and post-closure care (Note 9)- - - -
Utility revenue bonds, net of
unamortized discounts/premiums (Note 7)41,895 941 - 9,464
Total noncurrent liabilities 41,895 941 - 9,464
Total liabilities 45,827 4,047 65 11,346
Net assets:
Invested in capital assets, net of related debt 66,710 161,699 6,940 71,490
Unrestricted (deficit) 25,513 142,653 11,939 34,362
Total net assets 92,223$ 304,352$ 18,879$ 105,852$
Some amounts reported for Business-Type Activities in the statement of net assets are different because certain
Internal Service Fund assets and liabilities are included with Business-Type Activities
Net assets reported in Business-Type Activities
Business-Type Activities-Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Fund Net Assets
June 30, 2011
(Amounts in Thousands)
See accompanying notes to basic financial statements.
34
Governmental
Activities -
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
15,774$ 14,974$ 3,009$ 5,936$ 278$ 237,409$ 60,738$
1,683 2,244 3,209 586 - 30,332 60
113 106 64 40 1 1,863 361
- 250 - - - 250 -
- - - - - - 613
- - - - - - 23,006
- - - 1 - 30,970 -
- - 5,599 - - 5,599 -
17,570 17,574 11,881 6,563 279 306,423 84,778
- 4,250 - - - 4,250 -
22 1,340 - 148 - 2,342 -
- - - - - 9 -
22,840 18,229 2,734 2,458 - 137,408 151
44,779 21,372 416 23,702 - 328,316 19,935
67,641 45,191 3,150 26,308 - 472,325 20,086
85,211 62,765 15,031 32,871 279 778,748 104,864
331 1,289 1,736 290 5 10,089 2,523
92 207 103 32 1 1,126 134
- - - 1,213 - 1,213 -
- - - - - - 3,100
68 1,169 - 455 - 3,548 -
- - - - - - 5,873
491 2,665 1,839 1,990 6 15,976 11,630
- - - - - - 6,286
- - - - - - 18,030
- - - - 300 300 -
- - 10,771 - - 10,771 -
1,122 22,143 - 8,005 - 83,570 -
1,122 22,143 10,771 8,005 300 94,641 24,316
1,613 24,808 12,610 9,995 306 110,617 35,946
66,451 22,129 3,150 17,849 - 416,418 20,086
17,147 15,828 (729) 5,027 (27) 251,713 48,832
83,598$ 37,957$ 2,421$ 22,876$ (27)$ 668,131 68,918$
2,027
670,158$
Business-Type Activities-Enterprise Funds
See accompanying notes to basic financial statements.
35
Fiber
Water Electric Optics Gas
Operating revenues:
Sales of utilities:
Customers 24,719$ 107,892$ -$ 41,724$
City departments 1,313 3,253 733 1,135
Surplus energy - 3,680 - -
Service connection charges and miscellaneous 282 1,329 - 516
Charges for services - - - -
Other 310 5,955 2,589 209
Total operating revenues 26,624 122,109 3,322 43,584
Operating expenses:
Purchase of utilities:
Retail 10,678 56,368 - 21,464
Surplus energy - 4,879 - -
Administrative and general 3,268 4,673 516 3,039
Engineering (operating)247 1,200 - 280
Resource management and energy efficiency 576 5,868 - 1,602
Operations and maintenance 4,885 9,340 770 3,297
Rent 2,122 3,588 14 230
Depreciation and amortization 1,422 7,341 267 1,848
Claims payments and changes in
estimated self-insurance liability - - - -
Refund of charges for services - - - -
Compensated absences and other benefits - - - -
Total operating expenses 23,198 93,257 1,567 31,760
Operating income (loss)3,426 28,852 1,755 11,824
Nonoperating revenues (expenses):
Return on investments 181 3,205 323 821
Interest expense (1,011) (7,247) - (488)
Gain (loss) on disposal of capital assets (248) (49) - (46)
Other nonoperating revenues 610 - - -
Total nonoperating revenues (expenses)(468) (4,091) 323 287
Income (loss) before transfers and capital contributions 2,958 24,761 2,078 12,111
Capital contributions 864 - - -
Transfers in 123 550 - 35
Transfers out (449) (12,206) (9) (5,925)
Change in net assets 3,496 13,105 2,069 6,221
Net assets, beginning of year 88,727 291,247 16,810 99,631
Net assets, end of year 92,223$ 304,352$ 18,879$ 105,852$
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 assets 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 Assets
For the Year Ended June 30, 2011
(Amounts in Thousands)
See accompanying notes to basic financial statements.
36
Governmental
Activities-
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
14,159$ 11,104$ 25,137$ 5,383$ -$ 230,118 -$
128 7,468 1,232 357 - 15,619 -
- - - - - 3,680 -
575 - - - - 2,702 -
- - - - - - 72,001
232 258 4,100 56 - 13,709 -
15,094 18,830 30,469 5,796 - 265,828 72,001
7,414 - 12,529 - - 108,453 -
- - - - - 4,879 -
943 - 1,622 348 31 14,440 8,174
195 2,167 413 345 - 4,847 -
- - - 231 - 8,277 -
2,227 14,515 10,824 885 - 46,743 8,299
115 - 4,289 - - 10,358 -
1,457 2,195 657 857 - 16,044 4,695
- - - - - - 6,772
- - - - - - 114
- - - - - - 42,387
12,351 18,877 30,334 2,666 31 214,041 70,441
2,743 (47) 135 3,130 (31) 51,787 1,560
454 471 99 164 4 5,722 1,200
(90) (632) (606) (542) - (10,616) -
- - - (35) - (378) 85
- - - - - 610 59
364 (161) (507) (413) 4 (4,662) 1,344
3,107 (208) (372) 2,717 (27) 47,125 2,904
507 1,633 - - - 3,004 -
75 - 1,036 325 - 2,144 1,703
(271) (9) (326) (32) - (19,227) (591)
3,418 1,416 338 3,010 (27) 33,046 4,016
80,180 36,541 2,083 19,866 - 64,902
83,598$ 37,957$ 2,421$ 22,876$ (27)$ 68,918$
1,075
34,121$
Business-Type Activities-Enterprise Funds
See accompanying notes to basic financial statements.
37
Fiber
Water Electric Optics Gas
Cash flows from operating activities:
Cash received from customers 25,104$ 112,652$ (21)$ 42,302$
Cash refunds to customers - - - -
Cash payments to suppliers for goods and services (19,230) (84,649) (762) (27,212)
Cash payments to employees (3,237) (4,618) (510) (2,993)
Internal activity- receipts (payment) from (to) other funds 1,313 3,253 733 1,135
Other receipts 310 5,955 2,589 209
Net cash provided by (used in)
operating activities 4,260 32,593 2,029 13,441
Cash flows from noncapital financing activities:
Receipt (disbursement) of loans from (to) other funds - - - -
Transfers in 123 550 - 35
Transfers out (449) (12,206) (9) (5,925)
Cash flows used in noncapital financing activities (326) (11,656) (9) (5,890)
Cash flows from capital and related financing activities:
Acquisition and construction of capital assets (8,328) (11,137) (587) (2,936)
Capital grants and contributions 864 - - -
Interest subsidy received from Build America Bond 610 - - -
Proceeds from debt issuance - - - -
Principal paid on long-term debt (1,200) (100) - (459)
Interest paid on long-term debt (1,029) (7,236) - (478)
Cash flows used in capital and related
financing activities (9,083) (18,473) (587) (3,873)
Cash flows from investing activities:
Interest received 274 3,327 323 839
Net change in cash and cash equivalents (4,875) 5,791 1,756 4,517
Cash and cash equivalents, beginning of year 59,231 123,346 9,636 29,005
Cash and cash equivalents, end of year $ 54,356 $ 129,137 $ 11,392 $ 33,522
Financial statement presentation:
Cash and investments from operations 24,365$ 129,137$ 11,392$ 32,544$
Cash and investments with fiscal agent 29,991 - - 978
Cash and cash equivalents, end of year 54,356$ 129,137$ 11,392$ 33,522$
Reconciliation of operating income (loss) to
net cash provided by (used in) operating activities:
Operating income (loss)3,426$ 28,852$ 1,755$ 11,824$
Adjustments to reconcile operating income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 1,422 7,341 267 1,848
Other - - - -
Change in assets and liabilities:
Accounts receivable 103 (249) (21) 62
Inventory of materials and supplies - - - -
Deposits - (9) - -
Net OPEB asset - - - -
Accounts payable and accrued liabilities (722) (3,397) 22 (339)
Accrued salaries and benefits 31 55 6 46
Accrued compensated absences - - - -
Unearned revenue - - - -
Landfill closure and post-closure care - - - -
Accrued claims payable and other liabilities - - - -
Net cash provided by (used in)
operating activities $ 4,260 $ 32,593 $ 2,029 $ 13,441
Business-Type Activities-Enterprise Funds
CITY OF PALO ALTO
Proprietary Funds
Statement of Cash Flows
For the Year Ended June 30, 2011
(Amounts in Thousands)
See accompanying notes to basic financial statements.
38
Governmental
Activities-
Wastewater Wastewater Storm Internal Service
Collection Treatment Refuse Drainage Airport Totals Funds
14,810$ 10,080$ 25,170$ 5,128$ -$ 235,225$ 71,979$
- - - - - - (114)
(9,782) (18,522) (27,893) (1,672) 5 (189,717) (8,523)
(925) 30 (1,606) (344) (30) (14,233) (51,688)
128 7,468 1,232 357 - 15,619 (4,347)
232 258 3,748 56 - 13,357 59
4,463 (686) 651 3,525 (25) 60,251 7,366
- - - (550) 300 (250) -
75 - 1,036 325 - 2,144 1,703
(271) (9) (326) (32) - (19,227) (591)
(196) (9) 710 (257) 300 (17,333) 1,112
(4,226) (3,220) (284) (1,170) - (31,888) (2,351)
507 1,906 - - - 3,277 -
- - - - - 610
- 3,970 - - - 3,970 -
(64) (850) - (430) - (3,103) -
(89) (405) (606) (511) - (10,354) -
(3,872) 1,401 (890) (2,111) - (37,488) (2,351)
459 475 113 163 3 5,976 1,241
854 1,181 584 1,320 278 11,406 7,368
14,920 13,793 8,024 4,617 - 262,572 53,370
$ 15,774 $ 14,974 $ 8,608 $ 5,937 $ 278 $ 273,978 $ 60,738
15,774$ 14,974$ 3,009$ 5,936$ 278$ 237,409$ 60,738$
- - 5,599 1 - 36,569 -
15,774$ 14,974$ 8,608$ 5,937$ 278$ 273,978$ 60,738$
2,743$ (47)$ 135$ 3,130$ (31)$ 51,787$ 1,560$
1,457 2,195 657 857 - 16,044 4,695
- - - - - - 59
76 (1,024) 33 22 - (998) (22)
- - - - - - (156)
- - - - - (9) -
- - - - - - 236
169 (1,840) 162 (211) 5 (6,151) 17
18 30 16 4 1 207 (415)
- - - - - - (1,033)
- - - (277) - (277) -
- - (352) - - (352) -
- - - - - - 2,425
$ 4,463 $ (686) $ 651 $ 3,525 $ (25) $ 60,251 $ 7,366
Business-Type Activities-Enterprise Funds
See accompanying notes to basic financial statements.
39
40
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41
FIDUCIARY FUNDS
Introduction
These funds account for assets held by the City in trust or as an agent for various assessment and
community facilities districts. The financial activities of these funds are excluded from the Citywide
financial statements, but are presented in separate Fiduciary Fund financial statements.
Agency
Funds
Assets:
Cash and investments available for operations (Note 3)3,118$
Restricted cash and investments with fiscal agents (Note 3)3,906
Interest receivable 32
Total assets 7,056$
Liabilities:
Due to bondholders 6,145$
Due to other governments 911
Total liabilities 7,056$
CITY OF PALO ALTO
Statement of Fiduciary Net Assets
June 30, 2011
(Amounts in Thousands)
See accompanying notes to basic financial statements.
42
CITY OF PALO ALTO
Index to the Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
43
Page
1. Summary of Significant Accounting Policies ......................................................................... 45
2. Budgets and Budgetary Accounting ........................................................................................ 53
3. Cash and Investments .............................................................................................................. 54
4. Interfund Transactions ............................................................................................................. 58
5. Notes and Loans Receivable ................................................................................................... 60
6. Capital Assets .......................................................................................................................... 65
7. General Long-Term Obligations ............................................................................................. 71
8. Special Assessment Debt ......................................................................................................... 78
9. Landfill Closure and Post-Closure Care .................................................................................. 79
10. Net Assets and Fund Balances ................................................................................................ 80
11. Pension Plans ........................................................................................................................... 82
12. Retiree Health Benefits ........................................................................................................... 86
13. Deferred Compensation Plan ................................................................................................... 88
14. Risk Management .................................................................................................................... 88
15. Joint Ventures .......................................................................................................................... 90
16. Commitments and Contingencies ............................................................................................ 93
17. Subsequent Events ................................................................................................................... 99
Notes are essential to present fairly the information contained in the overview level of basic financial
statements. Narrative explanations are intended to communicate information that is not readily apparent
or cannot be included in the statements and schedules themselves, and to provide additional disclosures as
required by the Governmental Accounting Standards Board.
44
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CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
45
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, golf course, planning and zoning,
general administration services, library, open space and science, recreational and human services.
(a) Reporting Entity
The City is governed by a nine-member council, elected by City residents. The City is legally
separate and fiscally independent, which means it can issue debt, set and modify budgets and fees
and sue or be sued. The accompanying basic financial statements present the financial activities
of the City, which is the primary government presented, along with the financial activities of its
component units, which are entities for which the City is financially accountable. Although
separate legal entities, blended component units are, in substance, part of the City’s operations
and are reported as an integral part of the City’s financial statements. This City’s component
units, which are described below, are blended.
The Palo Alto Public Improvement Corporation (the Corporation) provides financing of
public capital improvements for the City through the issuance of Certificates of Participation
(COPs), a form of debt that allows investors to participate in a stream of future lease payments.
Proceeds from the COPs are used to construct projects that are leased to the City. The lease
payments are sufficient in timing and amount to meet the debt service requirements of the COPs.
The Board of Directors of the Corporation is composed of the same members as the City Council.
The Corporation is controlled by the City, which performs all accounting and administrative
functions for the Corporation. The financial activities of the Corporation are included in the Golf
Course and Civic Center Debt Service Funds and the Capital Projects Fund.
The Palo Alto Redevelopment Agency (the Agency) is a separate government entity whose
purpose is to prepare and implement plans for improvement, rehabilitation, and development of
certain areas within the City. The City Council and the Redevelopment Agency Board are
composed of the same individuals. Certain administrative and accounting functions are
performed by City staff. The financial activities of the Agency have been included in these
financial statements in the Redevelopment Agency Special Revenue Fund. As of June 29, 2011,
changes to the California Redevelopment Law have terminated the authority of redevelopment
agencies to undertake new obligations to redevelop property. On September 12, 2011, the City
filed Ordinance No. 5126 dissolving the operations of the Agency, as discussed in Note 17.
Financial statements for the Corporation and the Agency 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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
46
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 assets and the statement of activities
display information about the primary government and its component units. 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.
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 blended component units. 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, enterprise and internal service
funds are aggregated and reported as non-major funds.
Proprietary fund operating revenues, such as 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. Non-operating 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 non-operating expenses.
(c) Major Funds
The City’s major governmental and enterprise funds need to be identified and presented
separately in the fund financial statements. All other funds, called non-major funds, are
combined and reported in a single column, regardless of their fund type.
Major funds are defined as funds that have either assets, liabilities, revenues or
expenditures/expenses equal to 10 percent of their fund type total and 5 percent of the grand total.
The General Fund is always a major fund. The City may also select other funds it believes should
be presented as major funds on a qualitative basis.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
47
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The City reported the following major governmental funds in the accompanying financial
statements:
General Fund – This is the City’s primary operating fund. It accounts for all financial resources
of the general government, except those required to be accounted for in another fund.
Capital Projects Fund – This fund accounts for resources used for the acquisition and
construction of capital facilities by the City, with the exception of those assets financed by
proprietary funds.
The City reported all of its enterprise funds as major funds in the accompanying financial
statements.
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 in the City.
Wastewater Collection Services Fund – This fund accounts for all financial transactions
relating to the City’s wastewater collection. Services are on a user-charge basis to residents and
business owners located in the City.
Wastewater Treatment Services Fund – This fund accounts for all financial transactions
relating to the City’s wastewater treatment. Services are on a user-charge basis to residents and
business owners located in the City.
Refuse Services Fund – This fund accounts for all financial transactions relating to the City’s
refuse service. Services are on a user-charge basis to residents and business owners located in the
City.
Storm Drainage Services Fund – This fund accounts for all financial transactions relating to the
City’s storm drain service. Services are on a user-charge basis to residents and business owners
located in the City.
Airport Fund – This fund was established to account for financial transactions relating to the
Palo Alto Airport. The City will be taking over operation of the airport from Santa Clara County
no later than 2017.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
48
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The City also reports the following funds:
Internal Service Funds – These funds account for fleet replacement and maintenance,
technology, central duplicating, printing and mailing services, administration of compensated
absences and health benefits, and the City’s self-insured workers’ compensation and general
liability programs, all of which are provided to other departments on a cost-reimbursement basis.
Also included is the Retiree Health Benefits Internal Service Fund, which accounts for benefits to
retirees.
Vehicle Replacement and Maintenance – This fund accounts for the maintenance and replacement
of vehicles and equipment used by all City departments. The source of revenues is on
reimbursement of fleet replacement and maintenance costs allocated to each department by usage
of vehicle..
Technology – This fund accounts for replacement and upgrade of technology, and covers four
primary areas used by all City departments: desktop, infrastructure, applications, and technology
research and development. The source of revenue is on reimbursement of costs for support
provided to other departments.
Printing and Mailing Services – This fund accounts for central duplicating, printing and mailing
services provided to all City departments. 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 Benefit – This fund accounts for the retiree health benefits.
Fiduciary Funds – These funds account for assets held by the City, an agent for assessment
districts and members of the Cable Joint Powers Authority. These funds are custodial in nature
and do not involve measurement of results of operations. The City maintains three agency funds.
The financial activities of these funds are excluded from the government-wide financial
statements, but are presented in separate fiduciary fund financial statements. Agency funds apply
the accrual basis of accounting but do not have a measurement focus.
California Avenue Parking Assessment District – This fund accounts for the receipts and
disbursements associated with the 1993 Parking District No. 92-13 Assessment Bonds.
Cable Joint Powers Authority – This fund accounts for the activities of the cable television
system on behalf of the members.
University Avenue Area Parking Assessment District – This fund accounts for the receipts and
disbursements associated with the Series 2001-A University Avenue Area Off-Street Parking
Assessments Bonds.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
49
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Basis of Accounting
The government-wide and proprietary fund financial statements are reported using the economic
resources measurement focus and the full accrual basis of accounting. Revenues are recorded
when earned and expenses are recorded at the time liabilities are incurred, regardless of when the
related cash flows take place.
Governmental funds are reported using the current financial resources measurement focus and
the modified accrual basis of accounting. Under this method, revenues are recognized when
measurable and available. The City considers revenues susceptible to accrual reported in the
governmental funds to be available if the revenues are collected within ninety days after year-end,
except for property taxes, which are collected within sixty days after year-end.
Expenditures are recorded when the related fund liability is incurred, except for principal and
interest on general long-term debt, claims and judgments, and compensated absences, which are
recognized as expenditures to the extent they have matured. General capital asset acquisitions are
reported as expenditures in governmental funds. Proceeds of general long-term debt and
acquisitions under capital leases are reported as other financing sources.
Revenues susceptible to accrual include taxes, intergovernmental revenues, interest and charges
for services.
Grant revenues are recognized in the fiscal year in which all eligibility requirements are met.
Under the terms of grant agreements, the City may fund certain programs with a combination of
cost-reimbursement grants, categorical block grants, and general revenues. Thus, both restricted
and unrestricted net assets 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.
The City follows those Financial Accounting Standards Board (FASB) Statements and
predecessor pronouncements issued before November 30, 1989, which do not conflict with
GASB Statements, in both the government-wide financial statements for the governmental and
business-type activities and the proprietary fund financial statements. The City has elected not to
apply FASB pronouncements issued after November 30, 1989 to business-type activities and
enterprise funds.
(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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
50
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Deposits and Investments
The City’s investments are carried at fair value, as required by GASB Statement No. 31,
Accounting and Financial Reporting for Certain Investments and for External Investment Pools.
The City adjusts the carrying value of its investments to reflect their fair value at each fiscal year-
end, and it includes the effects of these adjustments in income for that fiscal year.
(g) Inventory of Materials and Supplies
Materials and supplies are held for consumption and are valued at average cost. The consumption
method is used to account for inventories. Under the consumption method, inventories are
recorded as expenditures at the time inventory items are used, rather than purchased.
(h) 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 Fund. Amounts expected to be “permanently liquidated”, such as what is
due to be paid because of a realized employment action, are recorded as fund liabilities in the
General Benefits 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, specified in employment agreements.
During the fiscal year ended June 30, 2011, changes to the compensated absences were as follows
(in thousands):
Beginning balance 10,419$
Additions 5,770
Payments (6,803)
Ending balance 9,386$
Current portion 3,100$
(i) 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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
51
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Property Tax (Continued)
The County assesses property values, levies bills and collects taxes as follows:
Secured Unsecured
Lien Dates January 01 January 01
Levy Dates October 01 July 01
Due Dates 50% on November 01 Upon receipt of billing
50% on February 01
Delinquent after December 10 (for November)August 31
April 10 (for February)
The term “unsecured” refers to taxes on personal property other than real estate, land and
buildings. These taxes are secured by liens on the property being taxed. Property tax revenues
are recognized by the City in the fiscal year they are assessed, provided they become available as
defined above within 60 days after year-end.
(j) Rounding
All amounts included in the basic financial statements and footnotes are presented to the nearest
thousand in accordance with the City’s policy.
(k) Effects of New Pronouncements
During the year ended June 30, 2011, the City implemented the following GASB Statement:
In February 2009, GASB issued Statement No. 54, Fund Balance Reporting and Governmental
Fund Type Definitions. The objective of this Statement is to enhance the usefulness of fund
balance information by providing clearer fund balance classifications that can be more
consistently applied and by clarifying the existing governmental fund type definitions. This
Statement establishes fund balance classifications that comprise a hierarchy based primarily on
the extent to which a government is bound to observe constraints imposed upon the use of the
resources reported in governmental funds. The initial distinction in reporting fund balance
information is identifying amounts that are considered nonspendable, such as fund balance
associated with prepaid items. This Statement provides for additional classification as restricted,
committed, assigned and unassigned based on the relative strength of the constraints that control
how specific amounts can be spent. The details for the governmental fund balance classifications
prescribed under this Statement are separately discussed in Note 10.
In December 2009, GASB issued Statement No. 57, OPEB Measurements by Agent Employers
and Agent Multiple-Employer Plans. This statement clarifies that when actuarially determined
OPEB measures are reported by an agent multiple-employer OPEB plan and its participating
employers, those measures should be determined as of a common date and at a minimum
frequency to satisfy the agent multiple-employer OPEB plan’s financial reporting requirements.
The City participates in the California Employers’ Retirees Benefit Trust (CERBT), an agent
multiple-employer OPEB plan, which requires all participating employers to have the same
actuarial valuation date. As a result, the City conducted its biennial valuation on June 30, rather
than January 1, effective for 2011.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
52
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k) Effects of New Pronouncements (Continued)
The City is currently analyzing its accounting practices to determine the potential impact on the
financial statements for the following GASB Statements:
In November 2010, GASB issued Statement No. 60, Accounting and Financial Reporting for
Service Concession Arrangements. This Statement addresses how to account for and report
service concession arrangements (SCAs), a type of public-private or public-public partnership
that state and local governments are increasingly entering into. Common examples of SCAs
include long-term arrangements between a transferor (a government) and an operator
(governmental or nongovernmental entity) in which the transferor conveys to an operator the
right and related obligation to provide services through the use of infrastructure or another public
Asset in exchange for significant consideration, and the operator collects and is compensated by
fees from third parties. Application of this Statement is effective for the City’s fiscal year ending
June 30, 2013.
In November 2010, GASB issued Statement No. 61, The Financial Reporting Entity: Omnibus.
GASB Statement No. 61 is designed to improve financial reporting for governmental entities by
amending the requirements of GASB Statement No. 14, The Financial Reporting Entity, and
GASB Statement No. 34, Basic Financial Statements - and Management’s Discussion and
Analysis - for State and Local Governments, to better meet the needs of users and address
reporting entity issues that have come to light since these statements were issued in 1991 and
1999, respectively. GASB Statement No. 61 improves the information presented about the
financial reporting entity, which is comprised of a primary government and related entities
(component units) and amends the criteria for blending – that is, reporting component units as if
they were part of the primary government – in certain circumstances. Application of this
Statement is effective for the City’s fiscal year ending June 30, 2013.
In December 2010, GASB issued Statement No. 62, Codification of Accounting and Financial
Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements.
The objective of this Statement is to incorporate into the GASB’s authoritative literature certain
accounting and financial reporting guidance that is included in the FASB and AICPA
pronouncements issued on or before November 30, 1989, which does not conflict with or
contradict GASB pronouncements. This Statement also supersedes Statement No. 20, Accounting
and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use
Proprietary Fund Accounting. The requirements of this Statement are effective for the City’s
fiscal year ending June 30, 2013.
In June 2011, GASB issued Statement No. 63, Financial Reporting of Deferred Outflows of
Resources, Deferred Inflows of Resources, and Net Position. This Statement provides financial
reporting guidance for deferred outflows of resources and deferred inflows of resources. This
Statement also amends the net asset reporting requirements in Statement No. 34, Basic Financial
Statements—and Management’s Discussion and Analysis—for State and Local Governments, and
other pronouncements by incorporating deferred outflows of resources and deferred inflows of
resources into the definitions of the required components of the residual measure and by
renaming that measure as net position, rather than net assets. The requirements of this Statement
are effective for the City’s fiscal year ending June 30, 2013.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
53
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k) Effects of New Pronouncements (Continued)
In June 2011, GASB issued Statement No. 64, Derivative Instruments: Application of Hedge
Accounting Termination Provisions. This Statement sets forth criteria to establish when the
effective hedging relationship continues and hedge accounting should continue to be applied.
The requirements of this Statement enhance comparability and improve financial reporting by
clarifying the circumstances in which hedge accounting should continue when a swap
counterparty, or a swap counterparty’s credit support provider, is replaced. The requirements of
this Statement are effective for the City’s fiscal year ending June 30, 2012.
(l) 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 to the City Council a proposed operating budget for the fiscal year
commencing the following July 1. The operating budget includes proposed expenditures and the
means of financing them.
2. Public hearings are conducted to obtain public comments.
3. The Adopted Budget is legally enacted through passage of a budget ordinance for all funds except
Agency Funds.
4. The City Manager is authorized to reallocate funds from a contingent account maintained in the
General Fund in conformance with the adopted policies set by the City Council. Additional
appropriations to departments in the General Fund, or to total appropriations for all other budgeted
funds, or transfers of appropriations between funds, require approval by the City Council. These
amendments are added to the Adopted Budget and the resulting totals are reflected as Adopted
Budget amounts.
5. As defined in the municipal code, expenditures may not exceed budgeted appropriations at the
department level for the General Fund, and at the fund level for Special Revenue and Debt Service
Funds.
6. Formal budgetary integration is employed as a management control device during the year in all
funds except Agency Funds.
7. Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting
principles (GAAP) for all funds, except that General Fund encumbrances are treated as budgetary
expenditures when incurred.
8. Expenditures for the Capital Projects Fund are budgeted and maintained on a project length basis.
Budget to actual comparisons for these expenditures have been excluded from the accompanying
financial statements.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
54
NOTE 3 – CASH AND INVESTMENTS
The City pools cash from all sources and all funds, except restricted bond proceeds with fiscal agents, and
invests its pooled idle cash according to State of California law and the City’s Investment Policy. The
basic principles underlying the City’s investment philosophy are to ensure the safety of public funds,
ensure that sufficient funds are available to meet current expenditures, and achieve a reasonable rate of
return on investments.
Policies
The City invests in individual investments and in investment pools. Individual investments are evidenced
by specific identifiable securities instruments, or by an electronic entry registering the owner in the
records of the institution issuing the security, called the book entry system. In order to increase security,
the City employs the trust department of a bank as the custodian of certain City managed investments.
Classification
Cash and investments are classified in the financial statements as shown below, based on whether or not
their use is restricted under the terms of City debt instruments or agency agreements (in thousands):
Governmental Business-Type Fiduciary
Activities Activities Funds Total
Cash and investments:
Available for operations 148,452$ 237,409$ 3,118$ 388,979$
Held with fiscal agents 42,187 30,970 3,906 77,063
Held for landfill closure costs - 5,599 - 5,599
Total cash and investments 190,639$ 273,978$ 7,024$ 471,641$
Investments Authorized by the City’s Investment Policy and Debt Agreements
The table below identifies the investment types that are authorized by the City’s Investment Policy. The
table also identifies certain provisions of the City’s Investment Policy that address interest rate risk, credit
risk and concentration of credit risk. The table addresses investments of debt proceeds held by bond
trustees that are governed by the provisions of debt agreements of the City, rather than the general
provisions of the City’s Investment Policy.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
55
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. Government 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 AAA 15% $3 million (B)
Local Agency Investment Fund N/A N/A No Limit
$50 million per
account
Short-Term Repurchase Agreements 1 year N/A No Limit No Limit
City of Palo Alto Bonds N/A N/A No Limit No Limit
Money Market Deposit Accounts N/A N/A (E) No Limit No Limit
Mutual Funds (F) N/A N/A 20% 10%
Negotiable Certificates of Deposit 10 years N/A 10% $5 million
Medium-Term Corporate Notes 5 years AA 10% $5 million
10 years AA/AA2 10% No Limit
(A)
(B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution.
Debt Agreements:
(C)
(D)
(E)
(F) Utility Revenue Bonds 2002 Series A, Golf PIC COP 1998, University Avenue Parking Bond 2001 and University Avenue
Parking Bond 2002 are allowed to invest in the California Asset Management Program.
Authorized Investment Type
Bonds of State of California Municipal
Agencies
Callable and multi-step securities are limited to no more than 25% of the par value of the portfolio, provided that: 1) the
potential call dates are known at the time of purchase, 2) the interest rates at which they "step-up" are known at the time of
purchase, 3) the entire face value of the security is redeemed at the call date.
Utility Revenue Bonds 2002 Series A and 1999 Series A allow general obligations of states with a minimum credit quality
rating of A2/A by Moody's and Standard & Poor's.
Utility Revenue Bonds 2002 Series A and 1999 Series A require a minimum credit quality rating of A-1/P-1 by Moody's
and Standard & Poor's and maturing after no more than 360 days. Utility Revenue Bonds 1995 limit the maximum maturity
to 365 days.
Water Revenue Bonds 2009 Series A, Utility Revenue Bonds 2002 Series A and 1999 Series A require a minimum credit
quality rating of AAAm or AAAm-G by Standard & Poor's.
The City must maintain required amounts of cash and investments with trustees under the terms of certain
debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if the City
fails to meet its obligations under these debt issues. The California Government Code requires these
funds to be invested in accordance with City ordinance, bond indentures or State statute. All these funds
have been invested as permitted under the Code.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
56
NOTE 3 – CASH AND INVESTMENTS (Continued)
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates may adversely affect the fair value of an
investment. Normally, the longer the maturity of an investment, the greater the sensitivity of its fair value
to changes in market interest rates.
Information about the sensitivity of the fair values of the City’s investments (including investments held
by bond trustees) to market rate fluctuations is provided by the following table that shows the distribution
of the City’s investments by maturity or earliest call date (in thousands):
Type of Investments
Less Than One
Year
One to
Three Years
Three to
Five Years
Over
Five Years Total
U.S. Federal Agency Securities 42,379$ 107,942$ 113,381$ 96,853$ 360,555$
U.S. Treasury Notes 6,027 4,129 - - 10,156
Money Market Mutual Funds 21,326 - - - 21,326
California Asset Management Program 47,221 - - - 47,221
Local Agency Investment Fund 30,333 - - - 30,333
Total Investments 147,286$ 112,071$ 113,381$ 96,853$ 469,591
Certificates of Deposit 167
Cash in bank and on hand 1,883
Total Cash and Investments 471,641$
Local Agency Investment Fund
The City is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California
Government Code Section 16429 under the oversight of the Treasurer of the State of California. LAIF
management calculates the fair value and cost of the entire LAIF pool. The City adjusts its cost basis
invested in LAIF to fair value based on this ratio. The balance available for withdrawal on demand is
based on accounting records maintained by LAIF, which are recorded on an amortized cost basis. 5.01%
of LAIF’s investment portfolio are collateralized mortgage obligations, mortgage-backed securities, other
asset-backed securities, loans to certain state funds, and floating rate securities issued by federal agencies,
government-sponsored enterprises, and corporations. At June 30, 2011, these investments matured in an
average of 237 days.
California Asset Management Program
The City is a voluntary participant in the California Asset Management Program (CAMP). CAMP is an
investment pool offered by the California Asset Management Trust (the Trust). The Trust is a joint
powers authority and public agency created by the Declaration of Trust and established under the
provisions of the California Joint Exercise of Powers Act (California Government Code Sections 6500 et
seq., or the “Act”) for the purpose of exercising the common power of its participants to invest certain
proceeds of debt issues and surplus funds. The Pool’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, 2011, the fair value approximated the City’s cost. At June 30, 2011,
these investments have an average maturity of 57 days.
Money market mutual funds are available for withdrawal on demand and at June 30, 2011, matured in an
average of 28 days.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
57
NOTE 3 – CASH AND INVESTMENTS (Continued)
Investment with Fair Values Highly Sensitive to Interest Rate Fluctuations
At June 30, 2011, the City’s investments (including investments held by bond trustees) include U.S.
Federal Agency Callable Securities in the amount of $67.9 million that are highly sensitive to interest rate
fluctuations (to a greater degree than already indicated in the information provided above). These
securities are subject to early redemption in a period of declining interest rates. The resultant reduction in
expected total cash flows affects the fair value of these securities and makes the values of these securities
highly sensitive to changes in interest rates.
Credit Risk
Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the
investment. This is measured by the assignment of a rating by a nationally recognized statistical rating
organization. Presented below is the actual rating as provided by Standard & Poor’s investment rating
system as of June 30, 2011, for each investment type (in thousands):
Investment Type AAA/AAAm Total
U.S. Federal Agency Securities 360,555$ 360,555$
U.S. Treasury Notes 10,156 10,156
Money Market Mutual Funds 21,326 21,326
California Asset Management Program 47,221 47,221
Total 439,258$ 439,258
Not Rated:
Certificates of Deposit 167
Local Agency Investment Fund 30,333
Cash In Bank and On Hand 1,883
Total Cash and Investments 471,641$
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, 2011
(in thousands):
Investments Reporting Type
Fair Value at Year-End
(in thousands)
Federal Home Loan Bank U.S. Federal Agency Securities 130,100$
Federal Farm Credit Bank U.S. Federal Agency Securities 110,623
Federal National Mortgage Assoc.U.S. Federal Agency Securities 32,785
Federal Home Loan Mortgage Corp.U.S. Federal Agency Securities 28,581
On August 5, 2011, Standard & Poor's lowered its long-term credit rating on debt of the U.S. government
from “AAA” to “AA+.” This action affected Standard & Poor's view of U.S. public finance debt
instruments that are directly or indirectly backed by the U.S. As a result, on August 8, 2011, Standard &
Poor's lowered its long-term credit ratings of U.S. government-sponsored enterprises and public debt
issues that have credit enhancement guaranteed by those government-sponsored enterprises to “AA+.”
The credit downgrades relate to the credit risk associated with the City’s investments in U.S. Treasuries
and U.S. Agency Securities
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
58
NOTE 3 – CASH AND INVESTMENTS (Continued)
Custodial Credit Risk
California law requires banks and savings and loan institutions to pledge government securities with a
market value of 110 percent of the City’s cash on deposit or first trust deed mortgage notes with a value
of 150 percent of the deposit as collateral for these deposits. Under California Law, this collateral is held
in the City’s name and places the City ahead of general creditors of the institution. The City has waived
collateral requirements for the portion of deposits covered by federal deposit insurance.
The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a
transaction, the City will not be able to recover the value of its investment or collateral securities that are
in the possession of another party. The City’s Investment Policy limits its exposure to custodial credit
risk by requiring that all security transactions entered into by the City be conducted on a delivery-versus-
payment basis. Securities are to be held by a third-party custodian.
NOTE 4 – INTERFUND TRANSACTIONS
Transfers Between Funds
With Council approval, resources may be transferred from one City fund to another. The purpose of the
majority of transfers is to subsidize a fund. Less often, a transfer may be made to open or close a fund.
Transfers between City funds during FY 2011 were as follows (in thousands):
Fund Making Transfer
Amount
Transferred
General Fund Nonmajor Governmental Funds 1,212$ A
Water Services Fund 7 A
Electric Services Fund 11,231 A
Fiber Optics Fund 1 A
Gas Services Fund 5,311 A
Wastewater Collection Fund 4 A
Refuse Services Fund 166 A
Capital Projects Fund General Fund 9,858 B
Nonmajor Governmental Funds 1,081 B
Water Services Fund 8 B
Electric Services Fund 225 B
Fiber Optics Fund 7 B
Gas Services Fund 15 B
Wastewater Collection Fund 8 B
Nonmajor Governmental Funds General Fund 1,109 A
Nonmajor Governmental Funds 80 A
Subtotal 30,323$
Fund Receiving Transfer
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
59
NOTE 4 – INTERFUND TRANSACTIONS (Continued)
(Continued)
Fund Making Transfer
Amount
Transferred
Water Services Fund Capital Projects Fund 57$ C
Gas Services Fund 33 B
Wastewater Collection Fund 33 B
Electric Services Fund General Fund 33 E
Capital Projects Fund 117 C
Water Services Fund 200 B
Gas Services Fund 200 B
Gas Services Fund Capital Projects Fund 35 C
Refuse Services Fund Capital Projects Fund 138 C
Nonmajor Governmental Funds 232 E
Wastewater Collection Fund 75 B
Internal Service Funds 591 D
Wastewater Collection Fund Capital Projects Fund 75 B
Storm Drainage Services Fund Capital Projects Fund 325 B
Internal Service Funds Water Services Fund 234 C
Electric Services Fund 750 C
Gas Services Fund 366 C
Wastewater Collection Fund 151 C
Wastewater Treatment Fund 9 C
Refuse Services Fund 160 C
Storm Drainage Services Fund 32 C
Fiber Optics Fund 1 C
Subtotal 3,847
Total 34,170$
The reasons for these transfers are set forth below:
(A) Transfer to reimburse the General Fund for costs incurred for the benefit of funds making the transfer.
(B) Allocation of funds to construct capital assets.
(C) Transfer to return unspent construction funds.
(D) Transfer to refund replacement charges.
(E) Transfer to reimburse the Utility Funds for costs incurred for the benefit of funds making the transfer.
Fund Receiving Transfer
Interfund Commitment
During FY 2002, the City established the Palo Alto Redevelopment Agency (the Agency). The Agency
and the City have an agreement whereby the City will advance funds to the Agency in support of start-up
and formation costs. However, the interfund advances have no specific repayment date. Generally
accepted accounting principles require that such amounts be treated as transfers in the year made.
Advances without specified repayment terms total approximately $389,000 as of June 30, 2011. On
September 6, 2011, the City filed Ordinance No. 5126 dissolving the operations of the Agency and,
accordingly, this advance will not be repaid to the City.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
60
NOTE 4 – INTERFUND TRANSACTIONS (Continued)
Long-Term Interfund Advance
On December 6, 2010, the City Council accepted an Airport Business Plan of the Palo Alto Airport
(PAO) and approved creation of a new Airport Enterprise Fund to facilitate the transition of PAO control
from the Santa Clara County to the City. The Council approved the General Fund to fund the new Airport
Enterprise Fund in the amount of $300,000 for environmental analysis, legal and personnel costs for the
transition. According to the agreement, the Airport Fund will repay the $300,000 with interest equal to the
average return yield on the City’s investment portfolio in 6 years to the General Fund. As of
June 30, 2011, the outstanding amount is $300,000.
Internal Balances
Internal balances represent the net interfund receivables and payables remaining after the elimination of
all such balances within governmental and business-type activities.
NOTE 5 – NOTES AND LOANS RECEIVABLE
At June 30, 2011, the City’s notes and loans receivable totaled (in thousands):
Palo Alto Housing Corporation:
Oak Manor Townhouse 705$
Tree House Apartments 5,150
Emerson Street Project 375
Alma Single Room Occupancy Development 2,222
Barker Hotel 2,111
Sheridan Apartments 2,248
Oak Court Apartments, L.P. 7,835
Mid-Peninsula Housing Coalition:
Palo Alto Gardens Apartments 195
Community Working Group, Inc.1,280
Opportunity Center Associates, L.P.750
Home Rehabilitation Loans 76
Executive Relocation Assistance Loans 985
Below Market Rate Assessment Loans 74
Stevenson Housing:
Hot Water 81
Fire Alarm 48
Oak Manor Townhouse Water System 114
Palo Alto Senior Housing Project 28
Clara-Mateo Alliance 11
Lytton Gardens Assisted Living 101
Emergency Housing Consortium 75
Alma Gardens Apartments 1,150
Total Notes and Loans 25,614
Less: Valuation Allowance (14,805)
Total Notes and Loans, Net 10,809$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
61
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Housing Loans
The City engages in programs designed to encourage construction or improvement in low-to-moderate
income housing or other projects. Under these programs, grants or loans are provided under favorable
terms to homeowners or developers who agree to spend these funds in accordance with the City’s terms.
These loans have been offset by nonspendable, restricted or committed fund balances, as they are not
expected to be repaid immediately.
Some of these loans contain forgiveness clauses that provide for the amount loaned to be forgiven if the
third party maintains compliance with the terms of the loan and associated regulatory agreements. Since
some of these loans are secured by trust deeds, that are subordinated to other debt on the associated
projects or are only repayable from residual cash receipts on the projects, collectability of some of the
outstanding balances may not be realized. As a result of the forgiveness clauses and nature of these
housing projects and associated cash flows, a portion of the outstanding balances of the loans has been
offset by a valuation allowance.
Oak Manor Townhouse
On January 7, 1991, the City loaned $2.1 million to assist in the acquisition of an apartment complex to
be used to provide rental housing for low and very low income households. This loan bears interest at 3
percent, is due in annual installments until 2011 and is collateralized by a subordinated deed of trust.
Under the terms of the loan agreement, loan payments are forgiven if the Corporation meets the objective
of this project. During the year ended June 30, 2011, the objective was met. The annual loan payment
was forgiven for the calendar year ended December 31, 2010.
Tree House Apartments
In March 2009, the City agreed to loan $2.8 million to the Tree House Apartments, L.P. for the purchase
of the real property located at 488 West Charlton Road. On March 23, 2010, the City wired the full loan
amount to an escrow account. The loan consisted of $1.8 million funded by Community Development
Block Grant funds; the remaining $1 million was funded by residential funds. An additional development
loan in the amount of $2.5 million was approved by the City on October 18, 2010. As of June 30, 2011,
the outstanding balance for the Tree Housing Apartment in aggregate is $5.2 million. Principal and
interest payments will be deferred for 55 years. However, if the borrower has earned extra income, and if
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 March 23, 2064.
Emerson Street Project
On November 8, 1994, the City loaned $375,000 for expenses necessary to acquire an apartment complex
for the preservation of rental housing for low and very low income households in the City. This loan is
collateralized by a second deed of trust. The loan bears no interest until 2010 after which the loan bears
interest at 3 percent per year. The principal balance is due in 2034.
Alma Single Room Occupancy Development
On December 13, 1996, the City authorized $2.7 million to the Alma Place Associates, L.P. for the
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. Loan payments are deferred until 2014. The principal
balance is due in 2041.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
62
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Barker Hotel
On April 12, 1994, the City loaned a total of $2.1 million for the preservation, rehabilitation and
expansion of a low-income, single occupancy hotel. This loan was funded by three sources: $400,000
from the Housing In-Lieu Fund, $1 million from HOME Investment Partnership Program Funds, and
$670,000 from Community Development Block Grant funds. All three notes bear no interest and are
collateralized by a deed of trust, which is subordinated to private financing. Loan repayments are
deferred until 2035.
In July 2004, the City agreed to loan up to $41,000 to the Palo Alto Housing Corporation to rehabilitate
the interior of the Barker Hotel. The loan is funded entirely by Community Development Block Grant
funds and is collateralized by a deed of trust on the property. Annual loan payments are deferred until
certain criteria defined in the loan agreement are reached. The loan shall be forgiven if the borrower
satisfactorily complies with all the terms and conditions of the loan agreement.
Sheridan Apartments
On December 8, 1998, the City loaned $2.5 million to the Palo Alto Housing Corporation for the
purchase and rehabilitation of a 57-unit apartment complex to be used for senior and low-income housing.
The loan is funded by $1.6 million in Community Development Block Grant funds, and $825,000 in
Housing In-Lieu funds. The note bears interest at 9 percent when available surplus cash from the project
equals or exceeds 25 percent of interest calculated using 9 percent. When available surplus cash falls
below this level, the note bears interest at 3 percent. The note is collateralized by a second deed of trust
and an affordability reserve account held by the Palo Alto Housing Corporation. Annual loan payments
were deferred until the Palo Alto Housing Corporation accumulated $1 million in an affordability reserve
account. Two principal payments totaling $202,438 have been made, and interest has also been paid.
The remaining principal balance is due in 2033.
Oak Court Apartments
On August 18, 2003, in connection with the loan to Oak Court Apartments, L.P. discussed below, the City
loaned $5.9 million to the Palo Alto Housing Corporation for the purchase of land on which Oak Court
Apartments, L.P. constructed a 53-unit rental apartment complex for low and very low income
households with children. The note bears interest of 5 percent and is secured by a deed of trust. Annually
accrued interest is added to the principal balance and note payments are due annually after 55 years, or
beginning in 2058, unless the Palo Alto Housing Corporation elects to extend the note until 2102, as
defined in the regulatory agreement.
Oak Court Apartments, L.P.
On August 18, 2003, the City loaned $1.9 million to Oak Court Apartments, L.P. for the construction of a
53-unit rental apartment complex for low and very low-income households with children, which was
completed in April 2005. The note bears no interest until certain criteria defined in the note are satisfied,
at which time the note will bear an interest rate not to exceed 3 percent. The note is secured by a
subordinate deed of trust. The principal balance is due in 2060.
Palo Alto Gardens Apartments
On April 22, 1999, the City loaned $1 million to the Mid-Peninsula Housing Coalition (the Coalition) for
the purchase and rehabilitation of a 155-unit complex for the continuation of low-income housing. This
loan is funded by $659,000 in Community Development Block Grant funds and $341,000 in Housing In-
Lieu funds. The two notes bear interest at 3 percent and are secured by second deeds of trust and a City
Affordability Reserve Account held by the Coalition. Annual loan payments are deferred until certain
criteria defined in the notes are reached. Principal and interest payments began in FY 2008. The
principal balance is due in 2039.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
63
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Community Working Group, Inc.
On May 13, 2002, the City loaned $1.3 million to the Community Working Group, Inc. for
predevelopment, relocation and acquisition of land for development of an 89-unit complex and homeless
service center for very low income households. The loan is funded by $1.3 million of Community
Development Block Grant funds. The note bears no interest and is secured by a first deed of trust. No
repayment of the $1.3 million will be required, provided that compliance with the City’s agreement is
maintained. After 89 years of compliance with the regulatory agreement, the City’s loan would convert to
a grant and its deed of trust would be re-conveyed.
Opportunity Center Associates, L.P.
On July 19, 2004, the City loaned $750,000 for a 55-year term to the Opportunity Center Associates, L.P.
for construction of 89 units of rental housing for extremely low-income and very low-income households.
The loan is funded by $750,000 of residential housing funds. The note bears 3 percent interest and is
secured by a deed of trust. The loan remains outstanding and becomes due at the end of the 55-year term.
Home Rehabilitation Loans
The City administers a closed housing rehabilitation loan program initially funded with Community
Development Block Grant funds. Under this program, individuals with incomes below a certain level are
eligible to receive low interest loans for rehabilitation work on their homes. These loans are secured by
deeds of trust, which may be subordinated to subsequent encumbrances upon said real property with the
prior written consent of the City. The loan repayments may be amortized over the life of the loans,
deferred, or a combination of both.
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 the invested funds of the City for the year ended June 30 plus one-quarter of 1 percent. Principal
and interest payments are due bi-weekly. Employees must pay off any outstanding balance of their loans
within a certain period after ending employment with the City. As of June 30, 2011, the City had two
outstanding home loans, one from the previous City Manager and one from the current City Manager.
The original purchase cost for the previous City Manager’s home was $1.4 million and the City holds a
60 percent equity share. The loan balance owed as of June 30, 2011 was approximately $401,000. The
previous City Manager can remain in the home until December 2017, or until his children have left Palo
Alto public schools, whichever occurs first.
The original purchase cost for the current City Manager’s home was $1.9 million and the City holds a 75
percent equity share. The loan balance owed as of June 30, 2011 is approximately $459,000. During FY
2011, the Council authorized a capital improvement loan of $125,000. Loans for capital improvements
are made on a dollar for dollar matching basis, with an equal equity contribution made by the City
Manager. The loan balance owed as of June 30, 2011 was approximately $125,000.
Below Market Rate Assessment Loans
In December 2002, the City loaned $74,000 to below market rate homeowners with low incomes and/or
very limited assets for capital repairs, special assessments and improvements of their properties. The
loans bear interest at 3 percent and are secured by a deed of trust on each property. Loan payments are
deferred until 2032. In 2011, the City did not receive interest payments.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
64
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Stevenson Housing Hot Water
In July 2004, the City agreed to loan up to $38,000 to Palo Alto Senior Housing Project, Inc. to refurbish
the hot water piping system at the Stevenson House Senior Housing facility. In April 2005, the City
agreed to increase the loan by $45,000, bringing the total loan to $83,000. The loan is funded entirely by
Community Development Block Grant funds and bears simple interest of 6 percent. Principal and interest
payments were deferred until July 1, 2010. Since the borrower has complied with all terms and
conditions of the agreement, the loan will be written off.
Stevenson Housing Fire Alarm
In December 2006, the City agreed to loan up to $48,000 to the Palo Alto Senior Housing Project, Inc. to
repair and upgrade the existing fire alarm system at the Stevenson House Senior Housing facility. The
loan is funded entirely by Community Development Block Grant funds and bears simple interest of 6
percent. Principal and interest payments are deferred until July 1, 2012, as long as the borrower continues
to comply with all terms and conditions of the agreement.
Oak Manor Townhouse Water System
On May 12, 2003, the City Council approved to allocate $113,672 to Palo Alto Housing Corporation
Housing Apartments, Inc (PAHCA, Inc) to replace the water pipes with an intention to provide a
permanent solution to Oak Manor’s plumbing needs. 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 a subordinated to the existing City loan with
PAHCA, Inc of January 7, 1991 for the acquisition of the project site, which is discussed in this section
earlier.
Palo Alto Senior Housing Project
In July 2003, the City agreed to loan up to $45,000 to the Palo Alto Senior Housing Project for home
improvements in the independent living facility for low-income seniors. The loan is funded entirely by
Community Development Block Grant funds, bears interest at 6 percent and is secured by a deed of trust
on the property. Principal and interest on the loan shall be forgiven if the borrower satisfactorily complies
with all the terms set forth in the July 2003 agreement. In April 2008, the City provided $47,600 for the
purpose of repairing and upgrading the fire alarm system at the Senior Housing facility. As of June 30,
2011, the outstanding balance was $28,000.
Clara-Mateo Alliance
In July 2003, the City agreed to loan up to $200,000 to Clara-Mateo Alliance for rehabilitation of the
kitchen and the Elsa Segovia Center to provide services for the homeless. The loan is funded entirely by
Community Development Block Grant funds, bears interest at 6 percent and is secured by a deed of trust
on the property. Repayment of the loan will not be required unless the property is sold or the program
terminated. Principal and interest on the loan shall be forgiven if the borrower satisfactorily complies
with all the terms and conditions set forth in the July 2003 agreement.
Lytton Gardens Assisted Living
In June 2005, the City agreed to loan up to $109,000 to Community Housing, Inc. to upgrade and
modernize the existing kitchens at the senior residential facility known as Lytton Gardens Assisted
Living. The loan is funded entirely by Community Development Block Grant funds, and bears simple
interest of 3 percent. Principal and interest payments are deferred until July 1, 2035, as long as the
borrower continues to comply with all terms and conditions of the agreement.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
65
NOTE 5 – NOTES AND LOANS RECEIVABLE (Continued)
Emergency Housing Consortium
In November 2005, the City agreed to loan up to $75,000 to the Emergency Housing Consortium to cover
architectural expenses that will be incurred in rehabilitating and expanding the property. The loan is
funded entirely by Community Development Block Grant funds, and bears simple interest of 3 percent.
Principal and interest payments are deferred until July 1, 2035, as long as the borrower continues to
comply with all terms and conditions of the agreement.
Alma Garden Apartments
In March 2006, the City agreed to loan up to $1.2 million to Community Working Group, Inc. to acquire
a 10-unit multi-family housing complex known as the Alma Garden Apartments. The loan is funded
entirely by Community Development Block Grant funds. Principal and interest payments are deferred
until July 1, 2061, as long as the borrower continues to comply with all terms and conditions of the
agreement.
NOTE 6 – CAPITAL ASSETS
Valuation
All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not
available. Contributed capital assets are valued at their estimated fair value on the date contributed. The
City’s policy is to capitalize all assets when costs are equal to or exceed $5,000 and the useful life
exceeds one year. Infrastructure assets are capitalized when costs are equal to or exceed $100,000.
Proprietary fund capital assets are recorded at cost including significant interest costs incurred under
restricted tax-exempt borrowings, which finance the construction of capital assets. These interest costs,
net of interest earned on investment of proceeds of such borrowings, are capitalized and added to the cost
of capital assets during the construction period. Maintenance and repairs are expensed as incurred.
The City has recorded all its public domain capital assets, consisting of roadway and recreation and open
space, in its government-wide financial statements. GASB Statement No. 34 requires that all capital
assets with limited useful lives be depreciated over their estimated useful lives. Alternatively, the
“modified approach” may be used for certain capital assets. Depreciation is not provided under this
approach, but all expenditures on these assets are expensed unless they are additions or improvements.
The City has elected to use the depreciation method for its capital assets. The purpose of depreciation is
to spread the cost of capital assets equitably among all users over the life of those assets. The amount
charged to depreciation expense each year represents that year’s pro rata share of the cost of capital
assets.
Depreciation has been provided on capital assets. Depreciation of all 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 assets as a reduction in the book value of
capital assets.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
66
NOTE 6 – CAPITAL ASSETS (Continued)
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 10 - 30
Equipment:
Computer equipment 4
Office machinery and equipment 5
Machinery and equipment 10
Roadway network:
5 - 40
Recreation and open space network:
25 - 40
BUSINESS-TYPE ACTIVITIES
Buildings and structures 25 - 60
Vehicles and heavy equipment 3 - 10
Machinery and equipment 10 - 50
Transmission, distribution and treatment systems 10 - 100
Includes pavement, striping and legends, curbs, gutters and sidewalks, parking lots, traffic
signage, and bridges
Includes major park facilities, park trails, bike paths and medians
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
67
NOTE 6 – CAPITAL ASSETS (Continued)
General Capital Assets
Changes in the City’s general capital assets during the year ended June 30, 2011 were (in thousands):
Balance Balance
July 1, 2010 Additions Retirements Transfers June 30, 2011
Governmental activities
Nondepreciable capital assets:
Land and improvements 78,480$ -$ -$ 81$ 78,561$
Street trees 15,052 84 (252) 490 15,374
Intangible assets - 3,617 - 183 3,800
Construction in progress 32,334 32,736 (6,980) (21,793) 36,297
Total nondepreciable capital assets 125,866 36,437 (7,232) (21,039) 134,032
Depreciable capital assets:
Buildings and structures 114,605 36 - 9,275 123,916
Equipment 8,200 91 (13) 1,432 9,710
Roadway network 260,489 - - 7,086 267,575
Recreation and open space network 18,552 - (10) 3,246 21,788
Total depreciable capital assets 401,846 127 (23) 21,039 422,989
Less accumulated depreciation:
Buildings and structures (60,754) (2,482) - - (63,236)
Equipment (6,089) (359) 13 - (6,435)
Roadway network (101,197) (6,256) - - (107,453)
Recreation and open space network (5,978) (611) 10 - (6,579)
Total accumulated depreciation (174,018) (9,708) 23 - (183,703)
Depreciable capital assets, net 227,828 (9,581) - 21,039 239,286
Internal service fund capital assets
Construction in progress 637 2,521 - (3,007) 151
Equipment 51,311 58 (2,661) 3,007 51,715
Less accumulated depreciation (29,603) (4,695) 2,518 - (31,780)
Net internal service fund capital assets 22,345 (2,116) (143) - 20,086
Governmental activities capital assets, net 376,039$ 24,740$ (7,375)$ -$ 393,404$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
68
NOTE 6 – CAPITAL ASSETS (Continued)
Business-Type Capital Assets
Changes in the City’s enterprise fund capital assets during the year ended June 30, 2011 were
(in thousands):
July 1, 2010 Additions Retirements Transfers June 30, 2011
Business-type activities
Nondepreciable capital assets:
Land and improvements 4,971$ -$ -$ -$ 4,971$
Construction in progress 111,778 31,554 - (10,895) 132,437
Total nondepreciable capital assets 116,749 31,554 - (10,895) 137,408
Depreciable capital assets:
Buildings and structures 30,900 - (54) 1,014 31,860
Transmission, distribution and treatment systems 536,593 892 (1,728) 9,791 545,548
Total depreciable capital assets 567,493 892 (1,782) 10,805 577,408
Less accumulated depreciation:
Buildings and structures (7,281) (710) 18 - (7,973)
Transmission, distribution and treatment systems (226,703) (15,216) 800 - (241,119)
Total accumulated depreciation (233,984) (15,926) 818 - (249,092)
Depreciable capital assets, net 333,509 (15,034) (964) 10,805 328,316
Business-type activities capital assets, net 450,258$ 16,520$ (964)$ (90)$ 465,724$ 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 amounts allocated to each function or program are as follows (in thousands):
Governmental Activities Business-Type Activities
City Manager 28$ Water 1,388$
Community Services 973 Electric 7,331
Fire 126 Fiber Optics 267
Police 77 Gas 1,837
Public Works 8,240 Wastewater Collection 1,455
Planning 53 Wastewater Treatment 2,165
Non-departmental 10 Refuse 657
Library 201 Storm Drainage 826
Internal Service Funds 4,695 15,926$
14,403$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
69
NOTE 6 – CAPITAL ASSETS (Continued)
Construction In Progress and Completed Projects
Construction in progress during FY 2011 is comprised of the following (in thousands):
Governmental Activities
Expended to
June 30, 2011
ADA Compliance Cubberley Wing I Elevator 257$
Americans With Disabilities 1,066
Art Center Electrical & Mech Upgrades 963
Art Center Kiln Hood 85
Art In Public Places 65
Bicycle Boulevards Implementation Project 169
Building Systems Improvements 341
Charleston/Arastradero Corridor Plan 974
Children's Theatre Fire/Life Safety Upgrade 47
Civic Center Chiller Drive Replacement 72
Civic Center Infrastructure Improvements 3,804
College Terrace Library Improvements 33
College Terrace Traffic Calming 143
Comprehensive Parking 43
Crime Scene Evidence Collection Vehicle 174
Cubberley Mechanical & Electrical Upgrade 181
Downtown Library Improvements 3,774
Downtown Tree Grates 38
ECR/Stanford Intersection 254
El Camino/Ventura Traffic Signal 110
Fire Station Improvements 1,071
Foothills Park Interpretive Center Improvements 55
Golf Maintenance Yard 36
Greer Park Phase IV 1,610
Highway 101 Pedestrian/Bicycle Overpass 230
Interior Finishes Construction 370
Library & Comm Center Temp Facilities 658
Lot J Cowper/Webster Structural Repairs 39
Main Library Construction & Improvements 793
Mitchell Park Library & Community Center 1,230
Mitchell Park Library & Community Center 14,169
Municipal Service Center Improvements 192
Park Maintenance Shop Remodel 58
Park Restroom Installation 378
Public Safety Building Project 183
Rinconada Pool Plaster Construction 118
Roth Building Maintenance 165
Safe Routes To School (10026) 357
San Antonio Road Median Improvements 1,465
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
70
NOTE 6 – CAPITAL ASSETS (Continued)
Governmental Activities (Continued)
Expended to
June 30, 2011
School Site Irrigation 436$
Security System Improvements 215
Stern Community Center/Theater Ext. Paint 95
Ticket Machines 36
Traffic Signal Central System 36
Traffic Signal Upgrades 651
Other Construction in Progress 245
Vehicle Replacement Fund 151
Total Governmental Activities Construction In Progress 37,636$
Business-Type Activities
Storm drainage structural and water quality improvements 1,794$
Gas system extension replacements and improvements 17,333
Water system extension replacements and improvements 16,941
Electric distribution system improvements 13,840
Other electrical improvements projects 787
Water quality control plant equipment replacement and lab facilities 6,992
Sewer system rehabilitation and extensions 4,332
Other construction in progress 70,418
Total Business-Type Activities Construction In Progress 132,437$
Allocations of business-type activity administration and general expenses of $10.6 million have been
capitalized and included in amounts expended through June 30, 2011.
Major capital projects that are currently in progress, and the remaining capital commitment of each, are as
follows:
Mitchell Park Library and Community Center - $35.6 million
Main Library - $17.3 million
Art Center electrical and mechanical upgrades - $7.2 million
Civic Center infrastructure improvements - $2.6 million.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
71
NOTE 7 – GENERAL LONG-TERM OBLIGATIONS
The City’s Long-Term Obligations
Bond premiums and discounts of long-term debt issues are amortized over the life of the related debt.
Gains or losses between the net book value of debt and funds placed in escrow to defease that debt are
amortized over the remaining life of either the refunded debt or the refunding debt, whichever is shorter.
Effective for FY 2011, bond issuance costs have been reclassified to noncurrent assets, rather than netted
with long-term debt.
The City’s long-term debt issues and transactions, other than special assessment debt discussed in Note 8,
were as follows (in thousands):
Original Balance Balance Current
Issue Amount July 1, 2010 Additions Retirements June 30, 2011 Portion
Governmental Activities Debt:
General Long-Term Obligations:
1998 Golf Course
Certificates of Participation,
4.00 -5.00%, due 09/01/2018
7,750$ 4,060$ -$ 370$ 3,690$ 385$
2002A Civic Center Refinancing
Certificates of Participation,
2.00-4.00%, due 03/01/2012
3,500 795 - 390 405 405
2002B Downtown Parking Improvements
Certificates of Participation,
2.00-4.00%, due 03/01/2022
3,555 1,910 - 110 1,800 115
General Obligation Bonds 2010 Series A,
2.00-5.00%, due 08/01/2040
55,305 55,305 - - 55,305 765
Add: unamortized premium - 3,766 - 126 3,640 126
Total Governmental Activities Debt 70,110$ 65,836$ -$ 996$ 64,840$ 1,796$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
72
NOTE 7 – GENERAL LONG-TERM OBLIGATIONS (Continued)
Original Balance Balance Current
Issue Amount July 1, 2010 Additions Retirements June 30, 2011 Portion
Business-Type Activities Debt:
Enterprise Long-Term Obligations:
Utility Revenue Bonds
1995 Series A,
5.00-6.25%, due 06/01/2020
8,640$ 4,969$ -$ 375$ 4,594$ 395$
1999 Refunding,
3.25-5.25%, due 06/01/2024
17,735 13,235 - 520 12,715 550
2002 Series A,
3.00-5.00%, due 06/01/2026
26,055 18,885 - 833 18,052 872
2009 Series A,
1.80-5.95%, due 06/01/2035
35,015 35,015 - 825 34,190 835
Less: unamortized Premium/(Discount)(186) - (16) (170) -
Energy Tax Credit Bonds
2007 Series A, 0%, Due 12/15/2021 1,500 1,200 - 100 1,100 100
Less: unamortized Premium/(Discount)(65) - (6) (59) -
State Water Resources Loans
2007, 0%, due 06/30/2029 9,000 8,550 - 450 8,100 450
2009, 2.6%, due 11/30/2030 8,500 4,530 4,066 - 8,596 346
Total Business-Type Activities Debt 106,445$ 86,133$ 4,066$ 3,081$ 87,118$ 3,548$
Description of the City’s Long-Term Debt Issues
1998 Golf Course Certificates of Participation (COPs) – In August 1998, the City’s Public
Improvement Corporation issued Golf Course Improvement COPs, Series 1998, in the amount of $7.8
million to retire the 1978 Golf Course Lease Revenue Bonds, and to finance various improvements at the
Palo Alto Public Golf Course, including upgrading five fairways and various traps, trees and greens,
constructing new storm drain facilities, replacing the existing irrigation system, upgrading the driving
range, and installing new cart paths. The 1998 COPs are secured by lease revenues received by the Public
Improvement Corporation from golf course revenues or other unrestricted revenues of the City. Principal
and interest are payable semi-annually each March 1 and September 1.
2002A Civic Center Refinancing COPs – On January 16, 2002, the City issued $3.5 million of COPs to
refund the City’s 1992 COPs, which were subsequently retired. Principal payments for the 2002A COPs
are due annually on March 1 and interest payments semi-annually on March 1 and September 1, and are
payable from lease revenues received by the Corporation from the City’s available funds.
2002B Downtown Parking Improvement Project COPs – On January 16, 2002, the City issued $3.6
million of COPs to finance the construction of certain improvements to the non-parking area contained in
the City’s Bryant/Florence Garage complex. Principal payments are due annually on March 1 and interest
payments semi-annually on March 1 and September 1, and are payable from lease revenues received by
the Corporation from the City’s available funds.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
73
NOTE 7 – GENERAL LONG-TERM OBLIGATIONS (Continued)
On January 25, 2005, the City defeased $.9 million of the 2002B Downtown Parking Improvements
COPs. Surplus cash from the Civic Center Refinancing and Downtown Parking Improvement Project
Construction account were placed in an irrevocable trust to provide for future debt payments. The
defeasance resulted in an overall debt service savings of $1.5 million and an economic gain of $.5 million.
Accordingly, the trust account assets and the liability for the defeased bonds are not included on the
financial statements. The total defeased amount was completely paid off on March 1, 2011.
2010 General Obligation Bonds (GO) – On June 30, 2010, the City issued $55.3 million of GO bonds to
finance costs for constructing a new Mitchell Park Library and Community Center, as well as substantial
improvements to the Main 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.
The pledge of future Net Revenues for the above funds ends upon repayment of the $55.3 million
principal and $48.0 million interest as the remaining debt service on the bonds, which is scheduled to
occur in FY 2041. In FY 2011 there were no principal payments due.
1995 Utility Revenue Bonds, Series A – The City issued $8.6 million of Utility Revenue Bonds on
February 1, 1995 to finance certain extensions and improvements to the City’s Storm Drainage and
Surface Water System. The Bonds are special obligations of the City payable solely from and secured by
a pledge of and lien upon the revenues derived by the City from the funds, services and facilities of all
Enterprise Funds except the Refuse Services Fund and Fiber Optics Fund. Principal payments are payable
annually on June 1 and interest payments semi-annually on June 1 and December 1. A $2.9 million 6.3
percent term bond is due June 1, 2020.
As required by the Indenture, the City established a debt service reserve fund for the Bonds (the “Reserve
Account”), with a minimum funding level requirement in the Reserve Account (the “Reserve
Requirement”). At the time it issued the Bonds, the City satisfied the Reserve Requirement with a deposit
into the Reserve Account of a surety bond (the “Surety Bond”) in the amount of $685,340 issued by
Ambac Indemnity Corporation (renamed to Ambac Assurance Corporation in 1997).
On November 9, 2010, Ambac Financial Group Inc. (Ambac Financial) filed for bankruptcy protection
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of New York. Ambac Financial is a holding company whose affiliates provide financial guarantees and
financial services to its customers. Ambac Indemnity Corporation, now known as Ambac Assurance
Corporation, is a subsidiary of Ambac Financial. Ambac has issued a reserve fund surety bond of
$685,340 that expires on June 1, 2020 and is on deposit in the Reserve Fund account securing the Bonds.
According to the Trust Agreement for these bonds, in the event that such surety bond for any reason
terminates or expires, and the remaining amount on deposit in the Reserve Fund account is less than the
required reserve, the City is to address such shortfall by delivering to the trustee a surety bond or a letter
of credit meeting the criteria of a Qualified Reserve Facility under the Trust Agreement, or depositing
cash to the General Account in up to twelve equal monthly installments. Information about Ambac
Financial.is available on Form 10-K and Form 10-Q filed by Ambac Financial; the City refers to this
information for reference only, and does not intend to incorporate any such information herein. The City
is not certain about the effect of the bankruptcy proceedings, if any, on the Surety Bond.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
74
NOTE 7 – GENERAL LONG-TERM OBLIGATIONS (Continued)
The pledge of future Net Revenues for the above funds ends upon repayment of the $4.6 million principal
and $1.6 million interest as the remaining debt service on the bonds, which is scheduled to occur in 2020.
For FY 2011, Net Revenues, including operating revenues and non-operating interest earnings, amounted
to $237.3 million; operating costs, including operating expenses but not interest, depreciation or
amortization, amounted to $167.0 million. Net Revenues available for debt service amounted to $70.3
million, which represented coverage of 103.1 times over the $0.7 million in debt service.
1999 Utility Revenue and Refunding Bonds, Series A – The City issued $17.7 million of Utility
Revenue Bonds on June 1, 1999, to refund the 1990 Utility Revenue Refunding Bonds, Series A and the
1992 Utility Revenue Bonds, Series A, and to finance rehabilitation of the two Wastewater Treatment
sludge incinerators. The 1990 Utility Revenue Refunding Bonds, Series A and the 1992 Utility Revenue
Bonds, Series A, were subsequently retired.
The 1999 Bonds are special obligations of the City payable solely from and secured by a pledge of and
lien upon certain net revenues derived by the City’s sewer system and its storm and surface water system
(the “Storm Drain System”). As of June 30, 2001, the 1999 Bonds had been allocated to and were
repayable from net revenues of the following enterprise funds: Wastewater Collection (10.2 percent),
Wastewater Treatment (64.6 percent) and Storm Drainage (25.2 percent). Principal payments are payable
annually on June 1 and interest payments semi-annually on June 1 and December 1. A $3.1 million 5.3
percent term bond, and a $5.1 million 5.3 percent term bond are due June 1, 2021 and 2024, respectively.
As required by the Indenture, the City established a debt service reserve fund for the Bonds (the “Reserve
Account”), with a minimum funding level requirement in the Reserve Account (the “Reserve
Requirement”). At the time it issued the Bonds, the City satisfied the Reserve Requirement with a deposit
into the Reserve Account of a surety bond (the “Surety Bond”) in the amount of $1,647,300 issued by
Ambac Indemnity Corporation (renamed to Ambac Assurance Corporation in 1997).
On November 9, 2010, Ambac Financial Group Inc. (Ambac Financial) filed for bankruptcy protection
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of New York. Ambac Financial is a holding company whose affiliates provide financial guarantees and
financial services to its customers. Ambac Indemnity Corporation, now known as Ambac Assurance
Corporation, is a subsidiary of Ambac Financial. Ambac has issued a reserve fund surety bond of
$1,647,300 that expires on June 1, 2024 and is on deposit in the Reserve Fund account securing the
Bonds. According to the Trust Agreement for these bonds, in the event that such surety bond for any
reason terminates or expires, and the remaining amount on deposit in the Reserve Fund account is less
than the required reserve, the City is to address such shortfall by delivering to the trustee a surety bond or
a letter of credit meeting the criteria of a Qualified Reserve Facility under the Trust Agreement, or
depositing cash to the General Account in up to twelve equal monthly installments. Information about
Ambac Financial.is available on Form 10-K and Form 10-Q filed by Ambac Financial; the City refers to
this information for reference only, and does not intend to incorporate any such information herein. The
City is not certain about the effect of the bankruptcy proceedings, if any, on the Surety Bond.
The pledge of future Net Revenues for the above funds ends upon repayment of the $12.7 million
principal and $5.8 million interest as the remaining debt service on the bonds, which is scheduled to occur
in 2024. For FY 2011, Net Revenues, including operating revenues and non-operating interest earnings,
amounted to $40.8 million; operating costs, including operating expenses but not interest, depreciation or
amortization, amounted to $29.4 million. Net Revenues available for debt service amounted to $11.4
million, which represents coverage of 9.45 times over the $1.2 million in debt service.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
75
NOTE 7 – GENERAL LONG-TERM OBLIGATIONS (Continued)
2002 Utility Revenue Bonds, Series A – On January 24, 2002, the City issued $26.1 million of Utility
Revenue Bonds to finance certain improvements to the City’s water utility system and the City’s natural
gas utility system. Principal payments are due annually on June 1, and interest payments are due semi-
annually on June 1 and December 1 from 3 percent to 5 percent. The 2002 Revenue Bonds are secured by
net revenues generated by the Water Services and Gas Services Funds.
The pledge of future Net Revenues for the above funds ends upon repayment of the $18.1 million
principal and $7.8 million interest as the remaining debt service on the bonds, which is scheduled to
occur in 2026. For FY 2011, Net Revenues, including operating revenues and non-operating interest
earnings, amounted to $71.2 million; operating costs, including operating expenses but not interest,
depreciation or amortization, amounted to $51.7 million. Net Revenues available for debt service
amounted to $19.5 million, which represented coverage of 11.3 times over the $1.7 million in debt
service.
2007 Electric System Clean Renewable Energy Tax Credit Bonds, Series A – In October 2007, the
City issued $1.5 million of Electric Utility Clean Renewable Energy Tax Credit Bonds (CREBs), 2007
Series A, to finance the City’s photovoltaic solar panel project. The Bonds 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 Bonds 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 $1.1 million remaining debt
service on the bonds, which is scheduled to occur in 2021. For FY 2011, Net Revenues, including
operating revenues and non-operating interest earnings, amounted to $125.3 million; operating costs,
including operating expenses but not interest, depreciation or amortization, amounted to $85.9 million.
Net Revenues available for debt service amounted to $39.4 million, which represented coverage of
394 times over the $0.1 million in debt service.
2009 Water Revenue Bonds, Series A – On October 6, 2009, the City issued $35.0 million of Water
Revenue Bonds to finance certain improvements to the City’s water utility system. Principal payments are
due annually on June 1, and interest payments are due semi-annually on June 1 and December 1 from
1.80 percent to 5.95 percent. The 2009 Revenue Bonds are secured by net revenues generated by the
Water Services Fund. The 2009 Bonds were issued as bonds designated as “Direct Payment Build
America Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009 (“Build
America Bonds”). The City expects to receive a cash subsidy payment from the United States Treasury
equal to 35 percent of the interest payable on the 2009 Bonds. The lien of the 1995 Bonds on the Net
Revenues is senior to the lien on Net Revenues securing the 2009 Bonds and the 2002 Bonds. The City
received subsidy payments amounting to $609,798, which represents 35 percent of the two interest
payments due on December 1, 2010 and June 1, 2011.
The pledge of future Net Revenues for the above funds ends upon repayment of the the $34.2 million
principal and $27.4 million interest as the remaining debt service on the bonds, which is scheduled to
occur in 2035. For FY 2011, Net Revenues, including operating revenues and non-operating interest
earnings, amounted to $26.8 million; operating costs, including operating expenses but not interest,
depreciation or amortization, amounted to $21.8 million. Net Revenues available for debt service
amounted to $5.0 million, which represented coverage of 1.96times over the $2.6 million in debt service.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
76
NOTE 7 – GENERAL LONG-TERM OBLIGATIONS (Continued)
2007 State Water Resources Loan – In October 2007, the City approved the $9 million loan agreement
with State Water Resources Control Board (SWRCB) to finance the City’s Mountain View/Moffett Area
reclaimed water pipeline project. Under the terms of the contract, the City has agreed to repay $9 million
to the State in exchange for receiving $7.5 million in proceeds to be used to fund the Project. The
difference between the repayment obligation and proceeds amounts to $1.5 million and represents interest
on the outstanding balance. Loan proceeds are drawn down as the project progresses, and debt service
payments commenced on June 30, 2010. 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 $5 million loan
repayable to the City. This loan has been recorded as “Due from other government agencies” in the
accompanying financial statements.
2009 State Water Resources Loan – In October 2009, the City approved an $8.5 million loan agreement
with State Water Resources Control Board (SWRCB) to finance the City’s Ultraviolet Disinfection
project. As of June 30, 2011, the full loan in the amount of $8.5 million was drawn down and became
outstanding. Interest in the amount of $96,000 was accrued and added to the outstanding loan balance.
Debt Service Requirements (in thousands):
Debt service requirements are shown below for all long-term debt.
For the Year Ending
June 30 Principal Interest Total Principal Interest Total
2012 1,670$ 2,808$ 4,478$ 3,548$ 3,736$ 7,284$
2013 1,530 2,750 4,280 3,651 3,635 7,286
2014 1,575 2,694 4,269 3,775 3,505 7,280
2015 1,640 2,640 4,280 3,914 3,366 7,280
2016 1,690 2,575 4,265 4,069 3,216 7,285
2017-2021 8,600 11,576 20,176 22,942 13,465 36,407
2022-2026 7,820 9,705 17,525 23,984 8,247 32,231
2027-2031 9,570 7,667 17,237 12,569 4,382 16,951
2032-2036 11,985 5,209 17,194 8,895 1,361 10,256
2037-2041 15,120 1,964 17,084 - - -
Total 61,200$ 49,588$ 110,788$ 87,347$ 44,913$ 132,260$
Governmental Activities Business-Type Activities
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
77
NOTE 7 – GENERAL LONG-TERM OBLIGATIONS (Continued)
Debt Call Provisions
Long-term debt as of June 30, 2011 is callable on the following terms and conditions:
Initial Call Date
Governmental Activities Long-Term Debt
1998 Certificates of Participation 09/01/08 (3)
2002B Certificates of Participation 03/01/11 (2)
2010A General Obligation Bonds
$6.595 million due 08/01/2032 08/01/31 (4)
$4.890 million due 08/01/2034 08/01/33 (4)
$17.725 million due 08/01/2040 08/01/35 (4)
Business-Type Activities Long-Term Debt
Utility Revenue Bonds
1999 Refunding 06/01/09 (1)
2002 Series A 06/01/12 (1)
(1) Callable in inverse numerical order of maturity at par plus a premium of 2 percent beginning on the
initial call date. The call price declines subsequent to the initial date. (2) Callable in any order specified by the City at par plus a premium of 1 percent beginning on the
initial call date. The call price declines subsequent to the initial date.
(3) Callable in any order specified by the Trustee at par plus a premium of 1 percent beginning on the
initial call date. The call price declines subsequent to the initial date.
(4) Callable in any order specified by the City at par value plus any accrued interest beginning on the
initial call date.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
78
NOTE 7 – GENERAL LONG-TERM OBLIGATIONS (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, which are made by the City. Because they are similar to debt, the present value of
the total of the payments to be made by the City is recorded as long-term debt. The City’s leasing
arrangements are included in long-term obligations discussed above.
Conduit Financing
On December 15, 1996, the City acted as a financial intermediary in order to assist Lytton Gardens Health
Care Center in issuing Insured Revenue Refunding Bonds. The Bonds are payable solely from revenues
collected by Lytton Gardens Health Care Center. The City has not included these bonds in its basic
financial statements since it is not legally or morally obligated for the repayment of the bonds. At
June 30, 2011, the amount of bonds outstanding was $5.1 million.
Long-term Debt without City Commitment
On July 23, 2007, the City approved the issuance of two variable rate demand Tax-Exempt Revenue
Bonds by the Association of Bay Area Governments (ABAG) Finance Authority in the amounts of $160
million and $180 million for the construction of the Albert L. Schultz Jewish Community Center and a
new continuing care retirement community, respectively. The debt is payable by the borrowers, Albert L.
Schultz Jewish Community Center and 899 Charleston, LLC. The City has no legal or moral liability with
respect to the payment of these debts.
NOTE 8 – SPECIAL ASSESSMENT DEBT
Special Assessment Debt with no City Commitment
The California Avenue Parking Assessment District No. 92-13 issued Assessment Bonds of 1993, but the
City has no legal or moral liability with respect to the payment of this debt, which is secured only by
assessments on the properties in this District. Therefore, this debt is not included in Governmental
Activities long-term debt of the City. At June 30, 2011, the District’s outstanding debt amounted to
$750 thousand.
The University Avenue Area Off-Street Parking Assessment District issued Assessment Bonds of Series
2001-A, but the City has no legal or moral liability with respect to the payment of this debt, which is
secured only by assessments on the properties in this District. Therefore, this debt is not included in
Governmental Activities long-term debt of the City. At June 30, 2011, the District’s outstanding debt
amounted to $7.69 million. A portion of the proceeds from the 2001 Bonds amounting to $3.2 million
was used to defease the 1977 University Avenue Area Off-Street Parking Assessment District Bonds and
the 1989 University Avenue Area Off-street Parking Assessment District Refunding and Improvement
Bonds.
The University Avenue Area Off-Street Parking Assessment District issued Assessment Bonds of Series
2002-A, but the City has no legal or moral liability with respect to the payment of this debt, which is
secured only by assessments on the properties in this District. Therefore, this debt is not included in
Governmental Activities long-term debt of the City. In June 2004, $3.75 million of the bonds were called.
As of June 30, 2011, the remaining outstanding debt amounted to $27.0 million.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
79
NOTE 9 – LANDFILL CLOSURE AND POST-CLOSURE CARE
State and Federal laws and regulations require the City to properly close the Palo Alto Refuse Disposal
Site (Palo Alto Landfill) after it stops accepting waste by constructing a final cover on top of the
approximately 126 acre landfill to cap the wastes, and by performing certain maintenance and monitoring
activities at the site for a minimum of thirty years after closure. The first section of the landfill closed in
1991 was a 29-acre section designated “Phase I” costing $1.6 million. Phase I was subsequently
converted to a pastoral park (Byxbee Park) and opened to the public. The remaining sections of the
landfill are designated as Phase IIA (22.5 acres closed in 1992 at a cost of $.9 million), Phase IIB (23.2
acres closed in 2000 at a cost of $1.2 million) and Phase IIC, a 51.2 acre active area currently being filled.
Phase IIC is currently expected to be filled by 2011 and is projected for closure in 2012. The 30 years of
post-closure maintenance costs will be paid after the State certifies the Phase IIC closure (expected in
early 2013).
In accordance with State regulations, a final closure and post-closure maintenance plan was produced by a
consultant and submitted to State and local regulatory agencies in 2009. As part of this plan, the City’s
consultant updated cost forecasts for both the remaining Phase IIC closure and for the 30 year post-
closure maintenance activities.
Landfill closure and post-closure liabilities for FY 2011 were $10.8 million. Currently 99.9% percent of
the landfill capacity has been used to date. Based on estimated costs to be incurred in FY 2011, $10.8
million is expected to be recorded as future landfill closure and post-closure liability.
The City is required by State and Federal laws and regulations to make annual funding contributions to
finance closure and post-closure care. In FY 2011, for the $5.2 million post-closure maintenance, the City
changed its financial assurance mechanism from an enterprise fund mechanism to a pledge of revenue
agreement with the California Integrated Waste Management Board. The $5.6 million closure liability
remains under the enterprise fund mechanism. The City is in compliance with these requirements for the
year ended June 30, 2011.
The landfill closure balance as of June 30, 2011 comprised the following (in thousands):
Funding Mechanism
Closure 5,599$ Cash on hand
Post-closure care 5,172 Future revenues
Balance 10,771$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
80
NOTE 10 – NET ASSETS AND FUND BALANCES
Net Assets
Net assets are the excess of all the City’s assets over all its liabilities, regardless of fund. Net assets are
divided into three categories and are described below:
Invested in Capital Assets, Net of Related Debt describes the portion of net assets, which is represented by
the 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 assets, which is restricted as to use by the terms and conditions of
agreements with outside parties, governmental regulations, laws, or other restrictions which the City
cannot unilaterally alter. These principally include bond proceeds received for use on capital projects,
debt service requirements, and special revenue programs subject to limitations, defined regulations, and
laws underlying such programs.
Unrestricted describes the portion of net assets which is not restricted as to use.
Fund Balances
As prescribed by GASB Statement No. 54, governmental funds report fund balances in classifications
based primarily on the extent to which the City is bound to honor constraints on the specific purposes for
which amounts in the funds can be spent. Fund balances for governmental funds are made up of the
following:
Nonspendable Fund Balance – 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, land held for redevelopment and
long-term notes receivable. The corpus of the permanent fund is contractually required to be maintained
intact.
Restricted Fund Balance – 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 Fund Balance – comprised of amounts that can only be used for the specific purposes
determined by a formal action 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 (for example: resolution and ordinance).
Assigned Fund Balance – 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 official to which the City
Council has delegated the authority to assign amounts to be used for specific purposes.
Unassigned Fund Balance – 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 only 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 City implemented GASB 54 in FY2011 as discussed in Note 1. 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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
81
NOTE 10 – NET ASSETS AND FUND BALANCES (Continued)
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 operating expenditures, 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 operating expenditures.
As of June 30, 2011 total outstanding encumbrances related to governmental activities were $3.4 million
for the General Fund, $25.9 million for the Capital Projects Fund, and $0.7 million for the Special
Revenue Funds.
Enterprise Funds
At June 30, 2011, Enterprise Fund net assets (in thousands):
Water Electric Fiber Optics Gas
Wastewater
Collection
Wastewater
Treatment Refuse
Storm
Drainage Airport Total
Unrestricted
Rate stabilization
Supply -$ 57,091$ -$ 8,789$ -$ -$ -$ -$ -$ 65,880$
Distribution - 9,240 - 7,399 - - - - - 16,639
Operations 10,639 - 10,130 - 5,896 3,020 (5,049) 1,640 (118) 26,158
10,639 66,331 10,130 16,188 5,896 3,020 (5,049) 1,640 (118) 108,677
Emergency plant replacement 1,000 1,000 1,000 1,000 1,000 1,747 - - - 6,747
Calaveras - 55,558 - - - - - - - 55,558
Reappropriations 12,458 13,254 723 10,440 9,275 7,822 2,122 1,838 - 57,932
Commitments 1,416 2,330 86 6,734 976 2,679 1,533 1,549 91 17,394
Underground loan - 736 - - - - - - - 736
Notes & Loans - - - - - 560 - - - 560
Landfill corrective action - - - - - - 665 - - 665
Public benefit program - 3,139 - - - - - - - 3,139
Central Valley Project - 305 - - - - - - - 305
Total 25,513$ 142,653$ 11,939$ 34,362$ 17,147$ 15,828$ (729)$ 5,027$ (27)$ 251,713$
The City Council has set aside unrestricted net assets for general contingencies, future capital and debt
service expenditures including operating and capital contingencies for unusual or emergency
expenditures.
Internal Service Funds
At June 30, 2011, Internal Service Funds unrestricted net assets (in thousands):
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 assets:
Commitments 1,684$ 1,330$ 59$ 339$ 14$ 18$ -$ 3,444$
Future catastrophic losses - - - - 86 82 - 168
Retiree health care - - - - - - 26,285 26,285
Capital Projects 951 10,212 28 - - - - 11,191
Available 5,175 2,082 (139) 626 - - - 7,744
Total 7,810$ 13,624$ (52)$ 965$ 100$ 100$ 26,285$ 48,832$
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
82
NOTE 10 – NET ASSETS AND FUND BALANCES (Continued)
Commitments represents the portion of net assets set aside for open purchase orders.
Future catastrophic losses is the portion of net assets to be used for unforeseen future losses.
Retiree health care represents the portion of net assets set aside to defer future costs of retiree health care
coverage.
Capital projects represents the portion of net assets set aside for adopted capital projects.
NOTE 11 – PENSION PLANS
CalPERS Safety and Miscellaneous Employees’ Plans
Substantially all permanent City employees are eligible to participate in pension plans offered by the
California Public Employees’ Retirement System (CalPERS), an agent for multiple employer defined
benefit pension plans, which acts as a common investment and administrative agent for its participating
member employers. CalPERS provides retirement and disability benefits, annual cost of living
adjustments and death benefits to plan members, who must be public employees and beneficiaries. The
City’s employees participate in the Safety (police and fire) and Miscellaneous (all other) Employee Plans.
Benefit provisions under both Plans are established by State statute and City resolution. Benefits are
based on years of credited service, equal to one year of full-time employment. Funding contributions for
both Plans are determined annually on an actuarial basis as of June 30 by CalPERS.
The Plans’ provisions and benefits in effect at June 30, 2011, are summarized as follows:
Safety Miscellaneous
Benefit vesting schedule 5 years service 5 years service
Benefit payments monthly for life monthly for life
Retirement age 50 50
Monthly benefits, as a % of annual salary 3%1.092 - 3%
Required employee contribution rates 9%7.999%
Required employer contribution rates 24.695%17.555%
Effective July 17, 2010, the City implemented a 2 percent at 60 retirement plan for Miscellaneous
employees.
The City’s current labor contracts with Safety Police and Safety Management employees require it to pay
employee contributions as well as its own. Starting January 2, 2010, Safety Fire employees paid the entire
employee contribution of 9 percent and the City paid the employer contributions. Within the
Miscellaneous group, Service Employees International Union (SEIU) employees contribute 5.75 percent
of the employee contributions with the City paying the balance. Within the Miscellaneous group, the
management employees contribute 2 percent of the employee contributions with the City paying the
balance. Contributions are collected through payroll deductions and the City remits those contributions to
CalPERS.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
83
NOTE 11 – PENSION PLANS (Continued)
CalPERS determines contribution requirements using a modification of the Entry Age Normal Method.
Under this method, the City’s total normal benefit cost for each employee from date of hire to date of
retirement is expressed as a level percentage of the related total payroll cost. Normal benefit cost under
this method is the level amount the employer must pay annually to fund an employee’s projected
retirement benefit. This level percentage of payroll method is used to amortize any unfunded actuarial
liabilities. The actuarial assumptions used to compute contribution requirements are also used to compute
the actuarial accrued liability. The City does not have a net pension obligation since it pays these
actuarially required contributions monthly.
Actuarially determined employer and employee contributions for all plans for fiscal years 2011, 2010 and
2009 were $24 million in each of those years. The City made these contributions as required, together
with certain immaterial amounts required as the result of the payment of overtime and other additional
employee compensation.
The City uses the actuarially determined percentages of payroll to calculate and pay contributions to
CalPERS. This results in no net pension obligations or unpaid contributions. Annual Pension Costs
representing the payment of annual required contributions determined by CalPERS for the last three fiscal
years were as follows (in thousands):
Fiscal Year Ended
Annual
Pension Cost
(APC)
Percent of
APC
Contributed
Net Pension
Obligation
Safety Plan
June 30, 2009 5,437$ 100%-$
June 30, 2010 5,441 100%-
June 30, 2011 6,029 100%-
Miscellaneous Plan
June 30, 2009 10,963 100%-
June 30, 2010 10,891 100%-
June 30, 2011 12,354 100%-
CalPERS uses the market related value method of valuing the Plan’s assets. An investment rate of return
of 7.75 percent is assumed, including inflation at 3 percent. Annual salary increases are assumed to vary
by duration of service. Changes in liability due to plan amendments, changes in actuarial assumptions, or
changes in actuarial methods are amortized as a level percentage of payroll on a closed basis over twenty
years. Investment gains and losses are tracked and amortized over 30 years.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
84
NOTE 11 – PENSION PLANS (Continued)
The Schedule of Funding Progress presents multi-year trend information about whether the actuarial
value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for
benefits. The Plans’ actuarial value (which differs from market value) and funding progress over the most
recently available three years is set forth below at their actuarial valuation date of June 30 (in thousands):
Safety Plan:
Valuation Date
Entry Age
Accrued
Liability Value of Assets
Unfunded
Liability
Funded
Ratio
Annual
Covered
Payroll
Unfunded
Liability as a %
of Payroll
2008 258,964$ 228,883$ 30,081$ 88.4%22,181$ 135.6%
2009 280,293 236,274 44,019 84.3%22,087 199.3%
2010 293,895 244,413 49,482 83.2%23,030 214.9%
Miscellaneous Plan:
Valuation Date
Entry Age
Accrued
Liability Value of Assets
Unfunded
Liability
Funded
Ratio
Annual
Covered
Payroll
Unfunded
Liability as a %
of Payroll
2008 443,337$ 379,837$ 63,500$ 85.7%63,934$ 99.3%
2009 499,200 398,765 100,435 79.9%65,602 153.1%
2010 521,269 416,810 104,459 80.0%62,496 167.1%
Actuarial
Actuarial
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
85
NOTE 11 – PENSION PLANS (Continued)
The significant actuarial assumptions adopted by CalPERS’ Board of Administration that were used to
prepare the City’s actuarial valuations for both the Safety and Miscellaneous Plans are as follows:
Safety Plan
Valuation Date 6/30/2010*6/30/2008**
Actuarial Cost Method Entry Age Normal Cost Method Entry Age Normal Cost Method
Amortization Method Level percent of payroll Level percent of payroll
Average Remaining Period 29 Years as of the Valuation Date 32 Years as of the Valuation Date
Asset Valuation Method 15 Year Smoothed Market 15 Year Smoothed Market
Actuarial Assumptions:
Investment Rate of Return 7.75% (net of administrative expenses) 7.75% (net of administrative expenses)
Projected Salary Increases 3.55% to 13.15% depending on age,
service, and type of employment
3.25% to 13.15% depending on age,
service, and type of employment
Inflation 3.00% 3.00%
Payroll Growth 3.25% 3.25%
Individual Salary Growth A merit scale varying by duration of
employment coupled with an assumed
annual inflation growth of 3.00% and an
annual production growth of 0.25%.
A merit scale varying by duration of
employment coupled with an assumed
annual inflation growth of 3.00% and an
annual production growth of 0.25%.
Miscellaneous Plan
Valuation Date 6/30/2010*6/30/2008**
Actuarial Cost Method Entry Age Normal Cost Method Entry Age Normal Cost Method
Amortization Method Level percent of payroll Level percent of payroll
Average Remaining Period 20 Years as of the Valuation Date 19 Years as of the Valuation Date
Asset Valuation Method 15 Year Smoothed Market 15 Year Smoothed Market
Actuarial Assumptions:
Investment Rate of Return 7.75% (net of administrative expenses) 7.75% (net of administrative expenses)
Projected Salary Increases 3.55% to 14.45% depending on age,
service, and type of employment
3.25% to 14.45% depending on age,
service, and type of employment
Inflation 3.00% 3.00%
Payroll Growth 3.25% 3.25%
Individual Salary Growth A merit scale varying by duration of
employment coupled with an assumed
annual inflation growth of 3.00% and an
annual production growth of 0.25%.
A merit scale varying by duration of
employment coupled with an assumed
annual inflation growth of 3.00% and an
annual production growth of 0.25%.
* The June 30, 2010 valuations, which are the most recent valuations, were used to disclose the funded status.
** The June 30, 2008 valuations were used to determine the contribution requirements for FY 2010/11
Audited annual financial statements and six-year trend information are available from CalPERS at
P.O. Box 942709, Sacramento, CA 94229-2709.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
86
NOTE 12 – RETIREE HEALTH BENEFITS
In addition to providing pension benefits, the City participates in the California Public Employees’
Medical and Health Care Act program to provide certain health care benefits for retired employees.
Employees who retire directly from the City are eligible for retiree health benefits if they retire on or after
age 50 with 5 years of service and are receiving a monthly pension from CalPERS.
For all employees hired before January 1, 2004, the City pays for 100 percent of the cost of retiree health
benefits for retirees for their lifetimes. The City also pays a portion of health benefits for dependents of
retirees equal to 90 percent of the premiums for 2011 and increasing 5 percent per year until the City’s
share reaches 100 percent of dependent premiums for 2013 and beyond.
For management employees, fire fighter and fire chief association members hired on or after January 1,
2004, and SEIU employees hired on or after January 1, 2005, the City pays for 50 percent of the above
described benefits after 10 years of service, and the City's portion increases by 5 percent for each
additional year of service up to 20 years. For management, fire fighter and fire chief association members
who retire on or after January 1, 2006, and for SEIU employees who retire on or after January 1, 2007, the
maximum premium amount the City will pay toward health insurance will be equal to the second highest
CalPERS Bay Area Basic plan premium (currently the Blue Shield HMO premium).
During FY 2008, the City implemented the provisions of Governmental Accounting Standards Board
Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other
Than Pensions. This Statement establishes uniform financial reporting standards for employers providing
other postemployment benefits (OPEB). As part of the implementation, the City elected to participate in
an irrevocable trust to provide a funding mechanism for the OPEB and to apply the provisions of the
statement on a prospective basis. The Trust, California Employers’ Retirees Benefit Trust (CERBT), is
administrated by CalPERS and managed by a separately appointed board, which is not under control of
the City Council. This Trust is not considered a component unit of the City.
Funding Policy and Actuarial Assumptions
The City’s policy is to prefund these benefits by accumulating assets in the Trust Fund discussed above
pursuant to City Council Resolution. The annual required contribution (ARC) was determined as part of a
January 1, 2009, actuarial valuation using the entry age normal actuarial cost method. This is a projected
benefit cost method, which takes into account those benefits that are expected to be earned in the future as
well as those already accrued. The actuarial assumptions include: (a) 7.75 percent investment rate of
return, (b) 3.25 percent projected annual salary increase, and (c) 5 percent health inflation increase. The
actuarial methods and assumptions used include techniques that smooth the effects of short-term volatility
in actuarial accrued liabilities and the actuarial value of assets. Actuarial calculations reflect a long-term
perspective and actuarial valuations involve estimates of the value of reported amounts and assumptions
about the probability of events far into the future. The calculations are based on the types of benefits
provided under the terms of the substantive plan at the time of each valuation and on the pattern of
sharing costs between the City and plan members to that point. Actuarially determined amounts are
subject to revision at least biannually as results are compared to past expectations and new estimates are
made about the future. The City’s OPEB unfunded actuarial accrued liability is being amortized as a level
percentage of projected payroll using a 30 year open amortization period.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
87
NOTE 12 – RETIREE HEALTH BENEFITS (Continued)
Generally accepted accounting principles permit assets to be treated as OPEB assets and deducted from
the Actuarial Accrued Liability when such assets are placed in an irrevocable trust or equivalent
arrangement. During the year ended June 30, 2011, the City made contributions and amortized the Net
OPEB asset to fund the current year ARC. As a result, the City has calculated and recorded the Net OPEB
Asset, representing the difference between the ARC, amortization and contributions, as presented below
(in thousands):
Annual required contribution 9,786$
Amortization on the Net OPEB Asset 2,280
Interest on the Net OPEB Asset (1,801)
Annual OPEB Cost 10,265
Contributions made:
Contributions to OPEB Trust 1,832
Contributions to Retirees 1,981
City portion of current year premiums paid*6,216
Total contributions made 10,029
Change in Net OPEB Asset (236)
Net OPEB Asset, beginning of year 23,242
Net OPEB Asset, end of year 23,006$
* FY 2011 premiums for 860 retirees.
Shortly after year-end, the City contributed an additional $2.4 million to the Trust.
The Plan’s annual required contributions and actual contributions for the past three years ended June 30
are set forth below (in thousands):
Fiscal Year
Annual OPEB
Cost
Actual
Contribution
Percentage
of OPEB
Cost
Net OPEB
Obligation
(Asset)
June 30, 2009 8,729$ 5,904$ 68%(26,352)$
June 30, 2010 10,329 7,219 70%(23,242)
June 30, 2011 10,265 10,029 98%(23,006)
The Schedule of Funding Progress presents multi-year trend information about whether the actuarial
value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for
benefits. Trend data from the actuarial studies is presented below (in thousands):
Valuation Date
Entry Age
Accrued
Liability
Value of
Assets
Unfunded
Liability
Funded
Ratio
Annual
Covered
Payroll
Unfunded
Liability as a
% of Payroll
January 1, 2007 102,237$ -$ 102,237$ 0.0% 97,600$ 104.8%
January 1, 2009 129,661 24,616 105,045 19.0% 98,940 106.2%
January 1, 2011 169,979 35,294 134,685 20.8% 80,664 167.0%
June 30, 2011 *179,923 40,222 139,701 22.4% 83,285 167.7%
* In accordance with GASB Statement No. 57, the CERBT required all trust participants to use a common valuation date.
Therefore, the City is required to conduct its biennial valuation on June 30, rather than January 1, effective for 2011.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
88
NOTE 12 – RETIREE HEALTH BENEFITS (Continued)
The retiree activities in the City’s Retiree Health Benefit Internal Service Fund consist of the following
for the year ended June 30 (in thousands):
Retiree Health Benefits 2011 2010
Net assets, beginning of year 25,504$ 26,362$
Interest earnings 60 73
Unrealized gain (loss) on investments 35 49
Interdepartmental charges 10,980 9,698
Compensated benefits (10,294) (10,614)
Transfers in (out)- (64)
Net assets, end of year 26,285$ 25,504$
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 now 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 programs, which are administered by a service
agent. The City is self-insured for the dental coverage.
The City has a workers’ compensation insurance policy with coverage up to the statutory limit set by the
State of California. The City retains the risk for the first $500,000 in losses for each accident and
employee under this policy.
The City also has public employee dishonesty insurance with a $5,000 deductible and coverage up to $1
million per loss.
The City’s property and machinery insurance policy has various deductibles and various coverage based
on the type of machinery.
The City is a member of the Authority for California Cities Excess Liability (ACCEL), which provides
general liability, including auto liability, insurance coverage up to $74 million per occurrence. The City
retains the risk for the first $1 million in losses for each occurrence under this policy.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
89
NOTE 14 – RISK MANAGEMENT (Continued)
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 management and approval of
the annual budget.
The City’s deposits with ACCEL equal the ratio of the City’s payroll to the total payrolls of all entities.
Actual surpluses or losses are shared according to a formula developed from overall loss costs and spread
to member entities on a percentage basis after a retrospective rating.
During the year ended June 30, 2011, the City contributed $0.9 million to ACCEL for current year
coverage.
Audited financial statements are available from ACCEL at 160 Spear Street, San Francisco, California
94105-2709.
Claims Liability
The City provides for the uninsured portion of claims and judgments in the General Benefits and
Insurance Internal Service Funds. Claims and judgments, including a provision for claims incurred but
not reported, and claim adjustment expenses are recorded when a loss is deemed probable of assertion and
the amount of the loss is reasonably determinable. As discussed above, the City has coverage for such
claims, but it has retained the risk for the deductible or uninsured portion of these claims.
The City’s liability for uninsured claims is limited to dental, general liability, and workers’ compensation
claims, as discussed above. Dental liability is based on a percentage of current year actual expense.
General and workers’ compensation liabilities are based on the results of actuarial studies, and include
amounts for claims incurred but not reported as follows as of June 30 (in thousands):
2011 2010
Beginning balance 21,478$ 21,438$
Liability for current and prior fiscal years claims and
claims incurred but not reported (IBNR)6,665 4,385
Claims paid (4,240) (4,345)
Ending balance 23,903$ 21,478$
Current portion 5,873$ 6,532$
Year Ended June 30
The City has not incurred a claim that has exceeded its insurance coverage limits in any of the last three
years, nor have there been any significant reductions in insurance coverage.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
90
NOTE 15 – JOINT VENTURES
General
The City participates in joint ventures through Joint Powers Authorities (JPAs) established under the Joint
Exercise of Powers Act of the State of California. As separate legal entities, these JPAs exercise full
powers and authorities within the scope of the related Joint Powers Agreement, including the preparation
of annual budgets, accountability for all funds, the power to make and execute contracts and the right to
sue and be sued. Obligations and liabilities of the JPAs are not those of the City.
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, 2011, the City incurred expenses totaling $56.4 million for purchased
power and assessments earned by NCPA.
The City’s interest in NCPA projects and reserves, as computed by NCPA, was $7.2 million at June 30,
2011. This amount represents the City’s portion of funds, which resulted from the settlement with third
parties of issues with financial consequences and reconciliations of several prior years’ budgets for
programs. It is recognized that all the funds credited to the City are linked to the collection of revenue
from the City’s ratepayers, or to the settlement of disputes relating to electric power supply and that the
money was collected from the City’s ratepayers to pay power bills. Additionally, the NCPA Commission
identified and approved the funding of specific reserves for working capital, accumulated employees’
post-retirement medical benefits, and billed property taxes for the geothermal project. The Commission
also identified a number of contingent liabilities that may or may not be realized, the cost of which in
most cases is difficult to estimate at this time. One such contingent liability is the steam field depletion,
which will require funding to cover debt service and operational costs in excess of the expected value of
the electric power. The General Operating Reserve 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. These funds are available on demand, but the City has left them 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.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
91
NOTE 15 – JOINT VENTURES (Continued)
Geothermal Projects
A purchased power agreement with NCPA obligated the City for 6.2 percent and 6.2 percent,
respectively, of the operating costs and debt service of the two NCPA 110-megawatt geothermal
steampowered generating plants, Project Number 2 and Project Number 3.
The City’s participation in the Geothermal Project was sold to Turlock Irrigation District in October 1984.
Accordingly, the City is liable for payment of outstanding geothermal related debt only in the event that
Turlock fails to make specified payments. Total outstanding debt of the NCPA Geothermal Project at
June 30, 2011 is $79.4 million. The City’s participation in this project was 6.2 percent, or $4.9 million.
NCPA’s Geothermal Project has experienced a greater than originally anticipated decline in steam
production from geothermal wells on its leasehold property. Results of the continuing well analysis
program indicate that the potential productive capacity of the geothermal steam reservoir is less than
originally estimated. Therefore, NCPA has modified the operations of the Geothermal Project to reduce
the average annual output from past levels. As a result, the per unit cost of energy generated by the
projects will be higher than anticipated.
NCPA will continue to monitor the wells while pursuing alternatives for improving and extending
reservoir performance, including supplemental water re-injection, plant equipment modifications, and
changes in operating methodology. NCPA, along with other steam field operators, has observed a
substantial increase in steam production in the vicinity of re-injection wells and is attempting to increase
water re-injection at strategic locations. NCPA, other steam developers, and the Lake County Sanitation
District are constructing a wastewater pipeline project that will greatly increase the amount of water
available for re-injection.
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, 2011, the
book value of this Project’s plant, equipment and other assets was $417.5 million, while its long-term
debt totaled $367.3 million and other liabilities totaled $50.2 million. The City’s share of the Project’s
long-term debt amounted to $84.2 million at that date.
Geothermal Public Power Line
In 1983, NCPA, the Sacramento Municipal Utility District, the City of Santa Clara and the Modesto
Irrigation District (Joint Owners) initiated studies for a Geothermal Public Power Line (GPPL), which
would carry power generated at several existing and planned geothermal plants in The Geysers area to a
location where the Joint Owners could receive it for transmission to their load centers. NCPA has an 18.5
percent share of this Project and the City has an 11.1 percent participation in NCPA’s share. In 1989, the
development of the proposed Geothermal Public Power Line was discontinued because NCPA was able to
contract for sufficient transmission capacity to meet its needs in The Geysers.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
92
NOTE 15 – JOINT VENTURES (Continued)
However, because the project financing provided funding for an ownership interest in a Pacific Gas &
Electric (PG&E) transmission line, a central dispatch facility and a performance bond pursuant to the
Interconnection Agreement with PG&E, as well as an ownership interest in the proposed GPPL, NCPA
issued $16 million in long-term, fixed-rate revenue bonds in November 1989 to defease the remaining
variable rate refunding bonds used to refinance this project. The City is obligated to pay its 11.1 percent
share of the related debt service, but debt service costs are covered through NCPA billing mechanisms
that allocate the costs to members based on use of the facilities and services.
At June 30, 2011, the book value of this Project’s plant, equipment and other assets was zero, and its
long-term debt totaled zero.
NCPA Financial Information
NCPA’s financial statements can be obtained from NCPA, 180 Cirby Way, Roseville, CA 95678.
Transmission Agency of Northern California (TANC)
The City is a member of a joint powers agreement with 14 other entities in the 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 obligated to pay zero
percent of TANC’s debt-service and operating costs starting February 1, 2009, for a period of fifteen
years.
According to the 1985 Project Agreement with TANC for the development of the California-Oregon
Transmission Project (COTP) and subsequent related project agreements, the City is obligated to pay its
share of the project’s costs, including debt service, and is entitled to the use of a percentage of the
project’s transmission or transfer capacity. TANC has issued four series of Revenue Bonds and
Commercial Paper Notes totaling $421.4 million as of June 30, 2010. The City’s share of this debt is zero
due to the LTLA mentioned above.
Construction of the COTP was complete as of June 30, 1993. The transmission line was energized
March 24, 1993. Because funding of certain participants’ shares in the project was needed pending
approval of their applications for participation, TANC issued $93.8 million of Commercial Paper debt
backed by a Letter of Credit. The City’s share of the Commercial Paper was zero at June 30, 2011, due to
the LTLA mentioned above.
TANC Financial Information
TANC’s financial statements can be obtained from TANC, P.O. Box 15129, Sacramento, CA 95851.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
93
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Palo Alto Unified School District – The City leases a portion of the former Cubberley School site and
eleven extended day care sites from the Palo Alto Unified School District (PAUSD). The lease is part of a
larger agreement, which includes a covenant not to develop certain properties owned by the PAUSD. The
lease term expired on December 31, 2004, upon which the City exercised its first option to extend for 10
years, for a new expiration date of 12/31/2014. The lease provides for two more five-year options to
extend, 1/1/2015 to 12/31/2019, and 1/1/2020 to 12/31/2024. The City’s rent for the facilities is $7.1
million per year plus insurance, repairs and maintenance. Should any new law or regulation require the
expenditure of work in excess of $250,000, per the terms of the lease, the City and PAUSD may
renegotiate the lease. This lease is cancelable upon 90 days’ written notice in the event funds are not
appropriated by the City. In addition, the lease is contingent upon authorization by the Palo Alto
electorate if it exceeds the City’s Proposition 4 (Gann) appropriations limitation in any fiscal year. Lease
expenditures for the year ended June 30, 2011, amounted to $7.1 million.
Future minimum annual lease and covenant payments are as follows (in thousands):
Year ending June 30 Payments
2012 7,061$
2013 7,273
2014 7,491
2015 7,716
2016 7,945
2017-2020 34,184
71,670$
GreenWaste of Palo Alto – As of July 1, 2009, GreenWaste of Palo Alto is the new contractor for waste
collection, transportation, and processing services. The new agreement has a term of eight years, until
June 30, 2017, with the potential to extend the contract to 2021. Base compensation for GreenWaste is a
set amount for the first two years of the contract, and is adjusted annually thereafter based on CPI
indicators stipulated in their contract. In FY 2011 this resulted in payments to GreenWaste of $10.5
million.
City of Palo Alto Regional Water Quality Control Plant – The cities of Palo Alto, Mountain View and
Los Altos (the Partners) participate jointly in the cost of maintaining and operating the City of Palo Alto
Regional Water Quality Control Plant and related system (the Plant). The City is the owner and
administrator of the Plant, which provides the transmission, treatment and disposal of sewage for the
Partners. The cities of Mountain View and Los Altos are entitled to use a portion of the capacity of the
Plant for a specified period of time. Each partner has the right to rent unused capacity from/to the other
partners. The expenses of operations and maintenance are paid quarterly by each partner based on its pro
rata share of treatment costs. Additionally, joint system revenues are shared by the partners in the same
ratio as expenses are paid. The amended agreement has a term of fifty years beginning from the original
signing in October 1968, but may be terminated by any partner upon ten years’ notice to the other
partners. All sewage treatment property, plant and equipment are included in the Wastewater Treatment
Enterprise Fund’s capital assets balance at June 30, 2011. If the City initiates the termination of the
contracts, it is required to pay the other partners their unamortized contribution towards the capital assets.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
94
NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)
Solid Waste Materials Recovery and Transfer Station (SMaRT Station) – On June 9, 1992, the City,
along with the City of Mountain View, signed a Memorandum of Understanding (MOU) with the City of
Sunnyvale (Sunnyvale) to participate in the construction and operation of the SMaRT station, which
recovers recyclable materials from the municipal solid waste delivered from participating cities. Per the
MOU, the City has a capacity share of 21.3 percent of this facility and reimburses its proportionate
capacity share of design, construction and operation costs to Sunnyvale.
On December 1, 1992, the Sunnyvale Financing Authority issued $24.6 million in revenue bonds to
finance the design and construction costs of the SMaRT Station. During the fiscal year ended June 30,
2003, the 1992 bonds were refunded by issuing the 2003 Solid Waste Revenue Bonds in the amount of
$20.6 million. Even though these bonds are payable from and secured by the net revenues of Sunnyvale’s
Utilities Enterprise, the City is obligated to reimburse Sunnyvale 21.3 percent of total debt service
payments related to these bonds. The City’s portion of remaining principal balance for SMaRT revenue
bonds as of June 30, 2011, is $2.4 million. During the year ended June 30, 2011, the City paid $0.4
million as its portion of current debt service.
In FY 2008, the members agreed to finance an Equipment Replacement Project from existing reserves
and proceeds from the Solid Waste Revenue Bond, Series 2007. The City has committed to repay 27.8
percent of the remaining debt service on the Bonds. The City’s portion of the Bonds amounts to $1.9
million as of June 30, 2011. During the year ended June 30, 2011, the City paid $0.1 million as its portion
of current debt service.
UTILITIES ENERGY RESOURCE MANAGEMENT
Energy Markets in the United States and California
U.S. and California electric and gas prices continued to be volatile during the year. The City purchased
electricity in FY 2011 in conformance with the Council-approved Long-term Electric Acquisition Plan
(LEAP) established in 2001 and last modified in March 2011. Due to the City’s commodity purchase
strategy, whereby purchases are made on a 3-year forward basis in a laddered fashion, the City’s gas
utility has a higher average cost of gas for its pool customers in FY 2011 compared to the average market
price during the year. The City’s average natural gas commodity cost for the gas pool customers was
$6.84/MMBtu compared to a spot market price of $4.30/MMBtu. The primary reason the City’s natural
gas costs were higher than market was due to a dramatic drop in spot market prices in FY 2009 after gas
had been purchased and costs were locked in. The City’s average wholesale electric commodity purchase
cost during the fiscal year was approximately 5.4¢/kWh while the average spot market prices were
approximately 3.5¢/kWh.
Hydroelectric supplies were at high levels in FY 2011, which resulted in less energy purchased from the
market. Hydroelectric production accounted for 58 percent of the City’s electric supply in FY 2011
instead of 50 percent in a normal hydrologic year. These hydroelectric supplies derive from two sources –
from contract with the Western Area Power Administration and from the City’s partial ownership of the
Calaveras Hydroelectric Project. Wind and landfill gas resources accounted for 19 percent of the electric
supply in FY 2011, with the balance purchased from the wholesale electric market. The City transacts
with qualified suppliers for the market purchases, and the Northern California Power Agency (NCPA),
which provides scheduling services for the City, buys and sells electricity within the month as needed to
meet the City’s demands.
Incidental sales of surplus energy resulted in revenues of $3.7 million during the year. (The expense
associated with the surplus energy sold from the overall electric supply portfolio was calculated at $4.9
million for the year, and is shown separately on the Statement of Revenues, Expenses and Changes in Net
Assets.)
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
95
NOTE 16 – COMMITMENTS AND CONTINGENCIES (Continued)
During FY 2009, the City executed a 15-year assignment of its full share of ownership and obligations in
the California Oregon Transmission Project (COTP). The assignment resulted in lower cost to serve the
City’s electric rate payers in FY 2011 and is projected to continue saving the City throughout the term of
the assignment.
The City has executed Electric and Gas Master Agreements with suppliers to procure electricity and
natural gas supplies. The table below outlines the electric and natural gas commodity supply
commitments made by the City with these suppliers as of June 30, 2011. Monthly payments are made to
suppliers upon delivery of supplies for the month. The City’s procurement plans conform to the Council-
approved Energy Risk Management Policies. These include a formal oversight role (Middle Office)
within the Administrative Services Department. A quarterly energy risk management report is provided to
the Council as part of this oversight role.
Forward Electricity Commodity Supply Commitments as of June 30, 2011
Supplier FY 2012 FY 2013 Total
BP 2,331,326$ 2,120,640$ 4,451,966$
Powerex 6,691,783 1,613,675 8,305,458
SENA 2,635,200 - 2,635,200
11,658,309 3,734,315 15,392,624
Average Cost
($/MWh)52.50 48.30 51.42
Forward Natural Gas Commodity Supply Commitments as of June 30, 2011
Supplier FY 2012 FY 2013 FY 2014 Total
BP 2,868,864$ -$ -$ 2,868,864$
JP Morgan 1,205,420 967,910 - 2,173,330
Powerex 574,540 1,227,170 611,310 2,413,020
SENA 4,536,733 1,597,500 - 6,134,233
9,185,557 3,792,580 611,310 13,589,447
Average Cost
($/MMBtu)6.52 5.94 4.97 6.26
The City’s natural gas transportation contract with the Pacific Gas and Electric Company (PG&E) went
into effect starting January 1, 2011, and will be in place until the end of 2014. This contract, commonly
known as Gas Accord V, between PG&E and its transportation customers provides the City’s retail
customers stable transportation costs. Palo Alto retains access to transmission capacity on par with
PG&E’s core customers although rates increased for all shippers. Palo Alto’s backbone transmission rate
increased by approximately 40 percent or $150,000 per year. This is due to a shifting of costs from the
pipeline in the south to the northern pipeline. Despite this projected cost increase, the City will continue
to benefit from its transportation contract with PG&E.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
96
NOTE 16 – COMMITMENTS AND CONTINGENCIES (continued)
Future Outlook
Electric
The market price for fossil fuel based electricity is projected to be relatively low for the next 12 months –
at 3 to 4¢/kWh – but in the longer term it is expected to return to a higher level of 6 to 8¢/kWh. The price
premium commanded by renewable energy projects remains significantly higher than “brown” market
power. Costs for renewable energy are expected to remain high in the foreseeable future. The higher
prices will result in higher costs to meet the City’s renewable energy supply targets.
The Council-approved Renewable Portfolio Standard (RPS), last updated in March 2011, is to meet 33
percent of the Citywide load with renewable resource supplies by 2015. On April 12, 2011 California
adopted legislation (SB X12) requiring an RPS for all load serving entities including public owned
utilities. The law requires utilities to procure renewable energy supplies to meet 20 percent of their retail
sales by December 31, 2013, 25 percent of their retail sales by December 31, 2016 and 33 percent of their
retail sales by December 31, 2020. For calendar year 2010, renewable supplies accounted for
approximately 20.6 percent of retail sales. Going forward, the City continues to be on track to meet the
City’s RPS as well as the state mandated RPS. Based on existing and committed renewable supplies –
which are detailed in the table below – the City expects to have a renewable energy supply level as a
percentage of retail sales of 28.6 percent in calendar year 2013, 30.7 percent in calendar year 2016, and
30.4 percent in calendar year 2020. In FY 2011, the Council re-approved the Western GeoPower
renewable energy contract; this project is expected to begin operation in late 2013. In order to procure the
remaining renewable energy to achieve RPS level of 33 percent of retail sales, the City is currently
developing a feed-in-tariff program to buy energy from projects developed in Palo Alto. The City is also
in the process of issuing a solicitation for additional long-term renewable energy purchase contracts from
projects located throughout the western United States.
Project Name Technology
Nameplate
Capacity
(MW)
Nominal
Generation
(MWh/yr)
Currently
Online
Actual or
Expected
Contract
Start Date
Location
(state)
Contracti
ng Date
Contract
Term
(years)
Shiloh Wind 25 74,400 Yes 2006 California 2005 15
High Winds Wind 20 51,800 Yes 2004 California 2004 23.5
Santa Cruz Landfill LFG 1.6 11,200 Yes 2006 California 2004 20
Ox Mountain Landfill LFG 5.7 40,800 Yes 2009 California 2005 20
Keller Canyon Landfill LFG 2 11,800 Yes 2009 California 2005 20
Johnson Canyon Landfill LFG 1.4 11,200 No 2011 California 2009 20
San Joaquin Landfill LFG 4.3 32,000 No 2012 California 2010 20
Crazy Horse Canyon Landfill LFG 2.9 21,600 No 2012 California 2010 20
Western GeoPower Geothermal 3.9 33,100 No 2013 California 2011 25
Energy efficiency is the most cost-effective electric resource available to the City. It is considered a
primary resource for the electric utility. Reducing the need for energy and renewable energy supplies are
two of the main methods the City plans to employ to achieve the greenhouse gas reduction targets
established in the City’s Climate Protection Plan. The City’s first 10-year Electric Energy Efficiency Plan,
adopted by the Council in 2007, had a goal of reducing the City’s electric needs by 3.5 percent by 2016
by employing energy efficiency measures. For the first three years of the 2007 Plan’s implementation,
actual energy savings exceeded the annual goals set in the plan. In May 2010, Council adopted the
updated 2010
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
97
NOTE 16 – COMMITMENTS AND CONTINGENCIES (continued)
10-year Electric Energy Efficiency Plan, which more than doubled the energy efficiency goals of the 2007
Plan. The goal for the 2010 Plan is to reduce the City’s electric needs by 7.2 percent by 2020 by
employing energy efficiency measures.
PaloAltoGreen, the City’s volunteer green power program, currently accounts for an additional 6 percent
of the City’s energy needs from renewable resources. The City also has a program to encourage small-
scale ultra-clean distributed generation and co-generation applications within the City, but there have
been no applicants for this program. The City is planning to re-evaluate this program to make sure that it
provides the proper incentive for customers to build such clean and efficient units at their premises.
The CAISO implemented its Market Redesign and Technology Update (MRTU) in April 2009. An
underlying component of MRTU is the use of location-specific prices for the scheduling of energy
transactions. These locational prices are determined hourly and reflect the marginal costs of meeting
demand and resolving congestion on the transmission grid, which adds more uncertainty and volatility to
the cost of transmission services for the City.
The City continues to follow the development of laws and associated regulations related to
implementation of AB 32 (California Global Warming Solutions Act of 2006, Chaptered 9/27/2006). In
December 2008, the California Air Resources Board (CARB) approved the Scoping Plan, which is the
primary guidance document for shaping how California will reduce its greenhouse gas (GHG) emissions
to 1990 levels by 2020 as called for by AB 32. The scoping plan has a range of GHG reduction actions,
which include direct regulations, alternative compliance mechanisms, monetary and non-monetary
incentives, voluntary actions, market-based mechanisms such as a cap-and-trade system, and an AB 32
cost of implementation fee regulation to fund the program. CARB is tasked with completing the majority
of the work in designing the implementation details by October 28, 2011, with most regulations and other
initiatives adopted by the start of 2012. In FY 2011, CARB delayed the start of the compliance
obligations for electricity providers under the cap-and-trade system by one year, from January 1, 2012 to
January 1, 2013. At this time it is anticipated that the cap-and-trade system will go into full effect in
2013, but it is still unclear what the financial impact will be to the City.
Natural Gas
Long-term market prices for natural gas have remained depressed since the market price decline in
2008/2009. Increasing U.S. and international demand resulting from economic recovery and potential
clean energy legislation may put pressure on gas prices in the long term, however low to moderate gas
prices are forecasted for the next year or two. The gas laddering strategy used to hedge gas portfolio costs
is currently under review. The City also employs asset management strategies to lower overall
commodity costs.
In March 2011, the Council approved a plan to implement a voluntary customer program similar to
PaloAltoGreen for non-fossil fuel gas supplies. The City continues to search for potential supplies that are
priced in a reasonable range for program marketability.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
98
NOTE 16 – COMMITMENTS AND CONTINGENCIES (continued)
Water
The City’s water use during FY 2011 increased about 2 percent from the prior year. Usage is highly
dependent on weather conditions, but has remained essentially flat for the past 10 years. Current water
usage is only 64 percent of what it was in 1975. The small increase in usage in FY 2011 may be attributed
to some level of economic recovery and increased rainfall. Water supply costs for FY 2011 increased by
17.9 percent from FY 2010, primarily due to a 15 percent increase in the San Francisco Public Utilities
Commission (SFPUC) wholesale water rate in FY 2011. The increase was related in part to extensive
capital improvements on the Hetch Hetchy Water System and in part decreased consumption in San
Francisco and other Bay Area Water Supply & Conservation Agency (BAWSA) agencies, which required
a higher per unit wholesale rate in order to recover fixed costs.
Water supply costs are expected to continue to trend upward as the SFPUC implements its upgrade to the
regional water system facilities, the Water System Improvement Program (WSIP). Costs for the WSIP are
expected to be about $4.6 billion. Estimates for these increased costs have been factored into the City’s
long-term water supply cost projections.
Palo Alto is a member of the Bay Area Water Supply and Conservation Agency (BAWSCA), which
represents all the agencies that buy water on a wholesale basis from the City and County of San Francisco
(San Francisco.) The relationship between each of the BAWSCA agencies and San Francisco is specified
in a 25-year water service contract, which expired on June 30, 2009. Each agency, including Palo Alto,
has approved a new 25-year Water Supply Agreement with San Francisco effective on July 1, 2009. The
new contract contains the same mechanism for cost allocation as in the old contract and the contract has
other improvements regarding water quality and fair treatment in water supply emergencies. However, a
new supply limitation will require that the BAWSCA agencies work together to reduce long-term demand
so that additional diversions from the Tuolumne River are minimized or eliminated.
During FY 2009, the City completed a Recycled Water Facility Plan, which provides more detailed
design information on the project to expand the recycled water distribution. After circulating a Draft
Mitigated Negative Declaration document for comments, it was determined that additional study would
be required to address the water quality of the recycled water, particularly the salinity levels, which would
negatively impact plant materials. The City embarked on a single-issue Environmental Impact Report in
FY 2010 to address this issue. The environmental documents, which are necessary to compete for grant
funding opportunities, are expected to be completed in FY 2012.
Contingent Liabilities
Many of the uncertainties faced by the Utilities Department as an aftermath of the 2000-01 energy crisis
have been resolved. The Ninth Circuit Court determined that the Federal Energy Regulatory Commission
(FERC) lacked authority under the Federal Power Act to grant refund relief against governmental
agencies, and the United States Supreme Court declined to review that decision. Nonetheless a number of
entities (“the California Parties”) filed suit against the NCPA and other municipal utilities seeking refunds
for sales made to the CAISO and Power Exchange during the energy crisis. The suit was filed in the
Superior Court in Los Angeles in April 2007. In March 2010, the issue was resolved in a settlement
agreement and the City made a payment to the California Parties and no further claims are expected. On
April 29, 2010, the FERC issued an order approving the settlement between NCPA and the California
Parties. Another dispute between the Western Area Power Administration and PG&E regarding PG&E’s
claim to recover certain CAISO related costs has not been resolved.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
99
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.
Sales Tax Adjustment – On April 14, 1999, the State Board of Equalization informed the City that it had
been allocated and paid $.6 million sales taxes in error and that the City was obligated to refund these
taxes from future sales tax revenues. The City is in process of challenging the Board’s findings. However,
as of June 30, 2011, the issue had not been settled and the refund had not been returned.
Grant Programs – The City participates in Federal and State grant programs. These programs have been
audited by the City’s independent accountants 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.
NOTE 17 – SUBSEQUENT EVENTS
Approval of the Expansion of Stanford Medical Center
On June 6, 2011, the City Council approved a Development Agreement between the City and Stanford
Hospital and Clinics, Lucile Salter Packard Children’s Hospital at Stanford, and the Board of Trustees of
the Leland Stanford Junior University (collectively, the “SUMC Parties”), whereby the SUMC Parties
will enhance and expand their facilities and the City will grant the SUMC Parties the right to develop the
facilities in accordance with Project Approvals described in the Agreement.
Under the terms of the Agreement, the City received $20.8 million in August, 2011 to be used for various
community and mitigation measures as specified in the Agreement. The City will receive a further $23.4
million over the course of the project.
Refinancing of the 2002A Golf Course Certificate of Participation
On August 2, 2011, the City entered into a master lease-purchase agreement (the Agreement) with
JPMorgan Chase Bank N.A., whereby the proceeds together with the bond reserve fund were used to
refund the Certificates of Participation, Series 1998 (Golf Course Improvements and Refinancing
Project). The principal amount financed by the Agreement was $3.2 million and will be repaid at an
interest rate of 2.49 percent. Semi-annual payments will be made through September 1, 2018. The City
used its Fire Department rolling stock as the collateral in this Agreement.
Dissolution of the Redevelopment Agency
On September 6, 2011, the City adopted Ordinance No. 5126 to dissolve the Palo Alto Redevelopment
Agency (Agency) pursuant to Health & Safety Code Section 33140, effective October 7, 2011. The
Agency was formed in October 2001, pursuant to Section 33101 of the Community Redevelopment Law,
and was reported as one of the City’s special revenue funds. In response to the 2011-12 State budget bill,
the City has evaluated that the Agency has not identified a qualifying redevelopment area and has not
conducted any redevelopment activities, including redeveloping or acquiring land, entering into contract,
issuing bonds or incurring housing obligations, since its formation. Hence, the City Council approved its
dissolution.
CITY OF PALO ALTO
Notes to the Basic Financial Statements
For the Year Ended June 30, 2011
100
NOTE 17 – SUBSEQUENT EVENTS (Continued)
Dissolution of the Redevelopment Agency (Continued)
The League of California Cities and the California Redevelopment Association (CRA) filed a lawsuit on
July 18, 2011 on behalf of cities, counties and redevelopment agencies petitioning the California Supreme
Court to overturn Assembly Bills X1 26 and 27 on the grounds that these bills violate the California
Constitution. On August 11, 2011, the California Supreme Court issued a stay of all of Assembly Bill X1
27 and most of Assembly Bill X1 26. However, the Agency decided to move forward with the
dissolution regardless of the outcome of the California Supreme Court.
Issuance of 2011 Series A, Utility Revenue Refunding Bonds
On September 8, 2011, the City issued $17.2 million in Lease Revenue Bonds (2011 Bonds) with an
average interest rate of 3.33 percent and an original bond premium of $1.3 million. On the date of
issuance, the proceeds of the 2011 Bonds together with existing bond reserves of $20.3 million were used
to refund on a current basis the Utility Revenue Bonds, 2002 Series A (2002 Bonds). The 2002 Bonds
were issued to finance improvements to the City’s municipal water utility system and the natural gas
utility system. The remaining proceeds were used to pay for the costs of issuance of the 2011 Bonds and
other costs relating to the refunding.
Special Debt
Revenue Service Permanent
Funds Funds Fund Total
Assets:
Cash and investments:
Available for operations 19,720$ 2,040$ 1,422$ 23,182$
Cash and investments with fiscal agents - 1,225 - 1,225
Receivables, net:
Accounts 220 - - 220
Interest 133 - 10 143
Notes 9,824 - - 9,824
Total assets 29,897$ 3,265$ 1,432$ 34,594$
Liabilities and fund balances:
Liabilities:
Accounts payable and accruals 288$ -$ 10$ 298$
Accrued salaries and benefits 4 - - 4
Total liabilities 292 - 10 302
Fund balances:
Nonspendable
Eyerly family - - 1,422 1,422
Restricted
Transportation mitigation 4,344 - - 4,344
Federal revenue 4,619 - - 4,619
Street improvement 1,598 - - 1,598
Local law enforcement 264 - - 264
Debt Service - 3,265 - 3,265
Committed
Developer's impact fee 5,287 - - 5,287
Housing In-Lieu 11,662 - - 11,662
Special Districts 1,075 - - 1,075
Downtown Business 58 - - 58
Assigned
Unrealized gain on investment 696 - - 696
Other general government 2 - - 2
Total fund balances 29,605 3,265 1,422 34,292
Total liabilities and fund balances 29,897$ 3,265$ 1,432$ 34,594$
CITY OF PALO ALTO
Non-major Governmental Funds
Combining Balance Sheet
June 30, 2011
(Amounts in Thousands)
101
Special Debt
Revenue Service Permanent
Funds Funds Fund Total
Revenues:
Property taxes -$ 3,468$ -$ 3,468$
Special assessments 92 - - 92
Other taxes and fines 1,661 - - 1,661
From other agencies:
Community Development Block Grants 338 - - 338
State of California 101 - - 101
Permits and licenses 359 - - 359
Return on investments 484 3 34 521
Rental income 19 - - 19
Other:
Housing In-Lieu - residential 2,574 - - 2,574
University Avenue Parking 963 - - 963
California Avenue Parking 102 - - 102
Other fees 964 11 4 979
Total revenues 7,657 3,482 38 11,177
Expenditures:
Current:
Planning and Community Environment 941 - - 941
Public safety - Police 22 - - 22
Non-Departmental 256 - 18 274
Debt service:
Principal retirement - 870 - 870
Interest and fiscal charges - 1,815 - 1,815
Total expenditures 1,219 2,685 18 3,922
Excess of revenues over expenditures 6,438 797 20 7,255
Other financing sources (uses):
Transfers in 10 1,179 - 1,189
Transfers out (2,605) - - (2,605)
Total other financing sources (uses)(2,595) 1,179 - (1,416)
Change in fund balances 3,843 1,976 20 5,839
Fund balances, beginning of year 25,762 1,289 1,402 28,453
Fund balances, end of year 29,605$ 3,265$ 1,422$ 34,292$
CITY OF PALO ALTO
Non-major Governmental Funds
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
For the Year Ended June 30, 2011
(Amounts in Thousands)
102
103
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.
ASSETS 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’S IMPACT FEE
This fund accounts for fees imposed on new developments to be used for parks, community centers and
libraries.
REDEVELOPMENT AGENCY
This fund accounts for the activities of administrating the Redevelopment Agency.
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.
Street Federal Housing Special
Improvement Revenue In-Lieu Districts
Assets:
Cash and investments:
Available for operations 1,440$ 374$ 6,533$ 1,116$
Receivables:
Accounts 195 - - -
Interest 9 - 45 7
Notes - 4,266 5,558 -
Total assets 1,644$ 4,640$ 12,136$ 1,123$
Liabilities and fund balances:
Liabilities:
Accounts payable and accruals -$ 21$ 234$ 6$
Accrued salaries and benefits - - - 4
Total liabilities - 21 234 10
Fund balances:
Restricted
Transportation mitigation - - - -
Federal revenue - 4,619 - -
Street improvement 1,598 - - -
Local law enforcement - - - -
Committed
Developer's impact fee - - - -
Housing In-Lieu - - 11,662 -
Special Districts - - - 1,075
Downtown Business - - - -
Assigned
Unrealized gain on investment 46 - 240 38
Other general government - - - -
Total fund balances 1,644 4,619 11,902 1,113
Total liabilities and fund balances 1,644$ 4,640$ 12,136$ 1,123$
CITY OF PALO ALTO
Non-major Special Revenue Funds
Combining Balance Sheet
June 30, 2011
(Amounts in Thousands)
104
Downtown
Business
Transportation Local Law Assets Developer's Redevelopment Development
Mitigation Enforcement Seizure Impact Fee Agency District Total
4,475$ 250$ 2$ 5,450$ -$ 80$ 19,720$
- 25 - - - - 220
31 2 - 39 - - 133
- - - - - - 9,824
4,506$ 277$ 2$ 5,489$ -$ 80$ 29,897$
-$ 6$ -$ -$ -$ 21$ 288$
- - - - - - 4
- 6 - - - 21 292
4,344 - - - - - 4,344
- - - - - - 4,619
- - - - - - 1,598
- 264 - - - - 264
- - - 5,287 - - 5,287
- - - - - - 11,662
- - - - - - 1,075
- - - - - 58 58
162 7 - 202 - 1 696
- - 2 - - - 2
4,506 271 2 5,489 - 59 29,605
4,506$ 277$ 2$ 5,489$ -$ 80$ 29,897$
105
Street Federal Housing Special Transportation
Improvement Revenue In-Lieu Districts Mitigation
Revenues:
Special assessments -$ -$ -$ -$ -$
Other taxes and fines 1,631 - - 30 -
From other agencies:
Community Development Block Grants - 338 - - -
State of California - - 1 - -
Permits and licenses - - - 359 -
Return on investments (3) (22) 224 26 100
Rental income - - 19 - -
Other
Housing In-Lieu - residential - - 2,574 - -
University Avenue Parking - - - 963 -
California Avenue Parking - - - 102 -
Other fees - 145 321 - 50
Total revenues 1,628 461 3,139 1,480 150
Expenditures:
Current:
Planning and Community Environment - 505 368 68 -
Public safety - Police - - - - -
Non-Departmental - 40 29 119 -
Total expenditures - 545 397 187 -
Excess (deficiency) of revenues
over (under) expenditures 1,628 (84) 2,742 1,293 150
Other financing sources (uses):
Transfers in - - - - -
Transfers out (1,042) - - (1,221) (82)
Total other financing sources (uses)(1,042) - - (1,221) (82)
Change in fund balances 586 (84) 2,742 72 68
Fund balances, beginning of year 1,058 4,703 9,160 1,041 4,438
Fund balances, end of year 1,644$ 4,619$ 11,902$ 1,113$ 4,506$
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, 2011
(Amounts in Thousands)
106
Downtown
Business
Local Law Assets Developer's Redevelopment Development
Enforcement Seizure Impact Fee Agency District Total
-$ -$ -$ -$ 92$ 92$
- - - - - 1,661
- - - - - 338
100 - - - - 101
- - - - - 359
6 - 150 - 3 484
- - - - - 19
- - - - - 2,574
- - - - - 963
- - - - - 102
- 2 446 - - 964
106 2 596 - 95 7,657
- - - - - 941
22 - - - - 22
- - - - 68 256
22 - - - 68 1,219
84 2 596 - 27 6,438
- - - 10 - 10
(30) - (220) (10) - (2,605)
(30) - (220) - - (2,595)
54 2 376 - 27 3,843
217 - 5,113 - 32 25,762
271$ 2$ 5,489$ -$ 59$ 29,605$
107
Street Improvement Federal Revenue
Variance Variance
Positive Positive
Budget Actual (Negative) Budget Actual (Negative)
Revenues:
Special assessments -$ -$ -$ -$ -$ -$ Other taxes and fines 1,127 1,631 504 - - -
From other agencies:
Community Development Block Grants - - - 663 338 (325)
State of California - - - - - -
Other revenue from other agencies - - - 276 - (276)
Permits and licenses - - - - - -
Return on investments 31 (3) (34) - (22) (22)
Rental income - - - - - -
Other:
Housing In-Lieu - residential - - - - - -
University Avenue Parking - - - - - -
California Avenue Parking - - - - - -
Other fees - - - 7 145 138
Total revenues 1,158 1,628 470 946 461 (485)
Expenditures:
Current:
Planning and Community Environment - - - 1,336 505 831
Public safety - Police - - - - - -
Non-Departmental - - - - 40 (40)
Total expenditures - - - 1,336 545 791
Excess (deficiency) of revenues
over (under) expenditures 1,158 1,628 470 (390) (84) 306
Other financing sources (uses):
Transfers in - - - 5 - (5)
Transfers out (1,042) (1,042) - (5) - 5
Total other financing sources (uses)(1,042) (1,042) - - - -
Change in fund balances 116$ 586 470$ (390)$ (84) 306$
Fund balances, beginning of year 1,058 4,703
Fund balances, end of year 1,644$ 4,619$
(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, 2011
108
Housing In-Lieu Special Districts Transportation Mitigation
Variance Variance Variance
Positive Positive Positive
Budget Actual (Negative) Budget Actual (Negative) Budget Actual (Negative)
-$ -$ -$ -$ -$ -$ -$ -$ -$ - - - 30 30 - - - -
- - - - - - - - -
- 1 1 - - - - - -
- - - - - - - - -
- - - 306 359 53 - - -
153 224 71 29 26 (3) 145 100 (45)
9 19 10 - - - - - -
3,500 2,574 (926) - - - - - -
- - - 963 963 - - - -
- - - 94 102 8 - - -
222 321 99 - - - 562 50 (512)
3,884 3,139 (745) 1,422 1,480 58 707 150 (557)
4,850 368 4,482 148 68 80 - - -
- - - - - - - - -
1,603 29 1,574 128 119 9 - - -
6,453 397 6,056 276 187 89 - - -
(2,569) 2,742 5,311 1,146 1,293 147 707 150 (557)
- - - - - - - - -
- - - (1,349) (1,221) 128 (82) (82) -
- - - (1,349) (1,221) 128 (82) (82) -
(2,569)$ 2,742 5,311$ (203)$ 72 275$ 625$ 68 (557)$
9,160 1,041 4,438
11,902$ 1,113$ 4,506$
(Continued)
109
Local Law Enforcement Asset Seizure Developer's Impact Fee
Variance Variance Variance
Positive Positive Positive
Budget Actual (Negative)Budget Actual (Negative)Budget Actual (Negative)
Revenues:
Special assessments -$ -$ -$ -$ -$ -$ -$ -$ -$ Other taxes and fines - - - - - - - - -
From other agencies:
Community Development Block Grants - - - - - - - - -
State of California 125 100 (25) - - - - - -
Other revenue from other agencies - - - - - - - - -
Permits and licenses - - - - - - - - -
Return on investments 5 6 1 - - - 152 150 (2)
Rental income - - - - - - - - -
Other:
Housing In-Lieu - residential - - - - - - - - -
University Avenue Parking - - - - - - - - -
California Avenue Parking - - - - - - - - -
Other fees - - - - 2 2 553 446 (107)
Total revenues 130 106 (24) - 2 2 705 596 (109)
Expenditures:
Current:Planning and Community Environment - - - - - - - - -
Public safety - Police 153 22 131 - - - - - -
Non-Departmental - - - - - - - - -
Total expenditures 153 22 131 - - - - - -
Excess (deficiency) of revenues
over (under) expenditures (23) 84 107 - 2 2 705 596 (109)
Other financing sources (uses):
Transfers in - - - - - - - - - Transfers out (30) (30) - - - - (220) (220) -
Total other financing sources (uses)(30) (30) - - - - (220) (220) -
Change in fund balances (53)$ 54 107$ -$ 2 2$ 485$ 376 (109)$
Fund balances, beginning of year 217 - 5,113
Fund balances, end of year 271$ 2$ 5,489$
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, 2011
(Amounts in Thousands)
110
Redevelopment Agency Downtown Business Improvement District Total Non-major Special Revenue Funds
Variance Variance Variance
Positive Positive Positive
Budget Actual (Negative)Budget Actual (Negative)Budget Actual (Negative)
-$ -$ -$ 160$ 92$ (68)$ 160$ 92$ (68)$ - - - - - - 1,157 1,661 504
- - - - - - 663 338 (325)
- - - - - - 125 101 (24)
- - - - - - 276 - (276)
- - - - - - 306 359 53
- - - 2 3 1 517 484 (33)
- - - - - - 9 19 10
- - - - - - 3,500 2,574 (926)
- - - - - - 963 963 -
- - - - - - 94 102 8
- - - - - - 1,344 964 (380)
- - - 162 95 (67) 9,114 7,657 (1,457)
- - - - - - 6,334 941 5,393
- - - - - - 153 22 131
9 - 9 170 68 102 1,910 256 1,654
9 - 9 170 68 102 8,397 1,219 7,178
(9) - 9 (8) 27 35 717 6,438 5,721
9 10 1 - - - 14 10 (4) - (10) (10) - - - (2,728) (2,605) 123
9 - (9) - - - (2,714) (2,595) 119
-$ - -$ (8)$ 27 35$ (1,997)$ 3,843 5,840$
- 32 25,762
-$ 59$ 29,605$
111
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113
NON-MAJOR GOVERNMENTAL FUNDS
Debt Service Funds
GOLF COURSE
This fund accounts for revenues received from the General Fund to provide payment of principal and
interest associated with Certificates of Participation issued for the City’s golf course.
CIVIC CENTER REFINANCING
This fund accounts for revenues received from the General Fund to provide payment of principal and
interest associated with the 2002A Civic Center Refinancing Certificates of Participation as they become
due.
DOWNTOWN PARKING IMPROVEMENT
This fund accounts for revenues received from the General Fund to provide payment of principal and
interest associated with the 2002B Downtown Parking Improvement Certificate of Participation as they
become due.
LIBRARY PROJECT
This fund accounts for revenues received from property taxes to provide payment of principal and interest
associated with the 2010 General Obligation Bonds as they become due
CITY OF PALO ALTO
Non-major Debt Service Funds
Combining Balance Sheet
June 30, 2011
(Amounts in Thousands)
Civic Downtown
Golf Center Parking Library
Course Refinancing Improvement Projects Total
Assets:
Cash and investments :
Available for operations 43$ -$ -$ 1,997$ 2,040$
Cash and investments with fiscal agents 624 351 250 - 1,225
Total Assets 667$ 351$ 250$ 1,997$ 3,265$
Fund balances:
Restricted:
Debt Service 667 351 250 1,997 3,265
Total fund balances 667 351 250 1,997 3,265
Total liabilities and fund balances 667$ 351$ 250$ 1,997$ 3,265$
114
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, 2011
(Amounts in Thousands)
Civic Downtown
Golf Center Parking Library
Course Refinancing Improvement Project Total
Revenues:
Property taxes -$ -$ -$ 3,468$ 3,468$
Return on investments 1 1 1 - 3
Other
Other fees - - 11 - 11
Total revenues 1 1 12 3,468 3,482
Expenditures:
Debt service:
Principal retirement 370 390 110 - 870
Interest and fiscal charges 190 31 123 1,471 1,815
Total expenditures 560 421 233 1,471 2,685
Excess (deficiency) of revenues
over (under) expenditures (559) (420) (221) 1,997 797
Other financing sources:
Transfers in 528 418 233 - 1,179
Total other financing sources 528 418 233 - 1,179
Change in fund balances (31) (2) 12 1,997 1,976
Fund balances, beginning of year 698 353 238 - 1,289
Fund balances, end of year 667$ 351$ 250$ 1,997$ 3,265$
115
Golf Course Civic Center Refinance
Variance Variance
Positive Positive
Budget Actual (Negative) Budget Actual (Negative)
Revenues:
Special assessments -$ -$ -$ -$ -$ -$
Return on investments 32 1 (31) 13 1 (12)
Other fees - - - - - -
Total revenues 32 1 (31) 13 1 (12)
Expenditures:
Debt service:
Principal retirement 370 370 - 390 390 -
Interest and fiscal charges 190 190 - 31 31 -
Total expenditures 560 560 - 421 421 -
Excess (deficiency) of revenues
over (under) expenditures (528) (559) (31) (408) (420) (12)
Other financing sources (uses):
Other - - - - - -
Transfers in 528 528 - 408 418 10
Total other financing sources (uses)528 528 - 408 418 10
Change in fund balances -$ (31) (31)$ -$ (2) (2)$
Fund balances, beginning of year 698 353
Fund balances, end of year 667$ 351$
(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, 2011
116
Downtown Parking Improvement Library Project Total Non-major Debt Service Funds
Variance Variance Variance
Positive Positive Positive
Budget Actual (Negative) Budget Actual (Negative) Budget Actual (Negative)
-$ -$ -$ 3,491$ 3,468$ (23)$ 3,491$ 3,468$ (23)$
9 1 (8) 9 - (9) 63 3 (60)
- 11 11 - - - - 11 11
9 12 3 3,500 3,468 (32) 3,554 3,482 (72)
110 110 - - - - 870 870 -
123 123 - 1,472 1,471 (1) 1,816 1,815 (1)
233 233 - 1,472 1,471 (1) 2,686 2,685 (1)
(224) (221) 3 2,028 1,997 (31) 868 797 (71)
- - - - - - - - -
224 233 9 - - - 1,160 1,179 19
224 233 9 - - - 1,160 1,179 19
-$ 12 12$ 2,028$ 1,997 (31)$ 2,028$ 1,976 (52)$
238 - 1,289
250$ 1,997$ 3,265$
117
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119
NON-MAJOR GOVERNMENTAL FUNDS
Permanent Fund
EYERLY FAMILY
This fund accounts for the revenues received from assets donated by Mr. and Mrs. Fred Eyerly for the
City and or its citizenry.
Eyerly Permanent Fund
Variance
Positive
Budget Actual (Negative)
Revenues:
Return on investments 49$ 34$ (15)$
Other fees - 4 4
Total revenues 49 38 (11)
Expenditures:
Current:
Non-Departmental - 18 (18)
Total expenditures - 18 (18)
Excess (deficiency) of revenues
over (under) expenditures 49 20 (29)
Change in fund balances 49$ 20 (29)$
Fund balances, beginning of year 1,402
Fund balances, end of year 1,422$
(Amounts in Thousands)
CITY OF PALO ALTO
Non-major Permanent Fund
Schedule of Revenues, Expenditures and Changes in Fund Balances -
Budget and Actual
For the Year Ended June 30, 2011
120
121
INTERNAL SERVICE FUNDS
Introduction
Internal Service Funds are used to finance and account for special activities and services performed by a
designated department for other departments in the City on a cost reimbursement basis.
VEHICLE REPLACEMENT AND MAINTENANCE
This fund accounts for the maintenance and replacement of vehicles and equipment used by all City
departments. The source of revenue is on reimbursement of fleet replacement and maintenance costs
allocated to each department by usage of vehicle.
TECHNOLOGY
This fund accounts for replacement and upgrade of technology, and covers four primary areas used by all
City departments: desktop, infrastructure, applications, and technology research and development. The
source of revenue is on reimbursement of costs for support provided to other departments.
PRINTING AND MAILING SERVICES
This fund accounts for central duplicating, printing and mailing services provided to all City departments.
Source of revenue for this fund is on reimbursement of costs for services and supplies purchased by other
departments.
GENERAL BENEFITS
This fund accounts for the administration of compensated absences and health benefits.
WORKERS’ COMPENSATION INSURANCE PROGRAM
This fund accounts for the administration of the City’s self-insured workers’ compensation programs.
GENERAL LIABILITIES INSURANCE PROGRAM
This fund accounts for the administration of the City’s self-insured general liability programs.
RETIREE HEALTH BENEFIT
This fund accounts for the retiree health benefits.
Vehicle Printing Workers' General
Replacement and Compensation Liabilities Retiree
and Mailing General Insurance Insurance Health
Maintenance Technology Services Benefits Program Program Benefit Total
Assets:
Current Assets:
Cash and investments:
Available for operations 7,241$ 13,990$ -$ 12,570$ 17,961$ 5,714$ 3,262$ 60,738$
Accounts receivable, net 60 - - - - - - 60
Interest receivable 50 92 - 69 102 31 17 361
Inventory of materials and supplies 613 - - - - - - 613
Net OPEB assets - - - - - - 23,006 23,006
Total Current Assets 7,964 14,082 - 12,639 18,063 5,745 26,285 84,778
Noncurrent Assets:
Capital assets:
Non-Depreciable 151 - - - - - - 151
Depreciable, net 13,910 6,013 12 - - - - 19,935
Total Noncurrent Assets 14,061 6,013 12 - - - - 20,086
Total Assets 22,025 20,095 12 12,639 18,063 5,745 26,285 104,864
Liabilities:
Current Liabilities:
Accounts payable and accrued liabilities 121 346 49 1,974 33 - - 2,523
Accrued salaries and benefits 29 102 3 - - - - 134
Accrued compensated absences 4 10 - 3,086 - - - 3,100
Accrued claims payable - current - - - 328 3,978 1,567 - 5,873
Total Current Liabilities 154 458 52 5,388 4,011 1,567 - 11,630
Noncurrent liabilities:
Accrued compensated absences - - - 6,286 - - - 6,286
Accrued claims payable - - - - 13,952 4,078 - 18,030
Total Liabilities 154 458 52 11,674 17,963 5,645 - 35,946
Net assets:
Invested in capital assets 14,061 6,013 12 - - - - 20,086
Unrestricted (deficit)7,810 13,624 (52) 965 100 100 26,285 48,832
Total Net Assets (deficit)21,871$ 19,637$ (40)$ 965$ 100$ 100$ 26,285$ 68,918$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Fund Net Assets
June 30, 2011
(Amounts in Thousands)
122
Vehicle Printing Workers' General
Replacement and Compensation Liabilities Retiree
and Mailing General Insurance Insurance Health
Maintenance Technology Services Benefits Program Program Benefit Total
Operating revenues:
Charges for services 7,605$ 10,399$ 1,100$ 35,358$ 5,080$ 1,479$ 10,980$ 72,001$
Total operating revenues 7,605 10,399 1,100 35,358 5,080 1,479 10,980 72,001
Operating expenses:
Administrative and general 788 3,546 1,167 338 574 1,254 507 8,174
Operations and maintenance 2,537 5,646 - 115 - 1 - 8,299
Depreciation and amortization 1,609 3,083 3 - - - - 4,695
Claim payments and change in estimated
self-insured liability - - - 1,703 4,796 273 - 6,772
Refund of charges for services 113 1 - - - - - 114
Compensated absences and other benefits - - - 32,600 - - 9,787 42,387
Total operating expenses 5,047 12,276 1,170 34,756 5,370 1,528 10,294 70,441
Operating income (loss)2,558 (1,877) (70) 602 (290) (49) 686 1,560
Nonoperating revenues (expenses):
Return on investments 221 383 (1) 163 290 49 95 1,200
Gain on disposal of capital assets 85 - - - - - - 85
Other nonoperating revenues 59 - - - - - - 59
Total nonoperating revenues (expenses) 365 383 (1) 163 290 49 95 1,344
Income (loss) before transfers 2,923 (1,494) (71) 765 - - 781 2,904
Transfers in - 1,703 - - - - - 1,703
Transfers out (591) - - - - - - (591)
Change in net assets 2,332 209 (71) 765 - - 781 4,016
Net assets, beginning of year 19,539 19,428 31 200 100 100 25,504 64,902
Net assets (deficit), end of year 21,871$ 19,637$ (40)$ 965$ 100$ 100$ 26,285$ 68,918$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Revenues, Expenses and Changes in Fund Net Assets
For the Year Ended June 30, 2011
(Amounts in Thousands)
123
Vehicle Printing Workers' General
Replacement and Compensation Liabilities Retiree
and Mailing General Insurance Insurance Health
Maintenance Technology Services Benefits Program Program Benefit Total
Cash flows from operating activities:Cash received from customers 7,583$ 10,399$ 1,100$ 35,358$ 5,080$ 1,479$ 10,980$ 71,979$
Cash refunds to customers (113) (1) - - - - - (114)
Cash payments to suppliers for goods and services (2,607) (5,864) 49 (101) - - - (8,523)
Cash payments to employees (788) (3,540) (1,169) (34,271) (600) (1,262) (10,058) (51,688)
Cash payments for judgments and claims - - - (1,707) (2,213) (427) - (4,347)
Other cash receipts 59 - - - - - - 59
Cash flows provided by (used in)
operating activities 4,134 994 (20) (721) 2,267 (210) 922 7,366
Cash flows from noncapital financing activities:
Transfers in - 1,703 - - - - - 1,703
Transfers out (591) - - - - - - (591)
Cash flows provided by (used in)
noncapital financing activities (591) 1,703 - - - - - 1,112
Cash flows from capital and related financing activities:Acquisition of capital assets (2,294) (57) - - - - - (2,351)
Cash flows from investing activities:
Interest received/(paid) 217 381 (1) 350 188 18 88 1,241
Net change in cash and cash equivalents 1,466 3,021 (21) (371) 2,455 (192) 1,010 7,368
Cash and cash equivalents, beginning of year 5,775 10,969 21 12,941 15,506 5,906 2,252 53,370
Cash and cash equivalents, end of year $ 7,241 $ 13,990 $ - $ 12,570 $ 17,961 $ 5,714 $ 3,262 $ 60,738
Reconciliation of operating income (loss) to net cash
flows provided by (used in) operating activities:
Operating income (loss)2,558$ (1,877)$ (70)$ 602$ (290)$ (49)$ 686$ 1,560$
Adjustments to reconcile operating income (loss)
to net cash provided by (used in) operating activities:
Depreciation 1,609 3,083 3 - - - - 4,695
Other 59 - - - - - - 59
Change in assets and liabilities:
Accounts receivable (22) - - - - - - (22) Inventory of materials and supplies (156) - - - - - - (156)
Net OPEB asset - - - - - - 236 236
Accounts and other payables 86 (218) 49 133 (26) (7) - 17
Accrued salaries and benefits (4) (4) (2) (405) - - - (415)
Accrued compensated absences 4 10 - (1,047) - - - (1,033)
Accrued claims payable - - - (4) 2,583 (154) - 2,425
Cash flows provided by (used in) operating activities 4,134$ 994$ (20)$ (721)$ 2,267$ (210)$ 922$ 7,366$
CITY OF PALO ALTO
Internal Service Funds
Combining Statement of Cash FlowsFor the Year Ended June 30, 2011
(Amounts in Thousands)
124
125
FIDUCIARY FUNDS
Introduction
Fiduciary Funds are used to account for assets held by the City acting in a fiduciary capacity for other
entities and individuals. The funds are operated to carry out the specific actions required by the trust
agreements, ordinances and other governing regulations.
Fiduciary Funds are presented separately from the Citywide and Fund financial statements.
Agency Funds are custodial in nature and do not involve measurement of results of operations. The City
maintains three agency funds, as follows:
CALIFORNIA AVENUE PARKING ASSESSMENT DISTRICT
This fund accounts for receipts and disbursements associated with the 1993 Parking District No. 92-13
Assessment Bonds.
CABLE JOINT POWERS AUTHORITY
The fund was established to account for the activities of the cable television system on behalf of the
members.
UNIVERSITY AVENUE AREA PARKING ASSESSMENT DISTRICT
The fund accounts for the receipts and disbursements associated with the Series 2001-A University
Avenue Area Off-Street Parking Assessments Bonds.
CITY OF PALO ALTO
All Agency Funds
Statement of Changes in Assets and Liabilities
For the Year Ended June 30, 2011
Balance Balance
California Avenue Parking Assessment District July 1, 2010 Additions Deletions June 30, 2011
Assets:
Cash and investments available for operations 220$ -$ 12$ 208$
Liabilities:
Due to bondholders 220$ -$ 12$ 208$
Cable Joint Powers Authority
Assets:
Cash and investments available for operations 885$ 19$ -$ 904$
Interest receivable 8 - 1 7
Total assets 893$ 19$ 1$ 911$
Liabilities:
Due to other governments 893$ 19$ 1$ 911$
University Avenue Area Parking Assessment District
Assets:
Cash and investments available for operations 2,330$ -$ 324$ 2,006$
Cash and investments with fiscal agents 3,902 4 - 3,906
Interest receivable 29 - 4 25
Total assets 6,261$ 4$ 328$ 5,937$
Liabilities:
Due to bondholders 6,261$ 4$ 328$ 5,937$
Total Agency Funds
Assets:
Cash and investments available for operations 3,435$ 19$ 336$ 3,118$
Cash and investments with fiscal agents 3,902 4 - 3,906
Interest receivable 37 - 5 32
Total assets 7,374$ 23$ 341$ 7,056$
Liabilities:
Due to bondholders 6,481$ 4$ 340$ 6,145$
Due to other governments 893 19 1 911
Total liabilities 7,374$ 23$ 341$ 7,056$
(Amounts in Thousands)
126
127
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, demographics and pension plan funding. 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:
1. Net Assets by Component
2. Changes in Net Assets
3. Fund Balances of Governmental Funds
4. Changes in Fund Balance 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:
1. Electric Daily Loads and Top Customers by Usage
2. Electric Operating Revenue by Source
3. Assessed Value of Taxable Property
4. Property Tax Rates, All Overlapping Governments
5. Property Tax Levies and Collections
6. Principal Property Taxpayers
7. Assessed Valuation and Parcels by Land Use
8. Per Parcel Assessed Valuation of Single Family Homes
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:
1. Ratio of Outstanding Debt by Type
2. Computation of Direct and Overlapping Debt
3. Computation of Legal Bonded Debt Margin
4. Revenue Bond Coverage
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:
1. Taxable Transactions by Type of Business
2. Demographic and Economic Statistics
3. Principal Employers
128
STATISTICAL SECTION
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:
1. Full-Time Equivalent City Government Employees by Function
2. Operating Indicators by Function/Program
3. Capital Asset Statistics by Function/Program
4. Insurance Coverage
Sources
Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual
Financial Reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules
presenting government-wide information include information beginning in that year.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Governmental activities
Invested in capital assets, net of related
debt $252,183 $279,306 $297,125 $305,225 $311,335 $326,411 $343,537 $356,657 $369,499 $364,747
Restricted 56,785 37,112 30,417 27,273 29,885 32,576 27,428 36,632 34,323 16,437
Unrestricted 117,113 130,463 123,762 117,301 123,823 127,190 130,460 118,133 102,199 134,722
Total governmental activities net assets $426,081 $446,881 $451,304 $449,799 $465,043 $486,177 $501,425 $511,422 $506,021 $515,906
Business-type activities
Invested in capital assets, net of related
debt $270,622 $279,885 $294,197 $303,473 $318,738 $342,922 $370,303 $384,313 $399,317 $416,418
Restricted 1,728 1,728 1,798 1,750 1,732 1,732 1,732 1,732 4,300 0
Unrestricted 210,990 228,308 226,278 215,128 228,032 230,912 226,539 208,025 232,420 253,740
Total business-type activities net assets $483,340 $509,921 $522,273 $520,351 $548,502 $575,566 $598,574 $594,070 $636,037 $670,158
Primary government
Invested in capital assets, net of related
debt $522,805 $559,191 $591,322 $608,698 $630,073 $669,333 $713,840 $740,970 $768,816 $781,165
Restricted 58,513 38,840 32,215 29,023 31,617 34,308 29,160 38,364 38,623 16,437
Unrestricted 328,103 358,771 350,040 332,429 351,855 358,102 356,999 326,158 334,619 388,462
Total primary government net assets $909,421 $956,802 $973,577 $970,150 $1,013,545 $1,061,743 $1,099,999 $1,105,492 $1,142,058 $1,186,064
Source: Annual Financial Statements
Fiscal Year Ended June 30,
City of Palo Alto - Net Assets by Component
(Accrual Basis of Accounting)
Last Ten Fiscal Years ($000)
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$ T
h
o
u
s
a
n
d
s
Net of Related Debt Restricted Unrestricted
129
City of Palo Alto - Changes in Net Assets
Last Ten Fiscal Years ($000)
(Accrual Basis of Accounting)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Expenses
Governmental Activities:City Council $238 $234 $269 $130 $141 $180 $323 $394 $455 $15City Manager 1,765 1,565 1,663 1,725 1,563 1,760 2,273 2,085 2,399 1,842City Attorney 2,410 2,028 2,300 2,653 2,598 2,390 2,653 2,575 2,621 953City Clerk 633 598 808 770 945 900 1,241 1,098 1,369 803City Auditor 583 646 668 764 843 838 1,379 2,053 2,601 138Administrative Services **10,138 9,723 6,271 6,982 6,972 6,419 15,477 17,784 17,893 9,888Human Resources 2,166 1,728 2,078 2,410 2,546 2,472 2,806 3,448 3,707 1,346
Public Works 15,656 13,702 14,460 16,400 17,596 16,645 18,565 21,270 18,658 19,357
Planning and Community Environment 7,311 7,485 8,898 10,162 9,931 12,929 16,388 12,940 12,114 15,031
Police 19,049 19,273 20,414 22,416 23,411 23,861 27,740 29,288 29,351 30,465
Fire 16,870 16,859 17,308 18,127 18,747 19,530 22,386 23,199 26,448 28,531Community Services 19,850 19,633 20,864 17,240 17,296 15,729 17,736 19,862 17,171 22,845Library00 4,835 5,323 5,347 6,321 6,244 6,143 6,920Non-Departmental **8,412 7,449 7,618 12,474 10,400 12,133 0 0 0 0Interest on Long Term Debt 1,094 675 635 693 512 477 438 404 370 2,742
Total Governmental Activities Expenses $106,175 $101,598 $104,254 $117,781 $118,824 $121,610 $135,726 $142,644 $141,300 $140,876
Business-Type Activities:Water $12,722 $13,237 $16,047 $14,969 $15,881 $16,794 $18,842 $20,271 $21,037 $24,268Electric98,405 73,744 73,545 73,051 91,570 99,294 108,032 122,268 107,910 100,130Fiber Optics *0 0 0 0 0 0 0 1,284 1,407 1,561Gas28,778 22,270 22,994 26,656 29,107 30,690 37,211 34,603 32,498 32,051Wastewater Collection 8,489 8,712 9,203 8,907 11,005 10,085 12,023 14,875 10,696 12,275Wastewater Treatment 13,287 14,312 14,868 17,457 16,747 15,901 18,902 36,896 13,466 19,731Refuse23,750 24,635 24,282 24,959 26,989 25,372 28,827 37,217 28,119 30,684Storm Drainage 2,188 2,489 2,975 3,336 2,673 2,517 3,202 2,943 2,491 3,229Airport- - - - - - ----- 31External Services 349 583 688 760 868 767 984 0 0 0Total Business-Type Activities Expenses 187,968 159,982 164,602 170,095 194,840 201,420 228,023 270,357 217,624 223,960
Total Primary Government Expenses $294,143 $261,580 $268,856 $287,876 $313,664 $323,030 $363,749 $413,001 $358,924 $364,836
Program Revenues
Governmental Activities:Charges for Services:City CouncilCity ManagerCity Attorney $92 $64 $22 $22 $13 $16 $12 $53City Clerk $1 1 1 2City Auditor 1Administrative Services 12 406 815 480 627 835 870 726 984 $2,889Human Resources 11Public Works 320 1,058 260 573 805 968 1,310 1,169 1,258 2,419Planning and Community Environment 4,062 5,119 3,074 4,090 5,509 6,267 5,498 4,704 4,813 7,237Police3,966 3,396 4,415 3,801 4,178 4,179 4,274 3,947 4,093 3,237Fire7,976 7,811 7,565 8,555 9,078 9,610 9,418 10,723 10,244 12,037Community Services 7,793 7,537 7,846 7,592 10,803 9,128 10,314 8,522 8,729 7,724Library133 129 146 176 177 199 480Operating Grants and Contributions 5,568 4,468 4,213 3,677 3,976 5,642 4,029 3,599 4,829 2,884
* Prior to 2009, Fiber Optics was included in Electric
Fiscal Year Ended June 30,
** Beginning in 2008, includes expenditures classified as Non-departmental in prior years (GFOA recommendation)
130
City of Palo Alto - Changes in Net Assets
Last Ten Fiscal Years ($000)
(Accrual Basis of Accounting)
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Capital Grants and Contributions 32,380 635 1,990 804 3,156 1,756 1,930 3,810 1,280 1,903
62,078 30,524 30,243 29,727 38,285 38,555 37,835 37,389 36,482 40,810
Business-Type Activities:Charges for Services:Water 16,034 17,654 21,993 21,041 21,108 23,495 26,510 27,120 26,259 26,624Electric 93,755 91,622 92,617 88,737 119,418 102,549 103,833 119,320 121,900 122,109Fiber Optics * 0 0 0 0 0 0 0 3,336 3,105 3,322Gas 41,658 29,714 24,839 31,206 36,977 42,221 49,021 47,838 44,450 43,584Wastewater Collection 9,292 10,676 12,647 12,041 13,801 14,848 15,102 14,486 15,136 15,094Wastewater Treatment 13,987 13,556 14,744 15,982 18,778 16,957 22,889 28,425 16,915 18,830Refuse 21,777 21,691 21,923 23,387 24,795 25,532 28,805 29,101 28,568 30,469Storm Drainage 2,221 2,192 2,170 2,484 5,174 5,181 5,450 5,505 5,647 5,796External Services 380 605 585 766 854 789 112 0 0 0Operating Grants and Contributions 361 610Capital Grants and Contributions 185 756 1,594 639 475 3,004
Total Business-Type Activities Program 199,289 187,710 191,518 195,644 240,905 232,328 253,316 275,770 262,816 269,442Revenue
$261,367 $218,234 $221,761 $225,371 $279,190 $270,883 $291,151 $313,159 $299,298 $310,252
Revenues
Net (Expense)/RevenueGovernmental Activities ($44,097) ($71,074) ($74,011) ($88,054) ($80,539) ($83,055) ($97,891) ($105,255) ($104,819) ($100,066)Business-Type Activities 11,321 27,728 26,916 25,549 46,065 30,908 25,293 5,413 45,189 45,482
Total Primary Government Net Expense ($32,776) ($43,346) ($47,095) ($62,505) ($34,474) ($52,147) ($72,598) ($99,842) ($59,630) ($54,584)
General Revenues and Other Changes in Net AssetsGovernmental Activities:Taxes:Property Taxes $13,270 $13,882 $13,707 $16,657 $18,731 $21,466 $23,084 $25,432 $25,981 $29,156Sales Taxes 20,085 18,041 18,151 19,308 20,315 22,194 22,623 20,089 17,991 20,746Utilities Users Taxes 6,457 7,067 7,152 7,269 8,759 9,356 10,285 11,030 11,295 10,851Transient Occupancy Tax 6,615 5,333 5,489 5,686 6,393 6,709 7,976 7,111 6,858 8,082Other taxes 6,284 7,275 8,493 5,580 7,033 6,293 6,261 3,364 4,055 8,156Investment Earnings 10,589 10,213 326 4,988 2,567 8,747 12,313 8,525 6,514 3,500Rents and Miscellaneous 18,524 15,333 10,165 12,997 10,440 13,670 11,896 15,682 12,729 12,377Transfers 13,334 14,730 14,951 14,064 21,545 15,754 18,701 24,020 13,994 17,083
Total Government Activities 95,158 91,874 78,434 86,549 95,783 104,189 113,139 115,253 99,417 109,951Business-Type Activities:Investment Earnings 15,620 13,583 387 8,093 3,631 11,910 16,416 14,103 10,769 5,722Special Item (21,500)Transfers (13,334) (14,730) (14,951) (14,064) (21,545) (15,754) (18,701) (24,020) (13,994) (17,083)
Total Business-Type Activities 2,286 (1,147) (14,564) (27,471) (17,914) (3,844) (2,285) (9,917) (3,225) (11,361)
Total Primary Government $97,444 $90,727 $63,870 $59,078 $77,869 $100,345 $110,854 $105,336 $96,192 $98,590
Change in Net AssetsGovernmental Activities $51,061 $20,800 $4,423 ($1,505)$15,244 $21,134 $15,248 $9,998 ($5,402)$9,885Business-Type Activities 13,607 26,581 12,352 (1,922) 28,151 27,064 23,008 (4,504) 41,964 34,121
Total Primary Government $64,668 $47,381 $16,775 ($3,427) $43,395 $48,198 $38,256 $5,494 $36,562 $44,006
Source: Annual Financial Statements
* Prior to 2009, Fiber Optics was included in Electric
Total Primary Government Program
Total Government Activities Program
Revenues
Fiscal Year Ended June 30,
131
Last Ten Fiscal Years ($000)
(Modified Accrual Basis of Accounting)
$
T
h
o
u
s
a
n
d
s
Fiscal Year Ended June 30,
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
General Fund
Nonspendable $3,278 $3,303 $3,762 $3,931 $4,052 $5,002 $7,286 $6,476 $6,581 $6,085
Restricted 0 0 0 0 0 0 0 0 0 0
Committed 0 0 0 0 0 0 0 0 0 0
Assigned 6,022 6,386 2,973 3,401 3,914 6,855 4,851 6,100 7,295 6,235
Unassigned 54,133 56,618 60,087 24,498 26,251 27,551 30,278 30,648 27,581 31,859
Total General Fund $63,433 $66,307 $66,822 $31,830 $34,217 $39,408 $42,415 $43,224 $41,457 $44,179
Source: Annual Financial Statements
City of Palo Alto - Fund Balances of Governmental Funds (General Fund)
$0
$10
$20
$30
$40
$50
$60
$70
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Nonspendable Restricted Committed Assigned Unassigned
$ T
h
o
u
s
a
n
d
s
132
Last Ten Fiscal Years ($000)
(Modified Accrual Basis of Accounting)
$
T
h
o
u
s
a
n
d
s
Fiscal Year Ended June 30,
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
All Other Governmental Funds
Nonspendable $0 $0 $0 $0 $0 $0 $731 $1,308 $1,402 $1,422
Restricted 31,622 11,574 2,761 1,522 1,822 1,540 1,406 1,412 55,400 50,644
Committed 15,094 7,127 4,206 7,521 18,430 22,883 15,207 22,043 16,962 24,776
Assigned 29,243 40,606 36,117 45,358 46,723 41,684 44,116 36,629 38,538 20,114
Unassigned 0 0 0 0 0 0 0 0 0 1
Total all other governmental funds $75,959 $59,307 $43,084 $54,401 $66,975 $66,107 $61,460 $61,392 $112,302 $96,957
Source: Annual Financial Statements
City of Palo Alto - Fund Balances of Governmental Funds (All Other Governmental Funds)
$0
$20
$40
$60
$80
$100
$120
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Nonspendable Restricted Committed Assigned Unassigned
$ T
h
o
u
s
a
n
d
s
133
City of Palo Alto - Changes in Fund Balance of Governmental Funds
Last Ten Fiscal Years ($000)
Fiscal Year Ended June 30,
2002 2003 2004 2005
Revenues
Sales tax $20,085 $18,041 $18,151 $19,308
Property tax 13,231 13,821 13,707 16,657
Other taxes 20,485 21,070 22,427 19,941
Permits and licenses 2,901 3,161 2,563 3,183
Fines, forfeits and penalties 2,181 2,124 2,884 2,096
Interest and rentals 19,547 19,981 11,480 14,968
From other agencies 3,860 3,776 4,661 2,757
Charges for services 16,667 16,798 16,018 17,159
Other 8,580 5,095 1,681 4,269
Total Revenues 107,537 103,867 93,572 100,338
Expenditures
Administration (1)18,235 17,521 13,862 14,509
Public works 9,549 9,858 8,031 9,060
Planning and community environment 7,378 7,721 8,793 9,692
Police 19,047 19,719 19,962 21,117
Fire 16,722 16,841 16,891 17,615
Community services 19,499 19,793 19,934 16,298
Library (2) 4,800
Non-departmental 8,259 7,442 7,598 9,028
Special revenue and capital projects 16,960 33,584 22,289 21,317
Debt service - Principal payments 465 875 780 785
Debt Service - Interest and fiscal fees 686 696 639 583
Total Expenditures 116,800 134,050 118,779 124,804
Excess (deficiency) of revenues over
(under) expenditures (9,263)(30,183) (25,207) (24,466)
Other Financing Sources (Uses)
Transfers in 27,389 31,402 28,632 60,429
Transfers (out)(14,444)(16,603) (19,133) (46,622)
Other
Contribution from assessment district 31,823 425
Proceeds from long term debt 7,055
Payments to refunded bond escrow (3,820)(1,038)
Total other financing sources (uses)48,003 15,224 9,499 12,769
Net Change in fund balances $38,740 ($14,959) ($15,708) ($11,697)
Debt service as a percentage of
noncapital expenditures 1.1%1.6%1.5% 1.3%
Source:Annual Financial Statements
Note:(a) The City implemented GASB Statement 34 in fiscal year 2002. Therefore this calculation is included only
for fiscal years subsequent to that date.
(1) Comprised of the following departments: City Council, City Manager, City Attorney, City Clerk, City
Auditor, Administrative Services and Human Resources.
(2) Prior to 2005, Library was included in Community Services.
(Modified Accrual Basis of Accounting)
134
Fiscal Year Ended June 30,
2006 2007 2008 2009 2010 2011
$20,315 $22,194 $22,623 $20,089 $17,991 $20,746
18,731 21,466 23,084 25,432 25,981 29,156
23,712 23,698 25,202 22,712 23,206 26,149
4,305 4,711 4,761 4,033 4,408 5,433
2,128 2,517 2,183 2,131 1,857 1,833
13,776 17,750 20,507 19,183 19,045 16,553
5,931 3,448 4,300 5,984 3,035 1,614
18,672 19,929 19,610 19,837 19,775 22,311
4,058 7,503 4,713 6,223 4,724 8,613
111,628 123,216 126,983 125,624 120,022 132,408
14,299 14,399 16,250 16,002 17,353 8,351
9,036 9,256 10,072 10,064 9,787 11,317
9,292 11,874 9,861 10,462 9,480 10,309
22,279 23,305 27,006 27,053 26,728 30,519
18,114 19,146 21,644 21,904 24,294 28,355
19,740 16,533 17,138 17,451 16,451 20,029
5,170 5,260 6,219 5,985 5,900 6,509
10,389 12,122 14,089 10,765 10,149 7,352
13,243 17,478 21,626 21,485 22,006 35,486
810 850 885 800 840 870
523 489 451 416 382 1,815
122,895 130,712 145,241 142,387 143,370 160,912
(11,267) (7,496) (18,258) (16,763) (23,348) (28,504)
26,640 27,701 33,437 39,903 34,835 30,323
(12,390) (15,882) (16,819) (22,399) (21,415) (14,352)
(90)
59,071
14,250 11,819 16,618 17,504 72,491 15,881
$2,983 $4,323 ($1,640) $741 $49,143 ($12,623)
1.2% 1.2% 1.1% 1.0% 1.0% 2.1%
135
June 30, 2011
Daily (Oct-Mar)(Apr-Sep)
Hours Winter Summer
0 93,533 92,647
1 90,081 88,935
2 88,307 86,821
3 87,933 85,983
4 89,385 87,089
5 93,615 90,323
6 102,552 96,901
7 110,866 105,185
8 115,737 113,038
9 120,311 119,961
10 123,822 125,999
11 125,539 129,720
12 126,447 131,914
13 126,613 133,301
14 125,445 133,904
15 125,276 133,609
16 125,259 132,405
17 127,671 129,973
18 127,644 124,528
19 124,246 119,626
20 120,690 118,503
21 115,015 114,209
22 107,167 106,419
23 99,405 98,557
Source:City of Palo Alto, Utilities Resource Management
Customer (alphabetical order) Type of Business kWh's
% of
System Total
529 Bryant St LLC Technology
City of Palo Alto Municipal
CPI-David Morman Research
Hewlett Packard Computer
Space System Loral Satellite & Satellite Systems
Stanford Hines Interests Property Management
Stanford Hospital Hospital
Varian Medical Systems Manufacturing of Medical Equipment
Veterans Admin Hospital Hospital
VMWare Inc.Computer
Total 340,236,175 35.95 %
Source:City of Palo Alto, Utilities Department
City of Palo Alto - Electric Daily Loads and Top Customers by Usage
(in thousands of kWh)
Top Ten Electric Customers by Usage
# Kilowatt Hours
0
20
40
60
80
100
120
140
1 3 5 7 9 11 13 15 17 19 21 23
KWh
(Average Daily Loads in kWh's)
Hours of the Day
Winter Summer
136
City of Palo Alto - Electric Operating Revenue by Source
Last Ten Fiscal Years ($000)
Fiscal Year Residential Commercial City of Palo Alto Other Total
2002 11,377 56,214 1,925 6 69,521
2003 11,657 55,353 2,004 24 69,039
2004 12,245 54,881 2,047 66 69,240
2005 13,009 56,683 2,222 67 71,981
2006 14,973 67,389 2,395 97 84,854
2007 15,150 68,214 2,397 69 85,829
2008 16,109 72,632 2,571 0 91,312
2009 17,939 83,710 2,823 0 104,472
2010 19,898 89,315 2,890 0 112,103
2011 19,848 88,076 2,991 0 110,915
Customer (alphabetical order) Type of Business Net Charges
% of System
Total
529 Bryant St LLC Technology
City of Palo Alto Municipal
CPI-David Morman Research
Hewlett Packard Computer
Space System Loral Satellite System
Stanford Hines Interests Property Mgmt
Stanford Hospital Hospital
Varian Medical Systems Manufacturing
Veterans Admin Hospital Hospital
VMWare Inc.Computer
Total 38,007,506$ 35.36%
Source:City of Palo Alto, Utilities Department
Notes:Revenue includes all utilities (metered and non-metered), revenue adjustments, and Primary Voltage discount.
Does not include CEC surcharge, UUT, Solar and Rap discounts, and deposits.
Top Ten Electric Revenue
$0$10,000$20,000$30,000
$40,000$50,000
$60,000$70,000
$80,000$90,000$100,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Residential Commercial City of Palo Alto Other
137
City of Palo Alto - Assessed Value of Taxable Property
Last Ten Fiscal Years ($000)
$ T
h
o
u
s
a
n
d
s
Net Local Secured Roll Subtotal Less
Fiscal
Year Land Improvements
Personal
Property
Net Local
Secured Roll
Public
Utilities
Unsecured
Property
Exemptions
Net of
State Aid
Total
Assessed
Value
Total
Direct
Tax Rate
2002 5,744,675 6,347,719 292,812 12,385,206 3,371 1,627,594 913,475 13,102,696 1%
2003 6,140,438 6,692,162 309,386 13,141,986 3,859 1,612,179 951,807 13,806,217 1%
2004 6,588,474 6,996,106 195,859 13,780,439 3,956 1,582,368 1,196,546 14,170,217 1%
2005 7,075,300 7,722,660 220,585 15,018,545 4,150 1,354,310 1,402,039 14,974,966 1%
2006 7,941,482 8,364,668 174,666 16,480,816 4,084 1,361,117 1,595,871 16,250,146 1%
2007 8,725,485 8,915,623 213,154 17,854,262 3,923 1,391,284 1,639,856 17,609,613 1%
2008 9,497,746 9,453,436 228,875 19,180,057 3,174 1,536,584 1,797,327 18,922,488 1%
2009 10,420,139 10,527,617 303,688 21,251,444 2,573 1,702,884 1,871,292 21,085,609 1%
2010 11,007,650 10,752,671 288,148 22,048,469 2,573 1,638,436 1,809,119 21,880,359 1%
2011 11,011,160 10,962,928 241,280 22,215,368 2,573 1,495,574 1,757,241 21,956,274 1%
Source:County of Santa Clara Assessor's Office
Note:Beginning in fiscal year 1988-89, Chapter 921 of the Statutes of 1987 requires the establishment
of a single county-wide tax rate area for the assignment of the assessed value of certain types
of state-assessed utility property and sets forth formulas for the determination of county-wide tax
rates for this particular type of property.
The State Constitution requires property to be assessed at one hundred percent of the most
recent purchase price, plus an increment of no more than two percent annually, plus any
local over-rides. These values are considered to be full market values.
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Land Improvements Personal Property Public Utilities Unsecured Property
138
City of Palo Alto - Property Tax Rates
All Overlapping Governments
Last Ten Fiscal Years
Basic County* City**
County County Hospital Library Santa Clara
Fiscal Wide Retirement G. O. Bond G. O. Bond Valley Water School Community
Year Levy Levy (Measure A) (Measure N) District District College Total
2002 1.0000 0.0364 0.0000 0.0000 0.0062 0.0727 0.0000 1.1153
2003 1.0000 0.0388 0.0000 0.0000 0.0072 0.0586 0.0108 1.1154
2004 1.0000 0.0388 0.0000 0.0000 0.0087 0.0666 0.0110 1.1251
2005 1.0000 0.0388 0.0000 0.0000 0.0092 0.0680 0.0129 1.1289
2006 1.0000 0.0388 0.0000 0.0000 0.0078 0.0526 0.0119 1.1111
2007 1.0000 0.0388 0.0000 0.0000 0.0072 0.0720 0.0346 1.1526
2008 1.0000 0.0388 0.0000 0.0000 0.0071 0.0702 0.0113 1.1274
2009 1.0000 0.0388 0.0000 0.0000 0.0061 0.0674 0.0123 1.1246
2010 1.0000 0.0388 0.0122 0.0000 0.0074 0.0686 0.0322 1.1592
2011 1.0000 0.0388 0.0095 0.0171 0.0072 0.0751 0.0326 1.1803
*The County General Obligation Bond (Measure A) was passed in 2008 to fund the seismic upgrade of the Santa Clara Valley
Medical Center. Rates were first levied for the 2009-10 fiscal year.
**The City of Palo Alto General Obligation Bond (Measure N) was passed in 2008 to fund the construction and renovation of
three of the City's libraries. Rates were first levied for the 2010-11 fiscal year.
Source: County of Santa Clara, Tax Rates and Information
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$ H
u
n
d
r
e
d
s
Basic County Wide Levy County Retirement Levy
County Hospital G.O. Bond City Library G.O. Bond
Santa Clara Valley Water District School District
Community College
139
City of Palo Alto - Property Tax Levies and Collections
Last Ten Fiscal Years ($000)
Percent
of Total
Current Percent Delinquent Total Tax
Fiscal Total Tax of Levy Tax Tax Collections
Year Tax Levy (a) Collections Collected Collections (b) Collections to Tax Levy
2002 13,231 13,231 100% - 13,231 100%
2003 13,821 13,821 100% - 13,821 100%
2004 13,707 13,707 100% - 13,707 100%
2005 16,657 16,657 100% - 16,657 100%
2006 18,731 18,731 100% - 18,731 100%
2007 21,466 21,466 100% - 21,466 100%
2008 23,084 23,084 100% - 23,084 100%
2009 25,432 25,432 100% - 25,432 100%
2010 25,981 25,981 100% - 25,981 100%
2011 25,688 25,688 100% - 25,688 100%
Source:County of Santa Clara Assessor's Office
Note:Current tax collections beginning in 1993 have been reduced by a mandatory
tax reallocation imposed by the State of California.
(a) During fiscal year 1995, the County began providing the City 100% of its
tax levy under an agreement which allows the County to keep all interest
and delinquency charges collected.
(b) Effective with the fiscal year 1993-94, the City is on the Teeter Plan, under
which the County of Santa Clara pays the full tax levy due. All prior delinquent
taxes were also received in that fiscal year.
140
City of Palo Alto - Principal Property Taxpayers
Current Year and Nine Years Ago ($000)
FY 2011 FY 2002
Percentage Percentage
of Total City of Total City
Taxable Taxable Taxable Taxable
Assessed Assessed Assessed Assessed
Taxpayer Value Rank Value Value Rank Value
Leland Stanford Jr University $3,328,472 1 15.2% $1,955,683 1 17.2%
Space System /Loral, Inc.208,784 2 1.0% 187,824 2 1.7%
899 Charleston 157,700 3 0.7%0.0%
Albert L Schultz Jewish Community Center 123,255 4 0.6%0.0%
Arden Realty Limited Partnership 111,632 5 0.5% 0.0%
Whisman Ventures, LLC 104,281 6 0.5%0.0%
ECI 2 Bayshore LLC / ECI Hamilton LLC 73,349 7 0.3% 0.0%
Blackhawk Parent LLC 49,821 8 0.2% 0.0%
Ronald & Ann Williams Charitable Foundation 42,951 9 0.2% 0.0%
300 / 400 Hamilton Associates 41,123 10 0.2% 0.0%
Agilent Technologies 0.0%81,317 3 0.7%
Embarcadero Place Associates 0.0%76,500 4 0.7%
Sun Microsystems, Inc.0.0%73,970 5 0.7%
Harbor Investment Partners 0.0%58,026 6 0.5%
California Pacific Commercial Corp.0.0%50,657 7 0.4%
Cowper-Hamilton Associates 0.0%40,361 8 0.4%
529 Bryant Street 0.0%36,250 9 0.3%
Pacific Hotel Dev Venture LP 0.0%35,067 10 0.3%
Subtotal $4,241,368 19.3%$2,595,655 22.8%
Total City Taxable Assessed Value
FY 2011 $21,956,274
FY 2002 $11,379,838
Source: County of Santa Clara compiled by Hunt Consulting, LLC
141
City of Palo Alto - Assessed Valuation and Parcels By Land Use
As Of June 30, 2011
2010-11 No. of
Assessed % of No. of % of Taxable % of
Valuation (a) Total Parcels Total Parcels Total
Non-Residential:
Agricultural/Forest 25,742,741$ 0.13 50 0.25 34 0.17
Commercial 1,486,858,269 7.27 470 2.31 464 2.31
Professional/Office 2,385,942,691 11.66 484 2.38 465 2.31
Industrial/Research & Development 1,975,226,900 9.65 189 0.93 184 0.91
Recreational 20,804,566 0.10 14 0.07 11 0.05
Government/Social/Institutional 351,145,899 1.72 104 0.51 40 0.20
Miscellaneous 6,313,752 0.03 16 0.08 15 0.07
Subtotal Non-Residential 6,252,034,818$ 30.56 1,327 6.53 1,213 6.02
Residential:
Single Family Residence 11,506,870,425$ 56.25 14,912 73.42 14,885 74.00
Condominium/Townhouse 1,435,220,989 7.02 2,743 13.50 2,739 13.62
2-4 Residential Units 340,294,612 1.66 526 2.59 526 2.61
5+ Residential Units/Apartments 694,174,103 3.39 331 1.63 306 1.52
Mobile Home 71,042 0.00 7 0.03 7 0.03
Subtotal Residential 13,976,631,171$ 68.32 18,519 91.17 18,463 91.78
Vacant Parcels 229,460,815$ 1.12 465 2.30 440 2.20
Total 20,458,126,804$ 100.00 20,311 100.00 20,116 100.00
Source:California Municipal Statistics, Inc.
Note:
(a) Local Secured Assessed Valuation, Excluding Tax-Exempt Property
This schedule is provided as required by the Continuing Disclosure Agreement for the City's Series 2010A General
Obligation Bond and is not required by Government Accounting Standards Board (GASB). Therefore, ten years of
comparison data is not presented.
142
City of Palo Alto - Per Parcel Assessed Valuation of Single Family Homes
June 30, 2011
Average
No. of Assessed
Parcels Valuation
Single Family Residential 14,885 $773,051
No. of
2010-11 No. of % of Cumulative Total % of Cumulative
Assessed Valuation Parcels (a) Total % of Total Valuation Total % of Total
$0 - $99,999 2,085 14.007 14.007 155,194,242$ 1.349 1.349
$100,000 - $199,999 2,017 13.551 27.558 277,894,745 2.415 3.764
$200,000 - $299,999 1,015 6.819 34.377 253,767,993 2.205 5.969
$300,000 - $399,999 855 5.744 40.121 299,307,295 2.601 8.570
$400,000 - $499,999 870 5.845 45.966 392,818,001 3.414 11.984
$500,000 - $599,999 878 5.899 51.864 483,210,968 4.199 16.183
$600,000 - $699,999 749 5.032 56.896 488,078,563 4.242 20.425
$700,000 - $799,999 686 4.609 61.505 515,766,103 4.482 24.907
$800,000 - $899,999 781 5.247 66.752 664,641,232 5.776 30.683
$900,000 - $999,999 741 4.978 71.730 704,718,248 6.124 36.808
$1,000,000 - $1,099,999 706 4.743 76.473 738,400,223 6.417 43.225
$1,100,000 - $1,199,999 554 3.722 80.195 638,039,562 5.545 48.769
$1,200,000 - $1,299,999 424 2.849 83.043 529,245,429 4.599 53.369
$1,300,000 - $1,399,999 362 2.432 85.475 488,049,730 4.241 57.610
$1,400,000 - $1,499,999 323 2.170 87.645 467,586,288 4.064 61.674
$1,500,000 - $1,599,999 313 2.103 89.748 484,896,920 4.214 65.888
$1,600,000 - $1,699,999 205 1.377 91.125 337,668,636 2.934 68.822
$1,700,000 - $1,799,999 163 1.095 92.220 284,459,104 2.472 71.294
$1,800,000 - $1,899,999 132 0.887 93.107 244,458,723 2.124 73.419
$1,900,000 - $1,999,999 105 0.705 93.813 204,125,993 1.774 75.193
$2,000,000 and Greater 921 6.187 100.000 2,854,542,427 24.807 100.000
Total 14,885 100.000 11,506,870,425$ 100.000
Source:California Municipal Statistics, Inc.
Note:
(a) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units.
Assessed Valuation
$567,149
Assessed Median
This schedule is provided as required by the Continuing Disclosure Agreement for the City's
Series 2010A General Obligation Bond and is not required by Government Accounting Standards
Board (GASB). Therefore, ten years of comparison data is not presented.
2010-11
Valuation
$11,506,870,425
143
Last Ten Fiscal Years ($000)
Governmental Activities
Certificates General Special
Fiscal of Obligation Assessment Capital Lease
Year Participation Bonds Debt Obligations Total
2002 13,695 0 595 84 14,374
2003 12,905 0 510 57 13,472
2004 12,215 0 420 25 12,660
2005 10,625 0 325 0 10,950
2006 9,915 0 225 0 10,140
2007 9,175 0 115 0 9,290
2008 8,405 0 0 0 8,405
2009 7,605 0 0 0 7,605
2010 6,765 58,500 0 0 65,265
2011 5,895 58,945 0 0 64,840
Business-Type Activities
Utility Total Percentage Percentage
Fiscal Revenue Primary of Assessed of Personal Per
Year Bonds Total Government Value (a) Income (b) Capita (c)
2002 47,210 47,210 61,584 0.47 % 2.04% $1.02
2003 46,069 46,069 59,541 0.43 % 1.97% $0.98
2004 44,862 44,862 57,522 0.38 % 1.87% $0.95
2005 43,598 43,598 54,548 0.34 % 1.67% $0.88
2006 42,288 42,288 52,428 0.32 % 1.53% $0.84
2007 40,887 40,887 50,177 0.28 % 1.46% $0.80
2008 46,310 46,310 54,715 0.29 % 1.54% $0.86
2009 46,565 46,565 54,170 0.26 % 1.47% $0.84
2010 83,647 83,647 148,912 0.68 % 4.46% $2.28
2011 87,117 87,117 151,957 0.69 % 4.45% $2.36
Sources:City of Palo Alto
(a) County of Santa Clara (assessed value)
(b) Per capita personal income are only available for Santa Clara County.
Personal income is the product of the countywide per capita amount and the City's population.
(c) State of California, Department of Finance (population)
California State Department of Transportation Forecasts
Note:Debt amounts exclude any premiums, discounts, or other amortization amounts.
Details regarding the City's outstanding debt can be found in the notes to the financial statements.
City of Palo Alto - Ratio of Outstanding Debt by Type
0
20
40
60
80
100
120
140
160
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$ T
h
o
u
s
a
n
d
s
Total Governmental Total Business
144
City of Palo Alto - Computation of Direct and Overlapping Debt
June 30, 2011
FY 2011 Assessed Valuation
Percentage Amount
Total Applicable Applicable
Debt To City of To City of
OVERLAPPING TAX AND ASSESSMENT DEBT:Outstanding Palo Alto (a) Palo Alto
Santa Clara County $334,900,000 8.276% $27,716,324
Santa Clara Valley Water District, Zone W-1 405,000 0.473% 1,916
Foothill-DeAnza Community College District 650,224,288 23.470% 152,607,640
Palo Alto Unified School District 229,109,249 88.460% 202,670,042
Fremont Union High School District 265,975,108 0.002%5,320
Los Gatos Joint Union High School District 55,215,000 0.011%6,074
Mountain View-Los Altos Union High School District 50,486,384 1.030%520,010
Cupertino Union School District 122,899,991 0.004%4,916
Los Altos School District 86,664,000 1.042%903,039
Mountain View-Whisman School District 2,645,000 1.014%26,820
Saratoga Union School District 47,550,032 0.023%10,937
Whisman School District 19,129,761 3.630%694,410
City of Palo Alto 55,305,000 100.000% 55,305,000
El Camino Hospital District 143,805,000 0.093%133,739
City of Palo Alto Special Assessment Bonds 35,480,000 100.000% 35,480,000
Santa Clara Valley Water District Benefit Assessment District 143,160,000 8.276% 11,847,922
TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $2,242,953,813 $487,934,109
DIRECT AND OVERLAPPING GENERAL FUND DEBT:
Santa Clara County General Fund Obligations $786,980,000 8.276% $65,130,465
Santa Clara County Pension Obligations 386,024,822 8.276% 31,947,414
Santa Clara County Board of Education Certificates of Participation 12,580,000 8.276% 1,041,121
21,215,000 23.470% 4,979,161
9,650,000 0.011% 1,062
6,115,000 1.030% 62,985
Saratoga Union High School District Certificates of Participation 6,110,000 0.023% 1,405
City of Palo Alto General Fund Obligations 5,895,000 100.000% 5,895,000
Santa Clara County Vector Control District Certificates of Participation 3,800,000 8.276% 314,488
Midpeninsula Regional Open Space Park District General Fund
Obligations 131,003,031 13.742% 18,002,437
$1,369,372,853 $127,375,538
TOTAL DIRECT DEBT $61,200,000
TOTAL OVERLAPPING DEBT $554,109,647
COMBINED TOTAL DEBT $3,612,326,666 $615,309,647 (b)
Note: (a) Percentage of overlapping agency's assessed valuation located within boundaries of the city.
non-bonded capital lease obligations.
Ratios to Assessed Valuation
Direct Debt ($55,305,000)
Combined Direct Debt ($61,200,000)
Total Overlapping Tax and Assessment Debt
Combined Total Debt
STATE SCHOOL BUILDING AID REPAYABLE AS OF 06/30/11: $0
Source: California Municipal Statistics, Inc.
$21,956,274,024
0.28%
2.22%
2.80%
Foothill-DeAnza Community College District Certificates of
Participation
Mountain View-Los Altos Union High School District Certificates of
Participation
(b) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and
TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT
0.25%
Los Gatos-Saratoga Joint Union High School District Certificates of
Participation
145
City of Palo Alto - Computation of Legal Bonded Debt Margin
June 30, 2011
Assessed Valuation:
Secured property assessed value, net of
exempt real property $21,956,274
Bonded debt limit 3.75% of assessed value (a)$823,360
Amount of debt subject to limit: (b)
Certificates of participation 5,895
General Obligation Bonds 55,305
Special assessment debt with government commitment 0
Total Debt 61,200
Less amount of debt not subject to limit 5,895
Amount of debt subject to limit 55,305
Legal bonded debt margin $768,055
Total net debt
applicable
Total Net Debt Legal to the limit
Fiscal Debt Applicable to Debt as a percentage
Year Limit Limit Margin of debt limit
2002 491,351 0 491,351 0.00%
2003 516,615 0 516,615 0.00%
2004 561,561 0 561,561 0.00%
2005 609,378 0 609,378 0.00%
2006 609,377 0 609,377 0.00%
2007 660,360 0 660,360 0.00%
2008 709,593 0 709,593 0.00%
2009 790,710 0 790,710 0.00%
2010 820,513 55,305 765,208 7.23%
2011 823,360 55,305 768,055 7.20%
Source: Annual Financial Statements
Notes: (a) California Government Code, Section 43605 sets the debt limit at 15%. The Code section was
enacted prior to the change in basing assessed value to full market value when it was previously
25% of market value. Thus, the limit shown as 3.75% is one-fourth the limit to account for the
adjustment of showing assessed valuation at full cash value. Prior year limits have been adjusted
to conform to the current year methodology.
(b) In accordance with California Government Code Section 43605, only the City's general obligation
bonds are subject to the legal debt limit of 15%. The above does not include debt recorded in the
Enterprise Funds because such debt is not subject to legal debt margin.
Special assessment debt excludes debt where there is no government commitment.
(in thousands of dollars)
146
Direct Net Revenue
Fiscal Gross Operating Available for
Year Revenue Expenditures Debt Services (a) Principal Interest Total Coverage
2002 176,947 148,345 28,602 1,955 1,660 3,615 7.91
2003 165,414 116,268 49,146 1,255 2,354 3,609 13.62
2004 169,047 121,988 47,059 1,310 2,307 3,617 13.01
2005 171,493 147,123 24,370 1,365 2,257 3,622 6.73
2006 214,944 144,465 70,479 1,410 2,203 3,613 19.51
2007 205,258 164,340 40,918 1,465 2,147 3,612 11.33
2008 222,799 186,285 36,514 1,525 2,088 3,613 10.11
2009 246,028 195,489 50,539 1,590 2,024 3,614 13.98
2010 233,774 187,658 46,116 1,755 1,954 3,709 12.43
2011 237,600 168,328 69,272 2,655 3,261 5,916 11.71
Source: Annual Financial Statements
Note: (a) Excludes depreciation and amortization expense.
Details regarding the City's outstanding debt can be found in the notes to the financial statements.
FY 2008 Principal for Debt Service was restated due to correction of data.
City of Palo Alto - Revenue Bond Coverage
Debt Service
Water, Electric, Gas, Wastewater Collection,
Wastewater Treatment and Storm Drainage Funds
Last Ten Fiscal Years ($000)
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Net Revenue Available Total Debt Service
147
Fiscal
Year
Department
Stores
Eating/
Drinking
Places Auto Sales
Furniture/
Appliance Apparel Stores
Food
Markets
Service
Stations
Drug
Stores
Other
Retail
Retail Stores
Total
All Other
Outlets Total
2002 2,646 2,321 2,533 1,593 1,171 371 379 180 3,674 14,868 5,009 19,877
2003 2,316 2,172 2,094 1,455 1,114 375 388 171 2,811 12,896 4,834 17,730
2004 2,425 2,168 1,958 1,479 1,186 351 437 168 3,698 13,870 3,997 17,867
2005 2,621 2,206 1,966 1,176 1,310 356 533 317 3,590 14,075 5,139 19,214
2006 2,664 2,306 2,062 1,168 1,346 370 595 392 4,244 15,147 5,042 20,189
2007 2,751 2,486 1,954 1,109 1,485 374 602 203 5,075 16,039 5,185 21,224
2008 2,685 2,566 1,731 1,685 1,497 349 622 405 4,682 16,222 5,066 21,288
2009 2,251 2,443 1,358 1,431 1,258 315 493 214 4,284 14,047 5,277 19,324
2010 2,215 2,418 1,288 1,402 1,254 343 549 219 4,458 14,146 4,268 18,414
2011 2,374 2,621 1,474 1,564 1,292 381 630 242 4,873 15,451 4,848 20,299
Source:California State Board of Equalization, compiled by MBIA Muniservices Company
State Funds 7.00%
County Transportation Fund (Transportation Development Act) 0.25%
County Transportation Fund 1.00%
City 1.00%
9.25%
Source: California State Board of Equalization
Note: Effective July 1, 2011 the sales tax rate decreased to 8.25%.
City of Palo Alto- Taxable Transactions by Type of Business
Last Ten Fiscal Years ($000)
RETAIL STORES
SALES TAX RATES FOR THE
FISCAL YEAR ENDED JUNE 30, 2011
Department
Stores
12%
Eating/
Drinking
Places
13.1%
Auto
Sales
7%Furniture/
Appliance
7.6%Apparel
Stores
6.8%
Food
Markets
1.9%
Service
Stations
3%
Drug Stores
1.2%
Other
Retail
24.2%
All Other
Outlets
23.2%
Fiscal Year 2011
148
City of Palo Alto - Demographic and Economic Statistics
Last Ten Fiscal Years
Santa Clara
City of Palo Alto City of Palo Alto Santa Clara City Total
Fiscal City of Palo Alto Unemployment School County Population County ($000)
Year Population Rate (%) Population Population % of County Personal Income
2002 60,500 3.7%9,952 1,719,565 3.52%77,548,912
2003 60,465 4.1%10,151 1,729,917 3.50%77,680,349
2004 60,246 3.2%10,341 1,731,422 3.48%82,638,917
2005 61,674 2.8%10,527 1,759,585 3.51%86,400,000
2006 62,148 2.5%10,607 1,773,258 3.50%91,600,000 *
2007 62,615 2.6%11,056 1,808,056 3.46%96,900,000 *
2008 63,367 3.5%11,329 1,837,075 3.45%107,900,000 *
2009 64,484 6.5%11,329 1,857,621 3.47%109,700,000 *
2010 65,408 6.2%11,565 1,880,876 3.48%99,600,000 *
2011 64,417 5.3%12,024 1,781,427 3.62%105,500,000 *
Source: California State Department of Finance
State Employment Development Office
Palo Alto Unified School District
*California State Department of Transportation Forecasts
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
Total County Personal Income
9
10
11
12
City of Palo Alto School Population
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
City Unemployment Rate
3.00%
3.20%
3.40%
3.60%
3.80%
4.00%
City Population % of County
Thousands
149
City of Palo Alto - Principal Employers
Current Year and Three Years Ago
Percentage
Number of Rank of Total City Number of Rank
Employer Employees Employment Employees
Stanford University 10,223 1 9.3%9,821 1
Stanford University Medical Center/Hospital 5,813 2 5.3%5,025 2
Lucile Packard Children's Hospital 3,549 3 3.2%3,326 4
Veteran's Affairs Palo Alto Health Care System 3,500 4 3.2%3,500 3
Hewlett-Packard Company 2,001 5 1.8%2,001 5
Palo Alto Medical Foundation 2,000 6 1.8%2,000 6
Space Systems Loral 1,700 7 1.5%1,700 7
Wilson Sonsini Goodrich Rosati 1,500 8 1.4%1,500 8
Palo Alto Unified School District 1,318 9 1.2%1,304 9
City of Palo Alto 1,019 10 0.9%1,100 10
Subtotal 32,623 29.7%
Total City Day Population 110,000
Source: www.ReferenceUSA.com, www.stanfordhospital.org, www.lpch.org, www.pausd.org, www.stanford.edu, www.cityofpaloalto.org
FY 2011 FY 2008
Note: Reporting as a statistical started in FY 2006. Comparable data was not available until FY 2008.
150
City of Palo Alto - Full-Time Equivalent City Government Employees by Function
Last Ten Fiscal Years
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Governmental Funds
General Fund
Administrative Depts 143.60 145.10 101.10 96.24 96.65 99.05 98.65 97.80 89.30 82.84
Community Services 153.00 153.00 144.75 98.25 99.25 97.25 96.25 96.50 94.25 74.50
Fire 129.00 132.50 128.50 126.00 127.00 127.00 127.00 126.69 122.69 120.74
Library (a)44.00 44.25 43.75 43.75 43.75 42.25 41.25
Planning and Community Environment 56.50 59.00 54.80 53.30 53.30 53.30 53.30 53.30 48.85 44.60
Police 176.50 177.50 171.00 164.50 164.00 163.00 163.00 164.00 161.50 157.00
Public Works 87.05 93.05 76.20 67.90 67.90 67.90 67.90 69.23 63.67 58.57
Capital Projects Fund 12.70 20.20 20.20 20.00 20.00 20.67 24.67 23.67
Special Revenue Fund 1.20 1.20 1.20 1.20 1.20 1.20 1.15 1.65
Enterprise Funds
Public Works Department 110.45 110.45 111.35 112.65 112.65 112.65 112.65 113.55 114.63 115.01
(Refuse, Storm Drain, Wastewater Treatment)
Utilities Department 230.50 229.50 233.75 233.90 235.90 234.90 234.90 238.01 241.61 250.71
(Administrative, Electric, Gas, Wastewater
Collection, Water )
CPA External Services (b)4.00 7.00 5.70 6.00 6.00 5.80 5.80 - - -
Other Funds
Printing and Mailing 4.15 4.15 4.15 4.70 4.60 4.65 4.05 4.05 4.05 1.57
Technology 33.15 29.56 29.60 29.80 29.80 30.65 30.65 30.41
Equipment Management 15.00 15.00 16.00 16.00 16.00 16.20 16.20 16.20 16.08 16.08
Total 1,109.75 1,126.25 1,094.35 1,074.40 1,078.50 1,076.45 1,074.45 1,075.60 1,055.35 1,018.60
Source: City of Palo Alto - Adopted Operating Budget
(b) CPA External Services of the original 5.80 FTE, .80 FTE was transferred to the Technology Fund
and 5.00 FTE was eliminated.
Notes: (a) Library became its own entity effective 2005, originally part of Community Services.
-
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Fu
l
l
T
i
m
e
E
q
u
i
v
a
l
e
n
t
s
Administrative Depts Community Services
Fire Library (a)
Planning and Community Environment Police
Public Works Capital Projects Fund
Special Revenue Fund
151
Last Ten Fiscal Years
2002 2003 2004
Function / Program
Public Safety:
Fire:
Number of Fire Hydrants 1,741 1,746 1,874
Planning & Community Environment:
Number of Housing Units 26,841 26,934 27,019
Commercial & Industrial Space - Million Sq Ft 27.3 27.3 27.3
Electric Utility:
Number of Customer Accounts 28,348 28,408 28,482
Million of KWH Sold 997 957 958
Fiber Optics Utility:
Number of Fiber Optic Connections 30 23 18
Water Utility:
Number of Customer Accounts 19,437 19,487 19,557
Million CCF Sold 5.9 5.6 6.0
Gas Utility:
Number of Customer Accounts 23,116 23,169 23,216
Million Therms Sold 33.7 31.8 31.5
Waste Water:
Number of Customer Accounts 21,772 21,819 21,830
Millions of Gallons Processed 8,699 8,704 8,238
Source:City of Palo Alto
State of California, Dept of Finance (housing units)
Note:Fiscal Years 2004-2006, number of fire hydrants are restated due to change in source of data.
Fiscal Years 2007 and 2008, for Water Utility - Million CCF Sold, are restated due to
correction of measuring units.
City of Palo Alto - Operating Indicators by Function/Program
Fiscal Year
152
2005 2006 2007 2008 2009 2010 2011
1,873 1,919 1,944 1,948 1,949 1,954 1,852
27,522 27,767 27,763 27,938 28,291 28,445 28,216
27.3 27.3 27.3 27.3 27.3 27.3 27.3
28,539 28,653 28,684 29,024 28,527 28,527 29,708
959 966 978 977 996 965 946
39 22 23 27 26 24 24
19,605 19,645 19,726 19,942 19,442 19,916 20,248
5.3 5.2 5.4 5.5 5.7 5.0 5.0
23,300 23,353 23,357 23,502 23,090 23,322 23,816
32.0 31.5 31.3 32.2 30.6 30.7 30.9
21,825 21,784 21,835 21,990 22,210 22,193 22,320
8,395 8,972 9,220 8,510 7,958 8,184 8,652
Fiscal Year
153
City of Palo Alto - Capital Asset Statistics by Function/Program
Last Ten Fiscal Years
2002 2003 2004 2005
Function/Program
Public Safety:
Fire:
Fire Stations 8 8 8 8
Fire Apparatus 25 22 23 25
Police:
Police Stations 1 1 1 1
Police Patrol Vehicles 33 33 30 30
Community Services:
Acres - Downtown/Urban Parks 170 170 170 170
Acres - Open Space 3,731 3,731 3,731 3,731
Parks and Preserves 34 34 34 35
Golf Course 1 1 1 1
Tennis Courts 52 52 52 52
Athletic Center 1 1 1 1
Community Centers 4 4 4 4
Theatres 3 3 3 3
Cultural Center/Art Center 1 1 1 1
Junior Museum and Zoo 1 1 1 1
Swimming Pools 1 1 1 1
Nature Center 2 2 2 2
Libraries:
Libraries 6 6 5 5
Public Works:
Number of Trees Maintained 37,941 34,939 35,440 35,096
Electric Utility:
Overhead Pole Miles 227 227 227 225
Underground Trench Miles 186 186 186 188
Water Utility:
Miles of Water Mains 226 226 226 226
Gas Utility:
Miles of Gas Mains 207 207 207 207
Waste Water:
Miles of Sanitary Sewer Lines 202 202 202 202
Source: City of Palo Alto
Fiscal Year
154
2006 2007 2008 2009 2010 2011
8 8 8 8 8 8
25 25 23 28 28 27
1 1 1 1 1 1
30 30 30 30 30 30
170 157 157 157 157 157
3,731 3,744 3,744 3,744 3,744 3,744
35 36 36 36 36 36
1 1 1 1 1 1
52 51 51 51 51 51
1 4 4 4 4 4
4 4 4 4 4 4
3 3 3 3 3 3
1 1 1 1 1 1
1 1 1 1 1 1
1 1 1 1 1 1
2 3 3 3 3 3
5 5 5 5 5 5
34,841 34,556 35,322 35,255 35,255 35,207
217 194 193 193 193 193
210 252 253 253 253 253
217 217 217 214 214 214
207 207 207 207 205 205
202 202 202 207 207 207
Fiscal Year
155
EXPIRATION
TYPE COVERAGE (Deductible) LIMITS COMPANY DATE
PROPERTY LOSS
Blanket All real & personal property ($10,000 deductible),
Fine Arts ($2,500 deductible)
$380,029,130 CA Public Entity
Property Program
07/02/16
Boiler & Machinery All real & personal property ($25,000 deductible) $100,000,000 maximum all risk per
occurrence limit
CA Public Entity
Property Program
07/02/16
$1,000,000 minimum contingent
business interruption
Flood Insurance All real property 1305 Middlefield Road ($1,000
deductible)
$500,000 Hartford Fire Insurance
Co.
04/08/16
FINANCIAL LOSS
Employee Dishonesty Position bond-faithful performance per loss ($5,000
deductible)
$1,000,000 / $4,000,000 x
$1,000,000 per occurrence for City
Mgr. & Director of ASD
Fidelity & Deposit Co. 03/23/16
UMBRELLA EXCESS
LIABILITY
City is a member of an insurance pool participating
with a number of other California cities ($1,000,000
self-insured retention)
$100,000,000 annual aggregate Everest Ins. Co.
Lexington Ins Co. Axis
& Arch
07/02/16
Trustees Errors and
Omissions
Bodily injury and property damage liability
Errors and omissions liability
SPECIAL LIABILITY Each occurrence
Volunteers Accident Medical - Each person / ($100 deductible) $20,000 QBE Insurance Co. 02/04/16
Special Events Bodily injury $1,000,000 per occurrence Colony Insurance
Company
01/02/16
EMPLOYEE BENEFIT
Travel Accident Indemnity, based on salary $1,500,000 per accident Life Insurance Co. of
North America
06/02/16
EMPLOYEE HEALTH
PLAN
The City participates in the California Public
Employees' Medical and Health Care Act
(PEMHCA) program to provide medical benefits to
employees and retirees
WORKERS'
COMPENSATION
City is self-insured for first $750,000 liability $750,000 per occurrence 07/02/16
EXCESS WORKERS'
COMPENSATION
Pooled Retention $4,000,000 limit per occurrence -
Workers Comp and Employers
Liability
CSAC Excess Insurance
Authority
07/02/16
Reinsured Layer $45,000,000 workers comp per
occurrence, excess of pooled
retention limit, includes $5,000,000
employers liability
ACE American
Insurance Co.
07/02/16
5
City of Palo Alto - Insurance Coverage
June 30, 2011
Source: Human Resources Dept, City of Palo Alto
156
CITY OF PALO ALTO
Index to the Single Audit Report
For the Year Ended June 30, 2011
157
Page
Independent Auditor’s Report on Internal Control Over Financial Reporting
and on Compliance and Other Matters Based on an Audit of Financial
Statements Performed in Accordance with Government Auditing Standards ....................................... 159
Independent Auditor’s Report on Compliance with Requirements that Could
Have a Direct and Material Effect on Each Major Program, Internal Control
Over Compliance in Accordance with OMB Circular A-133 and
Schedule of Expenditures of Federal Awards ........................................................................................ 161
Schedule of Expenditures of Federal Awards ........................................................................................... 163
Notes to the Schedule of Expenditures of Federal Awards ....................................................................... 164
Schedule of Findings and Questioned Costs ............................................................................................. 165
Schedule of Prior Audit Findings ............................................................................................................. 176
158
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159
Honorable Mayor and City Council
of the City of Palo Alto, California
INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF
FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE
WITH GOVERNMENT AUDITING STANDARDS
We have audited the financial statements of the governmental activities, the business-type activities, each
major fund, and the aggregate remaining fund information of the City of Palo Alto, California, (City), as
of and for the year ended June 30, 2011, and have issued our report thereon dated December 1, 2011. Our
report includes an explanatory paragraph indicating that the City adopted the provisions of Governmental
Accounting Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type
Definitions. 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.
Internal Control Over Financial Reporting
Management of the City is responsible for establishing and maintaining effective internal control over
financial reporting. In planning and performing our audit, we considered the City’s internal control over
financial reporting as a basis for designing our auditing procedures 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 over financial reporting. Accordingly, we do not express an opinion on the
effectiveness of the City’s internal control over financial reporting.
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 City’s financial statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting was for the limited purpose described in the
first paragraph of this section and was not designed to identify all deficiencies in internal control over
financial reporting that might be deficiencies, significant deficiencies or material weakness. We did not
identify any deficiencies in internal control over financial reporting that we consider to be material
weaknesses, as defined above. However, we identified certain deficiencies in internal control over
financial reporting, described as items 2011-A through 2011-H in Section II of the accompanying
schedule of findings and questioned costs over financial statements that we consider to be significant
deficiencies in internal control over financial reporting. A significant deficiency is a deficiency, or a
combination of deficiencies, in internal control that is less severe than a material weakness, yet important
enough to merit attention by those charged with governance.
160
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s financial statements are free of
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on compliance with those
provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The
results of our tests disclosed no instances of noncompliance or other matters that are required to be
reported under Government Auditing Standards.
The City’s responses to the findings identified in our audit are described in Section II of the
accompanying schedule of findings and questioned costs. We did not audit the City’s responses and,
accordingly, we express no opinion on them.
This report is intended solely for the information and use of the Mayor and City Council, management,
federal awarding agencies and pass-through entities and is not intended to be and should not be used by
anyone other than these specified parties.
Walnut Creek, California
December 1, 2011
161
Honorable Mayor and City Council
of the City of Palo Alto, California
INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH REQUIREMENTS
THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON
EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE
IN ACCORDANCE WITH OMB CIRCULAR A-133
Compliance
We have audited City of Palo Alto’s compliance with the types of compliance requirements described in
the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of
the City’s major federal programs for the year ended June 30, 2011. The City’s major federal programs
are identified in the summary of the auditor’s result section of the accompanying schedule of findings and
questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable
to each of its major federal programs is the responsibility of the City’s management. Our responsibility is
to express an opinion on the City’s compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the
United States of America; the standards applicable to financial audits contained in the Government
Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133,
Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular
A-133 require that we plan and perform the audit to obtain reasonable assurance about whether
noncompliance with the types of compliance requirements referred to above that could have a direct and
material effect on a major federal program occurred. An audit includes examining, on a test basis,
evidence about the City’s compliance with those requirements and performing such other procedures as
we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion. Our audit does not provide a legal determination of the City’s compliance with those
requirements.
In our opinion, the City complied, in all material respects, with the compliance requirements referred to
above that could have a direct and material effect on each of its major federal programs for the year ended
June 30, 2011. However, the results of our auditing procedures disclosed instances of noncompliance with
those requirements, which are required to be reported in accordance with OMB Circular A-133 and which
are described in the accompanying schedule of findings and questioned costs as items 2011-1, 2011-4 and
2011-6.
Internal Control Over Compliance
Management of the City is responsible for establishing and maintaining effective internal control over
compliance with the requirements of laws, regulations, contracts, and grants applicable to federal
programs. In planning and performing our audit, we considered the City’s internal control over
compliance with the requirements that could have a direct and material effect on a major federal program
to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test
and report on internal control over compliance in accordance with OMB Circular A-133, but not for the
purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly,
we do not express an opinion on the effectiveness of the City’s internal control over compliance.
162
Our consideration of internal control over compliance was for the limited purpose described in the
preceding paragraph and was not designed to identify all deficiencies in internal control over compliance
that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that
all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as
discussed below, we identified certain deficiencies in internal control over compliance that we consider to
be a material weakness and other deficiencies that we consider to be significant deficiencies.
A deficiency in internal control over compliance exists when the design or operation of a control over
compliance does not allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a
federal program on a timely basis. A material weakness in internal control over compliance is a
deficiency, or combination of deficiencies, in internal control over compliance, such that there is
reasonable possibility that material noncompliance with a type of compliance requirement of a federal
program will not be prevented, or detected or corrected, on a timely basis. We consider the deficiencies in
internal control over compliance described in the accompanying schedule of findings and questioned
costs as items 2011-1, 2011-3, and 2011-5 to be material weaknesses.
A significant deficiency in internal control over compliance is a deficiency, or a combination of
deficiencies, in internal control over compliance with a type of compliance requirement of a federal
program that is less severe than a material weakness in internal control over compliance, yet important
enough to merit attention by those charged with governance. We consider the deficiencies in internal
control over compliance described in the accompanying schedule of findings and questioned costs as
items 2011-2 and 2011-4 to be significant deficiencies.
The City’s responses to the findings identified in our audit are described in the accompanying schedule of
findings and questioned costs. We did not audit the City’s responses and, accordingly, we express no
opinion on the responses.
This report is intended solely for the information and use of the Mayor and City Council, management,
federal awarding agencies and pass-through entities and is not intended to be and should not be used by
anyone other than these specified parties.
Walnut Creek, California
December 1, 2011
Grantor Federal
Identifying CFDA Subrecipients
Grantor/Pass-Through Grantor/Program Title Number Number Expenditures Expenditures
U.S Department of Housing and Urban Development
Direct
CDBG - Entitlement Grants Cluster
Community Development Block Grants/Entitlement Grants B-10-MC-06-0020 14.218 487,032$ 358,946$
ARRA - Community Development Block Grant ARRA Entitlement
Grants (CDBG-R)B-09-MY-06-0020 14.253 52,426 47,049
Subtotal - CDBG - Entitlement Grants Cluster 539,458 405,995
U.S. Department of Interior
Direct
ARRA - Water Reclamation and Refuse Program R10AP20003 15.504 4,939,600 -
U.S. Department of Justice
Direct
Equitable Sharing Program CA0431200 16.CA0431200 1,222 -
U.S. Department of Transportation
Pass-through State of California Department of Transportation
ARRA - Surface Transportation_Discretionary Grants for Capital Investments
ARRA - Alma Road Rehabilitation ESPL-5100(013)20.932 322,545 -
Environmental Protection Agency
Pass-through California State Water Resources Control Board
ARRA - Capitalization Grants for Clean Water State Revolving Funds 09-814-550 66.458 2,166,607 -
U.S. Department of Energy
Direct
ARRA - Energy Efficiency and Conservation Block Grant DE-SC0002146 81.128 527,152 -
U.S. Department of Homeland Security
Direct
Assistance to Firefighter Grant EMW-2008-FO-12589 97.044 136,430 -
Pass-through from County of Santa Clara
State Homeland Security Grant 2008-0006 97.073 6,088 -
Total U.S. Department of Homeland Security 142,518 -
TOTAL FEDERAL FINANCIAL AWARDS 8,639,102$ 405,995$
CITY OF PALO ALTO
Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2011
See Notes to Schedule of Expenditures of Federal Awards
163
CITY OF PALO ALTO
Notes to the Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2011
164
NOTE 1 – REPORTING ENTITY
The Schedule of Expenditures of Federal Awards (the Schedule) includes expenditures of federal awards
for the City of Palo Alto, California, and its component units as disclosed in the notes to the basic
financial statements.
NOTE 2 – BASIS OF ACCOUNTING
Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts
and reported in the financial statements, regardless of measurement focus applied. All governmental funds
are accounted for using the modified accrual basis of accounting. All proprietary funds are accounted for
using the basis of accounting. Expenditures of federal awards reported on the Schedule are recognized
when incurred.
OMB Circular A-133 requires that certain adjustments be made to expenditures recognized when
incurred. The adjustments applicable to the City are summarized below:
Expenditure of Long-Term Debt Proceeds – In this fiscal year, the City received proceeds from long-term
debt funded by the federal government, passed through the California State Water Resources Control
Board under CFDA number 66.458. In accordance with the OMB Circular A-133, section .205(d), the
City included current year expenditures of such proceeds on the Schedule.
NOTE 3 – DIRECT AND INDIRECT (PASS-THROUGH) FEDERAL AWARDS
Federal awards may be granted directly to the City by a federal granting agency or may be granted to
other government agencies which pass-through federal awards to the City. The Schedule includes both of
these types of federal award programs when they occur.
NOTE 4 – RELATIONSHIP TO FEDERAL FINANCIAL REPORTS
Amounts reported in the Schedule agree to or can be reconciled with the amounts reported in the related
federal financial reports.
NOTE 5 – RELATIONSHIP TO BASIC FINANCIAL STATEMENTS
Federal awards and expenditures agree to or can be reconciled with the amounts reported in the City’s
basic financial statements.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2011
165
Section I - Summary of Auditor’s Results
Financial Statements
Type of auditor’s report issued on the
basic financial statements of the City:
Unqualified
Internal control over financial reporting:
Material weakness(es) identified? No
Significant deficiency(ies) identified that are not
considered to be material weaknesses?
Yes
Noncompliance material to the financial statements
noted?
No
Federal Awards
Internal control over major programs:
Material weakness(es) identified? Yes
Significant deficiency(ies) identified that are not
considered to be material weaknesses?
Yes
Type of auditor’s report issued on compliance for major
programs:
Unqualified
Any audit findings disclosed that are required to be
reported in accordance with section 510(a) of OMB
Circular A-133?
Yes
Identification of major programs:
Program Title CFDA Number
CDBG – Entitlement Grants Cluster 14.218 & 14.253
ARRA – Water Reclamation and Refuse Program 15.504
ARRA – Surface Transportation Discretionary Grants
for Capital Investment 20.932
ARRA –Capitalization Grants for Clean Water State
Revolving Funds 66.458
ARRA – Energy Efficiency and Conservation Block
Grant Program 81.128
Dollar threshold used to distinguish between type A and
type B programs:
$300,000
Auditee qualified as a low-risk auditee? No
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2011
166
Section II – Financial Statement Findings
2011-A A Comprehensive Disaster Recovery Plan Has Not Been Fully Developed and Tested
(Significant Deficiency)
General computer controls should ensure that plans have been developed and documented to provide
contingency for unforeseeable events, including the recovery of operational and financial data in the event
of a disaster. The City, however, has not completed the development of a comprehensive disaster
recovery plan. The current draft plan started development in 2008 and has yet to be completed. City IT
management stated the prolonged plan development process was due to a lack of sufficient resources.
The lack of a comprehensive plan that has been fully tested places the City at an increased risk of loss of
financial data in the event of a disaster that affects the City’s server room.
We recommend the City CIO (acting), working with the City Manager, should plan to budget for the
resources necessary to complete the development of a comprehensive disaster recovery plan. Once the
plan is completed, it should be fully tested to ensure the City’s financial data can be restored in a
reasonable amount of time.
Management’s Response:
The City’s management agrees with this finding, which is consistent with other reports on the
SAP/IT system. The IT Department was created by the City Manager as a stand alone department
in the FY2012 budget. The Department was created, in part, to provide greater focus on IT
priorities, such as security, among others. The IT Department will be lead by a new Chief
Information Officer. The finding will be evaluated by the new IT Department as part of building
a work plan for the future.
2011-B The City’s IT Assets Are Exposed to an Active Water-Based Fire Suppression System
(Significant Deficiency)
General computer controls should ensure that IT assets are adequately protected from physical and
environmental hazards. The City’s server room, however, still has an active water-based fire suppression
system. This places the City’s IT assets at increased risk of damage should the system be activated or
should a pipe rupture.
We recommend the City CIO (acting), working with the City Manager, should research the feasibility of
implementing a dry fire suppression system in the City’s server room. Alternately, the active water-based
system could be replaced by a dry-pipe system. If it is determined that the systems could be
implemented, the City should budget for the replacement of the water-based system. Should the system
replacement be deemed infeasible, alternative mitigating controls should be implemented, such as the
installation of high temperature sprinkler heads and the development of a comprehensive disaster
recovery plan.
Management’s Response:
Same response as provided under finding no. 2011-A.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2011
167
Section II – Financial Statement Findings (Continued)
2011-C A Comprehensive IT Risk Assessment Has Not Been Performed
(Significant Deficiency)
General computer controls over the access to programs and data should require that a mechanism or
procedures be in place to identify and react to risks arising from internal and external sources. A
comprehensive means to identify IT risks is through the periodic performance of IT risk assessments.
The City, however, has not performed a formal comprehensive and independent IT risk assessment to
help identify the risks to the delivery of IT services and the accuracy and integrity of the City’s financial
and personnel data.
We recommend the City CIO (acting) should plan and budget for an independent IT risk assessment to be
performed on the department’s functions. The risk assessment should focus on identifying all of the
possible risks to the City IT department, the delivery of IT services and the accuracy and integrity of the
City’s financial and personnel data. The risk assessment should quantify the likelihood of an event, the
impact of the event and the mitigating controls that would address the possible risk. The risk assessment
should also include network penetration testing to ascertain the vulnerabilities of the City’s computer
network from hacking attempts.
Management’s Response:
Same response as provided under finding no. 2011-A.
2011-D City IT Department Does Not Have Oversight Over Non-Core Financial Applications
(Significant Deficiency)
The City has several applications that are used by the various departments. These include; Class, used by
Parks and Recreation; Chameleon, used by Animal Services; Horizon, used by the Libraries; and Acella,
used for Permitting. These applications are owned by the individual departments and not controlled nor
managed by the City IT Department. Since management of the applications is decentralized, the
individual applications may not adhere to best practices for application access (password configuration)
or management of authorization profiles. This places the City network and financial data at increased risk
of unauthorized access.
We recommend the City Internal Auditor, working with the CIO (acting), should review the password
configuration requirements being used in the City’s non-core financial applications. If it is found that the
password requirements do not meet industry best practices shown in the table below, the password
configuration settings within the applications should be updated, if possible.
Account Setting Best Practices
Password Length (Min.) 7-9 characters
Expiration Period 30-60 days
Account Lockout Threshold 3-5 invalid logon attempts will lock the account.
Strong Passwords Required Yes
Management’s Response:
Same response as provided under finding no. 2011-A.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2011
168
Section II – Financial Statement Findings (Continued)
2011-E City Firewalls Are Managed by a Single Person
(Significant Deficiency)
General computer controls require that logical security management be properly administered. The City’s
firewalls, however, are accessible and configurable by mainly only one person within the IT Department.
Although the City has additional staff that can assist with firewall activities, it does not have a single staff
person that is a dedicated back up. This places the City’s network, application and data at increased risk
should this person be unavailable for an extended period, or if the one person decided to lock all others
out of the network.
We recommend the CIO (acting) should either have at least one other IT staff or manager trained in the
management of firewalls or have an outside consultant retained for these services. An additional secured
account should also be created for firewall administration that could be used in the event the primary
firewall administrator is unavailable for an extended period of time.
Management’s Response:
Same response as provided under finding no. 2011-A.
2011-F City Has Not Performed PCI Data Security Standards Compliance Assessment
(Significant Deficiency)
The Payment Card Industry Data Security Standard (PCI DSS) is a set of requirements designed to ensure
that all entities that process, store or transmit credit card information maintain a secure environment.
Entities that do not comply with PCI DSS may be subject to fines, card replacement costs, forensic audits,
brand damage, etc., by the major credit card brands should a breach event occur. The City, however, has
not performed a compliance assessment for PCI DSS.
We recommend the City Manager, working with the CIO (acting) should have a PCI compliance audit
conducted over the City’s payment card practices and security measures.
Management’s Response:
Same response as provided under finding no. 2011-A.
2011-G City-wide Capital Asset Policies are Outdated
(Significant Deficiency)
During the current year, the City purchased software in the amount of $232,696 and capitalized it as a
nondepreciable asset under governmental-type activities. Given the constant evolution of technology,
software typically has a useful life ranging from 5 to 20 years based on the expected duration and
complexities of the system, rather than treating it as indefinite. Capitalizing software as nondepreciable
seems to overstate the value of these intangible assets over time and would necessitate a large write-off
when service utility is diminished or when it becomes obsolete.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2011
169
Section II – Financial Statement Findings (Continued)
2011-G City-wide Capital Asset Policies are Outdated (Continued)
(Significant Deficiency)
Furthermore, upon our review of capital assets, we observed that the City-wide capital asset policies
currently in place have not been updated since 1996 for governmental funds and 2005 for enterprise
funds. These policies should be updated to address current practices and the provisions of subsequently
issued Governmental Accounting Standards Board (GASB) guidance that may not be properly reflected
in these dated policies. For instance, GASB issued Statement No. 34 in December 1999 that made
revolutionary changes over the accounting and reporting of capital assets, including new provisions for
infrastructure, and issued Statement No. 51 in June 2007 that provided accounting and financial reporting
guidance for intangible assets, including internally generated computer software.
We recommend that the City review and update the current capital asset policies for both governmental
and enterprise funds to ensure the City is properly accounting and reporting for its capital assets under
U.S. generally accepted accounting principles. Once the updated policies are in place, we also
recommend the City conduct a review of its existing capital assets to ensure compliance with these
policies.
Management’s Response:
The City’s management agrees with this finding and will be undertaking a comprehensive review
of their existing capital asset policy. Once any necessary revisions are updated and approved, we
will evaluate any impact on the capital asset balances.
2011-H Accounting for Retention Payable
(Significant Deficiency)
During our search for unrecorded liabilities, which included an examination of disbursements issued
subsequent to year-end, we observed that the City does not accrue a liability for retention amounts
withheld from its payments to vendors. In total, we identified 7 payments within our sample of
disbursements that contained retention amounts withheld totaling $322,871, which were not accrued as
fund liabilities. While retention amounts may not be due and payable until some future date when project
milestones are met to the City’s satisfaction, they are customarily recognized as a liability since the goods
and/or services have been received.
We recommend that the City review its current practices over accounting for retention payable to
determine whether or not its liabilities are understated for amounts owed to vendors. At a minimum, the
City should accumulate a total of retention amounts withheld to determine the significance of these
amounts by opinion unit and, for governmental funds, whether or not the timing of payments would
necessitate the recording of a fund liability in the current period.
Management’s Response:
The City’s management agrees with this finding and will be evaluating the options available in
our existing system to record these liabilities. The results of the evaluation will determine how
we can best implement this change from a practical perspective.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2011
170
Section III - Federal Award Findings and Questioned Costs
Reference Number: 2011-1
Federal Program Title(s): ARRA - Energy Efficiency and Conservation Block Grant
Program
Federal Catalog Number(s): 81.128
Federal Agency: Department of Energy
Pass-Through Entity: N/A – Direct Federal Fund
Federal Award Number and Year: DE-SC0002146 and 2010-11
Category of Finding: Reporting
Criteria:
As a recipient of federal awards, the City is required to comply with the reporting requirements under the
grant agreement. Appendix 6 of the grant agreement states, “You are required to submit an itemized cost
report, by project activity, with submittal of the SF-425, Federal Financial Report. The itemized cost
report must address each item of the Budget Category of the SF-424A.”
Condition:
Under Appendix 6 of the grant agreement and per discussion with the Contract Specialist from the
Department of Energy, the Itemized Cost Report is due quarterly along with the SF-425 Reports. The City
did not submit the required itemized costs reports on a quarterly basis during the fiscal year.
Cause:
The Resource Planner, who is responsible for administering this program, was not aware of these
reporting requirements due to oversight.
Effect:
The City did not comply with the reporting requirement listed in the grant agreement.
Questioned Costs:
There are no questioned costs.
Recommendation:
We recommend that responsible personnel for administering the program review the reporting
requirements outlined in the grant terms and conditions to ensure compliance with reporting requirements.
Management’s Response and Corrective Action Plan:
Unlike the other EECBG reports, the itemized cost report was not required of all EECBG recipients and
was not mentioned in webinars and email communication explaining the EECBG reporting requirements.
The DOE made a monitoring visit on September 19, 2011 to review a 35 point questionnaire and address
any reporting or programmatic issues. No reporting or programmatic issues were brought to staff’s
attention during the visit.
As corrective action, City Staff has already emailed the quarterly itemized cost reports dating back to
Q1, 2010 to the EECBG Contract Specialist at the DOE on November 17, 2011. In the future, when staff
submits the quarterly ARRA reports, staff will continue to email the itemized cost reports to the EECBG
Contract Specialist.
Responsible Staff: Christine Tam, Resource Planner
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2011
171
Section III – Federal Award Findings and Questioned Costs (continued)
Reference Number: 2011-2
Federal Program Title(s): ARRA - Energy Efficiency and Conservation Block Grant
Program
Federal Catalog Number(s): 81.128
Federal Agency: Department of Energy
Pass-Through Entity: N/A – Direct Federal Fund
Federal Award Number and Year: DE-SC0002146 and 2010-11
Category of Finding: Reporting
Criteria:
As a direct recipient of federal funding, the City is required to submit various reports as required by Part
4 of the OMB A-133 Compliance Supplement and grant agreement. The required reports include SF-425
Report, DOE Quarterly Performance Reports, ARRA Section 1512 Reports, and Itemized Cost Reports.
These reports must be mathematically accurate, must agree to the underlying data and must be
summarized in accordance with the required or stated criteria and methodology. In order to mitigate risk
of non-compliance, each report should be reviewed prior to submission. As required by OMB Circular A-
133, Subpart C – Auditees, Section .300(b) – Auditee Responsibilities, the City, as the grant recipient,
should maintain internal control over Federal programs that provides reasonable assurance that the City is
managing Federal awards in compliance with laws, regulations, and the provisions of contracts or grant
agreements that could have a material effect on each of its Federal programs.
Condition:
Each of the required reports was prepared by the Resource Planner based on information summarized by
responsible personnel (Engineering, Utilities, and Accounting). The reports cover the two projects funded
by the EECBG grants – LED Street Light and the Home Energy Program. The reports are then reviewed
by the Utility Marketing Services Manager, and approved verbally most of the time. Hence, there is no
evidence that shows the Utility Marketing Services Manager is performing this review. The lack of
documentation prevents management from demonstrating that the internal control is operating as designed
to ensure the reports were prepared accurately in accordance to the program requirements. In addition,
while the Utility Marketing Service Manager is familiar with the Home Energy Program only, the
information related to LED Street Light program were not adequately reviewed.
We noted no discrepancies between the reports and its supporting documents from the samples selected
for testing.
Cause:
Since the draft reports were available electronically, the City believes that a verbal communication on the
review is adequate.
Effect:
Although we noted no exceptions during our testing, we are unable to conclude that the required reports
had been properly reviewed and authorized due to lack of documentation over the reporting process.
Questioned Costs:
There are no questioned costs.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2011
172
Section III – Federal Award Findings and Questioned Costs (continued)
Recommendation:
We recommend that the City assign the review process to personnel that are familiar and knowledgeable
with the projects to ensure an appropriate level of review is performed. We also recommend that the City
maintain documentation of approval for all reports to demonstrate that the review process is performed
in a timely manner. Documentation such as an email approval, signatures on the draft reports or
something similar would be acceptable to document the personnel who reviewed the report for
compliance with grant requirements.
Management’s Response and Corrective Action Plan:
Prior to submitting the reports electronically, City staff will print out a copy of the draft reports for
approval by the Utility Marketing Services Manager who oversees the Home Energy Report program and
Senior Management Analyst who verifies the expenditures in the financial system. The draft report will
also be emailed to the Supervising Electric Engineer who oversees the LED Streetlight project for
approval; the email correspondence with the Supervising Electric Engineer will be printed and filed with
the paper approval as back-up documentation of management review.
Responsible Staff: Christine Tam, Resource Planner
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2011
173
Section III – Federal Award Findings and Questioned Costs (continued)
Reference Number: 2011-3
Federal Program Title(s): ARRA - Energy Efficiency and Conservation Block Grant
Program
Federal Catalog Number(s): 81.128
Federal Agency: Department of Energy
Pass-Through Entity: N/A – Direct Federal Fund
Federal Award Number and Year: DE-SC0002146 and 2010-2011
Category of Finding: SEFA Reporting
Criteria:
The City is required to, according to Section .300 of OMB Circular A-133, identify in its accounts, all
Federal awards received and expended and the Federal programs under which they were received as well
as prepare appropriate financial statements, including the schedule of expenditures of Federal awards
(SEFA) in accordance with Section .310. Accordingly, the SEFA shall provide total Federal awards
expended for each individual Federal program.
Condition:
During the review of the reporting for this program, 2 invoices in the total amount of $50,000 were
included in the reimbursement claims, and thus were reimbursed with federal awards. However, these 2
invoices were coded as City expenditures in the City’s general ledger system by mistake, and thus were
not included in the preliminary SEFA provided by the Administrative Services Department of the City.
Per review of the expenditure details, the related expenditures were for allowable costs under the program
guidelines incurred in the current fiscal year. Therefore, the expenditures should be reported as part of the
program expenditures on the SEFA for the current fiscal year.
Cause:
This occurred due to the City’s oversight when reviewing the financial reports submitted to the
Department of Energy and the review of the coding of the expenditures in general ledger system.
Effect:
The total program expenditure on the SEFA was materially understated by $50,000 or 9%.
Questioned Costs:
None
Recommendation:
We recommend that the City perform a review of the financial reports submitted to federal agencies and
reconcile these amounts with the general ledger to ensure that federal expenditures are accurately
reflected on the SEFA. In addition, the City should retain records that show that a secondary review on
the financial report preparation was performed.
Management Response and Corrective Action:
City staff received approval from the DOE to reallocate $50,000 of the federal award from the LED
streetlight project to the home energy report. There was an oversight to update the purchase order for the
home energy report to reflect the $50,000 change. The purchase order has been updated accordingly with
the correct account assignments to differentiate between federal and city funds. In the future, staff will
keep a hard copy of the financial reports reflecting both federal and city expenditures.
Responsible Staff: Christine Tam, Resource Planner
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2011
174
Section III – Federal Award Findings and Questioned Costs (continued)
Reference Number: 2011-4
Federal Program Title: CDBG – Entitlement Grants Cluster
Federal Catalog Numbers: 14.218 and 14.253 (ARRA)
Federal Agency: Department of Housing and Urban Development
Pass-Through Entity: N/A
Federal Award Numbers and Year: B-10-MC-06-0020, B-09-MY-06-0020, 2010-2011
Category of Finding: Subrecipient Monitoring
Criteria:
Section 400(d)(1) of OMB Circular A-133 requires a pass-through entity to, at the time of the subawards,
identify federal awards made by informing each subrecipient of the CFDA title and number, award name
and number, award year, if the award is R&D, and name of Federal agency. When some of the
information is not available, the pass-through entity shall provide the best information available to
describe the Federal awards.
For ARRA subawards, the pass-through entity should, at the time of the subawards, identify the amount
of ARRA funds provided by the subaward and advise the subrecipient of the requirement to identify
ARRA funds in the Schedule of Expenditures of Federal Awards (SEFA) and the data collection form
(SF-SAC).
For FY2011, subrecipients expenditures were $358,946 for CFDA 14.218 and $47,049 for CFDA 14.253
(ARRA.)
Condition:
The City did not communicate the CFDA and Federal Award numbers to the subrecipients at the time of
the subawards.
Cause:
The lack of communication for the CFDA number was a finding in the FY 2010 single audit. However
the subgrants for FY 2011 had already been awarded prior to the finding. The City was not aware that
they were required to notify the subgrantees of the Federal Award number.
Effect:
The City is not in compliance with the requirements of OMB Circular A-133 section 400(d)(1).
Questioned Costs:
There are no questioned costs.
Recommendation:
We recommend that the City immediately inform the existing subrecipients about this information and
include all applicable information about the Federal funding source and document the communication at
the time of the subaward.
Management Response and Corrective Action:
The finding in the FY 2010 single audit occurred after the FY 2011 subrecipient awards and subsequent
contracts had been issued. As such, the information was not communicated to the subrecipients nor was it
included on the CDBG subrecipient contracts. For FY 2012, the CFDA title and number has been
provided on all CDBG subrecipients contracts.
Responsible Staff: Consuelo Hernandez, CDBG Coordinator
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs (Continued)
For the Year Ended June 30, 2011
175
Section III – Federal Award Findings and Questioned Costs (continued)
Reference Number: 2011-5
Federal Program Title: CDBG – Entitlement Grants Cluster
Federal Catalog Numbers: 14.218 and 14.253 (ARRA)
Federal Agency: Department of Housing and Urban Development
Pass-Through Entity: N/A
Federal Award Numbers and Years: B-10-MC-06-0020, B-09-MY-06-0020, 2010-2011
Category of Finding: Suspension and Debarment
Criteria:
According to 24 CFR 84.35, grantees and subgrantees must not make any award or permit any award
(subgrant or contract) at any tier to any party that is debarred or suspended or is otherwise excluded from
or ineligible for participation in federal assistance programs. The City, as the grantee of the federal
awards, is required to perform any of the following to comply with this requirement: (1) checking the
Excluded Parties List System (EPLS), (2) collecting certification from subgrantees if allowed by this rule
or (3) adding a clause or condition to the covered transaction with the subgrantees.
Condition:
The City did not perform a debarment and suspension check on the subgrantees when awarding subgrants
in FY 2011. Six subgrantees were selected for testing, and all of them did not have documentation that
their status was verified in EPLS, although based on our testing, none of them were noted as debarred or
suspended in the EPLS.
For FY2011, subrecipients expenditures were $358,946 for CFDA 14.218 and $47,049 for CFDA 14.253
(ARRA.)
Cause:
The City was not aware that this was required for subrecipients. Thus, the City did not perform the
verification at the time of subwards.
Effect:
Without verification prior to the subawards, the City runs a risk of passing through federal grants to an
entity that was suspended or debarred. Hence, the City would not be in compliance with this requirement.
Questioned Costs:
There are no questioned costs.
Recommendation:
We recommend that the City check the Excluded Parties List System at EPLS.gov or include a clause in
the contract prior to awarding subgrants to ensure that the subgrantee is eligible for Federal Funds.
Management Response and Corrective Action:
The City was not aware that a debarment and suspension check was required for its public service
subrecipients. Historically, this has only been applied to construction activities and a debarment and
suspension check is performed for the contractor and all subcontractors prior to awarding a construction
contract.
Prior to awarding a CDBG Allocation, the City will perform a debarment and suspension check for all
subrecipients.
Responsible Staff: Consuelo Hernandez, CDBG Coordinator
CITY OF PALO ALTO
Summary Schedule of Prior Audit Findings
For the Year Ended June 30, 2011
176
Section IV – Status of Prior Year Findings and Questioned Costs
Finding #SA 2010-01 Grant Agreement Retention
Federal Program Title: ARRA – Energy Efficiency and Conservation Block Grant
Program
Federal Catalog Number: 81.128
Condition: The City staff did not have a complete copy of the grant
agreement on file. Until asked about the agreement, staff had not
recalled that a copy of the agreement had been posted on the
website.
Status of Corrective Action Plan: Corrected.
Finding #SA 2010-02 Communicating the CFDA Number to Subrecipients
Federal Program Title: CDBG – Entitlement Grants Cluster
Federal Catalog Number: 14.218 & 14.253
Condition: CFDA number was not included in the subrecipient agreements
as required by OMB Circular A-133.
Status of Corrective Action Plan: See current year finding #2011-4.
Finding #SA 2010-03 Signed Grant Agreement Retention
Federal Program Title: Economic Development Initiative, Special Project,
Neighborhood Initiative and Miscellaneous Grants
Federal Catalog Number: 14.251
Condition: The City staff did not have a signed copy of grant agreement #B-
05-SP-CA-0721 on file.
Status of Corrective Action Plan: Not applicable as the City did not have any expenditures
incurred in current year under this program.
177
…………………………………………………………………………………
The City of Palo Alto is located in northern Santa Clara County, approximately
35 miles south of the City of San Francisco and 12 miles north of the
City of San Jose. 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.
…………………………………………………………………………………
AMERICANS WITH DISABILITIES ACT STATEMENT
In compliance with Americans with Disabilities Act (ADA) of 1990,
this document may be provided in other accessible formats.
For information contact:
ADA Coordinator
250 Hamilton Avenue
(650) 329-2550
ADA@cityofpaloalto.org
178
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ATTACHMENT B
Page of 6
1
ORDINANCE NO. XXXXX
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AUTHORIZING CLOSING OF THE BUDGET FOR THE
FISCAL YEAR ENDING JUNE 30, 2011
The Council of the City of Palo Alto does ordain as
follows:
SECTION 1. The Council of the City of Palo Alto finds
and determines as follows:
A. Pursuant to the provisions of Section 12 of Article
III of the Charter of the City of Palo Alto and as set
forth in Section 2.28.070 of the Palo Alto Municipal Code,
the Council on June 28, 2010 did adopt a budget for fiscal
year 2011; and
B. Fiscal year 2011 has ended and the financial
results, although subject to post-audit adjustment, are now
available and are herewith reported in summarized financial
Exhibits “1”, “2”, “3”, “4”, “5”, and “6” prepared by the
Director, Administrative Services, which are attached
hereto, and by reference made a part hereof.
SECTION 2. Pursuant to Section 2.28.080 of the Palo
Alto Municipal Code, the City Manager during fiscal year
2011 did amend the budgetary accounts of the City of Palo
Alto to reflect:
A. Additional appropriations authorized by ordinance
of the City Council.
B. Amendments to employee compensation plans adopted
by the City Council.
C. Transfers of appropriations from the contingent
account as authorized by the City Manager.
D. Redistribution of appropriations between
divisions, cost centers, and objects within various
departments as authorized by the City Manager.
E. Fiscal Year 2011 appropriations which on July 1,
2010 were encumbered by properly executed, but uncompleted,
purchase orders or contracts.
ATTACHMENT B
Page of 6
2
SECTION 3. The Council hereby approves adjustments
to the fiscal year 2011 budget for Fund Balancing Entries
as shown on attached Exhibit 1.
SECTION 4. The Council hereby re-appropriates
fiscal year 2011 appropriations in certain departments and
categories, as shown on the attached Exhibit 2, which were
not encumbered by purchase order or contract, at year end
into the fiscal year 2012 budget.
SECTION 5. The fiscal year 2011 encumbered
balances for the departments and categories shown on
Exhibit 4 shall be carried forward and re-appropriated to
those same departments and categories in the fiscal year
2012 budget.
SECTION 6. The City Manager is authorized and
directed:
A. To close the fiscal year 2011 budget accounts in
all funds and departments and, as required by the Charter
of the City of Palo Alto, to make such interdepartmental
transfers in the 2011 budget as adopted or amended by
ordinance of the Council; and
B. To close various completed Capital Improvement
Projects (CIP) as shown in Exhibit 3 and move all completed
CIP to their respective reserve funds indicated in Exhibit
1; and
C. To establish reserves as shown in Exhibits 5 and 6
for all Funds as necessary to provide for:
(1) A reserve for encumbrances and re-
appropriations in the various funds, the
purpose of which is to carry forward into
the fiscal year 2012 budget and continue, in
effect, the unexpended balance of
appropriations for fiscal year 2011
departmental expenditures as shown in
Exhibits 5 and 6; and
(2) Reserves for Advances to Other Funds,
Stores Inventory, and other reserves in
accordance with ordinance and policy
guidelines as shown in Exhibit 5; and
ATTACHMENT B
Page of 6
3
(3) A reserve for general contingencies of such
amount that the City Council has approved;
and
(4) Reserves for utilities plant replacement,
rate stabilization, and other reserves in
accordance with Charter and policy
guidelines as shown Exhibit 6.
D. To fund the Budget Stabilization Reserve in
accordance with the General Fund Reserves Policy adopted by
the City Council.
SECTION 7. The Utilities Administration Fund is
hereby increased by the sum of One Hundred Eighty Six
Thousand Nine Hundred Ninety Four Dollars ($186,994), as
described in Exhibit 1. This transaction will change the
balance in the Utilities Administration Fund to zero.
SECTION 8. The Electric Supply Rate Stabilization
Reserve is hereby decreased by the sum of Fifty Nine
Dollars ($59), as described in Exhibit 1. This transaction
will change the balance in the Electric Supply Rate
Stabilization Reserve to $57,091,000.
SECTION 9. The Electric Distribution Rate
Stabilization Reserve is hereby increased by the sum of
Sixty Two Thousand Eight Hundred Sixteen Dollars ($62,816)
as described in Exhibit 1. This transaction will change the
Electric Distribution Rate Stabilization Reserve to
$9,240,000.
SECTION 10. The Fiber Optics Rate Stabilization
Reserve is hereby increased by the sum of Sixty Six
Thousand Three Hundred Eighty Nine Dollars ($66,389) as
described in Exhibit 1. This transaction will change the
Fiber Optics Rate Stabilization Reserve to $10,130,000.
SECTION 11. The Gas Distribution Rate Stabilization
Reserve is hereby decreased by the sum of Two Thousand
Seven Hundred Forty Nine Dollars ($2,749) as described in
Exhibit 1. This transaction will change the Gas
Distribution Rate Stabilization Reserve to $7,399,000.
SECTION 12. The Wastewater Collection Rate
Stabilization Reserve is hereby decreased by Two Hundred
ATTACHMENT B
Page of 6
4
Eighty Nine Dollars ($289) as described in Exhibit 1. This
transaction will change the Wastewater Collection Rate
Stabilization Reserve to $5,896,000.
SECTION 13. The Water Rate Stabilization Reserve is
hereby decreased by the sum of Two Thousand Nine Hundred
Three Dollars ($2,903) as described in Exhibit 1. This
transaction will change the Water Rate Stabilization
Reserve to $10,639,000.
SECTION 14. The Refuse Fund Rate Stabilization
Reserve is hereby decreased by the sum of Six Thousand Two
Hundred Ninety Nine Dollars ($6,299) as described in
Exhibit 1. This transaction will change the Refuse Fund
Rate Stabilization Reserve to ($5,049,000).
SECTION 15. The Storm Drain Fund Rate Stabilization
Reserve is hereby decreased by the sum of Five Hundred
Twenty Six Dollars ($526) as described in Exhibit 1. This
transaction will change the Storm Drain Rate Stabilization
Reserve to $1,640,000.
SECTION 16. The Wastewater Treatment Rate
Stabilization Reserve is hereby decreased by the sum of Two
Thousand Eight Hundred Ninety Two Dollars ($2,892) as
described in Exhibit 1. This transaction will change the
Wastewater Treatment Rate Stabilization Reserve to
$3,020,000.
SECTION 17. The Community Development Block Grant
Fund is hereby increased by Ten Thousand Four Hundred Forty
Four Dollars ($10,444) as described in Exhibit 1. This
transaction will change the Community Development Block
Grant Balance to $3,510,000.
SECTION 18. The University Avenue Parking Permit
Fund is hereby increased by One Hundred Eighty Four
Thousand Eight Hundred Eight Six Dollars ($184,886) as
described in Exhibit 1. This transaction will change the
University Avenue Parking Permit Fund to $652,000.
SECTION 19. The Recovery Act JAG Fund is hereby
decreased by Five Thousand Five Hundred Dollars ($5,500) as
described in Exhibit 1. This transaction will change the
Recovery Act JAG Fund Balance to $11,000.
SECTION 20. The Capital Projects Fund
ATTACHMENT B
Page of 6
5
Infrastructure Reserve is hereby increased by Ninety Six
Thousand One Hundred Twenty Eight Dollars ($96,128) as
described in Exhibit 1. This transaction will change the
Infrastructure Reserve to $3,199,000.
SECTION 21. The Vehicle Replacement Fund is hereby
decreased by Four Hundred Eighty Nine Dollars ($489) as
described in Exhibit 1. This transaction will change the
Vehicle Replacement Fund to $21,871,000.
SECTION 22. The Technology Fund is hereby increased
by One Hundred Twenty Nine Three Hundred Thirty Six Dollars
($129,336) as described in Exhibit 1. This transaction
will change the Technology Fund Balance to $19,637,000.
SECTION 23. The Retiree Medical Fund is hereby
increased by Fifty One Thousand Nine Hundred Sixty Four
Dollars ($51,964) as described in Exhibit 1. This
transaction will change the Retiree Medical Fund Fund
Balance to $26,285,000.
SECTION 24. Upon completion of the independent audit,
detailed financial statements reflecting the changes made
by the Sections 7 through 23 of this ordinance shall be
published as part of the annual financial report of the
City as required by Article III, Section 16, of the Charter
of the City of Palo Alto and in accordance with generally
accepted accounting principles.
SECTION 25. As specified in Section 2.28.080(a) of
the Palo Alto Municipal Code, a two-thirds vote of the City
Council is required to adopt this ordinance.
SECTION 26. The Council of the City of Palo Alto
hereby finds that the enactment of this ordinance is not a
project under the California Environmental Quality Act and,
therefore, no environmental impact assessment is necessary.
SECTION 24. As provided in Section 2.04.330 of the
Palo Alto Municipal Code, this ordinance shall become
effective upon adoption.
INTRODUCED AND PASSED:
AYES:
NOES:
ATTACHMENT B
Page of 6
6
ABSTENTIONS:
ABSENT:
ATTEST:
________________________ ____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
________________________ ____________________________
City Attorney City Manager
____________________________
Director of Administrative
Services
EXHIBIT 1
CITY OF PALO ALTO
FISCAL YEAR ENDING JUNE 30, 2011 BUDGET SUMMARY
DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE
Page 1 of 5
Fund/Dept Category Description
GENERAL FUND
various Salaries & Benefits Retiree ARC allocation (63,551)
various Salaries & Benefits Retiree medical reimbursement program 924,685
NON Salaries & Benefits Allocate attrition savings to General Fund depts 1,500,000
CMO Salaries & Benefits Allocate attrition savings to General Fund depts (50,700)
CLK Salaries & Benefits Allocate attrition savings to General Fund depts (28,950)
HR Salaries & Benefits Allocate attrition savings to General Fund depts (38,550)
AUD Salaries & Benefits Allocate attrition savings to General Fund depts (28,950)
ATT Salaries & Benefits Allocate attrition savings to General Fund depts (23,250)
ASD Salaries & Benefits Allocate attrition savings to General Fund depts (112,200)
PWD Salaries & Benefits Allocate attrition savings to General Fund depts (149,550)
PCE Salaries & Benefits Allocate attrition savings to General Fund depts (117,300)
POL Salaries & Benefits Allocate attrition savings to General Fund depts (425,100)
FIR Salaries & Benefits Allocate attrition savings to General Fund depts (334,950)
CSD Salaries & Benefits Allocate attrition savings to General Fund depts (132,750)
LIB Salaries & Benefits Allocate attrition savings to General Fund depts (57,750)
various Indirect charges Allocate print charges to General Fund depts 60,160
109 Indirect charges Allocate print charges to General Fund depts 154
191 Indirect charges Allocate print charges to General Fund depts 258
AUD Various Additional appropriations from other departments 50,000
FIR Various Additional appropriations from other departments 844,820
MGR Various Additional appropriations from other departments 64,000
POL Various Additional appropriations from other departments 440,000
ASD Various Allocate savings to other departments (210,349)
ATT Various Allocate savings to other departments (160,685)
CLK Various Allocate savings to other departments (68,055)
COU Various Allocate savings to other departments (24,480)
CSD Various Allocate savings to other departments (55,000)
HRD Various Allocate savings to other departments (182,050)
LIB Various Allocate savings to other departments (114,901)
PCE Various Allocate savings to other departments (250,820)
PWD Various Allocate savings to other departments (332,480)
TOTAL - EXPENSE 921,707
FUND BALANCING ENTRY
Budget Stabilization Reserve (921,707)$
12/8/2011
EXHIBIT 1
CITY OF PALO ALTO
FISCAL YEAR ENDING JUNE 30, 2011 BUDGET SUMMARY
DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE
Page 2 of 5
ENTERPRISE FUNDS
Utilities Administration Fund
UTL Salaries & Benefits Retiree ARC allocation (200,039)
UTL Indirect costs Indirect costs allocation for printing services 13,045
Total Utilities Administration Fund (186,994)
FUND BALANCING ENTRY
Increase to fund balance 186,994
Electric Fund
UTL Salaries & Benefits Retiree ARC allocation (162,440)
UTL Salaries & Benefits Retiree medical reimbursement program 162,440
UTL Indirect costs Indirect costs allocation for printing services 4,748
UTL CIP Completed and closed projects in FY 2011 (67,505)
Total Electric Fund (62,757)
FUND BALANCING ENTRY
Decrease to RSR - Electric Supply (59)
Increase to RSR - Electric Distribution 62,816
Fiber Optics Fund
UTL Salaries & Benefits Retiree ARC allocation (66,797)
UTL Indirect costs Indirect costs allocation for printing services 408
Total Fiber Optics Fund (66,389)
FUND BALANCING ENTRY
Increase to RSR - Fiber Optics Fund 66,389
Gas Fund
UTL Salaries & Benefits Retiree ARC allocation (76,161)
UTL Salaries & Benefits Retiree medical reimbursement program 76,161
UTL Indirect costs Indirect costs allocation for printing services 2,749
Total Gas Fund 2,749
FUND BALANCING ENTRY
Decrease to RSR - Gas Distribution (2,749)
12/8/2011
EXHIBIT 1
CITY OF PALO ALTO
FISCAL YEAR ENDING JUNE 30, 2011 BUDGET SUMMARY
DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE
Page 3 of 5
Wastewater Collection Fund
UTL Salaries & Benefits Retiree ARC allocation (37,711)
UTL Salaries & Benefits Retiree medical reimbursement program 37,711
UTL Indirect costs Indirect costs allocation for printing services 289
Total Wastewater Collection Fund 289
FUND BALANCING ENTRY
Decrease to RSR - Wastewater Collection Fund (289)
Water Fund
UTL Indirect costs Indirect costs allocation for printing services 2,903
Total Water Fund 2,903
FUND BALANCING ENTRY
Decrease to RSR - Water Fund (2,903)
Refuse Fund
PWD Salaries & Benefits Retiree ARC allocation (47,564)
PWD Salaries & Benefits Retiree medical reimbursement program 47,564
PWD Indirect costs Indirect costs allocation for printing services 6,299
Total Refuse Fund 6,299
FUND BALANCING ENTRY
Decrease to RSR - Refuse (6,299)
Storm Drain Fund
PWD Salaries & Benefits Retiree ARC allocation (14,771)
PWD Salaries & Benefits Retiree medical reimbursement program 14,771
PWD Indirect costs Indirect costs allocation for printing services 526
Total Storm Drain Fund 526
FUND BALANCING ENTRY
Decrease to RSR - Storm Drain Fund (526)
Wastewater Treatment Fund
PWD Salaries & Benefits Retiree ARC allocation (100,543)
PWD Salaries & Benefits Retiree medical reimbursement program 100,543
PWD Indirect costs Indirect costs allocation for printing services 2,892
Total Wastewater Treatment Fund 2,892
FUND BALANCING ENTRY
Decrease to RSR - Wastewater Treatment Fund (2,892)
12/8/2011
EXHIBIT 1
CITY OF PALO ALTO
FISCAL YEAR ENDING JUNE 30, 2011 BUDGET SUMMARY
DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE
Page 4 of 5
OTHER FUNDS
Community Development Block Grant
232 Salaries & Benefits Retiree ARC allocation (10,444)
Total Community Development Block Grant (10,444)
FUND BALANCING ENTRY
Increase to Fund Balance 10,444
University Avenue Parking Permit Fund
236 Revenue Administrative citation and permit revenue 201,821
236 Salary& Benefits Hourlysalary 11,222
236 Contract Services Facilities repair 5,713
Total University Avenue Parking Permit Fund 184,886
FUND BALANCING ENTRY
Increase to Fund Balance 184,886
Recovery Act - JAG
251 Contract Services Instruction and training expense 5,500
Total Recovery Act - JAG 5,500
FUND BALANCING ENTRY
Decrease to Fund Balance (5,500)
Capital Projects Fund
471 Indirect charges Printing charges to Capital Improvement 66
471 Salaries & Benefits Retiree ARC allocation (96,194)
Total Capital Projects Fund (96,128)
FUND BALANCING ENTRY
Increase to Fund Balance 96,128
Vehicle Replacement Fund
681 Salaries & Benefits Retiree ARC allocation (20,764)
681 Salaries & Benefits Retiree medical reimbursement program 20,764
681 Indirect charges Printing charges to Vehicle Replacement Fund 489
Total Vehicle Replacement Fund 489
FUND BALANCING ENTRY
Decrease to Fund Balance (489)
12/8/2011
EXHIBIT 1
CITY OF PALO ALTO
FISCAL YEAR ENDING JUNE 30, 2011 BUDGET SUMMARY
DETAIL CHANGES TO BUDGET AMENDMENT ORDINANCE
Page 5 of 5
Technology Fund
682 Indirect charges Printing charges to Tech Fund 464
682 Salaries & Benefits Retiree ARC allocation (49,143)
682 Salaries & Benefits Retiree medical reimbursement program 49,143
682 CIP Completed and closed projects in FY 2011 (129,800)
Total Technology Fund (129,336)
FUND BALANCING ENTRY
Increase to Fund Balance 129,336
Print and Mail Fund
683 Reimbursements Additional department charges 95,450
683 Salaries & Benefits Retiree ARC allocation (1,516)
683 Salaries & Benefits Retiree medical reimbursement program 1,516
683 Contract Svcs Additional contract expense 95,450
Total Print and Mail Fund -
FUND BALANCING ENTRY
N/A -
Retiree Medical Fund
694 Miscellaneous Department Charges - Retiree ARC 913,099
694 Salaries & Benefits Retiree ARC department charges 913,098
694 Salaries & Benefits Retiree ARC & reimbursement program 51,965
Total Print and Mail Fund (51,964)
FUND BALANCING ENTRY
Increase to Fund Balance 51,964$
12/8/2011
Page 1 of 3
FY 2011 REAPPROPRIATION REQUESTS
SUMMARY OF REQUESTS
Total Requests Total Recommended
GENERAL FUND $483,290 $483,290
ENTERPRISE FUND $1,400,221 $1,400,221
INTERNAL SERVICE FUND $0 $0
TOTAL $1,883,511 $1,883,511
$
AMOUNT INTENDED USE
COMMENTS/REASONS
FOR NOT COMPLETING IN FY 2011 STATUS
City Manager’s Office
$68,890 Rail Project This reappropriation is being requested for costs
related to the Rail Project which is a multi-year
project without an identified source of funding.
Council approved the appropriation of funds from
the FY 2011 Council contingency. $68,890
represents the balance remaining from those
funds.
Recommended $68,890.There is
sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
$94,000 Variousprojects See attached (Attachment 2).Recommended $94,000. There is
sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
Planning Department
$221,800 Development Center
Blueprint Process
This reappropriation is being requested for
contract services related to the Development
Center Blueprint Process, a multi-year project. In
FY 2011, CMR1442 increased the budget for the
Blueprint Process by $115,000 for contract staff
and $113,233 for salaries and benefits. A
delayed start to the contracting effort resulted in
remaining budget that will be needed
immediately and was not included in the FY2012
budget proposal.
Recommended $221,800.There
is sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
Administrative Services
$68,600 Fee Study This reappropriation is being requested to hire a
consultant to update the cost allocation plan,
municipal fee schedule, and development impact
fees. Development of the RFP was delayed due to
staffing shortages. The RFP is nowcompleted
and will be released early in Fiscal Year 2012.
Recommended $68,600. There is
sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
Fire Department
Exhibit 2
Page 2 of 3
$
AMOUNT INTENDED USE
COMMENTS/REASONS
FOR NOT COMPLETING IN FY 2011 STATUS
$30,000 Fire Chief Recruitment This reappropriation is being requested for the
funding ofthe recruitment of a Fire Chief.
CMR1442 added a budget of $50,000 for this
effort. The bid process is not yet complete and a
specific contract award timeframe has not yet
been established. Concurrent experience with
other recruitment indicates that $30,000 is more
than adequate for this activity.
Recommended $30,000.There is
sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
Utilities Department
$100,000 Organizational
Assessment
This reappropriation is being requested for the
funding of an organizational assessment to review
the services Utilitiesdelivers and how to best
deliver these services. It will include evaluating
utility industry trends and challenges. This
project was funded mid-year 2011. Utilities is
coordinating the drafting of the scope and does
not have $100,000 in its budget for FY2012 to
cover this expense if not reapprorpriated..
Recommended $100,000.There
is sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
Utilities Department-ElectricFund
$250,000 Electric Efficiency
Financing Program
This reappropriation is being requested to fund
rebates for customers who complete electric
energyefficiency projects. There are many
projects in process, but they did not complete by
June 30, 2011. Recently updated Council goals
are expected to increase the number of efficiency
rebates in FY 2012.These energy efficiency
projects support Council’s environmental
sustainability objectives.
Recommended $250,000.There
is sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
Utilities Department –Gas Fund
$230,000 Energy Efficiency
Projects
This reappropriation is being requested to fund
rebates for customers who complete energy
efficiency projects related to gas. Utilities expects
to work with new vendors to increase the number
of rebates issued. Funds are expected to be
exhausted in FY 2012.
Recommended $230,000.There
is sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
$62,000 Energy Risk
Management
This reappropriation is being requested to
contract for energy risk management services.
These services had been part of the Energy Risk
Management position. Duties will be undertaken
by contractor, alongside the .5 FTE Senior
Financial Analyst in the FY2012 budget, saving
the City an estimated $50,000 to $100,000 per
year.
Recommended $62,000. There is
sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
Page 3 of 3
Public Works Department-Storm Drainage Fund
$758,221 Storm Drain Innovative
Improvements
This reappropriation is being requested for
innovative storm drain improvements. These
funds must be reappropriated because they were
specifically earmarked for innovative storm drain
improvements per the 2005 Storm Drainage
ballot measure approved by Palo Alto property
owners. These funds have been budgeted for a
stormwater rebate program that offers incentives
to residents and businesses to reduce stormwater
runoff, but the rebate program has not generated
sufficient demand to exhaust funds. Staff has
proposed to utilize the unused funds to fund the
Southgate Neighborhood Storm Drain
Improvements CIP project, which may include
permeable pavement, infiltration devices, and/or
an underground cistern that could supplement
irrigation water demands for Peers Park.
Recommended $758,221.There
is sufficient balance in the Fiscal
Year 2011 budget that can be
reappropriated.
PROJECT NUMBER PROJECT TITLE
PROJECT
BALANCE
General Fund
CC-10000 Replacement of Cubberley Gym B Bleachers 0
PE-04014 Animal Shelter Expansion & Renovation 0
PE-07007 Cubberley Turf Renovation 0
PE-08005 Municipal Service Center Resurfacing 0
PE-10006 Bridge Rail, Abutment, and Deck Repair 0
PL-06001 Adobe Creek Bicycle Bridge Replacement 0
Total $0
Internal Service Fund
TE-02016 Enterprise Resourse Planning 102,526
TE-06002 9-1-1 Emergency Phone System Upgrade 27,274
TE-07001* Emergency Notification System 0
TE-07003 Bill and Payment Processing 0
Total $129,800
Electric Fund
EL-11005 Rebuild UG Dist 22 67,505
Total $67,505
Gas Fund
GS-00011* Compress Natural Gas 0
GS-03010* CNG Seq Fuel System 0
Total $0
Wastewater Collection Fund
WC-03003* WCReh/Aug. Prj 16 0
Total $0
Wastewater Treatment Fund
WQ-04010* Replacement of Existing Reclaimed Water Pipes 0
Total $0
* Projects are closed. No expenditures were incurred in the current fiscal year.
Exhibit 3
CAPITAL IMPROVEMENT PROGRAM PROJECTS
Completed and Closed in FY 2011
City of Palo Alto
1
EXHIBIT 4
GENERAL FUND SUMMARY ($000s)
FY 2011 FY 2011 FY 2011 FY 2011 FY 2011 FY 2011 FY 2011
Adopted Adjusted CAFR Basis Allocated Encum+ Budgetary Variance
Budget Budget Rev/Exp Charges Reapprop Rev/Exp Adj Budget
Revenues
Sales Taxes 18,218$ 19,507$ 20,746$ -$ n/a 20,746$ 1,239$
Property Taxes 25,907 25,323 25,688 - n/a 25,688 365
Transient Occupancy Tax 7,021 7,400 8,082 - n/a 8,082 682
Documentary Tranfer Tax 3,613 4,002 5,167 - n/a 5,167 1,165
Utility User Tax 11,429 10,824 10,851 - n/a 10,851 27
Other Taxes and Fines 2,330 2,137 2,129 - n/a 2,129 (8)
Charges for Services 20,008 20,924 22,390 - n/a 22,390 1,466
Permits and Licenses 4,593 5,102 5,058 - n/a 5,058 (44)
Return on Investment 1,646 1,337 565 - n/a 565 (772)
Rental Income 13,716 13,776 14,264 - n/a 14,264 488
From Other Agencies 155 221 295 - n/a 295 74
Charges to Other Funds 10,622 10,681 - 11,211 n/a 11,211 530
Other Revenues 1,490 1,584 2,117 - n/a 2,117 533
Total Revenues 120,748 122,818 117,352 11,211 n/a 128,563 5,745
Add: Operating Transfers In 18,684 18,677 17,932 n/a 17,932 (745)
Prior Year Encum & Reapprop -3,963 - 3,963 n/a 3,963 -
Total Source of Funds 139,432 145,458 135,284 15,174 n/a 150,458 5,000
Expenditures
City Attorney 2,369 2,812 2,241 98 469 2,808 4
City Auditor 982 1,081 905 41 135 1,081 -
City Clerk 1,093 1,270 1,159 86 12 1,257 13
City Council 142 193 183 - 9 192 1
City Manager 2,178 2,455 2,180 119 157 2,456 (1)
Administrative Services 6,293 6,456 5,652 614 180 6,446 10
Community Services 20,032 20,530 15,885 4,196 437 20,518 12
Fire 27,007 29,014 26,127 2,573 312 29,012 2
Human Resources 2,817 2,677 2,361 211 94 2,666 11
Library 6,609 6,733 5,630 879 213 6,722 11
Planning 9,320 10,427 8,783 772 861 10,416 11
Police 30,579 31,288 27,959 3,052 275 31,286 2
Public Works 13,084 13,846 10,040 3,072 730 13,842 4
Non-Departmental/School Site 5,970 6,899 7,955 - 3 7,958 (1,059)
Total Expenditures 128,475 135,681 117,060 15,713 3,887 136,660 (979)
Add: Operating Transfers Out 10,924 11,224 11,000 - - 11,000 224
Total Use of Funds 139,399 146,905 128,060 15,713 3,887 147,660 (755)
Excess (deficiency) of revenues
over (under) expenditures,
budgetary basis 33$ (1,447)$ 7,224$ (539)$ (3,887)$ 2,798 4,245$
CAFR Reconciliation:Current year encumbrances/reappropriations 3,887
Prior year encumbrances/reappropriations (3,963)
CAFR Excess of revenues over expenditures, GAAP basis 2,722$
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Water sales 25,841 28,801 26,115 (2,686)
Other revenues 3,113 2,572 2,831 259
Bond Proceeds 34,958 - - -
Bonded Reappropriations/Enc - 28,853 28,853 -
Restricted Bond Proceeds - 2,358 2,358 -
Reappropriations / Enc 20,113 10,639 10,639 -
TOTAL REVENUE 84,025 73,223 70,796 (2,427)
EXPENSES
Purchases 9,061 12,845 10,678 2,167
Other Expenses 13,810 13,194 14,398 (1,204)
TOTAL OPERATING EXPENSES 22,871 26,039 25,076 963
Capital Expenses 49,155 48,881 50,917 (2,036)
Principal Payments 362 1,201 1,201 -
TOTAL EXPENSES 72,388 76,121 77,194 (1,073)
TO/(FROM) RESERVES 11,637 (2,898) (6,398) (3,500)
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Electric retail sales 111,140 111,380 109,950 (1,430)
Electric wholesale sales - - - -
Other revenues 19,535 17,351 15,915 (1,436)
Bond Proceeds - - - -
Reappropriations / Enc 10,900 13,393 13,393 -
TOTAL REVENUE 141,575 142,124 139,258 (2,866)
EXPENSES
Purchases 68,713 74,130 61,247 12,883
NCPA & TANC Debt Svc 7,819 8,849 7,243 1,606
Other Expenses 44,870 47,069 42,570 4,499
TOTAL OPERATING EXPENSES 121,402 130,048 111,060 18,988
Capital Expenses 18,550 19,391 21,020 (1,629)
Principal Payments 100 100 100 -
TOTAL EXPENSES 140,052 149,539 132,180 17,359
TO/(FROM) RESERVES 1,523 (7,415) 7,078 14,493
EXHIBIT 5
ELECTRIC FUND
WATER FUND ($000)
EXHIBIT 5
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues 3,593 3,312 3,660 348
Reappropriations / Enc 607 921 921 -
TOTAL REVENUE 4,200 4,233 4,581 348
EXPENSES
Operating Expenses 1,510 1,909 1,575 334
TOTAL OPERATING EXPENSES 1,510 1,909 1,575 334
Capital Expenses 856 1,119 1,146 (27)
TOTAL EXPENSES 2,366 3,028 2,721 307
TO/(FROM) RESERVES 1,834 1,205 1,860 655
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Gas retail sales 43,502 43,993 42,855 (1,138)
Gas wholesale sales - - - -
Other revenues 3,248 7,694 7,586 (108)
Reappropriations / Enc 12,063 10,042 10,042 -
TOTAL REVENUE 58,813 61,729 60,483 (1,246)
EXPENSES
Purchases 22,529 24,619 21,464 3,155
Other Expenses 16,191 23,809 22,778 1,031
TOTAL OPERATING EXPENSES 38,720 48,428 44,242 4,186
Capital Expenses 14,284 18,115 18,142 (27)
Principal Payments 443 459 459 -
TOTAL EXPENSES 53,447 67,002 62,843 4,159
TO/(FROM) RESERVES 5,366 (5,273) (2,360) 2,913
FIBER OPTICS FUND
GAS FUND
EXHIBIT 5
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues 15,914 15,999 16,129 130
Reappropriations / Enc 7,122 8,789 8,789 -
TOTAL REVENUE 23,036 24,788 24,918 130
EXPENSES
Sewer Treatment Exp. 6,519 7,499 7,414 85
Operating Expenses 4,244 5,305 4,898 407
TOTAL OPERATING EXPENSES 10,763 12,804 12,312 492
Capital Expenses 11,441 12,823 13,417 (594)
Principal Payments 61 65 65 -
TOTAL EXPENSES 22,265 25,692 25,794 (102)
TO/(FROM) RESERVES 771 (904) (876) 28
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Operating Revenues 17,550 20,590 20,932 342
Restricted Bond Proceeds - - - -
Loan Proceeds 4,528 3,972 3,972 -
Reappropriations / Enc 26,298 22,043 22,043 -
Bonded Reappro/Encum - - - -
TOTAL REVENUE 48,376 46,605 46,947 342
EXPENSES
Operating Expenses 18,122 19,955 18,385 1,570
TOTAL OPERATING EXPENSES 18,122 19,955 18,385 1,570
Capital Expenses 26,654 12,835 12,610 225
Principal Payments 384 400 400 -
TOTAL EXPENSES 45,160 33,190 31,395 1,795
TO/(FROM) RESERVES 3,216 13,415 15,552 2,137
WASTEWATER TREATMENT FUND
WASTEWATER COLLECTION FUND
EXHIBIT 5
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues 29,163 33,696 31,605 (2,091)
Reappropriations / Enc 3,021 2,836 2,836 -
TOTAL REVENUE 32,184 36,532 34,441 (2,091)
EXPENSES
Payments to GreenWaste 12,478 13,205 12,529 676
Other Expenses 19,582 20,488 18,940 1,548
TOTAL OPERATING EXPENSES 32,060 33,693 31,469 2,224
Capital Expenses 2,207 3,669 3,079 590
TOTAL EXPENSES 34,267 37,362 34,548 2,814
TO/(FROM) RESERVES (2,083) (830) (107) 723
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues 5,815 6,058 6,286 228
Reappropriations / Enc 2,305 2,408 2,408 -
TOTAL REVENUE 8,120 8,466 8,694 228
EXPENSES
Operating Expenses 3,292 3,799 3,349 450
TOTAL OPERATING EXPENSES 3,292 3,799 3,349 450
Capital Expenses 3,039 4,278 3,561 717
Principal Payments 405 430 430 -
TOTAL EXPENSES 6,736 8,507 7,340 1,167
TO/(FROM) RESERVES 1,384 (41) 1,354 1,395
STORM DRAINAGE FUND
REFUSE FUND
EXHIBIT 5
FY 2010 FY 2011 FY 2011 $ Variance
Actual/Enc Adjusted Actual/Enc Favorable
Reapprop Budget Reapprop (Unfavor.)
REVENUE
Revenues - - - -
Reappropriations / Enc - - - -
TOTAL REVENUE - - - -
EXPENSES
Operating Expenses - - 118 (118)
TOTAL OPERATING EXPENSES - - 118 (118)
Capital Expenses - - - -
Principal Payments - - - -
TOTAL EXPENSES - - 118 (118)
TO/(FROM) RESERVES - - (118) (118)
AIRPORT FUND
FISCAL YEAR 2011 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total
Beginning Reserves $18,037 $119,991 $9,270 $19,548 $7,772 ($10,226) ($4,277) $286 $0 $160,401
To (From) Reserves (6,398) 7,078 1,860 (2,360) (876) 15,552 (107) 1,354 (118) 15,985
Ending Reserves 11,639 127,069 11,130 17,188 6,896 5,326 (4,384) 1,640 (118) 176,386
Adj Budgeted Reserves 15,170 119,711 8,256 19,599 7,817 (36) 1,902 125 0 172,544
% of Budgeted Reserves 77% 106% 135%88% 88% -14794% -230% 1312% 102%
FISCAL YEAR 2011 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total
Rate Stabilization
General RSR $10,639 $10,130 $5,896 $3,020 ($5,049) $1,640 ($118) $26,158
Supply RSR 57,091 8,789 $65,880
Distribution RSR 9,240 7,399 $16,639
Total RSR 10,639 66,331 10,130 16,188 5,896 3,020 (5,049) 1,640 (118) $108,677
Emergency Plant Replace 1,000 1,000 1,000 1,000 1,000 1,747 $6,747
Calaveras 55,558 $55,558
Underground Loan 736 $736
Notes and Loans 559 $559
Landfill Corrective Action 665 $665
Shasta rewind Loan $0
Central Valley Project 305 $305
Public Benefit Program 3,139 $3,139
Ending Reserves 11,639 127,069 11,130 17,188 6,896 5,326 (4,384) 1,640 (118) 176,386
FISCAL YEAR 2011 Water Electric Fiber Optics Gas WWC WWT Refuse Storm Drain Airport Total
Beginning RSR $17,037 $54,339 $8,270 $18,548 $6,772 ($12,386) ($4,935) $286 $0 $87,931
To(from) RSR (6,398) 11,992 1,860 (2,360) (876) 15,406 (114) 1,354 (118) 20,746
Ending RSR 10,639 66,331 10,130 16,188 5,896 3,020 (5,049) 1,640 (118) 108,677
RSR Minimum 4,300 38,371 609 9,379 2,156 2,990 2,614 N/A N/A 60,419
RSR Maximum 8,600 76,741 1,522 18,759 4,311 5,980 5,228 N/A N/A 121,141
RSR % of Maximum 124% 86% 666% 86% 137% 51% -97% N/A N/A 90%
EXHIBIT 6
RATE STABILIZATION RESERVE
RESERVE SUMMARY ($000)
RESERVE DETAIL
Page 1 of 1 12/2/2011
City of Palo Alto (ID # 2104)
Finance Committee Staff Report
Report Type:Meeting Date: 10/18/2011
October 18, 2011 Page 1 of 4
(ID # 2104)
Summary Title: Budget Update 2012
Title: Fiscal Year 2012 Budget Update
From:City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee provide feedback or direction on how to
address the $4.3 million public safety labor group compensation concession placeholder in the
Fiscal Year 2012 Adopted Budget.
Executive Summary
Staff is returning with information as directed by the Finance Committee during the FY2012
budget hearings to provide an update on the $4.3 placeholder for the public safety labor group
compensation concession.
Background
The Fiscal Year 2012 (FY2012) Adopted Budget included a $4.3 million budget-reducing
placeholder for expected cost savings from negotiations with the City’s four public safety
unions. This placeholder helped close a projected $3.2 million gap in the General Fund as well
as provide funding for additional pension and healthcare cost increases anticipated in FY2013.
When the Finance Committee recommended approval of the FY2012 Proposed Budget, in May,
Committee members expressed uncertainty about the likelihood of obtaining the necessary
budget savings to achieve $4.3 million. The Committee directed staff to return early in the
fiscal year to update the Committee on the status of achieving the $4.3 million in savings.
Council will consider a new memorandum of agreement (MOA) with the International
Association of Fire Fighters (IAFF),Local 1319,on October 17. If Council approves the MOA it
will provide $1.1 million in salary and benefit cost savings in FY2012. This would reduce the
amount needed to close the placeholder to $3.3 million.
Discussion
FY2011 Budget Update
Staff is in the process of finalizing the year-end financial statements for FY2011. The City’s
financial statements and external audit results will be included in the comprehensive annual
financial report (CAFR), which staff will present to the Finance Committee in December.
October 18, 2011 Page 2 of 4
(ID # 2104)
Although the financial statements are not finalized, staff has preliminary numbers that can be
shared at this time. Fiscal Year 2011 revenues came in higher than adjusted budget, driven by a
$0.6 million increase in the transient occupancy tax (hotel tax) that has improved as business
travel has increased some in the local area. Documentary transfer taxes (tax on real estate
transactions) are also a key driver and revenue in this category will be up $1.2 million compared
to the FY2011 adjusted budget. Modest improvements in the local economy in FY2011 resulted
in increased sales tax revenue of $1.2 million compared to FY2011 adjusted budget. Staff is
monitoring these revenues in FY2012 and may recommend changes at midyear, if warranted.
Mainly due to these results, the balance in the General Fund Budget Stabilization Reserve (BSR)
is expected to increase compared to what was presented in the FY2011 mid-year adjusted
budget (report ID#1442) and in the third quarter financial report. At the time of the FY2011
midyear, in March, 2011, staff showed a negative impact to the BSR due to midyear budget
changes that included increases to department budgets. The projected BSR balance at the
FY2011 midyear point was $26.9 million or 19.3% of FY2011 adopted expenditures.
The FY2011 year end results will change the FY2011 BSR ending balance by transferring $2.7
million to the BSR. The resulting BSR balance is estimated to be approximately $30 million or
approximately 21 percent of adopted expenditures.
FY2012 Budget Update
During the review of the FY2012 Proposed Budget the Finance Committee asked staff to
provide alternatives for reducing the public safety budget in the event that staff is unable to
reach agreement with the public safety unions to achieve savings in the amount of $4.3 million.
To do this staff first proposes to defer the $1.1 million reserved for anticipated pension and
healthcare costs in 2013, thus freeing up funds in FY2012 and reducing the placeholder to $3.2
million. If the $1.1 million in concessions from IAFF is approved, the gap is further reduced to
$2.2 million. Since the BSR would have an increase of $2.7 million from FY2011 those funds
could be used to close the budget gap. Staff will continue negotiating with the other safety
labor groups to achieve structural changes to their compensation that will help close this year’s
gap and the significant FY2013 projected gap. As the Finance Committee’s discussion on the
new figures for our retiree medical costs unfunded liability will show, the City faces new,
increased costs in FY 2012 in that area.
As outlined in Attachment A, in the Police Department, staff identified an alternative that
would eliminate 11 police officers to reach savings of $2.0 million. In the Fire Department, staff
identified a reduction of one Engine Company combined with either brown-outs or the
elimination of one Rescue Company. Either combination would provide an estimated $2.3
million in cost savings. Together, the Police and Fire department reductions would result in an
estimated $4.3 million savings necessary to achieve the place holder amount and the additional
amount for pension and healthcare costs in FY2013. As these reductions could have an impact
on service delivery, staff is also pursuing labor concessions through contract negotiations with
October 18, 2011 Page 3 of 4
(ID # 2104)
the four public safety unions. It is the City Manager’s recommendation to not proceed with
these cost saving reductions at this time. These service level reduction options could still be
considered depending on how negotiations proceed.
Public Safety Negotiations Update
Staff has been actively pursuing contract negotiations with all four public safety unions. Since
negotiations with the public safety unions have not resulted in an agreement as of September,
it is unlikely that the City will realize the full $4.3 million placeholder included in the FY2012
budget. A new MOA between the City and IAFF, is scheduled to be considered by the City
Council on October 17. The MOA, if approved by Council, will provide an estimated $1.1 million
in salary and benefit cost savings in FY2012.
Three alternatives are presented for Finance Committee consideration to close the FY 2012
projected budget gap:
1)Eliminate the set aside for FY2013 pension and healthcare increases and transfer BSR
balance to cover the gap as show in Table 1 below.
This is staff’s recommendation based on the upcoming availability of funds prior to the
FY2012 midyear budget. The amount transferred will be $2.1 million if the Council
approves the new MOA for IAFF.
2)Monitor until midyear and propose changes at that time
This is a viable option that may reduce the transfer from the BSR if certain revenues
come in higher at midyear than expected.
3)Budget cuts in public safety as outlined in Attachment A
This option would take time to implement, given the current period of the fiscal year,
and thus would be difficult to achieve the full $4.3m in FY2012. A potential draw on the
BSR could be anticipated depending on the timing of implementation.
Table 1:
Staff Recommendation: Scenario if Council votes on new MOA with
IAFF
($millions)
Scenario: new MOA with IAFF
FY2012 Placeholder $4.30
Eliminate set aside for FY2013 pension and healthcare increases ($1.10)
New MOA with IAFF (pending)($1.10)
Revised FY2012 Placeholder $2.10
October 18, 2011 Page 4 of 4
(ID # 2104)
Transfer from BSR $2.10
Timeline
Staff is recommending that the Finance Committee provide direction that would allow staff to
take action at the midyear timefrem at the latest.
Resource Impact
As shown in Table 1 above staff recommends a transfer from the BSR and elimination of the set
asside for anticipated FY2013 pension and healthcare increases to close the $4.3 million
placeholder. The transfer from the BSR would be $3.2 million or $2.1 million depending on the
outcome of Council’s vote on the MOA. This would result in a BSR balance of approximately
$26.8 million or 18.4 percent of adopted budget total expenditures should the transfer be $3.2
million. If the transfer is $2.1 million the BSR balance would be approximately $27.9 million or
19.1 percent of adopted budget total expenditures. These figures may change as the year-end
FY2011 financials are finalized in December.
Policy Implications
Staff’s recommendation does no impact existing Council Policy.
Attachments:
·Attachment A: Public Safety Cut Alternatives Memo from Finance Committee Meeting May
20, 2011 (PDF)
Prepared By:David Ramberg, Assistant Director
Department Head:Lalo Perez, Director
City Manager Approval: James Keene, City Manager
)
}
TO:
DATE:
SUBJECT:
CITY OF PALO ALTO
MEMORANDUM
HONORABLE FINANCE COMMITTEE
May 20,2011
lb
• Follow-up on Preliminary Reductions to Public Safety if
Compensation Concessions are not Materialized
• Office of Emergency Services Recommendations
Attached are memos for the May 24,2011 Finance Committee Meeting.
\~U)fu~ ~LA ANTIL . J.rt..J.YL • .J'-J
Assistant City Manager
. TO:
FROM:
DATE:
SUBJECT:
Background
CITY OF PALO ALTO
MEMORANDUM
James Keene, City Manager
Pamela Antil, Assistant City Manager
Lalo Perez, Director of Administrative Services
Dennis Burns, Interim Director of Public Safety
May 16,2011
FY 2012 Police Department Alternative Reduction Proposal
The ·2012 General Fund budget balancing proposal to the Finance Committee relies on
$4.3 million in concessions from Police and Fire unions which are still being negotiated
(approximately $2M from Police and $2.3M from Fire). The Finance Committee
requested information related to other cuts that could be rilade if these concessions are not
agreed upon by mid-year of FY 2012 to cover the ensuing $4.3 million gap. Although I
remain confident that concessions will be made by both unions, the following memo was
prepared to address the budget shortfall in the Police Department if they are not made in a
timely manner.
It must be noted that these options were developed fairly quickly and, as a result, should
the Finance Committee and full City Council wish to proceed with such changes, staff
would request additional time to conduct a more detailed analysis to determine final cost
savings; possible impacts related to changes in shift staffmg; and impact on service levels
in the community. Although we cannot predict to what extent, we assume that any
changes to staffing will impact service levels to the community in some way (e.g.,
response times, community outreach, enforcement activities, etc.). This would need to
be addressed through a restructuring of the department to mitigate any negative
outcomes. . Concessions from ihe employee groups are clearly preferable to undertaking
such changes immediately ..
Analysis
The Police Department command staff met on numerous occasions to examine how we
might achieve this $2.0 million reduction through the elimination ofpositions,
reorganization of the Department and/or contracting services currently provided in-house.
This exercise proved challenging as the Police Department has already eliminated 31
positions (18 non-sworn and 13 sworn positions) since FY 2002/03. Further
complicating our analysis is the fact that the Police Department has a number of positions
that are difficult to eliminate as they generate revenue or provide services to a regional
)
)
)
partner pursuant to a contract (e,g., dispatch and animal services). These are typically the
services that other communities have selected to outsource to another community or
private vendor. To outsource these services in Palo Alto would necessitate a deeper
. analysis/formal study to determine if they could be done more efficiently while still
generating the same or higher level of service and revenues.
Reductions in Sttifj and Operations:
To meet the $2.0 million reduction objective the Police Department would eliminate 11
Police Officer positions, assuntip.g a fully loaded salarylbenefits cost of approximately
$183,500/swom officer position. Eliminating 11 positions would reduce our authorized
strength from the current 91 sworn officer positions to 80 sworn officer positions. 11
sworn positions would be equivalent to eliminating the entire Investigative Services
Division (Detectives) or approximately 25% of the officers assigned to the Field Services
Division (patrol). Most likely a reduction this significant would be accomplished by
eliminating a combination of patrol officer positions, detective positions and traffic
officer positions. Any significant reduction in police officers would necessitate a major
restructuring of the Patrol and Investigations Divisions. In addition, some changes may
trigger meet and confer requirements under the union agreement.
The Police Department has made every effort to identify reductions that did not severely
impact the current level of service to meet the $2 million objective and without bringing
back the recommendations from the last fiscal year which were rejected by the Finance
Committee and City Council (e.g., elimination of traffic unit, crossing guards, etc.).
Unfortunately, we are unable to suggest new cuts that do not impact patrol, traffic and
investigative services in some way.
I look forward to working with you and your staff to answer any questions about the
Police Department's staff reduction options.
Respectfully submitted,
Dennis Burns
Date: May 19, 2011
CITY OF PALO ALTO
MEMORANDUM
To: James Keene, City Manager
Pamela Antil, Assistant City.Manager
Lalo Perez, ASD Director
From: Dennis Burns, Interim Director of Public Safety
Subject: FY 2012 Fire Department Alternative Reduction Proposal
Background
The 2012 General Fund budget balancing proposal to the Finance Committee relies on
$4.3 million in concessions from Police and Fire unions which are still being negotiated
(approximately $2M from Police and $2.3M from Fire). The Finance Committee
requested information related to other cuts that could be made if these concessions are not
agreed upon by mid~year of FY 2012 to cover the ensuing $4.3 million gap. The
following memo was prepared to address the budget shortfall if they are not made in a
timely manner.
It must be noted that these options were developed fairly quickly and, as a result, should
the Finance Committee and full City Council wish to proceed with such changes, staff
would request additional time to conduct a more detailed analysis to determine fInal cost
savings; possible impacts related to the Stanford contract; and impact on service levels in
the conununity. Although we cannot predict to what extent, we assume that any changes
to staffing will impact service levels to the community in some way (e.g., response times,
community outreach, etc.). This would need to be addressed through a restructming of
the department to mitigate any negative outcomes. Concessions from the employee
groups are clearly preferable to undertaking such changes immediately.
Analysis
Outsourcing:
A consideration of outsourcing for the Department's Fire Prevention Bureau was briefly looked at
by staff but would need more time to be fully vetted to determine if such an arrangement is
possible in Palo Alto. Staff also reviewed the 2011 RFP for Fire and Emergency Services that the
City of San Carlos recently completed. However, as with outsourcing fire prevention, further
analysis would be required to make comparisons between that process and the services and the
current environment in Palo Alto.
)
,t
)
ReductlollS In Staff and OperatJolIS:
Staff identified the following options to achieve about $2.3 million cost savings objective placed
upon the Fire Department. These options took into consideration a number of factors including a
combination of call volume, response times and provisions in the current contract with Stanford.
Descriptions of the potential service impacts or other implications are included with each option:
Option 1 (Shut down One Engine Company and Brown-outs):
To meet the savings objective the Fire Department would reduce staffing by 9 FTB
through elimination of one Engine Company and implementing a sequential fire station
brown out system. Daily line staffing would be reduced to 26 personnel from the current
29. Browning out :fire stations would begin when staffing for a given day falls to 25
personnel. In this model, the City of Palo Alto would reduce our authorized strength
from the current 108 to 99 sworn shift personnel and overtime due to staffing would
average one 12 hour person for the medic van per day, resulting in approximately 213 less
overtime per year.
The fully 1OI14ed salarylbenefrts cost reduction would be approximately $4.5 million.
,This option would result in a reduction in Stanford reimbursement of approximately $l.4
. million. leaving a total proposed budget savings of $3.1 million.
Option 2 (Shut down One Engine Company and One Rescue Company):
To meet the savings objective the Fire Department would reduce staffing by 18 FTE
through elimination of one Engine Company and one Rescue Company. Daily line
staffing would be reduced to 23 personnel from the current 29. Eliminating 18 positions
would reduce our authorized personnel from the current 108 positions to 90. The
reduction would eliminate the hazardous materials response capabilities and could affect
the current Stanford-Palo Alto contract. The current practice of staffing the 12 hour
medic unit with overtime would remain the same.
The fully loaded salary /benefits cost reduction would be approximately $3.5 million. This
option would result in a reduction in Stanford reimbursement of approximately $1.07
million leaving a total proposed budget savings of approximately $2.4 million.
It should be noted that all submission options above would require further discussion and are
likely subject to the meet and confer requirements of the union agreement. Fire Department
Management has been meeting with Local 1319 (IAFF) to explore alternative sta:lfmg models that
could provide other cost reductions to the City if adopted.
I remain optimistic that the anticipated labor concessions will be achieved to balance the FY 2012
budget. I am available to meet with you and your staff to answer any questions in this reduction
proposal.
Respectfully submitted,
DennisBmns
Interim Director of Public Safety
December 14, 2011 FCM Item 2 Excerpt
2. Recommendation Regarding adoption Of Ordinance Authorizing
Closing of the Budget for the Fiscal Year Ending June 30, 2011,
Including Reappropriation Requests, Closing Completed Capital
Improvement Projects, Authorizing Transfers to Reserves and
Approval of Comprehensive Annual Financial Report (CAFR).
David Ramberg, Assistant Director of Administrative Services reviewed
the Comprehensive Annual Financial Report (CAFR). The revenues in
Fiscal Year (FY) 2011 were higher than anticipated by $5.7 million
which created a positive balance of $2.7 million. Staff recommended
the adoption of an Ordinance authorizing the $2.7 million to remain in
the Budget Stabilization Reserve (BSR). There were continued
increases in retiree medical costs and pensions. Variances in revenues
included sales tax, documentary transfer tax, property transactions,
plan check revenue and permit fees. He explained the year-end
expenses included non filled vacancies which were spread throughout
other departments who may have been over budget so the un-used
funds brought them back into the black. The Fire Department had
$480,000 in overtime expenses and the available budget was used to
increase their budget allocation which resulted in a positive. He noted
the retiree medical expenses were raised to the required level based
on the annual required contributions through the General Fund. The FY
2012 methodology had been corrected to true-up the contributions
therefore alleviating the need to extract funds from the General Fund.
The full Council had directed Staff to return with John Bartel, the
outside consultant for the Actuarial Study to review his findings and
figures on January 30, 2012.
Council Member Schmid asked why the CAFR reported total General
Fund expenditures of $121.5 million on page 30 yet on page 32 $136
million.
Trudy Eikenberry, Management Specialist explained page 30 excluded
the interdepartmental revenue and expenditures while page 32
included encumbrances and reappropriations.
Council Member Schmid asked if the budget actuals in the CAFR
coincided to the amounts in the Operating Budget material.
Ms. Eikenberry clarified the actuals being questioned were for FY2012
while the FY2011 budget had not closed prior to the receipt of the
FY2012 budget materials.
Mr. Ramberg clarified there would be a column for the FY2011 actuals
in the FY2012 budget materials.
Mr. Keene noted the CAFR was driven by assumptions and reporting
mechanisms where requirements from Government Accounting
Standards Board (GASB) and other sources which were shifting and
evolving over time. The City’s budget was a plan adopted by the
Council so how Staff reported the numbers could be altered to better
suit the needs of Council.
Council Member Schmid asked if a Council person wished to review
prior budget year numbers, the only data available to review was the
statistical data from the CAFR. His concern was the numbers coinciding
with the budget.
Mr. Ramberg stated the assumptions within the CAFR were year-end
actual figures.
Council Member Schmid asked why pages 30 and 32 of the CAFR were
different for the General Fund.
Ms. Eikenberry noted encumbrances were not recognized as expenses
until they were paid which was providing the variance.
Mr. Keene suggested the addition of a statistical section to the budget
documentation to include 10 years of historical budget information
with as much detail as possible. The object of the CAFR was to capture
the results as they related to the close of the fiscal year.
Mr. Perez added there was graphical representation available in the
current budget documentation although without sufficient detail.
Council Member Schmid said having the information readily available
with the budget documentation provided the opportunity for an
independent analysis.
Council Member Shepherd asked for clarification on the title
Governmental Funds. Her understanding was the City was netting
items out but not strategically taking loads from one department to
another.
Mr. Perez stated Staff allocated administrative costs in the General
Fund to other Funds.
Council Member Shepherd asked if it compared to an accrual versus a
cash basis system.
Mr. Perez said yes.
Council Member Shepherd said the Finance Committee may wish to
decide on one form of reporting.
Mr. Perez clarified the City was required to comply with both types of
reporting.
Council Member Shepherd meant for the working documentation she
felt it would be of benefit to the Council to only have one type.
Mr. Perez felt from a Council perspective they should be aware of
everything that was encumbered.
Council Member Shepherd agreed they desired to see what Staff was
allowed to spend.
Chair Scharff asked for clarification on where the transfers either in or
out originated from.
Mr. Perez said if the transfer was in reference to between Funds; for
example and equity transfer from the Electric Fund, those monies
would come in as an operating transfer in to the General Fund but if
there was a contribution to reimburse the Electric Fund as the lead
group for work performed to benefit the General Fund it would be a
transfer out of the General Fund back to the Electric Fund.
Chair Scharff asked where the $30 million transfer was broken out
because he was interested to see where the $14 million came from.
Mr. Perez confirmed page 58 of the CAFR explained the break down of
the transfer.
Chair Scharff asked what a Non-Major Governmental Fund was.
David Bullock, MGO Certified Public Accounting, explained when GASB
changed the reporting model it was revolutionary because it changed
the way in which governments presented their financial statements.
Their goal was to move towards a presentation that focused on the
important Funds, the General Fund was a major Fund because it was
the City’s Operating Fund. Other Funds based on their size and
complexity may be a major Fund if they met certain thresholds or
qualitatively were of importance to the City. Therefore, the other
Funds used for accounting purposes separate from other activities
reviewed individually were combined in the reporting model as the
supplementary section. The Special Revenue Fund would be listed
under that section and could be located under page 104 of the CAFR.
Council Member Shepherd said it appeared to the reviewer as though
there were dual accounting systems occurring simultaneously.
Mr. Bullock stated there were in effect three systems; the government
wide financial statements which were a consolidation of all of the
Funds in two groups, Governmental Activity or Business Activity then
the governmental funds which was a GASB financial statement so
there were rules to follow. The third was the budgetary statement
which compared the actuals to the estimations.
Council Member Schmid noted his issue was not having ample
historical data.
Mr. Keene felt it would be more practical to use the budget document
to show the trend on spending while the CAFR supplied information
that did not go on the budget document such as the balance sheet. He
acknowledged the work involved in reconciliation of the GASB
reporting requirements was severe.
Council Member Schmid said at present the only historical data readily
available was to the 2010 actuals.
Mr. Keene stated the 2009 and previous actuals were available.
Council Member Schmid was concerned they were not available in one
location and the person interested in reviewing them needed to return
to each year separately.
Mr. Keene understood and agreed it was an upgrade to the document
that should be incorporated.
Council Member Schmid asked why the Proprietary Funds did not
appear to coincide with the CAFR.
Mr. Bullock said it sounded as though Council Member Schmid was
trying to compare budgetary base numbers where it showed Capital
Expenditures as a use of a resource. In the GASB financial statement
when monies were spent on a capital asset it was capitalized and
depreciated so it was improbable to compare the two.
Council Member Schmid said Attachment A, Section 7 read “The
Utilities Administration Fund is hereby increased by the sum of One
Hundred Eighty Six Thousand Nine Hundred Ninety Four Dollars
($186,994), as described in Exhibit 1. This transaction will change the
balance in the Electric Supply Rate Stabilization Reserve to zero.” He
asked for an explanation.
Mr. Ramberg said the Utilities Administration Fund was the cost for
running the entire Utilities Department and was spread across the
departments’ Enterprise Funds; the Gas Fund, the Electric Fund, the
Fiber Optic Fund, and others received a share of the cost. The General
Fund was engineered in the same manner for the departments who
perform functions on the City’s behalf.
Chair Scharff said according to the documentation, if the same Fund
was brought to $57 million the Electric Supply Rate Stabilization in
Section 7 it went to zero but in Section 8 it did not. He asked for
clarification.
Mr. Ramberg suspected the last sentence in Attachment A, Section 7
was inaccurate stating the Electric Rate Stabilization Reserve went to
zero.
Council Member Schmid had concerns with the retiree medical packet
information on page 103 of the CAFR. There were two different
amounts $44 million and $23 million being referenced to the CERBT.
He asked for clarification on what the acronym CERBT stood for.
Ms. Eikenberry said it appeared Council Member Schmid was
attempting to compare the net Other Post Employee Benefit (OPEB)
which was $23 million to the Retire Medical costs. She explained they
were two separate items. The $44 million was the balance of the
California Employers’ Retiree Benefit Trust (CERBT). The $23 million
was the portion of the $44 million Staff continued to carry on the
books as an asset. Once used it was removed from the books as an
asset except for the portion that was over funded. Essentially the $23
million was what was left in the CERBT from the initial $30 million
payment and the $44 million was the value of the CERBT.
Council Member Schmid said when Council voted on the budget the
amounts were in the $9 to $10 million range.
Ms. Eikenberry agreed and stated that amount was for the annual
required Annual Required Contribution (ARC) contribution.
Council Member Schmid asked if the assets were not reported.
Ms. Eikenberry explained the expense side of the assets were
reported. If the ARC was over funded the $23 million seen under OPEB
would reflect the over funded amount.
Council Member Schmid asked where that could be viewed.
Mr. Perez said it was not in the budget.
Ms. Eikenberry noted it was a balance sheet item.
Mr. Bullock elaborated it was an accounting issue.
Council Member Schmid said when the Council made their decision on
the annual budget; the first question asked was what the amount of
the assets were.
Mr. Bullock said the assets shown on the documents were not physical
assets but an accounting asset.
Council Member Schmid understood; however, in reviewing the CAFR
there was an asset amount shown but in actuality the physical amount
would be half.
Mr. Bullock clarified there was actually an actuary liability of $180
million while the CAFR reflected an asset of $44 million.
Council Member Schmid asked what was lowering the liability.
Mr. Bullock said the reason there was an asset was the City was
paying more than the required payment on an annual basis.
Mr. Perez said when the proposed budget was presented to Council at
Mid-Year that was where Staff would inform them what the ARC
contribution was based on the actuary recommendation and the
Council would be able to alter the amount with a modified annual
contribution.
Council Member Schmid recommended the information be available in
the budget document prior to the Mid-Year.
Mr. Perez said the current information was available in the budget
document under the Retiree Medical section.
Council Member Shepherd asked if the Document Transfer Tax (DTT)
was a flat fee.
Mr. Perez said it was $3.30 per $1,000.
Council Member Shepherd said Staff was not expecting the DTT to
continue as significantly as this past year.
Mr. Perez said in 2011 there were four or five significant transactions
but Staff could not predict or expect the same number of transactions
in FY2012 but during the Mid-Year they would present the assumptions
for FY2012.
Council Member Shepherd anticipated the unexpected $2.7 million
positive balance would be allocated for infrastructure. She asked if that
was a decision being requested at this time.
Mr. Perez clarified after all of the alterations there was an increase in
the BSR of $4 million. Staff recommendation was for Council to accept
the $4 million being transferred into the BSR for the time being, wait
for Staff to return February 21, 2012 with the Long-Range Financial
Forecast and the Mid-Year with recommendations. He noted if Staff
was not successful in achieving a balanced budget with the public
safety compensation concessions they were hopeful to close the gap
with other revenue increases but if not, Staff may recommend utilizing
part of the $4 million to assist in closing the gap for the 2012 budget.
Council Member Shepherd asked for confirmation that the retiree
medical actuarial had changed for 2012 but not for 2011.
Mr. Perez confirmed Staff recommended implementing the new
methodology in 2012 and change the number from $9.8 million and
add $2.4 million.
Council Member Shepherd recommended a single version of
accounting for an ease of reviewing for the policy maker. She asked if
the Electrical Rate Stabilization Reserve reduction was expected to
materialize in the 2012 budget year.
Mr. Perez said there were a couple of initiatives the Council would have
the opportunity to revisit prior to the implementation regarding the
programs and the level of Reserves.
Vice Mayor Yeh asked about the overall Staff concern regarding the
incoming Chief Information Officer (CIO).
Mr. Perez informed the Finance Committee the new CIO began
December 13, 2011 and Staff had begun setting in place the
framework for structuring the Information Technology (IT)
department. He cautioned having the discussion without the CIO being
able to participate in the process. He stated that he, the City Manager,
and the CIO, were planning on meeting to review the proposed needs
for the department.
Vice Mayor Yeh was aware the Infrastructure Blue Ribbon Commission
(IBRC) was returning to the Council with their funding options for the
external areas of the City and he believed touching on the internal
operating infrastructure needs and he felt the IT department fell under
that category.
Mr. Perez stated their review focused more on the internal
infrastructure with a General Fund emphasis and where there was
coordination of work between the General Fund and other Funds that
supported the City infrastructure. Administrative Services was looking
to the types of funding mechanisms that could be in place for the
Technology Fund, roughly it was approximately 60/40 percent, 60
percent of the cost went to the General Fund and 40 percent was
spread throughout the other Funds.
Vice Mayor Yeh asked if there was an opportunity for the Finance
Committee to review the plan prior to the next years’ external audit.
Mr. Ramberg stated yes.
Vice Mayor Yeh asked why there was a decrease in the City Council
budget of $400,000 from page 11 of the CAFR.
Mr. Perez clarified the charges were being allocated to the Council
Fund based on salary although that was disproportionate because the
cost allocation needed to exclude the City Council salary.
Vice Mayor Yeh believed the desired reflection was for the actual
benefits cost.
Mr. Perez agreed and understood.
Vice Mayor Yeh asked if the amount reflected was the impact to City
Council actual expenses.
Mr. Ramberg clarified the costs decreased from 2010 to 2011 by
$400,000.
Vice Mayor Yeh asked whether the City was authorized to invest in
their own Bonds.
Joe Saccio, Assistant Director of Administrative Services said there was
no restriction in buying Municipal Bonds.
Vice Mayor Yeh asked why the Local Agency Investment Fund was
specifically called out was five percent of the investment portfolio
being mortgage obligations.
Mr. Bullock said there was a requirement to disclose derivatives
whether direct or in-direct.
Vice Mayor Yeh asked what level of risk the City’s investments were at
and how did it compare industry wide.
Mr. Bullock did not see any investment of high risk. If the highly
sensitive interest rate fluctuations could change the rates and there
could be an impact to the value of the investment and the callable
securities would be more sensitive.
Vice Mayor Yeh asked how much analysis went into the risk
assessment.
Mr. Saccio said the callable investments were yielding more than the
current market was providing. There was a standard percentage in the
portfolio of callable investments to seek a higher yield in a low yield
environment.
Mr. Perez noted state law required information be released each
quarter of what percentage the callable cap was.
Vice Mayor Yeh believed the City had moved away from the five year
benefits vesting schedule with the Pension Fund yet it was reflective in
the CAFR.
Mr. Perez stated the five year vesting for the Pension Fund had been in
place for over 26 years. He noted the Retiree Medical had changed to
five years of Palo Alto or PERS service the employee was vested as
long as they retired from the City at age of 50.
Vice Mayor Yeh said it was appreciated seeing the unfunded liability as
a percentage of payroll and asked why it was not always visible.
Mr. Perez said the information was provided in the first week forward
of the budget.
Vice Mayor Yeh asked if there could be a comparison to the industry
standard or if there were any recommended percentages.
Mr. Bullock said the numbers were a standard unit of measurement
comparing the liability to payroll in order to see what the unfunded
liability represented. He noted being 80 percent funded was typical
and was higher than some cities.
Mr. Perez mentioned comparing numbers without knowing the other
city’s plan would not provide adequate information. Palo Alto was in a
two tier plan so if compared to a city with a single tier it would appear
Palo Alto was out of the range.
Vice Mayor Yeh said there had been previous discussion of funding the
ARC and he wanted to ensure it was included Bartel report and also in
the CAFR.
Mr. Perez stated FY 2011 closed with an above required contribution.
The FY 2012 recommendation was to revisit the contribution amount
after the full Council reviews the assumptions during the January 30,
2012 meeting.
Chair Scharff said approval of a Motion to adopt the Budget
Amendment Ordinance in Exhibit A was subject to the following edits;
the Utilities Administrative Fund needed to be tracked in Section 7, in
Section 10 the Electric Fiber Optic Rate Stabilization Reserve was listed
at the bottom while being referred to as Fiber Optics and he felt there
needed to be constancy, in Section 18 the University Avenue Parking
Permit Fund was referred to the Community Block Grant Fund (CDBG),
in Section 20 the Infrastructure Reserve Fund had reference issues
with eth General Fund, in Section 21 there was confusion between the
Electric Vehicle Fund and the Law Enforcement Block Grant.
Mr. Perez stated the edits would be reviewed and completed.
MOTION: Council Member Scharff moved, seconded by Council
Member Shepherd, that the Finance Committee forward the attached
Budget Amendment Ordinance and associated Exhibits to the City
Council for Approval with the discussed changes to Sections 7, 10, 18,
20, and 21, to:
Close the Fiscal Year 2011 Budget
Authorize re-appropriate of FY 2011 funds into the FY2012
budget (exhibits 1 and 2)
Close completed capital improvement projects (exhibit 3)
Transfer remaining balances to the appropriate reserves
(table 1 for General fund and exhibits 5 & 6 for Enterprise
Funds
Council Member Schmid noted the historical trend of revenues over the
past ten years in the CAFR showed property taxes had grown six times
to almost 40 percent of the City’s tax revenues. He felt development
within the City would benefit the economic health with a stream of
revenue.
Chair Scharff said from a policy perspective it would be helpful to have
a break down of the property tax gain whether it came from
redevelopment of single family dwellings being resold at a higher
price, the downtown developments, or new development.
Mr. Perez said there was data available and Staff would ensure it was
provided to Council.
Chair Scharff said he was interested in more than data and suggested
coordinating with Thomas Fehrenbach, the Economic Development
Manager to increase the trends in a positive manner.
Mr. Perez agreed and included the Development Center changes would
play a large part in the information gathering.
Council Member Shepherd noticed in reviewing the General Fund
Department Expenditures the Administrative Services and Community
Services Departments were running off of fewer funds than the others
since 2007. She anticipated seeing the IT Department added to the
list.
Mr. Perez stated the General Fund Department Expenditures was a
service fund and all of the departments in the Fund received a share of
the cost.
Mr. Ramberg clarified the IT expenditures were spread throughout the
other departments; however, the FY 2012 budget documents showed
the IT Department was granted their own budget by Council and had
approximately $13 million which was spread throughout all of the
departments and the Enterprise Funds.
Vice Mayor Yeh said if there was a policy discussion coupled with
efforts of economic development it would be helpful to be aware if
sales tax was going down there was another manner in which
economic development needed to be viewed. There were multiple
layers to the City’s revenue streams that could be discussed to not rely
solely on one pattern.
Mr. Perez mentioned the IBRC had set their recommendations to
change the Municipal Service Center (MSC) in terms of auto dealership
rows as a means of sales tax increase.
MOTION PASSED: 4-0